Every Tuesday, I go into detail a question I frequently get asked. Why are Bay Area home prices still increasing?

I get asked this all the time as to why this is happening. For those that have hoped for a COVID discount, you can clearly see that once shelter in place happened, we have only gone up from there in most places outside of SF. Rental markets in more expensive areas have declined but home prices continue to increase and the amount that is pending a week have hit all time highs as well. You can see my latest market update video where I extract the data. So, what’s going on?

1) The Fed and banks have been very aggressive in ensuring that people keep their homes. They had announced unlimited quantitative easing and to keep buying mortgage backed securities pushing mortgage rates to record lows. As mortgage rates keep declining, the buyer power of individuals increases. People that pay exorbitant amounts in rent (over $3,000/month) are realizing that they can easily own a home in most places across the Bay Area with the same monthly payment.

2) COVID has not affected people equally. COVID has negatively impacted younger people and the service industry far more than those that are mid-level in their technical careers. If you think and look around as to who is buying in the Bay Area, these are the people still actively buying and having confidence with their job security.

3) EVERYONE needs more space than ever before. The longer people work from home, the more they realize that their current situation is unbearable. This is why rental figures for 1 BR has plummeted double digits, but 2BR and Single Family Homes have done significantly better, even within those same cities. With people being able to work from home longer, people are more comfortable in buying a larger home further away even more so than before.

4) While inventory levels have improved and actually surpassed pre-shelter levels, we are still much lower than what is needed from a demand perspective. This is actually happening across the US but Bay Area is much more severe given the lack of space/construction in the core Bay Area. We don’t have enough housing in the Bay Area and COVID made that imbalance much worse. Take a look at the stock prices of builders, they are all reporting record demand and can’t build fast enough. As long as there is this problem, prices will likely continue to rise.

5) Millennials are growing up! People think millennials are only in their 20s and all they do is waste money on experiences or high rent. Given they can’t spend that money on those things anymore, they are using all of that saved income that they have to just buy a home instead! Millennials are classified to include people to the age of 38. Many millennials are starting young families and want to settle down. Be on the lookout as this trend won’t stop. There are over 83 million millennials right now.

Now what are my predictions? The next few months will continue to be intense and we will hit new record highs. I suspect the months after will slow down and not grow as fast. However, even as intense as it is right now, there are still plenty of opportunities as every home will have it’s own unique strategy. Do not psyche yourself out before you even begin the journey! Leverage the cheap money that banks are providing, get out of the rental market as that money is a waste, or find a bigger home so that you are comfortable in the new normal.

— Want to talk about your real estate goals? Find a time on my calendar! www.Calendly.com/sphsu04