Seller and Buyer Tug of War
Envision a metaphorical tug of war, a fierce battle between two formidable teams - the sellers and the buyers. The rope symbolizing this struggle is the mortgage interest rate. Unlike the conventional tug of war, this rope is not a passive participant but rather a dynamic force in real estate. It shifts its position in response to the stronger pull, exerting a considerable influence on the outcome of this confrontation.
Presently, the dynamics of this force are causing sellers to adopt a cautious stance, restraining them from putting their properties on the market. This hesitancy is primarily because many sellers are locked into historically low-interest rates, often below 3%. Simultaneously, this dynamic force is compelling potential buyers to hesitate or abandon their pursuit of homeownership. The consequence of this standoff is a delicate equilibrium between supply and demand, which keeps home prices upward.
In the combined areas of Contra Costa County and Alameda County, the median sale price of Single-Family Residences (SFR) demonstrated year-on-year (Y-O-Y) and month-on-month (M-O-M) increases in September (refer to Figure 1). This upward price trend is taking place against the backdrop of a continuous Y-O-Y decline in the inventory of available homes and the number of properties sold (as illustrated in Figures 2 and 3). However, September witnessed an unexpected M-O-M surge in property supply, an occurrence not commonly associated with the holiday season's approach. Is this a subtle indication that sellers are relenting, choosing to let go of their precious sub-3 % mortgage rates? Only time will reveal the true nature of this development. If increasing inventory persists through December, it could alleviate some pressure on buyers and exert a downward force on home prices.
For the real estate market to witness a fundamental transformation in determining the victor of this tug of war, one or more of the following scenarios must unfold:
1. The rope, symbolizing the interest rate, must break, and we shall observe who succumbs first with a resounding thud. Both buyers and sellers may find themselves in a precarious position.
2. Alternatively, either the sellers or the buyers may concede defeat. The pivotal question is, which side will emerge victorious? In the Bay Area, at least, prospective buyers with substantial financial resources actively pursue properties.
In recent memory, the Bay Area real estate market experienced two periods of better balance: when buyers had access to reasonable inventory, favorable mortgage interest rates, and property prices that remained within reach. The first period occurred between July 2018 and November 2019 (as reflected in Figures 4 and 5), and the other transpired between July 2022 and February 2023 (as demonstrated in Figures 6 and 7). Figures 4, 5, 6, and 7 unequivocally portray the stark contrast in property prices, inventory levels, and interest rates (as seen in Figure 8) between those periods and the current state of affairs.
In conclusion, it is imperative to maintain a vigilant watch over the pulse of the real estate market, as it is the key to discerning the direction in which the market is poised to move.
Figure 1: Combined Median Sale Price, Contra Costa, and
Alameda County.
Figure 2: Combined Inventory of SFR in Alameda and Contra
Costa County.
Figure 3: For Sale and Sold SFRs in Alameda and Contra Costa Counties
Figure 4: For Sale and Sold SFRs in Alameda and Contra Costa Counties (July 2018 – Nov 2019)
Figure 5: Median Sale Price of SFRs, Alameda and Contra
Costa Counties combined (July 2018 - Nov 2019)
Figure 6: For Sale and Sold SFRs in Alameda and Contra Costa
Counties (July 2022 – Feb 2023)
Figure 7: Median Sale Price of SFRs, Alameda and Contra
Costa Counties combined (July 2022 – Feb 2023)
Figure 8: 30-Year Average Fixed Mortgage rates during July
2018 – Nov 2019 and July 2022 – Feb 2023 periods
