Welcome everybody to our March Bay Area Housing Market updates! Today, we will be discussing the Bay Area Employment, current housing market stats and offer status, interest rate hikes, inflation, construction, and then, of course, the Ukraine War discussion with our buddy, realtor Joe Polyak, in San Mateo. You can also find the video recording of this episode on our YouTube Channel.
Firstly, let me go ahead and share a little bit about our employment right now. National Association Housing Builder had reported the surprising job growth. We had added 678,000 jobs in February and our unemployment rate came down to 3.8%. Historically, the unemployment rate was under 4, and it was really scary that we have never seen such a high unemployment rate when COVID just started, but it is such great news to see that we are going back to almost pre-COVID level. This is absolutely great news, and our employment is definitely doing really well right now.
Because of that, you probably have heard Apple, Google, Microsoft and a lot of tech giants are mandating their employees to go back to the office now. For example, Google now is asking that their employees go back at least three days a week, starting April 4th, and Apple, beginning April 11th, they are going to go back one day a week and would jump to three days a week on April 23rd. In the beginning, Facebook was really big on letting their employees work remotely permanently, but now they are asking their employees to come back to work on March 28th.
But, some companies still allow their employees to be able to work remotely. For example, Twitter, Reddit, and also Amazon are giving their employees a lot of flexibility still.
We do see that some of these Bay Area tech firms are requiring their employees to come back and work in the office. Even though it is part-time, it does mean that they need to be around.
One thing that we have been talking about a lot is California Exodus before and we have been hearing a lot of people saying that “we are losing population” especially people from out-of-state, who believe that we have fewer and fewer people here. But we can check that we still have population growth. Sacramento has a pretty healthy population growth compared to San Jose, although in San Jose and San Francisco, we are still at 0.5% and also 0.4%.
In terms of job growth, we are also doing pretty well. Greater Sacramento has been doing well. A lot of people have moved from the major San Francisco area, Silicon Valley going up to Sacramento. But then at the same time, the job growth in San Jose is really strong and is at a 1.1% annual growth rate as well as San Francisco which is at a 1% growth rate.
Bay Area Bridge Crossings Monthly Tracker suggests traffic movement. If you look at the orange line, this is when the COVID just started. Of course, you can see that there is a lot less traffic compared to pre-pandemic, but then now in February 2022, we can see that it is getting close. It is hitting back, and I am sure a lot of you have started feeling that traffic. Rush-hour traffic is pretty bad. So, as you can see that we are starting to see a lot more people who are going back to work and the remote working is probably going to be less and less now.
Let us look at the market stats. Since now that we are looking at these numbers, knowing that the job growth is well and also, we started having more people that are required to go back to work, we want to take a look at is our inventory new listings.
In Santa Clara County, compared to January of last year, we have 897 units versus this year 735 units. We do have quite a bit of drop in the January inventory, but February, is very similar to last year. It is a little bit less but it is pretty similar. In March, we are only 9 days in and we are one-third of what we had last year in March. It looks we are pretty much on track with the number of new listings for this year in March. For sure that in March, April, May, and June, we will start seeing more and more inventory.
In terms of competitiveness, it is off the roof. Now we are at 17% over asking price even though last year was competitive. I know a lot of people were complaining but this year’s first three months have been crazy. As for condos and townhouse, we also see that the inventory, same thing, January is quite a bit lower than last year, but February again came back up. Coincidentally, it is also one-third of last year’s March new listing. We do think that it is going to be starting to match back to last year’s numbers.
Condos and townhomes – For a while, we kept saying condos and townhomes are not as hot of a commodity, but look at how competitive it is now. It is 11% over asking to win the listing.
In San Mateo County, they had gone down quite a bit in terms of inventory as well in January. I think everyone just had a really slow start. I would say one of the main reasons was that in December 2020, a lot of people were at home. They were not traveling, but last year in December 2021, a lot of people traveled, so they did not have the time to prepare for their houses for sale. During the December housing market update, we did talk about how we think it is going to be slower just because a lot of sellers are probably traveling as well as buyers. But the number of buyers is still way outpaced compared to the number of sellers. So we do see that in January, we have a slow start, but then in February, it came right back up, and then hopefully, we can catch back up in March as well.
Then, the same thing, all double digits everywhere of 15% over asking price – Higher than any other time in 2021.
As for the condos and townhomes, both months January and February, they are both lower in terms of the number of new listings compared to last year. Then, in March, we have 51 new listings right now. We are a quarter of what we had last year in March. Hopefully, we can catch back up, although we are already one-third away from the end of the month. Also even though it is not double digits, in San Mateo County, we are still seeing higher than last year in terms of competitiveness.
For Alameda County, we also see a slight drop in January. So, this is across the board in the entire Bay Area, and also how hot is that in single-family in Alameda County? it is almost 20%, that is median sales price to list price ratio, 20% over asking and people are still moving over to Alameda County.
As for the condos, we have the same data, but February came back a little bit faster compared to last year, and then, even the condo and townhomes also are way more competitive compared to last year.
This is a real live example of how crazy it is. A few of them just made an offer this week. This one could be an example for San Mateo, a 2/1 single family, not even a 1000 square feet, asking price is $1.3 million. They had 9 offers and went over $1.7 million. Right now, if you are at $1.5 million, it cannot even get you a 2 bedroom less than 1000 square feet, single-family, in San Mateo. You need to be prepared to go over $1.7 million. If you are looking for 3 bedrooms, not even 2 baths, just 3 bedrooms, and 1 bath, it has gone over $1.9 million in San Mateo. I do not mean to be discouraging, but it is a very big hot market. San Mateo is a very popular area because of its location.
A lot of people are also looking at Sunnyvale 94085 and 94086. As you can see that a single-family is a million-dollar over asking easily and I mean a lot of homes nowadays in a slightly better area and especially if it is move-in ready, you can see the number of offers increased by so much more and how aggressive people are making an offer. Also, In San Jose, 95118 and 95126, these are clean, green areas and they also had gone up quite a bit. Nowadays, I know there are a lot of buyers who ask me on average how many hundreds of thousand dollars they need to offer above asking. It depends on what is their asking price. These asking prices, are relatively low 1.2, 1.3 and it did go up about $500,000. Then, also single-family, in West San Jose $1.625, they did get three pre-emptive offers and went up to $2.35. It was on the market for 4 days, and it was gone.
This was just to show you that the market is still really, really, really strong, and this is not last month’s data. This is this week’s or last week’s data. We have been really busy making offers, and it is tough out there. But, just be patient, do not be discouraged. I know it is easier said than done, but then it is tough and then your realtor will be working with you along the way and continue to advise you the best. One thing stands out – Because you cannot even do a comparative analysis and you know the appraisal value, but it is a matter of how aggressive you are to win that property, knowing that your appraisal value most likely is going to come below right now, so the relationship that your realtor has with the listing agent is really important. Because hopefully, they can give you a counteroffer or the listing agent feels that your realtor works hard, and they are willing to work with your realtor more on your offer. Be sure to pick your realtor correctly.
Let us check out the mortgage rates. Last month, we looked at mortgage rates High-Balance Conforming 3.75, Jumbo 30-years is 3.375 and this month, has gone up to 4% for Conforming 30 years and Jumbo is 3.5. I know some people would think that “Hey, I thought the interest rate dropped.” Yes! it did drop last week, but it came back up. Unfortunately, it did not last long with that drop, and it came right back up to now at 3.5 for the Jumbo loan 30 years fixed.
I have mentioned for the last two to three months for all the mortgage rates projections from Freddie Mac, Fannie Mae, Mortgage Bankers Association, and National Association Realtors that they will adjust their projections sooner or later and sure enough they have. As you can see in the bracket, that is their projections have gone up by 30 basis points, 40 basis points, and even 50 basis points for mortgage bankers association because of the inflation numbers. Because the Federal Reserve has talked about rate hikes and all that stuff and, of course, now also the war. As you can see that our average, last few months we have been talking about, is 3.7 by 4Q 2022, and now it has gone up to 3.85 for 4Q 2022. So, understand that these projections can change because some people will think that this is it, but every two to three months, I will show you how their projections can change.
We also talked about inflation. Now, inflation just came out with a number – 7.5%, really high! I know we all can feel it, but this is what sometimes we have thought that the inflation is high that is why we are going to increase the rate hikes and then some people thought that because of the Ukraine War the Fed might not increase the rate hikes, but they are going to continue and most likely, I think it was March 16th, that is when they are going to announce the rate hike. But they do think that Federal Reserve may not increase as many as other organizations have projected before. They thought most likely this year they are going to increase six to even seven times on the rate hike, but now they think that it is going to be fewer than six. We will see what will happen. Even Federal Reserve adjusts according to the economy.
Morgan Stanley had urged the U.S. Federal Reserve on Tuesday to take a more cautious approach towards raising interest rates as Russia’s invasion of Ukraine spurs already sky-rocketing global inflation. We do think that the interest rate hike may not be as much as we had expected, but it will continue to go up.
We talked about inflation, but I want to remind everybody the CPI index does not include housing unit sales like the real estate prices because those are considered investments, not consumption items. So, the energy had increased quite a bit, and I am sure a lot of us have seen that food and even Lumber had cost a lot more and we are going to go over that in a little bit.
One thing I thought was interesting to see is that the rent increases historically. It has been greater than inflation most years because a lot of people always wonder if inflation has gone up so much, will the rent price go up accordingly? Historically, it has been greater than inflation and that is also one of the reasons why the multi-family market has gone up so much because the investors are expecting that the rent price is going to go up quite a bit. If you have watched one of my previous videos for five units plus multi-family, the way you value those properties is based on net operating income, which means if you have a higher rental rate and then your building can make more money, it can increase your property value by quite a bit. We can talk more about that in another session.
Construction cost – I just started my remodeling. Sometimes if you do a bigger project, just to draw could take one to three months, then you have to submit for permit approval and that can take three to six months. For me, we started this I think around August last year and then our permit did not get approved until February.
By that time, the Lumber cost went from $500 to $1300 – More than double the price of the Lumber. So, what happened was that the contractor whatever they had quoted us last year, it does not apply anymore and now, our construction costs have gone up 15% to 20% just because we were waiting for the permit approval. Where I live right now, the permit process is so long. I sought to let everybody know, especially if you are thinking about a bigger project and if you want to start some project, you should start as soon as possible.
Also, because Lumber cost has gone up, the number of single-family building has slowed down as well.
Natural gas – Because the White House, President Biden, had just banned the import of Russian oil, we have seen the effect on the gasoline and knowing that the U.S. only consumes 8% of the petroleum product from Russia.
But Europe cannot ban completely Russian gas. They are slashing 66% because they consume 40% of their natural gas and then 27% of their oil imports and 46% of the coal imports from Russia. This is why they cannot just completely ban it. It will have a significant impact on the European countries and so European commission President Ursula did say that they need to be more independent from Russian oil, coal, and gas and if you look at the biggest producing countries in 2020, they are the U.S., Saudi Arabia, and Russia, three of these countries accounted for 43% of the world’s petroleum liquids production.
With that said, we wonder maybe the U.S. can provide oil and petroleum to the European country. Unfortunately, because the U.S. oil and gas producers’ export facilities are already operating at capacity, even if they want to, it is going to take years and billions of dollars to do that.
What will happen with the war in Ukraine, this is why I want to bring Joe into this conversation. Because according to Redfin, the war in Ukraine is partially to be blamed for the extreme shortage of U.S. homes. It is affecting a lot of people who do not want to sell. Sometimes I think that a lot of times we talk about when we have a war we want to hold more physical assets, instead of maybe stocks that can go down fast.
Below is an interview with Joe Polyak, who is a top producer in the Bay Area as well as in San Mateo County from RISE Homes.
Helen: Hi Joe!
Joe: Hi, thank you so much for inviting me. I really appreciate it.
Helen: Absolutely! And one of the main reasons why I am inviting Joe is because we all have seen all this tragedy on the Ukrainians. I do not even know what to say every night when I watch the news, I cried because it is such a scary time and I know Joe you have families in Ukraine right now.
Joe: Yeah, my family came from Ukraine. My mom came here seven months pregnant with me from Ukraine and so I was born here. That was back when it was the Soviet Union, but I have 2 half-sisters on my dad’s side who are still in Ukraine, another one is not in Ukraine and just a lot of other families, my step-dad has a lot of families, his kids, and everybody. So, we have a lot of people and a lot of family friends, a lot of people that we know in Ukraine, in Kyiv, Kharkiv which is where a lot of the fighting is going on.
Helen: Yeah! I just cannot even imagine how difficult it must be for them right now. I hope they can find a safe place. Do you know if they are out of Ukraine now or they are still there?
Joe: No, they are staying there. I think a lot of people have left, but as you see one of the reasons I think that this is so, a lot of wars happen but I am seeing that this probably has become the one that is pretty central in most people’s lives now, even if you do not have any connection with Ukraine. I think a lot has to do with the resolve of the Ukrainian people and Volodymyr Zelensky, the President, and just in general his leadership and all the people living in Ukraine are saying, “Hey, we are fighting, we are staying.” My sisters and a lot of her family and everybody, are staying tight and waiting and doing their part to help whatever they can and they do not want to leave their country. They feel like why would we leave our country. It is ours. There is a lot of propaganda – Russian TV is saying that it is overrun by Nazis and that Putin is coming there to liberate the people and help get them out. That is not true, at least in the areas where I have family and friends and people that I know. They are not Nazis. We are Jewish, a lot of us. So, yeah, a lot of them are choosing to stay and either fight or volunteer or help out and do their best.
Helen: I hope that your family will be safe over there. Honestly, every time I watch the news, it is just so heartbreaking. I have seen children running away while there are grenades or they have rockets going above their heads. It is insane. I think this is one of the reasons why I want to talk to you as well. I know you obviously have a personal level with this war and you are also doing real estate over here, so has that affected your business?
Joe: Not personally really. A lot of people talk about it. I do not know, you know based on your point earlier that maybe people’s fears of this escalating and involving NATO and the U.S. or other countries and that potentially happening could cause people to sit on the fence. But, me personally, my listings that I have listed for sale are still very hectic and busy and a lot of activity for the most part and a lot of our buyer clients are not concerned about this and I think a lot of that is because also the pandemic starting a few years ago. We all thought that “Oh, hey, everything is going to crash and stop” and who knew that the opposite was going to happen and everything was going to skyrocket and people are going to be buying and selling. So, I think maybe a lot of people are thinking like “Oh, you know, I missed the boat that time. I do not want to miss it this time, as it happens again.”
Helen: Yeah! You are right! Even from my own experience, we had buyers who got worried because of the war as “Oh, my gosh, should we even go into the market now.” On the other hand, we have other buyers “Man, this is the time we need to be in the market and hold our assets” Because, during wartime, the most important thing is physical assets. I know some people talk about gold and silver and just now the article talked about bonds and that is something a little bit safer, but then I also know a lot of investors who are moving their money from the stock market into real estate and I do not know if you have heard anything from any of your clients as well.
Joe: I think that talking to people I personally have not heard people making any kind of major different changes. Sellers are people that have to sell no matter what, war or not war. It is a probate trust sale, they are moving, job transfer, a lot of these things. So, their decisions are not changing based on this. Buyers, as you said, some people are “Well, hold on! Maybe we should pump the brakes and see what happens.” But, I always tell people, that I talked to, you can view this as an investment, a financial investment, but I think what is more important is to view this as a life investment. You are buying a house because you are thinking about where you are going to play with your family and pets and everything in the backyard, entertain people, where you are going to have family dinners, Thanksgiving, Christmas, how you are going to remodel, have a beautiful kitchen, a life that is the most important. And, yes! obviously, you want that asset to grow and not crash, right? But if you are thinking about the asset, then buy an investment property and then say renting. But, if you are thinking about buying a house for yourself, then maybe forget the financial, predictions and what might happen and just focus on “Hey, it is the right time for me and my family to buy a home and enjoy ourselves.”
Helen: Well said! I said the same thing. It is about investing in your life, in your future, when you are buying for yourself. I think I see some buyers who time the market too much and they wonder, “Oh, I need to buy when it comes down” and stuff like that. They delayed their buying and then, the market has already gone up so much now, it is out of their budget. But, as investors, you absolutely need to be a lot more careful in terms of your analysis and do not just speculate. I get scared when people are buying as I guess fine. I can be negative every month but you do not want to do that. You want to make sure that you have calculated all your numbers correctly and then you have different exit plans for your investment properties. That is also one of the reasons why value-adding for special apartment buildings. It is so important because when you can add income to the property, you can add tremendous value to your apartment buildings.
Well, thank you so much, Joe! for being here and talking to us and we really wish your family will stay safe over there in Ukraine, and I am sure we will get to work together one of these days.
Joe: Thank you very much. Yeah, I look forward to it and yeah, I appreciate you having me on, this is great.
Thank you for reading! For March Bay Area Housing Market Townhall, we also invited Chris Paizis from Adapt Dwellings to discuss everything you should know about ADU, check out the recording here. We host Bay Area Housing Market Townhall every second Wednesday of the month, register here and join us live!