11 months ago

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If you are thinking about buying or selling a home this year, or just curious about the housing market, you might be seriously puzzled not knowing what to expect. On one hand the housing market looks strong - home sale prices are growing, median time on the market is almost at all-time low and it is common for 10, 12, or more buyers bidding on homes in your neighborhood. On another hand, the number of sales is dropping, interest rates are approaching the highest level since 2006, since before the housing market crash.

And here in the Bay Area we have two sets of seemingly conflicting numbers amplifying this confusion. On one hand, the number of new listings year to date dropped by a whooping 33.9% compared to the same time of last year, 9600 new listings came to the market during the first half of 2023 in Santa Clara and San Mateo counties compared to 14.6 thousand over the same time period last year. 5000 opportunities to own a home were taken away from the home buyers this year! The number of sales closely followed the same trend - the number of home sales dropped by 33.4%.

On another hand, the home sale prices are on the rise again, inching closer and closer to the all-time high mark. June median home sale price in our two counties was $1,580,000, just 4.2% below the all-time record level of April of 2022. Note that home sale prices were steadily growing this year and so far are up by 18.8%. The median time to sell a home dropped to just 8 days, it takes only 8 days for half of new listings to sell, homes now are selling as fast as humanly possible.

If you need to sell, it is a great time to put your home on the market. Housing prices are growing and your home will have WAY less competition than usual, roughly 30% less competition than in previous years. The buyers are very active, competition for available homes is very stiff and aggressive. The challenge for many potential home sellers is that if you sell your home, you will need to find a new place to live in, you will need to buy a replacement property. If you are planning to stay in the Bay Area, you already know what is going on on the market, it definitely will be a difficult task.

And if you are going to move out of the Bay Area, it will be easier for you to find a home to buy, but not much easier! Nationwide, the number of homes on the resale market dropped by more than 20%, not as steep of a drop as in the Bay Area, but still very significant. What helps to satisfy the housing demand in other markets is new construction. The number of new home completions rose to about 1500 units per month this year, first time since 2007. Note that 1500 new homes was the monthly average for new home completions since the 60s. With the increased availability of newly constructed homes and shortage of resale opportunities, the number of new home sales surged by 20% during the first half of 2023 compared to the last year.

This housing market disbalance was triggered by the fight against inflation and the resulting mortgage interest rate hikes. At the time of this video the interest rates are climbing over the 7% threshold, the highest levels since 2002. And while the interest rates are just getting back to historic average levels, the speed of mortgage rate increases was unexpectedly fast and extremely disruptive.

The meteoric rise of the mortgage rates created a “lock-in effect” for the existing homeowners. They were able to purchase their homes or refinance at much lower rates than currently available. You would need a really good reason to put your home, financed at below 3% rate, up for sale and then purchase a new one paying 7% interest or more. This “lock-in effect” depressed the inventories, especially here in the Bay Area. Most Peninsula cities were almost completely developed in the 50s, 60s and 70s. There are very few opportunities to build more housing, especially single family homes.

And if you are a buyer, in today's market you are facing two major obstacles - high interest rates and low inventory. Low inventory creates stiff competition for the available homes and drives bidding wars while high mortgage rates increase overall cost of housing. What we recommend to our clients is to buy, and to buy as soon as possible, if they are planning to stay in the area and in their new home for 7 or more years. The key here is long-term ownership enabling them to build equity and accumulate wealth. If they are not sure about their plans and may have to move in 3 years or less, we would recommend renting a home. Buying a home for a short stay is usually too risky regardless of the overall direction of the housing market.

Michael Talis:
Call/text: (650) 766-6100
Web: https://bit.ly/3WUrGqv
Email: https://bit.ly/3Hscr2d
Coldwell Banker Realty
CALDRE: 01883499

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