For most of us — especially those nearing retirement age or are already there — our home is our most valuable asset, so it’s impossible not to focus on the many factors that affect its worth. While prices tend to go up over time, it’s short-term, as of late, that have caused some rather dramatic changes.
When the pandemic hit, the primary residence became a hot commodity. Why? Because people were spending 24/7 in their homes, working, and living in one space. In the Bay Area, that caused a roughly 20% appreciation in specific areas like Contra Costa and Alameda Counties. A stark contrast to the typical national average of 3.6% per year. Most recently, we’ve seen the Fed hike the interest rates, which caused another 20% increase.
With all that said, we can’t help but wonder where things stand in the Bay Area housing market now and what we have to look forward to in the coming year. To get an insider’s perspective, we’re thrilled to welcome long-time Bay Area resident and RE/MAX real estate veteran Mark Shaw, a returning guest, to the show.
In this episode, we’re going to discuss:
- Just how profoundly the real estate industry was affected when Covid first struck
- Several of the far-reaching effects that have resulted from the rise of the remote workforce
- The catalysts behind the Bay Area housing market’s meteoric rise
- Why despite some of the economic indicators we’re now seeing, a repeat of the 2008 crash is very unlikely
- How financial and psychological factors have now combined to create an unusually tight home inventory
At Absolute Trust Counsel, we’ve seen the ever-changing market significantly affect our client’s financial plans over the years. We hope you will join us as we discuss what the current market landscape means for first-time buyers and sellers, and what might be coming next.
Big Three from Episode #101:
- While most of us are under the impression that the effects of the 2008 financial crisis reached a crescendo during the same year, the Bay Area housing prices didn’t hit the bottom of the trough until 2012. For the next decade after that, valuations would continue upward — often at a dramatic pace.
- We’re hearing a lot about how rising mortgage rates have caused home values to drop. Many potential buyers are understandably fearful about entering the market and soon after seeing their home values plummet, similar to what occurred in 2008. But in reality, there are several significant differences between the housing market landscape of 2008 and what we’re seeing today. The most notable of these is the level of equity homeowners currently have. During the housing crisis, many homes were 100% financed, with homeowners holding no equity at all. Today U.S. homeowners have more than $30 trillion of collective equity in their homes.
- Despite the inevitable market fluctuations, real estate enhances people’s ability to accumulate wealth unlike anything else available. Homeowners, as a group, have 40% more net worth than non-homeowners. And while many of us are concerned about the higher mortgage rates we’re now seeing, there’s a saying in the real estate industry: “If you buy now and home values have been affected by higher rates, you marry the price of the house, but you only date the interest rate.” If the home you’re considering is otherwise appealing and affordable, you can always refinance if rates drop.
Time-stamped Show Notes:
1:00 Before we dive in, Kirsten shares more about Mark’s background in real estate and why he is our go-to resource for all things real estate.
3:20 These were the pandemic’s initial effects on the real estate market.
4:01 The rapid shift to remote work gave rise to this perspective on what we wanted out of our homes.
4:25 As a result of the new pandemic perspective and the interest in better living spaces, another notable shift occurred in the Bay Area real estate landscape – a 20% market appreciation.
7:09 Now that the pandemic is over, Mark shares what he is seeing in the East Bay market today. Hint: It happens to include another 20% appreciation – yikes!
9:00 In February of 2022, the real estate market rapidly changed once again with some downward pressure on the pricing.
10:30 The financial crisis began truly impacting the Bay Area housing market in earnest during 2012, but you’ll be surprised at how long it took for Bay Area real estate prices to reach their lowest point.
11:13 By the time interest rates began to go up in February of 2022, buyers were fatigued and beginning to head to the sidelines.
12:46 Here’s how higher mortgage rates have affected first-time buyers in particular.
13:12 Mark shares an interesting sentiment about how “the real estate market is sticky going down,” which kept home prices from dropping even faster than they would have after the rate increases.
14:44 Start listening now for some examples showing that this is currently neither a buyer’s nor seller’s market.
17:05 Two of the buyer’s biggest fears right now are paying too much or buying a lemon – buyers don’t want to be the fool.
18:42 Because so many current homeowners have mortgages with low-interest rates. They aren’t very motivated to sell. Here’s how that is impacting inventory.
19:47 Next, Mark shares some tips to help first-time home buyers who are struggling to get into the housing market.
21:30 Do the current real estate market challenges conjure up images of the 2008 crisis? Here are the differences between now and then.
24:59 Wondering if it’s a good time to get into the real estate market? Here’s Mark’s take on it.
26:25 When considering whether or not to purchase a primary residence, Mark recommends that you ask yourself this question.
28:09 This surprising statistic underscores just how effective real estate is at building net worth.
29:41 Q&A: Have you seen Prop 19 having any effect on the market?
31:46 Q&A: If a parent wants to help a child buy a property but doesn’t want to give their kid the money, can they purchase a property?
33:35 Q&A: What are the best areas in the Bay Area you can purchase for the least amount of money?
Get in Touch with Mark Shaw:
3390 Mt. Diablo Blvd.
Lafayette, CA 94549
Resources/Links Mentioned in this Episode:
- Absolute Trust Talk Ep. 011 What’s Up with Real Estate in the San Francisco Bay Area?
- Absolute Trust Talk Ep. 067 Estate Planning Challenges with Real Estate
- Absolute Trust Talk Ep.092 Is a 1031 Exchange Right for Your Real Estate Sale?
- Absolute Trust Talk Ep. 100 Tips and Tools for Buying a Home Despite Rising Interest Rates
- We’re pleased to provide you with a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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