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California Housing Affordability Inches Up in the Third Quarter

  • A new report form the California Association of Realtors puts the number of households who can afford a single-family home in the state at 27 percent in the third quarter, a slight increase from the previous quarter.
  • Affordability conditions in the nine-county Bay Area improved from the second quarter, rising to 21 percent, but were down on an annual basis.
  • In Los Angeles County, 22 percent of households can afford to purchase a home, down from the second quarter and identical to one year earlier.

Homes in California and the nine-county Bay Area were slightly more affordable than they were in the second quarter, though less than one-third of households meet the minimum income requirements to qualify for a mortgage. Meanwhile, affordability conditions in Los Angeles County trended in the opposite direction.

The California Association of Realtors’ latest Housing Affordability Index says that 27 percent of state households could afford to purchase the median-priced $588,530 existing single-family home in the third quarter, up from 26 percent in the second quarter but down from 28 percent at the same time last year. California households need to earn a minimum annual income of $125,540 to afford to make the $3,140 monthly housing bill, assuming a 20 percent down payment and a 30-year, fixed rate mortgage at 4.77 percent.

Less than 30 percent of California residents have been able to afford a home for five of the past eight quarters. Affordability peaked in early 2012, when nearly 60 percent of Golden State households met the minimum qualifying income requirements.

In the Bay Area, 21 percent of residents could afford to buy the median priced $950,000 home, up from the second quarter but down from 23 percent in the third quarter of 2017. Bay Area households need minimum qualifying incomes of about $200,000 to make monthly mortgage payments that average $5,070. Across the region, the number of households who can afford a real estate purchase ranges from 14 percent in San Mateo County to 38 percent in Solano County.

As California’s two most expensive counties, with third-quarter median sales prices of $1,600,000, San Mateo and San Francisco homebuyers must make nearly $350,000 per year and can expect to shell out monthly mortgage payments of more than $8,500. Marin and Santa Clara counties followed, with required annual incomes of about $277,000 to make the monthly payments of $6,930 on the median-priced $1,300,000 home.

In Los Angeles County, 22 percent of residents could afford the median-priced $628,940 single-family home, down from 26 percent in the second quarter and unchanged from one year earlier. Homebuyers in Los Angeles must pull in $134,160 each year to pay monthly mortgage bills of $3,350.

California home shoppers will almost certainly continue to grapple with affordability challenges as mortgage rates increase. The latest numbers from Freddie Mac put 30-year, fixed-rate mortgages at 4.83 percent for the week ended Nov. 1, up from 3.94 percent at the same time last year. A recent CAR forecast projects that mortgage rates will reach 5.2 percent by the end of 2019, which would reduce the number of Golden State households who can afford to buy a home to 25 percent.

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Bay Area Cities Rank Among the Nation’s Best Small and Midsize U.S. Places to Live in 2018

  • Santa Clara and Hayward rank among the top 10 most livable medium-sized American cities this year.
  • Hayward’s median home value has shot up by 95 percent over the past five years.
  • A separate analysis ranks Los Altos as the country’s seventh-best small U.S. city to call home.

Despite the Bay Area’s top-dollar cost of living, the region’s rapid home price appreciation and booming economy have helped land a handful of local cities on lists of the best places to live in America.

A new SmartAsset study ranks the top 25 medium-sized U.S. cities — defined here as those with populations higher than 100,000 but excluding the 100 largest — on a 100-point scale based on median home value change, monthly housing costs, unemployment and poverty rates, and median annual household income. By those criteria, Santa Clara is the country’s third most livable U.S. city, notching a near perfect score of 99.46. Santa Clara gets a boost from its five-year median home value change of 66 percent but is hurt by its $2,316 monthly housing expenses, the second highest of any city included on the list.

The Alameda County city of Hayward comes in at No. 10 on the list, with an 89.34. Over the past five years, home values in Hayward have skyrocketed by 95 percent, the highest rate of appreciation recorded in any of the 25 cities included in SmartAsset’s analysis.

Two other Bay Area cities rank among the best midsize communities in the nation: No. 12 Sunnyvale (88.12) and No. 20 Concord (80.30). Sunnyvale households pull in the highest annual incomes on the list — $134,234 — but also are burdened with the largest monthly housing costs of $2,329.

A separate analysis by WalletHub ranks America’s best small cities, also on a 100-point scale and using similar metrics as Smart Asset. Of the more than 1,200 communities include in the report with populations between 25,000 and 100,000, Los Altos comes in at No. 7, with a score of 69.06. While the wealthy Silicon Valley city ranks in the top 10 in the country for overall economic well-being, it is predictably much lower for housing affordability.

WalletHub gives Los Altos a special mention for being among the nation’s top five places where the highest percentage of the population holds at least a high-school degree. And while San Mateo County’s Burlingame does not appear in the upper part of the best-small-cities rankings, it ties five other U.S. cities for the most income growth.

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Bay Area Housing Markets Got Spooked in September

Executive Summary:

  • Bay Area home sales declined by 20 percent year over year in September, with all counties posting drops, led by Sonoma and Contra Costa. In 2018, the region’s housing market activity is trending 4 percent lower year to date.
  • Santa Clara County posted sales declines across all price ranges.
  • Bay Area inventory increased by 14 percent year over year in September — about 2,000 more homes — with Santa Clara County contributing more than 50 percent to the total increase.
  • While appreciation has slowed from its spring peaks, Bay Area home prices are still up by 10 percent on an annual basis. San Mateo County maintained the strongest price growth at 19 percent.
  • Home price reductions were up by 7 percentage points, from 16 percent last year to 23 percent this September. Sonoma and Santa Clara counties posted the largest increases in price reductions.
  • The rebalancing between buyers and sellers is driven by affordability constrains and buyer fatigue, with the biggest change seen in relatively affordable and previously fiercely competitive markets.

September Bay Area home sales slowed markedly from one year earlier, with an overall decline of 20 percent, ranging from a 9 percent decrease in San Francisco to a 27 percent drop in Sonoma County. With September’s decline, year-to-date sales are now 4 percent below 2017.

Figure 1 summarizes changes in sales by Bay Area county from last September and overall year-to-date changes compared with last year. San Francisco is the only region where overall 2018 sales are still above last year despite September’s decline.  By contrast, Santa Clara County posted the region’s largest year-to-date drop of 8 percent. Note that for the purposes of this analysis, all property types have been included.

Figure 1:Year-over-year and year-to-date change in home sales by Bay Area county

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

Figure 2 illustrates September home sales activity for the last four years. While activity between September 2015 and 2017 trends relatively in line, this year’s drop appears most obvious in all counties. As noted in Figure 1, Sonoma County posted the relatively largest decrease, followed by Contra Costa County.

Figure 2: September home sales activity by Bay Area county, 2015-2018

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

Figure 3 illustrates September’s change in home sales by price range compared with last September. Three counties posted noticeably lower sales: Santa Clara, Contra Costa, and Alameda. In Santa Clara County, all price ranges saw annual sales declines in September. In the East Bay, the decline was dominated by homes priced below $1 million, some of which are now priced above $1 million compared with what they would have been priced last September. Taken together, Santa Clara County and the lowest price range drove most of the decrease.

Figure 3: Annual home sales changes by Bay Area county and price range

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

Declining sales appear to reflect two underlying conditions that are shifting Bay Area housing markets: affordability constraints and buyer fatigue. While affordability has long been a serious concern in the Bay Area, recent median home price hikes coupled with rising mortgage rates have put a 20 percent to 25 percent dent in buyers’ purchasing power. The impact of these forces is causing fewer sales in relatively more affordable parts of the region, such as Sonoma, Contra Costa, and Alameda counties. In Sonoma County, aggressive pricing amid low post-wildfire inventory had a particularly discouraging effect on buyers of homes priced below $1 million.

On the other hand, fierce buyer competition on the Peninsula, which drove home prices up by almost 30 percent year over year in the first half of the 2018, led buyers to step back and put home purchases on hold. Also, a sentiment that the housing market has reached the top has impacted sales activity, with buyers not wanting to purchase at the top of the market and more sellers listing properties in September.

Consequently, inventory increased by 14 percent year over year in September, with Santa Clara County contributing more than 50 percent to the total gain, adding more than 1,000 homes to the market compared with last year. Alameda and Sonoma counties followed in housing-supply gains. Sonoma County’s changing conditions largely reflect post-wildfire activity.

Figure 4: Annual inventory changes by Bay Area county and price range

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

Median home prices, however, maintained healthy momentum, with most regions continuing to grow at rates seen earlier this year. Figure 5 summarizes median year-over-year home price changes in September. The last column shows median price growth in March 2018, when year-over-year changes peaked. Overall price growth slowed from 19 percent in March to 10 percent in September, and most regions saw some cooling except for Napa County, where gains have picked up in the latter part of this year. Santa Clara County saw the largest decline in appreciation, from 34 percent in March to 11 percent in September.

Figure 5: Median home price changes by Bay Area County from September 2017 and March 2018 peak

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

Still, it’s important to note that even with slowing price growth, which was inevitable given the unsustainable rates seen in first half of 2018, the longer-term appreciation trend for the Bay Area (Figure 6) shows gains returning to the trend line of around 8 percent to 10 percent.

Figure 6: Year-over-year change in median home price in the Bay Area, single-family homes

Source: California Association of Realtors

Lastly, shifting market conditions are also reflected in the share of homes that required price reductions. Figure 7 illustrates the change in the share of homes that saw price reductions, with green shades indicating increases in price reductions compared with last September and red shades suggesting fewer reductions. Overall reductions increased by 7 percentage points, from 16 percent last September to 23 percent now. Again, Sonoma and Santa Clara counties posted the largest increases in price reductions, up by 13 percent and 15 percent respectively. Forty-one percent of Sonoma County homes required price reductions in September, followed by Santa Clara County at 24 percent.

Figure 7: Changes in price reductions by Bay Area county and price range

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

All told, September market activity shows a changing dynamic between buyers and sellers. As noted above, both sides may believe that housing price growth has reached its peak and are acting accordingly, with buyers pulling back and sellers rushing to list their homes before the slow winter season kicks in. To some extent, volatility in financial markets and geopolitical developments may be exaggerating consumer fears. However, the underlying macroeconomic environment and California’s continued growth confirms that housing markets may be returning to a more normal balance between buyers and sellers rather than preparing to topple.

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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California Housing Inventory Near a 3-Year High in September

  • California had a 4.2-month supply of inventory in September, the highest level recorded in 31 months.
  • Statewide, home sales declined by 12.4 percent from September 2017 while dropping by 16.4 percent in the nine-county Bay Area.
  • The Bay Area’s median sales price was $930,000 in September, an annual gain of 9.8 percent after 14 straight months of double-digit-percent annual appreciation.

Although the Golden State’s tight housing supply situation improved again in September, rising mortgage rates and buyer sentiment that the market may be topping out conspired to hold back home sales.

That’s according to the latest home sales and price report from the California Association of Realtors, which puts the state’s months’ supply of inventory at 4.2 as of September, the highest level in 31 months. Active listings increased for the sixth consecutive month and were up by 20.4 percent from September 2017.

The nine-county Bay Area saw the number of homes for sale improve on both a monthly and annual basis, as the month’s supply of inventory rose to 3.2. All counties posted year-over-year gains, with the monthly supply of inventory ranging from 2.7 in Alameda County to 5.6 in Napa County.

An increased number of homes on the market did not translate to higher sales, which declined by 12.4 percent year over year statewide, the largest such drop in more than four years. All major regions of the state saw double-digit-percent annual sales declines, with Bay Area activity down by 16.4 percent, the biggest decrease in nearly eight years.

California home appreciation continued to moderate in September, with the $578,850 median sales price up by 4.3 percent on an annual basis. In a statement accompanying the report, CAR Senior Vice President and Chief Economist Leslie Appleton-Young said that she expects appreciation to further decelerate in the coming months, driven by homebuyer reluctance to enter the market given current prices.

The median sales price for a single-family home in the Bay Area ended September at $930,000, a year-over-year gain of 9.8 percent. For the previous 14 months, the region had posted double-digit-percent annual home prices gains.

All nine counties recorded home price growth from September 2017, ranging from 14.2 percent in San Mateo County to 5.5 percent in Alameda County. San Mateo County overtook San Francisco as the state’s most expensive county, with a median sales price of $1,600,000, followed by San Francisco ($1,507,500), Marin ($1,395,000), and Santa Clara ($1,250,000) counties.

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The Bay Area’s 10 Fastest-Paced Housing Markets: Q3 2018

Although inventory rose on a year-over-year basis in September in all nine Bay Area counties according to the latest home sales report from the California Association of Realtors, buyer competition is still fierce in some of the region’s most desirable communities. And in these real estate markets, buyers will need to act particularly fast if they hope to succeed.

As in our sales-pace analysis of second-quarter MLS data, we examined third-quarter statistics to see where homes are selling the fastest in the 70-plus Bay Area communities in which Pacific Union operates. Check out the region’s 10 fastest-moving housing markets below, many of which also made the list in the second quarter of this year. (Note that this analysis includes only single-family homes.)

  1. Moraga: Homes in this family-friendly Contra Costa County city found a buyer in an average of 14 days. In the third quarter of last year, homes took nearly double that amount of time to sell.
  2. Los Altos: Buyers in the wealthy Silicon Valley enclave of Los Altos took an average of 15 days to close deals, although that’s slightly longer than the pace of sales recorded in the first two quarters of this year.
  3. Kensington: Homes in this small East Bay community sold in an average of 18 days. Buyers may have been motivated to act fast due to contracting home prices, with the $1 million median sales price the lowest in more than two years.
  4. Palo Alto: Competition for homes in always-hot Palo Alto continued in the third quarter, with homes selling in an average of 18 days. A dozen homes in the Santa Clara County city sold in a week or less.
  5. Piedmont: Homes in Piedmont have not lingered on the market for more than three weeks in any quarter since 2015, and that trend persisted in the third quarter, with buyers taking an average of 18 days to seal deals.
  6. Berkeley: Half of the Bay Area’s fastest-paced markets are in the East Bay, including Berkeley, where homes sold in 19 days, one day quicker than in the second quarter.
  7. Menlo Park: In Menlo Park, homes sold in an average of 19 days, with two $7 million-plus properties listed as being on the market for just one day.
  8. Oakland: In the seven Oakland ZIP codes in which Pacific Union primarily operates, buyers took 19 days to wrap up purchases. Homes in Oakland have sold in an average of less than a month for the past three years.
  9. San Mateo: With an average sales pace of 19 days, more than 20 homes in San Mateo were on the market for a week or less in the third quarter.
  10. El Cerrito: El Cerrito homes found buyers in an average of 20 days, identical to the pace of sales recorded in the third quarter of 2017.

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San Jose, San Francisco Home Price Gains Accelerate in the Third Quarter

  • Home prices in San Jose and San Francisco were up by a respective 16.9 percent and 11.6 percent year over year in the third quarter, ranking them among the 51 percent of U.S. housing markets where price growth is accelerating.
  • Los Angeles, Santa Rosa, and Vallejo saw home price growth cool from the same period last year.
  • Home prices in San Jose are nearly 60 percent above their pre-recession high.

Nationwide, annual home price growth was the slowest in more than two years in the third quarter, but the Bay Area’s two largest housing markets countered that trend, with appreciation higher than it was at the same time last year.

ATTOM Data Solutions’ latest quarterly report puts the median sales price for U.S. single-family homes and condominiums at $256,000 as of the third quarter, up 4.8 percent year over year for the slowest rate of annual appreciation since the second quarter of 2016. In a statement accompanying the report, company Senior Vice President Daren Blomquist attributed cooling price growth to declining affordability, which has been exacerbated by rising mortgage rates.

Nearly half of the 150 U.S. metropolitan areas that ATTOM Data Solutions tracks saw annual price growth decelerate in the third quarter when compared with the same period last year, a list that includes Los Angeles, Santa Rosa, and Vallejo. Los Angeles’ $640,000 median price was up by 5.8 percent from the third quarter of 2017, down from the 8.2 percent growth observed in the previous year. Santa Rosa saw only a slight cooling, with the $629,000 median price up by 9.4 percent compared with the 9.5 percent annual gains recorded in the third quarter of last year. In Vallejo, home prices rose by 7.6 percent to $425,000 after increasing by 11.0 percent last year.

San Jose and San Francisco were among the 51 percent of markets where annual home price increases accelerated when compared with the third quarter of last year. San Jose‘s $1,130,000 median sales price was up by 16.9 percent from the third quarter of 2017 after registering 13.7 percent appreciation the previous year. In San Francisco, prices rose by 11.6 percent to $865,000 after growing by 8.4 percent during the same period last year.

Home prices in San Jose are now 57 percent above their prerecession high. Prices in San Francisco have surpassed their precrisis peaks by more than 20 percent, while Los Angeles and Santa Rosa are up by more than 10 percent from previous highs. Vallejo home prices are still about 6 percent below their prior peak.

Nationwide, home sellers netted returns of 32.3 percent since the time of purchase, up slightly on both a quarterly and yearly basis. As in the first two quarters of 2018, San Jose and San Francisco led the nation for seller returns, a respective 108.7 percent and 77.3 percent more than original price. Santa Rosa also ranks among the top five housing markets in the nation for returns, with sellers gaining an extra 67.9 percent from the time of purchase.

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Pacific Union Quarterly Report: Q3 2018

As in the second quarter, the median home price in the third quarter of 2018 increased year over year in every Northern California region in which Pacific Union operates. Appreciation ranged from 2.1 percent for San Francisco condominiums to 20.1 percent for single-family homes in Silicon Valley.

Below, Pacific Union Chief Economist Selma Hepp offers a brief synopsis of third-quarter real estate activity in each of Pacific Union’s regions. The accompanying links lead to the full report for each area, where you can access the latest regional and community-specific market data and statistics to help you make a better, more informed homebuying or selling decision.

Contra Costa County

Following a bustling first half of the year for the Contra Costa County housing market, the third quarter brought a rebalancing between buyers and sellers, with more homes for sale at all price points. However, with additional choices for buyers, fewer homes sold for full price, and fewer commanded premiums than in previous quarters. More options for buyers have relieved some of the bidding-war pressure, and there were fewer multiple offers in general.

Buyers have become more concerned with prices, and increased mortgage rates have caused some to pull out of the market altogether. As a result, some sellers reduced their initial prices, and homes took longer to sell. On the other hand, sales of higher-priced homes, those above $3 million, continued to increase above last year’s levels. Buyers of luxury homes remained competitive, resulting in a higher share of homes over $3 million that sold over the asking price compared with the same period last year.

Overall, the rebalancing between buyers and sellers suggests that market conditions are returning to their longer-term norms, allowing for a healthier market.

Looking Forward: As the market enters a traditionally slower season, buyers and sellers will take some time to readjust their expectations. Nevertheless, strong economic fundamentals will continue to fuel buyer demand, which will be helped by more inventory from which to choose.

Click here to read the full Q3 2018 Contra Costa County real estate report.

East Bay

East Bay housing market activity normalized in the third quarter, following robust growth in sales and home prices. However, while there were fewer overall sales, activity for homes priced above $1 million trended higher during the quarter. Strong sales activity was most notable for homes priced below $2 million.

Buyers had fewer options, as the inventory of homes for sale dropped slightly compared with last year, although the supply of homes priced between $1 million and $2 million saw a notable increase. Even with a tight supply of homes for sale, buyers were less keen to enter into bidding wars, which resulted in fewer homes selling for more than asking price.

Sellers were more likely to reduce their initial asking prices — especially for homes priced below $1 million, but also for higher-priced properties. Overall, both buyers and sellers are readjusting their expectations after a period of heightened activity and strong buyer competition. Median home price growth also normalized from robust growth earlier in the year.

Looking Forward: Less competition may help encourage some East Bay buyers who were previously discouraged. Nevertheless, as the housing market enters a slower period of activity, both sellers and buyers will have an opportunity to readjust their expectations.

Click here to read the full Q3 2018 East Bay real estate report.

Marin County

Third-quarter housing market activity in Marin County struck a new balance between buyers and sellers following a period of strong buyer competition and depleted inventories. Sales of homes priced below $1 million slowed notably, as budget-conscious buyers faced higher mortgage rates and a shortage of homes for sale. As a result, sellers were more likely to reduce their initial asking prices than at the same time last year.

Buyers of higher-priced homes were also less active, primarily for those priced between $2 million and $3 million. Buyers took longer to shop, leading homes to linger longer on the market than during the first half of 2018. But while buyers were more cautious, the share of homes that sold for more than asking price remained relatively steady.

Given the greater balance between buyers and sellers, home prices grew at a slower rate than they did earlier in the year, although the rate of appreciation was still solid.

Looking Forward: Cautious buyers coupled with higher mortgage rates and trepidation about macroeconomic conditions may depress home sales in the fourth quarter, typically a slower time of the year. The rest of 2018 and the beginning of 2019 should bring more normalized conditions to Marin County’s housing market.

Click here to read the full Q3 2018 Marin County real estate report.

Mid-Peninsula

Third-quarter home sales activity in the Mid-Peninsula slowed a bit compared with the same period last year, driven primarily by fewer sales of affordable homes, as well as well as those priced higher than $3 million. Homes priced between $1.5 million and $2.5 million remained in high demand.

The region has finally experienced some relief in inventory, with more homes on the market across all price ranges except below $1 million. But even with more homes to choose from, buyers remained competitive. About eight in 10 homes priced at less than $2 million sold for more than asking price, with an average premium of 11 percent. Buyer competition waned most for homes priced above $3 million, and sellers were more likely to reduce their initial asking prices in order to close a deal. Nevertheless, continued buyer enthusiasm helped push home prices higher.

Looking Forward: More inventory to choose from will help relieve some of the pressure in the most desirable price segments, although buyers may become more sensitive to mortgage-rate spikes. Continued strong economic conditions will help drive demand going forward.

Click here to read the full Q3 2018 Mid-Peninsula real estate report.

Napa County

Following an outstanding second quarter, Napa County‘s housing market activity slowed some in the third quarter, especially in September, which was driven primarily by fewer sales of homes priced less than $1 million. Slowing sales in lower price ranges came amid more homes on the market, reflecting affordability constraints that many buyers have faced as both home prices and mortgage rates increased in recent months. As a result, more listings saw price reductions, and buyers were less willing to engage in bidding wars.

On the other hand, sales of homes priced higher than $1 million continued to trend above last year’s levels, and buyer competition in that price range generally increased. Nevertheless, buyers were cautious and generally searched for good deals, prompting some sellers to reduce their initial asking prices.

Due to continued demand and an increase in higher-priced sales, median home prices increased notably in September, and the annual growth rate once again outpaced most other Bay Area regions. Median price growth was the strongest for homes priced below $1 million.

Looking Forward: Napa County’s relative affordability will continue to fuel demand in the area, as will an influx of retiring baby boomers. More inventory of homes priced below $1 million should also help home sales activity.

Click here to read the full Q3 2018 Napa County real estate report.

San Francisco

While most Bay Area regions saw sales slow in the third quarter, activity in San Francisco was on par with last year, with continued increases in higher-priced sales. Buyers were finally presented with more options, as single-family home inventory rose compared with the same period last year.

Buyers of homes priced between $2 million and $3 million were more restrained than those in lower or higher price ranges. As a result, there were fewer bidding wars and more price reductions. By contrast, buyer demand for homes priced below $2 million remained steady, with eight in 10 homes selling for more than asking price, for an average 16 percent premium.

Condominium sales maintained strong momentum in the third quarter, and buyers continued to compete, leading to an increase in the share of units selling for more than asking price. Supply also improved compared with last year, giving buyers more choices.

Looking Forward: Demand for San Francisco real estate remains steady despite some rebalancing of market expectations elsewhere in the Bay Area. With a lack of desirably priced inventory, sales activity going forward will be constrained, although continued economic strength will help fuel buyer demand.

Click here to read the full Q3 2018 San Francisco single-family homes real estate report.

Click here to read the full Q3 2018 San Francisco condominiums real estate report.

Silicon Valley

Housing market activity in Silicon Valley in the third quarter reflected a notable rebalancing between buyers and sellers, especially in September. Home sales slowed across all price ranges despite more inventory. However, while the number of homes on the market in Santa Clara County jumped in recent months, Silicon Valley saw relatively fewer homes available for sale compared with the same period last year.

Buyers generally took a pause in the third quarter and remained measured in bidding wars, demanding more price reductions, especially compared with the frenzied activity observed over the last year. As a result, homes took a bit longer to sell compared with the same period last year, leaving the market in about a month.

While slowing from an unsustainable rate of growth, the region’s median price continued to grow at a double-digit-percent rate. Overall, year to date, Silicon Valley has seen the most median price growth in the Bay Area.

Looking Forward: Rebalancing of seller and buyer expectations has led to more normal market conditions, which is a welcome development after an extended period of frenzy. Market activity will remain solid but more in line with normalized trends seen in prior years.

Click here to read the full Q3 2018 Silicon Valley real estate report.

Sonoma County

Sonoma County‘s housing market posted fewer sales in the third quarter compared with the same period last year. However, while the overall decline was driven by fewer sales of homes priced at less $1 million, higher-priced sales continued to trend up.

Following frenetic post-wildfire activity in the first two quarters of 2018 and rapid price escalation, buyer fatigue set in during the third quarter. Buyers across all price ranges became less willing to contend with multiple-offer situations, and fewer homes sold over the asking price compared with the same period last year.

Also, there was an increase in the number of homes for sale, especially in the sub-$1 million price range, which are now above third-quarter levels observed over the past three years. But while all price points showed an improvement in supply, buyers of homes priced above $2 million were more likely to absorb the available inventory than were buyers in lower price ranges. Strong median price growth seen earlier in the year settled back to levels recorded before the October 2017 wildfires.

Looking Forward: Rebalancing of buyer and seller expectations, along with improved inventory and less price escalation, will bode well for a more normalized market. Increasing mortgage rates, however, may discourage some buyers who will be priced out of the market.

Click here to read the full Q3 2018 Sonoma County real estate report.

Sonoma Valley

The third quarter in Sonoma Valley ended with fewer sales compared with the same period last year. Slowing activity was primarily driven by fewer sales of homes priced below $1 million, as budget-constrained buyers faced higher mortgage rates and rapidly appreciating median home prices, with a significant jump in September. Nevertheless, more sales of homes priced above $2 million drove the median price up substantially.

Still, pressure in lower price ranges stemmed from a continuous decline in inventory, which dropped by about 20 percent year over year. There were fewer homes on the market compared with last year across all price ranges.

As a result, buyers took a step back and engaged in fewer bidding wars, and the share of homes that sold for premiums fell notably compared with last year — across all price ranges. Sellers were also more likely to reduce their initial asking prices. All-cash purchases continue to play a significant role in the market, with almost four in 10 homes paid for in that manner, particularly higher-priced homes. Buyers in lower price ranges still relied on obtaining loans and were affected by higher mortgage rates.

Looking Forward: A rebalancing of market conditions and buyer and seller expectations will bring Sonoma Valley real estate to a more normalized long-term trend. Sales will be constrained by constantly falling inventory, although diminished buyer purchasing power will keep a lid on growing home prices.

Click here to read the full Q3 2018 Sonoma Valley real estate report.

Lake Tahoe/Truckee

Third-quarter housing market activity in the Lake Tahoe/Truckee region continued with solid buyer demand and sales activity similar to last year. Declining inventory levels posed a constraint, with fewer single-family homes and condominiums available for sale compared with last year.

Fewer homes for sale put pressure on prices, which increased by about 8 percent for both single-family homes and condominiums. Buyers remained enthusiastic, and homes sold at the same pace as last year. Sellers adjusted some expectations, and there were more price reductions, especially toward the end of the quarter. Price reductions may reflect some trepidation around the rapid increase in mortgage rates seen in September, which have cut in to some buyers’ purchasing power.

Looking Forward: Some of the buyer hesitation that slowed sales activity in the Bay Area in the third quarter may spill over to the Lake Tahoe/Truckee region in the fourth quarter.

Click here to read the full Q3 2018 Lake Tahoe/Truckee single-family homes real estate report.

Click here to read the full Q3 2018 Lake Tahoe/Truckee condominiums real estate report.

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Bay Area Luxury Housing Market Pulls Back While Los Angeles Holds Steady

Executive Summary:

  • Luxury home sales took a pause in the third quarter after a strong second quarter, particularly in the Bay Area, although they were in line with seasonal trends seen in prior years.
  • While Los Angeles luxury home sales have generally trended higher since 2016, the Bay Area saw a dip in luxury sales in 2017 followed by a 2018 rebound.
  • Luxury buyer sentiment was stronger in Los Angeles in the third quarter than in the Bay Area, with an improved list-price-to-sales-price ratio and fewer days on the market.
  • Bay Area luxury buyers were hesitant, with homes lingering longer on the market and larger average discounts.
  • The inventory of luxury homes in Los Angeles continues to increase, especially in the third quarter.
  • The inventory of luxury homes in the Bay Area retracted in the third quarter.

Sales of luxury homes picked up over the last two years in the Bay Area and Los Angeles housing markets. However, with home sales activity generally slowing since the summer, it appeared that high-end activity might pull back. With more September activity, though, the quarter ended on a solid note — or at least in line with third-quarter activity seen in the two previous years.

Luxury homes are defined here as those priced higher than $20 million in Los Angeles and higher than $10 million in the Bay Area, since the latter has relatively fewer sales of homes over $20 million. The data in this analysis encompasses transactions recorded in local MLSes, and thus off-market transactions are not accounted for.

In Los Angeles, sales of homes priced above $10 million in 2017 increased by 39 percent compared with the same period in 2016 and 42 percent in 2018 compared with 2016. In the Bay Area, sales of higher-end homes saw a dip in 2017, followed by a 2018 rebound above the levels seen in 2016. Figures 1 and 2 illustrate quarterly sales activity of luxury homes in Los Angeles and the Bay Area. In the Bay Area, the strongest activity for luxury homes was in the second quarter of this year, with sales almost double the sales during the same period last year. The third quarter reversed from the second-quarter high and brought sales back in line with last year’s third quarter in both regions. While third-quarter activity totaled less than half of the prior quarter’s sales, the pullback may indicate normalization of luxury sales or some reservation among high-end buyers.

Figure 1: Los Angeles quarterly sales of homes sold at $20-plus million

Source: Terradatum, Inc. from data provided by TheMLS, Oct. 7, 2018

Figure 2: San Francisco quarterly sales of homes sold at $10-plus million

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

And while the total transaction count of four sales in the third quarter in Los Angeles makes it difficult to definitively see where the luxury market is heading, Figures 3 through 6 provide additional market indicators that may suggest the trend.

In Los Angeles, the sales-price-to-list-price ratio improved notably in the third quarter, averaging 94 percent, following an 85 percent average in the two prior quarters and a 90 percent average during the same period last year. Also, the average number of days a home was on the market before it sold declined to 70 days, following the 193-day averages in the prior two quarters and 183 days during the same period last year.

Figure 3: Los Angeles average list-price-to-sales-price ratio

Source: Terradatum, Inc. from data provided by TheMLS, Oct. 7, 2018

Figure 4: Los Angeles average days on market

Source: Terradatum, Inc. from data provided by TheMLS, Oct. 7, 2018

In the Bay Area, the same indicators suggest a different trend. The average sales-price-to-list-price ratio has been declining since this year’s peak in the first quarter at 98 percent. At an average 92 percent sales-price-to-list-price ratio, the third quarter was also below last year’s third quarter but in line with 2016. Nevertheless, the average number of days it took for a home to sell increased notably, from 44 days in the first quarter to 158 days in the third quarter. However, the third quarter of last year also trended closely at 153 days, making it difficult to determine if the increase suggests weaker buyer demand or normalization of the trend back to longer-term average.

Figure 5: Bay Area average list-price-to-sales-price ratio

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

Figure 6: Bay Area average days on market

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

And while inventory has been increasing in both Los Angeles and the Bay Area, Los Angeles has seen a more noticeable improvement in supply in recent months than has the Bay Area. Figure 7 illustrates the average monthly number of homes available for sale priced at more than $20 million. Since the beginning of summer, the average inventory grew to about 109 properties from an average of 90 in the previous 16 months, which is a 21 percent increase.

Figure 7: Los Angeles luxury inventory

Source: Terradatum, Inc. from data provided by TheMLS, Oct. 7, 2018

In the Bay Area, while inventory reflects more seasonal patterns, it still suggests that the supply of homes priced at more than $10 million since July has averaged 5 percent below last year following higher levels of inventory in the first five months of 2018. When looking at the entire year, inventory in 2018 is on par with 2017 levels.

Figure 8: Bay Area luxury inventory

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

Luxury home markets in both Northern and Southern California remain healthy, with activity not substantially different from 2017. However, caution may be warranted, as financial markets have seen more volatility in recent months — particularly those with impacts on California. Also, increased concern with trade, macroeconomic, and geopolitical risks may lead high-end buyers to exercise caution in the coming months.

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 10 Fastest-Appreciating Housing Markets: Q3 2018

As in our previous two quarterly analyses of Bay Area real estate markets where home prices are rising the most on an annual basis, most of the 70-plus Northern California communities in which Pacific Union operates recorded price growth in the third quarter. The exclusive San Mateo County communities of Atherton and Woodside made the list for the third straight time, while all 10 San Francisco districts posted appreciation from the third quarter of 2017.

The analysis below uses third-quarter MLS data to determine where prices are rising the fastest in the Bay Area. Note that only single-family homes are included in this study, and that communities with less than five transactions in the most recently completed quarter were excluded. Check out the top 10: 

  1. San Francisco District 8 — up by 109.7 percent — Single-family home prices in San Francisco’s prized District 8 — which includes neighborhoods such as Telegraph Hill, North Beach, and Russian Hill — ended the third quarter at $4.1 million. It’s worth noting that there were only five sales in District 8 in the third quarter, including a $5.75 million home that sold in one day.
  1. Woodside — up by 49.1 percent — After taking the No. 1 spot for the highest year-over-year appreciation in the second quarter, Woodside fell a place but still registered healthy price gains. The San Mateo County town’s hefty $3.8 million sales price was actually down a bit from the second quarter of this year.
  1. St. Helena — up by 45.2 percent — With a median sales price of $1,444,575, just four of the nearly 40 homes sold in this Napa County city during the third quarter sold for less than seven figures.
  1. Angwin — up by 44.2 percent — The Napa County community of Angwin has less than 4,000 residents, so it makes sense that not many homes usually change hands in a given quarter — just six in the third quarter. The median sales price of $1,027,500 is the highest registered in Angwin since the second quarter of 2016.
  1. San Francisco District 7 — up by 37.1 percent — Home to desirable neighborhoods such as Pacific Heights and Cow Hollow, the median sales price in District 7 ended the third quarter at $4.9 million, down from the three-year peak recorded in the second quarter of this year.
  1. San Francisco District 6 — up by 25.2 percent — With a median sales price of just more than $3 million, District 6 includes San Francisco neighborhoods such as Lower Pacific Heights, Alamo Square, and Hayes Valley. As in neighboring District 7, home prices hit a three-year high in the second quarter.
  1. Atherton — up by 23.8 percent — Even with a median sales price of $6.4 million in the third quarter, homes in this elite Silicon Valley enclave were more than $2 million less expensive than they were in the first quarter of this year. Nearly one-fourth of the 17 home sales recorded in the first quarter were higher than $10 million.
  1. Los Altos Hills — up by 19.8 percent — The median sales price in Los Altos Hills was $4.7 million in the third quarter, with only one home trading for less than $3 million.
  1. Kenwood — up by 19.2 percent — Although just five homes changed hands in the tiny Sonoma Valley community of Kenwood in the third quarter, a $5 million sale helped push the median sales price up to $1.55 million.
  1. Sonoma — up by 18.7 percent — The median sales price in the city of Sonoma ended the third quarter at $880,000, consistent with numbers recorded since the final quarter of 2017.

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