After two years of soaring home prices, the Bay Area housing market may have entered a cooling phase as rising mortgage rates put a squeeze on buyers.
But that doesn’t mean home values are suddenly falling back to Earth. Far from it. The median price of existing single-family houses in the region hit a record $1.36 million in May, a 13% increase from the same month last year, according to the latest data from real estate analytics firm CoreLogic.
Even so, housing experts say the breakneck pace of year-over-year price growth appears to have peaked – though few are predicting a housing crash on the horizon.
“We’re just seeing more of a normalizing to pre-pandemic conditions,” said Selma Hepp, CoreLogic deputy chief economist. “It wasn’t sustainable.”
CoreLogic forecasts annual home price growth in the Bay Area will decline to single digits by next summer. In other words, prices are still expected to go up across the region compared to the year prior, just not as quickly as before.
Hepp pointed to rising mortgage rates as a key factor. The cost of a 30-year fixed-rate jumbo home loan has in recent months jumped to around 5.7%, according to personal finance site Bankrate.com. For most of the Bay Area, a mortgage is considered jumbo if it’s more than $970,800. Though the 30-year rate has dipped the past few weeks, it’s still about double the roughly 3% historic-low charge available for most of the pandemic.
“Now that mortgages are much higher and the cost of ownership has gone up (significantly) from only a few months ago, it has had an impact on demand,” Hepp said. “With fewer buyers out there, what we’re starting to see is more price reductions and more homes staying on the market longer.”
In San Francisco, Santa Clara and San Mateo counties, that dynamic likely contributed to home prices falling slightly for the first time this year from April to May.
All three counties still saw large year-over-year gains: San Francisco increased 9% to $1.89 million, Santa Clara grew 18% to $1.8 million, and San Mateo was up 14% to $1.99 million.
Ramesh Rao, a real estate agent with Coldwell Banker Realty in the South Bay, said over the past few months he’s seen homes regularly going for under the asking price. That was unthinkable over much of the past two years as house hunters, many untethered from the office by remote work and seeking more living space, made all-cash offers and bid hundreds of thousands of dollars over asking in a mad scramble driving up home prices.
As the Federal Reserve is expected to continue raising borrowing costs to combat inflation, Rao said competition could soften even more.
“My advice to all clients if they’re sellers is: Today is better than tomorrow,” he said.