From the Golden Gate Sotheby’s Bay Area Market Report…

PICKING UP SPEED AFTER A SLOW START

The year began slowly for the SF Bay Area housing market, but the pace of activity picked up towards the end of the quarter. The regional economy remained stronger than news headlines indicate, with nearly 35,000 new hires since the end of 2022. While the growing number of layoff announcements, particularly within the key tech segment, is worrisome, the unemployment rate remains lower than 3%.

The growing number of days that most workers spend in the office also contributes to greater economic vitality, ultimately leading to a greater rebound of housing demand in the inner SF Bay Area. In the first quarter, closed sales totaled less than 7,000 homes across the SF Bay Area. While this was one of the slowest quarters in years, the pace of sales accelerated by the end of the quarter with nearly 60% more sales in March than February. The smallest decreases in sales occurred in Napa and Solano counties, while Marin County produced the largest decrease compared with last quarter.

The collapse of Silicon Valley Bank caused tremors throughout the regional economy, yet the financial sector troubles also caused mortgage rates to come down from recent peaks. The drop in mortgage rates helped pull some buyers off of the sidelines as well as allowed more borrowers to qualify, helping to drive the sales pace higher by the end of March.

HIGHEST AND LOWEST TIERS FARE BETTER

Sales activity at the upper and lower ends of the pricing spectrum held up better, though sales declined across the board from last quarter. Within the $3.5 million to $5 million price range, quarterly sales dropped by roughly 16% from the fourth quarter, compared with a 24% decrease overall. The greater than $5 million range fared slightly better, with only a 9% decrease in sales. Within both price ranges, sales activity accelerated into March. In particular, monthly sales in the $3.5 million to $5 million range nearly doubled from February to reach the highest monthly total since last Fall.

PRICES APPEAR TO STABILIZE

The median price of homes sold in the SF Bay Area during the first quarter reached $1.1 million, roughly 6% lower than the fourth quarter, and approximately 16% compared to Q1 2022. However, following the price decline in January, the median price increased in both February and March. This trend, a low point for pricing in January and moderate increases in the median price since then, held in nearly all of the SF Bay Area counties. The first quarter tends to produce lower home prices as seasonal factors such as fewer people moving and households recovering from holiday spending impact buying decisions. The price increases towards the end of the quarter are a positive sign that values may have stabilized in most neighborhoods.

LOOKING AHEAD

Though stress in the financial sector will have negative implications for venture capital and the tech industry, the modest drop in mortgage rates will help more buyers to afford a home in the SF Bay Area. As borrowing costs stabilize, more potential buyers may enter the market and employer expectations for more time in the office will entice some households to return closer to their workplaces. Though looming layoffs may dampen buyer demand in the coming months, a wave of foreclosures is not expected given the large amount of positive equity for most homeowners. Inventory will remain low due to few defaults as well as many homeowners locked into their existing mortgage given the current state of rates. The limited amount of for-sale inventory will help prevent steeper declines in pricing that may occur in other regions. Overall, single family housing conditions should continue to trend in a positive direction into the spring buying season.

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