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Proposition 10: Possibly the Worst Approach to California’s Current Housing Crisis

What is Proposition 10?

Proposition 10 is a statewide ballot initiative in the November 2018 election that aims to repeal the Costa-Hawkins Housing Act. While Proposition 10 has become a polarizing issue, it is critically important to understand what it does and does not do.

What is the Costa-Hawkins Rental Housing Act?

The Costa-Hawkins Rental Housing Act was passed by the California legislature in 1995 and places limits on municipal rent-control ordinances.

The act limits municipal laws in the following ways:

  • In cities that already have rent-control policies, it freezes the eligibility of units that can come under rent control at the age threshold that was in place when the ordinances were adopted. For example, units in San Francisco that fall under rent control are those built prior to June 13, 1979.
  • It prohibits “strict” rent control (for instance, vacancy control), which requires rents to remain controlled even after a tenant moves out. Since Costa-Hawkins passed, owners may still increase the rent equivalent to the change in the cost of living as measured by the Consumer Price Index (averaging about 5 percent). Prior to the enactment of Costa–Hawkins, such strict vacancy controls existed in five California cities: Berkeley, Santa Monica, Cotati, East Palo Alto, and West Hollywood.
  • It exempts all single-family homes, condominiums, and units built after Feb. 1, 1995.

In California, 15 jurisdictions have passed some form of rent control, including “legacy” rent control, meaning cities with ordinances dating back to the late 1970s and early 1980s, such as San Francisco, Los Angeles, Berkeley, and Santa Monica. Bay Area cities such as Mountain View and Richmond have only recently enacted such ordinances. Cities listed as rent controlled by the state of California: Alameda, Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Los Gatos, Oakland, Palm Springs, San Francisco, San Jose, Santa Monica, West Hollywood, Mountain View, and Richmond.

The major purposes of the Costa-Hawkins act are to eliminate vacancy control and thereby allow property owners to adjust the rent to market price and to exempt certain categories of rental units from rent control — new construction, single-family homes, and condominiums.

The act leaves the power to determine most other elements of rent control to the cities. Cities remain in control of determining any changes to the rental amount of a tenancy and possess a substantive jurisdiction to regulate evictions and an owner’s ability to otherwise end a tenancy. Accordingly, cities could prohibit an owner from terminating a tenant without “just cause.” Each California city has its own independently enacted rent-control ordinances, which vary widely.

What Would the Repeal of Costa-Hawkins Mean?

Advocates of expanding rent-control policies gathered enough votes to put a bill on the November 2018 ballot. Assembly Bill 1506, also called the Affordable Housing Act, calls for the repeal of Costa-Hawkins. If approved, in addition to repealing Costa-Hawkins, any subsequent amendments to the Affordable Housing Act would require a two-thirds majority vote by the state legislature. However, even if Proposition 10 passes, each city would need to go through the process of passing new legislation before the repeal would have any effect. At that point, it would be up to cities to decide if they want to expand their rent-control regulations or leave the current laws intact.

It is an undeniable fact that the cost of housing in major California metropolitan areas has grown far out of reach for many residents. The housing-cost burden has become the Achilles’ heel of California’s economic future. Proponents of rent control generally believe that price protections are the most effective ways to help tenants avoid displacement, which disproportionately affects seniors, lower-income tenants, and renters of color. Nevertheless, California’s affordability crisis is a direct result of an undersupply of housing built over the last decade. 

According to a recent Department of Housing and Community Development (HCD) report, “California’s Housing Future: Challenges and Opportunities,” housing production has averaged less than 80,000 new homes annually over the last 10 years, and ongoing production continues to fall far below the projected need of 180,000 additional homes annually. With now an almost 2 million housing-unit deficit, there is a need for an additional 1.8 million units to be built by 2025 to meet the state’s projected population and household growth.

If these units are not built, housing will become even less affordable. 

Nevertheless, as research on the impact of rent control across the state and the country has shown, expanding rent control will further exacerbate affordability by adding an additional disincentive to constructing new units and supply of rental units in the market. Specifically, research cited in a recent analysis from University of California, Berkeley shows that rent control reduces the supply of rental housing in the following ways:

  • Rent control incentivizes property owners to sell or convert them to nonresidential units.
  • Rent control reduces the efficient allocation of housing by disincentivizing current tenants to move even when they don’t need all the space or their financial means have improved beyond the need for rent-controlled housing.
  • And critically important now, rent control discourages new development of rental supply by removing developers’ certainty that they will be able to repay their loans and their investors, significantly impacting the feasibility of many construction projects.

For example, a recent study of San Francisco’s 1994 Proposition I, which extended the original rent-control ordinance to include smaller buildings of four units or less, found that these properties were 8 percent more likely to convert to owner-occupied housing. San Francisco consequently faced a notable loss in rental housing, as well as higher prices, due to reduced supply. The offsets amounted to $5 billion of welfare losses to all renters.

Similarly, in West Hollywood, rent control led to the loss of 764 units between 1986 to 2016, with only 10 percent returning to the market as new apartment units. In Santa Monica, out of 3,042 units withdrawn from the market between 1986 and 2017, only one-third were replaced with new rental units (and not necessarily rent-controlled ones). In fact, as a result of the Proposition 10 ballot initiative, some new multifamily projects across the state have already been placed on hold as developers face uncertainty over projects’ feasibility.

Furthermore, some Proposition 10 proponents have argued that the issue is about local government control and allowing jurisdictions that better understand their housing problems to deal with them. Nevertheless, while local jurisdictions are best informed about their own local imbalances — such as homelessness, displacement, and gentrification — a serious lack of local government willingness, and more importantly local residents, to allow low-to-moderate-income development projects has led to California’s 2017 Housing Package.

The package has several regulations that are specifically aimed at holding cities and counties accountable for addressing their housing needs. Over the years, communities have either adopted a noncompliant housing element or failed to submit their housing element to the HCD for timely review.

The package provides greater accountability by:

  • Increasing enforcement of state housing-planning (“housing element”) law and enabling the HCD to refer violations to the Attorney General
  • Strengthening housing-planning laws to ensure that appropriate land is available for new development and increasing transparency on local governments’ progress on meeting legally mandated housing targets
  • Creating a $10,000 per-unit penalty on cities and counties that deny (for unjustified reasons) approval of new homes that are affordable to low- or moderate-income Californians.

In addition, there are a number of chronic local government problems that are driving the current housing crisis, such as strong local community opposition; outdated zoning laws that limit residential density and land-use efficiency; caps on population, housing-growth, or building-height limits; onerous parking- or transportation-improvement requirements; and excessive design review, development fees, and the “fiscalization of land use,” which lead local jurisdictions to favor commercial growth as opposed to residential. Passing Proposition 10 in no way addresses any of these issues. 

What are Proposed Alternatives for Tenant Protections?

The main objective going forward is to ensure meaningful protections to renters without constraining the supply of new housing. Without new housing supply, costs will become even more prohibitive, and rent controls will further incentivize property owners to remove their units from the market.

To that end, there have been numerous suggestions proposed by local and state leaders from real estate, finance, academic, public-policy, and government agencies.

Specifically, the Terner Center from University of California, Berkeley proposes that the state should adopt:

  • A broad “anti-gouging” rent cap applied to all rental units statewide that would make it illegal to raise rents above a specific amount, determined annually by a formula
  • An incentive to developers of new and rehabilitated rental buildings to include on-site, below-market rate units in exchange for property-tax relief
  • Creating a central registry of rent-controlled housing to ensure equity among tenants

In addition, there is broad agreement among leaders that greater efforts should be placed on:

  • Adoption of inclusionary zoning policies combined with density bonuses
  • Development of housing trust funds and other programs for local funding of affordable housing
  • Exemptions from parking and traffic limitations for low-income housing developments
  • Funding for the rehabilitation of older commercial and publicly used property to affordable units
  • Broadening legalization of accessory dwelling units (in-law suites) without additional parking requirements or excessive permitting costs
  • Broadening of zoning ordinances to more readily accommodate quality manufactured housing as an alternative to more expensive conventional housing
  • Mixed-use zoning: inclusion of housing in commercial areas by adding new and existing or redeveloping vacant or underused retail, office, and industrial areas

Lastly, in January 2018, state Senator Scott Wiener introduced Senate Bill 827 in an attempt to increase new high-density housing near transit. While the bill failed to clear its first policy committee in the Senate, the proposal would have considerably increased zoning densities near major transit stops. With some amendments, it could have been a large step in improving the current crisis.

If California cities such as Los Angeles and San Francisco want to compete on a global stage and remain economic and innovation powerhouses both in the U.S. and globally and ensure that children who are born here can remain to live here in the future, preserving Costa-Hawkins and refocusing attention on the above proposed alternatives will be more productive.

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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San Francisco Has the Nation’s Tightest Housing Supply Conditions

The San Francisco metropolitan area had a 2.0-month supply of homes for sale in July, the lowest of any major U.S. housing market.
Home prices in San Francisco rose by 11 percent year over year in July, nearly double the national rate of appreciation.
More than 80 percent of homes in San Francisco sold for list price or higher, the most in the country.

The San Francisco skyline as seen from Twin PeaksAlthough inventory has been improving modestly in the Bay Area over the past couple of months, it is still insufficient to meet demand, causing most homes in the San Francisco metropolitan area to sell for premiums this summer.

That’s according to a pair of new reports from CoreLogic, one of which says that the U.S. had a 3.2-month supply of homes for sale in July, up from 3.1 percent one year earlier. The company attributes the slight improvement to both rising mortgage rates and declining home sales.

The San Francisco metro area had a 2.0-month supply of homes for sale, the lowest of the 20 major housing markets for which CoreLogic tracks data. Summer inventory conditions were nearly as tight in San Jose, which had a 2.2-month supply of homes for sale.

Not enough homes on the market to satisfy demand pushed CoreLogic’s July Home Price Index up by 11 percent in San Francisco, one of the highest rates of appreciation in the U.S. That’s nearly double the 6.2 percent annual price gains recorded nationwide, and the company says that its index has now surpassed its prerecession peak.

Nationwide, the share of homes that sold for at or more than asking price has also exceeded its precrisis high, with 40 percent of properties falling into that category — nearly three times more than a decade ago. In San Francisco, 81 percent of homes sold for list price or higher, the most in the U.S. San Francisco homebuyers spent an average of 9.7 percent more than asking price, while those in San Jose paid 5.4 percent premiums.

Even if California and Bay Area market conditions remain challenging for homebuyers, recent statistics offer cause for some optimism. The latest monthly home sales report from the California Association of Realtors says that active listings in the state increased for the fifth straight month in August, while the nine-county Bay Area saw its months’ supply of inventory increase to 2.3, up from 1.9 one year earlier.

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Two in Ten Millennials who plan to by a home expect to dip into retirement accounts

To get in the game, some millennials are raiding their retirement accounts for that money, according to a recent report from Bank of the West. The 2018 Millennial Study, released in July, is based on a nationwide survey of more than 600 millennials (ages 21-34). The key findings:

  • Three in 10 millennials (29 percent) who already own a home have taken out a loan or withdrawn from an IRA or 401(k) account.
  • Two in 10 millennials (19 percent) who plan to buy a home expect to dip into their retirement accounts to fund their purchase.

From Bank of the West

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Bay Area Housing Inventory Further Tightens in November

  • The median sales price for a single-family home in the nine-county Bay Area increased by 12.5 percent year over year in November to $910,350.
  • Home prices rose from November of last year in all nine Bay Area counties, with six seeing double-digit percentage point appreciation.
  • Seven Bay Area counties have the state’s most severe inventory shortages, with less than two months of supply.

Stubbornly low supply conditions did not improve in California or the Bay Area on an annual basis in November, pushing prices up by double-digit percentage points in six local counties.

The latest home sales report from the California Association of Realtors says that the state median sales price for a single-family home was $546,820, up 8.8 percent from November 2016 for the largest annual gain in nearly two years. Home prices increased in 45 of 51 counties for which CAR tracks data, with double-digit percent gains recorded in 23 counties.

The nine-county Bay Area led the state’s major regions for annual appreciation, with the median sales price climbing by 12.5 percent from November 2016 to reach $910,350. Home prices appreciated year over year in every local county, with six recording double-digit percent gains: Santa Clara (27.0 percent), San Mateo (22.1 percent), Marin (17.1 percent), Sonoma (13.3 percent), San Francisco (10.3 percent), and Alameda (10.0 percent).

Like last November, four of those counties were California’s only seven-digit housing markets. San Francisco was the state’s most expensive county, with a median sales price of $1,500,000, followed by San Mateo ($1,486,000), Santa Clara ($1,282,500), and Marin ($1,230,000) counties.

In what has become an all-too-familiar refrain, a pronounced lack of homes on the market fueled the price growth statewide and locally. California’s months’ supply of inventory dropped to 2.9 in November, down on both a monthly and yearly basis. The nine county Bay Area’s MSI ended the month at 1.5, also down from October and November 2016.

Supply declined year over year in eight of nine counties, with conditions in Solano County unchanged. San Francisco has the state’s most severe inventory shortage, with a 1.1-month supply, while Santa Clara, San Mateo, Alameda, Marin, Contra Costa, and Sonoma counties all have less than two months of supply. Overall, there were 17 percent fewer Bay Area listings than at the same time last year, with Santa Clara County seeing a substantial 36 percent drop.

CAR President Steve White expressed concern about the state’s deteriorating affordability conditions, pointing to particularly slim supply levels at lower price points. Senior Vice President and Chief Economist Leslie Appleton-Young echoed his sentiments, referencing the Federal Reserve’s decision to raise interest rates last week and more expected hikes in 2018.

“As rates rise, the cost of homeownership will go up, and housing affordability will further deteriorate if the trend continues,” she said.

(Photo: iStock/ChuckSchugPhotography)

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Shared with permission from the Pacific Union Blog

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Wine Country Home Sales Show Strength in November

 

Executive Summary:

  • Following the Wine Country wildfires, home sales activity increased notably year over year in November, up by 13 percent in Sonoma County and by 24 percent in Marin County but down by 11 percent in Napa County.
  • Also, sales were markedly up from October with 16 percent, 17 percent, and 23 percent increases in Marin, Napa, and Sonoma counties respectively. Typically, sales activity slows between October and November.
  • While overall inventory continued to decline, October and November were characterized by higher levels of expired or withdrawn listings but also by an increase in new listings when compared with previous trends. Higher levels of expired or withdrawn listings dragged overall inventory down.
  • The months’ supply of inventory is now at its lowest level in two years in Sonoma and Marin counties.
  • Median prices grew by 16 percent in Sonoma County, 17 percent in Marin County, and 7 percent in Napa County compared with last November — a pattern that was consistent across the Bay Area.
  • While preliminary trends suggest that demand for homes has increased following the wildfires, overall tight market conditions in the Bay Area make it difficult to fully gauge the impact of the disaster.

It has been about two months since the raging Wine County wildfires, and assessing the impact on its housing markets is still only preliminary. As we noted in our Bay Area Real Estate and Economic Forecast to 2020, it will take couple of years to understand the full impact of the fires. Unfortunately, wildfires have become a reality of living in California.

Home sales activity picked up considerably in parts of the Wine County in November. Year-over-year sales rose by 13 percent in Sonoma County and 24 percent in Marin County, while dropping by 11 percent in Napa County. The annual increases in Marin and Sonoma counties were the largest among all Bay Area regions, while overall sales in the Bay Area declined by 2 percent. Napa County’s decline was a continuation of trends seen throughout 2017.

On the other hand, between October and November, sales were also up by a solid 23 percent in Sonoma County, 17 percent in Napa County, and 16 percent in Marin County. Typically, sales slow from October to November, with an average decline between 6 percent and 14 percent in those three counties over the last 10 years.

Figure 1 illustrates the somewhat atypical pattern of sales over the last couple of months. While Sonoma County saw some fluctuation during the summer, the three North Bay counties all posted monthly November increases, again inconsistent with previous years’ trends. Delving deeper into local Sonoma County markets showed that sales were up by 18 percent in Santa Rosa and 24 percent in Sonoma Valley year over year in November.

Figure 1: Monthly home sales by North Bay county

Source: Terradatum, Inc. from data provided by local MLSes, Dec. 6, 2017.

Nevertheless, while sales have picked up, the inventory of homes on the market has continued to fall, but with some important caveats. While overall inventory declined on an annual basis by 10 percent in Sonoma and Napa counties and by 9 percent in Marin County, there were 22 percent more new listings in Sonoma County, 20 percent more in Napa County, and 6 percent more in Marin County. Relatively higher levels of expired or withdrawn listings dragged overall inventory levels down. By comparison, San Mateo County had the largest year-over-year increase in new listings, up 27 percent, while the overall Bay Area had 7 percent more listings than last year. While it is not clear that the increase in new listings was purely driven by the wildfires, last year’s level of new listings in November in the North Bay was on par with 2015.

Declining inventory appears to be the result of an increase in expired or withdrawn listings, especially in Sonoma County, where they jumped by 37 percent, followed by a 4 percent increase Marin County and a 2 percent increase in Napa County. Those were the only three Bay Area counties that showed an increase in expired or withdrawn listings from last November. Overall, the Bay Area saw a 16 percent decline in such listings.

The increase in expired or withdrawn listings, especially in Sonoma County, is in large part due to the disorder that follows a natural disaster. Some of the homes could have been burned or damaged, some were offered for lease instead of sale, and some sellers may be waiting for the market to calm down. In examining expired or withdrawn listings in October and November that were later relisted, there is no clear trend that they were placed on the market for higher prices. On the contrary, out of the 33 homes that were relisted in November, eight were listed with adjusted prices, six were listed at lower prices, and two were listed at higher prices than they were prior to their expiration or withdrawal.

Figure 2 illustrates the monthly number of new listings and expired or withdrawn listings in Sonoma County, with November figures highlighted. The red lines illustrate the change in activity from last year. As expected, October shows a relatively higher number of expired or withdrawn listings than any other month, but the trend also continued in November.

Figure 2: Monthly expired and new listings in Sonoma County.

Source: Terradatum, Inc. from data provided by local MLSes, Dec. 6, 2017.

The increase in sales activity coupled with lower inventory led to a decline in the months’ supply of inventory in all three North Bay counties. Figure 3 suggests that Sonoma and Marin counties currently have only a one-month supply of homes on the market if the November rate of sales continues. Inventory in Napa County fell to a 2.6-month supply. All three counties, but particularly Sonoma and Marin, have notably less inventory on both a monthly and yearly basis.

Figure 3: Months’ supply of Inventory in Sonoma, Napa, and Marin counties.

Source: Terradatum, Inc. from data provided by local MLSes, Dec. 6, 2017.

Lastly, and probably most importantly for homebuyers and Wine Country residents, Figure 4 illustrates historical median price trends for single-family homes in the three counties. In November, median prices increased by 16 percent in Sonoma County, 17 percent in Marin County, and 7 percent in Napa County year over year. In Marin County, the current median price for single-family homes stood at $1.217 million. In Napa County, the median price was $657,000, while Sonoma County’s median price stood at $656,900. Among all Bay Area counties, only Napa and Contra Costa have not yet surpassed previous peak prices, though all have seen prices grow by about 100 percent-plus since the market bottomed out in 2010.

Taken together, it is still too early to fully understand the impacts of the wildfires. It takes time for people to adjust and make decisions on next steps. Clearly, many households are looking for homes to rent or buy, which is driving the immediate demand. As anticipated, already tight inventories have gotten tighter, and homes have gotten pricier. Nevertheless, with slim inventory levels across the whole region and home prices surging in most parts of the Bay Area in November, it is difficult to separate the impacts of the wildfires from overall market conditions. We will keep a close eye on changing trends in the coming months.

Figure 4: Median single-family home prices in Marin, Napa, and Sonoma counties

Source: California Association of Realtors

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.

(Promotional photo: iStock/TraceRouda)

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Shared with permission from the Pacific Union Blog

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Bay Area Home Prices Soar in November

 

Executive Summary:

  • The Bay Area’s median home price increased 14 percent year over year in November, driven by strong appreciation in Silicon Valley.
  • Sales of homes priced above $2 million grew by 72 percent in San Mateo and Santa Clara counties, 95 percent in Marin County, and 81 percent in Alameda County. These higher-priced sales were a big driver of the home price surge.
  • General market competition intensified in November, with a 10 percent increase in absorption rates and seven fewer days on the market year over year.
  • Inventory shortages continue dragging down overall sales, which were 2 percent lower than last November.
  • Fears of proposed tax changes and the potential impacts on homebuyer deductions may have fueled some of the November surge in demand.
  • Home prices In San Francisco and Silicon Valley are about 50-plus percent higher from the last peak.

The final month of 2017 appears set to close with strong Bay Area housing-market numbers, at least regarding prices. In November, home sales activity was 2 percent lower than last November, but that comes with important caveats. Wildfires certainly impacted the affected and surrounding areas. Sonoma County home sales were up 13 percent from last November, and in adjacent Marin County, sales jumped by a remarkable 24 percent. Both regions’ November increases reversed October’s year-over-year notable declines, a function of the wildfires. With November’s increase in sales, Sonoma County’s overall year-to-date housing activity is on par with 2016.

Napa County, on the other hand, saw a 12 percent year-over-year decline in sales and is the only Bay Area region where year-to-date sales are lower than they were in 2016. Sales were lower across all price ranges except for homes priced between $1 million and $2 million. Napa County has the lowest level of sales of all Bay Area counties, and overall, 85 fewer units have sold so far in 2017. A detailed analysis of Wine Country real estate activity will be available on our blog later this week.

November sales also declined year over year in Contra Costa and Santa Clara counties due to a continued rapid decline in inventory of homes priced below $1 million and a consequent lack of sales in that price range. In Santa Clara County, the inventory of homes priced below $1 million was 54 percent lower than last November. While inventory declines are not new, November once again showed falling supply across the region, down 21 percent on an annual basis. Santa Clara County again led the declines, with a staggering 39 percent drop in inventory.

Figure 1 illustrates overall year-over-year inventory changes, inventory changes for homes priced between $1 million and $2 million, absorption rates, and median days on market. Numbers in red show relatively stronger market competition when compared with other regions. For example, Marin and San Francisco counties saw 10-day drops in the median days that homes spent on the market. As noted, Napa County has seen 2017 market conditions slow in comparison with last year. Nevertheless, the second half of last year was relatively stronger in Napa County, thus a year-over-year comparison may just reflect normalizing trends.

In addition to the 21 percent year-over-year decline in inventory, Figure 1 also illustrates annual supply changes for homes priced between $1 million and $2 million, which dropped by 11 percent from last year. Again, while falling affordable inventory is unfortunately a continued and alarming trend for the Bay Area, the region also faces a declining supply of higher-priced homes, which are in demand for buyers in half of local counties. Finally, Figure 1 illustrates absorption rates for listed inventory and the change from last year. Again, numbers in red suggest relatively more competitive markets, with higher increases in the rate of inventory absorption. Silicon Valley saw the largest increase in absorption, followed by Marin County and San Francisco. All Bay Area regions showed higher absorption rates averaging 50 percent, a 10 percent increase from last November. These market indicators point to strong demand, which would have pushed transaction activity much higher this year if more inventory was available.

Figure 1: Select Bay Area November market statistics

Source: Terradatum, Inc. from data provided by local MLSes, Dec. 6, 2017.

Figure 2 summarizes changes in absorption rates, as well as changes in the share of listings that expired when compared with last November. Napa County and Sonoma County trends deviate from other Bay Area counties, a reflection of the October wildfires.

Figure 2: Annual changes in absorption rates and expired listings by Bay Area county.

Source: Terradatum, Inc. from data provided by local MLSes, Dec. 6, 2017.

One of the most striking insights from November data is the increase in median prices seen across the region, a trend not anticipated at this point in the Bay Area housing cycle or at this time of year. In November, prices were 14 percent higher on an annual basis, with Silicon Valley median prices jumping as much as 26 percent. The gain is partially driving the increase in sales of higher-priced homes — $2 million-plus — which increased by 50 percent in November and by 72 percent in San Mateo County. Again, the strong market for homes priced above $2 million characterized most of 2017 across the entire Bay Area. Overall year to date, the median home price has grown by 10 percent in the Bay Area. Figure 3 illustrates historical changes in median prices for the Bay Area’s regions, excluding Napa and Sonoma counties.

The table in Figure 3 summarizes changes in median prices by region from the last peak and the subsequent trough. The percent changes show how much prices have increased since the trough for single-family homes. All regions, except for Contra Costa County, have current median prices well above their previous peaks, with San Francisco’s median price now 64 percent higher.

Figure 3: Changes in Bay Area home prices from peak to trough to current

Source: California Association of Realtors

The increase in prices, along with stronger market competition, inevitably leads to the question of what factors drive demand and if there are signs of a bubble forming.

First, the Bay Area’s incredible job growth over the last few years, along with accompanying income growth, has definitely been the biggest stimulus for housing demand. Unlike the last housing surge of the mid-2000s, buyers today are well invested in their homes, with only 10 percent placing less than 20 percent down payments, according to Pacific Union data. The rest of the buyers have either purchased with 20 percent-plus down payments or with all cash.

Also, unlike during the last bubble, current demand far outpaces the supply of homes for sale, or homes available in general for the increase in population that the Bay Area has experienced. Next, unlike the proliferation of adjustable-rate and other exotic mortgages seen during the previous boom, homebuyers today are locking in fixed-rate mortgages at historically low rates. Finally, despite the Bay Area’s affordability crisis and home prices that exceed previous peaks, buyers are generally spending a lower share of their incomes on mortgage payments than they were during the previous cycle because of lower interest rates. This is not to say that the Bay Area’s affordability crisis is not severe, and the outcome will be loss of hardworking households that can no longer afford to live here. For more on this subject, the California Association of Realtors recently published a report examining if the state’s housing market is again in a bubble.

Lastly, with concerns around proposed tax changes and the impacts on new homebuyers, there is a potential pickup in demand stemming from those trying to take advantage of the more favorable existing tax laws, which would grandfather them in if the looming proposals come to fruition.

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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Shared with permission from the Pacific Union Blog

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Pacific Union’s November 2017 Real Estate Update

Northern California’s inventory woes continued in November, with the number of homes for sale dropping on an annual basis in all Bay Area regions in which Pacific Union operates. Supply fell to a one-year low in Contra Costa County, Marin County, San Francisco, Silicon Valley, Sonoma County, and Sonoma Valley.

Click on the image accompanying each of our regions below for an expanded look at local real estate activity in November.

CONTRA COSTA COUNTY

The median sales price in Contra Costa County ended November at $1,250,000, tying the high set three times earlier this year. The months’ supply of inventory was 1.0, down on both a monthly and yearly basis.

Homes sold in a brisk 21 days and for 99.1 percent of original prices.

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

EAST BAY

For the 10th consecutive month, the median sales price in our East Bay region was in the seven-digit range in November, at $1,100,000. With a  0.7-month supply of inventory, the East Bay remained one of the Bay Area’s tightest real estate markets.

As in October, homes took an average of 18 days to find a buyer. Continuing a trend that has persisted for the past few years, homes again sold for substantial premiums, commanding 114.5 percent of asking prices.

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

MARIN COUNTY

The number of homes for sale in Marin County fell to a one-year low in November, with the months’ supply of inventory at 0.9. The median sales price was $1,227,500, up 15 percent year over year.

Homes left the market in an average of 44 days, selling for 98.1 percent of original prices.

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

NAPA COUNTY

At $637,500, Napa County‘s median sales price ended November in the same general range as it has been all year. The months’ supply of inventory was 2.8, the lowest since the summer.

Homes sold for an average of 94.1 percent of asking prices, nearly identical to last November, and took 85 days to find a buyer.

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

SAN FRANCISCO – SINGLE-FAMILY HOMES

The median sales price for a single-family home in San Francisco was $1,500,000 in November, nearly matching the one-year high set in October. The number of homes on the market continued to dwindle, with the months’ supply of inventory at 0.9.

Sellers received an average of 110.2 percent of asking prices, nearly identical to premiums recorded in October. Single-family homes in San Francisco sold in an average of 27 days.

SAN FRANCISCO – CONDOMINIUMS

At $1,254,825, the median sales price for a San Francisco condominium climbed to a one-year high in November. Inventory moved in the opposite direction, falling on both a monthly and yearly basis to a 1.3-months’ supply.

Units sold in an average of 38 days and for 102.9 percent of original prices.

SILICON VALLEY

Silicon Valley‘s median sales price was $3,050,000 in November, unchanged from the previous month. The number of homes for sale declined to a one-year low, with the months’ supply of inventory at 1.0.

Homes sold for an average of 101 percent of asking prices, finding a buyer in 26 days.

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

Mid-Peninsula Subregion

The median sales price in our Mid-Peninsula subregion reached a yearly peak in November, finishing the month at $1,885,000. Along with the East Bay, the Mid-Peninsula had the region’s most pronounced inventory drought, with a 0.7-month supply of homes for sale.

Sellers received an average of 102.9 percent of asking prices, similar to last November, with homes leaving the market in 19 days.

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

SONOMA COUNTY

The number of homes for sale in Sonoma County fell to a one-year low in November, with a 1.1-months’ supply of inventory. As a result, the median sales price increased to $659,000, a yearly high.

The pace of sales was identical to November 2016, with homes leaving the market in an average of 67 days. Buyers paid 96.7 percent of original prices, similar to numbers recorded over the past year.

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

SONOMA VALLEY

Inventory levels in Sonoma Valley were more than cut in half from October to November, with a 2.0-months’ supply for sale. Properties lasted on the market an average of 75 days, almost a month longer than in October.

The median sales price was $730,000, and buyers paid an average of 93.9 percent of asking prices.

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

LAKE TAHOE/TRUCKEE – SINGLE-FAMILY HOMES

The median sales price for a single-family home in the Lake Tahoe/Truckee region ended November at $699,000, just a few thousand dollars lower than in October. Homes sold for an average of 92.6 percent of asking prices, nearly identical to the previous two months.

The Lake Tahoe region had a 2.7-months’ supply of single-family homes for sale, with buyers taking an average of 83 days to close a sale.

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

LAKE TAHOE/TRUCKEE – CONDOMINIUMS

The number of condominiums on the market in the Lake Tahoe/Truckee region sunk to a yearly low, with a 2.8-months’ supply of units for sale. The median sales price was $477,500, a 27 percent annual increase.

Condominiums sold in an average of 122 days, nearly identical to October’s pace, and for 96.4 percent of original prices.

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

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Pacific Union’s November 2017 Real Estate Update

Northern California’s inventory woes continued in November, with the number of homes for sale dropping on an annual basis in all Bay Area regions in which Pacific Union operates. Supply fell to a one-year low in Contra Costa County, Marin County, San Francisco, Silicon Valley, Sonoma County, and Sonoma Valley.

Click on the image accompanying each of our regions below for an expanded look at local real estate activity in November.

CONTRA COSTA COUNTY

The median sales price in Contra Costa County ended November at $1,250,000, tying the high set three times earlier this year. The months’ supply of inventory was 1.0, down on both a monthly and yearly basis.

Homes sold in a brisk 21 days and for 99.1 percent of original prices.

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

EAST BAY

For the 10th consecutive month, the median sales price in our East Bay region was in the seven-digit range in November, at $1,100,000. With a  0.7-month supply of inventory, the East Bay remained one of the Bay Area’s tightest real estate markets.

As in October, homes took an average of 18 days to find a buyer. Continuing a trend that has persisted for the past few years, homes again sold for substantial premiums, commanding 114.5 percent of asking prices.

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

MARIN COUNTY

The number of homes for sale in Marin County fell to a one-year low in November, with the months’ supply of inventory at 0.9. The median sales price was $1,227,500, up 15 percent year over year.

Homes left the market in an average of 44 days, selling for 98.1 percent of original prices.

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

NAPA COUNTY

At $637,500, Napa County‘s median sales price ended November in the same general range as it has been all year. The months’ supply of inventory was 2.8, the lowest since the summer.

Homes sold for an average of 94.1 percent of asking prices, nearly identical to last November, and took 85 days to find a buyer.

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

SAN FRANCISCO – SINGLE-FAMILY HOMES

The median sales price for a single-family home in San Francisco was $1,500,000 in November, nearly matching the one-year high set in October. The number of homes on the market continued to dwindle, with the months’ supply of inventory at 0.9.

Sellers received an average of 110.2 percent of asking prices, nearly identical to premiums recorded in October. Single-family homes in San Francisco sold in an average of 27 days.

SAN FRANCISCO – CONDOMINIUMS

At $1,254,825, the median sales price for a San Francisco condominium climbed to a one-year high in November. Inventory moved in the opposite direction, falling on both a monthly and yearly basis to a 1.3-months’ supply.

Units sold in an average of 38 days and for 102.9 percent of original prices.

SILICON VALLEY

Silicon Valley‘s median sales price was $3,050,000 in November, unchanged from the previous month. The number of homes for sale declined to a one-year low, with the months’ supply of inventory at 1.0.

Homes sold for an average of 101 percent of asking prices, finding a buyer in 26 days.

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

Mid-Peninsula Subregion

The median sales price in our Mid-Peninsula subregion reached a yearly peak in November, finishing the month at $1,885,000. Along with the East Bay, the Mid-Peninsula had the region’s most pronounced inventory drought, with a 0.7-month supply of homes for sale.

Sellers received an average of 102.9 percent of asking prices, similar to last November, with homes leaving the market in 19 days.

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

SONOMA COUNTY

The number of homes for sale in Sonoma County fell to a one-year low in November, with a 1.1-months’ supply of inventory. As a result, the median sales price increased to $659,000, a yearly high.

The pace of sales was identical to November 2016, with homes leaving the market in an average of 67 days. Buyers paid 96.7 percent of original prices, similar to numbers recorded over the past year.

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

SONOMA VALLEY

Inventory levels in Sonoma Valley were more than cut in half from October to November, with a 2.0-months’ supply for sale. Properties lasted on the market an average of 75 days, almost a month longer than in October.

The median sales price was $730,000, and buyers paid an average of 93.9 percent of asking prices.

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

LAKE TAHOE/TRUCKEE – SINGLE-FAMILY HOMES

The median sales price for a single-family home in the Lake Tahoe/Truckee region ended November at $699,000, just a few thousand dollars lower than in October. Homes sold for an average of 92.6 percent of asking prices, nearly identical to the previous two months.

The Lake Tahoe region had a 2.7-months’ supply of single-family homes for sale, with buyers taking an average of 83 days to close a sale.

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

LAKE TAHOE/TRUCKEE – CONDOMINIUMS

The number of condominiums on the market in the Lake Tahoe/Truckee region sunk to a yearly low, with a 2.8-months’ supply of units for sale. The median sales price was $477,500, a 27 percent annual increase.

Condominiums sold in an average of 122 days, nearly identical to October’s pace, and for 96.4 percent of original prices.

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

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Most Bay Area Housing Markets Are Not Overvalued

  • Home prices grew by 7.6 percent in California and 7.9 percent in the San Francisco metropolitan area on an annual basis in October.
  • The San Francisco, San Rafael, Napa, Vallejo, and Oakland metro area housing markets are currently considered within their normal value ranges, while Santa Rosa and San Jose are overvalued.
  • By 2022, all Bay Area housing markets except San Rafael are projected to be overvalued.

Despite the high cost of purchasing a home in the Bay Area, most local markets are still within their normal value ranges, although that is not projected to be the case five years from now.

That’s according to CoreLogic’s latest U.S. Home Price Insights report, which says that U.S. home prices grew by 7 percent year over year in October. Appreciation in California and the San Francisco metro area outstripped the national rate, growing by a respective 7.6 percent and 7.9 percent. In a statement accompanying the report, CoreLogic Chief Economist Frank Nothaft noted that the national home price has grown in excess of 6 percent for four straight months, the longest such streak in more than three years.

“This escalation in home prices reflects both the acute lack of supply and the strengthening economy,” Nothaft said.

Even with continued price appreciation, CoreLogic says that most Bay Area markets are not overvalued. The San Francisco, San Rafael, Napa, Vallejo, and Oakland metro areas remain within normal value ranges, among the 36 percent of U.S. housing markets that fall into that category. Nothaft told realtor.com that the San Francisco metro area, where the median home sales price is $899,050, has always been an expensive place to buy a home, hence its normal valuation.

Santa Rosa and San Jose are the two Bay Area cities that are among the 50 percent of U.S. real estate markets currently considered overvalued. Still, Nothaft told realtor.com that he doesn’t project an imminent housing crash but rather a leveling of appreciation rates in 2018 as mortgage rates rise. CoreLogic expects the opposite for California’s housing market, where home prices are forecast to grow by 8.2 percent by October 2018.

Although most Bay Area housing markets are currently within their normal value ranges, the picture looks different five years from now. By 2022, CoreLogic expects that all Bay Area housing markets for which it tracks data will be overvalued except San Rafael.

(Photo: iStock/Spondylolithesis)

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Shared with permission from the Pacific Union Blog

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Most Bay Area Housing Markets Are Not Overvauled

  • Home prices grew by 7.6 percent in California and 7.9 percent in the San Francisco metropolitan area on an annual basis in October.
  • The San Francisco, San Rafael, Napa, Vallejo, and Oakland metro area housing markets are currently considered within their normal value ranges, while Santa Rosa and San Jose are overvalued.
  • By 2022, all Bay Area housing markets except San Rafael are projected to be overvalued.

Despite the high cost of purchasing a home in the Bay Area, most local markets are still within their normal value ranges, although that is not projected to be the case five years from now.

That’s according to CoreLogic’s latest U.S. Home Price Insights report, which says that U.S. home prices grew by 7 percent year over year in October. Appreciation in California and the San Francisco metro area outstripped the national rate, growing by a respective 7.6 percent and 7.9 percent. In a statement accompanying the report, CoreLogic Chief Economist Frank Nothaft noted that the national home price has grown in excess of 6 percent for four straight months, the longest such streak in more than three years.

“This escalation in home prices reflects both the acute lack of supply and the strengthening economy,” Nothaft said.

Even with continued price appreciation, CoreLogic says that most Bay Area markets are not overvalued. The San Francisco, San Rafael, Napa, Vallejo, and Oakland metro areas remain within normal value ranges, among the 36 percent of U.S. housing markets that fall into that category. Nothaft told realtor.com that the San Francisco metro area, where the median home sales price is $899,050, has always been an expensive place to buy a home, hence its normal valuation.

Santa Rosa and San Jose are the two Bay Area cities that are among the 50 percent of U.S. real estate markets currently considered overvalued. Still, Nothaft told realtor.com that he doesn’t project an imminent housing crash but rather a leveling of appreciation rates in 2018 as mortgage rates rise. CoreLogic expects the opposite for California’s housing market, where home prices are forecast to grow by 8.2 percent by October 2018.

Although most Bay Area housing markets are currently within their normal value ranges, the picture looks different five years from now. By 2022, CoreLogic expects that all Bay Area housing markets for which it tracks data will be overvalued except San Rafael.

(Photo: iStock/Spondylolithesis)

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