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.

A 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

 

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

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

 

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

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

March 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.

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 March. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring. Inventory has increased by 44.5%, now sitting at a 39 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of March of a 24 day supply). Pendings increased with new inventory coming onto the market, but it still lags behind last year by 9.2%. The pending/active ratio increased slightly to .95, still below our neutral mark. However, our ratio last year at the end of March was a very strong (seller’s) 1.62. This is quite a difference. This is the ninth 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 as has been the case now for quite some time. 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 38% 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 31% remaining active over 30 days and 14% 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 39 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 24 days.

• Our inventory for the East Bay (the 39 cities tracked) is now at 2,550 homes actively for sale. This is higher than last year at this time, of 1,1,623 or (57.1% 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 2,414, less than what we saw last year at this time of 2,634, or 9.2% lower.

• Our Pending/Active Ratio is .95. Last year at this time it was 1.62.

 

• Sales over the last 3 months, on average, are 1.9% over the asking price for this area, lower than what we saw last year at this time, of 5.3%.

 

Recent News

Low mortgage rates won’t heat up the housing market, analysts say

Instead, the slowing economy will trample homebuyer confidence and home-price growth will fall

By Jessica Guerin, Housingwire, April 5, 2019

Mortgage rates have dropped significantly as of late, with the 30-year fixed coming in at an average of 4.08% this week.

The development has spurred activity in purchase mortgage applications as homebuyers act now to take advantage of the low rates while they’re here.

But analysts at Capital Economics warn against getting too excited about the possibility that low rates will heat up the housing market.

“Mortgage interest rates have dropped sharply since the end of last year, and the 30-year fixed rate is set to fall to 4.2% by the end of 2019,” analysts wrote. “But that won’t spur a significant rise in housing market activity.”

Why?

Blame the slowing economy.

“That will hit homebuyer confidence, and with inventory levels still low that implies existing home sales will do no more than tread water over the next year or so,” the analysts wrote.

Tempered housing demand will cause home prices to continue to slow, the group said.

Prices slowed to 5% in 2018, and Capital Economics predicts they’ll land around 2% by year’s end and close out 2020 at 0%.

But things will look up from there.

“An improving economy, coupled with low interest rates, will lead to a resumption in growth 2021, and we expect a rise of around 3%.”

The group also predicts that mortgage rates will end up around 4.2% by late 2019.

But as the economy’s slowdown begins to right itself in 2020, mortgage rates will again creep upward, the analysists predicted, with the 30-year fixed landing around 4.7% at the end of 2021.

But while the housing market won’t exactly see the flurry of activity some had hoped for, Capital Economics said that new home sales will find some support this year in the shift toward building cheaper starter homes, which are currently in short supply.

“Lower lumber prices will support a shift to cheaper homes and, alongside upbeat homebuilder sentiment and the relatively bright outlook for new home sales,” the group wrote, “that should enable a decent rise in single-family housing starts over the next couple of years.”

Trulia: This is how spring’s housing market will fare

Trulia says the market is in the early stages of a cyclical downturn

By Alcynna Lloyd, Housingwire, April 3, 2019

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.

“Cyclical housing market downturns occur roughly every 10 years, and they typically don’t happen overnight. Instead, they play out steadily over a few years, first showing up in sales volumes and later—usually a year or two later—in prices,” Trulia writes. “The housing market currently appears to be in the early stages of such a downturn: declining sale volumes and other market indicators indicate that it is cooling off, gradually pivoting away from the heated sellers’ market of recent years.”

And Trulia is right, home prices have been steadily depreciating since early 2018.

In fact, a recent report from CoreLogic indicates that since peaking at 6.6% growth in April 2018, home-price growth has continued to slow down.

However, despite these concerns, Trulia believes the housing market still has the ability to come out on top.

“The downturn we’re entering is inherently different from the previous one that saw home values plummet over 40%, and is likely to be mild,” Trulia writes. “Declining sale volumes will probably be followed by small declines in prices or possibly just a prolonged period of flat-to-modest housing price growth.”

As home prices continue to depreciate, Trulia predicts the housing market will shift in the favor of homebuyers.

“Sellers should expect price cuts to be more common, and properties will likely take longer to sell, causing inventory to build up,” Trulia writes. “More inventory, in particular, will slowly ease the competition between buyers, allowing them to negotiate with this spring’s sellers a shade more confidently.”

So, how will the housing market fare overall this spring? Well, Trulia says – just fine.

“There almost certainly won’t be a steep drop-off in home values like the one that occurred a decade ago, though the unfolding slowdown will be more palpable in some pricey markets,” Trulia writes. “Instead, any cooling in appreciation is likely to be moderate and happen gradually – likely showing up as either an extended period of flatter home price growth, or as a modest price decrease in the next couple of years.

People really want to leave the Bay Area, claims every survey

For years, pollsters have said San Franciscans are spoiling to leave—and it’s all starting to sound the same

By Adam Brinklow, Curbed, Mar 27, 2019

It happened again.

The Silicon Valley Leadership Group and Bay Area News Group released the results of a new survey of Bay Area voters this week. Among its findings: many residents say they want to leave the area in the near future.

This corresponds to roughly several years of similar public polling results, which detail discontent among the broad Bay Area public.

In fact, results like this have become so common since the start of the second tech boom and the beginning of the housing crisis that it has almost achieved meme-like levels, with each new survey bringing a distinct sense of deja vu.

To help keep it all straight, here’s what polling numbers published since 2018 say:

• In the latest outing, a poll of 1,568 registered voters in San Francisco, Alameda, Contra Costa, Santa Clara, and San Mateo counties conducted by the Silicon Valley Leadership Group for Bay Area News Group found that 44 percent of those asked say they plan to leave the region, “but only six percent say they have definite plans to leave in 2019.” Of those polled, 60 percent cited housing costs as the reason most likely to drive them away, with “cost of living overall” the second most likely rationale at 57 percent.
• Online real estate company Redfin posts quarterly “migration reports” every few months, estimating how many of its users are shopping for homes in other cities and ranking which metros have the highest likely “outflow.” Ever since Redfin began this tally, San Francisco (a term Redfin applies to the Bay Area as a whole) has ranked in the No. 1 spot, most recently with 23.8 percent of SF users browsing out-of-town locales. The most likely destination is Sacramento—also a persistent trend for years. But as Curbed SF noted before, it’s impossible to tell how many SF Redfin users actually take the plunge, go into escrow, and leave.
• In February, Chicago-based public relations firm Edelman released its annual Trust Barometer for California, which surveyed 1,500 California residents, including 500 from the Bay Area. Of those asked, 53 percent of Californians say they are considering leaving the state, including 50 percent of Bay Area residents. Tellingly, among Bay Area millennials, the total was 66 percent. For residents with children (under 18 years of age), the figure was 63 percent.
• Also in February, regional think tank Joint Venture Silicon Valley released its annual Silicon Valley Index and found that “for the third year in a row, people are moving out of Silicon Valley nearly as quickly as they are moving in.”
• In August of 2018, Washington DC-based non-profit the Public Religion Research Institute surveyed 3,300 Californians and found that 64 percent of residents statewide would advise out-of-towners to move to some other state. However, in a surprise bit of optimism, 55 percent of Bay Area residents said they would tell others to come to California for opportunities despite the gloomy attitudes of neighboring regions.
• In June of last year, the Bay Area Council, a business-sponsored public policy advocacy group, released results of its annual survey of 1,000 Bay Area households, including 120 from SF. In those results, 46 percent of respondents said they were “likely to move out of the Bay Area in the next few years.” For the 2017 survey, that same figure was just 40 percent. One year prior, the number was 36 percent. The high cost of housing was the most commonly cited complaint about the region.
• In February 2018, another Edelman poll found that 49 percent of 500 Bay Area residents questioned agreed with this statement: “I am considering moving away from California because of the high cost of living.”

And that’s just in the past year; polling stretching back through previous years shows a persistent trend toward pessimism, housing anxiety, and speculation about abandoning San Francisco, the Bay Area, and the entire state of California.

Despite denizens’ desires to vacate the area, San Francisco’s population continues to grow, although growth has slowed significantly in recent years.

The top 10 commuter cities if you work in SF: Did your city make the cut?

By ERIN BALDASSARI, Bay Area News Group, April 4, 2019

Do you work in San Francisco but can’t afford to live there? If so, you’re like more than 250,000 other people who schlep into the city and back five days a week.

But where to schlep from? A new study by PropertyShark factored in travel times, median home prices, school quality and crime rate and came up with a list of the 10 best places to live if you commute into the region’s biggest job center.

South San Francisco, the study found, topped the list, followed by San Bruno and San Rafael.

The study only considered cities with 30,000 or more residents that were located within a 20-mile radius of San Francisco. Commute times were given the most weight in the analysis — 40 percent of the total score — followed by median home prices at 30 percent, and school ratings and crime statistics at 15 percent each, said Patrick McGregor, the lead researcher on the study for PropertyShark.

To evaluate commute times, the researchers used averages from the 2017 American Community Survey, part of the U.S. Census, as well as the driving time from each city to San Francisco as calculated by online tools like Google Maps.

Other factors that might influence where people purchase homes, such as the availability of single-family homes or the prevalence of public transit, were not included, McGregor said.

Balancing commute times and home prices, however, led to some surprising results, like San Leandro coming in at No. 10 on the list, McGregor said. Of the cities included in the study, San Leandro was one of the furthest from San Francisco, he said, but lower average home prices helped pull it up in the rankings.

For McGregor, whose employer is based in New York, there was something else surprising about the disparities among Bay Area cities.

“We knew San Francisco was going to be more expensive than the rest of the region,” he said. “We didn’t expect to see how much more expensive it was.”

But we didn’t need an East Coaster to tell us that.

Are in-law units the secret solution to the state’s housing shortage?

By Matt Levin, CALMatters, April 4, 2019

California lawmakers have pitched dozens of bold, high-profile solutions to California’s affordable housing shortage: billion dollar affordable-housing bonds, revamping the state’s signature environmental protection law, suing NIMBY-inclined cities into permitting more development.

But for all the big-picture housing legislation that has actually become law over the past few years, the solution that’s proved most immediately effective at providing new housing has been rather small in size: Accessory Dwelling Units, colloquially known as in-law units or granny flats.

Primarily as a result of new state laws that make it easier and cheaper to convert garages into living spaces or to build a backyard “casita,” these units have exploded in popularity in many California cities. Los Angeles received 25 times as many applications to build them in 2017 than it did the previous two years; Oakland, San Francisco and San Jose also have seen major jumps. The backyard units, which are typically around 500 square feet and have a bathroom and kitchen, are especially popular among older California families looking to downsize and rent out their main property. Estimates for the cost of constructing the units vary from builder to builder and city to city, but one survey found an average cost of $156,000 for builders of Accessory Dwelling Units in the Pacific Northwest.

“Now we’re finding dad has died, mom’s there by herself, and all the kids are gone, and they don’t need that big a house,” said state Sen. Bob  Wieckowski, Democrat from Fremont, who co-authored legislation in 2016 and 2017 to ease the costs and regulatory hurdles to building such units. Wieckowsi is at it again this year, and predicts that the state could create up to a million new homes with these accessory units, assuming some important regulatory tweaks.

On this episode of “Gimme Shelter: The California Housing Crisis Podcast,” CALmatters’ Matt Levin and the Los Angeles Times’ Liam Dillon discuss the promise of in-law units as a solution to the state’s housing crisis. They interview Sen. Wieckowski and builder Stan Acton of Acton ADU.

 

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

 

February 28, 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, rising interest rates, 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 February. Typically, we see a dramatic drop in inventory during December followed by a modest increase in January and February. Inventory has increased by 34.4%, now sitting at a 36 day supply of homes for sale, (However, this is much higher in comparison to last year’s end of February of a 21 day supply). Pendings increased slightly, however, we are now 9.1% lower as compared to last year. The pending/active ratio increased slightly to .85, still below our neutral mark. However, our ratio last year at the end of February was 1.44. This is quite a difference. This is the eighth month in a row that the ratio falls under 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 as has been the case now for quite some time. 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 to 40% of the homes listed now remaining active for 30 days or longer, while 20% 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 January and February. Still there are more homes “sitting” this year as compared to last year, (with then 27% remaining active over 30 days and 12% remaining active over 60 days).

 

• It’s hard to predict how much tax reform will play into this but see the article, “Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee.” We are seeing interest rates starting to go up. Prices have continued to rise and are only now beginning to flatten out. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.

 

• 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 36 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 21 days.

 

• Our inventory for the East Bay (the 39 cities tracked) is now at 2,373 homes actively for sale. This is higher than last year at this time, of 1,524 or (55.7% 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 2,006, less than what we saw last year at this time of 2,201, or 9.1% lower.

• Our Pending/Active Ratio is .85. Last year at this time it was 1.44.

 

• Sales over the last 3 months, on average, are 1% over the asking price for this area, lower to what we saw last year at this time, 3.8%.

Recent News

Power is Shifting To Buyers in Most California Housing Markets in 2019

By Michael Gerrity, World Property Journal, March 8, 2019

 

High prices still make it difficult to afford a home in many US markets

Zillow is reporting this week that a limited U.S. housing inventory and rapid price appreciation have kept sellers firmly in the driver’s seat for several years as the United States recovered from the housing market collapse in 2008. Now, buyers are gaining more negotiating power as the housing market slows, especially in some of the nation’s hottest markets.

According to Zillow’s Buyer-Seller Index, in 20 of the 35 largest U.S. metros, market conditions favor buyers more than they did a year ago. The index is based on the share of listings with a price cut, how long it takes to sell a home, and the sale-to-list price ratio. By comparing each metro across time, this analysis shows whether the market is cooler (favoring buyers) or hotter (favoring sellers) than it was in the past.

California markets have seen the biggest shift toward buyers since last January, led by San Jose, which has seen the most significant swing. San Francisco, San Diego, Los Angeles and Denver round out the top five markets where buyers will have an easier time navigating the market than they would have in recent years.

Even though San Jose and San Francisco have cooled exceptionally, they are still the hottest markets compared with others around the country, markets where listings see few price cuts, homes don’t stay on the market for long, and sale-to-list price ratios are higher. In these two Bay Area markets, home prices are so prohibitive, the typical buyer must put more than a 20 percent down to keep mortgage payments at or below 30% of monthly household income.

San Jose buyers would need a 49 percent down payment, or $614,100, nearly three times as much as the national median home value. Buyers in San Francisco (43 percent), Los Angeles (43 percent) and San Diego (31 percent) would also need to put down more than 20 percent.

“It is no surprise that the markets which pushed the bounds of affordability over the housing recovery are now experiencing significant cooling,” said Skylar Olsen, Zillow Director of Economic Research. “As down payments and mortgage payments far outpaced incomes, buyer demand eventually exhausted itself. Those buyers looking in cooling markets will likely welcome the relief, although the entry price is still high. Inventory is returning and spending more time on market, meaning their decision making can be made with a cooler head.”

While some of the hottest markets slowed down over the past year, others have become more seller-friendly.

Miami – which tends to see large fluctuations – has seen the biggest overall shift toward favoring sellers over the past year, with homes selling about a week faster than they did a year ago.

Even cool, Bay Area housing market is still hot

The typical buyer in Santa Clara County needs $614,000 down to keep mortgage within budget

By LOUIS HANSEN, Bay Area News Group, March 20, 2019 

he San Jose housing market has cooled more than any other in the country — and it’s still the hottest in the nation, according to a recent Zillow survey.

The bidding wars and quick cash sales have abated, and home sellers are cutting prices more often and waiting longer to close deals than a year ago. But middle-income families still struggle to afford the median priced home of $1.2 million in the San Jose metro area. A typical family needs to put about $600,000 down to fit that mortgage comfortably in their budget.

“Buyers are not being forced into crazy bidding wars to leapfrog each other into a house,” said Zillow economist Jeff Tucker. But, he added, “It has been the hottest market in the country. In a lot of ways, it still is.”

The Bay Area housing market has rocketed up and pushed out many would-be buyers. Median sale prices for existing homes have climbed, year-over-year, every month since April 2012, according to real estate data firm CoreLogic. These rising prices — the median sale price in January for the nine-county region was $750,000 — have slowed Bay Area home buying to its lowest level in a decade.

Sales slumped nearly 13 percent in January from the previous year. Agents say homes priced over $2 million are spending longer on the market, and CoreLogic data found transactions for luxury homes in San Mateo and Santa Clara counties dropped by more than 25 percent in December and January.

Real estate agent Ramesh Rao said higher-end properties in Cupertino and Saratoga are taking longer to sell. “At the moment, it is neither clearly a sellers’ market nor a buyers’ market,” Rao said in an email. “The market is moving sideways.”

Zillow measured the slowdown by charting home listings with a price cut, the length of time it takes to sell, and the sale-to-list price ratio. Last year, homes in San Jose metro took 41 days from listing to close, a remarkably quick turnaround given the typical steps a home sale requires — bank approval, inspections and insurance. It took 49 days in the San Francisco and Oakland metro area.

“That’s just lightning fast,” Tucker said. Some of the quick deals could be attributed to all-cash offers with buyers agreeing to take properties as-is, with no contingencies, he said.

San Jose homes now take about 60 days from listing to closing, while homes in the East Bay and San Francisco take 57 days to finalize a sale, according to Zillow.

About 15 percent of homes listed in the San Jose metro area took a price cut. Homes still sold for a robust 97 percent of asking price.  Last year, the typical property sold for a 7 percent premium over asking price.

In the East Bay and San Francisco, 11.5 percent of sellers dropped prices and sold their homes for an average of 98.6 percent of the asking price.

But even as the market cools, median home values have surpassed $1 million in the San Jose metro area and ticked up to $957,000 in the San Francisco metro. At those prices, a family in Santa Clara County making the county’s median income of about $107,000 would need to put $614,000 down to keep mortgage payments at 30 percent of their monthly earnings.

Agents say demand remains robust, despite the few hints of a slowdown.

Agent Mark Wong of Alain Pinel said demand is strong for entry-level homes, listing for about $1 million, on the Peninsula. Wong sold two homes recently in Mountain View and San Jose for more than the asking price and with no contingencies. Both sellers accepted offers within two weeks, he said.

On a recent weekend, Wong had 50 people tour an open house during a rainstorm. “Lots of people still want to get into the market,” he said. “I don’t think it’s slowing down.”

Will Doerlich with Realty One in San Ramon said homes for sale have increased in East Bay cities, and sellers have been willing to accept more contingencies on offers.

But in San Ramon, Dublin and Pleasanton, he said, “it’s extremely busy and extremely competitive, still.”

Here’s why San Francisco housing prices could soon get even crazier

San Francisco has the highest housing prices in the nation, and it may only get worse.

By MIKEMURPHY, Market Watch, Mar 7, 2019

 

San Francisco is already facing a housing and affordability crisis, but it may be about to become a lot worse.

By the end of 2019, the city could have hundreds, even thousands, more millionaires — on paper at least — thanks to a slate of tech IPOs lined up. On Thursday, a report by the New York Times’ Nellie Bowles laid out what may be coming, boiled down to two words: “Housing madness.”

San Francisco-based tech unicorns planning to go public in the near future include Uber Technologies, Lyft, Slack, Postmates, Pinterest and Airbnb. While the San Francisco Bay Area has been no stranger to tech IPO riches in recent years, as Bowles pointed out, previous big tech IPOs — think Google and Facebook — have been largely based outside San Francisco and had workers spread out around the area. This new crop are based in the city itself, and many of their employees live there as well — or want to.

Real estate agents are already drooling. According to the Times, at a recent gathering, one agent said there likely won’t be any one-bedroom condos in San Francisco under $1 million within five years. And single-family homes, which already average well over $1 million, will reach an average of around $5 million, he forecast.

Millennial tech workers want the convenience of the city, another real-estate agent told the Times: “They seem to not want to own cars, and food deliveries are really easy now, and they want to be close to entertainment, so they’ll stay in the city.”

That could be bad news for non-millionaires who are trying to find an affordable apartment or — gasp! — even a house. Displacement is likely to increase as housing prices become even more out of reach for lower- and middle-class people. The median price of a one-bedroom apartment in San Francisco recently hit a new high of $3,690 a month, according to real-estate website Zumper, up 9% from the same time last year. That’s more than $800 higher than the median New York City apartment.

But while San Francisco’s inequality gap may grow, some small businesses are poised to cash in. Event planners told the Times that the upcoming IPO boom will likely surpass the ‘90s tech bubble in terms of sheer excess — which is good news for them. One told the Times that party budgets for tech companies can top $10 million, with A-list entertainment. One recent tech exec’s ‘80s-themed party featured the B-52s, Devo, The Bangles, Tears for Fears and A Flock of Seagulls, the planner said.

At least one electric bike shop is stocking up its inventory, predicting a sales boom later in the year, and a nearby ice sculptor is gearing up for a big year, likely carving everything from massive ice sculptures to ice cubes with company logos engraved in them.

The size of the coming boom is no sure thing — IPO bubbles have a nasty tendency to pop, as employees of companies such as Snap SNAP, -0.11%   and Blue Apron APRN, -3.85%   can attest to. Employees’ stock options will be locked up for months after the companies go public, and it’s unlikely most will entirely cash out at once. Still, there will likely be a noticeable effect.

The growing financial excess has some talking about the certain backlash.

“There’s some who’ve talked about pitchforks,” a private wealth adviser told the Times. “And I don’t think we’ll go there, but there’s a point when that makes sense.”

Bay Area home prices ‘totally random’ as sales slow

By Kathleen Pender, San Francisco Chronicle, March 1, 2019 

The median Bay Area home price rose at its slowest year-over-year pace in two years in January as a slowdown that hit the real estate market in September continued into the new year.

The median price paid for a new or existing home or condo in deals that closed in January in the nine counties was $730,000, down 7 percent from December and up 2.2 percent from January of last year, according to a report released Thursday by research firm CoreLogic. In January 2018, the median price rose 13.8 percent from a year earlier.

Prices rose in the double digits for 13 consecutive months until September, when the market downshifted amid a big jump in inventory. Buyers backed off during the past three months of the year amid a jump in interest rates, a sharp stock market correction and general lack of affordability.

Many sales that closed in January were struck in December.

By the end of February, the stock market had recovered most of its losses and mortgage rates were the lowest in more than a year. The average rate on a 30-year mortgage this week is 4.35 percent, down from nearly 5 percent in November and 4.43 percent a year ago, according to Freddie Mac.

The market now “is totally random,” said agent Alexander Clark of TheFrontSteps Real Estate in San Francisco.

He listed two homes on Page Street last spring “that literally flew off the shelves,” he said. He listed another on Page Street just after Labor Day that didn’t sell until January, after he had taken it off the market. The buyer had seen it in September. Another house he sold on Page Street that closed in late January took just as long.

Bay Area home sales slow but prices shift back into high gear

Sales drop nearly 20 percent in Santa Clara, Contra Costa counties

By LOUIS HANSEN,  Bay Area News Group, March 1, 2019

For a few months, it seemed as if the speeding Bay Area housing market was ready to slow down.

Agents reported sluggish sales and buyers having a few more options.

But any buyer relief was short-lived — median sale prices for existing Bay Area homes surged 4.9 percent year over year in January, according to a report released Thursday from real estate data firm CoreLogic. The region’s highest-in-the-nation home prices sent many shoppers to the sidelines, and overall sales dropped 12.8 percent, hitting lows not seen in more than a decade.

CoreLogic analyst Andrew LePage said buyers delayed purchases due to stock market volatility and uncertainty caused by the government shutdown. The Bay Area had its lowest number of January home sales in 11 years, according to CoreLogic.

“Sales started to sputter late last year,” LePage said. “There’s plenty of people just priced out.”

Future changes in the market, he added, will hinge on mortgage rates, housing inventory and the strength of the economy.

In December, median sale prices inched up just 1.3 percent, hinting at a possible end to a record-breaking streak of higher prices that started in April 2012. Four counties actually saw price drops.

But families and individuals buying homes in January found the simmering market still bubbling throughout the nine-county area, with median prices for existing homes rising to $750,000 in January, a gain of $35,000 from the same time last year.

Median sale prices rose 1.9 percent to $1.07 million in Santa Clara, 5.6 percent to $565,000 in Contra Costa, 1 percent to $767,750 in Alameda, and 3.9 percent to $1.3 million in San Francisco. Prices dropped slightly in San Mateo County, where the typical home sold for $1.33 million.

The median sale price for existing homes peaked in May at $935,000.

But the high prices in Santa Clara County — home to tech giants and a booming economy — contributed to home sales falling 18 percent from the previous year. Bargain hunters even stayed away from more affordable Contra Costa County, where transactions dropped 17 percent.

Agents say the market for starter homes — in the Bay Area, around $1 million — remains hot. Buyers are more discerning for properties selling around $2 million.

The sales slowdown was more pronounced for high-end homes on the Peninsula, according to CoreLogic. The number of homes that sold for more than $2 million dropped, year-over-year, in December and January by 36 percent in San Mateo County and 26 percent in Santa Clara County.

But overall, agents report strong demand and short housing supply as the local economy surges.

“Is now a good time?” said Alameda agent Sophia Niu. “In the Bay Area, now is always a good time.”

The market looked to be slowing down in the last quarter of 2018, Niu said. But the first two months of 2019 have been busy for Niu and other East Bay agents, she said.

Nui placed a four bedroom, 1,800-square-foot single family home in Alameda on the market in January. Her clients expected a softer market than the year before. But after two open houses, the owners received multiple offers substantially above the $828,000 asking price, Niu said.

“All indications are that this year is going to be really strong,” she said.

Nancie Allen, president of Bay East Association of Realtors, said the pace of sales has slowed. “Buyers are feeling much more patient,” she said. If a home looks like a good deal, she added, “I’m still seeing multiple offers and offers way above asking.”

Real estate agent Ramesh Rao, of Cupertino, said high-end sales have been slower, and customers have been more savvy about checking prices.

Michael Tkachuk, 42, moved from Luxembourg in September with his wife and 11-year-old son. He braced for high prices in the Bay Area but was willing to make the move for an enticing tech job and good schools.

“We knew that it was expensive,” said Tkachuk, an executive at a cybersecurity firm in Santa Clara. But by the end of July, he added, “the market kind of cooled down.”

They spotted an ideal house with five bedrooms and a big backyard on a quiet street in Los Gatos and bought below the $2.8 million asking price. The school is great and the neighborhood is filled with redwoods.

Rao, Tkachuk’s agent, said his tech industry clients come into the market with more data and sophistication.

New agency would raise public dollars to build thousands of housing units in the Bay Area

By Rachel Swan, San Francisco Chronicle, March 7, 2019

A new Bay Area agency would raise public funds to build thousands of homes a year, provide emergency rental assistance for tenants and help cities acquire land parcels for affordable housing, under a bill that state Assemblyman David Chiu will introduce Thursday.

The regional agency would be a housing version of the Metropolitan Transportation Commission, which oversees roads and transit in the nine-county Bay Area, and it would be empowered to place funding measures on the ballot. But already, the blueprint for Chiu’s bill has drawn opposition in suburbs that have long fought off affordable housing and fear they could lose local control.

Chiu is resolute. “I deeply respect the process and importance of localities being able to shape their communities,” he said. “But this cannot mean doing nothing … when so many residents are considering leaving our region because of housing costs, when workers are driving two or three hours a day to get to their jobs, when eviction rates are what they are.”

His legislation calls for the creation of the Housing Alliance for the Bay Area, spawned from a controversial 10-point document that Bay Area leaders approved in January. Dubbed CASA, the compact brought together developers, tech executives, politicians and tenant advocates who agreed to a set of principles: produce 35,000 homes a year throughout the nine-county region, protect longtime residents in neighborhoods that are rapidly gentrifying and tackle a housing shortage that has gnawed at the Bay Area for years.

The bill would use those guidelines as inspiration for a binding law and would generate $1.5 billion a year to get it started.

“This is the most intense challenge our region faces,” said Chiu, D-San Francisco. He added that the nine counties are “deeply interconnected” — failure to add development in Berkeley, Brisbane and Cupertino puts more pressure on Oakland and San Francisco.

CASA — a catchier nickname for Committee to House the Bay Area — had its genesis two years ago, when the Metropolitan Transportation Commission and the Association of Bay Area Governments convened a panel of mayors, developers and tech companies to address the problem together, drafting policies that would shield residents from displacement while putting more homes near transit lines and job centers. These ideas are catching on throughout the state: Gov. Gavin Newsom elevated housing to the top of his policy agenda, and lawmakers have introduced more than 200 bills this session to tackle the issue.

Yet the push to accelerate production has also hit resistance, particularly from smaller cities that call the CASA 10-point compact a cynical attempt to undermine their authority to make decisions. On Wednesday, just hours before Chiu planned to roll out AB1487, the city councils of Lafayette, Moraga and Orinda held a joint meeting at the Lafayette Library to air their concerns. Council members of the three cities were unaware of Chiu’s bill when they scheduled the meeting.

“They’ve totally usurped the public process here, and as a result they’ve influenced legislation,” said Lafayette Mayor Cameron Burks, referring to what he and others view as an underhanded attempt by the CASA panel to create a script for legislators. He noted that many of the 200 state bills have “CASA elements”: Some would override local zoning ordinances and limits cities’ ability to obstruct new development.

Chiu stressed that the Housing Alliance wouldn’t strip land-use authority from cities or counties, and it wouldn’t have the power of eminent domain to seize private property. Yet he’s still bracing for conflict. Critics of CASA reject the notion of a regional housing strategy, calling it “cookie-cutter” and “one-size-fits-all.” Proponents say the Bay Area has to unify if its leaders want to solve the complex housing crisis, which has pushed people into wildfire zones and forced them to endure long commutes.

The same debate flared up last year when Chiu successfully pressed legislation that enabled BART, the region’s rail system, to zone its parking lots for housing. That bill, AB2923, was supposed to sail through with little opposition. Instead, it drew support in the housing-hungry urban core but angered mayors and city council members in the suburbs who didn’t want to cede land-use decisions to a transit agency.

Even within the Metropolitan Transportation Commission, officials have mixed feelings about the CASA housing plan.

“There are things I love about it, but some of the dollar amounts are ambitious,” said Commissioner David Rabbitt, who is also a Sonoma County supervisor. He represents an area where officials are spending their political capital on sales tax measures to raise money for disaster relief. Housing is a huge need, he said, but there’s no money for it.

Commissioner Gina Papan, a city councilwoman in Millbrae, has also panned CASA for trying to “cookie-cut” a diverse Bay Area.

“Seventy percent of Bay Area residents live outside the big three cities that seem to be pushing this,” she said, referring San Francisco, Oakland and San Jose. Papan was appointed to the commission this year to represent San Mateo County, replacing Redwood City Councilwoman Alicia Aguirre, who lost her seat after voting for CASA.

Quest to leave Bay Area’s high prices and traffic grows

Bay Area most popular place to leave, Redfin study says

By LOUIS HANSEN, Bay Area News Group, February 15, 2019

High home prices, expanding rush hours and maybe the futile search for a cheap cup of coffee and affordable avocado toast adds up to one thing — the Bay Area is getting more popular to leave.

A new study by Redfin shows about 24 percent of online searchers in the Bay Area are looking elsewhere for a home — up from 19 percent last year.

“We’ve seen a lot of people leaving San Francisco and that trend has only increased,” said Daryl Fairweather, chief economist at Redfin. She added that data from searches on the company’s website has been able to predict migration trends that later appear in census data.

The study looks at home searches done on Redfin in the last three months of 2018. Bay Area residents were the top searchers for homes in Sacramento, Portland, Seattle, and Austin, Texas. The region outstripped New York, Los Angeles and Washington, D.C. for highest concentration of Redfin users actively looking to leave their city.

The strong Seattle economy, relatively lower housing prices, and the ease of transferring to other tech companies make that city a favorite choice, Fairweather said. “It’s really about jobs,” she said. “If you’re already in the industry, it’s a really easy transition.”

The study highlights a trend of outward migration from the Bay Area, although until recently newcomers outnumbered those leaving. The nine county region’s tops-in-the-nation home prices — the median sale price for an existing home in December was $775,000 — have sent discouraged residents young and old to out-of-state Realtors and moving companies.

An annual study released Wednesday by Joint Venture Silicon Valley confirms the steady migration away from the region. Silicon Valley gained roughly 20,500 foreign immigrants last year, while 22,300 residents moved to other regions and states.

Between July 2015 and July 2018, about 64,300 Silicon Valley residents left the region, replaced by 62,000 immigrants from other countries, according to the Joint Venture index.

Relocation has become a growing part of many local real estate agent’s portfolios.

Sacramento agent Devone Tarabetz has collected clients from San Jose, San Francisco, Oakland, Milpitas and Petaluma in the last year. “Affordability is usually the number one thing,” said Tarabetz, a San Jose native who has lived in Sacramento for two decades.

The mix of Bay Area clients going north include young families moving from San Francisco for a bigger home in a safer neighborhood to investors looking for deals on duplexes and small apartment buildings, she said. In the last year, she said, “I’ve seen a huge jump.”

She cautions newcomers about the weather (it’s hotter) and the schools (spotty) but encourages them to trade high rents and small apartments for single family homes in growing and safe communities. When they see their first homes, she said, “it’s a shock.”

Los Gatos agent Brian Schwatka has seen his business grow by focusing on older residents looking to leave Silicon Valley. The Sacramento region has been a favorite destination for several of his clients, he said, as well as Santa Rosa.

“People are looking for some sort of equivalent to the Bay Area,” he said. “It’s a mass exodus.”

Older Bay Area movers are generally looking for a less expensive area with the nice weather they’re used to — ruling out desert climates like Las Vegas and Phoenix, but opening up cooler spots like Portland and even Boise, Idaho, Schwatka said.

Idaho’s largest city has a population of 225,000, averages 30 inches of snow annually, and has summer temperatures that peak at 90 degrees. It’s a two-hour flight to the Bay Area, Schwatka said, making it an easy trip back to friends and family.

House hunters can find deals where the median home value is $287,000, according to Zillow. Prices have climbed 17 percent in the past year.

Many of his clients, he said, share a common refrain: “It just doesn’t feel like the old Silicon Valley anymore.”

Recession Watch: Will Another Downturn Rock the Housing Market?

By Clare Trapasso, Realtor.com, Feb 21, 2019

The Great Recession has receded in the rearview mirror, and pretty much every American would like to keep it that way, thank you very much. But we’re still all too aware that the whole financial disaster was precipitated by a deluge of bad mortgages. Sure, we’ve had nearly a decade of booming home sales and prices. But now that they’re slowing their roll, the whispers are starting to mount: Is another recession around the corner?

About 39% of Americans think the economy is slowing down, while 17% think we’re already in a recession or depression, according to a recent Gallup poll.

Yes, we might see a recession soon, economists say—but there’s no need to panic. That’s because the financial factors that helped cause last decade’s crash don’t exist this time around.

“We’re just scared because of what happened last time. And that’s not what’s going to happen [again],” says Lisa Sturtevant, a housing consultant and chief economist at Virginia Realtors, the state’s real estate association.

If there is another recession, she says, “most people are not going to lose their house. Most people are not going to lose their jobs.”

That’s a relief to hear—but then again, few experts predicted the lasthousing bust.

If a downturn does hit, probably toward the end of this year or the beginning of next year, most economists believe it will be brief and not nearly as painful as the last one. They anticipate that unemployment, currently at an extremely low 4%, will tick up slightly and there will be fewer new jobs created. But they don’t envision widespread layoffs resulting in scores of foreclosures and plunging home prices, as we saw in 2008–09.

“We’re at a record-low level of unemployment. The economy can’t stay here,” says Chief Economist Danielle Hale of realtor.com®. She forecasts a recession beginning within the next two years. “This one will be mild.”

Why it looks like we’re due for a recession

Although a recession can be precipitated by a housing bust, trade war, or global event, this time the U.S. economy may simply become a victim of its own success.

With national unemployment so low, employers have to compete hard for talent by offering higher wages. Those increased costs are often passed onto consumers. This in turn causes inflation as goods and services become more expensive. If inflation rises much higher than wages, then the country has a problem.

Enter the U.S. Federal Reserve. It battles inflation by notching up interest rates. The downside is that makes it more expensive for businesses to borrow money to expand or bring on more workers. And that can effectively slow down the economy.

It’s like someone blowing too much air into a balloon—eventually a little needs to be let out or it’ll pop. Similarly, the Fed needs to siphon off a little of the economy’s helium. It hiked rates four times last year, when the economy was hurtling along, but this year it may do it only once, if at all.

Actually, economic cycles in which the economy is growing and more jobs are being created historically don’t last more than a few years. The longest stretched from 1991 to 2001. This summer will mark the longest economic expansion in U.S. history from the trough of the crisis in June 2009.

So the good times eventually must come to an end.

This slowdown, coming on the heels of a wild run-up in home prices, may feel like déjà vu. But the main culprit behind the previous housing market bust was the torrent of subprime mortgages doled out to underqualified and often uninformed buyers. When those owners defaulted, it created a domino effect, ultimately affecting all corners of the nation’s economy.

After that, lending laws were considerably tightened across the board. Borrowers today must be in much better financial shape in order to snag a mortgage.

“Underwriting is a lot tighter, and the [loans] are a lot less risky,” says Joel Kan, who oversees economic and industry forecasting at the Mortgage Bankers Association. “Households are in a better position to absorb the shock than they were back then.”

Will a recession lower home prices?

Buyers on a budget shouldn’t pin their hopes on a recession to create a vast clearance sale of deeply discounted properties. Prices aren’t expected to plummet, although they may dip in more expensive markets. Overall, price appreciation will likely just continue to slow.

But if the Fed lowers interest rates again to counteract a poor economy, mortgage rates will likely go down, too. That will also make it cheaper to buy a house.

“If there is a recession, the people with stable jobs will see it [as] a second-chance opportunity to buy a home,” says Lawrence Yun, chief economist of the National Association of Realtors®. Yun doesn’t anticipate a recession this year, or next. “Prices may [or may not] come down. But certainly buyers will be in a better negotiating position.”

And even in a shakier economy, overall demand for housing, which keeps prices up, isn’t going to evaporate. The huge millennial population is getting older, settling down, and having children—and searching for homes of their own. Those life factors are not likely to change, and they create a massive demand for housing. A decade ago, it was mostly Gen Xers at that stage, a smaller generation with less impact.

The places that are most likely to see prices sink are more expensive markets that have experienced years of steep price hikes. For example, Silicon Valley’s San Jose, CA, could see corrections, says Hale.

Markets with more housing than buyers, such as Miami, where new developments have been going up at a breakneck pace, may also soften, says Norm Miller, a real estate finance professor at University of San Diego.

The luxury market, which is the priciest 5% of homes in any area, will also probably be affected.

“There are just more expensive homes [than affordable ones] for sale, and so the luxury market is likely to be more vulnerable to price corrections in the event of a recession,” says Hale.

A recession could worsen the housing shortage

One of the signatures of the past recession was the overabundance of newly built homes. When the economy collapsed and the buyers disappeared, builders across the nation were forced out of business basically overnight. Abandoned construction sites were littered across the country. The industry still hasn’t caught up with the renewed demand, and another recession could worsen the situation.

Only about 875,00 single-family homes were built last year, according to the National Association of Home Builders. But the nation needed about 1.1 million to ameliorate the shortage. If another downturn hits, builders will likely construct even fewer homes, says Rob Dietz, chief economist of the NAHB.

That means when the country recovers, we could experience even greater housing shortages than we’ve seen over the past few years.

The pace of single-family home construction growth is already slowing down, from 9% in 2017 to about 3% in 2018. Dietz predicts it will be less than 2% in 2019.

Building is expected to remain strong in places with strong population growth, such as the Southeast, Texas, and the mountain states of Montana, Idaho, Colorado, and Utah. Folks need places to live, after all.

But the current higher mortgage rates make it harder for folks to buy homes. Meanwhile, inflation results in higher land, materials, and construction labor costs. That typically translates into fewer new homes going up.

“For builders, it means that demands will fall back in some markets and they will pull back,” says Dietz.

Renters won’t be spared by a recession

Cash-strapped tenants hoping for a rent break likely won’t get lucky even if the economy does start to slump. Rent price growth is likely to slow or even stall as fewer folks are going to be dropping big bucks on housing, says Greg Willett, chief economist at RealPage, a property management technology and analytics company focused primarily on rentals. But it’s not likely to fall.

The exception is the luxury market, where landlords will have the most trouble finding tenants.

“Luxury will feel the pain first,” says Willett.

There could be some longer-term consequences as well as fewer rental developments are typically built when the economy sputters, so when things are a bit rosier, there may be fewer units available to fill demand.

Depending on how long the recession lasts, some condo buildings that can’t find buyers may eventually go rental. That’s most likely in places with an oversupply of housing, such as Miami, Miller says.

“[The last] financial crisis was unique with an unprecedented number of foreclosures, home price declines, and a stunning drop in homebuilding,” says Dietz. “The question is whether we’re going to experience a soft landing, a bumpy landing, or a crash landing.”

 

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

January 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, rising interest rates, 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 January. Typically, we see a dramatic drop in inventory during December followed by a modest increase in January. Inventory did increase by 18.8%, now sitting at a 30 day supply of homes for sale, (However, much higher in comparison to last year’s January of an 18 day supply). Pendings came down slightly, and are now 6.3% lower compared to last year. The pending/active ratio came down as well to .78, still below our neutral mark. However, our ratio last year at the end of January was 1.38. This is the seventh month in a row that the ratio falls under 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 as has been the case now for quite some time. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

• The percentage of homes “sitting” has come down to 41% of the homes listed now remaining active for 30 days or longer, while 29% 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 January.

 

• It’s hard to predict how much tax reform will play into this but see the article, “Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee.” We are seeing interest rates starting to go up. Prices have continued to rise and are only now beginning to flatten out. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.

 

• 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. We are higher when compared to last year at this time, of 18 days.

 

• Our inventory for the East Bay (the 39 cities tracked) is now at 2,098 homes actively for sale. This is higher than last year, at this time, of 1,294 or (62% 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 1,629, less than what we saw last year at this time of 1,781, or 6.3% lower.

 

• Our Pending/Active Ratio is .78. Last year at this time it was 1.38.

 

• Sales over the last 3 months, on average, are 1.2% over the asking price for this area, lower to what we saw last year at this time, 3.6%.

 

 

Recent News

As Cooling Kicks In, More List Prices Slashed

By Suzanne De Vita, RISMEDIA, January 31, 2019

Conditions for home sellers are shifting.

According to new realtor.com® research, although gains in home prices are still strong, more listings have had their prices reduced—an indication that multiple-offer scenarios are shrinking, and homebuyers have more options.

Across the country this month, 15 percent of listings had prices reduced, the research shows. Last January, the figure was 13 percent.

Where are cuts happening the most? Thirty-nine, or 78 percent, of the 50 largest markets in the nation had more listings with lowered prices, with Las Vegas leading the way, at 16 percent.

Days on market, or how long a property sits, is speeding up, as well. In January, the average home was on the market for 87 days—two days faster than in Jan. 2018. However, the rate’s slowing; back then, days on market was seven days faster than the prior year.

Comparing the 50 largest markets to the past year, the average listing took one more day to sell, the research shows. Homes in San Jose sat for 27 more days than they did in the past year, the highest increase of the largest markets. In Birmingham, the average home sold 14 days sooner, the biggest leap of the metros.

There was expanded inventory in January, but concentrated in the higher tiers, where demand is not as strong, according to realtor.com’s research. Housing inventory in the $750,000-plus range rose 12 percent year-over-year, while $200,000-level listings sunk 6 percent. Inventory rose significantly in:

• San Jose-Sunnyvale-Santa Clara, Calif. – 128% YoY
• Seattle-Tacoma-Bellevue, Wash. – 91% YoY
• San Francisco-Oakland-Hayward, Calif. – 58% YoY
• San Diego-Carlsbad, Calif. – 46% YoY
• Los Angeles-Long Beach-Anaheim, Calif. – 36% YoY
• Nashville-Davidson-Murfreesboro-Franklin, Tenn. – 36% YoY
• Portland-Vancouver-Hillsboro, Ore.-Wash. – 34% YoY
• Sacramento-Roseville-Arden-Arcade, Calif. – 28% YoY
• Boston-Cambridge-Newton, Mass.-N.H. – 27% YoY
• Dallas-Fort Worth-Arlington, Texas – 25% YoY

“The U.S. housing market is off to a slower start this year in many markets, compared to the rapid acceleration we saw last January,” says Danielle Hale, chief economist at realtor.com. “Although the market is slowing, it’s important to remember that we’re coming off of four straight years of inventory declines that pushed the market to a record low availability of homes for sale.

“The real metric to keep an eye on is entry-level homes, which are the key to getting today’s market back in balance,” Hale says. “These homes are still in short supply.” 

Bay Area home sales drop 21 percent in December

“Would-be buyers remain priced out”

By Adam Brinklow  February 1, 2019, 12:59pm PST

Orange County-based data firm Core Logic made yet another startling announcement about the state of the Bay Area’s real estate market Friday, reporting that December 2018 home sales figures dropped more than 21 percent year over year in the region and down nearly 19 percent in San Francisco.

While the results are not necessarily a surprise—Core Logic’s monthly Bay Area home sales’ reports have indicated a decline in home sales year over year for most of 2018—December represented the single biggest drop yet.

Here are some of the highlights:

• December’s dip was particularly dramatic. Across all nine counties, Core Logic records 5,431 sales in December, down from 6,154 the same time the previous year. That’s a 21.6 percent decline, the largest all year.
• The month-to-month sales gap was notably large too. Between November and December of last year, sales dropped 13.2 percent across all nine counties. It’s normal for fewer homes to sell in December, but “since 1988, the average change in San Francisco Bay Area home sales between November and December is a gain of 7.8 percent.”
• Most of 2018 saw year-over-year declines in sales. This was the seventh straight month that Core Logic reported a drop between 2017 and 2018 sales. During that period the decline in July was just 0.5 percent, a very narrow gap compared to other months, which saw drops of anywhere from 8.6 to 21.6—but still a drop nevertheless.
• Prices remain up compared to last year. The latest report estimates that “the median price paid for all homes sold in the San Francisco Bay Area in December 2018 was $785,000.” That’s up from $750,500 the previous year. Note that this figure includes both condos and houses.
• San Francisco’s dip was one of the smallest regionally, but still gasp-inducing. Compared to the same period in 2017, San Francisco sales were down 18.8 percent, from 447 homes sold to 363. That’s almost modest compared to, say, the 27.7 percent decline in San Mateo County, or 27.3 percent in Solano County. But only three counties had a smaller decline than SF, and two of those—Alameda and Napa—barely beat out SF with 18.6 percent drops. Regionally, Sonoma took the smallest year-over-year hit, down 7.4 percent. There were no gains.

Core Logic analyst Andrew LePage said in a press release that “the nearly 22 percent year-over-year drop in activity was the largest for any month in more than eight years.”

LePage suggested a variety of potential explanations, including a seven-year high in mortgage rates and a bum stock market making some potential buyers anxious.

Most significant of all is the suggestion that “some would-be buyers remain priced out or unwilling to buy amid concerns prices have overshot a sustainable level.” Imagine that.

As with past month’s reports, the California Association of Realtor’s (CAR) most recent report mostly corroborates Core Logic’s analysis.

Though CAR reports “only” a 17.5 percent drop across the region, both sources agree that for the most part sales were down consistently year over year for most of 2018.

The big discrepancy between the two reports is in San Francisco, where CAR reports that sales actually increased 11.3 percent in December, the only county to record any net gain.

The disagreement stems from the fact that CAR records only single-family-home sales, while Core Logic also factors in condos—meaning that December’s dip in condo sales proved great enough to overwhelm an apparent (and singular) surge in the sale of larger homes.

Poll: Nearly half of California voters say they can’t afford living in the state

By Joel Shannon, USA TODAy,  Feb. 7, 2019

A new poll has found nearly half of California voters believe they can’t afford to live in the state.

The Quinnipiac University poll released Wednesday reports that 43 percent of California voters said they can’t afford to live there. That number was driven by younger voters: 61 percent of voters age 18 to 34 said they can’t afford to live in California.

“For many Californians, life is less than golden in the Golden State,” the release quotes Tim Malloy, assistant director of the poll.

Surging housing prices in California led CALmatters to report that the state was the poorest in the country in 2017. The organization reported then that 20 percent of the state’s population struggled to make ends meet.

In a September 2018 analysis, 24/7 Wall Street listed 12 California cities in a list of the 25 most expensive cities in America.

The most expensive – the San Jose-Sunnyvale-Santa Clara metro area – has a cost of living 27.1 percent higher than the national average, the analysis found. The monthly cost of living for a family of four is $10,758, the analysis found.

A rise in high-paying tech jobs has contributed to a tight housing market and a growing homelessness problem along the West Coast. That has multiple California cities to pass high-profile legislative actions to combat the issue.

San Francisco voters passed a proposition in November to levy a tax on the city’s wealthiest companies and use the money to increase funding for homelessness services. San Francisco ranks among the least affordable cities in the nation, with a median single-family home value approaching $1 million.

This week, the San Diego City Council said the city will stop punishing people for living in their vehicles. It’s a move toward more constructive policies on homelessness, advocates said.

“It’s certainly not a permanent solution to the crisis that we are facing,” City Councilman Mark Kersey told the San Diego Union-Tribune. “But 100 percent of the time, I’d rather have someone sleeping in a car than on the sidewalk.”

Bay Area housing market cools, but it’s still nuts

By Kathleen Pender, SF Chronicle, January 31, 2019

The Bay Area real estate market went into 2018 with a bang and out with a whimper.

In the first half of the year, the median price rose almost 17 percent to an all-time high of $875,000 in June. In the second half, it fell 10.3 percent from that peak, ending at $785,000 in December.

The December price was down 3.7 percent from November but up 4.6 percent from December 2017, according to a report Thursday from research firm CoreLogic. It includes all new and existing homes and condos in the nine Bay Area counties.

An earlier report from the California Association of Realtors — which includes only existing, single-family homes entered into a multiple listing service — said the Bay Area median price fell to $850,000 in December, down 6.1 percent from November and down 3.6 percent from December 2017. That was the first year-over-year drop since March 2012.

Any way you look at it, the market downshifted in the last three months of 2018. As the stock market plunged and mortgage rates rose a half percent to almost 5 percent, buyers backed off, inventory grew, price cuts surged, and price appreciation slowed from the double to single digits on a year-over-year basis.

The number of homes sold in December fell to 5,341 across all nine counties, down 13.2 percent from November and 21.6 percent from December 2017. That was the lowest sales count for a December in 11 years, CoreLogic said.

Many sellers, perhaps unaccustomed to a less-than-ridiculous market, took their homes off the market or let their listings expire. A total of 2,493 listings in the nine Bay Area counties were withdrawn or expired in December, compared with only 1,154 in December 2017 and 1,487 in December 2016, according to analyst Patrick Carlisle of the Compass real estate firm.

“December was rock bottom,” said Chad Eng, a Redfin agent in Silicon Valley. “Buyers are hesitating, on the sidelines. Sellers are still focusing on comps from six months ago.”

Instead of selling in days like they were earlier in the year, homes took weeks or even months to sell. Homes that closed in December had been on the market 29 days before getting into contract. That was up from 23 median days on market in November and 17 in December a year ago, the Realtors association reported.

Eng said things picked up around the middle of January, as the stock market recovered and mortgage rates fell back into the 4.5 percent range. “I wonder if it’s a sign of what we will see in the spring,” or just a normal seasonal rebound, he said.

Santa Clara County was the hottest market in the Bay Area — and most of the country — for the first part of the year as prices rose in the teens and 20s year over year. In February, its median price topped $1 million for the first time, rising to $1,080,000, up 27.8 percent.

That was the month a two-bedroom, one-bathroom, 848-square-foot home on Plymouth Street in Sunnyvale sold for $2 million cash — making headlines as the height of Silicon Valley insanity.

That was and still is a record price-per-square-foot for Sunnyvale, said Doug Larson, a Coldwell Banker agent, who represented the seller. “Now with the softening market, I doubt that anybody will beat it, at least for a while,” he said.

After hitting $1.15 million in June, Santa Clara’s median price has fallen to $1 million in December, exactly where it was a year ago.

January is always a slow month for the real estate market, as sellers recover from the holidays and get their homes spruced up for the busy spring season.

“Homes that sell in the winter are typically homes that have been sitting on the market awhile and have to take a price cut,” said Redfin Chief Economist Daryl Fairweather.

Right now, “buyers are in a holding pattern,” she added. “They don’t know if this is as good as it’s going to get, if prices come down or more homes come on the market.”

She noted that a slower market is good for buyers because “they have more negotiating power” and for sellers who are moving up to a more expensive home because “overall they are going to be saving more money.”

Fairweather predicts that prices will end the year about where they are now. “I would be surprised if they go down,” she said.

Nancie Allen, president of Bay East Association of Realtors, said the government shutdown in January made it hard to tell where the market is headed. The next two weeks will be a better indicator. The market now “is all over the place,” she said. Some homes in Fremont have been sitting on the market for a while, while one had 15 offers.

Aaron Terrazas, a senior economist with Zillow, said his data show that home prices in the last quarter of 2018 rose at their slowest annual pace for any quarter since 2010.

He predicts that prices will appreciate 5 to 6 percent this year in the San Francisco metro area and 7 to 8 percent in the San Jose metro area, assuming interest rates stay low.

Share of Homes Selling Above List Price Plummets

By Treh Manhertz, Zillow, on Feb. 1, 2019

After years of progressively more homes selling above their listed price, the share of homes that sold above list plummeted in the second half of 2018.

As of December, 19.4 percent of homes were sold above their list price, the lowest share of above-list sales in almost three years. December marked the seventh straight month in which this rate dropped, after the share of homes selling above list reached 24 percent in May 2018 — the highest share since the onset of the housing market recovery.

The high peak and subsequent fall signify changing trends that occurred across the national housing market in 2018. When many homes are selling above their list price, it can indicate other housing trends:

• First, it can show that inventory is limited, that too few homes are available to accommodate all the buyers in the market. The scarcity pushes more buyers to submit bids over the listed price of the home to edge out competing offers.
• The rush to buy can be exacerbated by low mortgage interest rates, like the historically low rates of the past several years. Buyers are able to accommodate larger mortgages while monthly payments remain affordable.

Both of these factors shifted in late 2018. Mortgage rates reached above 4.9 percent in November, the highest level since 2011, causing some buyers to be more conservative in their bidding. The last months of 2018 also saw the first inventory gains in three years, alleviating some of the competitive pressure on buyers.

The converse of this is that sellers’ expectations of what their homes will sell for are undershooting reality. Sellers generally want to price as high as is reasonable, unless they want to sell especially quickly. More homes selling above list means sellers aren’t reaching as high as they could. In some hot markets, a decrease in the number of homes sold above list could simply mean that sellers’ expectations are finally catching up with the reality of the market.

Not only did the share of homes that sold above list fall, the average price above list dropped too. Among homes sold above list, the typical amount above list has remained above $6,000 for the last several years. As of December, the median amount had dropped to $5,860, while the median discount for homes selling below list held steady. This narrowing suggests buyers and sellers are syncing up on their price expectations.

The share of homes sold above list nationally has moved within the range of 15 percent and 25 percent since at least 2012. But, while national trends in home sales have been strong and limited in fluctuation, separate metropolitan areas have highly individual sales patterns. In some metro areas, homes sell above list with much higher frequency and with very little variation. Dallas, for example, has stayed stable at more than 35 percent of homes selling above list since 2012. Salt Lake City has rarely dropped below 50 percent of homes bid up. In other metros like Tampa and Pittsburgh, this is much more of a rarity, with the share hardly ever exceeding 15 percent.

Large West Coast metros led the drop in homes bid up nationally – another sign that these exceedingly hot markets are cooling. All major West Coast metros had large year-over-year dips in December, the largest in San Jose, Calif., San Francisco and Seattle, where huge swaths of the market shifted to selling at or below list price. San Jose fell 46.6 percentage points (from 82.9 percent to 36.3 percent), San Francisco fell 26.7 points (from 69.3 percent to 42.6 percent) and Seattle fell 25.7 points (from 50.3 percent to 24.6 percent).

Many other metros stayed stable, and a few even went the opposite direction from national trends. Four of the largest 35 metros had increases in the share of homes that sold above list in the second half of 2018: San Antonio, Houston, Philadelphia, and Kansas City. San Antonio and Houston gained more than 3 percentage points each in the last six months, despite increasing home inventory. San Antonio is demonstrating strong demand commensurate to its rapidly growing population – Bexar County is in the nation’s top 10 fastest growing counties. Houston’s economy is closely tied to the oil industry. Because of that, it is possible sellers did not seek as high a price due to falling oil prices, expecting a slowdown in housing demand that did not manifest.

Ending 2018, homes are still selling quickly. The median time on the market was 78 days, 3 days shorter than last year and 20 days shorter than five years ago. So while the seller’s market appears to be waning, it’s certainly not over, and this is not a result of weak demand. Homes are more likely to sell at the listed price as a result of convergence in the market expectations of buyers and sellers.

Stop deepening Bay Area transportation, housing crisis

By Daniel Borenstein, CC Times, January 29,2019

Tired of subsidizing irresponsible billionaires? Here’s a plan to provide more housing in the right places

Here’s an idea to address the Bay Area’s transportation and housing crisis: Stop making it worse.

Since the Great Recession, the Bay Area has added 722,000 jobs but constructed only 106,000 housing  units.

Little wonder rents and home prices have soared – and even people with jobs live in cars or on the streets. Little wonder freeways are gridlocked and commuter trains are packed.

It’s time to stop digging this housing deficit hole deeper. We need more housing. But we need it in the right places.

Bay Area cities with housing shortfalls – San Francisco, Cupertino, Menlo Park and Palo Alto, for example – should stop adding more buildings for jobs unless they provide commensurate new housing.

Conversely, areas with serious job deficits – East Contra Costa is the poster child – should be barred from adding new housing without  new places for residents to work.

Here’s the fundamental problem: San Francisco and most of Silicon Valley generally have more jobs than workers living there. The East Bay has more workers than jobs.

Consequently, our freeways and public transit systems overflow in the morning with commuters headed toward San Francisco and Silicon Valley. In the evening, the crush runs in the opposite direction.

And the intra-county imbalance between jobs and housing exacerbates the gridlock. For example, in Santa Clara County, while Palo Alto imports workers every morning, San Jose exports them.

We keep raising taxes to increase commute capacity, but long-term that’s an exorbitantly costly fool’s errand – especially when we ignore underutilized capacity in the counter-commute direction. We are only making the situation worse.

The key is to put jobs next to housing and housing next to jobs.

That won’t happen on its own. Our convoluted property and sales tax systems discourage housing construction. So, this will require action by the Legislature and Gov. Gavin Newsom.

What’s needed are rules that prohibit cities with housing deficits from approving commercial and office buildings unless they also approve new housing for employees who would work in those buildings.

And in cities with severe job deficits, the rules should be reversed. Residential development approvals should require construction of commensurate facilities for jobs.

Before business leaders, especially from tech companies, and local politicians howl about killing economic growth and impinging on local control, they should admit that they’re a big part of the problem.

They should recognize that current unaffordable housing prices and ridiculous commutes already threaten to undermine the long-term success of the region.

And they should acknowledge the obvious, that companies keep expanding – and local governments keep letting them – without meaningful regard for providing adequate housing.

For example, Cupertino, even before the opening of the massive new Apple campus, had 1.5 jobs for every member of the labor force who lives in the city, according to 2016 U.S. Census data compiled by the Metropolitan Transportation Commission. Palo Alto had 2.8 jobs per worker; Santa Clara and Mountain View had about 1.7 jobs per worker; and San Francisco had 1.3.

Conversely, in the South Bay, San Jose, with a 0.8 ratio of jobs to workers, needs more employers. In the East Bay, the same goes for Oakland, at just below 0.9 – that’s nine jobs for every 10 residents in the workforce.

And, in East Contra Costa County, the cities of Pittsburg, Antioch, Oakley and Brentwood should be prohibited from approving more housing. They have a combined ratio of 0.4 – just four jobs for every 10 residents in the workforce.

It’s absurd. For more than four decades, leaders of those four cities, backed by politically powerful developers, have tried to convince voters that if they keep building residential homes the jobs would follow. It’s not going to happen.

As for cities with job surpluses, state mandates requiring commensurate housing would force employers wanting new space to partner with housing developers to ensure homes are built. Or, better yet, those employers might opt to locate where workers already live.

Either way it would ease future stress on our transportation systems – and environment. As a taxpayer, I’m tired of paying for more road and transit expansions to meet the needs of multi-billion-dollar companies that refuse to do the responsible thing.

Some caveats to the housing mandate: The affordability of the required housing should be matched to likely jobs that would fill the new offices and commercial centers. And, to encourage public transit use, the mandates might include leeway for homes or business construction near commuter rail stations or existing major bus corridors.

Local and state leaders understand the Bay Area faces a housing crisis. Unfortunately, solutions under discussion are incremental steps that don’t address the fundamental problem: Not only have we failed to build enough housing, we’ve also failed to put it near jobs. It’s time to fix that.

The Bay is rising. Where does that leave a wave of big waterfront projects?

By Blanca Torres  – San Francisco Business Times, Jan 24, 2019, 

Water defines the Bay Area, even its name. For most if its history, though, much of the bayfront was closed off to residents. In the 1960s, only about four miles of the 400 to 500 miles of shoreline was accessible.

Today, the bayfront looks far different and another wave of change is coming. A slew of small and large development projects promise to bring tens of thousands of new homes, millions of square feet of commercial space, and hundreds of acres of public parks, trails and open space to the Bay Area’s waterfront.

Across the region, developers plan to pump billions of dollars into high-profile waterfront projects that include Brooklyn Basin, Oakland’s largest housing development; the Chase Center professional basketball stadium in San Francisco; the revival of Pier 70 in San Francisco’s Dogpatch; and the 42-acre master-planned Hercules Bayfront community with more than 1,500 homes planned and 200,000 square feet of commercial space.

But all these projects come just as developers, public officials, planners, architects and engineers urgently confront a looming threat: rising sea levels. With the Bay expected to rise up to 10 feet in the next eighty years, it might seem foolish or dangerous to plant so much development right along the water’s edge.

“We can ignore sea-level rise until it is way more costly or we can starting thinking about adapting to and anticipating it now,” said Amanda Brown-Stevens, who runs Resilient By Design, an organization that studies and advocates for sea-level rise solutions in the Bay Area. The organization conducted a year-long competition to spur ideas and proposals for waterfront developments that address rising water levels.

With the right planning, project designs and innovative construction, new developments can not only survive the effects of climate change, but in some cases, can help protect the region from flooding and erosion.

“There is a win-win in what is an overall gloomy topic,” Brown-Stevens said. “We can reconnect the Bay Area with the waterfront — it’s a great amenity — if we do it in a way that creates more green spaces and development opportunities to live and work in the existing urban areas and reduce sprawl.”

The threat 

A 2018 state report on sea-level rise estimates that waters will rise 1.1 to 2.7 feet by 2050 and between 2.4 and 10.2 feet by 2100. The range depends on factors such as how sharply greenhouse gas emissions are curbed over the next several decades.

Water levels also fluctuate based on weather, storms and king tides, unusually high tides that periodically crest.

“People think of sea-level rise as a problem that’s going to grow and grow over the next century, but we’re dealing with it now. We’ve had flooding with recent storms,” said Michael Martin, director of real estate and development for the Port of San Francisco. “When you have a built environment on the water, these are issues we have to deal with on a day-to-day basis.”

As a general rule, developers and project planners use the benchmark of 2 feet of sea-level rise by 2050 and 6 feet by 2100 to plan their projects based on state guidelines, said Richard Kennedy, a senior principal at architecture and planning firm James Corner Field Operations. He is working on projects including the 28-acre Pier 70.

“We find that the clients, the developers, public agencies, we are all aware of the issue, but much of the public is not, so much of our work is communicating the threat and risk,” Kennedy said. “In some ways, (sea-level rise) is not frightening enough. If there is not enough fear or concern to provoke action, we might be in a situation of not acting fast enough.”

Last fall, San Francisco voters approved Proposition A, which will raise $425 million to pay for repairs for a concrete seawall that runs along the Embarcadero. That money is just a start — the total cost of repairing the 3-mile-plus seawall is $5 billion. And that just protects one section of San Francisco.

Water isn’t just rising in the bay. Groundwater levels are also rising and causing more flooding in low-lying areas such as BART stations, waterfront roadways and the Oakland Coliseum, Brown-Stevens said. Walls and levies can’t help with mitigating those issues.

“We have a hard time even investing in our current infrastructure needs let alone thinking about how can we rebuild it in a way that is adaptable to climate change,” she said.

Double Trouble: rising water and sinking land 

At the same time seas are starting to rise, some of the Bay Area is sinking. Scientists from the University of California, Berkeley, and Arizona State University published a study last year on “subsidence,” which refers to land that is sinking. The study identified areas such as Treasure Island and Foster City where land levels are going down. Those sites and many others along the bay shoreline were originally part of the bay that was later filled in to create more land. Infill in general is not as stable as natural land and is also prone to liquefaction during earthquakes.

Return to the water

Starting in the 19th century, much of the region’s waterfront was devoted to industrial uses and highways, said Sandy Mendler, principal with architecture firm Mithun, who participated in the Resilient by Design challenge.

“Homes were cut off from the waterfront, and you couldn’t access the bay or see it except from driving,” she said. “The shift toward development near the water, it seems like a natural progression that will only accelerate. There are not many big sites in other places, and there is still demand for places to live and quality of life.”

Waterfront projects pose more challenges and costs than building on other sites, but they are worth the trouble, said Mike Ghielmetti, head of Signature Development. The company spearheaded Brooklyn Basin, a master-planned community in Oakland slated for 3,700 homes along with a new marina, retail space and 30 acres of open space.

“People want to live closer to transit and existing infrastructure,” he said. “Just because we don’t know exactly what’s going to happen, we can’t stop developing. We have a severe housing shortage in the Bay Area.”

Enjoying the water — the views, water sports or hiking — is part of the Bay Area’s culture and allure, said Lou Vasquez, founder and head of Build. His firm is developing India Basin, a 1,500-home development on San Francisco’s southern waterfront.

“You don’t feel the urban crowd that you feel in other neighborhoods,” he said.

Being close to the water also opens up more transit options for prospective residents such as using water taxis or ferries to commute.

The solutions 

The first homes in Brooklyn Basin will open later this year after nearly two decades of planning. The project was the first major development that had to address sea-level rise to secure city and regional approvals, Ghielmetti said.

One of the key strategies at Brooklyn Basin was to truck in dirt to raise the site by three feet, a common solution at various Bay Area developments.

The same method is being used on Treasure Island, where developers Lennar and Wilson Meany are preparing sites for 8,000 new homes, 500 hotel rooms, 300 acres of parks and open space, 140,000 square feet of retail and 100,000 square feet of office space to be built over the next 20 years at a cost close to $5 billion.

On Treasure Island, a man-made island in the middle of the Bay, the developers also situated much of the new construction away from the shoreline.

Other projects such as India Basin and Pier 70, both on San Francisco’s southern waterfront, are also using terraced designs with homes perched on sites that already sit significantly higher than the water.

“No one wants to build something that will be obsolete in 10 years,” Vasquez said. “We’re all building with a 100-year horizon…. (Sea-level rise) is more of a problem for existing buildings than for new construction. We can pull back from the shoreline and build to a higher level.”

Plans for Pier 70 call for 2,150 new homes, 1.75 million square feet of commercial office and up to 445,000 square feet of retail, light industrial and arts space. The total cost of the project, including infrastructure and public benefits, is estimated at around $2 billion.

The project incorporates historic finger piers, renovation of historic buildings and construction of new buildings.

Pier 70’s approach is three-fold: elevate, set back and buffer, said Jack Sylvan, senior vice president of development for Brookfield Properties, the master developer of Pier 70.

The developer will elevate the entire site by five to 10 feet. Buildings will sit at least 100 feet from the water’s edge. That gives the developer space to add retaining walls or levies in the future if necessary.

The goal for the project’s design “is to maximize public access today, while designing a shoreline that can adapt and retreat over time,” Sylvan said

Back to nature

Another way to address sea-level rise is via wetlands and marshes, known as a horizontal levy or a more back-to-nature approach.

In 1849, the San Francisco Bay spread out over 787 square miles, according to the Bay Conservation and Development Commission, a regional agency that regulates waterfront development and restoration. Today, after decades of filling in the water to create more land, the bay is only 550 square miles. Much of what was filled in were wetlands and marshes that helped control flooding. Also, many creeks and waterways were paved over, limiting the natural water flow.

“If you have more wetlands, they can absorb some of the water so it reduces your need for a higher levy or wall protection,” Brown-Stevens said.

How and when the water will rise is uncertain, which means all the planning and work developers are doing now could be insufficient.

“You have to have flexibility,” Ghielmetti said. “We did meet the guidelines of that BCDC adopted for climate change and sea-level rise. We can also adapt if it’s worse.”

Brooklyn Basin and Pier 70 both have a financing mechanism in place to direct future tax revenue to pay the costs of future sea-level rise.

“On the one hand, sea-level rise is a technical challenge, on the other hand, it’s a creative one,” Kennedy, the architect, said. “There is no one solution … Continuing to look for creative solutions is absolutely critical.”

Chinese Exiting U.S. Real Estate as Beijing Directs Money Back to Shore Up Economy

Third-straight quarter Chinese investors sold more commercial U.S. property than they bought

By Esther Fung, Wall Street Journal, Jan. 29, 2019

Chinese net purchases of U.S. commercial real estate last year dwindled to their lowest level since 2012, as Beijing kept up the pressure on Chinese investors to bring cash home during a period of worsening economic growth.

Insurers, conglomerates and other investors from mainland China were net sellers of $854 million of U.S. commercial property in the fourth quarter, according to Real Capital Analytics. That marked the third-straight quarter Chinese investors sold more U.S. property than they bought, the first time ever these investors have been sellers for that long a stretch.

The selling during most of 2018 marked a powerful reversal from the previous five years, when Chinese investors went on a massive buying spree, often handily outbidding other investors for U.S. trophy properties. They spent tens of billions dollars on luxury hotels like the landmark Waldorf Astoria in New York, a nearly $1 billion skyscraper development in Chicago, and a glitzy residential project in Beverly Hills, Calif.

Now, many of China’s biggest overseas real-estate investors are unloading some of the same prized assets, or at least reducing their U.S. exposure by selling stakes to new partners.

The turnabout last year reflects an effort by the Chinese government to stabilize its currency, reduce corporate debt, and help arrest the country’s economic slowdown by clamping down on certain overseas investments. Some Chinese developers, now facing tighter credit conditions at home, have tried to raise money instead by selling some of their U.S. properties.

 

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

 

The San Francisco East Bay Real Estate Market has enjoyed a very strong upswing in home prices over the last 6 years with many cities reaching new highs in price. The spreadsheet below gives you a better perspective of how each city has performed on a year by year basis. The median prices listed below are based on the annual sales of single family homes within each city.

 

 

December 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Here are some highlights for the 38 East Bay Cities that I track:

 

Affordability, rising interest rates, 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 December. Typically, we see a dramatic drop in inventory during this time of year. This December was no exception. Inventory was reduced by 37.3%, now to a 27 day supply of homes for sale, (compared to last month’s 42 day supply for November). However, that’s still more than what we saw happen last year at this time, where we were sitting on only 14 day supply. Pendings came down as well but at a slower rate, at 26.7% lower. This created an uptick in the pending/active ratio to .94, an improvement, but still below our neutral mark. That uptick is normal as well for this time of year. However, our ratio last year at the end of December was a whopping 2.11, well into “seller” market territory. This is the sixth month in a row that the ratio falls under 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 as has been the case now for quite some time. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

• The percentage of homes “sitting” has increased to 74% of the homes listed now remaining active for 30 days or longer, while 47% have stayed on the market for 60 days or longer. This is higher than last year at this time with 63% of the homes listed remaining active for 30 days or longer, while 37% stayed on the market for 60 days or longer. There’s a seasonal reasoning for having so many homes sit during the month of December. Agents will advise their clients to wait on listing their home until spring and avoid the lack of interest that we usually see with buyers during the busy holidays. So very little “new” inventory comes on to the market and those “stale” homes that were not moving before remain as the bulk of our inventory. This will begin to change as many new listings come up in January and February.

 

• It’s hard to predict how much tax reform will play into this but see the article, “Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee.” We are seeing interest rates starting to go up. Prices have continued to rise and are only now beginning to flatten out. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.

 

• 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 27 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 12 days.

 

 

• Our inventory for the East Bay (the 39 cities tracked) is now at 1,765 homes actively for sale. This is higher than last year, at this time, of 868 or (103% 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 1,662, less than what we saw last year at this time of 1,830, or 9.2% lower.

 

• Our Pending/Active Ratio is .94, the lowest December since 2010. Last year at this time it was 2.11.

 

• Sales over the last 3 months, on average, are 2.2% over the asking price for this area, lower to what we saw last year at this time, 3.8%.

 

Recent News

 

Redfin’s 2019 Predictions: Housing market will be coolest we’ve seen in years, but homeownership will continue to rise

By Daryl Fairweatheron, Redfin, December 19, 2018

 

We predict that the housing market will continue to cool into the first half of 2019. Inventory will rise back up to 2017 levels, and price growth, while likely still positive, will be the lowest we’ve seen since 2014 or possibly even 2011. Investors and house-flippers will back away from the cooling market, and real estate companies that buy homes from consumers to quickly sell at a profit (including our own RedfinNow) will face their first serious test. Tech companies and local governments will continue to go head to head on local housing issues.

Prediction #1: The housing market will continue to cool

Over the first half of 2019, home-price growth will stay slow. Our forecasts have price growth settling around 3 percent, which would be the slowest price growth we’ve seen in years. As recently as the first half of this year, prices were still growing 7 percent, and price growth has reliably exceeded 5% since the start of 2015. There’s quite a bit of uncertainty around our price forecast; there’s a real chance prices could fall below 2018 levels, putting up negative growth for the first time since 2011.

Sellers will have to adjust their price expectations as buyers grapple with rising mortgage rates and already-high home prices. Metros that saw the most price growth in the first half of 2018 will experience the biggest slowdowns in price growth in the first half of 2019. Seattle, San Francisco, San Jose, Portland, San Diego, Los Angeles, Denver, and Honolulu are a few of the metros where we expect demand to cool the most. “A few weeks ago I helped my home-buying customers get a bid accepted that would have gone straight to the bottom of a pile of offers earlier this year,” said San Francisco Redfin agent Anna Coles. “The offer for a house in desirable Parkside was below list price and included a financing contingency, which allows the buyers to back out of the contract without forfeiting their earnest money deposit on the off-chance their loan doesn’t get approved. The norm for the past two-plus years had been that buyers had to waive standard protections like this in order for a seller to consider their offer, but this is just one sign that buyers may face less competition heading into 2019.”

On the flip side, we expect home prices to continue to grow at a strong pace in a handful of small, affordable, inland markets like Buffalo, Rochester and Greensboro, where the market is still heating up.

We’re going into 2019 with a 5 percent greater supply of homes for sale than we had going into 2018, which is the highest growth we’ve seen since September 2015, but home sales were down 8 percent since last year in November. A still-growing economy and increased access to credit will support more home buyer demand, but higher interest rates will make home-buying more expensive, so it’s hard to say whether home sales will stay down or rebound next year.

Prediction #2: Homeownership rates will continue to rise

Whether total home sales go up or down, more homes will be sold to people who plan to live in the home as opposed to investors, which will cause the homeownership rate to rise. In 2019, homebuyers will enjoy more inventory and less competition from speculators and house-flippers, which will lead to more people enjoying the benefits of homeownership. Homeownership has been consistently growing from its post-recession valley of 63 percent in 2016 to above 64 percent this year. We predict the homeownership rate will grow more rapidly in 2019.

Prediction #3: It will cost more to borrow, but more people will have access to credit for home-buying

Homebuyers have already seen mortgage interest rates increase in 2018, and the Fed’s most recent comments indicate that it will continue to raise rates perhaps twice or more in 2019, which will push the average 30-year fixed mortgage rate up to about 5.5 percent by the end of the new year. This increase from the sub-5 percent level where rates have been hovering in recent months would mean about a $100 increase in monthly mortgage payments on a $300,000 home by the end of 2019.

Lenders will also feel the effects of rising rates, which will increase their costs of lending and dampen demand for their services. This will motivate lenders to expand their customer base to low-income borrowers and first-time homebuyers. But of course, lenders will charge more for these loans–both to cover the risk of lending to borrowers with less-than-perfect credit and to cover their own costs of borrowing.

Prediction #4: A cooling housing market will dampen economic growth only slightly

In 2018, economic growth was the strongest it has been since early 2015. However, residential investment, which includes money spent on construction, renovations, and real estate commissions, and typically makes up about 15 to 18 percent of economic activity, declined slightly in 2018. In 2019, the economy will most likely grow, but a cooler housing market will contribute less to the overall economy. Even if residential investment were to fall by 10 percent, which has only happened three times in the last 40 years, total economic activity would be impacted by 1 to 2 percent. That isn’t enough to cause a recession as long as the rest of the economy keeps growing.

There could be some spillovers from the cooldown in the housing market to consumer spending. When homeowners see homes sitting on the market longer and sellers dropping their prices, they feel less wealthy. Rising interest rates will also impact more than just home sales. It will be more expensive to finance a car loan, take on credit card debt, or refinance a mortgage to take out equity, which will also weaken consumer spending.

Prediction #5: Fewer homes will be built, but more builders will focus on starter homes

In 2019, homebuilders will be more cautious about building during a cooling market and focus on building starter homes that are easier to sell than luxury homes. We have already seen the per-unit value of single-family residential building permits flatten, and we predict per-unit values of building permits will decline in 2019. Another factor in 2019 will be low unemployment, which will finally cause wages to rise for low-income workers. This will impact both the supply of and demand for housing. On the supply side, higher labor costs will limit the number of homes built. Meanwhile, higher wages will be a boon to demand for starter-homes among working-class Americans.

“When we decided to plan our first new construction development, we found a niche in the $300,000 price range in Dallas, where there is a great deal of activity among national and local builders, but almost all of it focused on the high end,” said Pushban Rajaiyan, the lead developer on Brentwood Court by Havendale Homes, a townhome community now available for pre-sale. “It was important to us to offer homes built with high quality materials but for an affordable price and in an area where residents can enjoy nearby amenities and short commutes. Just in the past few months we’ve already begun to see other builders catch on to this unmet need in the market, with other affordable, starter-home options coming available to local buyers soon.”

Prediction #6: Institutional buying faces its first serious test

If home-buying demand falters due to higher interest rates and stock-market volatility, the trend toward instant offers from institutional homebuyers could face its first serious test, a test of pricing algorithms as much as companies’ appetite for risk. Armed with billions in capital, competitors from Opendoor to RedfinNow to Zillow to Offerpad to Knock have been vying with one another to buy homes from consumers and then sell those properties at a profit, with i-buyers’ combined share of U.S. home sales growing rapidly. The question investors are asking is whether instant offers will now be significantly lower, to compensate institutional buyers for the market’s recent uncertainty, and whether homeowners will accept the offers, just to avoid those same uncertainties themselves. Institutional buyers who made money from nearly every sale in a rising market with low interest rates could start to face losses, or may demonstrate more discipline than other housing investors. In 2019, we’ll find out. If i-buying works in a bear market as well as it has in a bull market, instant offers could become a major, permanent sector within the real estate economy. If it doesn’t, a lot of money is going to sink into the sand.

Prediction #7: Tech and local government will go head-to-head on housing

Cities have been struggling with the double-edged sword of tech-company-driven prosperity and inequality. Tech companies bring highly skilled workers to cities and pay them handsomely. This is why 238 cities vied for Amazon’s HQ2. But, shortly after the HQ2s were announced, residents of Long Island City began protesting, advocating for more housing investment to avoid displacing existing residents. Crystal City has planned ahead with 4,000 new housing units, but Amazon plans to hire 25,000 people there. Growing cities will have to start building more housing now if they don’t want to face the affordability and homelessness problems that established tech hubs like Seattle and San Francisco are currently facing.

2019 Predictions: Worse Affordability, Commutes, Natural Disaster Losses

By Aaron Terrazas, Zillow, Nov. 28, 2018

Rising mortgage rates will set the scene for the housing market in 2019. They will affect everyone, driving up costs for home buyers and creating more demand for rentals. Even current homeowners could start to feel locked into their mortgage rates.

Here’s a snapshot of what’s in our crystal ball:

Mortgage affordability takes a hit

Despite steady climbing for the past two years, mortgage rates remain lower than they were during most of the recession and below average for the type of strong economic growth we’ve been experiencing. That will change in 2019, as the 30-year, fixed rate mortgage reaches 5.8 percent – territory not seen since the dark days of 2008, when rates were racing downward in response to the housing crisis. In 2019, rising rates will compound the effect of still-climbing home values, making homeownership even less affordable. Already, rising mortgage payments eclipse home-value gains, a phenomenon that can both encourage homeowners to stay put – to hold onto low mortgage rates that are disappearing in the rear-view mirror – and discourage would-be first-time home buyers.

Rents reverse course

Although rising mortgage rates will affect home buyers first, renters will not be far behind. As higher rates limit the number of homes that potential buyers can afford, some would-be buyers will be too financially stretched to buy and will continue renting. As a result, recent (and very slight) drops in rent will reverse and turn positive again. The shift will be muted, however, by continued steady investment in apartment construction, which will prevent rent growth from shooting too far above income growth. In the third quarter 2018, the U.S. median rent cost 28.2 percent of the U.S. median income – considerably higher than the 25.8 percent renters paid historically.

Commutes get worse

Job creation has been concentrated in urban cores, and so has the affordability crisis – a phenomenon that’s increasingly pushed people to nest and grow their families in the suburbs. The disconnect between urban jobs and suburban residents will continue in 2019 and contribute to longer, more crowded commutes. This may be especially daunting for people in markets where living within their means already requires lengthy travel times: A home in central Boston, for example, is valued 303 percent more per square foot than a typical outlying home, while the premium for homes in central Washington, D.C., compared to outlying areas is 218 percent per square foot. Politicians in Washington, D.C. and state capitals around the country are talking up new infrastructure investments, but some may be too little too late given rising construction costs and planning delays.

Amazon HQ2 ‘losers’ see a boost

Spurred by the possibility of attracting tens of thousands of jobs from online retail giant Amazon, some areas that lost their headquarters bids to suburban New York and Washington, D.C., nevertheless got in touch with their inner can-do – and that will pay off.

Shortly before Amazon made its big announcement, Chicago debuted its “P33” initiative, aimed at becoming a tech hot spot by the city’s bicentennial in 2033. It’s been dubbed the “Burnham plan for Chicago’s tech future,” a reference to Daniel Burnham, whose 1900 attempt to create “Paris on the Prairie” both beautified the city and made it a force in urban planning.

Former Amazon HQ2 contender Atlanta already has seen some action since it was passed over by the Prime vendor: Convoy, a much smaller Seattle-based company, is opening its East Coast office there. Norfolk Southern may relocate its headquartersthere from the city for which it is named, Norfolk, Va.

While New York and D.C. weigh what Amazon’s arrival means for them, could even Tucson could find a taker for its 21-foot saguaro cactus?

Natural disasters claim a record number of homes

This prediction for 2019 is a logical extension of what’s already been happening: About 15,000 homes were destroyed by wildfires in California alone in 2018 – including at least one entire town in what used to be the “off” season – and many others by storms along the gulf coast.

As the frequency and magnitude of natural disasters continues to escalate, builders and developers will focus on preventative and/or protected building materials and designs. While in the past, builders have returned quickly in the aftermath of natural disasters – typically building nicer and more expensive homes than before – that may not be the case going forward. Building costs are on the rise, and insurers are increasingly reluctant to offer policies in danger zones (or are charging higher premiums to do so) – both of which could translate into slower and costlier rebuilding.

Flood losses are growing as well, and projections for homes inundated by rising sea levels and storm surges over the course of a typical 30-year mortgage begun in 2020 are not encouraging.

Home value growth slows

One mitigating effect to rising mortgage rates will be slower home value growth. In October, home values were up 7.7 percent from a year earlier, to a U.S. median of $221,500. Zillow forecasts growth of 6.4 percent from October 2018 to October 2019; a Zillow survey of housing experts and economists anticipates a 3.79 percent increase for calendar 2019. Both forecasts indicate cooling from red-hot growth of 8 percent in March of this year.

 

C.A.R. 2018 State of the Housing Market,

Study of Housing: Insight, Forecast, Trends

The tight supply issue that has been lingering on for years has finally turned into a demand issue. With the economy growing at a solid pace and new households continuing to form at the fastest pace in the last 10 years, home sales in 2018 were projected to increase from the prior year, despite an anticipation of interest rate hikes. The Tax Reform and Jobs Act passed at the end of last year was expected to have a negative impact on the supply and the demand of housing, but overall sales were still forecast to inch up from 2017. Up until April, the market performed in line with our prediction for the most part, and California was on track to have another year of gain in both sales and price.

Then something happened in May. Housing demand began to shrink as buyers became more cautious with their buying decision. Sales dropped on a year-over-year basis for four consecutive months and at a pace that warrants many to be concerned. Home prices continued to increase but at a decelerated pace. Housing supply, which had been declining consecutively for almost three years, bounced back, registering double-digit growth. All signs seem to suggest that the market is losing momentum, and that California is experiencing a sustainable slowdown.

A softening of the market is undeniably underway. The questions are how big of an impact the transition is going to have on the market and how long will it last. This report uses monthly transactional data and results from the Annual Housing Market Survey collected by the California Association of REALTORS® (C.A.R.) to get a better understanding of the current market conditions and to shed some light on how the ongoing transition might have affected home buying and home selling behavior.

KEY HIGHLIGHTS

• Home sales in California have hit some rough patches in recent months, and the latest fallout could be a sign of a sustained market shift. As of August, the market was down 2.1 percent compared to sales in the first eight months of 2018.
• Several factors contributed to the softening of the market: interest rate volatility, sales being pulled forward in anticipation of higher rates in the future, and the continuous constraints on housing supply. The erosion of affordability, however, is really what’s driving the market.
• With housing affordability expected to deteriorate further, the lackluster performance in home sales will continue into 2019. While the economy will remain solid, the increase in housing demand will go unmet, as the erosion of affordability continues to leave potential buyers either unwilling or unable to buy.
• Home prices in California reached a new high. The statewide median price surpassed its prior peak set in May 2007 for the first time in May 2018 only to exceed it a month later with a new record high of $602,760. Despite setting a new high, the strong growth trend in prices may have already peaked. With inventory growing, the appreciation in home prices is softening and should continue to decelerate in the upcoming year.
• Results from the latest annual housing market survey indicate that housing affordability was the primary reason for 28 percent of homebuyers to move out of the county where they previously resided, an increase from 21 percent in 2017. The outmigration trend was worse in both the Bay Area and the Southern California region, with 35 percent of homebuyers moving out of the county in which they previously lived because of the housing affordability issue. Housing affordability was an even bigger problem for first-time buyers, as nearly half of them cited the issue as the main reason for their outmigration move.
• Despite tough market conditions, more first-time buyers continued to enter the housing market, and pushed the share of first-time buyers to 34.8 percent, which is the highest level since 2012. A stronger economy, more robust household growth, and an urge to get into the market before interest rates climbed further were some of the primary factors that contributed to a higher share of first-time buyers
• The first-time buyer market was more competitive when compared to the repeat buyer market, with 62 percent of all first-time buyer transactions receiving multiple offers, 40 percent having a sold price above the asking price, and properties typically staying on the market for 12 days.
• With fewer bargain properties being available on the market, investors’ interest in the residential market dropped in the first half of 2018. In fact, the share of sales to investors declined to the lowest level since 2009. The declining trend of investor buyers will likely remain on course in the upcoming year as rent growth flattens and the uncertainty in rent control policy continues to mount.
• Market competitiveness varied between price segments. Properties in the upper mid-priced range — homes sold with a price between $750,000 and $1M — were the most sought after, as they were the most likely to receive multiple offers, the most likely to receive an offer with a price above the asking price, and sold the fastest.
• While tight supply in the housing market costs more on the buyers’ side, sellers have been benefiting from the strong price appreciation resulting from the supply constraint. The median net cash gain to a typical seller resulting from a home sale in California remained unchanged from 2017 at $200,000, the highest level since 2006.
• Sellers have not been moving as often as in previous years, with a typical seller owning his/her home for 11.5 years before selling, the highest level in at least the last 38 years. The trend was especially obvious for older generations, as baby boomers typically owned their property for 15 years before selling, while the Silent Generation held on to their properties for 30 years before selling.
• The share of sellers who expressed interest in buying another property has been steady in the last four years and remained near the highest level since 2006. Millennials and Gen X sellers were the most interested in buying again, as nearly two-thirds of both generations said they planned to buy after selling their previous property.
• Nearly three of ten sellers who planned to purchase a new home decided to buy in a state outside of California, an increase from 28 percent in 2017. Declining housing affordability in recent years is one of the factors that resulted in the surge in sellers wanting to move to another state.
• Current conditions for the housing market and for real estate financing are healthier than the environment that we observed in the mid2000s before the housing market started deteriorating. In general, more buyers in Q2 2018 were putting a bigger down payment on their home purchase, and there were fewer buyers with zero down payment. The share of buyers who used a second lien to finance their property also shrank significantly from the peak of the current housing cycle.
• A.R. projects that existing home sales in California will decline 3.2 percent in 2018 and drop 3.3 percent in 2019. Home prices will continue to rise this year, growing by a projected 7.0 percent in 2018, and a more moderate 3.2 percent in 2019.

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