Over the past three months, there have been multiple reports of slowdowns in real estate markets across the U.S. It was unclear whether the shift would reach our unique East Bay market.
However, recent data shows that the change has begun to affect the San Francisco Bay Area. And our data supports this claim: In the inner East Bay, the number of homes sold in September 2018 fell 20% year over year, a significant change for a market which has been declining 1-8% per year for the past 5 years. (It’s not uncommon for monthly sales volume to swing wildly month-over-month, and with rumors of a strong October, it remains to be seen if this is the beginning of a trend.)
To help us see what the future holds, Red Oak is closely watching a different metric: active inventory. Unlike sold data, which reflects closed contracts, inventory reflects what is currently on the market – and how buyer demand is changing.
On September 26, 2018, single family home inventory reached a 6-year high (since Red Oak began tracking this information). Over the past month, that number has dropped 7%, but it still remains at record highs for this time of the year.
Was there an increase in the number of listings? After all, a wave of new properties hit the market after Labor Day. The answer is no: quantities were not out of line with historical averages and are generally lower than last year’s activity.
This leads us to conclude that buyer demand is slowing and causing listings to remain on the market longer. We believe that multiple factors are driving this shift:
- Fatigue: Buyers are growing weary of high prices. Affordability remains low – only 18% of residents in Alameda County can afford to buy a home – which has been consistent for several years.
- Deductions: The tax code will shift in 2019, decreasing the maximum mortgage deduction from $1M to $750K and eliminating state and local tax deductions (SALT).
- Buying Power: Interest rates are expected to continue to rise, and may reach the 6-point range in 2019. A one percent increase in rates – from 5 to 6% – means a 10% drop in buying power.
Many sellers are currently feeling the pressure of increased competition, as 24% of active properties have taken a price reduction and the average days on market is at 37 – 6-year highs for both numbers for this time of year.
But this does not mean buyers have completely disappeared, they are just being more selective. Properties with the right prices, in the right locations, in the right conditions, continue to attract multiple offers.
We continue to watch these changes in the market closely and will report back with our findings. In the meantime, speak with your agent to see how they will affect you.