Low interest rates, housing shortage, everyone working from home, etc etc etc., all of which came together to create the perfect storm for another record-breaking year in real estate. Here are the new housing records set in 2021.
Cheers to the new year with a more balanced housing market! Hopefully.
Housing is up more than 240% since 1989 and up 56% since 2013. WILD, right?? Well, take those numbers with a grain of salt.
In certain areas, yes housing may appear unaffordable to some. But it’s actually not as bad as it looks. To put home prices into context, look at mortgage rates over time. Typical interest rates were greater than 10% in 1989. 10%!!! So while prices were far lower back then, the cost of borrowing was way higher. And after adjusting for inflation AND interest rates, monthly mortgage payments are now actually 30% lower than they were in 1989.
Now ok fine, admittedly these statements don’t exactly apply to very high cost of living areas like New York City or Silicon Valley. But the point is, housing is not as expensive as it appears to be based solely on its sales price. You just have to look at the bigger picture to make a more realistic assessment.
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.
All things real estate.