The Real Estate Market is Still Under Pressure

 Mortgage rates jumped again this week, giving no relief to the price-weary homebuyers still in the market.

The rate on the 30-year fixed mortgage increased to 5.66% from 5.55% the week prior, according to Freddie Mac, and is up more than a half-point from two weeks ago. While lower than the 5.81% registered in June, the rate remains over 2 percentage points higher than the start of the year.

Higher borrowing costs have left cash-strapped homebuyers at a divide. Some folks have opted to put off their purchase plans and wait for better market conditions, while those who remain are taking advantage of the dip in competition to strike a bargain with sellers.

“The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower demand, likely resulting in continued price growth deceleration,” Sam Khater, Freddie Mac’s chief economist said in a news release

Ronda Lee
·3 min read

As the housing market cools and returns to pre-pandemic norms, sellers — once in the driver’s seat — now have to readjust.

A new Realtor.com survey found that 92% of sellers accepted some buyer-friendly terms and 41% accepted some contingencies in the contract. This is a stark contrast to the bidding wars and contingency waivers last year and earlier this year.

“We're seeing a shift from a seller's market to a buyer's market for at least a few months and now is the time where buyers can actually ask for more,” Krystle Moore, CEO of Pacific Shore Capital, told Yahoo Finance Live. “We're not having to ask for no contingencies or going over list. We're not seeing those things happening anymore, so buyers definitely do have the upper hand.”

A return to normal means that sellers won’t be receiving multiple offers and that homes in need of repair won’t sell as high.

GOLDMAN SACHS ON HOME PRICES:

On home prices:

  • "Our model suggests that home price growth will slow sharply in the next couple quarters (+8½% quarter over quarter annualized rate (AR) in Q3, +3% quarter over quarter AR in Q4, corresponding to +14% Q4/Q4 in 2022), as the imbalance between supply and demand continues to shrink, mostly through lower demand. Thereafter, we expect home price growth to stall completely, averaging 0% in 2023. While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.

  • Our market continues to show weakness.  Home prices in San MAteo and Santa Clara on average dropped a little over 5% from last month.  It is the second month in a row that home prices have declined.  The high end market is now selling below list.  Price cuts are becoming the norm and days on the market are increasing.

  • It is still my belief that waiting to get a better price on a home is not as favorable as a lower mortgage rate which the buyer will have for 30 years.  The but what if rates come down are offset with the refinance option.  I wouldn't count on "what if".  Opportunity can escape.  Those homes still on the market will see seller's who are willing to negotiate price.  Leaving the Bay Area was shown in a recent article on the revival in home prices San Mateo and Santa Clara where still down while San Diego and Los Angles were up over Pre-Pandemic.  

  • The virtual Zoom towns have shown the greatest weakness in prices as the return to the office and escape from the Bay Area appears to have ended.  Now the movements will be based on the "cost of living".

  • List price is not sales price as we see below.  The history of market action will see the point when list price is down and sales prices are up.  That will be the bell to sound a bottom.  Until then, as long as the FED continues to raise rates and liquidate their balance sheet we will see higher mortgage rates and weaker prices for all assets from growth stocks to real estate


  • Housing Inventory SnapshotAugust 28, 2022
     Average List Price30 Day TrendAverage Sold Price30 Day TrendAverage DOM: active/sold30 Day TrendNumber of Active Listings30 Day Trend
    Santa Clara County, CA
    Single Family$1,609,432+2.14%$1,602,468-0.84%47 / 229 / 4753-154
    Luxury Single Family$5,337,174+10.85%$3,919,539-2.06%57 / 2310 / 5239-53
    Condo/Townhome$802,514-0.78%$773,063-7.98%44 / 258 / 5344-64
    Luxury Condo/Townhome$1,572,169-2.72%$1,523,805-3.66%41 / 206 / 1114-18
    San Mateo County, CA
    Single Family$1,942,666+0.74%$1,937,808-0.33%40 / 211 / 5335-17
    Luxury Single Family$8,096,115-1.71%$5,727,911-3.33%83 / 202 / 2112-6
    Condo/Townhome$850,930+0.62%$829,057-3.77%56 / 385 / 1216921
    Luxury Condo/Townhome$1,705,320+3.92%$1,743,087+2.62%45 / 81 / -4542
    Santa Cruz County, CA
    Single Family$1,262,070-3.16%$1,248,044-1.21%56 / 297 / 11176-18
    Luxury Single Family$3,759,096-0.90%$2,786,350-7.00%81 / 195 / -159-2
    Condo/Townhome$682,323-5.48%$765,717+3.83%68 / 2812 / 1037-9
    Monterey County, CA
    Single Family$992,740-5.24%$995,047+0.08%49 / 266 / 5277-10
    Luxury Single Family$7,275,753+13.67%$4,765,556+5.82%123 / 6318 / 4784-7
    Condo/Townhome$612,103-1.81%$565,529-13.10%33 / 20-1 / 11260
    Contra Costa County, CA
    Single Family$825,352-4.42%$818,768-8.48%39 / 255 / 4979-58
    Luxury Single Family$2,581,967-6.68%$2,175,229-7.84%44 / 258 / 8329-15
    Condo/Townhome$526,661-1.05%$538,428+7.74%37 / 214 / 5207-11
    Luxury Condo/Townhome$1,193,359-0.96%$1,170,500+1.91%30 / 150 / 365-7
    Alameda County, CA
    Single Family$1,042,248+0.07%$1,093,767-2.90%39 / 233 / 5871-47
    Luxury Single Family$2,679,999+3.99%$2,284,248+4.59%42 / 235 / 7287-28
    Condo/Townhome$642,430-1.61%$617,471-6.33%41 / 274 / 8377-24
    Luxury Condo/Townhome$1,178,446-0.78%$1,115,407-1.01%41 / 215 / 6118-13
     The worst market is San Francisco's Commercial market .   Commercial Properties once for sale have ben removed from the market.  Offers of 70% below 2019 values indicate investors have little taste for the risk ahead.  24% vacancy rates from "the work at home" syndrome have had a big impact on values based upon cash flow and cap rates. That appears to be only one of the potential issues keeping investors out of the San Francisco Commercial market.  The City's budget is taking a hot, lack of conventions, empty storefronts, homeless encampments and open air drug dealing have investors assessing the risks to realities of the San Francisco investment climate.

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