According to a recent report from the San Francisco Chronicle, the Bay Area real estate…
Bay Area Housing Market Update for Spring and Summer of 2023
Earlier this month, the California Association of Realtors published a new report relating to the California real estate market. It contained housing market data and trends for the state as a whole, along with individual metro areas.
Today, we will focus on the Bay Area real estate market trends outlined in this report, as of spring 2023. We’ll also share some thoughts about how these trends might affect the Bay Area real estate market in the summer of 2023.
California Housing Market Update: Spring 2023
On March 15, the California Association of Realtors (C.A.R.) issued a real estate market update that showed an increase in home sales over the past month or so. Apparently, lower interest rates and other factors led to an increase in sales activity across the state.
According to C.A.R. President Jennifer Branchini:
A brief interest rate reprieve and softer home prices during January created a window of opportunity for homebuyers to dip their toes into the home-buying waters, which helped boost home sales to the highest level in five months.
The San Francisco Bay Area also experienced an increase in home sales, when measured at the monthly level. When measured annually, however, home sales in the Bay Area have actually dropped over the past year. That’s largely because of the increase in mortgage rates that occurred during the second half of 2022 and into the beginning of this year.
These trends are not unique to our region. The entire country experienced a drop in home sales over the past year, due to a rise in interest rates. But since then, rates have declined a bit and this has prompted an increase in sales from month-to-month.
Bay Area Home Sales Get a Bump as Well
According to C.A.R. data, home sales in the San Francisco Bay Area rose by 15.5% from January to February of 2023. This is partly a seasonal trend. Real estate activity tends to slow down during the winter holiday timeframe, and pick up again during the following month.
But it also relates back to the factors mentioned earlier, such as lower mortgage rates and prices.
Toward the end of last year, the average rate for a 30-year fixed mortgage loan peaked at around 7.08%. That’s based on the weekly survey conducted by Freddie Mac, and it represents the highest average going back many years. By the end of March 2023, however, 30-year mortgage rates had dropped to an average of 6.32%.
Researchers from Freddie Mac also cited this as one of the leading factors bringing home buyers back into the market. According to a statement they issued earlier today:
Over the last several weeks, declining rates have brought borrowers back to the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for prospective buyers.
The above statement relates to the nation as a whole, but it’s equally relevant for the San Francisco Bay Area. We have also seen more buyers entering the market lately, due to lower rates and prices. But low inventory levels continue to challenge buyers across our region.
Prices Have Come Down Over the Past Year
This latest housing market report revealed another trend we already knew about. Home prices in the Bay Area have declined a bit over the past year or so.
The same is true for many cities across the country, and it relates back to the factors identified earlier. At the end of last year, higher mortgage rates reduced demand among buyers. This in turn took some of the steam out of home-price appreciation, which had been galloping along at an unprecedented pace.
We can actually view this in a positive light. Home prices in the Bay Area needed to decelerate. They’ve risen so far so fast that many buyers have been squeezed out of the market entirely, causing statewide affordability issues.
We’ve seen this kind of pattern before. When the real estate market gets overheated, home prices start to rise faster than the historical average pace. This is what happened during the early days of the COVID pandemic and all throughout 2021.
But now, as we move into the spring of 2023, home-price growth is starting to normalize. When this occurs, we usually see a short-term decline in prices, followed by a period of leveling off. After that, home values will likely turn north again. It’s a pattern that goes back decades.
Bay Area Buyers Could Benefit in Summer 2023
So what does all of this mean for the Bay Area real estate market in the spring and summer of 2023? What can home buyers expect, when entering the market over the next few months?
In short, the market will be much more “buyer-friendly” than it was during the past couple of years. Prices could drop a bit further through the spring and into the summer of 2023, and this in turn would increase affordability for buyers.
Meanwhile, inventory levels have increased a bit over the past year. There’s still a shortage of homes on the market relative to the number of buyers seeking them. But those conditions have improved over the past 12 months.
As a result, home buyers who enter the Bay Area real estate market in the summer of 2023 could benefit from lower prices and higher inventory levels.