The housing recovery here in the Bay Area and across the country remains solidly on track, according to a variety of industry reports. But a handful of economic headwinds, from higher interest rates to steadily rising home prices, pose challenges as the fall home selling season kicks off.
A recent article in the New York Times noted that homebuilders are moving forward with construction, sellers are finding plenty of eager buyers and even overly cautious mortgage lenders are finally opening up the purse strings and making more loans these days.
Pent up demand from consumers coupled with a lack of inventory of homes on the market have driven prices up 12.4 percent between July 2012 and July 2013, according to the recent Standard & Poor’s Case/Shiller Home Price Index of the nation’s 20 largest metro areas.
But higher prices and rising rates could cool the red-hot housing market a bit, some economists told The Times.
Mortgage interest rates jumped from 3.4 percent for a 30-year fixed-rate loan earlier this year to about 4.5 percent in recent weeks, as the Federal Reserve signaled its intention to begin tapering the bond-buying program that has kept rates artificially low.
Rising rates could be responsible for pending home sales dipping in July and August, according to the National Association of Realtors, although sale contacts for existing homes last month remained above 2012 levels.
The good news for buyers is that rates dropped back down to 4.32 percent this week, according to Freddie Mac, as the Fed decided not to begin tapering its bond purchases – at least for now.
Here in the Bay Area, we just released our monthly luxury housing market reports and all regions saw strong year-over-year gains while posting seasonal declines from July to August.
Just a few of the highlights:
- There were 172 luxury sales over $1.5 million in Silicon Valley in August, a 47 percent surge in sales compared to a year ago. There were also 80 sales over $2 million, up from 46 last August. The median sale price edged up 1 percent to $1,917,500.
- Marin luxury sales over $1 million climbed even more, jumping 57 percent last month to 118 units. And the number of multi-million-dollar sales tripled during that period. The median price edged up 3.2 percent.
- Finally, East Bay luxury sales over $1 million set the pace for the Bay Area, spiking 74 percent to 273 transactions in August. The median sale price, however, dipped 3.5 percent from a year ago.
Anecdotally, we’ve seen the overall market slow just slightly although it remains very healthy – just not as crazy of a sellers’ market as it was a couple of months ago. Well-priced homes are still selling in a timely fashion and there continues to be cases of multiple offers, just not as many offers and not way over the asking price.
More listings are gradually coming on the market and that’s giving buyers more to choose from. And they have a little more time to make their decisions instead of being forced to fight it out with a dozen other bidders for a handful of properties, as we saw earlier in the year. That’s not necessarily bad; it feels like a healthier, more sustainable market.
We’ll report out in the next few weeks on San Francisco’s third-quarter luxury market and have a better idea of how the rest of the Bay is doing as we begin the fall home selling season. Stay tuned.
Below is a market-by-market report from our local offices:
North Bay – Our Northern Marin office says agents are seeing very few short sales and REOs come up for sale, as the market continues to stabilize – and increase. In Novato, we saw a month-over-month increase in the average price of Novato SFDs. The Petaluma area market shifted this week to a more traditional model with FHA and VA buyers dominating the mix of multiple offers. We are starting to see more offers contingent on the sale of another home, but multiple offers continue. As new resale homes come on line the open house attendance seems very robust garnering overflowing groups on well-priced homes. The demand is still for more listings. In Sonoma County inventory is steadily increasing, our Santa Rosa manager says. Open houses in the past week or two have been poorly attended and we are seeing more price reductions as sellers are adjusting to a dramatic change in demand in price points above $400,000. Where the market responded to appropriately priced properties earlier in the spring/early summer time frames with double digit multiple offers, we are seeing four or five offers for the sellers to consider now. In August 63% of the County’s sales were below $500K and currently that price point is 33% of inventory. However, on a positive note we expect to see a commensurate increase in the median price due to this lack of inventory in the lower price point. Sebastopol agents have experienced a little slowdown in sales these past two weeks but plenty of potential buyers are still out looking. One new listing had over 75 individuals come through at the open house and had multiple offers by Monday. Price, location and condition – if you have all three aligned the property is sure to sell.
San Francisco – Our Lombard office manager says there’s change in the air – not just an increase in inventory over the last two weeks, but more solo offers, some offer dates come and go, and there are some price reductions. Nevertheless, still evidence of well (or under) priced attractive properties bringing multiples: one sale this week 14 offers, 23% over. With a bump in inventory from sellers holding out until after Labor Day, Market Street agents saw an increase in the number of ratified deals. However, this increase in inventory is looking to be short-lived, and the market is returning to the way things have been throughout the year (too many buyers and not enough properties for sale). While the majority of listings continue to receive multiple offers (anywhere from two to six during this period), one well-priced and well-located condo had 11 disclosures out but did not receive any offers on its offer date (one arrived a day later). So, while buyers may be experiencing fatigue, if they remain diligent, there are opportunities to be found. Our Sunset manager says open houses are still well attended but just not as busy as three months ago. Some open houses are having 10-20 groups while some have 100 groups. It really depends of the neighborhood and price point.
SF Peninsula — Overall the inventory is still a bit slow in coming on the market and buyers are snapping up what few new listings there are, according to our Burlingame manager. That being said there is a bit of caution on the part of those buyers with regard to price and competition. If the expected number of offers gets too high for comfort we are seeing buyers opt to sit on the sidelines and wait. Higher interest rates have brought a bit of caution to the market. The fall market in Hillsborough is starting to ramp up and buyers are once again picking up good buys. One mid-century ranch home sold well over asking with four offers. The price point under $3 million is still the most active. There have been increased reports of showings/interest in the ultra- high end of the market (above $15M), our Burlingame North manager says. There still are multiple offers on almost everything. Higher-end properties are getting three to four offers, entry-level more. There were 10 offers on an entry-level SFR in San Mateo this week. The most offers reported lately. Increased inventory is providing more options for buyers and more open house opportunities. Over the hills in Half Moon Bay, agents are seeing a slow down on the coastal real estate activity – 91 active listing from the City of Montara down through HMB with almost half of those over the $1M range. Buyers are starting to negotiate. The Menlo Park area market is moving at a good pace. The local media is saying it is slower, but it’s slower only in comparison to the frenetic pace of four months ago. It’s still robust, our local manager reports. Fortunately, Palo Alto agents are seeing great momentum on new listings – although listings in general are scarce. Prices continue to appreciate. Our San Mateo office notes that there are still multiple offers but unless the home is underpriced there’s been a big crop in the number of offers –two to five on average. Woodside has seen three sales in the last two weeks in the $6-9 million range.
East Bay – Berkeley agents are looking forward to new listings scheduled to be marketed in the coming weeks. The local brokers’ tour is filling up with more properties, but if our local office is typical, there will be considerably more properties listed soon. All good news for a still low inventory area, with a predominance of multiple offers. Buyers seem happier because higher interest rates are knocking out some of the competition for homes, our Castro Valley manager reports, adding agents are seeing a few price reductions. Our Danville manager says the market has hit a lull in the San Ramon Valley. It is interesting that both inventory and new pending sales have decreased over the month of September. Multiple offers are fewer and often do not result in overbidding. Our Oakland-Piedmont manager reports that the number of properties receiving multiple offers have gone down, the number of offers have gone down, and the number of requests for disclosures have gone down as well yet houses are still selling, though not at the clip they were. There are still the homes that people flock to and compete over but they are fewer right now. Agents have heard from home inspectors that they are laying off because the lack of work. A couple of months ago agents had to wait longer periods of time to have inspections done. What a difference a couple of months and a rise in interest rates make. Prices that would have garnered multiple offers a couple of months ago now have to be reduced. There are still plenty of buyers out there and a big influx of re-approvals (no not preapprovals) for buyers coming back in to the market. The frenzy is over and it appears, as of today, to be a more “normal” market. In the Tri-Valley area, overpriced listings will sit, homes priced right and in good areas are selling with multiple offers. Definitely has eased up for buyers. The Walnut Creek market is seeing very little activity with price reductions and some listings dropping out of Previews price points. The market seems to be picking up slightly with buyers becoming used to the increased interest rates. Homes that are turnkey-ready and priced competitively are the first to sell. Homes that are overpriced are sitting and then need price reductions to move.
Silicon Valley – It’s still crazy out there, our Cupertino manager reports, adding that agents still need more good properties to hold open and sell. The Los Gatos Market remains hot under the $2 million dollar mark with a slight softening above that level. In the San Jose Almaden area, sales are increasing and going over list price on all levels, from $400k – $1,049,000. Our San Jose Main office manager says they had active weekends for open houses. Good traffic in all price ranges. Interest rates and positive signs of appreciation in housing are keeping buyers coming, however multiple offers are not as common as they were six months ago. Competitive pricing is most important today. The local Willow Glen market is experiencing a few different trends as we move into the fall selling season. Agents are seeing single-family residence inventory stay consistent and even contracting a bit each week. The real story is the condo and townhouse inventory is growing considerably as the fall season kicks in. This a great time for those first time homebuyers to get into either a condo or townhouse with plenty of inventory to look at.
South County – The South Santa Clara County market has cooled considerably, our Gilroy manager notes. Multiple offers are still commonplace, but they are not necessarily getting crazy over-bidding. We are seeing a significant increase in offers contingent upon the sale of another property. The market seems to be finally balancing between a seller’s market and a buyer’s market. Inventory has jumped up considerably. San Benito County is experiencing the same slow down. Up until two months ago the South County market was “hot” on all levels, our Morgan Hill manager explains. No matter what price point (from luxury to entry- level homes) multiple offers were the norm and properties sold as soon as they hit the market. Most listings sold at or over list price. It has become very evident, however, that this frenzied activity has all but stopped and the market has suddenly become more balanced. As the market continues to “right” itself, these swings will be necessary and unavoidable in the coming months.
Monterey Peninsula – Local inventory is currently at an 8.5 months supply, the highest in several years. It seems sellers are getting into the game but the buyers have slowed down and taking their time looking for the “deal,” but the median sale price on the Monterey Peninsula is now just over $950,000 up from $750,000 October 2012.