CYBER ATTACK DEBILITATES
BAY AREA REAL ESTATE INDUSTRY
Take August Statistics with a Very Large Grain of Salt
As if the Bay Area housing market weren't experience enough, critical software underpinning the vastmajority of property listings and real estate activity was hit by a cyberattack earlier this month, causingan industry-wide panic. And it wasn't just the Bay Area, the attack on Rappatoni Corporation, a Southern-California based multiple listing service ("MLS"), impacted all real estate associations Rappatoni servicesacross the nation. As of today, the MLS remains down with no firm restoration date in site.
What does that mean in practical terms? Agents can't add new listings to the MLS, or update existinglistings to reflect changes in pricing, status, open house times or broker tour availability. Nor can theyutilize the MLS to research property values or comparable sales. And its not just agents impacted.Websites like Zillow, Redfin, and Realtor.com, each of which receive their listings data from the MLS,haven't been updated in weeks. So buyers searching online for a new home or doing their own pricingresearch have no access to updated information during the outage.
The incident is so severe and widespread that the Federal Bureau of Investigations has been involved indetermining the cause and locating the hackers who are purportedly holding the MLS hostage, who arepurportedly demanding payment in exchange for unlocking the data or agreeing not to publish privatedata stored on the MLS more broadly.
The ripple effects of an outage of this magnitude are going to be intense and far-reaching. Sellers whohad specific need-based or strategy-based reasons to list their homes at specific times simply can't do soeffectively, and now face the possibility of competing in a faster fall market (assuming, of course,Rappatoni is restored by then...). Clients who had an urgent need to find a new place to live (e.g., because of a divorce or job change), are stuck with what little existing inventory we have in the Bay Area, as nonew listings are populating. Buyers and Sellers who want to understand market dynamics over the pastseveral weeks are entirely without resources; its impossible to know how long a competitor property hasbeen on the market for and at what price point, as statuses and prices can't be updated. And whileagents can communicate with each other to ascertain that data, the data is largely meaningless when thegeneral public doesn't have ready access to the market. That a property has been "on the market" for 2weeks means nothing if it hasn't been marketed to the public due to the MLS outage over that time.
So when August data is reported, keep the MLS outage in mind when reviewing the statistics. Its hard tosay a drop in new listings, new pending contracts, or new closed transactions, is a result of a change inthe broader housing market, as opposed to the literal inability to update that information in the MLSfrom which the data is derived. Its difficult to determine the extent of price reductions market-widewhen price changes aren't accurately reflected in the source data. Transactions are still occurring, butthe reporting of those transactions has been severely disrupted, and will create skewed, inaccurate data.So if you are one that pays attention to what's happening in the real estate market, whether in the BayArea or nationwide, look at next month's data with a very large grain of salt.
DESPITE SLOWDOWN, HOUSINGVALUE REACHES NEW RECORD
Real Estate Recovers Market Value Lost In Slump
No doubt about it, the housing market continues to be sluggish as average 30-year-fixed mortgage rates have hovered north of 7% for several weeks during summer (typically one of the slowest periods of theyear for real estate). Notwithstanding, according to a report released by Redfin, the "total worth of U.S.homes hit a record $47 trillion in June." According to the report, this is largely due to the scarcity ofavailable inventory, which has propped up real estate values nationwide.
Roughly 90% of homeowners with mortgages have rates under 6%, nearly 1.5% lower than today'snational average of 7.48%. As a result, only 1% of the county's homes have sold this year—the lowestshare in at least a decade, according to the report. And "the number of houses for sale in the U.S. fell 15%year over year to an all-time low in June, the biggest annual decline in nearly two years."
This supply imbalance has caused the value of homes nationwide to rise by "0.4% ($166.2 billion) from ayear earlier in June and 19.1% ($7.5 trillion) from two years earlier. And the "$2.9 trillion decline in value—set off by rising mortgage rates—that occurred from June 2022 through February 2023" has recovered.
Of course, not every locality has recovered, highlighting why its important to look at nationwide data inconjunction with local data. 32 areas have shown declines from June 2022, inconsistent with thenational trend, 11 of which are in California, and seven of which are in Texas. For example, Oaklanddeclined 8.7%, San Francisco 7.8%, and Austin 9.6% (the largest decline of any other area). In dollarterms, according to the report, Los Angeles saw the biggest decline in aggregate home value, posting a$152.6 billion year-over-year decline in June. It was followed by Oakland (-$85.8 billion), Seattle (-$82.7billion), Phoenix (-$58.4 billion) and San Francisco (-$57.5 billion). These markets tend to be among themost expensive, and have experienced outsized declines because they've been impacted more severelyby the advent of remote work and surging interest rates.
As the economy continues shifting, hybrid work and return-to-office mandates draw people back intomajor metropolitan areas (yes, thats happening), and markets respond to every word uttered by theFederal Reserve as it contemplates its next move with benchmark rates, the real estate market willcontinue to experience short-term volatility. The good news is, real estate isn't a stock, and shouldn't betreated like one. People should live in and enjoy their homes (and the attendant tax benefits) instead ofrefreshing their often inaccurate Zillow estimates. In the long-run, downward trends should unwind, andmarkets should stabilize as they always have.
WHAT'S GOING ON
WITH MORTGAGE RATES?
Rates Reach Highest Level in Decades
30-Year Fixed Mortgage Rate - One Year Trend
