The COVID-19 pandemic continued to drive strong homebuying interest and intensify market competition while changing consumers’ housing preferences and fueling sellers’ home equity, according to the CALIFORNIA ASSOCIATION OF REALTORS®‘ (C.A.R.) 2021 Annual Housing Market Survey.
Sellers’ net cash gain:
First-time buyers’ home purchase financials:
Housing affordability challenges for first-time buyers:
Vacation and second home market remains strong:
Full survey results: https://www.car.org/marketdata/surveys/ahs
Remote work changes homebuying preferences
The pandemic continued to change consumers’ housing preferences as more employees continued to work remotely. According to C.A.R.’s 2021 Annual Housing Market Survey, only one out of 10 REALTORS® said they did not notice any change in buyers’ property preferences due to the pandemic.
Since the coronavirus outbreak, REALTORS® noticed a change in buyers’ preferences in the property type they want to purchase. Of those changes, 22 percent of REALTORS® who responded said their buyers wanted a bigger home; 22 percent said buyers were less concerned about the commute time to work; 21 percent said buyers preferred a single-family home rather than condo/townhome; 19 percent said buyers wanted to live in a suburb rather than a city; 19 percent said buyers desired a property with more rooms; 13 percent said buyers sought to live in rural areas rather than cities or suburbs; 9 percent said buyers wished to live in a more secluded area.
Buyers tired of renting
With remote working becoming the norm, buyers’ reasons for purchasing in 2021 were unchanged since the Coronavirus outbreak, with the top three reasons remaining the same as last year. More than one-fourth of REALTORS® said their buyer clients purchased a home because they were tired of renting; one in five said their buyers purchased because they desired a larger home; and one in six REALTORS® said buyers bought because they wanted a better location.
A small number of REALTOR® respondents cited “ability to work from home” as their clients’ primary reason to buy. The share was relatively small and was consistent with last year’s number. While the “ability to work from home” may never be considered a primary reason to buy for most buyers, it provides the flexibility for many to move to more affordable locations, which could lower the cost of buying.
Sellers pocket home equity
With the statewide median price expected to increase by double-digits from last year, home equity continued to grow in 2021. Home sellers typically pocketed a net cash gain of $322,500 from the sale of their homes — a 96 percent increase from the purchase price. Less than one percent (0.7 percent) of all sellers had a net loss from their home sale in 2021, which is well below the long-run average of 9.9 percent going back to 1994. Home sellers who lived in their house for less than five years earned a 33 percent profit from their sale, while those who lived in their house for five or more years earned a 135 percent profit.
Share of first-time buyers remains elevated
The share of non-white homebuyers continued to grow this year, reaching more than 50 percent of all home sales for the first time since 1995 when C.A.R. began recording the statistic in the survey. In 2021, more than two out of five homes sold were purchased by white buyers (45 percent), followed by Asians (19 percent), Latinos (18 percent), and Blacks (4 percent). Despite the overall improvement, there is still a lot to be done to close the racial homeownership gap as the share of Latinos and Blacks continues to trail behind that of the general population.
The share of first-time buyers dipped from 38 percent last year but remained elevated in 2021 at 36 percent. This year’s figure is still higher than any year between 2013 and 2019. First-time buyers typically have lower household incomes and smaller down payments but were motivated by low mortgage rates to jump into the housing market. Many of the first-time buyers were also first-generation buyers whose parents are renters and have never owned a home before. Record low interest rates and the flexibility to work from home not only created an opportunity for them to buy their first home, but also made it easier for them to become a homeowner and establish a financial foundation for their own family and future generations.
Vacation/second homes still in high demand
Demand for vacation homes or second homes remained elevated in 2021, as work-from-home policies solidified, and more workers who have this flexibility choose to live in resort communities, such as Big Bear, Lake Arrowhead, and South Lake Tahoe, which all saw sales increases at least in the double digits. The share of vacation/second home sales climbed to the highest level in nine years as more buyers searched for more space and a healthier lifestyle. Despite an improvement in the pandemic situation, more employers have adopted permanent remote working policies that allow employees to work away from the office.
Market competition intensifies
With housing demand remaining strong and inventory reaching record-low levels, market competition intensified to levels not seen before in California. The share of sales with multiple offers and the average number of offers received climbed for the second year in a row in 2021, with both reaching their highest levels since 2013. The share of properties sold at above-asking price skyrocketed this year from 36 percent in 2020 to 61 percent in 2021. This year’s level was the highest recorded in at least the last 30 years and was 41 percent higher than the long-run average of 20 percent.
Properties have been flying off the market at record speed, with a listing typically staying on the market for only eight days, the shortest time-on-market since the survey started tracking the statistic in 1986.
Further illustrating the high level of competitiveness this year, more than half of homebuyers waived contingencies in the buying process to gain a competitive edge. Six out of 10 offers accepted by the seller were non-contingent offers, with half of buyers waiving the appraisal contingency (50 percent). A third waived the property inspection (30 percent), and over a quarter waived the contingency of securing financing.
International buyers return
Despite bans and restrictions on international travel, home purchases by foreign buyers bounced back in 2021, with its share reaching the highest level since 2014. The increase in sales to foreign buyers can be partly attributed to buyers in general getting more comfortable with buying homes virtually and sight-unseen. The strong performance in the housing market after the initial dip also may have motivated foreign buyers to return as their concerns of a market downturn eased. Chinese buyers continued to make up the largest portion (32 percent) of the market, followed by foreign buyers from India (17 percent) and Mexico (13 percent). As more travel restrictions are likely to be lifted next year when the COVID situation improves, prospective foreign buyers who have been sitting on the sidelines should return, and international home purchases could climb again in 2022.
C.A.R. has conducted its Annual Housing Market Survey since 1981. The survey was sent via email to a random sample of 39,567 REALTORS® throughout California. The sample represented the geographical distribution of C.A.R. membership across the state. The survey asked REALTORS® to provide information from their most recent sales transaction that closed escrow in the months between April 2021 and August 2021. The survey instrument was a questionnaire with both multiple choice and open-ended questions. There were 1,908 valid survey responses, equivalent to a response rate of 4.8 percent. The margin of error for this survey was +/- 2.2 percent at a 95 percent confidence level.
Leading the way…® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
SOURCE CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.)