Strong Start For The Bay Area Housing Market [February 2021]
January is over and we are getting our first glimpse into the direction of the housing market in 2021.
Quarantine and the lockdowns have scrambled typical selling seasons. Traditionally, the spring selling season would start as early as mid-February and last until June graduations. Then the fall selling season would start right after Labor Day and last until Thanksgiving. Summer and winter selling activity is generally significantly slower, both with respect to new listings and buyer’s interest.
2020 was different. The spring market was stopped in its tracks by the onset of the pandemic. Because of that, we experienced an unusually high level of selling activity during the late summer and fall. This wave carried the market all the way into January when the number of new listings in Santa Clara and San Mateo Counties increased by 41.4% comparing with January of last year.
The number of new contracts rose right alongside the number of new listings with a 41.6% increase year-over-year. The number of closed sales, the number of homes that changed hands in January, jumped by 36%. Can you imagine that there were more sales in January than in May of last year? May is usually the busiest month of the year!
The market is still moving really fast – January median time on the market was only 11 days. Half of the homes that came to the market sold in 11 days or less.
Despite a higher volume of new listings and a slight increase of inventory -- January inventory increased to 1.4 months from less than one months in December of last year -- the prices continued to grow. The median home sale price in Santa Clara and San Mateo Counties reached $1,253,000, a 13.9% increase from the last year and 1.4% increase from December of 2020.
What should we expect in the near future? Which direction the market will take? It is hard to predict! Interest rates dropped below 3% for a 30-year fixed rate mortgage back at the beginning of August and are staying there. According to some experts, we should see rates dipping below 2% this year before rising above 3% by the end of 2021.
In terms of current price trends, there is no better contrast in our area as that between two neighboring cities – Palo Alto and Menlo Park. Both city prices peaked in 2018, same as the rest of the Bay Area, and both cities experienced a slight price decline in 2019 but their trends diverged in 2020. As a result, Palo Alto median home sale price ended 6.8% below the 2018 peak, while Menlo Park median home sale price ended at 5.1% above the peak.
Other Peninsula cities are falling in-between these two extremes. Redwood City home prices ended 2020 at 1.3% above its 2018 level, San Mateo 1.4% below its all-time highs. Sunnyvale prices decreased by 0.4%, Santa Clara by 1.1%, Los Altos by 1.8%, and Mountain View stayed flat, all compared with the peak of 2018.
In 2020, Santa Clara County prices grew by 8.1% bringing the county to 0.6% above the peak, while San Mateo County prices grew by 5.8% carrying it to 3.3% above 2018 levels.
We expect an influx of new homes to the market starting by the end of February, beginning of March, consistent with historical seasonal trends. The lock down related sale activity bump during the fall of 2020 should continue into the upcoming spring selling season, pushing the inventory of available homes above typical levels.
The market will not have any problems absorbing the increased inventory. Years of employment growth in the area combined with a lack of new housing development created high levels of pent-up demand that may take decades to satisfy.
The demand is also boosted by a string of successful IPOs. 70 Bay Area companies went public in 2020, the largest number since the dot-com boom of 20 years ago. It appears that this pattern will continue, as this year already 4 Bay Area companies had successful IPOs.
If you are thinking about selling your home, this may be the best time. But before putting your house on the market make sure that you understand possible capital gain and property tax implications. Understanding recent changes in the law like Prop 19 that, to a large extent, supersede Props 60 and 90 as well as 1031 exchange options will help you make the correct decisions for your situation. Talk to your tax advisor and your local realtor.
And if you are thinking about buying a home, do not be discouraged. The market, even the most demanding market, always presents opportunities and we can help you find them. This process can take a few weeks, or a few months and you have to be ready to move quickly when opportunity arises – having the right team to help you recognize those opportunities can be the difference between getting your dream home or not.
We work only with a small number of buyers and sellers at a time to be able to provide our 5-star service. Call me or send me a text so we can start planning your next move together!