Will the California real estate market continue to soar?

Throughout the Golden State every real estate market saw incredible price appreciation in 2020. The state’s bird, the California condor, needs the power of wind to soar and reach new heights. This past year the wind powering residential real estate has been record-low interest rates and the COVID pandemic. This combination created incredible demand for new housing and those seeking to work from home in more comfortable spaces.

If we remember back to our Economics 101 class with heightened demand, comes greater supply. Problem with housing is that you can’t just flip a switch and create more homes. Development takes time, so California’s housing supply remains consistent. More demand and same supply means more buyers bidding up prices for California residential real estate!

Mortgage rate forecast

Ninety-five percent of home buyers have to be able to afford the monthly payment to purchase their home. The remaining 5% are those lucky enough to pay for their real estate in all cash. So mortgage rates play a huge part on the demand-side of the real estate market.

The Mortgage Reports recently provided its forecast of residential mortgage rates for the first-quarter of 2021. Specifically the forecast calls for record low rates to drop even more in January & February. Then creeping up a bit in March (but still well below 3% for a 30-year fixed mortgage.) We expect that rates will hoover in this territory for the remainder of 2021.

Mortgage rates primary driver is the Federal Reserve with its monetary policies. The continuation of the Fed’s commitment to easy money will keep pushing assets prices higher. Recently the Federal Reserve commented that this strategy of “loose money” will continue for at least 2 years! It is transforming from inflation-fearing to recession-fearing.

Pandemic demand continuation?

The COVID pandemic has forever changed the work environment landscape. Many workers report enjoying all the benefits that come with WFH. No commuting, more time with family, connivence of doing the work on their terms. Even with the vaccine on the horizon, many expect a fundamental shift to continue in all real estate markets in the US.

Post-vaccine we expect to see many companies switching to a hybrid-WFH business model. Many businesses are reporting much higher employee productivity with the elimination of commutes. Plus, a remote worker does not need the footprint in an office allowing for much smaller work spaces. Downsizing office and work space means more savings right to the bottom line!

Employees who enjoy the WFH will gravitate to employers that allow for them to continue with flexible schedules. Talent that is in scarce supply will walk now that they see the possibilities. Slowly workers will return to office and working spaces but not on a full time basis.

Prediction for 2021 California real estate market

Overall the real estate party will continue to roll in 2021 for residential markets. Commercial office space we expect more stagnation as new demand will be slow. So existing business will continue to reduce foot print sizes. For investors in residential real estate and trust deeds we expect strong returns to continue with minimal risk.

Here at Coastal Capital Group we won’t be changing our conservative and fundamental approach to underwriting. We will keep deploying capital into solid deals meeting our proven fundamentals. If you are sitting in cash, it’s pretty clear that you want to get out of it to avoid inflation erosion.

With the Fed’s commitment to fighting the recession, inflation will increase. Not surprising if the US sees inflation at 4% or more. We strongly suggest getting out of cash and investing in assets or strong cashflow. Start earning returns now either in purchasing residential real estate or investing with us! To learn more about Coastal Capital please visit our Investor Page.