Bay Area Housing Market Update | August 2022 | Lull Before the Storm
What an interesting time! On one hand, GDP contracted for second consecutive quarter indicating that the economy may be going into a recession. On another, July was the best month for the stock market since 2020. On one hand, mortgage interest rates are about 2% higher than at the beginning of the year. On another hand, mortgage interest rates retreaded by about half percent from the peak of mid-June. On one hand the inflation reached 40-year high levels. On another hand, the gas prices are starting to go down. Combination of these forces created a significant housing market slowdown here in the Bay Area.
The most glaring sign of the housing market shifting is the number of sales. In July the number of sales dropped by 44% compared to the same time of last year and by 24% compared to June. It was the lowest number of homes changing hands since January of 2021. And Januarys are not known for high activity levels. Keep in mind that most of July sales were negotiated in June when mortgage interest rates soared above 6%.
In July median time on market increased to 13 days, the slowest pace of sales since January of 2020. As the result, the number of homes available for sale in Santa Clara and San Mateo counties grew to over 3000 units, a 26% increase year-over-year.
An indicator of the future of direction of the housing market is the number of new contracts. It dropped by 38% year-over-year. Month-over-month drop was not as significant, only 8%. It is hard to say if this market slowdown is a new normal or just an annual seasonal trend. A perfect storm combining economic headwinds with the summer vacation season may have created an unusually deep dip of the market activity.
But there are reasons to be optimistic, the market may rebound after the Labor Day. Over the last 6 weeks the interest rates declined by about half a percent and should stabilize in that range. According to Chief Economist of the National Association of Realtors Lawrence Yun, “Most of the mortgage rate changes have already occurred. Now it’s going to be bouncing along. [A] little up, [a] little down”.
Also, since mid-June all major stock market indices were on an upward trajectory reversing the earlier trend. Both of these factors should boost buyers’ confidence, help to secure down payments, and make mortgages more affordable.
If you are a seller, don’t hesitate to put your house up for sale. The prices are still at historically high levels. The median home sale price, 2022 year-to-date, is up by 10.6% compared to the last year. And if you a buyer, it is the best time to shop for a home since spring/summer of 2020. There are significantly more homes available for sale and there is less competition from other buyers. If you are planning to own your new home for 5, 7, 10 or more years, you should not hesitate to enter the market.