Welcome to our first housing market update for the year 2022 and I am so excited. I am here to hope that I can continue to provide information and education for you so that you can make a really good investment decision for your real estate purchase or sale. Watch the video recording here, and don’t forget to subscribe to our YouTube channel so you get notified when new updates are available!
Let us get started! Today is January 12, 2022, and of course, a lot of people ask so “How’s the market right after the holiday?”
Now, this is what happened this past weekend. This past weekend is the first post-holiday weekend, and these are the open houses, there are no COVID restrictions for showings. As you see that people were lining up outside the house because inside the house, there is also a line. I think when we shared these pictures on social media, everybody was just shocked and this shows how many buyers have been waiting and getting ready to go buy properties. Unfortunately, in December, as we know, most buyers were probably really busy traveling and visiting family, so the market was pretty slow; but as soon as the holiday is over, people all came back out to buy. Now, you probably wonder, “Why are there so many people? I thought it is getting too expensive, people feel we should just wait until the market crash or the price comes down. Why are there so many people?” So this is what I am going to do in the next 20 minutes or so to go over the reasons why there are so many buyers that are ready to buy right now.
First of all, I know you noticed already, in December there were very, very little inventory and so many of our buyers always say like, “we do not see anything, just that handful of properties only,” but you know what, from what we can find right now, there are about 105 single-family listings that are not on the market yet, meaning that you do not find them on Zillow or Redfin right now. They are not on the market yet, so there is a sort of hope. Out of that 105, 79 of them just listed starting January 1st. So in the past 12 days, there were 79 off-market or coming soon listings that just came up that we know of, and also for condos and townhomes, there are 52 total listings that are coming soon or off-market, and since January 1st, there were 23. So, 52 in total. They may have come on since last year December; but since January 1st, they were 23. We have mentioned that a lot of times, sellers are just not ready to sell right in December because they want to entertain their family before they move. They believe that in December, it is too slow, so they do not want to get ready yet; but as soon as the holiday is over, that is when they start getting ready to sell which is going to take about 2 weeks to a month for them to get the house ready, if it does not require major work and then put it on the market. In the next few weeks, you are definitely going to start seeing more and more properties.
Let us take a look at Santa Clara County – What had happened in the last year and let us look back. If you see the “blue columns,” we get the most listings in around April, and this is pretty much consistent for every year besides 2020, but it is very consistent that usually the number of listings peaked in April and also the number of buyers peaked in April as well and of course, towards the end of the year, especially December typically, it just drops quite dramatically and then, however, the median sales price as you see that, especially last year, it has been going up pretty steadily and then, the price had been really strong back in June. These sales prices were recorded in June but remember it takes 30 days to close so that means they made an offer in May. When sellers ask us when is the best time or when is the market did not start slowing down? Actually, it starts slowing down around June. If you put your property on the market in June, then you are starting to hit graduation month where there are a lot of year-end activities. If you do plan on selling, definitely you want to hit the market by May and no later than May and that would be your best time to sell.
In terms of the sales price and list price ratio, last year January is 4% over the asking price, but then since January, it has been going up 10% over asking and this is pretty much the average and in December, there is so little inventory, but then there are still so many buyers for those inventories. We actually see the highest sold-over list price percentage in Santa Clara County.
Now, let us look at condos and townhomes. For condos and townhomes, this is where we see the pricing actually more stable. The same thing, the inventory dropped quite dramatically towards the end of the year, and then, we see their sold price over list price is a lot more moderate compared to single-family. They are ranging about 4% or so.
In terms of 2-4 units, I thought to share because we started to have more and more clients asking about 2-4 units, like a duplex, triplex, quadruplex, and if you look at the number of listings, they are pretty consistent but then towards the end of the year has definitely still dropped quite a bit. But then, the pricing is more stable, and they are following the trend of the season and then go back up and come back down and go back up and come back down. In terms of the competition level, it ranges around 1-2% or so.
Now, what about Alameda County? Alameda County is following a similar trend as Santa Clara County, and they have a number of listings in December closer to 500 listings in that month when the price has gone up to almost close to $1.2 million, in terms of their median sales price. For their sales price to list price, Alameda County, as you can see, is stronger than Santa Clara County. So much demand, people were just moving to Alameda County from San Mateo County and Santa Clara County; and as you see that, these are all over 10%, 10% over asking price. So as much as in June, it is 16.5% over the asking price, and in December, it is 13.2% over the asking price, so Alameda County definitely has seen a huge price increase compared to last year.
What about condos and townhomes? I am going to show you this really weird chart, over here, I know you already noticed that. The sales price had gone up quite a bit as well and the number of listings also had dropped a lot, but then, for condos and townhomes, there is just one property, somehow the listing agent recorded the sales price at $435 million instead of $435,000, and that is why our data is completely skewed. But if you just look at all these numbers down here, they are about 4%-5% over the asking price. So, again, you see, the demand for condos compared to single-family has quite a bit of difference.
In 2-4 units, we have similar statistics here, and especially for the demand for 2-4 units is still really strong. They are all over the asking price since last year.
Now, what about San Mateo County?
I thought this would be interesting to look at first is last year December 2021 and as you see the median sales price is $1.8 million. It actually dropped from November, but of course, we are not too surprised sometimes December depends on the number of units. The sales price that you see that it might drop a little bit compared to November and the same thing for condos and the number of days actually lasts a little bit longer, 23 days versus 17 days, in November and for condos 29 days versus 22 days in November. There was a total of 385 sales, almost 20% less than last month and for condos, they actually have 12% more than last month.
But I want to compare what is going on compared to 2020, a year ago.
Now, if we look at single-family, a year ago, it was $1.7 million. Median sales prices had gone up to $1.8 million dollars and the days on the market had come down 7 days, from 30 days to 23 days, but then the number of listing is only 15 listings less than last year, so it is not too bad. It is almost fair consistent, but you see that the price has gone up 5.8% from last year and while it stays on market 7 days shorter. As for condos and townhomes, the property value has gone from $820,000 to $880,000, and more significant is that last year, 2020 December, it took 40 days to sell a condo and townhome, but last month, it only took 29 days. Then, there are about 157, slightly more than last year in terms of the number of sales and that is a 7.3% price increase from last year for condo and townhomes in San Mateo County.
When everybody always talks about that is because our inventory is so low and that is why our prices have gone up, you are absolutely correct! December listings are always low, but as I had mentioned earlier, December listings are very low compared to the rest of the year, and it is actually the same trend for almost every single year.
Now, if we look at compare just the December listings for Santa Clara, Alameda, and San Mateo Counties, all three counties combined in 2017, is 117 listings; 2018, there were 59 listings that came on the market, by the way, these are properties that came on the market, and then, 2019, there were 76 properties that came on the market and 2020, we had 192 properties that came on the market which is really significantly more than any other years in the past 5 years and then 2021, we came back to the same level as 2017. In terms of how much more, we are actually more than 2018 and 2019, but we are at the same level as 2017, but yes, you are right, we do have a lot less compared to the year 2020.
But I want to show you all year long what happens, throughout the year or so – 2017, we had probably 50,000 new listings; 2018, 53 almost 54; 2019, almost 52; 2020, we have 54 and 2021, we have over 58,764. We actually have more listings, new listings, compared to the past 4 years. I think this is one thing I wanted to clarify because I keep hearing people saying that in 2021, we had such a low inventory; however, we actually had more listings compared to all the past years, at least the past 5 years and it is just that we had so much demand on the market and that is why the pricings are still going up. It is just not satisfying all the demands out there.
What happened because of that? Now, we see it on the battleground and as you see this one, I highlight this one particular offer, all these offers and offer deadlines we track them and see how many disclosures, how many offers they have received. There is just one, the offer deadline was yesterday and we had taken a look at it. The asking was $999 and it was, a kind of we call it fishing price, right! We knew that the market in that area is not going to be $999 or a million-dollar, but it did draw so many people to the open houses and they had sent out 208 disclosure packages. The last time we heard yesterday morning, they had received 21 offers. They could have received even more afterward but what we know is that their final accepted offer price or sales price was over $1.6 million and that is over 60% over the asking price. It blows my mind because in a way when you know that that market has a lot of buyers coming in to with interest in that area and by the way this property is not considered fully updated, it is like single pane windows, so there is some work that needs to be updated still. It does not have a master suite and still sold over 60% and our valuation for this property is actually at about $1.5 million dollars but it went way over the market value of this property and another one is that 1300 square feet in Cambrian neighborhood which is 95124, it was sold off-market, it did not even make it to the market which is one of those that as I have shown you earlier, we have a list of what might be coming on the market soon and that one was sold 24% over asking price for $1.8 million before you even hit the market and over and over again we see on this chart, it is just that people are making offers before they even hit the market. So be sure that if you are looking for a property, talk to your agent and make sure that they are sending you all these properties that are not even on the market yet.
What is going on with our mortgage loan?
Now look at the monthly averages since December 2020, it was 2.68% and then January 2021, it was 2.74% and it has been ranging right around the high 2s and around 3% and then finally December, it went to 3.1%.
These are Conforming loan amounts, by the way, so it is not Jumbo loan amount and now conforming loan amount as of today, is at 3.5% and for Jumbo loan, it is actually lower at 3.125%.
So, with that said, I hope that everybody pays attention that the interest rate is going to go up but then how much is it going to go up. Let us take a look at the inflation rates first. The inflation rate we had talked about last time was, November had a record of 6.8% in terms of the inflation rate and December now is at 7% and they are expecting, it is probably going to be a little bit over 7.1% this month, in January, so it is high.
Historically, it is a very high inflation rate, and U.S. News says in this article, “Inflation is at 40-year high and it pressures consumers, Fed and Biden”, “Powell told Congress that if it becomes necessary to fight high inflation more aggressively, the Federal Reserve is prepared to accelerate the interest rate hikes it plans to begin this year. The Fed’s benchmark short-term rate, now pegged near zero, is expected to be bumped up at least three times this year.”
What happens if the inflation rate goes up?
Let us take a look at the U.S 10-Year Treasury Yield first on this graph. As you know, 30 years’ mortgage rate correlates with the 10 years treasury yield, so this is the “black line” and then, 15 years is the “blue line” and 30 years mortgage rate is the “green line” and they are pretty much the same trend and if you look at the Prime Rate which is very closely tied to the Fed Rate, obviously it does not fluctuate as much and that is why you see a smoother line here, but the 10-year treasury, 30-year mortgage rate, they follow the same trend as the Prime Rate, so what will happen if the inflation rate is high, they are pushing the Fed Rate to increase rate which in turns will also push up the mortgage rates in the future.
That is why we look at the projections from different agencies and unfortunately, these agencies have not updated their projections yet. The last time they had it was, for Freddie Mac, was in October; Fannie Mae was in November; Mortgage Bankers Association was in December, and National Association Realtors was in November, and these numbers are the same as what I had presented to you last month during our townhall, and we had averaged about 3.7% until 3Q 2022. But I can be very confident to tell you that probably in the next couple of months, we are going to see a lot of adjustments from their projections here and we are probably going to see this number to be higher than what is showing here.
What will happen then if we see that the interest rate is going to go up?
Let us assume that you are purchasing something at $1.5 million with 20% down so your loan amount is 1.2 at 3.125%, your principal interest is $5,140 for 30 years mortgage.
If we increase the interest rate by 0.875%-4%, it could happen end of the year or beginning of next year, then your payment is going to go up to $5,729, which is more than almost $600 more compared to what you could get this year and $600 per month is a lot and that is $7,200 a year.
What happens if you are saying I want to maintain my monthly payment to be very similar to what this payment is because at the end of the day what are people buying? They are buying the monthly payments. They want to be able to lock in their monthly payments for the next 30 years, so that is why a lot of people are looking at the monthly payments. But if the interest rate is at 4% that means the loan amount is going to come down to $1.075 million with the same amount of down payment, it only comes up to $1.375 million for your purchasing power.
In other words, just a 0.875% increase in interest rate will increase your monthly payment by 11.4%, and you will also lose 8.3% on your purchasing power.
This is one of the main reasons why you see so many people are lining up out the door at the open houses because they want to lock in this interest rate, right now. Otherwise, we saw that historically we do not really see an interest rate this low, and we can only predict that the interest rate is going to go up from now on.
So I know, it is frustrating but just be patient and do your own due diligence, and make sure that you work with your realtor to make a smart and informed decision on your offer.
Other than mortgage rates, pricing, inventory, I also want to show you the economy for our area. There is Meta which is Facebook, Apple; they are all leasing huge property deals these days. There are big developers coming in at Fremont and even Southern California real estate company, they buying Palo Alto buildings and East Bay, they are all these different places that are being leased out or being bought, so there is a lot of large companies coming into our area, trying to build a business and also do a lot of different kind of developments. We do see that the economy-wise, it is doing pretty well.
On top of that, the unemployment rate in the bay area San Francisco area has been lower than the national average, has been coming down as well, so we do see that employment is doing better, and the unemployment rate is also doing much better than the national average.
In conclusion, before we go into the tax-saving strategies, this is what I find is that the supply level will definitely increase modestly as we see these coming soon and off-market listings have come out since January 1st, but then I do believe that the demand is going to be really strong because a lot of people are trying to in the mortgage rates and knowing that I do think that mortgage rates probably going to increase by about 1% within the next 12 months and unemployment rate in the area is going to remain lower than actual average with improvements insight. I feel that this area is going to be pretty strong and it is not just because I am a realtor and it is truly from what I am trying to present to you all these different research and statistics to show you why I do believe that – the housing market is going to be strong in the bay area.
Thank you for reading this month’s Bay Area Housing Market Update, this month, we also invited CPA Diana Chan to talk about 2022 Tax Saving Tips & Entity Selection for Real Estate Professionals, find out what entity will save you the most taxes this year! Watch video here.