Buyers Run at the Speed of Light while Sellers Feel “Locked In”

“Today’s real estate market is one of the most unique markets we have ever seen,” says Rebecca Jepsen, realtor with Golden Gate Sotheby’s International Realty, who always has her finger on the pulse of the Bay Area market.

What’s going on?

According to Jepsen, statewide prices are down approximately 10% from their peak. The median price of a singlefamily home in the Bay Area peaked in April 2022 at $1.5M. By January 2023 it dropped to $1M, down 33%. However, June of this year, it was back up to $1.32M, just 11% off the peak of 2022.

“Keep in mind,” Jepsen adds,

“our median price is still up 27% over the last five years and up over 101% the last 10!”

Inventory – or lack thereof– really is the story she says. Even though interest rates remain near 7%, buyers’ demand is strong. Why?

Jepsen explains that even though many homeowners would like to sell they have loans with great rates that are hard to give up.

As of June 2023, 82.4% of mortgages had a sub-5% rate, 62% a sub-4% rate, and 23.5% a rate below 3%. They aren’t willing to give up their affordable monthly payment for way less space at a higher price.

“Meanwhile, many older folks who would like to sell and move to a senior community of their choice are faced with lengthy waiting lists.” She adds, “It really is a chickenand-egg story, even for sellers who can buy with cash. The high interest rates and low inventory keep them handcuffed to their current homes and mortgages.”

Although Bay Area inventory is up 7% since the beginning of the year, at the end of June it was down 29% yearover-year – the first negative monthly number in almost five years. We are currently at a 1.6-month supply of available homes. A balanced market would see 3.5 to 4 months of inventory.

“Sellers are really not motivated to sell, so prices are unlikely to fall”, said Lawrence Yun, NAR’s chief economist, “The housing market is resilient with approximately three offers for each listing. The lack of housing inventory prevents housing demand from being fully realized.”

Where is all this demand coming from?

Demand dropped at the end of last year and the first few weeks of 2023. But by February it became a fast-paced sprint again.

“Buyers have to run at the speed of light and be 150% ready to go,” says Jepsen. “When rates first hit 6-7% in 2022, a lot of agents thought our business was going to come to a complete standstill and they’d be taking the rest of the year off. Since I spent more than 20 years as an executive in the hightech industry, I knew that wouldn’t be the case. Silicon Valley is incredibly resilient, and since most of our buyers are techies, they assess and accept the current data very quickly and move forward,” she says.

“Fortunately,” she adds, “most of our largest employers have done very well this year, so folks can tap into their pumped-up portfolios.”

Apple stock recently reached an all-time high of $196.47, up over 50% this year, becoming the first company ever to hit a three trillion-dollar valuation. Meta/Facebook is up 142% for the year. Nvidia is on a tear – recently hitting a high of $480.88, up 218%. Netflix is up 48%. Google is up 33%, and even Cisco, at $52.44, is up 9% for the year.

So, savvy buyers are selling a bit more stock, taking advantage of a little less competition, and buying the home of their dreams – betting that they can refinance in a year or two.

What is selling?

Most homes that are prepared well and appropriately priced are getting multiple offers, and many are selling with preemptive offers (offers sent before the seller and their agent have set an offer date). For example, Jepsen describes a recent deal she won for her buyers where two preemptive offers ($200K+ over asking) were received on a home that had been on the market just 3 days. The listing agent let interested parties know that the sellers were going to review the offers and by the end of the day seven had been received - Jepsen’s buyer had the winning bid.

The highest price sale in Santa Clara County so far this year was a 7 bedroom, 9 bath home at 200 Lowell Avenue in Palo Alto which sold for $18 million. The lowest price sale was a 3 bedroom, 1 bath home at 465 Keyes Street in San Jose that sold for $430,000.

Who’s buying?

Nationwide baby boomers represent the large segment of homebuyers, 39% this year versus 29% last year. Millennials are the second largest segment at 28%. With the oldest of the group now 42 and the youngest one closing in on 30, many already have children, and more than half of them have their own homes. The percentage of first-time buyers dropped to 26% compared to 34% last year.

Interest Rates and Prices

The 30-year fixed rate peaked at 7.08% in November 2022. It was recently hovering around 6.8%. As expected, The Fed raised rates an additional 25 basis points this week. But, with the surprising drop of inflation to 3% (the lowest level in two years), hopefully, this will be the last one for the year, “fingers crossed”, says Jepsen Meanwhile, new mortgage applications are down more than 25% compared to the previous year.

Silicon Valley Factors

Office vacancies are increasing. At the end of June, 18% of South Bay office space was vacant, and in San Jose, it was nearly 27%. McKinsey Global Institute recently reported that only 37% of workers nationwide and 30 percent here in the Bay Area are going into the office every day which is impacting the commercial real estate market.

It is estimated that by 2030 the value of office buildings around the globe will be reduced by $800 billion. The downturn in commercial real estate could cause further losses at banks and financial institutions. Commercial rental rates are significantly lower, with the US having seen the steepest declines, including San Francisco, down by 28%, and New York, down by

22%.

Companies like Google, Facebook and Twitter, have all announced major layoffs. But most of those folks are being absorbed by smaller companies. However, hiring is expected to increase next year as AI and other new technologies heat up.

Food prices and energy prices are coming back down slightly, and used car prices dropped .5% in June. Unfortunately, medical expenses, insurance, including auto insurance, and dining-out costs continue to climb.

Home insurance is not only getting more expensive, it is getting harder to get. Allstate, State Farm and AIG have stopped writing new insurance policies in California. They are required to give homeowners a 75-day notice before policies expire.

Jepsen suggests contacting the Department of Insurance hotline at 800-927-4357 if you have questions and can’t get help from a local agent. Per the Department, there are 115 companies offering insurance even in wildfire risk areas. Many of them are “non-admitted” companies with are not regulated by the state the way the “admitted” ones like Allstate, Farmers, and State Farm are. The California FAIR Plan is available. It provides only basic fire protection, with no liability or theft coverage.

Where are people going?

Bay Area residents staying in California are moving to Los Angeles, Sacramento, San Diego, and Napa. Popular out-ofstate destinations include New York, Austin, Seattle, and Portland.

The most expensive counties in California are San Mateo, Santa Clara, and Marin.

The most affordable counties are Lassen, Siskiyou, and Lake County.

This really IS the time to sell:

• Inventory is historically low & demand is off the charts

• 70% of Bay Area homes sold for over asking in June

• Remember Prop 19 - take your property tax rate with you anywhere in California

Buyers can benefit in today’s market:

• Don’t wait for mortgage rates to return to 3%, the “unicorn” years have passed

• If you find a home that you love, buy it & refinance when rates drop

• Condos are an excellent choice for first-time homebuyers and/or folks downsizing

Looking at the second half of 2023

If you have a 7 to 10 year outlook, Bay Area estate historically pays off. Per CAR prices statewide are expected to increase around 5% next year, and the Bay Area, should see an increase of 6-7%.

“Even with mortgage rates remaining high and supply tight, we are actually doing quite well here in California,” says Oscar Wei, deputy chief economist at the California Association of Realtors. Looking towards 2024, “we expect to see interest rates drop to around 6% by the end of this year and down to 5.5% by mid to the end of next year. Inventory should improve, and even though we may have some bumps in the road, I expect to see a soft landing and a good year,” he adds.

If you are considering moving within California or anywhere in the country (or would like to chat about all the possibilities), call Rebecca Jepsen. Armed with excellent statewide data and a vast referral network across the U.S., she can help you make all the right moves.