Wouldn’t it be nice if all market stalls were this pretty?
Welcome to our world, where the new question du jour is “Is there a market crash on the horizon?”, or some equally broad request eliciting a prognostication beyond our worldly abilities. We say, “define horizon?”
In 2017 there was little discussion about the Peninsula housing market and its sustainability. Yet since June of 2018, it’s what everyone seems to be talking about. So, we want to know, what’s really going on?
It never ceases to amaze us how short term the memory is for so many buyers and many agents. We did a blog post in May of 2016 and again in July, about the stall in the market back then. Of course, that too was an election year, and that post is as relevant today as it was back then. Right when everyone thought the sky was falling, after the election and inauguration, the housing market rebounded to where it had left off, bringing on more misery for buyers as multiple offers once again ensued.
But will that happen again? Will the forces of higher interest rates coupled with fewer tax deduction incentives cause a permanent slowdown in the housing market even after the mid-term elections?
We measured the time period between August 1stthrough October 1st to get an accurate read on the current market conditions.
In Belmont, there were 59 new listings in 2017. This year during the same duration there have been three less—at 56. And although we’re hearing buyers and even some agents espouse how many more new listings there are, there are actually fewer in the same period.
In San Mateo, looking a price reductions during this same period, in the Presidential election year of 2016, 24% of sellers lowered their asking price. In 2017 only 9.8% of sellers had to lower their initial asking price, and so far this year, another election year, 26% of sellers have lowered their asking price.
What is changing is the rate of absorption—or how many homes are selling. The Months of Inventory is a measurement of how long it would take to sell the current inventory of homes at the current pace of sales. Nationwide, this number typically stands around 6 months. In Belmont, that number has been below 1 month for most of the year, with a striking anomaly. The inventory stands at 1.3 months now, the same as it was in 2016 & 2017 during the same seasonal window.
In Belmont, during the same period in 2016-2018 the number of homes sales went from 33 in the presidential election year of 2016, to 43 last year in 2017, to 35 this year in the run up to the mid-term elections. That’s a decrease in sales of ~19% YOY, and that’s what is causing higher inventory levels—not the number of new listings.
On a more macro level, home sales in San Mateo County as a whole went from 752 units sold in 2016, to 734 in 2017 and this year 681 sales—an increased slow down each year-over-year.
How are seller’s weathering the storm? In 2017 Belmont homes sellers were receiving on average 112% of their asking price. That number dropped to 110% this year during the same period.
While in 2017, of the sellers who had to lower their asking price, they averaged a downward adjustment of only $89,000, this year that adjustment increased to $190,000—another sign of weakening demand.
How did the prices hold up overall during these two periods?
In 2017 the median price for a home in Belmont averaged $1,660,000 for these two months, while this year they averaged $1,821,000—indicating a 9.7% median home price increase YOY in Belmont.
What’s the take-away?
- Home prices have begun to top out as fewer and fewer buyers can afford the median home price.
- Government intervention in limiting the property tax deduction to only $10,000 per year and capping the mortgage interest deduction to the first $750,000 has a direct bearing on peninsula home values as the average cost to homeowners will now far exceed both of these caps.
- Interest rates continue to creep up which will only further compound the ability of buyers to qualify for a Peninsula home.
- We expect to see a more equilibrium in the market which will be less favorable to sellers while the playing field may finally be leveling.
- Don’t expect prices to drop, but sellers can’t expect to get as many offers for as much over asking as their neighbor did a year ago.
- Then there’s the stock market. We’ll let the experts talk about what’s going on there, but clearly with another huge unknown comes more uncertainty, and we can only imagine there will be further pull-back in the housing sector until the uncertainty wanes.
- With strong job growth, buyers may want to buy now, as if history repeats itself, the Spring market will swing back in the favor of sellers.
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.
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The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario