Home shortages everywhere, especially in Silicon Valley. 🏠😤
As mortgage rates fluctuate in the 6% range, we are experiencing severe inventory shortages in the real estate market.
Buyers are affected by rising rates, but don’t forget many buyers are sellers who are upsizing or downsizing. Because Silicon Valley homeowners don’t want to trade their 3% mortgage for 6% mortgage, they are staying put and not selling.
Much less inventory is coming on market due to these sellers holding back, so the ones coming on market are more scarce. (Supply is decreasing).
Some Bay Area homebuyers are simply dropping out of the home search, but the ones that remain, are those with who are less affected by mortgage rates and have more money. They are willing to compete harder for those homes that are turn-key - ready to move in homes.
We have less buyers in the market, but even less homes to purchase, creating an environment of scarcity. (Demand is increasing)
Fundamentals of Economics tell us when the supply decrease and demand increases, prices will go up. We are experiencing this right now.
Everyone in the media is talking about the demand side because of rising rates. However, not enough are talking about the supply side. How the rising mortgage rates are forcing sellers who would otherwise be trading their current homes for something different this time of the year, are dropping out of the market as both sellers and buyers.
We are seeing two markets right now in most places. In one market - the turn key market - activity is heated up and more buyers are competing for the few homes that come up for sale. So offer dates, multiple offers and paying over list prices are back. We are experiencing this in Silicon Valley.
In the other market - original condition homes - buyers with money are not considering these homes, so they are staying on market longer with no activity. This is the place where deals can be made. But even here, they are affected by the same scenario of sellers choosing to stay because they have no place to go. Supply is low here too.
This is an unusual scenarios that is difficult for people to comprehend from the outside unless they are in the market today competing for homes. Most people think due to rising rates, there would be a flood of unsold inventory from which they can cherry pick. That simply is not the case.
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