San Francisco Bay Area Market April 2022 Update

There isn’t a whole lot of change to the real estate market in the past month. The trend of prices going up continue from last month’s trend.

Mortgage Demand

This month, one of the biggest news is 30-year fixed mortgage interest rate broke 5% for the first time since 2011. Many of our clients are wondering how this is going to impact the demand for real estate. To answer this question, I’d like to zoom in on one leading indicator of the real estate demand, the mortgage application index.

The chart below in particular shows the applications for real estate purchases instead of refinances for the last 365 days.  The week with the highest mortgage application was 1/31/2022, with average interest rate at 3.55% and the index was at 312.2. This week with interest rate at 5.125%, the index is at 234.7. Notice that from 1/31 to 4/26, interest rate rose 44% while the number of new mortgage applications only dropped 25%. One can also noticed that there was a steeper drop in mortgage demand as interest rate rose above the 5% psychological barrier.

Impact on Real Estate

The impact of mortgage interest on real estate values isn’t immediate. After all, buyers generally lock their interest rate anywhere between 5 to 15 days after they get in contract. Even for buyers who haven’t locked their interest rate, seeing a jump in interest will likely only incentivize them to lock sooner rather than later. We won’t see the real impact on the market until May sales data comes in. May’s sales data will capture all homes closed escrow in the month. Such sales number will include buyers who lock the interest in April, when buyers experience this 5% shock.

In real time, we have clients whose budget went down from 1.1M to $800k in the last month. Unfortunately, unless they get a big raise from their jobs, their budget will dwindle even more in the next few months. They are already priced out of the homes they want and will soon drop out of the market all together.

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