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“Home prices in the Bay Area have shot up since the pandemic, but historically low mortgage rates have kept monthly payments somewhat affordable,” said Matt Kreamer, data spokesperson for Zillow, in an email. “Now that rates are ballooning, more and more people are being priced out.”

According to Zillow data, the monthly mortgage payment for a typical home in the San Francisco metro area was $8,117 as of June 16. That is a 41% increase from Dec. 31, 2021, when it was $5,765, and a 53% jump from June 30, 2021. The mortgage payment calculations include the rise in interest rates each month, and the rise in the typical home value for that month.

The metro area is defined as Alameda, Contra Costa, Marin, San Mateo and San Francisco counties.

In the San Jose metro area, defined as Santa Clara and San Benito counties, the monthly mortgage payment for a typical home in the area was $9,136 as of June 16. That’s a 44% bump from Dec. 31, 2021, and a 57% year-over-year increase.

Kreamer said much of this recent surge in monthly mortgage payments is due to interest rates. In the past two years, mortgage rates plunged and the 30-year fixed-rate mortgage hit a record low of 2.65% in January 2021.

“Those incredibly low rates were offsetting a lot of the sudden surge in home prices, and now they’re not,” he said.

The average 30-year fixed-rate mortgage as of Tuesday is 6%, according to Bankrate.

For a “typical” San Francisco-area home that sells at $1.5 million with a 20% down payment, moving from a 3% to 6% mortgage rate translates into a difference of $2,100 a month.

To offset that, many home buyers will need to look for homes at lower price points. A home buyer looking to still pay what was the average monthly mortgage payment back in January (about $5,700) would need to chop as much as $450,000 off their home’s sale price to get that same monthly payment now, according to Bankrate’s mortgage calculator.

“The impact that rates have on monthly costs of buying a home are huge,” Kreamer said. “What that means for the market is that homes will take longer to sell.” On the positive side, that should give some buyers more time to compare and consider homes.

Another benefit to buyers is it could lead to more price cuts, following a stretch where sellers could list at whatever price they wanted to and often fetched far more.

“A month ago, just 5.8% of Bay Area listings had seen a price cut, and now that’s up to 8.3%,” Kreamer said. “Expect that trend to continue, and expect the rate of price appreciation to slow significantly.”

At the same time, home affordability has continued to worsen in the Bay Area, particularly since the start of 2022.

According to the Atlanta Federal Reserve’s Home Ownership Affordability Monitor, the San Francisco metro area is ranked second to last out of areas with more than 500,000 residents, scoring 41.5 as of March 2022. The lower the number, the more unaffordable the area is deemed, with scores below 100 considered unaffordable.

To afford a median-price home of $1.26 million in the San Francisco metro area, 72% of the region’s median income of $118,740 would need to go to the mortgage, according to data last updated on May 13.

Drilling down to Bay Area counties shows Marin is the most unaffordable locally, with a score of 38, followed by San Francisco at 44 and San Mateo at 47. Alameda County has a score of 50 and Contra Costa County has the highest score, so is ranked most affordable among the counties, at 65.8.

So what does this mean for potential Bay Area home buyers? Kreamer said it’s “a bit of a mixed bag,” because on one hand, they have more options and more time to look for the right home.

“Price growth is going to slow down as sellers start to confront what buyers will actually be able to pay for their house,” he said. “And they’re likely to see fewer bidding wars that have defined the past two years.”

But at the same time, it’s hard to predict whether rates will plummet again, and monthly mortgage payments are soaring, which “has likely priced many prospective buyers out of the market already.”

Undeterred, white property owners searched for legal end-arounds. And they found one in single-family zoning. White elites had almost exclusive access to the kind of capital needed to purchase a freestanding home. And so single-family zoning became a tool for de facto apartheid, under the guise of separation of use. The idea was first implemented in Berkeley in 1916 as a tool to eject Asian-owned laundries and a “negro dance hall” from the proximity of white homeowners. San Francisco soon followed suit.

Like the Bingham Ordinance before it, single-family zoning was initially shot down by courts — for its only slightly more subtle racialized designs. It ultimately survived constitutional scrutiny, however, with the aid of a Supreme Court reversal — by the same justices who upheld “separate but equal.”

And so the practice spread throughout the country — the Bay Area’s gift to American racism.

On Tuesday, San Francisco’s Board of Supervisors voted to finally end single-family zoning in the city that helped birth it. But, with the weight of history on their shoulders, did supervisors rise to the challenge of crafting a bill that earnestly addresses a century of historical wrong?

They did not.

Instead, their effort, like single-family zoning itself, was a cheap ploy — a not-so-subtle end-around to subvert a new California law mandating streamlined development in exclusionary neighborhoods. Despite made-for-headlines boasts about allowing fourplexes and six-unit homes on formerly single-family plots, the supervisors’ housing bill will do nothing to spur denser development in exclusionary neighborhoods.

And they know it.

A planning department feasibility study shows that developers trying to navigate the bill’s restrictions will lose money by the handfuls should they try to build denser housing on a formerly single-family plot.

Cue the chorus of boo-hoos. But guess what happens when developers are guaranteed to lose money? They don’t build anything.

As if to stamp home the fact their bill has no intention of breaking up a century of single-family dominance, supervisors inserted a rule that says only those living in their homes for more than five years, or those who inherited the real estate, can take advantage of new streamlined zoning rules.

What is the point of ending single-family zoning if developers aren’t actually allowed to easily build denser new housing in formerly restricted areas?

“Luxury” condos are notorious boogeymen in San Francisco. But single-family homes are the city’s most luxurious form of housing. Their median sales price is $1.95 million in 2022; that’s $700,000 more than a condo. Single-family homes, with rare concessions, are exempted from rent control — making them largely unaffordable to working families. Homeowners, meanwhile, are granted generous state and federal tax breaks. They also enjoy protections from police search and seizure that many renters do not. Home ownership in America affords a higher status of citizenship. And single-family ownership is at the top of that status rung.

“This is not the final statement on density in low-density neighborhoods,” Supervisor Rafael Mandelman, the housing bill’s author, said on Tuesday.

Perhaps so. And the board deserves praise for apparently coming to terms with Mayor London Breed on new social housing spending that could allow government to directly build more affordable units.

But that effort will provide just a fraction of the more than 80,000 new homes San Francisco needs.

As if putting a stamp on the limited scale of their vision, supervisors this week moved forward with another dubious housing measure. This one, draped in sanctimonious language of affordability, would appear on the November ballot — despite feasibility studies that, once again, show nothing will get built under the tight-fisted rules of the plan. With a wink and a nod, the measure’s goal appears to be sabotaging a competing initiative by Breed that would streamline the construction of much-needed dense, mixed-income developments.

These cheap theatrics are ideological parlor tricks in service of a status quo that is failing San Francisco.

Single-family zoning was born of racial malice and a desire to find a legally permissible end-around to integration. That malice is built into the physical structure of our communities.

Lies put us here. They won’t get out.

This commentary is from The Chronicle’s editorial board. We invite you to express your views in a letter to the editor. Please submit your letter via our online form: SFChronicle.com/letters.

The data illustrates just how much the Bay Area’s economy and rental market stand apart from other big U.S. cities, especially the population centers in the Sun Belt, which saw an influx of renters during the pandemic that caused vacancies to plummet and rental prices to soar over the course of two years, said Rob Warnock, senior research associate at Apartment List.

“San Francisco is the last major metropolitan area in the country where rent prices are lower today than they were in March 2020,” he said. “San Francisco has had a uniquely difficult time drawing economic activity back to some of its densest apartment-rich neighborhoods.”

The San Francisco area has one of the country’s highest concentrations of remote jobs, Warnock said, and after offices emptied during the pandemic, many employers in both the public and private sectors are hesitant to require workers to return. As a result, renters have been slower to migrate back compared with other major cities.

“Vacancies and rents typically move in opposite directions, so in 2020 when (San Francisco’s) vacancy rate spiked, prices fell quickly,” said Warnock in an email. “In 2021 and 2022 the vacancy has been falling, and rents have been returning to pre-pandemic levels.”

But the Bay Area’s market rebound has been “noticeably slower” than other places, Warnock said.

Vacancy rates shot up in the San Francisco metropolitan area from 5.3% in March 2020 to 9% in October 2020, according to Apartment List data. At the same time, median one-bedroom rents dropped 15% from $1,966 in March 2020 to $1,662 in December 2020.

The San Francisco metro area saw a gradual rebound in vacancies through 2021, with the rate declining to its current 5%. But rental prices have been slower to come back — the median rent for a one-bedroom apartment was $1,916 last month, still about 3% below the level at the outset of the pandemic.

With relatively less demand for apartments continuing to stave off big drops in the vacancy rate, rent increases in the San Francisco area also should remain relatively tame, Warnock added.

“Rent growth should continue throughout the summer, and I expect metro rents will reach 2020 levels in the coming months, but without a major influx of new demand I expect it will continue to pace behind other big cities,” he said.

The San Jose metro area also saw its vacancy rate increase early in the pandemic, from 5.6% in March 2020 to 9.5% in October 2020. Rents for a one-bedroom apartment went down 18% from $2,174 in March 2020 to $1,790 in December 2020.

But the San Jose area has been faster to recover compared to San Francisco: In May 2022, the vacancy rate had dropped to 4.33% and one-bedroom rent averaged $2,186.

A similar pattern, what Warnock calls a “U-shaped price curve mirroring an upside down U-shaped vacancy curve,” was seen in some other major metros across the country, particularly in coastal areas including Seattle, Washington, D.C., and New York.

Vacancy rates in the Boston metro soared from 6.3% in March 2020 to 9.9% in August 2020. But it has seen a strong rebound since then, with the vacancy rate dropping to 4.3% in May 2022, below the rate at the start of the pandemic. One-bedroom rents are 13% higher compared to the start of the pandemic.

Changes in New York’s vacancy rate weren’t as extreme as in some of the other major metros, increasing from 4.2% in March 2020 to 6.1% in September 2020 before declining again. Now, the vacancy rate is very low at 3.2% in May 2022 — and rents are 15% higher than in March 2020.

Warnock said he wasn’t certain why cities like Boston and New York have seen such strong recoveries; however, he speculated that Boston, with its relatively high concentration of universities, has attracted many returning students, while “dominant non-tech industries like finance and law may be inspiring more economic activity in the core urban areas” in New York City.

On the opposite side of the spectrum are many Sun Belt cities that saw apartment vacancies plummet and rental prices soar over the course of two years.

Those areas had many attractive features for renters seeking to flee metro areas like San Francisco, Warnock said.

“Largely concentrated in the Sun Belt, but also scattered around the periphery of major coastal metros, these are the more ‘affordable’ metros where families have turned for relief from urban lockdowns, small living quarters, and soaring cost of living,” he said.

Two notable examples are Tampa, Fla., and Las Vegas.

The Tampa metro area had a 6.8% vacancy rate at the start of the pandemic, which dwindled to 2.7% in August 2021. Meanwhile, one-bedroom rents increased 40% from March 2020 to May 2022.

The Las Vegas metro area went from a 6.6% vacancy rate in March 2020 to a low of 2.5% in August 2021. One-bedroom rents went up 34% during the pandemic.

However, some of the Sun Belt’s hot rental markets are starting to show signs of cooling, with vacancy rates rising — though rents continue to climb, Warnock said.

Since hitting their low in August 2021, vacancy rates in Tampa and Las Vegas have started creeping up, reaching 5% in May 2022.

“In 2022 the trend has decelerated, but marginal improvements in vacancy rates have slowed down,” Warnock said — though he noted that “total vacancies still remain well below pre-pandemic levels.”

Rents also have started spiking recently in some metros that had been slow earlier in the pandemic — notably San Jose, which saw the biggest increase in rent prices in the country over the past six months, at 7%, according to Apartment List’s latest monthly National Rent Report. New Orleans, Louisville, Salt Lake City and Dallas were the other metros in the top 10 for price growth over just the past six months, all at 6% or above.

Soaring rents in formerly affordable markets and new construction could be among the factors fueling the recent changes in trends, Warnock said.

“On the demand side, it could signal a new out-migration of renters who are unable to absorb pandemic-era rent growth,” he said, “while on the supply side it could signal that new apartments are now coming online following disruptions to the construction industry.”

Soaring inflation is applying pressure not only on housing affordability but also the cost of many goods from groceries to transportation, Warnock said, which will “further deter people from relocating to more expensive places,” where everything would be pricier.

“It may also suppress the rate at which the apartment vacancy rate bounces back because higher mortgage rates and higher construction costs make it challenging for renters to be able to afford to vacate their rentals and buy homes instead,” he said.

In its analysis, Apartment List looked at data on its website for listings in the 100 largest metro areas. Median rent was calculated based on new leases signed in a given market and month. The vacancy index for each location included properties that had been included on the Apartment List platform for at least six months, and was calculated based on an average of the daily vacancy rates for each property within the location, weighted by the number of units in each property.

Bay Area home prices saw another month of double-digit increases this spring — with the biggest bump coming in Santa Clara County.

But experts are waiting for high mortgage interest rates to pour a little cold water on that heat — a shift some real estate agents say is already happening.

Throughout the nine-county Bay Area, the median sales price of an existing single-family home increased 13% — hitting $1.3 million, according to the latest data from CoreLogic and DQNews. The median price in Santa Clara County reached $1.8 million in April, up 23% from a year ago. Alameda County wasn’t far behind with a 20% increase.

“As the increase in home prices showed, the demand is still strong,” said Selma Hepp, deputy chief economist for CoreLogic. “It’s actually really strong in the sense that it’s a lot of over-bidding still, most homes selling over the asking price and home price appreciation still continuing to trend at double-digit rates.”

Alameda County remains pricey, particularly in desirable cities such as Oakland and Berkeley, said East Bay realtor Karyn Selby with Keller Williams Realty. And the market continues to see demand as people migrate from more expensive areas in San Francisco and the Peninsula to pursue remote-work lifestyles.

Contra Costa County, traditionally the most affordable of the core Bay Area counties, had the slowest year-over-year growth, but still saw its median price inch closer to $1 million in April. Median prices hit $2 million in Marin and San Mateo counties, and San Francisco wasn’t far behind.

But rising interest rates have put a damper on the buying frenzy, Selby said. The rate for a 30-year fixed mortgage jumped from 3.76% in early March to 5.1% at the end of May, according to Freddie Mac. Rates have softened slightly in recent weeks, but remain far above where they were a year ago when the average 30-year rate was below 3%.

Some people saw a large chunk of their buying budget disappear as interest rates climbed, and now are pausing their search and re-evaluating, Selby said. The increase has especially impacted buyers looking for their first home (likely something priced between $700,000 and $1 million), she said.

That means while today’s market is still “super competitive,” it’s not quite as crazy as it was in March and April, she said.

“Maybe two months ago, a house would get 15 offers and go 30-40% over the list price,” she said. “Now it’s sort of flatlined a little bit. So instead of 15 offers, they may be getting eight. And it’s going more like 20-30% over list price.”

Prices likely will continue to increase in future months, but perhaps more slowly, Selby said. Despite the market shift, she doesn’t recommend delaying a home purchase.

“The prices are never going to crash, certainly like they did in 2008, 2009,” she said. “And the interest rates are probably going to go up again this year.”

Santa Clara County already is seeing a change, said Mike Gaines, an agent with Compass Real Estate. A few months ago, a seller could list virtually anything and it would get multiple offers. Now, that’s not always the case, he said. Some sellers are pulling their homes off the market because they aren’t getting as much interest as they’d hoped. Agents are reporting slow open houses.

Gloria Othon is feeling the cooling market first hand. Othon, 61, poured $115,000 into a year-long project to remodel the bathrooms and kitchen of her San Jose home, re-do the landscaping, buy a new water heater and other appliances, and replace the roof. She hoped the renovations would bump up the sale price.

Othon and her husband bought the house in San Jose’s Berryessa neighborhood in 1998 for $350,000, but their children are grown now and they no longer need so much space.

Othon listed the house last week for $1.788 million, hoping offers would pour in. But so far, it’s been crickets. She worries she waited too long to take advantage of the hot housing market. And if the house doesn’t sell, she and her husband can’t afford to downsize by buying a smaller house or a condo.

“I’m really scared,” she said. “I feel like I might have missed it, and what do I do now?”

In addition to high interest rates, inventory also is up, which also could lead to lower prices, Gaines said. San Jose’s Willow Glen neighborhood has 80 homes for sale now — up 60% from two months ago, Gaines said. Throughout Silicon Valley, there are 1,700 homes listed — up from 1,000 two months ago.

“I think you’re going to see some leveling off,” he said, “and I think you’re also going to see some reductions.”

The broader turmoil in the economy, between inflation, gas prices, stock market volatility, the crisis in Ukraine and more, also may be prompting more buyers to pause their home search, Selby said. But that doesn’t change the fact that Bay Area prices are high, and likely to stay that way.

“All these things come into play,” Selby said, “but it’s still a crazy, crazy market.”

Article source: https://www.siliconvalley.com/2022/06/06/bay-area-home-prices-up-again-but-experts-say-a-cooldown-is-coming/

Bay Area home prices saw another month of double-digit increases this spring — with the biggest bump coming in Santa Clara County.

But experts are waiting for high mortgage interest rates to pour a little cold water on that heat — a shift some real estate agents say is already happening.

Throughout the nine-county Bay Area, the median sales price of an existing single-family home increased 13% — hitting $1.3 million, according to the latest data from CoreLogic and DQNews. The median price in Santa Clara County reached $1.8 million in April, up 23% from a year ago. Alameda County wasn’t far behind with a 20% increase.

“As the increase in home prices showed, the demand is still strong,” said Selma Hepp, deputy chief economist for CoreLogic. “It’s actually really strong in the sense that it’s a lot of over-bidding still, most homes selling over the asking price and home price appreciation still continuing to trend at double-digit rates.”

Alameda County remains pricey, particularly in desirable cities such as Oakland and Berkeley, said East Bay realtor Karyn Selby with Keller Williams Realty. And the market continues to see demand as people migrate from more expensive areas in San Francisco and the Peninsula to pursue remote-work lifestyles.

Contra Costa County, traditionally the most affordable of the core Bay Area counties, had the slowest year-over-year growth, but still saw its median price inch closer to $1 million in April. Median prices hit $2 million in Marin and San Mateo counties, and San Francisco wasn’t far behind.

But rising interest rates have put a damper on the buying frenzy, Selby said. The rate for a 30-year fixed mortgage jumped from 3.76% in early March to 5.1% at the end of May, according to Freddie Mac. Rates have softened slightly in recent weeks, but remain far above where they were a year ago when the average 30-year rate was below 3%.

Some people saw a large chunk of their buying budget disappear as interest rates climbed, and now are pausing their search and re-evaluating, Selby said. The increase has especially impacted buyers looking for their first home (likely something priced between $700,000 and $1 million), she said.

That means while today’s market is still “super competitive,” it’s not quite as crazy as it was in March and April, she said.

“Maybe two months ago, a house would get 15 offers and go 30-40% over the list price,” she said. “Now it’s sort of flatlined a little bit. So instead of 15 offers, they may be getting eight. And it’s going more like 20-30% over list price.”

Prices likely will continue to increase in future months, but perhaps more slowly, Selby said. Despite the market shift, she doesn’t recommend delaying a home purchase.

“The prices are never going to crash, certainly like they did in 2008, 2009,” she said. “And the interest rates are probably going to go up again this year.”

Santa Clara County already is seeing a change, said Mike Gaines, an agent with Compass Real Estate. A few months ago, a seller could list virtually anything and it would get multiple offers. Now, that’s not always the case, he said. Some sellers are pulling their homes off the market because they aren’t getting as much interest as they’d hoped. Agents are reporting slow open houses.

Gloria Othon is feeling the cooling market first hand. Othon, 61, poured $115,000 into a year-long project to remodel the bathrooms and kitchen of her San Jose home, re-do the landscaping, buy a new water heater and other appliances, and replace the roof. She hoped the renovations would bump up the sale price.

Othon and her husband bought the house in San Jose’s Berryessa neighborhood in 1998 for $350,000, but their children are grown now and they no longer need so much space.

Othon listed the house last week for $1.788 million, hoping offers would pour in. But so far, it’s been crickets. She worries she waited too long to take advantage of the hot housing market. And if the house doesn’t sell, she and her husband can’t afford to downsize by buying a smaller house or a condo.

“I’m really scared,” she said. “I feel like I might have missed it, and what do I do now?”

In addition to high interest rates, inventory also is up, which also could lead to lower prices, Gaines said. San Jose’s Willow Glen neighborhood has 80 homes for sale now — up 60% from two months ago, Gaines said. Throughout Silicon Valley, there are 1,700 homes listed — up from 1,000 two months ago.

“I think you’re going to see some leveling off,” he said, “and I think you’re also going to see some reductions.”

The broader turmoil in the economy, between inflation, gas prices, stock market volatility, the crisis in Ukraine and more, also may be prompting more buyers to pause their home search, Selby said. But that doesn’t change the fact that Bay Area prices are high, and likely to stay that way.

“All these things come into play,” Selby said, “but it’s still a crazy, crazy market.”

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Article source: https://www.mercurynews.com/2022/06/06/bay-area-home-prices-up-again-but-experts-say-a-cooldown-is-coming