The resilience of the state’s housing market is one of the biggest surprises of the past year.  Despite a pandemic-induced recession that left millions of Californians out of work, median home values increased 11% over the past year to an all-time high of $635,055 in February 2021. This stands in stark contrast to the Great Recession, when values fell 24% after one year and continued to decline.

While soaring prices are good news for current homeowners, would-be buyers could be locked out. Market trends may also widen existing disparities in homeownership for low-income, Latino, and African American households—groups disproportionately affected by COVID-19’s economic fallout.

What is behind this housing boom? One critical factor is years of undersupply in the housing market as new construction fell short of demand. California’s homeowner vacancy rates—already among the lowest in the nation—dropped by one-fourth during the pandemic to 0.6% in the last quarter of 2020. But supply is only part of the story: prices rose more in the past year than in recent years.

Strong demand for housing, particularly among affluent Californians, is also driving up prices. High-income workers are more likely to work in sectors where remote work is possible and therefore where pandemic-induced job losses were less prevalent. And during the pandemic, these workers generally spent less on day-to-day expenses, leaving them with more money for housing. Robust growth in the stock market also allowed those holding stock to accumulate more wealth.

With record-low mortgage rates, the cost of borrowing fell—further putting upward pressure on prices. These low rates along with increased home equity allowed some current homeowners to buy more expensive or additional homes. Demand for existing homes is strong across the state: the typical house is on the market for around 8 days in Sacramento, 13 in Los Angeles, 14 in San Francisco, and 19 in San Jose according to December data from Zillow.

Moreover, growth during the pandemic was greater than the average annual growth over the past three years in most California metros. For example, home values in San Diego grew 14.2% over the past year—nearly triple the prior three years (4.9%). Among the largest metros, only San Francisco was below the pre-pandemic average for annual growth (5.4% vs. 5.9%). The five largest inland metros saw especially sharp increases, with each growing at least 12% in the past year.

Rising home values constitute a win for homeowners whose home equity has jumped. Indeed, in the fourth quarter of 2020 the average California homeowner with a mortgage (42% of all housing units) gained $55,000 in equity during the past year.

But this means entry-level buyers are struggling to find affordable options. Despite lower mortgage rates, housing affordability—already a major problem pre-pandemic—has declined because rising home prices more than offset the drop in mortgage rates.

Even in areas where housing had been less expensive in the past, prices are rising beyond the reach of many Californians. In Bakersfield, 57% of homes sold in late 2019 were considered affordable compared to 42% one year later. Around Sacramento, 42% of homes sold in 2019 were affordable versus 32% in 2020. As the state moves into recovery, the affordable housing crisis will be a key area where policymakers can target the concerns of everyday Californians.