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California Dominates List of 2018’s Best Housing Markets for Sellers

  • Sixty-eight percent of the best U.S. places to sell a home are in California according to a new report from SmartAsset.
  • Home values in Alameda County’s Hayward grew by 20.3 percent between 2012 and 2016, the most of any city included on a list.
  • Homes in San Jose currently sell in less than a week, making it the fastest-paced U.S. market.
Fremont, California

An aerial view of Fremont, which ranks among the 10 best markets for home sellers in 2018.

Demand for California homes remains high as the traditionally busy spring season begins, with more than two-thirds of 2018’s top markets for sellers located in the state.

An annual analysis from SmartAsset ranks the 25 best U.S. cities in which to sell a home on a 100-point scale. Factors used to determine a housing market’s seller-friendliness include change in home value from 2012 to 2016, average days on market, percentage of homes sold for a loss, and average closing costs in 2017.

Golden State cities account for 17 of the 25 best sellers’ markets this spring. That’s a notable jump from SmartAsset’s 2017 list of top places to sell a home, when just four California cities were included.

The Bay Area’s top-ranked representative is No. 5 Hayward, which scores a 95.49. Home prices in the Alameda County community have appreciated by 20.3 percent in the aforementioned five-year period, the most of any city on the list.

With a 91.88, Fremont is the other Bay Area city to crack the top 10, tied at No. 8. Homes there are selling in an average of 12 days, making it the list’s second fastest-paced market. Along with Hayward, Fremont has the highest average closing costs, at $11,407.

Homes are flying off the market in No. 13 San Jose, where the average property sells in just five days, faster than any other city in the analysis. Between 2012 and 2016, San Jose’s median home value increased by 14.4 percent, and since then, appreciation in the area has become even more pronounced. According to the latest home sales report from the California Association of Realtors, the median sales price for a single-family home in Santa Clara County was $1,383,500 in February, a year-over-year gain of 25.8 percent and a new record high.

Tied at No. 23 with San Bernardino County’s Rancho Cucamonga, Santa Rosa is the Bay Area’s final representative, where homes find a buyer in an average of 16 days. The other California cities that rank as the best for sellers: Moreno Valley (No. 2), Elk Grove (No. 3), Fontana (No. 6), Ontario (No. 8), Pomona (No. 10), Chula Vista (No. 11), Palmdale (No. 12), Riverside (No. 15), Corona (No. 18), Escondido (No. 21), Oceanside (No. 22), and Santa Ana (No. 25).

(Photo: iStock/honestmike)

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Shared with permission from the Pacific Union Blog

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Pacific Union’s California Regional Real Estate Forecasts to 2020

On Nov. 15, Pacific Union held its fourth annual Bay Area Real Estate and Economic Forecast in partnership with John Burns Real Estate Consulting at the SFJAZZ Center in San Francisco. Two weeks later, we presented our first-ever forecast for Los Angeles at the Skirball Cultural Center.

The downloadable whitepapers below summarize our overall and California metropolitan statistical area (MSA) outlooks for the real estate market and the economy over the next three years. The analyses feature commentary from Pacific Union CEO Mark A. McLaughlin, Pacific Union Chief Economist Selma Hepp, and John Burns Real Estate Consulting CEO John Burns. To watch a video of the full, one-hour Bay Area forecast, click here. To view the Los Angeles area forecast, click here

East Bay (Alameda and Contra Costa counties)

  • The East Bay MSA is currently at 7.6 on the Burns Affordability Index (10 indicates lack of affordability and 5.0 the historical mean) but is projected to further worsen, with continued price appreciation and increased mortgage rates. FHA loan limits will increase in 2018 to $683,000, easing the affordability issue to some extent, though this limit is still below the median resale price in the MSA.
  • Employment growth remains solid. Currently, job growth is at 2 percent for 2017, slightly lower than the 3 percent-plus experienced in 2015 and 2016.
  • The East Bay MSA pulled over 10,700 permits over the last year, 61 percent of which were multifamily homes. Some submarkets within the East Bay have traditionally been known for family-oriented product (single-family homes), though as affordability worsens, we have seen a rise in for-sale attached and apartment construction. Multifamily permits are anticipated to outpace single family permits through 2020.

Click here to read the East Bay forecast to 2020 whitepaper.

Los Angeles (Los Angeles County)

  • Los Angeles currently ranks at 8.5 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical mean). While incomes have grown, home prices have consistently increased by 7 percent or more per year since 2012.
  • Despite the current lack of affordability, the MSA is projected to add nearly another 13 percent in appreciation by 2020.
  • Employment growth in 2017 has slowed from 2016 (up 109,000 jobs), but the local economy has still added over 50,000 jobs in the last year (or about 1 percent employment growth).

Click here to read the Los Angeles forecast to 2020 whitepaper.

Napa (Napa County)

  • The Napa MSA has solid employment growth, with 2,800 new jobs over the last year.
  • Similar to Sonoma County, Napa has a generally middle-class to upper-middle-class income profile, with a median income of about $80,000. Further, most of the jobs gained are at lower- and middle-income salary positions ($20,0000 to $80,000), and higher-income jobs ($100,000-plus) are actually decreasing.
  • New construction is extremely limited, with less than 100 new home sales in 2017. This is not expected to change markedly in the immediate future. New construction in Napa is typically aimed at the higher-end, second-home market or higher-density product attainable with local incomes.

Click here to read the Napa forecast to 2020 whitepaper.

San Francisco (Marin, San Francisco, and San Mateo counties)

  • Existing home sales are being held back by a lack of supply and more importantly, a lack of affordability.
  • San Francisco currently ranks at 7.9 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical mean). Though pricing is at an all-time high, the BAI also takes into consideration strong incomes in San Francisco, as well as low mortgage rates.
  • Employment growth has slowed, but the MSA still added over 21,000 jobs over the last 12 months (or about 2 percent employment growth).

Click here to read the San Francisco forecast to 2020 whitepaper.

San Jose (Santa Clara and San Benito counties)

  • The San Jose MSA ranks at 8.5 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical norm). Even with regards to the higher price standards of Silicon Valley, San Jose is in a historically unaffordable period. Prices continue to increase to new highs, and more residents are being priced out of the market and pushed to more outlying locales.
  • Employment growth has slowed from 3 percent-plus in 2012 – 2016 to 1 percent in 2017. This is the lowest rate of employment growth since 2010, but job gains remain positive.
  • The San Jose MSA had just over 8,200 permits over the last 12 months. With the recent lower levels of employment growth, this equates to an employment-to-permit ratio of about 1.3, or roughly at equilibrium. This is down significantly from recent years when the employment-to-permit ratio was 4.0-plus. San Jose has historically been a demand exporter, meaning those employed in San Jose often live outside of the MSA (for example, Alameda or Contra Costa counties) due to affordability issues.

Click here to read the San Jose forecast to 2020 whitepaper.

Santa Rosa (Sonoma County)

  • The Santa Rosa MSA has begun to experience job losses for the first time since 2010 and is currently down 1,300 jobs over the last year.
  • Employment in Santa Rosa caters more towards middle-income jobs than most people expect, with a median salary of $71,000. With a large proportion of its workforce in the tourism and service industries, the bulk of jobs in Sonoma County earn $20,000 to $60,000. Further worsening the problem, jobs being lost in Sonoma County are at the higher-income tiers. For example, jobs earning $120,000 to $140,000 have fallen by 7 percent over the past year, while lower-income jobs are stagnant or have experienced minimal growth.
  • New construction is extremely limited, with only 300 new home sales in 2017. While construction activity is expected to increase going forward given the decrease in housing inventory caused by wildfires near the end of 2017, the Santa Rosa MSA will remain a comparatively slow-growth market.

Click here to read the Santa Rosa forecast to 2020 whitepaper.

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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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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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