California Real Estate Market Forecast for 2021, Including Major Cities

At a glance: California real estate market forecasts for 2021 predict more of what we’ve seen over the past year or so. We can expect to see strong demand from home buyers, stiff competition due to limited inventory, rising home values in most cities, and continued low mortgage rates.

In a year filled with troubling news, it’s nice to get a ray of light once in a while. And the state’s housing market currently offers plenty of that. In fact, the California real estate market has been one of the only bright spots of the past year, from an economic standpoint. It has boosted the broader economy at a time when it was sorely needed.

As Leslie Appleton-Young, chief economist for the state’s Realtor association, recently put it: “California’s housing market continues to be the bright spot in the economy…”

So that’s where we are right now, at year’s end. But what about the future? What can we expect to see in 2021, in terms of home sales, price growth, mortgage rates, and other housing-related trends? In short: more of the same.

Price Forecasts for California Real Estate Markets, 2021

A recent set of California real estate market forecasts predicted that home prices would continue to climb at a steady pace in 2021, for the state’s largest cities and metro areas.

This forecast was issued by the housing market research team at Realtor.com, on December 7, 2020. Their outlook included home-price predictions for 100 major metro areas across the United States. Below, we’ve listed their 2021 real estate market forecasts for California’s metropolitan areas, in terms of annual home-price growth.

As you can see, they expect median home values across the state to continue rising in 2021, to varying degrees. The South Bay region (Santa Clara County / Silicon Valley) received their biggest forecast for 2021. But house values are expected to rise in most cities next year.

Metro Area	Realtor.com 2021 Forecast
San Jose-Sunnyvale-Santa Clara, Calif.	10.8%
Fresno, Calif.	8.5%
San Francisco-Oakland-Hayward, Calif.	8.4%
Sacramento–Roseville–Arden-Arcade, Calif.	7.4%
Los Angeles-Long Beach-Anaheim, Calif.	7.3%
Stockton-Lodi, Calif.	6.1%
Oxnard-Thousand Oaks-Ventura, Calif.	5.5%
Riverside-San Bernardino-Ontario, Calif.	5.5%
San Diego-Carlsbad, Calif.	5.5%
Bakersfield, Calif.	3.7%

When you factor in home sales, two California metro areas topped Realtor.com’s list of hot real estate markets in 2021. They were Sacramento and San Jose. (Oxnard and Riverside also made the top ten.)

According to the company’s news release:

“Millennial homebuyers, relative affordability, and strong local economies will drive realtor.com®’s Top Markets of 2021 … This year’s list in rank order includes: Sacramento, Calif., San Jose, Calif., Charlotte, N.C., Boise, Idaho, Seattle, Phoenix, Harrisburg, Pa., Oxnard, Calif., Denver, and Riverside, Calif.”

As we wrote in a December 11 blog post, the South Bay Area is expected to be one of the hottest housing markets in the country during 2021. Real estate forecasts for that California region predict strong competition among buyers, quick sales, and steadily rising home prices. That’s basically what we’ve seen over the past year.

Home-Price Forecasts from Zillow

The research team at Zillow also issued some positive forecasts for most of California’s real estate markets in 2021. In their estimation, home prices in cities across the state will continue to climb over the coming months. They seem to agree with the Realtor.com predictions shown in the previous table, for the most part.

Here are Zillow’s home-price forecasts for California’s ten biggest cities:

City	Zillow 2021 Forecast
Los Angeles	10.5%
San Diego	11.3%
San Jose	12.1%
San Francisco	7.5%
Fresno	10.4%
Sacramento	11.5%
Long Beach	10.5%
Oakland	11%
Bakersfield	10.3%
Anaheim	10.3%

Note: The 12-month home-price predictions shown above were issued in late December 2020, which means they apply to most of the 2021 calendar year.

C.A.R. Sees a ‘Modest Increase’ in Home Sales Next Year

Back in October of 2020, the California Association of Realtors (C.A.R.) also issued a real estate market forecast for the state, projecting through 2021. But they were a bit more conservative with their predictions, compared to the Realtor.com and Zillow forecasts for California, shown above.

According to C.A.R.’s October market update, we could see a “modest increase in existing single-family home sales of 3.3 percent” next year. They also expect home prices to continue climbing in 2021, though at a slower pace than what we saw during 2020.

As the C.A.R. report stated:

The California median home price is forecast to edge up 1.3 percent to $648,760 in 2021, following a projected 8.1 percent increase to $640,330 in 2020 … An extremely favorable lending environment and a strong interest in homeownership will continue to motivate financially eligible buyers to enter the market.

That price prediction actually seems a bit conservative, in light of recent trends. Housing demand across the state surged throughout 2020, despite the coronavirus pandemic and economic shutdowns. The California real estate market got a strong boost from record-low mortgage rates and renewed interest in homeownership, among other factors.

So it’s hard to imagine a scenario where the statewide median home price only climbs by 1.3% next year, as predicted in the above quote. There’s a lot of upward pressure on house values right now.

Researchers from Zillow recently offered a stronger statewide forecast for the California real estate market, compared to the “modest” outlook from C.A.R. In mid-December 2020, their website stated: “California home values have gone up 9.0% over the past year and Zillow predicts they will rise 10.6% in the next year.”

Of course, these are all just predictions. So we probably shouldn’t put too much stock in the exact figures being projected here. The broader point, from a housing market forecast perspective, is that home prices across much of the state are expected to continue climbing into 2021.

Bottom line: If you’re planning to buy a house in 2021, you might want to consider doing it sooner rather than later to avoid higher costs.

Low Mortgage Rates Expected to Continue in 2021

Here’s another real estate-related forecast that should please California home buyers in 2021. Mortgage rates are expected to remain within their current low range for the foreseeable future. But they could creep up a bit, as we move into the first part of 2021.

Long-term mortgage rates dropped consistently throughout 2020, shattering one record after another. The average rate for a 30-year fixed home loan was around 2.67% when this article was published, in late December. That was the lowest average in more than 50 years. This is based on the weekly survey conducted by Freddie Mac.

In their most recent survey report, Freddie Mac’s research team wrote:

The housing market continues to surge higher and support an otherwise stagnant economy that has lost momentum in the last couple of months. Mortgage rates are at record lows and pushing many prospective homebuyers off the sidelines and into the market.

The chart below shows the average rate for a 30-year fixed home loan over the past three years or so, based on Freddie Mac’s survey. As you can see, they dropped consistently throughout most of 2021 and hit a record low.

While we can’t predict future interest rate trends with complete certainty, the general consensus forecast among industry analysts is that rates will remain low for some time. This is partly due to stimulus measures taken by the Federal Reserve.

Following a mid-December policy meeting, Federal Reserve officials said they would keep the “federal funds rate at 0 to 1/4 percent” until conditions improve within the job market. And that could take quite some time.

The Fed doesn’t control mortgage rates directly. But their policies do have an indirect effect on consumer interest rates. The bottom line here is that home buyers in California will probably enjoy favorable borrowing costs for most, if not all, of 2021.

Supply Shortages Will Still Be an Issue, in Many Cities

Here’s one final forecast for the California real estate market during 2021. Home buyers across much of the state will continue to grapple with supply shortages over the coming months. This could prolong and intensify the house-hunting process for many buyers.

It doesn’t take a crystal ball to offer this kind of prediction. Supply conditions remained tight throughout 2020, and not much has changed. There are plenty of buyers in the market — especially in and around the major cities — but not enough inventory to satisfy the demand.

More than any other factor, this supply-and-demand imbalance is what’s driving the strong real estate market forecasts for California cities.

In a December 2020 market update, C.A.R. wrote: “Active [real estate] listings fell 46.6 percent from last year and continued to drop more than 40 percent on a year-over-year basis for the sixth straight month.”

So there you have it, your California real estate market forecast for 2021. Rising home prices, tight housing supply, low interest rates, and stiff competition among buyers. In other words: expect more of the same!

Disclaimer: This report contains predictions offered by third parties not associated with our company. We have gathered them here as a service to our readers. Housing and economic forecasts are the equivalent of an educated guess and should be treated as such.