Mortgage – 2020 Inland Empire housing market saw opportunities and challenges – San Bernardino Sun

By Manfred W. Keil and Robert A. Kleinhenz | Inland Empire Economic Partnership

While much attention is rightly focused on both the coronavirus pandemic and the most severely affected sectors of the economy, the Inland Empire economy has demonstrated resilience as it continues its  gradually, albeit uneven, recovery.

By November, the region had recovered 60% of the jobs it lost during the spring pandemic shutdown. Several sectors have contributed to the region’s recovery, among them real estate and construction, which have been able to capitalize on record low interest rates that have prevailed in recent months. Yet while low rates have created opportunities, challenges remain.

The market for homes has regained much of the ground it lost during its sharp contraction in the midst of the spring shutdown. Based on data from the California Association of Realtors, the Inland Empire median price of an existing home achieved a record high of $450,000 in November. Home prices have increased by double digits in the last few months and rose by 19% year-over-year in November alone. Meanwhile, home sales through November recovered from record-setting decreases earlier in the year to pull slightly ahead of last year, remarkable considering the economic upheaval created by the pandemic.

Record low rates and lean inventories of homes for sale have contributed to the present state of the housing market. First, record-low mortgage rates increased housing affordability and unleashed pent-up demand that has lingered for years. Low rates stretched the purchasing power of buyers compared to just a few months ago. For example, the monthly payment on a $300,000 loan at 4% is $1,432, but the same amount at 3% a $339,750 mortgage. But they also created a rare opportunity for first-time buyers to better compete with current homeowners who are able to roll their existing home equity into their next home purchase. Low rates enabled large numbers of current homeowners to refinance their mortgages to lower rates, easing their long-term financial obligations.

Second, buyers have encountered record low inventories of homes for sale, creating upward pressure on home prices. The supply of homes for sale has been in record low territory throughout the second half of 2020. Over the five-year period 2015-2019, the supply of homes averaged 4.2 months in the Inland Empire. Since July, supply has averaged just over two months, fueling price increases.

The rebound in home sales had the expected impact on industry employment, as the IE’s real estate, rental, and leasing sector recovered job losses from earlier in the year, and as of November, was on par with its pre-pandemic level in February. The financial services industry fared better in the early months of the shutdown with a temporary hiring spurt in response to the wave of refinancing activity triggered by record low rates. As the re-fi wave abated, job counts edged down, and as of November, were also roughly even with levels before the pandemic.

Construction of new homes has also staged a comeback.

In June of this year, permit counts in the Inland Empire fell short of 2019 by 8%, yet by November they had pulled marginally ahead of last year’s year-to-date total. The mix of housing being built this year has tilted heavily toward single-family homes, as 11,300 of the 12,800 permitted units through November were single-family homes. This should be no surprise: new home construction in the IE typically favors single-family dwellings, but this may have been exacerbated by the COVID-19 era preference for more suburban homes that can accommodate remote work. How long that will continue remains to be seen.