Welcome to our June market update, where we’ll dive into residential real estate trends in the East Bay and across the nation. This month, we examine how the money supply is affecting asset price valuations and interest rates.
Show Me The Money!
At the start of the pandemic, the housing market looked incredibly unstable: buyers and sellers were pulling out of deals, sales volume and inventory dropped, and unemployment skyrocketed. The uncertainty around the housing market was short-lived, however, and it became clear that homes were going to have a remarkable year.
The sheer number of highly qualified buyers who were entering the market seemed to come out of nowhere, and we were left wondering where all this money had been hiding before the pandemic. As we dug into the data, we saw that the money was out there, but people were simply not spending it.
The increase of money supply started accelerating around 2000 and, since that time, with the exception of the past couple of months, inflation has been extremely low. At the same time, asset prices, like stocks and real estate, have risen considerably. The past year saw the highest sales volume and fastest price increases on record, nationally. Low inflation suggests that consumers are saving more than they are spending on goods and services. With more money in circulation, interest rates drop. In fact, mortgage rates are hovering near all-time lows, just under 3%. Notably, we aren’t seeing a transfer of money out of stocks and into housing; rather, we’re seeing cash going into both asset classes, which means that there is a large amount of money in circulation.
With low interest rates, more money in circulation, and fewer opportunities to spend money over the last year, homebuyers have flooded the market—and we expect this high housing demand to continue for at least the next 12 months. In addition, most potential buyers are flush with cash and have high credit scores, which has created an incredibly competitive environment and caused housing inventory to drop to historically low levels.
East Bay Housing Market Update
During April 2021, in the East Bay, the median single-family home price rose to another all-time high. Alameda County had a particularly large month-over-month median price increase. Year-over-year, single-family homes increased considerably, up 26% in Alameda and 39% in Contra Costa.
Single-family home inventory began to climb over the last three months, which is expected in the spring/summer season when more sellers typically come to market. In 2020, fewer people wanted to leave the East Bay, and more people wanted to move to the area. This trend caused an increase in population, which drove inventory down to record low levels. New listings, therefore, improve the current market conditions. In April 2021, the total inventory in the East Bay had slightly more homes for sale than it did in April 2020, which is a positive development for the housing market. The sustained low inventory will likely cause prices to appreciate throughout 2021.
The high demand and low supply present in the East Bay have driven home prices up. Inventory will likely remain low this year with the sustained high demand in the area, potentially lifting prices higher. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period.
We expect that the number of new listings will increase in the summer months. The current market conditions can withstand a high number of new listings coming to market, and more sellers may enter the market to capitalize on the high buyer demand. As we navigate the spring season, we expect the high demand to continue, and new houses on the market to be sold quickly.
We don’t expect the same level of buying in 2021 that we saw in 2020, mostly because of the home undersupply issue. The environment, therefore, is right for demand to outpace supply in 2021. We’ve reached near-perfect conditions for buyers—high credit scores, large down payments, and low-rate financing—so we anticipate a competitive landscape for buyers throughout the year.
While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. As always, we remain committed to helping our clients achieve their current and future real estate goals. At Arrive Real Estate Group we are happy to discuss the information in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.