Glen’s SF East Bay Real Estate Market Update, January 31, 2020

SF East Bay Real Estate Market Update

January 31, 2020

 

Here are some highlights for the 39 East Bay Cities that I track:

 

The market has been in transition for some time now. Affordability continues to be a major concern and as a result we’re seeing more and more people consider making the move out of the Bay Area. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60 % over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid January with a steady increase of inventory every month through to September, traditionally our high point.

We expected a healthy increase in inventory over January especially since we didn’t see the heavy rains like we did last year. What we saw was a modest increase, of 15.9%. This is 35.75% fewer homes than last year at this time, but more in line with what we experienced in 2018. This represents a 21 day supply of homes, compared to a 30 day supply last year at the end of January. Pendings remained flat, probably due more to the lack of inventory and similar to what we saw last year.

The pending/active ratio decreased slightly to 1.2. This is still much higher when compared to last years’ number of .78. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last three months have been into positive territory with a ratio of over 1 for the first time since June 2018. It signals that we may be setting up for a stronger seller’s market in the spring.

61% of the homes listed are now “sitting” for 30 days or longer, while 40% have stayed on the market for 60 days or longer. This is slightly higher than what we saw last year (with then 41% remaining active over 30 days and 29% remaining active over 60 days). However, these percentages can be somewhat misleading. It really indicates that we are simply not seeing the number of new home listings come onto the market like we did last year, even without the rain.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 21 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 30 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,348 homes actively for sale. This is fewer than what we saw last year at this time, of 2,098. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales remained relatively flat at 1,613, about what we saw last year at this time of 1,629.

 

Our Pending/Active Ratio is 120. Last year at this time it was .78

Sales over the last 3 months, on average, are 1.6% over the asking price for this area, slightly higher than what we saw last year at this time, of 1.2%.

 

Recent News

 

Homes Sold Above List Price Fell to Three-Year Low in 2019

By Treh Manhertz, Zillow, Feb. 5, 2020

  • The share of U.S. homes that sold for more than their list price in 2019 fell to 19.9%, the lowest annually since 2016.
  • Even with a significant cooldown from previous years, the California Bay Area remains the most competitive housing market in the country.
  • Homes that sold above list last year typically brought in $5,100 more than the asking price, down from $5,500 the year before.

Roughly one-in-five (19.9%) U.S. homes sold for more than their list price in 2019, the lowest share in years — a reflection of cooling market dynamics and subsequent shifts in pricing and offer strategies in response. But as those market dynamics begin changing direction again, so too will the balance of power in the ongoing price/offer game between buyers and sellers.

The share of homes sold for more than their list price last year was the lowest since 2016, and down from 21.5% in 2018, according to an analysis of transactions in which we could match a listing’s initial list price with its final sale price. The year-over-year decline breaks a streak of four consecutive years in which a greater share of homes sold above list than the year before. The dip coincides with a year in which annual home value growth fell steadily from recent highs recorded in 2017 and 2018, to levels more consistent with both annual wage growth and historic annual norms.

Despite recent year-over-year drops in home value, San Francisco (48.6% of homes sold above list) and San Jose (38.8%) top the list of metros with the greatest share of homes sold above list among the top 35 — a sign of just how competitive the Bay Area remains even after cooling significantly in 2019. Boston (34.7%), Minneapolis-St. Paul (34.3%) and Seattle (31.2%) round out the top five.

The coolest top-35 markets were Miami (8.9% of homes sold above asking), Las Vegas (12.6%) and Tampa (13.3%). The share of homes sold above list in the Las Vegas area fell from 26.8% a year ago; only San Jose’s share decreased by more, from 63.6% to 38.8%.

The median amount above asking that U.S. sellers realized was $5,100, down from $5,500 in 2018 and the lowest since at least 2011. San Jose ($41,000 above asking) and San Francisco ($37,500) lead the country in this measure as well, a product of both intense competition among buyers and the high prices of real estate there making these figures relatively in line. Still, these figures are much lower than a year ago when San Jose homes typically sold for $101,000 above asking and those in San Francisco sold for $50,000 above asking.

The Games We Play

A home-buying/-selling transaction can be a difficult process, full of uncertainty — often especially on the most essential part of settling on the price. The transaction process itself in its simplest form has at least three stages, and no definite end. The seller lists at one price. The buyer offers another. The seller accepts or rejects the offer. If the seller rejects, the process often reverts back to steps one and two — or sometimes falls apart completely.

There are any number of personal financial factors at play in both the asking price and offer price, and a good deal of gamesmanship too: Do sellers start at a low price in an attempt to attract more buyers, more quickly? Or do they start at a high price point in an attempt to get the most for their property, risking a longer and potentially more expensive process?  From the buyers side, do they offer below the list price in hopes of saving money but with the risk of being rejected? Or do they offer top dollar upfront, hoping for a smoother deal but risking overpayment?

As a result of these personal dynamics, the final price can end up substantially above or below the initial asking price. But lurking in the background are underlying local market dynamics, which often exert more influence over final price/offer strategies than any personal calculation. And for the first time in years, 2019 represented a notable shift from prevailing trends, with the first half of the year featuring a short-lived bump in inventory, along with a year-long slowdown in home value growth that threw some established buyer/seller dynamics out of whack.

A Down & Up Year

In 2018, almost 900,000 U.S. homes sold above list, the highest number recorded by Zillow.  Throughout the 2018 spring home shopping season, more than one-in-five homes (22%) sold above list. But that share began falling as the year wore on and the calendar turned to 2019, at roughly the same time as a stock market swoon, spike in mortgage interest rates and a prolonged government shutdown combined to effectively hit pause on what had been a roaring housing market. By January 2019, the share of homes sold above list had bottomed out at 17.7%. In this environment, buyers began to claw back a little more pricing power for the first time in years.

Through the 2019 spring home shopping season, it appears many sellers were seemingly caught off guard by the changing conditions, and ended up accepting offers at or below list prices that may have been expected during the height of the market just a few months prior. Relieved of some pressure, buyers were bidding more conservatively. In April 2019, the share of homes sold above the original list price was lower than April 2018 in 37 of the largest 50 metropolitan areas.

But as 2019 played out, the cloudy outlook for sellers began to clear as the late 2018-early 2019 inventory buildups experienced in several cities were whittled back down to record lows. The stock market bounced back, mortgage interest rates fell back below 4% and the economy kept chugging along — bringing out more buyers to chase a still-limited pool of available homes. So even though there were 26,000 fewer sales in 2019 compared to 2018 in which the seller received more than they were asking, the market ended up coming a long way from its January trough.

2020 Vision

This improving outlook — at least for sellers hoping to realize larger gains — looks set to continue into the early part of 2020, if not beyond. Over the last quarter of 2019, the share of sales above list grew compared to prior months in roughly two-thirds of large markets analyzed, with more expected to follow if recent listing trends manifest in actual sales. Typically, the longer a home is on the market, the lower the likelihood of selling above the list price. But currently, homes are typically on the market 3 days fewer than last year. And at a time of the year when the market usually slows down in the face of cold weather and holiday relaxation, there were almost 20,000 more sales overall in December compared to November.

For now, it all adds up to an environment that should be somewhat more favorable for sellers next year — at least until they have to turn around and become buyers themselves, shifting their calculus yet again in housing’s ongoing game of “let’s make a deal.”

2020 Housing Market Forecast: More Buyers, Fewer Homes for Sale

By Tim Ellis, Redfin, January 29, 2020

The direction of this year’s housing market is clear ahead of the Super Bowl.

The U.S. housing market is off to a strong start in 2020 as a deepening shortage of homes for sale and surging homebuyer demand are set to push prices up at the fastest rate in years. Buyers may be coming out of winter hibernation early, but so far the sellers are few and far between, which is setting the stage for intense competition even as the year has just begun.

Redfin CEO Glenn Kelman has previously called Super Bowl weekend “the weekend where the housing market either goes crazy or it takes a nap.” This year, we may not need to wait until game time to see how the housing market is playing out. Homebuying demand is spiking in January as many potential homebuyers are turning into active homebuyers well in advance of the typical spring peak homebuying season.

Unfortunately, the supply of homes for sale has so far been unable to keep up with surging demand. Recent data from the National Association of Realtors show December housing inventory at just 1.4 million units—the lowest level in at least 20 years. Low mortgage rates could also be to blame for the shortage of homes for sale, as homeowners are content to sit on their cheap mortgages rather than list their homes, even when they choose to move up to a larger house.

“With every new release of data this year, I’m becoming more and more confident that demand will be strong in 2020—just as strong as, if not stronger than, in 2018 and 2017,” said Redfin chief economist Daryl Fairweather. “The big question for the housing market this year is supply. Will homeowners sit on the sidelines, content with their refinanced loans, or will they want to get in on the action too and move up, move down, or cash out entirely? New construction is beginning to pick up in some markets though, so even without new listings of existing homes there will be some relief for homebuyers hoping for more selection. However, due to the high cost of acquiring and developing land in expensive coastal cities, much of that new construction will be built far away from urban centers or in already affordable metros.”

Foreign buyers try to escape American real estate market

By Antonio Pacheco, Archinect News, February 7, 2020

Chinese investors sold off billions more in U.S. commercial property last year than they bought, as other foreigners start to sour on the U.S. market as well.

Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012, posing a fresh setback for a market that is already showing signs of strain. — The Wall Street Journal

The Wall Street Journal reports that foreign investors sold $20 billion more in real estate than they bought last year as a number of international economic trends, including Brexit and an ongoing effort by the Chinese government to bring investment back home, converge to make the American real estate market less appealing to these buyers.

In total, foreign buyers sold $63 billion in property in 2019 and purchased just $48.7 billion, according to Real Capital Analytics. In part, The Wall Street Journal cites flat vacancy rates in the US apartment market and falling rents due to new construction and rent control initiatives as being partially responsible for the real estate cool off, as well, adding that “in New York City, values of rent-regulated apartment buildings have fallen by about 25% in a matter of months.”

 

It’s typical to see a spike in early homebuying activity, but this year the jump is unusually large. On January 15, the Mortgage Bankers Association released data showing that their Purchase Index—a measure of how many homebuyers are applying for new mortgages—hit an 11-year high. In addition to public data, like the MBA Purchase Index, internal Redfin data—including the number of Redfin users touring homes with our agents—are also showing big year-over-year gains.

Unless a lot of new housing inventory hits the market soon, the 10-year peak in homebuying demand coupled with a 20-year low in the number of homes for sale will lead the housing market straight into the mother of all inventory crunches. That could result in a sudden and rapid rise in bidding wars and spiking home prices.

“It is busier than I expected this year,” said Redfin Boston listing agent Delince Louis. “My first listing of the new year has already received four offers. Low interest rates and low inventory are fuelling activity, and we are seeing activity now that we normally wouldn’t see until March. 2019 was slow, people were worried about a recession, but this year is back to being competitive. A lot of millennials who put their searches on pause last year are coming back now, and they are coming back early because they want to beat the rush.”

Seattle Redfin agent Shoshana Godwin says 2020 already feels busier than even the craziest times in 2017. “I’m regularly seeing homes with well over a dozen offers that sell for hundreds of thousands above list price, even in the middle of our recent snowy week. In a typical year, I’d say to wait it out and expect more homes for sale in the next few months… but now I’m warning clients prices may only continue to rise and the inventory may not appear.”

If the data continues coming in as strong as it has through the first few weeks of January, 2020 may turn out to be the most robust housing market in a decade. That’s great news for those looking to sell a home, but for homebuyers it will mean increasing competition and rising prices.

Are You Waiting for House Prices to Drop During the Next Recession to Buy a Home? Why You Could Have a Very Long Wait

By Jacob Passy, Realtor.com, Feb 7, 2020

It’s unclear when the next recession will come. But a recent report argues that when it does the U.S. housing market is unlikely to adversely affected in any major way.

Researchers at First American Financial Services, a title insurance company, examined how the country’s housing market has fared historically during recessionary periods. Based on what’s happened in past recessions, the report argues that the next recession is unlikely to prompt a major downturn in housing.

“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Using its own data along with information from Freddie Mac and the National Association of Realtors, the report maps out how the housing market has traditionally fared in economic downturns. In most other cases, home price appreciation continued at an even pace, and existing-home sales growth only edged downward slightly, Kushi wrote.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit. Home buyers were able to get mortgages with no documentation of their income and no down payment, and many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

These homeowners were over-leveraged. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.

And because developers constructed so many homes, their home values quickly sank when the bubble burst, exacerbating the situation further.

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. Rather, it’s a simple reflection of supply and demand: Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

While this has made the prospect of buying a home unaffordable for millions of Americans, it has also meant that those who are homeowners have seen their home equity grow substantially in recent years. That decreases the likelihood that they would be underwater on their loan if home prices were to dip in a recession.

“Were we to have a recession, I’d argue housing would provide a cushion because the shortage of supply at the entry-level suggests builders could actually continue to build,” Doug Duncan, Fannie Mae’s chief economist, told MarketWatch in December.

There still are red flags that homeowners should be on the lookout for when it comes to how a potential recession might affect the housing market. For starters, many Americans have taken out cash-out refinance mortgages on their homes as their home values have grown. That’s whittled away the equity these people have in their property, leaving them more vulnerable to owing more than their home was worth in the potential event the home prices drop.

Another issue: Many Americans who fell behind on loan payments and modified their mortgages in the wake of the recession to avoid foreclosure have since redefaulted. Were these people to lose their jobs in a recession, they could easily fall into foreclosure. Research has shown that foreclosures exacerbate economic downturns — and they can have a ripple effect through a local market, causing other homes to drop in value.

And at the local level, certain local housing markets could prove more resilient in the event of recession, depending on the strength of the local economy relative to what’s going on at a national level.

Top 8 housing trends that’ll dominate 2020

LifestyleHome Design, February 6, 2020

As home prices continue to increase, about 12 million Americans now spend over half of their earnings on purchasing a home. This is just one of the recent housing trends that continue to shape the real estate sector as the new decade begins.

Indeed, the latest housing trends have been a mixture of both desirable and undesirable developments. With millennials making up the largest percentage of home buyers, real estate prices have continued to skyrocket.

So what does 2020 have in store for the real estate market?

That’s what we discuss in this article. We hope that by the time you’re done reading, you’ll be able to make informed decisions on any home purchase or sale you may intend to make.

1. Investment in Real Estate Will Continue to Increase

One of the most prominent real estate trends at the moment is the increased investment in the industry, despite the economic decline of 2018. The industry continues to receive hundreds of billions of dollars in capitalization.

Domestic institutions have continued to increase their net holdings in real estate. This enhanced domestic activity is the main reason for more investment flow to the industry. Moreover, the presence of new tech in the market that helps property owners boost their management capabilities will continue to spur growth in the sector.

As numerous markets continue to experience remarkably low vacancy rates, expect investors to continue pouring money into the industry.

2. There Will Be a Slower Rise in Home Prices

The housing market saw a jump in home prices between 2017 and 2018. Real estate prices have still continued to increase but at a lower price. The percentage of home listings have also increased, albeit marginally. These developments will continue in 2020.

Why?

The first reason is the prevailing economic uncertainty in the country. Many home sellers are choosing to hold on to their property until things look rosier. The increasing mortgage rates have also made some investors shy away from the real estate market.

Interest in new homes, however, is still high. Experts anticipate a considerable increase in the construction of new homes.

3. Millennials Continue to Dominate the Home Buyers’ Market

In the past few years, millennials have dominated the residential property buyers’ market. This is one of the trends in real estate that’s set to continue for a while. There are many reasons for this.

Firstly, members of this demographic are finding more stable jobs with impressive incomes. Besides, American millennials prefer middle-class and upper-middle-class homes. In 2020, millennials are expected to account for almost half of the new home buyers and top the mortgage pack.

There are many things sellers can do to benefit from this housing trend.  For instance, they can focus on leveraging the internet, given that most millennials research online before making a purchase decision. Sellers can also offer sustainable homes that have lots of usable space.

4. Buyers Need Affordable Homes

For a long time, house rents have consistently beaten house purchases by a huge margin. As residential home prices continue to increase, the demand for rental housing will increase as well.

So what does this mean for home developers? Well, there’s obviously a need to create affordable homes to attract more buyers.

5. There’s a Shift to Second-Tier Cities

With real estate prices in first-tier cities out of reach for many investors and home buyers, more people are setting up shop in more affordable second-tier cities. It’s one of the housing market trends that have contributed to a significant increase in investments in such cities.

But as more investors and buyers flood more affordable locations, the price of real estate prices in those regions continues to increase. This capital movement will result in greater value for homes in second-tier cities. Ultimately, the continued investment in real estate in these cities will equalize capitalization rates in both first-tier and second-tier markets.

6. New Technology Will Continue to Be Featured in Housing Trends

Technology has had a tremendous impact on a wide variety of industries. The real estate industry is one of them.

In 2020 and beyond, the housing market will continue to adopt new technology, including apps, smart home technologies, and online selling platforms. Expect to see an upsurge in the number of high-tech companies that service the real estate sector. Most of these tech companies will focus on simplifying transaction processes.

AI will play a significant role in the sector, especially when it comes to building design, organization, and management. Machine learning will continue to help in property design, urban planning, and other areas.

7. Higher Interest Rates on Mortgages

After several years of stagnation, mortgage interest rates have recently started to increase. This trend is expected to continue in 2020. Rising interest rates point to the continued willingness of Americans to borrow and spend.

So what should home sellers expect as interest rates continue to increase? Generally, buyers will usually give lesser offers for homes. Besides, some buyers may decide to postpone their purchases to avoid the additional burden of paying higher rates.

For those looking to buy homes in 2020, higher interest rates should not be a hindrance. Eligible owners can consider VA loans. A major VA Home Loan benefit is that it typically has a lower interest rate compared to other types of loans.

8. Increased Focus on Amenities to Attract Buyers

Residential property developers and landlords are increasingly capitalizing on amenities to entice buyers and tenants. Besides parking access and the staple gym, builders are offering other unique amenities such as movie theaters, communal gardens, and so on. There’s an influx of smart homes as well, thanks to savvy investors.

Housing Trends Will Continue to Change

While we can’t predict the future of the real estate market with absolute certainty, we do know that buyer preferences are always evolving. Housing trends will always come and go. One thing that’s for sure, however, is that the need for residential property is here to stay.

Hopefully, the trends presented here will serve as a guide as you invest in or sell a property this year.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on February 10, 2020 at 12:49 am
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – December 31, 2019

 

SF East Bay Real Estate Market Update

December 31, 2019

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The two numbers that stand out at the end of December is the huge drop in inventory that took place and the percentage of homes that are now sitting. This is the time of year when things begin to slow down. However, it happened earlier this year starting in November. Buyers are hesitant on doing much when we start to reach the holiday season and they tend to shelve their search until the beginning of the new year. Sellers are aware that with less activity comes fewer buyers. If they haven’t already listed their property by now, considerations on delaying until the spring comes into play. We see fewer listings come onto the market in December, and inventory comes down. It’s also a time for possible bargains. However, there’s been less to look at. Many sellers who “have to” sell will stay the course and soften their expectations.

  • Here’s where we stand as of the end of December. Following a huge decrease of inventory in November, we again experienced another big drop in December. Inventory is down 59% in the last 2 months, now sitting at an 18 day supply of homes for sale. This is far less than what we saw last year at this time of 27 days. Pendings decreased again, primarily due to the lack of new inventory coming onto the market but it’s similar to where we were last year. The pending/active ratio increased again to 1.39. This is well above where we were last year at the end December of .94. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last two months have been into positive territory with a ratio of over 1 for the first time since June 2018. It signals that we may be setting up for a stronger seller’s market in the spring.

 

  • 71% of the homes listed are now “sitting” for 30 days or longer, while 46% have stayed on the market for 60 days or longer. This is fairly normal for this time of year and similar to what we saw last year (with then 74% remaining active over 30 days and 47% remaining active over 60 days). However, these percentages can be somewhat misleading. Many of the homes that have not been selling remain on the market while fewer newer homes are coming onto market because of Holiday concerns. That’s why the percentage of sitting homes goes way up.

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 18 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 27 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,163 homes actively for sale. This is fewer than what we saw last year at this time, of 1,765. This is the lowest number that we’ve seen since December 0f 2017. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 1,616, about what we saw last year at this time of 1,629.

 

  • Our Pending/Active Ratio is 139. Last year at this time it was .94

 

  • Sales over the last 3 months, on average, are 2.0% over the asking price for this area, slightly lower than what we saw last year at this time, of 2.2%.

 

Recent News

Editorial: The Bay Area housing market has finally priced everyone out

By San Francisco Chronicle Editorial Board, January 6, 2020

Has the Bay Area housing market finally priced itself out of reach for, well, everyone?

According to a new survey of more than 100 economists and real estate experts, the answer is yes.

The panelists, who assessed the nation’s housing markets as part of a price expectations survey for the real estate website Zillow, said they expected the nation’s hottest real estate markets in 2020 to be in the South. Austin, Texas, took the top honor — a whopping 83% of experts believe it will outperform the national average of 2.8% housing price growth in 2020.

As for the nation’s worst real estate market in 2020?

The winner of that unfortunate designation is the Bay Area. San Francisco was at the top of the list for expected underperformers — 64% of experts believe it will underperform in 2020. It was closely trailed by San Jose: 61% of experts believe that city’s housing market will underperform.

A large proportion of those experts believed that the Bay Area will not just underperform, but actually see declining home values: 57% expect home values to fall in San Francisco, and about half expect the same for San Jose.

After the last several years of torrential real estate growth, underperforming or even falling home values in the Bay Area wouldn’t necessarily be a bad thing.

High home prices have placed homeownership out of reach for all but the wealthiest in the Bay Area. They also influence the cost of rent, which has grown far faster than the average Bay Area resident’s wages.

They affect construction and development costs, too. The Bay Area experienced 6.7% growth in construction costs in 2018: According to Turner & Townsend’s 2019 survey of international construction markets, San Francisco was the world’s most expensive place to build.

Local housing prices flattened out last year, and construction costs slowed, too. The question is, will the Bay Area experience slower growth for the right reasons?

Unfortunately, the answer is no.

In a well-functioning housing market, housing prices would be falling because increases in demand would result in increases in new construction.

In the Bay Area, a major reason for the slowdown is that people are leaving — and taking their need for housing with them.

According to the state Department of Finance, California lost about 197,600 people to net domestic migration during the year that ended July 1. It’s no accident that Texas, one of the states to which California is losing the most residents, has historically had ample housing development at a much lower cost.

Losing these residents means losing their ideas, energy and contributions to the economy. High housing prices have also meant that fewer people can move here, where they’d have access to the Bay Area’s specialized jobs and markets — a situation that has exacerbated income inequality and will eventually eat away at our relative economic advantages.

The Bay Area housing market may also be suffering from the Trump administration’s ill-considered cap on state and local tax deductions, which have disproportionately affected home price appreciation in states with higher property taxes and mortgage interest deductions.

In both instances, flattening or even declining home prices in the Bay Area are the result of flawed public policy and unnecessary restrictions on growth. Without solutions, a pause in home appreciation might give the Bay Area a breather — but we’ll still be stuck with the problems that brought us to this place.

Bay Area will be nation’s coolest housing market in 2020, survey says

By Kathleen Pender, SF Chronice, Jan. 2, 2020

Austin, Texas, is expected to be the nation’s hottest housing market this year and the Bay Area the coolest, according to economists and real estate experts surveyed for real estate website Zillow.

On average, the panelists said they expect U.S. home prices to grow by 2.8% in 2020.

Of the 25 large markets included in the survey, the Texas capital earned the top score: 83% expect it to outperform the national average vs. 7% who think it will underperform, for a net score of 76. The hottest markets after Austin were Charlotte, Atlanta and Nashville, with scores of 59, 51 and 49, respectively, Zillow said in the report.

The San Francisco Bay Area earned the lowest score of negative 40; only 24% said it will outperform versus 64% who think it will underperform. The next coolest markets were San Jose (minus 38), Los Angeles (minus 35), Cincinnati (minus 33) and Sacramento (minus 31).

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, agreed that the Bay Area will lag the nation this year.

After three years of huge appreciation, prices in the Bay Area were down or flat in 2019, depending on location, he said. Rosen expects a further correction this year, especially in Silicon Valley. San Francisco and its inner suburbs will be flat or up slightly, and outer suburbs will be flat to slightly down. Overall, he expects the median Bay Area home price will be flat to up or down 2%.

He pointed out that mortgage rates have risen about a quarter- to half-percentage point from their lows in August-September.

Also, the tax law changes that took effect in 2018 have increased the after-tax cost of owning a home. The law capped the previously unlimited itemized deduction for all state and local income, property and sales taxes at $10,000 combined. “Your property tax, even though constrained by Proposition 13, for many people (is) not fully deductible,” Rosen said. “A lot of people felt good because they were protected (from large property tax increases) by Prop. 13. Even with Prop. 13 still in place, many people have tax bills twice as big” as $10,000.

The tax law also limited the mortgage interest deduction to interest on $750,000 in debt, down from $1 million previously.

He added that the trend of people moving outside California to cheaper states “is going to get bigger in the next five years,” because of higher taxes, higher home prices and growing congestion.

California lost an estimated 197,600 people to net domestic migration during the year ended July 1, according to the state Department of Finance. That is the number of people who left California for other states minus the number who moved here from other states. If you include people moving into the state from other countries, California lost 39,500 residents due to net migration. (Births still caused the population to grow since they exceeded deaths.)

Other data show that California is losing the most residents to Texas, Arizona, Nevada and Oregon.

Mike Englund, chief economist with Action Economics, said that “we will have a pretty solid boom” this year in housing nationwide, led by the South. The southeastern quadrant of the U.S., including Texas, accounted for 53.6% of housing starts last year (numbers for December are estimated). Only 8.8% were in the Northeast, 24.8% in the West and 12.8% in the Midwest.

Research firm Pulsenomics conducted the survey for Zillow. More than 100 experts responded, but only 64 answered the question about individual markets.

A separate report, released last month by Fitch Ratings, said that capping the state and local tax or SALT deduction at $10,000 “may have exacerbated slowing home price growth in certain areas,” including California. Fitch rates corporate and government debt, including mortgage-backed and municipal bonds. It’s owned by Hearst, which owns The Chronicle.

Since early 2018, when the so-called SALT cap took effect, “states with higher property taxes have seen acute home price appreciation slowdown and even price declines in several metropolitan areas” including San Francisco, Fitch said.

It compared home-price appreciation in the 10 states whose residents took the highest property tax and mortgage interest deductions on their 2017 tax returns to the 10 states with the lowest tax and interest deductions. In the high-cost, high-tax states (which included California), the average rate of year-over-year price appreciation fell from 6.4% in January 2018 to 2.7% in September 2019. In the low-tax, low-cost states, the appreciation rate rose very slightly, from 3.9% to 4%, over the same period.

There could be other factors to explain steep drop-off in home-price appreciation in high-tax states after the SALT cap took effect, but “you can see there is a pattern there, a trend you cannot ignore,” said Bulin Guo, an associate director with Fitch.

Bold Predictions for 2020: Shrinking Homes and a More Stable Market

By Skylar Olsen, Zillow, on Dec. 9, 2019

With the housing market stabilizing from the drama of the early years of home price recovery and the subsequent slowdown during 2019’s home shopping season, we have a rare moment of calm to reflect on what housing might look like in the year to come.

If current trends hold, then slower means healthier and smaller means more affordable. Yes, we expect a slower market than we’ve become accustomed to the last few years. But don’t mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country.

But while the national story is a confident one, housing in some manufacturing-heavy markets may see adversity. The struggle could be even more stark, since similarly affordable housing markets with a more balanced job profile may be 2020’s rising stars.

Here are our bold predictions for the trends and styles that will dominate the housing market in the first year of the next decade.

The United States will NOT enter a recession in 2020

As recently as this summer, half of a panel of economic experts surveyed by Zillow said they expected a recession to come in 2020 – with another third saying they expected the economy to shrink in 2021. Ongoing trade volatility, the potential for some kind of geopolitical crisis to flare up and/or a stock market retreat from record highs were all cited as the most likely potential triggers for the next downturn…

…but it became clear as the year progressed just how resilient the U.S. economy has been to these and other economic headwinds:

  • After slowing down late in the summer, consumer spendingperked back up again in October and remains on a steady path.
  • Healthy consumer spending is a sign of healthy consumer confidence– which, despite some modest declines lately, still remains at relatively high levels and points to continued growth in the near term.
  • Employers continue to add jobsat a decent clip, and the unemployment rate is near record lows – which is helping to push wage growth up.
  • After sluggish (at best) growth throughout much of the recovery following the Great Recession, wage growthhas been at or above 3% per year in every month since October 2018.

It’s important to be clear-eyed: The threat to the economy from trade volatility is real, and the manufacturing sector of the economy in particular has been hit hard lately after steadily building orders throughout much of 2018. And the stock market itself, while still testing new highs, is very sensitive to ongoing trade discussions – a reflection of overall investor faith and business leaders’ confidence in their ability to make effective, long-term, strategic decisions. And the potential for a minor conflict in any corner of the globe to become bigger at any time cannot and should not be ignored.

But taken all together, current conditions point to a recipe for continued economic growth, not a recession. Growth itself may be slower than the strong pace we’ve seen at times throughout the recovery, but growth will still occur for at least the next year.

Newly Built Single-Family Homes Will Continue to Shrink

After six years of uninterrupted growth through the early years of the recovery, the square footage of newly built, single-family homes began to shrink in 2016. We expect this downsizing trend to continue in 2020, driven by a confluence of economic and demographic trends.

First, the fine print: Yes, today’s new single-family home is roughly a third larger than it was 30 years ago, up to a median of 2,386 square feet in 2018 from 1,810 in 1988. But it’s also true that between 2015 and 2018 (despite a very slight increase between ’16 and ’17) the typical square footage of those homes fell from 2,467 to 2,386 – the largest such drop since at least 1988, not including the housing crash in the mid-aughts.

There are several 50,000-foot reasons why we expect this gentle downsizing to continue:

  • Many of today’s younger, millennial home buyers have expressed a preference for denser, more urban homes that are more walkable to shared amenities.
  • Younger buyers are struggling to afford large homes built in prior decades
  • Eco-consciousness is also growing broadly.
  • Today’s older homeowners are expressing a desire for smaller, less maintenance-heavy and more accessible (read: fewer stairs) homes as they age and move into newer homes. In 2019, 56% of new construction home buyers were 40 or older, according to the 2019 Zillow Group Consumer Housing Trends Report.
  • Home builders are constrained by a shortage of buildable land in desirable areas. Prices on key building materials including lumber and steel are increasingly volatile. And competition for skilled construction labor is fierce, pushing wages up.

Each of these trends points to a continuation of this downsizing of new homes – smaller homes are inherently more dense, walkable and affordable; smaller homes are efficient and eco-friendly; smaller homes require less maintenance and are more accessible; smaller homes enable builders to do more with less.

There will always be demand for large, suburban homes on big lots – but on net, we expect attitudes to shift away from that and toward a lifestyle with a smaller footprint.

Home Value And Rent Growth Will Be Slower, More Stable and More Sustainable

Since hitting a recent high of 8.3% in December, annual growth in the median U.S. home value has been slower than the month prior in every month so far in 2019 – currently standing at 4.7% in October (the latest month for which data is available as of this writing). At the same time, annual rent growth – while largely stable – has crept up modestly in each month since June.

In 2020, we expect both rent and home value growth to slow somewhat further, stabilizing at a sustainable pace in line with wage growth and inflation and to a level indicative of greater balance between buyers and sellers, tenants and landlords.

The median U.S. home value is expected to end 2020 up 2.8 percent from the end of 2019, according to the Q4 2019 Zillow Home Price Expectations Survey, a quarterly survey of more than 100 economists and experts sponsored by Zillow and conducted by Pulsenomics. That’s down from the average prediction of 3.6% annual growth expected from the same panel by the end of 2019 compared to the end of 2018. Since 1996, the average annual pace of growth in the Zillow Home Value Index is 3.8%, so a slowdown from current levels would still represent a return to long-term norms.

On the rental side, annual rent appreciation has been on the rise since June and currently sits at about 2.3%. We expect this recent uptick in rental growth to continue through the start of 2020 before petering out sometime around the start of Spring. By the end of next year, we expect annual rent growth to fall below two percent, or about a half a percentage point lower than where they currently stand.

By keeping monthly mortgage payments within reach even as home prices rise, continued low mortgage interest rates will help ensure that rent growth doesn’t again reach the highs experienced just a few years ago. Low rates will encourage more renters to pursue homeownership, further boosting overall homeownership rates that have been on the rise since 2016.

Mortgage Rates Will Stay Low, Keeping Housing Demand High

Mortgage rates fell markedly in 2019, and are expected to remain near their current, relatively low levels for the bulk of 2020. Softening GDP growth and investment, continued global weakness due in part to the U.S.-China trade conflict, and below-target inflation will continue to hold rates in check. Barring marked improvements in these indicators, the Fed will have no reason to return to rate hikes.

If low mortgage rates persist, this will keep home purchase demand strong and continue to fuel decent price growth in the nation’s most broadly affordable markets. But low rates won’t be enough to reignite high growth rates in the nation’s highest-priced markets, notably on the West Coast and in the Northeast. In these markets, buyers seem to have hit an affordability ceiling where even low rates can’t bring many homes into the typical first-time buyer’s budget range, especially because low rates don’t help overcome the upfront hurdle of high down payment requirements. In those high-priced markets, buyers will continue to fan out in search of more affordable areas.

Color Will Make a Comeback

Goodbye, Hygge (look it up). Hello, color! Fun will return to home design in the form of bold prints, lively wallpaper and brightly hued walls. After a decade of Scandinavian modern design that dominated retail and social media feeds as Americans embraced neutrals, minimalism and clutter-free living, expect a shift toward playful, creative design. Look for color to be injected in unexpected ways in kitchen cabinetry and appliances, in lighting fixtures and on interior doors and moldings.

Home Sales will climb slightly and slowly

After bottoming out in January 2010 during the depths of the housing crash, overall annual U.S. existing home sales didn’t consistently top 5 million until late 2014. By late 2016, a growing number of first-time home buyers drove the annualized rate of national home sales to bounce around 5.5 million for over a year.

But by spring 2018, things started to turn down again: The seasonalized annual sales rate dropped back to 5 million by December 2018, and the impact of rising mortgage rates and the increasing difficulty in saving for an adequate down payment were the talk of the town. As sales pulled back, available inventory started to swell and what had been aggressive home value appreciation began to slow.

But 2019 brought another swing. Home value growth continued to soften, but mortgage rates came back down, what inventory that had accumulated was quickly scooped up and home sales rebounded.

Looking ahead at 2020, we think home sales will continue to climb, but slowly. Why?

  • Although a small fraction of overall sales, new homes sales grew significantly in 2019. That has helped buoybuilder confidence and lead to some of the most robust permit and starts numbers in a long time.
    • If builders in 2020 deliver on their promises to build smaller and at more affordable price points, new construction will continue to be attractive to buyers unable to find a match in the competitive and limited existing home market.
  • Yes, inventory is tight – but when we say that, we’re really talking about the number of homes available to buy relative to demand from buyers. Sales can remain strong while inventory remains tight – and a sudden jump in the number of sales will result in a corresponding drop in inventory.
  • What really matters is the flow of homes onto the market – the turnover or velocity of home sales, not months’ supply or overall level of available inventory, that constrains home sales numbers.
  • And we have reason to believe that turnover among a given segment of homeowners will be made more possible now in a way that it wasn’t before. iBuyer business models, like Zillow Offers, are ultimately about lowering sellers’ transaction costs. Economics 101 says that lowering transaction costs and making transactions themselves easier will mean those transactions will happen more often.

Redfin’s 2020 Housing Market Predictions: More buyers + fewer homes = more bidding wars

By Daryl Fairweather, December 4, 2019

We predict the housing market will be more competitive in 2020 as the cooldown that began in the second half of 2018 comes to an end. Charleston and Charlotte will lead the nation in home-price gains, thanks to homebuyers moving in from expensive cities. Hispanic Americans will experience the biggest gains in home equity wealth. Climate change will become a much bigger factor for homebuyers and sellers. Read on for Redfin’s six housing market predictions for 2020.

 

Prediction #1: Bidding wars will rebound thanks to low mortgage rates and a lack of homes for sale

Low mortgage rates will continue to strengthen homebuying demand, but due to a lack of new homes for sale and homeowners staying put longer, there will be fewer homes on the market in 2020 than in the past five years. More demand and less supply mean bidding wars will rebound in the first quarter. We expect about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019. Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market, allowing price growth to moderate to 3%.

 

Prediction #2: 30-year fixed mortgage rates will stabilize at 3.8%

Throughout 2020, 30-year fixed mortgage rates will remain low, hovering around 3.8%. Faced with slowing economic growth, the Federal Reserve will keep interest rates low. Although the housing market is strong, weakness in other sectors, like manufacturing, is pulling down on the economy. Because investors are already bracing for the possibility of a recession, we don’t expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. And even if the economy strengthens, we expect mortgage rates to stay below 4.1%.

 

Prediction #3: For the first time, Hispanic Americans will gain more wealth from home equity than white Americans

In the next decade, Hispanic Americans will, for the first time, gain more home equity than white Americans. That’s because the majority of new homeowners are Hispanic, and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods. There are more Hispanic homeowners in Texas than in any other state and Texas cities are likely to experience strong gains in home values over the next decade as people move here from more expensive places like San Francisco and Los Angeles.

 

Hispanic families will likely benefit from home-equity gains for generations to come. Hispanic Americans could tap their home equity to finance their children’s education or to start businesses. Over time, this will improve economic equality for Hispanic Americans.

 

Prediction #4: Climate change will become a bigger financial factor for homebuyers and sellers

In 2020, homebuyers and sellers will take the consequences of climate change into account when deciding to buy. The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise. “More people are becoming hyper-sensitive to flood insurance and its costs,” said Houston Redfin agent Irma Jalifi. “They’re thinking about how the weather will change over the next decade and whether there will be more historic floods like we’ve experienced recently. I had a buyer back out of a deal because he found out the property required flood insurance.”

 

Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.

 

Prediction #5: Charleston and Charlotte will lead the nation in home price growth

Affordable Southeast cities like Charleston and Charlotte are attracting an increasing number of migrants from expensive cities, which will drive up home price growth in these areas. Charleston saw a 104% annual increase in the number of Redfin users looking to move in, relative to the number of users looking to move, out in the third quarter of 2019, and Charlotte saw a 44% increase. Migrants are attracted to the growing economies of Charleston and Charlotte—Microsoft is spending $23 million to expand its Charlotte campus, and in Charleston, the new Volvo plant is adding thousands of jobs.

 

“A lot of migrants from up north or out west move to Charleston because it is such a lovely place—out of towners fall in love with our Cypress gardens and world-class beaches,” said Redfin agent and team manager Jacie Paulson. “The fact that we have an international airport means that companies are more willing to allow their remote employees to live here because it is easy to travel back and forth to headquarters. We also have a strong local economy with jobs at Boeing, Volvo, and in the military.”

 

Prediction #6: More city streets will become car-free

In 2020, we will see more cities favor green modes of transit and actively discourage driving. Some cities already have plans in the works—San Francisco’s Market Street will transform into a car-free corridor in 2020, and New York City drivers will have to pay to drive into the heart of the city beginning in 2021. In cities that become less car-friendly, those that frequently spend time in the city-center will place more value on a commute that doesn’t require a car and move to either the walkable city center or close to public transit. Meanwhile, some people will choose to avoid the city-center altogether and put a higher value on homes in the suburbs where they can work, play and live.

 

Wildfires cause turmoil in California’s property insurance market

A law passed in 2019 gives the Department of Insurance emergency powers to keep policies in effect in fire-prone areas.

By Ken Sweet and Sarah Skidmore Sell, The Associated Press, December 24, 2019

 

Kent Michitsch seemed to be running out of traditional options to insure the home he’s lived in for more than 30 years northeast of San Diego as California’s massive property insurance market reels from three consecutive years of destructive wildfires.

Michitsch, 57, has received three non-renewal notices in three years and says he fears a fourth when his homeowners’ policy comes up for renewal the middle of next year if it wasn’t for California lawmakers’ recent intervention in the market.

“It’s constant worry and frustration. You know you’re covered now, but I might have to look for a new policy next year yet again.” Michitsch says he’s never made a claim on his insurance and never had fire damage.

Thousands of homeowners like Michitsch have lost their insurance policies in the last few years as insurers pull out of areas that are at risk of fire damage or stop insuring homes altogether. They’ve been forced to scramble to find coverage from regular insurance providers or to turn as a last resort to a government-sanctioned plan that at the moment only provides fire coverage.

State Farm, the largest insurer in the state, Allstate and other insurers declined to renew roughly 350,000 policies in areas at high risk for wildfires since 2015 the California Department of Insurance said back in August, and the department has gotten “record numbers” of requests this year from insurers to increase the rates they charge property owners. The data also show 33,000 policies were not renewed by insurers in zip codes affected by the major wildfires.

While the insurance industry says the California property insurance market is resilient, state lawmakers and officials have had to scramble to keep the market from grinding to a halt from the unexpected additional risk.

The California Legislature passed a law earlier this year giving the Department of Insurance emergency powers to keep policies in effect for those in fire-prone areas. This month California Insurance Commissioner Ricardo Lara put a one-year moratorium on non-renewals, in hopes that lawmakers, insurance companies and other stakeholders can reach a more substantial solution for the roughly 1 million homeowners in zip codes adjacent to previous wildfires.

“This wildfire insurance crisis has been years in the making, but it is an emergency we must deal with now if we are going to keep the California dream of homeownership from becoming the California nightmare, as an increasing number of homeowners struggle to find coverage,” Lara said in a statement.

The fires of 2017 and 2018 caused a combined $25.3 billion in damages according to the California Department of Insurance. That’s exponentially higher than the previous wildfires in 2015 and 2008, which caused $1.1 billion and $719 million in damages, respectively.

The insurance industry has yet to release an estimate of damages from this year’s wildfire season, but the costs are expected to be high. The most significant wildfire this year was the Kincade Fire, which started October 23 and burned 78,000 acres in Sonoma County. It destroyed 374 buildings and damaged another 60, according to the California Department of Forestry & Fire Protection.

“The wildfires in California will likely make it more difficult for California homeowners to buy insurance,” said Stu Ryland, senior vice president of the Pacific Region at Sedgwick, an insurance claims management company. “Premiums are likely to go up, particularly in areas that are prone to wildfires and in some cases, it may be difficult for consumers to find an insurer willing to write their insurance.”

While some insurers are pulling out and others are reconsidering how they price property insurance, it is still available in one form or another to every homeowner, according to the Insurance Information Institute.

However, those not insurable by regular insurance providers are having to turn to what’s known as the California FAIR Plan, which is a government-sanctioned association of insurers who pool together to cover the highest risk properties. FAIR Plan insurance currently only covers $1.5 million in damages, although Lara has ordered that starting in April 2020 it will cover $3 million in damages. Currently the FAIR Plan only covers fire, not other forms of risk, but California regulators have announced that FAIR Plan insurers can start doing comprehensive coverage.

Earlier this month, the California FAIR Plan Association sued to block those changes, arguing Lara’s order is illegal.

Karl Susman, owner of Susman Insurance Agency in Los Angeles, says the average annual premium on a homeowner policy plus FAIR to cover fire now costs around $2,500 a year, three times higher than it was three years ago.

“These wildfires are not sustainable for these companies. They aren’t going to go bankrupt but they are just going to stop writing policies,” he said.

Susman said he worries that without a longer-term solution the California insurance market will repeat the experience after the 1994 California Northridge earthquake, which caused many insurance carriers to stop offering earthquake insurance. He’s already seen insurance companies limiting their risk to certain zip codes as well.

“I haven’t seen anything like this in the 28 years I’ve been doing this,” he said.

Fortunately, those who still do have insurance have been able to start rebuilding their lives after the fires.

Maggie and Dan London of Santa Rosa lost their home in the massive and fatal Tubbs Fire of 2017. They worked quickly after the fire, filing a claim and reaching out to their contractor that same day. But it took them two years to rebuild and move back in.

Like many who tried to rebuild after the fire, they ran into obstacles — higher costs for labor and materials and ongoing talks with their insurer. All the same, Dan London feels his insurance company has done a fair job. And while they bought their home in 1979, he has not seen a sharp jump in insurance costs over time. The cost to insure their new home is slightly more, but Dan felt it reflects the increased value of the property.

“I was expecting something triple, but it’s not at all,” he said.

 

California REALTORS® applaud House vote to temporarily repeal SALT deduction limit

LOS ANGELES (Dec. 19) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today issued the following statement in response to the House passage of H.R. 5377, a bill that temporarily eliminates the cap on state and local tax (SALT) deductions for 2020 and 2021. The Restoring Tax Fairness for States and Localities Act would also increase the cap to $20,000 for married couples for 2019.

“We are pleased that the House has passed a bill to temporarily eliminate the cap on the amount of state and local tax that taxpayers can deduct on their federal tax returns. The combined hit of a reduction in the mortgage interest deduction and current $10,000 SALT cap in the tax law has disproportionately hurt taxpayers and real estate in California,” said C.A.R. President Jeanne Radsick, a second-generation REALTOR® from Bakersfield, Calif.

“Ensuring the tax code incentivizes housing and real estate will continue to be a top priority for REALTORS®, and C.A.R. thanks the many California Congressional members who support easing the double taxation penalty that harms California homeowners.”

Leading the way… ® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

What landlords and tenants need to know about California’s new rent-control law

By Kathleen Pender, SF Chronicle, January 4, 2010

Associations representing tenants and landlords are getting flooded with questions about the statewide rent- and eviction-control law that took effect in California Jan. 1.

The most common one is: “Does this apply to me?”

The answer generally depends on the type of property, its age, whether the owner is a person or business entity and how long a tenant has occupied the unit.

AB1482, the Tenant Protection Act of 2019, limits annual rent increases to 5% plus an inflation rate, or 10% — whichever is less. It also prevents landlords from evicting tenants, even after their fixed-term lease runs out, except for a limited number of “just causes.” An individual property could be exempt from rent control, eviction control, both or neither.

The new law generally does not apply to units that are already subject to a local rent control ordinance. However, a unit could be exempt from a local ordinance but subject to the new state law, said Sasha Harnden, a housing policy advocate with the Western Center on Law and Poverty.

Here are brief answers to common questions. For more details, consult a landlord or tenant association or attorney or read the law online.

Q: What properties are exempt from rent control under AB1482?

A: Any type of rental property that was completed (based on its certificate of occupancy date) within the past 15 years is exempt. Once it turns 15 years old, it becomes subject to rent control, even if it’s in the middle of a lease, unless it qualifies for a different exemption.

The rent cap does not apply to single-family homes and condo units, regardless of age, as long as it meets two tests. It must be “separately alienable,” meaning it can be sold separately from any other dwelling unit. And the owner generally must be a person or revocable trust set up by one. The owner cannot be a real estate investment trust, corporation or limited liability corporation that has at least one corporation as a member.

To get this exemption, the owner must provide a specific notice to the tenant.

A duplex, triplex or larger apartment building is not separately alienable. The law, however, specifically exempts duplexes if the owner lives in one unit during the entire time of the tenancy.

The law does not define a duplex, so it’s unclear whether a single-family home with a detached unit, like a backyard cottage, would qualify as a duplex under this exemption, said Stephanie Shirkey, senior policy and compliance counsel with the California Apartment Association, which represents landlords.

There are also exemptions for “affordable housing” units, where rents are restricted by deed or government agency, and college dorms. There is disagreement as to whether renters with Section 8 vouchers are protected under the state law.

Q: What properties are exempt from eviction control?

A: The properties above that are exempt from rent control are also exempt from the new eviction controls. Two property types are exempt from eviction control, but not rent control: Properties in which a tenant shares a bathroom or kitchen with the owner, and owner-occupied properties (other than duplexes) if the owner rents no more than two units or bedrooms. The latter exemption would cover a home with an accessory dwelling unit or triplex if the owner occupies one unit, Shirkey said.

Q: What notices does a landlord have to provide?

A: Individuals who own a single-family home or condo only get the exemption from rent and eviction control if they give tenants a written notice of their exemption using a specific statement in the law. If the tenancy starts or renews on or after July 1, the notice must be provided in the rental agreement. For existing tenancies, landlords should provide a stand-alone notice as soon as possible. For tenancies that start between now and June 30, landlords can provide a stand-alone notice or put it in the lease, Shirkey said. When the tenancy renews, the notice must be in the lease.

Failing to provide this notice “could be a gotcha” for single-family rentals, Shirkey said.

If a unit is subject to both rent and eviction control under AB1482, the landlord must provide a notice informing the tenant of those protections.

If the unit is subject to neither — because it’s less than 15 years old or an owner-occupied duplex, for example — no notice is required.

Q: What is the rent cap in my area?

A: The cap is 5% plus an inflation rate that varies by region. It takes effect Jan. 1 for all units subject to the rent cap. However, if a landlord increased the rent by more than the allowable amount between March 15, 2019, and Jan. 1, the rent on Jan. 1 must be rolled back to the rent as of March 15, 2019, plus the allowable increase. The landlord does not have to refund any rent paid between March 15, 2019 and Jan. 1 that exceeded the allowable increase.

Q: What is the inflation rate?

A: It’s the annual percentage change in the consumer price index between April 1 of the current year and the previous year.

In four metro areas — San Francisco, Los Angeles, San Diego and Riverside — it’s the annual change reported by the Bureau of Labor Statistics for that area. For the San Francisco area (San Francisco, San Mateo, Marin, Alameda and Contra Costa counties), the inflation rate for last April is 4.01%, so the total allowable rent increase is 9.01%.

For all other areas, it’s the change in the California consumer price index reported by the Department of Industrial Relations. It’s currently 3.34%, for a total cap of 8.34%.

Q: Can an owner raise the rent more than 5% plus inflation to cover capital improvements?

A: No, some local ordinances allow this; the state ‘s does not.

Q: How does eviction control work?

A: Landlords have always been able to evict tenants for not paying the rent, violating the lease, conducting criminal activity on the property or other causes for which the tenants are at fault. That doesn’t change under the new law.

Under previous state law, landlords could also evict tenants for no cause, with the required advance notice, and could choose not to renew a fixed-term lease (unless the unit is subject to local eviction-control laws).

Under the new state law, landlords can only evict tenants who have occupied the unit for a certain length of time for specified “just causes.” These include causes for which the tenant is at fault, and a limited number of causes for which they are not at fault.

These no-fault causes include the owner’s intent to occupy the unit or move in a spouse, domestic partner, children, grandchildren, parents, or grandparents; demolish or to substantially remodel the property; or take the property off the rental market. They can also evict if a government orders it.

Before evicting a tenant, however, the landlord must give the tenant, in writing, the reason for the eviction and whether it’s an at-fault or no-fault cause. For no-fault evictions, the landlord must pay the tenant one month’s rent to cover relocation expenses.

Q: How long does the tenant have to occupy the unit to be protected under the law?

A: Tenants are protected under the rent-control provision as of Jan. 1 no matter how long they’ve occupied it.

Tenants are protected under the eviction provision after they have occupied the unit for at least 12 months. However, if a tenant brings in another adult over 18 (i.e. a roommate) before the original tenant has occupied the unit for at least 24 months, then the tenants are not protected under AB1482 until one of them has been there at least 24 months. “If I have already lived there two years, I can move in a roommate” and still be protected, Harnden said.

Q: Who enforces the new law?

A: The law did not set up an enforcement mechanism, so it’s unclear. Harnden said it could be enforced through legal aid groups that do eviction defense. Parties with a gripe may need to hire a lawyer.

Q: Is there any limit on what a landlord can charge when a tenant moves out?

A: No, the law did not establish vacancy control, so owners of non-exempt units can raise the rent to any amount after a tenant leaves.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on January 11, 2020 at 4:06 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Area Real Estate Market Update, November 30, 2019

 

November 30, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The two numbers that stand out at the end of November was the huge drop in inventory that took place and the percentage of homes that are now sitting. This is the time of year when things begin to slow down. However, it’s a bit early this year. We normally don’t see dramatic changes like this until December. Buyers are hesitant on doing much when we start to reach the holiday season and they tend to shelve their search until the beginning of the new year. Sellers are aware that with less activity comes fewer buyers. If they haven’t already listed their property by now, considerations on delaying until the spring comes into play. We see fewer listings come onto the market now, and inventory begins to come down. However, what was so noticeable was that this process started earlier than normal. We usually see the large drop in December. It’s also a time for possible bargains. However, there’s less to look at. Many sellers who “have to” sell will stay the course and soften their expectations.

Here’s where we stand as of the end of November. Inventory has decreased since last month by a whopping 32.4%, now sitting at a 30 day supply of homes for sale. This is far less than what we saw last year at this time of 42 days. Pendings decreased slightly, but is slightly more than last year by 14.6%. The pending/active ratio increased to 1.2. This is well above where we were last year at the end November of .71. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. This may be attributed more to the market ending early this year, rather than when it normally does in December.

67% of the homes listed are now “sitting” for 30 days or longer, while 39% have stayed on the market for 60 days or longer. This is clearly higher when compared to last year’s number at the end of November (with then 59% remaining active over 30 days and 30% remaining active over 60 days). This is fairly normal for this time of year only a month earlier than normal. These are the kind of numbers that we usually don’t see until December. However, these percentages can be somewhat misleading. Many of the homes that have not been selling remain on the market while fewer newer homes are coming onto market because of Holiday concerns. That’s why the percentage of sitting homes goes way up.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 30 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 42 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,905 homes actively for sale. This is fewer than what we saw last year at this time, of 2,816. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,287, slightly more than what we saw last year at this time of 1,995, or about 14.6% higher.

  • Our Pending/Active Ratio is 1.2. Last year at this time it was .71
  • Sales over the last 3 months, on average, are 2.1% over the asking price for this area, lower than what we saw last year at this time, of 2.8%.

Recent News

Housing Market In 2020: Boom Or Bust?

By Panos Mourdoukoutas, Forbes, December 9, 2019

2020 will be a challenging year for the housing market.

On the one side, there’s a strong US economy that has driven the unemployment rate to record low levels, boosting disposable income, which makes a bullish case.

Then, there are low mortgage rates and housing shortages, which add to the bullish sentiment.

“We think the housing market will remain strong for the most part in 2020, as low-interest rates will keep demand high for new mortgages,” says Josh Stech, CEO, and Co-Founder of Sundae, a site that helps sellers get a fair price for their house. “We also think there will continue to be shortages of new housing in many markets, which will contribute to overall price growth.”

On the other side, there’s the problem of affordability, which will put the brakes on the housing market. The Case Shiller Home Price Index in the US reached an all-time high of 218.27 Index Points in September of 2019, making it difficult for first-time home-buyers to afford a home.

“While sellers may be able to ask more for their homes, they’re likely to get fewer offers in total due to more buyers being priced out of the market,” says Stech. “This could lead to longer listing times and increased stress on sellers who go the traditional route of marketing their homes on the MLS.”

That’s how bull housing markets usually end.

And there’s “pent-down” demand, which has been “stealing” sales from the future since the era of “free money” began. A period of very low interest rates, that is.

To understand how “pent down demand” (a concept I coined) affects sales for high ticket items, a good place to begin is with the more familiar concept of “pent up demand,” the lack of current demand for high-ticket items households buy — like appliances, autos, and homes.

Pent up demand usually arises ahead of periods of consumer euphoria. It’s caused by such factors as lower price expectations, depressed consumer confidence, or a credit crunch.

And it disappears together with these conditions when that future day comes, and consumers rush to buy the items they put off in the past.

In contrast, pent down demand arises after a period of consumer euphoria. It’s caused by the low cost of financing — which blurs the distinction between present and future. Why wait to buy a new car or a new home next year when you can have it this year, with a “zero percent” financing plan?

Simply put, pent down demand “steals” sales for high discretionary items from the future. It eventually depresses spending on these items when the future arrives.

That’s what happened in the middle of the last decade when the housing market went from a boom in 2005 to a bust in 2007.

Does it mean that the US housing market is where it was back in 2005?  Dan North, chief economist at Euler Hermes North America, doesn’t think so. He sees several differences between then and now.

“Houses, in general, are probably overvalued but not to a great degree, and certainly not as much as before the housing bubble peaked in 2005,” North says. “The housing bubble which had been inflating for over a decade before it collapsed had been driven by significant risks such as speculation, house-flipping, and highly questionable mortgages such as no-documentation loans, and adjustable-rate loans which turned disastrous for many borrowers.”

That’s why he assigns low probability of a housing crash in 2020. “At the current time we see little of these excessive risks, and combined with only modest overvaluation, the probability of damaging housing crash is limited.”

Queen, New York-based independent real estate agent Basili Makris agrees. “I expect real estate prices to stabilize in 2020,” he says. Though, some local markets may have a little bit more room to rise.

Still, there’s “mean-inversion,” which can raise the probability of a market correction after years of a big run.

As California homeowners lose insurance due to wildfire risk, the state is stepping in

Kathleen Pender, SF Chronicle, December 6, 2019

The California Insurance Department on Thursday implemented a new state law that prohibits insurance companies from not renewing policies for homeowners living in ZIP codes in or adjacent to wildfires for one year from the date the area was declared a disaster.

Insurance Commissioner Ricardo Lara also called on all regulated insurers to voluntarily halt nonrenewals based on wildfire risk for all business and residential customers statewide for one year, until Dec. 4, 2020.

The moves come at a time when homeowners in areas at high risk of wildfires are finding it harder to get and keep insurance. Lara made the announcement at the home of Sean Coffey of Montclair, whose home in the Oakland hills has been dropped three times, by three different insurers, since 2015.

Older state laws prevent insurers from not renewing customers who suffered a total loss caused by a declared disaster for a certain period of time. For losses suffered before 2019, they must offer to renew customers at least once. For losses in 2019 and later, they must offer to renew at least twice or for 24 months, whichever is greater.

The new law, which Lara authored when he was a state senator, took effect Jan. 1 for declared wildfire disasters starting on or after that date, but there were none until October. SB824 prevents insurers from dropping any residential policy in a ZIP code within or adjacent to a wildfire perimeter for one year from the date a disaster is declared. It applies only to nonrenewals on the basis of wildfire risk.

Cal Fire determines each fire’s perimeter, and the insurance commissioner identifies which ZIP codes are covered.

On Thursday, Lara issued a list of ZIP codes for seven of the 16 fires included in emergency declarations issued by Gov. Gavin Newsom this fall. The list includes the Kincade Fire in Sonoma County, Eagle Fire in Lake County and major fires in Southern California. It will identify ZIP codes in and around the other wildfires soon.

The laws preventing nonrenewals, apply to insurance companies regulated by the state and to surplus carriers, such as Lloyds of London, which are not state-regulated.

In August, the department released data showing that nonrenewals are growing in response to wildfire risk. They rose by more than 10% last year in seven counties from San Diego to Sierra.

Homeowners turned down by mainstream insurers are turning in growing numbers to surplus carriers and to the Fair Plan, California’s insurer of last resort that offers limited coverage.

Coffey said “it was a scramble” getting insurance when he and his wife bought their Oakland hills home in 2015. “I talked to six or seven companies, and finally found one the day before we closed on the house,” he said.

A year later, they got a nonrenewal notice and had to find another insurer. The next year, that company declined to renew. A third company insured them for two years, then dropped them. This year, they got a Fair Plan policy, which offered limited coverage for $1,480, and a separate policy from another company for liability and other coverage the Fair Plan lacks, for $580. They just got a notice that their Fair Plan policy is going up by about $670 next year.

Coffey and his wife, Elizabeth, both work for nonprofits and have two young children. Insurance is a big expense and it’s hard to budget for when the cost is unpredictable. “Every year I get nervous that we are going to get a letter” of nonrenewal, he said. “I just didn’t know it would be such a problem for homeowners.”

Last month, Lara ordered the Fair Plan to double the coverage limit on its bare-bones homeowner’s policy to $3 million by April 1, and to begin offering a comprehensive policy alongside it. The Fair Plan is an association backed by state-regulated insurance companies in proportion to their market shares. On Thursday, the Fair Plan said in a letter to Lara that it fully supports increasing the coverage limit to $3 million but does not want to offer a comprehensive policy. Doing so would divert its “finite resources” and would be more expensive than what consumers can buy now.

Industry spokesman Rex Frazier, president of the Personal Insurance Federation, issued a statement in response to Thursday’s announcement: “As climate change accelerates, we are facing more and growing wildfires in California, and we must adapt to that reality and factor climate change into coverage and rates to ensure availability of insurance for all homeowners. Year-over-year losses that the industry has seen are not sustainable for companies or good for homeowners. We look forward to working with the insurance commissioner to anticipate and prepare for these impacts on the insurance market to ensure that homeowners have access to coverage.”

Homeowners can find the list of ZIP codes at http://bit.ly/cafirezipcodes. Those who believe they have been dropped improperly by their insurers can file a complaint online at www.insurance.ca.gov or call 800-927-4357.

SF is one of the most expensive places in the world to build housing. Here’s why

Roland Li, SF Chronicle, December 8, 2019

Adrian Caratowsa was lucky.

After six years of trying and failing to score an affordable apartment in San Francisco, he won the lottery for a city-subsidized apartment in the Transbay district.

Caratowsa, who once lived in a South of Market warehouse with 27 roommates, now pays around $1,000 a month for a one-bedroom at 255 Fremont St. Nearly 70 people applied for each apartment in the building.

“I can’t imagine living in the city if I didn’t have it,” said Caratowsa.

San Francisco is struggling with a herculean task: creating as much housing as possible for people like Caratowsa to make up for decades of underproduction. But the enormous cost of building in the city has meant that developers can’t create nearly enough affordable or market-rate homes. More than 30,000 homes that have been approved haven’t yet started construction, as developers try to find financing and enough workers to build.

The Chronicle found numerous factors that contribute to San Francisco’s now astronomical housing development costs. Interviews with experts and those in the building industry and a review of the data point to the culprits: a worker shortage, long waits for permits, restrictive zoning and high fees, among other things. The result is a city consistently failing to produce enough housing to meet its needs.

Caratowsa lives in Natalie Gubb Commons, a project that cost a total of $58 million to design, obtain approvals for and build. Nonprofit developer Mercy Housing relied on federal, state and city financing to build the project at a cost of nearly $500,000 per unit. The per unit price would have been far higher if the city hadn’t donated the land. The cost to build one new apartment or condo unit in San Francisco today — whether market-rate or affordable — tops $700,000, nearly triple what it cost about 10 years ago.

That means that this year, San Francisco surpassed New York for the highest construction costs in the world, according to consulting firm Turner & Townsend.

By contrast, the cost to build the average U.S. single-family house was $237,760 in 2017, according to the National Association of Homebuilders.

Construction costs are one of the primary reasons that so little housing is getting built in San Francisco. From January to September this year, construction began on just 1,281 market-rate homes, down 62% from that period last year, according to real estate data firm CoStar.

Here’s a breakdown of the factors taking San Francisco housing costs to record highs.

Key elements: It’s not surprising that actually building a structure is one of the biggest costs. “Hard costs” — paying for construction workers and materials like lumber, concrete and steel — account for about half of the total price tag, said Mark Hogan, an architect at OpenScope Studio.

Land costs vary, but on average account for around 20% of the budget. The remaining 30% are “soft costs” that include city fees and hiring consultants, attorneys, architects and other professionals.

Developer Patrick Kennedy of Panoramic Interests said market-rate developers seek around 5% annual returns, so an apartment that costs $750,000 to build would need to generate $37,500 a year after operating expenses and taxes. Rents would have to exceed $5,000 a month to make it feasible to build.

Construction costs: Labor costs have jumped 5% a year because of a shortage of workers. The 2008 recession devastated the construction industry, forcing many workers to switch careers. The Bay Area’s commercial building boom has made the problem more severe.

In recent years, projects like Salesforce Tower and Apple Park competed with housing developments for the same pool of workers, from carpenters to electricians to plumbers.

Kennedy, who has a 200-unit project under construction at 333 12th St. in San Francisco, said that a skilled worker can cost as much as $1,000 for an eight-hour day. Panoramic, he said, may spend $300,000 just on parking for its workers over an 18-month period.

Construction workers also must contend with high housing costs, which create a vicious cycle. Workers needed to build new housing must earn enough money to afford to live in the area.

Workers who move to the Bay Area from outside California require more time to be trained. They don’t know the local building codes or earthquake safety requirements, said Joseph Olla, a vice president at San Francisco general contractor Nibbi Brothers.

That level of inexperience has added to the overall cost of labor, said Kennedy. It takes up to 25% more workers today to be as productive as a decade ago, he said.

According to the McKinsey Institute, the construction industry’s labor productivity grew only 1% per year over the last 20 years, compared with 2.8% for the total world economy.

“We’re building wood framing pretty much the same way we did in 1833,” Kennedy said.

The average worker hasn’t seen huge benefits, despite the need for labor, said Scott Littlehale, senior research analyst for the Northern California Carpenters Regional Council, a construction union group. Average annual wages for construction jobs have increased 4% a year since 2012, below the 4.7% rise in the overall Bay Area economy, he said.

Olla of Nibbi Brothers said he sees higher profits for subcontractors specializing in scarcer, high-skilled jobs, such as plumbers and electricians.

Land purchase: San Francisco has among the highest land costs in the country. One extreme example: In 2017, a Chinese developer bought majority ownership of a waterfront condo site valued at a record $916,000 per unit — just for land.

Skyrocketing land costs are partially tied to how few areas in the city are zoned for apartments. Buildings with three or more apartments are allowed on only about a quarter of San Francisco’s land.

“If there’s a limited area where you are allowed to build multifamily, the prices for those areas are going to be much higher than they would be otherwise,” said David Garcia, policy director at UC Berkeley’s Terner Center for Housing Innovation. Allowing apartments in more areas could bring down the cost of housing, he said.

Fees and permits: Residents in new housing use transit, parks, schools, police and other vital services, so cities charge fees to offset the costs.

“We are trying to solve so many problems —all important — through housing” that it’s costing a lot, said Doug Shoemaker, president of Mercy Housing, the nonprofit developer that built Natalie Gubb Commons.

San Francisco fees add up to around $50,000 per unit for market-rate projects in the most active development areas, according to the Planning Department. Market-rate projects must also provide around 20% of units for low-income tenants — the highest proportion in the country — or pay fees to help fund affordable units elsewhere. Those fees add another $50,000 to $75,000 per unit.

Another factor driving up costs is San Francisco’s approval process. Developers say it is one of the most difficult in the world. Opponents of projects are empowered to easily delay them by requesting additional reviews or filing lawsuits.

Kennedy of Panoramic said these rules boost the cost of housing. “The lack of housing is a largely self-inflicted problem,” he said.

To navigate the approvals process, a slew of expensive professionals are usually required, including land use attorneys, architects, shadow consultants, open space designers and lobbyists.

Affordable projects can cost more per unit than some market-rate projects. They have additional open space and disabled-accessibility requirements, and there’s pressure for top-notch design, said Garcia of Terner Center.

“We have really high expectations of design quality that range from incredibly important to probably unnecessary,” Shoemaker said.

How to slash costs: San Francisco and California could make it cheaper to build housing by streamlining approvals, experts say. The city could adopt more “area plans,” which can speed up the process by establishing ground rules, and local officials and state legislatures could limit the ability of opponents to delay projects.

“Cities don’t control the price of materials and labor,” Garcia said, but they do have the authority to speed up approvals.

The average environmental review process, now lasting about two years, could be cut down to a few months through area plans.

Another way to save money: reduce parking requirements. Each space costs $50,000 to $100,000, Kennedy said.

Developers are also exploring modular construction, where modules are assembled elsewhere and shipped in. Kennedy said the practice can lead to a 20% savings, and cut 50% off of the construction time.

But that strategy has run into union opposition because some work on the modules is done in another city or overseas.

So for now, costs will probably keep climbing.

A San Francisco high-rise can now cost $1 million per apartment to build, about 20% higher than what is feasible, said Oz Erickson, chairman of developer Emerald Fund. With rents and home prices hitting a plateau and costs continuing to rise, he said, development is approaching “impossible.”

Lots of baby boomers will sell their Bay Area homes — here’s when that might affect the market

Zillow study sees more competition between baby boomers, millennials

By Louis Hansen, East Bay Times, November 26, 2019

A flood of houses for sale could be headed toward desperate Bay Area homebuyers.

But don’t hold your breath — baby boomers won’t be leaving their roosts in earnest for at least another decade, according to a new Zillow survey.

The real estate site expects a 25 percent turnover in Bay Area home ownership by the faraway year of 2037, as aging boomers downsize, move or die. In the meantime, Zillow expects the region’s housing choices to remain limited as older and newer residents continue to compete for homes.

“The inventory squeeze is going to be at its most acute in the next five to 10 years,” said Zillow economist Jeff Tucker. Nationally, Zillow expects a 27 percent turnover of homes in the next two decades.

Scant choices for homebuyers, historically low new residential construction and Silicon Valley’s demand for more workers have pushed Bay Area home prices to the highest in the nation. The median home sale price in the nine-county region was $810,000 in September, down from a peak of $928,000 last May. Favorable interest rates have made mortgages more affordable and fueled demand.

Despite a recent uptick in state building permits bringing new condos, apartments and single-family homes to the region, residential construction in the Bay Area remains mired at historically low levels.

Local agents and homebuyers say the market still favors sellers.

Many boomers haven’t been particularly anxious to leave California, said Nancie Allen, president of Bay East Association of Realtors. “I feel like a lot more boomers are aging in place,” said Allen, a Fremont-based agent.

Her boomer clients generally have two main incentives for staying put: a new home-equity loan on their property or a paid-off home with low property taxes. The possibility of a big tax bill — by losing Prop 13 protections and a capital gains levy on a sale — also discourage older homeowners from moving. “Boomers look at all that and say, “Why move?’,” Allen said.

Some of the reluctance to move may account for the region’s lack of choices for home buyers.

In the East Bay, inventory of homes for sale fell 20 percent in October from the previous year, according to the Bay East Association of Realtors. Median sale prices edged up 2 percent. Owners along the entire I-880 corridor in the East Bay put fewer homes up for sale, with the exception of Berkeley.

Agents saw significant drops in homes available in central Contra Costa County, including Clayton, Martinez, Pleasant Hill and Walnut Creek. The inventory squeeze pushed prices up through the area, according to the association.

In Santa Clara County, the inventory of single-family homes fell 13 percent in October from the previous year, from 1,645 to 1,428 houses on the market, according to MLS Listings. San Mateo County listings dropped 1 percent from the previous year, from 653 to 646.

The Zillow study highlighted the national shortfall in new home construction. Between 2000 and 2009, developers built an average of 900,000 units annually. Between 2010 and 2019, new construction has accounted for just half that amount, 450,000 units annually, Tucker said.

Regions such as the Bay Area, Seattle and Los Angeles that attract young residents and encourage older homeowners to stay, Tucker said, “will continue to see the most acute housing crunch.”

The property tax breaks given by Prop 13 have set up a strong incentive for older homeowners to stay in place, Tucker said.

But younger residents can expect to see greater inventory in Walnut Creek (an expected turnover of 40 percent), North Beach (38 percent), and Mountain View and Palo Alto (32 percent each), according to Zillow. The numbers reflect the higher percentage of older residents in these communities.

Tucker expects that in retirement regions — particularly Arizona and Florida — two-thirds of the homes will turn over. The so-called Silver Tsunami is expected to hit Florida cities Tampa, Miami and Orlando hardest.

Other, older Midwest and Great Lakes cities with shrinking industrial economies in Ohio, Pennsylvania and upstate New York also are expected to have high turnover rates.

Can You Afford to Buy a Rental Property?

By: Matt Frankel, CFP, Contributor, Updated on: Dec 10, 2019

Can you really afford to buy your first rental property? Here’s how you can be sure.

Investing in real estate can be an excellent way to build wealth over time and create an additional income source, but it is also one of the more capital-heavy types of investments you can make. While you can get started in stock or mutual fund investing with just a few hundred dollars, that simply isn’t the case when it comes to buying rental properties.

With that in mind, before you start shopping for properties to invest in, it’s important to know that you can afford to become a rental property investor.

Having said that, the question of Can I afford to buy a rental property? isn’t a simple one. There are several considerations to think about before you can determine if you can afford to take the plunge into rental real estate investing:

  • Are you financially ready to invest at all?
  • Do you have enough money to buy a rental property?
  • Will your property cover its ownership costs?
  • Can you qualify for a rental property mortgage?

Let’s take a closer look at these four questions one at a time:

Are you financially ready to invest at all?

Before you even consider buying a rental property, it’s important to do a quick financial health checkup. In a nutshell, there are two basic financial things you should do before you become a rental property owner:

  • Pay off high-interest debt:The average credit card’s interest rate is more than 17%. It’s possible to earn returns in this ballpark on rental real estate, but it isn’t exactly common, especially for new investors. The point is that it’s silly to invest money in the hopes of earning a 10%–15% annualized return (the most common range), while simultaneously paying a higher rate to borrow money. If you have high-interest credit card debt, you should aim to pay it off or at the very least get a 0% APR balance transfer before you buy a rental property.
  • Establish an emergency fund:What good is an investment if you’ll have to sell it if you face any unexpected expenses? Before you start investing in real estate or anything else, it’s a good idea to build up a bit of an emergency fund to help you deal with unexpected expenses or financial hardships. Most financial planners suggest that you should aim to keep six months’ worth of expenses in an easily accessible place. This is certainly a good goal to aim for, but you don’t necessarily need to get there before you start to invest.

Do you have enough money to buy a rental property?

Once you’ve established that you’re ready to invest, the next step in rental property affordability is determining whether you have enough money to actually purchase a property. Obviously, this depends on the cost of the property itself. All other things being equal, it’s going to require more capital to buy a $300,000 property than a $100,000 home.

One common rookie mistake is assuming that the down payment is all you need, but that’s simply not true. Here’s a rundown of the various initial expenses you need to prepare for:

Down payment

The down payment is the most obvious upfront cost associated with the purchase of a rental property, but many new investors aren’t quite sure how much to expect.

Generally speaking, you should expect your lender to require a minimum of 20% down, as it is nearly impossible to find private mortgage insurance (PMI) for an investment property mortgage. If you are an extremely well-qualified buyer and are purchasing a single-family rental property, it’s possible to get a conventional mortgage with a 15% down payment, but that’s about the only exception I’m aware of. Most lenders want at least 25% down, especially on multi-unit residential properties, so that’s a good figure to prepare for.

Alternatively, you can choose to buy a multi-unit property and live in one of the units, which can qualify you for low-down-payment mortgages designed for owner-occupants. This is known as “house hacking” and we’ll discuss it later in this article.

Closing costs

 

Unless the seller has agreed to pay for closing costs, you’ll need to budget for this as well. Closing costs can vary considerably and can be higher on investment properties than primary homes. For example, property taxes are often higher for investor-owned homes than for owner-occupants, and you’ll be expected to prepay a certain amount of your property taxes at closing. Origination fees also tend to be higher on investment property mortgages.

 

As I mentioned, closing costs can vary dramatically, and typically run anywhere from 2% to 5% of the property’s sale price, although higher closing costs aren’t unheard of.

Repairs

If you buy a rental property that is 100% rent-ready and in overall great shape, you may not have to worry about this, but if you buy a property in need of any rehab, be sure to include this in your budget.

Your inspection report can be a good indicator of the need to budget for repairs, even if the property is in good working order. For example, I recently bought a property where everything was operational, but the inspection report revealed the water heater was on its last legs, so I set aside money to replace it shortly after closing.

Reserves

If you obtain a mortgage for your rental property, your lender will often require a minimum balance in reserves — typically between six and 12 months’ worth of mortgage payments.

This is a good start, but you may want to err on the side of caution and wait until you have more cash in reserve than you think you’ll need. Maybe your property will sit vacant for a few months after you buy it. Maybe something major will break, like the HVAC system. Before you buy a rental property, it’s best to be sure that even if setbacks happen, you can absorb them without having to dip into your personal savings.

Will your property cover its ownership costs?

If you’ve established that you can afford the upfront costs to purchase a particular rental property, the next step is making sure the property won’t be a money-drain after you buy it. In short, you need to make sure that you’ll get positive cash flow.

 

In other words, if a property rents for $1,000 per month but you’re paying $1,200 per month in various expenses, it’s going to drain your bank account over time. On the other hand, a property that brings in $1,200 and costs $1,000 will cause your bank balance to increase as time goes on, which is a far more desirable outcome. So, you need to learn some basic cash flow analysis.

Rental income — How much should you expect?

The first component in cash flow analysis is the property’s rental income. If the property is already rented, this is easy. If it isn’t, your real estate agent can be a good source for an estimate, and you can also order a rent appraisal that can let you know what to expect (if you obtain a mortgage, your lender might order a rent appraisal that you can use).

Many investors — myself included — have rules of thumb when it comes to rental income. For example, I won’t buy a rental property unless the purchase price is at most 100 times the expected monthly rent. So, if I expect a home will rent for $1,000 with minimal work, I’m willing to pay as much as $100,000. This is a pretty common rule and can help you separate the better property deals to pursue.

Operating expenses

There are lots of potential costs of owning a rental property, but for cash-flow purposes, we’re just going to focus on the recurring expenses. These can include, but aren’t necessarily limited to:

  • Mortgage payments
  • Property taxes
  • Hazard insurance
  • Property managementfees
  • Any utilities you pay
  • Lawn maintenance
  • Pest control

Don’t forget about vacancies and maintenance

It’s not enough to simply subtract your operating expenses from your income. That’s a common mistake and you’d essentially be planning for an ideal scenario forever.

At some point, your property will be vacant — maybe it just needs a couple weeks’ worth of repair work between tenants, or maybe your real estate market will slow down and the property will sit vacant for a few months at some point. Similarly, at some point, you’ll need to spend some money on maintenance.

There’s no way to predict these situations with 100% accuracy or to know when they will occur, so it’s important to set aside a portion of the rent you collect to cover them when they happen. My personal rule is to set aside about 15% of the rent I collect for vacancies and maintenance — but I’ll adjust this a bit higher if the property is older and slightly lower if the property is brand new.

Cash flow example

Here’s a real-world example of the cash flow from a property I bought last year. The property is a triplex (three units), and rents for a total of $2,500 per month.

As far as operating expenses go, here’s what I pay:

  • $1,600 (approximately) for my mortgage payment, including taxes and insurance
  • $250 (10% of the rent) for property management
  • $100 for lawn maintenance and pest control

This brings my total operating expenses to $1,950. Setting aside 15% of the rent for vacancies and maintenance takes up another $375 per month, which makes my total estimated ownership expense $2,325 per month.

So, my cash flow from the property is estimated to be $2,500 in rent minus $2,325 in expenses, or $175 per month. Of course, if the property doesn’t end up needing any maintenance and remains occupied 12 months every year, my actual cash flow will be significantly higher. However, it’s far better to prepare for a realistic scenario and be pleasantly surprised if things go well.

 

Many investors have specific cash flow requirements. Maybe they need a certain minimum amount of cash flow each month, or they want a specific percentage yield on their invested capital.

 

Personally, I simply require that my investment properties produce positive cash flow after assuming a reasonable amount for vacancies and maintenance, but it’s important to tailor any rules of thumb to your own investment goals and income requirements.

Can you qualify for a rental property mortgage?

If you’re planning on paying cash for your rental property, you can skip this section. If not, you’ll need to qualify for an investment property mortgage, which can be just as important to your affordability question as the other items on the list. After all, if you have enough money for a down payment and have identified a rental property that produces great cash flow, it doesn’t really matter unless you can obtain financing to buy it.

With that in mind, there are two main types of mortgages you can get to buy a rental property. I’ve used both, so here’s what you need to know about getting approved for each type.

Conventional financing

The term conventional mortgage is a broad one that generally refers to a loan that comes from a bank and isn’t explicitly guaranteed by a government agency. Generally, this means that the loan meets the lending standards of Fannie Mae or Freddie Mac, but it doesn’t have to. For example, a jumbo loan refers to a bank-originated mortgage that exceeds certain lending limits set by Fannie or Freddie and is very common in the investment property world.

For the purposes of this discussion, what you need to know about a conventional investment property mortgage is that you’ll need to personally qualify for the loan. These generally cannot be made to any other type of entity, such as an LLC.

This means that your personal credit, income, employment history, and assets will need to be sufficient to justify the loan. You can consider some of the property’s expected rental income for qualification purposes, but for the most part, your personal qualifications are what the lender will be looking at. Where investors often run into trouble is if the investment property’s mortgage payment would make your debt-to-income (DTI) ratio too high for the lender’s standards.

Asset-based lending

As the name implies, an asset-based loan is mainly dependent on the underlying asset — in this case, the rental property you’re attempting to buy.

To be clear, you’ll still typically need to meet the lender’s credit standards. However, the loan approval isn’t dependent on your personal income or employment qualifications. The last time I obtained an asset-based investment property loan, my lender didn’t even ask to see my tax returns or any other income documentation.

On the contrary, the main qualification is whether the rental property you want to buy will deliver enough cash flow to justify the mortgage. Asset-based lenders use a metric known as the debt service coverage ratio, or DSCR, when evaluating loan applications. This is the estimated rental income expressed as a multiple of the monthly mortgage payment including taxes and insurance. For example, if an asset-based lender requires a DSCR of 1.3, this means that if your mortgage payment will be $1,000, the property needs to bring in a rental income of $1,300.

In addition to ignoring your personal DTI ratio, another big advantage of asset-based investment property loans is that they don’t need to be made to you as an individual. In fact, many asset-based lenders prefer to loan to an LLC.

To be clear, asset-based loans tend to be more costly than conventional loans. In my experience, conventional investment property loans tend to have interest rates of 0.50%-0.75% higher than the average primary residence rate, but the premium is typically 2% or more on an asset-based loan. Still, these can be great ways to finance investment properties in many cases as long as the property still generates positive cash flow despite the higher cost of the loan.

House hacking can be an alternative if you can’t afford a rental property

If you can’t qualify for an investment property mortgage, or don’t have an adequate down payment, you might want to consider a house hacking investment. This can be a great way for first-timers with flexible living situations to dip their toes into the rental property investing world.

Here’s the basic idea: A house hack involves buying a two- to four-unit residential property, living in one of the units, and renting out the others.

There are some big advantages to this investment strategy, mainly involving the fact that the property can be classified as your primary residence. You can obtain a mortgage with a lower down payment and favorable interest rate, for example. FHA mortgages on primary residences (even with multiple living units) can be obtained with just 3.5% down. You can also get the lower owner-occupied property tax rates that exist in many areas. And when you eventually sell the property, you may be able to exclude any capital gains from income tax.

In fact, my first real estate investment was a house hack. Shortly after we got married, my wife and I bought a duplex and lived in one side while renting out the other. The rental income covered most of the mortgage payment, so we were able to live extremely cheaply while building equity in a more valuable property than we would have purchased on our own.

To be clear, there are pros and cons to house hacking, so be sure to read our guide to house hacking to determine if it might be a good way for you to start your rental property investing journey.

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on December 15, 2019 at 7:38 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Area Real Estate Market Update, October 31, 2019

 

October 31, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

This is the time of year when things begin to slow down. Buyers are hesitant on doing much when we start to reach the holiday season and they tend to shelve their search until the beginning of the new year. Sellers are aware that with less activity comes fewer buyers. If they haven’t already listed their property by now, considerations on delaying until the spring comes into play. We see fewer listings come onto the market now, and inventory begins to come down. It’s also a time for possible bargains. However, there’s less to look at. Many sellers who “have to” sell will stay the course and soften their expectations.

  • Here’s where we stand as of the end of October. Inventory has decreased since last month by 8.8%, now sitting at a 42 day supply of homes for sale. This is slightly less than what we saw last year at this time of 48 days. Pendings decreased slightly, but is slightly more than last year by 4%. The pending/active ratio increased slightly to .84, still below our neutral mark. This is slightly more than last year at the end October at .68. This is the 16th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • 51% of the homes listed are now “sitting” for 30 days or longer, while 28% have stayed on the market for 60 days or longer. This is slightly lower when compared to last year’s number (with then 48% remaining active over 30 days and 22% remaining active over 60 days). However, this is fairly normal for this time of year and these percentages can be somewhat misleading. Many of the homes that have not been selling remain on the market while fewer newer homes are coming onto market because of Holiday concerns.

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 42 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 48 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,825 homes actively for sale. This is fewer than what we saw last year at this time, of 3,369. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,385, slightly more than what we saw last year at this time of 2,289, or about 4% higher.

  • Our Pending/Active Ratio is .84. Last year at this time it was .68
  • Sales over the last 3 months, on average, are 2.7% over the asking price for this area, lower than what we saw last year at this time, of 3.3%.

Recent News

Bay Area homes are getting more affordable, closing gap with rest of state

Kathleen Pender, San Francisco Chronicle, Nov. 8, 2019 

This may sound hard to believe if you’re house hunting, but Bay Area homes got significantly more affordable in the third quarter, thanks to a big drop in mortgage rates, rising incomes and lower home prices, according to a report issued Thursday by the California Association of Realtors.

The region is still the least affordable in California, but it’s closing the gap with the rest of the state.

In the Bay Area, 29% of households theoretically could buy a median-priced, single-family home in the third quarter, up from 24% in the second quarter and 21% in the third quarter of last year, according to the association’s “affordability index.”

Statewide, 31% of households could afford a median-price home, up from 30% in the previous quarter and 27% a year ago.

The report calculates the annual household income needed to make the monthly payment (including mortgage, taxes and insurance) on a median-priced, single-family home with a 20% down payment and a 30-year fixed-rate mortgage at prevailing rates. It then estimates what percent of households in a county, region or state earn that much. The result is the affordability index.

By this measure, every Bay Area county got more affordable in the third quarter, but the improvement was generally greatest in the less expensive counties. In Solano, the index rose from 38% to 47% year over year. In Alameda, it went from 18% to 26%, and in Contra Costa it rose from 32% to 39%.

In San Francisco, the most expensive county, the affordability index rose from 15% to 18% year over year. In the city, you’d need to earn $309,600 a year to buy a median-priced home, but that’s down from a peak of $344,440 in the second quarter of last year.

Although 18% affordability still sounds low, it’s been worse in San Francisco. For most of 2005, during the previous housing boom, it was 9%. The highest it got during the housing bust was 29% in the first quarter of 2012.

The association’s index probably understates affordability, especially in San Francisco, because it excludes condominiums, which are generally cheaper than single-family homes. Oscar Wei, the association’s senior economist, said it excludes condos because statewide they only account for about 15% of sales, but in San Francisco they are about half.

The biggest contributor to rising affordability was a big drop in mortgage rates, Wei said. Mortgage rates have dropped nearly a percentage point, to 3.85% in the third quarter from 4.77% a year ago.

The other big drivers were rising incomes and falling home prices. The median Bay Area income for the year as a whole rose to $105,803 in 2019, up 8% from a year ago.

The median Bay Area single-family home price was $910,000 in the most recent quarter, down 7.1% from the previous quarter and down 4.2% from a year ago.

All of these things came together to help first-time buyer Carlos Villarreal buy a single-family home in Oakland.

“I’ve been looking since May,” he said. “All through the summer, the homes I liked were not affordable, they were outside of my price range. In the fall, prices did come down a tiny bit in the neighborhood I was looking at.”

He also got a raise at his job consulting with local governments three months ago, which helped, as did a drop in interest rates. When he started looking in May, “I was quoted 4.25%. A couple weeks ago I locked in 3.5%.” Villarreal also got help with the down payment from his parents. “Without that, I wouldn’t have been able to get it,” he said.

Elisabeth Watson, an agent with Abio in the East Bay, said, “There’s absolutely no question, it’s getting better for first-time buyers” as prices take a breather. “We are seeing buyers getting properties closer to asking price.”

Although median home prices have been mostly on the upswing statewide, in the Bay Area the median price on a year-over-year basis has fallen for eight consecutive months and nine of the past 10, the association reported in its monthly report for September.

The median price for a Bay Area single-family home that closed in September was $930,000, down 2.2% from August and 5.4% lower than September 2018. Bay Area homes are taking longer to sell; in September the median number of days on market was 23, up from 21 days in August and 19 a year ago.

“In 2017 and 2018, we saw some pretty solid increases in home prices. In 2019, the fact that it dropped, I’m not completely surprised, it’s just little bit of a giveback,” Wei said.

Prices “are taking a timeout,” said Elliot Eisenberg, an economist who does consulting for MLS Listings, the multiple listing service for several counties, including San Mateo and Santa Clara. “There isn’t that much money around anymore.” Chinese buyers have retreated from the market since the government made it much harder to get money out of the country.

The big jump in prices that many thought would follow this year’s flood of initial public offerings hasn’t materialized, although they may have prevented prices from falling further, especially in San Francisco, where most of the newly public companies are headquartered. In San Francisco, the median home price was up 2.2% in September year over year. Employees and early investors in Uber, which raised $8.1 billion in its May 9 IPO, were only allowed to sell their shares after a six-month lockup period ended Wednesday.

“In the East Bay, we are starting to see things sitting on the market longer, but we are not seeing a big drop in prices,” said Compass agent Jessica Nance. “Buyers can breathe and determine their next steps. The market has slowed down but properties that are priced well and show well are seeing multiple offers.” She added that “lower rates are driving more buyers into the market than I saw six months ago.”

Bay Area home prices continue to slip

Sales flat in Alameda, Contra Costa, Santa Clara and San Mateo counties

By Louis Hansen, Bay Area News Group, November 8, 2019

Bay Area home prices continued to decline in September as the regional market slows from the rapid pace set over the past seven years.

The median sales price in September for an existing home in the Bay Area dropped 4.7 percent, to $810,000, despite low interest rates, a strong stock market and booming regional economy, according to real estate data firms CoreLogic and DQNews.

Bay Area home prices still are among the highest in the nation.

“It’s still a good, strong seller’s market,” said Jeff LaMont, a Coldwell Banker agent in San Mateo. “It’s still a challenge for buyers.”

The Bay Area residential market has seen year-over-year sale prices drop in several months this year. That follows a record run of rising home prices that began in April 2012 and ended in March.

Adding to the housing pressure is the region’s robust economy, which added 5,100 more jobs in August, according to the state’s Employment Development Department.

Existing home sales increased 3.5 percent, led by busy markets in outlying counties: Sonoma (up 29 percent), Napa (up 14 percent), and Solano (up 18 percent). Sales remained relatively flat in Alameda, Contra Costa, Santa Clara and San Mateo counties.

Year-over-year median prices grew 3.9 percent to $632,500 in Contra Costa County, increased 4.2 percent in San Francisco to $1.48 million, and inched up less than one percent to $869,500 in Alameda County. Prices dropped 3.7 percent to $1.16 million in Santa Clara County and fell 2.7 percent to $1.45 million in San Mateo County, according to DQNews.

Agents say buyers are willing to wait for the right deal, avoiding bidding wars and hesitating to push far past their budgets. Homes in move-in condition, near transit or with a short commute still top the list of desirable features.

Matt Rubenstein, a Compass agent in Walnut Creek, said starter homes between $700,000 and $900,000 have been attractive, especially if they’re in good shape and within a strong school district. “If they show really well, there’s always going to be interest,” he said.

Rubenstein has noticed some nervousness among buyers — the market has stayed strong for nearly eight years, and some are concerned about an inevitable drop. He said he tells buyers to plan on staying in the house for at least seven years and trust the strong, regional economy.

Ramesh Rao, a Coldwell Banker agent in Cupertino, said pricing at or below comparable homes in a neighborhood is key to attracting buyers. The market isn’t as hot as it was last year, he said, but plenty of younger tech professionals still want to buy.

Larger trends in the housing market don’t apply to Silicon Valley. “Listen to what’s happening locally,” Rao said, “not nationally.”

As bidding wars have largely receded, house hunters can afford to shop around a bit longer.

Bay Area natives Tiphanie and Paul Cimoli have bought and sold houses for 30 years. The couple lives in a single family home in South San Jose and wanted to buy an investment property to rent out to their oldest son and a roommate.

The Cimolis blitzed the market, touring 75 homes in three months. They bought a San Jose townhome for about $780,000 after it had been marked down twice and the seller was motivated to get rid of the unit. Still, the couple found the diligent search a bit more demanding than other, earlier purchases.

“We actually thought that there were a lot of choices out there,” Tiphanie said. “We found that the really good ones went fast.”

 

Big Changes at NAR—Are Pocket Listings Dead?

Welcome to RealClues – The Weekly Newsletter for Real Estate Professionals

 Bernice L. Ross, Real Estate Coach, 11/18/2019

Last Monday NAR passed a new rule that pretty much puts an end to pocket listings and severely limits “Coming Soon” marketing as well. The new rule goes into effect on January 1, 2020, and Multiple Listing Services must complete the transition to the new policy no later than May 1, 2020.

Listing agents will now be required to have their listings posted on the MLS within 24 hours of the time you start publicly marketing the property. This means putting it online, putting a sign on the property, sending out postcards, door knocking, etc.

While you may not like the policy the truth of the matter is  maximum exposure results in maximum price, so this is probably in the seller’s best interest.

Your sellers still have the option of “discreetly marketing” their listings which means they do not appear on the MLS, there is no sign, or other public marketing. Celebrities like Bill Gates and other sellers who fear kidnapping, theft, or merely want to maintain their privacy will not be impacted by this rule, provided again, there is no public marketing.

What’s unclear is whether you can use “Coming Soon” in a slightly different way. For example, could you list a house today, submit to the MLS, but not make it available for showings until the sellers finish preparing the house for sale over the next two weeks? This might create a whole new category of “drive-by-only” listings.

Before you decide to get creative with any type of work around, please verify with your Board of Realtors/MLS what is and is not permitted. Like any major change, this will be a mess and will ultimately get worked out.

 

National Bidding War Rate Hit a 10-Year Low in October

By Tim Ellis, Redfin, November 13, 2019

Nationally, just 10 percent of offers written by Redfin agents on behalf of their homebuying customers faced a bidding war in October, down from 39 percent a year earlier and now at a 10-year low. However, low mortgage rates and a lack of homes for sale point to a likely return of bidding wars next year.

Of the top five markets where bidding wars were most common in October, four were in California—San Francisco (34.8%), San Jose (20.5%), San Diego (15.6%) and Los Angeles (13.7%). On the East Coast, in Philadelphia, 13.8 percent of offers faced bidding wars.

 

The rate of bidding wars in San Francisco and San Jose hit new highs for the year in October, a month when competition typically cools. That said, both markets’ bidding war rates were still well below last year’s levels of 58.1 percent and 64.9 percent, respectively.

If 2019’s big tech stock IPOs like Uber, Lyft, and Slack had been as hot as many expected earlier in the year, it’s likely the market in the Bay Area would be a lot more competitive right now.

 

“There was a lot of hype earlier this year in the Bay Area around some big IPOs,” said Palo Alto Redfin agent Kalena Mashing. “But we haven’t seen that hype translate into a hot market, regardless of how well the IPOs did. Really, it’s not the IPO money making the market hot, it’s the perception that the IPO money COULD make the market hot that has really driven the local housing market this year.”

 

This unseasonal uptick in competition in the Bay Area may be a sign of things to come elsewhere, according to Redfin chief economist Daryl Fairweather. “Right now, there are fewer homes for sale than we usually see this time of year, and sales are picking up thanks in part to low mortgage interest rates. All of the pieces are in place for bidding wars to become more common and for the housing market to shift back toward the seller’s favor next year,” said Fairweather. “Now may be the last chance in the foreseeable future for buyers to win a home without facing a bidding war.”

Are the wealthy fleeing California taxes? 

BY DAN WALTERS  Cal Matters, OCTOBER 27, 2019

Here is an indisputable fact about California taxation: More than two-thirds of state general fund revenues come from personal income taxes and about half of those taxes are paid by the 1% of taxpayers atop the income scale.

In other words, K-12 schools, state colleges and universities, health and welfare support for the poor, prisons and many other services for 40 million Californians are utterly dependent on the ability and willingness of a few thousand very high-income residents to cough up tens of billions of tax dollars each year.

There’s a perpetual political debate about that dependency. If nothing else, it creates what is called “volatility” — the tendency of state revenues to soar during periods of economic prosperity but plummet during downturns.

There is, however, another aspect of being so dependent on wealthy taxpayers. As their tax bites increase, some react by voting with their feet and moving from high-tax California to a state with low or no income taxes, such as neighboring Nevada.

There have been anecdotal accounts suggesting such flight.

The state waged a nearly three-decade-long battle to collect taxes from high-tech inventor Gilbert Hyatt after he decamped from Southern California to Las Vegas.

Two years ago, the Wall Street Journal published an article about the $31.1 million sale of a Lake Tahoe estate once owned by casino tycoon Steve Wynn to Michael and Nora Lacey, a very wealthy couple who lived in a 30,000-square-foot Tudor mansion in Los Altos Hills.

They changed their official residencies to their new estate on the Nevada side of Lake Tahoe. “The Wynn estate is our permanent home and our main home and the Morgan estate is a beautiful place when we want to get away,” Mrs. Lacey told the Journal.

By joining other wealthy residents of Incline Village, the Laceys would be able to shield at least some income from California taxes.

The Oakland Raiders football team will soon become the Las Vegas Raiders and when the team’s quarterback, Derek Carr, who grew up in Fresno, negotiated a new contract a couple of years back, it was “back-loaded,” meaning most of the money will be paid after the team relocates. The Tax Foundation calculated that Carr would save $3.2 million a year in state taxes by plying his trade in Nevada.

highly detailed study by two Stanford University economists, Joshua Rauh and Ryan Shyu, provides new fuel for debate over California’s dependency on the rich. They conclude that the out-migration and “behavioral responses” of high-income taxpayers increased markedly after voters approved Proposition 30, a 2012 measure that sharply increased their income taxes, and the effect was a reduction in net revenues to the state.

The 2012 increase, sponsored by former Gov. Jerry Brown, was to last only a few years, but a 2016 ballot measure, Proposition 55,  extended it to 2030, thus increasing the incentive to move out or otherwise limit tax exposures. Moreover, a federal tax overhaul signed by President Donald Trump tightly limits the deductibility of state and local taxes, still another incentive.

In fact, as he introduced his last budget in 2019, Brown worried aloud about a potential flight of wealthy Californians. “People with higher incomes pay a lot more money, and some of them may be tempted to leave,” Brown said.

The study by Rauh and Shyu implies that some have already succumbed to temptation. And with public education advocates proposing still another income tax hike on the wealthy for the 2020 ballot, they could have still another incentive to depart.

 

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

 

 


Posted on November 18, 2019 at 11:57 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – September 30, 2019

 

September 30, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

 

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

 

  • Here’s where we stand as of the end of September. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 83% since the beginning of the year, now sitting at a 48 day supply of homes for sale, This is where we were last year at the end of September. Pendings decreased slightly despite new inventory coming onto the market, but slightly above last year by 4%. The pending/active ratio decreased slightly to .76, still below our neutral mark. This is similar to last year at the end of September at .71. This is the 15th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • The percentage of homes “sitting” has decreased slightly to 44% of the homes listed now remaining active for 30 days or longer, while 25% have stayed on the market for 60 days or longer. This is slightly higher when compared to last year’s number (with then 42% remaining active over 30 days and 20% remaining active over 60 days).

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 48 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are about the same compared to last year at this time, of 48 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 3,226 homes actively for sale. This is close to what we saw last year at this time, of 3,321. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,463, slightly more than what we saw last year at this time of 2,367, or 3.9% lower.

  • Our Pending/Active Ratio is .76. Last year at this time it was .71
  • Sales over the last 3 months, on average, are 2.7% over the asking price for this area, lower than what we saw last year at this time, of 3.9%.

 

Recent News

 

California gets its first statewide rent control, eviction protections

By Alexei Koseff, San Francisco Chronicle, October 8, 2019

As living costs soar across California amid a severe housing crunch, millions of residents will be protected for the first time from large rent increases and losing their homes if they have been reliable tenants.

Gov. Gavin Newsom signed AB1482 on Tuesday at a West Oakland senior center, imposing the first-ever statewide cap on rent increases and requiring landlords to provide a “just cause” when evicting tenants.

Supporters estimate the law will extend protections to an additional 8 million renters in California. Cities including San Francisco and Oakland already have rent-control ordinances that cover about 2 million people.

Newsom said it is a necessary first step to address the cost of living in California, an issue driving so many others in the state, including the high rates of poverty and homelessness. But he added that there is much more work to be done.

“We need to build more damn housing,” the governor said.

California is the third state this year to adopt significant rent regulations, giving renewed national momentum to the push for rent control. Newsom predicted that more states would follow.

The new law, which was carried by Assemblyman David Chiu, D-San Francisco, will limit annual rent hikes to 5% plus the regional cost-of-living increase, or a maximum of 10% per year. Based on current inflation rates, Bay Area landlords could not raise rents by more than an estimated 7.7%.

Chiu said the cap would protect tenants from predatory rent increases while allowing landlords to make a fair rate of return.

“Just because somebody rents doesn’t make them any less worthy of having a stable home,” Chiu said.

Tenants will also receive eviction protections after living in an apartment for a year, meaning they cannot be ousted without a reason such as failing to pay rent, breaching a rental agreement, creating a nuisance or engaging in criminal activity. Advocates say this is necessary to prevent landlords from evicting longtime residents to raise the price of a unit.

If they are evicted through no fault of their own, such as when a property is taken off the market, tenants will be entitled to relocation assistance equivalent to one month’s rent.

The protections take effect in January and will expire in 2030, but can be renewed. They exclude apartment buildings built in the previous 15 years, duplexes where the owner lives in one of the units, and single-family homes except those owned by corporations.

Newsom signed six other renter protection bills Tuesday, including SB329 by state Sen. Holly Mitchell, D-Los Angeles, which prohibits landlords from rejecting prospective tenants simply because they use Section 8 housing vouchers. About 300,000 low-income Californians rely on the federal subsidies to pay their rent.

He also signed a bill to put regional tax measures on ballots in the Bay Area that would generate money for affordable housing. AB1487, carried by Chiu, would raise $1 billion to $1.5 billion annually for project subsidies, tax credits, tenant assistance and updates to city zoning plans.

California’s rent-cap law follows victories for tenant advocates in Oregon, which in February restricted annual rent increases to 7% plus inflation and required a just cause for evictions, and in New York, which strengthened its rent regulations in June and allowed communities statewide to adopt their own rent-control ordinances for the first time.

It’s a remarkable shift to the political landscape. California sharply restricted local governments’ ability to cap rents in the 1990s, and voters overwhelmingly defeated a ballot initiative in November that would have allowed cities to expand rent control, after a $74 million campaign by owners and developers of rental properties.

Amy Schur, campaign director for Alliance of Californians for Community Empowerment Action, one of the sponsors of the rent-cap bill, said legislators were finally forced to confront how severe the housing crisis has gotten. About half of renter households in California spend more than a third of their income on housing, which experts consider unaffordable.

Her group, which organizes tenants, canvassed in lawmakers’ neighborhoods and occupied the governor’s office to urge support for renter-protection measures. She said politicians were waking up to the power of 17 million California renters.

“It’s up to the people in our state to stand up to corporate interests and defend consumers,” Schur said.

Newsom, who asked the Legislature to send him a package of tenant protections during his State of the State address in February, played a crucial role in getting lawmakers to pass the final measure.

This summer, he called for a stricter rent cap than what was under consideration. That brought the state’s largest landlord group, the California Apartment Association, to the negotiating table, where Newsom helped broker a deal that cleared a path for the bill.

The association had fought the measure for months, arguing that it would discourage construction at a time when building rates have stalled at less than half of what state experts estimate is needed to meet housing demand. Ultimately, the group determined the rent cap would pass and negotiated key amendments, including one that restarts the one-year clock on eviction protections each time a new roommate moves into a unit.

The law could also serve as a political buffer for apartment owners and developers preparing to fight another rent control initiative next year sponsored by Michael Weinstein, president of the AIDS Healthcare Foundation, who funded the unsuccessful 2018 ballot measure. It would renew the debate over whether rent control is a good idea.

Kenneth Rosen, chair of the Fisher Center for Real Estate and Urban Economics at UC Berkeley’s Haas School of Business and a real estate consultant, said California was making a mistake by adopting a cap on rent increases.

Research on local rent-control ordinances has found they reduce the supply of rental housing, Rosen said, by encouraging landlords to convert apartment units to condominiums or other uses and diminishing the incentive for developers to build new housing.

The rent cap will become a floor for many landlords, he added, who will raise prices by the maximum amount allowed each year — which is far higher than annual rent increases recently.

“From a housing policy point of view, nothing could be worse,” Rosen said. “It’s going to make housing less affordable.”

Schur, the tenant organizer, said California’s rent cap is plenty high enough to allow developers and landlords a reasonable profit. Her group plans to continue its push for stricter renter protections at the state and local levels next year to address what she said is the true cause of soaring living costs: increasing corporate ownership of the housing stock.

“Instead of people who want to provide housing in our communities, we have Wall Street investors who want to extract money from housing in our communities,” Schur said. “It’s coming to a head.”

Bay Area housing, traffic have Facebook looking elsewhere for expansion

Mark Zuckerberg cites region’s infrastructure woes as a hindrance

By LEVI SUMAGAYSAY, Bay Area News Group, October 4, 2019

Facebook CEO Mark Zuckerberg said during a publicly broadcast Q&A with employees that his company is looking elsewhere for growth because of the Bay Area’s housing and traffic issues.

“The infrastructure here is really tapped,” Zuckerberg said Thursday. “Housing prices are way up. Traffic is bad.” He added that while Facebook is trying to do what it can to help with what he called the region’s policy challenges, “at this point we’re primarily growing outside of the Bay Area.”

The social networking giant has a huge footprint in the Bay Area, where it was founded. In addition to the company’s massive headquarters in Menlo Park, it also has offices in Fremont, Mountain View and San Francisco, and plans to open offices in Burlingame next year. Last month, it opened a new campus in Sunnyvale, leasing 1 million square feet that can accommodate thousands of employees.

Facebook’s largest locations outside the Bay Area are in Seattle, Austin and New York City, a spokesman said Friday. Other major cities where the company has offices include Los Angeles, Boston, Chicago, Denver and Washington, D.C.

Facebook has tried to address the Bay Area housing crunch by proposing mixed-use space in Menlo Park and subsidizing apartments for teachersfunding housing for low-income residents and more. The foundation by Zuckerberg and his wife, Priscilla Chan, earlier this year partnered with Facebook, Genentech and others to pledge $500 million to build or preserve more than 8,000 homes in the Bay Area over the next 5 to 10 years.

Zuckerberg addressed the Bay Area’s infrastructure woes as part of his answer to an employee’s question about why Facebook isn’t friendlier to remote work. The CEO said he prefers big hubs where Facebook engineering teams could be around one another, and that he doesn’t want to have a lot of small offices around the world, except for where sales teams need to be in the markets they’re serving.

Zuckerberg’s comments come as other tech companies, including Apple and Google, expand their presence in the Bay Area.

Facebook isn’t the only tech company that’s looking to grow elsewhere, though. Commercial real estate brokerage Cushman & Wakefield said this week that 58 of the 89 biggest — with headquarters of 100,000 square feet and above — tech and life science companies based in the Bay Area have leased 30.4 million square feet of office space in other U.S. cities since January 2010. Outside the Bay Area, the five markets with the most square footage leased by those types of companies are Austin, Seattle, New York, Southern California and Chicago.

Income inequality rises in California as wages fail to keep pace with housing costs

By Erica Hellerstein, CALMATTERS, October 7, 2019

 

California is the golden state — at least for those at the top of the income scale. For everyone else, the nickname may apply more to the sun than to money.

That’s one takeaway of an analysis of U.S.Census Bureau data by the California Budget and Policy Center (CBPC), which found a widening gap between the state’s haves and have-nots.

The CBPC analysis found major gains for California’s richest residents, modest gains for people with median incomes, and losses for the lowest income earners, when adjusted for inflation.

Median household income in California, the CBPC reported, increased by 6.4%, to $75,277 in 2018 from $70,744 in 2006, adjusting for inflation. But for the top 5% of households, income grew by 18.6% to $506,421 in 2018 from $426,851 in 2006, while households in the bottom 20% saw their average income fall by 5.3% to $15,562 in 2018 from $16,441 in 2006. The analysis was based on the census agency’s latest American Community Survey report.

An increasing gap between rich and poor is not unique to California, as recent data from the U.S. Census Bureau show. From 2017 to 2018, the data indicates, income inequality also widened in eight other states including Alabama, Nebraska, New Hampshire, Virginia and New Mexico, although in most other states it remained constant.

Income inequality is typically measured through the Gini Index, which assigns a score of 0 to indicate perfect wealth distribution within a population and a score of 1 to represent total inequality. In 2018, the overall Gini Index for the U.S. was .485, which was “significantly higher” than its 2017 estimate of .482, the Census Bureau reported.

The trends in California are especially concerning, said Sara Kimberlin, a senior policy analyst at CBPC, given the increases in the cost of living across the state. From 2006 to 2017, the organization found, inflation-adjusted median rent increased by 16% statewide, while median hourly wages for workers fell by half a percent.

“So that’s where the real challenge is that California has to face,” Kimberlin said. “We have two trends moving at the same time: Incomes remaining relatively flat for people in the middle and at the bottom of the income range, while the cost of living is going up.”

The CBPC report on the increasing income gap in the state, released Sept. 26, did not include figures for individual counties.

Alongside rising inequality, the data also showed high levels of poverty among Californians. An earlier analysis of census data from CBPC in September — based on the so-called supplemental poverty measure, which takes into account the cost of housing and other expenses — found that roughly 7.1 million people each year could not afford basic expenses between 2016 and 2018.

“We see that just one expense, one emergency of $500 or $1000, throws them over the edge,” said Joseph. “We’re talking about a huge percentage that’s living on the edge and can barely make ends meet.”

Will Mortgage Rates Stay Low Through 2019? Here’s What Experts Predict

By Aly J. Yale, Forbes, October 4, 2019

Mortgage rates logged their lowest monthly average in over three years last month, and it seems it wasn’t just a blip on the radar. According to three industry forecasts, the trend toward low mortgage rates, slowing home price growth and increased housing construction will continue well into 2020.

Just yesterday, Freddie Mac reported an average 3.65% rate on 30-year, fixed-rate loans—a whopping 1.06% downslide since just one year ago. Looking at forecasts from the company, as well as from economists at Fannie Mae and the Mortgage Bankers Association, it appears low mortgage rates will persist.

Economists at Freddie Mac predict the fourth quarter of 2019 will average a 3.7% interest rate on 30-year, fixed-rate loans, with 2019 claiming a 4% average overall. Fannie Mae expects the year to average out at 3.9%, while the Mortgage Bankers Association predicts 3.8%.

Looking further ahead, the three organizations expect even more favorable conditions for 2020, predicting average rates as low as 3.4% (Fannie Mae).

As Freddie Mac’s economists explain, “Concerns over the resolution of trade disputes have injected volatility into global bond markets. Investors have flocked to the safety and stability of U.S. Treasuries, pushing down interest rates. As trade talks ebb and flow, rates follow. Despite the volatility in rates, we expect long-term rates to remain flat on average . . . Low treasury yields will keep mortgage rates subdued in the coming quarters.”

The low rates have caused a surge in refinancing as of late. MBA data shows refinance activity is up 133% over last year, and even recent homebuying Millennials are getting on board. Refinances accounted for a full quarter of all Millennial loans last month, according to mortgage technology provider Ellie Mae.

Freddie Mac predicts the surge in refinancing will continue.

“Rates fell for most of this year and lower rates have translated into a stronger housing market,” its forecast states. “Both home sales and housing construction are firming. We expect a significant increase in mortgage refinance originations in the coming quarters.”

Freddie, Fannie and the MBA all predict improvements in terms of construction and home price growth. Freddie Mac expects housing starts to average 1.25 million for 2019, then jump to 1.28 million by next year.

The latest Census Bureau data backs this up, showing single-family housing starts up 12.3% for the month and 6.6% over the year. Overall completions were also up.

All three organizations expect home price growth to slow, reaching just a 2.2% appreciation rate by 2021, according to MBA. Last month’s House Price Index from the Federal Housing Finance Agency shows home prices were up 5% in July—down from the 6.7% uptick since just one year ago.

The 10 trends that will shape real estate in 2020

The Urban Land Institute’s annual look at the year ahead finds some direction within a fog of uncertainty

By Patrick Sisson, Curbed,  Sep 19, 2019

A market as large and dynamic as United States real estate rarely moves quickly. But the most striking narrative running throughout the annual Emerging Trends report from the Urban Land Institute is the sense of static and stasis.

Economic and political uncertainty have made things feel unmoored, but the overall insight conveyed by the authors—Urban Land Institute and PricewaterhouseCoopers researchers personally interviewed 750 industry members, and surveyed 1,450 more to create this report—is that we’re in for a soft landing, not a sudden crash. There may be less sudden moves, but that doesn’t mean some of the trends emerging this year won’t become breakout investments in the near future.

Who’s afraid of a recession?

While recession fears have certainly spooked those expecting the current record-setting economic cycle to eventually correct itself, industry sources consulted for the report believe the housing sector is still in great shape. Confidence is “palpable,” due in large part to the fundamentals. Analysts don’t see the same oversupply or over-leverage issues that caused a panic and set off the Great Recession.

The market has flashed warning signs—the last year has witnessed a decline in residential permits, a softening of housing starts, and languid car sales—but instead of a precipitous drop, the real estate world may enter a sustained slow down. With unemployment already relatively low and growth expected to just inch up over the next few years—just under 2 percent annually, according to the Congressional Budget Office—we may see homeownership levels plateau. The new normal, in other words, might be a slightly small, less active version of what we see today.

Capital with no place to go

Underscoring the broad feelings of uncertainty—and in some cases, surprise that the economy is still performing well—there’s a worldwide search for safe investments that in many cases is coming up short. One investor told Emerging Trends researchers that there’s “a continued shortage of deals with desirable yields; there are more investors chasing deals than there are good deals available.”

There’s a paradox of plenty taking place in the capital market, with too much money looking for a place to invest, yet most institutional investors have taken a conservative approach. The abundance of capital is a blessing and a curse; there’s liquidity on the market, but there’s also a temptation to yield to the pressure and “invest anywhere, somewhere,” which could lead to bad bets and more uncertainty.

Top ten markets present little surprise

Emerging Trends didn’t redraw the map with its predictions for the top 10 markets for 2020, favoring large and mid-sized metros in the “smile states” (west and east coast, plus the Sun Belt). By and large, the cities on the list have benefitted from a combination of tech-driven growth and booming populations: Austin, Raleigh/Durham, Nashville, Charlotte, Boston, Dallas/Fort Worth, Orlando, Atlanta, Los Angeles, and Seattle round out the top 10. The next 10 on the list include a few smaller metros, such as Charleston, South Carolina; Portland, Oregon; and Indianapolis, as well as suburban areas such as Orange County in California and Northern Virginia, which expects to see a big bump from Amazon’s new headquarters.

The great housing unraveling

Inequality has become a feature, not a bug, of our current housing market. The report found that “price recovery has so far outstripped household incomes that affordability has reached the breaking point even in markets that previously boasted of the low cost of housing.” Rents and home prices have skyrocketed, becoming untenable in markets nationwide; there’s no county in the country where a worker clocking in 40 hours at minimum wage can afford a two-bedroom apartment, per the National Low-Income Housing Coalition.

And conditions appear to be getting worse, as the type of regulatory action and investments needed to overcome a severe shortage of affordable and workforce house aren’t materializing. “We are building 90 percent of our housing for 10 percent of our households” said one interviewee. The affordability issue has so warped local economies that even big tech giants, such as Google and Microsoft, have pledged millions of dollars to help fund affordable options. Candidates on the campaign trail have taken note, making housing a bigger issue than it’s been in decades.

The trend toward community-oriented development is here to stay

WeWork IPO aside, the future of coworking, of shared commercial space, is bright. Coliving, led by companies like Common, is poised for a huge increase in capacity across the country. And the number of urban green markets, which grew from roughly 2,000 to 8,700 in the last 25 years, shows the continuing appeal of foodie-centric public spaces, as well as food halls. This year’s Emerging Trends found that collaborative consumption—integrated platforms of products, services, and experiences—is increasingly popular with younger generations favoring sustainability and social interaction. As traditional retail continues to struggle, this type of business, or placemaking effort, can be a big draw for a larger project.

Hipsturbia

As more millennials become parents of school-age kids, and urban areas continue what seems like an inexorable rise in real estate prices, there’s a slow but steady push toward the suburbs. But, in what the report dubs “the rise of Hipsturbia,” the hot locations outside of big cities are evolving: In addition to being more diverse, they’re also becoming more walkable, with developments that favor density, retail, recreation, and transit access. Examples of this phenomenon include Hoboken, Maplewood, and Summit in New Jersey, Yonkers and New Rochelle in New York, Evanston in Illinois, and Santa Clara in California. Many, especially on the East Coast, are linked by old commuter rail stops, and have seen a renaissance with new apartments, eateries, and office space. But all of them have developers taking the live/work/play formula that revived downtowns to the ’burbs, with much success.

The “silver tsunami” of senior housing

A number of demographic trends are cresting at the same time, namely life expectancy has risen overall as the baby boomer generation begins to enter prime retirement years. The number of Americans over 80 will double, from 6 million to 12 million, in the next two decades, according to statistics from Harvard’s Joint Center for Housing Studies, and by 2035, one out of three U.S. households will be headed by someone over 65. The last boomers won’t turn 80 until 2044. This will mean a huge flood of seniors looking for a variety of housing options, including active lifestyle living and even upscale urban apartments (especially as many boomers downsize). There are huge implications for housing, both in terms of renovations for those who want to age in place, and new options for seniors looking for a new post-retirement lifestyle.

The potential, and pull, of principled investment

Millennials, and younger generations, are increasingly factoring social good into their investment decisions, which the report labels ESG (environmental, social, and governance). What does this mean for real estate? Well, projects that can lay claim to being more community-oriented, or have a bottom line beyond just profit, have the potential to become more popular investment vehicles over time, and attract more of this community-focused capital.

This includes more sustainable multifamily construction or instruments such as green bonds, which are intended to encourage sustainability, especially projects aimed at energy efficiency, clean transportation, sustainable water management, and the cultivation of environmentally friendly technologies. One Wall Street firm surveyed even says this type of investment has a performance premium of 10 to 40 percent. Doing good can do well for a developer’s bottom line.

The slow and steady march of technology

Technology in the real estate sector—both smart home devices for residential settings and proptech, which are startups bringing new ideas to the larger real estate business—have been on the verge of a breakout for years. And while the relatively slow adoption of tech in real estate continues, it is starting to make a real impact. In addition to the proliferation of iBuyers and new means to analyze and act on property data, and new tools to digitize the homeselling process, one of the biggest areas of renewed attention is the multifamily sector, where companies are developing new products to simplify management and operations, as well as new amenity-laden services for residents, such as package delivery and digital concierges. But smart home adoption, especially digital assistants and security cams, are increasingly common, and will be even more so with the rise of 5G.

Infrastructure: As Washington fumbles, states and cities pick up the ball

As the recurring jokes about “infrastructure week” suggest, the current administration’s early plans to focus on rebuilding the country’s roads, bridges, trains, and ports have not come to pass. This lack of action on the federal level to improve our degrading infrastructure has led to cities and states picking up the baton: Places like Denver and Seattle have levied taxes to help build and expand their transit systems. Considering the potential of transit-oriented development, these kind of local investments can help create important real estate development opportunities. Without sustained federal investment in this arena, there will be a tale of two cities dynamic at play; areas that invest in their own infrastructure will send a signal that they’re a good place to invest.

Recession fear spooking apartment buyers

by Sabina Mollot, Real Estate Weekly, September 18, 2019

Fears of a recession, which analysts have been predicting is on the horizon, are causing some otherwise interested home buyers to put their plans on hold.

Most house hunters believe a recession will hit this year, or within the next few years, Realtor.com found in a recent survey.

And 56 percent of survey respondents said if a recession did it, they’d halt their home search until the economy improved.

That said, the upcoming recession isn’t expected to be as devastating as the Great Recession seen a decade ago.

“Economic activity is cyclical, so yes, undoubtedly we will face another recession at some point in the future, but we do not expect it to be anything like 2008,” said George Ratiu, senior economist at Realtor.com. “The next recession will likely be driven by factors outside of housing, such as a prolonged trade war, cutbacks in corporate spending or contagion from a European recession. Unlike 2008, mortgage underwriting has been more disciplined and regulated, which should provide a more secure foundation for housing during the economic ups and downs.”

More than 36 percent of the 755 active buyers surveyed by Toluna Research expect the next recession to begin sometime in 2020 (up six percent from March).

Meanwhile, according to the Realtor.com survey, 32 percent of active buyers indicated they are a lot more optimistic toward homeownership following 2008, whereas only 7 percent of non-buyers felt this way.

Additionally, 17 percent of current shoppers expect a recession to hit sometime in 2019, 14 percent expect sometime in 2021, and 7 percent expect sometime in 2022. Eight percent expect sometime in 2024 or later and 17 percent reported they didn’t know.

In response to the survey, residential brokers had mixed views on how recession fears could impact the market.

Gary Malin, president of Citi Habitats, said ultimately it depends on buyers’ individual situations.

“Not all recessions are created equal,” he said. “In the event a recession occurs, obviously it means the economy is on shaky ground. When it happens, people start looking at their personal circumstances. They look at their stocks, they look at their jobs, they look at their wages and make decisions based on those factors.

“Some people will take a conservative approach. They wait to see how their jobs react, how the market reacts. Other people might be sitting on the sidelines and believe there’s an opportunity in the marketplace. Not every sector gets hurt by a recession. You’ve got to understand what someone’s job is. People who purchased during the last downturn have done very well with their investment.”

Malin added that even without a recession, the market has already been dealing with its own downturn.

“It’s not like people are going to wake up all of a sudden,” he said. “The sales market has felt a lot of this pain to begin with. Great homes still sell. Generic properties are having difficulty and the high-end places are seeing price reductions.

“I can tell you what I hear from the marketplace; it has been having its struggles. The stock market has been going up at a rapid pace. There’s bound to be a correction.”

Other brokers said recession worries will ultimately work in the favor of those who refuse to get spooked by all the doomsday reports.

“The New York market started softening in 2016 so we are three years into the real estate market correction,” said Michael J. Franco of Compass.

“Historically in New York prices don’t drop drastically so I believe it is a good time to buy especially if more wait by the sidelines because of recession jitters.  Historically recessions don’t last forever so if you can afford your monthly payment after buying you should fare well post-recession.”

Franco said he expects a recession will happen in 2020.

“Fifty percent of economists think we are due for a recession next year. Therefore, I think it is a safe bet to assume it could happen or the year after.  Seems to me the more everyone reads and hears about it the more likely it is to happen. Self-fulfilling prophecy!”

Agent Steven A. Gottlieb of Warburg Realty said a recession could very well happen if the trade war with countries like China continues and those other countries hit back with tariffs and other costs that leave Americans feeling drained and willing to spend less.

“As the 2020 elections approach, the current administration will do what it can to stave off recession, as that will prove a real hurdle for reelection,” Gottlieb said.

The agent added he believes those interested in buying would be wise to do so before the election, if their intention is to keep the property long-term.

“Now is a great time to buy if the buyer will own the property for a while. Prices (at least in our local market) have been softening for years, but I think that buyers have settled into the political and economic uncertainty that we’ve been experiencing lately, and thus are coming out of the woodwork.

“I don’t think it’s a good time to ‘flip’ since we are not in a surging market, like in 2013 and 2014, but it’s a good time to get in. Sellers are becoming more realistic and there are deals to be had.”

Meanwhile, at least one broker, Gill Chowdhury of Warburg, doesn’t believe there’s a recession ahead any time soon.

“Although the media has been reporting on an upcoming recession, that is simply not the reality,” he said. “The current trade war with China has caused some turbulence in the stock market. What’s important to note is that anyone using the total number of points to describe how the market is doing is simply not sophisticated and/or is fear-mongering. In addition to this we see American wage growth going strong with inflation slowing down.

“Unemployment remains at historic lows. Personally, I don’t expect us to see a recession until well after 2020 which is exactly what I tell buyers who bring it up.”

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on October 11, 2019 at 6:04 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – August 31, 2019

 

August 31, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

  • Here’s where we stand as of the end of August. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 68% since the beginning of the year, now sitting at a 45 day supply of homes for sale, (However, this is slightly higher in comparison to last year’s end of August of a 42 day supply). Pendings, actually decreased slightly despite new inventory coming onto the market, but slightly above last year by 4.3%. The pending/active ratio increased slightly to .85, still below our neutral mark. However, our ratio much the same last year at the end of August at .83. This is the 14th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • The percentage of homes “sitting” has increased slightly to 52% of the homes listed now remaining active for 30 days or longer, while 25% have stayed on the market for 60 days or longer. Still there are more homes that are “sitting” this year as compared to last year, (with then 42% remaining active over 30 days and 17% remaining active over 60 days).

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 45 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 42 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,958 homes actively for sale. This is close to what we saw last year at this time, of 2,914. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,516, slightly more than what we saw last year at this time of 2,413, or 4.1% lower.

  • Our Pending/Active Ratio is .85. Last year at this time it was .83
  • Sales over the last 3 months, on average, are 3% over the asking price for this area, lower than what we saw last year at this time, of 4.9%.

 

Recent News

 

Bay Area home market, getting looser, is still tight

Bay Area buyers most likely to pay over price

By Louis Hansen, Bay Area News Group, September 9, 2019

Despite falling prices and sluggish sales, Bay Area home buyers can’t expect to sniff out too many bargains.

Name almost any city in the nine-county region — say, San Jose, Oakland, San Francisco or Concord — and it’s where buyers are most likely in the country to pay over list price, waive contingencies, buy quickly and generate a windfall for long-time homeowners, according to a new study from Redfin.

The hottest spots for sellers include San Carlos, Mountain View, Daly City, Palo Alto and Belmont on the Peninsula, and Contra Costa Centre (a transit community near Walnut Creek), San Lorenzo, Alameda, San Leandro, Pleasant Hill and Albany in the East Bay, according to the national brokerage. The cities ranked at least 92 out of 100 in Redfin’s competition index. Nearly 70 Bay Area cities have markets rated at 90 or above, a mark the company ranks as most competitive in the country.

The national real estate firm ranked more than 1,000 cities across the U.S. The company considered information reported from Redfin agents and other listing and sales data to figure the amount of time a property spent on the market, how many offers were made, whether buyers waived contingencies to the sale and other factors.

The Bay Area housing market has downshifted from last year’s peak but is still making millionaires of long-time homeowners and frustrating buyers with near-record prices. Bidding wars have cooled in the region, but relative to the rest of the country, the Bay Area is still among the hardest places to buy into.

Redfin chief economist Daryl Fairweather compared the region’s market to a weather report: Bay Area real estate temperatures may have slipped from 100 to 90 degrees, while the rest of the country has inched up from 50 to 55 degrees.

A year ago, the Bay Area was also the most competitive real estate market in the country, along with Seattle, San Diego and Denver, said Redfin lead economist Taylor Marr. But higher interest rates last fall and a general slowdown have pushed other western cities toward a market with more choices and some lower prices for buyers.

The Bay Area, however, has remained resilient. The nine-county region added nearly 5,000 jobs in July, led by hiring in Santa Clara County, and also strong employment growth in San Francisco and the East Bay, according to state economists. The region was responsible for 4 in 10 of the state’s new jobs in the first half of 2019.

“The jobs are there,” Marr said. “It’s still a competitive market.”

He added that while the effect of tech IPOs on the market is hard to measure, the new wealth unleashed can stabilize and bring higher prices to the market in the long term.

Agents say the market has cooled — but not enough to slow down multiple offers in desirable cities. San Carlos, for example, had just 11 homes newly listed for sale in July, a roughly two weeks supply to satisfy buyers.

Redfin manager Julie Zubiate said San Carlos has a thriving downtown and good schools — two amenities popular with tech workers with young families.

The markets in San Mateo and Santa Clara counties popular with tech workers have shifted in the past 12 months. A property that once received nearly 20 offers might attract 5 to 10 today, Zubiate said. “It’s cooled a tiny bit.”

Sophia Niu, a Keller Williams agent specializing in Alameda, said competition in the island city has pushed inventory down to about 30 homes on the market — about 2 to 4 weeks worth of sales, she said. Well-priced, single-family homes offered at around $1 million typically draw between 5 to 7 bids, she said.

Although Alameda sales have slowed from last year’s peak, she said, “right now, the market is still strong.”

Alameda has become more attractive to San Francisco residents tired of paying high rents for small apartments. Niu even saw a bumper sticker around town recently: “Alameda: Where hipsters

Bay Area exodus: Thousands more fleeing region than arriving from other states

Contra Costa County residents are particularly likely to leave the Bay Area behind, for places like Texas and Oregon

By Emily Deruy, Bay Area News Group, September 1, 2019

Even with its lucrative tech jobs and some of the best weather in the country, thousands more people have fled the Bay Area’s high housing costs and jammed roads than have moved into the region from other parts of the United States in recent years.

According to new data from the U.S. Census Bureau, the five-county Bay Area lost a net total of nearly 35,400 people between 2013-17, not counting births and new arrivals from other countries.

“It is a troubling sign of the affordability crisis of the region,” said Jeff Bellisario, director of the Bay Area Council Economic Institute.

But, Bellisario said, when factoring in international immigration, there are still more people arriving than leaving. According to the state’s Department of Finance, he noted, some 44,729 people immigrated from other countries to the region between July 2017 and July 2018.

And while Carl Guardino, CEO of the Silicon Valley Leadership Group, a business advocacy group, thinks the Bay Area is fortunate to attract talented immigrants, he’s also concerned by the data.

“All too often,” Guardino said, “we’re seeing folks like me, who were born and raised here, who simply want to be able to have a home at least somewhat close to where we work, leave.”

According to the latest Silicon Valley Index, a report from Joint Venture Silicon Valley that examined tech sector migration trends, some 30 percent of tech talent aged 25-44 who moved to Santa Clara County in 2017 came from outside California, with many coming from other countries like India and China.

For Rachel Massaro, vice president and director of research with Joint Venture’s Silicon Valley Institute for Regional Studies, the data raises concerns about the Bay Area’s education system and untapped potential.

“Not only are we not educating people here well enough to compete for those high-level jobs,” Massaro said, “but we’re also especially not educating women well enough in those particular fields of need in Silicon Valley.”

Alameda County saw the most outward migration, with almost 13,000 more people leaving than arriving, according to the new census data. Santa Clara County came in second, bleeding a total of almost 8,200 people. San Francisco saw the lowest net losses at just 1,385 people over those five years.

As in the past, Texas and Oregon remained popular locations for those leaving the Bay Area, according to the data released this week. A net total of more than 4,000 people moved to the Lone Star State, while more than 3,600 decamped to Oregon. Nevada, Washington and Arizona were popular choices, as were Idaho, Tennessee and North Carolina.

poll conducted earlier this year for this news organization and the Silicon Valley Leadership Group found that 44 percent of those surveyed said they were likely to move away from the Bay Area within a few years, pointing to housing and living costs as key factors prompting them to leave.

“We are hollowing out our middle class,” Guardino said.

While local home prices began softening in March after seven years of rising prices, the Bay Area remains among the priciest housing markets in the country, with median home prices above $1 million in San Francisco, San Mateo and Santa Clara counties.

Still, even as thousands of Bay Area residents pack up and head out, thousands of people move in. New Yorkers, especially, still find the Bay Area attractive, with a net total of more than 3,600 people moving from the Empire State to the Bay Area. People from Illinois, New Jersey, Pennsylvania and elsewhere were also still moving to the Bay Area in significant numbers.

When higher-skilled, higher-paid workers from such places move in and lower-wage workers move away, Bellisario said, “that adds to some of the income inequality we have across the region here.”

People also relocated within the Bay Area.

People from San Francisco County were most likely to move to Alameda County, home to Oakland.

Residents of Alameda County were most likely to go to Contra Costa County, with residents of that county unlikely to relocate within the Bay Area and more likely to head for cheaper parts of California or other states like Texas, Nevada and Washington.

Many people, Massaro and Bellisario said, are choosing San Joaquin County and Sacramento.

Residents of San Mateo County were more likely to move to the East Bay than to San Francisco or the South Bay, while Santa Clara County residents moved to all four of the other Bay Area counties.

According to the Silicon Valley Index, many local tech workers are heading to other burgeoning tech centers like Austin and Portland. Seven percent of the new tech talent that moved to Seattle in 2017 came from California, according to the report.

Guardino is not surprised.

While the Bay Area is still attractive to companies because of its talent pool, fed in part by world-class universities, the housing shortage and traffic are its “Achilles’ heel,” he said. Competitor regions, he added “are growing stronger because of these issues.”

Bay Area homes got slightly more affordable in July as prices and mortgage rates fall

By Kathleen Pender, SF Chronicle, August 29, 2019

Bay Area homes are getting slightly more affordable thanks to falling prices and lower mortgage rates. The median price paid for all new and existing homes and condos in the nine-county region fell to $815,000 in July, down 4.7% from June and down 4.1% from last July, according to a report released Thursday by CoreLogic.

July was the third consecutive month prices fell on a year-over-year basis, starting with a 1.9% decline in May and a 2.2% dip in June, CoreLogic said in a release.

Last month’s drop was the biggest since December 2011, when the median price fell 10.5% year over year. “Before this March, the median sale price had risen on a year-over-year basis for 83 consecutive months,” it said. The highest recorded median was $875,000 in June.

The only Bay Area counties where the median price rose year over year were the most and least expensive. In San Francisco, the median gained 3.8% to $1.35 million, and in Solano it was up 4.3% to $450,000. The median is the point at which half of homes sold for more and half sold for less.

Prices for resale condominiums took the biggest price hit in July, falling 10.9% year over year to $668,500. Prices for existing single family homes fell only 1.2% while new-home prices fell 3%, according to CoreLogic data.

Recession fears have sent bond yields lower, and that’s pushing down mortgage rates, too. The average rate on a 30-year fixed-rate mortgage was 3.6% this week, up slightly from 3.55% last week but down almost a full percentage point since this time last year, Freddie Mac reported Thursday.

“Lower mortgage rates and the slowing, if not elimination, of price growth in many areas makes a meaningful difference for some buyers,” CoreLogic analyst Andrew LePage said in a news release.

Anecdotally, real estate agents and buyers say the market remains mixed.

“Some areas are very hot with multiple offers; another house can sit a block away and not get any offers,” said Nicole Aissa, a broker with Keller Williams Peninsula Estates.

Although many homes are still selling for more than the asking price, in some cases they’re getting less than what Realtors and sellers expected.

“The trend is to list homes under market value so when it gets bid up it looks like it went way over asking,” said Gillian Leslie, an agent with Red Oak Realty in the East Bay.

She had clients interested in a home listed at $1.8 million. It sold for $2.175 million, but “the expectation was that it would go for $2.3 or $2.4 million,” Leslie said.

Tiffany Schrader-Brown and her husband bought a two-bedroom, one-bath home in Berkeley about seven years ago. Three years ago, they rented it out and moved to Philadelphia, where her husband did his medical residency. When they came back this year, they wanted a bigger home for their family, which includes three kids ages 11, 6 and 3.

They wanted a fixer-upper, since they are more affordable and she designs homes for a living, but “it seems like every one of them a developer has purchased. A lot have already been purchased and flipped,” Schrader-Brown said.

It’s easier to find duplexes and triplexes that could be turned into a single-family home, but that’s an arduous, time-consuming process and “I don’t want to take away from the housing stock,” she added.

There are some single-family fixer-uppers, she said, but they might be in a slide zone and still cost $1,000 per square foot. Or they have no utilities so they can’t get a bank loan.

But Schrader-Brown is optimistic.

“The market is changing now — I think it’s going to be more hospitable for me in the coming months, I hope. It seems that the smaller homes for people with one or two children seem to stay at a higher price point; the ones that are a little bigger seem to be declining.”

In San Francisco, the condo market “has been pretty stable for the entire year,” said Garrett Frakes, a managing director with brokerage firm Polaris Pacific. Condo prices for the three months ending July are basically flat with the same period last year. “Buyers can potentially get some discounts so instead of paying over list price, maybe they are paying slightly under list price.”

Inventory is creeping up, but still low. In San Francisco it would take just 1.6 months to sell all condos on the market at the current pace of sales. In Santa Clara and San Mateo counties, it would take about four months. “That’s still low from a supply standpoint but a heck of a lot better than two months.”

On the sales front, the number of Bay Area homes and condos that closed in July was 7,404, up 0.5% from June but down 2.2% from the same month last year. That was the lowest number of sales for the month of July since 2011, CoreLogic said. Sales have fallen on a year-over-year basis for 12 consecutive months.

On the bright side, the 2.2% decline in July was the smallest year-over-year decrease for any month since July 2018. Sales typically slow between June and July; since 1988, the average change between those two months is a 5.9% drop, CoreLogic said.

As Recession Fears Rise, Here’s the Lowdown for Real Estate

By Clare Trapasso | Realtor.com, Aug 26, 2019

It seems that whenever you pick up a newspaper or turn on the news these days, a scary word hits you in the face: “recession.” Germany is already teetering on the brink of recession; an unruly exit from the European Union this fall could cause one in Britain; and in the U.S., a rapidly escalating trade war with China is increasing fears.

But although the R-word may be a trigger for those who remember—or even experienced—the mass layoffs, scores of foreclosures, and plummeting home prices of the last downturn, folks shouldn’t panic just yet. And they shouldn’t expect another real estate fire sale.

“This is going to be a much shorter recession than the last one,” predicts George Ratiu, senior economist with realtor.com®. “I don’t think the next recession will be a repeat of 2008. … The housing market is in a better position.”

Federal Reserve Chairman Jerome Powell indicated on Friday that last month’s interest rate cut would be followed by another in September, but cautioned that that might not be enough to counter the trade tensions, which ratcheted up in recent days as China responded to an earlier round of U.S. tariffs with its own, and President Donald Trump responded by making U.S. restrictions even tougher.

About 2% of economists, strategists, academics, and policymakers believe a recession will start this year, according to a recent survey of more than 200 members of the National Association for Business Economics. Thirty-eight percent believe one will begin in 2020, while 25% anticipate one starting in 2021. Fourteen percent expect it won’t materialize until after 2021.

However, Trump seems confident that there’s no risk of a recession at all. He’s been putting out a series of positive tweets about the economy for the past week or so.

He responded to China’s tariff announcement on Friday by tweeting, “Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!”

For sure, unemployment is hovering around the lowest it’s been in the past 50 years. (However, it turns out there weren’t as many jobs in 2018 and early 2019 as previously reported.) Wages are growing, and we’ve entered the longest economic expansion in U.S. history. But a downturn within the next two years still looks likely—particularly if a trade war heats up, making it more expensive to import goods. Those increased costs are likely to be passed along to everyday consumers.

The housing market’s risky mortgages and rampant speculation were blamed for plunging the world into a financial crisis the last time around. But these days real estate isn’t likely to be the cause of a recession.

Will home prices and sales plummet in a recession?

Aspiring buyers hoping that home prices will crash, like they did during the Great Recession, are likely in for a rude awakening. There simply aren’t enough homes being built to satisfy the hordes of buyers. And with more members of the giant millennial generation wanting single-family homes in which to raise their growing families, there isn’t likely to be a drop-off in demand anytime soon.

But the anticipation of a recession in itself could make the housing shortage even worse. Worried would-be sellers may decide to postpone listing until they can get top dollar for their properties.

Yet although a lack of homes for sale typically drives up prices, that effect could be mitigated if there are fewer folks who can afford to buy. In a recession, it could become harder to find a good-paying job or steady freelance work. Even those who remain gainfully employed may worry about their job stability.

“If we do go into a recession, there will be layoffs,” says Ali Wolf, director of economic research at Meyers Research, a national real estate consultancy. “If you move from a two-income household to a one-income household, it doesn’t change the desire to own. But it does impact the ability.”

Realtor.com’s Ratiu believes prices will flatten, but likely not fall. Meanwhile, the number of home sales will also remain flat or potentially even dip, he believes.

Other economists expect the recession to take a bigger toll on housing.

“With people having PTSD from the last time, they’re still afraid of buying at the wrong time,” Wolf says. “But prices aren’t likely to fall 50% like they did last time.

“We do expect prices will fall marginally,” she continues. The priciest parts of the country, which saw the biggest price hikes, could see the biggest price corrections. Sales could decline anywhere from 10% to 20%, she predicts.

The luxury market is already seeing price decreases. These high-end homes, usually in the range of $1 million and up, are usually considered a bellwether for the greater housing market.

A big wild card in all of this is mortgage interest rates, which were at an ultralow 3.55% for a 30-year, fixed-rate loan as of Thursday, according to Freddie Mac data. If they continue to fall, it could give the housing market a boost. That’s because low rates translate into lower monthly mortgage payments.

Could rentals become cheaper?

Those hoping for rental prices to be slashed will probably be disappointed as well.

“We expect a little bit of an impact,” says Greg Willett, chief economist at RealPage, a property management technology and analytics company for apartment buildings. “But it’s not doom and gloom.”

He expects apartment price hikes to slow from 3% annually to more minor 1.5% or 2% price increases over the next few years. The rental market is likely to be buffered by those nervous about making what could be the largest purchase of their lives, a home, in uncertain economic times. Those folks may decide to live in a rental until the economy is booming again.

The exception, again, is the luxury rental market. Developers may have to offer concessions (e.g., a free month’s rent) or lower prices a little to attract wealthier tenants. But that isn’t likely to trickle down to the middle or even lower end of the rental market.

Will builders stop putting up badly needed new homes?

A recession could make builders even more reluctant to break ground on new residences, particularly in the priciest markets on the coasts.

A year ago, about 10% of single-family home builders offered buyers incentives such as discounts to go under contract, says National Association of Home Builders Chief Economist Robert Dietz. Today, about 40% are turning to incentives to spur home sales. That’s not a good sign.

Tariffs on building materials such as steel are already making construction more expensive. And the construction worker shortage is severely limiting the number of homes that can be built. A downturn could make this worse.

“You’ll [have] some local markets where home construction declines,” says Dietz. “Some prospective home buyers could be concerned about making that purchase.”

Will a recession spur another foreclosure crisis?

One of the hallmarks of the Great Recession were the blocks littered with foreclosed properties. Some sold quickly to intrepid young families or investors. However, those with boarded-up windows and overgrown yards blighted many a neighborhood. And losing a home was a devastating blow to many owners.

But foreclosures aren’t expected to be such a problem if a downturn occurs. Lending laws were tightened in the wake of the housing bubble bursting. So now only the most qualified borrowers can secure a mortgage.

“This time we won’t have bad mortgages, just people who are losing jobs,” says Lawrence Yun, chief economist of the National Association of Realtors®.

Plus, homeowners these days have a record amount of equity in their homes. That means homeowners who lose their job and are unable to make their monthly mortgage payments are much more likely to put their property on the market instead of going into foreclosure.

And with home prices expected to remain high, fewer folks will find themselves underwater on their mortgage. That should make it easier to unload the residences if need be.

And more people own their homes outright today than they did just over a decade ago. About 4 in 10 homeowners don’t have a mortgage on their abode compared with 3 in 10 when the last recession occurred, according to Ratiu.

“Foreclosures will definitely increase, but only because [the number of] foreclosures are [already] at rock bottom,” says Andres Carbacho-Burgos, a senior economist at Moody’s Analytics focused on housing. He expects a recession will happen at the end of this year or early next year, and last only two or three quarters.

In addition, Carbacho-Burgos expects home improvement spending to remain flat during the recession.

And home flipping, one of the factors contributing to the previous housing market bust, is expected to slow, he says. That’s because slower home price growth makes flipping less lucrative for investors.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on September 11, 2019 at 4:44 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – July 31, 2019

 

July 31, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

  • Here’s where we stand as of the end of July. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 92% since the beginning of the year, now sitting at a 51 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of July of a 39 day supply). Pendings actually decreased slightly despite new inventory coming onto the market, but slightly above last year by 2.8%. The pending/active ratio decreased slightly to .78, still below our neutral mark. However, our ratio last year at the end of July was .92. This is the 13th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.
  • The percentage of homes “sitting” has increased slightly to 45% of the homes listed now remaining active for 30 days or longer, while 23% have stayed on the market for 60 days or longer. Still there are many more homes that are “sitting” this year as compared to last year, (with then 35% remaining active over 30 days and 15% remaining active over 60 days).
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 51 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 39 days.

Our inventory for the East Bay (the 39 cities tracked) is now at 3,395 homes actively for sale. This is higher than last year at this time, of 2,796 or (21.4% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,646, slightly more than what we saw last year at this time of 2,573, or 2.8% lower.

  • Our Pending/Active Ratio is .78. Last year at this time it was .92
  • Sales over the last 3 months, on average, are 3.4% over the asking price for this area, lower than what we saw last year at this time, of 5.6%.

 

Recent News

 

New home, apartment permits fall sharply

First drop since recession: ‘It’s the start of a worrisome trend’

By Louis Hansen, East Bay Times, August 2, 2019

Despite a pressing demand for new homes, condos and apartments, residential building permits in California fell 16% in the last year, dropping for the first time since the recession nearly a decade ago.

In the Bay Area, permits to build new homes and apartments tanked, falling nearly 50% in San Mateo County compared with the prior year, 30% in Alameda County, nearly 10% in Santa Clara County and 7% in Contra Costa County, according to a new analysis by the Public Policy Institute of California.

“At this point, it’s become a noticeable decline,” said Hans Johnson, senior fellow at PPIC in San Francisco. “It’s the start of a worrisome trend.”

The drop in building permits, a leading indicator of how many new housing units will get built, comes as the state and region battle a gaping deficit of housing. Planners estimate the state needs  out 3.5 million units to adequately house its population, and Gov. Gavin Newsom set a goal of adding that many homes and apartments by 2025.

But lawmakers this year shelved several major housing proposals that would have made it easier for developers to build. The rolling Bay Area economy and pent- up demand drove housing prices on a record streak upward from 2012 to the beginning of 2019, shutting out many potential buyers. The region has added far more jobs than homes in recent years.

Steve Levy, director of the Center for Continuing Study of the California Economy, said permits had been steadily climbing since recovering in 2010 from a steep drop- off during the recession.

But despite strong demand and job growth, he said, developers are waiting longer to start projects after they’ve acquired the land and approval from city councils. Rising prices for scarce labor and materials have driven up costs and made bankers and developers more cautious about financing and starting projects.

The growing scope of U. S. tariffs on Chinese goods also has driven up expenses for building materials, he said. “Costs have to come down to unlock the permit,” Levy said.

But even before the tariffs, Bay Area construction costs were on the rise. A survey released by Turner & Townsend earlier this year found the Bay Area is the most expensive market in the world to build at $417 per square foot — higher than New York, London and Hong Kong. Commercial development costs in the Bay Area grew 5% last year, and the company expects another 6% leap this year.

The analysis by the PPIC captured U. S. census data of building permits issued by California counties between the 12-month period of July 2018 through June 2019.

Despite the many highly visible construction projects, some were granted permits more than a year ago. The downward trend also does not reflect the many major commercial projects sprouting in the Bay Area.

The state averaged about 200,000 units annually between 2003 and 2005. Last year, the number fell to 93,000, about half of which were multifamily projects.

In the Bay Area, only San Francisco County managed to buck the trend, seeing a two-thirds increase in building permits during the period.

The numbers have turned even bleaker in recent months, during the prime building season. Permits fell 38% in June from the previous year, according to the PPIC.

Johnson also pointed to growing costs as a reason for the slowdown, as well as the lack of land available for development, and a shortage of construction workers.

Some of the recent construction has been driven by rebuilding homes destroyed by fires in Sonoma and Napa counties, replacing units but not addressing the state’s backlog, he said.

Johnson added that local boards and city councils opposed to new projects have slowed new development. “We already have a deficit of houses,” he said. “Local decisions certainly play a role.”

 

Bay Area home sales fell sharply in June — prices mostly fell, too

Kathleen Pender, San Francisco Chronicle,  July 26, 2019 

The Bay Area housing market showed continuing signs of sluggishness in June, with slower sales and mixed but overall lower prices.

The median price paid for all new and existing homes and condos sold in the nine counties last month was $855,000, down 0.3% from May and down 2.3% from a record high of $875,000 in June 2018, according to a report issued Friday by research firm CoreLogic.

The total number of homes sold fell sharply last month to 7,357, down 11.4% from May and down 12.6% from last June. Normally, sales rise between May and June — since 1988 they’ve gone up 3.6% on average.

June a year ago is when the Bay Area’s red-hot market began to show signs of slowing.

“Many buyers began backing out of the market last spring and summer due to a tight inventory, rising prices and increasing mortgage rates,” CoreLogic analyst Andrew LePage said in a news release. “This year, prices have flattened or dipped on a year-over-year basis in many markets, and thanks to lower interest rates many home shoppers face at least slightly lower monthly mortgage payments than they would have a year ago.

“Despite the lower cost for some, plus a healthy economic backdrop, the housing market remains sluggish with activity dropping across the home-price spectrum. This suggests many would-be buyers are still priced out or are concerned about buying near a possible price peak.”

Census data released Thursday seems to bear that out. The homeownership rate in the San Francisco metro area dropped to 51.7% in the second quarter, its lowest rate since 2012. It was 56.4% in the same quarter last year and 57% in the second quarter of 2015. This area includes San Francisco, San Mateo, Marin, Alameda and Contra Costa counties. Nationally, the homeownership was 64.1% in the second quarter, down slightly from 64.3% the same quarter last year.

Although the median home price in June for the whole Bay Area was down from last year, it was up in five counties — Contra Costa, Marin, Napa, San Francisco and San Mateo — and unchanged in Alameda and Solano. Only Santa Clara and Sonoma posted decreases.

So why was the Bay Area median price down? It’s based on sales in the nine counties together. It can be down, even when most counties are flat to up, “if there’s a significant shift in market mix, such as a higher share of homes selling in more affordable areas this year versus last,” LePage explained.

This June, for example, Contra Costa, Napa and Solano counties made up 30.8% of regional sales, versus 29.8% last year, so a larger share of sales this June were in the more affordable counties. Meanwhile, the high-cost counties of Santa Clara, San Francisco and San Mateo made up 39.5% of regional sales this June versus 41.5% last year.

Shifts toward more or less of a particular home-type category — such as new home sales, which tend to be more expensive — can also influence the regional median, he said.

In Santa Clara and Sonoma counties, June was the fifth consecutive month of lower sales compared with the same months last year.

The median price paid for a resale, detached home fell from 2018 levels for at least the third consecutive month in Alameda, Marin, Santa Clara and Sonoma counties.

“If demand wanes and inventory mounts, prices could soften more. However, lower mortgage rates might still help trigger stronger buying, putting upward pressure on prices. So far, the inventory level indicates the Bay Area has transitioned from a seller’s market to a more neutral market, but not an outright buyer’s market,” LePage wrote.

In a separate report focusing on the second quarter, Compass noted that while Bay Area home sales were about 5% lower than last year’s second quarter, sales of homes above $3 million surged, bringing them in line with last year’s historical peak.

This could be a reflection of this year’s increase in the number of initial public offerings, as well as the “general accumulation of wealth,” Compass chief economist Selma Hepp said.

Peninsula Realtor Ken DeLeon noted that foreign buyers, especially from China, are still active in the $10 million-and-up range. However, their purchases of homes in the $2 million to $4 million range “has tapered off, almost to zero,” The imposition of more stringent capital controls has made it hard for most people to get money out of China, unless you’re “uber wealthy,” DeLeon said. Most Chinese buyers purchasing high-priced homes in the Bay Area are doing it through their companies, he added.

Why the Next Recession Is Likely to Happen in 2020, and What It Will Mean for Housing

By Zillow Research on Jul. 25, 2019

  • Exactly half of a panel of more than 100 real estate and economic experts said they expect the next recession to begin in 2020, with another third (35%) predicting the next recession to begin in 2021.
  • Trade policy, a geopolitical crisis and/or a stock market correction were the factors identified by panelists as most likely to trigger the next recession. A housing slowdown is unlikely to cause the next recession, according to the panel, but home buying demand is expected to fall next year.

The longest uninterrupted economic expansion in U.S. history will probably end with a recession in 2020, according to a panel of more than 100 experts.[1] Trade policy, a stock market correction and a geopolitical crisis were cited as the most likely triggers for the next economic reversal.

The current expansion recently broke the previous record-long streak of 120 months, set between 1991 and 2001. If the currently hot U.S. economy does slide into a recession next year, it will be doing so amidst softening home buying demand that is expected to be lower in a year than it is now.

The Q2 2019 Zillow Home Price Expectations survey, sponsored by Zillow and conducted quarterly by Pulsenomics, asked more than 100 real estate experts, economists and strategists for their views on the timing of the next recession and the evolution of home buying demand this year and next. Among those with an opinion, exactly half (50%) said they expected the next recession to begin at some point in 2020, with another 35% saying they expected the current expansion to end in 2021.

Almost one in five panelists (19%) said the next recession would begin in Q3 2020, the most popular quarterly choice, and 9% said the next recession was most likely in Q3 or Q4 of this year. Just 1% of those with an opinion said they expected the next recession would not begin until 2023, with another 1% saying it would happen after 2023.

The expected timing of the next recession was largely in line with expectations this panel expressed around the same time last year, when 48% of panelists said they expected the next recession to begin in 2020.

Housing Won’t Cause the Next Recession, But Will Be Impacted

Panelists were asked to choose and rank up to three economic and/or political factors likely to trigger the next recession, from a list of 10. Trade policy, a geopolitical crisis and a stock market correction were the most commonly chosen factors, respectively. A housing slowdown was among the factors rated as least likely to cause the next recession, chosen by just one in eight (12.6%) panelists that offered an opinion.

But while panelists largely indicated a housing slowdown was unlikely to cause the next recession, the housing market will surely be affected by more sluggish economic conditions. A small majority (51%) of those experts with an opinion said they expect home buying demand in 2020 – when they say a recession is most likely to occur – to be somewhat or significantly lower than in 2019. About a third (32%) said they expected home buying demand to be about the same in 2020 as in 2019.

More immediately, almost three quarters of respondents (73%) said they expected home buying demand this year to be about the same or lower than last year. Home sales have been sluggish to start 2019 compared to the beginning of 2018, despite conditions that are more favorable for buyers now than they have been in quite some time.

Weakening Demand, Slowing Home Value Growth

Put together, signs of already fading demand and the possibility of an impending recession are also very likely to contribute to further slowdowns in overall U.S. home value appreciation going forward. Currently (April 2019), U.S. median home values are growing at a 6.1 percent annual pace – strong by historic standards, but well below annual appreciation rates of 8.1 percent recorded as recently as December. Annual home value growth has slowed in each of the past four months compared to the month prior, and panelists said they expect this slowdown to continue.

Panelists were asked for their opinions on the pace of home value growth over the next five years. On average, panelists said they expect annual growth at the end of 2019 to be 4.1 percent, slowing further to 2.8 percent in 2020 and 2.5 percent in 2021 before picking up somewhat in 2022 and 2023 (to 3 percent and 3.4 percent, respectively).

 

Mortgage Rates Are Already Lower. They’re Not Helping Much

By Matt Phillips, New York Times, Aug. 1, 2019

Cheaper mortgages are usually a boon to the housing market. But this year, a sharp drop in mortgage rates hasn’t provided much of a lift, and that could bode poorly for the Federal Reserve’s efforts to shore up economic growth.

To see why, take a look at what has happened in housing since mortgage rates began a sharp decline late last year.
Consumer borrowing costs, including mortgage rates, are heavily influenced by the market for government bonds, and yields on those bonds have been falling this year. Similarly, the rate on the 30-year fixed mortgage rate is down more than one percentage point, to 3.75 percent last week, according to Freddie Mac.

Over the last 30 years, the rate has averaged about 6.25 percent. So the current rates might reasonably have been expected to spark a flurry of refinancing and home buying.

But, because of rising home prices, there has been no boom so far. Through June, sales of existing homes were down 2 percent from a year earlier, and investment in residential structures had declined for six straight quarters. Sales of newly built homes remain well below their recent peak in late 2017. And while home prices are still rising nationwide, the gains have slowed sharply in recent months.

The lackluster response to lower mortgage rates highlights a broader challenge facing the Fed as it tries to nudge the American economy along by cutting interest rates.

Lower rates usually encourage borrowing by consumers and corporations, lift stock and bond markets, and reinforce consumer and corporate confidence. All of which gives a bit of gas to the American economic engine.

But 10 years into an economic recovery, American interest ratesare already low by historical standards. Prices for stocks and bonds are already high. And corporations are having little trouble finding places to borrow money. Such loose financial conditions mean it might take a sustained program of rate cuts — rather than a couple of reductions, as many analysts expect — for the Fed to have a true impact on the economy.

“Financial conditions are just easy all around,” said Priya Misra, head of global rates strategy at TD Securities in New York. “So it’s not clear what a cut can do.”

The housing market has traditionally been one of the most important channels by which the Fed’s rates can influence the economy because it can spur construction employment, sales of appliances and furniture, and services such as landscaping, all of which multiply the economic impact of a home’s purchase.

But the math facing prospective American home buyers is daunting. Since June 2009, when the United States economy started its current expansion, the median price of existing homes has risen nearly 60 percent, far outpacing the 24 percent gain in median weekly earnings.

The divergence means the national housing market — while incredibly varied on a local level — has become increasingly unaffordable. And it will take more to trigger a significant wave of home buying than clipping a percentage point off mortgage rates.

“At this point, they don’t matter as much as people think,” said John Sim, an analyst who covers housing and the mortgage market for JPMorgan Chase. “Even at this current level of rates, it’s pretty unaffordable to most renters.”

The housing bust a decade ago is partly to blame. Since 2008, homebuilders have largely cut back on building more modest starter homes, which would be attractive to first-time buyers but are less profitable for the builders. Historically, banks might have filled the gap by loosening lending standards so people could pay higher prices. But financial firms have, for the most part, stuck to stricter guidelines they put in place at the urging of regulators in the wake of the crisis.

The result has been a sharp downturn in homeownership, to 64 percent from an elevated level of 69 percent during the subprime-lending-fueled frenzy in the middle of the last decade.

“In general what we’ve had is just not enough lower-priced homes and sort of a vicious cycle, where that limited supply has continued pushing prices up,” said Jody Shenn, an analyst at credit rating firm Moody’s who covers the housing and mortgage industry.

It’s not that the decline in interest rates doesn’t matter at all. The drop since late 2018 to 3.75 percent has knocked about $160 off a monthly mortgage payment on a $286,000 home — the median price of existing single-family homes in June, according to the National Association of Realtors — after a 20 percent down payment.

Applications to buy homes and refinance mortgages, which were slumping late last year, have recovered somewhat since mortgage rates began declining. It’s possible the drop in mortgage rates might simply need more time to influence the housing market.

But the market response so far seems muted compared with past instances of falling rates.

After a recession hit in 2001, for example, a series of rate cuts brought the Fed’s target for the its funds rate down to 1 percent from 6.5 percent. Mortgage rates followed, dropping from 8.5 percent to around 5 percent by mid-2003.

The low rates set off home building, consumer spending and financial activity that helped drive economic growth up to a nearly 7 percent annual pace in late 2003. The American economy hasn’t matched that level since.

If the reaction of the housing market to lower rates remains lackluster, it suggests the Fed’s may be less effective at fighting the next economic slowdown.

“The old view of the world, where housing is one of the key transmission mechanisms, is much less important than it used to be,” said Frederic Mishkin, a Columbia University finance professor and former Fed official.

 

California housing market officially now ‘weak.’ Is it an early warning of recession?

BY TONY BIZJAK, Sacramento Bee, JULY 22, 2019 

The once red-hot California housing sales market is officially now “weak,” state analysts say, but the year-long flattening does not necessarily suggest the state is headed toward an economic downturn.

In a brief report issued Monday, the state Legislative Analyst’s Office weighed in on the latest California home sales trends, noting that homes sales statewide in June were down from the same month last year, and notably lower than historic norms.

“Home sales were on a clear downward trend during the second half of 2018 and the beginning of 2019,” analysts wrote. “Sales seem to have stabilized in recent months and are no longer declining from month to month.

“Nonetheless, sales remain relatively weak, but not as weak as is typically seen before economic downturns.”

The state analysis, based on data from Zillow, the California Association of Realtors and Moody’s Analytics, estimated 25,900 non-distressed home sales statewide in May. That is below the 28,000 sales number from June of 2018, and below the “long-term historical average of 31,400 sales per month.”

Similarly, sales numbers are low in recent months in Sacramento, and sales prices have flattened as well.

Housing prices statewide had been on a dramatic price run-up for seven years, after the recession years from 2007 to 2011, at first prompting increasing in sales as consumers sought homes before prices could go higher. Affordability levels dropped to their lowest levels in years in 2018, and by mid-year some potential buyers had backed out of the market, starting the latest cooling trend.

 

$50 billion worth of Bay Area homes at risk of rising seas by 2050, says report

Billions in beachfront property may be flooded

By KAREN D’SOUZA, Bay Area News Group, July 31, 2019 

Tens of thousands of Bay Area homes worth about $50 billion are at grave risk of chronic coastal flooding by 2050, according to a new analysis by Zillow and Climate Central.

By 2100, the crisis deepens. As the ice caps continue to melt in the wake of global warming, experts project that 81,152 Bay Area homes with a current value of more than $96 billion, may be swamped. If greenhouse gas emissions go unchecked and seas continue to rise as expected, a wide swath of Bay Area real estate will be endangered. Coveted beach houses may well turn into disasters.

“This research suggests that the impact of climate change on the lives and pocketbooks of homeowners is closer than you think. For home buyers over the next few years, the impact of climate change will be felt within the span of their 30-year mortgage,” said Skylar Olsen, Zillow’s director of economic research and outreach, in the report. “Without intervention, hundreds of thousands of coastal homes will experience regular flooding and the damage will cost billions. Given that a home is most people’s largest and longest-living asset, it takes only one major flood to wipe out a chunk of that long-growing equity.  Rebuilding is expensive, so it’s doubly tragic that we continue to build brand new units in areas likely to flood.”

There are 5,360 San Francisco homes worth more than $8.8 billion at risk by 2100, according to the report. Alameda County has 21,573 homes at risk, valued at $18.4 billion, Marin County has nearly 10,000 more homes, valued at about $14 billion, in the risk zone and Contra Costa has 6,548, valued at about $4 billion.

“The beautiful coastal setting of the Bay Area is a blessing and a curse for the housing market there: residents value the temperate climate and recreation opportunities by the shore, but the steady upward march of sea levels will threaten tens of thousands of coastal homes, worth billions of dollars, with flooding in the coming years,” says Zillow economist Jeff Tucker. “On the bright side, California’s environmental protections limiting coastal development have largely stopped them from making the problem worse, unlike several East Coast states where homes are multiplying faster in flood-prone areas than inland.”

In San Jose, there are 1,308 homes worth nearly $1.2 billion at risk by 2100, the report notes. Experts warn that’s not nearly as long as it sounds. It’s only about a mortgage away. Santa Clara County has 2,617 homes in danger by 2100.

California is on the list of states most likely to be devastated by sea-level rise and 10-year floods, according to this analysis, with 143,217 homes threatened. Florida tops the ranking with about 1.58 million homes impacted by 2100. Also, on the endangered list are 282,354 homes in New Jersey, 167,090 in Virginia and 157,050 in Louisiana.

The findings are viewable on this interactive map which displays the flood-risk zones and details the number and value of homes at risk by location across the country.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on August 7, 2019 at 7:24 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – June 30, 2019

June 30, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 38 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

 

  • Here’s where we stand as of the end of May. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 88% since the beginning of the year, now sitting at a 51 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of June of a 36 day supply). Pendings actually decreased slightly despite new inventory coming onto the market, still lagging behind last year by 7.1%. The pending/active ratio decreased slightly to .81, still below our neutral mark. However, our ratio last year at the end of June was a strong (seller’s) 1.16. This is quite a difference. This is the 12th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • The percentage of homes “sitting” has increased slightly to 44% of the homes listed now remaining active for 30 days or longer, while 21% have stayed on the market for 60 days or longer. Still there are many more homes that are “sitting” this year as compared to last year, (with then 30% remaining active over 30 days and 12% remaining active over 60 days).

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 51 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 36 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 3,317 homes actively for sale. This is higher than last year at this time, of 2,505 or (32.4% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,679, less than what we saw last year at this time of 2,909, or 7.1% lower.

  • Our Pending/Active Ratio is .81. Last year at this time it was 1.16.

 

  • Sales over the last 3 months, on average, are 3.4% over the asking price for this area, lower than what we saw last year at this time, of 6.2%.

Recent News

 

Halfway Into 2019, How Is The Housing Market Holding Up?

By Caroline Feeney, Forbes, July 1, 2019 

Hard to believe we’re already halfway through 2019.

Headed into the year, all eyes were on the housing market as it showed signs of softening for the first time in recent memory. A sharp rise in inventory, talk of more rate hikes and shrinking home price gains in the fourth quarter of 2018 created a cloud of uncertainty.

Six months in, it’s safe to say that the sky isn’t falling. But you might think of the real estate market right now as behaving like a C student that isn’t living up to its full potential.

“The housing market is doing fine,” said Lawrence Yun, Chief Economist for the National Association of Realtors. “But it certainly can do better given what’s happening with job creation and the historically low mortgage rate that is currently in place.”

To make sense of this transitional period, it’s time for a midyear market pulse check. Here’s how leading industry economists are piecing together the first stretch of 2019 and what they say is in store for the future of housing.

Affordability challenges yank back price growth 

“For the first time in a long time, we’re starting to see prices correct,” said Skylar Olsen, Director of Economic Research at Zillow. “And the big thrust that’s changing that narrative is the affordability challenge.”

She explains that when home values outpace incomes so aggressively, the two “have to snap back together eventually,” which is in effect what’s happened.

In April, the S&P Case-Shiller Home Price Index dropped for the 13th month in a row. To be clear, home values are still going up nationally; they’re just rising at a more moderate rate. Annual gains for April clocked in at 3.5%, down from 3.7% in March.

But in some markets the shift has been far more dramatic.

Take Seattle. For two years price growth accelerated faster there than anywhere else in the country. Then between April 2018 and April 2019, the year-over-year price change shrunk from 13.8% growth to a 0.0% flatline. Over the same time frame, San Francisco fell from 10.9% to 1.8% annual gains.

Notice a trend? The markets with the fastest growth fell the hardest. Some exceptions bucking the norm have been Las Vegas, Phoenix and Tampa, their resilience due to how hard they were hit by the 2008 housing crisis.

“I would say the price appreciation of 3% is a healthy development,” added Yun.

Mortgage rates drop, but buyers aren’t jumping the gun

After four benchmark rate hikes in 2018, the Federal Reserve signaled it planned on two more increases this year. That gave analysts every reason to believe mortgages were well on their way 5.5%.

But in March the Fed moved away from that intent and showed signs of even lowering the interest rate (whether that will happen is still TBD). As expectations changed, mortgage rates dropped from 5.09% to 4.09% between November 2018 and June 2019.

However, low interest rates aren’t like an immediate caffeine jolt for the housing market. “It doesn’t impact the down payment,” said Olsen. “And that’s the real struggle, right? Just because mortgage rates dropped doesn’t mean I can suddenly reenter the housing market.”

Demand is also tied to homebuyer sentiment, which isn’t necessarily strong right now. In June, consumer confidence dropped 9.8 points to the lowest level since September 2017 as a result of tensions surrounding the trade wars, according to the Conference Board.

“Consumers are picking up on that lack of certainty about the economic outlook,” said Danielle Hale, Chief Economist at realtor.com. “And that’s not necessarily going to inspire them to make large purchases like a house.”

Inventory challenges persist on the low-end price points 

Overall inventory has started to creep up a bit this year, though it’s deceiving to try and judge the state of affairs without seeing how the market is truly split in half.

“There is plentiful inventory on the upper end market, so the housing shortage is really on the mid-priced and low ends,” said Yun. “Because the property tax deduction has been limited, there is less desire or greater financial burden from owning than before, so the upper-end market appears to be generally softer.”

In addition experts say builders have faced a number of obstacles to ramping up new construction, including high land prices, labor barriers, material costs, and the onerous process to obtain permits.

All this puts pressure on profit margins so when builders do construct a new house, it tends to be more on the luxury end.

Finally, as people move less often and more boomers decide to age in place rather than downsize, “that’s just kind of holding up a lot of the inventory that otherwise would be lubricating the whole system,” Olsen added.

So together these dynamics have created a tale of two markets.

“If you’re selling an entry level home, you’re probably still looking at a pretty competitive market in most places,” said Hale. “But if you’re selling a more expensive home you probably have to adjust your expectations.”

Cost of living and taxes sway local market conditions 

Nationally, housing conditions could be described as a seller’s market that’s gradually moving more in favor of buyers.

Drill down to the regional or local level though, and it varies. For one, some metro areas outside of major cities have stayed warmer as they catch the spillover of priced-out buyers (see: Tacoma). Strong job creation and reasonable cost of living has kept Midwest markets like Louisville and Indianapolis thriving, along with markets that resemble the Midwest in affordability. Rochester, New York is a prime example.

But there’s always exceptions. Go to Chicagoland, and you’ll hear agents tell a very different story.

“It’s definitely a buyer’s market here,” said Kim Alden, a Realtor with Baird & Warner in the Chicago suburb of Barrington, Illinois. “Inventory is a lot higher. Buyers are negotiating harder than ever because there’s a lot of people who want to sell their house and they’re using that to get the lowest price that they can.”

Alden says that 65%-75% of her listings come from people who want to leave the state of Illinois altogether to escape new and existing state tax laws.

With supply high, she’s seeing sellers experience disappointment that they can’t get as much money for their house as they expected, with one exception: updated, smaller homes are “flying off the shelves.”

“I listed a little three-bedroom, bath and a half for $178,000, and in the first weekend we had 33 showings,” Alden recalled.

Apparently anywhere, an affordable turn-key home remains a hot commodity.

But high-end sellers will need to bust out the paint and spruce up their curb appeal to attract buyers.

What about the rest of the year? 

Real estate experts remain optimistic about housing’s prospects for the latter half of 2019. Olsen expresses that even if GDP growth weakens and wages slow, it’s likely that the market is primed for some kind of a rebound.

The biggest reason for this is that as huge waves of millennials continue to reach peak home-buying age, that will put pressure on demand not only this year but in the years to come. And it’s hard to argue with long-term demographics. If a recession does hit at some point as part of the economic cycle, housing would therefore be impacted though perhaps not devastated.

Ultimately after a long post-recession hot streak, housing was due to break fever. The hope is that the market will heat up a little slower next time and create some normalcy. For now, consider it a short-term correction, and hope that more homes will come on the market that people can actually afford.

“The perfect scenario going forward,” Yun said, “even off into the next couple of years, is if there can be a robust increase in new home construction, the housing market will be more of a bright spot for the broader economy.”

Bay Area home prices fall 1.7% in May, biggest year-on-year drop in 7-plus years

Kathleen Pender, SF Chronicle, June 27, 2019 

The median price paid for a Bay Area home or condo last month was $860,000, up 1.2% from April but down 1.7% from May of last year, representing the biggest year-over-year percentage drop in more than seven years, according to a CoreLogic report released Thursday.

To put that year-over-year decline in perspective, it’s important to remember that in May of last year, the market was in a frenzy and the median price was one month away from its all-time high of $875,000, set in June.

After home sales rose at double-digit rates in the first half of last year, growth began slowing in the second half, to almost a crawl this year. In March, the median price actually dipped 0.1%, its first year-over-year decline in seven years, and in April it was unchanged from the previous year.

Last month’s 1.7% drop “marked the largest decline since February 2012, when the median fell 3.6% year over year,” said CoreLogic analyst Andrew LePage. The next month, the median rose 0.6%, and in April 2012, it began an 83-month stretch of consecutive gains. CoreLogic’s report includes new and existing homes and condos in the nine-county Bay Area.

Today, “there is a sense of pause by buyers because they don’t know what’s next,” said Selma Hepp, chief economist with the Compass real estate brokerage. “We are definitely seeing a lot of activity out there; buyers are coming to open houses. But for homes in imperfect condition, or imperfectly priced, they’re not willing to pull the trigger.”

Well-priced homes in excellent condition are still selling briskly, she added. The median time on the market for homes that sold last month was 14 days, only two more than a year ago. But for homes that were still for sale last month, the median time on market was 22 days, six days longer than last year, she said.

Plotted on a graph, prices today look like a “tabletop,” compared with the “mountaintop” seen in the last cycle when prices plummeted after a steep run-up, she said.

In San Francisco, the market varies by price range and neighborhood, but overall, “it’s relatively flat, which is not so bad, considering that the housing market has been nuts in the past few years,” said Dona Crowder, a broker with Coldwell Banker.

“Luxury” homes in the $7 million to $30 million price range are selling well, she said. And for homes priced from $500,000 to $1.5 million, “you’re still going to experience multiple offers in a preponderance of the situations.” The slowest segment is $3 million to $5 million homes.

Prices rose 1.2% from April to May thanks to “lower mortgage rates, more inventory and a transition to a more neutral market where buyers have some bargaining power,” LePage said in a news release.

The average rate on a 30-year, fixed-rate loan dropped to 3.73% this week from 4.5% the first week of January, according to Freddie Mac.

That drop “created a window of opportunity for a lot of first-time buyers,” said Phil Kerr, CEO of multifamily developer City View. He’s seen a “big surge in sales since January” at the Ice House, a townhome development under construction in West Oakland that was severely damaged in an October fire.

Exodus: For Bay Area millennials, moving up means moving out

20-somethings most restless and likely to leave

By LOUIS HANSEN, Bay Area News Group, July 7, 2019

While some of their 20-something friends burned through their paychecks, Brian and Jen Hurst saved.

The young couple skipped fancy vacations, ordered appetizers for dinner on date nights, and lived with roommates to scrape up nearly $150,000 for a down payment on a home.

After four, tight-belted years, the couple bought a modest two-bedroom in East San Jose for $700,000 in late 2016. They continued to juggle several jobs to make ends meet and fix the home up for the family they hoped to start. Two-and-a-half years later, the Hursts put a “For Sale” sign up in their yard. Exhausted, they were done with the Bay Area.

“I’m working at 150 percent,” said Jen, a bio-chemist, “to be lower middle class.”

More than 6 in 10 Bay Area residents under 30 said in a recent poll they expect to leave the Bay Area in the next few years. Millennials are the most likely age group to say they’re leaving, with 55 percent of those under 40 looking to escape, according to the poll conducted in February by the Silicon Valley Leadership Group and this news organization.

It’s a trend that sets off alarms for regional leaders, watching the lifeblood of new workers drain to other regions and states.

“The Bay Area is increasingly becoming a place unaffordable to the children of NIMBY parents, who have blocked the approvals of new homes that lock out our own sons and daughters from being able to live in the communities in which we raised them,” said Silicon Valley Leadership Group CEO Carl Guardino, noting the state has a deficit of 3.5 million homes.

Long-time residents also are losing hope that their children and grandchildren will be just a Sunday drive away during their retirement.

Gail Price, a Palo Alto retiree and former city councilmember, recently watched her youngest son move from the Bay Area to Portland because of high housing costs. She and her husband had hoped to keep their three sons and grandchildren in the Bay Area, but only one has been able to stay. “Not everyone is part of the one percent,” Price said. “A sustainable community is one that is inclusive.”

The Bay Area is still a net-importer of residents drawn by a booming economy, a tech culture obsessed with younger, cheaper employees, and a buzzing nightlife in three major cities.

But a smothering combination of high rents, higher home prices, and expensive food and clothing make it difficult to save and plan for a future in the region. Fewer young people are buying increasingly expensive real estate: home ownership for Californians under 35 dropped from 30 to 23 percent between 2005 and 2017, according to the California Association of Realtors.

The rental market has soared, too. Since May 2014, the average rent for a one-bedroom apartment has risen 22 percent to $2,120 a month in San Jose, increased 11 percent to $2,469 in San Francisco, and grown 15 percent to $1,773 in Oakland, according to Apartment List.

Even without consulting a spreadsheet, many young professionals now say their future is elsewhere.

Javier De La Cruz, 27, lives in Pittsburg and works as a financial center manager in Moraga. He and his wife, Michelle, graduated from Pittsburg High School and earned associate degrees from nearby Los Medanos College.

The young couple is starting a family and want to stay close to their parents. But it’s become nearly impossible, De La Cruz said. Over the last three years, he’s bid on 15 houses in Pittsburg and surrounding cities. He lost every single time. “I was looking for something that didn’t soak up every single cent,” he said.

They carpool to work, trade date nights for home cooking and Netflix, and someday hope to have enough for a down payment on a house. “It really feels like a revolving door that never stops,” he said.

De La Cruz is looking to Las Vegas — a short flight from the Bay Area for relatives, with a healthy economy and cheaper homes. His family doesn’t want him to move. “Everything we know is here,” De La Cruz said. “It’s a tough decision for both of us. But we have to do something.”

Higher prices have meant more adult children living with their parents. In 2017, roughly 36 percent of Silicon Valley adults between the ages of 18 and 34 lived with their parents, according to an analysis by Joint Venture Silicon Valley.

Alex Melendrez, 26, grew up in San Bruno in the home his parents bought nearly 30 years ago, when his father, a cook, and mother, a waitress, scrounged enough money together for a down payment on a three-bedroom, two-bath house.

Melendrez lived at home while he earned his political science degree from UC Berkeley. Five years later, he lives in the same room, paying $500 a month in rent to stay with his parents, two adult sisters and a two-year-old nephew.

He’s looked at a few rooms for rent, but they would eat up at least two-thirds of his income as an organizer for the Housing Leadership Council of San Mateo County. “Oh God, I honestly have no prospect of owning a home,” he said. “I cannot see owning my own place here. Even a condo.”

Like Melendrez, many stick around, despite the uncertainty.

Ryan Globus grew up in Santa Cruz and earned his computer science degree from Stanford. For his senior project, he and a few classmates designed a program to scrape desirable Craig’s List rental listings and have the results sent to their inbox. He got an A in the course.

Globus said most of his college friends worried about finding a decent Bay Area apartment. He spent a summer in Palo Alto with four roommates, a group assembled by an off-site landlord. The tenants barely spoke and he’s not sure they ever knew each others’ names. “In hindsight,” he said, “it was kind of weird.”

Globus, 27, is a software engineer at Apple, and now feels fortunate to rent a two-bedroom home in Palo Alto with his husband and a roommate.

Many days, he dream-surfs Trulia for homes in Philadelphia, Sacramento and Austin, Texas. But he still wants to be in the Bay Area to help his aging parents. “I hope I’m still here,” Globus said. “I want to be here.”

But the parting can be sweet sorrow — if it’s timed right.

Brian, 29, and Jen Hurst, 28, grew up and went to college on the Peninsula. Their families still live in San Jose and Santa Cruz.

Yet living in the Bay Area has taken its toll, and the couple believes the stress of working multiple jobs — in addition to their full-time jobs, the couple runs a summer science camp — has contributed to debilitating health problems.

They rarely went out, lived with Brian’s parents in college, and then several roommates in a Santa Clara townhome. They scraped together about $150,000 and made the 20 percent down payment on their home in the East San Jose foothills in late 2016.

When they moved in, they thought the house would be their home for decades — expanded and improved, to fill with family, pets and memories.  “We were 100 percent sure,” Jen said. “We never thought we would ever move.”

But the property tax bills and maintenance had the couple continuing their penny-pinching. They vacationed one week a year and asked relatives for gift cards for their birthdays and Christmas. They continued to spend on the house, not their lives, they said.

He informally surveyed about 40 friends and found only one or two planning to stay here. “In the last few years,” he said, “we’ve really hit a wall.”

SF home prices drop, still unaffordable for all

“It’s possible price points for homes have reached a level that households simply cannot afford”

By Adam Brinklow, Curbed,  June 28, 2019

On Thursday, Orange County-based data firm Core Logic reported that the median home price in San Francisco is down year over year, dropping four percent in May.

Earlier this year, the firm recorded the first drop in the Bay Area’s median price year over year since 2012, diminishing an almost comically small yet still significant 0.1 percent for March. However, the price of a home in SF rose more than five percent within that period.

Now the firm’s most recent San Francisco Bay Area home sales report once again found prices down across the Bay Area, showing a decline of 1.7 percent across in all nine counties, including a four percent depreciation in SF.

Across 637 homes, the SF price (as calculated via MLS sales) declined from $1.38 million this time last year down to $1.32 million now.

Other resources have also shown small but significant dips in SF’s median year over year, but this is the first time Core Logic’s data has agreed. Last time the firm recorded a year over year decline in SF was in April 2017—at the time, a much larger decline of 7.3 percent.

The California Association of Realtors [CAR] released its May data this month. The firm not only corroborates Core Logic’s conclusions but builds on them, showing even bigger price drops at 4.8 percent in SF.

According to CAR, the May price in SF dropped from roughly $1.69 million in 2018 to $1.62 million this year. [Correction: Nope, that’s the other way around: CAR’s SF median increased 4.8 percent year over year. Whereas Core Logic looks at all home sales, CAR only compiles the price of single family homes, so their conclusions diverge.]

The year-over-year drop from CAR for the entire Bay Area was 5.7 percent, ebbing below $1 million down to $990,000.

The problem with these monthly figures is the uncertainty as to which ones are blips and which ones might be part of or the beginning of real trends.

For example, the 7.3 percent SF price drop in April 2017 was big but didn’t last, with median rices soaring for the rest of the that year.

“San Francisco is a relatively small market compared with some of the larger counties, and the median sale price tends to be a bit more volatile,” a Core Logic spokesperson tells Curbed SF.

LA-based Beacon Economics’ regional outlook report for California homes, released this week, compared performances across the entire quarter. Their conclusion: Yes, prices are down in the long term as well:

From the first quarter of 2018 to the first quarter of 2019, the median price of an existing single-family home in San Francisco decreased by 1.1 percent, or $16,200, to reach $1.43 million. While not a huge dip, it is indicative of greater weakness in price appreciation

Given the Bay Area’s healthy economy, it’s possible that even with all of the wealth being created in the region, the price points for homes have reached a level that households simply cannot afford.

Beacon notes that the number of homes sold also dropped nearly six percent in SF, along with much larger declines of 11.8 percent in the East Bay and 18.2 percent in the South Bay.

Just as one month does not itself a trend make, neither does one quarter. Still, there have been few signs of housing appreciation in 2019 so far—and none of these new figures are rocking the boat.

1st-Time Homebuyers Are Getting Squeezed Out By Investors

By Amy Scott, NBR, June 22, 2019

It’s gotten a lot harder for first-time homebuyers to nab that dream house. The pool of smaller, affordable starter houses is low. And increasingly, first-time homebuyers are competing with investors who are buying up these homes.

Last year, investors accounted for 1 in 5 starter-priced homes, according to data released by CoreLogic on Thursday. The rate of investor purchases of starter homes has been rising and has nearly doubled since 1999.

Tonya Jones, a Realtor in metro Atlanta, says it is frustrating both for agents and for their first-time homebuying clients when they can’t compete with investors.

First-time buyers typically put down 3% to 5%, Jones said. “Then they’re walking in competing with an all-cash buyer who can close whenever that seller is ready,” she said. “Typically, a first-time homebuyer can’t work under those parameters.”

Investors have always made up a big part of the market for starter homes. But smaller investors are playing a growing role. Last year, these mom and pop investors represented 60% of investor purchases — up from 48% in 2013, CoreLogic said.

As investors snap up more properties, they’re helping drive up prices in many cities nationwide. In May, the median price of existing homes was $277,700, up 4.8% from a year earlier, the National Associations of Realtors reported Friday. For single-family homes, the median price was $280,200, up 4.6%.

Some regions saw a slowdown in home sales at the end of 2018. And last month, sales of existing homes fell 1.1% from a year ago, even as median prices marked the 87th straight month of year-over-year growth, the NAR said.

Jones, who is also a small investor, said rising prices have kept her from buying new properties.

“Investors count on appreciation,” she said. “We’re at a pretty elevated price point right now, so it’s hard to imagine price per square foot getting any higher.”

Investors tend to buy cheap homes with the goal of renovating them and putting them back on the market at a higher price, or renting them out. Lawrence Yun, chief economist at the National Association of Realtors, said investor buying could lead to greater wealth inequality as homeowners and investors profit and nonhomeowners are left behind.

“If first-time buyers are less capable of buying, we’ll have a strange situation where the economy could be good, but the homeownership rate will be underperforming by historical standards,” he said.

In 2018, eight of the top 10 metro areas with the highest investor purchase rates were in the Eastern half of the U.S., CoreLogic said.

The top markets for investors were Detroit, where they accounted for 27% of sales, Philadelphia at 23.3% and Memphis at 19.7%. Some cities with the least investor activity are in Ventura, Calif., and Boise, Idaho, at 4.8% each, and Oakland, Calif., at 5.1%.

As Bay Area housing crisis worsens, companies from Google to Wells Fargo ($1 billion each) step up

By Melia Russell, San Francisco Chronicle, June 19, 2019

Wells Fargo. Kaiser Permanente. Salesforce’s Marc Benioff. Now Google.

One by one, the corporate titans of the Bay Area are vowing to plow dollars into solving the region’s biggest crisis — housing.

It’s a sign of just how serious the problem has become, for employees who need a place to live and also for the region’s major companies, which are under fire from their communities because their workers are displacing longtime residents.

Google’s announcement Tuesday that it would put $1 billion toward housing — including affordable units for the community and housing for its employees — came weeks after Wells Fargo pledged the same round number — $1 billion — toward housing affordability over the next six years.

Also new this year: The Partnership for the Bay’s Future, a group of local foundations and companies including Facebook and the Chan Zuckerberg Initiative, is raising $540 million for affordable housing. In January, Kaiser Permanente said it will put aside $100 million to grow affordable housing in Bay Area cities and other places where the health system operates.

Salesforce’s billionaire co-founder Marc Benioff and his wife, Lynne, have put up tens of millions of dollars to fund research on homelessness, subsidize rents for the newly housed and back a ballot measure that passed in November that will tax big businesses in San Francisco to help pay for homeless programs.

It’s a subject that preoccupies every employer in the region.

United Airlines, which has more than 12,000 employees and a huge maintenance base near San Francisco International Airport, has looked at building units of housing for employees, according to Scott Kirby, the airline’s president. Many employees, after meeting a minimum of months worked, ask to transfer somewhere with a lower cost of living, Kirby told The Chronicle last year.

“It’s a challenge that’s broader than us,” Kirby said. “It seems to me that the community needs to solve this somehow. We’d love to be a part of that solution, but it’s hard for any one company to solve.”

As corporations in the Bay Area rode a wave of unprecedented job growth, the public sector let housing problems fester, said Nathan Ho, who leads housing policy at Silicon Valley Leadership Group, a business advocacy organization.

Cities are building only a small portion of what’s necessary. From 2010 to 2015, the Bay Area added 367,064 jobs but only 57,094 housing units, according to a 2017 report by the Silicon Valley Leadership Group and the Silicon Valley Community Foundation. The Building Industry Association estimates that 1.5 jobs per housing unit is a “healthy balance.”

“To solve our housing emergency, all of us — government, business, housing advocates, neighbors — must work together,” said state Sen. Scott Wiener, D-San Francisco, whose bill to spur denser housing around transit hubs was put on hold until next year.

Gov. Gavin Newsom has already asked tech companies to pitch in. He met with executives from Silicon Valley corporations in January about committing $500 million to help build housing aimed at middle-income families.

In a statement provided by Google, the governor said Tuesday he applauds Google for recognizing “it has an important role to play in addressing California’s cost crisis.”

Google’s proposal would build at least 15,000 housing units on its land, spread across the North Bayshore area of Mountain View, Sunnyvale and San Jose. It would not be limited to Google employees. As part of the initiative, the company also said it will establish a $250 million investment fund to help finance 5,000 affordable units close to its offices and around transit hubs, though it acknowledged its money would only meet a small portion of the 5,000-unit goal.

Why the wealth gap has grown despite a record economic expansion

By CHRISTOPHER RUGABER, ASSOCIATED PRESS JULy 02, 2019

As it enters its 11th year, America’s economic expansion is now the longest on record — a streak that has shrunk unemployment, swelled household wealth, revived the housing market and helped fuel an explosive rise in the stock market.

Yet even after a full decade of uninterrupted economic growth, the richest Americans now hold a greater share of the nation’s wealth than they did before the Great Recession began in 2007. And income growth has been sluggish by historical standards, leaving many Americans feeling stuck in place.

Those trends help explain something unique about this expansion: It’s easily the least-celebrated economic recovery in decades.

As public discontent has grown, the issue has become one for political candidates to harness — beginning with Donald Trump in 2016. Now, some of the Democrats running to challenge Trump for the presidency have built their campaigns around proposals to tax wealth, raise minimum wages or ease the financial strain of medical care and higher education.

America’s financial disparities have widened in large part because the means by which people build wealth have become more exclusive since the Great Recession.

Fewer middle-class Americans own homes. Fewer are invested in the stock market. And home prices have risen far more in wealthier metro areas on the coasts than in more modestly priced cities and rural areas. The result is that affluent homeowners now sit on vast sums of home equity and capital gains, while tens of millions of ordinary households have been left mainly on the sidelines.

“The recovery has been very disappointing from the standpoint of inequality,” said Gabriel Zucman, an economist at UC Berkeley, and a leading expert on income and wealth distribution.

Household wealth — the value of homes, stock portfolios and bank accounts, minus mortgage and credit card debt and other loans — jumped 80% in the last decade. More than one-third of that gain — $16.2 trillion in riches — went to the wealthiest 1%, figures from the Federal Reserve show. Just 25% of it went to middle-to-upper-middle class households. The bottom half of the population gained less than 2%.

Nearly 8 million Americans lost homes in the recession and its aftermath, and the sharp price gains since then have put ownership out of reach for many would-be buyers. For America’s middle class, the homeownership rate fell to about 60% in 2016 from roughly 70% in 2004, before the housing bubble, according to separate Fed data.

The other major engine of household wealth — the stock market — hasn’t much benefited most people, either. The longest bull market in U.S. history, which surpassed its own 10-year mark in March, has shot equity prices up more than fourfold. Yet the proportion of middle-income households that own shares has actually declined.

The Fed calculates that about half of middle-income Americans owned shares in 2016, the most recent year for which data is available, down from 56% in 2007. That includes people who hold stocks in retirement accounts.

The decline in stock market participation occurred mainly because more middle-income workers took contract work or other jobs that offered no retirement savings plans, the Fed concluded.

Hannah Moore, now 37, has struggled to save since graduating from college in December 2007, the same month the Great Recession officially began. She has worked nearly continuously since then despite a couple of layoffs.

“I had many jobs, all at the same time,” she said. “It’s just not been the easiest of decades if you’re trying to jump-start a career.”

She works for a design firm in Los Angeles that contracts with luxury apartment developers that build rental housing marketed to high-tech employees. She loves the work. But she struggles with Los Angeles’ high costs.

Moore says she could afford a monthly mortgage payment. But she lacks the savings for a down payment. About half her income, she calculates, is eaten up by rent, health insurance and student loan payments of $850 a month.

As financial inequalities have widened over the last decade, racial disparities in wealth have worsened, too. The typical wealth for a white household is $171,000 — nearly 10 times that for African Americans. That’s up from seven times before the housing bubble, and it primarily reflects sharp losses in housing wealth for blacks. The African-American homeownership rate fell to a record low in the first three months of this year.

Most economists argue that higher income growth is needed to make it easier for more Americans to save and build wealth.

Zucman favors a higher minimum wage, cheaper access to college education and more family-friendly policies to enable more parents to work. He and his colleague Emmanuel Saez, also an economist at UC Berkeley, helped formulate Sen. Elizabeth Warren’s proposed wealth tax on fortunes above $50 million to help pay for those proposals.

Income growth has lagged partly because for most of the expansion, employers have had a surfeit of workers to choose among when filling jobs, leaving them little pressure to raise pay.

Not until 2016 did the unemployment rate fall below 5%. Average hourly pay finally began to pick up, with the lowest-income workers receiving the fastest average gains.

“Overall, there’s growing inequality,” Elise Gould, an economist at the liberal Economic Policy Institute said, “with signs of hope at the bottom. It’s just taken a very long time.”

This Is the Best Time to Buy a House, According to Experts

Take their advice, and get your dream home for the price you want.

BY ANDRA CHANTIM, Good House Keeping, July 1, 2019

No matter how many times you’ve done it, purchasing a new home can be intimidating, stressful, and of course, incredibly exciting. Before you jump online and start drooling over wraparound porches, come up with a game plan. In addition to the advantages you’ll gain from finding the right realtor and researching your local market, figuring out the best time to buy a house can really pay off, whether that’s in the form of savings or a property in your ideal neighborhood.

For a commitment this big and a price tag this hefty, it’s a smart idea to “figure out your objectives,” says Matt van Winkle, a real estate agent and owner of RE/MAX Northwest. “Do you want to pick from the freshest selection? Are you okay with buying during a competitive time? Is your number one goal to spend the least amount possible?” Determining what you want when it comes to the process of home-buying is just as important as knowing you want four bedrooms and an open floor plan. The answers to these questions can impact when you decide to pour all of your energy into the search. It’s true that the housing market can vary wildly down to the zip code, and the market in one major city, like Los Angeles, won’t necessarily mirror the market in another, like New York City. However, housing experts agree that there are national trends and patterns that can help guide your decision-making. Here’s what they’ve discovered when it comes to timing your house-hunt:

If you want the most choices: Spring and summer

February and March is when you’ll first start to see an uptick in new listings online, says Skylar Olsen, director of economic research for Zillow. Sellers of single-family homes tend to be parents, and they often put their homes on the market in the spring with the goal of moving out before school starts back up. Around the same time, potential buyers are house-hunting, as they prefer to be out and about when the weather is warm, says Nadia Evangelou, a research economist for the National Association of Realtors. The combination of these two factors results in a period of about five months—March through July—when a buyer will have the largest selection of new listings on the market, but the most competition. Olsen sees the largest amount of homes being sold at list price or above during March, April and May, while Evangelou identifies June as the peak month for home-selling activity. But don’t let the prospect of paying full price scare you off. “Yes, you’re more likely to stretch your budget in order to compete with other buyers during the busy season,” says Olsen. “However, you’re also more likely to find the home of your dreams because you shopped when you had the most options available to you.”

If you really want a deal: Winter

Since most prospective buyers would rather casually scroll through online listings in PJs than go open-house hopping in puffy coats, winter is considered the off-season in the real estate world. Sellers strategically wait to list their homes during a period when they will generate the most interest, which is a big reason why there’s less inventory on the market during the colder months. So while you may not be spoiled for choice, you’ll have less competition for the houses that are up for sale at this time, which were either left over from the spring/summer or newly listed for any number of unique reasons. “Owners who list their homes during the off-season may be dealing with a time-sensitive situation (like relocation for a new job) that requires them to sell their properties as soon as possible,” says Olsen. A sense of urgency plus a smaller pool of buyers can equal wiggle room in pricing. But you live in a mild climate region, you say? Check out what’s on the market in November and December. The hectic holiday season is enough to deter people from both selling and buying. “Out of the buyers that I’ve worked with, the ones that negotiated the best deals purchased a home between Thanksgiving and Christmas,” says van Winkle. It’s certainly a hassle to buy and move during the holidays, but you may discover a hidden gem while everyone else is sipping eggnog — and scoop it up for a good price to boot.

The potential sweet spot

In August, you’ll see more price drops than you’d see in the spring or early summer and more inventory than in the winter, according to Olsen. “A lot of these homes are left over from the busiest buying months and sellers need to offer price cuts in order to unload their properties before the season is over,” she says. There are plenty of reasons why some houses sell more quickly than others, but keep in mind that less popular homes are not necessarily lower quality homes. You may find that sellers had listing price expectations that were too high earlier in the season, but they are now willing to negotiate. (Score!).

Other factors you should consider

For homes located in places where the summers are brutally hot or unpleasant, shift this national timeline up a few months. “You’ll see a good amount of new listings in cities like Phoenix, Tampa or Miami during the month of January, which is usually a slow month elsewhere, and less activity in July,” says Olsen. If you live in a state where the weather is consistently nice year-round, you may not notice as large of a discrepancy between the number of sales and home prices when the seasons change, according to Evangelou. Also, some desirable areas are going to be pricey and competitive year-round. “In the Northwest, properties in areas near major job centers, like Seattle, are expensive and have appreciated at higher rates. Unlike in the early 2000’s, people are just not willing to commute as far,” says van Winkle. So despite all the variables, how do you increase your chances of getting everything on your checklist? Start looking the second you know you’re interested in buying. “Keeping your eye on the market month after month will only work in your favor,” says Olsen. “Know what you can afford, know what your limits are, and move quickly when the perfect thing comes along.”

 

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

 


Posted on July 8, 2019 at 11:21 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – May 31, 2019

May 31, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 38 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices.

 

  • Here’s where we stand as of the end of May. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 80%, now sitting at a 48 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of April of a 33 day supply). Pendings increased slightly with continued new inventory coming onto the market, but it still lags slightly behind last year by 5.4%. The pending/active ratio decreased slightly to .88, still below our neutral mark. However, our ratio last year at the end of May was a strong (seller’s) 1.26. This is quite a difference. This is the 11th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • The percentage of homes “sitting” has increased slightly to 42% of the homes listed now remaining active for 30 days or longer, while 19% have stayed on the market for 60 days or longer. Still there are many more homes that are “sitting” this year as compared to last year, (with then 27% remaining active over 30 days and 12% remaining active over 60 days).

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 48 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 33 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 3,185 homes actively for sale. This is higher than last year at this time, of 2,348 or (35.6% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,811, less than what we saw last year at this time of 2,970, or 5.4% lower.

  • Our Pending/Active Ratio is .88. Last year at this time it was 1.26.

 

  • Sales over the last 3 months, on average, are 3.4% over the asking price for this area, lower than what we saw last year at this time, of 6.5%.

 

Recent News

Bay Area home prices flatten as buyers are ‘getting their sanity back’

Kathleen Pender, SF Chronicle, May 31, 2019 

Bay Area home prices stalled out for a second straight month in April, a sign they may have reached their limit despite the region’s robust economy and rock-bottom unemployment.

The median price paid for a new or existing home or condo in the nine-county region was $850,000 in April, up 2.4% from the previous month but unchanged from April 2018. In March, the median price dipped a scant 0.1% from the same month last year, according to a report released Thursday by research firm CoreLogic.

“We are seeing more price reductions, more contingent sales, we are not having the spring we had last year,” said Joan Ulibarri, a Compass real estate agent on the Peninsula.

In April of last year, the median home price was up 13.3% year over year, CoreLogic said, and in Santa Clara County alone, it was up a breathtaking 27.6%.

According to a separate study from the California Association of Realtors, the median price paid for an existing single-family home in April fell 2.2% from April 2018 in the Bay Area, the only region in the state with a price drop. Statewide, the median price rose 3.2%. For existing condos, the median price dropped 5.2% in the Bay Area and fell 0.3% statewide.

“There are more active listings, a lot more to choose from” in the Bay Area, said Jordan Levine, the association’s deputy chief economist. There has also been a shift in the mix of sales, with fewer high-end sales and more entry-level sales. That lowers the median price, which is the price at which half of homes sold for more and half for less.

Looking at the median price paid per square foot adjusts somewhat for the mix of homes sold. For the Bay Area, the median price paid for a single-family home was $563 per square foot in April, up slightly from $561 last April. For condos, the median price paid per square foot dropped to $596 from $629.

“Compared to other regions in the state, the Bay Area is way past previous highs set during the last cycle,” which ended around 2007, Levine said. “Affordability is undermining demand (in the Bay Area). It’s becoming harder and harder to see the same amount of price growth we sustained through the current cycle. The economy is strong, but at the end of the day, people still have to make those monthly mortgage payments. There is an upper bound in the Bay Area where people can actually afford homes.”

Compass agent Virginia Supnet put it another way.

“Buyers are being a lot pickier,” she said. “They’re getting their sanity back.”

Supnet, who works on the Peninsula and the Coastside, concurred that sales are still brisk at the lower end but sluggish at the higher end. Where those two ends meet depends on the location.

In Half Moon Bay, anything priced from $900,000 to $1.5 million is still moving quickly. But Supnet has a listing on Miramar Drive in Half Moon Bay that’s been on the market since December. After two price reductions, it’s listed at $2,390,000, with 4,140 square feet of space, ocean views, a home theater, gym and wine cellar.

“People love it,” she said, “but it’s either not in their price range or they could afford it but they think, ‘Do I really need all this space?’”

In Menlo Park, “anything under $2 million would be gone in an instant. Once you start getting to $3 million or $3.5 million,” things slow down. “I think people are tired of overpaying,” she said.

In some cases, they’re going elsewhere. New census data showed that the Bay Area’s estimated population growth over the past two years slowed dramatically compared with the previous six.

Steve Salta and his wife are moving July 1 from San Francisco to Portland because they’ve outgrown the two-bedroom, 1,000-square-foot home they’re sharing with their two boys, ages 6 and 2, and a dog.

“My wife and I really wanted to stay here,” he said. “I love the idea of raising my children in an urban environment, a major market where you step outside and any type of food is there, any type of people are there. We love that.”

But a three-bedroom home in a good school district would have cost at least $2 million, including likely renovations.

“If we tried to stay here, with our financial situation and income, we’d be house poor and in a very risky situation” if one of them lost their job, Salta said. “As much as we love the Bay Area, it would be irresponsible of us to spend our money this way considering we have two young kids we are trying to provide for.”

In Portland, where Steve Salta grew up, they can move into a home his family owns. His wife, Michelle, is self-employed and Steve can keep his job in business development at Healthline, a medical information website, and come to the San Francisco office once a month.

It’s too soon to say what impact this year’s crush of Bay Area initial public offerings will have on the housing market. The two biggest companies to go public — Lyft in March and Uber in May — are trading below their IPO prices. A number of smaller ones — such as Shockwave Medical, Zoom Video Communications, Silk Road Medical and PagerDuty — have soared.But employees generally can’t cash in their company stock or options until six months after their IPO dates, and that won’t be until fall.

Although the number of Bay Area homes on the market in April was higher than last April, it was still low by historical standards. That means “there is still lots of demand,” Levine said. “If you inject the local economy with lots of cash, that’s going to exacerbate the existing supply constraints.”

It’s worth noting that the median price in San Francisco County alone hit a record high — $1.4 million — in April, surpassing the $1.38 million record set in March, according to CoreLogic. Many of the companies with this year’s biggest IPOs, including Uber, Lyft, Pinterest and Levi Strauss, are based in San Francisco.

 

Zillow says era of easy gains appears to be over in Bay Area housing market

By Ted Andersen  – San Francisco Business Times, May 21, 2019, 

Home values have likely peaked in the Bay Area, according to Zillow’s April housing numbers, released last week.

This could mean that the solid year-over-year gains the market has experienced might be a thing of the past.

In San Francisco, home values have fallen in each of the past five months and are down quarter-over-quarter, indicating the start of a longer-term trend, according to the report. Residential real estate in the city is up 1.3 percent annually, but rapidly slowing as home values were growing 9.4 percent a year ago.

In San Jose, values have fallen in each of the past six months, as that city remains the only major market where home values are also down year-over-year, falling 2.7 percent from last year. The report stated that with the Bay Area leading the way, home values nationally have declined month-over-month for the first time in more than seven years, breaking a streak of 85 consecutive months of gains that brought home values to record highs.

But it’s far from all gloom and doom for the market, according to other experts who weighed in.

“As far as I can tell, the most expensive housing market in the country has stopped, for the time being, getting more expensive,” Patrick Carlisle, chief market analyst with Compass, told the Business Times. “I’m hearing that the S.F. market is pretty damn competitive right now with very low inventory and multiple offer bidding — though not quite as crazy as last year — so we really need to see the results for the rest of the spring selling season, which will show up in sales closing in May and June.”

However, Carlisle said the picture in the San Jose — or Santa Clara County generally — is clearer: That market appears to have peaked in 2018 and has seen significant declines in median sales prices since last summer.

2020 Vision: Experts Say Next Recession Looms at Decade’s End

By Zillow Research on May. 22, 2018

  • Almost half of experts recently surveyed by Zillow said they expect the next recession to begin some time in 2020.
  • The most likely trigger for the next recession is monetary policy, according to experts.
  • Mortgage underwriting standards in general are about right, panelists said. But while credit has loosened for the best borrowers, it has tightened somewhat for those with low credit and/or a low down payment.

Experts largely expect the next recession to begin in 2020, in line with prior expectations expressed in the latter half of 2017. But unlike last year, experts these days are less worried that geopolitical events might tip the economy into the red, and more concerned over monetary and trade policy.

Almost half (48 percent) of those with an opinion said they expected the next recession to occur some time in 2020, with the largest portion of those (22 percent of all respondents) saying they expected that recession to begin in the first quarter of that year. The results are from the most recent Zillow Home Price Expectations Survey (ZHPE), a quarterly survey of more than 100 U.S. real estate experts and economists sponsored by Zillow and conducted by Pulsenomics. Roughly a quarter (24 percent) of all respondents with an opinion said they expected the next recession some time in 2019, while 14 percent said they thought 2021 was the year.

Of note, 9 percent of those with an opinion said they expected the next recession some time in 2022; 4 percent said by Q4 of this year; and just 1 percent said they expected the next recession to begin some time after 2022.

The expectations for the timing of the next recession are in line with a prior survey of the same panel, published in August 2017, when experts said there was a 73 percent probability for a recession by the end of 2020. Similar to the prior survey, panelists were also asked to choose and rank up to three likely triggers for the next recession – but the world moves fast, and the likely causes given in this most recent poll were widely different from the fears expressed just nine months ago.

Of the 99 panelists forecasting the timing and triggers of the next recession, 55 chose “monetary policy” as a likely recession trigger. The panel ranked likely triggers as 1, 2 and 3 – and with that weighting, monetary policy came out as by far the most expected catalyst, with a score of 137. That put it well ahead of trade policy (a score of 71), a stock market correction (69), higher-than-expected inflation (68) and fiscal policy (64). A potential geopolitical crisis triggering a recession ranked a distant sixth, with just 26 panelists selecting it as a likely recession spark, for a score of 44 – well below the 67 panelists (and score of 138) recorded previously.

And unlike last decade’s recession, caused in large part by speculation and bad actors in the housing market and felt most strongly by homeowners, experts said they do not think a similar housing crash is likely to trigger the next recession. A potential housing market crisis ranked ninth on experts list of potential recession triggers, with a score of just 17.

Mortgage Credit: Better for the Best, Worse for the Rest

Insomuch as it trickles down to consumer interest rates and on to consumer credit decisions, panelists’ concerns over the potential for monetary policy to trigger the next recession were not echoed in their assessment of residential lending standards more broadly. A majority of those with an opinion (51 percent) said today’s mortgage underwriting standards were just about right, neither too tight nor too loose. Similar portions of respondents said underwriting in general was somewhat tight (25 percent) as somewhat loose (21 percent).

But while panelists said lending standards were about right overall, their views on how availability of credit has evolved in recent years varied depending on the credit profile of certain mortgage borrowers – with things getting generally better for the best borrowers, but worse for the rest. For prime borrowers with the best credit histories, a large majority (70 percent) of panelists said lending standards were about the same or looser today relative to pre-bubble norms. For more typical borrowers with less-stellar credit histories, exactly half of panelists said credit has gotten somewhat tighter, with only 13 percent saying it had gotten easier.

The story was worse for those borrowers with low credit scores and/or those seeking a loan with a low down payment: 84 percent of respondents said lending standards have gotten somewhat or much tighter for the former, with 75 percent saying the same for low-down-payment borrowers.

A Slowdown in Appreciation Through the End of the Decade

Finally, panelists were also asked to project the pace of growth in the Zillow Home Value Index over the next five years. The average of all expectations among the 114 experts offering a prediction was for home values to end 2018 up 5.5 percent over the end of 2017, a slowdown from current annual growth of 8 percent. On average, panelists said they expected home value growth to slow further in coming years – to 4.1 percent by the end of next year, 2.9 percent in 2020, 2.6 percent in 2021 and 2.8 percent by 2022.

Why nearly half of San Francisco Bay Area residents plan to leave

By Patrick Chu, San Francisco Business Times, Jun 3, 2018

Nearly half of San Francisco Bay Area voters plan to leave the region in the next few years, fed up with exorbitant housing costs and the long commutes caused by the lack of available homes near their workplaces.

Less than 48 hours before polls open for the California election, the business-sponsored Bay Area Council advocacy group released its annual survey of registered voters in the nine-county Bay Area showing that 46 percent are likely to move away, the highest percentage in three years.

Bay Area employers are losing talent and many companies are relocating to more affordable housing venues in the state, or much more likely, leaving California altogether, the Council says, as rising housing costs far exceed the compensation to cover monthly payments. Housing costs topped the list of issues for the fourth straight year. Not surprisingly, 42 percent of those polled in an open-ended question said the housing crisis was the most troubling issue.

Just two weeks ago, the California Association of Realtors said a San Francisco household would need to make $333,270 a year to afford a median-priced home of $1.6 million using a 20 percent down payment and a 30-year mortgage with a fixed rate of 4.44 percent. The monthly payment would be $8,330, which includes property taxes and homeowner’s insurance. Only 15 percent of current S.F. households reach that compensation level, the Realtors said. For renters, the average rent for a one-bedroom unfurnished apartment in the city is about $3,258 per month.

Most troubling for the future of the regional economy, is that millennials plan to flee; 52 percent said they will depart vs. 46 percent last year, the Council poll says.

Despite full employment, only 25 percent of those surveyed say the regional economy is going in the right direction; in 2014, 57 percent said the economy was favorable.

This year, 47 percent said they expected “a significant economic downturn” within three years, the Council said.

Leaving? For where?

Of the people surveyed in the online poll who said they want to leave, only a quarter plan to stay in California. Sixty-one percent said they would relocate outside California and 10 percent are eyeing Texas. Oregon, Nevada and Arizona were mentioned, too. Six percent said they want to go anywhere that was affordable with lower taxes.

Bay Area traffic congestion was the No. 2 most-mentioned problem and homelessness followed.

“These results are tough to report, but we can’t let this growing pessimism become a self-fulfilling prophecy,” Bay Area Council President Jim Wundermansaid. “There’s still time to get a handle on our housing and transportation problems, but it will require strong leadership and partnership across the region to do it combined with bold thinking and decisive action. We can’t wait until our economy tanks to fix these problems and letting our economy tank is not a solution.”

In a possible sign of voter dissatisfaction in the coming election, 56 percent of the survey respondents said local governments are responsible for making housing more affordable and 66 percent said those same bodies should be reducing traffic congestion and providing more and better transportation solutions. About 19 percent of voters believe the tech industry should fix housing and traffic problems in the region.

 

California Housing Market Driving Millennials Back to Parents’ Doorsteps

By  Mike Albanese, MReport, June 3, 2019

More millennials are moving back in with their parents in the San Francisco and San Jose, California, areas, according to a report by The Mercury News. More than a fifth of millennials (ages 23-37) lived with their parents in 2017, according to information from Zillow and U.S. Census Data.

The report states that the number of millennials returning to live at home has increased 65% in San Francisco and 56% in San Jose since 2005.

“Millennials are facing a double-whammy,” said Matt Regan, a housing and public policy expert for the Bay Area Council. “They are behind a couple of eight balls. They are living through one of the biggest housing crises in history while saddled with the biggest student loans in history. They are often at the bottom of the income ladder and they are getting forced out of the region or moving back to their old rooms at home.”

Affordability remains in issue in the Golden State, as a report last month from Trulia found that California had four of the five priciest metros in the nation: San Francisco, San Jose, Los Angeles and San Diego.

The report stated that San Diego, which has a median home value of $569,700 and median income of $75,110, has only 8% of its zip codes with 100% of homes considered affordable.

While millennials struggle in California, the rest of the nation is reporting a sense of urgency, and priority from millennials, to get into the housing market. 

A survey from SunTrust last month stated that among more than 2,000 U.S. adults, nearly half of millennials (48%) who have been married say they, or their spouse, owned a home prior to marriage, compared to 35% of baby boomers (ages 55-73).

“People are choosing from many different paths and reaching common life milestones at a wider age span than before, changing when they decide to purchase a home,” said Sherry Graziano, Mortgage Transformation Officer at SunTrust.

SunTrust also found an increasing number of couples are entering marriage with both individuals owning a home. The survey stated that 25% of unmarried women and 21% of unmarried men said they would prefer to sell both residences and buy a new one after marriage.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on June 5, 2019 at 3:55 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – April 30, 2019

April 30, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 38 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices.

People really want to leave the Bay Area, claims every survey.

Although several reports indicate the housing market is projected to heat up this spring, recent data from Trulia suggests the industry is currently experiencing the early stages of a cyclical downturn.

Mortgage rates have dropped significantly as of late, with the 30-year fixed coming in at an average of 4.08% this week.

 

  • Here’s where we stand as of the end of April. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring. Inventory has increased by 65%, now sitting at a 45 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of April of a 30 day supply). Pendings increased with new inventory coming onto the market, but it still lags slightly behind last year by 3.4%. The pending/active ratio increased slightly to .92, still below our neutral mark. However, our ratio last year at the end of March was a very strong (seller’s) 1.39. This is quite a difference. This is the 10th month in a row that the ratio has fallen below 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

  • The percentage of homes “sitting” has come down slightly to 35% of the homes listed now remaining active for 30 days or longer, while 17% have stayed on the market for 60 days or longer. This improvement is usually due to the number of New homes that were listed in Spring. Still there are more homes “sitting” this year as compared to last year, (with then 26% remaining active over 30 days and 13% remaining active over 60 days).

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 45 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 30 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,915 homes actively for sale. This is higher than last year at this time, of 2.013 or (44.8% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,695, less than what we saw last year at this time of 2,790, or 3.4% lower.

  • Our Pending/Active Ratio is .92. Last year at this time it was 1.39.

 

  • Sales over the last 3 months, on average, are 2.8% over the asking price for this area, lower than what we saw last year at this time, of 6.2%.

 

Recent News

Walking Away with $1 Million

California’s soaring home values give some homeowners a million new reasons to join the Bay Area Exodus

By Mark Calvey,| SAN FRANCISCO BUSINESS TIMES, May 2 2019

Skyrocketing house prices have made millionaires out of many Bay Area homeowners. Now they want to start living like it.

They are selling properties here and moving to cities where typical homes can sell for up to $1 million less than in pricier parts of the Bay Area. A small but growing ecosystem of real estate professionals has sprung up to serve them.

San Ramon real estate agent Scott Fuller, who started a website, LeavingtheBayArea.com, last year, has helped homeowners depart to Florida, Reno and Henderson, Nev. and Boise, Idaho, in addition to traditional hotspots for exiting Californians such as Portland and Seattle.

“For families who bought at the right time, 2010 or 2011, they’re now sitting on substantial equity. The equity has put them in a position so they have choices,” Fuller said.

Indeed, the median value of a home in San Francisco has nearly doubled in the last decade, rising from $716,000 in January 2010 to $1.36 million in February, according to Zillow.

Median prices have surged to well above $1 million in much of the rest of the Bay Area as well, including the cities of San Jose and Berkeley, and the counties of San Mateo and Marin.

While that high cost of housing is blamed for forcing thousands of people out of the Bay Area, it’s also created large paper gains for longtime owners — and an added incentive to cash out and go.

California has led the nation in outmigration, with departures exceeding arrivals by more than 100,000 each of the last three years.

To a large extent, this exodus is a story of shifting demographics as better-paid, well-educated relative newcomers take the place of those who head to lower-priced cities. Among those with college or graduate degrees, more are arriving in California than leaving it, census data shows.

Meanwhile, Bay Area home-buying demand is expected to get an additional boost as IPO proceeds at Uber, Lyft, Pinterest, Slack and other Bay Area growth companies start to flow into the housing market.

Still, those making their way to the exits say other byproducts of the Bay Area’s success — such as traffic congestion and high taxes — have also spurred them to make the move.

Recent surveys by the Bay Area Council and Silicon Valley Leadership Group have found almost half those surveyed are thinking of leaving the Bay Area in the next few years. Among millennials, it’s well above 50 percent.

It’s a potent pitch for out-migration specialists like Fuller.

“You can go to places like Phoenix, Reno, Las Vegas and a lot of areas in Texas, primarily Austin and Dallas,” Fuller said. “In those areas you can buy a nice home for $300,000 to $400,000.”

A rally in Raleigh

Real estate agents in California and Raleigh say the North Carolina city is an increasingly popular destination.

“I’m seeing a lot of people from California looking to retire here,” said Lynn Johnson, a broker at brokerage firm My Southern View, based in the Raleigh suburb of Garner.

Some are not just moving their homes, they are using their Bay Area gains to invest in other real estate as well.

Silicon Valley real estate investor and brokerage owner Myron Von Raesfeld is a case in point. The CEO of Santa Clara-based Windermere Silicon Valley said he recently sold a duplex in Santa Clara and bought several properties in the Raleigh area now worth about about $7.5 million.

“Raleigh-Durham reminds me of Silicon Valley in the 1970s and ’80s,” Von Raesfeld said. He points to the Raleigh area’s three large universities anchoring the region’s Research Triangle Park as big draws for both students and tech employers, including Cisco Systems, IBM and GlaxoSmithKline.

Von Raesfeld, who says Raleigh will become his primary residence this year, said he’s helped sell so many properties in the Raleigh area to Californians that’s he’s among the region’s top realtors.

He’s also working on selling Raleigh to his six adult children as he tries to convince them to leave the Bay Area for North Carolina. He says he may shutter his property management company in Santa Clara if his 30-year-old son Jason, who runs the business, agrees to move to Raleigh and set up shop there.

Investor appetite in Raleigh has helped fuel a 6 percent gain in the median home price over the past year — but it’s still only $272,800.

“Investors in Raleigh who once focused on homes selling for $130,000 to $150,000 are now buying properties for $225,000,” said Johnson at My Southern View, which features beehives on the roof to attract visitors to the office.

Vanessa Bergmark, CEO of Oakland-based Red Oak Realty, expects a Bay Area exodus may just be getting started.

“There are some major issues in California that could put a dampening on the future of the state, where residents and opportunities and companies and innovation will leave. That’s our biggest worry,” Bergmark told a San Francisco business audience last fall. “Watch what you invest in because the opportunities that we think exist because they once did, may not be the ones happening here. They’ll probably happen out of state.”

Fuller said he spends part of his time fielding calls from Boise, Idaho, and other cities that see the Bay Area exodus as an economic development opportunity, especially when it comes to Californians moving in with pockets full of cash. (That could explain why Boise has enjoyed one of the highest rates of home price appreciation in the past year — 18 percent, according to Zillow.)

“A lot of people that work for the cities are trying to recruit people to move in,” Fuller said, “They call to say, ‘We’d love to talk to you about how we can help you tell people what it’s like to live here.’

“I’m getting more and more of those calls,” Fuller said. “These cities are actually very aggressive.”

Bay Area median home price drops for first time in 7 years

Kathleen Pender, San Francisco Chronicle, April 29, 2019 

Bay Area home prices fell last month on a year-over-year basis for the first time in seven years, according to a report Monday from research firm CoreLogic.

The median price paid for a new or existing home or condo in the nine counties was $830,000 in March, up 7.8 percent from February but down 0.1 percent from March of last year.

The last time prices fell year over year was in March 2012. After that, they rose for 83 consecutive months, often in the double digits for long stretches of time. In March of last year, the median price was up a whopping 16.2 percent over March 2016. After that, the appreciation rate slowed down, but was still positive through February.

“It’s not that surprising that we hit the wall, at least in terms of a pause,” said CoreLogic analyst Andrew LePage.

Home sales and prices typically pick up between February and March as buyers position themselves to move over the summer. And they did this year, “but not as strong as last year,” said Glen Bell, a broker with Better Homes and Gardens Reliance Partners in the East Bay.

“It’s not like the sky is falling,” he said. “We are going through a gradual move from a hot seller’s market to a more balanced market. There are fewer offers, properties are staying on the market longer, you see price reductions and sales have been coming down.”

Santa Clara County saw the biggest year-over-year decline, falling 10 percent to $1.08 million. But it was also the hottest market in the Bay Area, if not the nation, in the first part of last year.

“We’ve definitely seen some softness and some slowing,” said Michael Repka, chief executive and general counsel of DeLeon Realty in Palo Alto. One of the main reasons, he said, is the change in federal tax law.

Starting last year, the federal deduction for all state and local taxes combined was capped at $10,000. In Silicon Valley, many homeowners pay more than $10,000 in state income taxes alone, meaning they get no deduction for property taxes, which can reach into the tens of thousands of dollars on newly purchased homes.

That didn’t seem to matter much in the first part of last year. “People didn’t grasp how bad it was until they did their taxes,” said Repka.

The number of homes sold in the Bay Area last month hit 6,124, up 39.4 percent from February, but down 14.8 percent year over year, CoreLogic reported.

The home sales and prices recorded in March “mainly reflect buyer purchasing decisions in February,” LePage said in a press release. In February, the market was recovering from the partial government shutdown, the stock market was on the mend and mortgage rates were dropping.

Since the end of February, the stock market has gone even higher, mortgage rates have gone lower and a trio of big Bay Area companies — Lyft, Pinterest and Zoom Video Communications — have gone public, with more to come.

The next two months will likely clarify whether many buyers who stepped out of the market last year — when prices hit an all time high of $875,000 in May and June — can be lured back in with lower mortgage rates, lower prices and IPO cash — or whether something more fundamental is going on.

Census data released this month showed that the Bay Area’s estimated population growth over the past two years slowed dramatically compared with the previous six, and the region’s astronomical housing prices are at least partly to blame. In Sonoma, Napa and Marin counties, the population dropped over the past two years ending July 1, as the fires left many people homeless.

Jason Nelson, an agent with Alain Pinel/Compass in Mill Valley, said that in Southern Marin, “there might be some slowdown in the market especially on the higher end. For well-priced homes that have what people are looking for — finish level, location, uniqueness — they are still going for over asking with multiple offers in short on-market dates.”

“The houses staying on the market are at prices that the marketplace just can’t bear. People say this house went for $2 million so my house must go for $2 million, but it has different views, different amenities.”

In Alameda and Contra Costa counties, the inventory of homes is almost twice what it was last year, Bell said. At the end of March, there was a 39-day supply of homes on the market, meaning that if homes sold at the same rate they’d been selling over the past 12 months, it would take 39 days to sell them all. At the same time last year, there was a 24-day supply. With that kind of supply increase, “you think there would be an increase in sales. We are not seeing that.”

In cities still “fairly hot,” such as Berkeley, Albany, El Cerrito, Alameda and parts of Oakland, many homes are still selling at prices above asking. “We’re seeing more weakness in west and central Costa Costa County.”

But in general, he said, most homes are selling for list price, or a little above or below. In other words, a more normal market.

America’s 10 Fastest-Gentrifying Neighborhoods

By Lance Lambert | Realtor.com, Apr 15, 2019

When it comes to real estate, gentrification might just be the touchiest subject of all. In search of reasonable housing prices, short commutes, and the tantalizing prospect of a kick-ass return on investment, professionals are moving en masse into lower-income neighborhoods. But while these newcomers often rehab old and vacant homes and bring a rush of investment to the community, many long-term residents and business owners don’t get to experience the booms—they get priced out of the very neighborhoods they helped build.

Still, the tsunami of gentrification, having utterly transformed some of the biggest cities on each coast (hello, New York and San Fransisco!), continues to wash over the nation, an inexorable force. Accelerated by sky-high rents and home prices as well as a wave of urban renewal, it’s now hitting previously overlooked neighborhoods. For home buyers, it’s an opportunity—and a challenge. Those who time it right and buy homes in places on the early cusp of gentrification can get in cheaply, and be assured of a big windfall down the road.

So the realtor.com® data team set out to find the fastest-gentrifying neighborhoods in the U.S. We wanted to identify the places on the upswing now.

“Neighborhoods that are well located, with public services and transportation that were originally built for the middle class, are the ones more likely to be gentrified,” says Phillip Clay, professor emeritus at the Massachusetts Institute of Technology and author of “Neighborhood Renewal: Middle-Class Resettlement and Incumbent Upgrading in American Neighborhoods.”

The neighborhoods gentrifying the fastest today are still in big cities, but they’re mostly secondary markets with room to grow, packed with affordable historic homes, and usually located near overpriced urban hot spots.

Clay takes an unvarnished view of urban gentrification: “Vacant land is developed,” he says. “That’s an active gain for the city. And commercial activity increases.” But with it comes higher prices all around.

“For longtime residents, the only people who are winners are those who are in a position of cashing out,” he adds.

To find the fastest-gentrifying neighborhoods, we looked at lower-income ZIP codes in America’s 100 largest cities. We excluded ZIPs that were more expensive than their city’s median sale price back in 2012 as well as those with few home sales in the years we measured. Then we created our ranking based on the changes in the following metrics from 2012 to 2017:

  • Change in median household income
  • Change in median home sale price
  • Change in the share of residents over 25 with a bachelor’s degree or higher
  • Change in the share of residents over 25 with a master’s degree or higher
  • Change in median home listing price on realtor.com*

We limited the ranking to just one ZIP code per city. Got it? Let’s take a tour of some places that are changing fast.

6. Uptown (Oakland, CA)

ZIP code: 94612
Median list price: $695,100
5-year median sale price change: +128.2%
5-year median household income change: +63%
5-year change in the share with bachelor’s or higher degree: +26.3%

Even six-figure-income families can feel poor in San Francisco. That’s why many are heading to across the bay to Oakland, the formerly crime-riddled community in the East Bay. In recent years the Uptown neighborhood has become the city’s entertainment hub, anchored by the overhauled Paramount Theatre, an art deco building that’s now home to Oakland East Bay Symphony, the Oakland Ballet, and dozens of other live performances each year.

“People start to ask themselves, ‘Do I want to spend $3 million for a townhouse, or do I want to spend one-tenth of that and still be a commutable distance to my job?’” says Chunlei Liu, a real estate agent with Climb Real Estate.

In 2012, the median home price in Uptown was $315,000. Now, the cheapest abode on the market is a 600-square-feet, one-bedroom condo priced at $499,000.

“We have a lot of properties that were neglected for a long period of time. When developers or even investors come in and make upgrades on those properties and pay the property taxes, it makes the city better,” says Liu. But “there’s definitely community blowback. … People can’t afford to live in the neighborhoods where they once were.”

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on May 12, 2019 at 11:45 pm
Glen Bell | Posted in Uncategorized |

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