Pandemic Fueled Housing Market Frenzy Recedes

By M.C. Dwyer

For the past few years, home sellers drove the market. Many homes sold for profitable premiums, leaving home buyers frustrated and battered by competition. In just the past few months, the pendulum is swinging back towards the center due to rapid economic changes: higher inflation and mortgage rates, and recession concerns. After the cost of home ownership went up about 50% this spring when mortgage rates essentially doubled, home price appreciation may have topped out.    

Statewide, according to the California Association of Realtors: 

• Consumer confidence in the housing market is dropping.
• The number of home sales dropped about 8% last month, 20% below June 2021: the slowest rate since 2008.
• The number of buyers getting newly approved for mortgages is down about 18% from last year.
• Although there are still fewer homes for sale than normal, inventory is the highest since 2020.
• The average list to sales price ratio fell to about 101%, versus 104% in June of 2021. 
• Home prices fell about 4% last month*, to just 5% higher than June 2021.
• About 37% of homes for sale statewide have dropped their asking price.

Takeaway: Sellers may find it easier to find a home wherever they’d like to move. Plus the housing market is probably shifting there as much if not more than here, neutralizing the effect of declining home prices although mortgage costs are higher now.

*The share of million dollar plus home sales rose during the pandemic to about 35% – the highest point of all time – as working remotely led people to take profits out of the stock market to buy homes. This high percentage of million dollar plus sales skewed the average home price much higher. After about a 20% stock market decline this year, million dollar plus home sales are slowing. I wonder if the lower end of the housing market might actually survive better than the upper end.

Is the bubble going to pop?        

The last “bubble” that began popping in late 2007, was driven by terrible lending standards combined with poorly qualified novice home buyers choosing adjustable rate mortgages just to be able to afford a home – a practice that was encouraged by aggressive lenders. Speculation on Wall Street led to a liquidity crunch, home prices fell, and many buyers who couldn’t refinance were forced to sell. This market cycle, lending standards have been much tougher. CoreLogic reports that home mortgages in delinquency (an early indicator of possible foreclosures) fell from 4.7% of all homes in April 2021 to just 2.9% in April 2022 (latest available). Now, the vast majority of homeowners have equity in their properties, reducing the chance of mass distress sales. Although there has been talk of recession, prompting some companies to announce layoffs, June employment grew strongly by 370,000, and wages rose by 5%. 

The consensus among housing experts is the market is cooling, after years of double-digit appreciation. CoreLogic forecasts home price growth will drop down to single digits over the next year nationally. The California Association of Realtors expects home prices to appreciate about 5% through the rest of 2022.

It’s possible we look back on the first quarter of 2022 as the market peak. To me, when home affordability drops to the point where only one in four Californians can afford to buy a home, and people move out of state to buy an affordable home, a cooling market seems healthy.

After years of home price appreciation, the chart below is an eye opener. Although I always include a comparison with the same time period last year and with the previous quarter, this time I decided to include a comparison with the last quarter of 2021. That’s because I suspect the 1^st quarter of 2022 was an anomaly. Keep in mind that these city and town numbers fluctuate a lot because the markets are so small they can easily be affected by the mix of high and low-end home sales.

Takeaway: Finally, anyone who has been unsuccessful buying a home over the past few years has far better chances – there are more homes to choose from, less competition from other buyers, and more negotiating options with sellers.     

Our Rebuild 

My husband finally got his building plans approved! His lender released the second chunk of insurance money, and he’s paid the first installment to his contractor. The last few weekends he and a neighbor (who also lost their home to the August CZU Lightning Fires), have been moving all the burned Douglas Fir trees aside to make way for construction.

Here are the CZU Fire Rebuild stats as of 7/18/22.    

• 148 properties have gotten pre-clearance but those property owners have not yet applied for a permit
• 176 permits to rebuild homes are in process 
• 135 permits have been issued, or are ready for pick up
• 9 homes are completely rebuilt   

   

“M.C.” (MaryCatherine) Dwyer, MBA, REALTOR®
CA DRE License 01468388   EXP Realty of California, Inc.
Serving San Lorenzo Valley and Scotts Valley since 2005                                                                                                            
(831) 419-9759    E-mail: mcd@mcdwyer.com   Website: https://mcdwyer.exprealty.com

*Sources: MLSListings.com Commercial and Single Family Homes data, Mortgage Bankers Association, California Association of REALTORs, Reuters, CoreLogic, REALTOR.com, Mercury News, through press deadline July 18th 2022.

The statements and opinions contained in this article are solely those of the individual author and do not necessarily reflect the positions or opinions of eXp Realty, LLC, or its subsidiaries or affiliates (the “Company”). The Company does not assume any responsibility for, nor does it warrant the accuracy, completeness or quality of the information provided.

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