Saturday, April 10, 2021
Tuesday, March 2, 2021
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.
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.
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.
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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For a personal consultation call or text us at (408)313-4352 or e-mail us at email@example.com
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Sunday, January 3, 2021
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.
Wednesday, November 25, 2020
The elections and California propositions bring some changes ahead in the area of real estate and other areas will remain much the same.
We do not see many changes in the short run that will have a direct impact on the area of real estate. With the government working to provide necessary stimulus as we try to sustain and recover from the pandemic, one of the key areas of focus will be to ensure that Americans have the ability to pay their rents and mortgages. This will keep interest rates low for the foreseeable future and hopefully provide enough relief paired with forbearance to keep foreclosures from happening. Currently, there is a shortage of real estate especially in the area of Single-Family Homes, but at risk are Condominiums in metropolitan cities and Townhomes as well.
There were a few propositions that were focused on Real Estate on the California ballot.
Propositions 15 and 21 - Defeated
u Proposition 15 – Change in Commercial Property Tax – “Taxes such properties based on current market value, instead of purchase price. Fiscal Impact: Increased property taxes on commercial properties worth more than $3 million providing $6.5 billion to $11.5 billion in new funding to local governments and schools.”
u Proposition 21 - Local Government Rent Control – “Allows local governments to establish rent control on residential properties over 15 years old. Local limits on rate increases may differ from statewide limit. Fiscal Impact: Overall, a potential reduction in state and local revenues in the high tens of millions of dollars per year over time. Depending on actions by local communities, revenue losses could be less or more.”
Proposition 19 – Passed - Impact on Seniors and Transfer of Real Estate
“Allows homeowners who are over 55, disabled, or wildfire/disaster victims to transfer primary residence’s tax base to replacement residence. Changes taxation of family-property transfers. Establishes fire protection services fund. Fiscal Impact: Local governments could gain tens of millions of dollars of property tax revenue per year, probably growing over time to a few hundred million dollars per year. Schools could receive similar property tax gains”
This is the proposition that has the most impact on our local real estate market. The focus was upon those that were impacted by wildfires so that they could transfer their property taxes. However, lumped in this proposition is more flexibility for seniors with their property taxes and also changes to how inherited properties are handled.
Tax Base Transfer for Owners 55 Years and Older
In years prior, a senior over 55 transferring their property tax was allowed a one-time transfer, limited to 10 counties and there were value limits usually forcing the owner to trade down mostly.
With the passage of Proposition 19, seniors can now transfer their tax base up to three times, move to a county anywhere in the state of California and a home of any value can be purchased with adjusted transferred values if the price is over 100% of their departing home sale price.
These rules will come into effect on April 1, 2021.
Here is an informative chart from the Board of Equalization:
Source - https://boe.ca.gov/prop19/
Property Tax Transfer to a Child or Grandchild
In the past properties that were transferred to a child or grandchild, the property taxes were allowed to carryover and there was a $1,000,000 limit no matter what type of property.
With the passage of Proposition 19 there is a limit to the value (current taxable value plus $1M) and also this transfer will only apply to the primary home of the deceased. It is assumed that they Child or Grandchild will reside in the home to maintain lower property taxes.
These rules will come into effect February 16, 2021.
Another informative chart from the Board of Equalization:
Source - https://boe.ca.gov/prop19/
Overall, the expansion of property tax options to seniors giving more flexibility is a positive and also allows more revenue to the state in certain scenarios. Limiting the property transfer base to children and grandchildren although not ideal for the surviving family, allows more revenue to the state. In reality the family inheriting a property in our area will be at excellent prices, to pay the property taxes seems only fair. Of course, they could choose to sell the property and they still have a step-up basis in taxes if they choose not to keep the property.
Real Estate is complex and tailored to each family’s unique scenarios. For a planning meeting please call or text Alan at (408)313-4352 or e-mail me at firstname.lastname@example.org so that we can build a strategy unique to you and your family!
We are not experts in tax law or estate planning. You are highly recommended to talk to your Tax and Estate Planners or Lawyers to see how these propositions affect you and your family directly.
- All descriptions in “quotes” are from the California Secretary of State, California General election November 3, 2020 Official Voter Information Guide https://voterguide.sos.ca.gov/propositions/
- Board of Equalization Summary Charts for Proposition 19 - https://boe.ca.gov/prop19/
Tuesday, October 6, 2020
First of all, apologies for not getting the second quarter blog out to you. We are honored by so many of you asking us about the blog and that so many of you read our quarterly updates. This update will encompass the second and third quarter update of 2020.
Other Content Mediums
- Video - For those of you that prefer video here is a video summary of our blog
- Slides - The slides are available at Slideshare - https://www.slideshare.net/AlanWang6/2020-curveballs-and-impact-on-silicon-valley-real-estate
- Linkedin - Join the conversation on Linkedin! - https://www.linkedin.com/pulse/2020-curveballs-impact-silicon-valley-real-estate-alan-wang
The year 2020 could not be over soon enough. The challenges we have faced as a society we have never been seen in our lifetimes. We are fighting challenges on multiple fronts; first with the threat of coronavirus still looming, learning how to shelter in place with our families and many with children of all ages, learning to cope with online schooling, social distancing in public areas, local businesses fighting for survival, social unrest in many parts of the country, a country divided on many issues and in the last month wild fires across our state creating unhealthy conditions outdoors further trapping us in our homes not to mention those that have lost their homes. Despite all of these challenges, residential real estate continues to boom in certain sectors while struggling in others. This article will explain in depth the various phenomenon’s that we are seeing.
A Momentary Freeze
When the Shelter-in-place ordinances were announced, all of us were extremely concerned about what would become of the real estate market. In fact, Realtors were not considered essential at the onset although Banks and Title Companies were. In March and April all activities mostly grinded to a halt, except for those Sellers or Buyers who were already in contract.
Temporary Halt of the “City Center”
Traditionally, societies around the world revolved around major metropolitan cities and in our area that is pre-dominantly the city of San Francisco. People flocked to San Francisco due to its’ historical ambience and character, multiple night life and entertainment options, an abundance of jobs and career opportunities. These characteristics drove down the supply of housing, confined people to smaller spaces, pushed rental rates as well as home prices upward. When the Shelter-in-Place ordinances were put in place and companies were forced to allow employees to work from home, the justification to live in confined spaces at high prices were no longer justified when people could no longer enjoy all that San Francisco had to offer. Without the nightlife, enjoyment of the outdoors and the need to go to work, people left San Francisco in droves quickly.
Out of State Migrations and San Francisco
The first group to leave the area were individuals or young couples that weren’t from the area to begin with. Their reasons were simple, move back home to their families as their jobs no longer required them to live in the high-priced Bay Area and therefore they were saving money on high rents in the area. There was simply no need to physically be in the Silicon Valley and remote work options were always a part of the foundation of the tech sector. The impact of this has hit the San Francisco housing market especially hard. Moving trucks were seen throughout San Francisco and landlords have been forced to compete with a sudden influx of rental properties thereby driving down the rental rates in an effort to fill their vacancies and stop the loss of cash flow on their investments. Homes sales especially for Condominiums and Townhomes had a major increase in inventory causing home prices in both of those sectors to drop. Buyers suddenly had an overwhelming amount of choices and it really boiled down to price as the key differentiator. The Mercury News reported “Monthly rent dropped 17.8 percent in San Francisco, the steepest decline in the nation, 9.5 percent in San Jose, 7.9 percent in Oakland and 6.3 percent in Fremont” – Source Mercury News Louis Hansen - 10/1/2020 - https://www.mercurynews.com/2020/10/01/rent-falling-fast-in-bay-area-cities-during-pandemic/. Leveraging Supply and Demand curves, let’s take a look at what happened.
Exhibit 1a – San Francisco Supply and Demand Pre-Covid
Exhibit 1b – Migration Out of San Francisco Caused a Reduction in Rental and Home Prices
Exhibit 1c – Increase of the Supply of Rentals and Homes for Sale Further Pushed Down Prices
The government acted swiftly to initiate The Cares Act with programs such as the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) for small businesses. Although not all businesses were able to get these funds many did. A new concept called forbearance granted relief for a homeowner or landlord from having to pay their mortgage or at a lower rate. Many states, cities and counties initiated tenant payment relief programs as well. Last but not least, extra stimulus payments for qualified earners and additional unemployment benefits helped to keep families afloat.
The Federal Reserve having learned from the last downturn, acted very quickly in dropping interest rates to zero and adding more liquidity to the financial system. What resulted was yet again the lowest interest rates ever seen especially for mortgages.
Exhibit 2 – 30 Year Fixed Mortgage Rates
Source Freddie Mac - https://fred.stlouisfed.org/graph/?g=NUh
Technology, Finance and Medical Sectors
We are certainly mindful of small business owners/workers that are having the toughest time during this pandemic. Many small businesses and franchisees have shuttered their businesses unable to continue during the strict restrictions as we continue to shelter-in-place. Consumers have been hesitant to return to dining and multiple businesses still remain closed although local counties are attempting to re-open. Even outdoor dining still equates to limited capacity and reduced revenue for local business owners. California’s unemployment rate went from 3.9%, peaked at 16.4% and is currently settling at 11.4% for the month of August. The impact of the coronavirus pandemic is simply staggering.
Exhibit 3 - State of California Unemployment Rates
Source – US Bureau of Statistics -https://data.bls.gov/timeseries/LASST060000000000003?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true
There is one bright spot in this news, key Silicon Valley skilled industries such as the Technology, Finance, Medical, Legal, Construction, sectors of the Real Estate industry continue to thrive despite the pandemic.
The technology heavy NASDAQ took a major hit when the pandemic came to bear in March. There was widespread panic across the board. Defying all odds the NASDAQ has now recovered to record levels even pre-covid. This is important for our local home buyers as this is the source of the down payments for their homes.
Exhibit 4 – NASDAQ Index Last Two Years
Source – Verizon/Yahoo Finance! – 10/2/2020
New Requirements in New Times
For most families, none had planned to be in their homes with their spouses, children and work 24 hours a day. For most families our days were spent working, driving children to school or day care, enjoying the outdoors, partaking in night life, attending children’s sports and other activities and traveling. Suddenly every home buyer came to us with four key requirements; more living space, more bedrooms to accommodate at least one office, a good size backyard especially for those families with children and lastly a move-in ready home. The key product segment that fulfills this requirement is the traditional Single Family Home which has seen a major increase in demand. Condominiums and Townhomes on the other hand are sitting longer on the market if they sell at all. This is simply not the product segment that people need at this time in their lives.
The Flight South East
As the migration out of San Francisco occurred, Bay Area residents flocked to the suburbs desperately looking for that space and a yard. In the past, hot markets were defined as flights towards the city centers for the first time we have a flight away. One factor is abundantly clear, housing is an essential need and which is why real estate is in fact booming. Cities in the past that were considered far for most Buyers are seeing multiple offers. Some examples of heavy competition are taking place in Pleasanton, Dublin, San Ramon, Danville and Morgan Hill. Homes are selling before Buyers can get there on the weekend to see the home. Essentially all markets with Single Family Home inventory are seeing a hot market.
Exhibit 5a – Supply and Demand of Single Family Homes Pre-covid
Exhibit 5b – Reduction in Supply Caused and Increase in Prices
Exhibit 5c – Increase in Demand Due to Shelter-in-Place Further Increased Prices
State of the Market
Fueled by a strong job market at skilled positions, a rising stock market, low interest rates, combined with the desperate need for more indoor and exterior living space; these factors have driven the Single Family home market into low supply and high demand across most cities in the Silicon Valley and across the nation and created heavy competition across the board. Condominiums are the hardest hit sector following by Townhomes especially in San Francisco and Commercial real estate has been impacted as well.
Taking Santa Clara County as an example let us take a look at the Single Family Home sector. Inventory has stayed more or less the same however homes are taking longer to sell than last year. This is not surprising given that there is more friction with the home showing process with waiver, forms, booking times and and also the desire of Buyers to have a move-in ready home. What is very interesting are the pending and sold units are overtaking the active homes on the market. What that means is that the demand is extremely strong in this sector. The homes that are selling are selling 29% faster than they were last year. Homes that are priced right and are in move-in ready condition tend to fly off the market. The Condominium and Townhome market tells a slightly different story. Inventory is up 35% from a year ago and the days on the market have increased as well. As mentioned this not the product group that folks are flocking to during the pandemic however the pending and sold units seem to have been picking up momentum though not as aggressive at least in the southbay.
Exhibit 6 - Q3 2020 Santa Clara County Snapshot
Real Estate Outlook 2020 and Beyond
Companies are allowing workers to work from home until at least June of 2021. Even if employees were permitted to return to work, they will most likely be in a hybrid model first, before having to go back into the office full time. This is all dependent on the status of a vaccine and how the overall coronavirus numbers are trending. 2021 will likely be certainly more than half time at home and indoor and outdoor space will continue to be a premium. Single Family homes will continue to be in high demand while the Condominium and Townhome sector may or may not be on a road to recovery in 2021. There are certainly multiple dependencies before we get back to normalcy.
We are living in a unique location where jobs are secure overall fueled especially by the tech sector and those have always been the demographic of people buying homes. I anticipate interest rates to continue to stay low and if the NASDAQ holds at current values or continues its’ upward trend, home prices will continue on that trend as well. The two key variables are the upcoming election and the health of the rest of the nation. The big question is will monetary policy change due to the next president and although we live in a unique place, the health of the rest of the nation should be monitored. If the rest of the nation falls into a recession, then even the mighty Silicon Valley could be impacted and that may slow down this strong real estate market.