The moment many have been waiting for has finally arrived. The real estate market has shifted in favor of buyers on the Peninsula. With interest rates jumping from 2-3% to 5-6% and the hit to the stock market, record-high property prices have come down. We’re now seeing prices roughly 20-25% lower than where they were at the peak, just 6+/- months ago.

With indicators suggesting a recession, layoffs, and further interest rate hikes are on the way, some might wonder why on earth you would want to buy a home right now. Taking all of this into consideration, it would make perfect sense to wait it out and see if a more opportune time to buy is approaching. However homes are still selling, some still with multiple offers over asking. How can this be happening?

Taking Advantage of a Buyer’s Market

Here’s how some are justifying purchasing a home on the Peninsula right now —

1.) Housing is very limited on the Peninsula. 

If you speak with anyone who has purchased a home here within the last 20 years, they’ll likely tell you that they had to make more compromises than they hoped to get into the right house and that they’re grateful that they bought when they did.

For some people, it takes years to find a house that checks all their boxes. So even if someone enters the market at the perfect time when prices and interest rates are the absolute lowest, the house they need or want may not be available. It can be helpful to be open-minded about things you can change about a property if it means getting into a house vs. waiting for the perfect property to come along.

2.) Buying at a 20-25% discount is good enough.

During the Great Recession of 2008, property values in prime areas of the Peninsula dropped by 20-25% at most. You have to keep in mind we had a significant amount of foreclosures around this time and subprime lending was a factor.

From 2008 on, the majority of purchases on the Peninsula that required financing were conventional loans, which were conditional on high credit scores and 20% or higher down payments. Given these strict requirements on purchases over the last 14+/- years, it’s likely that we won’t see prices drop more now than they did during the Great Recession.

3.) There’s less competition. 

Most homes are not selling with 15 offers right now. More homes are selling with 2-3 offers, and there are some instances right now where you might be the only offer. You can negotiate the price and terms. Historically, our market has been cyclical and it’s likely we will go back to a seller’s market at some point. It’s always a good thing if you can buy in a buyer’s market. 

4.) Conventional and FHA loan limits have increased.

As of January 1st, it will be possible to finance up to $1,089,300 with as little as just 3.5% down. This is the difference between buying a home for $1,128,808 and needing $225,671 as your down payment vs. $39,508, which is huge. This will allow a new pool of buyers to enter the market that may have been previously priced out or still in the process of saving for a down payment. Loan limits are even higher for those interested in buying a 2-4 unit property as long as they occupy one of the units as their primary residence.

Selling Your Home in a Buyer’s Market

Ok, so we’re in a buyer’s market. Great news, if you’re in the market to buy a home. What if you need to sell your home? Some people might be kicking themselves for not selling earlier this year, when prices peaked. So why are people even selling now? Why not hold off until things improve?

Here’s why some of our clients are choosing to sell-

1.) It’s time to buy another property and you need to sell in order to buy. 

If someone is buying a larger or more expensive home, that home has also decreased in value. So while someone might be selling their home for $1,500,000 now whereas they could have sold it for $2,000,000 6 months ago, they have an opportunity to buy a home for $2,250,000 that would have been $3,000,000 6 months ago. So they’re selling for $500k less and they’re buying for $750k less.

There are also potential savings in property taxes. Continuing the example above, where someone would have been paying about $37k in property taxes annually at $3M and is now looking at $28k annually at the lower price of $2.25M. That’s a potential savings of $9k per year.

Lastly, some now have a chance at buying their next home contingent upon their current home selling, whereas, this otherwise would have been near impossible in the seller’s market we were in previously.

2.) Low inventory. 

Since there’s typically less coming on the market during the fall/winter months, a seller’s property will stand out more when there is low inventory. There are fewer options for buyers to choose from now, than in the spring/summer when there are more homes on the market.

3.) Market conditions could potentially get worse for sellers. 

No one can predict the future, but if interest rates do continue to rise, there are more layoffs, or the stock market gets worse, then real estate prices could potentially decrease further. While many homes on Peninsula will sell in the first two weeks, some with multiple offers, this could change. It could take longer to sell and prices may continue to drop. 

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While there may be some challenging times ahead, the changes we’re experiencing, or perhaps about to experience, are not entirely negative in my view. It will likely level the playing field for some that otherwise wouldn’t be able to invest in real estate on the Peninsula.

The Great Recession we experienced more than 10 years ago allowed so many people, myself included, an opportunity to build wealth quickly by investing in our local real estate market.

Whatever your case may be, whether you’re buying, selling, doing both, or if you’re just curious, please feel free to reach out anytime. I’m always there to help you look at the options and figure out a plan that makes the most sense for you.

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Cliff Whearley  is the Broker at Whearley & Co. Real Estate. He has been a resident of Redwood City for over 30 years. If you’re buying or selling a home or have any real estate questions, he would love to work with you!