New Beginnings

It’s a new year, a new administration, and a new opportunity to evaluate the real estate market. Let’s take a look back on the past few months to see what’s changed, what hasn’t, and where we might be headed as we embark on 2021.

1

Even in a post-Covid workplace, major urban cities will remain thriving business ecosystems

The gap graph

San Francisco is still 4x more likely to remain a startup hub despite rumors of a tech exodus in 2021.

Source: Kim-Mai Cutler, Initialized

2

All signs point to a risk of inflation driven by fiscal spending

National Association of Home Builders Market Index

As investors move to put money into hard assets, real estate prices will continue to rise across the board.

Source: Bloomberg

3

Over a 5 year horizon, home prices are on an upward trend in most major urban markets

Demand for larger homes combined with price appreciation is pushing up the luxury segment of the market

As inflation looms on the horizon, we can expect additional home price increases well into 2021.

Source: S&P Dow Jones Indices / S&P Case-Shiller, seasonally adjusted rate

4

Mortgage rates, after bottoming out to all-time lows in 2020, have begun to rise

With online sales flat in SF, signs point to a decline in occupancy. Meanwhile, LA spending has jumped 31%.

The 30-year-fixed-rate mortgage averaged 2.79% in mid-January, up 15 basis points from only a week prior. A year ago at this time, the 30-year-fixed-rate mortgage averaged 3.65%.

Source: Freddie Mac

5

Home prices in Los Angeles are beginning to rise after a few years of stabilization

Year-over-year active listings (7 day rolling average)

Typically LA leads the US, with higher peaks and lower lows, but in recent months LA has accelerated more in line with the US to about a 10% year-over-year growth rate.

Source: Freddie Mac House Price Index

6

Single Family Home sales on LA’s Westside are slowly picking up the pace

Year-over-year pending sales decline (7 day rolling average) by number of days since >5% decline

A seasonally slow month, February performance in these markets is slated to pick up in late Q1.

Source: MLS

7

Meanwhile, the Bay Area is seeing record-high movement in the SFH market

Rental Market in both cities

As the city most impacted by WFH provisions, the areas surrounding San Francisco are experiencing a renaissance in buyer interest.

Source: MLS

8

Core leading indicators for housing market strength are outperforming early 2020 levels

Rental Market in both cities

The unwinding of pent up purchase demand combined with supply constraints reflect strong fundamentals — not “bubble” dynamics.

Source: NAR

The year is off to a roaring start - will the momentum continue? Check out next month’s edition of The 8 to find out.

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