A trend is emerging wherein sellers opt to exclusively remunerate their own agent, leaving the buyer’s agent compensation subject to negotiation by buyers.
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Get ready to be captivated by the unveiling of the New, New housing market – a realm that has never been encountered.
Whether you’re already a homeowner or dreaming of becoming one, this end-of-year recap is your golden ticket to exploring the mesmerizing future of Peninsula Real Estate.
Brace yourself for a paradigm shift that might just redefine the real estate game for years to come.
In order to put our New, New market into perspective, a little retrospection is in order. We’re about to unravel the mystery into the feverish ride of the government’s bond-buying bonanza that kicked off in 2008, akin to a superhero swooping in to rescue the struggling housing market and economy from their doldrums but with consequences more obscured by time…
Imagine people in 2013 dancing a jig as they refinance their homes at historically low mortgage rates, hitting new lows every year. Homeowners, practically giddy, were high-fiving each other at snagging a sub 3% rate, watching their mortgage payments take a nosedive, and then going on a shopping spree for new toys like they just won the lottery.
Ah, the ironic nostalgia hits like a blast from the 1998 dot-com past. It’s like reminiscing about the Internet boom and bust, where Silicon Valley was popping champagne bottles, celebrating a new millionaire being minted every day. It was all glitz and glamour until someone finally shouted, “Hold up, is there even a ‘there’ there?
Now, we’re not claiming to be fortune-tellers, but more than a decade ago, we threw out a warning in this article. We were like, “Hey, if these rates stay low forever, everyone and their grandma will refinance or buy a home at these crazy low rates, and they might never want to move again!” It turns out we might have been onto something.
We did a fast rewind of how our housing market got here in this post back in August of 2023. Fast forward to where we are today…
The 2023 housing market results are now clear. Let’s compare the years and quarters to understand what happened:
1The decline in 2023 is emphasized by the unusual increase in home activity during the first quarter of 2022. The market in San Mateo County remained rather flat from Q4 2022 to Q4 2023.
2What is helping to keep home values steady is the short supply of homes for sale, maintaining the months of housing inventory to approximately a one-month supply.
When the government bought bonds to drive down interest rates in 2008, it was a welcome jolt to jump-start a beleaguered housing market and economy.
People could refinance to historically low mortgage rates, which seemed to reach a new low each year. Homeowners were giddy at landing a sub 3% rate, watching their mortgage payments fall by half, and snapping up new toys with their excess pocket money like drunken sailors.
Not that we’re not claiming to be prophets. Still, we were first concerned about this more than ten years ago, correctly calculating that if these low rates remained low long enough, nearly everyone would have refinanced or purchased a home with a historically low rate, which, in all likelihood, would not be seen again in our lifetime.
It didn’t take much prognosticating in our 2013 article to realize that sellers would be reticent to kiss goodbye at their sub 3% rate to get another bedroom when rates returned to historical norms.
Enter the Pillars of Movement – the mystical forces that shape the real estate universe. In our 2013 article, we saw it coming: When interest rates decide to do a head-snapping reversion to historical norms, sellers won’t be willing to bid adieu to their sub 3% rate just for an extra bedroom. And guess what’s next – the pool of potential inventory shrinks, thanks to one pillar of the housing inventory.
Yet another pillar emerges – one insulated from rate ramifications—the sellers cashing out and saying so long to the Bay Area with pockets full of cash, ready to conquer the world and buy their forever home mortgage-free.
And sure, there’s always the ebb and flow of people coming and going due to job transfers, but only some people leaving want to throw in the housing towel. Because let’s face it, once you’ve left the Bay Area, rejoining the housing game is like trying to win the lottery twice – expensive and seemingly impossible.
Now, behold the last pillar – the legacy homes. Those sacred abodes where families were raised, but now, faced with the ultimate decision for sustainability or the inevitable march of time, these homes hit the market.
As we peer into the future of 2024, a foreseen vision emerges:
Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC in Belmont, CA. They have assisted buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.
For all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.
This article provides educational information and is intended for informational purposes only. It should not be considered as real estate, tax, insurance, or legal advice, and it cannot replace advice tailored to your specific situation. It’s always best to seek guidance from a professional who is familiar with your scenario.
BROKER | MANAGER | NOTARY
What is a Moral Hazard and Its Relevance in Real Estate
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We frequently come across a condominium that doesn’t have gas for each unit, or at least none was installed to be accessible for cooking appliances. This is worrisome for some buyers, but they may see the benefits of using an induction-style electric cooktop over the more common gas with the right education.
As an ex-chef, the thought of ditching my gas stove and going back to electric caused me to be highly skeptical. That is, until I bought one to use on our RV.
One of the first things I noticed was that the cooking is very precise. For example, if I want to cook scrambled eggs, instead of guessing the temperature needed to cause an egg to solidify, on our induction cooktop, we can just set the temperature, in this case, to 150℉ degrees, and know that it will never get any hotter—no more scorched eggs. In this way, it offers benefits similar to sous vide cooking, wherein one can exactly control the temperature of the cooking process.
Adjusting the temperature can be based on the desired heat instead of guessing how much flame one needs.
One downside we can see is in cooking in a Wok, where one needs extremely high heat and heat that transfers to the side of the cooking vessel. Another issue is sauteing foods. The term sauté literally translates into “jump up”, as you lift the pan off of the heat to toss it around. With an induction stove that requires the pan to be in direct contact with the cooking surface or it will temporarily shut off, sauteing won’t be as practicable as with a gas stove top.
Several cities in California have taken steps to restrict or phase out the use of natural gas in new buildings. For example, Berkeley, San Jose, and San Francisco have been trying to implement regulations requiring new buildings to be all-electric, meaning they cannot use natural gas for appliances like stoves, water heaters, and furnaces (Note: in April of 2023 the 9th U.S. Circuit Court of Appeals found the ban in Berkeley to be in direct violation of the Energy Policy and Conservation Act of 1975).
It’s important to note that local regulations and policies can change over time, and it’s always advisable to check with the relevant authorities or consult the most up-to-date information to determine the specific regulations in effect.
These measures attempt to combat climate change and reduce greenhouse gas emissions. Natural gas is a fossil fuel that contributes to carbon dioxide emissions and is a significant contributor to global warming.
Gas stoves can contribute to indoor air pollution and pose certain health risks. Here are some reasons why gas stoves can be considered unhealthy:
To mitigate these risks, it is important to ensure proper ventilation when using gas stoves, such as using exhaust fans or opening windows. Regular maintenance of gas stoves, including cleaning burners and checking for gas leaks, is also crucial. Additionally, using alternative cooking methods, such as electric stoves or induction cooktops, can help reduce indoor air pollution associated with gas stoves.
Induction stoves offer several benefits over gas stoves. Here are some of the advantages of using an induction stove:
It’s worth noting that while induction stoves offer many advantages, there are a few considerations to keep in mind. Induction stoves require cookware with magnetic properties (ferrous metal) to work effectively, so you may need to replace some of your existing cookware. Additionally, the upfront cost of induction stoves is typically higher than gas stoves, although they can help save on energy costs in the long run.
According to the New York Times, if you are interested in transitioning to induction cooking, these are the top-rated induction cooktops.
Drew & Christine Morgan are REALTORS/NOTARY PUBLIC in Belmont, CA. with more than 30 years of experience in helping sellers and buyers in their community. As Diamond recipients, Drew and Christine ranked in the top 50 RE/MAX agents nationwide and the top 3 in Northern California. They may be reached at (650) 508.1441 or emailed at info@morganhomes.com.
or all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.
The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.
Back in November 2022, we wrote an article titled “The Big Risk in Gambling on Bay Area Home Values” where we predicted that this day would come. We expected that Q1 in 2023 would see a significant decrease when compared to 2022 but are we comparing apples to apples? We suspect that by Fall, the year-over-year changes will be more accurate since the first three months of 2022 were an anomaly due to a surge in home prices (not values).
Last year in April, the Bay Area housing market reached its highest point, driven by the fear of impending interest rate hikes. However, since May 2022, there has been a decline in the market. The decline can be attributed to the interest rate increases, which ironically is what led to an increase in housing values in the first quarter of 2021.
This unsustainable and rather sudden ramp-up in bidding wars, and consequently home values, ended rather abruptly in mid-April.
The May sales data reflected the change in home-buying activity, and the shift in the market was in full swing by June. We discussed this in our blog post titled “Bay Area Housing Market on Precipice of Unpredictable Change.”
Currently, in San Mateo County, home values have reverted to levels seen in August of 2022.
Comparing the months of April YOY for San Mateo County, the dramatic shift is seen across the board in almost every category.
Fewer sellers are willing to sell in today’s market because as most have locked into fixed-rate loans in the 3% (or even less) range.
With fewer sellers willing to move, the number of new listings is down 38%. In any other market, this alone would create a shortage of inventory of homes for sale which in turn would drive up prices. However, the higher interest rates that are keeping sellers in their homes longer, are also eroding the purchasing power of buyers. This is helping to keep our market near equilibrium—a state which historically is rarely seen, and if so, never for very long.
We notice a similar trend in the city of Belmont, but it’s more pronounced because the sample size is small, which makes fluctuations more noticeable.
Opposite the Law of Large Numbers, a foundational concept in statistics that if a sample is large enough, the sample average should be close to the mean, the law of small numbers provides us with a “Belief in the Law of Small Numbers.” In their paper, Kahneman and Tversky—who famously explored human heuristics, define the Law of Small Numbers as the mistaken belief that a small sample accurately reflects the probabilities of a population. In small data sets, you can find patterns where none exist!
Such is often true when isolating the numbers for home sales in Belmont.
Here we note the magnified effect of the market as compared to San Mateo County as a whole.
That said, there’s no doubt about the YOY change. In 2023 the size homes that sold were 22.5% larger, yet sold for 7.7% less, indicating the true YOY value shift to be close to a 30% drop.
The average time it takes to sell a house has increased by 200%, which shows that buyers are becoming pickier. However, it’s also happening because many sellers are still setting their prices based on past market conditions and pricing their homes too high.
It’s unfortunate that some agents prioritize making a sale over being honest with the sellers. They may tell the sellers what they want to hear, instead of what they need to know. Additionally, sellers often choose agents based solely on the price estimate the agent gives them for their home, which perpetuates this behavior.
At present, the inventory of homes available for sale is only enough to last for about a month. This is a notable decrease from the 9.5 months of inventory during the 2008 economic crisis.
As we move past April, the monthly figures will gradually approach and eventually exceed the year-over-year numbers of 2023. However, we do not anticipate this to occur until the year 2024.
It is imperative that you price your home correctly if you are considering selling it. This holds especially true in the current market. Do not hesitate to contact us for an honest evaluation.
Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC located in Belmont, CA. They have been assisting buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.
or all you need to know about Belmont, subscribe to this blog right here. You can also follow us on Facebook and on Twitter.
This article provides educational information and is intended for informational purposes only. It should not be considered as real estate, tax, insurance, or legal advice, and it cannot replace advice tailored to your specific situation. It’s always best to seek guidance from a professional who is familiar with your scenario.
The Illusion of Year of Year Numbers
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.
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.
The Take-Away
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.
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.
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
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.
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.
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.
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.
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 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.
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.
That coincided with the stock market downturn which affected the down payment resources of many potential buyers.
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.
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.
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
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
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.
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The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax, insurance or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.
