A lot has happened in the Bay Area realty scene over the last week. Rates Jumped to New 2-Year Highs After Fed Announcement. Santa Clara County Fairgrounds could get a cricket stadium by 2024. Bank of Marin assets jump 48% in 2021. Mixed-income housing proposed for Belvedere, which is California’s richest city. Santa Clara sued by a developer after the government killed an affordable housing project. The numbers of Bay Area homes for sale hit record-low. And the biggest story of them all: Are online real estate search services like Redfin inflating prices? In this episode, we will also look at the latest realty trends in five happening counties of the Bay Area. If you have any property-related query, please leave your comments below. And if you are planning to buy or sell a home in the Bay Area, I am the trusted realtor you are looking for.
THE BIG STORY: Can you trust real estate search portals like Redfin?
Here’s my personal story. If I look at my current home which is not listed, the Redfin estimate is fine. However, when a house goes up for sale, the algorithm goes into a tailspin. One house in Milpitas spread over 1,000 sq. ft has a list price of $1,199,900, but the Redfin estimate for the sale price is 1,518,788. However, if you look at the sold listings in the area, there is none to compare, clearly indicating an inflated price trend that does not appear to have any sound data analytics in place. But many people who rely on online listings to determine their buying or selling budget can get misled by bad estimates projected by firms like Redfin. What is making it worse is Redfin’s own claim that their listings are “highly accurate, with a current median error rate of just 2.26% for homes that are for sale, and 6.72% for off market homes.” This is not true at all if you look at the Milpitas home listing I cited earlier as it has a 25% margin of error. My off-market home in Santa Clara had the right price, but the active listing in Milpitas had an inflated price of almost 25%. So, what is actually happening with the Redfin algorithm? Redfin states that their “algorithm considers hundreds of data points about the market, the neighborhood, and the home itself, like whether it has a water view or is located on a busy street.” I find a major flaw in Redfin’s estimates. The property appraisal has to happen within a half mile radius; but Redfin’s goes beyond that. There are many other theories why Redfin is getting the price wrong. One is that the site is valuing a property based on internet traffic? If a listing gets viewed more often in less time, the price goes up quickly, and so on. Some realtors are blaming Redfin for purposefully giving a low price for houses on sale, so they can buy at below the market value, and pocket 15-25% price after flipping the property. One TikTok creator has even gone on to say that iBuyers (a general term for big brokerage firms like Redfin, Zillow, OpenDoor, and so on) are buying up houses in the neighborhood to boost property prices. However, many experts rubbished this theory by stating that iBuyers only make up 1% of the total realty market in the US. It will take a really long time to establish such a monopoly to influence pricing. Besides, there are many brokerage firms on the horizon eating into the realty pie, making this scenario highly unlikely even in the future, according to some realtors. Others blame lack of data causing the algorithm to throw up bad price estimates.
So, what do you do in such a confusing scenario? Come to a realtor like me to get a more accurate estimate as we do a Comparative Market Analysis (CMA) to measure the price of a property by gathering data on similar houses sold in the area. However, the most precise calculation is done during house appraisals because the layout and condition of the house matters. It’s not just about the lot size and location. It’s true that Redfin itself states that the estimate is only a starting point and not a substitute for a professional appraisal or realtor’s opinion. But what happens in a hot realty market like now? Such online prices create a bidding war, and all-cash offers.
Rates Jump to New 2-Year Highs After Fed Announcement: We all know that federal policies are critically important to the behavior of interest rates. January has witnessed a major shift in the Fed policy outlook that foresees price hikes and reducing bond purchases. If the Fed feels that the interest rates are low and property prices are inflated, then that’s what it is despite what anyone else might want to tell you. However, while the treasury yields and mortgage rates came back to what they were last week, the mortgage rates went up slightly to become the "highest in 2 years." Mortgage applications went up 2.3%. However, refinance submissions dipped 3%.
The median price of a single-family home in the nine-county Bay Area hit $1.2 million in December, up 13 percent from the previous year. Here is where realtors like us have one advantage that the layperson does not. We have access to MLS listings that give a granular look at the realty scene in all the nine happening counties of the Bay Area. With forward-looking market metrics like ‘change’, ‘pending’ and ‘sold’, you get a ringside realty view that could help you before you attempt to buy or sell any property. The MLS data highlights the new, pending and sold listings from 2020 to 2022, so you get an idea of the realty market’s highs and lows. Let’s start with Santa Clara, the market leader in real estate in the Bay Area. With over 1280 active listings, 451 new and 289 pending, 167 of the properties on the market were sold last week.
San Mateo is next with only half the active listings as Santa Clara, and yet it's still the second-best county in Bay Area with 178 new listings, 138 pending, and 88 properties sold. Monterey figures next with 452 active listings, 69 new, 42 pending, and 43 sold. Santa Cruz takes the fourth spot among the five counties of the Bay Area that I am covering this week. Out of the 296 active listings, 53 were new, 26 were pending, and 17 were sold. San Benito County is last at 103 active listings, 18 were new, 12 were pending, and 9 properties were sold.
If we look at the two most happening counties in the Bay Area for single family homes, you will get a closer look at what’s happening on ground. In Santa Clara, the average days on market came down by 32% from 22 days in January to 16 days in December, with all the properties getting sold by then at 109% higher than the list price. The months of inventory or the average time for all the properties to get sold in the county came down from a high of 2.6 months in April 2020 to 0.4 in October 2021. This indicates a hot property market where the supply is less and buyers are far more. In December, only 289 houses were for sale while 818 were bought, clearly showing the demand-supply gap in Santa Clara county. The sale prices, however, have remained largely stable, with prices hovering around $2m since May 2021.
The Bay Area has always had a tight market inventory for decades now, and things are not going to ease up this year either. However, building activity has increased since December, and that’s good news for home buyers. But the mortgage rates are going up. Adding to the chaos are sites like Redfin whose price estimates are off the mark. Therefore, if you are a buyer, I would ask you to be careful with the valuation. I would suggest keeping aside not just 10% of the property value for the mortgage down payment, but an additional 200k due to the inflated price. If you are a seller, you have to make sure that the buyer has enough proof of funds to close the deal. Get yourself a local realtor like me to prepare you for any eventuality. Give me a tinkle. See you soon in the next episode. Until then, stay safe, and mask up.