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Why Bay Area Home Prices Are Not Falling - Bay Area Housing Market Refuses To Crash
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Why are Bay Area home prices not falling? Why are homes still so expensive? This is a question that I hear time after time after time when talking to my buyer clients. After the barrage of bad economic news - layoffs, bank failures, relentless inflation, interest rate hikes, jittery stock market and looming recession - many consumers expected home prices to fall this year. Afterall, the prices were declining from the April 2022 peak and it seems that the economic fundamentals are only getting worse since then. But at the beginning of 2023 the falling trend got reversed and Santa Clara and San Mateo Counties median home sale price grew by more than 9% so far this year.
Everyone who was predicting a housing market meltdown would have been right if not for the extreme shortage of inventory. Simply said, there are not enough homes on the market for the pool of the available buyers to purchase. Right now there are less than 1700 homes available for sale for 2.7 million people living here in Santa Clara and San Mateo counties. It means that there are 1700 residents for each home on the market. For comparison, in the Austin TX area there are only 480 people per listing. There are 3.5 more homes per capita available for sale in Austin metro compared to the Bay Area.
If you are thinking about buying a home this year, watch this video to the end. It will help you understand economic forces shaping the housing market. And if you are ready to discuss your own home buying plans and get a professional opinion about your situation, follow the link in the description of this video and connect with us. It will take only 30 to 45 minutes to develop a custom home search strategy and outline the first necessary steps towards home ownership.
There are two major reasons contributing to this housing deficit. First is the geography of the Bay Area. Most of Santa Clara and San Mateo Counties cities are squeezed between the bay and the mountains. From the tip of San Francisco Peninsula all the way to South San Jose, there is one continuous city without any gaps. All buildable land was already developed and there are almost no opportunities to build new homes, especially near the major employers like Google or Apple. Some of the commercial areas are being converted into residential or mixed use, but the rate of the development is not enough to keep up with the population growth. Since 2011 on average there was only one housing unit built for 4.3 jobs created in the area. A balanced rate of development would be 1.5 jobs for every new home.
The second reason is that current home owners are not moving. They are not selling because they are “interest rates locked” in their homes. Most existing owners were able to buy their homes, or refinance, some time during the extremely low interest rates period in 2020 and 2021. It is a very hard decision for them to put on the market homes financed at around 3% interest rate, and then purchase a new home at above 6. Even if these people need to move, it is often more lucrative to rent the old home than to sell it. Because of this, we don’t see many “discretionary” sales. Most homes end up on the market because of the life cycle events like inheritance, new kids in the family, divorces or job relocations.
Pair this low supply with the high level of demand and the prices are getting pushed up again. And the demand remains high enough to outpace the supply. Median time on the market is one of the measures of buyer’s demand. It fell from 23 days back in January to 10 days now in March, half of the homes that came to the market are being sold in 10 days or less. The inventory also fell from 2.4 months in January to 1.6 months in March. Six months of inventory is considered to be a balanced market. And even though the layoff headlines are blasted everywhere, the unemployment rate in Silicon Valley remains really low: Santa Clara County unemployment rate is 3.1% and it is even lower in San Mateo County, 2.6%. These rates are way below the full employment rate considered to be 5% or 8.8% unemployment rate we experienced at the peak of the Great Recession. It is hard to expect the housing demand to soften if unemployment remains that low.
Michael Talis:
Call/text: (650) 766-6100
Coldwell Banker Realty
CALDRE: 01883499
Why are Bay Area home prices not falling? Why are homes still so expensive? This is a question that I hear time after time after time when talking to my buyer clients. After the barrage of bad economic news - layoffs, bank failures, relentless inflation, interest rate hikes, jittery stock market and looming recession - many consumers expected home prices to fall this year. Afterall, the prices were declining from the April 2022 peak and it seems that the economic fundamentals are only getting worse since then. But at the beginning of 2023 the falling trend got reversed and Santa Clara and San Mateo Counties median home sale price grew by more than 9% so far this year.
Everyone who was predicting a housing market meltdown would have been right if not for the extreme shortage of inventory. Simply said, there are not enough homes on the market for the pool of the available buyers to purchase. Right now there are less than 1700 homes available for sale for 2.7 million people living here in Santa Clara and San Mateo counties. It means that there are 1700 residents for each home on the market. For comparison, in the Austin TX area there are only 480 people per listing. There are 3.5 more homes per capita available for sale in Austin metro compared to the Bay Area.
If you are thinking about buying a home this year, watch this video to the end. It will help you understand economic forces shaping the housing market. And if you are ready to discuss your own home buying plans and get a professional opinion about your situation, follow the link in the description of this video and connect with us. It will take only 30 to 45 minutes to develop a custom home search strategy and outline the first necessary steps towards home ownership.
There are two major reasons contributing to this housing deficit. First is the geography of the Bay Area. Most of Santa Clara and San Mateo Counties cities are squeezed between the bay and the mountains. From the tip of San Francisco Peninsula all the way to South San Jose, there is one continuous city without any gaps. All buildable land was already developed and there are almost no opportunities to build new homes, especially near the major employers like Google or Apple. Some of the commercial areas are being converted into residential or mixed use, but the rate of the development is not enough to keep up with the population growth. Since 2011 on average there was only one housing unit built for 4.3 jobs created in the area. A balanced rate of development would be 1.5 jobs for every new home.
The second reason is that current home owners are not moving. They are not selling because they are “interest rates locked” in their homes. Most existing owners were able to buy their homes, or refinance, some time during the extremely low interest rates period in 2020 and 2021. It is a very hard decision for them to put on the market homes financed at around 3% interest rate, and then purchase a new home at above 6. Even if these people need to move, it is often more lucrative to rent the old home than to sell it. Because of this, we don’t see many “discretionary” sales. Most homes end up on the market because of the life cycle events like inheritance, new kids in the family, divorces or job relocations.
Pair this low supply with the high level of demand and the prices are getting pushed up again. And the demand remains high enough to outpace the supply. Median time on the market is one of the measures of buyer’s demand. It fell from 23 days back in January to 10 days now in March, half of the homes that came to the market are being sold in 10 days or less. The inventory also fell from 2.4 months in January to 1.6 months in March. Six months of inventory is considered to be a balanced market. And even though the layoff headlines are blasted everywhere, the unemployment rate in Silicon Valley remains really low: Santa Clara County unemployment rate is 3.1% and it is even lower in San Mateo County, 2.6%. These rates are way below the full employment rate considered to be 5% or 8.8% unemployment rate we experienced at the peak of the Great Recession. It is hard to expect the housing demand to soften if unemployment remains that low.
Michael Talis:
Call/text: (650) 766-6100
Coldwell Banker Realty
CALDRE: 01883499
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