Chic vs. Geek: Summertime Silver Linings

Amidst news of rising interest rates and supply shortages, there are opportunities to find silver linings in the housing market. Let’s take a look at a few examples:

CHIC (PEARL)

One piece of good news for potential buyers is that banks should get faster and more efficient at processing loan applications, especially with a sharp drop-off in re-financing due to rising federal interest rates.

Another positive is the job market. Prior to the pandemic, we were already experiencing high unemployment — and under-employment — and the COVID shutdown took it to record levels. Today, there are two jobs available for every unemployed American. That means more people with the potential to buy, especially first-time buyers.

And while supply chain breakdowns have left some store shelves empty, many retailers are overstocked in some goods, leading to sales and discounts for savvy buyers.

GEEK (KEVIN)

If the Fed's goal was to bring down prices, it’s working. Following spikes of 20% or more in the past 12 months, the volume of price adjustments off super-high prices is now up 69% compared to May 2021.

In a cooling market, buyers also have more choices and opportunities. Over the past year, we’ve seen as many as 10 bidders on a single property, making it hard to score the home you want. Now, inventory is up an average of 8% over last year in many parts of the country — including the Bay Area — which means prices could continue to drop.

And if you’d rather build your dream home — and who wouldn’t? — lumber prices have fallen roughly 56% off this year's highs, and copper is down 18.3%.

Geek's Number Talk: Luxury Listings

In a rapidly changing market, more data is always useful. One strong market indicator in the Bay Area is luxury sales — properties over $3M — which hit historic highs in Spring 2022. However, pending sales have dipped year-over-year. Have a look at this graph for more numbers.

Geek's Number Talk: Santa Clara County Market Update

Continuing a trend we’ve been seeing since ringing in the new year, Santa Clara County house and condo sales volume was down in May compared to one year ago. This led to a jump in the median sales price and a dip in average days a property is spending on the market. We’ll see if this seller’s market keeps up in June, or if higher interest rates lead to a sales pause.

Geek's Number Talk: As interest rates rise, the market falls.

With the Fed about to increase interest rates another three-quarters of a point, Wall Street is reacting, and not in a good way. The Dow Jones lost 876 points Monday — or nearly 3 percent — Nasdaq fell 4.7%, and the S&P 500 lost nearly 4%. Overall, the market is down 20% since January. Want to get more numbers? Have a listen to the PBS News Hour.

Geek's Number Talk: Where’s all the housing?

A lot of Bay Area cities are blaming each other for the housing shortage we’re all experiencing, but the truth is we aren’t building enough new housing anywhere, and we haven’t for a while.

Permits were issued for 119,636 new homes statewide in 2021 – just two thirds of the projected need – and this year it’s expected to be even less, with only a fraction in Santa Clara County. If this comes to pass, it will be the 30th year out of the past 35 that California has failed to meet housing production goals. And even permitted projects face false starts and stall outs due to shortages of labor and materials, as well as ever-present community pushback.

Bottom line: Unless hundreds of thousands of new homes are built this year and for many years thereafter, Bay Area home prices will continue to rise, and this will continue to be a seller’s market.