Everyone is watching with wary eyes for what will happen in the California real estate market in 2021. The pandemic hit the state hard and heavy and many businesses, including restaurants, remain largely closed to all but adequately social distanced outdoor dining. This means a lot of people are out of work. Combine that with the fact that despite 170 years of being a population growth leader, the state of California lost 70,000 residents in 2020, and you have even more uncertainty among consumers and real estate watchers alike.

So, what does this all mean for properties, property values, property availability, and the cost of living? And what will that mean for the real estate market in 2021? Here’s what you need to know.

The Good Things About Living in California

Few states have as much to offer new residents in terms of fringe benefits as California does. Perhaps the most important of these fringe benefits is the weather. For the most part, the year-round temperatures are pleasant throughout much of the state, especially in the coastal regions. Residents enjoy plenty of sunshine, the ability to surf year-round, and outstanding outdoor living. People want to move to California for many of these things as well as the robust job market in the state – at least in the pre-pandemic world.

For the first time, though, people are beginning to look past the pandemic. With widespread vaccination looming large on the horizon, many people are looking forward to finding out what the post-COVID climate of California looks like.

Unfortunately, these things, while good news for people seeking to sell their California homes is not exactly great news for buyers. Even though California has suffered the first net population loss, perhaps in the entire history of the state, housing prices are showing no signs of slowing or going down. In fact, home values are predicted to continue rising in 2021.

This only serves to exacerbate the problem of finding affordable housing throughout the state of California. Higher home prices leave the middle class seeking more affordable alternatives in states like Texas, Idaho, Arizona, etc.- especially with more and more people working from home throughout the pandemic, and people with lower incomes left with few purchasing opportunities.

One area where you can see this in action is the median home price. The 2021 median home price is $648,760 compared to a price of $640,330 in 2020. This is compared to a nationwide median home price of only $380,000 for the entire country (this includes California’s inflated median home prices). Median home prices in the Midwest, by comparison, hovered around $239,000 for 2020 placing California well above the average when it comes to affordability.

Despite the affordability index that isn’t even on the same charts in California, the 2021 market appears to be robust with anticipated home sales occurring quickly, especially for previously owned homes that represent significant savings over newly built properties.

What Does This Mean for 2021 California Home Buyers?

Homebuyers should consider buying early in the year, if possible, to avoid housing prices that will continue to rise throughout the year. In other words, if you’ve been thinking of buying a home in California and have the means to do so, now is the best time you’re likely to see this year, barring some catastrophic event.

While some fear the market cannot sustain the continuous growth in prices, especially with people leaving the state, the evidence supports the idea that as long as interest rates remain low, the prices will continue to rise.

The other thing to remember is that interest rates are already at record lows and not expected to go down as the year drags on. What this means for you is that you have the perfect storm of the lowest likely prices for the year and outstanding interest rates that will only go up in the future – a future that, at this point, is vague and undefined. It’s better to get in ahead of the curve in a market like this.

Buyers should also consider getting pre-approved for mortgage loans before beginning to look around and make offers. In a crowded market like this, buyers will not seriously entertain offers from prospective buyers that do not have pre-approval for mortgage loans in hand.

Additionally, you might want to be prepared to make an offer quickly if you find a home you like. Outstanding opportunities are not spending much time on the market. Your best bet is to develop a relationship with a realtor who can show you homes that haven’t yet gone completely on the market as soon as they come across their desks.

Ultimately, 2021 represents a seller’s market for housing. That doesn’t mean that bargains can’t be found. What it does mean is that you must be prepared to act fast when you find that diamond and make an offer quickly. However, don’t forget to follow up with a thorough inspection, so you have a realistic idea of repairs that may be required soon after you move in or necessary repairs that may have you renegotiating the price you’re willing to pay for the home.

Is there Room for Fix-and-Flippers in a Tight Market Like This?

The goal of every fix-and-flipper is to buy low and sell high. It becomes a bit more challenging in an already inflated real estate market like the one we see throughout California. This is especially the case when you have to work within the confines of California requirements for permits and other regulations. Those who enjoy the greatest profit potential when flipping homes in California are those who have systems in place to identify diamonds in the rough, negotiating the permit process, and are willing to work with “ugly” homes to transform them into attractive purchases for area buyers. The challenge is to do so without pricing the home out of the neighborhoods where it is located.

In other words, California can present a greater challenge than many other states for people hoping to cash by fixing and flipping a home. That doesn’t mean there aren’t incredible opportunities to turn respectable profits while investing in California real estate in 2021. It simply means that working smarter is the way to go to make these opportunities work out in your favor.

What Do These Trends Mean for California Home Sellers in 2021?

Home sellers are poised to turn nice tidy profits in 2021. However, that doesn’t mean big profits are guaranteed. Sellers today are forced to compete with property flippers who take rundown properties and turn them into show-homes to drive prices even higher.

If you want to maximize your earning potential and the possible selling price of your home, you need to be prepared to add a little sparkle, shine, and perhaps a touch of glam to the home to compete with those that are designed and rehabbed by professionals.

California home sellers in 2021 will do well to stay on top of things within their neighborhoods and make sure their home is comparable to others in the area when it comes to luxury features, smart technology (such as doorbells, garage openers, thermostats, etc.), and creature comforts. You don’t want to go above and beyond other homes in the neighborhood. You simply want to convince buyers that your home can hold its own when compared, side by side, with others in the area.

The other thing you need to know about other homes in your area is how much they are selling for. Especially homes that have a similar square footage, lot sizes, and numbers of bedrooms and bathrooms. Remember that space is always a premium in California and something many homeowners are willing to pay extra for. If your home has added space or a larger lot, play that up by showing how roomy the home is or how amazing the outdoor living space can be for potential buyers.

How to Turn This Market into Profit

There are things you can do to help your home sell faster or attract higher offers. These are things you might want to consider before putting your home on the market.

  1. Empty your home of as many items as possible. Prospective buyers want to envision themselves in the home. That means eliminating many of the personal touches, family photos, refrigerator art, etc. you currently have in your home. Plus, it gives you a head start on the packing.
  2. Make sure your paint is touched up, carpets are cleaned, and surfaces are clear of clutter. People want to picture low-maintenance living rather than a home they’re going to struggle to keep clean and clutter-free.
  3. Clear out closets, pantries, etc. as much as possible. This makes those spaces appear larger to buyers, which is a great thing for you.
  4. Be mindful of where you spend money when updating your home before placing it on the market. Some improvements recover a greater percentage of investments than others. Do a little research to make sure you spend wisely.
  5. Move out oversized or clunky furniture. The idea is to make your home appear as spacious as possible. Consider bringing in a professional stager, especially if you’re not living in the home as you attempt to sell it. They have an eye for details and are fantastic at providing the appropriate “Wow!” factor.
  6. Pay attention to curb appeal. First impressions matter. For most people, the first impression they have of a home they’re considering buying is when they pull up to the curb. You want to make sure that what they see at that critical moment is a place that looks like home – and not one that looks like a million unfinished projects.
  7. Know your local market. If there are bidding wars going on in your neighborhood, you can afford to set your initial asking price at a more reasonable level with the expectation that people will make higher offers in hopes of getting the home they want.
  8. Work with a seller’s agent who is familiar with your area. Their job is to help you sell your home quickly and at the best possible price. They will help you handle the pre-sell changes to your home, recommend home inspectors so you can get a solid estimated value for your home, and even recommend competitive asking prices likely to net a faster sale.

Ultimately, there are many things you can expect from the California real estate market in 2021. For buyers, the goal is to buy early for the best prices while sellers might want to take a little more time before putting their homes on the market to command a higher price. With all investments, though, there are risks. Pandemic and economic uncertainty are sure to play roles in housing costs in the future as is the possibility of a surprise increase in interest rates. However, all signs are pointing to a relatively slow rise in home prices, a fairly steady interest rate, and a seller’s market continuing in California throughout 2021.