Covid Economy Falters Bay Area Luxury Home Sales Boom

While rents collapsed, rent went unpaid and landlords fought to keep above water an exodus evolved from the Bay Area; but within Silicon Valley, Luxury Homes escalated in numbers sold and in median prices.

Quite an aberration.  In San Mateo County the number of Luxury Home Sales went from 564 in 2020 to 679.  In Santa Clara the number of Luxury Homes sold went from 1465 in 2020 to 1498 in 2021.  

For 2021 Luxury Median Priced homes popped from $1.45 million to $2.90 million and Santa Clara from, $1.33 million to $2.66 million.

(Thank you Louis Hansen of the Mercury News)

The rush from San Francisco was  evident as Woodside, Portola Valley with their 1 acre minimum parcels provided space and safety. 

*News Break states that East Palo Alto is among the Cities where home values are falling the most.  Between January 2020 to January 2021 the typical American Single Family home appreciated by 9.1%.  In East Palo Alto it declined 2.6% with a change in population, only to be beat by San Francisco down 3%.   Both cities represent the Worker Bees of Silicon Valley.  San Francisco with the diverse Silicon Valley market and East Palo Alto the proximity to the Facebook Campus.  With Facebook bringing back only 10% of their work force and the Facebook decision to work mobility the need to live near campus is diminished.  East Palo Alto is not a Luxury Home Market, just an average first-time home buyer market with the Facebook campus nearby.

No place is easier to leave than Silicon Valley.  7 out of 10 workers were born out of state.  It is estimated that 13% of the workers in Silicon Valley are mobile, rent and have no children or spouse.  San Jose has 46% of the mobile market, the epicenter of Silicon Valley.  The average income of the mobile worker is $118,000 and the average salary to the non-mobile worker is $48,000!  Who is going to move?  It is obvious.

Why then the strong Luxury Market?  Start ups being brought public and purchased.  The creation of the fund or investment tool know as a SPAC, special purpose acquisition company, has created newly found wealth to all the risk takers willing to work for a start up for low income and stock.  The large cash distributions and distribution of restricted stock with substantial jumps in income have put the Luxury Market as a clear target.  

7 out of 10 are not from California so therefor 3 of 10 are!  Those 3 will look to stay close to home and seek a town that represents a step up form the rental they were once crowed into.  Some move out of the Bay Area, but within a few hours drive to network with new startup opportunities and or go to the new employer's meetings when called.

This 3 of 10 do not want a fixer upper, needs work or dated home and property.  In comes a newer breed of investors.  Flippers moved over as the new set were contractors and real estate agents who were able to buy the dated properties, tear them down and build a new current and up to date home in Woodside, Palo Alto and Menlo Park and Farm Hill and Emerald Hills in the Redwood City area.  What once was a $1.4 million fixer becomes a $4.5 million Luxury Property.

What will be the demand this Spring?  Location, Location, Location may be the Realtor's slogan, but this spring the buyers are interested in Space, Space, Space.  All adding to gyms, home offices, dining rooms, sun rooms, sauna's, wine cellars, steam showers; even garages for the collection of new and classic cars; maybe, even an elevator to get groceries and parents to the upper floors.

To counter the growth on value we have seen is the States plan to create a wealth tax.  See the linked exclusive from McKae Properties. Link

Rising Interest Rates and Rising Stock Market Do Not Compute!

 Do we need a "wake up call"?  Since the beginning of the year to present, interest rates on 10-year US Government Bonds have risen 3/4%, give or take a few basis points or so (100 basis point equal 1 % point). 

 SO WHAT? Well the current yield of the 10-year T-bond is the rate mortgages are based upon.  Rising rates also are one of the measurements that banks and mortgage lenders use to determine their willingness to make loans either for their portfolio or to sell in the open market.  Once mortgage originators find an unwillingness to buy mortgages, interest rates must rise to make the buyers willing to take on the potential of higher rates.  The Federal Reserve has been the buyer of last resort that has kept interest rates down.  The FED has failed to stop the dramatic rise in rates. The FED has not accelerated its buying of mortgages in the after market.  Pension funds and investment companies who are the normal sources of buyers of mortgages have been reluctant to buy mortgages.  This is especially the case in Jumbo Mortgages a dominant type of mortgages in the Bay Area.  

In the past 30 days, home buyers have been frustrated with Pre-qualification letters and stated rates changing.  Buyers are being forced to look at lower lending limits and higher interest rates.  This  has had the effect of forcing the buyers to either raise their cash deposit or down size their buying appetite in a new home, or lowering the offering price on their new home under loan contingency clauses in purchase offers.

Lower offering prices translate into lower prices for future listings.  That seems to be a non event in our area.

Why?  Thank the Initial Public Offer Market and the creation of SPAC, Special Purpose Acquisition Companies.  The SPAC can buy private companies eliminating the IPO and creating a new set of mega wealthy employees.  As with the IPO's the new wealth has been translated into greater wealth in the after market shares have taken prices to levels that the new companies out price the market value of companies that are seasoned and related to the same industry of the new company.

The rush into going public has made many Techies rich.  There has never been a case that the new wealth has not stopped the desire for a "Trophy Home".  That desire has created a new source of buyers.  Contractors and real estate agents today have gotten into the game of finding fixer-upper and dated homes in areas like Menlo Park, Palo Alto, Los Altos and related high end markets to knock them down and reoffer the new homes at $4-5 million where once a $1.7-2 million home once stood.  

This time, the newly wealthy techie is not going on a buying splurge to the degree their predecessors did.  They have adapted. 

Suburban homes and schooling have become their goals for their newly found wealth.  Mobile workforces have given a new living destination and living standards.

CANARY IN THE COAL MINE:  during the time of the industrial revolution when the United States and Europe where in the throes of expansion and growth, coal was the source of energy.  Coal mines were below ground, generally, and light was generated by kerosene lamps, or a related power source.  As they dug deeper the gases underground were both toxic and flammable, but initially undetectable to the human nose.  The danger was the gases were unnoticed until it was too late and death and an explosion occurred.  To solve the potential danger a canary was placed in a cage.  The "Early Warning System" of the mid 19th Century and forward.  When the Canary Died Get Out!!

Today's Canary in the Coal mine is rising interest rates and rising equity prices, which include home prices.  Homes are the unique item.  Home are like stock markets in rotation  Recently the major change in equities have been from growth stocks and tech stocks to basic industries.  A big shift will occur on Monday March 15 when index fund changes are forecasted to remove growth and replace them with basic industries.  So too is the shift from tightly congested cities and urban areas to small town and suburban communities where homes are larger, lots are larger communities safer and schools are better and the homes are cheaper.  The rising interest rates which will put a damper on buying the Menlo Park, Atherton. Los Altos or Palo Alto home will find buyers moving to El Dorado Hills, Loomis, Granite Bay and other Greater Sacramento area communities that are substantially lower priced with greater sized homes and lots with equal or better schools.  

The rising rates have been created by the perception that the end of the Pandemic and the the return us back to normal, pre pandemic times.  

The ability to work from home has changed the needs and desires of families. 

Rising rates have also affected by the government funding of multi trillion dollar budget items to help Americans cope and get out of the Pandemic fed economic crisis.  The budget from this funding comes from US Government Bond sales.  More bonds sold, higher interest rates.  Higher interest rates mean inflation, all which add to an affordability issue in homes.  Affordability that has only become more stressful and has been in existence for decades in the Bay Area.

Taxes will fund the spending and repay the extra debt load.  Whether it is property taxes, income taxes or sales taxes, the movement of populations made more flexible with a mobile workforce will accelerate the socio-economic movement of populations.  This will especially be the case in the Bay Area.

There was once a saying of "Go West Young Man", will now be "Go East Bay Area Resident".  Now the question is, who will go east?  The renters will go.  Looking at the weekend real estate section of the San Jose Mercury News there is a section where all California Counties are measured in population size, education, income and renters versus owners.  San Mateo and Santa Clara Counties are pretty equal in renters versus owners . Some 48% rent to 52% own.  A renter can buy in Loomis California a 5-6 bedroom 7000 SF house on 3 or so acres, swimming pool and solar system for $2,200,000.  The monthly payment is $7,660 with a 30 year 3.25% loan no points, 20% down.  Just about the same rent as a substantially smaller home and lot size of a 4 bedroom Menlo Park home.

2020 MADE HISTORY IN MORE WAYS THAN ONE!

 2020 was indisputably a year for the real estate history books!  The onset of the global pandemic in a year of stops and starts.  It led to a shift in how we conduct our personal and professional lives.  The navigation through the pandemic witnessed a social and cultural movement that restructured societies, how we conduct business, adjusted to online learning and experienced a shift from large urban centers to rural small communities.

The housing market went from cold to hot as the average price of existing home rose on a U.S. average.  It was not necessarily the once hot cities and urban hot spots that dominated.  The resiliency of the real estate industry was one of the biggest surprises of the year.  The large scale shift to working from home created a shift from homes close to work to locations that did not require commuting.  Families sought out more spacious properties to achieve a better work-life balance.  

The home migration created a hot market outside of the once hot urban cities and towns that were once in proximity to work and transportation.  

eXp Realty is a good example.  I now get up every morning go to the Elks Club at 7 AM and work out on weights one day and bike on the other.  I am home to have coffee, check my emails and texts, attend conference calls to eXp World, our private web service, read the newspaper all without changing from my workout outfit.  Sometimes I work on offers, contact sellers and buyers while I review the paper and my popular news websites.  Oh yes, how is EXPI doing? Up again!  It pays to be a shareholder in the broker I have my license with. 

Then it is into the shower, shave, brush my teeth take my meds and back to the desk.  Of course once I pass the 1 pm timeline a quick bowl of yogurt and coffee. eXp has offered so much to adapt to the new way of living and working with their private website and service.  A Zoom call from our regional people to give the current update on our current market.  A great time to get an overview of where people are moving to and get an insight to helping buyers looking for affordability and the new life style.

As an example the knowledge of the movement of buyers out of the Bay Area is not a new issue that the media has discovered.  It has been going on since the pandemic started in January 2020 when the first Tech company said "work from home"!  Whether it is the conservative leaving liberal Facebook, or the founders of Silicon Valley moving their headquarters from Redwood City, Palo Alto or elsewhere in the Bay Area.  With the regional movement rents are plummeting and the crisis could get worse say Gabrielle Cannon of Yahoo News.

Texas and Mississippi lift ALL their COVID restrictions: Both states to end their mask mandates and allow businesses to fully reopen

With this happening how will the markets adjust?  Will California ever get off the restrictions as other states reopen, or will this just accelerate the movement to an open society out of California.

Talking about an Open Society, I have been showing properties in Granite Bay and Loomis to Bay Area Buyers.  The gyms have opened and have been open while we have been shut down.  

Here are some of the opportunities in Loomis and Granite Bay, just 2 hours away.

GRANITE BAY:

9049 STOCKHORSE LANE

"Majestic Estate in the heart of Granite Bay inside it's own private gate on 2.4 Acres. This Entertainer's dream is over 6,500 Sq.Ft that includes the house and the guest house. It has 5 car garages/ 2 RV parking garages 32' wide by 50' deep, two Boat parking garages. The main house is 5,302 Sq.Ft that has at the main floor a remodeled master suite, 3 Kids Bedrooms and In-law suite that has a family room and a separate Kitchen. on the second floor entertainment room with pool table and movie theater. The Gourmet kitchen is on the main floor and it has top of the line appliances. So many features in this house including sunroom, Wine cellar, Pool, Spa, outdoor kitchen/bbq with large bar seating, Basketball court, Soccer field, Kids Playground and owned 20KW Solar System. The separate guest house is 1,200 Sq.Ft of living space with 2 offices,bedroom, full bathroom, family room with bar and GYM. No HOA.walking distance to Award winning Granite Bay school. 5 minutes drive to the lake." SOLD $2,595,000

5900 OAK CREEK PLACE

"Luxury and Serenity describes this one of a kind Mediterranean style villa on 3.5 ac in the heart of Granite Bay. Features 7,463 sqft, 6 bdrm-suites, 8 bth, a Chef's kitchen with cathedral ceilings, big prep-island, breakfast nook, premium appliances. Most rooms with large windows, high ceilings, and Tuscan-milled wood finishes. Hallways have arched ceilings and doorways. Private office with wall credenza, barrel ceiling. Underground wine cellar with arched ceiling. All bdrm windows with a unique view of gardens and lush grounds. The pool has a spa, outdoor kitchen, and fireplace. Four car garage with wall storage and outside parking. Landscaping with a tranquil flow, moving water, pretty flowers, imported trees, and secluded areas to step away. The large grass area is perfect for family gatherings or as a horse pasture. Upscale, Exceptional, Private. Folsom Lake and Granite Bay Golf Club close by. Adjacent 2.4-acre property may be sold. Call for details. Some images virtually staged." SOLD $2,525,000 6005 VIA ALICANTE "Welcome to the palace, the crown jewel of granite bay.Located behind it's own private gate inside prestigious Los Lagos Gated community, Over 9000 Sq.Ft Estate with Custom touches throughout the house, natural stones, cathedral ceilings, crystal chandeliers, formal living , formal dining room, high ceiling, spacious great room with wet bar, gourmet chef kitchen, top of the line appliances and large island and luxurious custom paint and blinds throughout the house. 6 bedroom 8 baths including 2 master suites, secondary in-law kitchen with top of the line appliances and custom granite counter tops and separate secondary family room downstairs. Entertainers dream backyard with multiple sitting areas, Pool & spa two built in BBQ, outside kitchen, pizza oven, firepit, playground, and so much more. Enjoy Los Lagos tennis courts and walking trails to Folsom lake from inside gated Los Lagos." SOLD $2,500,000

LOOMIS:

6265 INDIAN SPRINGS ROAD

"Paradise awaits outside this fabulous estate on over 9.5 acres in a great central Loomis location. This resort like property includes a pool with waterfall, large covered outdoor kitchen and fireplace, over 2000sf custom putting green with sand traps, basketball court, sand play ground and in-ground trampoline. Multiple year round ponds with a large stocked fishing pond and dock. Vineyard including Cabernet and Merlot vines. Large shop with pull through RV storage and hookups. The main floor of this almost 6000sf home lives like a single story, featuring 5 bedrooms, 4 baths, sauna, exercise room/home office. The lower level of the home has a large bonus room with separate in-law quarters with its own private entrance. This stunning estate is an entertainers dream. Established short term rental with great cash flow. Contact agent for profit spreadsheet."  SOLD $2,185,000

4233 FAIRWAY VIEW DRIVE

"If you're looking for a large custom home on acreage in a private gated community without a

 $2M+ price tag; HERE IT IS! Nestled inside a small gated community, this 5 bedroom, 4.5 bath, nearly 6,000 sq. ft. home is loaded with amenities of the finest custom homes but priced significantly below them. Huge gourmet kitchen with furniture style cabinets, high-end appliances & tons of counter space. Home office has a built-in 300 gallon saltwater aquarium. Game room with wet bar, mini fridge & d/w drawer. Home theatre with seating for 7. Downstairs bed & bath. Heated pool & spa with waterfall, koi pond, fire pit. 2,100 sq. ft. finished garage can hold up to 7 cars. Add some lifts and store up to 6 more. The 6+ acre lot with year round creek allows plenty of room for your animals, an additional garage or even in-law quarters. All of this in the rural community of Loomis with its renowned schools of H. Clarke Powers and Del Oro HS, yet minutes to shopping, restaurants & theatre." SOLD $1,700,000

AND FOR THOSE LOOKING FOR WOODSIDE AT ONE TENTH THE PRICE!

4264 LAIRD ROAD

"Amazing home in the heart of Loomis! Enjoy country living yet still have the conveniences of being close to town. This property boasts 4.7 useable acres, 25x40 metal shed/shop, pond, white country fencing, and priceless views!! The home offers 4 bedrooms, 2.5 bathrooms! Formal living and dining with separate family room make this floorplan perfect for all buyers! Open kitchen offers abundant storage, granite counters, and an eat in breakfast nook. Master suite upstairs with dual closets and walk in shower. Fantastic outdoor living with mature landscape, spacious pastures perfect for animals, and plenty of space for a garden! This property provides endless opportunity! Located in the very desirable Loomis Unified School District! Truly the perfect place to call home!!"  SOLD $880,000!  NO NOT $ 8 MILLION!

On my recent Zoom area meeting I heard agents complain that they are being out bid by Bay Area Buyers and the market there is up 11% for 2020. Listed $650,000..sold $690,000 cash!  Geez, that is +30 years ago in the Bay Area.

PICK UP THE PHONE AND GIVE ME A CALL AND WE CAN MAKE A TOUR!  650-743-7249,    gary@mckaeproperties.com