Midyear Check-Up on our Bay Area Market – It’s HOT
Not only has the Bay Area been experiencing recent heat advisories, but our local real estate market has been red hot as well.
Temperatures recently soared into the danger zone. The question is: Are the astronomically high housing prices a warning sign as well?
Most of us have never seen a housing market like the one we are seeing now. Prices are at an all-time high, inventory is incredibly low, multiple and preemptive offers are commonplace, and homes are flying off the shelf in five to 10 days. Closed sales for June were the highest they’ve been all year across all Bay Area counties.
At the end of June, the median price for a singlefamily home in Santa Clara County was $1,742,500 (selling for 110 percent of the list price). That’s up five percent versus last month and up 27 percent from June 2020. The median days on the market was eight. Inventory is down 20 percent versus June of 2020. It, however, rose nine percent versus last month.
It certainly is an ideal scenario for sellers who already have a second home they are moving to, are planning a move out of state, or those wanting to take advantage of Prop 19, a game-changer for those 55 and older who have been in their homes for decades. As of April 1st, 2021, these homeowners can “cash out,” take their equity and their current property tax rate with them, and move anywhere in the state of California. Previously, only nine counties participated in this tax move, and homeowners had to buy a home equal to or less than their sales price. Now, these same homeowners can purchase a home of greater value. The property tax, however, will rise based on the price differential.
My sellers always ask me, “where do all of these buyers get all their money”? The stock market has been doing incredibly well this year. Not only did some of the “techiegiants” like Amazon, Apple, and Facebook just hit their all-time high stock price, so did some of the more traditional “bell-weather” companies like Adobe, Intuit, and Oracle. This gives many folks, not just the millennials, ample buying power.
During the pandemic, folks also spent less and saved much more. Overall, saving rates remain 50 percent higher than pre-pandemic.
Unemployment has decreased significantly in the last several months. At the end of June, regional unemployment fell to 5.9 percent, dipping below six percent for the first time since the pandemic began. Unemployment was around 14 percent just after the COVID shutdown.
Elliott Eisenberg, PhD., MLSLisitngs Partner Economist, expects to see strong job creation for the rest of the year. If we continue to create 500,000 to 750,000 new jobs per month, the unemployment rate should dip to 4.6 percent by the end of the year, he predicts.
And, unfortunately, as I talked about in my Bay Area Outlook article in February, we are definitely seeing a K shaped recovery – where those with secure, well-paying jobs are doing great, and those struggling to make ends meet, like our teachers, service workers, and hourly wage earners are not.
What’s happening around the rest of the U.S.?
Per CNN Business, we see a “stunning rise in home prices nationwide” In nearly all regions, house prices are up double digits in the past year following a decade of already
substantial gains. The median home price in the U.S. is closing in on $350,000, nearly double what it was just 10 years ago.
Lots of people, especially from California, are flocking to Austin, Texas. Prices there are up 35 percent in the last year, and Phoenix, San Diego, and Seattle are all up more than 20 percent.
So, what is fueling this frenzy?
The market was doing incredibly well before the pandemic hit. And, with everyone working from home, parents home-schooling their kids, and 16 months of being cooped up together, the demand for more room, a home office (or two), and some open space coupled with the increased purchasing power historically-low interest rates provided, the desire for homeownership has never been greater.
The frustrating lack of inventory is due to a couple of factors. One: Baby Boomers staying in their homes longer – a median of 13 years – up 50 percent versus the previous generation. Two: Lack of new construction. Per senior economist Jeff Tucker, we have been “radically underbuilding” since 2007 due to the housing bubble collapse. Even though we are now building rapidly, it will take years to catch up. Per a recent America at Home study, 58 percent of millennial renters now want to own a home, which represents a potential new home demand of over seven million units.
So, where are we going from here?
According to recent Stanford research, it appears the “hybrid work model” is here to stay. Most companies will mandate that employees return to the office three days per week and on specific days. They want to ensure folks don’t feel left behind and want to reap the benefits of in-person team building.
There may be hope on the horizon for buyers.
Many analysts predict that we are starting to see some breaks in the housing market. With the unprecedented and rapid rise in prices, some areas are becoming overvalued, especially in the Western and Southern regions. And, with the U.S. opening up, more people are back to the office, and traveling again, and therefore not spending as much time shopping for a home. I also believe, now that the country is opening up, we will see more sellers taking advantage of Prop 19 and moving to less expensive, less congested, and more bucolic destinations throughout the Golden State.
Is NOW the time to sell? The bottom line for sellers – Bay Area home prices are at an all-time high, inventory is still incredibly low (although we see a slight uptick), homes are selling quickly (in five to 10 days), and buyer demand has never been greater.
What are the elephants in the room?
The Delta variant could be a real issue. Hopefully, we won’t see another lockdown that will stall our economy. And, if the corporate tax and capital gains rates jump, that could signifi
cantly affect high tech stocks and therefore our primary buyer pool.
I always say the only thing I know about the Real Estate market is what I know right now. If you are thinking about selling in the next couple of years, I think now just might be the right time.
Call me if you have a question or would like to chat about the market… I’m here to help!