Homebuyers in the Bay Area, faced with soaring home prices and mortgage costs that have more than doubled in the past year, are reaching their limits, prompting more home sellers to do the same. What is hard to imagine in the region’s red-hot market: price reductions.
“Many buyers come at a price,” said Nicole Bachaud, market analyst at Zillow. “Demand is definitely going down.”
Average US mortgage rates hit a high of 5.78% last week. For a typical San Jose-area home of $1.7 million in May, the average monthly payment on a new mortgage hit $9,136 a month — about 60% up from May last year and 5% up from in April. year, according to Zillow. Typical home values have increased by over 22% in the past year.
In the San Francisco area, a typical home value of $1.5 million in May translates into a new mortgage payment of $8,117 per month, up 50% from May last year and 5% from April. House prices in the region rose by 18.5 percent last year.
Across the country, rising interest rates leading to higher mortgage costs, coupled with record home prices, have created a mortgage affordability crisis not seen since 2007, Zillow reported. Nationwide, housing affordability has fallen to its lowest level in the last 15 years.
Bachaud wrote in Zillow’s May market report: “The trend shows that between April and May the market passed an inflection point for house prices, always converging from warmer to slightly cooler price increases. “This slowdown is a clear sign that buyers are reducing their demand for homes while facing daunting affordability challenges.”
Bachaud said incomes have not risen with house prices and mortgage rates. “For new homeowners or those trying to break into the market, it’s a bit more challenging now than it was before.”
Data shows Bay Area home sellers are responding to weak demand. According to Zillow, the percentage of homes for sale with price drops in April was less than 5% in the San Jose area and less than 6% in the San Francisco area. By May, sellers had slashed listed home prices by over 8% in both regions.
Bachaud said owners cutting prices aren’t signaling the end of the housing crisis in the Bay Area and across the country. Prices will only “slow the pace at which they go higher,” she said. “That doesn’t mean things will be cheap.”
Zillow also expects rental prices in the Bay Area and the US to increase due to increased rental demand. “Since people have to pay the price to buy a house, they have to live somewhere,” Bachaud said.
In the San Francisco area, typical fares reached $3,214 in May, up 10% from the previous May. And at $3,295, typical rents in the San Jose area are up more than 12% over the past year.
Cupertino real estate agent Ramesh Rao sees the Bay Area housing market continue to streamline after intense competition and staggering home prices in recent years. Mortgage rates have more than doubled since January 2021, rising inflation is fueling recession fears, Russia’s war in Ukraine is creating economic uncertainty and a stock market slump is affecting many home buyers. Wallers and her agents can no longer accept an absurdly high price and stand by. Coldwell banker K Rao said one house collapsed immediately.
“Specialist real estate ideas come into play,” Rao said. “Is the price of a property reasonable? Is it good? Is it in a good school district?”
Rao said that in the Gulf region, the stock market guides the behavior of people buying single-family homes more than mortgage rates. He has many clients who wanted to spend $4 or $5 million but are now thinking twice because they need to liquidate a large chunk of their investment to make a down payment.
Rao said it could now be two weeks before houses are sold and fewer buyers may be competing for houses, but buyers are believed to be gaining the upper hand and “a huge price correction.” The expectation is unfounded, Rao said. He said this area has become a seller’s market. Still, Rao said, “salespeople are more sensible these days.”