2022 Housing Market Year In Review
Wow. That about sums up a roller coaster of a year in the housing market in the Bay Area. In November of 2021, it felt oddly reminiscent of the 2017 housing market at about the same time; historically low inventory and significant demand that snow-balled into one of the most competitive housing markets we have ever experienced.
In 2017, the median sales price for Santa Clara County was the highest in December, very uncommon as May or June is usually when prices peak in a typical year. 2018 began with fierce competition and skyrocketing prices (20.7% appreciation from January to May) until it came to a screeching halt as buyer fatigue set in, multiple offers disappeared, and prices dropped 13% between May and September.
2021 leading into this year began in a very similar fashion; the median sales price for Santa Clara County in December, 2021 was $1,415,000 for Single Family Homes, Townhouses and Condos, the highest median sales price of the year, aside from June. Inventory was low. Demand was high. My immediate thought was, “this price appreciation can’t be sustained. It will burn itself out by May, just like 2018.”
I was only thinking of buyer fatigue. At that moment, I didn’t anticipate a war in Ukraine, runaway inflation, and the Fed’s response of raising interest rates at the fastest pace in 30+ years. But the timing was similar. Between January and April of 2022 when prices peaked, the median sales price increased by 16.7%. By August, prices had pulled back by 13%.
While the arch of changing prices in 2018 and 2022 was fairly similar, the underlying issues are more significant now. I like to focus on the data and not get caught up in click-bait articles, but I do pay attention to the sentiment of my clients, people I meet at open houses and other real estate conversations and news. I have found these conversations to be a leading indicator of what is likely to come, based on buyers’ and sellers’ perceptions of the market.
This is one thing I know for sure: there is still competition in this housing market. I was looking forward to a window of opportunity for many of my buyer clients to be able to negotiate on terms, price, and avoid multiple offer situations. That has been true in some instances (asking for repairs, reduction in price, credit to buy down the interest rate...). But I have been finding that homes in desirable locations, regardless of condition, still bring strong competition if they are priced correctly.
For example, I wrote an offer in the 2nd week of December on a property in Santa Clara that had 11 offers. This home had significant foundation problems and three times the amount of termite work I would normally expect. Their first open house was on a weekend with torrential downpours. And yet, the competition was still fierce.
Interest rates have most certainly impacted buyers’ ability to purchase and subsequently impacted prices. But the serious buyers are still looking, and inventory has dropped.
That raises another issue; comparing this current market to the 2008 housing market crash. I’ve heard and read correlations between these markets, and up to this point in time, this is the key distinction: 2008 saw a flood of properties listed for sale as people raced to beat the dropping prices before they were foreclosed on, and we are not seeing that at the moment.
In 2008 we saw over-leveraged home sales encouraged by a lending environment of 100% financed, stated income loans. The number of available properties in July of 2008 was nearly 9,200 in Santa Clara County. In 2022, there wasn’t a single month over 2,200 listings.
With many home owners sitting comfortably with a 30 year fixed mortgage in the range of 3%, sellers have decided to take their properties off the market if they don’t get the price they are looking for. There is little panic or dumping of properties, simply the ability to wait for the right time or situation.
And that is the advice I give to my friends and clients. Timing the real estate market is impossible. You want to sell? I’m sure you would have preferred to do it in April when prices peaked. But prices have only thus far retreated to the spring of 2021, and for the year as a whole, prices are up 8.4% from 2021 to 2022.
When people ask me how the market is, I have found myself responding, “It’s weird...” This may not be the “salesy” response, but I tell people the market is different from what they may have heard. It is not as easy for buyers as many are lead to believe, or as bad for sellers as many say. Yes, prices have come down. But affordability because of rising interest rates has not.
What is that real estate adage? A fair deal is when the seller feels they sold for a price that is too low, and the buyer feels they paid a price that is too high? That’s about where we are in this market.
But unless your property purchase is being made with the plan for a quick remodel and flip, I don’t think these current market conditions are of big concern. I always use myself as an example:
When Lauren and I bought our home, I looked back at real estate trends and figured maybe I had 12-18 months of appreciation before the market dropped. So maybe we should wait about a year? But our rent was going up, we wanted our own place, and we were at a point in our lives where we could afford a mortgage.
My rationale was, “even if prices drop tomorrow, we’re staying here at least 5 years (usually enough time to ride the ups and downs of the market), I’m happy with this interest rate, and the timing in our lives works fine.” Within 4 years the prices had doubled, and I was so thankful we made the choice we did. It could have gone very differently, but I don’t think it would have changed our decision.
In Summary, I want to cover 3 things I think are most relevant to the current market, and planning for 2023 and beyond:
- What do I expect in the coming year?
- What advice would I give to Sellers?
- What advice would I give to Buyers?
What do I expect in 2023? Prices could be 7% lower than they were last year. That’s what we saw in 2019 after a tumultuous 2018 where the first quarter was insane, the second half of the year pulled back, and then we had a year of a hangover.
The timing and the numbers are so similar from ‘17-’18 and ‘21-’22 that it makes sense to me. The only difference is inventory now is much lower than that market when it switched, so prices may not change by much from where they are now.
I could see the beginning of 2024 being sluggish as well, but the underlying cause of the price increases over the last 12 years (18% average annually for literally a $1 million increase in the median sales price!) is INVENTORY.
There simply are not enough properties for sale to meet even curbed demand in the Bay Area. January 1st of this year, we only had 633 Active listings in Santa Clara County. Low inventory has been a national (even international) issue in the last few years, but for the Bay Area, and especially the South Bay, it has become the new norm. If that continues this year, I think the prices will stay fairly steady without any dramatic changes besides the typical seasonal trends.
I thought inventory would increase as prices peaked but the comment I’ve heard more than any other in the last 6-7 years is “I would love to sell, but where would I move to?!” 63% of my clients that have sold have moved out of the area, or out of state, so I can give you plenty of excellent recommendations. But I find that unless people are retiring, transferring jobs or following family, they are generally content to stay where they are. (I hear a lot of complaints about California, but drive the coast between Monterey and San Francisco...hard to complain about that!).
The majority of my clients that have sold and stayed usually wanted more space and/or better schools.
I don’t think I have had a single client sell simply because prices were high, or they saw prices going down. It has always been a lifestyle decision.
And that is at the forefront of my thinking when I’m asked about buying and selling.
Advice to Sellers?
Is it a good time to sell? Aside from the spring of 2022, prices have never been higher. I’d say yes.
Pricing appropriately is much more important in this market. Before, you couldn’t list a home at too low of a price. The competition of buyers would push the price beyond what anyone could predict. Now, if you start too high, the home will sit. If you start too low, the price likely won’t get pushed to the price you’re hoping for. It is better to price as closely with the market value as possible, unless you want to ensure a quick sale by pricing aggressively lower.
Home Preparation is also very important. Even in the hottest of markets, I still recommended staging, painting and new flooring when appropriate, because I have found these to give the best return for the investment.
In extremely competitive markets, the home was going to sell regardless of condition. It was just about increasing the value by tens of thousands of dollars by doing some cosmetic improvements and making sure the marketing and presentation attracted maximum exposure. In slower markets, it is even more important to attract the buyer when it may be a single offer you receive. It all comes down to presentation and exposure of that property on the market.
Again, moving is usually a lifestyle change, so it’s important to have the plan of where you are moving to next and the best way to accomplish that transition. That’s how I try to begin my consultations.
I have been preparing tailored market analyses for my past clients, current clients and friends for their properties to give a more accurate idea of the current value than you’d find from algorithm-driven sites like Zillow or Redfin. If I haven’t made one for you yet and you want me to prepare this, please let me know!
Advice to Buyers?
Is it a good time to buy? It is if you are buying a property you can see yourself living in for at least 5 years. Again, I bought expecting a slowdown in the market. But my reasons for buying still apply today. Rents are expensive and going up. Interest rates are still low, relative to where they have been historically. We really have been spoiled the last 10 years.
The Bay Area will continue to appreciate. There are too many large companies with deep roots for there to be a significant change in the draw of the Bay Area, and especially Silicon Valley.
Owning your property goes beyond an investment, which it certainly is in our area. It is where you relax, entertain, raise your family and enjoy the community. Yes, you can do this in a rental. But there is something different about owning your home and the responsibility that comes with it.
Lastly, I am getting a lot of calls and texts from investors and flippers trying to snag properties all cash at discounted prices. If they see an opportunity right now, I think it is all the better for home owners playing the long game, where far less risk is involved.
While there is less competition in the market overall, the low inventory can make it difficult to find the property that fits your criteria. That is why I continue the same approach now as I did when the market was extremely competitive; finding off-market properties.
I do this through checking Members Only listings on the MLS that don’t show up on industry websites like Zillow, Redfin, Trulia, etc. I do this through internal Coldwell Banker lists of off-market properties. I do this through letters to specific areas, or door knocking specific neighborhoods. I do this through emails and conversations with fellow Realtors. I’ve successfully found properties for clients through all these methods.
Interest rates have more than doubled since the beginning of the year. I know this has made buying much more difficult, as it has likely changed the price range you are looking in. We have seen rates drop from where they were in October/November, but I don’t think we’ll see 3% 30 year fixed rates again (or at least any time soon).
Still, the history of appreciation in the Bay Area has continued despite what interest rates have been. I’m always reminded by people who bought in the 80s that they had interest rates of 12-17%. Homes still sold and over time prices still appreciated.
Homes sell in every housing market, and there are opportunities and pitfalls when the market is up, down, or something in between. I try to stay on top of trends and everything real estate related so I can recognize shifts and advise my clients the best I can. As I said, nearly all the real estate transactions I have been involved in with clients are based on the timing of what is happening in life. Prices were recently the highest they have ever been. That doesn’t mean tons of people were selling, because the timing in their life wasn’t right.
I want to be here for you when the timing is right. That is why 92% of my business is working with friends, family, past clients and people that refer people they know to me. It’s based on relationships and trust and life, and that is why I love my job.
If you would like consistent market updates, resources for painters, handymen, etc and other real estate and community videos, please subscribe to my e-newsletter
Cheers! Here is to 2023, and whatever it may bring!!!