Home Prices Still Surging, But Higher Interest Rates Could Slow Gains

Two recent housing reports confirm what homebuyers and sellers already know: home prices have surged over the past year, especially in the Bay Area. But the bump in mortgage interest rates in recent months may be slowing those gains a bit and could lead to a more balanced market.

S&P/Case-Shiller’s most recent home price index showed prices in the nation’s 20 largest cities rose 12.1 percent over last year. The San Francisco metropolitan area had the second biggest jump in prices, surging 24.5 percent year over year. Las Vegas at 24.9 percent led all cities. Others in the top five were Los Angeles (19.9 percent), Phoenix (19.8 percent) and San Diego (19.3 percent).

According to the report, which was based on June figures, prices in Dallas and Denver hit all-time highs, while San Francisco housing prices turned in the biggest rebound, rising 47% from their low in March 2009.

But analysts say the gains may be slowing as interest rates move higher. June marked the first time in more than a year that the overall annual increase was smaller than the month before, albeit fractionally lower.

“With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened,” David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a press release. Here’s the story in CNNMoney.

Rates have climbed more than a full percentage point since May when Fed Chairman Ben Bernanke signaled that the Federal Reserve may begin tapering its bond-buying program later this month. That program has largely been credited for keeping interest rates at or near record lows.

Despite concerns that rising rates could put a damper on price increases, analysts say there are still enough economic reasons for prices to remain firm for now. There’s still a significant shortage of homes on the market in most areas, and although rates have bumped higher they remain near historically low levels. Moreover, prices in much of the country are still well below their previous peaks.

In the Bay Area, the median price for new and existing homes sold last month rose 31.7 percent from a year ago to $540,000, according to DataQuick, the La Jolla-based real estate information firm. However, the median did decline 3.9 percent from July’s level. A seasonal decline from July to August is normal, the firm noted.

In its report, DataQuick suggested the Bay Area is moving back to a balanced market after being a strong seller’s market. “As the market pendulum swings back toward normal, trends will be affected by more mundane market factors such as interest rates, employment, economic growth, affordability, mortgage availability, and how fast demand is generated and met,” said John Walsh, DataQuick president.

Of course, no one can know for sure what the future will hold for home prices. But if in fact the sharp price increases we’ve seen over the past year were to slow a bit, that may not be such a bad thing for the housing market. A more balanced market could bring frustrated buyers back off the sidelines and create a healthier environment for both buyers and sellers.

Below is a market-by-market report from our local offices:

North Bay – The promise of post-Labor Day inventory has not materialized yet, but there is still hope more will come on the market, according to our Central and Southern Marin manager. There has been some sign of price stabilization in Marin, yet all price points are in hot demand. The hottest markets are San Rafael, Mill Valley and the Marin mid-markets (Greenbrae, Corte Madera/Larkspur/San Anselmo – always popular). Our Sebastopol manager reports that the local market has experienced a general slowdown in the past couple of weeks. School is back in session and consumers seem preoccupied with other things.

San Francisco – Our Lombard office manager reports a healthy post Labor Day increase to the citywide inventory this week. Currently reasonably priced properties are still garnering pre-emptive offers, multiple offers and 105 – 130% of asking prices. We’ll see if the interest rate and inventory increases slow down the fall market. Similarly, our Market Street office manager says that now that Labor Day has passed, there’s much hope that agents will see new listings coming to the market. Some buyers, fatigued by losing out in multiple offer situations, may be encouraged to know that half of the sales ratified this period had but a single offer. And those homes that received multiple offers had fewer to choose from than sellers did earlier this year (from 2 to 6 during this period). Other buyers, in an attempt to avoid competition completely, have begun looking at the many new construction condo properties.

SF Peninsula — The Burlingame market has had a very busy last two weeks. There are serious buyers and multiple offers. It seems that the fall market has begun in earnest. The amount of new beautiful listings that has come to market this week is very encouraging. High-end listings took a break during August and activity was down. We are seeing renewed interest now that school has started. There are a lot of new listings being prepared for the market over the next few weeks. Our Burlingame north office reports multiple offers are still occurring, but the number of offers varies by location, price range, and the condition of property. The highest number of multiple offers is in the entry-level markets. And those numbers decreased from about 20 to 5-10. There’s also been encouraging activity in the over $5 million segment of the market. Our Menlo Park manager says it has been relatively quiet after the holiday and back to school. Agents are waiting for more inventory to place serious buyers. They saw 12 offers on $1.1 million Menlo Park home. Our Palo Alto office had two very high-end properties go into contract this past week – over $10M each. San Mateo has seen a good second half of August with strong buyer demand. But the number of buyers on a property seems to be declining and there are more offers under asking price.

Do not hesitate to contact me at (415) 832-9151 for any real estate purpose you may have.

Janice Lee  
415-832-9151
International President's Elite
Top Producer, Realtor
JaniceFLee@gmail.com
www.JaniceLeeHomes.com
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