As many of our clients may know, I sold my Alameda home and purchased a new property in Novato in late 2023. At the time I did these transactions, mortgage rates were near all-time highs. I gave up my 1.90% fixed 15 yr. mortgage and secured a new, whopping 7.50% 30 yr. fixed mortgage. OUCH!
That OUCH has caused many home buyers to shy away from the real estate market – mortgage rates are just too high. But there is a silver lining to these high rates = a more open, calm real estate market. Instead of overbidding and multiple offers, there are price decreases and seller credits. A seller credit is where the seller agrees to give the homebuyer funds at closing. The buyer can use the credit to pay closing costs, reducing out-of-pocket expenses associated with purchasing a home. The credits may subsidize a buyer’s out-of-pocket closing costs, cover the cost of needed repairs, or otherwise sweeten the deal to move the sale forward. Seller credits are negotiable and can be included as part of the terms of the sale if both the buyer and seller agree to them.
In my case, I provided seller credits to the buyers of my Alameda home. In fact, in addition to my credits ($$), both the buying and selling agents agreed to share part of their commissions with the buyer to help them qualify for the FHA loan they had secured. FHA loans have much stricter lending guidelines the buyers must adhere to and can make real estate transactions difficult.
On the purchase, the seller of my new home also offered me credits to help facilitate the transaction. I was the only offer for the home and I was able to get the home for the list price – no overbidding required. It was a fast and easy real estate transaction.
My real estate agent had to go above and beyond to get my home sold (and it did sell for over list price). He had multiple open houses, contacted other agents to promote my home to their clients, threw a neighborhood block party and had a few happy hour wine events. He even secured a handyman to go through and make small repairs on my property and secured a home stager – all at his expense.
All in all, I was happy with the price I got for the sale of my house and VERY happy with the home I was able to purchase. In a regular housing market, there would have been multiple bids on both homes and overbidding. I had to ‘give’ on my sale to ‘gain’ on my new home.
For clients looking to purchase a new home, we believe this current housing market – with the high rates – actually allows clients to secure a great home for a great price in a much calmer environment. Although current rates are sky high compared to the 3% +/- mortgage rates, you can always refinance when rates do decline.
The State of the Bay Area Housing Market
The Bay Area housing market is one of the most expensive and competitive in the country. Since 2022 when the Federal Reserve began raising rates to stamp out inflation, the frenzy has definitely cooled. Interest rates hit their highest levels in 23 years, tech layoffs rippled through the region and buyers retreated then we saw home prices decline. With such constrained housing inventory, it’s unlikely that the San Francisco Bay Area will ever experience a true buyer’s market, but real estate experts say there are opportunities out there right now that haven’t been seen in years.
What will happen in 2024 is anyone’s guess, but for those looking to rent, buy or sell in the Bay Area, we know it won’t be boring.
Mortgage rates should decline, hopefully…
The biggest boost to the Bay Area housing market would be for interest rates to tick back down. Most experts predict this will happen as inflation continues to cool, which would help both buyers and sellers. The California Association of Realtors is predicting rates to fall to around 6% by the end of 2024 which, while still high, is much better than 2023’s peak of almost 8%.
Less traditional financing options could become more common.
As interest rates rose, affordability shrunk for buyers, making home purchasing out of reach for some. Others sought out less traditional financing options in order to stay in the market. Most people have heard of a 30-year loan from a bank, but not nearly as many know what seller financing or an assumable mortgage is. There are a lot of benefits to “creative” financing. Local real estate agents are definitely seeing seller financing and seller [rate] buydowns that should continue. That’s a favorable trend for buyers.
New developments have been offering rate buydowns since 2023 — this helps buyers with the initial monthly payments, giving them some relief until rates go down and they can refinance. We’ve seen new housing developments offering rates at 5%-6% as the developer encourages new home buyers to purchase.
Hard to be a buyer…or a seller.
Both buyers and sellers have had to adjust their expectations as the housing market has shifted, and many transactions will ultimately depend on individual factors. Good properties that are well priced and well positioned will sell, but it’s more of a ‘warm’ market these days.
Competing in today’s market still isn’t easy, but there’s more opportunity than there once was. Back in the “white-hot” days, buyers needed to waive all contingencies or have an all-cash offer in hand to get the place they really wanted. Now, a buyer may still be able to win a home with a financial or insurance contingency attached to an offer.
Insurance changes could affect the market
Several insurance companies pulled out of California in 2023, sending a jolt through homeowners throughout the state. Allstate and State Farm cited increasing wildfire risk, but other smaller companies departed for other reasons, leaving current homeowners and new buyers with fewer options.
For example, some insurance companies updated their guidelines in ways that exclude many homes, like no longer insuring houses with knob and tube wiring, which is common in homes built before 1940. It’s making the process of homebuying all the more complicated and stressful, Jones said, and not just in wildfire prone areas.