The housing market ended 2020 on a strong note as sales reached the highest level in 15 years and the statewide median price set another new record. After experiencing one of the sharpest declines in years in the second quarter of 2020, California home sales bounced back with a year-over-year gain of nearly 20 percent in the second half of 2020, and the state housing market pulled off an annual growth rate of 3.5 percent. Despite the pandemic and two lockdowns, the housing market remains a rare bright spot in a struggling economy that is slowly recovering.
While there are still many uncertainties about COVID-19 and the economic conditions, the outlook is brighter this year and the economy is expected to grow solidly in 2021. As vaccines started rolling out at the end of last year and another round of fiscal stimulus is on track to arrive, the pace of recovery should begin to pick up in late first quarter. The growth momentum will sustain through the rest of the year, assuming new virus variants will not lead to another surge in cases. The US GDP will improve this year by 4.4 percent and the national unemployment rate will decline to 6.1 percent.
A favorable lending environment will continue to benefit the housing market and fuel demand further as economic conditions improve. With pent-up demand staying high and mortgage rates hovering near record low levels, home sales in California will remain robust in the first quarter. Despite tight housing supply conditions, sales of existing single-family homes in California will increase in 2021 by 11.2 percent.
With housing supply tightens up in more affordable markets and the economic downturn having a bigger adverse impact on lower-priced segments, the mix of sales will continue to skew towards higher-priced properties and push median prices upward in coming months. The statewide median price will continue to rise on a year-over-year basis and the market may see a new median high before the summer.
Further price increase is expected in the second half of the year, but the pace of growth will moderate. The normalization of the mix of sales as the economy recovers and an increase in foreclosed properties as mortgage forbearance is lifted are reasons that could keep prices in check and prevent the statewide median price from rising too fast in the third and the fourth quarters of the year. Overall, however, the imbalance between supply and demand will continue to put upward pressure on home prices, and the statewide median price is projected to grow 8.0 percent in 2021.