The following graph is the last 15 months of median prices for single family homes in the combined 4 county area of Sacramento, Placer, Yolo and El Dorado counties.
Other markets around the country show similar trends but let’s just keep it local here. The median value went up 28% since March of 2020. 28% in 15 months. Go figure. What did the pandemic have to do with this run?
Everyone has an opinion about real estate — whether they need one or not. At Miller Real Estate we of course need to have an opinion as it is our business. That said, we go about forming this opinion with humility. For most of us, last year was the craziest year ever, one that none of us saw coming. Myriad factors stacked up and rubbed against each other to cause this 28% increase in our local area. But since this is a blog post, and not War and Peace, myriad factors are not going to be considered. But we can discuss these 5 factors that make sense to us and might make sense to you. Here goes:
- Work from home – This trend has been building for years, but the pandemic put it on steriods. People turned inward and started looking at their homes differently. “If I am going to work at home with the whole family in a pile, we are going to need more space” is what we have been hearing from buyers and sellers for the last year.
- Bay Area buyers – This trend has also been building for years. The 4 county area represents a few things for Bay Area buyers. It’s a slower paced lifestyle, there is less congestion, and most importantly, it is relatively affordable. The Silicon Valley tech companies told their employees to go home and work from there. And home can be anywhere within a 2 hour drive, so they have been migrating in droves. Nice people, glad to have them as neighbors.
- Low inventory – Again, this is a trend that was pre-pandemic. Like toilet paper in April 2020 the pandemic brought a shortage of homes to buy. Construction temporatily slows, supply chains get interupted, and some people who were choosing to make a move (maybe out of state) just decided to put it off for a year and let the pandemic blow over. The result is that we have lots of buyers and not a lot of inventory and that spells multiple bids on homes and therefore increasing prices. Enter #4—
- Cash – This has been the halmark of the pandemic buying spree. There is a ton of cash in the hands of Baby Boomers who purchased for themselves or helped their children buy homes in the last year. Also investors have been going crazy with their stockpiles, looking for flip opportunities and better returns. And with the competitive bidding that we have been experiencing because of low inventory, cash, as always, is king.
- Interest rates – Let’s not leave out historically low interest rates. And again, this is another trend that was pre-pandemic but has helped fuel the run up in demand and in prices. Someone who could afford a $500k mortgage going into the pandemic, are now able to go to $600k with the historic low interest rates. (And not to get into the finance weeds too far, but these low interest rates mean that yeilds are not that great on many other investment sources, so buyers liquidated parts of portfolios and used the cash to buy real estate. See bullet #5 above.)
So that’s it. We see a lot of trends that were in place and then we get wacked with a pandemic and all of those trends conspire to create this run up in demand and prices.
Where is it going from here? That’s a blog for another day.