Competition Is Cooling for Home Buyers; What to Expect Next?

The housing market in California has been extremely challenging for home buyers for over a year. The first half of 2021 in particular is tough, if you are a home buyer. Not only home price has increased at a fast pace on a monthly basis, the number of homes for sale has decreased by around 50% for the first half of the year.

When we move through the summer, the market has finally shown signs of slowing down. This is giving home buyers much needed relief from the fierce competition. According to the recent Housing Sentiment Survey in July, around 70% of the respondents believe it is a good time to sell, which will motivate more property owners to put their homes on the market. California Association of Realtors also predicted that when the market follow the seasonal pattern, the inventory of homes for sale will increase until the market enters the holiday season towards the end of the year. In this case, housing supply can increase with active listings growing 4.3% in July and expanding another 1.3% in August. While the supply is improving, the demand is tapering off because we are exiting the traditional buying season in the spring and summer. On top of all this encouraging news, the mortgage interest rate has stayed low during the recent few weeks. The average 30-year fixed mortgage rate is around 2.8% and can stay below 3% for the short-term.

For home buyers, you can expect homes to stay on the market for a little longer and you might not have to endure bidding wars as much as you would earlier this year. From observing the pre-pandemic market trends between 2015 to 2019, the median days on market should increase averagely 5 days in September comparing to July. The same observation also indicates that the ratio of the final sales price to the asking price decreases between September and December. This means the sales price might not rise much higher than the asking price. Even though the history might not repeat itself, these observations can at least show us a possible pattern for the post-summer market.

One thing will not change is the dynamic between housing supply and demand. While the supply is improving, it is still not meeting the incredible demand we have for around a decade. There's no downward pressure to suppress home price. What we can expect is the low rate and some breathing room for home buyers. You can use the price-to-rent ratio formula in my blog, Rent vs. Buy: What You Don't Know, to quickly figure out what you can afford. So if you have been waiting on the sideline, this can be another great moment to start your home ownership journey.