Would-Be Homebuyers Outnumber Sellers by 4-to-1

  • Forty-one percent of renters are thinking of purchasing a home over the next year, compared with 11 percent of owners who plan to sell.
  • California home prices grew by 8.9 percent year over year in May, while prices in the San Francisco metropolitan area were up by 11.4 percent.
  • California real estate prices are expected to appreciate by 9.3 percent by May 2019, the second-largest gain in the U.S.

The nation’s inventory crunch continues to drive up home prices, with California projected to post among the highest appreciation by the spring of next year.

CoreLogic’s latest Home Price Insights report says that U.S. home prices rose by 7.1 percent year over year in May. In a statement accompanying the report, company Chief Economist Frank Nothaft attributed the appreciation to America’s well-documented supply-and-demand imbalance, noting that inventory is particularly thin for entry-level homes.

Inventory seems unlikely to improve in the coming months; while 41 percent of renters are considering buying a home over the next year, only 11 percent of owners are planning to list their homes. CoreLogic notes that the desire to own a home is much stronger among renters who live in areas with high home prices — including the Bay Area.

“The CoreLogic consumer research demonstrates that, despite high home prices, renters want to get out of their rental property and purchase a home,” company CEO and President Frank Martell wrote. “Even in the most expensive markets, we found four times as many renters looking to buy than homeowners willing to sell. Until more supply becomes available, we will continue to see soaring prices in cities such as Denver, San Francisco, and Seattle.”

California home price growth outstripped the national rate, up by 8.9 percent from May 2017. CoreLogic projects that Golden State home prices will increase by another 9.3 percent by May 2019, the second most in the U.S. behind Nevada.

A similar trend emerges when examining year-over-year home price growth for the 10 large U.S. metropolitan areas included in the Home Price Insights report. San Francisco posted 11.4 price growth on an annual basis in May, second to Las Vegas, where prices increased by 12.4 percent.

Even with the strong year-over-year price growth, San Francisco’s housing market is still valued in the normal range, along with the San Rafael, Napa, and Vallejo metro areas. CoreLogic considers housing markets in Oakland, Santa Rosa, and San Jose to be currently overvalued.


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More Than 130 Pacific Union Real Estate Professionals Named Among California’s Best

Pacific Union is pleased to share the news that nearly 140 of the brokerage’s individual real estate professionals and teams have been honored as among the best in the Golden State.

REAL Trends named 98 individual Pacific Union real estate professionals and 39 teams to its fifth annual rankings of America’s Best Real Estate Professionals. These top-performing professionals were recognized for having among the highest 2017 sales volumes in the state and are spread throughout our brokerage’s 50-plus offices in Northern and Southern California.

“Every day in this business I am amazed at the combination of grace and fortitude that our people possess,” Pacific Union CEO Mark A. McLaughlin says. “Their commitment to client service and pursuit of excellence is what their clients revere. I extend special congratulations to each of our recognized professionals.”

“Earning the trust of a client can only be achieved through demonstration,” Pacific Union President, Southern California Nick Segal adds. “Demonstrations of caring and consummate professionalism day in and out is a choice that each and every Pacific Union professional makes in service to their clients. That choice not always easy or convenient, and yet as demonstrated by the recognition received here, these individuals do make the right choices, and it is our pleasure to pause to honor their fine achievements.”

The news comes shortly after REAL Trends named 12 Pacific Union real estate professionals and teams to its annual list of the top-performing 250 in the United States. Earlier in the year, Pacific Union’s entire team of more than 1,700 elite real estate professionals help propel the brokerage to the fifth-largest in the United States, with 2017 sales volume of $14.1 billion.


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Most Californians Expect a Housing Price Correction Within Two Years

  • Seventy-nine percent of California homeowners believe there will be a price correction by 2020.
  • Sixty percent of U.S. homeowners think that buyers in their neighborhood are currently paying too much.
  • Nearly two-thirds of Americans think that people who buy a home today will have buyer’s remorse within the next year.

California’s median single-family home price reached a new high in MayAn aerial view of homes in San Francisco's Buena Vista neighborhood, but most owners in the state believe that the rapid appreciation seen over the past few years will not last much longer.

That’s according to survey results from ValueInsured, which found that seven in 10 Americans believe that a housing correction will occur by 2020. Seventy-one percent of homeowners believe that the current price run-up is not sustainable compared with 65 percent of those that do not own a home.

In states that have seen robust price appreciation, homeowners are even more certain a correction is looming. About 80 percent of owners in California and Texas predict slowing prices over the next few years.

Similarly, 60 percent of homeowners said that people who were buying in their neighborhood now are overpaying. About two-thirds of respondents felt that they themselves would be paying too much if they were to sell their home now and buy again, which ValueInsured says is dissuading many prospective sellers from putting their properties on the market.

High prices and the prospect of slowing appreciation mean that most Americans — 62 percent — expect that people who buy a home in the current market will have buyer’s remorse within the next year. One-quarter of those surveyed believe that the buyer’s remorse will mirror that of those who purchased before the housing crash began 10 years ago.

Speaking of buyer’s remorse: Paying too much for a home is not the only regret that homebuyers with children might have, according to a new blog post. While most prospective buyers who have or are planning to have kids likely consider school districts when making a decision, there are some aspects of a home and neighborhood that parents often overlook, including:

  • Master bedroom placement for easy access to a nursery
  • Sidewalks to buffer children from traffic
  • An open floor plan and a clear view of the backyard to make it easier to monitor children’s activities
  • A flat lot and street so that kids can easily ride bicycles
  • Safe heating systems to protect children from burns
  • A walkable neighborhood to minimize time spent packing a car with strollers and bags
  • Good neighbors

(Photo: iStock/tifonimages)

Shared with permission from the Pacific Union Blog

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Home Prices Are Peaking Everywhere as Summer Arrives

  • U.S. home prices reached an all-time high of $264,800 in May.
  • California and Bay Area home prices also climbed to a new peak in May, a respective $600,860 and $1,088,000.
  • While nationwide housing starts are near an 11-year high, that is still 30 percent less than needed to meet buyer demand.

Hot on the heels of a report that both California and Bay Area home prices reached new highs in Maycomes news that U.S. home prices followed suit, once again the result of more buyer demand than properties for sale.

That’s according to the latest existing home sales report from the National Association of Realtors, which puts the median price for a U.S. property – including single-family homes, condominiums, townhouses, and co-operatives — at $264,800 as of May, up 4.9 percent year over year and an all-time high. Home prices rose on an annual basis for the 75th straight month, while supply dropped to 1.85 million units, down 6.1 percent from May 2017 and the 36th consecutive month of annual declines.

“Inventory coming onto the market during this year’s spring buying season — as evidenced again by last month’s weak reading — was not even close to being enough to satisfy demand,” NAR Chief Economist Lawrence Yun said in a statement accompanying the report. As a result, homes continued to fly off the market, selling in an average of 28 days, nearly unchanged on a monthly or yearly basis.

May real estate market conditions in California and the Bay Area followed national trends but also represent an extreme example of the nation’s supply-and-demand imbalance. The Golden State’s single-family home median sales price reached a new all-time high of $600,860 last month, while the nine-county Bay Area followed suit at $1,088,000, according to the latest home sales and price report from the California Association of Realtors.

Four Bay Area counties — Alameda, San Francisco, San Mateo, and Santa Clara — have the state’s most severe inventory shortages. Homes in those four counties combined sold in an average of in 11 days in May, CAR’s research says.

In a bit of good news for the nation’s housing-supply problem, the National Association of Home Builders reports that housing starts climbed to the highest level in almost 11 years in May. Still, that may not be enough to put much of a dent in America’s inventory crisis, according to Chief Economist Danielle Hale, who says that current construction rates still fall 30 percent below demand levels.

“People who are in the market will find these housing completions will make a difference … but it’s still going to be competitive for buyers because there’s still not enough,” she said.


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California’s Unemployment Rate Maintains Record Low in May

  • The Golden State added 5,500 jobs in May and downwardly revised April’s monthly growth to 25,600, according to the latest numbers from the California Employment Development Department. This year’s job numbers have been unusually volatile, mostly due to larger-than-usual changes in industries that are sensitive to seasonal trends. Total state numbers also differ slightly from changes seen at metropolitan area levels, suggesting that statewide numbers may be revised upward.
  • California’s unemployment rate remained at a record-low 4.2 percent in May. Many metropolitan areas showed further declines in unemployment rates, largely driven by the state’s shrinking labor force, which dropped for the third consecutive month and now totals 49,000 persons. It was also the fifth labor-force decrease in the last seven months.
  • Four industries added a total of 12,900 jobs in May, with the largest gains in the leisure and hospitality sector, followed by professional and business services, information, and other services. Six industries reported losses, with the most coming from the construction industry, followed by trade, transportation, and utilities and educational and health services. Nevertheless, since last May, 10 of 11 industries added a total of 307,600 jobs, with the largest gains in the educational and health services sector, leisure and hospitality, and construction. Other sectors that added jobs over the year were professional and business services; trade, transportation and utilities; government; information; manufacturing; financial activities; and mining and logging. Only other services posted a year-over-year loss. Other services include jobs in repair and maintenance; personal and laundry services; and religious, civic, and similar organizations.
  • The large monthly swings may overshadow the strength of California’s employment numbers. Taken together, the state added 306,000 jobs from last May, a 1.8 percent increase. Despite the monthly decline in construction jobs, the industry is still creating positions at the fastest rate in the state, up by 6.2 percent year over year in May. Further, information-sector jobs, which are declining in other states, grew at a solid pace, up by 3.3 percent since last May, with gains in data hosting, digital media, and software compensating for declines in print media and landline communications.
  • All California metro areas saw employment rise over the past three months.
  • San Francisco and San Mateo counties added 2,100 jobs from April, and the unemployment rate dropped to 2 percent. The leisure and hospitality sector saw the strongest gain, boosted by accommodation and food services, particularly restaurants. Professional and business services saw a similar increase, mainly due to jumps in administrative and support services. On an annual basis, the two-county area added 21,000 jobs, with half of those in professional and business services — particularly computer systems design and related services. The information sector experienced the second largest net increase. With these changes, it appears that about three-quarters of new jobs added were in high-income sectors.
  • Santa Clara and San Benito counties added 4,000 jobs in May, and the unemployment rate ticked down to 2.3 percent. Monthly job gains were mostly in the leisure and hospitality sector, followed by professional and business services. On an annual basis, the area added 34,300 jobs, with the information sector leading the increase. Again, while most other regions of the state and country lost information jobs that focused on old media, Silicon Valley’s new-media information sector has taken off. The manufacturing, private educational and health services, professional and business services, leisure and hospitality, construction, and government sectors also posted solid annual job gains.
  • Alameda and Contra Costa added 5,400 jobs in May, with the unemployment rate holding steady at 2.7 percent. The largest gains were in the leisure and hospitality sector, particularly food services and drinking places, followed by construction; government; and trade, transportation, and utilities. On an annual basis, two industries that added about an equal number of jobs were professional and business services and construction, both with more than 5,000 new positions. Other services posted the largest annual decline.
  • Marin County’s unemployment rate dropped to 2 percent In May. And while the area added 1,100 jobs in May, the majority were in the leisure and hospitality sector. On an annual basis, Marin County lost 1,200 professional and business services jobs.
  • Sonoma County’s unemployment rate declined to 2.4 percent, and there was a robust increase of 2,300 jobs from April, with the largest gains in educational and health services and leisure and hospitality sectors. On an annual basis, Sonoma County added 3,700 jobs, with the educational and health services sector leading the gains but also a solid uptick in manufacturing, which in Sonoma County mostly pertains to wine production.
  • Napa County’s unemployment rate fell to 2.5 percent in May, with 900 jobs created during the month. The region has experienced some employment losses over the last year, thus the total change from last May includes only 300 new jobs. The annual decline came from the manufacturing; educational and health services; and trade, transportation, and utilities sectors.
  • Los Angeles County added 15,700 jobs in May, and the unemployment rate remained at 4.4 percent. The leisure and hospitality sector accounted for two-thirds of May’s new jobs, adding 5,700 positions in the accommodations and food service sector and 4,900 in arts, entertainment, and recreation. The professional and business services and local government sector followed. Over the year, the leisure and hospitality sector continued to lead all industries, with 24,600 jobs. The accommodations and food services industries created 13,700 positions, and arts, entertainment, and recreation accounted for 10,900 jobs. The professional and business services sector added 17,300 jobs from last May in Los Angeles, mostly in administrative and support and waste services, followed by professional, scientific, and technical services. The educational and health services industries registered 16,200 job gains, with increases mostly in health care and social assistance. The trade, transportation, and utilities sector reported the largest annual loss, which was equally divided between wholesale trade and retail trade.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.


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The Bay Area’s Median Home Price Climbs to $1 Million in May

Executive Summary:

  • The Bay Area’s median home price reached $1 million in May, a 17 percent year-over-year increase, with Silicon Valley continuing to post 30 percent appreciation.
  • Homes sales activity matched last May, with San Francisco showing the strongest gain, up by 7 percent year over year. Napa County sales were slower than last year. Higher-priced sales rose up by about 30 percent.
  • Activity in Napa and Sonoma counties was relatively slower than in the rest of the Bay Area.
  • More new listings helped boost sales, especially for homes priced between $1 million and $2 million, which posted a 26 percent increase from last May. Santa Clara County listings jumped the most, at 14 percent.
  • Other housing-market indicators also suggest strengthening demand:
    • Homes generally sold in 12 days across all price ranges.
    • The share of homes that sold for more than asking price trended higher again, moving up to 75 percent.
    • The average share of sales that had price reductions also trended lower, bottoming out at 7 percent in March and remaining at 9 percent in May

It is with almost no surprise to note that the Bay Area’s median home price kept rising rapidly in May to reach $1 million, a 17 percent year-over-year increase. All regions continued to post the same price growth trends observed in previous months. Marin County recorded the smallest annual appreciation, with prices up by 5 percent from last May. Still, with strong price growth in previous months, Marin County’s median home price has grown by 9 percent year to date. Year-to-date median price growth was the slowest in Napa County, up by 2 percent. However, Napa County also continued to see home sales activity lag, a trend that began last year. Santa Clara County saw the most median price growth in the Bay Area, up by 29 percent, followed by a 16 percent jump in Alameda County.

Overall, Bay Area home sales lined up with last May, with some regions seeing slightly more activity and some slowing slightly. Napa County saw the largest decline in sales from last May, down by 17 percent. San Francisco saw the largest sales gains, up by 7 percent. Figure 1 illustrates total Bay Area sales over the last three years, with orange squares noting sales in the last four Mays. While this year’s sales matched 2017, they were slightly higher than in 2015 and 2016. It will be interesting to observe activity over the next couple of months, when annual home sales typically peak.

Activity was again dominated by a large increase in higher-priced sales, with homes priced between $1 million and $2 million rising by 26 percent, those priced between $2 million and $3 million jumping by 37 percent, and those priced higher than $3 million up by 32 percent.

Figure 1: Total home sales in the Bay Area

Source: Terradatum, Inc. from data provided by local MLSes, June 7, 2018

A slight uptick in new listings in May could help boost summer sales activity. There was an overall 4 percent increase in new listings, with the largest gains in Santa Clara County, up by 14 percent; Napa County, up by 23 percent; and Alameda County, up by 12 percent. San Francisco inventory continued to trend lower, with a 22 percent decline in new listings compared with last May. The increase in new listings was relatively stronger for homes priced between $1 million and $ 2 million, with a 26 percent gain. New listings for homes priced between $2 million and $3 million increased by 23 percent, while the inventory of homes priced above $3 million saw 18 percent more new listings. Figure 2 summarizes regional changes in new listings by price range. The largest gain was in Alameda County for homes priced above $3 million, with a 183 percent increase. Note that the chart is scaled down to help better visualize overall trends.  While the most-affordable segment posted an 8 percent decline in new listings, Napa and Alameda counties were the only regions with more new listings below $1 million. San Francisco showed a decline in new listings across all price ranges.

Figure 2 :Year-over-year change in new listings by Bay Area county

Source: Terradatum, Inc. from data provided by local MLSes, June 7, 2018

More new listings caused total inventory to decline at a slower pace than has been the case in recent months, though not enough to markedly improve conditions. Inventory dropped by 6 percent from last May, with declines seen in all regions, especially in San Francisco. Nevertheless, higher-priced inventory improved, with the largest jump in homes priced between $1 million and $3 million. Figure 3 illustrates inventory levels by price range over the last three years. What stands out is the large increase in supply between $1 million and $2 million, which is now at the highest level in three years. The biggest driver of the jump was the increase in inventory in Santa Clara County, up by about 350 homes from last May, followed by Alameda County, up by about 150 homes. More inventory will certainly boost June sales in those counties, as it has helped drive sales in the previous couple of months. The inventory of homes priced below $1 million now represents only about half of properties on the market. Two years ago, that price point represented two-thirds of the inventory.

Figure 3: Bay Area housing inventory by price range

Source: Terradatum, Inc. from data provided by local MLSes, June 7, 2018

Despite more inventory at higher price ranges, absorption rates did not abate and increased across all higher price ranges and most regions except Napa County. Absorption of homes between $1 million and $2 million increased by 6 percent, from 45 percent last May to 51 percent this May, and similar growth was seen in higher price ranges. San Francisco posted the biggest increase in absorption rates from last May, up by 8 percent to 39 percent. Silicon Valley maintained the highest absorption rate, at almost 50 percent.

Furthermore, other housing-market indicators also suggest strengthening buyer demand. In May, homes generally sold in 12 days, the same pace of sales as last year, and even in higher price ranges. Homes priced between $2 million and $3 million in Napa and Sonoma counties lingered somewhat longer on the market in May, though homes priced above $3 million in those regions sold much quicker than they did last year. As previously noted, overall indicators for Napa and Sonoma counties suggest some slowing in the $2-million-to-$3-million price range.

Lastly, the share of homes that sold for more than asking price continued to trend higher, with 75 percent of properties fetching premiums. The fiercest competition was for homes priced between $1 million and $2 million, with 82 percent selling for more than asking price, and those in Silicon Valley, where almost 90 percent of properties sold for more than asking price. Keep in mind that some real estate professionals may be pricing homes below their market value, which can skew trends.

Nevertheless, homebuyers remain persistent and continue to fuel housing demand in the Bay Area. Recent mortgage rate hikes could have caused some buyers to expedite their search or even enter the market sooner than they were planning. As our recent mortgage-rate analysis showed, while further Federal Reserve interest-rate increases are expected, mortgage rates are not projected to rise at the same pace and are already very close to their new longer-term average.

The question now is which housing-market indicators will be the earliest signs of a tipping point in this cycle. A lack of inventory, strong employment growth, and tech advances that lead to speedier real estate transactions make it difficult to rely on traditional gauges such as sales, inventory increases, days on market, or even the ratio of sales price to list price. The number of price reductions could be an indicator worth watching going forward, though at this point, it still suggests tightening in the market. Figure 4 illustrates changes in the share of sales that had price reductions between this May and the year prior. Negative changes suggest fewer reductions than last year, while positive changes suggest an increase in reductions.

Other than a few outliers for the highest-priced homes in the East Bay and Sonoma County, there were generally fewer reductions than recorded last year. Sonoma and Napa county markets are still recovering from last October’s wildfires, which is affecting patterns. In Alameda and Contra Costa counties, the drop in price reductions for homes priced higher than $3 million also follows more bidding wars, suggesting that fewer reductions reflect more demand for the price range in those areas. Figure 5 illustrates the share of Bay Area home sales with price reductions going back to 2005. Following the spike in reductions between the turmoil years of 2008 and 2012, reductions have oscillated relatively steadily since 2013 and have followed traditional housing market seasonality. May was generally the lowest point in the year. Over the last year, the seasonal increase was relatively smaller, reaching only 15 percent, where in the previous five years it peaked at more than 20 percent. Also, the market reached the trough in March this year, with only 7 percent of homes requiring price reductions.

Figure 4: Change in the share of price reductions by Bay Area county, May 2017 versus May 2018

Source: Terradatum, Inc. from data provided by local MLSes, June 7, 2018

Figure 5: Share of sales that had price reductions

Source: Terradatum, Inc. from data provided by local MLSes, June 7, 2018

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.


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