Bay Area home prices fall as mortgage rates spike. Could it last?
The typical home price in the region dropped 5.2% last month to $1.26 million
As mortgage rates reach their highest levels in more than two decades, Bay Area home prices are falling, pricing many buyers out of the market and putting potential sellers on the fence.
The median price of existing single-family homes in the region fell 5.2% from June to July, to $1.26 million, according to the California Association of Realtors. After a year of steady price increases, sales increased during the traditionally busier spring and early summer home-buying seasons, resulting in the drop.
Rising mortgage rates, on the other hand, are putting a damper on an already strained local real estate market. The average rate for a typical 30-year fixed mortgage rose to 7.09% on Thursday, up from 6.96% the previous week, marking the highest peak since 2002, according to Freddie Mac.
“People are just not jumping into buying a home right now with these interest rates,” said Ramesh Rao, a real estate agent in the South Bay.
Meanwhile, a 30-year fixed “jumbo” home loan — which is common for more expensive homes — averaged 7.65% on Thursday, according to Bankrate.com. In the Bay Area, a jumbo loan is one that exceeds $1,089,200.
Since last year, when the Federal Reserve began raising borrowing costs to combat inflation, mortgage rates have been steadily rising. Rates have more than doubled since their recent sub-3% lows, causing monthly mortgage payments to skyrocket and bringing an end to a record-breaking pandemic real estate boom.
In November, rates briefly topped 7% before falling to around 6% in February. They’ve been on the rise since then.
Despite slowing inflation, Realtors Association economist Oscar Wei believes interest rates could reach 7.5% in the coming weeks before falling to around 6.5% by the end of the year.
In the short term, this will almost certainly put more downward pressure on home prices. Even if interest rates fall in the coming months, fewer people look for homes in the second half of the year, so prices should fall in line with seasonal trends.
“There may be some opportunities for buyers who are interested in buying in the fall and winter because it may not be as competitive,” Wei explained. “Buyers may have a little bit more bargaining power.”
From June to July, median home prices in San Francisco fell 8.5% to $1.46 million; in Alameda County, they fell 3.4% to $1.26 million; in Contra Costa County, they fell 3.2% to $900,000; in San Mateo County, they fell 2.7% to $1.98 million; and in Santa Clara County, they fell 1.4% to $1.8 million.
Buyers who could afford higher interest rates have had few options for more than a year. This is due, in part, to the chronic housing shortage in the Bay Area. However, many homeowners who would otherwise be willing to sell have refused to give up the lower rates they had obtained prior to the recent spike.
Sellers who are now putting their homes on the market are often reluctant to do so.
“It’s definitely more out of necessity, and they’re doing it unhappily because they have a direct comparison point to just a year and a half ago,” Montana says. According to Gabrielle Hooks, an Oakland real estate agent.
Hooks claims that some of her clients were forced to sell because their employers no longer offered full-time remote work. After being summoned to the office in San Francisco, one is forced to sell a recently purchased, spacious new-build in Fairfield, California.
“They would never have purchased it if there was even the remote possibility that they would have to return to the office so soon,” she explained.
The data supports the scarcity of available housing. According to the Realtors Association, selling all of the remaining houses on the market by the end of July would have taken less than two months, compared to nearly three months at the start of the year. A housing market is considered balanced if it has at least a four-month supply.
According to Rao, even as home prices begin to fall, a lack of well-maintained properties in family-friendly neighborhoods, combined with stubbornly high rates, is wearing on many home-seekers who were eager to enter the market earlier this year.
“If you look at buyers’ fervor, buyers’ passion when they come to open houses, it’s dissipating,” he said.
