How Did We Do in 2022 and What’s Happening in 2023?

“Well, as I predicted in July last year our Bay Area Market did quite well, but it SURE was a bumpy ride!” says topproducing realtor Rebecca Jepsen.

“And, although the media has been warning us about impending doom and gloom this year, I think we will see a steady, strong, and more balanced kind of market for the foreseeable future. I think it may be more like that infamous train chugging up the hill - I think I can, I think I can,” she adds.

A Look Back at 2022

According to the National Association of Realtors (NAR) overall home prices in the U.S. rose 2.3% in 2022, with the median home price at $366,900. The average annual rate of return since 1980 was 4.6%. The total units sold were just over 5 million, down 17.8% from 2021. Inventory at the end of December was 970,000 units, up 10.2% compared to the end of 2021.

Nationally, inventory of completed new homes rose last year; 71,000 units were available in December, almost double the 38,000 available in June. Units of existing homes for sale stood at 970,000, up over 10% versus 2021. The percentage of investment purchases was down over 19% versus 2021. And the number of days on the market increased to 26 in December 2022 from 19 in December 2021.

“December was another difficult month for buyers who continue to face limited inventory and high mortgage rates,” said NAR Chief Economist Lawrence Yun. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”

So Who’s Buying?

First-time home buyers accounted for 30% of sales, and just 23% of all purchases were cash buyers, according to NAR. Investment and second home purchases made up 17% of the market. And, although Baby Boomers (approximately 70 million strong) control about 50% of the wealth and own about 54% of all homes, Millennials (those born between 1981-1996) currently rein as the largest homebuying sector in the U.S. They have held that position for most of the last decade, far surpassing Baby-Boomers and older generations.

According to LendingTree, Millennials make up nearly 64% of mortgages in San Jose (their favored destination), followed by 61% in Denver, 61% in Boston, and just around 60% for Seattle, Austin, and San Francisco.

Folks are on the Move

Since the start of the pandemic in 2020, California and Illinois have had the highest level of outbound migration, per the Census Bureau. Per recent U-Haul data, Texas had the largest inbound migration, followed by Florida and North Carolina. According to a recent report from U-Haul, Roseville, CA, was the second most popular city in the nation for one-way moves last year. Ocala, FL, was number one, followed by Madison, WI, Melbourne, FL, Auburn, AL, North Port, FL, Myrtle Beach, SC, Surprise, AZ, and Charleston, SC.

Meanwhile, interest rates doubled in 2022, says Jepsen, going from around 3% at the beginning of the year to over 6% by the end. However, rates have now moderated, and some lenders offer programs with rates in the high 4% range. Mortgage application activity began to improve in mid-January, with application volume rising 7.4% weekover-week in the week ending February 3, 2023

As we begin 2023, she adds, workers across the country are starting to spend more time back at the office. Per Kastle Systems, current office use is at just 50% of its pre- pandemic rate. The highest office usage is in Austin and Houston, TX, with the lowest in San Jose, CA.

How About the Bay Area?

Last year, the median price of a singlefamily home in Santa Clara County was $1,797,750. That’s up 9.6 from 2021 and a staggering 178.7% over the last ten years, says Jepsen. She adds that the median price was skewed much higher due to the high percentage of luxury homes sold here in the last couple of years.

“The number of ultra-high-end homes seems to be waning, says Jepsen. In April 2022, 99 homes sold for over $4M. That number dropped to just 16 in December.

Also in December, says Jepsen, the Bay

Area saw the lowest level of inventory since the Great Recession. And although it has crept up over the last couple of months, it is still historically low, with just 2,874 single-family homes currently on the market.

The improvement, she adds, isn’t really due to many more people selling. The increase in inventory is primarily due to homes staying on the market longer. She adds that current days on the market are 90-100 days compared to less than a week just a year ago. December sales volume was down 37.4% year over year in the Bay Area, and San Jose saw a drop of 39.2%.

As Jepsen has often said, “the Bay Area Market is tied at the hip to the NASDAQ. The index declined 33% in 2021, but the current outlook is good with the index up nearly 14% year-to-date as of this writing”, she adds.

Meanwhile, rental rates in the Bay Area are some of the highest in the country. Per RentHop, says Jepsen, nine of the most expensive zip codes in the U.S. are here locally. Los Gatos came in at number 23 with a two-bedroom apartment costing $6,325/month. San Francisco, Tiburon, and west San Jose also ranked in the top 100 most expensive zip codes.

Where Are We Going in 2023?

Buyers are still out there. Industry experts say we are still underbuilt by nearly 5 million homes. Millennials (born 19811996) are reaching their peak home-buying age. And Gen Zers (born 1997-2012) are starting to enter the market. Many folks at the height of their careers are looking for a vacation and/or investment home.

With mortgage rates coming down, she says we have seen an increase in application activity since the beginning of the year, both from refinancing and new home purchases.

Recent inflation numbers also look promising, Jepsen adds. The recent Fed rate hike (the eighth in a row) was just .25%. Although it looks like there will be a couple more coming our way, she said she is hopeful that those will be at the same moderate level.

Potential Bumps in the Road:

• A slowing economy due to decreased consumer spending

• More tech layoffs • Businesses not investing locally

• Builders concentrating only on multiunits, not single-family homes

• Conflicts with China, and Russia accelerating aggression in Ukraine or elsewhere

Is This Still a Good Time to Sell?

“I always say, the only thing I know about the real estate market is what I know right now,” says Jepsen.

This past December, she recently sold her impeccable and gorgeously landscaped home in Saratoga. The fourbedroom, three-bath home sits on over a half-acre, has a multi-tiered water feature, a separate garden with raised beds, and is within walking distance to the Historic Village. Although she did not get the price that she would have at the peak of the market in early 2022, she took her own advice and the advice she gives her current clients:

“You can decide to be sellers in the current market, you can decide to become landlords and rent out your home, or you can be gamblers and decide to roll the dice and hope that the next 6-12 months might be better.”

Great Reasons to Sell Right Now!

• Even though we are a little off our peak, prices are still incredibly high.

• Demand is still strong, and buyers are out there, but they are much more decerning

• Inventory is incredibly low. You don’t have much competition right now.

• If you are 55 or older and want to move out of the area, Prop 19 is a game changer.

• If you want to move out of state or in with family, now is an excellent time to “cash out.”

Great reasons to buy right now, says Jepsen

• Interest rates have already come down (below historic averages) and will hopefully continue to improve this year.

• There is much less competition out there.

• Some sellers (and lenders) are offering attractive incentives.

• Rental rates have increased substantially. Why throw all that money away in rent?

• If you have a 7+ year outlook, Bay Area real estate is an excellent investment.

What’s the Bottom Line?

Jepsen recently spoke to Oscar Wei, deputy chief economist at the California Association of Realtors. He believes home sales will remain weak this year as uncertainty in the market persists, and sellers remain reluctant to sell due to their “lock-in” effects.

“Prices may soften in 2023, but we won’t see the free-fall that we experienced in 2008-2009, simply because inventory will remain tight, and supply constraints will continue to provide upward support to home prices. Rates will continue to fluctuate throughout the year, but will likely dip below 6% by the end of 2023,” said Wei. Now, more than ever, he adds, “buyers and sellers need a knowledgeable, trustworthy REALTOR® to help them navigate the uncertainties in our market.”

Jepsen Remains 0ptimistic for 2023

“We are moving towards a much more balanced market, and after a record 121 months of consecutive growth, a balancing act may just be good for the market”, says Jepsen.

“I believe our real estate ‘train’ will keep chugging up the mountain, and I believe it will be a positive year for both buyers and sellers.”

Adds Jepsen, “I pride myself on staying up to date on our market all year round. So, if you would like to chat about what’s happening in your neighborhood, making a future move, or buying an investment property.