Bay Area Heat Wave of October 2024 Keeps the Market Smoldering

I hope you’re staying cool during this record-breaking heatwave! With temperatures hitting historic highs this past week, it feels like everything is heating up – and in some ways, that includes the Bay Area real estate market.

I want to share a few notable things that I’ve seen lately as pertains to the Bay Area realestate market:

1. Applied Materials has purchased the old Fry’s Electronics site in Sunnyvale

I think it’s pretty noteworthy that Applied Materials just sunk $100 million into a formerly big box retail site, planning to convert it into an innovation center (NewSpeak for an R&D facility). There has been much made of the ailing commercial real estate market, yet here is a clear example that Silicon Valley firms continue to invest in and develop commercial real estate in the area.

And that’s far from the only major investment in commercial real estate in Silicon Valley that’s been made this year – but the fact that it was an old Fry’s caught my eye, because..I miss Fry’s. Don’t we all?

2. A Hot Uptick in Home Prices

After a slight summer cooldown in home prices, we’ve seen a 3.3% bump in prices in Santa Clara county in September 2024 vs. 2023…and a 5.3% increase in price-per-square-foot over that same time period. In San Mateo county, the median price rose 6.6%, but the price per square foot was only up 3.3%. But it gets better: in Santa Cruz County, prices were up 11% year over year, and the price-per-square-foot rose 12%.

3. Atherton’s $55 Million Mansion – The Hottest Listing Around

The ultra-luxury segment has been a bit of a laggard lately, but even in a cooling market, super-luxe real estate is still making waves. One of the most talked-about homes right now is a $55 million mansion in Atherton, located in the country’s most expensive ZIP code. Listed by Compass (naturally), 88 Tuscaloosa Avenue is brand new construction and it is an amazing sight to behold (check out the video below). If you’re curious about how these ultra-luxury listings affect overall market dynamics, it’s a sign that demand for high-end homes is still strong despite broader market shifts.

4. Interest Rates Still Sizzling

Do you remember a few weeks ago when the Federal Reserve made that aggressive half-point rate cut? And how the headlines were all about how we can now look forward to lower mortgage rates, which would kick the real estate market into high gear?

Well, surprise! Rates are back up in the high-6’s…because, as I explained in at the time, mortgage rates are really driven by bond yield rates, not the Fed’s rate.

As it happens, bond yield rates are spiking, over fears about war in the Middle East, and those pesky job numbers which continue to paint the picture of a robust U.S. economy. D’oh!

One thing to keep an eye on is the September inflation report, due out this coming Thursday. Economists are forecasting a slight slowdown in consumer price growth for September, expecting a 0.1% increase compared to the 0.2% rise in August. If this holds true, it would bring the annual inflation rate down to 2.3%, a small improvement from the 2.5% year-over-year increase seen in August, according to surveys by Dow Jones Newswires and The Wall Street Journal. This shift suggests inflationary pressures may be easing a bit, but we’ll know more once the official Consumer Price Index report is released.

5. Inventory continues to build

While many were anticipating that the Fed rate cut would lead to lower mortgage rates and stoked buyer demand, that never quite materialized. Rates did not drop much, and they did not stay down for long. Perhaps buyers were waiting to see if rates continued to drop before jumping back into the market – but for whatever reason, buyer activity was weak in September, while new listings continued coming on the market.

This has led to a situation where there are now more homes for sale than at any point in the past two years. This is contributing to a shift in the balance of supply and demand, leading to a distinct softness in some sub-markets and neighborhoods. This is something of a seasonable pattern, however the increase in available inventory in the Bay Area from August to September is noteworthy, as you can see in the chart below.

With more homes on the market, and prices making a comeback (despite those stubbornly “high” mortgage rates), it’s a unique moment for both buyers and sellers. If you’ve been thinking about selling or want to discuss the best strategy for your home, now is the time to talk. Please reach out to me any time.

Stay cool, and let me know if you have any questions about the market!