In the world of real estate, it’s common for the news to cause more terror than clarity. With all the volatility in the market, it’s easy to feel like everything is going downhill. But that’s not necessarily the case. In fact, we’re seeing a lot of economic growth in the real estate industry. This growth is driving up demand and causing multiple offers and prices that are selling above asking. So, what’s driving this growth? Let’s unpack it.
Job Security
Despite hearing about layoffs and instability, the truth is that many people still have their jobs. Take the example of Meta, which hired almost 30,000 people during the pandemic to meet demand. Although 11,000 of those people were laid off, we’re still seeing higher-than-pre-pandemic employment numbers. This sense of job security is encouraging people to buy homes.
Stock Market Recovery
Contrary to what you may hear in the news, job security is a key driver behind the current real estate boom. With unemployment rates going down and the job market steadily recovering, more people are feeling confident in buying homes. Tech companies like Apple and Meta have been steadily hiring more people, which translates to job security for those employed in these sectors. While some unfortunate individuals have lost their jobs, the overall employment rate is still higher than pre-Covid levels.
Lower Interest Rates
One of the most significant drivers of the current real estate growth is the lower interest rates. With rates down to 4.5%, the monthly payments for a mortgage have become more affordable. The cheaper the mortgage, the more likely it is that people will enter the real estate market.
People Staying Local
Due to work from home arrangements, people are staying local and buying homes in the Bay Area instead of moving outwards. This trend has resulted in properties located near the workplace holding their value more than those located further away. Areas such as Sunnyvale, Santa Clara, and Cupertino have seen higher price appreciation than commuting cities like Fremont and Morgan Hill.
Limited New Construction
During the housing boom of 2005-2007, builders kept building even during the economic downturn. As a result, they ended up with a surplus of inventory that they had to sell at a discount. This time around, builders have been more cautious. They stopped building as soon as they saw a slowdown, and they’re sitting on the sidelines waiting to see what happens next. With supply chain issues, labor shortages, and the cost of materials all making construction more difficult, it’s no wonder that new construction is non-existent in the Bay Area.
Move-up Sellers & Buyers
With interest rates at 3%, many people are choosing to stay put and see where the market goes before making a move. However, if they want to buy a new property, they will have to obtain a mortgage at a higher rate. The current interest rate has discouraged many move-up buyers from buying new properties.
Pent-Up Demand
The market’s volatility in the past year caused many buyers to sit on the sidelines and wait for more stability in the market. With the market stabilizing, many of these buyers are now entering the market, resulting in increased demand for properties.
In conclusion, the real estate market is experiencing significant growth due to job security, stock market recovery, lower interest rates, people staying local, limited new construction, move-up buyers, and pent-up demand. At Real Estate 38, we have seen the impact of these drivers on the market firsthand, and we hope this blog post has helped you understand the current trends better.
