Navigating Mortgage Rate Trends: Insights and Forecasts for the Real Estate Market

Predictions and Projections for Mortgage Rates in the Coming Years

The landscape of the real estate market is intricately linked with the trajectory of mortgage rates. As we navigate the ever-changing economic environment, various institutions and experts have offered their projections for the path that mortgage rates might take in the near future. These forecasts provide valuable insights for potential homebuyers, sellers, and investors alike, enabling them to make informed decisions based on the anticipated changes in borrowing costs.

Interest Rate Prognostications

The Outcome

While each institution’s projections may differ slightly, a common thread emerges the anticipation of declining mortgage rates in the coming years. These forecasts provide valuable information for potential homebuyers and those involved in the real estate market, aiding them in making well-informed decisions based on the expected changes in borrowing costs. As economic conditions evolve, the accuracy of these predictions will become clearer, ultimately shaping the future landscape of the housing market.

How these factors contribute to the broader picture:

The decrease in interest rates is likely to be a welcomed development for both sellers and buyers. However, it’s important to note that these predictions don’t imply a complete return to historically low rates—those days seem to be behind us for the foreseeable future.

As interest rates decline and the affordability index increases, prospective buyers will find themselves with increased purchasing power. This surge in affordability will also contribute to a rise in the buyer sentiment index regarding home purchases. Currently, this index reflects that 82% of buyers consider it unfavorable to buy a home due to the combination of elevated interest rates and housing prices.

As the scenario changes and interest rates start to decrease, we anticipate a significant portion of the 82% of cautious buyers on the sidelines will reengage in the housing market. This renewed interest, combined with improved affordability and increased enthusiasm for homebuying, is likely to lead to a scenario where home values start to appreciate at a faster rate compared to the present.

Decision Time

As Warren Buffet famously stated“Be fearful when others are greedy, and greedy when others are fearful.”

The most prudent trajectory within the realm of our discerned understanding would be for prospective buyers to proactively pursue their aspirations of homeownership prior to the broader populace. Should the cacophony of experts’ prognostications hold true and the prevailing interest rates experience a decline, the avenue of refinancing at the diminished rate emerges as a viable choice, thereby securing a residential abode in advance of the burgeoning fervor among competitors. Conversely, in the event of errant forecasts, substantial savings would also be accrued by evading elevated interest rates.

DATA:

MBA’s Anticipations

The Mortgage Bankers Association (MBA) has provided its outlook on mortgage rates, forecasting that the 30-year fixed mortgage rate will experience an average of 5.9% during the fourth quarter of 2023. Beyond this year, the MBA anticipates a gradual slide in mortgage rates, reaching an average of 4.9% by April 2024. This projection suggests a potential easing of borrowing costs, which could stimulate activity in the housing market.

Morningstar’s Insights

Economists at Morningstar, a renowned financial services firm, offer their own perspective on the path of mortgage rates. Their projections suggest that the average 30-year fixed mortgage rate will stand at 6.25% in 2023. Looking ahead, Morningstar envisions a decline to 5.0% in 2024, followed by a further decrease to 4.0% in 2025. These projections point towards a more gradual and sustained decline in borrowing rates over the next few years.

Goldman Sachs’ Analysis

The investment banking giant, Goldman Sachs, lends its voice to the discussion by estimating that the 30-year fixed mortgage rate will conclude 2023 at 6.4%. For the subsequent year, Goldman Sachs predicts an average mortgage rate of 5.9% in 2024. This projection suggests that while the rates may experience a slight decrease, they will remain above the historical lows seen in previous years.

NAR’s Outlook

The National Association of Realtors (NAR) brings its perspective to the table, forecasting a decline in mortgage rates as well. NAR’s economists project a dip to 6.4% by the end of 2023, followed by a further reduction to 6.0% in 2024. These predictions align with the overall trend of declining mortgage rates, potentially influencing buying decisions and overall market dynamics.

Morgan Stanley’s Perspective

Morgan Stanley, a prominent financial institution, projects that the 30-year fixed mortgage rate will initiate 2024 at 6.0%. This projection indicates a stabilization of rates at a level similar to those forecasted by other entities, further solidifying the notion of a gradual decline in borrowing costs.

Moody’s Analytics’ Insights

The financial intelligence arm of Moody’s, Moody’s Analytics, projects that the 30-year fixed mortgage rate will remain relatively high through much of 2023, with an average of 6.5%. While this forecast deviates from some others, it suggests a potential delay in the downward trajectory of rates before aligning with the broader trend.

Realtor.com’s Perspective

Economists at Realtor.com, a prominent home listing site, hold the belief that the 30-year fixed mortgage rate will commence 2024 at 6.1%. Their projection hints at a continued decline in mortgage rates, although at a pace that may vary from other estimations.

Fannie Mae’s Expectations

Economists at Fannie Mae, a government-sponsored enterprise, provide their own outlook on mortgage rates. Fannie Mae anticipates an average of 6.6% for the 30-year fixed mortgage rate during the fourth quarter of 2023. Looking forward, Fannie Mae foresees a gradual reduction in rates to an average of 5.9% in the fourth quarter of 2024. Additionally, for the entire calendar year of 2024, Fannie Mae’s forecast suggests an average mortgage rate of 6.1%.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Drew Morgan—Broker Associate 01124318 | Christine Morgan—Sales Associate 01174047

Co-Owners of Morganhomes, Inc. Licensed under RE/MAX Star Properties 01811140

“Unveiling Housing Trends: Navigating New Listings Decline and Market Fluctuations”

We recently published an article titled “Navigating Bay Area Real Estate: Balancing Wealth Optimization and Limited Data Amidst Shifting Market Dynamics” that sparked significant reader inquiries seeking clarity. Within this piece, we delved into the year-over-year assessment of home values for June, a customary method to analyze housing trends.

However, exploring micro trends can prove beneficial during market volatility. This involves observing month-to-month changes. The challenge in doing so is the presence of seasonal fluctuations in the real estate market. The trends we compiled for San Mateo County and our residing city, Belmont, illustrate a gradual price recovery compared to the preceding article, where annual values had receded in quarters Q2-Q4 of 2022.

San Mateo County 2023

Though yet to reach the peak levels of 2022, at least for now, home values appear to have stabilized and are maintaining, if not gently appreciating.

Belmont 2023

We exemplify this by presenting an illustrative graph generated by Fred®, utilizing the Case-Shiller® data methodology linked here. While this data trails the market by three months, it remains valuable for investors analyzing value patterns. The most recent trend depicted suggests we may have surpassed the market trough and are trending upwards.

Opting for gradual growth is preferable due to its sustainability. The graph we provided indicates growth is so gradual that any economic shift could easily reverse the trajectory.

The market correction following the hyper-growth observed in Q1 of 2002—driven by imminent interest rate hikes—seems to have subsided. The question now is the duration it will take for buyers and sellers to adjust and realize that the era of sub-3% loans is unlikely to return, prompting them to proceed with their life plans.

Sales in the Bay Area have declined by 30%, a result of a similar 30% drop in available new listings.

Presently, prevailing market dynamics impact our housing sector, with both sellers and buyers hesitating due to current interest rates, despite their historical below-average nature.

A further incongruous position we have today is the dichotomy between sellers awaiting price rebounds and buyers finding that prices are already too steep.

According to a recent survey by Fannie Mae, the nation’s primary purchaser of secondary market loans, 82% of buyers believe it’s an inopportune time to purchase a home.

The query remains: When will one of these groups move into action?

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Drew Morgan—Broker Associate 01124318 | Christine Morgan—Salesperson 01174047

Co-Owners of Morganhomes, Inc. Licensed under RE/MAX Star Properties 01811140

Navigating Bay Area Real Estate: Balancing Wealth Optimization and Limited Data Amidst Shifting Market Dynamics

Given the substantial wealth associated with owning property in the Bay Area, it’s rational for sellers to strive for enhanced investment gains and carefully assess the most opportune moment to sell their residences. However, the challenge lies in the limited data available to assist them in reaching a well-founded decision. 

Our objective is to adopt a forward-looking futurist strategy to aid individuals in making well-informed decisions while avoiding any reliance on methods like fortune-telling cards or crystal balls, or theories that stand to benefit us personally.

The stability of our real estate values has been influenced by Sellers’ reduced desire to sell their homes, a direct consequence of rising interest rates. This has maintained a state of relative equilibrium in the market compared to recent times.

However, the situation might shift in 2024. More Sellers have postponed selling their properties this year, hoping for a more favorable market next year. This presents a potential issue. 

Historical market downturns, like the one in 2007, have seen buyers holding off on purchases for years. When they eventually rejoin the market, they tend to do so simultaneously due to changing conditions that they have in common, resulting in multiple offers and price escalation—a phenomenon observed in 2012 following a housing hiatus.

Sellers could also face this challenge. Previously, when government bond purchases kept interest rates artificially low, and people refinanced at around 3%, the anticipation was that rates would rise when the bond purchases ceased. As predicted, Sellers have now refrained from refinancing and moving due to the prospect of significantly increased mortgage payments.

Given that interest rates have doubled in the past two years, Sellers lack motivation to upsize their homes, considering their mortgage payments would more than double. Property tax hikes further compound this issue. Many Sellers we’ve communicated with plan to wait until 2024 before acting.

In this scenario, if more homes come onto the market while the buyer pool remains static, it could lead to lower home prices in 2024 due to reduced competition for available homes.

Another challenge in 2024 is the presidential election year, which is historically associated with market pullbacks due to political and economic uncertainties. These uncertainties breed caution and indecision among buyers, particularly from May to November, resulting in further downward pressure on prices.

This graph illustrates the effect the highly contentious election between Hillary Clinton and Donald Trump in 2016 had on home values during those months.

Presidential Election Year Impact on San Mateo County Home Values—2016

Drawing from historical market trends, we recommend Sellers take proactive measures to address the potential influx of 2023’s home Sellers. Selling before May 2024 becomes crucial for maximizing returns ahead of the election year’s uncertain market conditions.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Drew Morgan, Broker Associate 01124318 | Christine Morgan, Sales Associate—Owners of MorganHomes, Inc. Licensed under RE/MAX Star Properties, 01811140

HOUSING MARKET DIPS REMAIN IN THE MIX AS NEW LISTINGS CONTINUE TO DROP

Though the landscape may appear bleak to some, to others, doors have opened to greener pastures offering new market opportunities.

We guessed correctly that around this time, home prices would start to look more like they did a year ago than two years ago.

Looking in the rear-view mirror, home prices hit their all-time high in April of 2022 before beginning what would be a reverse of fortune for sellers over the next year.

WHERE ARE WE NOW

Most indicators remain down over last year, but not so much in the price decrease department. What has taken a hit is the inevitable drop in sellers choosing to move for fear of losing their low fixed mortgage rate.

Take Belmont, for example. The number of new listings dropped 27% YOY as compared to June 2022. 

The Inventory—or the number of homes left for sale at the end of the month dropped 56%, a strong indicator that there is still strong demand for homes.

One more home sold this month than last year, which is statistically insignificant, but it underscores that our meager inventory is moving.

The days a home is on the market is back to a more normal 12, up from eight when the bidding frenzy in Q1 of 2022 was at its peak.

The percent a seller receives of the asking price is around 105%—down from 107% a year ago, but still indicating overbidding on select homes.

The Belmont median home price is down 12.3% YOY, as some air escapes from the brief bubble in 2022.

San Mateo County fared about the same:

News listings declined 27%

Inventory dropped 30%

Sales were down 8%

The median home price came down 5%

And the time it took to sell a home increased by 50%

We still have less than one month of housing inventory in Belmont and 1.4 months in San Mateo County, which is lower than the rest of the country by about five months.

Currently, half of the homes being sold are fetching prices above the seller’s asking price, indicating the presence of multiple bids, while the other half are selling for less. Sellers are still receiving lower prices than they could have obtained a year ago during the brief bubble. However, given the rapid 14% price increase in the first three months of 2022, it is evident that there was considerable room for a market correction.

With prices rising by 14% in the first quarter of 2022, it was anticipated that a portion of the price surge would not be sustainable.

TAKE AWAY

Interest rates have increased again recently and will probably stay at these levels for the remainder of the year. That’s not helping buyers or sellers. Buyers can afford less home, or less expensive homes, and sellers don’t want to move, which puts more pressure on holding home prices at bay.

Since the local housing market heavily relies on the interplay of supply and demand, if interest rates remain high and an increase number of sellers feel compelled to sell, the growing inventory of homes for sale will intensify the pace of home price decreases.

We understand how difficult it is to try and time one’s life around the housing market—whether to move now or later and what would be optimal. Two things will impact the housing next year that we can anticipate. With the Presidential Election, we expect a repeat of diminished housing market activity as we near summer. And mortgage interest rates are expected to come down. This may entice more sellers into the market, diluting the pool of possible buyers for homes. If you are considering a move, be sure to contact us soon so that we may advise you early on as to the best time next year to sell.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

Drew Morgan, Broker Associate 01124318 | Christine Morgan, Sales Associate 01174047

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Embracing the Benefits of Induction Cooktops: A Closer Look at the Advantages Over Gas Stoves

We frequently come across a condominium that doesn’t have gas for each unit, or at least none was installed to be accessible for cooking appliances. This is worrisome for some buyers, but they may see the benefits of using an induction-style electric cooktop over the more common gas with the right education.

As an ex-chef, the thought of ditching my gas stove and going back to electric caused me to be highly skeptical. That is, until I bought one to use on our RV.

One of the first things I noticed was that the cooking is very precise. For example, if I want to cook scrambled eggs, instead of guessing the temperature needed to cause an egg to solidify, on our induction cooktop, we can just set the temperature, in this case, to 150℉ degrees, and know that it will never get any hotter—no more scorched eggs. In this way, it offers benefits similar to sous vide cooking, wherein one can exactly control the temperature of the cooking process.

Adjusting the temperature can be based on the desired heat instead of guessing how much flame one needs.

One downside we can see is in cooking in a Wok, where one needs extremely high heat and heat that transfers to the side of the cooking vessel. Another issue is sauteing foods. The term sauté literally translates into “jump up”, as you lift the pan off of the heat to toss it around. With an induction stove that requires the pan to be in direct contact with the cooking surface or it will temporarily shut off, sauteing won’t be as practicable as with a gas stove top.

Several cities in California have taken steps to restrict or phase out the use of natural gas in new buildings. For example, Berkeley, San Jose, and San Francisco have been trying to implement regulations requiring new buildings to be all-electric, meaning they cannot use natural gas for appliances like stoves, water heaters, and furnaces (Note: in April of 2023 the 9th U.S. Circuit Court of Appeals found the ban in Berkeley to be in direct violation of the Energy Policy and Conservation Act of 1975).

It’s important to note that local regulations and policies can change over time, and it’s always advisable to check with the relevant authorities or consult the most up-to-date information to determine the specific regulations in effect.

These measures attempt to combat climate change and reduce greenhouse gas emissions. Natural gas is a fossil fuel that contributes to carbon dioxide emissions and is a significant contributor to global warming.

Gas stoves can contribute to indoor air pollution and pose certain health risks. Here are some reasons why gas stoves can be considered unhealthy:

  • Indoor air quality: Gas stoves emit pollutants such as nitrogen dioxide (NO2), carbon monoxide (CO), formaldehyde, and particulate matter into the air when they burn natural gas or propane. These pollutants can accumulate indoors and lead to respiratory problems, especially in poorly ventilated areas.
  • Respiratory issues: Prolonged exposure to the pollutants emitted by gas stoves can irritate the respiratory system and worsen existing respiratory conditions like asthma and allergies. NO2, in particular, can cause inflammation of the airways and decrease lung function.
  • Carbon monoxide poisoning: Inadequate ventilation or malfunctioning gas stoves can lead to the release of carbon monoxide gas, which is colorless and odorless. Inhalation of carbon monoxide can be fatal, causing symptoms like headache, dizziness, nausea, confusion, and even death in severe cases.
  • Fine particulate matter: Gas stoves generate fine particulate matter (PM2.5), which consists of tiny airborne particles. These particles can penetrate deep into the lungs and potentially cause respiratory and cardiovascular problems.
  • Increased risk for children: Children, particularly infants, are more vulnerable to the health effects of indoor air pollution. Exposure to pollutants from gas stoves can impact lung development and increase the risk of respiratory illnesses.

To mitigate these risks, it is important to ensure proper ventilation when using gas stoves, such as using exhaust fans or opening windows. Regular maintenance of gas stoves, including cleaning burners and checking for gas leaks, is also crucial. Additionally, using alternative cooking methods, such as electric stoves or induction cooktops, can help reduce indoor air pollution associated with gas stoves.

Induction stoves offer several benefits over gas stoves. Here are some of the advantages of using an induction stove:

  • Energy Efficiency: Induction stoves are highly energy efficient. They directly heat the cookware using electromagnetic fields, which means almost no heat is wasted. In contrast, gas stoves lose significant heat to the surrounding environment, resulting in energy wastage.
  • Faster Cooking: Induction stoves heat up significantly faster than gas stoves. The electromagnetic fields directly transfer heat to the cookware, allowing for rapid heating. This speed can save you valuable time in the kitchen.
  • Precise Temperature Control: Induction stoves provide precise temperature control. You can adjust the heat levels instantly and accurately. This precise control allows for more delicate cooking tasks, such as simmering or melting chocolate, where precise temperature management is crucial.
  • Safety: Induction stoves are generally safer to use compared to gas stoves. The stovetop surface remains relatively cool since the heat is generated in the cookware itself. This feature reduces the risk of burns and accidental fires. Additionally, induction stoves often have built-in safety features like automatic shut-off, pan detection, and child-lock functions.
  • Easy to Clean: The smooth and flat surface of induction stoves makes them easy to clean. Since the stovetop doesn’t get as hot as gas stoves, spills, and food residues are less likely to get burnt onto the surface. This feature simplifies the cleaning process and reduces the time and effort required for maintenance.
  • Aesthetics and Design: Induction stoves are often sleek and modern, adding an aesthetic appeal to your kitchen. They come in various sizes and styles to suit different kitchen layouts and personal preferences.

It’s worth noting that while induction stoves offer many advantages, there are a few considerations to keep in mind. Induction stoves require cookware with magnetic properties (ferrous metal) to work effectively, so you may need to replace some of your existing cookware. Additionally, the upfront cost of induction stoves is typically higher than gas stoves, although they can help save on energy costs in the long run.

According to the New York Times, if you are interested in transitioning to induction cooking, these are the top-rated induction cooktops.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

or all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

“San Mateo County Home Sales Continue to Slip in May, Signaling Continued Shift in Market Dynamics”

The San Mateo County home sale activity shows a year over year decline in home sale activity between May 2022 and May 2023. 

The comparison sheds light on the changes in new inventory, sold properties, average days on the market (DOM), average sale price, median sale price, the median price per square foot, percentage of list price received, sale volume, average home square footage, average lot square footage, and months of inventory.

  • New Inventory: In May 2023, there was a significant decrease of 22% in new inventory compared to May 2022. This decline indicates a decrease in newly listed properties during the period.
  • Inventory: The overall inventory available for sale also experienced a decline of 14% from May 2022 to May 2023. This decrease suggests fewer properties on the market during the latter period.
  • Sold Properties: The number of properties sold in May 2023 decreased by 38% compared to May 2022. This substantial decline indicates decreased buyer activity in the market and suggests a potentially slower sales cycle during the later period.
  • Average DOM: The average number of days on the market increased by 26% in May 2023 compared to May 2022. This rise suggests that properties took longer to sell during the later period, indicating a decrease in buyer demand and a continued detachment from reality for sellers pricing their homes.
  • Median Sale Price: The median sale price experienced a decrease of 10% from May 2022 to May 2023.
  • Average Home Square Footage: The average home size, measured in square feet, experienced only a minor decrease of 2% from May 2022 to May 2023. While the homes sold were 2% smaller in 2023,  they were down10% in value, which could be interpreted that home values are down 8% YOY. 
  • Median Price per Square Foot: The median price per square foot decreased by 14% in May 2023 compared to May 2022. 
  • Percentage of List Price Received: Sellers received 9% less of their asking price in May 2023 compared to May 2022, as indicated by a 9% decrease in the percentage of list price received. This decline suggests a potentially more negotiable market, with buyers having more leverage this year over last.
  • Sale Volume: The total sale volume in May 2023 decreased significantly by 63% compared to May 2022. This decrease reflects a substantial reduction in the total value of properties sold during the later period.
  • Average Lot Square Footage: May 2023 saw a considerable decrease of 33% in the average lot size compared to May 2022. This decline suggests a potential shift towards smaller lots or an increase in properties with smaller land parcels during the latter period.
  • Months of Inventory: The months of inventory, which indicates how long it would take to sell all available properties at the current sales pace, increased by 27% from May 2022 to May 2023. This suggests a shift towards a more balanced or potentially buyer-favored market with a higher supply of properties relative to demand during the later period.

In summary, the housing market in May 2023 exhibited several notable differences compared to May 2022. New inventory, sold properties, average sale price, median sale price, median price per square foot, and sale volume decreased. With fewer homes being listed and fewer selling, the market remains more balanced than in recent memory.

The average days on the market increased, suggesting a potentially slower sales cycle. Additionally, the months of inventory increased, indicating a shift towards a more balanced market with higher supply relative to demand.

It is essential to note that the provided statistics are specific to the given timeframe and location. Further analysis and consideration of additional factors are necessary to understand the local housing marke dynamics comprehensively.

For example, when we comnpare month over month, sales and prices have picked up in 2023, just still not high as they were during the same period in 2022, as the Case-Shiller MSA report for the Bay Area illustrates.

If this trajectorty continues, we expect by October 2023, YOY homes values will be higher than in 2022.

Please feel free to reach out if you have any questions or need more information.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice or substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Recognizing the Flaws in Comparing Year-Over-Year Data

Back in November 2022, we wrote an article titled “The Big Risk in Gambling on Bay Area Home Values” where we predicted that this day would come. We expected that Q1 in 2023 would see a significant decrease when compared to 2022 but are we comparing apples to apples? We suspect that by Fall, the year-over-year changes will be more accurate since the first three months of 2022 were an anomaly due to a surge in home prices (not values).

Last year in April, the Bay Area housing market reached its highest point, driven by the fear of impending interest rate hikes. However, since May 2022, there has been a decline in the market. The decline can be attributed to the interest rate increases, which ironically is what led to an increase in housing values in the first quarter of 2021.

This unsustainable and rather sudden ramp-up in bidding wars, and consequently home values, ended rather abruptly in mid-April.

The May sales data reflected the change in home-buying activity, and the shift in the market was in full swing by June. We discussed this in our blog post titled “Bay Area Housing Market on Precipice of Unpredictable Change.”

Currently, in San Mateo County, home values have reverted to levels seen in August of 2022.

Comparing the months of April YOY for San Mateo County, the dramatic shift is seen across the board in almost every category. 

Fewer sellers are willing to sell in today’s market because as most have locked into fixed-rate loans in the 3% (or even less) range. 

With fewer sellers willing to move, the number of new listings is down 38%. In any other market, this alone would create a shortage of inventory of homes for sale which in turn would drive up prices. However, the higher interest rates that are keeping sellers in their homes longer, are also eroding the purchasing power of buyers. This is helping to keep our market near equilibrium—a state which historically is rarely seen, and if so, never for very long.

We notice a similar trend in the city of Belmont, but it’s more pronounced because the sample size is small, which makes fluctuations more noticeable.

Opposite the Law of Large Numbers, a foundational concept in statistics that if a sample is large enough, the sample average should be close to the mean, the law of small numbers provides us with a “Belief in the Law of Small Numbers.” In their paper, Kahneman and Tversky—who famously explored human heuristics, define the Law of Small Numbers as the mistaken belief that a small sample accurately reflects the probabilities of a population. In small data sets, you can find patterns where none exist!

Such is often true when isolating the numbers for home sales in Belmont.

Here we note the magnified effect of the market as compared to San Mateo County as a whole.

That said, there’s no doubt about the YOY change. In 2023 the size homes that sold were 22.5% larger, yet sold for 7.7% less, indicating the true YOY value shift to be close to a 30% drop.

The average time it takes to sell a house has increased by 200%, which shows that buyers are becoming pickier. However, it’s also happening because many sellers are still setting their prices based on past market conditions and pricing their homes too high.

It’s unfortunate that some agents prioritize making a sale over being honest with the sellers. They may tell the sellers what they want to hear, instead of what they need to know. Additionally, sellers often choose agents based solely on the price estimate the agent gives them for their home, which perpetuates this behavior.

At present, the inventory of homes available for sale is only enough to last for about a month. This is a notable decrease from the 9.5 months of inventory during the 2008 economic crisis.

As we move past April, the monthly figures will gradually approach and eventually exceed the year-over-year numbers of 2023. However, we do not anticipate this to occur until the year 2024.

It is imperative that you price your home correctly if you are considering selling it. This holds especially true in the current market. Do not hesitate to contact us for an honest evaluation.

Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC located in Belmont, CA. They have been assisting buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.

or all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.

This article provides educational information and is intended for informational purposes only. It should not be considered as real estate, tax, insurance, or legal advice, and it cannot replace advice tailored to your specific situation. It’s always best to seek guidance from a professional who is familiar with your scenario.

The Illusion of Year of Year Numbers

Housing Sector Finally in Balance?

It seems like forever since the housing market has been in balance. The downturn in 2007-2009 was followed in 2012 by an 11-year run up in Bay Area home values. Are we finally reaching equilibrium?

The first quarter of 2023 is in the books, and the housing numbers are in. If you’ve been listening to local news, one might believe the housing market is on a slippery slope and headed towards a trough.

The numbers sure make it look that way too, but is there more to report? The short answer is, there always is.

Looking at San Mateo County as a whole, here are the YOY (Year over Year) numbers comparing 2022 to 2023:

In every category the numbers appear to indicate that we’re in a declining or buyer’s market, but we’re not. Why?

Half of the homes are still selling for over asking, while the other half are selling for less, which is strongly indicative of a market in balance. Take a look at these graphs we prepare–they show the market is beginning to level out.

NEW LISTINGS

This number is down because sellers with 3% interest rates are reticent to sell their current home only to find their new mortgage on a replacement property closer to 6%. This decline was amplified by the historically inclement weather.

INVENTORY

This is a measurement of how many homes remained for sale at the end of the measured period. This is showing us there were fewer homes left over at the end of the quarter, which didn’t sell.

SOLD HOMES

The number of sold homes is actually very close to the number of fewer homes that were listed for sale. It’s like a car lot—if they have fewer cars on their lot to sell, they’ll sell fewer cars. In 2023, note that there were ~36% fewer homes available for sale, but only 31% fewer sales, which is consistent with the inventory of remaining homes being lower in 2023.

AVERAGE DOM

Homes are taking longer to sell. While there are fewer homes to choose from, there are also fewer buyers that are willing to purchase a home—creating for the first time in a long time, a balance in supply and demand.

A side note on why homes are taking longer to sell is twofold—sellers who are in denial that they missed the peak price point from 2022, and agents who have never worked in a more regular market, and will take any listing at any price also in denial that the market has changed.

The days of an on average six-day period of marketing are gone for the foreseeable future. In fact, six days on the market was also an anomaly. Last year at this time six days was all that was needed to sell a home with the incredible amount of urgency to beat rate hikes. In 2021 for example, the days on market during this period was 25. This year it’s at 32—higher, but again not astoundingly.

MEDIAN SALE PRICE

The median sale price is for the entire county, so what may be happening in your city or even neighborhood is probably different. 

The YOY drop of 11.8% from 2022 and the Price per Square Foot drop of 11.4% are fairly close to each other indicting that this can be considered to be a reliable measurement of the drop in home values between these two periods. If these two categories were off by a substantial amount, it would indicate a shift to smaller or larger homes selling in the two periods. We frequently run into this type of shift when measuring small market samples in smaller cities and when looking at only one month of sales for example.

THE INSIDE SCOOP

Here’s where it gets interesting. While the media may be accurately reporting these numbers, they do not put them into perspective, which in some cases such as this, a whole new story emerges.

Misleading Interpretations of the Housing Market

This is a classic example of a financial group trying to interpret the data and missing the mark on several key points.

In fact, the median homes prices are lower, and they should be, because they are being compared to Q1 in 2022 which saw the fastest run up in home values in the history of the Bay Area (see next paragraph for a deeper dive). We did an article on why this happened last year and predicted that this year would pale in comparison and exacerbate the apparent decline in values—which is exactly what happened.

We also went on to forecast that once we get past the May numbers in 2022—when the April sales of 2022 peaked and were reported—we may see an actual YOY increase in 2023 over 2022 as the summer and fall approaches, as that’s when in 2022 home prices began to decline.

LIST PRICE TO SALE PRICE RATIO—Making Sense of it All

The decrease in multiple offers has clearly has an impact on homes selling for over their asking price, as seen in recent, previous years. 

While homes sold on average for 114% of asking in Q1 of 2022—that wasn’t normal—it was an anomaly. 

It was due to the sudden demand in housing in 2022 fueled by the fear of looming interest rate hikes. Looking at the same period in 2022—January through April—homes sold for on average 106% of asking in 2021. In 2023 the percentage over asking was 101%—so eliminating the frenzied run up in 2022, the percent over asking is still lower than average, but by only 5 points instead of 11.

MONTHS OF INVENTORY—What does that mean?

The Months of Inventory statistic shows us, at the current rate of homes sales, how long it would take to sell the current inventory of homes.

A normal Months of Inventory, if we average San Mateo County’s inventory levels dating back to 1998, is 2.6 months. Nationwide wide they hover around six months of inventory. 

During the financial crises of 2007-2009—from peak to trough the inventory levels of homes for sale in San Mateo County stood at 5.2 months.

In Q1 of 2022 they were only 1.3=2 months of inventory and that has bumped up to 1.7—still far below historical averages.

Locally, the story is much the same in our two of Belmont, but, since the sample size is so much smaller, the swings in statistical categories can appear skewed, and over or underrepresent the overall housing pattern in the Bay Area.

Belmont Home Prices

The Take-Away

  • In San Mateo County, the housing market has slowed from its Q1 2022 peak.
  • If the economy stays the way it is now, in Q2 the YOY numbers will be more similar.
  • We expect to see demand increase for housing as buyers become accustomed to higher interest rates.
  • We imagine that in Q3 the median home value may be similar to 2002.
  • The historical inclement weather has kept a lid on new listings—we expect this to increase as weather improves. More homes for sale will keep a ceiling on home appreciation as the market shift deeper into buyer territory.
  • The stats show the market shift in the buyer’s favor has created a more balanced housing market.
  • There is no metric that compares to the financial crisis housing depreciation in 2007-2009

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California.  They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.

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The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.