AREA HOME PRICES BACK ON THE RISE
`We might have seen the bottom': A tight supply is pushing costs up for the first time in 14 months, despite persistently high interest rates
It's unwelcome news for homebuyers: Bay Area home prices are back on the rise.
The median sales price for existing homes in the ninecounty Bay Area rose 5% in August from a year earlier, reaching $1.26 million, according to new data from the California Association of Realtors. Prices had been on the decline for 14 months, the longest such period since 2012.
“We might have seen the bottom,” said Oscar Wei, an economist for the trade group. “It was short-lived, but it started coming back up because of tight supply.”
With interest rates near 7%, homeowners who might have otherwise sought to move are staying put, contributing to the low inventory. The number of active listings in the Bay Area decreased from 4,887 to 4,324, a drop of 11.5% since last August.
Homeowners aren't moving unless they must, said Renée White, a real estate agent with Keller Williams in Walnut Creek.
“Most of my sales are either death or divorce,” she said. “There's none of that speculation. Nobody's treating the market like it's a lottery.”
Overall, the market is seeing fewer transactions, with the number of Bay Area sales dropping 18.3% in the last year.
Still, prices ticked up slightly in most Bay Area counties, as undeterred buyers competed over limited supply.
“Even though the volume may not be there, the desire for homeownership is still very strong,” said David Stark, a spokesperson for the Bay East Association of Realtors. “The competition is so fierce that even with higher interest rates, buyers are bringing those prices up.”
Getsemani Gonzalez and Kelsea Manion saw that firsthand when they started looking for a home earlier this spring. They liked a $700,000 condo in Emeryville with views of the San Francisco skyline and submitted a bid slightly over asking. The condo sold to another buyer for $1 million.
“It was discouraging,” Gonzalez said. The longer they searched, the more interest rates
ticked up. “Our budget was diminishing by the minute.”
After three weeks, they noticed that the first property they'd toured, an 800-squarefoot one-bedroom house in Alameda, was still on the market. Their real estate agent learned the sellers had turned down three offers in the first week that the home was listed, hoping to get an even higher price.
Now lingering on the market, Gonzalez and Manion's agent figured they could get a deal. They submitted an offer just over the asking price, but negotiated with the seller to give them a $15,000 credit to put toward buying down the interest rate on their mortgage for the first two years. They closed on the home in July and hope to refinance when interest rates fall.
The lack of inventory has pushed many would-be buyers to the sidelines. Varun Mehra and his wife, who currently rent in San Francisco, have looked at four-bedroom homes around the East Bay and San Jose in the last few months. They've struggled to find many options within their budget.
“There's a lot less inventory in some of the areas I was eyeing before,” Mehra said. “We'll just keep renting if we need to.”
That comes from someone who has the benefit of a particularly close relationship with his real estate agent: she's also his mom. But Rama Mehra, founder of Asante Realty in the East Bay, doesn't expect inventory to improve until interest rates come down, which isn't likely to happen this year.
“Sellers who want to upsize are not jumping into the fray because they're sitting on 3% interest rates,” she said. “People don't want to pay three times the interest rate they're paying right now.”
Instead, she's seen some would-be sellers convert their homes into rentals rather than put them on the market.
“Their monthly payments are so low that they're all positive cash flow with the rentals,” she said.
It's an especially tricky time for buyers like Varun Mehra who are looking in the South Bay. Santa Clara County saw the biggest year-over-year price increase, growing 12.3% to $1.8 million. Part of what's pushing up demand, his mom estimates, are companies implementing stricter return-to-office policies.
“A lot of people are now scrambling to go back to the South Bay,” she said.
In the affluent Silicon Valley, buyers might also have the financial cushion to shoulder high interest rates.
“The increase in interest rates has made buying a home more expensive, but there are a lot of people along the Peninsula who can absorb that cost,” said Val Vandervort, a real estate agent based in San Carlos. Agents at her firm, Veritas Homes, have noticed an uptick in all-cash offers, flashing back to the days of pandemic-era bidding wars.
Though prices may be coming back, sellers should still be wary of setting their asking price too high, said Elise Erwin, an agent in San Jose.
“We've got to be very mindful that we don't overprice,” Erwin said. “People have been so spoiled in the Bay Area with real estate being like an ATM machine.”
While some suspected that the pandemic bubble wouldn't last, prices are still up 25% from March 2020. Bay Area home prices peaked at $1.46 million in May 2022, then cooled to a low of $1 million by January.
California's longstanding housing shortage has meant that prices haven't dropped as steeply as in other regions of the country.
“Even with cuts in the tech sector, we're still way out of whack in terms of how many jobs we've created over the years versus how much housing we've built,” Stark said.
Market conditions aren't expected to improve for buyers anytime soon.
The realty association recently released its 2024 forecast, which predicts that single-family home sales will pick up as mortgage rates decline. But the 30-year fixed mortgage rate hit 7.19% this week, its highest level in 22 years, according to Freddie Mac. At its meeting Monday, the Fed decided to hold rates steady, but it has indicated that it could hike rates once more before the end of the year.
Wei, the housing economist, predicts the 30-year fixed rate could dip below 7% by the end of 2024, leading to a modest “single-digit” growth in home prices throughout the year.
“It all comes down to interest rates,” he said.