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Inflation in the Bay Area is near a 20-year high running at a yearly rate of 6.8 percent. Inflation in June 2001 increased by 6.6 percent and in October 1984 by 7.1 percent.
The biggest culprit was utility bills – primarily PG&E – which increases of 18.9 percent for electricity and 16.3 percent for natural gas over a year-long period that ended in October.
Bay Area food prices increased by 10 percent on a yearly basis as well.
For the fourth time, the Federal Reserve has raised its benchmark interest rate by three-quarters of a point but indicated that future hikes might possibly be lower. Noting that hikes take a while to affect the economy and inflation, many analysts expect the next rate increase to be one-half a point.
While the economy continues to grow and hiring remains strong, sales of existing homes have decreased for eight straight months.
Currently, mortgage rates remain above 7 percent, up from 3.14 percent just a year ago.
On average, mortgage rates typically run about 4 percentage points above inflation. That hasn’t been the case for quite a while now.
Currently, builder groups are pessimistic about the housing market.
While home prices will continue to decline – some say through 2023 – no one really has a clue about the future.
According to research from the Federal Reserve Bank of San Francisco, the shift to working remotely from home during the pandemic drove up real estate prices and rents by as much as 60 percent. Moreover, as this shift becomes permanent, home prices and inflation will likely continue to rise.
The study says that each 1 percentage point increase in remote work results in about a 0.9 percentage point increase in house prices, with similar results in rental prices.
Currently, 30 percent of the workforce is continuing to work remotely.
Home prices in August were down 6 percent from June, the biggest drop in nearly ten years. Meanwhile, the number of homes sold declined for the 7th straight month.
Mortgage rates continue to rise as the Federal Reserve increases interest rates at an almost unprecedented rate in an effort to fight inflation.
Analysts worry that such rapid increases could push the country into a recession which would further deflate home prices.
As the U.S. Federal Reserve is expected to raise interest rates in response to continuing high inflation, most analysts believe mortgage rates will exceed 6 percent by the end of the year, if not sooner.
Just a year ago, mortgage rates stood at 2.88 percent and, as of the week of September 8, are now 5.89 percent. Many buyers are leaving the market, meaning sellers will have to make adjustments – primarily lowering their asking price.
Analysts also worry that continued rate hikes will push the country closer to a recession.
On Wednesday the Federal Reserve announced the largest rate increase – 0.75% – since 1994 in an effort to curb inflation. Many expect still more rate hikes to come.
Under the current rates, a $300,000 mortgage would cost $1,800 monthly, up from just $1,265 in December 2021.
While home sales have been recently trending towards 2019, pre-pandemic levels, many analysts expect the buyer pool to shrink with sellers forced to properly price their homes to attract the sellers who are left.
While the price of groceries and gas – both 8.6 percent from a year ago – have seen the most dramatic increases, the continued increase in housing costs is also punching inflation to heights not seen since 1982.
Mortgage rates are now climbing, currently an average of 3.85 percent, according to Freddie Mac.
These rates, combined with the acceleration of home prices and rental rates. are only adding to the inflationary pressure.
As if the Bay Area housing market wasn’t challenging enough already, the price of just about everything continues to soar.
A few examples:
None surprisingly, with more people at home over the last two years due to the pandemic, electricity bills have increased for many. According to a new study by Sense, a resource for home energy management, some of this increase can be attributed to extreme weather brought on by climate change.
The Wall Street Street Journal reports that gas prices will be increasing this winter as well with estimates between 30 to 50 percent hikes, depending on the severity of the winter cold.
