The market from January 1 through March 31, 2021

The Elephant in the Room: Low Inventory

As promised, I would like to explore some of the factors that seem to have had a negative impact on the current lack of inventory in our market.  While some of these factors have further exacerbated the inventory shortage, we must clearly address one important factor here; we have been experiencing a sharp decline in inventory for several years prior to the Shelter in Place orders resulting from the Pandemic.  The fact is that homeowners were staying in their homes longer and not downsizing long before lockdown.  While the Pandemic did not start this trend, there are certainly many unforeseen consequences of Shelter in Place that made the situation worse.Factors that have Negatively Impacted Inventory

·       The Pandemic and Seller Discomfort

o   Clearly the uncertainty at the beginning of the Pandemic as well as the threat of viral contamination caused many sellers to pull properties from the market or to greatly delay the timing of coming to market.

o   You can read through the Blog posts of 2020 and gain some understanding of how this Seller hesitancy evolved over the year.

·       Do It Yourself Projects (DIY)

o   Remodeling activity has traditionally increased proportionally to the number of home sales.  At the beginning of the Pandemic, homeowners quickly began rethinking their homes and the spaces needed;

§  A Zoom Room/space for online meetings

§  Space for home-schooling children

§  Cooking more from home and rethinking kitchens

o   Ironically, Contractor projects quickly dried up.

§  Homeowners were probably uncomfortable bringing contractors into their homes.

§  Homeowners had more time to do their own work and probably felt safer without having others enter their homes.

§  Home improvement companies saw sizeable increases in sales during 2020.  Home Depot increasing 25% and Lowe’s increasing 28% over 2019.

§  There was probably way too much TV time spent watching Flip This House or The Property Brothers!  My guess is that there was also an epidemic of smashed thumbs and a surge in Band-Aid purchases as well.

·       Interest Rates and Refinancing

o   Given how low-interest rates have been for such a prolonged period, homeowners could lock in a fixed rate, 30 year mortgage.

o   Not only does refinancing eliminate future interest rate risk, but it recasts the loan over a 30 year period.  Therefore, homeowners could be experiencing up to a 50% reduction in their monthly housing expense.                                                                                                                                                                                                                                                                                                                                                                                                       

Factors that may Increase Inventory

·       DIY Projects causing delays

o   No offense, but DIY can also be referred to as Amateur on the Loose.  That is how I started!

§  A 3-month project can end up taking 9 months.

§  There is often a learning curve with materials and methods.

§  Rarely does the homeowner have 8-10 hours per day to devote to the project.

o   The DIY project may have been for the purpose of bringing their home on the market.

§  Every Listing Agent manages significant repairs and updates prior to bringing every home to market.

§  The Homeowner, with more time on their hands during the Pandemic, could have started these improvements with the intent of bringing their home to market.

§  The timing of the repairs could just be delaying bringing these homes to market until later this year.

·       Functional Obsolescence 

·       California Prop 19

o   Prop 19 goes into effect April 1 for most people who are eligible to transfer their property tax base anywhere in the state.

o   The pandemic could be the perfect launching pad for homeowners to move for several reasons:

§  To move closer to children or grandchildren because of a lack of comfort with travel.

§  The ability to downsize in areas that did not allow a transfer of tax base, such as moving to Tahoe or the wine country.                                                               

§  To be able to move to an area that is less expensive but offers more space and/or amenities desired during the pandemic.

·       The Vaccine and rate of Vaccinations

o   Over 50 million people have been vaccinated so far and 70% of the country is expected to be vaccinated by the end of June.

o   As of April 1, 16.4% of Californians have been fully vaccinated and 31.3% have had at least one dose.                                                                                                                                                                                   

o   As the percentage of vaccinations increase, some aspects of the Real Estate business may return.

§  In-person Broker Tours should be the first thing to return.  This would be a huge benefit to Realtors and their clients.

§  Allowing Agents to preview homes in-person rather than relying on photo tours will help to minimize in-person showing to clients and create greater efficiency in directing buyers to the right house.

§  Also, look for a slow and measured return of Public Open Houses… sort of.

·       The first step would probably be Sunday Open House by Appointment.

·       Physical distancing should still be required.

·       There may be a physically distanced lineup on the sidewalk, but this will probably be no different than the waiting line at Pete’s Coffee at 8:00 AM.

o   As we near Herd Immunity, the health concerns of selling a home may become greatly lessened for many potential Sellers.               

Now let’s zero in on our Local Market:

Year to Date Unit Volume Sold is on the rise.

o   Our entire market is up 65% in Unit Volume Sold Year to Date over last year to date.

The Volume of new listings coming to market is also on the rise.

       o      Active Inventory is up 46% Year to Date over last year to date.

       o      While this is supporting the increase in unit volume sales, inventory is far below current demand, with most properties seeing double digit multiple offers with offers significantly over the asking price.

The Median Price is UP and moving quickly.

        o      Our entire market is up 12% in Average Price and 24% in Median Price Year to Date over last year to date.  This is consistent with the rise in Median Prices statewide hitting 23.9% increase over last year.

So, in addition to the low inventory unable to meet current demand, the rapid rise in home equity has begun to cause a few issues with appraisals.  When prices are on a sharp increase, Appraisers need to rely on the most recent closed sales to use as a comparable.  Therefore, we often have to wait for a neighboring property to close escrow before the Appraiser can justify value.

To put it mildly, 2021 has been a wild ride in the Real Estate world.  As we look forward to increased vaccinations and eventually seeing our COVID life in the rear-view mirror, we should anticipate a gradual return to our normal market rhythm and seasonality.  This summer will be very interesting to see if everyone decides to go on a much-needed vacation all at the same time once the vaccination rate hits around 70%.  I think we all need a vacation and definitely a change in venue!

 Until next month, stay safe and healthy.