Housing Market A Pandemic Winner: Strong Demand, Low Inventory Drives Home Prices and Sales In Already-High-Priced Urban Centers
The distinctly lop-sided and often atypical economic effects that have stemmed from the pandemic recession are clearly on display in the contrast between the labor and housing markets in California’s major metropolitan regions. A new analysis released today by Beacon Economics spotlights how labor markets in all the state’s large metros have a considerable way to go before reaching full recovery, while the housing markets in these pricey areas have experienced sharp price and sales growth over the past year.
Against a backdrop of high demand and historically low inventory, single-family home prices in just the first quarter of 2021 appreciated by 18.2% in the East Bay (high end) and by 4.5% in San Francisco (low end), with Los Angeles (17.8%), San Diego (15.4%), and the South Bay (12%) falling in between.
Higher savings among many Californians and low mortgage interest rates have spurred housing demand throughout the state and created conditions where more people are in a position to buy. Supply, on the other hand, has not increased with the available housing stock in each major metro far below what is considered a heathy, balanced level.
“This confluence of circumstances has created a red hot seller’s market – indeed, in general, housing is, and has been throughout the pandemic, one of the strongest performing indicators in California’s economy,” said Taner Osman, Research Manager at Beacon Economics. “Through one lens this is a bright spot, but the inventory-constrained price jumps have also worsened the state’s affordability crisis, something that was restricting California’s growth and population prior to COVID.”
Continued price growth at these levels is unsustainable, according to the analysis, and an increase in interest rates is expected in 2021. “Interest rates have been unprecedentedly low and when they tick upwards, it will help curtail runaway pricing,” said Osman.
The labor markets present a strikingly different picture with only one of the major metros included in the analysis having recovered at least 50% of the jobs lost during the historic declines of March and April 2020. As of May 2021, the latest data available, San Diego County has recovered just 51% of the jobs the region lost. This gain is followed by the East Bay (48% recovery), the South Bay (47% recovery), Los Angeles (40% recovery), and San Francisco (32% recovery). All five metros trail the state’s overall job recovery rate of 52%.
There is also wide variation in the recovery rates among different industries in each metro with the hardest hit sectors still facing a long climb to return to pre-pandemic trend. Given that the state fully reopened its economy on June 15th, however, hiring is expected to increase across industries throughout the rest of the year.