If the record high home prices and low interest rates on new loans, that we’re seeing in this current housing market have you wondering, if you should sell and skip down the yellow brick road to a new house, you’re not alone. If you’ve been considering selling or buying a home this year, you’ve probably noticed that real estate has exploded despite the pandemic and it isn’t happening just in the Bay Area. It’s happening all over the country. Continue reading for my 2020 Bay Area Real Estate Market Review and predictions for 2021.
I have a lot of real estate agent friends in just about every state. And I can tell you I’m hearing the same thing from them too. Prices are on the rise and competition is high. Some have even told me that buyers are physically lining up outside of houses, six feet apart of course. If you’ve been asking yourself, what the heck is going on? You’re not alone. In this video, I’m going to break it down. And at the end, I’ll give you my personal thoughts on what turned 2020 into such a hot real estate market how it specifically affected the Bay area, where I live and my prediction for where we’re headed in 2021.
The Trifecta
We’re experienced at trifecta real estate situation, right now, with very low inventory, historically and insanely low interest rates and a very high demand. No matter what’s going on in the economy people have to live somewhere, right? But the increase in the home prices have people asking how is this happening in a pandemic, when unemployment rates have reached so high? Have you heard the saying, that we’re all in the same boat? Well, the truth is we may be in the same storm but our boats are very different. Based on the number of buyers actively looking in this market and the strong offers they’re putting into to buy a home, it seems the increased in appointment numbers having affected all home buyers across the board. Simply put, there are more buyers searching for homes right now then there are homes for sale.
Buyers looking for a home right now, should expect to be very competitive with their offers if they really want to get a house under contract. And we’ve all seen the reports of people leaving California for greener pastures. I know from talking to my real estate friends out of state they’re seeing a lot of new home buyers relocating from California. But why is there still so much competition to buy a home in California if people are leaving? And why is home inventory so low? I’ll share my thoughts on that too in a bit.
Taking a look back at the end of 2019 the median sale price in Livermore city in the East Bay Tri-Valley Area of the San Francisco Bay Area, was about $830,000 compared to $911,000 at the end of 2020. That’s a significant increase considering nine months of 2020 we were in a pandemic. A year ago, there were about a hundred homes on the market compared to 39 towards the end of 2020.
So why is inventory so low?
It’s understandable that a seller would postpone putting their house on the market right now. I mean, we are living in a pandemic where we can’t dine in a restaurant and have reduced capacity requirements in stores almost everywhere. So it makes sense that a seller wouldn’t want to take a risk and have a bunch of strangers coming in and out of their home. But this makes very strong sellers market, especially for those looking to relocate, making it a great time to sell, and buyers really have to bring in their best offers to beat out the competition.
You might be wondering, why we buyers be willing to pay so much more now than they would have just a year ago. Why not just wait for the market to level out? Well, have you seen the interest rates? Historically low interest rates have been all the buzz for several years now. But, right now we have past historically low and into like insanely low, rates are below two and a half percent, truly insane.
Fun Fact
When I bought my first home, I was thrilled to get a fantastic interest rate which is just 8.5%. I mean, I knew friends who had interest rates at 12% on their mortgages from just a few years earlier. Now that seems insane.
Homes are also selling really fast. For example, in Livermore, the average home is under contract in 15 days compared to 35 days just year ago. This means if you’re a buyer actively searching for your next home, you have to take action quickly when you find find the right one. Well, literally taking a night to sleep on it could mean waking up to find out it’s no longer for sale.
Just recently I listed the home for sale and Livermore. While in the coming soon stage, there was so much interest from buyers that we had offers on it before it ever went live on the market. I never had a chance to put a for sale sign in the yard.
Why is there such high demand?
Well, my personal thoughts are these, while the pandemic forced a lot of people out of work even more people in companies got creative with how they operate. Many scrambled to find viable solutions to work from home, early on some companies announced some employees could remain working from home until the end of the year. Some have even said that they would allow working from home indefinitely. Some companies already have much of their operation staff working from home and even operate out of cloud-off based offices. Like my brokerage EXP. Virbela office platform is amazing and honestly, we were built for this.
By the way, if you’re looking for an amazing cloud-based office for your company, you really should check it out. I’m happy to give you a personal tour. Check out the Virbela notes in the description below. As the months of the pandemic have dragged on, people in companies have adapted to working from home. I think the biggest effect this has had and I don’t think we’ve yet seen the totality of it yet, is working from home for many might just be a better option than anyone expected.
For employees, think about the hours gained going from a two-plus hour commute each day, to a 10 or 20 steps stroll to your workstation at home. The money saved on gas, and babysitting because there’s two or three less hours a day. Your kids need to be in daycare, waiting for you to make that drive home from work. Your health makeup even improved because you’re no longer rushing through a fast food drive through to squeeze in a quick lunch. Now you can take your time and make something healthy right in your own kitchen. And don’t think all the benefits are just for the employees alone.
Benefits to employers
Employers have benefits as well and likely more to come, should they choose to embrace this new way of operating. Companies can be considerably more profitable by switching to a work from home model, no longer paying for large corporate offices or business parks no more buildings to maintain, furniture to buy, electricity to pay for, and all the other expenses that come with keeping a building open for employees every day. Imagine how much that could change their bottom line.
So why is this affected real estate across the country? Well, for starters, many people no longer need to live within driving distance of their office. If they’re working from home, home can be anywhere. It can be near family. It can be in their favorite resort town. It can be where they can buy a large piece of land and build a huge dream home for a much more affordable price. Home and the home office can even be in a motorhome moving a new location every few days. Heck! It can even be on a cruise ship. Well, when they’re sailing again.
Another fun fact, I personally know an insurance broker who works from home in another state, and occasionally works well on vacation on the show. Hey, well, why not?
Not just in the Bay Area
This transition being made by many, is changing real estate in many cities across the country. Almost every agent I’ve spoken to has told me the prices where they live are on the rise. They often attribute this to California tech workers leaving California. And while I agree, it’s likely a contributing factor. One would also assume prices in California would be dropping, but that isn’t the case. At least not currently. We are seeing San Francisco Bay Area rent prices dropping and more rental vacancies right now than we’ve seen in a very long time. I’m going to venture to guess that some Bay Area renters have opted to leave the area, especially those who can now work from home. They can take this opportunity to relocate to more affordable places where they can buy a home. Will they return to California at some point? Will companies move away from working from home business models, once the pandemic is over? I’m sure some will, but my prediction is that the longer this continues, the more employers and employees will have adapted, and working from home might become a new normal, for the next generation, at least for some.
Do you think working from home will become a new normal or perhaps a more common business model in the future?
What to expect in 2021?
So what’s in store for real estate in 2021? I predict we’re in store for changes in the real estate market. And there might be some challenging times ahead for some. I anticipate we’re going to see some foreclosures by the end of 2021. How significant the impact will be on our overall market will depend on how the pandemic mortgage deferrals are handled. If you’re planning on buying or selling in 2021, now is the time to get your ducks in a row. Clean up your credit, save some cash for a down payment if you’re planning to buy. And get those home projects on your to-do list started if you’re selling. If you’re waiting to make a move, it’s best to be ready so you can take action quickly.