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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