Welcome to our November newsletter, where we’ll explore residential real estate trends in the East Bay and across the nation. We remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. This month, we examine how home buying has remained obtainable despite a decrease in income and examine the local growth rate.
Income is one of the largest predictors of home price growth, second only to available supply. Consumers have more money to spend, which in turn drives up prices. But the increases in income haven’t kept up with the rise in home prices, especially in the last two years. In 2020, home prices increased 10% according to the Case-Schiller 20-City Composite Index, while median income decreased by 1%. So how can buyers afford the higher home prices?
Low interest rates are a big part of why home buying has remained obtainable for so many. With the drop in interest rates, the monthly payment, even on a higher-priced home, becomes more affordable. For every 1% decrease in a 30-year mortgage rate, the price of the home can increase 13% without a change in monthly payment (and vice versa). For example, the monthly payment on a $1,000,000 mortgage at 4% is almost identical to the monthly payment for a $1,130,000 mortgage at 3%, a $130,000 difference. The average 30-year fixed mortgage rate, while still historically low, rose to 3.14% at the end of October 2021. As interest rates start to tick upward, we may see a slight dip in prices, even as inventory remains low but prices should return to more reasonable growth rate.
The pandemic also changed buyer preferences. Rather than spending roughly half of our time at home, which is the norm, we were faced with endless time in our living spaces. (You remember — you were there.) As of September 2021, the United States has 59% fewer homes on the market, and 53% of that happened in the last two years. We were happy to see more homes on the market in the second quarter of 2021 because the increased supply helped satiate the high buyer demand, but we are already seeing the seasonal shift to fewer homes coming to market. Inventory will likely remain super low in the coming fall and winter months.
The market remains competitive for buyers, but conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right Realtor to ensure the transition goes smoothly.
Home prices increased dramatically in 2021. From January through September, single-family home prices rose 21% in Alameda and 16% in Contra Costa. The growth rates in 2021 are highly unusual and unsustainable; for example, home prices would more than double every four years at a 20% growth rate. After huge single-family home price appreciation in the first half of the year, it made sense that prices stabilized in the third quarter.
Despite the increase in single-family home inventory in 2021, we’re still at a historic low. August and September are typically the months with the highest inventory every year. In 2021, total inventory didn’t come close to last year’s level and was even further away from pre-pandemic levels. Even though we’re seeing some price correction after the first half of the year, the sustained low inventory will lift prices.
Homes are selling faster than at any point in the last 15 years. Buyers must put in competitive offers, which, on average, are 5–10% above the list price of the home. Despite decreasing inventory, the increase in home sales and speed of sales reflect the high demand in the East Bay.
As always, Arrive Real Estate Group remains committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.