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.

Bay Area Home Values Eclipse Historical Records

Case Shiller Report for June 2017

The Case-Shiller Report was released June 27th, the last Tuesday of the month, which tracks home sales in 20 metropolitan cities around the country, called MSA’s, of Metropolitan Statistical Areas.

Our MSA (Metropolitan Statistical Area) in the Bay Area consist of five counties—Marin, San Francisco, San Mateo, Alameda and Contra Costsa. It’s important to note that while home values might be headed upward at a dramatic pace in the counties of San Francisco and San Mateo, they might be lagging in Alameda and Contra Costa, thus diluting the upward trend in one county vs. the whole MSA. This has been the case in our area since the housing recovery began in earnest in 2012.

The same goes for the 20 city composite index, which takes 20 metropolitan cities in the country and tracks them as an average trend.

While the 10 and 20 city composite indices shows that the housing market has not yet eclipsed the all-time high recorded around March of 2006, in the Bay Area, we have.

This graph which we built utilized the data from Case-Shiller for our SFMSA and illustrates that we have reached a new all-time high for home values. However, it’s important to note that the delta between the trend line and the peak where we are today, illustrating where the straight-line home values should be, is far less than in the peak of 2006, where we see a much great deviance off the trend line values. In fact, the peak of 2006 was 58% higher above the trend line than it is today.

One might infer from this that we are not as overvalued as it might appear at first glance.

This give some credence to the synopsis for the Standard and Poor’s Case-Schiller analysis and discussion.

Case-Shiller Analysis by Standard & Poor’s— ANALYSIS

Great View of San Francisco

“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”

Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 20 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 or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario