From the Golden Gate Sotheby’s Market Report…

DEMAND REMAINS HIGH

The SF Bay Area housing market remained strong even as higher mortgage rates and price appreciation continued to erode purchasing power. The strengthening economy continued to fuel buyer demand despite elevated inflation and slower hiring trends, particularly in the tech industry. The regional unemployment rate fell to 3.3%, highlighting the persistent labor shortage. With employers competing for new hires as well as to retain existing staff, higher salaries and bonuses helped some households move into ownership. While rising interest rates and persistent inflation are risks to the broader economy, demand for housing in the SF Bay Area should remain elevated.

SALES VOLUME VARIES BY PRICE

Throughout the region, sales in upper price tiers slowed while buyer activity held up in the less than $1.5 million range. Sales of homes priced between $2.5 million and $5 million fell by 8.5% in May and, on average, houses that did sell remained on the market for longer than last month. Sales trends were mixed depending upon the county. In San Francisco, sales of homes priced close to $1 million accelerated in May. In Contra Costa County, particularly the eastern portion, where homes remain relatively affordable, sales of homes priced less than $750,000 surged and accounted for nearly one-third of all transactions in this price range.

SALES PRICE DIPS LED BY UPPER PRICE TIERS

With fewer homes selling in the upper pricing tiers, it is not surprising that the median sales price decreased slightly from the previous month. In May, the median price dropped 1.7% to $1.46 million, still the second-highest median price on record. Though the median price fell month-over-month in seven out of the ten counties in the region, the median increased in Alameda and Napa counties. In Napa County, a drop off of activity in the entry level market drove a portion of the increase in the median price. Some of the potential buyers at lower price points have been priced out of the market by the rise in purchase mortgage rates. COMPETITION SLOWS With more homes available for sale as well as buyers facing diminished buying power as mortgage rates rise, competition slowed somewhat in May. Compared with normal market conditions, however, competition remains elevated and multiple bids were common. However, with some buyers unable to stretch finances any further, the share of homes sold at greater than the list price decraesed to 81% from 85%  where it had been the last two months.

LOOKING AHEAD

The regional economy should continue to expand in the coming months, driving buyer demand from current SF Bay Area residents as well as households new to the area. However, with venture capital imposing more stringent controls on spending and a somewhat weaker IPO market, a surge in demand from cash flush tech workers should not be expected. The high home prices will continue to constrain some potential buyers, and competition may temper in the near term. Despite this, the large amount of pent-up demand should fuel higher home sales volume as well as price increases through much of the year.

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