For most of the last decade, buying a California home meant deciding how much over the asking price you were willing to bid. However, a cooling market gives some house buyers more power and a bit more opportunity to be picky. But the dramatic price drops and fizzling competition seen in the Bay Area may not hit the rest of the state the same way, experts warn.
For the first time since 2012, houses in the Bay Area sold for less than the asking price in January, Redfin data revealed. Home prices in the area have steadily grown behind high-paying careers at Meta, Google and Uber and other tech companies in the area.
But layoffs at some of those same companies are contributing to a decrease in potential buyers in the market, according to real estate professionals.
In January many tech companies announced employee layoffs by the thousands. Google planned to cut 12,000 jobs which equated to 6% of its workforce. Also, inflation and rising interest rates took a toll on potential homebuyers entering the market.
During the massive price COVID era price spike, buyers in the market were taking advantage of low mortgage rates seen throughout the latter half of 2020, 2021 and early in 2022, according to Danielle Hale, the chief economist at Realtor.com.
Those cheaper loans allowed people to pull the trigger on buying, even as prices soared, Hale explained.
“Mortgage rates continued to be low, which really enabled people to not only have those dreams but act on them because it created a lot of buying power for homebuyers in the market,” Hale said.
With the Bay Area seeing lower home prices, some have questioned if the same thing will happen in other areas across the Golden State. Experts say it depends on whether the seller is taking the new market into account.
Thomas Royds, a Los Angeles-based agent with Redfin, explained that while there have been a few homes selling for below the asking price in the LA area, some have also sold for more.
“I would refer you to the last two homes, and one of them was priced at 1,000,050 and the other was priced at 2,000,150. So those are two very diverse price ranges; both of those houses had multiple offers and both of those houses sold at around 3% above the asking price,” Royds said.
“The key to that was that both of those properties were priced correctly when they came out on the market if not just slightly under market,” Royds said. “So that created the type of action and activity that the seller was looking for. And ultimately, when you get two to three people bidding on the same product, you’re going to go ahead and you’re going to get a higher sales price.”
Royds explained that buyers currently in the market are very savvy about the current market trends. He noted that if sellers in his jurisdiction attempted to sell their properties for more than what they were worth, buyers wouldn’t be receptive, one of the many reasons behind the possibility of homes selling for a cheaper price.
Royds sells homes primarily in the South Bay area of Southern California, specifically areas like Santa Monica, Palos Verdes and Gardena.
However, UCLA professor Eric Sussman, who specializes in real estate and accounting, doesn’t believe that other areas of California, specifically Los Angeles, will see homes sell below the asking price because the southland’s economy doesn’t heavily rely on one industry.
“Los Angeles, Southern California is actually far more economically diverse in terms of entertainment, aerospace, and yes, technology, but also global trade, etc.,” Sussman said. “So, we have a much more diverse economy, which means we aren’t experiencing the same price drops that they are up north.”
“I don’t expect a big drop in housing prices here,” Sussman said.
While it’s debatable if other areas of California will see a big drop in housing prices, for residents that are in the housing market wondering if they can score a deal on their dream home; experts say it depends on the realtor or company people align themselves with.
“Whether or not a home is going to bid way over the asking price or be a competitive situation or on the flip side of that, may be a great opportunity for somebody to be able to negotiate price and get it a little bit less than the asking price with some contingencies, is really going to be a one-off depending on the neighborhood, depending on the type of home, depending on the location,” said Josh Felder, a San Francisco-based agent for Redfin.
“So, if you have a great real estate agent, they can help kind of guide you in that process.”
Even though some homes have sold for below the asking price, overall home prices in the Golden State are still expensive.