It was a year that “continued to defy gravity and stay hot,” one economist said of 2021’s housing market.
Year-end figures show it was the busiest year for home sales in 15 years, with the biggest price jump on record.
In the month of December, the median price of a Southern California home hit a record high for the 10th time in the past 12 months, according to CoreLogic figures reported by DQ News on Friday, Jan. 21.
Sales in December moderated, as they usually do in a typical year. But the total for the year was the highest since 2006.
Home prices saw annual gains of 16.3%, both in December and in 2021, meaning last year had the highest price appreciation rate since 2013.
“House price appreciation has just been phenomenal by any perspective,” said Mark Fleming, chief economist for Santa Ana-based First American Financial Corp. “The reasons why: way too much demand and far too little supply.”
Market highlights for December and for the year as a whole include:
December: The median price of a Southern California home – or the price at the midpoint of all sales – was a record $697,500, up $5,500 from November and up $102,500 since December 2020.
Record high prices were also recorded in four of the six counties in the region: Los Angeles ($805,000), Orange ($935,000), Riverside ($550,000) and San Bernardino ($485,750).
Home sales edged up a tiny bit from November to 22,580 transactions but were down 10.1% from the year before. Sales were down year over year in all six Southern California counties.
2021: The average median price for the year as a whole was $663,417. That’s up $92,792 from 2020, creating the biggest one-year dollar gain in records dating back to 1989.
The sales for the year totaled 280,587 transactions, up 19.6% to the 12th highest number in the past 34 years.
Agents and housing economists cited three main reasons for 2021’s extreme performance: record-low mortgage rates, record-low for-sale inventory and high demand, driven by millennials aging into their prime homebuying years.
The LA metro area had a 1.2 month supply of homes for sale in December, the lowest inventory in records dating back to 1990, state Realtor statistics show. That means it theoretically would take just 36 days to sell all the homes on the market. The Inland Empire’s 1.3-month supply was that area’s lowest since March 2004.
How can sales be so high when there are so few homes for sale?
The answer, said CAR Chief Economist Jordan Levine, is homes are getting snatched up as quickly as they come on the market, selling within a month and sometimes within a week.
Fleming, the First American economist, likened inventory to a bathtub full of water, with the water draining as fast as the tub is filling.
“The faucet is on, but the drain is open,” he said. “The water is going in and out so fast that I don’t have time to measure it.”
Even though home prices far outpaced income gains, low mortgage rates raised a home shopper’s buying power, keeping mortgage payments more in line with income, Fleming added.
With rates for a 30-year fixed mortgage averaging 2.96% in 2021, mortgage payments were up just 2% from the year before.
“It’s about the leverage (low) mortgage rates give buyers,” Fleming said.
With so few homes to choose from, competition among buyers went berserk, forcing many to buy without the normal escape hatches: appraisal and loan contingencies, and in many cases, even without an inspection.
“You really had to have a stomach – and currently still do,” said Oren David Mordkowitz, an agent with Pinnacle Estate Properties in Encino. “If you can’t pay cash, (you had to) write a very aggressive offer and compete with five to 25 buyers. Those (other) buyers can be just as aggressive, buying a home without the luxury of having an inspection or an appraisal or waiving your loan contingency.”
Agents recalled sales for $100,000 or more over a home’s asking price. Statewide, 72% of homes sold above the asking price, Levine said.
In some cases, sellers required buyers to submit a lender’s pre-approval letter and proof they had enough for a down payment just to see the home, some agents said. While pre-approvals and proof of funds long had been needed to get an offer considered, requiring them for a home tour — that was new.
“They want to make sure you’re not just a lookie-loo because the market is so hot right now,” said Angelina Pasqualino, a broker associate with Harcourts Prime Properties in Dana Point. “2021 was pretty crazy.”
Rising mortgage rates will cause some buyers to tap the brakes in the year ahead. Thirty-year rates shot up to almost 3.6% in the past two weeks, and forecasters predict rates will end the year in the 3.7% to 4% range.
“That should reduce the amount of price appreciation, but will not cause price depreciation,” Fleming said. “Far from it.”
Price appreciation will be in the 3-7% range in 2022, instead of the double-digit gains of the past year, according to several forecasts.
“As interest rates go up, it’s going to knock out some buyers predicted,” Mordkowitz, the Encino agent. “But we would have to quadruple the inventory to even put a dent in the supply and demand discrepancy.”
Here’s a county-by-county breakdown of December’s median prices and home sales totals:
— Los Angeles County’s median rose 15.0% to $805,000; sales were down 5.8% to 7,512 transactions.– Orange County’s median rose 17.6% to $935,000; sales were down 17.5% to 2,974 transactions.– Riverside County’s median rose 20.4% to $550,000; sales were down 7.7% to 4,558 transactions.– San Bernardino County’s median rose 21.4% to $485,750; sales were down 10% to 2,944 transactions.– San Diego County’s median rose 15.2% to $743,000; sales were down 11.5% to 3,704 transactions.– Ventura County’s median rose 15.5% to $751,000; sales were down 23.1% to 888 transactions.
SCNG business columnist Jonathan Lansner contributed to this report.