While many areas of the economy have contracted, the housing market has stayed remarkably strong. But can it last?

When COVID-related shutdowns began in March 2020, real estate brokers across the U.S. and clients scrambled to respond to the shift. Record-low interest rates caused some lenders to call a halt to new underwriting, and homeowners debated whether or not to put their homes on the market. However, those first days of uncertainty ushered in a period of unprecedented demand in the U.S. real estate market, which ended the year with increasing average home prices (up 13.4% from the previous year) and shrinking days on market (13 fewer than in 2019).1

As the 2021 spring market approaches, you may be wondering whether the good times can continue to roll. As a homeowner, should you take advantage of this opportunity? If you are considering buying a home in the San Francisco East Bay, should you jump in and risk paying too much?  

How is today’s housing market different from the one that caused the 2008 meltdown?

At the beginning of the pandemic, fears of an economic recession and an ensuing mortgage meltdown were top of mind for homeowners across the country. For many buyers and sellers, the two seemed to go hand in hand, just as they did in the 2008 economic crisis.

In reality, however, the conditions that led to 2008’s recession were very different from those that triggered the current downturn—and this time, the housing market is the source of much of the good news.2 This is in line with historical patterns, as housing prices traditionally hold steady in the face of recession, with homeowners staying put and investors putting their money into bricks and mortar to ride out uncertainty in the stock market. 

This time around, because of lessons learned in 2008, banks are better funded, homeowners are holding more accrued equity, and, crucially, much of the economic activity is focused on financial factors outside the housing market. As many industries quickly pivoted to work-from-home, early fears of widespread job loss-related foreclosures have failed to materialize. Federal stimulus payments and the Paycheck Protection Program also helped to offset some of the worst early effects of the shutdown.

Are we facing a real estate bubble?

A real estate bubble can occur when there is a rapid and unjustified increase in housing prices, often triggered by speculation from investors. Because the bubble is (in a sense) filled with “hot air,” it pops—and a swift drop in value occurs. This leads to reduced equity or, in some cases, negative equity conditions.

By contrast, the current rise in home prices is based on the predictable results of historically low-interest rates and widespread low inventory. Basically, the principle of supply and demand is working just as it’s supposed to do. In addition, experts predict a strong seller’s market throughout 2021 along with increases in new construction.3 This should allow supply to gradually rise and fulfill demand, slowing the rate of inflation for home values and offering a gentle correction where needed.

Effects of low-interest rates

According to Freddie Mac, rates are projected to continue at their current low levels throughout 2021.4 This contributes to home affordability even in markets where homes might otherwise be considered overpriced. These low-interest rates should keep the market lively and moving forward for the foreseeable future.

Effects of low housing inventory

Continued low housing inventory is another reason for higher-than-average home prices in many markets.5 This should gradually ease as the Covid vaccination rollout and continuing buyer demand drive more homeowners to move forward with long-delayed sales plans and as new home construction increases to meet demand.6

Aren’t some housing markets and sectors looking particularly weak?

One of the biggest stories of 2020 was the mass exodus from attached home communities and high-priced urban areas as both young professionals and families fled to the larger square footage and wide-open spaces of suburban and rural markets. The trend was reinforced by permanent work-from-home policies at some of the country’s biggest companies.

Speculation then turned to the death of cities and the end of the condo market. But it now appears that rumors of the demise of these two residential sectors have been overly exaggerated.  We are seeing with the first vaccine rollouts, that renters are beginning to return to major urban centers, attracted by the rise in available inventory and newly discounted rental rates.7 

Also, homebuyers who were previously laser-focused on purchasing a single-family home responded to tight inventory by taking a second look at condos.8 While nationwide condo prices continue to lag behind detached home prices, they have seen significant price increases and days on market reductions year-over-year.

In addition to these improvements, the 2020 migration has spread the economic wealth to distant suburban and rural enclaves that normally don’t benefit from increases in home values or an influx of new investment. As many of these new residents set up housekeeping in their rural retreats, they will revitalize the economies of their adopted communities for years to come.

How has COVID affected the “seasonal” real estate market?

Frequently, the real estate market is seen as a seasonal phenomenon. However, the widespread shutdowns in March 2020, coming right at the beginning of the market’s growth cycle in many areas, has led to a protracted, seemingly endless “hot spring market.”

While Fannie Mae’s chief economist Douglas Duncan predicts slower growth from 2020’s historic numbers, the outlook overall is positive as we embark on the 2021 spring selling cycle.9 Duncan anticipates an additional lift in the second half of 2021 as buyers return to business as usual and look to put some of their pandemic savings to work for a down payment. We could be looking at another longer-than-usual, white-hot real estate market.

How will a Biden administration affect the real estate market?

Projected policy around housing promises to be a boost to the real estate market in many cases.10 While some real estate investors bemoan proposed changes to 1031 Exchanges, the Biden plan for a $15,000 first-time homebuyer tax credit looks to increase affordability and bring new home buyers into the market. Biden-proposed policy points to low inventory as a primary driver of unsustainable home values and is geared toward more affordability through investments in construction and refurbishment.

Overall, the real estate news looks overwhelmingly positive throughout the rest of 2021 and possibly beyond, according to most indicators. Pent-up demand and consumer-driven policies, along with a continued low-interest-rate and rising inventory, should help homeowners hold on to their increased equity without throwing the market out of balance. Plus, the increase in long-term work-from-home policies promises to give a boost to a wide variety of markets, both now and in the future.

Do you still have questions? The Glenn Allen Team has answers 

While economic indicators and trends are national, real estate is local. The Glenn Allen Team is here to answer your questions and help you understand what’s happening in your San Francisco East Bay neighborhood. Feel free to reach out to our team to learn more about how these larger trends affect your local market and your home’s value – we have answers!

With over 56 years of combined experience in East Bay real estate and extensive knowledge in real estate construction and finance, we are a team that offers depth and wisdom. More than that, we’re known as expert negotiators and trusted advisors who are prepared to help you win.

Our vision is to serve our clients by ensuring they get the education and communication they need to make the most informed decisions, thereby creating the best possible experience and outcomes in their real estate transactions

Partner with The Glenn Allen Team

Whether you are interested in East Bay homes for sale or it’s time to list your current East Bay property, you need an agent who knows the area, processes a vast network of local connections, and has the skills and expertise required to lead you towards a smooth and successful transaction. The Glenn Allen Team has been helping buyers and sellers in the San Francisco East Bay since 1989. We understand that buying or selling a home is a significant financial and personal decision and that you are looking for someone you can trust.

View East Bay Homes for Sale

We will protect your best interests, advocate for you, negotiate on your behalf, and advise and guide you every step of the way – ensuring the best results possible. If you or someone you know is interested in buying or selling San Francisco East Bay real estate, feel free to contact the Glenn Allen Team today to find out how we can meet all of your real estate needs. We look forward to meeting with you! 

Glenn Allen
Proteam Realty, Inc
Mobile Direct: (925) 281-0606

Article Sources:

  1. Realtor.com –
    https://www.realtor.com/research/december-2020-data/
  2. New York Magazine –
    https://nymag.com/intelligencer/2020/06/why-this-economic-crisis-wont-be-as-bad-as-2008.html
  3. Washington Post –
    https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
  4. Freddie Mac –
    http://www.freddiemac.com/research/forecast/20210114_quarterly_economic_forecast.page?
  5. Wall Street Journal –
    https://www.wsj.com/articles/housing-market-stays-tight-as-homeowners-stay-put-11611226802?mod=re_lead_pos1
  6. Marketwatch –
    https://www.marketwatch.com/story/new-home-construction-activity-soars-to-highest-level-in-over-a-decade-as-builders-rush-to-produce-single-family-homes-2021-01-21
  7. Forbes –
    https://www.forbes.com/sites/noahkirsch/2021/01/14/signs-of-a-rebound-new-york-city-rent-prices-are-climbing-back
  8. Washington Post –
    https://www.washingtonpost.com/business/2021/01/07/condo-sales-rebound-amid-dwindling-inventory-houses/
  9. Mortgage Professional America –
    https://www.mpamag.com/news/fannie-mae-chief-economists-forecast-for-us-economy-housing-market-in-2021-244045.aspx
  10. Inman –
    https://www.inman.com/2020/11/09/what-a-joe-biden-presidency-means-for-real-estate-and-housing/
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