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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, DRE #02023642

DISCOVER WHAT YOUR HOME’S WORTH HERE

Welcome to our June newsletter, where we’ll dive into residential real estate trends in the Greater Bay Area and across the nation. This month, we examine how the money supply is affecting asset price valuations and interest rates. 

The increase of money supply started accelerating around 2000 and, since that time, with the exception of the past couple of months, inflation has been extremely low. At the same time, asset prices, like stocks and real estate, have risen considerably. Low inflation suggests that consumers are saving more than they are spending on goods and services. With more money in circulation, interest rates drop. In fact, mortgage rates are hovering near all-time lows, just under 3%. 

With low interest rates, more money in circulation, and fewer opportunities to spend money over the last year, homebuyers have flooded the market—and we expect this high housing demand to continue for at least the next 12 months. In addition, most potential buyers are flush with cash and have high credit scores, which has created an incredibly competitive environment and caused housing inventory to drop to historically low levels.

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 June

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 sheer number of highly qualified buyers who were entering the market seemed to come out of nowhere, and we were left wondering where all this money had been hiding before the pandemic. As we dug into the data, we saw that the money was out there, but people were simply not spending it. 

The graph below shows the money supply (M2) in the United States and the velocity of money, which measures how much consumers and businesses are spending (higher velocity equates to more spending, and vice versa). When the money supply and velocity increase, we tend to see inflationary periods. As you can see from the chart, however, the money supply increased dramatically (3x) over the last 20 years, while velocity decreased. In other words, more money has not driven the equivalent production of more goods and services, implying that consumers are saving and/or investing. Over the last year, the money supply has increased even more because of COVID-19 relief and the Federal Reserve’s monetary policies, putting even more money in consumers’ pockets. 

Using the S&P 500 and the housing market as examples, we can see the effect that the money supply has had, especially over the last year. The S&P 500 increased around 54% from March 2020 to March 2021, and the Case-Shiller 20-City Home Price Index, which measures the aggregate home prices in the 20 largest metro areas, rose 14%. Stock prices benefit considerably from increased money supply due to their liquidity and fungibility. Home prices rose substantially, especially considering their illiquid nature. Notably, we aren’t seeing a transfer of money out of stocks and into housing; rather, we’re seeing cash going into both asset classes, which means that there is a large amount of money in circulation.

An increase in money supply also tends to lower interest rates. As shown in the chart below, mortgage rates have definitely declined over the last 20 years, and we’re currently hovering at historically low rates, which increases housing affordability despite the rising prices.

We don’t expect the same level of buying in 2021 that we saw in 2020, mostly because of the home undersupply issue. The environment, therefore, is right for demand to outpace supply in 2021. We’ve reached near-perfect conditions for 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.

June Housing Market Updates
for the Greater Bay Area

During April 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 36%.

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

As you can see in the graphs below, median condo prices were mixed across regions and counties. San Francisco condo prices declined month-over-month, while the rest of the Bay regions rose slightly.

Single-family home inventory began to climb over the last three 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 to the area. This trend drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In April 2021, the total inventory in the Greater Bay Area had slightly more homes for sale than it did in April 2020, which 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 April 2021, the MSI remained below two months of supply for single-family homes, indicating that the market strongly 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, potentially lifting prices higher. 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 can withstand a high number of new listings coming to market, and more sellers may enter the market to capitalize on the high buyer demand. As we navigate the spring 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.

Interested in a monthly market update? Subscribe here.

April 2021 Greater Bay Area Market Update

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, DRE #02023642

DISCOVER WHAT YOUR HOME’S WORTH HERE

Welcome to our April newsletter. This month, we examine how the housing undersupply contributes to increasing home prices, as well as the market effects of the large increase in mortgage rates since January. 

Currently, the housing supply is so low that the demand far outpaces the number of homes on the market. The pandemic changed the direction of consumer spending from a focus on services to a focus on physical goods. It also accelerated the rate at which people built savings. With the addition of hyperlow mortgage rates, homebuying became more accessible to a higher number of people in 2020. 

We expect housing demand to remain high for many years. Even as offices become safer, we anticipate people will continue working remotely, even if only partially. Increased remote work changed housing priorities, contributing to the increased demand. Additionally, as COVID-19 cases continue to decline and vaccinations increase, our futures look more certain. This means that the period of all-time-low mortgage rates is ending, which may boost demand even further over the next several months as buyers try to lock in low fixed rates.

As we navigate an ever-changing economic landscape, 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 April

In order to understand the magnitude of price movements in 2020, we can look at the Case-Shiller 20-City Home Price Composite Index, the leading measure of residential real estate prices in major metro areas. As you can see from the chart below, we take a 20-year view of the housing market. This allows us to see the cumulative home price movement (purple line) and the rolling 12-month change. 

Until the late 1990s/early 2000s, homes acted as more of a store of value rather than a risk asset, in that home prices generally kept up with inflation. For instance, a home bought 30 years ago would be the same price today after adjusting for inflation pre-2000. In the early 2000s, home prices rallied due to loose lending standards/predatory lending, mismanagement of risk, and negligence of financial institutions, which led to the greatest recession since the Great Depression. 

Home prices took about six years (2006–2012) before they began to meaningfully recover, and the early stages of recovery (2012–2014) were the strongest until 2020. The last time home prices rose as sharply as 2020 was March 2006, which was the time home prices peaked prior to the 2008 financial crisis. To be clear, we aren’t comparing 2006 to 2020 in terms of risk. The housing bubble that occurred between 2004 and 2006 was largely caused by financial institutions. In 2020, homes appreciated because of market factors: a greater number of people saved more than expected, and mortgage rates fell to historic lows. This caused the supply to drop to the lowest level since the National Association of Realtors started recording inventory in 1999. 

Months of Supply Inventory (MSI) indicates how quickly all the current homes for sale would be absorbed if no new homes came to market. In more normal times, MSI usually stands at around five to six months in the United States, and three months in California. The chart below illustrates the precipitous drop in MSI starting after the early months of the pandemic. In the short term, home supply is fixed, so the spike in demand ate up the inventory.

Mortgage rates rose significantly, slightly over 50 basis points, since January 2021. This increase in mortgage rates equates to about a 6.5% rise in the monthly 30-year fixed mortgage cost. Usually, this would hamper demand—which it will—but supply is so low that it won’t matter much from the seller’s point of view. Sellers can still expect multiple offers on their listings. If rates rise another full percentage point, we could see a more dramatic drop in demand. 

Although we don’t expect the same level of buying in 2021 that we saw in 2020, the environment is right for demand to outpace supply in 2021. In the short term, we may even see a demand spike as potential buyers try to purchase before rates rise higher. As a result, we anticipate a competitive landscape for buyers over the course of this year. 

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

Usually, we write these updates to educate our community with current market conditions. As more real estate agents enter the market, however, we also feel it’s prudent to mention the real estate agent surplus that has manifested over the last 12 months. A career in real estate has relatively low barriers to entry; therefore, at a time when unemployment rates are high and the real estate market is hot, we are seeing a large increase in the number of real estate agents. According to the National Association of Realtors, the supply of homes for sale stands at a little over 1 million, while real estate agents number 1.4 million. There exists a clear imbalance here. Like many careers, wisdom gained through experience becomes invaluable. During this unique time, we encourage you to hire an agent who has successfully navigated market cycles and is, therefore, able to best advise you on your buying and selling strategies.

April Housing Market Updates
for the Greater Bay Area

In February 2021, the median single-family home price rose to an all-time high in the Greater Bay Area. Year-over-year, Greater Bay Area prices increased considerably, up 27%. 

Prices in every region and county were up in February. The sustained price appreciation emphasizes the demand in the area.

As you can see in the graphs below, median condo prices were mixed across regions and counties. San Francisco experienced the largest month-over-month price increase after a long period of falling prices. 

Single-family home inventory remained lower through 2020 relative to 2019 with the exception of San Francisco, which speaks to the desirability of the Bay Area. During the pandemic, fewer people wanted to leave, and more people wanted to move to the area. New listings throughout the year were lower than normal, while sales were much higher. By the end of 2020, sales remained steady as new listings declined. In January 2021, inventory continued to decline in every region of the Greater Bay Area and is now beginning to slightly increase as we move out of the winter months. Sales remain high across markets, and with such a consistent level of demand, prices will likely continue to appreciate throughout 2021.

Single-family home Days on Market (DOM) fell to 10 days in February 2021, which is extremely fast. As we will see, the pace of sales has contributed to the low 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 (that is, it is a sellers’ market), while a higher MSI means there are more sellers than buyers (that is, it is a buyers’ market). In February 2021, the MSI of 2.1 months of supply for single-family homes indicates that the market favors sellers.

In summary, the high demand and low supply present in the Greater Bay Area have driven home price appreciation. Inventory will likely remain low this year with fewer sellers coming to market, potentially lifting prices higher. Overall, the housing market has shown its resilience 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 anticipate new listings to slow until sometime in April 2021. As we enter the spring season, we expect demand to remain high and new supply to be absorbed 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.

Interested in a monthly market update? Subscribe here.

March 2021 Greater Bay Area Market Update

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, DRE #02023642

SEE WHAT YOUR HOME’S WORTH HERE

Welcome to our March newsletter. This month, we examine how housing affordability in California may affect future demand by looking at housing affordability in relation to price, interest rates, and per capita income. 

COVID-19 cases continue to decrease after peaking in January. The United States is administering nearly two million vaccinations a day, and projects it will be able to vaccinate all U.S. adults by the end of May. While the feeling of hope is palpable, COVID-19 will continue to affect how we live and work for quite some time. We expect demand for housing to remain high for years to come. Even as it becomes safer for people to interact in office settings, we anticipate that working remotely, even if not every day, is here to stay. With less uncertainty around the future, the period of all-time-low mortgage rates is coming to a close, which may boost demand even further over the next several months. 

As we navigate an ever-changing economic landscape, we remain committed to providing you with the most up-to-date 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 March

Important trends to discuss this month are the connection between housing affordability and housing demand in California and the effects of rising mortgage rates. The chart on the next page compares the indices of three metrics—home price in California, the average 30-year mortgage rate in the United States, and per capita income in California—against housing affordability in California.

After the 2008 financial crisis, housing didn’t truly begin to recover until January 2012. As we can see from the chart, housing was most affordable in the first quarter of 2012 with 56% of the population estimated to have the means to afford a home. Within two years, affordability declined to a more steady state of around 30%. During the nine-year period that the chart depicts (Q1 2012–Q4 2020), homes in California, on average, increased in price over 80%. Of those homes, those in major metropolitan areas saw greater price appreciation. During the same period, per capita income increased around 40%, and mortgage rates moved between slightly under 3% to 5%, with an average of 3.87%. 

Interest rates have an interesting effect on affordability, but income level, unsurprisingly, seems to have the most influence. According to the California Association of Realtors (CAR), the minimum qualifying annual income has increased 129% for single-family homes and 111% for condos since the first quarter of 2012. If we compare 129% minimum income increase to the 40% per capita income increase during that same time, we clearly see why homes have become broadly less affordable. Currently, 27% of Californians can afford a home, and that number will likely decrease over the next year. 

Over the last 12 months, mortgage interest rates fell, hitting all-time lows in December 2020 at 2.66%, and demand skyrocketed. Typically, if all other factors are equal, a 1% drop in interest rates allows a buyer to afford a 13% higher price in terms of monthly payment. For example, a person paying 4% on a $1,000,000 mortgage pays the same amount each month as a person with a $1,130,000 mortgage at 3%. In California, the drop in interest rates caused a buying frenzy, dropping the already-low housing supply even lower.

Mortgage rates are starting to rise, although they still remain quite low by any historical standard, which will generally have an adverse affect on affordability. Affordability decreases as mortgage rates increase, because a 1% increase makes a home 13% less affordable on a monthly payment basis. Usually, demand would also decrease, which it is likely to do, to some extent; however, California is so undersupplied that it won’t matter. We may be at the start of an unusual dynamic of rising rates and rising home prices, which will drop affordability further.

Although we don’t expect the same level of buying in 2021 as we saw in 2020, the environment is right for demand to outpace supply. In the short term, we may even see a demand spike as those able to buy try to purchase before rates rise higher. We anticipate a competitive landscape for buyers over the course of this year. 

Conversely, now is an exceptional time to sell your home. Low inventory means multiple offers and fewer concessions. Our only note is that sellers are often selling one home and buying another, which makes working with the right agent even more important.

March Housing Market Updates
for the Greater Bay Area

The median single-family home price fell slightly in January 2021; however, year-over-year, single-family homes prices in the Bay Area increased considerably, up 20%. 

As you can see in the graph below, median condo prices by region were fairly flat over the course of 2020, without large price gains or losses. January 2021 showed a continuation of this trend without any large price movements in any region.

Single-family home inventory remained lower through 2020 relative to 2019 with the exception of San Francisco, which speaks to the desirability of the Bay Area. During the pandemic, fewer people wanted to leave, and more people wanted to move to the area. New listings throughout the year were lower than normal, while sales were much higher. By the end of 2020, sales remained steady as new listings declined. In January 2021, inventory continued to decline in every region of the Greater Bay Area. With such a consistent level of demand, prices will likely continue to appreciate throughout 2021.

Days on Market (DOM) declined further for single-family homes throughout 2020 and now into 2021, spending far less time on the market than last year. As we will see, the pace of sales has contributed to the low 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 (i.e., it is a sellers’ market), while a higher MSI means there are more sellers than buyers (i.e., it is a buyers’ market). In January 2021, the MSI remained below two months of supply for both single-family homes, favoring sellers.

In summary, the high demand and low supply present in the Greater Bay Area has buoyed home prices. Inventory for single-family homes and condos will likely decline further this year, and fewer sellers will likely come to market, which will potentially lift prices higher. Overall, the housing market has shown its resilience through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong through this period. 

We anticipate new listings to slow until around March 2021. While the winter season tends to see a slowdown in activity, January 2021 showed higher-than-normal sales, once again highlighting the desirability of the Greater Bay Area.

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.

Interested in a monthly market update? Subscribe here.

February 2021 Greater Bay Market Update

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, DRE #02023642

SEE WHAT YOUR HOME’S WORTH HERE

Welcome to our February newsletter. This month, we cover long-term trends in the United States, considering the ways in which history can inform our future. We also compare the 2020 and 2019 calendar years in our local area, using 2019 as a “normal” year to reflect upon 2020 trends. 

We don’t want to jinx anything, but we may have turned the corner on the pandemic. New cases are declining after peaking in early January, and the United States is administering over 1 million vaccinations a day. Whether we are on the back side or not, COVID-19 will have lasting effects on how we live and work. In particular, the pandemic has substantially raised housing demand. Working from home, or at least working in non-office settings, is here to stay, and all-time-low mortgage rates have incentivized renters to enter the housing market because the cost of buying may be lower than renting. For these reasons, we suspect that demand will continue to remain high through 2021.

As we navigate an ever-changing economic landscape, we remain committed to providing you with the most up-to-date 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 February

This month, we are taking a step back from discussing short-term trends so that we can dive into secular trends (trends that are neither seasonal nor cyclical) to help us understand the current housing environment. We use three metrics in the chart below—the ratio of single-family home starts (new construction)/single-family homes sold, Months of Supply Inventory, and average 30-year fixed mortgage rates—as they all provide insight into supply and demand. The first two metrics indicate levels of supply and demand. The ratio of single-family home starts to new single-family homes sold indicates the level of production versus demand, while Months of Supply Inventory (MSI) reflects the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. The third metric, average 30-year fixed mortgage rates, shows the cost of financing a home.

1980-1995
The early 1980s marked the highest mortgage rates in the United States—over 18%—as well as the secular decline in rates since that peak. During the 16-year period between 1980 and 1995, the ratio of housing starts to homes sold stayed fairly stable, which is ideal in terms of equilibrium in supply and demand. However, MSI began to shift lower around 1990, indicating that demand was increasing relative to supply. We saw a small peak in MSI in 1995, which declined until the housing bubble began to burst in 2005. During this period, mortgage rates experienced the steepest drop, with an approximately 11% decline. The difference in mortgage payment from 18% to 7% equates to about $10,000 per month in savings on a $1 million mortgage, making homes much more affordable. 

1995-2005
This period contained an economic growth cycle. Demand for housing dramatically increased, while the housing-starts-to-new-homes-sold ratio declined and MSI decreased and held at around four months of supply. Credit lending standards during this 11-year period were extremely lax while mortgage rates continued to decline, which further increased demand. Home prices more than doubled from 2000 to 2005. This period marked the beginning of the housing market decline and home appreciation deceleration.

2005-2020
Typically, MSI and the housing-starts-to-new-homes-sold ratio track together, but from 2005 to 2010, they started to show an inverse relationship. MSI rose, while the ratio declined. This happened because, with the Great Recession, demand and new production dropped precipitously and didn’t rebound until 2012. After 2012, the housing recovery began, and we experienced another stable state with fairly steady supply and demand dynamics and consistently low mortgage rates. 

During the pandemic and the resulting recession in 2020, mortgage rates fell further, and demand increased dramatically. MSI dropped sharply in 2020 due to high demand and dwindling supply. Mortgage rates have never been lower, which incentivizes more people to enter the market.  
 
The significance of the buying frenzies from 1995 to 2005 and during 2020 is best reflected in the homeownership rate, which also shows the lingering effects of the housing bubble. Home prices started increasing again in 2012, but the homeownership rate declined until 2016. From 2016 to 2020, about half of the homeownership increase occurred in the second quarter of 2020 alone. 

It’s difficult to overstate just how unique homebuying trends were in 2020. The homeownership rate increased 2.6% over a single quarter. For reference, out of 223 quarters, only three other quarters had a change above 1%. This was a gigantic jump.

Although we do not expect the same level of buying in 2021, the environment is right for sustained high demand. Supply remains low, and we anticipate a competitive landscape for buyers over the course of this year.

February Housing Market Updates
for the Greater Bay Area

The median single-family home price fell slightly in December 2020 from its all-time high in November; however, year-over-year, single-family homes prices in the Bay Area increased considerably, up 16%. 

As you can see in the graph below, median condo prices by region were fairly flat over the course of 2020, without large price gains or losses.

By county, condo price movements were mixed. The North Bay and East Bay counties had the largest gains over 2020, while San Mateo and San Francisco had the largest price decreases.

Single-family home inventory remained lower through 2020 relative to 2019 with the exception of San Francisco, which speaks to the desirability of the Bay Area. During the pandemic, fewer people wanted to leave, and more people wanted to move to the area. New listings throughout the year were lower than normal, while sales were much higher. By the end of 2020, sales remained steady as new listings declined. With such a consistent level of demand, prices will likely continue to appreciate throughout 2021.

Days on Market (DOM) declined further for single-family homes throughout 2020, spending far less time on the market in December 2020 than they did in December 2019. As we will see, the pace of sales has contributed to the low 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 buyers dominate the market, and there are relatively few sellers (i.e., it is a sellers’ market), while a higher MSI means there are more sellers than buyers (i.e., it is a buyers’ market). The MSI dropped further in December 2020 to 1.1 months of supply for single-family homes, which firmly favors sellers.

In summary, the high demand present in the Bay Area has buoyed home prices. Inventory for single-family homes and condos will likely decline further this year, and fewer sellers will likely come to market, potentially lifting prices higher. Overall, the housing market has shown its resilience through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong through this period. 

We anticipate new listings to slow until around March 2021. While the winter season tends to see a slowdown in activity, December 2020 showed higher-than-normal sales despite lower-than-normal inventory, once again highlighting the desirability of the Bay Area.

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.

Interested in a monthly market update? Subscribe here.

January 2021 Greater Bay Area Market Update

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, DRE #02023642

SEE YOUR HOME’S VALUE HERE

Welcome to our January newsletter. This month, we cover the state of employment in the United States and the likelihood of meaningful stimulus. We also dive into how the Democratic Party’s majority control over both chambers of Congress and the White House could affect asset prices and interest rates.

Most of California (around 98% by population) is under a stay-at-home order due to COVID-19, and the United States as a whole is seeing new peaks every day. With the approval of several vaccines, we finally have a glimmer of hope to move out of the pandemic. However, we know that transmission mitigation measures will still be necessary through 2021 at least. The pandemic has substantially raised demand for housing, and we suspect that demand will continue through this year. Mortgage rates remain at all-time lows, and buyers are devoting more of their total spending to housing costs. 

As we enter the new year, we continue to provide you with the most up-to-date 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 January

According to the ADP private payrolls, the U.S. lost 123,000 jobs in December 2020, marking the first contraction since April. Economists predicted an increase of around 60,000 jobs in December. However, they did not anticipate larger companies, especially in leisure and hospitality, laying off employees due to the reimplementation of stricter COVID-19 restrictions. 

Data from the Bureau of Labor Statistics differs in the exact numbers but shows the obvious deceleration in employment growth. As time passes, more and more jobs will be permanently lost, likely with real long-term economic impact: fewer people interacting in the economy usually indicates less buying, which trickles into less production, which trickles into fewer workers needed, leading to more unemployed workers.

Job growth is one of the clearest indicators of economic health, so the December jobs contraction underscores a slowing of the recovery and the need for government stimulus. Under the incoming presidential administration, government stimulus is far more likely but will take some time to implement. With aid, businesses will be able to continue operating and will likely be able to hire significant numbers of employees back, setting the recovery back on course.

To help struggling businesses and people, the government will have to spend significant amounts of money. Heavy fiscal spending is often associated with higher inflation. Currently, inflation is around 1.2% (the Federal Reserve targets 2%), and with the expected increase in government spending, the expected inflation will rise as well. Ultimately, money today is worth more than money in the future. Not only can you buy more today, but real interest rates (inflation-adjusted interest rates) will be lower as well, making a home bought today cost less than its future price. 

For example, the average 30-year mortgage rate is 2.67%, and if the inflation rate were 2%, the real interest rate on the mortgage would be 0.67%.

The financial circumstances on the individual level are highly variable, now more than ever. Those who have been unaffected (or even positively affected) financially are likely saving more money than ever. Strict COVID-19 restrictions have largely cut travel, dining, and entertainment expenses, allowing potential home owners to devote more of their income toward buying a home that they love. With historically low mortgage rates and an expected increase in inflation, it’s never been cheaper to finance a home.

Demand shows no sign of decline in the near term. Today, housing is one of the best investments one can make, as it has been historically.

January Housing Market Updates
for the Greater Bay Area

The median single-family home price remained at its all-time high for the second month in a row. Year-over-year, single-family home prices increased considerably, up 19% in the Bay Area. Inventory has continued to decline, as fewer homes have come to market and sales have remained high, contributing to the price increases.

In this newsletter, we break down the Bay Area into four regions, as follows:

As you can see in the graphs below, median condo prices were up in every Bay county. San Francisco condos rose month-over-month despite continued oversupply. We will continue watching the San Francisco condo market, but expect prices to decline into the winter months. 

Total inventory remained lower than last year with the exception of San Francisco. Like the rest of the country, demand is outpacing new supply, which buoys Greater Bay Area home prices. 

Since May, sales have increased and are still near their highest levels this year for single-family homes. Usually, we expect sales to decline in the autumn and winter months, but this year’s summer selling season was delayed and seems to be spilling well into autumn. Single-family home inventory is noticeably lower than last year across regions (except for San Francisco, which has started to trend lower), and is likely to decline as we make our way into the winter months. 

In November, sales outpaced new listings in every region. We expect sales to remain higher than usual during the winter months, as fewer listings come to market and the demand in the area remains high.

Days on Market (DOM) declined nearly 50% over the last 12 months. As inventory continues to decline, we expect the DOM to drop further. Listings are likely to have multiple offers and buyers will need to act quickly to secure the home they want. As we will see, the pace of sales affects Months of Supply Inventory (MSI) and has contributed to the low 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 of supply), which indicates a balanced market. An MSI lower than three means that buyers dominate the market and there are relatively few sellers (i.e., it is a sellers’ market), while a higher MSI means there are more sellers than buyers (i.e., it is a buyers’ market). The MSI remained below two for single-family homes, which favors sellers. The MSI for condos tends to be more balanced in the Bay Area.

In summary, the high demand in the Greater Bay Area has sustained home prices. Inventory for single-family homes and condos will likely decline further into the new year, and fewer sellers will likely come to market, potentially lifting prices higher. Overall, the housing market has shown its resilience through the pandemic and remains one of the safest asset classes. The data show that housing has remained consistently strong through this period. 

The autumn/winter season tends to see a slowdown in activity, although we did see a new trend toward the end of 2020 with higher-than-normal sales.

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.

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