Plenty of buyers are on the market for a home — the problem is finding one.
Persistently high interest rates paralyzed the Bay Area housing market in November, stymying would-be homebuyers and pushing sales in California to their lowest level in 16 years.
“Buyers are willing to buy, but there’s terribly low inventory rates,” said Thao Dang Pham, a San Jose-based real state agent. The Bay Area had just 1.8 months of supply in November — the lowest of any region in California.
With fewer homeowners trading up, home shoppers are left to compete over fewer available homes. As a result, prices are higher than they were a year ago. The median price of a single-family home in the nine-county Bay Area was $1.25 million in November — an increase of 4.4% from a year ago, according to data released this week by the California Association of Realtors.
Bidding wars — while not as common as during the frenzied pandemic era of 3% mortgage interest rates — are happening.
Last week, broker Christopher Ott submitted an offer on a home in South San Jose listed at $999,000. The seller had 30 offers to choose from and ended up accepting a bid that came in $300,000 over asking.
“There’s a myth that there are fewer buyers on the market,” Ott said. “That’s not true — here, we have many more buyers than sellers.”
Sellers aren’t listing because so few of them are willing to give up the low mortgage rate they locked into in recent years just to get a new home with higher borrowing costs. Three out of five homeowners with active mortgages have loans with rates below 4%, according to Intercontinental Exchange, a company that provides technology to mortgage providers and servicers.
“People are handcuffed to their mortgage rates,” said Perry Gastis, a Berkeley-based real estate agent. “Most properties here in the Bay Area aren’t being sold if they don’t have to be.”
Two-thirds of counties around the state registered declines in active listings from last year, including Contra Costa, where listings dropped 35%, and Alameda County, which dropped 33%.
Of course, there are always homebuyers who do have to sell — those relocating for a new job or dealing with a death or divorce — and those cases represent the few homes on the market right now. Those looking to trade up from their home to a new one usually drive the housing market — but for now, they’re staying put.
While the holidays tend to be slower for sales, real estate agents expect the market to pick up in early 2024 as interest rates decline. After hitting 7.79% in early November, the interest rate on a 30-year mortgage slid to 6.95% as of last week, its lowest level since August, according to Freddie Mac. Many economists predict that rates will drop further, based on the Federal Reserve’s recent indications that it would continue to cut rates.
But agents are unsure whether the lower rates will be enough to help the current supply-demand imbalance.
“I don’t know if it will incentivize sellers to come into the market as fast as it is going to bring in buyers who are waiting right now,” Ott said.
Many first-time buyers are eager to get their hands on a “starter home” which, in the pricey Bay Area, typically means a home in the $1 million to $1.5 million range. Those are the homes that are seeing the most competition and frenzied bidding wars.
But those buyers are also sensitive to the increased interest rates. For a $1.25 million home with 20% down, the monthly payment for a 30-year-mortgage at 7% is $6,653, compared to $4,490 for a pandemic buyer who purchased at the same price with a 3.5% rate in 2021.
“For my buyers, their challenge is finding something they can afford the monthly payments on,” said Jena Lockwood, an agent with Silicon Valley Premier Properties in San Jose.
Still, in the Bay Area, there’s almost always a buyer willing to pay what a seller asks. Most family-sized homes in neighborhoods are attracting multiple offers, said Pham, another San Jose agent. Earlier this month, his firm, Block Change Real Estate, listed a home in San Jose for $2.4 million. This past weekend, nearly 100 families toured the open house, he said, and 10 of them ended up making offers. It sold for $2.8 million — $400,000 over asking.
It’s not a singular event. The last 10 homes Pham sold all went for above asking. Across all five core Bay Area counties — Alameda, San Francisco, Santa Clara, Contra Costa and San Mateo — the share of homes sold above asking price exceeded 50%.
“It’s still a seller’s market,” Pham said. “They’re the ones in the driver’s seat.”
