Not even a pandemic has been able to slow down the Midpeninsula's housing market. After shutting down for nearly two months in early spring 2020 during the initial COVID-19 lockdowns, the local real estate market has come roaring back with surprising resiliency. Last year, it saw its highest sales volume in a decade.
Low interest rates, a strong tech economy and — surprisingly — all the turmoil of the pandemic fueled what some Realtors have described as a "historic market" in 2021, with single-family homes in all price ranges seeing a bump in activity.
A report compiled by Sotheby's International Realty found that housing sales throughout the Bay Area were 30% higher in February 2021 compared to prior to the pandemic in February 2020, while 67% of those transactions were higher than the asking price, compared to 50% a year earlier. And it wasn't rare for a home listed at $2.5 million to receive more than 20 offers and bids more than half a million dollars over asking price, according to local agents.
"The pandemic has definitely brought drastic changes to the real estate market. It has moved many variables in the market all at once. ... That's why 2021 was very active," Xin Jiang, a real estate agent with Compass in Palo Alto, told this news organization. "It has triggered people to reconsider where they want to live and how they want to live."
Those choosing to work remotely long term now have the option to move to the mountains or next to the ocean, freeing up inventory for those who want to stay on the Peninsula and upgrade to a larger home on a larger piece of land, she said. This has created much more moving around within the Peninsula market.
"This is a trend that may remain for a while until we figure out how much (our lives) can get back to 'normal,'" Jiang said.
The response to COVID-19 has redefined everything from the ways properties are shown and marketed to what kinds of renovations, floor plans and home features are most desirable, given that the pandemic changed the way people interact with one another in public and private spaces. The expected permanence of working from home and other factors may also lead tech companies to leave the area, or shrink their Silicon Valley footprint, which itself could have consequences for residential real estate, local agents said.
Silicon Valley Realtors interviewed by this news organization during the pandemic aren't certain if the housing industry will ever go completely back to its pre-pandemic ways once the virus fades away.
Derk Brill, a Realtor at Compass, said that some of the bigger changes occurred around the marketing of properties. With open houses on hold, virtual tours and 3D walk-throughs became the norm.
Purchasing a home without ever visiting it in person is not unheard of anymore, Paul Cardus, executive officer of the Cupertino-based Silicon Valley Association of Realtors, said in spring 2020. Agents have relied on Zoom and Facebook Live to convene and broadcast their online communications, he said.
"The technology that became commonplace as a result of the pandemic is likely to continue to play an important role in the real estate industry," said Michael Repka, CEO, managing broker and general counsel of Palo Alto-based DeLeon Realty. "I anticipate this will continue long past the end of the pandemic."
Repka said his company spent around $10,000 at the start of the pandemic to show off individual premiere properties in detailed, extravagantly produced videos and live tours for the internet.
"High-end buyers tend to do extensive online due diligence to target desirable homes for in-person visits," Repka said. "This trend was occurring before (COVID-19), but the pandemic has made producing sophisticated online videos an even more important screening tool for buyers."
The priorities of prospective buyers also have changed dramatically since the start of the pandemic.
"In recent years, before COVID, buyers wanted very much to be close to work," Menlo Park real estate agent Brett Caviness said last spring. "They wanted that short commute to Google or Facebook. Now, they are much less city specific in their searches and more focused on a bigger (geographical) area that might work for them."
Elyse Barca, a Realtor and luxury home specialist at the Menlo Park office of Compass Real Estate, said space became extremely important for people needing more of it for working from home, educating children at home and exercising and recreating at home.
"When people were sheltering at home, they became acutely aware of the deficiencies of where they lived," she said in 2021.
Arti Miglani, a Realtor at Compass, agrees.
"The focus has turned to more outdoor space and quality spaces within a home," she said.
Early in the pandemic, she said the migration of people from larger cities to the suburbs was very noticeable. Families with young children chose to sell their homes in San Francisco and move to the suburbs to buy a home or even rent a home. Condo and townhouse owners traded up to single-family homes, increasing demand for single-family homes.
By fall 2020, Realtors reported a thriving luxury market of $5-million-plus homes across the region as well as strong activity in the local entry-level market of single-family homes priced between $2.5 million and $3 million in Palo Alto, Menlo Park and Mountain View.
Semi-rural areas such as Woodside, Portola Valley and Los Altos Hills started drawing more interest.
Repka said the shift toward larger homes in less crowded areas seen early in the pandemic is still happening now.
"The consumer demand for real estate has shifted toward nicer homes and larger lots," he said. "The premium placed on properties with good walkability to restaurants, bars and coffee shops has waned. Some of the areas that were historically the hottest — such as parts of Palo Alto, Menlo Park and Los Altos near town centers — have been a little cooler when compared to homes located on larger lots, perhaps up in the hills or a little further away."
Brill said many priorities have changed for homebuyers since the start of the pandemic, but some things have remained the same.
"COVID-19 has changed what buyers value in a property, be it location, square footage or lot size," he said last spring. "What hasn't changed is what buyers have traditionally valued: good schools and neighborhoods."
Financing is another aspect of the real estate market that shifted during the pandemic following the introduction of historically low interest rates by the Federal Reserve in early 2020 to limit economic damage from the pandemic.
"With interest rates remaining low, We have seen a reduction in the percentage of all-cash offers," Repka said.
He speculated that the increase in financed offers is, in part, tied to buyers trying to lock in a low interest rate before they go up.
Miglani said the trade-off for lower rates has been a larger down payment requirement. A down payment was about 25% for owner-occupied homes compared to the historical 20%, and the down payment for investment properties was about 40% compared to 30% previously, she said just after the real estate market opened back up in 2020. The requirement, she said, hasn't shown to be a deterrent for those interested in taking advantage of the lower interest rates.
The biggest market uncertainty moving forward isn't the virus itself, but whether companies will continue to expand their workforce in Silicon Valley or move some operations to other areas with lower cost of living and low or no state taxes, according to local Realtors.
"Over the past two years (during the pandemic), we have seen a lot of sellers moving to (other) areas. More recently, it has been more common for companies to hire in these other areas as well," Repka said.
Jiang said if the local tech talent continues to migrate out of the area, market demand and home values could start to fall. She said the high cost of living, California's climate crisis and the unknown outcome of new state laws intended to spur more housing are among the biggest threats to the market as we move into a post-pandemic era.
"To some extent, our community is forever changed," she said. "It'll be hard for those who let go of their homes during the pandemic to buy back based on the current upward price trend.
"Moreover, as the largest pool of the beneficiaries of a booming tech economy is engineers from China and India, the diversity of high-home-price areas will inevitably decrease."
Palo Alto Online is marking two years of the COVID-19 pandemic this week. If you missed any parts of our series, see the More Stories box, above.
Want to read more? Local real estate experts sat down with this news organization to share their views on the state of the real estate market for individual Q&As in the upcoming Spring Real Estate magazine, which publishes on April 15.