An unprecedented seller’s market, super low inventory, prices are all-time highs, equity spreads are huge right now, and interest rates are at historic lows, or at least have been darn close if they’re not already.
If you’re anything like me, your head’s probably spinning. Maybe you’re trying to figure out which way is up and where to go. There is so much information out there that it is just confusing. So today, I wanted to bring forward some content about how we got here to help sort out those things.
In this video, I would try to talk about what the heck is going on in this market. It doesn’t feel normal, and it doesn’t feel predictable in the same way. So I’m going to do a two-part series. The first part of the series is going to analyze how we got here and how we got through the pandemic. We’ll also touch on a few different things, like inflation and supply chain. After that, part two of the series will be focusing on where I think we’re going.
So, how did we get here? How did that happen?
An unprecedented seller's market
We entered into 2020 feeling somewhat skeptical, if you recall, about the market in January and February. These were really low inventory months, especially locally. There were as few as seven houses, condos, townhouses, etc., on the market in the early part of January and February 2020 in Alameda. For contrast, typically, you’d see somewhere between 40 and 50 units. Sometimes it’s over 60 units on the island itself. As for Oakland, it was running at about half of its normal for-sale units at the time.
Then, boom, a pandemic happens.
Everyone thinks that the world is going to end, that we’re going to crash the stock market and the housing market. It probably got everyone thinking, “This is it! It is the thing that’s going to push it over the edge.” But then, it didn’t. Covid actually did the exact opposite. It made everything go up. It was crazy, like, how did that happen? Let’s look at a couple of things.
The month of April, and some parts of May, were when everyone was kind of sheepishly moving forward, especially in the housing market. People still had to sell but were wearing masks. They didn’t know if they could go outside and all of that kind of stuff. So, all of those things made everyone sheepishly move forward in those months.
Then, when we got a handle on it collectively, it felt like the floodgates opened.
Then came June, July, and August, and it was gangbusters out the door. It was unexpected how many buyers were coming forward to move the prices, how much people were willing to pay. Of course, the amount of money they were willing to borrow was unexpected as well. It is because interest rates were so darn low to keep that economy moving. It really set some stuff in motion that I think we’re feeling a little bit of the fallout from.
A lot of people's jobs disappeared overnight, literally.
So if you think back to that, what happened was a lot of people’s jobs disintegrated and disappeared, literally, overnight. You look at any of the unemployment graphs, and it just shot way up to unprecedented levels. Of course, some of that was somewhat unofficial because there was a government shutdown on a specific day. So that one spike came from that. Nonetheless, people weren’t working.
There was a disproportionate effect on the types of jobs that were shut down.
Then, when you look at the higher-end market of the Bay Area, you’d also see some interesting things. There was a disproportionate effect on the types of jobs that were shut down versus those in a work-from-home set-up and are still doing quite well. Simply put, it was the six-figure-plus jobs that did really well. So the folks who could afford the higher-end houses were also the ones who were still working and earning income. Meanwhile, the people who could afford the lower-end houses, starter homes, or condos were out of work. Consequently, that made a huge disparity in the buyer pool in general.
There was really low inventory and essentially no new construction.
Then you couple that with really, really low inventory and the fact that there is essentially no new construction. Well, at least locally and definitely on a larger scale nationally to some degree. Thus, you have a position where that existing inventory has been eaten up. There were so many people clamoring for so few houses. As a result, it took some of those lower to medium-priced homes and made their prices go up. Hence, California hit an all-new record median price of a little over $715,000 earlier this year. That is higher by a longshot than it’s ever been. It’s because the people who could afford those houses were the ones who also had a lot of money. They wanted to get a house, so that’s what made everything moving in hitting that record.
Buyers are experiencing fatigue.
Now I think, ultimately, what we’re looking at here from a market analysis standpoint is this concept of buyer fatigue. Not only does it explain to me why we’re in this position where everyone’s kind of unsure about where the market is today, it also explains how we got here.
In addition to the low inventory and high competition, you can leverage the money you have with a low interest rate.
As a result, the prices were surging up. What happened was that, over the last 12 months, people got fatigued. They got tired. They got sick of getting beat. They either exited or, in most cases, doubled down and committed to buying. That’s really interesting, if you ask me.
Anecdotally, I’ve had some clients who had to write three, or four, or five offers. They’d lose the first handful by a lot, then get close, and then really take a big swing. As a result, the winners were the ones who were constantly either coming in as a preemptive offer or coming in really, really strong on the offer day. Nonetheless, all of these were pushing the prices up steadily.
And now we find ourselves in August of 2021. Traditionally, the market is always a little flatter here. Most people in this market don’t list before Labor Day. The reason is that many people come after the Fourth of July or after Labor Day. So, as a result, you end up having a lot less inventory available, especially compared to July.
A lot of things are happening that have really distracted the buyer pool this year.
So you’re kind of in this moment where you also see national headlines around. Headlines such as prices are beginning to fall slightly or go flat, the buyer pools are not as deep, etc. It’s got our market in this interesting place where people are simply not transacting in the same way as before. Now, I will say that the news about the Delta variant showing up had many people freaking out. Moreover, locally, we had fires and smoke in the air for several weeks. It was not as bad as last year, but still noticeable nonetheless. Also, in person classes in school started again. All of that stuff distracted the buyer pool this year by a lot more compared to the past years.
We've been at or close to the historic high of affordability.
Ultimately, how we got here is because there was a level of fatigue. Plus, people bump into a good level of affordability. We’ve been at (or darn close to) the historic high of affordability. How much money you spend on your house versus how much you make in total is somewhere in that 50-55% range. In addition, I also believe that the buyer pool is now saying that they’re tapping out.
On a broad level, buyers are saying, “We’ve had enough, and this is as much as we’re willing to go.” Then, there’s also the uncertainty of the market’s future, where we’re headed, interest rates, and inflation. All of that kind of stuff has put us in this position we’re in today.
So, what does this all mean?
If you’re a buyer, jumping into the market now is actually not a bad time.
Personally, I can tell you that there is not as much competition as there used to be. It is undoubtedly dwindling. The number of offers is less, there’s a little less heat on, and there’s a little less activity. Hopefully, after Labor Day, we’re going to see a bunch of houses come on the market. We always do historically, and this year seems like no exception to that. It’s harder to get staging dates, and it’s harder to get photographers and inspectors. When I can’t get someone booked for two to three weeks, that usually means there’s about a month’s worth of inventory behind. So just know that it’s coming.
Sellers have to level up the way they showcase their property online and in person.
As a seller, know that that’s also coming because competition is going to be higher. Therefore, it would be best if you dialed in your presentation and the way that you show your house. You have to level up the way you showcase your property online and in person.
What I’m finding is that the buyer pool is getting more discerning. When there’s less competition, people start to lead with their heads. They start to really pick apart the nuances of a house in a neighborhood. They would rigorously compare this house to that house, and so on. So you really need to consider very carefully what you’re presenting to the world. Think very critically about how it’s going to resonate relatively with the competition that’s out there.
In a nutshell, that’s how we got here locally. These are all based on the things I see on the ground. I will also follow up here shortly with part two about my prediction of where we’re going.
I hope my Market Update on the unprecedented seller's market, super low inventory, prices at all-time highs, and how we got here this August 2021 has helped you.
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