In Spring, 2020, when governments around the world – in an unprecedented move to contain a virus – shut down work, schools, commerce, travel, commuting, congregating, church services, restaurant dining and drinking, exercising in gyms, parks, beaches, sports, and holidays ranging from Saint Patty’s Day to Christmas, I was sure the housing market would crater. 

For a few weeks, it did. 

Then the remarkable happened: A home-buying frenzy like no other in real estate history. 

According to data compiled by the California Association of Realtors, from June 2020 to May 2022, the median price of an existing single-family home in California shot up from $626,170 to a peak of $900,170. That’s an increase of 44% in less than two years. 

In La Mesa, excluding Mount Helix, the median price of a home in 2020 was $655,000. In 2022, the median price of a La Mesa home was $872,000 – an increase of 33%. 

For comparison, in 2018, the median price of a home in La Mesa (excluding Mount Helix) was $580,000, in 2019, that price increased to $593,000 – an increase of only 2%. 

In Mount Helix, the median price of a home in 2020 was $860,000. In 2022, the median price of a home in Mount Helix shot up to $1.3M – an increase of 51%! 

A possible theory for Mount Helix outperforming other housing markets is 2020 was a year of civil unrest, protests, riots, and increasing homelessness. 

From 2020 – 2022, two million people fled chaotic, grimy, crime-filled cities to move to less concentrated, safer communities. Neighborhoods like Mount Helix have very little crime, no homeless issues and no civic unrest. Mount Helix notably benefited from the great city exodus of 2020 – 2022.

What’s going to happen in 2024? 

I like to keep my crystal ball in a taped box on a high shelf in the garage so I don’t make the mistake of making predictions but here are some things to look for: 

A) Interest Rates. As of this writing, interest rates are 7.15% for a 30-year fixed, conventional home loan. For contrast, in 2020, the interest rates for a 30- year fixed, conventional loan reached as low as 2.68%. 

High-interest rates cool markets. Historically, increasing interest rates push home prices down. This isn’t the case currently. In 1981, when the interest rate reached its highest point in modern history – 18.63% – the average price of a home in America was $68,900. 

High-interest rates are decreasing the number of units sold, see chart below, but are not exerting downward pressure on prices. This is good for sellers but terrible for buyers. 

In 2020, the mortgage (principal + interest) for a $1M home with 20% down would have been $3,236 at 2.68% interest. 

That same house, now at 7.15% interest, would cost you $5,403 (principal + interest). That’s an extra $2,167 per month every month going toward nothing. 

Experts are predicting modest decreases in interest rates in 2024. The first quarter will be slightly above 7% and by the end of the year, 6 – 6 1⁄2%. 

B) Inventory. Inventory remains low. The number of homes sold in La Mesa dropped nearly 50% from 2021 to 2023! 

A common sentiment I hear from people considering selling their homes is Why would I want to give up my 2.75% interest rate for a 7.15% interest rate? Their low-interest rates compel them to stay put. If someone has to sell, they benefit greatly from the lack of inventory. 

The chart below is a snapshot of La Mesa’s real estate activity over the last six years: (Dave, insert attached Excel graph here). 

In summary, high-interest rates are decreasing the number of homes on the market and the eligible pool of buyers but are not decreasing sales prices. 

Unless a glut of homes hits the market or some disaster or “black swan” event occurs, expect prices to remain high. 

COVID-19 created an almost desperate desire for homeownership. More people work and teach their kids from home than ever. Remote working has tripled since the pandemic and homeschooling, in California, has increased 78%. 

Watching movies at home on the big, flatscreen replaced going to the movies for millions of people. Hosting family and friends at home or yard parties is less expensive than dining establishments and for those who fear exposure to germs or viruses, safer than restaurants packed with strangers. 

In generations past, the United States Government enacted policies to foster the American Dream of homeownership. 

Sadly, today’s policies are crushing the American Dream of homeownership and, instead, are pushing millions into “affordable housing,” i.e. apartment living.  

– Reach eXp Realtor and La Mesa Vice Mayor Laura Lothian at: [email protected].

Crédito de la foto: Pixabay.com.