The Bay Area Real Estate Report - June 2018
The Median Home price for the greater Bay Area Home Price climbs to a
new peak of $850,000, despite seasonally low sales volume.
Inner Bay Area Sales Volume was up 15% in May vs April and it’s normal for
sales to increase in the Spring, but Sales Volume was also down 1.6% Year over
Year, a reflection of the continued lack of inventory and overall lack of sales
activity compared to the Bay Area norm. During the 1st Quarter of 2018, the
Bay Area’s total home sales were .5 % higher than a year earlier, but still 18 %
below average for that period over the last three decades. Amid the landscape of a housing supply that
lags far behind demand, April’s total sales were the second lowest for that
month in 7 years. Inventory remains tight and affordability has worsened with
rising prices and mortgage rates.
Inner Bay Area inventory did increase 12% in May vs Arpil and by 6% Year over
Year, marking the 1st Year over Year increase in inventory since the
beginning of 2017. 1 month doesn’t make
a trend, but this is something to keep in eye on, as lagging inventory has been
a huge factor in driving up Bay Area home prices this decade. If inventory does starts trending UP on a year
over year basis, it would spell a reversal of nearly a decade long trend and
begin to exert pressure on Bay Area home prices.
The $850,000 median price paid for all homes sold in the greater Bay
Area in April 2018 was up 2.4% month over month from $830,000 in March, and up a
whopping 13.3% year over year from $750,000 in April 2017. Santa
alone saw a 23.3% year over year Median home price increase in April. The Bay Area’s prior peak median was $830,000
(reached in March 2018). Over the last 6 months, the year-over-year gains in
the region’s median sale price each month have averaged 13.2%, up from an
average year-over-year gain of 6.5% during the same period a year earlier.
However, it’s important to realize that a significant portion of the Bay
Area’s median sale price increase can be attributed to a subtle shift in the
market mix, whereby a higher share of sales are occurring in mid- to
high-priced areas. That’s in part
because of the especially thin inventory of homes for sale in the more
affordable areas, which has been frustrating many first-time buyers.
While the Bay Area’s median sale price rose 13.3 % over the past year, the
nearly .5% increase in mortgage rates over the past 6 months translates into a
19 % year-over-year increase in the principal-and-interest mortgage payment on
the median-priced home. This speaks to the growing problem of Bay
Area home price affordability, which is already at an all time low in modern
There has been a surge in the use of Jumbo loan (mortgage loans typically used
for loan amounts that exceed the conforming loan limit of $679,650 in the Bay
Area). A rise in the jumbo
mortgage share of home purchase loans is associated with higher home prices and
an increase in the share of sales occurring in the market’s higher end. Jumbo mortgages accounted for 41.5 % of the total
number of home purchase loans used in the Bay Area in April, up from 40.4 % in
March and 37.9 % in April 2017. Jumbo
loans also represented 63.1 % of the total dollar volume of all home purchase
originations in April, up from 62.7 % in March 2018 and 59.7 % in April 2017.
Meanwhile, the affordability constraints should tighten moving forward, as Mortgage rates moved
higher today following the Fed's much-anticipated policy announcement that
they’re raising their benchmark rate by .25%. It wasn't the announcement itself that did the
damage, but rather the Fed members' economic projections, which included an
assessment of where the Fed Funds Rate will likely be at the end of the next
few years. Specifically, a few
of the Fed members who'd been holding out for slightly lower rates in
2018 moved their forecasts up enough
to increase the odds of a 4th rate hike by December. While the Fed's rate
doesn't directly affect
30-yr fixed mortgage rates, shifts in the Fed's rate hike outlook definitely
do. In the bigger picture, this was a minor adjustment, but it should
help push mortgage rates up to 5% in 2019, as forecasted by many already.
Overall, not much has changed in the Bay Area Real Estate market so far this
year, as demand continues to exceed supply and Buyers continue to paying peak
prices which continue to reach new highs. In the long term, if affordability
continues to tighten and demand continues to wane, the market will become more
vulnerable to any spikes in inventory.
The demand doesn’t seem to be as high as in previous years, but supply
continues to linger, mortgage rates remain relatively low, and the job market
is still strong, so current prices and market conditions should be sustainable
in the short term, heading into the Bay Area 2018 summer.
Mortgage Rate News - June 2018
Mortgage rates moved higher following the
Fed's much-anticipated policy announcement that they’re raising their benchmark
rate by .25%. Mortgage rates are
now sitting near seven-year highs again, but that could change swiftly on
upcoming economic news.
The rate for a
typical 30-Yr Fixed Conforming Loan (w/0 Pts) (assuming at least 20% down
payment/equity) is now at about 4.5%, while a typical 30-Yr fixed High Balance
Conforming Loan (w/0 Pts) is at about 4.625%, and a typical 30-Yr Jumbo Loan
(w/0 Pts) is at about 4.5%
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