Hello Everybody! Welcome to our June Bay Area Housing Market Townhall. You can find the video version of this market update here, on our YouTube Channel. We host Bay Area Housing Market Townhall, register here to join us live!
Let’s discuss the state of the market and check what has been going on in Silicon Valley. I always share the offers that we have been making and how many offers these properties have been receiving. We used to see double digits every time and then last month, we went down to single digits.
But we still see some multiple offers and this month, we started seeing increasing offers, so it definitely has seen quite a drastic change. This is from the month of May, but if you look at the month of March, there are completely different numbers. However, the good news is that we still see that numbers are not way below “asking price.” They are still slightly below asking price, but a lot of them are still at or higher than the asking price. We have started seeing quite a few cash offers.
I guess you might have noticed that we definitely see a lot more cash offers and some of the offers are being made off the market. In Cupertino and Los Altos, they are sold really quickly, and this is still $800,000 over asking price in Los Altos. There are still people who are making offers especially the ones with cash, and they don’t really require financing. They are still pretty aggressively looking for properties. At the end of the day, as we know, if people really need to move, it’s just that right now. They do have a lot more options to choose from.
In terms of Days On Market and also the Sales Price Over List Price Ratio, as depicted in the picture, last year’s average days on the market in Santa Clara County is about 12-15 days or about 2 weeks. So, it is really not that bad. At the beginning of the year, it was about 14 days and then it came down to 10 days which was great, and now, it just came back up one more day, to 11 days. But what makes a bigger difference is that we saw it went from about 17% back in March, the height of the season, to about a little over 12% over asking price. Although it’s still pretty good, it doesn’t look like what we just talked about, but obviously, this still has combined with so many listings; it’s 12,000 listings in Santa Clara County. We definitely see some pockets of the area have started to slow down. It’s just that people are still making an offer at and above and that we started in June. Definitely, we started seeing some people starting to make an offer below asking price though. So, we’ll see how this chart is going to look next month.
Last month, Median Sales Price for single family in Santa Clara County, was at $1.9 million. It peaked in April at $1.95 and then, it was $1.9 in May. As of June 15, it came down to $1,877,500. As for Condominiums and Townhomes, I remember the last few months we were enthusiastic as it broke a million-dollar barrier, and now, in June, it came back down to $960,000, as of June 15.
The orange line in the chart is showing the number of sales versus the number of active listings. In 2019, we’ve been talking about the price coming down a little bit. The market was a little bit slow at that time. So we saw that the number of active listings versus the number of sales has a rather big gap and then, the market started to improve and in the crazy year, 2021, the gap has started to shrink and it became smaller and smaller and even inverted. In the orange line, it has gone above the number of actives but then of course, now, we are going back to where the gap is starting to widen again, starting in May. We were expecting to see that. We are going to see more and more number of active listings while the number of sales is going to be slowing down a little bit, so the gap is going to be widened again which means that it’s going to reflect back in 2019 when the market is going to slow down. Some of the pricing might come down a little bit. The biggest question is how long is this going to last and we’re going to talk a little bit more about it later.
In terms of the months of inventory, again we’re talking about like 2019 time frame where the price did drop a little bit and the time in Santa Clara County, they’re all the way up to 3.2 months of inventory, and even though right now, we did see the market slow down. We do see that it just went from 0.9 months, and came back up to 1.4 months of inventory. So, it is going up but that is still not as high as back in 2019.
This one is a little scary. Look at the “list price decrease” in Santa Clara County, in January, there were 32 listings, February 37, March 97, April 167, and then May 292 and in the first 15 days, we already have 332 units dropped in the list price. Same for San Mateo County, Alameda County, and Contra Costa County, the numbers have gone up quite significantly and what you can see here is that in 15 days, we already have more than the entire month of May. So, definitely, a lot of sellers are reflecting back and dropping their price on their listings.
Number of Listings withdrawn and canceled – Some of the sellers are not willing to drop their prices. I’m sure some of you have some of those sellers that are not willing to drop the price and that they would much rather withdraw or cancel listing temporarily and then put it back in the market when the market is better. So, we do see that again. In May, we do have a lot more withdrawn and canceled and then in June, we have not as much as the whole entire month of May yet, but it has been keeping up. It’s pretty much half of what May have already, so you see that there’s definitely more and more sellers that are going to say that they are going to withdraw for now and then wait for the market to bounce back before putting it back in the market. A lot of sellers have decided to lease their house out first. Because the rental market is actually really good right now, so a lot of sellers actually would much rather rent out their houses from now until the market bounces back up before they put them back on the market.
Let’s take a look at the external factors that we’ve been seeing on the market and on the news but we have so many buyers asking us right now, what’s going on with the housing market? How long is this slump going to last? When do you think that we should list the property? When do you think that we should buy it?
The way we look at the housing market, there are a few external factors, the causes for inflation, we need to think about what had caused that inflation, and then, of course, there’s housing supply as well. No matter what, supply and demand are fundamental to an economy and the same thing for the housing economy, so we need to look at that. Then, of course, we have the Fed Rate increase because of the inflation and the stock market fluctuates because of the Fed Rate increase and then because the stock market fluctuation, it has caused a dent in employment, e.g., layoffs, hiring freezes and also because of the Fed Rate increase, the 10-year bond rate also has increased and the mortgage rate, therefore, increased as well which can affect a lot of people’s pre-approval.
We are going to look at a few of these factors and then come up with a picture to see what you should do now.
Let’s look at inflation first. We look at the 12-month change in the prices of all these different items right and as you see that gasoline is the one that has increased the most by 48.7% and airfare is 37.8%. I recently just bought a ticket to go to Nashville in July and I was so shocked because it cost me a $1000. I thought the price might come down. I just kept waiting. I waited for it for 3 weeks and as the price was not coming down, I bought it before it goes up even higher. So, plane tickets definitely have gone up quite a bit and also, of course, transportation and hotel rooms. But one thing that is really interesting is I thought housing would be way high up there but actually housing is all the way down here which is still high at 6.9%, but I just thought it’s going to be higher. Used vehicle also has gone up quite a bit and new vehicles as well. If you are looking for cars in the last 2 years, I personally also have experienced that you just can’t find. There’s no cars in the car lot which is really strange. The craziest thing is that if you have a used car or if you have a car that you bought it used and then you want to sell it again, you might actually make money now because the used car value has gone up so much. The only two items that actually have gone down is rental cars and also IT hardware and services. I don’t know if it’s true that they have gone down, IT hardware and services and rental cars, I actually don’t have that experience but just seeing everything else I thought everything looks like yes I have that experience including appliances have gone up. We were buying some housing supply to remodel our house and then just by 3 months difference, the prices have gone up 20%. If I didn’t purchase it 3 months ago, it would have gone up 20%. Everything has just gone up pretty darn fast.
The other thing, the gasoline we have mentioned, February 2020, it was a national average of 2.53 per gallon and it hit $5 on June 13 of this year, 2 years later. One of the reasons causing the gasoline to wind up is the Ukraine war and also the oil supply. We are not using the local oil supply in the United States. Also, we have the supply chain issues which have started basically during this pandemic. We talked about it last year. I believe it was last year during one of our episodes and you see all these shipping containers just parked outside of long beach harbor, hundreds of them, and right now we’re still suffering from it. It went from baby formulas to feminine products to lumbers, pretty much anything that we’re using on a daily basis is being affected right now. Another thing is the money supply. During the pandemic, the fed had printed out quite a bit of money to help during the pandemic because a lot of people lost their jobs and they didn’t have any income so they had printed a lot of money out. The increase in the money supply has caused inflation. This inflation was expected for 2 years as soon as they started printing money or giving money away. A lot of economists had already said that inflation is going to be an issue. It’s just now that we’re starting seeing it because we started seeing the numbers, 8.3%, 8.5%, and then every couple of months, it’s like new-40 years’ high and this month, we hit 8.6% on the inflation.
On top of that, the housing prices are not caused by just inflation. Housing prices are caused by housing supply mostly because demand is so much higher than housing supply, and I want to share with you one episode I saw, produced by Candice Nguyen from NBC Bay Area, called “Overpriced, Overwhelmed, Over It!” I thought she did a really excellent job because most of the time when I watch this news I feel like they would kind of point a finger to one party but then she had looked at the housing pricing issues from a lot of different angles; from the landlord, investors point of view, from the government politics and development side, and also the affordable housing policies and rental policies. I thought this is a four-part episode. Definitely take a look at it on YouTube and I think you’re going to enjoy it. One of the episodes did talk about development. There are a lot of lands being bought by developers, and they’re ready to go but then they are stuck right now. They are not able to get it passed. In one project if you really want to build, let’s say 10,000 units it’s going to probably take 20 years, from buying the property to going through all the bureaucracy and then finally building. It can take 20 years.
So right now, in California, we are about 2 million units short and nationally, we have statistics that is showing from 3 to 5 million units short. It takes 20 years to build 10,000 units for a project – How are we going to ever catch up to meet that demand?
This is one biggest issue that I hope our politician really understand what all these red tapes that they are putting out there is really slowing down these developments and not only that they have added a lot of impact fees to the developers so that it costs so much more when the lumber cost has gone up and then impact fees has gone up, there are so many taxes that are getting hit by a developer. It has become unattractive for some of them to actually go ahead and develop these massive projects. I hope that somehow we’re able to go through this without waiting that long because I think the government really needs to help us to speed up these development processes so that we can get these properties on the market and it’s starting to provide affordable housing for the residents.
We talked about inflation and then because of inflation, now the government has to slow it down and so they are controlling our economy pretty much by raising the federal rate. At the beginning of the year, we had already talked about Federal Reserve planning on raising rates 6 times at least.
Now, we are seeing another three-quarter of a point increase today, June 15th, and this is the biggest rate increase since 1994. By raising the rate, a lot of people started to get scared and the stock market fluctuate. Sometimes when they raise rate, the stock market drop and then today, they raise rate they said that it’s great that the stock market jumped because, they said, now federal finally is staying tough on the inflation. Believe it or not, there are a lot of economists out there saying that Federal Reserve should be raising rate by 100 basis point instead of just by 75 basis point because they said that it is not hard enough. But the stock market kind of react accordingly but it’s just that the consumer is still not comfortable because they see the market just go one day up and then down and up and then down and up and down and then now all of a sudden, it went down quite a bit in June last week and then now, today came back up a little bit so no matter what the stock market fluctuates so much that it’s getting a lot of people worried.
Because of that, the economy has so many uncertainties. The companies are also a little bit worried; however, we have really good unemployment rate until April. If you look at national employment rate in April, it’s 3.6 and while California is at 4.6 but San Jose is at 2.2 versus Oakland-Hayward-Berkeley at 2.9 and Redwood City San Francisco area at 2.1. In terms of unemployment rate in the bay area, we’re actually doing really well
We are still seeing some tech companies laying off people. They’re saying that they’re facing the biggest downturn in 2 decades. So far this year, tech companies worldwide have laid off a total of 35,000 workers already. A lot of companies also reversing their hiring plans like Meta, which is Facebook, and Twitter; they have been slow to pass their hiring plans while Netflix, Peloton and Robinhood are laying off workers; however, I would have to say though Netflix, Peloton and Robinhood they are laying off workers not really because of the market, they have had some operational issues. I feel that shouldn’t be related to this whole economy. Cryptocurrency exchange, Coinbase, said that it was cutting its own workforce as well by 18% or about 1100 people, that’s a lot of people that they’re cutting.
Not only tech companies, but real estate has also slowed down so much. Compass had cut its workforce by 10% and Redfin also had laid off 8% of its employees.
Now on top of all of that the mortgage rates have gone up quite a bit.
Let’s check the high-balance conforming mortgage rates in the bay area. April, it was at 4.875%, last month in May, it has gone up to 5.5% and again June, has gone another quarter-point to 5.75% and this high-balance conforming loan amount is between $647,201 to $970,800.
In terms of Jumbo loan, anything that is over the high-balance loan limit is considered Jumbo, so the larger loan amount. Jumbo 30-years fixed, it was at 4.125%. I remember back in April people were really worried that it has hit 4% and in May, it has gone up to 4.75% and in June, it hit 5%. It definitely has gone up quite a bit. Remember! For every 1% increase, your monthly payment goes up by about 13%, so it can be a pretty big jump for a lot of people.
For mortgage rate projections, here we track Freddie Mac, Fannie Mae, Mortgage Bankers Association, and National Association Realtors; they all have adjusted their projections for these quarters. For 3Q 2022, Freddie Mac is projecting at 4.8% and Freddie Mac seems to be projecting the lowest compared to other agencies while National Association Realtors is projecting at 5.2% for 3Q 2022 but then it continued to go up as you check most of them just continue to go up to 2023 2Q; however, Fannie Mae has shown that after 2023 2Q, it is going to start coming down. It actually seems like for Mortgage Bankers Association, they are also expecting that, starting from 2023 3Q the interest rate might be coming back down to under 5%, so let’s hope that the mortgage rate will come back down later but it also shows that right now there’s a lot of buyers because of all the factors we talked about, the inflation, unemployment rate, the supply chain issues, supply, and demand plus the mortgage rate increase. It has caused a lot of confusion for a lot of home buyers and home sellers.
This month, we also invited three real estate experts to join our panel discussion. Steven Huang, Katie Moe, and Samantha Tov are experts in San Francisco, East Bay, and Sacramento markets. They shared their insights and thoughts on the market during this month’s Bay Area Housing Market Townhall. We talked a lot about how to advise home buyers and home sellers and what they should do right now during this market uncertainty. Check out the recording on our YouTube Channel as well!