How the Coronavirus will affect Bay Area Housing Market

Looks like SF-SJ is about 6% to 2% overvalued according to this article.

Added later:
Ok I looked closely. It says historical trends. This time is unprecedented due to remote work, so history might not be an accurate guide.
Also I was confused because I read elsewhere that ratio of median sales price to median household income was one of the highest in Bay Area.
So, discounting historical trends Bay Area RE could be highly overpriced.

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Mortgage rates are sharply higher - 30 year rate almost double from 6-9 months ago (2.75% —> 5), even for jumbo loans.

Stocks are down sharply - S&P and Nasdaq down 20% and 30% from peak respectively —> bear market

Crypto down even more sharply —> BTC down 60% from peak

Real estate will be the next thing to fall.
RBA prices will fall 20%, and greater Bay Area will fall 20-40%, by this time next year

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Are you sure? Inflation is also higher, like 15% in reality.
Home construction costs are significantly higher too.
Labor costs and minimum wage are significantly up.
City fees, insurance fees, HOA fees, Taxes all are up significantly too.
Does not this all imply even higher prices?

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no way that happens

Market isn’t going to crash 20%. But if stock market stays at these lower levels for a while, prices will go down 5-10%. Simply too much money has been lost for demand to stay flat at same prices.

But this will take months to even show up, as people buying now probably sold stocks last year (at higher prices) in prep to buy.

Inventory is so low that I doubt it’ll matter. It’s over 60% lower than pre pandemic. People with 3-4% mortgages aren’t going to sell to buy with a 5-6% mortgage unless they absolutely have to move.

That might be all that’s left already at these inventory levels!

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In the longer time, all of this does imply that housing prices will go up.

But in the short term (1-2 years), housing prices will go down for the following reasons:

  1. Stocks are in a bear market, esp. NASDAQ. They are the source of down payment - suddenly people’s down payment is cut by 30% or more.

  2. Interest rates almost doubled overnight - last year, I refinanced my jumbo loan into 2.62% 30 year fixed. Same loan product from same lender now costs 4.75-5%. So, people’s monthly mortgage payment is up sharply.

Taken together, this almost guarantees that home prices will come down. A small house few doors away on my street just closed escrow at little over $3M - 800k over asking. Last year (2021) the exact same floor plan (this is the builder’s original plan from 1960) in the same neighborhood sold for $2.5M. In 1 year, property price popped up by 500-600k.

I would not be surprised if in 2023 - one year from now - the same floor plan again sells for $2.5M. A fall of 20% or 500-600k from today’s prices is a reasonable thing to expect

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I’m seeing inventory rise rapidly in the markets I follow, even in just the last 2–3 weeks (a couple of prime zip codes on the Peninsula). We’ll see whether the trend continues.

It’s possible that a lot of the demand was pulled forward by a whole range of factors e.g. prospect of rising interest rates, need for more space during the pandemic, fear of being priced out, etc. At the same time, supply was constrained by sellers’ fear of leaving money on the table by selling too early. If we see a top in prices, I think it will increase supply irrespective of interest rates since long time homeowners with small/no mortgages are much less sensitive to interest rates than first time buyers with ≤20% down.

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What do the people selling do? They have to live somewhere afterwards. Which means buying in a crazy market at higher interest rebates.

The people I see selling have either inherited the property (i.e. owner has died), are moving out of the area or have tons of equity and are upgrading. Just about anywhere outside of the Bay Area is less expensive so they can pay cash. If they’re upgrading they have a ton of equity so new loan with be small relative to the price of the home. If the owner has died obviously no need for new home.

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Highest Prices, Lowest rent growth? That must hurt.