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This year will be a banner year for home improvements, according to Harvard University’s Joint Center for Housing Studies, which estimates homeowner spending on improvements and repairs could climb to $430 billion.

But with supply chain issues and labor shortages driving up costs, it’s smart to know which projects stand a better chance of giving you a return on your investment (ROI). Here are recommendations based on ROI from a consensus of cost vs. value reports.

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocols to protect all of our loved ones.

In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.

As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.

-Guillean Arradaza | Co-Founder | Realtor | LIC #02023642

The Big Story

Record highs and lows in the housing market

Quick Take:

Note: You can find the charts & graphs for the Big Story at the end of the following section.

Amplified seasonal trends 

Seasonality in the housing market was incredibly steady before the pandemic. Prices typically rose from January to June, when inventory was low but rising, and then flattened from July to December, when inventory was high but declining. In January 2020, homes were already undersupplied, hitting a record low with just over a million homes for sale on the market. When the pandemic hit, demand for homes exploded, dropping inventory to shockingly low levels. During the 18 months between January 2020 and June 2021, inventory declined 49% and prices increased 32%, doubling the total price increase of the previous three years combined. By January 2022, inventory had reached an all-time low, down 60% in the past two years, while home prices reached a record high, up 34%. 

Home sales have only gotten quicker as the market has become more efficient. We can see this trend through the Days on Market and Months of Supply Inventory (MSI). Before the pandemic, homes were already selling more quickly, primarily because of technology and an increasingly competitive market. A more efficient market matches the right people with the right home at a fast pace, causing a drop in supply when new homes aren’t being built. MSI, which quantifies the supply-and-demand relationship, is at a record low, further indicating a sellers’ market. The low supply, high prices, and speed of purchases have shifted homebuyer makeup. 

The number of first-time buyers dropped 6% over the past year, while sales to investors rose 7%. All-cash offers increased significantly, often disproportionately affecting first-time buyers, who are most likely to need financing. With rising mortgage rates, many first-time buyers will once again be hit hardest with higher monthly payments. Rates have already risen, because the Fed is expected to start increasing rates in mid-March, and they will only climb higher. Because of the rising cost, the average age of homebuyers is climbing. The average first-time buyer is now 33 years old, and the average repeat buyer is 56 years old, an all-time high. As we enter a new chapter in the housing market, one characterized by rising rates and very low supply, demand can only go one direction: down. But for now, prices aren’t in danger of declining. 

Over the next several months, we expect supply to matter more than the interest rate hikes when it comes to home prices. Economists anticipate that the Fed will start the first of six incremental 0.25% increases in March. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. With inflation at a near-40-year high, prices for most goods are rising while incomes are not. This situation gives the Fed little choice but to raise interest rates. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices.

As we enter this new chapter of rising mortgage rates, we don’t expect home prices to decline significantly, if at all, because supply is still such a driving factor. The low supply means that demand can decline without negatively impacting prices. We don’t expect home prices to appreciate at the record level we experienced over the past two years, but we do expect to see an increase. We are still in the middle of one of the strongest sellers’ markets in history. Buyers must come in with fast, competitive offers in this environment.

Big Story Data

The Local Lowdown

Quick Take:

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

Home prices hit record highs in front of Fed rate hikes

Single-family home prices rose to all-time highs in San Francisco and Silicon Valley, while North Bay and East Bay prices are just under their peak. Silicon Valley condo prices also reached an all-time high in February 2022. Mortgage rate hikes really only lower demand in the long-term, but in the short-term, demand increases as buyers try to lock in a lower rate. The Bay housing market has a major advantage in that people simply want to live there. The Greater Bay area tends to attract highly-educated, affluent individuals. This tends to have a snowball effect, making these areas more and more desirable places to live. Despite the huge increases in home prices over the past 12 months, the lack of housing supply will keep prices rising in the year to come. 

The Fed is expected to raise interest rates by 0.25% six times this year, going from 0% to 1.50%. We are now entering a period where factors that affect prices are more mixed, unlike the past two years when all the factors caused prices to increase. Rising interest rates, which will hopefully curb the still-rising inflation, will make homes less affordable and dampen demand over the course of the year. But inventory is so low that even with less demand, the market will likely be undersupplied. It might seem counterintuitive that home prices can still appreciate after increasing so much over the past two years, but with inventory at record lows, home prices in 2022 will still increase — though at a slower rate than in 2021. With high sales relative to the available inventory, we anticipate a competitive market in the year ahead.

Record-low inventory persists

The Bay, like the rest of the country, has a historically low housing inventory. The sustained high demand and lack of new listings over the past year brought single-family home and condo supplies to record lows across markets. We are seeing that far more people want to live in the Bay area than want to leave. Sales have been incredibly high, especially when accounting for available supply, again highlighting demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers. The incredibly high demand we’ve seen over the past year might wane as interest rates increase; however, the supply is so low that the market can handle a drop in demand without negatively affecting prices. The 30-year average fixed rate mortgage hasn’t climbed above 4% yet, but it almost certainly will as the Fed starts raising rates. If mortgage rates reach 5%, demand will likely decline more substantially. In the next few months, demand will remain high relative to available supply.

Months of Supply Inventory further indicates high demand and low supply

Homes are still selling extremely quickly. The Days on Market reflects the high demand for homes in the Greater Bay Area. Buyers must put in competitive offers above the list price of the home.

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes for sale on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than that indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Currently, single-family home and condo MSIs are exceptionally low, indicating a strong sellers’ market.

The Local Lowdown

For $600 or so a year, plus a service fee of around $75 every time you ask for a repair, a home warranty can be an inexpensive way to have peace of mind as a new homeowner.

Home warranties cover breakdowns in a home, from HVAC systems to appliances. A broken water heater can be repaired within hours, but if it can’t be fixed, a home warranty can pay for a new one to be installed.

For homeowners with an older house, they may want more things covered than a newer home would need—such as older appliances—and will likely pay more for it. If you just bought new appliances and have a manufacturer’s warranty for a year or more, you won’t need this coverage. You may be able to exclude new appliances from a home warranty to cut down on costs.

Things that can be covered by a home warranty include ductwork, electrical, plumbing, dishwashers, refrigerators, ovens, stoves, clothes washers and dryers, and water heaters.

Things that are unlikely to be covered include expensive items such as septic tanks, wells, heating systems, pools, garage doors, windows and doors, sprinkler systems, pre-existing conditions, and walls. Coverage for such items may cost more. Roofs may also be exempt, though some home warranty companies sell plans to fix leaking roofs.

Consider the Cost
A big factor in deciding if a home warranty is worth buying is cost. Basic coverage can start at about $300 and go up to $600 or more.

Some home warranties charge for a service call, such as $75 or so, while others allow unlimited service calls. Contractors are screened and sent out by the company.

To determine if a home warranty cost is worth it, start by learning how old your appliances and home systems are and if the original equipment manufacturer warranties still cover them. Find out what the expected lifespan of each item is to help you figure out if a home warranty is needed.

Some home warranty companies require annual maintenance on appliances and home systems to keep the warranties valid. Some may ask how long you’ve had them. Don’t expect the home warranty company to pay for the annual maintenance of your appliances or home systems.

Read the contract carefully to make sure that old appliances are covered in the home warranty. Some don’t cover old appliances, such as anything more than 10 years old.

Any home, whether old, new or somewhere in between, will have things break sooner or later. Appliances and home systems only last so long. For $50 a month or so, a home warranty can provide peace of mind when things eventually fail.

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.

In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.

As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.

Guillean Arradaza, LIC #02023642

The Big Story

New Year, Same Housing Market

Quick Take:

  • Historically low supply continues to drive up home prices across the nation. However, home price increases are decelerating after the record-setting gains experienced over the past two years.
  • The number of homes sold in 2021 is one of the highest on record.
  • Current inflation levels imply a negative borrowing rate because mortgage rates are below 6%. This means that borrowers are getting paid to borrow and should pay as little principle as possible until inflation recedes.
  • The average 30-year fixed mortgage rate remained historically low, at 3.11% at the end of December 2021. But the Fed has indicated there will be at least two rate hikes in 2022. 

Note: You can find the charts & graphs for the Big Story at the end of the following section

Will the housing shortage reverse?

The driving force behind the substantial price increases over the past two years has been the supply of homes, or lack thereof. So, will the housing shortage reverse? The answer is no, as there is no reasonable scenario that would bring active listings to pre-pandemic norms. Before February 2020, seasonal inventory typically peaked in the summer months, but it was trending slightly lower each year. In 2016, inventory peaked at 1.55 million active listings, and by 2019, the peak fell to 1.35 million homes. Inventory in 2021 reached its highest point at approximately 621,000, a 54% decline over two years. Homebuilders simply cannot build fast enough, especially in sought-after urban areas that have already been developed, and new listings are peaking far lower than the historical seasonal norms. 

At the same time, we are on pace to see around a million more homes sold in 2021 than in a typical year, based on the long-term average. In other words, more homes are selling, despite the historically low inventory, which is further driving down inventory. In 2022, we expect demand to remain elevated and supply depressed, which should keep home prices from depreciating. 

Price appreciation likely will not see the record gains we experienced over the past two years, which is actually good. If we learned one thing from the mid-2000s, we know that we don’t want another housing bubble. The deceleration in price increases, therefore, actually benefits the current market. From a practical standpoint, home prices rising at 20% per year is unsustainable and would certainly cause a major collapse. Moving through 2022, we expect year-over-year price increases to move back to historical norms, in the 5–10% range. 

Fed rate hikes in 2022 could drastically affect appreciation as well, which, again, isn’t a bad thing. The low-cost financing we’ve seen over the past two years could be coming to an end (although it’s difficult not to take a believe-it-when-I-see-it-approach to rate increases). When we account for current inflation, which is the highest it’s been since 1981, the real rate of borrowing is negative if you borrow at a rate below 6.8%. Simply put, you’re getting paid to borrow! We don’t expect this phenomenon to last long — it’s a fairly unique situation.

The market remains competitive for buyers, but conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly.

Big Story Data

The Local Lowdown

A cooling market means more room to run in 2022

Quick Take:

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

Home prices still have room to run in 2022

After single-family home prices appreciated significantly in the first half of 2021, it makes sense that prices would decline in the third and fourth quarters. North and East Bay prices experienced the most substantial decrease in the second half of the year, although all regions declined. However, as inventory continues to decline, as is typical in the winter season, prices will likely increase. 

Condo prices declined less significantly in the second half, and San Francisco condos increased to a record high in November. This is the first new high we’ve seen in over a year in San Francisco. The pandemic hit demand for condos hard, but price and sales indicate that demand is back. Although the price appreciation wasn’t as pronounced for condos as it was for single-family homes, we expect price appreciation to slow as we move through the winter months, a seasonal norm.

Nearing record low inventory once again

Despite the slight increase in single-family home inventory in the first half of 2021, the sustained high demand and lack of new listings in the second half brought single-family home and condo supply to near historic lows. Once again, we are seeing that far more people want to live in the Greater Bay Area than want to leave. Sales in the Bay Area have been incredibly high, especially when accounting for available inventory, again highlighting demand. Sellers can expect multiple offers, and buyers should come with competitive offers.

Months of Supply Inventory further indicates high demand

Homes are still selling extremely quickly. The Days on Market reflects the high demand for homes in the Greater Bay Area. Buyers must put in competitive offers above the list price of the home. 

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes for sale on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI in the Greater Bay Area is historically low for single-family homes and condos, indicating a strong sellers’ market.

Local Lowdown Data

The Big Story

What to expect when you’re expecting inflation

Quick Take:

Note: You can find the charts & graphs for the Big Story at the end of the following section.

Inflation: Short-lived or long-term?

By now, you’ve likely run across a headline regarding the large inflation jump we’ve experienced over the past six months. Even if you haven’t, you’ve probably noticed a general increase in prices for things like gas and food over the past couple of months. The last significant long-term inflationary period was in the 1970s when inflation expectations created a feedback loop largely because unions were common and had more bargaining power. As prices rose, union workers demanded higher pay, which increased operating costs and fueled rising prices. But 2020-21 is quite different from the 1970s. Currently, companies are using inflation as a mostly bad-faith excuse to raise prices during a time of record corporate profits, which will benefit companies as consumers bear the burden of rising costs. This is likely the unfortunate feedback loop we will see during the next six months. All that to say, as consumer costs rise, we might see demand for housing decline. With fewer experiences to spend money on during the pandemic, savings shot up, allowing potential homebuyers to reach their down payment goals far more quickly than expected. Inflation will cut into our ability to save. 

Unlike a normal business cycle, the pandemic is still disrupting the global supply chain, with fewer dock/port workers and truck drivers as well as continued international travel restrictions. This is compounded by the pandemic-related shifts in consumer preferences: consumers are choosing physical goods rather than services. The demand for physical goods isn’t unique to the U.S., either — the whole world is trying to recover economically with a move toward physical goods, which is stressing the supply chain. The good news, however, is that inflation will likely fall around summer 2022 and shouldn’t mimic the decade-long inflationary period of the 1970s. The bad news is that it isn’t coming down today.

Although not necessarily a strict supply chain issue, the rising cost of housing can definitely be tied to supply. In the U.S., the supply of houses for sale is still near the all-time low reached in April. At the same time, demand remains high for homes, and we are on pace to have around a million more homes sold in 2021 than in a typical year, based on the long-term average. In other words, more homes are selling despite the historically low inventory. Because inflation diminishes the purchasing power of a dollar over time, buyers face pressure to buy sooner rather than later, further increasing demand for homes. Coupling inflation with historically low mortgage rates creates incentives to buy now even with the run-up in prices.

The market remains competitive for buyers, but conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly. 

Big Story Data

The Local Lowdown

The housing market cools after a white hot year

Quick Take:

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

Home prices hit a ceiling (mostly)

After single-family home prices appreciated significantly in the first half of the year, it makes sense that prices are declining in the third and fourth quarters. North Bay prices experienced the most substantial decrease in the second half of the year, although all regions declined. That said, the East Bay, Silicon Valley, and San Francisco showed remarkably consistent price appreciation for the year, up 19% across those regions.

Condo prices declined less significantly in the second half, except for the North Bay condos, which rose to a record high. Although the price appreciation wasn’t as pronounced for condos as it was for single-family homes, we expect price appreciation to slow going into the winter months, a seasonal norm.

Home supply peaked at a low level

Despite the increase in single-family home inventory in 2021, we’re still at a historic low. The summer months typically have the highest inventory. In 2021, total inventory didn’t come close to last year’s level and was even further away from pre-pandemic levels. Even though we’re seeing some price correction after the first half of the year, the sustained low inventory will lift prices. Sales in the Greater Bay Area have been incredibly high, again highlighting demand in the area.

Homes are selling fast — really fast

Homes are selling faster than at any point in the past 15 years. The Days on Market reflects the high demand for homes in the Greater Bay Area. Buyers must put in competitive offers above the list price of the home. 

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes for sale on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI in the Greater Bay Area is historically low for single-family homes and condos, indicating a sellers’ market.

Local Lowdown Data

Welcome to our October newsletter, where we’ll explore residential real estate trends in the Greater Bay Area and across the nation. This month, we examine the state of the U.S. housing market now that much-needed supply has come to the market. We also explore why the worker shortage may not be as detrimental to the economy as was originally expected because of the renewed growth of entrepreneurship.  

With the increase in supply, we’ll probably see the beginning of some market cooling — but in the context of the hottest housing market in history. Housing inventory in the United States continued to rise in August, up 30% from the record low in April 2021. We’re happy to see more homes on the market because they will help satiate the high buyer demand. Although this increase in housing inventory is meaningful, there are still 74% fewer homes on the market than a year ago. The housing market will likely start to see some price corrections as it returns to a steadier state of growth. 

While we, at first, worried that the worker shortage could hurt the economy, it looks like the rise in entrepreneurship is helping to boost production and improve the economy. We often look at jobs to gauge the health of the economy: more employed workers usually means more production and more wealth, which, in turn, means appreciating asset prices. For many months, unemployment stood at around 10 million workers; however, we have started to meaningfully close the unemployment gap, and unemployment has been reduced to 8 million workers. As risks from the delta variant wane, we’ll likely see more unemployed workers reentering the workforce. 

Despite the high rate of unemployment and record number of job openings, U.S. production is climbing rapidly. In terms of GDP, which is the broadest measure of goods and services produced, our economic recovery could reach where we would likely be if the pandemic had never happened within the next year. It cannot be overstated how rare it would be to return to pre-recession GDP, but we might just get there. A potential factor in the rise of both production and job openings is the resurgence of entrepreneurship, which is often associated with higher production. 

We remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In order to better explore how the above national trends in the economy and housing market are affecting the Greater Bay Area, this month’s newsletter will cover the following:

Key Topics and Trends in October

In the long term, employment and GDP reveal much about the economic climate and typically trend with housing prices. GDP, according to the U.S. Bureau of Economic Analysis, gained 1.6% quarter-over-quarter in 2nd Quarter (2Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. To get back to pre-pandemic GDP levels, we need to continue to outpace the long-term growth rate. The substantial infusion of cash into the economy has boosted GDP, and we are on pace to fully recover. 

The chart below illustrates the cost of the COVID recession and the projection at GDP’s current growth rate. While it depicts U.S. GDP from 2016 to 2Q 2021, it also illustrates economic patterns that occur in all recessions. GDP tends to grow at a fairly consistent rate during economic expansions. The green line exemplifies the expected GDP, had the pandemic never happened. As that green line shows, we are below where GDP was expected to be in 2Q 2021. In other words, we’re still underwater. However, unlike typical recoveries, which return to a steady state of growth but at a lower level, the current growth rate is far higher than normal and should bring us back to our pre-pandemic trajectory by the end of the 2nd Quarter 2022.

Another large government-sponsored infusion of cash into the economy is very unlikely to happen. We may, however, have another source of economic stimulus: the massive growth in entrepreneurship over the last 16 months. From 2004 to 2019, the United States averaged 2.8 million new business applications per year. In 2020, there were 4.36 million, and in 2021, there have been 3.68 million as of August. This means that over the past 20 months, the United States has seen 8 million new business applications.

The competitive nature of our economy incentivizes new business owners to produce, creating jobs and stimulating growth. While new businesses are not as stable as more mature companies, they are often more nimble than larger companies and can produce with fewer hurdles.

The large number of new business applications may also explain why established companies have found it difficult to fill job openings. It seems that a large number of workers may now be working for themselves. Although the difficulty with hiring employees poses troubling challenges to employers, it thankfully may not indicate a struggling economy.

Home prices tend not to experience meteoric rises if the economy is in dire straits. Because home prices have increased so rapidly over the last two years, we can assume that the economy is doing well. In the last five years, housing inventory has decreased by around 940,000 (59%). Over 700,000 of those homes were sold in the last two years alone. Due to the pandemic, housing demand rose to historically high levels and mortgage rates fell to historic lows. As shown in the chart below, we’re currently hovering near all-time low mortgage rates, which will likely remain for the rest of the year. Low rates incentivize buying due to the lower monthly payment.

Even with rising inventory, the market remains competitive for buyers, but conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agents to ensure the transition goes smoothly.

October Housing Market Updates for the Greater Bay Area

During August 2021, in the Greater Bay Area, the median single-family home price declined further from the all-time high reached in June. Year-over-year, Greater Bay Area prices increased considerably, up 18%.

The median price movements across the Greater Bay Area regions were mixed. San Francisco, Silicon Valley, and East Bay home prices declined month-over-month, while North Bay home prices increased. However, year-over-year, every county in the Bay Area is higher than last year with the exception of Monterey.

As you can see in the graphs below, median condo prices were mixed across regions and counties. Counties in the North Bay and Silicon Valley saw the largest gains.

Single-family home inventory began to climb at the start of 2021 in anticipation of the spring season, when more sellers typically come to market, but has begun to decline once again. To gain a full picture of the current market, we must view it in the context of last year. In 2020, fewer people wanted to leave the Greater Bay Area, and more people wanted to move here. This trend drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In August 2021, the total inventory in the Greater Bay Area had fewer homes for sale than it did in August 2020, so the higher number of new listings is a positive development for the housing market. The sustained low inventory will likely cause prices to remain stable or appreciate throughout 2021.

Both single-family homes and condos spent less time on the market in August 2021 than they did in August of last year. As we’ll see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.

We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). In August 2021, single-family home MSI remained below two months of supply, indicating that the market still strongly favors sellers.

In summary, the high demand and low supply in the Greater Bay Area have driven home prices up over the last year, but the huge price appreciation is slowing. Inventory will likely remain historically low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period. 

We expect the number of new listings to slow in the coming months. However, the current market conditions can withstand a high number of new listings, and more sellers may choose to enter the market to capitalize on the high buyer demand. We expect the high demand to continue, and new houses on the market to sell quickly.

As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.

Welcome to our September newsletter, where we’ll discuss residential real estate trends in the Greater Bay Area and across the nation. This month, we’ll examine the state of the U.S. housing market now that more supply has come to the market and explore the impact of iBuyers and fin-tech companies’ influences on the housing market. 

From 2012 through 2019, the seasonality of the housing market was incredibly stable. For seven years, we consistently saw fewer sales in the winter months and higher sales in the spring and summer months. In 2020, however, we saw a shift. The usual seasonality gave way to super-high demand that remained consistent throughout the year, even after the initial pandemic shock from April to June 2020 faded. Then, in winter 2020 and early spring 2021, inventory decreased to historically low levels. Now we are far enough into summer to comfortably see pre-2020 seasonal trends return. 

Demand for homes has remained quite high, which has increased the use of all-cash offers that often serve as differentiators for sellers who receive multiple offers. The National Association of Realtors (NAR) reports that cash sales rose from 16% to 23% year-over-year in July. The increase in cash offers often pushes out first-time homebuyers who don’t have hundreds of thousands (or millions) of dollars on hand. At the same time, we are seeing fin-tech iBuyers (algorithmic instant cash buyers), which is still in its infancy, targeting first-time buyers as a means to stay competitive by making them all-cash buyers. This dynamic could drive demand even higher if fewer buyers are priced out of the market.

As we navigate this period of high buyer demand and low supply, we remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In this month’s newsletter, we cover the following:

Key Topics and Trends in September

Housing inventory started falling steadily in April 2020 in response to the pandemic, and the steady seasonal norms in supply vanished completely. As you can see from the chart below, we are starting to see a hint of seasonality return with the inventory increase over the summer months, albeit at a much lower level. As inventory crossed below the 600,000 level, sales began to slow; there simply weren’t enough homes to meet buyer demand, which created a hyper-competitive market for buyers. We are pleased to see inventory increase to alleviate some of the extreme demand.

The chart below, which illustrates sales over the last 12 months, reveals that sales often trend with inventory, but with a one-month lag. In other words, more sales are recorded when more inventory comes online during the previous month. For most of 2021, even though we were on pace to have a record number of home sales, the rate of sales was slowing. That deceleration, however, has reversed as more homes have come to the market.

The last year has taught us that uncertainty around the pandemic has positively correlated to home sales. People are spending more time at home, and the Federal Reserve is expected to keep mortgage rates low. As shown in the chart below, we’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. Low-rate financing incentivizes buying, which has been one reason for the high demand over the last 18 months.

The housing market’s competitiveness has increased the number of all-cash purchases to the highest level we’ve seen in the last 10 years. In July 2021, NAR reported that 23% of home sales were cash purchases, which marks a 7% increase from 2020. The competitive nature of the current market has priced out many first-time homebuyers, but we could see that shift with the emergence of iBuyers, who can quickly purchase a home in cash. The speed with which buyers need to secure financing is often part of the problem for first-time buyers. iBuyers can offer the speed and financing necessary for a competitive offer. 

With such low supply and high demand for homes, we could see the market become even more competitive if fewer buyers are priced out of the market. Currently, a low percentage of sales involve iBuyers; however, if iBuyers become more common, supply could trend even lower than it already is.

While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Lower inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure that the transition goes smoothly.

September Housing Market Updates
for the Greater Bay Area

During July 2021 in the Greater Bay Area, the median single-family home price declined from the all-time high reached in June. Year-over-year, Greater Bay Area prices increased considerably, up 24%.

The median prices in all four regions of the Greater Bay Area declined month-over-month. Year-over-year, every county in the Bay Area is higher than last year.

As you can see in the graphs below, median condo prices were mixed across regions and counties. Counties in the East Bay and Silicon Valley saw the largest gains.

Single-family home inventory began to climb at the start of 2021 in anticipation of the spring season, when more sellers typically come to market, but has begun to decline once again. To gain a full picture of the current market, we must view it in the context of last year. In 2020, fewer people wanted to leave the Greater Bay Area, and more people wanted to move here. This trend drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In July 2021, the total inventory in the Greater Bay Area had fewer homes for sale than it did in July 2020, so the higher number of new listings is a positive development for the housing market. The sustained low inventory will likely cause prices to appreciate throughout 2021.

Both single-family homes and condos are selling quickly. As we will see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.

We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that there are more buyers than sellers on the market (that is, it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (that is, it’s a buyers’ market). In July 2021, single-family home MSI rose slightly but remained below two months of supply, indicating that the market still strongly favors sellers.

In summary, the high demand and low supply in the Greater Bay Area have driven home prices up over the last year, but the huge price appreciation is slowing. Inventory will likely remain historically low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period. 

We expect the number of new listings will continue to increase in the remaining summer months. The current market conditions, however, can withstand a high number of new listings, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to sell quickly.

As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.

Welcome to our August newsletter, where we’ll explore residential real estate trends in the Greater Bay Area and across the nation. This month, we examine the state of the U.S. economic recovery using Real Gross Domestic Product (GDP)1, the potential effects of the Delta variant on the housing market, and the ways in which the homebuyer profile changed over the last year.

In terms of GDP, which is the broadest measure of goods and services produced, our economic recovery stands at about 70% of where we would likely be if the pandemic had never happened. Unfortunately, the Delta variant has diminished the likelihood of the pandemic ending with any sort of speed and caused a return to mask mandates in many parts of the country. Although full lockdowns are unlikely, high case counts and a return to near-universal masks and social distancing will disrupt our economic recovery. 

The uncertainty surrounding the Delta variant and its effects on the economy caused rates to fall. Participants in our financial markets know that the Federal Reserve will try to stabilize the U.S. financial markets in times of uncertainty. At this point, it’s a given. The further decline in interest rates reflects that. Mortgage rates are now extremely close to the all-time low. At the same time, however, prices have risen, and the profile of homebuyers has shifted. More homebuyers are investors and full-cash buyers. With low-rate financing and a high number of qualified buyers, the rising prices haven’t reduced the demand for homes as one might expect. 

As we navigate this period of high buyer demand and low supply, we remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In this month’s newsletter, we cover the following:

1Real GDP is inflation-adjusted GDP. All references to GDP use Real GDP figures.

Key Topics and Trends in August

We’re about a year past the initial economic devastation caused by the pandemic. The second quarter of 2020 saw the largest single-quarter drop in GDP in history (-9%). GDP and employment together reveal much about the economic climate and typically trend with housing prices, but they do not explain the current rise in home prices. We’ll still discuss GDP and employment, however, because they are useful longer-term indicators. 

The U.S. Bureau of Economic Analysis reported a 1.6% quarter-over-quarter gain to GDP in 1st Quarter (1Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. We need to outpace the long-term growth rate to get back to pre-pandemic levels. If it weren’t  for the Delta variant, we might actually get there. The substantial infusion of cash into the economy has boosted GDP, but we’re still only at 70% of pre-pandemic levels. At the same time, there are about 10 million fewer jobs due to the pandemic. As the Delta variant runs through the country, our recovery will likely stall and the loss in GDP could be permanent. 

The chart below illustrates the cost of a recession. While it depicts U.S. GDP from 2016 to 1Q 2021, it also illustrates economic patterns that occur in all recessions. GDP tends to grow at a fairly consistent rate during economic expansions. The green line illustrates the expected GDP had the pandemic never happened. As that green line shows, we are 30% below where GDP was expected to be in 1Q 2021. In other words, we’re still underwater despite the impressive quarterly increases in GDP.

The fresh uncertainty surrounding the Delta variant caused rates to drop. The Federal Reserve is expected to support the financial markets by infusing money into them, which lowers rates and, in this instance, causes inflation to rise. As shown in the chart below, we’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. Low rates and inflation both incentivize buying. When consumers know that the dollar’s purchasing power is diminishing quickly, it makes more sense for them to buy a home sooner rather than later.

As we look at the last 12 months of annualized home sales in the chart below, we can see that sales rose significantly since last June. Although the rate of sales decelerated from January to May 2021, it rose again in June, which is a seasonal norm. More homes are coming to market and being bought quickly due to the excess demand. In 2020, incentives to purchase a home translated to the most homes sold in a year since 2006. Although we’re only halfway through 2021, it’s safe to say that home sales will outpace those in 2020.

Demand for homes hasn’t diminished as prices soared over the last year. In a typical year, we would expect that a 20% increase in home value would price many potential homebuyers out of the market, thereby causing a price correction. In this instance, we’ve found that to be half true. First-time homebuyers are usually the first to get priced out of the market. Over the past year, we are seeing fewer first-time buyers coming into the market. However, even though there may be fewer buyers in one category, there are plenty of buyers in other categories to make up for them.  In this case, we are seeing more investors coming into the market. Cash sales have jumped considerably, and homes are selling extremely quickly. As a result, it looks like prices will climb higher in the near future.

While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly. 

August Housing Market Updates
for the Greater Bay Area

During June 2021 in the Greater Bay Area, the median single-family home price rose to another all-time high. Year-over-year, Greater Bay Area prices increased considerably, up 35%.

The median prices in all four regions of the Greater Bay Area rose to all-time highs in May. The sustained price appreciation emphasizes the demand in the area.

As you can see in the graphs below, median condo prices were largely positive across regions and counties. Counties in the North Bay and Silicon Valley saw the largest gains.

Single-family home inventory began to climb over the last five months, which is expected in the spring/summer season when more sellers typically come to market. To fully understand the current market, we must look at it in the context of last year. In 2020, fewer people wanted to leave the Greater Bay Area, and more people wanted to move here. This trend drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In June 2021, the total inventory in the Greater Bay Area had fewer homes for sale than it did in June 2020, so the higher number of new listings is a positive development for the housing market. The sustained low inventory will likely cause prices to appreciate throughout 2021.

Both single-family homes and condos are selling quickly. As we will see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.

We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (meaning it’s a buyers’ market). In May 2021, the MSI remained below two months of supply for single-family homes, indicating that the market favors sellers.

In summary, the high demand and low supply present in the Greater Bay Area have driven home prices up. Inventory will likely remain low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period. 

We expect that the number of new listings will continue to increase in the remaining summer months. The current market conditions, however, can withstand a high number of new listings coming to market, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to sell quickly.

As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.

Welcome to our July newsletter, where we’ll explore residential real estate trends in the Greater Bay Area and across the nation. This month, we examine how buyer demand might shift during the rest of the year, taking into account the historically low inventory, record high prices, and the Federal Reserve Bank’s incentives to keep interest rates low despite rising inflation.

We’ve entered into an economic situation that is uncommon, at least in recent history, with rising inflation and high unemployment. The Federal Reserve Bank (the Fed) has two goals known as the dual mandate: price stability (inflation) and maximum sustainable employment. The pandemic, of course, threw a sizable wrench in the economic machine, causing mass unemployment from which we are still recovering. Easy monetary policy brought more money into circulation and a drop in interest rates.

The low-rate environment spurred homebuying across the country, lowering available inventory and driving home prices to record highs. Most potential buyers are flush with cash and have high credit scores, which has created an incredibly competitive environment. How will the massive price increases we’ve seen over the last year affect demand? And how will the market respond to a price correction?

As we navigate this period of high buyer demand and low supply, we remain committed to providing you with the most current market information so that you feel supported and informed in your buying and selling decisions. In this month’s newsletter, we cover the following:

Key Topics and Trends in July

The past year saw the highest sales volume and fastest price increases on record nationally. We want to take a closer look at this massive buyer demand, and the ways in which it’s affecting the housing market. 

At the start of the pandemic, the housing market looked incredibly unstable: buyers and sellers were pulling out of deals, sales volume and inventory dropped, and unemployment skyrocketed. The uncertainty around the housing market was short-lived, however, and it became clear that homes were going to have a remarkable year.

The Fed’s easy monetary policy over the last year has caused a swift rise in inflation, about 5%. After a decade of relatively low inflation, often under 2% annually, consumers are noticing the price jumps. In fact, there was slightly more inflation during the year from May 2020 to May 2021 than there was during the three-year period from 2017 to 2020. The price increases are partly due to monetary policy and partly due to global supply chain disruptions caused by the pandemic. As the pandemic fades on a more global basis and supply chains stabilize, prices should correct, at least to an extent. For the moment, the Fed has decided to keep interest rates low and continue infusing money into the economy.

Even though inflation has become more noticeable, the Fed still must consider the employment rate. As you can see from the chart below, employment hasn’t reached pre-pandemic levels, and the growth rate has slowed. Because employment typically grows at such a constant rate, we still have around 10.5 million fewer employed people than if there had never been a pandemic.

The Case-Shiller 20-City Home Price Index, which measures the aggregate home prices in the 20 largest metro areas, rose 15% year-over-year in April 2021, marking one of the sharpest increases in history. The Fed also has incentives to prevent the housing market from crashing. A sharp drop in home prices would wipe out significant wealth and put many new homeowners underwater. These are huge disincentives to change the current path. 

As shown in the chart below, we’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. As mentioned earlier, low rates incentivize buying, as does inflation. When consumers know the dollar’s purchasing power is diminishing more quickly, then buying a home sooner rather than later makes more sense. 

In 2020, incentives to purchase a home have translated to the most homes sold in a year since 2006. Although we’re only halfway through 2021, it’s safe to say that home sales will outpace those in 2020.

As we look at the last 12 months of annualized home sales in the chart below, we see sales slowing. This is largely caused by the lack of inventory. There are simply not enough homes to meet the current demand. Even if some potential buyers get priced out, the housing market will not see much of a change.

The environment, therefore, is right for demand to outpace supply in 2021. We’ve reached near-perfect conditions for qualified buyers—high credit scores, large down payments, and low-rate financing—so we anticipate a competitive landscape for buyers throughout the year. 

While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly.

July Housing Market Updates
for the Greater Bay Area

During May 2021 in the Greater Bay Area, the median single-family home price rose to another all-time high. Year-over-year, Greater Bay Area prices increased considerably, up 39%.

The median price in all four regions of the Greater Bay Area rose to all-time highs in May. The sustained price appreciation emphasizes the demand in the area.

As you can see in the graphs below, median condo prices were largely positive across regions and counties. Marin County condo prices were the only ones to decline year-over-year, while the rest of the Bay counties rose substantially.

Single-family home inventory began to climb over the last four months, which is expected in the spring/summer season when more sellers typically come to market. In 2020, fewer people wanted to leave the Greater Bay Area, and more people wanted to move here. This trend drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In May 2021, the total inventory in the Greater Bay Area had fewer homes for sale than it did in May 2020, so the higher number of new listings is a positive development for the housing market. The sustained low inventory will likely cause prices to appreciate throughout 2021.

Both single-family homes and condos are selling quickly. As we will see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.

We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California (far lower than the national average of six months), which indicates a balanced market. An MSI lower than three means that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (meaning it’s a buyers’ market). In May 2021, the MSI was less than two months of supply for single-family homes, indicating that the market favors sellers.

In summary, the high demand and low supply present in the Greater Bay Area have driven home prices up. Inventory will likely remain low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period. 

We expect that the number of new listings will increase in the summer months. The current market conditions, however, can withstand a high number of new listings coming to market, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to be sold quickly.

As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we have shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.

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