Bay Area Housing Market Update | September 2022 | Is It Beginning Of The End?
It is official! Housing market is slowing down. Home prices were declining for the last 3 months and at the end of August the median home sale price ended up exactly at the level of August of last year. All price gains achieved in the spring of this year got wiped out. Is market going to collapse like it did in 2008? Some people are predicting another housing crash, but the situation is nothing like it was 15 years ago.
All major indicators of the Bay Area housing market are pointing to a continuous slowdown. 20% fewer homes came to the market this year compared to August of 2021. Number of sales, number of homes that changed hands, is down by 33% year over year. Median time to sell a home increased to 17 days in August compared to just 9 days at the same time of last year.
The median home sale price for Santa Clara and San Mateo counties in August was $1,430,000, exactly the same as in August of last year. The average price per square foot also reverted to the last year level – $979 per sq. ft. this August vs. $976 August of 2021, virtually the same. Overall, the home sale prices went down by 13% since the all-time highs we experienced in April of this year.
The buyers got a sense of the softness of the market and their newfound negotiation power. The number of new contracts increased by 29% in August compared to the previous month, July of this year. And while the number of homes available for sale at the end of August increased by 14% year-over-year, it shrunk by 12% compared to the end of July.
Are these the first signs of an impending crash? Will it be worse than 2008? Should we expect a sharp drop in the housing prices and a tidal wave of foreclosures reminiscent of the Great Recession? Let me give you two reasons why today housing market situation is nothing like it was then.
First, we are in a completely different supply-demand situation. According to REALTOR.COM, the U.S. saw 12.3 million household formations between 2012 and June 2021. During the same time period, 7.5 million single-family homes were started, and 7 million single-family homes were completed. Simple arithmetic shows that we are more than 5M housing units sort in just keeping with the growing demand.
And it shows – at the time of this video there are 1.31M homes available for sale in the whole United States. In contrast, at the peak of the supply in 2007, right before the crash, the inventory was 3.81M homes. It is hard to imagine a scenario that after the long-term deficit we will be able to create a surplus of housing in the near future. This pent-up demand will support the home values and will prevent housing prices from collapsing.
The second factor is economic and financial strength of the current homeowners. Stricter lending standards and growing prices created a situation that homeowners have a record amount of equity – over $23 trillion. Again, due to the stricter lending standards (downpayment, income and credit history requirements) the foreclosures are at a record low level – 2021 was down by 49% from 2020 and 98% down from the peak of 2010.
And on top of that, 87% of homeowners currently going through foreclosures proceedings have positive equity and can sell their home with a profit instead of losing everything. This will minimize the number of fire sales and will keep the housing supply restricted contributing to the market stability.