The Price of Everything!

The prices of everything, everywhere, are going up.  A house in Phoenix is going up, a Ford F-150, a plane ticket to New York City, they are going up for as much as everything all over the country.   Well, maybe not San Francisco.  There the prices of homes are all down from 10-12%.  The only part of the country and the State of California that is not going up?  Down from 10-12% where the rest our metro areas are up over 12%. 

For pseudo-scientist, aka Economists, it is a dismal picture!  They, along with the people that brought you the last recession, aka Wall Street Banks, say it is only temporary.  "A transitory event that will disappear."  Mark Zandi, the chef Economist at Moody's...yes Moody's the people that gave AAA ratings to bonds supported by mortgages that went into default and put us on the verge of economic collapse WORLD-WIDE......“Inflation is one of the mysteries of economic study and thought. A difficult thing to gauge and forecast and get right. That’s why the risks are high.”    How can inflation be a mystery?  If people can charge more for products in short supply they will.  What is a mystery of one of Economists solid formulas, The Law of Supply and Demand?

The Federal Reserve is taking a pretty big risk with their calculations over a economic study that is "difficult thing to gauge and forecast".

Is this transitory, and does that mean prices will come down?  Will that include housing prices, since housing prices are part of the inflation index?  Oh yes, and when will inflation cease to become transitory?  Will it stop at 13.5% as when President Jerry (can't walk and chew gum at the same time) Ford launched "WIN", Whip Inflation Now?  Remember he had his training in running the Country as Speaker of the House...hint, hint, hint.

The Federal Reserve reported that the May rate of inflation was 5%.  That is the fastest rate in 13 years!.... which was when the economy over heated from the housing boom....Sound familiar....went off the cliff and sent us into the GREAT RECESSION.

Let us not leave the pointer on housing.  Used Car prices climbed 7.3% last month and 29.7% over the past year.  Did you take your old jalopy in to your dealer for some work?  I did, boy did they have deals for my car at Blue Book Wholesale to buy a new car for a premium.  They would make more money on my used car than selling a new car.

Not all things are being priced into the stratosphere.  Healthcare and education are flat, including smart-phones, technology and internet services have been relatively flat.

All eyes are on Houses and Cars.  Interest rates are low and the cost of buying them are low, so why not pay up??? Sure, good idea, you are making a rocket ship rise straight up to a technical blow off!  BLOWOFF? sure it happens in real estate and cars.  The Federal Reserve said they are not raising interest rates until 2023...THAT"S 2 YEARS FROM NOW...we all maybe be speaking Chinese, or North Korean, or Russian..Far better than in a corner reading the Koran and growing beards and long hair and having our women wearing tents with mesh for seeing through...Well at least we can listen to Yellow Brick Road, In a Gadda da Vida and getting high on great California MJ we bought at Safeway.  

Let's get serious here!  The Federal Reserve already began the rate increase.  The Federal Reserve tightened, the rate on which banks get paid for having money on deposit with the FED.  Not much, .37% if I am correct.  But that is not bad for a bank that does not have any clients to borrow money to: if they do, they want 100% certainty they will pay it back.  That means money is being drawn back from supply.  The FED can continue to do that without keeping a thumb on the interest rate we get paid.  Just slowly draw money out of supply.  Wait until inflation stops and then we can go back to normal.   WAIT ON THERE.  What if the "F" factor comes in and inflation rates do not decline.  What if we have not supplied enough lumber, what if there are not enough plants here in the US to produce semi-conductors....what if?  Well, then we sell some bonds and pull more money out of the system.  Interest rates go up from lack of supply of money.  Prices come down on houses and cars? Business slows down.  Stocks go down.  IPO's stop. Layoffs in the high tech industry.  Another Recession.  Foreclosures and defaults.  Sound familiar?  

Now that goes back to when I was about 50 years younger and I really believed they , the economist , knew what they were doing and I believed the Politicians.  Come on Gary, were you that gullible...sure was, and so were you, your parents, and grandparents.  Today you people are a bit more savvy, AREN'T YOU???  Screw it man, we're getting our advice from Reddit.  We're getting those hedge funds shorting companies that are going out of business.  We will make more money and just sit back "bragin" to our buds on Reddit.  

Now let's talk about this reasonably.  Trees don't grow to the sky.  Stock's prices don' go up forever.  If you can buy a 3000 square foot home for under $1 million and a 1350 sf home for $2 million wouldn't you look at how far away is the 3000 sf home?  Would you think twice about paying ridiculous prices for rent in a slum when you could own a home for the cost of the rent in a mortgage payment?  A home where there is no homeless, drugs on the street, trash in the gutter, gun fights and they have great schools in gated communities with pool and tennis courts.  Of course you would.  what's holding you back?

Hey, let's get serious here.  There is a time that prices of homes push reality to far and at other locations is wise.  There is a time when rent gets too high, and there is a look elsewhere.  It will come, so prepare.

I for one, like history to lead me.  Home prices are down some 10-12% in SF.  They are up 12% here.  I moved from SF originally and then my stock trader mind saw the prices in the peninsula, Woodside, collapse.  I bought a house in Woodside for the sale of my Flat in Pacific Heights, or at least upper Cow Hollow.  

If you are a home buyer, look around.  You're working from home with a jaunt to work once a month.  Hey..there are other places to live.  Friends...well once you left the last place the friends were farther away and apart.  You called, chatted, texted and soon...new friends came in.   All part of growing up and expanding our network.

If you are a seller, look around and get the best price now to get an underpriced property elsewhere.  Forget about waiting for the price to peak...there are no bells and whistles.  If you do, the price you pay will move up faster than your sale.  That's the way markets move.  

Not going to sell?  Going to live here until they carry you out in a box?   Sure heard that before.  When that day comes you won't know who is carrying you out and doubtful it is in a box, but your kids saying mom and pop need care.  Sell the house put them in a home.  I sure hope you enjoyed your life to the fullest, took you and your spouse on great vacations and tours before they give you boxing gloves to separate salt from sugar.

Bottom Line.  Inflation is not going away.  The FED or Wall Street and the Banks do not control the cost of living.  You do!  Start thinking about Living...Reddit does it right YOLO.

Houses are getting more expensive. There's a fix to that?

More than 17% of the homes in the U.S. are selling above list price.  Would-be homeowners are furious as they lose bidding wars. Many are looking back in time and thinking "Bubble".  Of course it doesn't help for the "Media" to promote Bubbles!

Prices rise and fall for all assets for a number of reasons.  So what makes something a "Bubble"?  The likely reason is so many people have put so much attention in the price of homes, and their home in particular, that it didn't take to much for prices to rise; especially, when there is a low inventory of homes for sale.

A sharp rise in an asset's price is not necessarily a "Bubble".  The fear comes from the fact it is in our homes, which are usually the last thing we think of.  The last thing, at least, until the newspapers need something to publish. 

Millennials represent 37% of the buyer's today.  They are the driving force of our buying marketplace.  They passed the "Baby Boom" Generation in 2020.  It is only natural they move into the home buying market.  They are the class of buyers with wealth that can bid up if they want something.  They are also the generation that will adjust their needs as they evaluate the market place.

The fact is the market cannot accommodate their interest and supply their needs.  Freddie Mac found in 2018 the shortage of buying to selling was 2.5 million homes, in 2020 it was 3.8 million homes.  Get the picture?  Newly built homes dropped form 40% in 1980 to 7% in 2019.  The Pandemic did not help.  Just getting people back to work created bottlenecks.  The bottle neck in lumber was created by the inability to get workers back to work; but also, the lumber industry's failure to build new plants.  The lack of industry in general to build new plants has been universal.  The failure to build in the US created an extreme bottleneck when the foreign plants were either under tariffs or under the lack of workers due the Pandemic.

The term "Go West Young Man" of the 19th Century has turned into "Go East Home Buyer".  The central portion of the state has been more accommodative to buyers than the coastal areas and the Peninsula in general.

San Francisco has been the worst hit of this movement as SF saw a decrease in home prices of 8-12%; while the Metro Average was +12%.

There are some "Warning Signs".  Demand for vacation homes is wearing off.  Although the number of buyers who locked in mortgage rates to purchase a second home in May increased nearly 50% compared to a year ago, "it's the first time in a year the annual growth rate has fallen below 80%," according to the real estate brokerage industry.  Additionally, mortgage-lending rules over the last two months have tightened. Now, under the new rules, second-home and investment property mortgages can make up only 7% of a lender's total pipeline, which refers to the total number of loans that are either in processing, underwriting or closing process.

The future key is: "price of lumber, interest rates, production and productivity and the elimination of bottlenecks!"

ON LUMBER: Lumber will show us the future.  In early May 2020 the price of lumber on the commodity futures market was $1,600 per 1000 board feet.  This added $36,000 to the cost of a new home; on average, new homes sell for around $400,000.  (What a deal!) On Monday it was back below $1000 per 1000 board feet.  It is still elevated.  Before the Pandemic lumber was never above $500 per 1000 board feet.  It takes two years to build a lumber mill.  The return of workers now can increase supply immediately.  Watch the lumber prices then watch for builders to resume in areas where land is available.  Unfortunately it is not in downtown Menlo Park and Atherton or Palo Alto.  It is in the Sacramento area where builders are once again starting to create projects for new home buyers and +55 retirement communities.  These areas are price conscious.  Builders will hold back projects until lumber prices return to a level buyers will pay to move.  

The Old Chinese Curse..."May you live in interesting times"

Inflation forecasts — like everything else — have been too conservative

GENERAL COMMENTARY

If there's been one consistent theme during the recovery it has been analysts, strategists, economists, and forecasters of all stripes have been incorrect in judging the resilience of the U.S. economy.

The May Luxury Real Estate Report has almost all Luxury Market in Real Estate in the U.S. in a "Seller's Market". (see link at end of report).  The days on the market are short and the buyers outnumber the sellers.

There are many reasons for these circumstances of events. 

1. The Pandemic has allowed many to work from home, thus saving time and money.  
2. The IPO market has been HOT!  
3. New money creates pent up demand to overflow into buyer demand. 
4. Supply in homes for sale is limited for a number of reasons:  a.Sellers do not want to venture out for fear they and their home will become infected.  b. Higher future property taxes. c. Capital gains taxes.  d. Questions of where to move.  e. Establishing new relationships with professionals.
5. The California Department of Real Estate has not made that easy either.  Buyer's must confirm intention of purchase before they could view the property. 
6. Thus we have a limited amount of sellers and an over abundance of buyers.

Forces that will affect asset prices are interest rates and cost of goods.

At present we have an increase in inflation rates to 4.2%.  This is well over the 2% Federal Reserve target.  

The question that will affect the markets is will the recent reported inflation rate force the FED to change?  Will the FED begin tightening on rates.  The answer here may be the recent decision of the FED to sell their inventory of Corporate Bonds and Money Market ETF's.

Selling by the FED takes money out of circulation which will lead to an increase in supply forcing higher interest rates to gather buyers. 

Adding to inflation is the Cost of Goods.  The lack of employees returning to work has led to limited supplies from Wood, Cattle and various other commodities.  A principal reason for the increase in prices is because workers who process the commodities would prefer to stay home and collect unemployment and U.S. Government subsidies than return to work.  Thus creating limited supplies and higher product prices. 

The FED's answer to the current rate of inflation is that it will only be temporary.  

If September 2021 ends the extra $300 in unemployment benefits, will it lead to a mass drop in unemployment and prices.  If that is correct the FED will begin selling their bond inventory before they raise rates. The  FED will be behind the curve.  The market place will raise rates as corporate borrowers go to the marketplace borrowing in anticipation of higher future rates.

Janet Yellen, former FED chair and Secretary of the Treasury, has stated higher interest rates are good for the economy.

LOCAL REAL ESTATE MARKET

Buyers should expect to compete.  Sellers should expect short days on the market and competitive interest in their property.

Cost conscious Buyers should begin to look outside the Peninsula to the East Bay and beyond.  Prices are beginning to escalate in the East Bay and areas around Sacramento where home sizes are larger and prices are substantially less than here in the Peninsula.  The change in the ability to work from home is benefiting those who can move.  The benefit is larger and less costly homes with just as good as, and better than, current Peninsula schools, no homeless communities and safer neighborhoods.

For the empty nesters it is more a function of where to move before a decision to sell.  The move outside of California becomes more controversial as statistics show Californians are more inclined to move within California than the are to move outside of California.  

With each Broker Price opinion I am asked to perform I find that prices are declining, ever so slightly.  In Portola Valley and Emerald Hills the declines have been 4% on an annual basis.  When I look at the Loomis and Granite Bay area the forecast is +12%.  Still the 12% forecast of price increases are well below the comparative home in the Peninsula.

May Luxury Home Market Report

Fears of Foreclosure are Wanning

Over 14% of Renters Are Still Behind as Eviction Moratorium Nears Its End

Thank you

Gary McKae,  01452438, eXp Realty of California  01878277

Inflation, Taxes Rising Real Estate Prices

 It has been a month of watching real estate prices move up in dramatic fashion and forecasters commenting on the top and or commenting it will continue to rise and go higher.  Interest rates are slowly rising and the cost of gas increasing at every fill.  My wife is constantly complaining after her Friday shopping at the cost of bread and milk. 

Real Estate does not have the full attention either!  Stock keep on hitting new highs with the same diverse commentary as real estate prices.  Berkshire Hathaway common stock has hit a price that the quotation service cannot record it any longer; unless the stock is split.  Warren says "no"!

The new administration's spending habit has gotten to a point that what has been spent has to be funded.  What has been heralded as  "Tax the Rich" has turned out to be a double edged sword for real estate, home owners and everyday real estate investors, called "Mom and Pop" enterprises.  The "American Families Plan", per Market Watch, will hit the middle-class home sellers who sell a home in an expensive market and have more than $1 million of Capital gains.  That should include all the Baby-Boomers who own property in Silicon Valley for the past 30-40 years.  The Capital Gain Tax Rate proposal is to move from 20% to 39.6%.  

The next slap at real estate is the elimination of the "step up" of cost when inherited.  This "step up" allows real estate to increase in original purchase value to the market value at death to the heir.  

As an example, my friend says he bought his home in the Farm Estate Estates area of Redwood City soon after he was married for $35,000.  Value today probably about $1.8 million.  My friend's children say "don't sell it Dad, we will inherit it without paying taxes. We can rent it out and pay no capital gain tax, have a step up in basis to shelter our rental income with depreciation."  So much for family tax planning under the proposed tax plan! 

Not only will the property be taxed at the difference between cost and market less exemptions at 39.6% the children will have to sell to pay taxes or pray Dad has enough in savings to pay the taxes.   

My friend's children will be disappointed.  They will inherit a house worth $1.8 million less $35000, less $500,000 exemption and let's say another $180000 if they sell for various expenses and be left with a federal tax of $380,000, not considering state taxes.  If they don't sell the $180,000 will be added to the total taxable gain....OUCH!!

I don't think my friend rich.  He is a retired auto mechanic.  No college education and worked hard to create his own auto repair shop, sell it and retire.

Think about the farmers.  I come from Wisconsin.  I had cousins who owned dairy farms they inherited from their parents and their parents from their parent and so on.  Once they die the tax man comes.  They barely make it, but keep it as a family tradition.  It is hard to see them as soak the rich.

The next slap, or kick them while they are down, will eliminate the "1031 exchange".

"1031" is a very old tax act that allows the seller of income property to sell and transfer the cost basis into a new property without creating a capital gain.  Yes, there are some rules that must be followed, a trustee, usually a title company, to hold the proceeds from the sale and distribute them for the purchase.

This is a proposal, nothing is firm. Congress needs to approve before it becomes law.

INFLATION! Well this is another "hot button".  Members of the Federal Reserve Board, the people to raise and lower interest rates, see inflation higher this year.  Treasury Secretary, Janet Yellen, saw inflation higher until she abruptly changed her mind after a public announcement of her thoughts.  UMMM, interesting, very interesting.

Steel has moved up 44%, sugar + 17.7%, lumber +20%, oil + 37.7%, copper 28.7% all look like inflation as prices have moved up.  Gasoline prices have moved up, water has increased, PGE bills have increased, milk is up, bread is up.  Looks like inflation to me.  I suggest you look at the calculations the FED uses for their inflation index.  Oil for one is not included.  In fact, there are a number of commodities not included.  Political deck stacking?

INTEREST RATES is another "hot button" because interest rates are used to stop inflation.  The Federal Reserve Chairman, Jerome Powell, says he sees inflation as not a threat and will not increase interest rates, using their proprietary formula as stated above.  While Mr. Powell will not raise the FED rates, the market rates on 10-year treasury bond have moved from less than 1% to a 1.75%high this year.  The market sees inflation with higher rates on bonds, and rising interest rates will affect everything from mortgages to credit cards.  Mortgage rates on jumbo loans in February were 2.87% today they are 3.25% with strict credit terms.  That indicates interest rates will rise because inflation is rising and the Federal Reserve will be forced to raise interest rates.  Rising rates will lead to the debt that the Government raises to pay for the $Trillions of budget increases.  The deficit to increase because the cost to borrow, interest rates, will rise and taxes to pay for the increase will increase.

MOVING OUT OF THE BAY AREA:  It has not changed for corporations leaving the Bay Area.  Here is a summary courtesy of SFGATE:

1. HPE, which had 5,992 employees in the Bay Area at the time of the announcement in 2020, isn't closing its San Jose campus, but will be moving its headquarters to Houston
2. Redwood City-based multinational tech company Oracle, with 18,121 employees in the Bay Area at time of the announcement, is also moving to Texas.
3. Although Uber has so far not officially made an announcement regarding its Mission Bay campus, the San Francisco Business Times reported that the ride-hailing company has "softly" marketed its lease on about 300,000 square feet of its more than 1 million-square-foot, four-building headquarters near Chase Center. Uber hasn't officially moved into the offices yet, making the As reported by the San Francisco Business Times, Airbnb listed 78,565 square feet of office space in SOMA on the market. The move comes on the heels of the announcement that Airbnb would be establishing a technology hub closer to the East Coast. The announcement says the company is looking for a city whose leaders will commit to "promote economic empowerment for its citizens" — perhaps a critique of the Bay Area's high cost of living — as well as other factors such as a "diverse technical talent pool" and an environment that people want to make their long-term homes for "hundreds of technical and non-technical roles over time."  news even more dramatic for its employees.
4. Digital Realty, a data center company with 1,500 employees worldwide, announced in January that they'll be moving to Austin, citing "central location, affordable cost of living, highly educated workforce and supportive business climate." The company already had about 20% of its workforce and 30 data centers in Texas, and at time of publication, have 97 employees on LinkedIn listed as working in San Francisco.
5. Although it's a stretch to say that Salesforce is relocating out of the Bay Area, one could say that its new headquarters is the cloud. The company announced in February that it would make its pandemic-related remote work policy permanent and has canceled a lease at a forthcoming downtown office in San Francisco. It has also subleased a portion of the offices at 350 Mission St., leaving Salesforce Tower as a divisive and underused monument.
6. Recommendation-based website Yelp, which was parodied in late 2020 with a SOMA billboard, has put most of its S.F. headquarters up for lease. Yelp told SFGATE the following regarding the decision: "We plan to continue to maintain our presence in the locations where we currently have offices, including our headquarters in San Francisco."
7. Another ubiquitous San Francisco tech company (and constant presence in the intro skyline on HBO's "Silicon Valley") has put its prominent SOMA headquarters up for lease. The 1355 Market St. offices listed 104,850 square feet up for lease following the announcement of a permanent work-from-home option for employees.
8. Design-minded social media site Pinterest has announced the cancellation of the construction of a high profile expansion of its San Francisco offices. Abandoning the 490,000-square-foot expansion was a costly decision for the company as the project had a $89.5 million termination fee.
9.  Sf.citi also lists several other prominent companies who've downsized their Bay Area locations, including Wish, Stripe, Paypal, Brex, Optimizely and Credit Karma. See their full list here.

16.3 million square feet of office space is vacant in San Francisco.  16.3 million square feet equals 10 Sales Force Towers.  63% of the Tech Companies in San Francisco have already downsized or plan on doing so.  The Silicon Valley Venture Capital deal count in 2021 is expected to fall to 20%, a first in history!

With the exodus goes jobs. Silicon Valley has some potential problems.   This is good reason I have more buyers looking out of the area to the Sacramento area.

Spring Season Starts with a Stumble

 This week has started with 5 transactions falling through, 4 listings back on the market, and 11 price cuts, 73 new listings, 9 contingent and 58 pending, with 57 sold.

"Going Back Home" is the swan call of the renters moving.  "Working from home and having every room rented to cover costs is not why we came to the Bay Area."  

Within the next several months we will witness the results of unpaid rent and unpaid mortgages.  I do not have much faith in a solution. The subsidy programs are already finding it difficult to pay landlords.  Landlords who have been unable to finance the deficits will need to consider their losses, eat them or sell!

eXp Realty is training agents for the possible oncoming foreclosure action and bank sale of REO, (real estate owned).  Becoming "certified" is a return to 2007-2011 when we had the last foreclosure boom.  Short sales and foreclosure sales were once the main source of buying properties from speculators to cost conscious buyers.  

In addition to the REO training, eXp is training agents in "Relocation".  After the Financial Crisis, Silicon Valley became a migration center for corporate employees.  I could count on 4 or more assignments in a year of executives moving to the Bay Area.  From the training program under way it has more of the semblance of movements out of the Bay Area.

Where is the main relocation? A new poll says Nevada.  Another poll has Hawaii, Virgina, Colorado and Nevada in the top 4 well above California.  I lived in Honolulu for 13 years and agree with the Top Location of Hawaii.   So is my wife thinking....are we too old to surf?Another poll has Hawaii, Virgina, Colorado and Nevada in the top 4 well above California

But what about moving within California?  The Top 20 for SFGATE in the US have Vallejo, Yuba City, Santa Cruz, Stockton and Eureka in the Top 20.  I can understand the demand.  The most expensive is Santa Cruz of $1,222,000 to Modesto of $499,000 with the others mentioned in the Modesto price range.

If you are looking for something within the state and close to the Bay, look at El Dorado Hills, Loomis and Granite Bay.  I just closed on a  6 bedroom, 5 bath recent construction home on 2.5 acres in Loomis for a little over $2 million.  2 to 2.5 hours from Menlo Park keeps the tether rope not too long.  Then it is a 2-3 hour drive to Tahoe.  The best of all worlds with the Folsom Conservation area for water sports and hiking...horse back riding is a definite YES!  The small town feel is so refreshing!  Take ride and tour the area.  Then call me, my team has just added an agent to represent my clients in the area.

April Review of Real Estate Market

There seems to be an over abundance of real estate news from hot markets to cold markets to falling rents and pre-foreclosure risks.  Rather than using the Media reports. I have decided to go to the source.  The Multiple Listing Service has reports for every week and month going back in time.  The MLS has reports that give a view of the markets by price range and an analysis of what buyers and sellers are most interested in.  So let's go forward

The "Five Counties New vs Sold" is the first stop on our travel through the real estate marketplace. From March 2020 to March 2021 there were 26,974 "new listing" and 21,891 "sales".  On average it took 22 days to sell.  The average price was $1,022,661.  The total sales for the "Five County Area" was $22,375,718,789.  That was up from $16,239,021,898.

In San Mateo County the Days on the Market (DOM) for March were 18  The price to list was 107%. The average sales price for San Mateo County was $2,311,630 versus $2,294,675 in February.  The total sales for March was $973,196,236.  That was up from February of $658,571,772.

In Santa Clara County the DOM was 16 with sales to list of 108.8%.  The average Sales price was $1,909,259 versus $1,802,292 in February.  The total Sales Volume was $1,853,890,494.  That was up from February of $1,081,383,326.

In San Francisco County the DOM was 23 and the Sale to List price was 112.3%.  The average Sales Price for March was $2,240,548 versus February of $2,258,735.  Total Sales for MArch 2021 was $584,782,967.

In Alameda County the DOM was 13 and Sales to List Price was 113.7%.  The Average Sales Price was $1,253,350 versus February of $1,197,1129.  The Total Sales Volume for March was $1,227,029,432 up from February of $764,965,508.

#5,  Contra Costa County had DOM of 14 and Sales to List Price of 108.5%.  The Average Sales Price for March was $1,145,240 versus February of $1,050,648.  The total Sales Volume for Contra Costa County was $1,172,726,253.

Clearly it was a Strong Month of March in the 5-County Bay Area; irrespective of, what the Media wrote!

Now let's look at the two counties that in state movement occured.  Placer County for Granite Bay and Loomis and El Dorado for El Dorado Hills.

Placer County DOM was 18 and Sales to List was 102.9%.  The Average Sales Price for Placer County was $690,420 versus $669,960 for February.  The Sales Volume for March was $364,736,339 versus $237,835,703.

 El Dorado county DOM was 21 and Sales to List Price was 102.5%.  The Average Price of a Home in El Dorado County was $712,672 versus $622,644 in February.  The total Sale Volume was $180,306,082 in March versus $120,170,304 in February.

The Bay Area real Estate Market is STRONG.  Prices are rising, Days on the Market are short and Price to List is over 100%.  The migration out of the Bay could be attributed to the counties mentioned by the Media as immigration cities.  They too have rising sales prices, short days on the market and sales to list of over 100%.

I am reminded of an old Wall Street saying...The Market Crawls a Wall of Worry. Buy high and sell higher.

Gary McKae

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