🏡 May 2023 Update: Market is getting competitive despite macroeconomics
Excited to share with you all my latest update on what's happening in the peninsula real estate market. But first, some Bay Area data...
The above data from the SF Chronicle is certainly fascinating - a slight increase in two (lower priced) counties in the Bay. While I can't say prices are increasing here, I can say that things are getting competitive, with more listing agents setting offer dates in the last month than I have seen this the first quarter last year.
In looking at the overall Bay Area, buyer demand has continued to rebound from its mid 2022 low. Though mortgage applications are still well down year over year, it seems like many buyers have accepted higher interest rates as the new normal and decided to move forward – and rates have recently been trending downward. A significant minority of buyers are paying all-cash (cash transactions in Burlingame and Hillsborough are typically around 20% or less of all closings, and lower in the rest of the north peninsula markets). Open houses are seeing increased traffic, which is great, more listings are selling, and selling more quickly with multiple offers. Median sales prices have generally ticked up in 2023, though still down across the Bay Area from the market peak seen last Spring. The magnitude of these declines varies widely between different markets, and while my newsletter is typically focused just on San Mateo County, I find it helpful to mention that prices in the vast majority of the Bay Area remain much higher than before the pandemic.
Some uncertainty clearly continues with inflation, interest rates, stock markets, bank crises, high-tech layoffs (Meta most recently as last week), and now, as of early May, federal debt-limit negotiations. But, so far, the 2023 housing market has generally been steadily moving in a positive direction, which we all like to see.
In what is typical in the Spring market, we see days on market decrease. However, we are still above the average from each Spring of the past four years. In my view, with the April 2023 average at about 25 days, that isn't "bad", especially compared to the national average which is at least double that.
Some uncertainty clearly continues with inflation, interest rates, stock markets, bank crises, high-tech layoffs (Meta most recently as last week), and now, as of early May, federal debt-limit negotiations. But, so far, the 2023 housing market has generally been steadily moving in a positive direction, which we all like to see.
In what is typical in the Spring market, we see days on market decrease. However, we are still above the average from each Spring of the past four years. In my view, with the April 2023 average at about 25 days, that isn't "bad", especially compared to the national average which is at least double that.
Even with the increase in demand, sales activity remains far below last spring due to a number of economic and supply constraints. While increasing from mid-winter lows – with some very big sales occurring – luxury home sales have generally seen even larger declines as compared to the peak of the pandemic boom, when sales volumes often hit spectacular new highs. Still, some very large sales have continued to occur this year.
The number of new listings has also dropped dramatically. This is mostly ascribed to what is called the "mortgage lock-in effect," which means homeowners with very low, long-term, fixed-rate mortgages are reluctant to sell to then buy at much higher prevailing rates. This decline in new listings has major ramifications for supply and demand dynamics, and increases pressure on prices even in a reduced activity environment. I've experienced four times in the last four weeks where I had buyer clients who were interested in homes that felt a little ambitious on asking price end up selling quicker than expected with multiple offers.
Countywide, median home prices we are down just 13% from a year ago, despite much higher borrowing costs for buyers.
A Note About Market Cycles...over the past 40 years alone, the San Francisco Bay Area has seen 4 major upcycles or housing booms. In each, there have been enthusiasts who argued that this time the boom times would never end – but each ended, typically after hitting a final peak of what economists call “irrational exuberance.” Upcycles were followed by market corrections or down-cycles, during which many predicted (often gleefully) that the Bay Area was on an endless downward spiral – but recoveries followed. Housing and financial markets have always run in cycles, both economic and psychological, but, so far, since the days of the Gold Rush, despite all its booms and busts, the Bay Area has always rebounded once more.
