Soaring Interest Rates & Housing Costs; Continuing Strong Demand, Low Inventory of Listings & High Market Velocity
The market remained overheated in Q1, as our review of home-price appreciation, and supply and demand indicators will illustrate. However, as of March 31st, mortgage interest rates have skyrocketed 50% in 2022, with a particularly large jump in March. Because of the time involved in the homebuying process – the search, loan qualification, going into contract, escrow, closing sale – any significant effects of the recent spike won’t show up until Q2. Rates may stabilize, rise further, or drop back down – they can change very quickly – and the exact, follow-on effects are unknown. Interest rates are only 1 factor: Local economic conditions, financial markets, wealth creation, housing affordability, consumer confidence, inflation, migration, the pandemic, war, debt and government policies can all have big market impacts, and they are flashing both positive and negative signals.
For buyers financing their purchase, interest rates play an enormous role in monthly housing costs. Depending on the speed and scale of changes, declining interest rates can help supercharge demand, as they did in 2021, while rapidly increasing rates typically cool the market, as occurred in the 2nd half of 2018. If both interest rates and home prices soar, there is a double whammy on housing affordability. It is very difficult to accurately predict interest rate changes: 3 months ago, Freddie Mac predicted an average, 30-year, fixed rate of 3.6% for 2022; at the end of March, it hit 4.67%.
“Low inventory” does not necessarily mean fewer homes are being put up for sale. Indeed, sales volumes hit multi-year highs in 2021, fed by an increase in new listings. But “inventory” is measured by what is for sale on a given day, and even if the quantity of new listings is steady or climbing, the number of active listings can drop if they are selling more quickly. Historically high market velocity has been pushing the supply of active listings (on any given day) down to historic lows.
This report contains analyses reviewing many of these issues through Q1 2022. Q2 is typically the highest-demand, most active selling season of the year.
Sales in one month mostly reflect market dynamics in the previous month, and activity typically ebbs and flows by season. Data from sources deemed reliable, but may contain errors and subject to revision. All numbers approximate, and may change with late-reported activity.
Source: Compass
It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis. These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.
Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.
