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Buying a Bay Area Home in 2018: Why Sooner Beats Later

In an October 13 blog post, we looked at whether it made sense to buy a home in the Bay Area now versus later. The gist of that article was that the (realistic) prospect of rising home prices and mortgage rates should create a sense of urgency for Bay Area home buyers.

A recent industry report offered three more motivators for those thinking about buying a house in the Bay Area in 2018. In short, competition is expected to remain high, while home prices and mortgage rates are predicted to rise.

Reasons to Buy in the Bay Area Earlier in 2018

CoreLogic (a data and analytics company that serves the real estate industry) recently published a list of factors they expect will shape the nation’s housing market in 2018. More to the point, these are trends that could reduce affordability for home buyers over the coming months.

These three factors also make the case for buying a home in the Bay Area earlier in 2018, as opposed to later.

In its “U.S. Economic Outlook for December 2017,” the CoreLogic economic research team pointed to three trends in the current real estate market that will likely carry over into 2018. All of these trends could affect Bay Area home buyers, to some degree.

They include the following:

  1. Home prices will continue to rise in most parts of the country.
  2. Mortgage rates will rise gradually during 2018.
  3. Tight inventory conditions will carry over into 2018.

Let’s look at these items one at a time, with an emphasis on the San Francisco Bay Area in particular.

1. Bay Area home prices are still rising. 

Rising house values could impact home buyers nationwide in 2018, by reducing affordability. This is especially true in higher-priced housing markets, like those in the Bay Area.

CoreLogic’s Home Price Index (HPI) for the nation rose at a pace of 6%, or more, over the past year. The annual gains were even higher in the “starter home” price range where first-time buyers tend to shop, but it has affected the overall real estate market as well.

Those are national figures. Some Bay Area markets have experienced even bigger gains over the last year or so. For instance, home prices in San Jose, California rose by more than 10% over the last 12 months, according to the real estate data company Zillow.

“We expect this trend [of appreciation] to continue in 2018, with the CoreLogic Home Price Index for the U.S. up another 5 percent,” the company stated.

Overall, house values across California are expected to slow down a bit during 2018. But in most cities, they will likely continue rising to some degree. So for those thinking of buying a home in the Bay Area in 2018, it might be wise to act sooner rather than later.

Related: Max loan amount increased for 2018

2. Mortgage rates expected to climb as well.  

Mortgage rates are another important consideration among Bay Area buyers, specifically those who need financing to complete their purchases. And there’s a cautionary tale here as well. Economists with CoreLogic cited policy changes at the Federal Reserve as one of several factors that could lead to higher mortgage rates in 2018.

As the company wrote on its blog:

“The Federal Reserve has signaled its plan to increase its federal funds target, pushing other short-term interest rates up including initial rates on ARMs … Fixed-rate loans are forecast to rise in 2018 by at least one-half a percentage point to as much as a full percentage point.”

As of December 15, the average rate for a 30-year fixed mortgage was hovering just below 4%. That’s based on the weekly survey conducted by Freddie Mac. But that company’s economists are also predicting a rise in rates over the coming months. They recently predicted that 30-year mortgage rates would average 4.4% in 2018, compared to an average of 4.0% in 2017.

Related: California rate forecasts for 2018

Granted, these are just forecasts. But they’re also representative of a broader consensus among industry analysts. The overall expectation is that borrowing costs will rise during 2018, after a long period of hovering at historical lows.

It’s one more thing to consider, if you’re planning on buying a home in the Bay Area during 2018. The prospect of rising home prices and interest rates makes a strong argument for buying earlier in the year, rather than later.

3. Limited inventory will continue to drive competition.

Over the last couple of years, housing markets all across the nation have suffered from supply shortages. There just aren’t enough homes for sale, in many areas, to meet the level of demand from buyers. This is especially true in California’s major cities.

“As low inventory confronts the rising desire for homeownership by a growing number of millennials, home sale conditions will favor the seller,” CoreLogic wrote.

In the Bay Area and elsewhere across the U.S., a relatively low supply of homes for sale has increased competition among buyers. These kinds of conditions can lead to multiple offers, offers above the asking price, and quick sales — trends we will likely see more of during 2018.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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