The U.S. real estate market continues to experience a surge in home prices, driven by lower mortgage rates and a shortage of available homes. Median home prices rose by 0.45% in March, marking the strongest one-month gain since May of the previous year. Currently, home prices are just 1.7% below the peak reached in June of the previous year.
The increase in home prices is attributed to a rise in homebuyer demand, coupled with a decline in the number of homes available for sale. Five months ago, prices were declining in the majority of U.S. markets, but now prices are rising in 92% of markets compared to the previous month. The limited supply of homes, with 30% fewer properties hitting the market in March compared to the pre-pandemic average, has further driven up prices.
Despite volatile swings in mortgage rates, home prices continued to climb. Mortgage rates fell from a peak of 7% to around 6.32% at the end of March. However, recent weeks have seen slight increases in rates due to ongoing banking system turmoil and concerns about a credit crunch.
The Federal Reserve’s efforts to tighten policy and slow the economy has affected the interest-rate-sensitive housing market. The benchmark federal funds rate has been raised nine consecutive times, and another quarter-percentage-point increase is expected. However, the spring 2023 housing market differs from the frenzied buying and selling season of 2021, with certain markets and types of houses becoming more competitive due to limited inventory.
The increased competition for homes stems from a lack of supply, with owners holding onto their homes after locking in record-low mortgage rates during the pandemic. Bidding wars are seen across the board from entry-level condos to high-end single-family homes. A home in Cupertino went for more than a million dollars over the asking price with 20 offers. A starter home in Sunnyvale went $300,000 over the asking price with 5 offers. A 3-bedroom condo in Pleasanton went over the asking price with 6 offers.
The number of homes for sale has sharply declined, indicating that buyers are purchasing homes faster than new listings are replenishing the market. This demand surge highlights the pent-up demand for housing. Buyers appear to have accepted the high-interest rates as the new norm and recognize that waiting for the low-interest rates may not be a winning strategy. Fear Of Missing Out seems to be coming back.
In conclusion, the Bay Area housing market is characterized by rising home prices, driven by low mortgage rates and a scarcity of available homes. Buyers are facing increased competition and limited options due to the low supply. Sellers, on the other hand, are benefiting from the current market conditions favoring them.