By Josh Santos, Northern California Division President, Landsea Homes
It is an understatement to say that the last two years have been unlike anything we’ve seen in the homebuilding industry, as real estate has been buffeted by winds of change: whether it’s a once-in-a-lifetime pandemic, the uncertainties and changes in work environments and the economy, a ping-ponging Wall Street, or other unimaginable developments.
Luckily, in California, real estate has historically been somewhat bulletproof from the vagaries of drawn-out recessions and downturns. Its roots are deep in the valuable soil and borne out against the test of time.
For those looking to settle with families to build some equity in the California dream or those seeking to upgrade or adjust their lifestyles, there is no better investment than a home.
In the past 30 years, only an unprecedented earthquake in 1989, a one-year dotcom bubble pop and the one-two punch of a global recession and subprime mortgage bubble pop have interrupted the steady, persistent climb of property and home values in the Bay Area.
At Landsea Homes, as we look into the 2022 real estate market, there’s plenty of good news for homeowners, builders, and developers.
From a value perspective, for the past two years real estate not only withstood all the challenges of the health crisis and economic uncertainty but also, surprisingly, exploded to unseen heights amid the turmoil. Perhaps because Californians know that real estate is always a solid investment in the long run for those who can afford to plant their roots in the rich California soil.
While the national housing market appears to be cooling from its march into record territories, in the Bay Area the median price has remained above the $1 million mark for nearly a year now, with the median sale price north of $1.3, an all-time high according to the California Association of Realtors. In San Francisco, the price has topped $1.5 million. Meanwhile, Marin, San Mateo and Santa Clara counties are in similar territory.
Outer Ring Migration
However, that has opened opportunities elsewhere. One of the main themes we saw in 2021 was an increased migration out of the core Bay Area by those in a position to work from home or in hybrid roles.
It’s clear that remote work is here to stay and has increasingly become the new normal. As a result, there will be opportunities and value for those who are willing to venture out further than what they were previously comfortable with because of their working situation.
The outer ring of the Bay Area is quickly becoming a place where millennials and families can still afford to set roots. These areas, from Gilroy, Tracy, and Lathrop, and northward into Solano and Napa counties, are going to continue to thrive.
In a town like Tracy, for example, you can get a home for half the price of a similar home in San Francisco or the South and East Bay areas. Landsea Homes’ Tracy community, Ellis has sold 33 homes since opening just five months ago through Q3 2021, with 95 percent of homebuyers coming from the core Bay Area.
Additionally, it will be imperative for developers to pack exciting amenities and value into homes and master-planned communities in the outer ring that focus on wellness, sustainability and technology. From recreational areas and parks and green space to home automation features, all are important and cater to homebuyers’ wants and needs.
One trend we also expect to see more and more is the resistance to tandem garages and the desire to expand living space.
Since the onset of the pandemic, parking has become less of a concern for many buyers who have only one car or, in some cases, none at all. With newer projects getting approved and the shift towards single car and no car, we expect to see a significant impact on density and developers being able to capture back valuable living space or build more units overall.
Core Bay Area Appeal
In 2022, regardless of the perks provided by remote work, Bay Area core buyers will continue to pay a premium for access to amenities and the desire to be connected with urban settings, walkable lifestyle, culture, entertainment, and dining.
However, in 2021, people were starting to become concerned about volume and prices in the immediate Bay Area. As a result, we did see a slowing of sales activity in the second half of 2021 in that market segment. The good news is we’ve seen great activity in the last six weeks of the year.
With most forecasters seeing continued growth, albeit more moderate and realistic moving forward, 2022 should be a year where those who want to settle down and start families won’t find themselves fighting and priced out by speculators.
Folks are back at it, but not as rabid as the times when they were buying property sight unseen. Now, they are being more discerning about when and what they are purchasing. But they ARE purchasing.
Temporary Limiting Factors
The Bay Area housing market will continue to be distinguished by high demand and a scarcity of available inventory. That is something even aggressive builders cannot quickly change.
While ongoing shortages in the supply chain have caused delays, we continue to see robust demand for our homes. And in terms of affordability, we are not too concerned as we enter 2022. Mortgage rates have an effect on inflation, which is trending up, but we’re not expecting a dramatic change in loan rates.
Overall, the future remains bright for Northern California and Bay Area real estate. With continued and strong activity in the Bay Area, we know buyers will find ways to truly “live in their element” in 2022 and beyond.