Girish's Real Estate Market Observer - Feb '24 Edition

Understanding the Housing Market Dynamics: A Tale of Supply, Demand, and Pricing

The housing market is a complex supply, demand, and pricing interplay. As an expert real estate agent, I've often found that a visual representation of market data can be highly illuminating for clients trying to grasp the nuances of market conditions. Today, I want to share an insightful analysis of the local housing market (Alameda and Contra Costa Counties combined) using a blend of the number of homes for sale and the median sale price data.

In the graph above, the green bars represent the number of homes available for sale, directly indicating market supply. The blue line, with its peaks and troughs, represents the normalized ratio—a clever metric that combines median sale prices with the number of homes for sale to give us a temperature check of the market.

Market Analysis Period by Period

November 2022

Starting in November 2022, the normalized ratio stood at 17.91. The market was relatively calm, suggesting more room for negotiation for buyers.

December 2022

Come December, the ratio slightly dipped to 11.96, aligning with the holiday season when market activity typically slows down.

January 2023

However, by January 2023, the ratio skyrocketed to 100, the zenith in our scale. This peak signals a super hot market—demand vastly outweighed supply, driving up prices.

February to April 2023

From February to April, the following months saw a hot market with ratios above 66, indicative of sustained demand.

May to August 2023

The mid-year months, May to August, cooled off, with the ratio dipping low, reflecting a more excellent balance and even a surplus of homes available.

September to December 2023

As we moved towards the end of the year, the market warmed up again, with September and December marking ratios above 23, showing a moderate increase in competition.

January 2024

Finally, January 2024 saw another spike to a ratio of 97.46, almost reaching the previous year's intensity, signaling another seller's market period where demand was high and inventory low.

Supply, Demand, and the Invisible Hand of Pricing

While the number of homes for sale is a straightforward supply measure, demand is more elusive. We often use the median sale price as a proxy for demand. When many buyers compete for homes, prices rise; when homes linger on the market, prices fall. However, it's important to note that the median sale price is an indirect measure—there's no precise way to count the number of active buyers at any given time.

The median sale price can reflect buyers' urgency and financial power in the market. A high median sale price, especially when inventory is low, indicates buyers are willing to pay more, often due to a shortage of available properties.

Conclusion

The ratio of median sale price to the number of homes for sale has proven to be a robust indicator of market heat. Understanding this relationship is crucial for prospective buyers and sellers in making informed decisions. When you notice a high ratio, be prepared for competition; there might be more opportunities to negotiate when it's low.

As we navigate through 2024, keep an eye on this ratio—it's a good barometer of the housing market's health and can guide your real estate strategy, whether you're looking to buy or sell. The market speaks through numbers; you can hear its whispers loud and clear with the correct interpretation.

Please note that the normalized ratio of the market temperature is determined by calculating the ratio of the Median Sale Price and the number of homes for sale during the analyzed period. A score of 100 represents the hottest month, while 1 represents the coldest month during this period. It is important to note that this ratio does not indicate a traditional representation of a buyers' or sellers' market, represented by the number of months of inventory. Instead, it identifies the warmest and coldest months during the analyzed time frame.

Girish's Real Estate Market Observer - Jan '24 Edition

 Interpreting Supply-Demand-Home Prices

Understanding the intricate dynamics between supply, demand, and home prices is fundamental to grasping real estate market trends. It's a well-established economic principle that limited supply coupled with robust demand typically elevates the price of a commodity, including real estate. Conversely, an abundance of supply with waning demand tends to lower prices. This article examines empirical data through two critical lenses to provide a comprehensive analysis.

The first graph we'll explore illustrates the historical trajectory of median home sale prices across the United States. This data offers valuable insights into long-term market trends and pricing patterns. The second graph focuses on a more localized context, presenting the supply and demand equilibrium in Alameda County. This is depicted through the "Market Action Index," a metric that quantifies market dynamics. A higher index value signals a strong market characterized by limited supply relative to demand, and a lower value indicates the opposite scenario. This granular view allows us to understand how local market conditions impact property values.

Fig 1

Fig 2

Analyzing the two provided graphs, here are the insights and interpretations based on the data from February 2019 to the current date:

1. **Correlation between Supply-Demand balance (Market Action Index) and home prices:**

   - The Market Action Index (MAI) appears to show a cyclical pattern, with peaks and troughs corresponding to changes in the balance between supply and demand for homes in Alameda County, California. 

   - When the MAI approaches 100, this suggests that demand is high and supply is low, which typically correlates with rising home prices due to increased competition among buyers.

   - Conversely, when the MAI is lower, indicating a greater supply relative to demand, we would expect to see stabilization or a decrease in home prices as sellers compete to attract buyers.

2. **Best Strategy for a Buyer:**

   - Timing the market can be incredibly challenging, especially without knowledge of future market conditions. Historical trends suggest that over long periods, home prices tend to rise, which supports a buy-and-hold strategy.

   - Considering the first graph, the overall trend for median home sale prices shows a consistent increase over the years, even accounting for periods of recession indicated by the grey bars.

   - For a buyer, it would be reasonable to suggest that buying and holding property is likely to be beneficial. Market lows, as seen in historical recessions, have been followed by recoveries and increases in home values over time.

   - To insure against market lows, a buyer should be prepared to hold the property for at least one full market cycle, which historically has been about 7-10 years.

3. **Advice for a Seller:**

   - If the MAI is high and approaching 100, indicating high demand and low supply, it would be an advantageous time to sell to maximize profits.

   - Looking at the median home sale prices, sellers might consider the current trend and market conditions. If prices are near historical highs, it could be an opportune time to list their property.

   - Sellers should also be mindful of upcoming trends that may indicate a market downturn, as this could affect the timing and pricing strategy for selling their property.

4. **Advice for Investment Buyers in Single-Family Residences:**

   - Investment buyers should consider the historical appreciation of home values, which suggests that real estate is a sound long-term investment.

   - The cyclical nature of the MAI could be used to inform purchasing decisions; buying when the MAI is lower may allow for better deals to be found, with the expectation of selling when the MAI is high.

   - Given the long-term upward trend in median home prices, investment buyers should be prepared for a long-term hold to maximize potential gains. This approach also provides a buffer against short-term fluctuations in the market.

In conclusion, both graphs suggest that real estate in Alameda County, California, and the broader U.S. market tends to appreciate over the long term. Short-term market timing is risky and challenging, whereas a long-term buy-and-hold strategy aligns with historical trends showing overall growth in property values. Sellers and investment buyers should watch the Market Action Index closely to identify optimal times for transaction decisions. However, these insights are based solely on historical data and do not account for unforeseeable future market changes.

Girish's Real Estate Market Observer - Dec '23 Edition

Girish's Real Estate Market Observer - Dec '23 Edition

The graphs represent various aspects of the single-family home (SFR) market in Contra Costa and Alameda Counties over several months. To provide a precise analysis of the market for laypersons, I will break down each graph and its implications for buyers, sellers, and investors.

1. Months of Inventory Based on Pended Sales:

   • This graph shows the fluctuation in the months it would take to sell all the houses currently on the market based on the current rate at which homes are going under contract (pending sales).
   • A lower number indicates a seller's market, where demand and inventory are expected, potentially leading to higher prices. Conversely, a higher number suggests a buyer's market, with more inventory and less competition among buyers.
   • For Buyers: When the months of inventory are low (around 3/23 with 0.8 months), it implies a competitive market, and they may need to act quickly and bid above the asking price. As the months of inventory increase (as seen towards 11/23), buyers might find more options and less competition, potentially leading to better deals.
   • For Sellers: The period with lower inventory (around 3/23) might be an ideal time to sell, as they could get higher offers. As inventory increases (towards 11/23), sellers may face more competition and must be more flexible with pricing or terms.
   • For Investors: Low inventory periods can mean a quick appreciation of property values, suitable for short-term investment. An increasing trend in inventory may indicate a cooling market, which could be advantageous for investors looking to purchase rental properties at lower prices.

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4. Median Price Graph (Sold vs. For Sale):

• This line graph contrasts the median prices of homes sold with those currently for sale.
• The sold prices are a lagging indicator reflecting past market activity, while the for-sale prices can be seen as a leading indicator of where the market might be heading.
• For Buyers: When the sold prices are lower than the for-sale prices (like between 3/23 and 5/23), it suggests that buyers may need to negotiate harder or wait for a market correction. However, if sold prices approach or exceed for-sale prices (as seen around 9/23), it could indicate a market peak.
• For Sellers: Ideally, sellers want to list their homes when the for-sale prices are at a premium compared to recently sold prices, indicating they could sell their homes for more.
• For Investors: Tracking the gap between sold and for-sale prices can help investors gauge the market's momentum and time their entry and exit for maximum gain.

1. Number of Homes (For Sale, Sold, Pended):

   • This bar graph shows the number of homes for sale versus those that have been sold or are pending sale each month.
   • The red line indicates the trend in pended sales, a measure of demand.
   • For Buyers: An increasing number of homes for sale, combined with a steady or decreasing number of pended sales (seen after 5/23), could signal a cooling market where buyers have more leverage.
   • For Sellers: A decrease in pended sales relative to the number of homes for sale suggests that sellers might need to be more competitive with pricing or terms.
   • For Investors: A decreasing trend in pended sales may hint at a slowing market, which could affect the potential for quick resales but may increase rental demand as potential buyers wait out the market.

Current and Future Implications:

• Now: The data suggests that as of the latest data point (around 11/23), there is an increase in inventory, indicating a possible shift towards a buyer's market. This can mean more negotiating power for buyers, while sellers may need to adjust expectations.
• Future: If increasing inventory and decreasing pended sales continue, it could lead to a more pronounced shift towards a buyer's market. This would affect pricing strategies for sellers and offer investment opportunities for buyers looking to enter the market.

Understanding these trends can help all parties make informed decisions. Buyers can gauge the competition and pricing environment, sellers can strategically time the market for listing their homes, and investors can assess the potential for property appreciation or rental demand.

Girish's Real Estate Market Observer - Bonus Edition

Girish's Real Estate Market Observer - Bonus Edition

2024 Real Estate Trends Unveiled: What to Expect This Year 🏡✨

As we enter the dynamic realm of 2024, the real estate landscape is poised for a series of transformative trends that will shape how we buy, sell, and experience homes. In this blog post, we'll unveil the key trends to watch out for, spanning technology, design, and home preferences, ensuring you're ahead of the curve in your real estate endeavors.

1. Tech-Forward Homes: The Rise of Smart Living 🌐🏠

In 2024, homes are becoming smarter and more connected than ever before. From AI-powered security systems to integrated home automation, tech-forward features are no longer a luxury but an expectation. Smart thermostats, lighting systems, and voice-activated assistants are integral to modern living. Homebuyers seek properties equipped with the latest technology for enhanced security, efficiency, and convenience.

2. Sustainable Living Takes Center Stage 🌿🏡

With environmental consciousness on the rise, sustainable living is a defining trend in 2024. Homebuyers increasingly prioritize energy-efficient features, eco-friendly materials, and homes with renewable energy sources. Solar panels, green roofs, and smart water management systems are becoming sought-after amenities. Properties that emphasize sustainability not only appeal to eco-conscious buyers but also contribute to long-term cost savings.

3. Flex Spaces: Adaptable Homes for Versatile Lifestyles 🛋️👩‍💻

The concept of dedicated rooms is evolving into flexible spaces catering to the diverse needs of modern lifestyles. With remote work becoming a permanent fixture, homebuyers seek properties with adaptable spaces that can transform from home offices to gyms or entertainment hubs. Versatile design elements, such as movable walls and modular furniture, are gaining popularity as they provide homeowners with the freedom to customize their living spaces based on daily activities.

4. Minimalist Aesthetics with a Touch of Warmth 🛋️🎨

While minimalist design continues to thrive, there's a shift towards incorporating warm, inviting elements. Homebuyers gravitate towards earthy tones, natural textures, and cozy furnishings to create a harmonious living environment. The marriage of minimalism and warmth strikes a balance that resonates with those seeking a serene and comfortable home.

5. Outdoor Living Spaces: An Extension of Home Comfort 🌳🏡

The importance of outdoor living spaces has taken center stage, with homebuyers recognizing the value of connecting with nature. Properties featuring well-designed outdoor areas, such as landscaped gardens, patios, and balconies, are highly sought after. The concept of "bringing the outdoors in" through expansive windows and glass doors is also gaining momentum, blurring the lines between indoor and outdoor living.

Conclusion: Embracing the Future of Real Estate 🚀

As we navigate the evolving landscape of 2024, these real estate trends highlight the importance of technology integration, sustainable living, adaptable design, inviting aesthetics, and a seamless connection between indoor and outdoor spaces. Whether you're a buyer, seller, or industry professional, embracing these trends ensures that you're not only keeping up with the times but shaping the future of real estate.

Stay tuned for more updates as we delve deeper into each trend throughout the year, providing valuable insights and inspiration for your real estate journey. Here's to an exciting and innovative year in real estate! 🏡✨ #RealEstateTrends2024 #SmartLiving #SustainableHomes #GirishBangaloreRealEstateInsights

Girish’s Real Estate Market Observer - Nov '23 Edition

 Girish’s Real Estate Market Observer

 Who will bail out the buyers?

 

Challenging is not the word to describe the home buyer’s world in the Bay Area. It’s brutal and has been so for many years. The inventory of homes (combined Alameda and Contra Costa County) continues to be anemic (sellers being locked into low-interest rates and seasonal factors). At the same time, the inventory has picked up month-over-month since February 2023 (Fig 1); it’s not enough compared to the demand. The net result is no different from the last few months, and prices remain steady, dipping ever so slightly (Fig 2). Of course, many neighborhoods are attracting multiple offers and bidding wars. It shows that the Bay Area buyers are willing and capable of shelling out money from their deep pockets. Higher interest rates are now a distant memory. Talking about it, the market is more sensitive to changes in interest rates rather than absolute numbers. So, watch the interest rates (Fig 3) as you move forward. The buyers are expected to return to the market after the holidays, and if the inventory of homes stays where it is, next year will be more competitive and less forgiving for the buyers.

So, let’s get back to the question: who will bail out the buyers? 

1. Supply is not going to improve overnight (the sellers are sitting tight, and the cities are not doing much to help build new homes)

2. Higher or lower interest rates are not the solution, especially when the supply is low. There are enough buyers no matter what the interest rates are

3. Economic shock and related turmoil in the job market - loss of jobs and an eventual inventory glut. Sorrow for many and opportunity for some. Will that happen? My answer is as good as yours.

Contact me if you need in-depth real estate market analysis for your city. 

Figure 1: Combined For Sale and Sold SFRs, Contra Costa, and Alameda County.

Figure 2: Median Sale Price of SFR in Alameda and Contra Costa County.

Figure 3: Average 30-Year Fixed Mortgage Rates.

Girish's Real Estate Market Observer - October '23 Edition

 Seller and Buyer Tug of War

Envision a metaphorical tug of war, a fierce battle between two formidable teams - the sellers and the buyers. The rope symbolizing this struggle is the mortgage interest rate. Unlike the conventional tug of war, this rope is not a passive participant but rather a dynamic force in real estate. It shifts its position in response to the stronger pull, exerting a considerable influence on the outcome of this confrontation.

Presently, the dynamics of this force are causing sellers to adopt a cautious stance, restraining them from putting their properties on the market. This hesitancy is primarily because many sellers are locked into historically low-interest rates, often below 3%. Simultaneously, this dynamic force is compelling potential buyers to hesitate or abandon their pursuit of homeownership. The consequence of this standoff is a delicate equilibrium between supply and demand, which keeps home prices upward.

In the combined areas of Contra Costa County and Alameda County, the median sale price of Single-Family Residences (SFR) demonstrated year-on-year (Y-O-Y) and month-on-month (M-O-M) increases in September (refer to Figure 1). This upward price trend is taking place against the backdrop of a continuous Y-O-Y decline in the inventory of available homes and the number of properties sold (as illustrated in Figures 2 and 3). However, September witnessed an unexpected M-O-M surge in property supply, an occurrence not commonly associated with the holiday season's approach. Is this a subtle indication that sellers are relenting, choosing to let go of their precious sub-3 % mortgage rates? Only time will reveal the true nature of this development. If increasing inventory persists through December, it could alleviate some pressure on buyers and exert a downward force on home prices.

For the real estate market to witness a fundamental transformation in determining the victor of this tug of war, one or more of the following scenarios must unfold:

1. The rope, symbolizing the interest rate, must break, and we shall observe who succumbs first with a resounding thud. Both buyers and sellers may find themselves in a precarious position.

2. Alternatively, either the sellers or the buyers may concede defeat. The pivotal question is, which side will emerge victorious? In the Bay Area, at least, prospective buyers with substantial financial resources actively pursue properties.

In recent memory, the Bay Area real estate market experienced two periods of better balance: when buyers had access to reasonable inventory, favorable mortgage interest rates, and property prices that remained within reach. The first period occurred between July 2018 and November 2019 (as reflected in Figures 4 and 5), and the other transpired between July 2022 and February 2023 (as demonstrated in Figures 6 and 7). Figures 4, 5, 6, and 7 unequivocally portray the stark contrast in property prices, inventory levels, and interest rates (as seen in Figure 8) between those periods and the current state of affairs.

In conclusion, it is imperative to maintain a vigilant watch over the pulse of the real estate market, as it is the key to discerning the direction in which the market is poised to move.

Figure 1: Combined Median Sale Price, Contra Costa, and Alameda County.

Figure 2: Combined Inventory of SFR in Alameda and Contra Costa County.

Figure 3: For Sale and Sold SFRs in Alameda and Contra Costa Counties

 

Figure 4: For Sale and Sold SFRs in Alameda and Contra Costa Counties (July 2018 – Nov 2019)

Figure 5: Median Sale Price of SFRs, Alameda and Contra Costa Counties combined (July 2018 - Nov 2019)

Figure 6: For Sale and Sold SFRs in Alameda and Contra Costa Counties (July 2022 – Feb 2023)

Figure 7: Median Sale Price of SFRs, Alameda and Contra Costa Counties combined (July 2022 – Feb 2023)

Figure 8: 30-Year Average Fixed Mortgage rates during July 2018 – Nov 2019 and July 2022 – Feb 2023 periods

Girish's Real Estate Market Observer - September '23 Edition

September '23 Market Update

 

 

Before winter's chill, the Residential Real Estate (RRE) sector within the Bay Area appears uncertain, struggling to ascertain its direction. Various macro and microeconomic variables exert divergent forces upon the RRE market. Whether attributed to the absence of available Inventory, with sellers seemingly constrained by the enticing allure of historically low interest rates or the reluctance of prospective buyers stemming from the diminished affordability arising from elevated interest rates and the apparent reluctance of home prices to exhibit significant fluctuations following the notable surge experienced over the two years after the onset of the COVID-19 pandemic. The Federal Reserve, for its part, does not indicate an imminent reduction in interest rates but rather alludes to the possibility of future rate hikes. There exists a need for a decisive shift to invigorate the real estate market. The outcome of this standoff remains uncertain, and while one may only speculate, if one were to place faith in mathematical principles and subscribe to the concept of regression to the mean, it is plausible to anticipate that the remarkable appreciation of over 40% within the two years following the COVID-19 pandemic will inevitably necessitate a correction, rather than a steep crash. It is foreseeable that a considerable period will be required for inventory levels to normalize, for pricing adjustments to materialize, and for enhanced affordability to emerge gradually. An examination of pertinent data is warranted better to comprehend the present impasse between supply and demand dynamics.

 

Figure 1: Existing Home Sales Decline

 

 

Home sales (number of transactions) have reduced over the year by a whopping 18.3% Year-To-Year.

 

Figure 2: Inventory of Homes Decline

 

Inventory of Homes Decline by 23.5% Year-To-Year in the Bay Area

 

Figure 3: Median Sale Price Increase

 

 

With a substantial dip in Inventory, the prices continue to hold, with a 5% increase Year over Year and almost stable Month over Month (July 2023 to August 2023).

 

Figure 4: Monthly MortagagePayment

 

 

With the increase in interest rates over the last year, even though the prices have come down compared to the peak in March/April 2022, the monthly mortgage payment has substantially increased.

Figure 5: Home Affordability Index

 

The Home Affordability Index quantified the proportion of households capable of purchasing a median-priced dwelling, which has regrettably dwindled to a meager 19%. This starkly contrasts the situation observed in Q1-2012 during the aftermath of the 2008-2012 economic downturn when a considerably more substantial 45% of households had the financial means to acquire a residence at the median price point. The challenges confronting prospective homebuyers primarily revolve around the issues of affordability and the persistent shortage of Inventory. The resolution of this problem hinges upon a singular trajectory: the augmentation of housing inventory. This, in turn, necessitates a catalyst, which could manifest in either an unforeseen economic upheaval or the establishment of an appealing interest rate threshold that motivates homeowners to consider listing their properties for sale. Speculation abounds regarding the forthcoming events and invites contemplation on the subject. We welcome your insightful perspectives and encourage you to share your thoughts in the comments below.