HUGE Shift ..Explained | Bay Area Real Estate Housing Market | March 2022

Overview:
There's very strong upward pressure on home prices throughout Bay Area for different property types and at different price points. The February data doesn't tell the true story and, in some locations, the reality is that median prices improved by +10% to +30% this year as evidenced by properties being negotiated today. These homes will have their transaction close in a month or so and the numbers will trickle into the data. So what's driving this?

1. Interest Rates
The Federal Reserve increased interest rates this month, which we've found to increase Buyer demand as Buyers understand that the low rates are not here to stay. The Fed has also indicated 7 additional hikes and some experts believe they might hike +0.5% in late spring to combat inflation quicker and minimize the total increase in rates during these hikes.

Doing the math on a sample $1M purchase, a +1% increase in interest rates translates into a -10% reduction in affordability while the monthly loan payments would remain the same. This means that buying a $1M property at a 3.5% interest rate has the same monthly payment as buying a $900K home at 4.5%.

When rates go up, historically, so do median home prices.

2. Inflation
The National Association of Realtors (NAR) defines home price growth as inflation +2%. February inflation was at 7.5% with a projection to end up around ~8% in March. By NAR's definition, that gets us to +10% median price growth.

3. Value of Location
Now that Covid is beginning to subside, companies are opening their doors and bringing workers back on site. This means that, once again, the public is taking into consideration the proximity to their office / kids' school location. Remember those who scattered into the furthest corners of Bay Area over the last couple of years? Once the reality of traffic sinks in, location becomes more valuable and more centrally located properties tend to see higher price pressure. We observed this effect back when the news of the vaccine was becoming internalized and the public realized that they might care, once again, if they have a coffee shop or a restaurant to walk to.

4. Fundamentals
The fundamentals of the Bay Area in real estate remain very strong. We still have an inventory shortage and demand that exceeds it by a huge margin. Yes affordability is top of everyone's mind and home price growth can't keep outpacing home price growth forever. That said, for there to be a balanced market between buyers and sellers, something needs to dramatically change - either Buyer demand needs to fall of a cliff (and we are seeing more demand driven by loan rates and inflation) or Seller home supply needs to substantially grow.

5. Millennials
This is the largest demographic, exceeding the baby boomers. They've finally also saved up enough money on eating avocado toast to buy a house and are in their prime years to become home owners. There's ample new demand that will continue driving the market for years to come.

See what your home is worth in today's market:

#realestateisfun :-)

Olga Golovko
Call/Text: (650) 409-OLGA (6542)
CalDRE# 01898618