As spring flowers begin to bloom... and people are hopeful that we’ll soon have Covid in our rearview mirror, there’s no easy way to prepare a buyer for just how brutal the real estate market has become. As if we haven’t had enough craziness over the past 12 months!! If you’re selling your home, it’s a bit out of the ordinary too, with buyers lining up just to take their 15-minute tour of the home.
Recently I listed a home in the mid-$400K’s which was a fair price. We had over 75 groups of buyers through in the four days and over a dozen over-full price offers. Significantly over! Buyers are pulling out all of the stops to compete for that one house. If you’re a seller, I know there are a few things to consider like “where will you live”? Thankfully some are opting to take their equity and run, but I know that doesn’t work for everyone.
Every day I watch the list of homes come on the market and there are not nearly enough to catch up with the demand. If you’re a contingent buyer (having a home to sell before you’re able to purchase), unless you’re buying a tear-down… and even then the lines are forming, you probably don’t have much chance of being chosen. I’m not typically a negative Nelly when it comes to my Spring Newsletter -- I love to spread sunshine and fairy dust on the message; however, this is our reality. Let’s talk about why the market is the way it is.
RESULTS OF A YEAR-LONG PANDEMIC…
1. People are fixing up their homes more than we would normally see -- not to sell but to live in. Last year when the lockdown began, people were forced to function within their four walls differently than ever before. Remodeling and repurposing space was and continues to be a theme. In-home offices, zoom rooms for students, outdoor space to recharge your batteries. We all look at our surroundings differently than ever before.
2. Another consequence of the lockdown was that people are no longer required (or allowed) to go into their office setting. Instead, they were allowed to work from wherever they decided to call home -- some indefinitely. This unleashed an amazing plethora of options for home buyers.
3. Are we seeing bay area buyers? Yes, but we’re also seeing local buyers selling their homes and reaping the benefit of the increased values allowing them to bring a pocket of cash to the negotiating table. With that cash comes the ability to pay over appraised value. Not everyone can do that, but enough are which has created a little greedy taste in seller’s mouths to expect buyers to pay more than the asking price and ask for less.
How long will this continue?? That’s a crystal ball question, but we don’t see it slowing down.
4. Are people saving money because they’re forced to stay home? Maybe. They’ve also refinanced their current home loan in most cases to an amazingly low interest rate, lowering their monthly mortgage cost. All good effects of the pandemic, but again more reasons for homeowners to stay in their current home - lessening the odds of adding to any new inventory coming on the market.
5. Are people leaving California? You may think that the caravan is headed out of town, and yes… we are seeing retirees going to places like Montana, Idaho and the like but it’s not enough to make a dent in the amount of homes we need to fulfill the need.
6. Home values are up 18% overall in our region in the past year. Is that the highest we’ve ever seen? No but it’s close. Condos are up about half that percentage, but are an affordable option. The close proximity of neighbors isn’t as desirable to many buyers because of the pandemic and the monthly dues can be off putting, but with home prices skyrocketing, buyers are turning to the condo option.
7. Are all homes getting multiple offers? While every neighborhood and every home has seen an increase in value, not all are valued the same. Depending on the price range and, of course, the desirability based on condition, homes vary tremendously when it comes to market activity. The once ‘affordable home’ is now priced at half a million dollars and may not be in move-in condition. If you purchased your home more than two years ago, odds are you’re sitting on some nice equity. Our luxury market has also seen a significant amount of increased activity, as well. What was once rare is now common-place to see homes selling in excess of $2 million dollars.
8. Is this a bubble like we saw in 2005? In a word -- no. Between 2000 and 2005, prices in our region increased by 20% a year, every year for five years. The main glaring difference were the types of loans the borrowers were being given and the qualifications, or lack of qualifications that buyers had to provide. During those unprecedented times, you didn’t have to have a job or show proof of income. Looking back, it’s no wonder we experienced a mortgage meltdown. Today, there are very specific guidelines that borrowers have to follow. It’s lightened up a bit over the past few years but not to the degree that we had when anyone (and I mean anyone) could get a mortgage. Is that good? Absolutely! We were all hurt by the mortgage meltdown. Today buyers are enjoying historic low interest rates, but of course home prices are significantly higher. Is it a good time to buy? I say absolutely! Homeownership provides you with a sense of belonging. It gives you the opportunity to make improvements to your home and enjoy the equity. Will the market soften? Of course - what goes up eventually comes down but you’ll ride the wave with the rest of us. As long as you have a good job and don’t overextend yourself, there are more positives than negatives of owning a home. It’s cyclical but the sooner you jump in, the less you’re going to pay. If you sit on the sidelines, odds are you’ll miss the opportunity.
9. At the start of the pandemic there was a moratorium placed on landlords which prevented them from evicting their current tenants for lack of paying rent. Of course, most tenants are paying their agreed upon rent on time and without issue, but suffice it to say that I’m sure there are some who are not. It’s impossible to know what percentage of tenants have been financially affected enough to not be able to afford their housing costs over the last year, but California has imposed rules that prevent home owners from doing anything about it within its guidelines. This moratorium has been recently extended through the summer months. At the point that this is lifted, we may see some of those homes come on the market for sale as landlords become less and less enamored about being landlords.
10. Timing the real estate market is something that everyone tries to do. When I study the statistics of home sales this year versus last year at this same time, pended sales are up 40% but homes available for sale are down 56%. Those numbers amaze me! I, like you, wonder how long this will last but unless and until we get more homes to sell, our region will continue to be one of the hottest, most desirable places to live and I predict we’ll keep seeing more of the same.
As always, if there’s anything we can do to assist you with any real estate needs, referrals, recommendations or real estate advice, it would be our pleasure.
Heartfelt Easter Blessings, from our family to yours!