What does the future hold for residential real estate, home buyers, and home sellers?
David Stark, Chief Communications Officer, Bay East Association of Realtors; (Photo provided by Bay East)
Jordan Levine, senior vice president and chief economist for the California Association of Realtors, offered some answers to this question in a recent conversation.
What is most important in your real estate crystal ball?
Mr. Levine: The most important thing is interest rates and what happens to mortgage rates. There are a few other things to keep in mind: Employment numbers are driving inflation.
There is a labor shortage, which is driving up wages. This and housing costs are the last vestiges of inflation. If the employment report is strong, interest rates are likely to rise slightly, and if the employment report is weak, interest rates may fall.
Interest rate volatility will continue despite the backdrop of interest rates gradually falling to the sub-6% range by the end of next year.
These are two major macroeconomic issues that affect both buyer and seller behavior. How do you predict the future of the local and regional real estate market?
Levine: For the Bay Area, it’s the twin challenges of supply and affordability. The good news is that supplies are already starting to improve.
If interest rates fall, homeowners — those looking to sell their homes who are tied to ultra-low interest rates on existing mortgages — will be more willing to move. That would ease supply and prices in the Bay Area.
At the same time, the demand side will recover as buyers look to take advantage of these lower interest rates. Prices probably won’t come down. They won’t grow as fast as they have in recent years.
What’s in your crystal ball when it comes to new home construction, and is that something you take into account when predicting where the market is headed?
Levine: In the medium term, yes. On the other hand, if you’re not building something new, it’s important to build a resale market.
New construction is slowly increasing across the state. Back in the pre-pandemic period, about 100,000 new homes were being built per year, and now about 130,000 have been built in the past two to three years.
The bad news is that most of that growth is occurring in Southern California, and most of it is concentrated in attached homes.
Hopefully we start to see the Bay Area take part in some of that growth and add a bit of density and supply while preserving neighborhood character and other factors that traditionally cause opposition and new development. I hope so.
What about homebuyer behavior?
Levine: It’s hard to predict because there’s a huge psychological component in addition to the excessive focus on interest rates.
Many buyers are waiting on the sidelines. The ultra-short-term focus is a bit misplaced, as prices are still rising, even though price increases are slowing. As interest rates fall, demand will increase even more, and we will see a tendency to focus on the short term and try to time the market to get the perfect rate.
It’s important to remember that this is a long game. A look at price history and predictions of future trends shows that the best time to buy is as soon as humanly possible. It will continue to rise.
Where do Bay Area employment trends fall on your crystal ball?
Levine: I’m not worried. I think the labor market will soften. We’ve had a very tough job market for the past four years, but I think it’s going to normalize in California.
Unemployment rates have risen from the high 3% range to the low 5% range. This is still a fairly low unemployment rate figure. I know there have been some layoffs in the Bay Area, but I think net job growth is still basically positive or flat.
While we may not be able to expect sustained, very strong employment growth like we have seen in the past, I don’t think there will be any major layoffs unless there is an unexpected economic shock.
What about population trends, are there any concerns?
Levine: That’s a little more concerning. One of the things that upset the Bay Area was changing demographic patterns during the pandemic.
We saw people move from the Peninsula to the East Bay and beyond Sacramento to vacation and adopted markets like Tahoe and Mammoth. The Bay Area has since seen a kind of re-normalization with people returning to cities after the last year or two of lockdowns.
Now we’re seeing that pattern come back where the Peninsula is once again losing people to the East Bay and the East Bay is losing people to places like Sacramento and Yolo County. This highlights how a supply problem, if left unchecked, becomes a demand problem. Many people who moved to Sacramento, most of whom still work in the Bay Area, did so for affordability reasons.
We should get serious about the supply side. Pushing people further overseas is the economic activity we are taking away from the Bay Area. Because those people are more likely to shop and spend money after work in the East Bay, as opposed to Sacramento.
Is it possible that we could see a rebound effect where people return to the East Bay after traveling far for affordable opportunities?
Levin: I think so. During the coronavirus outbreak, many people said, “I’d rather be in a cabin in the woods because we’re on lockdown.” After a few years, we saw a reverse migration to urban cores as people realized they wanted to go back to places with culture, go to games, see shows. In fact, in 2022, the Bay Area and the heart of Southern California were some of the fastest growing markets for that reason.
I think we’re seeing this kind of pattern coming back, where people who priced out of the Bay Area’s most affordable markets still look to East Bay locations because they work primarily in the Bay Area. I think so.
Do you think Pleasanton is in high demand regardless of economic conditions because of its location?
Levine: I think so because the Bay Area has been one of the economic success stories globally over the last 20 to 30 years. There was such an imbalance between the incredible growth in the economy, jobs, and incomes that the supply of housing could not keep up.
There was so much excess demand that even if interest rates rose from 3% to 7%, many homes would still be sold in the Bay Area even though they were practically unaffordable. I think this is just a testament to its strength, but it also just highlights that its strength is a double-edged sword, as it also requires more housing.
What question do you really wish you had asked?
Levine: It’s just a matter of how fundamentally different things are this time.
For those who are thinking that prices are too high or that we’re in bubble territory or something like that, these aren’t the sketchy lending practices that caused this. This contrasted with high demand for housing and very few homes available for sale. That’s because we don’t build as many homes, and the homes we already own in California don’t change hands for a variety of reasons, from capital gains to property taxes. interest rate. Additionally, loan delinquencies and foreclosures remain very low.
In other words, there is no real estate bubble on the horizon.
Editor’s note: David Stark is chief public relations and communications officer for the Bay East Association of Realtors, based in Pleasanton.
most popular
Source link
