🏡 Insider Report - Wed, 16 Feb
A record 75% of Americans think it’s a bad time to buy. What does it mean for you?
20 new listings were posted in the past day, a slight increase from 13 new homes at the same time last week, and 11 homes in the week prior to that. Home prices for ALL counties are rising and are soaring ahead of their 4-week price average.
Price drops (455 today in the Bay):
49 price drops in Contra Costa County, 146 in San Francisco, 95 in Alameda County, and others.
Last week in the Bay Area:
Most expensive home listed: 303 Atherton Avenue, Atherton for $19,988,000
Cheapest home listed: 46 Cayuga St., Oakley for $125,000
Oldest home listed: 465 Boyes Boulevard, Sonoma built in 1894
Home with the most beds: 4701 Ewing Rd, Castro Valley with 8 bedrooms
Home with the most baths: 13211 Heath Street, Saratoga with 7.5 bathrooms
😍 Old world charm meets modern living at this Seattle residence
Located in the coveted Harvard-Belmont district, this stunning private residence captures the serene beauty of nature in modern living.
926 Harvard Avenue E, Seattle is on the market for $4,150,000...
Highlights: Completely restored with modern amenities, spacious living room featuring a Brazilian quartzite fireplace, remodeled kitchen perfect for cooking family dinners, primary bedroom with garden views and a huge private dressing room, 3 other bedrooms for family and guests, a study that makes for the perfect work-from-home setup, exercise room, 650+ bottle wine cellar, and a detached 2-car garage.
The pièce de résistance however, is the English garden showing off beautiful blooms year-round. This botanical oasis is home to boxwood hedges, camellias, hydrangeas, roses, peonies, and more providing a serene escape right in the heart of the city.
Check out the complete listing here.
A lifetime cap rate, or a life cap, is the maximum amount by which a borrower’s interest rate can go up during the lifetime of the loan. Adjustable-rate mortgages usually come with interest rate caps which limit the interest rate that can be charged to the borrower after the end of the fixed-interest rate period. These caps differ from lender to lender but should be mentioned in the loan contract.
Lifetime caps help limit the borrowers’ risk associated with interest rate increases over the lifetime of the mortgage. However, they can increase the interest rate risk for lenders if the rates increase significantly. The cap helps borrowers understand the maximum monthly payments that will be due if the ARM ever hits the lifetime maximum.
For e.g., Matt’s initial interest rate for his mortgage was determined at 5% with adjustments every quarter but has a life cap of 3%. Thus, the maximum interest rate that Matt will ever have to pay on his mortgage will be 8%.
Hottest market of the week - San Mateo, CA
Our hottest market this week is San Mateo, with sales volume up by 120% this week! Average days on market were 120 days this month, down from 125 days last month and up from 87 days last year. Competition is heating up with homes in San Mateo, CA selling 6% more than the asking price in the last three months.
The median sale price this week of $2.05m is at the top of the range since the end-November, and significantly higher than the last monthly high of $1.65m in April last year; however, at $947, the price per square foot is lower than the last monthly high of $1040 in July 2021. The number of new homes coming on the market each month in San Mateo decreased by 43.09%, while the number of homes sold each month increased by 8.33% over the past 12 months. Popular home searches include an open floor plan, updated kitchen, and big yard.
A record 75% of Americans think it’s a bad time to buy. What does it mean for you?
On February 7, 2022, Fannie Mae reported that The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 2.4 points to 71.8 in January, its lowest level since May 2020, as affordability constraints continue to weigh on the housing market.
Overall, four of the index’s six components decreased month over month, including the components measuring consumers’ perceptions of homebuying and home-selling conditions. In January, a survey record-low 25% of respondents reported that it’s a good time to buy a home, compared to the 69% of consumers who reported that it’s a good time to sell. Consumers also reported greater concerns about job stability and the future path of mortgage rates. Year over year, the full index is down 5.9 points.
What does it mean that it's a bad time to buy?
In summary, it is a seller’s market; low inventory relative to demand favors sellers over buyers; buyers are forced to compete against multiple bidders to win a home.
What is interesting about the pessimism about buying conditions is the rest of the context; it comes against a backdrop of:
consumers actually being increasingly bullish about future home price gains, and
consumers having increasing uncertainty about their job security.
When you look under the hood of #1 above, it begins to make more sense; if a high percentage of people believed home prices would grow solidly, they would be less put-off by the competitive bidding situations; however, the data actually shows a flat to declining amount of people that think home prices will go up in the next 12 months (43%, down from a peak of 50% in March 2021); rather, the 5% YOY increase in “Net Go Up”, to 29% this month, is driven by fewer people believing prices will drop (14%, down from 21% a few months ago).
How do you reconcile the current tight housing conditions with <50% of consumers thinking prices will go up in the next 12 months? Do they forecast larger supply suddenly coming online? Do they think a recession and job losses will reduce demand?
It is natural to look at an overall stock market that is in correction mode, speculative stocks in a bear market, and a forecast for increased mortgage rates, and overweight the impact those will have on future home prices as a result of lower demand. However, we had 2 out of 3 of those conditions after the tech bubble burst in 2000, and that was the backdrop for the last great housing boom that led up to the financial crisis. The difference then was the economy started from a position of tight monetary policy and became ultraloose.
Today, we are facing the opposite situation with the ultraloose policy beginning to tighten. However, it should hardly be the case that home prices can’t book solid gains when monetary policy is transitioning from ultraloose to neutral. People have become used to ultraloose policy but our suggestion is that they start becoming used to the idea that asset prices can still trend upwards under neutral policy conditions.
That being said, the above applies to homebuyers in general. For younger home buyers, these conditions present an affordability issue. Younger homebuyers are ill-equipped to compete in this type of market; they need the type of economic stimulus that jumpstarts their savings, the kind that filters through to big gains in call options on growth stocks and crypto prices; and instead, vs. 6 months ago, the Nasdaq 100 is down -5.1%, and BTC is down -7.0%.
It is fair to assume that without a rebound in those particular asset classes, or a big correction in home prices, the affordability concerns for this cohort will persist. And of course, a big correction in home prices won’t immediately solve this; the financial system is not remotely equipped to handle a decline in home prices, given the amount of leverage in the system; any significant perturbation in home prices would bring mortgage lending to a halt and be a case of “be careful what you wish for” for those lamenting current affordability.
🔥What’s hot and not in San Mateo County
Let’s check in again with how a couple of markets in San Mateo County have been doing. Let’s start with Daly City.
The median days on market (DOM) for homes in Daly City, 145 days, is one more than that for Alameda County as a whole (at 144 days). The median price per square foot rose by $35.10 while the median sale price increased by $26,724.26 last week. Overall inventory increased in January with the number of new listings more than doubling, now back above the number of homes sold, which fell by 20%.
Millbrae meanwhile had a median DOM of 84 days, 60 days below the county. Inventory recovered in January as the number of new listings rose for the first time in 5 months, while the number of homes sold dropped by nearly 80% and is now back below the number of new listings. Looking at the median price per square foot, that fell by $554.46 while the median sale price dropped by $422,723.50 last week.
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