The pandemic has somehow pushed median Bay Area home prices over $900,000. You read that right—you need nearly a million dollars to purchase an average home here! *insert crying emoji*
As we’ve seen for the last year, high demand for single-family homes in suburban areas and tight inventory has driven home prices up tremendously in most Bay Area counties (with San Francisco home prices being the one exception at less than 1% growth).
All-cash offers, waived inspections, and competitive bidding wars have become a mainstay in the real estate market these days. One agent in San Ramon mentioned seeing luxury homes sell for TWICE the county’s median home value in recent months. And buyers are even looking to snap up properties in outer-suburban cities like Gilroy, Manteca, and Morgan Hill.
It's rough out there for home buyers—bidding wars, crazy fast appreciation, and homes going into contract in a week! A strong stock market and low interest rates have increased the purchasing power of buyers. With such fierce competition, buyers need to get pre-approved and be ready to go see homes the second they hit the market to stand a fighting chance. You know what they say: “If you stay ready, you don’t gotta get ready”...or something like that.
Also, plot twist: millennials are unexpectedly the ones driving this market, buying multi-million dollar "starter homes". Amazing what you can afford once you stop going out to brunch for avocado toast.
Remember last March when the world shut down and we all rushed to the grocery stores to buy toilet paper in an irrational panic? Well, here we are one year later and that same energy seems to have translated to any decent house that pops up on the market. Along with many other agents, I've been spending the last many months taking a brutal beating with my buyers in this insane housing market. Buyers are waiving all contingencies and far exceeding the comp prices just for the chance to get a house. 20, 30, even 40+ offers are not uncommon anymore. And there's no signs of this letting up for the rest of the year. But unrelated good news: at least we get to procrastinate one more month until May 17th to do our taxes!
In a strange turn of events, rent levels and home prices have diverged across the country. Home values increased in all of the 100 largest metros in the U.S. But in some of the richest cities—rent prices fell, many by double-digit percentages.
Why is this very unusual trend happening? Like so many other financial and social matters, it might be the economic divide. The pandemic has unfortunately widened the gap between those who are thriving financially and those who are barely scraping by. While the stock market continues to go up, making wealthy people even wealthier, millions of Americans remain unemployed and struggling.
And the same is happening in our housing market. As demand for homes soars and prices are increasing at a much faster pace than incomes, high-end homeowners are seeing their property values skyrocket. Meanwhile, those looking to purchase low to middle-tier houses are finding it difficult to even afford a place.
But they're not ending up where you might think. SF residents are indeed leaving the city in droves, but they're not going very far. We keep hearing about this mass exodus to more affordable places like Austin or Denver, but USPS data shows that they're mostly heading across the bridges to other Bay Area counties including Alameda, San Mateo, and Marin. Maybe after things return to normal(ish), everyone will want to head back to the city again and there will finally be more inventory everywhere else!
ATTOM Data Solutions, the company that holds the premier U.S. property database, released its annual 2020 Grocery Store Wars analysis, which shows that living near certain stores like Whole Foods, Trader Joe’s, or ALDI, can largely impact home appreciation. They found that homes near a Trader Joe’s took the lead in home equity with homeowners earning an average of 37% equity compared to 33% for Whole Foods and 26% for ALDI.
For investors, it was the properties near ALDI that provided an average gross flipping ROI of 58% compared to 36% for homes near Whole Foods and 30% for Trader Joe’s.
Honestly, my plan was always to live near a Trader Joe’s anyway. Have you tried their bon bons?? But now that I know it can get me higher home equity too? Win/win.
Demand for housing has continued to rapidly grow throughout 2020, and it is only expected to surge even further as economies reopen in 2021. Zillow predicts that annual home sales will reach their highest since the 1980s, forecasting nearly 22% growth.
They also believe that city living will make a comeback next year, especially as the vaccine becomes more widely available to the general public. While a lot of young adults moved back in with their parents this year to save money, it is likely that once the economy bounces back, they will be moving back into big urban areas in droves. (Does that mean the sad SF condo market will finally make a comeback??)
Zillow also expects that buyers will continue having a hard time affording homes, particularly if mortgage rates start to increase in 2021 and housing prices remain high. At the same time, if rates are indeed predicted to rise later in the year, this may cause an even bigger buyer frenzy for those looking to lock in low rates ASAP. Sadly there seems to be no end in sight for bidding wars. :(
In an effort to build a cleaner and healthier city, Oakland City Council just banned natural gas in all new buildings. Berkeley, San Jose, and San Francisco have also followed suit and said "We're not passing gas either!"
But seriously, eliminating natural gas use in buildings will lower the risk of fire after an earthquake (important when you live in earthquake territory!) and improve overall indoor air quality. Studies have shown that children are 42% MORE likely to have asthma in a home that uses natural gas while cooking. I know, right? Who knew??
Amidst a tough year in terms of the pandemic, widespread economic shutdowns, business furloughs, and record high unemployment rates, one of the silver linings in the train wreck that is 2020 has been the boost in the real estate market. As more people began to work from home and interest rates dropped, the demand for homes surged which created a rush to purchase property.
But this may be creating somewhat of a false sense of security for the overall economy, as the booming housing market doesn’t necessarily reflect the portion of the population that remains unemployed and counting on mortgage forbearance benefits. There is definitely promising data that the economy is slowly healing, but with continued small business failures and corporate company bankruptcies, we should probably proceed with caution.
We know that real estate is booming, but not all homes are created equal. Which ones are flying off the shelves and which are getting stale from sitting out for so long? In Santa Clara County, single-family homes continue to be a hot commodity while condos and townhomes lag behind. Many sellers are having to drop their prices to attract buyers to their units. In SF, some agents are even offering free cars and roundtrip flights to Paris to incentivize condo buyers. So what’s the deal?
Condos are usually in high demand among middle income households, but with the pandemic-induced hit on the economy, these households are being forced to put their real estate plans on hold. Meanwhile, higher income earners have largely remained unaffected. Combine that with lower interest rates and the demand for extra space and yards being at an all time high, and it’s pretty clear why single family homes are getting multiple bids and going pending in less than a week. The bright side? You can probably get a pretty good deal on a condo or townhouse right now. And maybe even a free car on the side?
All things real estate.