East Bay Market Update - December 2023

A Year in Review and the Outlook for 2024 

To say the 2023 real estate market was a roller coaster is an understatement! The year began with bomb cyclones, bank failures, and tech layoffs. The uncertainty continued with unprecedented interest rate increases and an inventory shortage due to many sellers waiting out the market. Let’s take a moment to reflect on the year behind us and consider the forecast for 2024.

Home Retention Reached a Record High

New listings have been declining year-over-year for 15 months.* In 2023, homeowners had little motivation to sell. Holding tight to their low interest rates and avoiding capital gains taxes were two top reasons for staying in place, with the added dilemma of where to go next. These concerns resulted in the highest homeownership tenure in decades, with a retention of 12 years.

Years Owned Home Before Selling

Buyer Challenges

Low inventory presented a double-whammy for first-time homebuyers who were already grappling with far less buying power due to rising interest rates. If you add economic uncertainty resulting from layoffs, difficulty in obtaining insurance, inflation, and unsettling geopolitical events, it’s easy to understand how single-family home sales were down 22.2%

Rent vs. Buy

In 2005, David Leonhardt of the New York Times wrote an article entitled Is It Better to Buy or Rent? in which he encouraged homeowners to “take another look at renting.” (We remember when this article came out – yes, we have been around that long!)

In our market, if that person sold their one-million dollar home in 2005, they would have missed out on the concerns of the Great Recession. However, they would have also missed out on an average annual appreciation of approximately 6% per year, which compounds and would make that home worth roughly $2.8M today. Recently, Leonhardt published another article entitled Rent Now, Buy Later, and the Economist also published a study showing that renting may make sense in many parts of the United States. In 2014, the NY Times developed a fantastic Rent vs. Buy Calculator, which is one of the best we have seen (Google NYTimes Rent vs. Buy Calculator).

Our advice? There are several reasons, financial and otherwise, that impact a decision about whether now is the right time to buy, sell, or rent. The answer to this question can be very personal and impacted by geography and housing types. If you are contemplating a real estate decision and would like a market expert to help you consider options, feel free to reach out. We would be happy to have a candid conversation and walk you through a personal net sheet.

Cost Comparison for a Renter and a Homeowner

The chart above shows a cost comparison for a renter and a homeowner over a seven-year period. The renter starts out paying $800 per month with annual increases of 5%. The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000. After six years, the homeowner’s payment is lower than the renter’s monthly payment. With the tax savings of homeownership, the homeowner’s payment is less than the rental payment after three years.

Outlook 2024

Despite the challenges faced in 2023, the forecast for 2024 is cautiously optimistic. Expect rates to remain elevated for the near future, affecting borrowing costs. However, a slow decline is forecasted for 2024, offering some relief to prospective buyers and potentially stimulating market activity. Analysts and market experts anticipate a potential bounce-back in home sales as some of the affordability pressures ease, coupled with a gradual increase in available inventory. This, in turn, is expected to stimulate more activity in the market. Various unpredictable factors can influence real estate markets, so staying informed is critical. If you are interested in learning more about the current value of your home or how to succeed in a purchase, we would be happy to provide you with more information.

Help Support our Coat Drive!

Join Calia Homes this holiday season in making a difference in our community by donating new or gently used coats for those less fortunate. Your contributions will be given to CityTeam Oakland, a nonprofit organization that provides essential items, including clothing, to individuals in need. We're here to make the donation process easy for you – we can pick up your coat personally, or you can drop it off at our office, located at 4937 Telegraph Avenue, between 8:30 a.m. and 5:00 p.m.

Feel free to contact us using the information at the bottom of this newsletter to coordinate the donation. Together, let's bring warmth and comfort to those who need it most. The donation drive continues until January 1st. Thank you!