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Bay Area home buyers faced with skyrocketing real estate prices and mortgage costs that have more than doubled over the last year appear to be hitting their limit, pushing more home sellers to do what has become almost unthinkable in the region’s white-hot market: cut prices.

“A lot of buyers are being priced out,” said Nicole Bachaud, a market analyst for Zillow. “Demand is definitely pulling back.”

Average U.S. mortgage rates hit 5.78% last week. With the typical home in the San Jose area valued at $1.7 million in May, the average monthly payment on a new mortgage reached a whopping $9,136 per month — nearly 60% higher than May of last year and more than 5% higher than April of this year, according to Zillow. Typical home values have risen more than 22% in the last year.

In the San Francisco area, the typical home value of $1.5 million in May means a new-mortgage payment of $8,117 per month, more than 50% higher than May last year and more than 5% higher than April. Home values in the area have shot up 18.5% in the last year.

Across the country, climbing interest rates driving higher mortgage costs, combined with record home prices, have created a mortgage-affordability crisis not seen since 2007, Zillow reported. Nationally, housing affordability has cratered to its lowest point in the last 15 years.

“The trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever-hotter to somewhat-cooler price growth,” Bachaud wrote in Zillow’s May market report. “This deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges.”

Incomes have not risen in tandem with housing prices and mortgage rates, Bachaud noted. “For new homeowners or people trying to get into the market, it’s quite a bit more challenging now than it’s been in the past.”

Home sellers in the Bay Area seem to be responding to weaker demand, data show. Back in April, the share of homes listed for sale with a price cut was lower than 5% in the San Jose area, and lower than 6% in the San Francisco area, according to Zillow. By May, sellers had cut the price of more than 8% of listed homes in both areas.

Owners trimming asking prices does not signal an end to the housing crisis in the Bay Area and across the country, Bachaud said. Prices are just going to “slow down the speed that they get higher,” she said. “It doesn’t necessarily mean that things are going to get any cheaper.”

Zillow also expects rent prices in the Bay Area and the U.S. to rise because of an increase in rental demand. “As people are priced out of buying a home, they have to live somewhere,” Bachaud said.

In the San Francisco area, typical rents in May reached $3,214, more than 10% higher than the previous May. And, at $3,295, typical rents in the San Jose area rose more than 12% from the previous year.

Cupertino real estate agent Ramesh Rao sees the Bay Area housing market becoming more rational after the intense competition for homes and eye-popping prices of the past couple of years. With mortgage rates more than doubling since January 2021, rising inflation raising fears of a recession, Russia’s war in Ukraine creating economic uncertainty, and the stock market downturn affecting many buyers, home sellers and their agents can no longer pick an absurdly high price and see a house snapped up immediately, said Rao, of Coldwell Banker.

“Typical real estate considerations are coming into play,” Rao said. “Is a property priced right? Does it show well? Is it in a good school district?”

In the Bay Area, the stock market, more than mortgage rates, tends to guide the behavior of people buying single-family homes, Rao said. He has several clients who had been looking to spend $4 million or $5 million, but are now thinking twice because they would have to liquidate a much larger portion of their investments to come up with a down payment.

Houses may now be taking two weeks instead of one week to sell, and fewer buyers may be competing for homes, but any notion that buyers are regaining the upper hand is mistaken and hopes for “a huge price correction” are unfounded, Rao said. The region remains a seller’s market, he said. Still, Rao added, “the sellers are more reasonable these days.”

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Article source: https://www.mercurynews.com/2022/06/22/are-bay-area-home-sellers-finally-cutting-asking-prices-here-are-some-signs-thats-so

Article source: https://www.cbsnews.com/sanfrancisco/news/hot-bay-area-housing-market-may-be-cooling-off-rising-interest-rates-more-inventory/

The latest data from home listings website Zillow shows that home values have started cooling in the Bay Area for the first time since the start of the pandemic. There was a slight month-over-month decrease in typical home values from May to June for five out of the top 50 largest metro areas: San Francisco, San Jose, San Diego, Austin and Seattle. Matt Kreamer, data spokesperson for Zillow, said the main theme among these areas is affordability.

“These areas are either among the most expensive places to buy, or have seen some of the largest home value increases over the past two years,” he wrote in an email. “Because the combination of home price growth and the recent rise in mortgage rates are pushing monthly payments past what many buyers can afford, you’re seeing inventory gains in these markets and competition among buyers ease the fastest.”

Meanwhile, Redfin data shows similar trends as the real estate listings site lists five California cities among its “fastest-cooling housing markets.” San Jose (1st), Sacramento (2nd), Oakland (3rd), Stockton (5th) and San Francisco (10th) made up half of that top 10 in a report by Redfin. The site ranked markets based on year-to-year price growth, price drops, supply, sales, and home-sales speeds from February to May.

Zillow’s data attempts to reflect a typical home’s value in zip codes across the country. Home value estimates are not only based on the prices of recently sold homes, but rather estimate the value of all homes within a zip code based on the selling price trends of similar homes in the area.

The Bay Area was overrepresented in the rankings because the jump in mortgage interest rates, rising inflation and stock market turmoil priced out more prospective buyers in a region already notorious for its high housing costs, according to Redfin analysts.

Zillow data shows the San Francisco metro area had a slight decline of 0.1% in home values, from $1,494,103 in May to $1,492,535 in June. The metro area consists of Alameda, Contra Costa, San Francisco, San Mateo and Marin counties.

Before that, San Francisco home values had been increasing since the beginning of the pandemic, only dipping briefly in April through June of 2020 when Kreamer said the housing market came to a “brief halt” due to the “uncertainty surrounding the economy as a whole, and the logistics involved in buying, selling and moving.”

“But then it quickly picked up to the record pace we’ve seen since then,” he said. “Expensive coastal markets like the Bay Area and Seattle do tend to follow similar trends in general.”

The San Jose metro area, which includes Santa Clara and San Benito counties, saw a 0.77% month-over-month decline in home values, from $1,692,646 in May to $1,679,555 in June, according to Zillow data.

San Jose, which topped Redfin’s rankings, saw a 21% decline in home sales compared with last year and a 9% rise in listings with price drops.

Sales also declined in Oakland (by 16%) and San Francisco (14%).

Places that lured many Bay Area and California residents during the pandemic — such as Boise, Idaho; and Austin, Texas — also made Redfin’s top-20 rankings. Still, all of those cities saw a year-to-year growth in home prices during this time span.

Zillow data shows that Austin home prices have reversed course in recent months, dropping 0.5% from $596,547 in May to $593,537 in June.

In Sacramento, where the median home price is $610,000, a seasonal bump in listings and lower demand driven by higher borrowing costs have resulted in a roughly 40% increase in inventory compared with last year, according to Redfin figures.

Erin Stumpf, a broker associate with Coldwell Banker and president of the Sacramento Association of Realtors, said she’s seen noticeable shifts in buyers’ behaviors since mortgage rates surged in mid-June.

Listings that would have attracted 10 offers just a few months ago now yield about two or three competitive bids, Stumpf said. As demand slows, bidding wars have become less common. Buyers are more cautious and more likely to hold firm on attaching strings to their offers — such as appraisal value and inspection-related contingencies — that were commonly waived in months prior.

“The buyers have a little bit more leverage. They don’t have to be as accommodating or give up quite as much on the front side that they may have had to to get into contract six months ago,” Stumpf said.

Buyers who can afford it might have an opportunity to purchase a home at a lower price with a less crowded buyer pool, though rising borrowing costs can drastically affect purchasing power in the pricey Bay Area.

For example, the monthly mortgage payment on a $1.6 million home — San Francisco’s median sale price — with a 6% interest rate and a 20% down payment would cost nearly $2,300 more than it would have in January, when interest rates averaged 3%.

Consumer prices jumped 9.1% in June, the Bureau of Labor Statistics reported Wednesday, which could result in higher mortgage interest rates as the Federal Reserve attempts to tame inflation — and further cool housing markets.

A cooldown could result in lower home prices in the near term “correcting for the price growth that we saw in the last few years,” Daryl Fairweather, Redfin’s chief economist, said. Still, low inventory means “the long-term outlook is still that home prices will continue to go up,” she said.

The last time there was a significant slump in the Bay Area housing market was during the financial crisis of 2008.

“This is definitely a different situation,” Kreamer, of Zillow, said. “What we’re seeing now is the start of a rebalancing of a market that we’ve been saying was unsustainable. If you compare what’s happening now to what was happening three months ago, it’s slowing. But if you compare it to 2018 or 2019, it’s red hot.”

And while inventory is going up, it’s still “historically low” as pandemic impacts such as remote work have kept demand high.

“There are huge numbers of people waiting to buy when they are able, and that demand isn’t going away,” Kreamer said. “We’ll see things soften until the market gets to a place where the buyers who have been priced out can jump back in. The big unknown is how much things have to slow before that happens.”

Andrea Gordon, an East Bay real estate agent with Compass, has seen lower attendance at recent open houses and fewer offers on homes.

While listings in some hot neighborhoods, such as Oakland’s Rockridge, are still near certain to yield several offers quickly, others with no obvious perks are sitting longer, Gordon said. Buyers who realize that competition has cooled are putting contingencies back into their offers. And the practice of artificially underpricing a listing with the expectation buyers will bid the price up by hundreds of thousands of dollars has become far less common.

Those shifts and buyers’ heightened scrutiny signal that “things are returning to what has, in the past, been what the market has looked like,” Gordon said.

“Salesforce offices are an important part of our culture, and how we use them has evolved. We are subleasing floors in Salesforce West to make the most efficient use of our real estate footprint. We will maintain ownership of the building and can reoccupy the space as needed over time. As the largest private employer in San Francisco, we are deeply committed to the city and are actively welcoming employees back to Salesforce Tower,” the company said.

Salesforce, which has more than 10,000 San Francisco employees, permanently allowed employees to work from home at least part of the week. The company bought 50 Fremont St. in 2015 for $637 million, before Salesforce Tower was built across the street.

Last year, the company listed sublease space across the street at the Salesforce East tower at 350 Mission St. Yelp and Sephora both subleased from Salesforce, a sign that centrally located, high-quality offices continue to be desirable.

Salesforce also canceled its 325,000-square-foot lease at the unbuilt Parcel F tower last year.

Slack, the messaging company now owned by Salesforce, listed 200,000 square feet for sublease at nearby 45 Fremont, the San Francisco Business Times reported in February.

Salesforce continues to grow in other cities, with plans for Salesforce Towers in Chicago, Dublin Sydney and Tokyo over the next two years. The tech industry has become more dispersed during the pandemic, hiring remote workers and growing outside of the Bay Area, where real estate costs and salaries are lower.

The company said it is hiring more selectively, as challenges like inflation and rising fear of a recession dampen the economic outlook.

A slew of major tech firms have downsized or shuttered San Francisco offices during the pandemic, including Coinbase, Pinterest, Block, Taskrabbit and PayPal.

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Article source: https://therealdeal.com/sanfrancisco/2022/06/17/you-bet-for-your-life-science-bay-area-sector-remains-sturdy-despite-uncertainty-for-tenants/