A 20/20 Look at Last Year’s Market & a Hopeful Look at 2021!

To say that 2020 was an unprecedented year seems like such an understatement!

When I wrote my last update in July 2020 I was hopeful we were going to round the Covid-corner quickly and get back to some semblance of normalcy… but, that certainly didn’t happen. Combine that with the issues and protests around social injustice and the most divisive, disruptive and destructive election any of us could have imagined… and unfathomable might be a better word.

Prior to the pandemic, the housing market was on a steep upward trajectory. Once the shelter-in-place orders were implemented things came to a screeching halt and the US economy suffered its steepest dip since the Great Depression.

Per Aculist data for Santa Clara County, we saw a 34% decline in sales volume in April 2020. Our biggest drop was in May at 54%, but by June we were down just 14% year-over-year. And, by July, sales were up 13% and haven’t stopped climbing since.

Overall, 2020 was a very strong year for the region. The number of homes sold was 9,440, up 1.4% versus 2019 and the average price of $1,691,570 was up 9.1%. Days on market (DOM) was 18, down over 37%. The sales volume for condos/townhomes was 3,571, down 4.7% and the average price dropped .8% to $884,130. DOM was 24, down 29.6%.

The pandemic affected our normal “seasonality”. Our peak selling months of March, April and May got shifted to the summer and fall. We ended up doing 9 months of volume in the last 6 months of the year.

So, where are we going from here…?

In January, national inventory was down over 42% versus last year and the median price of $346,000 was up over 15%. However, in San Jose, listings were up by nearly 25% and San Francisco was up 14%. Overall, Santa Clara County saw a 22% increase in inventory versus 2019. The median sales price was up 13%, and DOM was down 46%.

Per economist, Dr. Elliott Eisenberg — this is going to be a “stellar” year!

Interest rates are incredibly low and are going to stay low — offsetting a 20-25% higher priced home. The anticipated additional round of stimulus checks is also going to help. And, with prices going up .5 to 1% per month, folks have equity!

Many companies and businesses have actually done well because of the pandemic. Online shopping, connectivity, cloud computing and cyber security companies, delivery services, home fitness manufacturers, and social media sites have all benefited. Stocks of Peloton, Amazon, Facebook, Netflix, Servicenow, Google, Zoom (and others) have soared.

However, as we all know, many businesses, and unfortunately their employees, have suffered tremendously. The Bay Area lost hundreds of legacy restaurants, retail shops and even large chain stores.

We are most likely looking at a K-shaped recovery. This is when different sectors of the economy recover unevenly - at different rates, times and percentages. During the pandemic those with professional and high-tech careers have seen very little unemployment. Restaurant and small business owners (and especially their employees) have been significantly impacted.

Although one might assume that this will lead to a major downturn in the housing market, the unfortunate truth is that most of the folks who have been hit the hardest are not our typical home buyer. They are the hard working, hourly wage workers.

Is it true that everyone is leaving California?

Although news articles talk about people moving out of Bay Area, the numbers really don’t show it. Lots of renters are moving out. Some people are moving to Sacramento (and other parts of the state) where prices are up, but still affordable, compared to the Bay Area. Per a recent survey, over half the folks who moved to a different county in 2020 moved due to quality of life, housing affordability, or to be closer to family.

For folks wanting to leave the high prices and hustle and bustle of Silicon Valley, Prop 19 is a real game-changer! If you are age 55 or older, are severely disabled or have been a victim of wildfire or natural disaster — Prop 19 allows you take your property tax basis with you anywhere in the state. The replacement property needs to be a primary residence. It works with either a higher or lower priced purchase (with “adjustments” for a higher value). You have two years in which to make the new purchase and you can use the exemption three times. Prop 19 supersedes Props 60 and 90 which previously allowed for an equal or lower transfer within a county or to only a handful of other counties.

The Bay Area is still in high demand. We will continue, at least for the foreseeable future, to be the hub for many “tech giants”, continue to see corporate expansion and new innovation and we definitely have the weather!

Buyers are also looking at housing a bit differently since the pandemic. They are spending more time at home; they are looking for larger homes that provide space for at least one, if not two home offices. They want a yard to move around in and the desire for a backyard pool has never been higher!

We are also moving into a 10-year period of an increased buyer pool. There are over 72 million Gen Y, or Millennials (currently between 25-40) out looking for their first and/or second home. And many of the 68 million Gen Xers are now approaching their mid-20s and are also starting their home search.

Of course, the elephant in the room is Coronavirus. If cases continue to surge and vaccines fall short — more businesses could fail, unemployment rates could increase, and foreclosures could kick in with folks unable to pay their mortgage.

However, most experts believe we would be looking at a scenario closer to 2015 than what we saw in 2008. Currently 15% of households have an adjustable-rate mortgage versus the over 47% in 2005. And interest rates are predicted to stay around 3%, at least through 2020, if not longer. Mortgage debt to income ratio is approximately 43% today.

So, if you are thinking about selling don’t delay:

• Inventory is incredibly low now, but predicted to increase

• Buyers are out there and ready to buy

• Prices are at (or close to) their all-time high

• Prices will continue to increase but at about half the rate of 2020

• Prop 19 allows you take your property tax basis anywhere in the state

Looking for your dream home or a vacation/investment property? Go for it!

• Interest rates at historic lows = 20-25% more buying power

• Easier access to credit, great programs for first-time homebuyers

• We are seeing a bit more inventory, hopefully getting even better

• Rental income rose 3.7% last year, best performance since 6/2016

• Share of first-time home buyers hit highest level in 10 years

To summarize, the California housing market remains a bright spot in the state’s overall economic outlook. The number of homes with negative equity is very low. Inflation should remain low, at least through 2021. Unemployment numbers are improving, although it may take until late 2023 to get back to pre-pandemic levels. Interest rates are predicted to stay at or near the 3% level. And it looks like we may finally be rounding the Covid-corner… let’s hope I’m right this time! Data provided by California Association of Realtors, MLS Listings and Acculist an MLS Company.

If you would like to chat about making a move — call me… i’m here to help! Rebecca Jepsen, BRE# 01908462, Golden Gate Sotheby’s Int’l Realty Cell: 408-357-3990, rjepsen@ggsir.com, Rebecca Jepsen.com