Rather than slowing down for the winter, the housing market in California is showing signs of accelerating as we enter December. Both the backward- and forward-looking indicators suggest that November and December will maintain the double-digit pace in closed sales and that prices will be up by more than 10% this year. Rates remain low and several key macroeconomic indicators also improved last week. And yet, even as we near the proverbial light at the end of the tunnel for the pandemic, several key challenges remain before we can fully put this crisis in the rearview mirror.

Market Activity Remains Strong: Despite a slowdown in market activity, home sales remained relatively robust. Indeed, compared to the same week in 2019, there were 4.1% more home sales over Thanksgiving this year. In addition, this week’s data shows that annualized growth averaged double-digits throughout the month of November, so the monthly figures are likely to be up by more than 20% again this month.

Buyer Demand Not Slowing Down: November closed out on a strong note from a buyer demand standpoint. The number of new mortgage purchase applications was up 28.1% from the same week in 2019. That is the largest increase since early September and shows that demand remains unseasonably strong for this time of year. During Thanksgiving week of 2019, showings logged through showingtime.com dipped below their weekly average by more than 26%. In 2020, showings remained nearly 90% above their weekly average levels and are still more than 157% ahead of 2019’s pace.

REALTOR® Optimism Improves: Although sales activity declined during the holiday week, California’s REALTORS® were more optimistic about the future in our weekly survey. The percentage that expect listings to increase this week was up 2.1% from the week before. In addition, there was a 12.6% increase in the percentage of REALTORS® that expect an increase in sales.

Forbearance Recovery Stalls: After many consecutive weeks of falling percentages of mortgages in forbearance, the past two weeks have seen more homeowners seek mortgage relief. This highlights the ongoing challenges that the economy and the housing market still faces even as tremendous progress has been made. Many workers remain on unemployment and critical assistance programs that have provided aid for those in financial distress up to this point have or will begin to expire soon.

COVID Cases Surging in California: The number of new coronavirus cases in California hit a new all-time high during the thanksgiving week with more than 18,000 cases reported on a single day last week. This has caused the state to impose tighter constraints on economic activity and will likely have implications for the housing market as renters and homeowners face associated impacts to their incomes.

Tight Supply Hurting Affordability: The number of new listings coming onto the market continues to fall, and the holiday week brought an acceleration in that trend. The total number of active listings, which peaked in May of this year instead of the typical July timeframe, is at its lowest level yet. And although some of the median price growth we’ve been reporting has been inflated by a higher percentage of high-priced homes, prices are still going up much faster than incomes, which is ultimately going to present an obstacle for many would-be homeowners that would like to take advantage of historically low interest rates.

The housing market continues to be the shining star of the U.S. economy and California is enjoying the same robust surge in buyer demand that has been propelling sales for several months. However, we still face headwinds and the next few months will be critical in determining how quickly the rest of the economy can recover during the second half of 2021.