April 2012 State of San Francisco Bay Area Real Estate Market

For those homeowners who have waited out the lull in San Francisco Bay Area Housing market, your patience is now being rewarded!

Mortgage rates inched up last week after the Fed signaled to investors that it won’t buy more bonds to provide further stimulus to the U.S.economy. The benchmark 30-year fixed-rate mortgage rose to 4.25%, compared to 4.23% the previous week and the low of 4.10% that we had at the end of February.  The Avg 30-Yr Fixed Conforming loan w/0 Pts is currently at around 3.75%. The Avg 30-Yr Fixed High Balance Conforming Loan w/0 Pts is currently at around 4.125%. The Avg 30-Yr Fixed Jumbo Loan w/0 Pts is at around 5%

Rates are expected to seesaw in coming weeks as the market enters a volatile period.

 

The continued low interest rates are a big reason for the all out Seller’s market that we are now seeing throughout the Bay Area!  It’s as if every buyer that was sitting on the fence has suddenly come off the fence this year and there isn’t nearly enough inventory available for the greatly expanded pool of qualified/interested buyers. Inventory has been shrinking consistently for the last 10 months.  Since May/2011, the residential (Class 1 and 2) property inventory for the Peninsula has dropped from 1,357 units to currently just 607 units. For the Upper South Bay/Lower Peninsula hub, over the same period, inventory has dropped from 863 units to 317 units currently. For the San Jose area over the same period, inventory has dropped from 2,405 units to 988 units currently.  These are staggering figures. The combination of extremely low inventory and a hugely expanded new pool of buyers has created a Seller’s market frenzy similar to what we saw in the years 2005 and 2000!

 

Another major reason for the sudden rush of Bay Area buyers is last year’s spike in Bay Area rental prices. For 2011,San FranciscoandSan Josesaw average rental rate increases of 5.9% and 4.9% respectively.  Such increases are one reason why industry analysts believe 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year.  Historically, the cost to rent an apartment has been about 10% lower than the after-tax cost of owning a home.  That rental discount began to fall in 2010 and disappeared entirely last year, according to analysts at Deutsche Bank who track housing costs. By the end of 2011, the bank’s research found that the cost to rent an apartment was about 15% “higher” than the cost to own a home.  Combine “this” factor with historically low interest rates and renewed consumer confidence and you have an explosive situation with way more buyers than available inventory.

 

The only thing that will limit the impending spike in Bay Area real estate values will be the appraisals obtained for financed purchases.  Most buyers now “have” to pay more than the appraisable value of the home they are bidding on in order to have any chance to win the bid.  In some cases, a low appraisal will give the buyer a chance to negotiate the price down before actually completing the purchase.  However, in most of the multiple offer situations going on right now, the Seller is able to get at least 1 (usually “more” than 1) of the bidding buyers to waive their appraisal contingency. That eliminates the possibility of negotiating the price down if the appraisal comes in low.  Also, cash buyers don’t typically have appraisal contingencies and there are plenty of cash buyers right now in the 750K and under market.

 

For those home owners who have waited out the lull in the Bay Area Housing market, your patience is now being rewarded.  We are now seeing a Seller’s market the likes of which we haven’t seen since 2005.  This should be the beginning of a major move back up in Bay Area home values.  Those who are in the market to buy now will need to understand that it’s highly competitive right now since there’s much more demand than supply. Serious buyers will need to be ready to look at properties within a day or 2 of coming on the market and (in order to be able to win the competition for the given property) must be willing to go much higher in their bids than what the comps say the property is worth.  Until the inventory goes back up significantly and/or interest rates go up significantly, this frenzied Seller’s market should continue and home prices will see a major spike up throughout this 2012 Buying season.

 

 

George Sudol is the Broker/Owner of Bay Area Realty Services, a successful San Francisco Bay Area residential Real Estate firm. He also owns and operates Bay Area Mortgage Alliance, a California residential mortgage lending brokerage.                              See more at www.ba-realtyservices.com , Email george@ba-realtyservices.com, or Call 650-242-4079

 

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