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Buyers Don’t Want To Purchase At The Top Of The Market

A report from the Santa Cruz Sentinel in California. “Bay Area home buyers facing ever-escalating prices are adopting a new strategy — watching and waiting. Bay Area sales volume in September dropped nearly 20 percent, scraping lows not seen in the month for more than a decade. The runaway market has slowed, with median prices for existing homes down to $850,00 in September from a peak of $935,000 in May. But year-over-year prices continued to surge last month, according to CoreLogic.”

“Sales volume tumbled 18 percent across the region. Sales in Santa Clara County dropped 25 percent as prices rocketed out of reach for many buyers. San Francisco and Alameda counties both saw declines of about 14 percent.”

“In San Francisco County, home to 884,000 residents, fewer than 400 homes changed hands. Santa Clara County, with more than 1.9 million people, had 1,350 home and condo sales.”

“Homes in San Mateo and Santa Clara counties took an average of 13 days to sell, a few days longer than last September, according to Aculist. Meanwhile, the inventory of homes on the market increased 74 percent in Santa Clara and 29 percent in San Mateo during the last 12 months.”

“Bay Area real estate agents are feeling the cooling trend. Homes are sitting on the market longer, and all-cash, as-is offers for properties in hot neighborhoods are less common, some say. ‘I’ve seen a pause in the market,’ said San Jose agent Gustavo Gonzalez, who sells in the East Foothills. ‘Some of that is seasonal, some of that is interest rates going up, some of it is buyers just burned out.'”

“‘We’re seeing a peak. Markets go up and markets go down,’ said Matt Rubenstein of Compass Real Estate in Contra Costa County. ‘Be prepared to ride it out.'”

From CNBC. “Home sales in the San Francisco Bay area have been falling for months, but in September buyers pulled back in an even bigger way. Sales of both new and existing homes plunged nearly 19 percent compared with September 2017, according to CoreLogic. It marked the slowest September sales pace since 2007 and twice the annual drop seen in August.”

“Buyers in the Bay Area had been hampered by high prices due to very low supply, but that dynamic is changing. Active listings in October were up 130 percent year-over-year in the San Jose-Sunnyvale-Santa Clara market and up 42 percent in San Francisco-Oakland-Hayward, according to realtor.com.”

From Bisnow. “Across the Bay Area, home sales were down in September, reflecting a 20% drop from September 2017. For the year, housing sales are trending 4% lower, according to the latest analysis from Pacific Union Chief Economist Selma Hepp.”

“As sales declined, inventory rose, up 14% year over year in September, which meant about 2,000 more homes sitting on the market. ‘The rebalancing between buyers and sellers is driven by affordability [constraints] and buyer fatigue, with the biggest change seen in relatively affordable and previously fiercely competitive markets,’ Hepp wrote.”

“While all Bay Area home sales were down for September, it ranged from a 9% year-over-year drop in San Francisco to a 27% decline in Sonoma County. Three counties in particular had lower sales for the month: Santa Clara, Contra Costa and Alameda.”

“‘While affordability has long been a serious concern in the Bay Area, recent median home price hikes coupled with rising mortgage rates have put a 20% to 25% dent in buyers’ purchasing power,’ Hepp wrote. ‘The impact of these forces is causing fewer sales in relatively more affordable parts of the region, such as Sonoma, Contra Costa, and Alameda counties.'”

“Hepp said there is a sense that the Bay Area’s housing market has reached its peak, which has driven up inventory since more buyers don’t want to purchase a home at the top of the market even as more sellers listed their homes.”

“‘To some extent, volatility in financial markets and geopolitical developments may be exaggerating consumer fears,’ she wrote. ‘However, the underlying macroeconomic environment and California’s continued growth confirms that housing markets may be returning to a more normal balance between buyers and sellers rather than preparing to topple.'”

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This Post Has 43 Comments

  1. ‘median prices for existing homes down to $850,00 in September from a peak of $935,000 in May’

    Good thing everybody is putting 20% down.

    1. If you bought a house in 2014, or 2015, or 2016, or 2017, or 2018, with a mortgage, you are probably underwater by now. All those “renovations” and “improvements” you did may only pay pennies on the dollar, or be a loss.

      FBs, it’s just a game, and you lost.

      1. Not necessarily underwater on the loan, but… all those hours of effort, trips to Loan Depot, things you have to pay for on your own, after signing that mortgage, subtract all that from the alleged net worth you obtained by “buying” a home.

        1. Definitely underwater by an increasing amount as rates normalize. It amazes me how many people who should understand this basic financial reality don’t get it.

    2. Do you think home buyers understand the risk their loans may soon be underwater at the time of purchase, resulting in their owing more than the home is worth after the mania subsides?

      My impression in SoCal is that nobody thinks of this until it is too late. I had a FB friend in the post-2009 period who was in this situation. He was completely blindsided by the crisis which left him deeply underwater, and grateful for the Bernanke bailout when it happened. I’m not sure he realized his ultralow interest loan was financially engineered by the Fed, though.

      The current dearth of California housing inventory can be attributed in large part to people who refinanced at the lowest mortgage rates on record, who will never, ever be able to “afford” to sell to a buyer financed at renormalized interest rates. The Bernanke housing bailout was a market liquidity killer.

      1. I’m not 100% sure I’m following.

        Do you meant there are a bunch of California homeowners who have a low rate and are still underwater? In that case I’m not sure if interest rates matter that much.

        Or do you mean that someone has a super low rate loan, but if they sell, they can’t move elsewhere in Cali and afford the new loan on a similar house – because though they are not underwater, they don’t have enough equity to offset higher rates on the new house purchase?

        1. “Do you meant there are a bunch of California homeowners who have a low rate and are still underwater? In that case I’m not sure if interest rates matter that much.”

          Unless there is a lot of inflation between now and when they try to sell, people who bought at the lowest interest rates in the entire course of financial history, which were available over the past few years, will find that it is very difficult to find a buyer who can afford to pay the same purchase price using a loan at a normalized interest rate. The implication is that recent buyers are likely to soon find themselves underwater when they try to sell, especially if they used a low downpayment loan or refinanced to tap home equity wealth gains.

        2. I’m highly skeptical about the supposed linkage between increasing stock market volatility and declning mortgage applications. Rising interest rates seem like the proximate cause of both.

          Stock market swings may have hit mortgage applications, down 2.5%
          – Total mortgage application volume fell 2.5 percent last week compared with the previous week.
          – Volume was 16 percent lower than a year ago, when mortgage rates were nearly a full percentage point lower.
          – “Purchase applications may have been adversely impacted by the recent uptick in rates and the significant stock market volatility we have seen the past couple of weeks,” says Joel Kan, an MBA economist.
          Diana Olick | @DianaOlick
          Published 7:02 AM ET Wed, 31 Oct 2018 Updated 7:20 AM ET Wed, 31 Oct 2018
          …

        3. Yellen says a couple more rate increases are needed so labor market doesn’t ‘overheat’
          – “At this point, a couple more interest rate increases are necessary to stabilize growth at a sustainable pace and stabilize the labor market so it doesn’t overheat,” Yellen tells CNBC’s Steve Liesman.
          – The Fed has hiked rates three times this year and is mostly expected to raise rates once more in December.
          Fred Imbert
          Published 5:17 PM ET Tue, 30 Oct 2018 Updated 5:55 PM ET Tue, 30 Oct 2018
          …

          1. – The Fed has hiked rates three times this year and is mostly expected to raise rates once more in December.
            Fred Imbert

            time to sell some stocks Fred.

        4. Interest rates are going higher and higher and higher. It almost seems as though the bond bubble is bursting before our very eyes.

          US Treasury yields climb after strong jobs data
          Thomas Franck | Sam Meredith
          Published 5:41 AM ET Wed, 31 Oct 2018
          Updated 16 Hours Ago CNBC.com

          U.S. government debt yields rose Wednesday morning after a report showed that companies continued to hire at a quick pace in October, suggesting further economic strength.

          ADP and Moody’s Analytics said private payrolls increased by a better-than-expected 227,000 over the month; economists polled by Refinitiv had expected growth of 189,000 positions. Construction and manufacturing each added 17,000 each, according to the report.

          At around 4:02 p.m. ET, the yield on the benchmark 10-year Treasury note, was higher at around 3.149 percent, while the yield on the 30-year Treasury bond was also higher at 3.391 percent. Bond yields move inversely to their prices.
          …

  2. ‘In San Francisco County, home to 884,000 residents, fewer than 400 homes changed hands. Santa Clara County, with more than 1.9 million people, had 1,350 home and condo sales’

    Oh dear…

      1. By hot wiring the mortgage market with the lowest rates on record, the Bernanke bailout front loaded home purchases to offset the drop in housing transactions during the Great Recession. The aftermath of such stimulus is a drought , which is happening now.

  4. “‘To some extent, volatility in financial markets and geopolitical developments may be exaggerating consumer fears,’ she wrote. ‘However, the underlying macroeconomic environment and California’s continued growth confirms that housing markets may be returning to a more normal balance between buyers and sellers rather than preparing to topple.’”

    This time is different.

  6. I don’t think we have even seen the effect of the state and local tax exemption limit yet. Headwinds but even the realtors aren’t really denying it.

    1. NY plans to make RE taxes a charitable deduction seemed to have died a rather quiet death. Logic won’t end the mania. It will end and then point to some coincidence, so people don’t have to admit they were crazy to pay so much for houses.

      1. California is still trying to pull some sort of shenanigan. Anything to avoid facing the reality that their state is poorly governed, thus their high taxes.

        1. poorly governed

          That’s unpossible. What this country needs to get back on track is for the whole nation to be governed by California politicians.

          1. Damn skippy. What the other 49 need are more illegals, entitlement programs, and offshoring of jobs. Worked wonders here in CA.

    2. Agreed. Lots of confusion around the office with respect to the impact. Guess we’ll find out by April 15th?

  7. These folks don’t want to acknowledge the direction of the trend. It starts with increasingly steeping eise, followed by leveling of supply/demand, then the next phase is entirely predictable. Saw it all about 2006 and 2007. Final outcome may not be same but directional changes are following suit. Will be interesting to see how numbers evolve over remainer of year. Regards

  8. That remains the case, according to Marcus & Millichap’s third-quarter Bay Area Multifamily Market Report. The area has extremely low unemployment, which has led to increased demand for housing. But there is not enough single-family or multifamily housing to meet demand, creating low apartment vacancy ranging from 3% in San Francisco to …

    -KEEP BUILDING BOYZ

  9. Me, the poor renter, handing out candy all night long.
    The home owners around me (the majority, but not all) turned their lights off.

    The kids were cute.

  10. “Buyers in the Bay Area had been hampered by high prices due to very low supply, but that dynamic is changing. Active listings in October were up 130 percent year-over-year in the San Jose-Sunnyvale-Santa Clara market and up 42 percent in San Francisco-Oakland-Hayward, according to realtor.com.”

    It seems the market forces which led to a shortage of available homes relative to the number of interested buyers in recent years have reversed, and we can thus anticipate a swelling of inventory relative to the trickle of interested buyers up until sellers start slashing their prices by a sufficient amount to rekindle buyer interest. Unless this time is different, it will take years for this process of shifting from a seller’s to a buyer’s market to play out. Meanwhile, renting is king!

    1. Until we hit a period people where people start losing jobs, new inventory will be hampered by rising rates. We already went from mortgage lows of 3.3% to close to 5%. The higher they go, the more people will want to stay put because they cant move up to a nicer place at an affordable monthly nut. A catalyst will come. It is just a matter of time. Inventory is going up now because of the massive amount of people with investment properties or already struggling to pay bills realizing we are at the peak. This is only phase I. Once there are significant lay offs, inventory will go up much more dramatically and we will start seeing 20% or more drops from current FMV, not just off crazy list prices. We are between a rock and a hard place. We need a recession to fully deflate the bubble, but it will mean very hard times for a lot of people, even those that did not participate in it. This dip may be the start of the next recession. We clearly need less people in building, real estate and banking. Also, the recent stock market correction will curtail buying activity. Anyone sitting on the fence before may feel a little less financially secure than they thought they were in September. Some realtors I talk to already said many people put their search on hold until the market recovers worried about another 2008.

      1. Exactly! Matter of time and it will be bad for everyone in some respect but also rewarding to those who didn’t jump in and go full blown face plant. The “experts” that planted the seed of desperation “get in before your priced out, prices always go up, this time it’s different, real estate is local, the shortages” all that hype will once again be cowering / shaking at the dinner table eating ramen and scratching there heads saying “what’s happening?”

      2. “The higher they go, the more people will want to stay put because they cant move up to a nicer place at an affordable monthly nut.”

        Exactly my point.

        “We need a recession to fully deflate the bubble, but it will mean very hard times for a lot of people, even those that did not participate in it. This dip may be the start of the next recession.”

        And as you suggest, anyone who buys between now and the onset of the next recession runs the risk of witnessing the market value of their newly purchased home drop once the layoffs begin. And the Wall Street bull is running out of Viagra.

        I’ve seen this movie before. I’ve played a role in the movie. Now is not the time to buy. Now is the time to watch and patiently wait as the slow motion train wreck proceeds. In the wreckage of the train wreck is where affordable housing will be found.

        There truly has never been a better time to rent, if you aren’t already an owner.

        1. even those that did not participate

          Even those who did not gorge themselves on cheap and easy credit had to compete with the spendthrifts for the necessities of life.

    1. Those videos made me smile 😊. The end where she said “ and those SF Bay Area home sales” with the long deep breathe. Absolutely enjoyable!

  12. ‘Some of that is seasonal, some of that is interest rates going up, some of it is buyers just burned out.’”

    Some of it is savvy buyers with memories of Housing Bubble 2.0 waiting on the sidelines until after the carnage plays out. Let’s not pretend we don’t see the 800-lb elephant in the room, Realtor Boy.

  14. Happy talk is back on Wall Street, thanks to the bear market that turned out to have only been a scare market.

    A bear naturally suspects a bull trap may be set, in the form of ever rising Treasury yields. Meanwhile, buy them dips!

    Opinion: October’s mini-crash is setting the stage for a happy ending
    By Simon Maierhofer
    Published: Nov 1, 2018 10:45 a.m. ET

    Excessive fear almost always washes out ‘weak hand’ investors, resulting in strong rebounds
    …

  16. From today’s Wall Street Journal:

    Investment portfolios with 60% equities and 40% bonds lost more than 3% in October and are down 1.2% this year, on pace for a rare annual loss…

    You can look forward to a lot more ‘balanced portfolio’ losses to come as interest rates continue to normalize.

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