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.
– Jayson Madani, DRE #01431948
Welcome to our January newsletter. This month, we cover the state of employment in the United States and the likelihood of meaningful stimulus. We also dive into how the Democratic Party’s majority control over both chambers of Congress and the White House could affect asset prices and interest rates.
Most of California (around 98% by population) is under a stay-at-home order due to COVID-19, and the United States as a whole is seeing new peaks every day. With the approval of several vaccines, we finally have a glimmer of hope to move out of the pandemic. However, we know that transmission mitigation measures will still be necessary through 2021 at least. The pandemic has substantially raised demand for housing, and we suspect that demand will continue through this year. Mortgage rates remain at all-time lows, and buyers are devoting more of their total spending to housing costs.
As we enter the new year, we continue to provide you with the most up-to-date market information so that you feel supported and informed in your buying and selling decisions.
In this month’s newsletter, we cover the following:
- Key Topics and Trends in January: Economic recovery is decelerating after months of government relief inaction and a dramatic rise in COVID-19. Mortgage rates are at historic lows, which is likely to persist through 2021, making rising home prices more affordable. Heavy fiscal spending by the Democratic-controlled government could increase inflation.
- January Housing Market Updates: Single-family homes continue to experience high demand, lower inventory, and rising prices. Condo prices increased across the Bay Area.
Key Topics and Trends in January
According to the ADP private payrolls, the U.S. lost 123,000 jobs in December 2020, marking the first contraction since April. Economists predicted an increase of around 60,000 jobs in December. However, they did not anticipate larger companies, especially in leisure and hospitality, laying off employees due to reimplementation of stricter COVID-19 restrictions.
Data from the Bureau of Labor Statistics differs in the exact numbers but shows the obvious deceleration in employment growth. As time passes, more and more jobs will be permanently lost, likely with real long-term economic impact: fewer people interacting in the economy usually indicates less buying, which trickles into less production, which trickles into fewer workers needed, leading to more unemployed workers.
Job growth is one of the clearest indicators of economic health, so the December jobs contraction underscores a slowing of the recovery and the need for government stimulus. Under the incoming presidential administration, government stimulus is far more likely but will take some time to implement. With aid, businesses will be able to continue operating and will likely be able to hire significant numbers of employees back, setting the recovery back on course.
To help struggling businesses and people, the government will have to spend significant amounts of money. Heavy fiscal spending is often associated with higher inflation. Currently, inflation is around 1.2% (the Federal Reserve targets 2%), and with the expected increase in government spending, the expected inflation will rise as well. Ultimately, money today is worth more than money in the future. Not only can you buy more today, but real interest rates (inflation-adjusted interest rates) will be lower as well, making a home bought today cost less than its future price.
For example, the average 30-year mortgage rate is 2.67%, and if the inflation rate were 2%, the real interest rate on the mortgage would be 0.67%.
The financial circumstances on the individual level are highly variable, now more than ever. Those who have been unaffected (or even positively affected) financially are likely saving more money than ever. Strict COVID-19 restrictions have largely cut travel, dining, and entertainment expenses, allowing potential home owners to devote more of their income toward buying a home that they love. With historically low mortgage rates and an expected increase in inflation, it’s never been cheaper to finance a home.
Demand shows no sign of decline in the near term. Today, housing is one of the best investments one can make, as it has been historically.
January Housing Market Updates
for the Greater Bay Area
The median single-family home price remained at its all-time high for the second month in a row. Year-over-year, single-family home prices increased considerably, up 19% in the Bay Area. Inventory has continued to decline, as fewer homes have come to market and sales have remained high, contributing to the price increases.
In this newsletter, we break down the Bay Area into four regions, as follows:
- North Bay: includes Marin, Napa, Solano, and Sonoma
- East Bay: includes Alameda and Contra Costa
- Silicon Valley: includes San Mateo, Santa Clara, and Santa Cruz
- San Francisco city/county
As you can see in the graphs below, median condo prices were up in every Bay county. San Francisco condos rose month-over-month despite continued oversupply. We will continue watching the San Francisco condo market, but expect prices to decline into the winter months.
Total inventory remained lower than last year with the exception of San Francisco. Like the rest of the country, demand is outpacing new supply, which buoys Greater Bay Area home prices.
Since May, sales have increased and are still near their highest levels this year for single-family homes. Usually, we expect sales to decline in the autumn and winter months, but this year’s summer selling season was delayed and seems to be spilling well into autumn. Single-family home inventory is noticeably lower than last year across regions (except for San Francisco, which has started to trend lower), and is likely to decline as we make our way into the winter months.
In November, sales outpaced new listings in every region. We expect sales to remain higher than usual during the winter months, as fewer listings come to market and the demand in the area remains high.
Days on Market (DOM) declined nearly 50% over the last 12 months. As inventory continues to decline, we expect the DOM to drop further. Listings are likely to have multiple offers and buyers will need to act quickly to secure the home they want. As we will see, the pace of sales affects Months of Supply Inventory (MSI) and has contributed to the low MSI over the past several months.
We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California (far lower than the national average of six months of supply), which indicates a balanced market. An MSI lower than three means that buyers dominate the market and there are relatively few sellers (i.e., it is a sellers’ market), while a higher MSI means there are more sellers than buyers (i.e., it is a buyers’ market). The MSI remained below two for single-family homes, which favors sellers. The MSI for condos tends to be more balanced in the Bay Area.
In summary, the high demand in the Greater Bay Area has sustained home prices. Inventory for single-family homes and condos will likely decline further into the new year, and fewer sellers will likely come to market, potentially lifting prices higher. Overall, the housing market has shown its resilience through the pandemic and remains one of the safest asset classes. The data show that housing has remained consistently strong through this period.
The autumn/winter season tends to see a slowdown in activity, although we did see a new trend toward the end of 2020 with higher-than-normal sales.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.