Bay Area Housing Market and Mortgage Rates Today - When Will Real Estate Bubble Burst?


After growing for more than a decade, the housing market seems to be facing a perfect storm.  The home prices are at all times high, and the mortgage interest rates are surging faster than expected together with prices of gas, groceries, and many other products.  Will the housing market be affected?  Let’s try to make sense of this situation together.

This is Michael Talis with the Talis Team.  Please share this video and subscribe to the channel to get the latest market intelligence and real estate advice.  Call or text me your questions – my direct number is down below.

According to the Freddie Mac weekly Primary Mortgage Market Survey in the last 5 weeks the average 30-year fixed rate mortgage rate increased by 0.96%, ARMs, adjustable-rate mortgages, jumped too but not as much.  5-year ARM rate increased by .65% and 15-year ARM increased by .9%.  This jump should not be a reason to panic by itself – the interest rates got back to the levels we experienced in fall of 2018 and by historic standards they are still low.  The highest rate registered by the survey was 18.63% back in 1981 and a similar interest rate jump occurred in May-June of 2013 when 30-year fixed-rate mortgage jumped up 1.11% in the same 5-week period.

Some consumers expect that this increase in the interest rates will produce a chilling effect on the market and will drive the home prices down from the current record levels.  Others area even talking about a bursting real estate bubble.  Most economists, however, predict that the next recession will not be triggered by the real estate and view real estate economic fundamentals as very solid.  I have a video on this subject, link is up there in the corner.

On practical level, if you are thinking about buying a home, should you wait for the market to adjust or should you buy now?  It seems that there are plenty of reasons to postpone your purchase – inflation, war in Ukraine, Shanghai COVID lockdown, supply chain disruptions and much more.

When I started in real estate one of the old agents shared her wisdom with me: “In real estate you don’t wait to buy, you buy, and then wait”.  And it still rigs true today.  Bay Area home prices almost tripled in the last 10 years, between 2011 and 2021.  Even if you factor in one of the worst real estate-triggered recession of 2008, the median home sale price doubled between 2006 and 2021 and some more desirable areas grew even more.

Never in the history of real estate here in the Bay Area homeowners lost money if they owned their home for 10 or more years – rain, shine, fires, floods and even earthquakes.  If it is the right time for you to move and you are planning to own the property for a longer period of time – don’t hesitate to go house hunting!

All current economic uncertainty doesn’t seem to affect the Bay Area real estate market, at least not yet.  March median home sale price in Santa Clara and San Mateo Counties reached $1.6M, at 5.8% increase from the last month and a 15.9% increase from the same time of the last year.

And the homes are selling faster than ever!  For the last two months, February and March of 2022, the median time on the market stayed at only 7 days.  It means that half of the homes that came to the market were sold in 7 days or less.  The average time on the market also dropped to unprecedented level of just 11 days.  A year ago, the average time on the market was 20 days.

The home sale price increases and the fastest ever pace of sales are hardly indicators of a slowing market.  But there are new reasons to be cautious due to rising interest rates.  If you are a buyer, talk to your lender to verify that you are still qualified for the same loan amount after factoring in current interest rates.  Ask them to review your file and update your preapproval letter.   And when you offer is accepted, lock your interest rate as soon as possible to protect yourself against any future rate hikes.

If you are a seller reviewing offers, make sure that the buyers’ preapproval letter is current, call their lender to verify the buyers’ qualifications and ability to close and close on time.

In terms of the market direction, we expect the price growth to slow down.  After all, the median home sale price jumped by 13.9% since the beginning of the year.  Competition for homes and multiple offer situations will continue to be the norm.  But with interest rates increasing the cost of home ownership, we expect that the buyers will become more selective and will discriminate against homes that are not well prepared for sale or not in prime locations.

We also expect more homes coming to the market in the near future.  More than 20% of homes currently listed on MLS are in “coming soon” state and are not visible on public web sites.

This is Michael Talis with the Talis Team.  Please share your thoughts about the direction of the Bay Area housing market in the comments below.  Send me your questions and I will make sure to respond to all of them.  Thank you for watching and till next time!

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