Soaring Interest Rates & Housing Costs; Continuing Strong Demand, Low Inventory of House Listings, High Market Velocity

Sales were robust in Q1 for all property types, but the supply of house listings in particular was very low. However, as of March 31st, mortgage interest rates have skyrocketed 50% in 2022, with a particularly large jump in March. Because of the time involved in the home-buying process – the search, loan qualification, going into contract, escrow, closing sale – any significant effects of the recent spike won’t show up until Q2. Rates may stabilize, rise further, or drop back down – they can change very quickly – and the exact, follow-on effects are unknown. Interest rates are only 1 factor: Local economic conditions, financial markets, wealth creation, housing affordability, consumer confidence, inflation, migration, the pandemic, rents, debt and government policies can all have big market impacts, and they are flashing both positive and negative signals.

For buyers financing their purchase, interest rates play an enormous role in monthly housing costs. Depending on the speed and scale of changes, declining interest rates can help supercharge demand, as they did in 2021, while rapidly increasing rates typically cool the market, as occurred in the 2nd half of 2018. If both interest rates and home prices soar, there is a double whammy on housing affordability. It is very difficult to accurately predict interest rate changes: 3 months ago, Freddie Mac predicted an average, 30-year, fixed rate of 3.6% for 2022; at the end of March, it hit 4.67%.

When we speak of “low inventory,” it does not necessarily mean fewer homes put up for sale. Sales volumes hit multi-year highs in 2021, fed by an increase in new listings. But “inventory” is measured by what is for sale on a given day, and even if the quantity of new listings is steady or climbing, the number of active listings can drop if they are selling more quickly. Within the city, supply and market dynamics vary significantly between houses and condos (including co-ops/TICs in this category).

This report contains analyses reviewing many of these issues through Q1 2022. Q2 is typically the highest-demand, most active selling season of the year.

Sales in one month mostly reflect market dynamics in the previous month, and activity typically ebbs and flows by season. Data from sources deemed reliable, but may contain errors and subject to revision. All numbers approximate, and may change with late-reported activity.

Statistics are generalities, essentially summaries of widely disparate data generated by dozens, hundreds or thousands of unique, individual sales occurring within different time periods. They are best seen not as precise measurements, but as broad, comparative indicators, with reasonable margins of error. Anomalous fluctuations in statistics are not uncommon, especially in smaller, expensive market segments. Last period data should be considered estimates that may change with late-reported data. Different analytics programs sometimes define statistics – such as “active listings,” “days on market,” and “months supply of inventory” – differently: what is most meaningful are not specific calculations but the trends they illustrate. Most listing and sales data derives from the local or regional multi-listing service (MLS) of the area specified in the analysis, but not all listings or sales are reported to MLS and these won’t be reflected in the data. “Homes” signifies real-property, single-household housing units: houses, condos, co-ops, townhouses, duets and TICs (but not mobile homes), as applicable to each market. City/town names refer specifically to the named cities and towns, unless otherwise delineated. Multi-county metro areas will be specified as such. Data from sources deemed reliable, but may contain errors and subject to revision. All numbers to be considered approximate.

Many aspects of value cannot be adequately reflected in median and average statistics: curb appeal, age, condition, amenities, views, lot size, quality of outdoor space, “bonus” rooms, additional parking, quality of location within the neighborhood, and so on. How any of these statistics apply to any particular home is unknown without a specific comparative market analysis. Median Sales Price is that price at which half the properties sold for more and half for less. It may be affected by seasonality, “unusual” events, or changes in inventory and buying trends, as well as by changes in fair market value. The median sales price for an area will often conceal an enormous variety of sales prices in the underlying individual sales.

Dollar per Square Foot is based upon the home’s interior living space and does not include garages, unfinished attics and basements, rooms built without permit, patios, decks or yards (though all those can add value to a home). These figures are usually derived from appraisals or tax records, but are sometimes unreliable (especially for older homes) or unreported altogether. The calculation can only be made on those home sales that reported square footage.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.