The median sales price of single family detached houses in Greater Palm Springs stood at $527,000 for the month of February 2021 – up 22% compared to February 2020. The price of attached units (condos and townhomes) jumped 19.4% to $340,250 for the same period.
Record scarcity of available homes combined with a continually strong demand are making for an unbalanced sellers’ market and keeping upward pressure on home prices throughout the region. The inventory of both detached and attached homes was a record low 902 units as of March 1. The realtors we’ve been talking with on an anecdotal basis continue to tell similar stories about homes selling sometimes within hours of being listed, multiple offers stacking up and cash buyers prevailing in bidding wars.
Looking at the table below we see that in February 2020 there were 3,109 homes available, so the current 902 units represent a decrease in inventory of 70.1% in just one year during which we have endured the worst pandemic in a century and slipped into an economic recession.
Based on the rate of sales and the low existing inventory, we now have exactly one month worth of sales in terms of available home supply. That pace is 72.2% faster than in February 2020 when it would have taken 3.6 months to sell all of the existing inventory available at that time.
Another important indicator of how home sales are going is the number of days on the market, which is the average time it takes to sell the homes upon listing. Again, we see the pace is faster than the prior year – down 23.1% to 40 days in February 2021 compared to 52 days in February 2020.
Prices and Sales Volume Leveling Off
Coming off extremely robust summer and fall selling seasons when prices continued to climb from month to month, we have been seeing some leveling off in December, January and February in terms of sales activity and prices. While the year-over-year gains are obviously very strong, even in February, the flattening of sales and prices shows that there are limits to how far buyers will go after doing their homework and likely sitting out for a while to see how the market shakes out. Units sold and inventory levels dropped in January compared to December 2020 and in February 2021 compared to January 2021, and the average sale price went down slightly too.
Looking at results by city in the table below, we see that Desert Hot Springs (+24.1%), Indian Wells (+32.1%) La Quinta (+29.5%) and Palm Springs (+28.1%) all posted price increases greater than 20% in the detached home category.
Indian Wells is the only GPS city with a median sale price for detached homes greater than $1 million – at $1,169,000 – while Desert Hot Springs posted the lowest pricing in February at $297,000.
Indian Wells also led the way in the sale price of condos sold during February at $489,000 which was a year-over-year increase of 28.7%. The median price for condos sold in Rancho Mirage saw the second largest percentage gain at 20.7% while La Quinta prices increased by 14.2% to $425,000.
Obviously, the gains were extreme for the sellers of homes throughout the region. Homeowners staying put are benefitting too from higher valuation and greater equity should they decide to sell in this still-heated market. The latter situation is one of the key elements of any forecast for the local housing marketing during the remainder of 2021.
It’s possible that a large number of secondary homeowners who live outside the region primarily have been reluctant to sell based in part on pandemic-related challenges. As COVID-19 vaccinations continue to roll out, cases drop and the economy reopens, it will be quite interesting to see if inventory increases enough to put downward pressure on pricing.
The California Association of Realtors (C.A.R.) cites the continuing low mortgage interest rate environment and pent-up demand from a desire for homeownership as core elements that will combine to bolster California home sales in 2021, but continued economic uncertainty caused by the coronavirus pandemic and ongoing supply shortage will limit sales growth, according to the association’s housing and economic forecast released in late 2020.
The baseline scenario of C.A.R.’s “2021 California Housing Market Forecast” sees a modest increase in existing single-family home sales statewide of 3.3 percent this year with a 1.3% increase in prices.
“While home prices rose sharply in 2020, driven by strong sales of higher-priced properties and a limited inventory of homes for sale, the pace of price growth will be more moderate in 2021,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “The uncertainty about the pandemic, sluggish economic growth, a rise in foreclosures, and the volatility of the stock market are all unknown factors that could keep prices in check and prevent the statewide median price from rising too fast in the upcoming year,” Appleton-Young continued.
The report considers that “a worst-case scenario would occur if there’s also a rise in foreclosures, zero economic growth, and Congress remains deadlocked over federal economic stimulus plans. If those things were to occur, the forecast would shift to a 9.8% drop in house sales and a 16.4% drop in the median house price.” With the passage this week of a new $1.9 trillion American Rescue Plan, at least one of these potential negative actions has been mitigated.
Gary Keller, founder of the national Keller Williams real estate brokerage points to the potential for a high number of foreclosures entering the market. “If we get to the second quarter of 2021 and the number of loans in forbearance remains high, we could see homes begin moving onto the market and foreclosures increase,” Keller said. “We’re gonna have a year or two of tough, and then we’re going to slowly start to climb out. That’s what I believe.”
One of the biggest reasons the housing market performed strongly during the pandemic is the record low mortgage interest rates. Since reaching a historical low point in January, however, the 30-year fixed rate mortgage in early March has risen by more than 30 basis points to 3.02%. According to Freddie Mac, “While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March 2020, prior to the pandemic. However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.”
Freddie Mac projects that the low mortgage interest rate environment will continue through 2021 and 2022 as the Federal Reserve has voted to keep the interest rates anchored near zero for a longer period of time, if needed until the economy rebounds.
In Greater Palm Springs, low interest rates have certainly been a force for good, but a large portion of homes, especially in the higher price ranges, are purchased with cash as buyers are selling or refinancing homes that have seen extreme price appreciation in the urban areas of California. Going forward then, upward pressure on interest rates would likely have less of a negative effect in our region than most other areas.
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