Fed Rate Hikes Are Crashing Palo Alto Housing Market - October 2022
At their September meeting Feds once more increased the rate by 75 basis points. And on top of that they said that they are planning to bump the rate up by another 1.25% by the end of the year. Stock market responding with a sell-off and at the end of September stock market reached its lowest point since the beginning of the year. Mortgage interest rates ballooned close to 7% range in the aftermath of the Fed’s rate increase.
Even gas prices jumped up by almost a dollar at the local gas stations. Palo Alto Gas on the corner of San Antonio and East Charleston is still the best price in town. Be prepared, however, to wait in line to fill up your tank.
The housing market continued to slow down in September. Number of new listings fell by 30%, number of closed sales decreased by 16% and number of new contracts dropped by 46%, all compared with September of last year. September median home sale price in Palo Alto decreased to $2,944,000, an 18% decline year-over-year. Year-to-date median sale price is still above the last year level at $3,350,000, a modest 1.5% increase.
Current market situation favors first time home buyers. Let me explain. Most existing homeowners have mortgages at lowest possible rates. They had a chance to refinance during the last few years when interest rates were at historically low levels. Moving to a different home will force them to get a new loan at a significantly higher interest rate than their existing loan. If they have to sell their current home in order to buy a new one, on top of that they may be facing significant capital gains consequences.
These two discouraging factors will reduce the number of potential buyers opening new opportunities for others. The same two factors will reduce the number of homes on the market because they will deter discretionary home sales. That will reduce the housing supply and will provide support for home values for the owners who will decide to sell in the current market conditions.
For the Bay Area housing market update - click here.
For mortgage rate update and a review of available mortgage programs - click here.