Will Danville California Real Estate Market Crash?
Market Update - Danville California June 2022
If you’re a homeowner or homebuyer in Danville California, you're probably wondering: Is our housing market experiencing a correction or a crash? here is what I think from the economists that I follow and also, I’ll give you my advice for sellers and for buyers.
I've go to mention the National News and Economics and then also how it is impacting us locally.
If you’re listening to or reading the news lately, it is plagued with lots of a dramatic headline about the Real Estate market, so the focus here today is to provide you with solid facts from all the sources that I follow and then also to track key metrics and report back to you monthly. I invite you to come with me on this journey as I track Key Market Indicators, so we can understand the facts instead of the hype. I’m committed to updating you monthly.
You know the market is shifting, but what does it mean to Real Estate values right here locally. I am NOT a financial analyst, but I am a local Real Estate Advisor with decades of experience helping buyers, sellers and investors. I’ve seen the Real Estate Market go up and go down. Today I’m going to share some simple facts collected from reputable resources and I’ll list them down below.
Before we get local, we MUST understand the National News and Economics >> 4 Main Points
1) Fluxuating Market:
- With the S&P down @23% YTD**1
- NASDAQ down @32% YTD
Crypto down @52% YTD, Those of you who are in these markets, don’t need me to rub it in, you can turn on the news for that
2) Inflation: whether you’re buying a gallon of milk, a gallon of gas or a new home, you’re more than likely feeling the affects of inflation that has hit very high levels and it’s impacting people’s cost of living in relation to income and so we’re starting to see fewer people buying homes.
3) Recession: with talks of a recession it’s important to know that recession does NOT equal a Housing Crisis. **2 This chart shows the last 6 recessions and you can see that the only major impact on the Housing Market was the 2008 Recession that was caused by the housing crisis and the mortgage melt down. All the other recessions had a limited impact like in 1991 or no impact and half of them, we actually saw home prices grow a rather healthy amount 3-6%.
And our last point in Economic news >>
4) Interest Rates: You may or may not have heard that the Feds just met and raised the prime lending rate by .75% rate, which by the way does not mean that mortgage rates are going up by that amount since this increase was already cooked into the mortgage rates that we’re seeing today. Right now, rates are running about 5%, give or take depending on whether you’re looking at a conforming loan or a jumbo loan. With that being said, I get asked often about the future of rates and whether or not they’ll continue to climb. I do not have a crystal ball but I can tell you that while I don’t expect rates will go as high as 7% I feel they are close to being at their plateau if not, they’re already there.
So, the questions is, How does this National Economics News impact our local Market statistics right here in Danville, california???
Being that we’re at the center of the high-tech industry, the differences between local and national trends are generally more of difference in a degree than a direction.
Let’s talk Numbers – Today, I’m focused on 7 key data points for Single Family homes in Danville. I’m going to share with you the most recent data I have which is for May 2022 and compare it to May 2021 as well as any changes from April 2022 so YOY as well as MOM.
OK, so here are the 7 data points: **3
1) VOLUME OF SOLD HOMES: So in Danville, in May 2022, we had 69 Single family homes sell, which is down substantially from May 2021 where we had 106 homes sell, that’s 1/3 less homes and it’s up slightly from 68 homes sold in April 2022
2) MEDIAN SOLD PRICE: May 2022 - $2,453,000, which is down 1.9% since April 2022 $2.5M and still up 29% since May 2021 at $1.905M
3) INVENTORY OF HOMES: We have a lot more homes on the market now than we did in either last year or even the last month. May 2022 81 homes for sale, April 2022 was 61 homes and May 2021 was 45 homes. So we have almost double the amount of homes for sale now than we did last year at this time.
4) DAYS ON MARKET: MEDIAN DOM was 7 days in May 2022, April 2022 – 7 days and May 2021 – 7 days. Pretty Boring right?? It’s been flat and I’d be willing to bet you than we I see you again next month for June Numbers, this will change significantly as June market times are going to be higher.
5) MONTHS OF INVENTORY: defined by how long it would take for the current level of demand to absorb all the inventory that we have in the market if no new homes came to market. May 2021 was an astounding .4 months of inventory, April 2022 was .9 months of demand and May was 1.2 Months of demand. AND due to the decrease in demand, I’d expect to see this number go up along with the Days on Market.
6) PENDING CONTRACTS: these are homes that currently are in escrow but have not closed yet. As the climate continues to change, this # will better reflect the timelier impact from higher mortgage rates than closed homes sales. May 2022 was 69 homes, slightly down from 70 homes last month in April 2022 and drastically down 37% from 109 homes in May 2021
7) HOMES SOLD WITH PRICE REDUCTIONS: May 2022 saw 1 home price reduction, up from 0 homes in April 2022 and 2 homes in May 2021.
What the numbers tell me is that Sales are declining, and the number of active listings and price reductions are increasing as well. But the homes that are selling are still usually selling quickly for well over asking: Median Sales prices and YOY appreciation rates remain high. When an overheated market cools, the change is typically gradual (assuming there is no disaster), and does not mean the market is weak by any normal standard.
As an analogy, if traffic is going 120 miles/hour and then drops to 75 mph, it feels a lot slower, but cannot be reasonably described as “slow”. After 2 years of scorching demand, it may be difficult to remember what a “normal market” feels like, but people will continue to have excellent personal and financial reasons to buy and sell homes in Danville and the East Bay. My opinion is that I think we’re going back to pre-pandemic market levels.
As of late spring, across the Bay Area, less expensive home sales have generally been considerably impacted by rising interest rates. Sales of higher priced homes have held up much better, but cooling demand is beginning to show up in Pending Contracts data. Affluent buyers tend to be more affected by financial markets, (which became very volatile in May.) Market Changes are often uneven in the early months of a transition, with one home selling in days at 25% over list price, while next door, the seller has to reduce their price just to get an offer. In this new market, not every home will sell!
So, back to the question: is our market experiencing a correction??? Well, a market “correction” is defined by Investopedia is defined as “a decline of 10% or greater in the price of a security, asset or financial market.” . Nationally, Home prices are forecasted to increase on average 8.9% for 2022. In Danville, I’ve seen price appreciation so far of about 20% since January 1, 2022. So what do you think, are we in a correction?
Essentially speaking >> It’s my opinion and I think it’s safe to say that our market will be coming down to pre-pandemic levels in terms of pricing, volume of homes that sell and demand.
So, here’s my advice >>
Advice for buyers:
If you’re considering buying a home, the Opportunity I see for you right now, is that you no longer have to sell your first child to get a home. Buyers, you won’t be asked to give up as much as you did in the last couple years and yes, you can be a bit more discriminating and obviously this will change as the market changes so just make sure to get updated numbers when you decide to write an offer so you know what’s market appropriate to offer and to ask for.
Advice for sellers:
Being that there are fewer buyers in the market and since the mortgage rates have increased so significantly, this has made affordability go down, and has shrunk your buyer pool coming to look at your house. So, If you’re thinking about selling your home, The Challenge that I see for you right now, is that the 2 most important things you can do for yourself are 1) price your home correctly, this is more important than ever before and You’ve got to price your home based on what tomorrow’s pricing expectations will be and not what homes are selling for today. Think about it, if prices are going down (even if it’s only by a little bit) and you stick your heels in at what was yesterday pricing, guess what – you’re going to MISS the market! And, 2) make sure your home’s condition is absolutely impeccable, this will be more important than ever before in the changing market. Buyers are looking for that perfect home and they have a lot more to chose from. If only some of the homes that come on the market will sell, don’t you want yours to be the one that sells?
MBA - Mortgage Banker’s Association
MLS - Multiple Listing Service