Bay Area Housing Market Update - November 2020
Should we expect another real estate crash? Today I'm going to talk about the latest market conditions here in the Bay Area. I also will go over the reasons why the chance of another real estate foreclosure crisis in today's economic environment is extremely low.
Let's start with this number: $3,513,235,262. This is the value of all homes that changed hands in October of 2020 in Santa Clara and San Mateo counties. It was the highest real estate sale volume in the history of the Bay Area.
Here are two main factors that contributed to this outstanding market performance.
First, the record sale price levels. As more people have to work from home as ever, the demand for the housing reached unprecedented levels. After a steep jump at the beginning of the year, the prices kept more or less flat through the summer and the beginning of fall of this year hovering around $1.3 million. The sale price peaked in October at one $1,310,000.
Keep in mind that the monthly sale price record was reached back in May of 2018 when the median sale price was $1,315,000, just $5,000 above the October level.
On the annual level, however, Bay Area did set a new price record. The median sale price reached $1,275,000 looking at the available 2020 data.
The second factor, is the number of sales. 2,207 homes changed hands in October of this year, a 27% jump from October of 2019 and 9.3% increase from just a month ago in September.
Combination of the high sale prices and the high number of homes changing hands produced that record-setting volume.
High level of sale activity was made possible by the increase in the number of new listings. 2756 homes were put on the market in October, a 45 jump year over year.
But the demand remained high and most of that new inventory was absorbed, sold. The number of homes available for sale decreased to 2680 units from more than 3 100 units available in San Mateo and Santa Clara counties in October of 2019, a 15% decrease.
That made for an extremely fast moving market. During the summer months and into the fall the median time to sell a house was only 10 days. That means that half of the available homes sold in 10 days or less after being listed!
With inventory staying at historically low level, the competition for available homes increased. Some buyers are submitting preemptive offers trying to avoid the multiple offer situations. We also noticed some very aggressive bids made on hot homes. One of our own listings recently sold at 18.5% above the asking price.
Sellers however are holding firm on prices even when their homes are not selling fast. They are willing to wait for that one unique buyer that can give them their dream price. Some sellers are taking homes off the market with the intention to re-list after the holiday season.
Now let's talk about the direction of the market and the possibility of a downturn. A few of our clients decided to wait buying homes expecting real estate to crash and the prices to decline. They believe that there will be a flood of fire sales triggered by the job losses and people falling behind on their mortgage and rent payments.
But the situation now is quite different from what we experienced in 2008, the year all of us remember. Since then, most owners built significant equity. Even during the last 12 months the equity across the US grew by $620 billion, an average of $9,800 for every home. The average equity increase in California was $12,000 and in some states the increase was as high as $29,000.
This equity will allow the owners to sell their homes, if needed, without going through the foreclosure process.
At the end of October there were 3 million homeowners in different forbearance programs. To put this number into perspective, there were 4.76 million homeowners in the program at its peak and there is estimated 89 million homeowners in the United States.
According to KCM, a real estate research firm, there will be multiple options available to the owners ready to exit the forbearance programs. These options range from Refinance Repay, for borrowers who have strong credit, have good or improved equity in their homes. Repayment plans, for people who cannot reinstate using savings. Deferral programs, that shift payments to the end of the loan term and Loan Modifications for households that permanently lost 20% to 30% of their income.
By the end of October the unemployment rate dropped to 6.9% from its peak of 14.7% back in April of this year. The current unemployment rate stands at the level we experienced in 2014 and is expected to continue to fall providing additional support for the housing market.
And finally, the home values are expected to continue rising in the next 12 months, according to the forecasts released by different organizations ranging from Zillow to National Association of Realtors, Freddie Mac and many others. The forecast ranges from as high as 7% to as little as 0.2%.
In his recent podcast Ivy Zelman, CEO of Zelman and associates, said that "The likelihood of us having a foreclosure crisis again is about zero percent."
We work only with a small number of buyers and sellers at a time to be able to provide our 5-star service. Drop me a line call or text me so we can start planning your next move together!