East Bay March 2022 Market Update

March 24, 2022

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
– Rama Mehra, LIC #01463395

The Big Story

  • Home prices in the US hit a record HIGH, housing inventory declined to record LOW
  • Homes are selling EXTREMELY QUICKLY
  • High demand-low supply dropped the Months of Supply Inventory to its lowest level in history
  • Average 30-year fixed mortgage rate rose over 1% in the past year, mostly during the past 2 months
  • Economists expect the Federal Reserve (the Fed) to start raising rates by mid-March and the first of six 0.25% increases through the year.

AMPLIFIED Seasonal Trends

Before the pandemic, seasonality in the housing market was something everybody expected: prices rose from January to June (with low but rising inventory), and flattens from July to December (with high inventory but declining).
Things are different since January 2020. Home inventory hit the record low with just over a million homes available in the market. Then the pandemic hit and there became a huge demand for homes, further declining the inventory to shockingly low levels.
From January 2020 to June 2021, inventory decreased by 49% and prices increased by 32%! This led to doubling the price increase of the previous 3 years combined. By January this year, inventory had reached an all-time low by a 60% decrease, and prices reached the record high by 34%!
Homes are getting sold much faster and in a more efficient way. Even before the pandemic, homes are selling quickly because of technology and increased competitive market. Increased efficiency match right people with the right home quickly, making the inventory drop faster while new homes are not being built.
MSI, which quantifies the supply-and-demand relationship, is at a record low, further indicating a sellers’ market.
The low supply,
high prices,
and speed of purchases
have shifted homebuyer makeup. 
The number of first-time buyers dropped 6% over the past year, while sales to investors rose 7%. All-cash offers increased significantly, often disproportionately affecting first-time buyers, who are most likely to need financing.
With rising mortgage rates, many first-time buyers will once again be hit hardest with higher monthly payments. Rates have already risen, because the Fed is expected to start increasing rates in mid-March, and they will only climb higher. Because of the rising cost, the average age of homebuyers is climbing. The average first-time buyer is now 33 years old, and the average repeat buyer is 56 years old, an all-time high. As we enter a new chapter in the housing market, one characterized by rising rates and very low supply, demand can only go one direction: down. But for now, prices aren’t in danger of declining. 

Over the next several months, we expect supply to matter more than the interest rate hikes when it comes to home prices. Economists anticipate that the Fed will start the first of six incremental 0.25% increases in March. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. With inflation at a near-40-year high, prices for most goods are rising while incomes are not. This situation gives the Fed little choice but to raise interest rates. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices.

As we enter this new chapter of rising mortgage rates, we don’t expect home prices to decline significantly, if at all, because supply is still such a driving factor. The low supply means that demand can decline without negatively impacting prices. We don’t expect home prices to appreciate at the record level we experienced over the past two years, but we do expect to see an increase. We are still in the middle of one of the strongest sellers’ markets in history. Buyers must come in with fast, competitive offers in this environment.


The Local Updates

  • Single-family homeprices increased dramatically in February, reaching an all-time high in Alameda County in both median price and price per square foot
  • Alameda and Contra Costa median prices for condos were below peak but reached all-time high in price per square foot
  • Increase in home prices
    • Alameda County
      • +22% for single-family homes 
      • +4% for condos
    • Contra Costa County
      • +13% for single-family homes
      • +16% for condos
  • Homes sales remain elevated despite all-time low inventory
  • Months of Supply Inventory (MSI) still indicates strong sellers’ market

Home prices hit record highs in front of Fed rate hikes

Single-family home and condo price per square foot rose to all-time highs in February 2022 in the East Bay. Mortgage rate hikes really only lower demand in the long-term, but in the short-term, demand increases as buyers try to lock in a lower rate. The East Bay housing market has a major advantage in that people simply want to live there.

The East Bay tends to have high employment rates, racial diversity, and a growing population of affluent young professionals.

This tends to have a snowball effect, making these areas more and more desirable places to live. Despite the huge increases in home prices over the past 12 months, the East Bay’s lack of housing supply will keep prices rising in the year to come.

The Fed is expected to raise interest rates by 0.25% six times this year, going from 0% to 1.50%. We are now entering a period where factors that affect prices are more mixed, unlike the past two years when all the factors caused prices to increase. Rising interest rates, which will hopefully curb the still-rising inflation, will make homes less affordable and dampen demand over the course of the year.
But inventory is so low that even with less demand, the market will likely be undersupplied. It might seem counterintuitive that home prices can still appreciate after increasing so much over the past two years, but with inventory at record lows, home prices in 2022 will still increase — though at a slower rate than in 2021.
With high sales relative to the available inventory, we anticipate a competitive market in the year ahead. 

Record-low inventory persists

The East Bay, like the rest of the country, has a historically low housing inventory. The sustained high demand and lack of new listings over the past year brought single-family home and condo supplies to record lows across markets.

We are seeing that far more people want to live in the East Bay than want to leave.

Sales have been incredibly high, especially when accounting for available supply, again highlighting demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers. The incredibly high demand we’ve seen over the past year might wane as interest rates increase; however, the supply is so low that the market can handle a drop in demand without negatively affecting prices.
The 30-year average fixed rate mortgage hasn’t climbed above 4% yet, but it almost certainly will as the Fed starts raising rates. If mortgage rates reach 5%, demand will likely decline more substantially. In the next few months, demand will remain high relative to available supply.

Months of Supply Inventory (MSI) further indicates strong sellers’ market

Homes are still selling extremely quickly. Buyers must put in competitive offers, which, on average, are about 5–13% above list price.
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes for sale on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than that indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Currently, single-family home and condo MSIs are exceptionally low, indicating a strong sellers’ market.
The market is very hot right now. If you have any further questions about the market, the perfect time to buy or sell a home, or are in need of a real estate professional, give us a call at 925-415-0835!

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