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