There is a Shift Happening

 Breakneck. That's the best way to describe the pace of the 2021 housing market. The bidding wars got so intense this year that home price growth set an all-time record.

The rush of buyers into the housing market during the pandemic absolutely crushed housing inventory—the number of homes on the market—with that figure falling for 12 consecutive months. By April, housing inventory was down a staggering 53% from a year earlier.

There has been a change.  Ever so slightly, but a change indeed.  Well at least that is so in the Nation.  Here in Silicon Valley inventory has declined.  

In February 2021 we started out with a 2-month inventory in Silicon Valley. Slowly it has dropped and leveled off at a 1-month inventory.  One would expect the law of supply and demand would keep prices moving upward.  Not so, in February 2021 the 6 city area average price went from $3,318,431 in February to $3,874,913 in June and dropped to $3,201,528 so far this month of August.

What's the story?  I have done some work in what is called Broker Price Opinions.  That is when a bank or financial institution want a broker to certify value for a loan.  When I looked at the comparatives I saw completely remodeled homes, interior and out with new landscaping.  The most notable were in East Palo Alto.  But they were elsewhere in the, what I call "bedroom communities" like Palo Alto, Menlo Park, Redwood City.

It was not hard to pick them out.  New lawns, landscaping, a new painted exterior.  To support the movement has been in our faces every day.  buy your home for cash, no fees, no contingencies.  eXp is doing it, Zillow started it, but we agents have been called on a regular basis from contractors and spec builder asking for a listing before it is put on MLS.  

The more spec players in this market place the less likely the desire to hold out for higher prices.  These players run super markets. They just want to move inventory off the shelves.  They will keep on until the inventory of sellers stop.  The more the players the slowly prices will decline as I just pointed out in the 3rd paragraph above.

There are two areas that this did not occur, Woodside and Portola Valley. The large estate properties with building departments who are not cooperative in flipping and quick approvals.  Building department staff to Architectural Review Boards of local residents and then to Planning Board of local residents.  All of which are volunteers.  All with the potential of movements of plans and permits back and forth from board to board before a final approval.

While Menlo or East Palo Alto may have plans and permits granted over the counter and homes go from 1940's or 50's to 2021 in 3-6 months.  Woodside and Portola Valley can take years.  It is not uncommon for plans and occupancy to go 3-4 years.  No spec builder wants to risk money on a long time frame.  It is far better to flip as many EPA homes as possible than risk a big play on Woodside or Portola Valley.  But still prices have had the same effect as owners; rather than, speculators fixed and sold at their leisure.  The simple task is, "if we don't sell it we live in it"

Where is this going to take us?  the Foreclosure Moratorium ends in September.  I have obtained my REO certification.  That means "Real Estate Owned" by banks and financial institutions.  

I stated that I was performing Broker Price Opinions, BPO's.  Not a big pay day.  It prepares for the paper work needed to work with bank inventory managers.  They all have a specific set of forms to prepare that gives them the information to move inventory.  The past experience of the agents who work this market is 2006 and the financial crisis.  Banks just want to clear inventory.  Those agents who knew the process got the listings.  I remember a friend having 75 REO's one year that averaged him $6000 per transaction.  That is $450,000! that meant the average price was $200,000.  Not your Woodside and Atherton homes just the homes that were once rentals or the working class that found themselves out of work.

Will that happen again?  Everything is great.  Prices are strong.  Buyers keep on coming to the market.  Silicon Valley businesses keep buying more land.  What could happen?

BLACK SWAN

Forbearance ends, the government enacted law to allow mortgages to accrue during the pandemic ends in September and October.  Will this be the beginning of inventory?  Will it only apply to FHA loans and low income borrowers?  By all calculations over 1 month of additional inventory will be added nationwide.  Will that be enough to add to pressure on price?  Of course, one needs to remember that the eviction moratorium end too!  People on the street and who will rent the empty units?  Government subsidy money has not been distributed and will that keep the eviction process in abated?

There are many questions that will be popping up as BLACK SWAN'S.  News media will be kept busy.

Silicon Valley has acted like Camelot, with its golden walls and moat surrounding an area protected from the troubles of economic crisis that spread nationally.  Will Evictions and Forbearance be the start of a long awaited stall in housing prices?

Time will only tell, but remember the house you buy is not a trading asset it is something you live in and bring your family up in and age in.

The Institute for Luxury Home Marketing July Monthly Report is out.  The Luxury Market has been a market on to itself.  While median price homes bounce to the tune of interest rates, unemployment and inventory, the Luxury Market stays above the clouds, so to speak, in demand and price.

The sales for luxury properties between January and June 2021 show steady growth, with demand significantly increasing in the spring and trending upwards in early summer.

At the start of 2021, experts predicted a strong luxury real estate market that built on the trends set in the second half of 2020. However, very few anticipated just how much impact buyer demand would still have on 2021’s spring market. 

Inventory levels have been rising since March 2021; as of the end of June there has been a 22.68% rise of luxury properties on the market, and the number of pending sales has also started to decrease. The realization that there is no immediate sign of a dramatic rise in mortgage rates, has enabled buyers to recognize that they do not need to feel the same sense of urgency as they felt in the spring.

Overall, even for hot markets, the expectation is, while the luxury housing market will still experience strong seller market conditions, the intensity of demand will continue to decrease and there will be a gradual but ongoing shift towards a more typical pace

COVID-19 created a huge focus on how homes are built and valued. As a result, there is now an expectation by the wealthy for an array of services to be integrated into their home, to help create balanced solutions that cater to their core needs of working, sleeping, playing, and eating. 

New designs have begun to pivot dramatically toward more integrated live/work/play balances, providing solutions for indoor/outdoor living. Design and functionality are focused on ensuring flex space, greater square footage, more outdoor space, extra rooms and secure, and fast data connectivity. Engineering features now include health functionality, such as air quality, ambient heat and cooling systems, water filtration, and technology driven management tools. 

Of equal importance are the demographic groups who are influencing both current and future trends. Millennials and Gen Z groups are entering the real estate market. Whether their wealth is entrepreneurial, or as a result of the great wealth transfer from their baby boomer relatives, or their investment in the stock market or crypto currency market – their impact on purchasing luxury properties will continue increase significantly. 

Baby boomers also remain a big influence on the luxury market – if they choose not to downsize or move to their retirement home, as they did during the previous 12 months, then this impacts the level of new inventory that typically comes on the market each year. 

The art of selling and buying in this market needs a critical and analytical approach, understanding the realities and setting expectations accordingly will ensure that goals are achieved. For homeowners looking to sell their luxury home in today’s market, working with a Realtor who can capitalize on the preferences of current investors is needed.