After a breakneck year, Coachella Valley real estate looks to a slower 2022

Soaring home prices, historically low inventory and swarms of hopeful buyers piling onto almost any available property — those were the trends that defined the Coachella Valley real estate market in 2021.

The price of an average-sized home in every Coachella Valley city grew by at least 20% over the last year, according to a joint report by Greater Palm Springs Realtors, the California Desert Association of Realtors and Market Watch, with several cities notching price increases of over 35%.

Local Realtors say heated competition for a dwindling number of homes drove up prices and, in many cases, eliminated typical must-haves and basic due-diligence processes such as pre-purchase home inspections and appraisals.

Yet many local Realtors see those trends slowing in the year ahead, leading to a more stable 2022 for the Coachella Valley real estate market. Most predict limited or flat price growth, with multiple offers and rushed purchases returning close to pre-pandemic levels.

Some even see potential lawsuits and signs of a "hangover" from last year's buying frenzy on the horizon.

Despite this, the Realtors say any meaningful drops in the current record-high home prices are unlikely as low inventories continue to bolster prices amid cooling demand.

A breakneck 2021

Last year was a tale of contradictions for the Coachella Valley real estate market, as sales soared amid record-low supply.

Home sales last year were up 24% relative to pre-pandemic levels, according to multiple listing service data. That's despite the fact that more than twice as many homes were on the market in January of 2019 as in that same month of 2021 — a gulf which only widened throughout the year as housing inventories plummeted.

By the start of this year, there were only 607 homes for sale in the Coachella Valley, according to the joint real estate report, roughly one-fifth the number available at the start of 2020.

This means that at the average 2021 rate of sales, if no new homes came onto the market in January 2022, the Coachella Valley’s entire housing inventory would have sold out in less than three weeks.

"(There was) no inventory. Nothing," said Karen Joy Tabbah, a real estate broker with 40 years of experience in the local market. "There was very, very few things to sell and things are so expensive now."

Local Realtors such as Tabbah almost universally pointed to the lack of housing inventory as a defining feature of the 2021 desert real estate market. The shortage, which came amid booming demand from newly location-independent remote workers among others, turned many features of the typical home sale process on their heads.

Desperate buyers, some still smarting from losing out on numerous failed offers, competed to offer sellers ever-better terms and close deals as quickly as possible. Rapidly-rising prices sometimes meant homes didn't appraise for their asking prices, leaving buyers to make up the gap with cash. Buyers who could pay entirely in cash often did, pushing out many less-wealthy hopeful homeowners who needed loans to finance their purchases.

Eventually, even basic due-diligence processes like pre-sale housing inspections ended up on the cutting room floor in many sales.

Tabbah and some other Realtors noted they strongly advise buyers against waiving inspection contingences, but said numerous buyers insisted on the practice regardless.

"I have agents in my office who've had their buyers say, 'I'll pay for the seller's closing costs. I'm desperate for this house,'" said Dwayne Carrier, a broker with Berkshire Hathaway in Palm Springs.

In the heat of the moment, some buyers offered terms they later weren't able or willing to fulfill. Most local Realtors reported seeing a significant increase in the number of homes falling out of contract last year as buyers reneged on key terms they had advanced to lock down a deal.

"Let’s say we have 10 offers on a property and it's bid up, bid up, bid up," Carrier said. "If you’ve ever been to a car auction or any other kind of auction, there’s an excitement in the moment.

"(Buyers are thinking), 'I want to win. I'm bidding against these people, I want to be the winner,'" Carrier continued. "There’s a mentality there."

These bidding wars drove prices up to record levels. The cost of an average-sized home in Rancho Mirage, Palm Springs, Indian Wells and Palm Desert all grew by more than 30% in the last year, according to the joint real estate report. Other desert cities saw price gains ranging from 22% to just under 30%.

Bermuda Dunes topped the list of 2021 Coachella Valley price gains, according to the real estate report, with a nearly 50% increase in the price of an average-sized home over the last year. Local Realtors noted, however, that the Bermuda Dunes market's small size could mean a few outlier sales made its gains appear larger than they really are.

A more sober year ahead?

Most Realtors say these trends have slowed significantly in recent months. They note seeing fewer homes inundated with multiple offers, fewer bidding wars and fewer falling out of contract once a deal has been struck.

As the dust settles from last year's buying frenzy, some predict the year ahead could see a spate of lawsuits from regretful buyers.

"There's definitely going to be a hangover (in the market)" said Jim Franklin, a local Realtor and president of Greater Palm Springs Realtors.

He said some buyers who rushed into deals — especially those who waived typical due-diligence processes such as pre-sale home inspections — may discover issues with their new properties months after the sales.

"The buyer who is pissed off is then going to get a hold of his agent who will say, 'I didn't know anything,'" Franklin said. "And then they're going to go to the other agent who represented the seller and they're going to sue them too. They're going to go after them for not disclosing. And now you have a disclosure problem."

Some local Realtors such as Tabbah say they require any buyer looking to waive inspection contingencies to sign documents acknowledging they are doing it against the advice of the broker, providing some protection from from such lawsuits.

"They'll always blame the Realtor," Tabbah said. "That's why I have them sign the paper."

As demand slows, most Realtors predict 2022 will see limited price gains for Coachella Valley real estate, leaving prices relatively stable at current levels for the year ahead.

"I think the expectation is that it will definitely not be increasing like it did last year," said Stephanie Taylor, president of the California Desert Association of Realtors. "I don't think we're going to be having the same demand that we had last year."

Some prospective buyers, frustrated after repeated rejections, gave up on their home searches in recent months, waiting for a drop in the market that few see coming. Some Realtors say prices have now reached such a high level that a smaller pool of buyers are interested, limiting further upward price pressure.

They note, however, that ongoing limited housing inventory means any significant dip in valley housing prices is unlikely.

"There's really no indication that prices are going to go down," Taylor said. "As long as inventory is tight, prices are going to be strong."

Low housing supply is a perennial issue throughout California. The problem became more acute in the Coachella Valley during the pandemic as typical periods of seasonal inventory increase came and went without an uptick in supply. That new trend held this fall, when the valley's three historically highest months of inventory gain instead saw declines in available homes.

New local home construction has been on a slow but steady rise for the last five years, according to building permits tallied by Market Watch. Some in the desert construction sector were hopeful that 2021 would see a significant uptick in new home building, helping to somewhat ease ballooning demand pressures.

Instead, supply chain issues and the cross-industry worker shortage left 2021 with roughly 1,750 new homes underway, according to the building permit data, a relatively modest 15% increase over 2020 levels. With more than 11,900 Coachella Valley home sales last year, according to multiple listing service data, a yawning gulf between demand and the home supply pipeline is obvious.

"This supply chain issue has been an unholy mess," said Gretchen Gutierrez, CEO of the Desert Valley Builders Association. "It's not just the home improvement stores that have been impacted, but it's our suppliers that put stuff into houses where you have to have that stuff in the house before the city will sign off on it and somebody can occupy the home."

Gutierrez said "through the roof" lumber prices added to the supply woes and made getting even some of the most basic building supplies a struggle in 2021. She said the labor shortage, which has hammered many Coachella Valley businesses over the last year, made getting workers to build homes a struggle even if supplies could be located.

The builders association chief said that, while some supply chain issues had begun to ease in recent months, other issues don't show any clear signs of improvement on the horizon. She estimated if there was at least some progress on labor and supply problems, 2022 could see between 1,900 and 1,950 new Coachella Valley home building permits pulled — between an 8% and 11% increase from 2021 levels.

"We're tired. We'd like to see a little bit of normalcy," Gutierrez said. "The construction business is tough on a good year. But you throw in a worldwide health situation — it's been a little crazy to say the least."

James B. Cutchin covers business in the Coachella Valley. Reach him at james.cutchin@desertsun.com.

This article originally appeared on Palm Springs Desert Sun: After breakneck year, Coachella Valley real estate looks to slower 2022