Tuesday, March 2, 2021

March 2021 Silicon Valley Real Estate Update - A Market on Fire


In the 18 years that we have been in business, we have seen our share of competitive bull markets in the real estate industry. Yet 2021 has unveiled a level of aggression that even we have never seen before. Buyers have been desperately pushing over list prices and appraisal values, often in $50,000 to $100,000 increments or greater. I equate this to a poker game where players are raising with $50,000 to $100,000 chips at a time. Often Buyers have been all-in with their savings and investments. With the current work/life situations caused by the pandemic likely to linger, Buyers have been laser focused on the Single-Family Home sector as Buyers have been looking for more bedrooms and more backyard space. This is directly causing unprecedented bidding wars.

 

Why is This Happening?

 

This is an example of the inequities that are on full display in our microeconomy. There are certainly many in our nation that have been impacted by the pandemic. However, in the Silicon Valley, it provided an even deeper advantage especially to those in the technology sector. Unlike like those that have been impacted locally or in the rest of the nation, the technology, medical and financial sectors continue to have high employment rates. When a dual income family remains employed, so does their confidence in pursuing or upgrading their housing needs. Also unique to the Silicon Valley are stock options or restricted stock units, which are the life blood of Silicon Valley down payments and wealth creation. With the NASDAQ trading 53% higher than the same time last year, Bay Area home buyers have the collateral to back up their purchases. Lastly, once again record low interest rates, designed to bolster the overall economy, further provides local homebuyers with access to money at a very low cost. This perfect storm is at the root of the hyperactivity in our real estate market.

 

State of the Market

 

As forementioned, Single Family Homes are on fire pretty much anywhere you go in the Silicon Valley and even in the nation. The trend of buying in the East Bay has elevated to astronomical levels in 2021 as Buyers continue to realize that they get much more for their money and they are expecting not to go back to the office in the near future. It is my opinion that Buyers should be cautious with this assumption, I believe that companies will eventually want workers back in the office. In the blink of an eye you may find yourself in a 3-hour commute a couple years from now.

 

Bidding wars abound and we are in a full Sellers’ market. In 2020 the Townhome and Condominium markets struggled, however this year both of these sectors have been showing signs of life. This is likely due to Buyers being priced out of the Single-Family Home market and shifting to the Townhome and subsequently the Condominium market. Even San Francisco in the last few weeks has seen a pickup in demand in the Condominium sector. 

 

Buyer Advice

 

This Sellers’ market is not for the faint of heart. As a Buyer you need to look deep within and ask yourself are you willing and in a position to be able to do what it takes to win a home. If you are looking for a deal or hoping to go under list price, this is not the right market for you and it might be prudent to sit this out until the market balances out or turns in your favor. There are always corner cases, but rare at this very moment. The comparable market data must be analyzed with a grain of salt. The data is 2 to 3 months behind and the market has been increasing week by week. The latest information is key in this market. If you must buy in this market, then you should get in and get out as quickly as you can and allow other Buyers to keep bidding the prices up.

 

As a Buyer How Do I Win?

 

First, having an experienced Real Estate team as your guide is critical to your success. Secondly, we have broken this down to the winning formula below.

 

Winning Offer = Price (Factoring Past Comparables + Most Recent Sales (if any) + Number of Offers + Level of Aggression from Other Buyers) + Strong Terms + Strong Down Payment + Terms Unique to This Seller + Complete Offer Package + Solid Agent + Solid Loan Agent

 

In the end there is no formula when it comes to the emotions of a Buyer and their families. Buyers are ignoring the comparable market data and bidding their maximum willingness to pay. Each Buyer should ensure that they have a strong cash position in case of any appraisal deltas which is a major risk in this market. See my previous blog on how this works or reach out to us so that we can show you in detail https://www.linkedin.com/pulse/how-loans-appraisals-down-payments-deposits-intertwined-alan-wang/. If you do not have sufficient buffer for appraisals, you should lower your price point or sit out of this market unless you find a corner case opportunity. You could also shift to Townhomes or Condominiums where it is not as competitive.

 

Seller Advice

 

If you are the owner of a Single-Family Home the market has never been more on your side. We never know when things will change in the market or the economy, if you plan to move, we know that at this very moment this is an excellent time as any. For those of you in the Townhome and Condominium sector, we will have to analyze your area and complex to see if there is an opportunity there.

 

Looking Ahead

 

There is certainly more optimism and a light at the end of the tunnel with the rollout of the vaccine. This is better news than we have had for all of 2020. Housing will likely continue to be an essential part of our lives. As long as all the factors driving the demand remains constant, 2021 will continue to a strong Sellers’ market on fire.


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Sunday, January 3, 2021

2020 Silicon Valley Real Estate Year in Review

 

We all know that 2020 has been one of the most challenging years in history due to the COVID-19 pandemic. We hope that you and your family had a safe holiday and continue to do our part and Shelter-in-place.

 

First Half of 2020

 

The first quarter of 2020 kicked off with a strong Sellers’ market across all real estate product categories. The market was shaping up to be a competitive market for Buyers resulting in steady price increases for Sellers. Then Shelter-in-place hit mid-March and real estate came to a grinding halt for a little over a month. Realtors were not considered essential at first and there was much confusion on how real estate would be sold. By May, Realtors were made essential and we had a procedure on how to show homes safely paired with an understanding from the industry as how to show and close transactions in a safe manner.

 

Latter Half of 2020

 

Consumer preferences shifted quickly. First, there was an exodus from the Bay Area especially from downtown city centers such as San Francisco and San Jose. The justification of high prices living in a downtown, when residents are not able to enjoy what a city center offers, made it a simple decision for many to move. Available rental units increased quickly, and rental rates dropped and are still at bargain prices.

 

The second trend was a migration to the suburbs in the Peninsula, Southbay and even more flocked to the East Bay. With remote work being the norm for the near future, Buyers have flocked further from center for more affordable areas in exchange for larger homes, good schools at a lower cost.

 

Thirdly, Buyers have steered away from Condominium and Townhomes, while Single-Family Homes are in very short supply. Multiple offers abound for Single-Family Homes and be ready to compete with heavy competition in most areas. For Buyers, the deals will likely continue for Condominiums and Townhomes especially in San Francisco. If you are a Seller of a Single-Family Home, the market is on your side. If you are looking to sell a Condominium or Townhome, the property will sell but patience is warranted.

 

Lastly, Buyers are looking for move-in ready homes, larger size homes with more space, more rooms for a home office and a yard for the children to enjoy.

 

2021 Projections and Beyond

 

2021 looks to be the same narrative as the latter half of 2020 and not likely to change. Single-Family Homes will continue to be in short supply and multiple offers will continue in most areas. Townhomes and Condominiums will likely continue to struggle unless we get back to some semblance of normalcy in 2021. All eyes will be on the effectiveness of the vaccine and overall rollout. All signs point to slow progress and we expect the majority of 2021 to be similar to latter half of 2020. We wish you and your family a better 2021 and please let us all stay vigilant and stay safe.