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  • Writer's pictureRob Purnell

Now is the Winter of Buyer's Discontent

homeowners in winter

Now is the winter of our discontent

Made glorious summer by this sun of York;

After 3+ years of a brutal seller's market, buyers are asserting themselves.

The best-known portion of Shakespeare's quote from Richard III is the first line, which is typically interpreted to imply negativity, dread, and woe. In fact, what the Bard is telling us is that better, happier times have arrived.

If you're a home buyer in the Bay Area your winter of discontent may be over. The market continues to present challenges (it always has) but some balance has been restored to the kingdom and buyers are flexing their new-found negotiating leverage.

Bay Area real estate has always marched to its own rhythm. It broadly follows national macro trends, but our fast-paced, high-growth industries, attractive geography, lifestyle, and limited housing availability lead to unique local dynamics. For most of the past 30+ years, this has meant a seller's market, varying only in the magnitude of seller power.

Cliff Notes

  • Mortgage rates have more than doubled in 2022.

  • Mortgage rates are high, even in historical context.

  • Housing prices are softening.

  • Housing prices have not, and will not crash.

  • Buyers finally have some negotiating leverage.

Mortgage Rates are High

It is common to hear people (mostly Realtors) say that despite the recent run-up, rates are still historically low. I said it myself when rates were in the mid to high 5s. Now that we’re in the 7s I see it differently. Of course, it depends on your own perspective of history. In January of this year, the benchmark 30-Yr mortgage stood at 3.22%. At October's end, it was 7.38%. That's not just a big increase, it's a fast one! In fact, this has been one of the fastest rate increases in history. Rate moves like this naturally have a major impact on buyer affordability, real and perceived, especially on the heels of the rapid price appreciation of the past few years. Looking at the historic rate chart above, today’s rates still look pretty tame compared to the 1980s. But is that a relevant context when most of today’s buyers were babies or not even born yet? Current rates are the highest we’ve seen in 20 years, and housing prices have climbed way ahead of inflation over that period. So yeah, rates are high.

Home Prices are Falling...

The rapid rate hike has had a two-pronged effect that will both continue to put pressure on housing prices but still provide a support level that will keep prices from spiraling downward.

Many buyers, especially first-time buyers, have seen their purchasing power eroded considerably, or been pushed out of the market altogether. Perhaps more importantly, buyer psychology has pivoted hard, regardless of one’s finances.

Six months ago most houses sold in a week with multiple offers bidding up the price. Today, with so much economic and political uncertainty, buyers are in no hurry. They either patiently wait to find just the perfect house or believe prices will fall more and are trying to time the market. Often it's both.

As buyers exercise patience, sellers must lower prices to entice them. How much? Short-term data on housing prices are always a little wonky - housing is the extreme of a non-commodity, has long cycle times, and is heavily affected by changing mix from month to month - but quantitatively and qualitatively prices are down. Overall I’d say 10% - 15% across the region, but it varies from neighborhood to neighborhood, house to house.

And there is likely more to go. We are entering the slowest season of the year when home sales and prices tend to fall anyway. Combine this with high mortgage rates and buyer apathy and I expect we’ll see more price reductions in the coming months.

...But Prices Won't Crash

There is a countervailing force that will

support local housing prices and pre

vent a 2008-style free fall: inventory (or lack thereof.) Inventory has certainly crept up over the past few months but remains fairly low. In fact, except for a brief period right after the 2008 crash, housing inventory in the Bay Area has always run lean.

Currently, our inventory is about on par with 2019 and the historical average - about 2 to 2.5 months - and there are fewer new homes coming to market than in the past. Ironically, interest rates are a big reason for this.

Anybody that owned or purchased a home in the past few years has a mortgage rate in the low 3s or even mid 2s. They are happy. Even people that would otherwise sell and trade up are not willing to trade into a higher mortgage, so that is a house that is not being sold. Until rates move back into the 5s or lower a lot of that inventory is likely to remain locked up.

Now It's The Buyers' Turn

For buyers that are financially able to be in today’s market, it is a great opportunity to negotiate a rational value on a home purchase. I don’t want to overstate it; I say rational because as I’ve out

But as a buyer, I would not be dissuaded by the asking price. Buyers look forward 6 months, sellers look backward 6 months. This means sellers are much slower to accept that

the market has changed and the price their neighbors got 3-4 months ago is not available to them today. (And buyers often think prices have changed more than they have.)

If you find a house you like and have a rational price you’re willing to pay, make the offer. Don’t be concerned about offending anybody. The absolute worst thing that can happen is the seller says no. But the best thing that can happen is a negotiation ensues, an agreement is reached, and voila, you own a new home.


A final thought for the buyers waiting on the sidelines for the market to crash; if you (or anybody) could accurately predict a market bottom you wouldn’t be doing whatever it is you do for a living. Real estate is a long-term asset, and it’s your home. If you find a house you like and can afford, buy it. If the market drops a bit don’t worry, it will come back and then some, in time. And if rates drop you can refinance. 2019 was similar to today’s market. A number of buyers then decided to wait for the market to fall and get a better deal. Many of them missed a great buying opportunity or got priced out of the market completely.

Don't miss your opportunity.

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