What’s next for the Bay Area housing market? Experts weigh in.

What’s next for the Bay Area housing market? Experts weigh in.

It’s been a wild year for Bay Area real estate — and not in the way we’ve grown accustomed to. After a hotter-than-hot 2021, 2022 started out with a bang, only to cool dramatically in the second half of the year. As interest rates rose, stock markets softened and tech layoffs abounded, the Bay Area housing market started to contract for the first time in years. One report even said the Bay Area metro is no longer the least affordable housing market in the U.S. The rental market stayed fairly steady as well, remaining below pre-pandemic levels and showing no signs of reclaiming its title of the most expensive market in the U.S. 

Predictions are just that, and if last year’s forecasting taught us anything, it’s that markets can drastically change, even within a year. We talked with Bay Area economists, realtors and data analysts to better understand what they think will happen in the 2023 housing market. 

It’s finally a buyer’s market, maybe

Bay Area buyers have experienced years of intense competition, excessive overbidding and the need to waive contingencies when it comes to writing an offer. Finally, the tides may be turning. “There is more choice and less competition than there has been for many years, which means greater opportunities for buyers,” Compass Chief Market Analyst Patrick Carlisle said. “Pay less attention to, or even ignore, what sellers are asking for and make offers at the price you want to pay. Some beautiful homes, luxury and ultra-luxury houses and condos, are selling at large discounts off asking prices. A buyer who can close the deal currently holds the balance of power.” 

Even with higher interest rates adding to the cost of a mortgage, the overall prices on homes may be lower. In a recent survey of real estate agents from real estate tech company HomeLight, only 30% of respondents said their market was a seller’s market in the fourth quarter of 2022. This is a swift decline from the 95% of agents who said they were in a seller’s market in the second quarter of 2022. 

“That pressure [buyers] felt in 2021 that ‘I need to buy yesterday’ is gone,” East Bay real estate agent Anna Bellomo said. “Now they can go into the process a bit more calm and centered. I think that’s a good thing.”

Affordability is still a challenge

No one knows what will happen with interest rates in the next year, but many experts agree they don’t expect them to go up significantly, if at all. Unfortunately for the Bay Area, however, an interest rate around 7% could add thousands more to a mortgage a buyer may have expected last year. 

“As we look to next year, we see the cost of borrowing remaining elevated,” Realtor.com Senior Economist George Ratiu said. “We see affordability being a challenge overall to the housing market.”

Especially in a severely underbuilt housing market like the Bay Area, Ratiu said, the lack of inventory is still a problem. He warns it won’t be solved anytime soon. 

“There are reasons to be optimistic about supply and price at the national level and less reason to be optimistic about that stuff in San Francisco,” Rob Warnock, research associate at Apartment List, said. “For a city and a region that is notoriously undersupplied in housing, we don’t have that robust pipeline of new homes coming online in five to 10 years like the rest of the country.”

That means home buyers, especially first-timers, may continue to be priced out. “Because prices have reached such a high level, low mortgage rates were the saving grace that enabled people to buy a home in the region,” said Matt Kreamer, data spokesperson for Zillow. “Therefore, when mortgage rates rise substantially, demand and price growth drops off more in the Bay Area than anywhere else in the country.”

Condos are still the best deal out there

Prices for condominiums in San Francisco’s downtown never really recovered after the pandemic, and recent data shows a startling picture of the current market. As businesses in SoMa and the Financial District close down or relocate, tech layoffs continue, and interest rates stay high, the condo market has slid down to 2017 prices. There’s also likely to be even less competition in this market: Condos sat on the market for an average of 65 days in the downtown neighborhoods in San Francisco, more than double what the home market saw between September and November 2022, according to Compass. San Francisco’s condominium inventory is also more than double that of the city’s home market, with 5.6 months of inventory on the market. 

But the figure that may best signal how good a condo deal could be right now is the percentage of homes selling for over the asking price. Only 19% of condos sold for more than the asking price from September to November, while 63% of San Francisco homes were overbid. 

“It is an excellent time for buyers to aggressively negotiate home purchases at prices well below those of recent years. This is probably especially true of the condo market. … There are deals to be made here for buyers with the financial resources and a longer-term view,” Carlisle said.

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