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.

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.

Housing Market Recedes as Buyers Run for Cover

In the last ten years, it has been very difficult for buyers—especially first-time buyers to enter the Bay Area housing market.

Multiple offers drove home prices up and out of the reach of many would-be homeowners.

In the first quarter of 2022 we saw an unprecedented run up in home values, fueled primarily by buyers wishing to purchase a home before interest rate hikes made housing even more unaffordable.

But by mid-April 2022, that influx of furious demand wanned. The light switch that was flipped on by buyers reentering the market in 2012, turning into a dimmer. As interest rates began to rise, and the stock market declined, buyers started to pull back.

This has significantly cooled the superheated Real estate market in the Bay Area.

With tech companies announcing layoffs, this cool-down will result in home values receding.

This is what savvy buyers have been waiting for. Less competition means fewer multiple offers and lower purchase prices.

The biggest mistake we have seen in our over 30 years in this industry, is Buyers waiting too long to get back into the market after a period of uncertainty.

The downturn in 2007 is an example worth evaluating. The market began its decline in 2007, and essentially leveled off by 2009. Yet it took many buyers until 2012 to reenter the housing market. By then it was too late. Multiple offers became the norm and remained so until just this April. Buyers who carved their own path and bought homes in 2009-20011 came out far ahead of the pack.

Higher Interest Rates

Higher interest rates will of course affect the ability to borrow money and lower purchasing power. But as we discussed in this post, playing the field with interest rates is a fool’s game.

Interest rates are still at a 40-year average low. Buying a home now, even with higher rates than one could have obtained a year ago, protects the homeowner from future increases in rates. If they go up, the buyer has already lock in a rate, if they go down, which we suspect they will not, one could always refinance at a lower rate.

Making a Move

There are opportunities that arise in uncertain markets. Investors that remain paralyzed and want to wait until the masses renter the market giving them comfort in their buying decisions, will find themselves in company with thousands of other buyers who will all renter the market at the same time−turning the light switch of multiple offers back on.

The Answer

Finding balance is key to making smart home buying decisions. If buyers wait until the housing markets and economy reach perfect stabilization, it will be too late to take advantage of opportunities. Job stability should be the number one driving factor in a buyer’s decision to purchase a home in a slow housing market—not interest rates of where on the curve home values lie.

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.

Shift in Housing Market Scares Young Buyers Away

The Interest Rate Hike Effect

In Belmont, the sales statistics for May 2022 show that the inventory of homes has grown to one month of inventory, while this past January it stood at .3 months. To help put that into perspective, during the downturn in 2009, the months of available inventory in Belmont sat at 10.

While some homes are still selling over the asking price, they are on average receiving 10% less over asking than in Q1.

Some of these anomalies are seasonal, and as such, with May being a month that is affected by seasonality in home sales, some of what the market is experiencing is seasonal and normal.

The most recent sales in Belmont are for far less than the sales in January-April. That is of course when the February interest rate hikes really kicked in, coinciding with the stock market taking a hit.

Since many Bay Area buyers are tech workers, whose compensation is augmented to a high degree with stock options, when the stocks are high, buyers are more bullish and can compete in the home bidding process by liquidating more stocks. Conversely, when the stock market takes a hit, buyers not only have less capital to work with, but they also tend to sit back and wait for the market to stabilize before liquidating their holdings.

Where We Stand Today

This graph illustrates the rapid rise in the 30-year mortgage rate this year. We suspect that much of the overzealous bidding that occurred in the first quarter of 2022 was due to buyers’ knowledge that rates were scheduled to rise, and their desire to take advantage of lower rates while they could—even if that meant overpaying in a bidding war for a home.

The S&P 500 and home values seem inextricably connected. One can see in this graph the rise and decline during that same Q1 period that buoyed purchasing power and is now waning.

As seen in this graph for all sales in San Mateo County, Condominium values take a hit first. We attribute this to two factors. The first being that condominiums tend to be akin to a commodity. Many are similar if not nearly identical. There are of course varying degrees of upgrades, whether one has an end or upper floor unit, the location within the complex, but overall, the differentiating factor in a market with growing inventory, comes down to price.

The secondary factor is that as prices and competition for single family homes fall, condominium owners have an opportunity to make a move into a stand-alone home, while buyers who were just shy of being able to purchase a home, and would have bought a condo, now turn to owning a home with a yard.

What is Different Now

What has changed is that with fewer buyers in the market, and less competition, they can be choosier. While it’s still too early to call it a buyer’s market across the board, certain sectors such as the condominium market and cities, and even neighborhood within cities that are less desirable, are most affected.

This means that not every home will sell—at least like they did in the past. Homes will have to be spruced up, staged, show well, and most likely be vacant to garner the level of excitement necessary to captivate the dwindling pool of buyers, so as not to take an inordinate hit on the sale price.

For the typical three-bedroom home, looking at the sales in Belmont, between March and April the seller’s enjoyed a list to sales price ratio of 119%. Since April that has dropped 11% to 108%. With the median home price still hovering around $2,400,000, that represents a $250,000 decrease in overbidding per home.

Is this a Correction?

We don’t see it so much as a correction, but rather the market simply returning to pre hysteria bidding. Interest rate increases along with poor stock portfolio performance has dampened the buying environment—for now. We wrote a previous piece on the monetary effect of rising interest rates and home purchasing power.

Gaining Some Perspective

Buyers are in shock because for the past 20 years, 30-year mortgage rates averaged 3.035%. They never knew rates prior to that 20-year period when between 1980 and 2000 they averaged 10.3%. And the average 30 mortgage rate since 1971 when interest rates were tracked, is 7.7%. Buyers who have never even heard of an interest rate over 4% will acclimate and become accustomed to the new norm, and life will go on. Longer term homeowners who have lived through the interest rate roller coaster ride, will be less effected emotionally, and probably move forward with life’s plans accordingly.

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 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 Housing Market on Precipice of Unpredictable Change

One would think that predicting the seasonal course in our local housing market wouldn’t be that hard, right? What makes people decide whether now is the time to buy or wait on the sidelines? We’re not sure exactly what one thing it is, or if it even is one thing at all. More likely it’s a mix of factors that plays into their emotions, but one thing is in common—when buyers pull back, they almost all do it in sync—almost like the young, amateur traders transforming markets.

The Pandemic Changed the Norms

Prior to the Pandemic we took great pride in prognosticating seasonal real estate cycles by examining past performance of the market at various times of the year and during various cyclical events. Take for example election years. Whether it’s a presidential election year that stands to be decisive, such as Trump v. Biden, or even a less momentous mid-term election, we were pretty much guaranteed to realize a buyer pull-back from late September through mid-November. That was just one of the expectations that we had to throw out the window in 2020.

Of course, the stock market swinging wildly sets people off, and any hint of tech companies laying people off sends the pool of buyers into hibernation.

We had a lot of variables stacking up signaling buyers may take a siesta from house hunting during the Pandemic while jobs, the economy, really the entire future was in unchartered waters, but instead buyers came out in droves snapping up everything and anything so long as it had a yard—go figure. While in hindsight we can see the motivations for many of these first-time buyers jumping into the market—working from home while home-schooling two children in a 900 square foot apartment with not even a yard for sustenance is enough to get any procrastinator off the fence, though we certainly wouldn’t have bet on it.

We started this year with unemployment moderating, but inflation gathering steam, the “R” word entering economists’ vocabulary again, and threats of war in Ukraine which stood to further impact prices. Yet in Q1 we saw one of the biggest bull runs in the housing market we’ve seen in years.

While the median home price in San Mateo County went up 7% between Q1 of 2021 and Q1 of 2022, in Belmont the increase in those two periods was 28%.

So, what’s in store for Q2? Where is the market headed now as the landscape changes?

Even the mention of possible interest rate hikes tends to knock a lot of buyers off of the fence as they finally realize that the luxury they had to purchase a home “whenever”, knowing the rates would always be low, may be coming to a close. It’s odd too, as rates were nearly as high in 2019 and nobody seemed to care.

But this is different. Rate hikes are scheduled for this year and even though the Federal Reserve rate doesn’t automatically correlate to a hike in Mortgage rates, the markets take advantage of it to raise mortgage rates, and profits.

We didn’t so much as predict what would happen when the government artificially kept mortgage rates low after the Great Recession housing debacle in 2007, it was more akin to watching a plane crash from the sky. You don’t have to see it hit the ground to know what will happen.  So, what IS happening that we knew would be inescapable? 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. 

However, the current rise in interest rates will have a mitigating effect on any upward pressure on home prices. 

The current rates for mortgages that went from 2.5% to 5.2% now makes the monthly mortgage payment on a median price home in Belmont go up more than $4,000 a month, which is a 33% increase. Effectively, that means a buyer’s purchasing power just dropped by 

~ $650,000.

What we cannot predict is the outcome of how the collision of these two contrasting forces will end.

The short of it is we don’t know what buyers will do going forward. Will they wait for a while to see if rates come back down, or jump in before they go higher? Or, will they jump in anyway while others are sidelined and refinance later? Will it put a cap on over bidding? Will higher interest rates dissuade homeowners from selling even if it’s to downsize, to keep a lower payment/interest rate? Will that be enough to throttle back inventory further to mitigate the impact of fewer buyers in the market?

On a micro scale, we have seen a recent slowdown in heightened level of enthusiastic home buying activity in the last few weeks, but then again we see that every year near tax time, Easter and Spring breaks—stay tuned.

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.