Bay Area Housing Market Update - October 2022 - Feds Are Crashing Bay Area Housing Market

Feds continue to fight inflation.  In an attempt to curb the inflation Feds increased interest rates by 75 basis points at their September meeting.  Stock market did not like it at all and fell to the lowest level since the beginning of the year.  Mortgage interest rates followed the Feds and climbed close to 7% range first time in 15 years.  In the aftermath of the Fed decision even gas prices moved up by 50-60 cents in the last week of September here in the Bay Area.  In this video I am going to share with you how these macro-economic factors are affecting Bay Area housing market.

What is even more significant than the Fed rate increase itself, was an announcement that their goal is to increase rates by additional 1.25% by the end of the year.  It forced most economists to review their forecast for the mortgage interest rates, the housing market and the US economy as a whole.  But in the current volatile situation I would not rely on any predictions.  I always remember that economist predicted 12 out of last 6 recessions.

So, the underlying problem we are facing is the inflation.  In order to control it Feds are working on slowing the economy down and they are succeeding.  In the local housing market, the result is slower growth of the home values.  If in April of this year the home prices were up by 16.6% year-over-year, the median home sale price was only 1.9% higher in September, again year-over-year.  And while September home sale prices were down by 12% from the April peak, year-to-date home values are still up by almost 9% compared with last year.

Other indicators of the slowing housing market are: number of new listings in September dropped by almost 20% compared with September of the last year, number of new contracts fell by 31%, and the sale volume as a dollar amount went down by 32%, year-over-year.  Median time on the market increased to 18 days.  Compare that with 7 days median time to sell a home in February, March, or April of this year.  As a result, number of homes available for sale in Santa Clara and San Mateo counties increased by 13.7% compared with the same time of the last year.

This Bay Area real estate market slowdown was caused by a significant decline of the stock market, the major source of down payments for the local buyers, and compounded by the mortgage interest rate hikes.  Right after the Fed rate hike I had a conversation with Sue Baker-Dirickson, a mortgage broker with Guaranteed Rate Affinity.  We talked about buyers selecting an optimal mortgage program: jumbo vs. conforming loans, 30-year fixed rate programs vs. 7- or 5- year fixed and much more.  Click here to watch our discussion.  If you are shopping for a loan, I would encourage you to check what Sue had to say.

Current market conditions present new opportunities for you as a buyer.  You will have easier time finding the right house with more homes available for sale and less competition from other buyers.  If you are planning to own the home for 5, 7 or more years and you can afford buying and holding it on your current loan terms, I would not hesitate to start writing offers.  Move-up buyer also will have easier time arranging both the buy and sell sides of the transaction on the slowing market.  If you are thinking about upgrading your current home, getting a bigger house, or moving into a more expensive area, it may be the right time to make your move.

And if you are a seller and it is the right time for you to sell your home, just put it on the market.  Housing prices are close to all-time high levels and homes are selling faster than in 2018-2019 time period, right before onset of the pandemic.  Afterall, it is still a seller’s market.