Mortgage Applications Rise

bay area house

We hear a lot of news about real estate sales numbers adjusting down and interest rates rising. However, did you know that interest rates have been on the decline over the last four weeks? This is why mortgage applications are also on the rise.

Additionally, beginning January 1, 2023, new conforming loan limits will rise to $726,200, up from $647,200 in 2022. The limit for high-cost areas is also rising, from $970,800 to $1,089,300.

California Real Estate Market

In the Bay Area, the median list price for November was at $1.3 million, compared to $1.7 million in October and $1.9 million in June. The luxury market is showing more resilience than other markets facing declines in sales numbers.

The median sale price for a Bay Area home in October was $1.25 million, which is 0.5% less than September's price of $1,256,500. The median sale price also dropped by 2.0% year-over-year.

The median sale price in Incline Village and Crystal Bay, Nevada fell to $1,4 million, 15.2 percent decrease from October’s median sales price of $1.6 million. From a four-month supply of inventory in October 2022, inventory has grown to a 20-month supply in November for Incline Village.

According to the California Association of Realtors (CAR), the statewide median home price for October was at $801,190. This is down 2.5% from September, but still up 0.3% from October 2021. Year-to-date statewide home sales were down 18.5 percent in October.

Buyers Lock in Mortgage Rates

However, mortgage applications increased 3.2% from a week ago, a sign that many buyers are more confident about locking in a 6.4% interest rate. The FED again raised the prime rate in December, but unlike the 75 point hikes of prior months, they raised it only 50 points.

The year over year inflation number for November was down to 7.1%. This is lower than the 7.7% number for October 2022 and led to the FED pulling back on their aggressive rate hikes.

For the last 4 consecutive weeks, interest rates were on the decline. They increased slightly this last week to 6.42%, up from 6.41%. This is still almost the lowest rate since October 2022. Since rates are still 3 percentage points higher than a year ago, many buyers are still waiting out the market. This, in turn, is driving list prices downward.

Joel Kan, the Chief Economist at the Mortgage Bankers Association said, “The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months.”

Luxury Market Holds Steady

Existing, single-family home sales totaled 274,040 in October, down 10.4 percent from September and down 36.9 percent from October 2021. These are all signs that the current real estate market in California may be offering better opportunities for homebuyers.

All price segments declined by 30% or more year-over-year, with the segment between $750,000 and $999,000 experiencing a 40.8% decline. However, the luxury market of $1 million to $2 experienced the smallest sales decline in October.

Home sales have fallen for 16 straight months year over year. It was the third time in the last three months that sales fell more than 30% from the previous year. Interest rates have definitely cooled the market, but with the prime rate lowered to almost 0% during the pandemic to spur the economy, comparing year over year numbers is problematic.

Interest Rates and Affordability

Many economists expect interest rates to settle above 7% in 2023. Locking in a rate at 6.4% may be a great option.

Housing affordability in California was on the rise in the third quarter, which is another good sign. The affordability index for a single-family home with a median price of $801,190, rose to 18 percent. This is after hitting a 15-year low of 16 percent in the second quarter of 2022.

The challenge to affordability will be the higher price of mortgage costs. However, while the cost to borrow may be higher, the list price may be lower. This means it may be time to look again at your homebuying options.

Affordability in California is still low, compared to national numbers, which plunged in third-quarter 2022. Nationally, 39 percent of the nation’s households could afford to purchase a $398,500 median-priced home. Nationwide, affordability was 50 percent a year ago.

With home prices adjusting down and interest rates below where they may be in 2023, many homebuyers have moved back into the market. The rise in mortgage applications is certainly good news.

Contact me today for detailed market information about the Bay Area and Lake Tahoe neighborhoods of California.

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