In the Bay Area, real estate market indicators remain very strong. So far, buyers do not seem to be significantly rattled by stock market gyrations, and increasing interest rates may be motivating some to buy sooner than later. As of 2/3/22, mortgage interest rates are 34% above the low 1 year ago. Still demand for homes is still very high, with inventory still low.
As the new year wakes up, a common dynamic in heated markets is for buyers to jump back in much faster than sellers. Even as the number of new listings starts to climb, the winter market is already seeing multiple offer scenarios, overbidding wars and fast closings. This describes 2022 to date, but more will be known once the spring selling season – typically the biggest of the year – really gets underway. (In the Bay Area, the “spring” market can begin in February.)
Some challenges we are facing are that inflation is at a 40-year high and interest rates have risen 14% in 2022. The Fed plans to make major changes to its interest-rate policies and its interventions in the economy generally. Consumer confidence has been dropping, and financial markets have seen considerable turbulence in the new year. Geopolitical risks of major-power conflict appear to be rising.
On the other hand, in San Francisco, employment, GDP, and household-wealth indicators are quite positive. By historical standards, interest rates remain very low and stock markets very high; COVID infections are falling. The Bay Area is home to many of the world’s most innovative and successful companies; there is an enormous concentration of local wealth; and a staggering amount of money sloshing around the economy looking for somewhere to invest. Many believe real estate to be an excellent hedge against inflation, and an excellent long-term investment generally (heightened by tax advantages).
As an aside: Compared to the general market, luxury home buyers tend to be less sensitive to interest rate movements, but more sensitive to turbulence and uncertainty in financial markets.