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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.

Rama Mehra, LIC #01463395

The Big Picture

Quick Take:


Early innings for rising rates

Mortgage rates rose faster than expected in the first quarter of 2022, already surpassing forecasts for the year. The 30-year average mortgage rate rose swiftly in the two weeks after the Fed’s March meeting, up 0.5% between March 17 and 31 to 4.67%. This rapid increase has spurred purchases as buyers try to lock in lower rates before they climb higher. The data reflect the urgency buyers face. Nationally, home prices have reached yet another milestone: hitting above $200 per square foot, the highest level in history. But is the urgency justified? The answer is 100% yes, assuming you find the right home for you. Let’s dig into the numbers a little.

Housing Prices and Inventory in the United States April 2022 East Bay Market Update



The average 30-year mortgage rate was 3.11% in December 2021, rising to 4.67% by the end of Q1 2022. If you bought a home in December and financed it with a $500,000 mortgage loan at 3.11%, your monthly spend on principal and interest would be $2,138 — versus $2,584 if you got the same loan in March 2022 at 4.67%. Over the life of the loan, you’ll spend $160,560 more at 4.67%. In short, every percentage point matters significantly. As an aside, refinancing has decreased 60% below last year’s levels, according to the Mortgage Brokers Association. Economists and real estate experts seem torn between rates peaking just below or just above 5%.

Inflation's Effect on Rates (Long History) April 2022 East Bay Market Update

Because the Fed indicated the path of rate hikes for the rest of the year, mortgage rates increased in anticipation and are likely to be affected less when the Fed moves the federal funds rate in the future, if it sticks to its schedule. At this point, we can almost guarantee that rates will not decline substantially this year.

Inflation's Effect on Rates (Zoom In) April 2022 East Bay Market Update



As we look at historical trends in inflation, we are curious about how effective the Fed’s rate hikes will be. Rates rose significantly in the 1970s, partially due to the inflation rate at the time. Mortgage rates peaked at over 18%, which is unimaginable today. As we look at the long-term data, we see that inflation tends to decline when the federal funds rate is above the inflation level. Currently, the federal funds rate is far below inflation, and the Fed doesn’t plan to lift it near the inflation level because of the economic shock that would ensue. The current cost to borrow is actually negative, which may incentivize more people to borrow and spend more in the short term, driving inflation higher. At current mortgage and inflation levels, the borrower, not the lender, gains around 3% from borrowing.

Median Days on Market in the United States April 2022 East Bay Market Update



In addition to rising rates, supply still drives home prices. In March, the housing supply ticked up ever so slightly from the all-time low in February. We are entering the spring buying season, however, with the lowest inventory on record. From March 2020 to March 2022, the housing supply declined 62%. Over the past three months, which had the lowest inventory on record, home prices increased nearly 10%. Rising rates, in the short term, boost demand because potential homebuyers want to get ahead of the increase, but in the long term, they reduce demand. Because the market is so undersupplied, less demand is actually a good thing. Home prices simply cannot maintain the rapid increases. Although a housing bubble isn’t likely yet, a sustainable growth rate is better and safer for the long term.


The Local Update

Quick Take:


Home Prices Close the First Quarter at Record Highs

Single-family home and condo prices rose significantly over the last two months, reaching all-time highs for single-family homes for Alameda County, while Contra Costa prices landed just below peak. Because sales often have a one-month lag, with homes going under contract around a month before the sale is complete, we cannot yet determine how significantly increasing rates have hit the market. 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 East Bay housing market has a major advantage in that high demand is constant. Despite the huge increases in home prices over the past 12 months, the lack of housing supply will keep prices rising in the coming months.  

April 2022 East Bay Median Home Prices



The Fed is expected to raise interest rates by 0.25% at least six times this year, going from 0% to 1.90%. 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, 40-year-high inflation rate, 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 remain 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.

Low, but RISING inventory

The East 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. Although the first quarter of 2022 had the lowest inventory on record, we are pleased to see that inventory is increasing. If this upward trend continues into the second quarter, that will be a large indicator that the housing market is normalizing. 

April 2022 East Bay Single-Family Homes Inventory
April 2022 East Bay Condos Inventory


Sales have still 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 5% yet, but it almost certainly will. 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 selling extremely quickly in these luxury markets. Buyers must put in competitive offers, which, on average, are 16% above the list price for single-family homes and 6% above list for condos.

April 2022 East Bay Months of Supply Inventory

 

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.

April 2022 East Bay Months of Supply Inventory by County

What’s next?

Home prices will likely continue to rise, as well as the mortgage rates. But we’re seeing a window for change so make sure you stay tuned for our market updates or follow our socials to get the latest news.

We keep ourselves updated with the latest news and updated data so that you won’t have to. If you need to talk to a real estate professional to fully understand the market and how you can proceed with your housing plans, don’t hesitate to call 925-415-0835 and our team will take care of you!

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.

Rama Mehra, LIC #01463395

The Big Story


AMPLIFIED Seasonal Trends

Before the pandemic, seasonality in the housing market was something everybody expected: prices rose from January to June (with low but rising inventory), and flattens from July to December (with high inventory but declining).

Things are different since January 2020. Home inventory hit the record low with just over a million homes available in the market. Then the pandemic hit and there became a huge demand for homes, further declining the inventory to shockingly low levels.

From January 2020 to June 2021, inventory decreased by 49% and prices increased by 32%! This led to doubling the price increase of the previous 3 years combined. By January this year, inventory had reached an all-time low by a 60% decrease, and prices reached the record high by 34%!

Homes are getting sold much faster and in a more efficient way. Even before the pandemic, homes are selling quickly because of technology and increased competitive market. Increased efficiency match right people with the right home quickly, making the inventory drop faster while new homes are not 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.


The Local Updates


Home prices hit record highs in front of Fed rate hikes

Single-family home and condo price per square foot rose to all-time highs in February 2022 in the East Bay. 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 East Bay housing market has a major advantage in that people simply want to live there.

The East Bay tends to have high employment rates, racial diversity, and a growing population of affluent young professionals.

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 East Bay’s 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 East 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 East Bay 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 (MSI) further indicates strong sellers’ market

Homes are still selling extremely quickly. Buyers must put in competitive offers, which, on average, are about 5–13% above list price.



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 market is very hot right now. If you have any further questions about the market, the perfect time to buy or sell a home, or are in need of a real estate professional, give us a call at 925-415-0835!

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.

Rama Mehra, LIC #01463395

The Big Story

Mortgage Rate Hikes Now Definite

Quick Take:

The Fed Dual Mandate

On January 26, 2022, the Federal Reserve (the Fed) indicated that it would raise the federal funds rate as soon as March for the first time in over three years. The Fed adjusts the federal funds rate to influence broader interest rates, which directly affect the borrowing costs of banks. Generally, if bank borrowing costs are low, consumer borrowing costs will be low(er), and vice versa. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. Employment and price stability are long-term indicators for home prices. 

We will start with the good news. Employment rebounded considerably from the highest spike in unemployment in modern history in spring 2020 to pre-pandemic levels by December 2021. As you might imagine, high unemployment rates for extended periods lead to less overall wealth: Fewer people buy homes, and more people experience foreclosures, thereby lowering home prices. Although unemployment seemed dire in 2020, employment is now on solid ground. If we view the current record-high 10.5 million job openings, along with the nearly 10 million new businesses created over the past two years, we get a better understanding of why unemployment dropped so significantly despite a record number of job openings. Simply put, people are working, and that is good for individual wealth and the larger economy. 

Bay Area February 2022 Market Update Us Unemployment Claims



On to the kind-of-good, kind-of-bad news … rising mortgage rates could help curb inflation and create a more balanced housing market (although 2022 will surely be a sellers’ market), but it will make homes more expensive monthly, hitting first-time homebuyers the hardest. With the federal funds rate at 0% and inflation at a near-40-year high, rate hikes are expected to combat inflation. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices. We can look to the last inflationary period, the 1970s, as a loose guide. Inflation today is likely to be much more transitory than it was in the 1970s, but we can still expect a rise in mortgage rates like we saw then. Luckily, however, we will certainly not reach the 18+% mortgage rate that we saw in the early 1980s. As it was then, the Fed is obligated to do something now. While we wish that we could always be in periods of high employment, low inflation, and low-interest rates, as we experienced for nearly a decade before the pandemic, we must recognize the atypical nature of that period. 

Inflation's Effect on Rates Bay Area February 2022 Market Update


As we enter this new chapter of rising mortgage rates, we don’t expect home prices to change significantly, if at all, because supply is still such a driving factor. In December 2021, there were 57% fewer homes on the market than in December 2019. The low supply means that demand can decline without affecting prices. Does it matter if 10 offers drop to five? Probably not, and it might even create a better market. Sellers tend to become buyers, so unless you’re a first-time homebuyer, you’ll likely experience both sides of the market. 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. 

Housing Inventory in the United States Bay Area February 2022 Market Update


We don’t expect price appreciation to see the record gains we experienced over the past two years, but we do expect home prices to increase. Another factor at play over the past two years was a sharp increase in disposable income, which has now normalized. People had more money to spend over the past two years, and we saw that throughout markets: The housing market, the stock market, cryptos, art, jewelry, etc. all reached record high prices. As disposable income has dropped to a more normal level, we can expect assets to appreciate at a more normal pace.

If you have 30 minutes, Ray Dalio’s video How the Economic Machine Works is well worth watching.


The Local Lowdown

Quick Take:


Home price movements in a rising rate environment

The single-family home market in the Bay Area began the year below all-time highs as the market cooled from the huge price gains at the beginning of 2021. After prices appreciated significantly in the first half of 2021, it made sense that price appreciation slowed or reversed in the second half of the year, a trend that has continued into 2022. The housing market in the Greater Bay Area, however, has a major advantage in that a high number of affluent people simply want to live there, which has reduced inventory to record lows. 

Condo prices have held relatively stable over the last several months with the exception of San Francisco condos, which declined sharply from the November peak. After digging into the San Francisco January data, we found that a higher-than-usual number of smaller condos were sold, and that condo prices weren’t actually falling. The pandemic hit demand for condos harder than single-family homes in the Bay. However, sales indicate that demand is back, although we expect price appreciation to slow as we move through the winter months, a seasonal norm.

Mortgage rate hikes really only move demand in one direction: lower. We are now entering a period during which 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. 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. 


Record low inventory in the Greater Bay Area

We entered 2022 with historically low inventory. The sustained high demand and lack of new listings over the past year brought supply 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 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.

Greater Bay Area Days on Market Bay Area February 2022 Market Update

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 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). In January, MSI remained exceptionally low in the Bay Area, indicating a strong sellers’ market. Notably, the January increase in MSI is less instructive than usual — sales slowed because inventory is so low, not because of lack of demand.

East Bay Days on Market Bay Area February 2022 Market Update
MSI by County Bay Area January 2022 Market Update

The market is very hot right now. If you have any further questions about the market, the perfect time to buy or sell a home, or are in need of a real estate professional, give us a call at 925-415-0835!

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.

Rama Mehra, LIC #01463395

The Big Story

New Year, Same Housing Market

Quick Take:

The Local Lowdown

A cooling market means more room to run in 2022

Quick Take:

THE BIG STORY

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.

Housing Inventory in the United States Bay Area January 2022 Market Update

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. 

New Listings in the United States Bay Area January 2022 Market Update



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 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.


Want to know the value of your home? Click here.


THE LOCAL LOCKDOWN

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.

Greater Bay Area Median Price Changes Bay Area January 2022 Market Update

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.

East Bay Inventory of Single Family Homes Bay Area January 2022 Market Update

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. 

Days on the Market November 2021



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.

Greater Bay Area Months of Supply Inventory Bay Area January 2022 Market Update

There are a lot of things happening this 2022. If you have any further questions about the market, or are in need of a real estate professional by your side at all times, don’t hesitate to give us a call at 925-415-0835!

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.

Rama Mehra, DRE #01463395

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 mean 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.

Real GDP in the United States October 2021 Greater Bay Area Market Update

Another Source of Economic Growth

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.

Business Application in the United States October 2021

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.

Job Openings in the United States October 2021

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.

Fixed Mortgage Rates October 2021

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%.

Greater Bay Area Median Home Price October 2021
Greater Bay Area Median Price Changes October 2021

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.

Bay Area Regions' Median Prices- Single Family Homes October 2021
Single-Family Home Prices by County October 2021

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.

Bay Area Regions' Median Prices - Condos October 2021
Condo Prices by County October 2021

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.

North Bay Inventory - Single-Family Homes October 2021
East Bay Inventory - Single-Family Homes October 2021
Silicon Valley Inventory - Single-Family Homes October 2021

San Francisco Inventory - Single-Family Homes October 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.

Greater Bay Area Days on Market October 2021
Days on Market by County October 2021

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.

Greater Bay Area Months of Supply Inventory October 2021
MSI by County August 2021

Summary

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.

Planning to buy or sell your home? Give us a call: 925-415-0835!

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.

Rama Mehra, DRE #01463395

Welcome to our July newsletter, where we’ll explore residential real estate trends in the East Bay 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.

Employment Level in the United States

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.

Employment Level in the United States Bay Area Market Update July 2021

Mortgage Rates

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.

30-Year Fixed Interest Rate Bay Area Market Update July 2021

Existing Home Sales

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.

Existing Home Sales Bay Area Market Update July 2021

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.

Existing Home Sales Bay Area Market Update July 2021

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 East Bay

During May 2021, in the East Bay, the median single-family home and condo prices rose to new all-time highs.

East Bay Median Home Prices Bay Area Market Update July 2021

Year-over-year, single-family home prices rose significantly in Alameda and Contra Costa.

East Bay Median Price Changes Bay Area Market Update July 2021

As you can see in the graph below, median condo prices increased considerably in the East Bay, and are now at all-time highs.

Condo Prices by County Bay Area Market Update July 2021

Single-family home inventory began to climb at the start of 2021, but declined in May, as sales remained high. In 2020, fewer people wanted to leave the East Bay, while more people wanted to move to the area. This trend caused an increase in population, which drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In May 2021, the East Bay had nearly 16% fewer homes for sale than it did in May 2020. The sustained low inventory will likely cause prices to appreciate throughout 2021.

East Bay Inventory Singe-Family Homes Bay Area Market Update July 2021

The number of condos on the market declined slightly in May 2021 to last year’s levels. Condo demand remains incredibly high in the East Bay.

East Bay Inventory Condos Bay Area Market Update July 2021

Both single-family homes and condos spent far less time on the market in May 2021 than they did in May 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.

East Bay Days on Market Bay Area Market Update July 2021
Bay Area Market Update July 2021

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 one month of supply for single-family homes and condos, indicating that the market strongly favors sellers.

Bay Area Market Update July 2021
Days of the Market by County Bay Area Market Update July 2021

Summary

In summary, the high demand and low supply present in the East Bay 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. Call us today! (925) 415-0835

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.

Rama Mehra, DRE #01463395

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:

Be the first to receive our newsletter. Sign up here.


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. 

Greater Bay Area Market Update June 2021 Money Supply and Velocity

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.

Greater Bay Area Market Update June 2021 Home and Stock Prices in the United States

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.

Greater Bay Area Market Update June 2021 30-Year Fixed Interest Rate

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%.

Greater Bay Area Median Home Price Market Update June 2021
Greater Bay Area Median Home Price Changes Market Update June 2021

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.

Greater Bay Region Median Prices - Singe Family Homes Market Update June 2021
Greater Bay Area Single Family Home Prices by County Market Update June 2021

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.

Greater Bay Region Median Prices of Condos Market Update June 2021
Greater Bay Area Condo Prices by County Market Update June 2021

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.

North Bay Inventory Single Family Homes Market Update June 2021
East Bay Inventory of Single Family Homes Market Update June 2021
Silicon Valley Inventory of Single Family Homes Market Update June 2021
San Francisco Inventory of Single Family Homes Market Update June 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.

Great Bay Area Days on Market June 2021
Days on Market by County June 2021

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.

Greater Bay Area Months of Supply Inventory June 2021
Months of Supply Inventory by County in Greater Bay Area June 2021

Summary

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.

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.

Rama Mehra, DRE #01463395

Welcome to our May newsletter, where we dive into national and local residential real estate trends. This month, we examine how the housing undersupply is increasing home prices and paving the way toward a more balanced market. We also discuss the sharp decrease in mortgage rates and the state of employment, which is historically one of the leading indicators of home valuations.

Currently, the housing supply is so low that demand far outpaces the number of homes on the market. Freddie Mac estimates that the United States is about 4 million homes short of meeting buyer demand. The housing shortage compounds when potential home sellers decide to stay out of the market because they feel they won’t be able to find a home to buy after they sell. Home builders, who have been slow to ramp up production after the 2008 crash, are drastically increasing new construction because they want to capitalize on the sustained demand for housing.

We expect relative housing demand to remain high over the next 12 months at the very least. New homes take time to build and will not come to market at the rate necessary to balance it. In March 2021, U.S. home builders started constructing homes at a seasonally adjusted annual rate of 1.74 million, up 37% compared to March 2020. New construction will eventually alleviate some of the shortage, but housing will remain undersupplied for months, if not years, to come. 

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:

Be the first to receive our newsletter. Sign up here.


Key Topics and Trends in May

Last year, many individuals and families experienced feast or famine. Those lucky enough to stay financially unaffected by the pandemic were likely saving or investing more than expected, accruing more and more capital. At the same time, interest rates plummeted to hyperlow levels as millennials, the largest living adult generation, grew to prime homeownership age. With these factors combined, we saw the demand for homes skyrocket in 2020. The near-universal ability to work remotely changed motivations for moving. Relocating for a job or to be closer to the office was no longer necessary. However, due to the unique requirements of working from home, people began wanting more space. As a result, single-family home demand rose steeply, while condo demand lagged. As sellers listed condos, they bought single-family homes, driving single-family home inventory down. As the supply of homes declined, fewer new listings came to market—in part, because of the difficulty of finding a new home after selling.

One reason for the housing shortage has been the understandable hesitancy of builders to construct new properties since the 2006–2008 housing crash; however, this lack of new construction means that there aren’t enough homes on the market to meet the unexpectedly high demand. Over the last six months, new construction has ramped up considerably to an annualized 1.74 million new homes. The largest gains in new-home construction occurred in the Midwest, where housing starts more than doubled on a monthly basis. The Northeast and the South also saw faster rates of new-home construction, while home-building activity slowed in the West. Additionally, established metro areas lack land upon which to build, so adding meaningfully to supply through new construction can be challenging or fully unattainable.  

As you can see from the chart below, new construction is now in the pre-housing bubble levels as home builders react to the surge in home prices and demand.

New Housing Construction Q1 2000 to Q1 2021

Mortgage rates rose significantly, slightly over 50 basis points, from January 2021 to mid-April 2021, but dropped sharply back below 3% in the second half of April. Although interest rates are still expected to rise to 3.7% over the course of the year, according to the Mortgage Bankers Association, the mortgage rate drop shows the non-linear path that rates will likely take. Because the mortgage rate affects affordability, the current low rate will only increase demand in the short term.

30 Year Fixed Interest Rate Greater Bay Area Market Update May 2021

High unemployment is one of the strongest predictors of falling home prices over a two-year period. The chart below illustrates the employment cost of a recession. Total employment tends to grow at a fairly consistent rate during economic expansions. The green line illustrates the expected level of employment had the pandemic never happened. As that green line shows, we are nearly 11 million jobs below where employment was expected to be after the first quarter of 2021. Twice as many workers are currently unemployed than in February 2020. The initial pain of unemployment has been dampened by government relief. Mortgages in forbearance and foreclosures are low, as are delinquencies in credit card debt. However, we will continue to monitor unemployment in order to gauge future market conditions. 

Employment Level in the United States March 2011 to March 2021

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, conditions are 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.

May Housing Market Updates for the Greater Bay Area

During March 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 21%.

Greater Bay Area Median Home Price May 2021

Prices in every region and county were up in March. The North Bay, East Bay, and Silicon Valley reached all-time highs in March. San Francisco is still slightly off peak prices for single-family homes. The sustained price appreciation emphasizes the demand in the area.

Greater Bay Area Median Prices Single Family Homes May 2021

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

Greater Bay Area Median Prices Condos May 2021
Greater Bay Area Condo Prices by County May 2021

Single-family home inventory began to climb over the last two months in anticipation of the spring season, when more sellers typically come to market. In 2020, fewer people wanted to leave the Bay Area and more people wanted to move there, which drove inventory down to record low levels. New listings, therefore, improve the current market conditions. Since the start of 2021, more homes than usual have come to market, causing inventory to rise. However, inventory is still low, especially in relation to demand, and the sustained low inventory will likely cause prices to appreciate throughout 2021.

East Bay Inventory Single Family Homes May 2021
Days on the Market by County May 2021

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 March 2021, the MSI fell below two months of supply for single-family homes, indicating that the market strongly favors sellers.

Greater Bay Area Months of Supply Inventory May 2021
Months of Supply Inventory by County March 2021

Summary

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 accelerate into the summer months. The current market conditions could withstand a high number of new listings coming to market, and more sellers could enter the market to capitalize on the high buyer demand. As we enter 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’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.

Click here for the January market update.

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.

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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.

secular trends in supply and demand

1980-1995 Highest Mortgage Rates

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 Economic Growth Cycle

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.

homeownership rate in the united states

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.

quarter-over-quarter change in home ownership rate

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 East Bay

The median single-family home price rose to another all-time high, and condo prices fell month-over-month; however, year-over-year, both single-family home and condo prices increased considerably, up 20% and 15% respectively. 

east bay median home prices
east bay median price changes

As you can see in the graph below, median condo prices increased in both counties. Contra Costa condo prices are notably higher, with an almost 19% year-over-year gain.

condo prices by county

Single-family home inventory remained lower through 2020 relative to 2019, which speaks to the desirability of the East 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.

east bay inventory of single family homes

The number of condos on the market declined significantly in December. New condos coming to market outpaced sales every month in 2020 except for November and December, when sales rose higher than new supply.

east bay inventory of condos

Days on Market (DOM) declined further for single-family homes throughout 2020, but both single-family homes and condos spent 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.

east bay days on market
days on market by county

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 0.4 months of supply for single-family homes and 1.1 months of supply for condos, both of which firmly favor sellers.

east bay months of supply inventory
monthly supply inventory by county

Summary

In summary, the high demand present in the East Bay 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 East Bay.

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.

Click here for the January market update.

Looking for a realtor in the Bay Area? Call us at 925-415-0835!

Welcome to our November market update for East Bay. This month, we take a look at the ways in which current U.S. economic conditions are affecting local, state, and national real estate markets. In particular, we examine some crucial economic indicators, such as third-quarter Real Gross Domestic Product (GDP)1 and new housing permits. Although California’s COVID-19 cases remain fewer per capita than those of most other states, cases are rising in California, and the United States as a whole is seeing new peaks every day. Even amidst this uncertainty, demand for homes has never been higher. Mortgage rates continue at all-time lows, and buyers are devoting more of their total spending to housing costs. As we make our way through the autumn months, 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. 

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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 November

In this issue, we dive into some key economic indicators that tend to affect long-term home prices. GDP and employment together explain much of the economic climate and typically trend with housing prices, but they do not explain the current rise in home prices. We will still go over the ins and outs of these indicators, however, because they have received so much press and may affect home prices in the future.

The U.S. Bureau of Economic Analysis reported a 7.4% third-quarter gain to GDP, which is the broadest measure of goods and services produced. During the second quarter of 2020, GDP dropped 9.5% quarter-over-quarter. The second-quarter drop was so sharp that the third-quarter bounce was expected. The long-term effects of the initial drop, however, have yet to be seen. Economists expect lower fourth-quarter GDP growth, which will not make up all the ground lost in the second quarter. Ultimately, the loss in GDP will likely be permanent. 

GDP and Output Loss


The chart below illustrates the cost of a recession. While it depicts U.S. GDP from 2005 to present, it illustrates economic patterns that occur in all recessions. GDP tends to grow at a fairly consistent rate during economic expansions. The dotted line in the chart represents the predicted GDP had the 2008 financial crisis never happened, and the green line illustrates the expected third-quarter 2020 GDP had the pandemic never happened. As that green line shows, we are 40% below where GDP was expected to be this fourth quarter. In other words, we are still underwater despite the impressive third-quarter 2020 increase in GDP.

GDP and Output Loss East Bay November 2020 Market Update

As of October, the Bureau of Labor Statistics reported that 11.1 million workers remained unemployed, which is an unemployment rate of 6.9%. However, the number of out-of-work individuals collecting unemployment insurance has dropped to 7.3 million. In September, the number of unemployed workers and the number of those collecting unemployment insurance were roughly the same. The large number of unemployed workers without government assistance will affect the rental market first, because those working in the hospitality and leisure industries have been most affected by unemployment, and those individuals tend to be renters rather than homeowners.  

Employment Rate

The employment level does matter in the long term, particularly for the housing market. Disposable personal income and savings, which both dropped in the third quarter, are two of the most important factors when considering whether or not to buy a home. As a result, we will continue to monitor these numbers.

Total Nonfarm Private Payroll Employment in East Bay November 2020 Market Update

Existing and New Homes Trend

Despite suboptimal major indicators, housing prices have risen considerably. Nationally, home prices have never been higher, and the high demand for single-family homes has dropped the Months of Supply Inventory to the lowest level ever, according to the National Association of Realtors. Months of Supply Inventory is an important marker of real estate market health because it measures how many months it would take for all current homes for sale on the market to sell at the current rate of sales. Low Months of Supply Inventory means that there is a high demand for homes that will push prices higher more rapidly. 

Not only are sales of existing homes up, but so are home building permits. The number of home building permits is the highest it’s been since the housing bubble burst in 2006. 

New Housing Building Permits East Bay November 2020 Market Update

Rise of Housing Demand and House Prices

The rise in housing demand and price under the current economic scenario speaks to three factors: (1) the asymmetric effect of the pandemic on personal income; (2) monetary policy (low interest rates); and (3) buyer preference. Many people have not experienced negative financial effects from the pandemic. An average person who did not lose their job may have even gained financially through a decrease in expenses. Less opportunity for travel, entertainment, and leisure activities could result in an increase in savings. At the same time, mortgage rates are historically low (2.78% as of November 5, 2020) and will remain low for the foreseeable future, making financing higher-priced homes more affordable. And finally, because so much time is currently being spent at home, buyers are willing to use more of their income to create nicer living spaces, buying larger homes, luxury furniture, and new appliances.

In both the short and long terms, housing is one of the best investments one can make.

November Housing Market Updates for the East Bay

Median single-family home prices continued to substantially increase year-over-year with a median home price of $1.05 million in Alameda, an all-time high, and $783,000 in Contra Costa.

East Bay Median Home Prices November 2020 Market Update

Year-over-year, median single-family home and condo prices were substantially up in both countries.

East Bay Median Price Changes November 2020 Market Update
Condo Prices by County East Bay November 2020 Market Update

Single-Family Homes and Condos Inventory

Total inventory continued to decline as the number of sold homes rose, far outpacing the new listings that came to market. Like the rest of the country, demand is outpacing new supply, which buoys East Bay home prices. Single-family home inventory is noticeably lower, and is likely to decline as we make our way into the winter months. 

The number of condos on the market has increased fairly consistently since May. The demand for condos and new condos coming to market have stayed about the same each month since May with slightly more condos coming to market than bought, which has caused inventory to rise. Condo inventory is 14% higher than last year. However, demand for condos is still high.

East Bay Inventory

East Bay Inventory November 2020 Market Update

Single-family homes sales have climbed since the initial months of the pandemic (March through May). Generally, buyers and sellers left the market in April and May, causing pent-up demand. Sales increased and are still near the highest level 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 into autumn.

East Bay Home Sales November 2020 Market Update

East Bay Days of Market

The Days on Market (DOM) is lower year-over-year. Months of supply inventory has continued to stay low because of the inventory decline and faster pace of sales.

East Bay Inventory Days on Market November 2020 Market Update
Days on Market by County East Bay November 2020 Market Update

East Bay Months of Supply Inventory

We can use Months of Supply Inventory (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 buyers dominate the market and there are relatively few sellers (i.e., it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (i.e., it’s a buyers’ market). The MSI remained at 0.8 for single-family homes and 1.9 for condos, both favoring sellers.

East Bay Months of Supply Inventory November 2020 Market Update
Months of Supply Inventory by County East Bay November 2020 Market Update

East Bay Market Update Summary

In summary, the high demand in the East Bay has sustained home prices. Inventory for single-family homes will likely decline further as we enter the winter months 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 safest asset classes. Economic indicators are in an anomalous state, meaning that they are out of trend with each other. The data show that housing has remained consistently strong through this period. 

We anticipate new listings to slow through the holiday months. Condo prices will likely remain stable with no outsized gains or losses through the winter months. The autumn/winter season tends to see a slowdown in activity, although we may see a new trend this year 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 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.

Read about the December market update here.

Call us today at 925-415-0835 so we can start planning for your home goals!

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