Interest Rates Are Rising and The Real Estate Market is Changing
We continue to see annual price appreciation, but gains are beginning to ease, driven in part by higher mortgage rates. Home loan rates hit seven year highs though they remain historically low.
Rising mortgage rates can negatively impact affordability, weakening demand and thereby leading to slowing price growth. However, the scarcity of housing inventory in San Francisco has kept pricing holding steadily in the second half of the 2018. In fact, prices are the highest they’ve been in 10 years.
Average Sales Price of Condos & Lofts In Transbay Neighborhoods, 2008-2018
The market is changing, but the trends do not yet support a dramatic shift away from what has been experienced over the last several years. Prices are still inching upward, supply remains low and consumers are optimistic.
I’ve had many record setting sales in South Beach this year. Now is the time to sell and take advantage of this great market.
South Beach Summary:
# of Active Listings in South Beach
Price Per Square Foot in South Beach
Interest Rates and Affordability
Incremental increases in the interest rate can have a real impact on buying power. If interest rates increase 1% incrementally over a short amount of time, like we’re seeing today, it can reduce buying power up to 10%. Whether you are buying or selling, it’s time to make a move. The Federal Reserve may raise rates one more time before 2019.
Monthly Payment: 30-Year Mortgage Jumbo Loan
| Loan Amount | 9/28/18 4.41% APR |
10/5/18 4.57% APR |
10/12/18 4.52% APR |
|---|---|---|---|
| $800,000 | $4,010 | $4,086 | $4,086 |
| $1,200,000 | $6,016 | $6,130 | $6,130 |
| $1,600,000 | $8,021 | $8,173 | $8,173 |
* Based on: 30 Year Mortgage; 20% Down Payment. For informational purposes only. Anyone interested in residential home loans should consult with a qualified mortgage professional and accountant.
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Is the Bay Area Luxury Housing Market Pulling Back or Normalizing?
- Higher-end home sales took a pause in the third quarter after a strong second quarter, particularly in the Bay Area, although they were in line with seasonal trends seen in prior
- San Francisco saw a dip in sales in 2017 followed by a 2018 rebound.
- Buyers were hesitant, with homes lingering longer on the market and larger average
- The inventory of luxury homes in the Bay Area retracted in the third
Buyers of homes priced between $2 million and $3 million were more restrained than those in lower or higher price ranges. As a result, there were fewer bidding wars and more price reductions. By contrast, buyer demand for homes priced below $2 million remained steady, with eight in 10 homes selling for more than asking price for an average 16 percent premium.
Sales of luxury homes picked up over the last two years in the Bay Area housing markets. However, with home sales activity generally slowing since the summer, it appeared that high-end activity might pull back. With more September activity, though, the quarter ended on a solid note — or at least in line with third-quarter activity seen in the two previous years. Luxury homes are defined here as those priced higher than $10 million in the Bay Area.
Overall, in the Bay Area, sales of higher-end homes saw a dip in 2017, followed by a 2018 rebound above the levels seen in 2016. In the Bay Area, the strongest activity for luxury homes was in the second quarter of this year, with sales almost double the sales during the same period last year. The third quarter reversed from the second-quarter high and brought sales back in line with last year’s third quarter in both regions. The pullback may indicate normalization of luxury sales or some reservation among high-end buyers.
Figure 2: San Francisco quarterly sales of homes sold at $10-plus million
Source: Terradatum, Inc. from data provided by TheMLS, Oct. 7, 2018
Luxury home markets remain healthy, with activity not substantially different from 2017. However, caution may be warranted, as financial markets have seen more volatility in recent months — particularly those with impacts on California. Also, increased concern with trade, macroeconomic, and geopolitical risks may lead high-end buyers to exercise caution in the coming months.
