Bay Area home buyers seem to be hitting their limits with skyrocketing real estate prices and mortgage costs more than doubled last year, pushing more home sellers to do something almost unthinkable in the area’s white-hot market: cut prices.
“A lot of buyers have a price tag,” said Nicole Bachaud, Zillow’s market analyst. “Demand is definitely pulling back.”
Average US mortgage rates reached 5.78% last week. The typical home in the San Jose area was worth $ 1.7 million in May, with the average monthly payment on a new mortgage reaching $ 9,136 a month – about 60% more than in May of last year and 5% more than April, according to Zillow. Typical home values have increased by more than 22% over the past year.
In the San Francisco area, the typical home value of $ 1.5 million in May means $ 8,117 new-mortgage payments per month, more than 50% above May last year and 5% higher than April. Home values in the region have increased by 18.5% over the past year.
Across the country, rising interest rates, coupled with record home prices, have created a mortgage-affordability crisis not seen since 2007, Zillow reported. Nationally, affordability of housing has reached its lowest point in the last 15 years.
“The trend seems to be that the market has crossed an inflection point for home values between April and May, transitioning from always-hot to slightly-cooler price growth,” Bachoud wrote in Zillow’s May Market Report. “This recession is a clear signal that buyers are dialing up their demand for homes in the face of the daunting affordability challenges.”
Bachaud noted that revenues have not increased with housing prices and mortgage rates. “For new homeowners or people trying to enter the market, it’s a little more challenging now than it was in the past.”
Home sellers in the Bay Area seem to be responding to weak demand, the data show. In April, according to Zillow, the share of homes listed for sale with a price cut was less than 5% in the San Jose area and less than 6% in the San Francisco area. As of May, sellers have slashed home prices by more than 8% for both areas listed.
Bachoud said trimming the asking prices for owners does not signify the end of the housing crisis in the Bay Area and across the country. Prices just “slow down the pace at which they rise,” he said. “That doesn’t mean things are going to be cheap.”
Zillow expects rental prices to increase in the Bay Area and the US due to an increase in rental demand. “Because people can’t afford to buy a home, they have to live somewhere,” Bachaud said.
In the San Francisco area, typical rents for May reached $ 3,214, 10% higher than the previous May. And, at $ 3,295, typical rents in the San Jose area are up 12% over the previous year.
Cupertino real estate agent Ramesh Rao sees the Bay Area real estate market becoming more rational after years of intense competition and eye-popping prices for homes. With mortgage rates doubling since January 2021, rising inflation is fueling fears of a recession, the Russian war in Ukraine creates economic uncertainty, and the stock market crash that many buyers, home sellers and their agents can no longer afford absurdly high prices. Rao, a Coldwell banker, said a house was immediately shattered.
“Typical real estate considerations are in effect,” Rao said. “Is the price of a property correct? Does it show up well? Is it in a good school district? “
In the Bay Area, Rao said the stock market higher than mortgage rates guides the behavior of people buying single-family homes. He has several clients who are looking to spend $ 4 million or $ 5 million, but are now thinking twice because they have to liquidate most of their investment to come up with a down payment.
Homes can now take up to two weeks to sell, and fewer buyers may be competing for homes, but any idea that buyers are dominating is wrong and the promise of a “big price correction” is unfounded, Rao said. He said the area remains a vendor market. Still, “sellers are more reasonable these days,” Rao added.