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MAY 2022
IN THIS ISSUE Fed Funds Rate up 50 Basis Points Summary April Market Trends April Market Activity Report Current Mortgage Rates and Trends FEDERAL FUNDS RATE INCREASED BY 50 BASIS POINTS HOW DOES THIS EFFECT THE HOUSING MARKET? If inflation is the villain of our economic story, the Federal Reserve Bank is the superpower that fights to keep it under control. Although the March inflation number hit a 40-year high of 8.5, inflation in the 1980s rose to nearly 15. That is when Paul Volcker, then Chairman of the Fed, decided to take on the task of controlling inflation. And how do you control consumer spending? With interest rates. This chart shows the close correlation between inflation and interest rates. So, it makes sense that if you want to change the inflation trend line, you do so by changing the interest rate line. To lower inflation, the Fed increases interest rates which curbs consumer spending and cools off the economy. To strengthen the economy, they lower interest rates, which encourages spending but has the negative effect of increasing inflation.The Federal Reserve just raised interest rates by half a percentage point to reduce inflation, The Wall Street Journal reports. The increase in the benchmark Federal Funds Rate is the sharpest since 2000 and the second of seven hikes forecast for this year. The Fed began raising this rate from near zero this year, expecting that a series of hikes would combat inflation. However, some analysts worry that increasing rates again too soon could be problematic. "Policymakers must move slowly with hikes and not too forcefully to raise interest rates too quickly, which could prompt businesses to lay people off or send the country into recession," the Post writes. Since the prime rate piggybacks off the Federal Funds Rate, raising the Fed Funds Rate will have the effect of raising rates on adjustable rate mortgages and home equity loans. When Fed policymakers want to raise interest rates on 15 and 30 year fixed mortgages, they sell government bonds. This sale reduces the price of bonds and raises the yield (interest rate). We can also think of this as the Fed reducing the money supply. This makes money less plentiful and drives up the price of borrowing. When we fell into a recession, as a result of the debilitating economic effects of Covid19, the Fed decided to lower interest rates in order to fuel the economic recovery. So they started buying massive amounts of long-term bonds and kept the Fed Funds Rate at 0 -.25. As consumer spending increased, so did inflation. When it jumped from 1.5 to 8, the Fed decided it was time to reverse their policy and slow down the economy. So now they are selling bonds and raising the Fed funds rate. The hope is that the Fed can crush inflation while not killing an economy that lately has looked vulnerable to shocks. GOOD NEWS JUST IN Today, May 12, the April Inflation rate was announced, and for the first time since the rate began its meteoric rise, it has come down! Not a lot, 8.5 to 8.3, but that is great news. It didn't go up! In June we should receive a report that it went down even more in May. SUMMARY MARKET TRENDS April 2021 - April 2022 APRIL 2022 SUMMARY April repeated the same major trends we saw in the first quarter. Year-over-year, sales were down by 29% while new listings were down by 49%. The continuing decrease in housing inventories reduced the average days from listing to sale (with all contingencies removed) from 25 days to 17, and is keeping the pressure on home prices. In April the median sales price of a single family detached home in Marin increased by 28%. So, for now, we remain in an extreme seller's market. As interest rates continue to rise, demand will wane, inventories will increase and we will slowly transition to a buyer's market. MARKET ACTIVITY REPORT Property Sales (Sold) April closed sales were 193, down 29% from 272 in April of 2021 and 16.3% higher than the 166 sales in March. Current Inventory (For Sale) Versus last year, the total number of properties available in April was lower by 21 units or 14.7%. This year's lower inventory means that buyers who waited to buy may have a smaller selection to choose from. The April inventory was up 20.8% compared to the previous month. Property Under Contract (Pended) There was an increase of 10.3% in pended properties in April, with 215 properties versus 195 in March. This month's pended property sales were 18.9% lower than at this time last year. The Days on Market Shows Downward Trend The average Days on Market (DOM) shows how many days the average property is on the market before it sells. An upward trend in DOM tends to indicate a move towards a Buyer’s market, a downward trend indicates a move towards a Seller’s market. The DOM for April 2022 was 17, down 10.5% from 19 days the previous month and down 32% from 25 days in April of last year. The Sold/Original List Price Ratio is Rising The Sold Price vs. Original List Price reveals the average amount that sellers are agreeing to come down from their original list price. The lower the ratio is below 100% the more of a Buyer’s market exists, a ratio at or above 100% indicates more of a Seller’s market. This month's Sold Price vs. Original List Price was 113%, up 1.8% from 111 in March and up 7.6% from 105 in April of last year. The Months Supply of Inventory is the number of months it would take to sell all available listings given the rate of sale. A comparatively lower supply of inventory is more beneficial for sellers while a higher supply is better for buyers. Buyer’s market: more than 6 months of inventory Seller’s market: less than 3 months of inventory Neutral market: 3 – 6 months of inventory Months of Inventory based on Closed Sales The April 2022 "Months of Inventory based on Closed Sales" of 0.6 was 19% higher than in April 2021 and the same compared to the previous month. April 2022 was a Seller's market. Absorption Rate measures the inverse of Months of Inventory and represents how much of the current active listings (as a percentage) are being absorbed each month. Buyer’s market: 16.67% and below Seller’s market: 33.33% and above Neutral market: 16.67% - 33.33% Absorption Rate based on Closed Sales The April 2022 "Absorption Rate based on Closed Sales" of 158.2 was down by 16.8% compared to last year and down 3.8% compared to March. The Average For Sale Price is Depreciating* The Average For Sale Price in April was $4,211,000, up 34.2% from $3,137,000 in April of 2021 and down 0.4% from $4,226,000 in March. The Average Sold Price is Appreciating* The Average Sold Price in April was $2,509,000, up 15.4% from $2,175,000 in April of 2021 and up 19.5% from $2,100,000 in March. The Median Sold Price is Appreciating* The Median Sold Price in April was $2,227,000, up 32.6% from $1,680,000 in April of 2021 and up 27.3% from $1,750,000 in March. * Based on a 6 month trend The Average Sold Price per Square Foot is Appreciating* The Average Sold Price per Square Foot is a great indicator for the direction of property values. Since Median Sold Price and Average Sold Price can be impacted by the 'mix' of high or low end properties in the market, the Average Sold Price per Square Foot is a more normalized indicator of how property values are trending. The April 2022 Average Sold Price per Square Foot of $1097 was up 9.5% from $1002 in March and up 19.4% from $919 in April of last year. * Based on 6 month trend – Appreciating/Depreciating/Neutral Whether planning to sell or purchase a home, it can help you strategize your approach by knowing which price ranges are in high demand and which are not. For low to mid-range homes, the most popular were in the $1-2million range where sales increased from 43 in January to 81 in April. Sales of homes priced from $2-3million increased from 15 in January to 57 in April. The lowest sales volume was in the $0-1million range. The luxury market has really taken off in 2022. Sales of homes in the $3-5million price range increased from 8 in November 2021 to 38 this April. Homes priced at $5million and above took a leap up from 4 in March to 12 in April. CURRENT MORTGAGE INTEREST RATES as of May 11 Rising rates obviously create an affordability problem for buyers. This next chart shows the effect of higher rates on monthly payments. In this example, with a $400,000 loan at 2.75%, the monthly payment would be $1,633. If the rate increases to 4.00%, the monthly payment increases to $1,910. But if our buyer can only afford and qualify for the $1,633 monthly payment, they would have to reduce their loan amount to approximately $340,000. If they would like an 80% loan, the sales price of the home they can obtain would be reduced from $500,000 to $425,000. As rates increase, many would-be buyers would be priced out of the market. This is why lenders are seeing movement away from fixed rate loans to adjustable loans. As you can see from the trends chart above, the National average rate for a 30-year fixed rate loan is 5.48%, while 5/1 adjustable rate mortgages (ARM) are at 3.78%. As an additional aid, some lenders will even offer low "teaser" rates for the first few years of an ARM. We are even beginning to see loans with an interest only option. The higher rates rise, in the short run, the more creative lenders will become. Let's just hope that they don't become as creative as they did in the run up to the 2007 financial crisis. That seems unlikely, but something to keep an eye on. This chart shows the metioric rise in 30-Year Fixed Mortgage Rates from the beginning of this year through May 5th. SUMMARY To buyers and sellers it looks like the real estate market is moving forward at breakneck speed - homes are selling faster than last year, multiple offers are still plentiful, and prices are appreciating at a rapid pace. That is all because of the continuing supply/demand imbalance. In reality, the market is contracting. Yes, listings were down by 49% but sales were also down by 29% which means that the real estate market is not contributing to economic growth to the extent it has since the recovery began. This was an intended consequence of the actions the Fed is taking to curb inflation. Here are some quotes from industry experts about the relationship between interest rates and the housing market: We are certainly living in interesting times. Political unrest and economic uncertainty in the world make it difficult to predict market trends, and the opinions of industry experts are constantly in revision. I will continue to track the market and report back to you in this monthly update. In the meantime, with summer right around the corner, we can all enjoy the vast variety of outdoor activities available in the Bay Area. And, since I always appreciate referrals, if you know of anyone who is thinking of buying or selling a home, I would be happy to meet with them and give them the same caring, professional service I provide to all of my past and current clients.
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April 25-29, 2022WHAT YOU MAY HAVE MISSED THIS WEEK:
Index for Bay Area House Values Up Nearly 23 Percent YOY "Having increased 2.4 percent in January, the S&P CoreLogic Case-Shiller Index for single-family home values within the San Francisco Metropolitan Area – which includes the East Bay, North Bay and Peninsula – ticked up another 3.7 percent in February for a year-over-year gain of 22.9 percent, three points above the nationally average of 19.8 percent. At a more granular level, the index for the least expensive third of the Bay Area market ticked up 2.6 percent in February for a year-over-year gain of 18.0 percent; the index for the middle tier of the market ticked up 3.7 percent for a year-over-year gain of 22.4 percent; and the index for the top third of the market ticked up 3.8 percent in February for a year-over-year gain of 23.4 percent." CONTINUE READING ON SOCKETSITE Marin urges COVID-19 precautions at end-of-school-year events "Faced with an uptick in school-related COVID-19 outbreaks, Marin public health officials issued new safety guidelines Thursday for high school proms, graduations and other large end-of-year gatherings. The officials sent a letter to schools attributing the 'significant increase' in infections in part to 'post-spring break exposures and attendance at indoor events and gatherings without masks.'" CONTINUE READING ON THE MARIN IJ Marin agriculture managers get aid to help weather the drought "The Marin Agricultural Land Trust and the county are providing local agricultural producers with financial assistance to help them survive the drought. This month, MALT announced it will allocate another $250,000 to a program that helps Marin County ranchers and farmers cope with the critical shortage of water." CONTINUE READING ON THE MARIN IJ Novato looks to allow more downtown parklets "More parklets may be coming to downtown Novato after the City Council advanced a program this week to streamline construction. The program, years in the making, would allow downtown businesses to pick from a menu of pre-approved parklet designs rather than having to undergo a lengthy and expensive permitting process as is currently required. A parklet that could take a year or more to construct now could now be in place within a few months." CONTINUE READING ON THE MARIN IJ Marin ranked healthiest California county in new report "Marin County continued its reign as the healthiest county in California, according to the Robert Wood Johnson Foundation. With the exception of 2017, when it dipped to No. 2 behind San Mateo County, Marin has held the mantle since 2010. The annual rankings, released this week, compare California’s 58 counties on more than 30 factors that illustrate how healthy their residents are today and what will affect their health in the future." CONTINUE READING ON THE MARIN IJ Mill Valley Extends Outdoor Dining Program: Report "The city of Mill Valley has extended its outdoor dining program for five months, The Marin Independent Journal reports. The city created the program in 2020 amid the pandemic but it was set to expire June 30. The program will now run through October without additional extensions." CONTINUE READING ON PATCH 6 Ways to Enjoy Getting Out on the Bay this Summer "The bay is beckoning — here are six ways to get some sun, exercise and have a ton of fun on the water this summer." CONTINUE READING IN MARIN LIVING MAGAZINEMISCELLANEOUS Mortgage Rates Hover at Five Percent "The combination of swift home price growth and the fastest mortgage rate increase in over forty years is finally affecting purchase demand. homebuyers navigating the current environment are coping in a variety of ways, including switching to adjustable-rate mortgages, moving away from expensive coastal cities, and looking to more affordable suburbs. We expect the decline in demand to soften home price growth to a more sustainable pace later this year." |