Marina Times – Perspective on Housing Market Headwinds

A recent study found that five of the 10 fastest cooling U.S. real estate markets this year are in Northern California, including San Francisco, San Jose, Oakland, Sacramento and Stockton. Additionally, the 10 fastest-cooling housing markets in the country are in the western United States.

In a report published in mid-July by the San Francisco Business Times, Ashley Fahey writes that there are a number of reasons for this, none of which can be applied equally to all West Coast metropolitan areas. Citing Redfin as a source, she says an exodus out of California is definitely a factor impacting cities and metropolitan areas. Rising mortgage rates also appear to be affecting more expensive markets.

Ironically, some of the very cities Californians fled to are now experiencing their own real estate resets. According to CNBC, the top 10 markets seeing the biggest price drops are: Boise, Idaho, where 61.5% of sellers cut their asking price; Denver (55.1%); Salt Lake City (51.6%); Tacoma (49.5%); Grand Rapids (49.3%); Sacramento (48.7%), Seattle (46.3%); Portland (45.7%); Tampa (44.4%); and Indianapolis (44.1%).

The fact that many of these markets saw massive price increases during the pandemic has a lot to do with these reductions. The high prices that sellers once demanded are simply not sustainable given today’s changing economic conditions.


Although San Francisco is not on this list, the city’s housing market is slowing, with June data showing lower year-over-year appreciation levels, as well as rising inventory, a drop in sign-ups entering the contract and a big jump in price reductions.

Meanwhile, a Federal Reserve economic survey released in mid-July points to elevated fears of recession as well as belief that the surge in inflation will last at least until the end of the year. As a result, the Fed is very likely to raise benchmark interest rates again, which of course will lead to higher mortgage rates.


We asked Timothy Wood, Senior Loan Advisor at CrossCountry Mortgage, to put it all into perspective.

Wood said growing economic headwinds have indeed led many economists to change their forecasts to better reflect the possibility of an economic slowdown, with some even sounding the alarm bells about an impending recession.

This, he says, begs the question: is it still a good time to buy a house in San Francisco? His answer is yes.

His reasoning? In general, during economic downturns, investments in real estate have performed better than competing asset classes, such as stocks, and it’s certainly better than putting money in a savings account. .

“In fact, looking at the nine recession periods since 1960, house prices have risen significantly or at least been flat for eight of them,” Wood said.

“The only recession in which house prices fell was the recession of 2007-2009 – the so-called ‘Great Recession’.”

Wood pointed out that when people think of recessions, the Great Recession is still fresh in their minds. But when it came to recessions, that was an outlier. It was preceded by the housing bubble of the early 2000s – a time when risky, unverified mortgages were commonplace. This created an oversupply in the real estate market, even before the onset of the recession. Today’s housing market is the opposite. Demand always exceeds supply.

Wood acknowledged that rates are higher today than they have been in recent years, but he insists that historically they are still attractive.


Still, some potential buyers fear being locked into a higher mortgage rate given current home financing options. According to Wood, that’s why the number of buyers choosing an adjustable rate mortgage has skyrocketed.

ARMs are loans with a fixed rate and the payment is less than the term of the loan. These include five, seven and 10 year fixed terms that convert to adjustable rate mortgages for the remaining 30 years. The fewer the years fixed, the lower the initial rate and the corresponding payment.

While the mortgage rate will increase at the end of the fixed period, Wood explained that most borrowers hold the same loan for less than 10 years anyway. Most homeowners will refinance or sell their home during this time, regardless of mortgage type.

In July, Ted Andersen with the San Francisco Business Times wrote that the supply of active listings in the city is growing, buyer pools have thinned, and multiple offers have become the exception rather than the norm.

These are the market conditions that every buyer aspired to just a few months ago. But of course, it’s not without its own set of troubling economic news and challenges.

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Sandy A. Greer