🏡 October 2023 Update: Market still doing great despite interest rates at 23 year high

Raziel Ungar

Raziel Ungar

October 12th, 2023 - 4 min read

Fall is always a good time for the real estate market. I’ve seen a lot of enthusiasm in the market over the past few weeks which was missing in the last six months which I touched on in the San Mateo Daily Journal’s recent real estate piece. On a positive note, the median home price for Q3 of this year is 2% above Q3 2022, so not a large percentage, but basically tells us pricing is stable. However, with interest rates hitting a 23 year high last week at 7.49%, it will be interesting to see how this may affect the market in Q4.

Overall, things have settled down over the last year, so buyers who want to buy, are buying, and sellers who want to sell, are now selling or making plans to sell. Demand hasn't dampened demand for “A” properties, which I’d consider to be the best homes in the great locations in excellent condition. (I recently wrote an offer in the $8 million range for a home in Hillsborough that had multiple offers). For properties that I’d consider a “B” or need a lot of work or are more unusual, it’s really important that the price reflect the condition or desirability of the home. In the past, many buyers (not mine!) would overlook an older kitchen or being one home in from a busy street and still pay top dollar, but now, these factors are important to take into consideration. Check out my recent post on the impact of overpricing when choosing a list price.

And now, for some statistics! I wanted to start off with a couple slides on the luxury market, which has been posting some healthy results this past quarter. We can see that the number of sales for homes $5 million on up slightly increased over the last year. 

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Now, as I usually like to do, because it's pretty important, let's take a look below at current inventory trends. Compared to a year ago, we have slightly fewer new listings, but from a historical perspective, at least over the last five years, we have fewer homes for sale. Not massively fewer, but fewer. Would my buyers love more to choose from? Yes. But in my 18 years of working with nice people buying around here, no one ever has told me they felt like there was a lot to choose from. I think that's because many people buy, and hold onto their homes for a while, for good reason. Homes are expensive, and a huge (worthwhile!) financial commitment.

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If we zoom out and take a look at what's going on in the greater Bay Area, I thought the below pie chart was fascinating, showing us the distribution of sales by price segment. Even though the median single family home price in San Mateo County is around $1.8 million and the median condo price is around $900,000, we can see that compared to the rest of the Bay, things are pretty pricey here on the peninsula. For good reason - proximity to job centers, mild weather, cute homes and downtowns, and our culture.

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Now, let’s take a review of current interest rates. Below are a couple charts showing that interest rates have just hit their highest point since 2000.

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The below chart will not come as a surprise to those of you who have made it down this far (glad you like the stats, like I do!). Basically, median household income has not kept pace with the meteoric rise we've seen in prices since the mid 1990s. Who are today's buyers? I'd say most of my clients will fall into one of four categories of employment: tech, biotech, healthcare, and finance.

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September has been hard on stock markets, however still it's been a positive year.

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And how about the price of oil? It just hit a 2023 high. If it continues, it will have negative consequences for the general inflation reading (but not the "core" inflation rate, which doesn't include energy), for gas prices and consumer confidence.

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The California Association of Realtors just issued their upbeat forecast for 2024 (if this all happens, that'd be great!): the California housing market will rebound in 2024 as mortgage rates ebb.

The forecast: Existing, single-family home sales are forecast to increase 22.9% from 2023. California’s median home price is predicted to climb 6.2% in 2024. The average 30-year, fixed mortgage interest rate will decline to 6% in 2024. Housing supply in 2024 will remain below normal despite a projected increase in active listings of between 10 to 20%, as market conditions and the lending environment continue to improve. Housing affordability* is expected to remain flat at 17 percent next year.

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