Now that we are grappling with 5% mortgage rates, people are wondering how it will affect the market.

The common perception is that there will be pullback.

What that means isn’t defined – it’s just a vague concept that the logical mind wants to believe.  But logic flew out the window long ago, so I’m not sure how useful it is today. Prices went up 30% in 2021 and it didn’t stop, or even slow the market in the first quarter of 2022.

Does it matter what the opinion is today?

Not really, and you can refer to the chart above to see how much opinions matter.

All that matters is that we track the trends over the next few months to see what actually happens!

Yesterday I said all we have to do is monitor the days-on-market, and the actives vs pendings to get advance notice on how the market is behaving. Let’s add a third metric, the SP:LP ratio.

Who are the home buyers that will determine our fate?  When out-of-towners from more affluent areas come here to see our prices, they think we are giving them away.  There have been estimates that as many as 70% of the coastal sales here have been bought by people from the Bay Area.

We should keep an eye on their market!

I’m watching one sale in progress there. My uncle has been a lifelong resident, and my mom, brother and sister all live there so I have opportunity to check in on their real estate market from time to time.

In December, we went to pay our respects to Sally, my uncle’s long-time girlfriend. They met later in life and had separate houses, and unfortunately Sally passed away from cancer just before Christmas.

We had a brief conversation with her sisters who were from outside California, and they expected that they would sell her home in early 2022.  The zestimate was in the mid-$2,000,000s, and they said they would be happy with a price in that range.

After painting and staging the relatively modest 1,763sf house built in 1953, they listed it for $3,195,000. It went pending within ten days – and since then the zestimate has zoomed to $3,800,000!

The house is five doors away from the Foothill Expressway, which isn’t a freeway but there is some road noise. The 9,975sf lot size is attractive, and the house is one-story.  But low-to-mid $3,000,000s?

Even more interesting was the house at 1051 Peninsular Ct.  When we were there, I saw the sign and drove by to confirm that it was literally right next to the Foothill Expressway.  It closed for $3,100,000!

The pricing in the Bay Area is subject to change, just like it is here – but it should be somewhat relative, and we will likely ride the same elevator.  The 1Q22 pricing spiked in Los Altos, and the sisters – who only expected a sales price in the mid-$2,000,000s – will pick up a lucky windfall.

The 2022 Lucky Windfall of the First Quarter doesn’t have to continue throughout the year for our market to thrive.  If pricing “crashes” downward 10% to 20% from today’s lofty heights, it means we’re only back to November pricing, which you would think wouldn’t bother sellers much.

But it will.

Do not underestimate the home seller’s ego.

It doesn’t mean you should, or shouldn’t, go buy a house today.  If you are a home buyer in the hunt, just be picky (or pickier) about what you will tolerate. The list prices will feel like TodayComps+5%, the sellers are doing less to condition them for sale, and the listing agents act like you owe them money.

There is one guarantee. The inventory later in the year will be worse than it is today.  It could feel like pricing is loosening up (it’s not yet), especially in the 4th quarter of 2022, but it won’t matter if there aren’t any homes for sale that you would buy. Be in the hunt for the right house!

I will keep track of the winners and losers. Help me if you can!

Here is today’s winner, who had 11 showings and three offers.  Tanya raised the list price to a range, which makes it look like it probably went over $3,000,000:

It may seem crazy to you, but those coming from Los Altos will think it looks like a steal!

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