What are we seeing? In a nutshell:

The market has been on fire, scorching hot. Housing prices have decreased from last year but that doesn’t say a lot as they still remain very high and are continuously selling at record high prices. In the first quarter of this year, we have seen numerous homes go for way above asking price. We are using this trend to our advantage and selling our properties at a price point under the assumption, it is set to start a bidding war. The demand still outweighs the available inventory. We should see a change with more coming to market this coming Fall. While there has been a cool down, I think it is important to reflect on how absurdly hot the market has been throughout the Bay Area and the across the country. The median price for a single family home in the San Francisco Bay Area, just this past March hit another record of $1.44 million according to California Association of Realtors’ home sales data. The ever climbing price point for residential homes is causing a mass exodus from California. People are moving in droves for a cheaper cost of living. A $1.44 million dollar house in Raleigh, NC compared to the Bay Area will be triple the size in sf and lot size compared to California, with the added benefit of having a significantly lower cost of living and half the income tax to boot. I mention Raleigh, NC as it is part of the Research Triangle (Raleigh, Durham and Chapel Hill) which is looking more and more like Silicon Valley as companies like Apple set up shop. The triangle becomes a viable option for those from the Bay Area. Moreover, since COVID, so many people have converted to virtual work which allows one the freedom to move to a state with a lower cost of living. In fact, the first time in California’s history, we have lost a congressional seat due to nearly a quarter of million people who moved out of the land of milk and honey.

What about those who stay in California?

Higher interest rates and a tumultuous stock market have triggered hesitant buyers. Inflation is hurting everyone’s pockets. Even the deep pockets of Silicon Valley lined with “techies” will have trouble coming up with a down payment. Inflation isn’t translating to people’s paychecks. A lot of these tech companies attract their workforce by offering RSU (restricted stock units); however, with the stock market in its bearish state it feels as though one is taking a pay cut as they watch their stock options take a nosedive. The Bay Area despite having a middle income nearly double the national average has not translated into being able to afford to buy a home. The median cost for a home in the USA is $374,900 verse the median of the Bay Area of $1.49 million. I triple checked my numbers because I couldn’t believe it myself. The San Francisco Chronicle reported that in 2019 only a quarter of homes sold in the Bay Area were to middle income earners compared to just under 50% in 2010. Where there is some hope, for first time home buyers; it isn’t much.

Rising mortgage rates, What is California doing to help first time home buyers?

In general, the interest rate hikes will slow the housing market. We have already pointed out that in the Bay Area, residents do not follow national norms. In general, rising interest rates affect the buyer’s psychology and cause a slowdown. The rise in rates coupled with the rise in home prices have caused mortgage payments to increase exponentially.  California Housing Finance Agency (CalHA) is trying to create incentives for those trying to break into the housing market.  CalHA instituted “The Forgivable Equity Builder Loan” which allows a new first time home buyer to get up to 10% of the property price covered if they qualify for the median income of the county in which they are buying. This 10%, may be used for down payment or closing costs. No repayment is necessary if you live in the home for five years. The only other program eligibility is that you attend counseling and obtain a certificate of completion. This is a great program however, if the average home in San Mateo is selling for $1,750,000.00 with an income requirement to qualify of $106,880.00 I am not sure how the 10 percent will really make a dent. For those already, living here in the SF Bay Area now would be the time to sell. The continuous exodus from California is sure to have an impact in coming years. It will not be immediate but with a recession on the horizon SF Bay Area housing bubble if you will is doomed to burst.