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.

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.

Most People Enjoy Rollercoaster Rides, Except when it Involves their Financial Future

Last year was a wild one, but not entirely unpredictable, as we forecast in December of 2021.

Like our recent unprecedented storms, the factors that led to the abrupt housing market shift in the second quarter of 2022, created the perfect storm for a change in the market—not a correction—a change or shift.

In Perspective

After the pandemic stay-at-home order created a need for more space to work from home with many home-schooling children, the new skyrocketing demand for single family homes caused prices to follow suit.

In the first quarter in 2022, we saw an unprecedented run up in home values in our area. Never in our history had home values risen so fast in such a short period of time.

This was to some degree anticipated, as it was widely announced that interest rates would be rising in the upcoming year—this on the heels of desperate attempts to secure a home in 2021 made for bidding wars outpacing sustainability.

In April of 2022, with mortgage interest rates rising to levels not seen since the same time in 2009 during the Great Recession, a pullback began as affordability suffered.

April sales logged the highest prices ever in our area’s history. These sales closed in May, making April technically the pinnacle of home values.

Then it began to slip.

Prices dropped each month-over-month, but-remained higher than a year earlier. In other words, the Year-Over-Year numbers until October remained higher than the previous year.

This is the YOY comparison for December of 2021 to 2022. In every category the housing numbers are unveiling a softening in the housing sector—prices are down, days on market are up, etc.

Note that the size homes selling in these two periods exaggerates the actual drop in values, while antithetically, the price per square foot underrepresents that delta.

We can make a rough “back of the napkin” adjustment, accounting for smaller homes selling in the two periods and skewing the median home price. Note that the median home price dropped 32% but so did the size homes which sold. Adjusting for this, the actual median home price is likely flat YOY, insofar as the median price anyway.

VARIABLES TO A 2023 HOUSING MARKET REBOUND

JOBS AND UNEMPLOYMENT

As one can see by this graph, unemployment in San Mateo County is at or near an all-time low:

Yet Tech specific lay-offs, effect our local housing disproportionally than elsewhere, as many local tech jobs are located on the Peninsula. When workers in the tech industry see companies laying workers off they tend to go into hibernation, avoiding any large purchases that require a long-term commitment.

STOCK OPTIONS

Many of these same companies offer sizable salary offsetting stock inducements. When there’s a hit to their portfolio, tech buyers will tend to wait it out for more favorable withdrawal conditions. And those who bite the bullet and cash out, lose buying power when their portfolio is down.

INTEREST RATES

While interest rate hikes shocked the system of buyers to their core, the initial wave began in January of 2022, enticing a lot of buyers who could see the writing on the wall to jump into the market to secure a low mortgage rate, even if doing so meant overpaying for a home. 

Later, the rising rates had a real effect on housing, as we entered a return to normalcy—wiping out the entire first quarter of home value increases in a matter of months.

THE STALEMATE

Some buyers are holding onto the notion higher interest rates will continue to put downward pressure on home values, while sellers, still stuck in the first stage of grief—denial—are holding out for a return to the glory days of early 2022.

Who will blink first? It’s anyone’s guess. But the overall healthy economic conditions, despite the aforementioned variables, may lean in the favor of buyers returning to the market as soon as they feel confident and comfortable in the economic environment.

MOVING FORWARD

In an effort to thwart a complete housing melt down in 2007, the government bought bonds to drive down interest rates and the FED overnight rate was held at zero.

Buyers will no doubt soon begin to realize that they are not going to see artificially induced low mortgage rates again anytime in the foreseeable future—if ever, and will begin to accept the new reality.

Sellers will stop bemoaning missing the height of last year’s market, and eventually decide to move ahead with life’s plans.

Past performance doesn’t guarantee future results, but we can see patterns that emerge. We wouldn’t be surprised to see home values remain more-or-less flat for the year in 2023, and overall sales remain down.

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.

The Big Risk in Gambling on Bay Area Home Values

The latest Case-Shiller housing report for the Bay Area is out, and as suspected, the downward trend is inching us closer each month to a YOY loss in home values in the nine Bay Area Counties.

Home values shows they have returned to essentially where they were a year ago. The Case-Shiller data lags the market by three months, so these numbers are as of September.

We suspect they have continued to go down in October and November meaning that by the end of the year, home values may be lower than they were a year ago—before the historic run up in Q1 of 2022 which has all but been eliminated.

Meanwhile, 30 year mortgage rates have for at least the time being, settled down from their recent peak.

It will be a blood bath when we look at Q1 in 2023 as compared to 2022, and then we suspect by Fall those number will better reflect the YOY changes since the first three months in 2022 were an anomaly of a run up in home prices, (note we did not say values). 

What will happen in 2023?

It’s too early to begin to even risk speculating, but the driving factors—the variables—will be the stock market performance, mortgage rates and of course, Bay Area job stability.

One thing is for certain, this impasse we’re experiencing—buyers waiting for prices to drop further, and sellers clinging onto the day when they return—is about to end. Someone is going to blink, and it carries a huge risk being on the losing side. 😉

To understand why timing the Bay Area housing market is a Fool’s Game, we need only look to this past year. Sellers waited for prices to peak before cashing out, only to find that after a ten-year run up, the bottom fell out of the market in April, and prices have been reverting back to 2021 values ever since.

Buyers on the other hand fall into a similar trap. They wait far too long to take advantage of a drop in home values—wanting to time the market and hit the absolute bottom. While that’s an admirable goal, it rarely works out in the real world. One only knows the market is at its bottom when they see it beginning to go up. This rear-view mirror approach inevitably means they’ve already have missed the bottom.

This cycle was the first one we experiences first-hand, the market downturn in 1990. The market declined for two years, remained more-or-less flat for another five, and went full throttle upward beginning in 1996. If one bought a home between 2009-2011, the would have enjoyed a 16% increase in 2012 alone. Put another way, buyers had to pay 16% more because they waited to see the market bottom in 2011.

During the Great Recession, between 2007-2009, home values dropped 57% across the Bay Area. Values only experienced minor seasonal fluctuations until January of 2012 when the market entered its sustained ten-year growth cycle. The best time to buy a home during that downturn, were the three years between 2009 and 2011. Those who waited until 2012, when everyone decided it was once again a good time to buy, found themselves in multiple offers and rising prices until 2022.

[Gray bars indicate U.S. recessions. Source, FRED.]

As we’ve admonished buyers in other articles, don’t follow the pack—lead. You’ll be in a far better position when the market rebounds.

For sellers our advice is to evaluate your goals. If you’re considering retirement, waiting for a market rebound may take precious years away from your plans. If you’re a seller wishing to purchase a more expensive home, that home probably took a hit in real dollars more than your current home. And finally, if your downsizing, don’t miss out on the tax benefits of proposition 19 before it’s repealed.

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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.

Murky Real Estate Future Causes Housing Slowdown

Is the sky falling when it comes to real estate in 2022, or have we seen this before?

Bay Area real estate has always been buoyed by strong consumer sentiment that the inflated prices will remain a good investment. But once there’s a chink in the armor, all bets are off.

First there was the real impact of rising interest rates, that began the first of the year in 2022 and have continued to date.

Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, November 9, 2022.

That coincided with the stock market downturn which affected the down payment resources of many potential buyers.

S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SP500, November 9, 2022.

Inflation per se, is actually a good hedge against inflation, but inflation scares people and people who are unsure of the future tend to hunker down.

Finally, and hopefully the last issue in 2022, has been the recent job layoffs in the Bay Area.

These events affected the Bay Area housing sector in the following ways:

On a macro scale, the Case-Shiller[1] report for the nine Bay Area counties, also known as the San Francisco Metropolitan Area—SFMSA, reported a steady YOY decline in home values after the peak in May—beginning in June of 2022.

S&P Dow Jones Indices LLC, S&P/Case-Shiller CA-San Francisco Home Price Index [SFXRSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SFXRSA, November 9, 2022.

Notice the skyrocketing home prices in the first quarter of 2021—up almost 25% YOY.

The markets technically peaked in April, and the May closings with the typical 30 day close of escrow figures support that.

Since then, we can see home values, while still higher than they were a year ago at the same time, are quickly back peddling—only 5% higher than a year ago—down from 24% higher in March 2022.

COMPARE AND CONTRASTING DOWNTURNS

Looking at the high in March of 2006, we saw closings strong, with 21 sales, only one price reduction, and sellers netting 103% of their asking prices.

Fast forward to October in 2006, and what sellers received of their asking price dropped to 102%, sales remained the same at 21, but four homes needed price reductions.

In March of 2022, there were zero price reductions, 31 sales, and homes sold for 113% of asking with no price reductions.

In October of 2022, only seven homes sold for 102% of asking with one home needing a price reduction. 

As of this article printing, there are still 21 homes available to choose from, four with price reductions and the average days on market at 40.

THE TAKEAWAY

The future of Bay Area real estate is murky at best. Real estate is highly speculative, and there are many talking heads ready to proffer their opinion of what will come next. The media plays a large roll in affecting the mindset of unsure buyers. The media’s angle is to get a reader or viewer’s attention since more eyeballs equals sponsorship and income for their business, so they tend to be overly dramatic in their headlines and analysis and look for ways to support their sometimes sensational, preconceived views rather than report the facts without spin.

We’re in the trenches and we’ll be the first to tell you there’s no way for us to predict what the market will look like next month let alone in 2023. The future of real estate is always in the buyer’s hands. Until they feel comfortable their jobs are secure, that they can afford the home and cash out needed funds from their stock portfolios, that the market won’t collapse out from under them, they’ll stand down and wait it out.

Market swings in the Bay Area are more akin to a light switch, than a dimmer. Ironically, once the above negative obstacles are overcome, it will hold true for many buyers at the same time and the proverbial light will come on as buyers jump back into the market all at once, and multiple offers will raise their ugly head again.

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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.

[1] Case Shiller reporting has a three-month lag

How the Pandemic Saved a Housing Crash

Now that the third quarter of 2022 is in the books, we take a look at how our current market stacks up to historical markets when interest rates were as high (or higher) than they are today, and how these rates have impacted not the price of homes, (we did that in another post), but rather the quantity of available homes for sale and how many are actually selling—as well as how long that process takes.

First, we examined the 3rd quarter of 2016 when interest rates were at a low of 3.42. We the contrasted that to 2022 for the same periods.

Rate during these periods averaged were as follows:

2016   3.42

2022   6.70

Source Fred of St. Louis

Interest rates between 2016 and 2022 went up in real numbers 3.28%—a 96% increase over 2016.

Here’s how that affected sales:

In San Mateo County the number of new listings dropped 7.8%.

Fewer new listings had an impact on inventory of homes available. That dropped by 11.6%. Inventory is measured as how many homes are remain on the market on the last day of the period measured—in this case September 30TH. 

Sales in 2022 dropped faster than the number of new listings in 2016—9.5%

What a seller could expect to receive of their asking price averaged 105% in 2016 and 102% in 2022. 

If we look at the last time interest rates were as high as today’s (av. 6.98)—in 2001—the time it took to sell a home stood at 53 days and sellers were receiving on average 95% of their asking price. We attribute the greater change between 2001 to 2022 to in Q3 because in 2001 we were in the post internet bubble burst throes of a recession.

One would expect with the higher interest rates we have seen in 2022, they would have a greater impact on sales than is demonstrated here. Our take is that the remaining post pandemic pent-up needs has had a hangover effect on the robust home sale activity in 2020-2021.

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 are 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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.

The Future of Real Estate is here—Accessory Dwelling Units

Imagine you have an aging family member that you’d like to come live near you—but not with you—or you simply need to generate some additional income. ADUs give homeowners the flexibility to share independent living areas with family members and others, allowing seniors to age in place as they require more care and helping extended families to be near one another while maintaining privacy. 

Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs) are an innovative and effective option for adding much needed housing in California and could be an answer for people needing supplemental income, or for housing an elderly family member.

ADUs have been known by many names: granny flats, in-law units, backyard cottages, secondary units and more. 

What is an ADU?

An ADU is a secondary dwelling unit with complete independent living facilities for one or more persons and generally takes three forms: 

·  Detached: The unit is separated from the primary structure 

·  Attached: The unit is attached to the primary structure 

·  Repurposed Existing Space: Space (e.g., master bedroom) within the primary residence is converted into an independent living unit 

·  Junior Accessory Dwelling Units: Similar to repurposed space with various streamlining measures 

What are the benefits of ADUs?

  • ADUs are an affordable type of home to build because they do not require paying for land, major new infrastructure, structured parking, or elevators.
  • ADUs can provide a source of income for homeowners.
  • ADUs allow extended families to be near one another while maintaining privacy.
  • ADUs can provide as much living space as many newly-built apartments and condominiums, and they’re suited well for couples, small families, friends, young people, and seniors.
  • ADUs give homeowners the flexibility to share independent living areas with family members and others, allowing seniors to age in place as they require more care.

What are JADUs?

Junior Accessory Dwelling Units (JADUs) are allowed to be created within the walls of a proposed or existing single-family residence and shall contain no more than 500 square feet. JADUs offer additional housing options. They may share central systems, contain a basic kitchen utilizing small plug-in appliances, may share a bathroom with the primary dwelling, all to reduce development costs. JADUs present no additional stress on utility services or infrastructure because they simply repurpose existing space within the residence and do not expand the dwellings planned occupancy.

 Funding for Homeowners

CalHFA’s ADU Grant Program — The CalHFA ADU Grant Program provides up to $40,000 in assistance to reimburse homeowners for predevelopment costs necessary to build and occupy an ADU.

How do I build and ADU?

There are many companies who are meeting the needs for this niche market. Some ADU’s are built on-site, and others can be delivered and set up—similar to a mobile home but more permanent and modular. 

Here is a link to a handbook for more specific information on ADU’s.

Thanks goes to the California Department of Housing and Urban Development for much of this material.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are 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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.

Housing Market in Crises as a Stand-Off is Looming

Following our local real estate market is a lot more interesting when it’s in a state of flux. Coming out of the Great Recession in 2012, when home selling activity began to pick up dramatically after a five-year hiatus, we finally had some interesting news to report.

Since then the meteoric rise in home values and bidding wars have been the story for the past 10 years, with only minor seasonal fluctuations.

But in April of 2022 that all changed. With a recession looming, and stock portfolios dropping as fast as interest rates are rising, there’s been a sizable shift in real estate activity.

But exactly how have these forces altered the home selling landscape?

The answer is it depends on who you ask. For buyers they are in the arms of a welcome change in the level of competition, but the throes of an unwanted increase in their mortgage payments.

Many sellers on the other hand are suffering from the seven stages of grief, but can’t seem to get past the first stage—denial. No one wants to admit they may have timed the market wrong and missed the home selling peak, instead they’re hanging onto rosier days—ignoring the changing landscape around them. This manifests itself in sellers hiring agents who will tell them their home is worth a price that it used to be, in order to secure a listing, only to have their home languish on the market for months and suffer multiple price reductions to no avail.

To help put the market shift into perspective, in 2021 only two homes were pulled off the market between May and October 1st. During the same period this year, that number rose to 13—a 550% increase in homes which did not sell.

In a recent blog we discussed how buyers who are clinging to the notion that higher interest rates will bring down home values further, could well be making a dangerous miscalculation. The smart move is to jump in with the low competition and purchase a home before rates rise further. As we mentioned in this post, the decrease in home values cannot begin to help buyers when interest rates are rising at a faster pace.

Looking at homes sales for August 2021 as compared to august this year, the forces that have changed the market have had less of an impact than would be expected.

Simply looking at the median home price for all of San Mateo County—and even drilling down to the local level in Belmont—the lack of change seems at odds with what is occurring. This can likely be explained that homes which are priced well are still receiving the attention they deserve. 

Note though that the median price per square foot dropped in both markets, while the size of homes selling rose—meaning that in 2022 you can get a home 8% larger in San Mateo County for the same price as one paid a year ago, and 17% larger in Belmont for essentially the same price.

The lack of new listings—down 27% in San Mateo County and 107% in Belmont, can be attributed for helping to keep the supply and demand levels more in equilibrium—given the diminished demand. We had anticipated this might be the case in a post we did back in April.

… Homeowners who refinanced or buyers who purchased a home when rates were at historic lows—in the 2-3% range, aren’t going to be selling their home and moving anytime soon. Sure, in California they can now carry their low property tax base, but they can’t carry their low interest rate—so many are going to stay put and there will be even less inventory than there has been, and which will once again put upward pressure on housing prices”.

Also, worth taking note of is that while the level of new listings has dropped considerably, the months of inventory—the amount of time it would take to sell the current inventory of homes at the current pace of sales—has also risen.

A real standout in the statistics, that may tell us more than any other single stat, is the percent a seller received of their asking price—down 8% in San Mateo County and 14% in Belmont YOY—indicating that there is far less competition for the fewer number of listings.

For sellers, which way should you turn? Find an agent experienced in uncertain markets will keep you from the dreaded downward spiral of price reductions and delays on the market. Our best advice is don’t be another statistic, get out ahead of the pack and price your home reasonably and in accordance with the actual current market conditions—not what you want them to be.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are 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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.

Possible Higher Home Values and Interest Rates

How to put historical interest rates vs home values into perspective.

It’s hard to predict where internet rates will take home values, but as history has shown, it can be a Fool’s Game to try and play the market. Akin to the depiction in this post, the consequences can be painful.

Take for example Interest rates in August of 1993—they stood at 6.97%. By November of 1994—just 15 months later they were up 2.28% ↑ to 9.25%. How did home prices react to the sharp increase in interest rates? The went up .52% points during the same period—no dramatic dip that made it worthwhile to try and wait out the effects of higher rates.

Here’s a real-world example. Let’s say one bought a $2,000,000 home today with a 4.5% interest rate. A monthly interest payment would be ~$1,000 less each month than if the rates go up to 5.5%. Here’s an on-line calculator to run scenarios.

What does $1,000 a month translate into purchasing power? In the above example, $200,000. Which means that if the rates go up to 5.5%, home values would have to drop in step with that increase 10% for one to just breakeven vs buying now at 4.5%. Why wait for a higher 5.5% rate to put downward pressure on home prices—which as history as shown, there’s no guarantee will happen.

In our observations, being in the sector of tech heavily weighted jobs, wherein many are reliant on stock options for their downpayment, any hit to the financial markets makes it unlikely that buyers will liquidate stocks to buy a home. In our world, that and job security (e.g. Consumer Confidence—which is up recently), has a greater impact on buying activity than interest rates.

______________________________________________________________________________

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 are 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 at https://www.facebook.com/Morganhomesand on Twitter @ https://twitter.com/morganhomes

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.

How to Price a Home in the Bay Area or Gamble and Stand to Lose Everything

What you May Not Know About Pricing a Home

Pricing a home in an uncertain market is much harder than it has been in the past few years, where so long as a home was priced low enough, it would garner multiple offers and be bid up to what the current market could bear.

How This Effects Sellers

The reason multiple offers generate over asking bids is obvious—somebody wants to own that home and offering below or at the asking price is a waste of time with other competitive bidders.

But what you may not be aware of, is the discrepancy in the offers received. Frequently we see offers ranging from at the asking price to hundreds of thousands of dollars over asking. What nobody except the seller and their agent knows is that the spread between the highest offer and the second highest bidder is often $100,000 or more apart.

This is exactly why when pricing a home, you want to price it so that multiple bidders will compete, and the winner will have paid too much—more than anyone else was willing to bid. 

In investing it’s referred to as the Great Fool Rule Theory—and it works to a seller’s advantage. This is a study performed at Berkeley where they proved that bidding caused people to overpay. They call it The Bidder’s Curse aka The Winner’s Curse.

Here is an excerpt from their analysis linked above:

“An example that compares closely to our empirical analysis and research design is real estate auctions. Ashenfelter and Genesove (1992) document auctions of 83 condominium apartments in New Jersey, which — when the auction sale unexpectedly fell through — sold at significantly lower prices in face-to-face negotiations. The findings in this paper suggest that the large number of auction participants was a key determinant. It ensured the presence of overbidders.” — The Bidder’s Curse, Young Han Lee Ulrike Malmendier, May 13, 2008

The Rest of The Story

The recent sales we pulled in San Mateo County tell the whole story. We looked at all sales for homes listed after the market changed in April of 2022 to date of this writing, (July 29,2022).

The average days on market was 12, and the sellers received 106% of their asking price—not bad. But looking closer, we broke down the sales further to find a correlation between homes that received under their asking price and those which received over their asking price as compared to how long they were on the market, and the numbers tell the rest of the story.

Pricing a home too high means it will languish on the market, but it also means you will receive far less for your home.

Homes which were priced well, attracted multiple offers, and sold for over the asking price, in on average 9.5 days for 112% over the asking price

Homes which sold right at the asking price, sold on average in 12 days.*

Homes which sold for less than asking, took 21 days to sell, and the seller’s received only 93% of asking.

That represents a whopping 19% difference between a home that languishes on the market and one that sells quickly.

For the median price home in San Mateo County, that 19% deficit represents a loss of $361,000 in real dollars.

Price Reduction Correlation

Homes that sold over the asking price represented 70% of all sales. There were only five of those homes which had price reductions, and all sold over the original asking price once lowered. Our experience tells us that these homes probably received multiple offers after the price reductions which is the only rational explanation as to why they would be bid up beyond what a buyer could have purchased the home for prior to the reduction.

Homes that sold at the asking price represented only 4% of the sales, or 20 homes. (*We excluded another 25 homes that sold at the asking price as they were non-arms’ length transactions—sold off market in zero days).

Homes which sold under the asking price represented 26% of all sales, with 40% enduring price reductions averaging $213,00 in reductions of the asking price.

Pricing Your Home

As we’ve discussed in a prior post, many sellers make the mistake of focusing on two questions. How much do you charge and how much is my home worth—two of the least important questions.

To answer the first question, how much an agent charges may be inconsequential if they are the one able to net you that 19% more—It makes a full commission look paltry in comparison.

The second question of how much your home is worth is equally unimportant to ask your agent. What your agent needs to know is how to price it to attract bidders. What he or she thinks your home will sell for, doesn’t change the outcome of what you will receive. 

Often sellers fall into the confirmation bias trap. They hire an agent based upon the answer to these two questions almost entirely. The agents who tell them what they think their home is worth—or more—that is aligned with their preconceived notions, is the agent they subconsciously tend to be drawn to as they feel a common bond with a like-minded being.

Buying a Listing

This trap is what many agents leverage. Some agents will tell you what your home is worth based solely upon what they think you want to hear—or even higher. It’s called in our industry “Buying a Listing”. Sellers are of course delighted to hear that their home is worth more than they thought. Why? Because the agent told them so? But the agent is not buying their home—they’re just buying the listing—so their opinion is irrelevant and does more harm than good, as we have demonstrated. These agents represent some of the above 26% that promised a high price, and were forced to backtrack and convince the seller to lower the price until the home finally sells.

Failing to properly learn the right questions to ask an agent, is gambling with your biggest asset, and we all know the house will eventually take everything.

Here are a few more good reads if you are considering selling your home:

How to Stop Agents from Behaving Badly at Your Expense

Why Open Houses May Not Ever Have Been Necessary After All

Jeopardizing Multiple Offers

If you’re considering selling your home, contact us for an honest evaluation.

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 25 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine are 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 at https://www.facebook.com/Morganhomes and on Twitter @ https://twitter.com/morganhomes

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.