How did the spur of IPOs impact Bay Area housing markets?

 

economic-straight-talk

Executive Summary:

  • Higher-end sales (above $3 million) surged in the second quarter to last year’s historical peaks.
  • Home prices remained flat in the second quarter, except in San Francisco and San Mateo.
  • For-sale inventory growth slowed considerably, especially in San Francisco. Inventory remains at 50 percent of the last housing boom.
  • Tax reform is likely putting a damper on the market by dragging down sales priced between $1 million and $2 million.

It was a significant quarter, at least when comes to the IPO activity in the Bay Area. According to Pitchbook, total venture-backed exit value for the first half of 2019 reached $188.5 billion, exceeding every full-year total on record. San Francisco companies ranked in the top four out of five IPOs in exit value including Uber, Slack, Pinterest, and Zoom Video Communications, but also a few others.

But, what did that mean for the Bay Area housing markets in the second quarter? Below is a list of the top four trends that are worth noting for the quarter.

1. Higher-end sales surged. While the total number of homes sold in the second quarter trended below last year by about 5 percent, higher-priced sales, above $3 million, surged again bringing second quarter sales in line with last year’s historical peak. Figure 1 illustrates the 4-year trend of sales of homes priced above $3 million. There were in total about 672 sales between April and May compared to 675 sales last year. Note, though, that sales over $3 million declined about 25 percent in the first quarter before rebounding in the second quarter.

Unlike last year when higher-end sales were popular in Santa Clara and to some extent Sonoma and Contra Costa, this year buyers were more interested in higher-priced homes in Alameda, San Francisco, San Mateo, and Napa. Figure 2 illustrates changes in home sales by price range compared to the second quarter last year.

Out of all homes sold over $3 million, the majority are still in Santa Clara, followed by San Mateo and San Francisco. But Alameda saw a 39 percent jump over last year, followed by a 25 percent jump in Napa, 17 percent in San Mateo and 14 percent in San Francisco. Note that higher-end sales in Alameda still only account for 6 percent of total sales over $3 million.

Figure 1 – 3-month moving average of sales over $3 million

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

Figure 2 – Quarterly year-over-year change in home sales by price range

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

2. Home prices remained flat in the second quarter, except in San Francisco and San Mateo. As noted in previous analyses, home prices in the Bay Area reached a cyclical high last May when the median price topped at $1 million. Since, the prices followed seasonal declines reaching the lowest point in January and have increased since. Figure 3 illustrates Bay Area median home price trend over the last 3 years, pointing to seasonal highs around May-June and troughs in January. Second quarter 2019 is highlighted in red illustrating flattening of home prices in recent months.

Further, Table 1 summarizes current median prices, June year-over-year changes, and year-to-date changes by region. Year-to-date account is most interesting in that it suggests generally flat prices across the Bay Area, except in Santa Clara and Sonoma where prices retracted. Those two regions saw unsustainable growth in prices at the beginning of last year. San Francisco and San Mateo, while flat year-to-date have seen some price acceleration in June with both posting a 4 percent increase year-over-year. Prices in the two areas have again reached historical highs.

Changes in Table 1 also closely reflect the forecast that was presented at the Pacific Union Real Estate Economic Forecast 2020, illustrated in Figure 4. The forecast called for home prices reaching a “Table Top” in 2019-2020 — when prices reach peaks and remain relatively flat with some slight declines in a few areas. As Figure 4 shows, “Table Top” is much different than the “Mountain Peak” that was experienced during the last housing cycle in 2004 to 2007 when home prices rapidly declined as much as 60 percent following the peak. The reasons prices are expected to remain flat this time around is largely due to exceptionally solid mortgage loan underwriting and a significant share of all-cash purchases, coupled with almost negligible new construction growth. Thus, while it’s inevitable to evoke the 2004-2007 period when thinking about home prices going forward, keep in mind that the last housing cycle was considerably different, driven by demand and supply of low-quality loans and a loosely regulated mortgage system, and excess new construction that was absorbed by speculative buying and highly indebted households. Much has changed since. Today’s mortgage system is well capitalized and follows strict Dodd-Frank reform, new construction is roughly 50 percent below the 2004 period and homeowners have a total of about $5.8 trillion in available home equity, the highest volume ever recorded and 16 percent above the last home price peak in 2006. Further, venture-capital activity remains steadily anchored to the Bay Area region, which will continue fueling local economy going forward.

Figure 3 – Bay Area 8-county median home price trend

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

Table 1

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

Figure 4 – John Burns Home Value Index Forecast

Source: Pacific Union International Real Estate Economic Forecast, San Francisco Bay Area to 2020

3. For-sale inventory growth slowed considerably. While overall inventory is about 11 percent ahead of last year, inventory growth and addition of new listings has slowed, suggesting that acute lack of homes for sale continues to hang over Bay Area housing markets. Figure 5 illustrates availability of homes for sale in the Bay Area’s eight-county region going back to 2005. Since 2012, when much of the for-sale inventory was absorbed, inventory levels dropped to about 50 percent of the levels seen between 2005 and 2010. Continued lack of inventory further supports our forecast of flattened home prices over the next couple of years.

Figure 5 Bay Area homes for sale, monthly

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

4. Lastly, tax reform is likely putting a damper on the market by dragging down sales priced between $1 million and $2 million. While the quarter ended with 5 percent fewer sales than last year, or 876 fewer sales, 84 percent of the decline, or 738 units, was due to fewer homes sold priced between $1 million and $2 million. Table 2 summarizes quarterly year-over-year change by price range.

In contrast, sales of units priced below $1 million, similarly to sales over $3 million, remained flat from last year, with gains in Alameda, Santa Clara, and Wine Country offsetting losses in San Francisco and the Peninsula mainly due to no inventory in the lowest price range.

As discussed at the Pacific Union Real Estate Economic Forecast 2020, tax reform which capped state and local deductions to $10,000, and reduced the mortgage interest deduction of a loan up to $750,000 from the previous $1 million cap, significantly increased the cost of owning a home in California. And in the Bay Area, where homes priced between $1 million and $2 million are not considered luxury homes, households that relied on the deductions to be able to afford a home are having a hard time reconciling the purchase.

Table 2

Source: Source: Terradatum, Inc. from data provided by local MLSes, July 7, 2019

Going forward, home buyers could be facing an easier time. Mortgage interest rates have eased from their winter highs and may continue to trend lower depending on forthcoming actions of the Federal Reserve. Nevertheless, according to Freddie Mac’s Primary Mortgage Market Survey, the U.S. weekly average 30-year fixed mortgage rate was at3.75 percent this week, already the lowest since January 2018 (Figure 6).

Figure 6 – U.S. weekly average 30-year fixed mortgage rate

Source: Primary Mortgage Market Survey, Freddie Mac

 


SF Multi-Family Residential Market – Compass Commercial

An interesting 2019 so far: Stock markets have hit new peaks; interest rates have hit multi-year lows; the SF unemployment rate dropped to a historic low; Bay Area unicorn IPOs have rolled out one after the other; SF residential and office rents have ticked up; consumer, corporate and governmental debt levels – nationally and internationally, across virtually every sector – have hit all-time highs; and SF median home prices hit new peaks in Q2.

The below report reflects sales across an enormous range of buildings of different size, quality, location, type and era of construction, unit mix, tenant profile, rent control effects, expense ratios and other characteristics. It is impossible to know how any of these sales or statistics apply to any particular property without a specific, tailored comparative market analysis.

Review of Sales – Last 12 Months

Legislative Update – New Limitations on Sale

SF has enacted a new law called the Community Opportunity to Purchase Act (COPA) impacting Sellers listing or selling buildings with 3+ residential units and lots zoned for 3+ units. It is designed to provide certain Qualified Nonprofit Organizations (QNOs) preemptive opportunities to purchase such properties. As of 9/3/19, Sellers of such properties will have to provide formal notice to these organizations of their decision to sell before they solicit offers or place such properties on the market.

COPA applies to SF multi-family residential buildings on which (1) 3+ residential units exist, including mixed use properties; (2) lots on which 3+ residential units are under construction; and (3) vacant lots on which 3+ residential units could be built. By September 3, 2019, the Mayor’s Office of Housing and Community Development plans to publish the list of QNOs and to issued rules pertinent to implementing COPA. Buyers – especially those affected by 1031 exchange deadlines – and sellers having any questions should engage a qualified San Francisco real estate attorney. Your agent can provide you with a more detailed outline and list of FAQs which the SF Association of Realtors has created.

General Financial Indicators – Updated through Mid-Year 2019

Supply & Demand Statistics

If you would like to receive the list we have compiled of year-to-date San Francisco 5+ unit apartment building sales, with their specific parameters of sale, please let us know.

Rent Rate Trends – Average & Median Statistics

New Housing Construction Pipeline

Sales by Broker


Santa Clara Q2 Real Estate Market – Compass

Santa Clara County saw a rebound in buyer demand, luxury home sales and in median home sales prices in Q2, assisted by stock markets hitting new peaks and interest rates falling to multi-year lows. However, its market remains distinctly cooler than the white-hot period running from late 2017 through mid-2018 – when it was perhaps the hottest metro market in the country, seeing stupendous year-over-year appreciation rates.

Median Home Sales Prices

Home Sales by Property Type & Bedroom Count

Luxury Home Sales

Within the Bay Area, Santa Clara County still has the highest number of home sales at prices of $3 million and above, but they are down from the peak sales volume hit in Q2 2018.

Selected Supply & Demand Statistics

In the next series of market trend charts, generally speaking, one can see the rebound in demand during the spring selling season, but also the general softening of the market that has occurred over the past year.

Overpricing: Negative Effects for Sellers
& Opportunities for Buyers

We performed longer-term analyses of the effects of overpricing – as indicated by the need for price reductions before the property sold – on every major market in the Bay Area and the results were uniformly similar. As would be expected, there were dramatic differences in the sales price to list price percentage and time on market before sale. But there were also very substantial differences in the average dollar per square value realized upon sale.

So, overpricing lowers values for sellers, which also signifies opportunities for buyers who keep an eye out for price reductions and react accordingly.

Mortgage Interest Rates Drop to Multi-Year Lows


San Francisco Bay Area Home Prices by City, Town & Selected City Neighborhoods

An interesting 2019 so far: Stock markets have hit new peaks; interest rates hit multi-year lows; the SF unemployment rate dropped to a historic low; Bay Area unicorn IPOs have rolled out one after the other; SF residential and office rents have ticked up; and SF median house and condo prices hit new peaks in Q2.

In the 2-4 unit market, as seen below, some of the market indicators were somewhat mixed, but overall, SF saw a strong spring market.

Though this report focuses primarily on San Francisco’s 2-4 residential unit market, it will sometimes pull in data from other Bay Area counties to add further context.

12 Months Sales Reviews

Sales Breakdown by Number of Units

Sales Breakdown by Building Square Footage

Annual Trends in Values
with Year-to-Date Updates

Partial year data should be considered preliminary until full year data is in.

Legislative Update – New Limitations on Selling 3+ Unit Residential Buildings

SF has enacted a new law called the Community Opportunity to Purchase Act (COPA) impacting Sellers listing or selling buildings with 3+ residential units and lots zoned for 3+ units. It is designed to provide certain “Qualified Nonprofit Organizations” (QNOs) preemptive opportunities to purchase such properties. AS of 9/3/19, Sellers of such properties will have to provide formal notice to these organizations of their decision to sell before they solicit offers or place such properties on the market.

COPA applies to SF multi-family residential buildings on which (1) 3+ residential units exist, including mixed use properties; (2) lots on which 3+ residential units are under construction; and (3) vacant lots on which 3+ residential units could be built. By September 3, 2019, the Mayor’s Office of Housing and Community Development plans to publish the list of QNOs and to issued rules pertinent to implementing COPA. Buyers and sellers having any questions should consult a qualified San Francisco real estate attorney. Your agent can provide you with a more detailed outline and list of FAQs which the SF Association of Realtors has created.

Selected Supply & Demand Statistics

Average & Median Rent Rate Statistics

Long-Term Trends in Mortgage Interest Rates

Demographic Snapshots

Market Share by Broker


San Mateo Real Estate Q2 Report – Compass

High stock markets, low interest rates, surging luxury home sales, a spring full of local IPOs, and San Mateo County hit a new high in median house sales price (by a nose).

July 2019 Report

San Mateo County real estate saw a strong Q2 market, though, generally speaking, not quite as competitive as the white-hot market in the first half of 2018. The median house sales price bounced back up to slightly exceed the previous peak in Q2 2018, and thus return to positive year-over-year appreciation after the small decline in Q1 2019.

The luxury home market was very strong – the stand out segment – surging to dramatic new highs in sales volumes this spring, mirroring a similar dynamic in San Francisco.

The market typically begins to slow down for summer after the spring selling season ends, though homes certainly continue to sell.

Median Home Prices

San Mateo Luxury Home Sales

Selected Supply & Demand Statistics

Sales volume jumped back up from its mid-winter nadir, but remained somewhat lower than volumes seen in the previous 2 springs.

The next four charts generally indicate solid buyer demand in Q2, but also illustrate the differences between this past spring and the extremely heated demand seen from spring 2017 through spring/early summer 2018.

Overpricing: Negative Ramifications for Sellers
& Opportunities for Buyers

We performed longer-term analyses of the effects of overpricing – as indicated by the need for price reductions before the property sold – on every major market in the Bay Area and the results were uniformly similar. As would be expected, there were dramatic differences in the sales price to list price percentage and time on market before sale. But there were also very substantial differences in the average dollar per square value realized upon sale – and the hotter the market, the larger the percentage decline in dollar per square foot value that accompanied price reductions. This is almost certainly due to missing out completely on the sales-price-enhancing effects of overbidding.

So, overpricing typically lowers values for sellers, which also signifies opportunities for buyers who keep their eyes open for price reductions and react accordingly.

Mortgage Interest Rates Hit Multi-Year Lows

A Critical Dynamic in Affordability & Buyer Demand


San Francisco Median Home Prices Hit New Peaks – Compass Q2 Market Report

High stock markets, low interest rates, surging luxury home sales, limited inventory, a spring full of unicorn IPOs, and San Francisco – once again -hits new highs in median home sales prices.

July 2019 Update

After 2 quarters of no or negative year-over-year home price appreciation, a confluence of positive economic factors sent San Francisco median home sales prices to new peaks in Q2. On a quarterly basis, the median house sales price hit $1,700,000 – $80,000 above the previous peak in Q2 2018 – powered by a monthly high of $1,770,000 achieved in June. For condos, the new quarterly median price peak was $1,250,00 – slightly above last year’s $1,235,000 – fueled by a new monthly high of $1,300,000 in June.

The market typically slows down significantly in San Francisco for the summer holidays through August before picking up again in September for a busy, though relatively short autumn selling season running through mid-November.

Median Home Sales Price Trends

Sales & Prices by Property Type & Bedroom Count

Average Dollar per Square Foot Analyses

San Francisco Luxury Home Sales
Hit New Peaks in Q2 2019

The first chart below breaks out luxury homes as defined by houses selling for $3 million and above, and condos, co-ops and TICs selling for $2 million or more.

The second chart looks at all home sales of $5 million plus.

Selected Supply & Demand Statistics

Average days on market – all sales (chart 1), then broken out by property type and price segment (chart 2). Changing a pattern seen in recent years, Q2 2019 often saw the strongest buyer demand in higher price segments, instead of the more affordable price ranges.

Sales price to original list price percentages by property type and price segment – these statistics generally mirror those seen above in the days on market analysis. Some of these percentages are stupendously high, reflecting torrid bidding competitions between buyers for appealing new listings.

Percentage of Listings Accepting Offers
(i.e. Going into Contract)

Percentage of Active Listings
with 1 or More Price Reductions

The effect of over-pricing – as signified by price reductions prior to sale – on the average sales price to list price percentage, average days on market, and average dollar per square foot values.

Mortgage Interest Rate Trends since 1981

San Francisco Bay Area Home Prices
by City, Town & Selected City Neighborhoods


June U.S. Jobs Report: Continued strength lowers expectations of Fed cut in July

 

economic-straight-talk
  • As all eyes are on the Federal Reserve andtheir anticipated actions in the upcoming July, September and Decembermeetings, including President Trump’s. This monthly job report has become oneof the most observed monthly economic indicators. Consequently, strength inJune’s hiring suggests some analysts may have rushed to push for a case ofcutting the interest rates.
  • However, while the markets have beenaggressive in trying to drive Federal Reserve’s actions, Federal Reserve is ina precarious position at the moment. Fed Chair Powell has suggested thatdeteriorating inflation expectations and slowing global growth may provide acase for cutting the rates, though the Fed does not want to appear to be bowingto short-term political interests. Further, premature rate cuts may leaveFederal Reserve with fewer tools when the economy indeed hits the brake. Analystsare sticking with the 25 basis points cut expectation for the July FOMCmeeting.
  • In terms of housing, however, it is not clearhow much further decline in rates would boost the demand. The 30-year fixed mortgage rates have beenoscillating about 70 to 100 basis points below this time last year, but thenumber of homes sold in California still trends below last year.
  • In looking at the BLS report, the unemploymentrate inched up to 3.7 percent as 2019 graduates and summer workers entered thelabor force. Consequently, wage growth also also posted a relatively weakermonthly growth of 0.2 percent though it is still up 3.1 percent from last year.Again, these numbers suggest that there is a little risk of inflation which isactually one of the primary reasons Federal Reserve would cut the rate as theyare concerned with lack of inflationary pressures amid lowest unemployment ratein the last 50 years.
  • Further, while the rate of job growth hasgenerally slowed from last year, as anticipated, it’s not very clear if tradeuncertainty has started to weigh on key trade-related sectors, such as manufacturingand transportation & warehousing, which added a combined 41,000 jobs, an uptickfrom the trend in the last few months. However, while trade uncertainty is likelyto weigh most heavily on investment spending, uncertainty in general is neverseen as a positive when comes to businesses’ hiring plans.
  • Notable gains continue in professional and businessservices which added 51,000 jobs, and health care, up 35,000 jobs, while retailcontinued on the losing streak with a 5,800-jobs cut in June.
  • According to a new CompTIAreport, the information-technology sector added 13,500 jobs in June, withsolid gains in technology services, custom software development and computersystems design, up 7,200 jobs, and computer and electronics productsmanufacturing, up 6,500. The bulk of the new hiring in manufacturing occurredin two areas, electronic instruments and semiconductors and electroniccomponents. Software and application developers continue to be the mostin-demand occupation companies are looking to hire, with 83,700 job postings inJune.

 


California on track for longest job expansion in recorded history

 

economic-straight-talk
  • California added 19,400 jobs in May bringing theunemployment rate down to 4.2 percent, according to the latestreport from the state Employment Development Department. The lowestunemployment rate, 4.1 percent, was seen in second half of 2018.
  • Current job growth is at a 111-month expansion —the second-longest since 113-month expansion of 1960s.
  • With 282,700 jobs added over the last year, the1.6 percent pace of employment growth lines up with the growth rate nationally.Still, California’s 19,400 jobs gain accounted for a lion’s share of nationalmonthly job growth, contributing 26 percent.
  • While the state’s unemployment rate declinedslightly in May, the driver is unfortunately declining labor force whichdeclined by 49,800 in May, following a 51,800 decline in April. On an annualbasis, labor force showed only a small improvement of 136,400 or 0.7 percentgrowth.
  • In May, 7 out of 11 industries added jobs, withlargest gain in construction (12,800), suggesting increase in new homeconstruction. The second largest gain was in leisure and hospitality, up 4,500jobs, and government, up 1,800 jobs. In annual comparison, there is arelatively consistent growth in education health services followed byprofessional and business services, and a loss in financial services.
  • Regionally, Los Angeles continued with thelargest job gains adding 8,200 between April and May, with gains largely inleisure and hospitality, a seasonal gain that also reflects the strength of thearea’s tourism industry. Employment services reflected another large gain, up4,600 jobs. Within construction’s gains, the largest relative increase wasamong building finishing contractors, up 4 percent over the month, and 15.2percent over the year. Information sectors, mostly driven by motion picture andsound recording, showed the largest monthly declines, while finance andinsurance have seen the largest overall annual declines, down 3,400 jobs intotal year-over-year. The region’s employment growth over the year remainsfocused in health care and social assistance, which account for about 30percent of the growth.
  • In the Bay Area, gains were broad based acrossthe regions, and most regions saw the unemployment rate decline again fallingbelow the year-ago bottom. In San Francisco-San Mateo region, up 7,100 jobs, monthlygains were led by accommodation and food services, construction, and financialservices, with a loss in private education and health services. Over the year,the region gained 44,900 jobs.
  • In Santa Clara-San Benito region, up 4,900 jobs,gains were also led by leisure and hospitality as summer seasonal hiring kickedin. The region also saw strong gains in information and professional services.Over the year, job gains in information and computer and electronic productmanufacturing suggests the area continues to be a big draw for tech innovation.
  • Alameda and Contra Costa counties added 6,100jobs in April, with construction’s specialty trade contractors leading thegain. Over the year, the area added 19,100 jobs with over a third in healthcare and social assistance, followed by a similar gain in professional andbusiness services
  • In Marin, Napa and Sonoma counties, unemploymentrate also declined dropping to lowest rates since May 2018. However, fallingunemployment rates are due to declining labor force which was down 0.6 percentin Sonoma year-over-year, down 1.2 percent in Napa, and mostly flat inMarin.
  • Figure 1 summarizes annual changes inemployment, number of jobs added in high-income sectors, and the share of totaljobs that were high income jobs by region.
  • Column titled Percent in High Income Sectorsillustrates how many of the jobs added in each region were in high incomesectors, which include financial activities, professional and businessservices, and information sector. In San Francisco and San Jose metropolitanareas, about 50 percent of job growth is in high-income sectors which contrastnotably other regions, particularly Los Angeles where the diverse economy stillhasn’t gained traction with higher-income employment growth.

Figure 1

Notes:

East Bay Area includes Alameda and Contra Costa counties

Los Angeles includes Los Angeles County

San Francisco incudes San Francisco, Marin, and San Mateo counties

San Jose includes Santa Clara and San Benito counties

 


Plenty of Bay Area buyers, but why are they hesitant?

 

economic-straight-talk

Executive Summary:

  • While April’s momentum is slightly slower inMay, May sales are still only 2 percent below last year’s highs afterdouble-digit declines earlier in the year.
  • Home sales momentum remains solid in East Bay.Napa sales finally jumped 6 percent after a 6-month losing streak, averaging 20percent annual declines.
  • Affordable sales picked up again with sales ofhomes priced below $1 million up 3 percent year-over-year, the first two-monthconsecutive annual increase in the last four years.
  • For-sale inventory growth is slowing after thewinter jump with homes averaging seven days longer on the market.
  • San-Francisco continues to see significantinventory declines with May down 19 percent YOY (four months of declinesaveraging 20 percent).
  • Buyer competition picks up again with 58 percentof homes selling over the asking price.
  • Bay Area housing market correction resembles “TableTop” with prices remaining flat, compared to “Mountain Top” seenin the last cycle when prices fell significantly following the peak.

Following a solid improvement in the Bay Area housing marketsin April, May homes sales activity continued with the momentum, albeit slower.Total home sales were 2 percent below last May, following April’s upwardlyrevised 1 percent year-over-year decline. The rate of declines has slowedconsiderably after double-digit declines seen in the first few months of 2019. Takingthe first five months of the year together, sales are 5 percent below lastyear.

However, while declines continue to be driven by slowersales in Santa Clara and San Mateo, East Bay home sales are keeping themomentum. Napa sales jumped 6 percent after a 6-month losing streak, averaging20 percent annual declines. San Francisco, the spotlight of expectations aroundIPO impacts, remained relatively flat with last year, down 1 percent, thoughSan Francisco sales peaked last May at the highest numbers of May sales in atleast the last four years. Overall, most all markets except Sonoma sawimprovement in sales in at least one price range. Table 1 summarizesyear-over-year changes in the number of homes sold by price range.

Table 1

Source: Source: Terradatum, Inc. from data provided by local MLSes,June 7, 2019

As noted in last month’s analysis, the most encouragingimprovement considering Bay Area’s affordability concerns is the increase insales of homes priced below $1 million, which showed its first two-monthconsecutive annual increase in the last four years. Figure 1 illustrates thetrend of year-over-year changes in home sales by price range.  As Table 1 suggests, the increase in lowerpriced sales is mostly driven by East Bay, but also Santa Clara where lowerpriced sales have been increasing since the beginning of the year after dropsaveraging 40+ percent in 2018.  Incontrast, San Mateo, San Francisco and Marin continued to see declines in lowerpriced sales as that inventory has largely disappeared – for example, in thethree regions, less than a third of homes available for sale are priced below$1 million.

Figure 1 Year-over-year change in the number of homes sold

Source: Source: Terradatum, Inc. from data provided by local MLSes,June 7, 2019

The increase in lower priced homes has been helped byraising inventories of lower price ranges. Figure 2 traces out the trends ininventory growth over the last couple of years. Currently, available inventorylevels are on average 15 percent above last year with inventories priced over$3 million continuing to increase at a relatively faster pace, followed byincrease in inventory priced between $1 million and $2 million. Inventory ofhomes below $1 million has slowed from the winter jump, but still remain atdouble-digit growth. Nevertheless, while inventory growth is steady, it’slargely due to homes taking longer on the market rather than new listings becomingavailable. The rate of new listings has fallen significantly since the winterjump, particularly for lower priced homes. To see the aging of for-sale inventories,Table 2 summarizes average days on market for homes that were still availablefor sale on May 31.  On average, currentinventory has been on the market for 47 days, or at least 7 days longer thanlast.

Figure 2 Year-over-year change in number of homes for sale by price range

Source: Source: Terradatum, Inc. from data provided by local MLSes,June 7, 2019

Table 2

Source: Source: Terradatum, Inc. from data provided by local MLSes,June 7, 2019

Furthermore, while buyer competition is not at the samelevel as last summer, when housing market activity peaked, it continues to rampup from slower start to 2019. Seasonally, buyer competition peaks in May with thehighest rate of homes selling over the asking price in a given year. This May,almost 6 in 10 homes sold over the asking price, which is below the last threeyears when about 7 to 8 in 10 homes sold over the asking price, but stillsuggest solid buyer demand. Figure 3 illustrates the trend in the share ofhomes selling over the asking price. Regionally, the difference from last Mayhas been smallest in San Francisco, where 72 percent of homes are still sellingover the asking price, down from 75 percent last May. The most notable declinein buyer competition remains in Santa Clara where 56 percent of homes areselling over the asking price, down from 89 percent.

Figure 3 Share of homes selling over the asking price

Source: Source: Terradatum, Inc. from data provided by local MLSes,June 7, 2019

As noted in the last month’s analysis, San Francisco’shousing market resilience remains further evident in absorption rates ofavailable inventory, which is up 8 percent points compared to last May and isthe only area where absorption rate has increased on an annual basis. Granted,San Francisco is also the only region where inventory continues to decline,down 19 percent in May. This brings us to the question around the impact of recentand anticipated IPOs. While it doesn’t appear that San Francisco housing isbubbling out of control, it is difficult to say where it would be in thecounterfactual. In other words, would the market currently be worse off orsimilar to where it is if it wasn’t for the IPO expectations?

In the least, it is clear that the strength of the Bay Area economy and continued job growth is driving solid demand from buyers across the region, both for affordably priced homes as well as higher-priced homes. And while the number of sales is lower than last year, it is important to keep in mind that last summer housing market activity peaked, and current conditions are suggesting leveling off or normalization of those unsustainable trends, particularly in areas in Silicon Valley or post-fire Sonoma. Further, buyers, may are holding off fearing that housing market correction is inevitable and are waiting for sellers to yield further and lower their expectations. And while recent softening of price growth suggest correction is under way, it is unlikely that it will be the correction that we saw in the last housing cycle. Credit conditions are significantly different than in the last cycle. The current housing boom was driven by exceptionally solid underwriting and significant share of all-cash purchases, coupled with almost negligible new construction growth, both of which suggest that the correction path is looking notably different. In the Pacific Union Real Estate Economic Forecast 2020. “Table Top” is unlike the “Mountain Peak” seen during the last housing cycle in 2004 to 2017 when home prices rapidly declined as much as 60 percent following the peak.

Figure 4  John Burns Home Value Index

Source: Pacific Union International Real Estate Economic Forecast, San Francisco Bay Area to 2020

 


Compass May 2019 Bay Area Real Estate Update

While overall Bay Area pace of sales in May still trends 2 percent below last year’s levels,some regions are starting to see sales pace pick up ahead of last year. Sales below $1 million are up for the second month in a row after more than 20 months of annual declines.


CONTRA COSTA COUNTY

At $1.3 million, May median sales price in Contra Costa County retrieved from the previous month’s high, but still continues to trend ahead of last summer. Days on market continued to trend lower with homes selling as fast as they did at the same time last year, averaging 18 days on the market. See Contra Costa County market statistics for May.

Defining Contra Costa County: Our real estate markets in Contra Costa County include the cities of Alamo, Blackhawk,Danville, Diablo, Lafayette, Moraga, Orinda, Pleasant Hill, San Ramon, andWalnut Creek. Sales data in the adjoining chart includes single-family homes in these communities.


EAST BAY

While retrieving slightly from the previous month’s peak, median home prices in the East Bay in May remained ahead of last year, at $1.2 million. The pace of sales activity also picked up again with homes selling on average in 17 days, only a day longer than the 16-day average seen last spring. See East Bay market statistics for May.

Defining the East Bay: Our real estate markets in the East Bay region include Oakland ZIP codes 94602, 94609,94610, 94611, 94618, 94619, and 94705; Alameda; Albany; Berkeley; El Cerrito;Kensington; and Piedmont. Sales data in the adjoining chart includes single-family homes in these communities.


MARIN COUNTY

At $1.45 million in May, Marin County median home prices continued the recent trend of monthly increases but still fall slightly short of last May. Pace of sales also picked up slightly from previous months though taking a few days longer at the same time last year. See Marin County market statistics for May.

Defining Marin County: Our real estate markets in Marin County include the cities of Belvedere, Corte Madera,Fairfax, Greenbrae, Kentfield, Larkspur, Mill Valley, Novato, Ross, San Anselmo, San Rafael, Sausalito, and Tiburon. Sales data in the adjoining chart includes single-family homes in these communities.


NAPA COUNTY

After a slow winter season, Napa County‘s May median sales price picked up pace again and increased 2.8 percent above last year, to a median of $725,000. Homes continued to sell at a faster pace, averaging 56 days before entering into a contract, only 2 days longer than last May. See Napa County market statistics for May.

Defining Napa County: Our real estate markets in Napa County include the cities of American Canyon, Angwin, Calistoga, Napa, Oakville, Rutherford, St. Helena, and Yountville. Sales data in the adjoining chart includes all single-family homes in Napa County.


SAN FRANCISCO — SINGLE-FAMILY HOMES

Median home prices for single-family homes continued with a strong upward trend, bringing San Francisco‘s May median prices to $1,697,500. Number of homes under contract also continued to accelerate with almost 50 percent of homes available for sale being under contract. See San Francisco single-family-home market statistics for May.


SAN FRANCISCO — CONDOMINIUMS

At $1,250,000 median sales price, San Francisco condominiums trended only slightly below last year’s median price mostly reflecting the change in types of units being sold. Buyer activity remains strong and the share of units under contract picked up again, up 8.1 percent points year-over-year to 37.7 percent. See San Francisco condominium market statistics for May.


SILICON VALLEY

Silicon Valley median prices picked up in recent months and reached $3,350,000 in May, 1.5 percent ahead of last May. Buyers otherwise remain more restrained than last year, taking longer to decide to purchase, leading to an average of 27 days on market. See Silicon Valley market statistics for May.

Defining Silicon Valley: Our real estate markets in Silicon Valley include the cities and towns of Atherton, LosAltos (excluding county area), Los Altos Hills, Menlo Park (excluding east ofU.S. 101), Palo Alto, Portola Valley, and Woodside. Sales data in the adjoining chart includes all single-family homes in these communities.


Mid-Peninsula Subregion

The median sales price in the Mid-Peninsula continued to trend lower in May compared to last year. Homes under contract were down 6.3 percent with average days on market 10 days slower. See Mid-Peninsula market statistics for May.

Defining the Mid-Peninsula: Our real estate markets in the Mid-Peninsula subregion include the cities of Burlingame(excluding Ingold Millsdale Industrial Center), Hillsborough, and San Mateo (excluding the North Shoreview/Dore Cavanaugh area). Sales data in the adjoining chart includes all single-family homes in these communities.


SONOMA COUNTY

Sonoma County’s median homes prices continued their monthly increase after some bumpy winter months reaching $665,000 in May, or 4.4 percent below last year. Pace of home sales also continues to improve averaging 54 days in May, 9 days more than last year. See Sonoma County market statistics for May.

Defining Sonoma County: Sales data in the adjoining chart includes all single-family homes and farms and ranches in Sonoma County.


SONOMA VALLEY

Median home prices in Sonoma Valley picked up in May after relatively flat at the beginning of the year, reaching $905,000. The pace of home sales also improved notably bringing the average days on market to 45 days. See Sonoma Valley market statistics for May.

Defining Sonoma Valley: Our real estate markets in Sonoma Valley include the cities of Glen Ellen, Kenwood, and Sonoma. Sales data in the adjoining chart refers to all residential properties– including single-family homes, condominiums, and farms and ranches – in these communities.


LAKE TAHOE/TRUCKEE — SINGLE-FAMILY HOMES

Median prices of single-family homes in Lake Tahoe/Truckee has been oscillating over the last year and reached almost $727,000 in May, down 2.1 percent from last year. Pace of sales has slowed somewhat averaging 75 days, 13 days more than last year. See Lake Tahoe/Truckee single-family-home market statistics for May.

Defining Tahoe/Truckee: Our real estate markets in the Lake Tahoe/Truckee region include the communities of Alpine Meadows, Donner Lake, Donner Summit, Lahontan, Martis Valley, NorthShore Lake Tahoe, Northstar, Squaw Valley, Tahoe City, Tahoe Donner, Truckee,and the West Shore of Lake Tahoe. Sales data in the adjoining chart includes single-family homes in these communities.


LAKE TAHOE/TRUCKEE — CONDOMINIUMS

Median home prices of condominiums in Lake Tahoe/Truckee has trended slightly lower in recent months bringing the May median sales price to $423,500, about 1.4 percent below last year. The pace of condominium sales has slowed more significantly, averaging 104 days in May, though these sales vary considerably throughout the year. See Lake Tahoe/Truckee condominium market statistics for May.

Defining Tahoe/Truckee: Our real estate markets in the Lake Tahoe/Truckee region include the communities ofAlpine Meadows, Donner Lake, Donner Summit, Lahontan, Martis Valley, NorthShore Lake Tahoe, Northstar, Squaw Valley, Tahoe City, Tahoe Donner, Truckee,and the West Shore of Lake Tahoe. Sales data in the adjoining chart includes condominiums in these communities.

 



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