Bay Area housing market `normalizing' but prices remain high
The breakneck pace of price growth appears to have peaked
After two years of soaring home prices, the Bay Area housing market may have entered a cooling phase as rising mortgage rates put a squeeze on buyers.
But that doesn't mean home values are suddenly falling back to Earth. Far from it. The median price of existing single-family houses in the region hit a record $1.36 million in May, a 13% increase from the same month last year, according to the latest data from real estate analytics firm CoreLogic.
Even so, housing experts say the breakneck pace of year-over-year price growth appears to have peaked — though few are predicting a housing crash on the horizon.
“We're just seeing more of a normalizing to prepandemic conditions,” said Selma Hepp, CoreLogic deputy chief economist. “It wasn't sustainable.”
CoreLogic forecasts annual home price growth in the Bay Area will decline to single digits by next summer. In other words, prices are still expected to go up across the region compared to the year prior, just not as quickly as before.
Hepp pointed to rising mortgage rates as a key factor. The cost of a 30year fixed-rate jumbo home loan has in recent months jumped to around 5.6%, according to personal finance site Bankrate.com. For most of the Bay Area, a mortgage is considered jumbo if it's more than $970,800. Though the 30-year rate has dipped in the past two weeks, it's still nearly double the roughly 3% charge for most of the pandemic.
“Now that mortgages are much higher and the cost of ownership has gone up (significantly) from only a few months ago, it has had an impact on demand,” Hepp said. “With fewer buyers out there, what we're starting to see is more price reductions and more homes staying on the market longer.”
In San Francisco, Santa Clara and San Mateo counties, that dynamic likely contributed to home prices falling slightly for the first time this year from April to May.
All three counties still saw large year-over-year gains: San Francisco increased 9% to $1.89 million, Santa Clara grew 18% to $1.8 million, and San Mateo was up 14% to $1.99 million.
Ramesh Rao, a real estate agent with Coldwell Banker Realty in the South Bay, said over the past few months he's seen homes regularly going for under the asking price. That was unthinkable over much of the past two years as house
hunters, many untethered from the office by remote work and seeking more living space, made all-cash offers and bid hundreds of thousands of dollars over asking in a mad scramble for homes.
As the Federal Reserve is expected to continue raising borrowing costs to combat inflation, Rao said competition could soften even more.
“My advice to all clients if they're sellers is: Today is better than tomorrow,” he said.
Rao also noted fears of an economic downturn,
declining financial markets and the threat of more tech sector layoffs could be further tamping down demand for homes in Silicon Valley.
“You don't want to get in big debt when there's uncertainty about your job,” Rao said.
Median home prices in Alameda County, meanwhile, continued their upward month-to-month trend, while prices in Contra Costa County remained flat.
Alameda saw a yearover-year price gain of 22% to $1.43 million in May. Contra Costa, traditionally the most affordable of the core Bay Area counties, saw the slowest annual price growth of 3% to $950,000.
Despite the recent price increases, Janine Hunt with Red Oak Realty in the East Bay said her local market is beginning to experience a “needed correction.” In the Berkeley and Oakland area, more properties are coming online and staying for sale longer, she said, and the buyers that remain can afford to take their time looking for the right home and sometimes expect asking prices to come down.
“We're looking toward a more balanced market, and aren't we all more excited about that especially when everything else in the world is so topsy-turvy?” Hunt said.
Hepp with CoreLogic said that while home inventory is increasing throughout the Bay Area, the number of houses for sale is still low compared to historical averages.
The number of homes changing hands each month is down as well, reflecting buyer pullback in the face of sky-high prices and interest rate hikes, Hepp said. In May, 5,642 homes sold in the region, a 16% drop from the same month last year, according to CoreLogic data.
Throughout the pandemic, Alex Lubinski, 39, had been hoping to move out of his aging apartment rental in San Francisco and into a house of his own in the East Bay or Marin County. But as the fierce competition for homes began to settle, rising mortgage rates meant monthly payments on a home in his $1 million price range would have shot up by around $1,000 a month. His stock investments also took a hit, making it harder to afford a downpayment.