(TNS)—The Bay Area’s once-scorching pandemic housing market continued to cool in June, with home prices plunging to the largest monthly drop for this time of the year in at least three decades.
In June, the median price of existing single-family houses in the nine-county region declined 7% from the previous month—from just over $1.5 million to $1.4 million, according to data for the California Association of REALTORS® (C.A.R.). That’s the steepest May-to-June dip ever recorded in the association’s regional home sales data, which dates back to 1990.
What’s behind the record price drop? Real estate experts point to rising interest rates squeezing buyers, more homes staying longer on the market and an increasingly uncertain economy—all signaling the Bay Area housing market may have peaked after prices hit all-time highs earlier this year.
“From this point on we probably won’t see another record price, at least for this year, for either the Bay Area or for the state,” said Oscar Wei, deputy chief economist with C.A.R.
Wei noted it’s uncommon to see such a significant price decline in June in the middle of what is traditionally the busy summer home-buying season.
In the core Bay Area, Alameda County saw the largest monthly price drop of 8% to $1.42 million. That was followed by San Francisco County with a 6% decline to $1.9 million, Santa Clara County with a 6% drop to $1.82 million, Contra Costa County with a 5% dip to $976,940 and San Mateo County with a 3% drop to $2.16 million.
Still, Bay Area home prices were up 5% in June compared to the same time a year ago. But some counties did see year-over-year drops, including San Mateo (-5%), San Francisco (-3%) and Contra Costa (-1%).
Throughout most of the pandemic, home values soared as house hunters—many untethered from the office by remote work and buoyed by historic-low interest rates—were locked in a mad scramble for homes, sometimes bidding hundreds of thousands of dollars over the asking price.
But as the Federal Reserve has raised the cost of borrowing this year in a bid to slow runaway inflation, mortgage rates have spiked accordingly to around 5.5% for both jumbo and conforming 30-year fixed home loans. That’s up from as low as under 3% during the depths of the pandemic.
Volatile financial markets that have put a dent in investment portfolios, increased job layoffs and raised fears of a coming recession have also taken some buyers out of the market.
In turn, Bay Area home sales dropped 27% in June year over year, the largest decline since pandemic lockdowns halted most home buying in spring of 2020, Wei said.
South Bay REALTOR® Mary Pope-Handy said the drop in demand has resulted in price reductions and homes staying for sale longer, after some sellers jumped into the market hoping to cash in on soaring prices in recent months. Now, she said, many buyers and sellers are holding to see who blinks first.
“It’s a lot of everybody waiting for the market to go up or go down,” Pope-Handy said. “At some point the logjam will break because people still need to buy and sell.”
That dynamic has likely contributed to home inventory increasing throughout the region. In Alameda County, the number of available listings has nearly doubled since last year.
Paddy Kehoe, a real estate agent with Compass in the East Bay, said active sellers now have to be more thoughtful about how they put homes on the market.
“If it is marginally overpriced it’s not going to sell,” Kehoe said. “Today, you have to know 100% what the price should be.”
Wei said that despite the current state of the market, it’s unlikely the Bay Area will see another month-to-month price drop as large as 7%. That’s in part because even though the number of homes on the market is growing in the short term, supply in the Bay Area remains tight compared to the rest of the state and country, after years of sluggish housing construction in the region.
“Going forward,” he said, “we will continue to see some slowdown, but it’ll be in line with the traditional seasonal slowdown rather than the sudden dip in that price shift.”
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