Welcome to our September housing market update from the 23rd episode of the Bay Area Housing Market Townhall webinar. We always have it recorded and then post it on our YouTube channel, so feel free to subscribe and watch the recording. Today, we will discuss:
- BAY AREA Housing Prices and Competition
- Mortgage Rate Trends
- COVID Related Protections Effects
- Enhanced Unemployment Benefits
- Eviction Moratorium
- CRE Markets
- Residential Rental Markets
Let’s start with the state of the market. We are going to talk about housing prices, and the competition level, and then look at the mortgage rate trends as we do every single month. We also want to talk a little bit about the Covid-related protection effects, because we have enhanced unemployment benefits and the federal eviction moratorium just expired, and the California eviction moratorium is expiring on September 30th, which is coming up pretty soon. Then we’re gonna look at the commercial real estate market condition and the residential rental market condition.
A lot of people have been talking about the housing market cooling down. If you joined us around the month of May, we talked about that during the summer, a lot of sellers are probably going to put their properties on the market, but at the same time, a lot of buyers are traveling for their summer vacation because of the vaccination, so many are actually not looking, but let’s see how the market has done so far.
All this news has been talking about shockwave, a shock is going to come to the housing market, it’s cooling and weather is still worth investing, and even Redfin CEO had talked about slowing growth in pending home sales.
However, when we look at Santa Clara County. This time I’m comparing three summer months. As you see that the close sales did go down from 1,322 units down to 1,227 units, and last month down to 1,107 units, while it also had come down for condo and townhome from 627 units all the way to 534 units in August. It has been going down every month, but if you look back in June, it actually went up, but as soon as summer started, it came down steadily. However, if you compare it to a year ago, the number is still up, actually, it was 65% more than one year ago for condo and townhome. So the number of units sold is actually still higher than last year.
Now, in terms of median price, for single-family, it went from $1.7 million back in June to $1.655 million in July, and in August it went down to $1.65 million. As for condo and townhome, the pricing actually is holding up pretty well. It went down 1.7% in July, but it came back up 1.7% in August. Compared to a year ago, it went up 10.9% for the condo and townhomes.
In terms of the days on the market, it did stay on the market slightly more, but it’s not too bad. It’s still about two weeks, and for the condo market, it’s also staying pretty consistent compared to the last two months.
Let’s take a look at San Mateo County. If we look at June, July, and August, it was the same thing. We see that single-family homes and their pricing has come down a bit from $2.09 million down to $2.01 million in July, and in August it went below $2 million to $1.85 million. It actually dropped about 8.1%, but it stayed about 16 days on the market, still about two weeks, which is not too bad. There were a lot fewer properties sold – only 466 units compared to 550 units back in June. In terms of the condo and townhomes, that’s a little different. You see that it’s very interesting, for these last three months, the prices for condos and townhomes have been holding up pretty well. It was $958,000 in June, and went down a little bit to $922,000 in July, but came back up to $988,000 in the month of August. As a matter of fact, it did stay on the market for 22 days, slightly less than the month of July. There were also more condo and townhome sales – 191 sales in August, compared to 154 in July, and 187 in June.
Both in San Mateo County and Santa Clara County, condos and townhomes are actually doing pretty well, staying pretty steady, while the single family homes have come down in pricing. One of the reasons could be that most of the single family home buyers probably have little kids, and it’s the summer, so the whole family goes on vacation. Now that school has started, a lot of families have been back, and we do foresee that more families will come back out to look at homes again.
These are some of the offers that we have made in the month of August and the beginning of September as a team. There were still quite a bit of multiple offers, however, I think if you look back last month, we have quite a lot of double digits multiple offers, but this month we have more of a single-digit number of offers. The competition is still there for sure, so just want to give you a sense of the situation. In East Bay, townhome in Fremon, we had seven offers for the townhome, and it went over $1.575 million. As for single-family home Newark, $900,000 asking, it actually only got one offer, but still went up about $100,000. This single family in Piedmont has asking prices right under $1.5 million, it didn’t even hit the offer deadline yet, and already received 3 preemptive offers, and accepted at $1.9 million. The silicon valley area, as you see, San Jose, Mountain View, Sunnyvale are the same thing. We still see multiple offers, and also the prices have gone up quite a bit. The market is still really hot, even though it was summer, but we definitely have seen fewer offers compared to the month of April or May.
Now, what about the mortgage loan situation? The projection is exactly the same as last month. You know, it has been changing every single month, and finally, all four organizations – Freddie Mac, Fannie Mae, Mortgage Bankers Association, and National Association of Realtors – are staying put with their projections. We see that they are still going up slightly throughout the quarters to 2Q 2022, but it’s not really significant in terms of the increase. We are looking at probably around 3.1% on average in 3Q 2021, and then the 4Q will be 3.3%. Next year, we’re going to start seeing 3.4% to about 3.6%.
I had asked my friend from Wells Fargo to share with me their rates for today for Santa Clara County. As of today, their high balance loan conforming 30 years fixed is at 3%, and for the jumbo loan 30 years fixed is at 2.75%. These are still really good rates right now, so if you guys are still looking, definitely try to compare the rates. We’ve been doing a lot of business with Wells Fargo for sure, and they’ve been providing really good rates, but it depends on your personal situation – your credit score, your debt to income ratio, your amount of down payment, etc. So the rates can fluctuate, this is just a guideline to let you see what they’re offering right now.
Let’s talk about the Covid pandemic benefits that have been expiring one after another. I think it’s been pretty nerve-wracking for a lot of people, especially the ones that are relying on these benefits. The California eviction moratorium is going to expire soon on September 30th 2021, in just about 22 days. I think a lot of renters are very nervous about it, a lot of landlords are very nervous as well, wondering what they can do, and if this is the time when they can really start filing for eviction. If you came to one of my past webinars, we talked about what would happen when the eviction moratorium expires. As you know, the California eviction moratorium had extended over and over again, and then this time as least we haven’t heard that they will be extending it. What we worry about is that there’s going to be a huge backlog on these eviction files.
These are data for all of the counties in California, where you can take a look at how many evictions have been filed so far. It’s very interesting how you see some of them have zero eviction filed, and some of them have hundreds of them. You will notice that as certain counties, areas, or cities have more strict local eviction rules, then you’ll see fewer evictions filed. This is nothing to tell you good or bad, but it’s just for you to take a look at. In Santa Clara County, there are 530 evictions filed right now, and the average is about 8 evictions per 10,000 households, so it’s still relatively low. But at the same time, you might be wondering – I thought there’s no evictions at all. There are still some rules there that allow landlords to evict if they are moving into the property or doing major renovations, or if the tenants had violated the lease, or they have some criminal activities on the property. There are still ways to file for evictions, but of course, depends on the local rules. Some areas are a little bit more strict than others, so this is just a chart to show you guys that there are still evictions being filed right now in these counties.
A lot of people are worried about the eviction moratorium, but I’m not sure if everybody knows that there is this rent relief program provided by the California state. This is offered by federal funding. In California, they had given a $5.2 billion rent relief program where you can actually apply, both renters or the landlords can apply as long as the rental situation fits their criteria. We really encourage the landlords and the tenants to try to go to housingiskey.com to find out more information – whether you qualify or not.
The second thing is that the enhanced unemployment benefits are expiring over the labor day weekend, so that’s another hot topic right now. The pandemic safety net is going away, so a lot of people are really worried that there are 8.9 million people will not get any more unemployment benefits after this program expires, and another 2.1 million people will see a reduction by $300 a week on their unemployment benefits.
The good news is that even though they are not getting the unemployment benefit, since we have these 10 million record job openings right now, hopefully, some of these people will be able to find jobs. If you talk to any restaurant owners or small business owners, they will tell you that it’s really hard to find people at work. So I hope that even though it sounds really bad that these unemployment benefits expiring is affecting a lot of people, but seeing the fact that we have so many job openings, that will be actually helping people go back to get a job.
This is the 5.2 million rent relief program. We have 491 million that has been funded, that’s only 9% of the $5.2 billion that have been utilized and awarded to people. My point earlier was that I want to let you guys know if your tenants or landlords or if you know somebody who need help, please ask them to go to housingiskey.com to apply for the funding, because there’s money available. There is a backlog, of course, it goes pretty slowly. But just know that there is actually money available, so don’t be afraid to try to apply for one of the 5.2 billion dollars, it could be yours to help you out in your situation.
Now what’s covered by the rent relief funds? “Landlords who participate in the CA COVID-19 Rent Relief program can get reimbursed for an eligible renter’s unpaid rent dating back to April 1, 2020”. The same thing for renters, “whose landlords choose not to participate in the program may apply on their own and receive assistance for unpaid rent dating back to April 1, 2020”. I think this is huge, and I hope that we can help the landlords and tenants to get some rent relief. We have gotten it for my apartment buildings, although we are not in California, still we have participated in some of these Rent Relief program, and it definitely helped out a lot.
Let’s take a look at the commercial real estate market. There are a lot of different asset types – multi-family, warehouse, office-CBD, luxury hotel, grocery-anchored retail strip, office-suburban area, unanchored retail, and airport/highway hotel. I know there are just so many, and it is very confusing, but I wanted to just highlight a few of them, mostly multi-family. As you see, the cap rate for Class A in the Core Business District is 4.65%, but know that this is the national average, if you go to the Bay Area, it’s going to be 3%. The suburban area is at 4.94%, and Class B is about 5.34%, you see that there is a roughy 40 basis point difference. Warehouse is around 5% cap, and Class B would be 5.69%.
Office actually has gone up a bit on the cap rate, but I want to show you these news regarding the returning to the office. As you know that the delta variant has become a lot more serious than a lot of people had expected, so now many companies who initially had planed on having workers come back to the office in October, have to push back the return date. Some of them changed to I think January of 2022, and some even February 2022. Apple, Google, Facebook, Amazon, and quite a few other companies decided to wait as well. However, a lot of people keep saying that they think people are not gonna go back to the office, right now the reason they are not going back is really because of the delta variant. Hopefully, when the situation gets under control, it would be great. This is saying that nearly 2/3 of the more than 200 companies responded to a mid-July survey in the tech-centric Bay Area. They are expecting their workers to come into the office two or three days each week. Even though there are a lot of people think working from home is working out, they are still asking people to come back into the office two or three days each week. These companies are making it very clear, they want most of their workers together at least a few days a week, because they need to maintain the culture and the pace of innovation. They do believe that when people are together they can innovate better, so I know there are a lot of people talking about moving out of California, but at the same time, we do see that a lot of companies are actually requiring their employees to stay somewhere around at least so that you can come back into the office two or three times a week. I thought that is interesting to look at because that has direct impact to the office market. I
If you look at the office market in San Francisco and the Bay Area in general, the change in the vacancy rate is quite a bit. In April, the vacancy rate is at 14% for San Francisco and 19% for Bay Area. The vacancy rate definitely has gone up quite a bit across most of the metro area. Although I had mentioned also a few months ago, back in april we started hearing a lot more companies coming out to look for office space at that time. Of course, we were a lot more optimistic about this Covid situation, we felt like with vaccination, it would be a lot more optimistic, but unfortunately, just this past month we kind of regressed back. We do see a little bit less activity again back in office market.
Just keep in mind that this Covid pandemic really have a lot of effect on the office market, however, it doesn’t have a lot of effect in the industrial market, which has been doing really well pretty much across the board, especially on the west coast area. As you see, six out of the top ten markets are all on the west coast, including the Bay Area. So industrial market is still doing really well, and their rents actually increased.
Other strong asset types during this pandemic include apartment, industrial, and self storage. Marcus & Millichap did a video to talk about the impact of the Covid pandemic on different asset types, and apartment, industrial and self storage have done the best during this time. It’s really interesting that I think a lot of people even including myself in the beginning of this pandemic I thought it was going to be really bad but for apartment, but actually it’s still going really strong. There’re still multiple offers, although the offers are not as aggressive as before, but there are still multiple offers. A lot of times they’re offering maybe slightly below or slightly above, not crazily above the asking price.
In terms of rental housing market, here’s the rent payment tracker. I think there’s something to do with this whole employment benefit expiring soon, as you see that for September by the sixth we have one of the lowest percentage – 72% – in 2021 compared to 2019 and 2020.
If you look at full month results, of course, we only have up to August to look at currently, but if you see by September 6th, it’s really lower than most of all of the other months and all the previous two years. I’m really curious to see what will happen by the end of September. I think is because the employment benefit expired over this past weekend, so a lot of people are really nervous and may not be able to pay for the rent.
Another interesting thing that I want to share with you is that Blackstone has acquired $6 billion of single-family renta, and Invesco and Mynd also invested $5 billion in single-family. Last time we saw this was actually during the last recession, and when we had all these foreclosures, Blackstone came out and bought a ton of single family, and kept them as rental. They are doing it again.
I believe here’s one of the reasons. If you look at the homeownership rate, it was 67%. In 2006 and 2007, we were doing really well, because at the time, anyone can buy a home. We used to say that as long as you can breathe, you can buy a home, because of the mortgage program. There were 100% financing everywhere, and that caused the whole mortgage crisis. Since then, the homeownership ratio has gone down quite a bit, but it had climbed back up here. Until 2020, actually, it climbed back up to a pretty healthy rate, 68%. Then it dropped back down again, of course, one of the reasons is because the pricing have gone up so much. What it means is that there are going to be more renters on the market.
Another thing is that single-family zoning law changes. Here is the Senate Bill 9, which proposed to allow as many as two duplexes, two houses with attached unit, or a combination of those up to four units to be built on single-family lot across California without local approval. Although they say “you would not see the wholesale bulldozing of single-family homes”, but at the same time, they are proposing to allow multiple units being built on single-family lots. That means if you own single-family, it could be turned into multiple properties, or we already have a lot of areas that allowing you to do ADU, but building duplexes and up to four pluses that’s a complete different story.
Yardy Matrix came on the report in August, saying that “multifamily asking rents increases an astounding 10.3% in August”, “tech hub metros that have led the nation in rent growth over the last year and a half continued to outperform”, and lastly, “single family (built to rent) rents continue to grow at an even faster pace than multi-family, with national rents up 13.9% year-over-year. Occupancy continues to rise as well, up 1.1% year-over-year”. I thought this is really interesting because, you know, I usually talk a lot about multi-family, but I have been talking a lot about single family because it has become a very hard to get commodity here. One is that the rent has increased quite a bit, and then if they do pass bill allowing to build multiple units on single-family lot, that would really bring up the price, which will cause the home ownership rate to go down. Then there will be more renters, so that’s something to consider. I usually don’t really recommend buying single family just for rental purpose, because I feel like you’re putting all the eggs in one basket, if the tenant moves out, you get no income. But right now, because of the all these different situations arise, as I mentioned earlier, I feel a single family would be a good asset type to hold for sure.
In conclusion, housing prices continue to go up, it just cooled down a little bit in the summer. The actives are still high, still competitive. Interest rate will remain low, increase very slowly for the next 12 months. Covid related benefit expired, enhanced unemployment benefit, eviction moratorium expiring, but we still have historical high job openings, and also underutilized rent relief programs that need to be used for helping those people in need. The office market continues to soften because of the delta variant, but we do expect it to recover, because these companies have already said that they do need their employees to come back to work. The apartment rent rates continue to remain strong, and single-family homes rental is becoming a good rental asset, because they’re growing at a really fast pace.
Thank you for reading the market update blog! This month, we also invited experienced real estate investor and trainer Chad McCall to discuss Creative Ways To Jumpstart Your Real Estate Investments. Watch the webinar recording here! As always, please don’t hesitate to get in touch with us if you have any questions, comments, or other topics you would like to discuss.