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August Market Update

August Market Update
Welcome to our August newsletter, where we’ll explore residential real estate trends in the East Bay and across the nation. This month, we examine the state of the U.S. economic recovery using Real Gross Domestic Product (GDP), the potential effects of the Delta variant on the housing market, and the ways in which the homebuyer profile changed over the last year.
 

Key Topics and Trends in August

 
We’re about a year past the initial economic devastation caused by the pandemic. The second quarter of 2020 saw the largest single-quarter drop in GDP in history (-9%). GDP and employment together reveal much about the economic climate and typically trend with housing prices, but they do not explain the current rise in home prices.
 
The U.S. Bureau of Economic Analysis reported a 1.6% quarter-over-quarter gain to GDP in 1st Quarter (1Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. We need to outpace the long-term growth rate to get back to pre-pandemic levels. If it weren’t for the Delta variant, we might actually get there. The substantial infusion of cash into the economy has boosted GDP, but we’re still only at 70% of pre-pandemic levels. At the same time, there are about 10 million fewer jobs due to the pandemic. As the Delta variant runs through the country, our recovery will likely stall and the loss in GDP could be permanent.
 
The fresh uncertainty surrounding the Delta variant caused rates to drop. The Federal Reserve is expected to support the financial markets by infusing money into them, which lowers rates and, in this instance, causes inflation to rise. We’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. Low rates and inflation both incentivize buying. When consumers know that the dollar’s purchasing power is diminishing quickly, it makes more sense for them to buy a home sooner rather than later.
 
Home sales rose significantly in the last 12 months. Although the rate of sales decelerated from January to May 2021, it rose again in June, which is a seasonal norm. More homes are coming to market and being bought quickly due to the excess demand. In 2020, incentives to purchase a home translated to the most homes sold in a year since 2006. Although we’re only halfway through 2021, it’s safe to say that home sales will outpace those in 2020.
 

Homebuyer Shift

 
Demand for homes hasn’t diminished as prices soared over the last year. In a typical year, we would expect that a 20% increase in home value would price many potential homebuyers out of the market, thereby causing a price correction. In this instance, we’ve found that to be half true. First-time homebuyers are usually the first to get priced out of the market. Over the past year, we are seeing fewer first-time buyers coming into the market. However, even though there may be fewer buyers in one category, there are plenty of buyers in other categories to make up for them. In this case, we are seeing more investors coming into the market. Cash sales have jumped considerably, and homes are selling extremely quickly. As a result, it looks like prices will climb higher in the near future.
 

August Housing Market Updates for the East Bay

 
During June 2021, in the East Bay, the median single-family home price declined from the May peak. However, year-over-year, both Alameda and Contra Costa Counties continue to show large price increases.
 
Single-family home inventory rose slightly over the first six months of 2021, which is expected in the spring/summer season when more sellers typically come to market, and then declined in June. However, currently, new listings are barely outpacing demand. In June 2021, the East Bay had nearly 750 fewer homes for sale than it did in June 2020, which is a 15% decline. Furthermore, when we compare the current inventory to June 2019 (pre-pandemic) levels, the number of homes for sale has declined by 33%. The sustained low inventory will likely cause prices to appreciate throughout 2021.
 
In summary, we expect that the number of new listings will continue to increase in the remaining summer months. The current market conditions, however, can withstand a high number of new listings coming to market, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to sell quickly.
 
As always, Arrive Real Estate Group remains committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to Contact us with any questions about the current market or to request an evaluation of your home.

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