As rising mortgage rates continue to cool the U.S. housing market, the Bay Area in July saw the largest monthly decline in home values of anywhere in the country, according to new report from the home listing site Zillow.
The median value of a single-family home in the San Jose-Sunnyvale-Santa Clara metro area fell 4.5% from June to July to $1.56 million. Home values in the San Francisco-Oakland-Berkeley metro area, meanwhile, fell 2.8 percent to $1.44 million.
Compare that to a 0.01% drop in value nationwide to $357,000.
Jeff Tucker, a senior economist at Zillow, said it’s not surprising that the Bay Area is experiencing the sharpest decline as rising mortgage rates push buyers out of the market.
“The number one reason is it’s the most expensive place in the country,” Tucker said. “Buyers were already stretched to the breaking point.”
Over the past two-plus years amid the pandemic, Bay Area home values have soared as house hunters — many freed from the office by telecommuting and buoyed by historically low mortgage rates — have been thrown into a frenzy. for homes, sometimes bidding hundreds of thousands of dollars above asking price.
But as the Federal Reserve has raised the cost of borrowing in recent months in an effort to slow rampant inflation, mortgage rates have risen accordingly. cooling frenzied demand and record high prices. Currently, the average interest rate for conforming and large 30-year fixed home loans is between 5% and 6%. Although rates have fallen in recent weeks, they are still about double the sub-3% rates available at the height of the pandemic.
Even this small percentage increase in mortgage interest rates can have a drastic impact on the true cost of actually buying a home.
Compared to July 2019, the mortgage payment on a typical home in metro San Jose rose 60 percent to $8,371 a month (including taxes and insurance), according to the report. That’s more than double the median rent of $3,369.
For the San Francisco metro area, the average mortgage payment is $7,623, up 56% from three years ago. The median rent in the area is $3,277.
Other regions that saw significant monthly declines in home values last month included Phoenix (-2.8% to $470,800); Austin, Texas, (-2.7% to $566,533); Sacramento (-2.5% to $611,287); Raleigh, North Carolina, (-2.5% to $457,006); and San Diego (-2.5% to $894,246).
In addition to rising interest rates, Tucker pointed to the region’s relatively large remote workforce and stock market declines draining the wallets of tech workers as reasons for buyers pulling back. Some Bay Area tech companies, including Coinbase and PayPal, also have laid for at least hundreds of workers.
“All of a sudden, they found their budgets were much smaller than they expected,” Tucker said.
Ramesh Rao, a South Bay real estate agent, said there are still plenty of local buyers looking for homes in good condition — sellers just need to adjust their expectations after two years of rising home prices.
“The main thing driving the market these days is accurate pricing,” Rao said.
The share of listings with a price reduction in the San Jose metro area in July was 19.5 percent, compared to 13.5 percent in June, according to the Zillow report. In metro San Francisco, the share of reduced listings was 17.5%, compared to 12.5% the previous month.
Declining demand means more homes remain for sale longer, increasing inventory in the region and further driving down prices. But Rao said that dynamic could change.
“A lot of sellers say, you know what, I’m going to take the property off the market — I’ll come back another time,” he said.
