From the Golden Gate Sotheby’s Market Report…

Market Movement in Spite of Challenges

The pandemic continued to weigh on economic activity even as optimism grew that a smooth vaccine rollout would allow additional businesses in the region to reopen. While the events of January 6 in Washington, D.C. cast a pall on the nation, the orderly transition to a new administration gave some hope that the potential for a return to business as normal at some point this year remained a possibility. Fueled by low mortgage rates and strong consumer preference for larger living spaces, the regional single family home market continued to accelerate.

Sales Historically High Despite Seasonal Slowing

January home sales are often sluggish, driven by seasonal factors including households spending during the holidays or delaying large purchases until after income tax season. In January, sales volume slowed somewhat due to typical seasonal patterns, but primarily as little available inventory left potential homebuyers with few options. The surge in pricing in the second half of 2020 also kept ownership out of reach for many households. Though migration out of the Bay Area has impacted some neighborhoods, and the number of closed sales decreased in all counties, sales velocity throughout the region remained elevated relative to historical norms.

In January, sales volume declined for the third-consecutive month to 3,394, a drop of 31% from December. Despite this decrease in the pace of sales from the previous month, activity remained much higher when compared with more typical January figures the last five years. With buyers in the market facing limited opportunities, well-priced listings frequently received multiple offers above the asking price. In January, the share of sales closed above the list price remained greater than 60%. With limited for-sale inventory, sales greater than asking should remain the majority for the next several months.

Once forbearance programs end, some distressed opportunities may come to market, loosening for-sale inventory to provide a better balance between supply and demand. Similar to the pace of sales, the median home price in January declined slightly as seasonal factors combined with affordability constraints to reign in price appreciation. Compared with December, the median price decreased by 2.1%, following a 3% decline in December. The monthly median price declined slightly in most counties, with the exception of San Francisco, Marin, and Santa Cruz counties, as well as Solano County where the median price was stable.

Looking Ahead

During the next several months, the regional economy should continue to improve, albeit at an uneven pace. As business restrictions are slowly lifted by state and local governments, and vaccine distribution accelerates, the region should begin to trend towards a more normal state of activity. As households that temporarily relocated during the pandemic return to the Bay Area, demand for housing of all types should increase. While mortgage rates should remain low through the rest of the year, price gains will continue to reduce affordability.

The lower range of the pricing spectrum may continue to lag the broader housing market this year, as lower income households have been disproportionally impacted by the pandemic-related job losses and home values continue to price many households out of ownership. Gains in the stock market and potential for high profile IPOs in 2021 bode well for the luxury housing market in the Bay Area. While the pandemic dictated the pace of the housing market for the last year, as the virus is brought under control, the housing market will see a return to more traditional economic drivers and seasonal fluctuations.