Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
Is the California real estate market about to crash? And more importantly, should you buy it right now?
Is California real estate market about to crash or make that huge adjustment? We’ve got a lot to talk about here. Now stay to the end because I will address the elephant in the room, which is, should you buy right now or just stay on the sidelines and wait?
To understand where the California Real Estate Market is going, we need to first address how the real estate market performed in the first half of the year. Looking at California as a whole, as you probably know with continuous low inventory and record low interest rates has excited the seller’s real estate housing market. To better understand what happened this year, we need to look at who are these buyers who were willing to pay 40% over asking and release all their contingencies upfront. Per the California Association of Realtors, the profile that fits this aggressive buyer:
- 1 A first-time homebuyer who has been a long-term renter.
- 2 The buyer’s occupation was in upper management that favored well with the remote work lifestyle.
- 3 These types of buyers were able to use proceeds from their stock to increase their down payments. In fact, down payments that are 20% and more were made up of over 33% of all purchases compared to 2006, which only had 23% of 20% or more down payments.
Something to note, this first-time homebuyer is also putting down a much larger down payment. In 2006, over 40% of all first-time homebuyer purchases were made with zero down. In other words, they used 100% financing versus, in 2020, there was only 10% that used 0 financing. So we’re seeing a totally different first-time homebuyer than what we had 15 years ago.
What are the California real estate market stats as a whole?
California Real Estate Market: Over 71% of all sold comps were above asking. Days on the market, which means how long did it take before it goes pending, was an average of eight days. That’s fast. In a healthy, even market, a home that is priced correctly, will usually not go pending until 16 to 21 days. Home prices are up over 30%. And the average sales price is over 800,000. Of course, for a single-family home purchase, this number is much higher in the Bay Area and is about double in the Tri-Valley market.
Here’s something that I found interesting with COVID. For upper management folks who can work from home, there has been a large upswing in real estate sales and vacation areas, such as Lake Tahoe. Also, areas that have a high desirability lifestyle factor like Tiburon, Malibu, and Rancho, Santa Fe, which is located in the San Diego area.
One more thing. The median square footage per purchase went up 100 square feet. This may reflect the home buyers’ need for more space because they are working remotely from home. Looking at the California real estate market regionally, the area that had the most growth collectively was Southern California, which is at 47%, followed up by San Francisco Bay Area and the Central Valley each at 20% growth. So where are the sellers moving to? 26.7% out of California, and 2.3 out of the country. The majority stay in California.
Looking at California Real Estate Market housing in general, California is a tough place to live and thrive
And here’s why. The stats I’m about to go over with you were present prior to COVID and are still the same now. California has the second-worst jobs to construction ratio in the nation. This leads to low vacancy rates and high record prices. This equals a poor quality of life, being California is the second-worst state for percentage of rent-burdened households. This means lower-income households are spending too much money on covering rent. California is also the second-worst state for overcrowding causing too many people to be cramped in a dwelling. So this continues to push the movement to move out of California to a more favorable work and home housing environment. So where are we going?
Well, some good news is active listings are now starting to improve
We currently have more than we did last year. We’re up by 8% now. However, compared to pre-pandemic, we are still down by 15%. Mortgage applications in the last month are down. So this is one indicator that the market is starting to soften. The rise in COVID numbers may ease the push to raise interest rates. We are back to wearing our masks for retail stores, restaurants, and selling and buying real estate.
Overall, how would this affect the market? The projection is it is not to elevate or go through the roof as it did in the first quarter. However, it’s still predicted to be a much stronger market than it was pre-pandemic. We were also starting to see seasonal real estate patterns. This means a strong spring. Summer is usually softer because people are traveling, taking vacations and the fall will usually pick up. Typically not as strong as the spring, but it should outperform the end of summer.
More inventory, interest rates may go up a little, not sure with the rise in COVID and listings may stay on the market longer. Listing agents may need to start working harder to generate buyer offers.
Okay, let’s address the elephant in the room. Should you buy a home right now? The next half could be an opportunity with more inventory to choose from, longer days on the market, and still-low interest rates. I feel we could be heading towards a more balanced real estate market. This means sellers accepting offers that have contingencies in place for investigation, appraisal, and loan. And some buyer offers may be contingent on the sale of the buyer’s existing home for financing. So I still expect a stable market, but with some softening.
Will the buyer still overpay? Possibly, but not by 40%. more like 3 to 5%. And that’s only if there are multiple offers. Locally, I’m already seeing price reductions and some listings that were withdrawn are canceled due to a lack of buyer interest. So this could lead to price leveling and possible reductions. There are a few wildcards to contend with.
- Number one, it may be difficult to show listings like at the beginning of last year, due to the rise in the COVID cases. I have a hunch that the open house will no longer be available in the next month.
- Number two, the eviction moratorium, keeps getting pushed down the road.
- Number three, loan forbearance. This means you don’t have to make your loan payments. This was supposed to expire, but like an eviction moratorium, this is also being pushed down the road. And number four interest rates going up.
I hope this BLOG helps you understand the real estate market and gives you a clearer picture if you’re choosing to list your home or purchase one.
Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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