The real estate market pulse (Opinion)
In March 2020, when COVID-19 became a surreal reality, the housing market was at a standstill. However, after a few unpredictable months, residential real estate experienced explosive growth. With the nation confined to their homes and having to pivot to a new norm of working remotely — more space, larger homes and better quality of life became a hot commodity.
With frenzied buyers looking for an escape from more urban areas coupled with low mortgage rates the real estate market was sent into an upheaval. According to the National Association of Realtors, after plunging 18% from March to April 2020 and another 10% from April to May 2020, sales of existing homes shot back up nearly 21% in June 2020.
Per LA Times staff writer, Sarah Parvini:
“Many who leave the Bay Area do not move far. Counties in the Sierra region, including El Dorado, saw a large inlux of migrants from San Francisco compared with 2019. Some 4,724 people moved to El Dorado County in the fourth quarter of 2020, according to the March report — a 23.8% growth in entrances compared with the previous year.”
El Dorado County has witnessed incredible growth over the pandemic and still continues to be a destination that many buyers find desirable for numerous reasons: larger homes (more bang for your buck), more land, top rated schools, sense of community, quality of life, and its central location to many amenities. Even the incredibly high fire insurance rates haven’t deterred buyers from looking to El Dorado County which has seen the highest percentage growth in the region for volume.
With an influx of buyers, there has been some serious competition in purchasing houses. From my own experience with my listings, my sellers have all received multiple offers far above list price and incredible terms. Buyers and their agents are pulling out all the stops when making an offer on a property in order to remain competitive. The inventory has remained low over this past year compared to prior years.
According to the Institute for Luxury Home Marketing report from June 2021: “Supply isn’t just being reduced by the aluent buying additional properties, it was also highly impacted by the seniors, baby boomers, and empty nesters who decided to stay in place. Each spring we typically see a vast number of listings entering the market from this demographic as they chose to downsize or relocate. It is predicted that the 2020 and early 2021 “stay in place trend” will start to change and homes will slowly trickle back on to the market, especially if the pandemic continues to remain manageable.”
Another factor that contributes to the supply of housing inventory is insufficient building and construction during the pandemic. With rising costs of building materials, private and developer projects are on hold which further impacts and delays new inventory from coming onto market.
The demographic and level of demand over the past 12 months has seen a shift. With the younger affluent millennial generation and their increased buying power, many of them can work remotely, giving them more opportunity to relocate to more suburban areas, especially for those that are getting married and starting families. With record low interest rates, they are jumping on the opportunity to purchase rather than rent. Rentals are also far and few between with ridiculously high rental prices.
The average days on market for a property are significantly lower than 2020. Listings are flying off the shelf left and right, many selling for over list price.
This market can’t possibly sustain itself, right? So what are some indicators that the market may eventually slow down?
Well-known real estate appraiser and housing market analyst, Ryan Lundquist, shares seven indicators of a softening market.
7 ways the market is slowing
1. Taking longer to sell: Last month on average it took 12 days to sell a home and six median days. Since June, pendings have taken two extra days to get into contract. It’s still lightning fast, but it’s slower than it was.
2. More homes are selling below the list price: There are slightly more homes selling at or below the list price right now.
3. Fewer multiple offers: For two months in a row we’ve seen fewer multiple offers in the Sacramento region. Keep in mind the percentage of offers is still about as high as it’s ever been.
4. More listings are hitting the market: We still don’t have enough listings to satisfy demand, but there are now literally hundreds of extra listings on any given day in the Sacramento region compared to a few months ago
5. Slightly higher monthly inventory: We are seeing a slight uptick in monthly housing inventory. Very slight. It’s wild to say this when we basically still have half-a-month of homes for sale, but supply is up just a little in most counties from a few months ago. Of course now we are seeing mortgage rates at their lowest point in months, so we’ll see what happens to supply in the coming time.
6. We hit the big home peak: The average size slumped in June, which is what we’d expect to see in a normal year. This goes to show we’re seeing some normal seasonality.
7. Word on the street: I’m hearing from lots of real estate agents, loan officers, and appraisers that they’ve seen a slightly slower vibe. I haven’t heard anyone say the market is slow, but there is lots of chatter about slowing. At the same time I’m hearing things like, “My listing had 23 offers” or “We got outbid again,” which speaks to how competitive it is right now.
So what’s going to happen in the next couple of months or a year from now for real estate? It’s hard to say … with the cyclical nature of real estate and a number of factors, such as: economic changes, government policies and legislation and other unexpected circumstances that may arise … the real estate industry is ever-changing and keeps us on our toes trying to keep a pulse on the market.
Erica Kitson is a certified luxury home specialist.
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