June 30, 2018 – Real Estate Market Numbers
By Glen Bell (510) 333-4460
Here are some highlights for the 38 East Bay Cities that I track:
- As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, we’ve increased our available housing inventory by 189% since the beginning of the year, now slightly higher than where we were last year at this time by 7.1%. We’re now sitting on a 36 day supply of homes.
- Our monthly supply is now 36 days. Last year, our months’ supply at this time was also 33 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 36 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
- It’s hard to predict how much tax reform will play into this. That impact may not be felt until when taxes are due next year. We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
- Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
- The number of pendings, (homes that are in contract), decreased slightly. The pending active ratio increased to 1.16. This compares to last year at the same time of 1.30. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
- The percentage of homes “sitting” has slightly increased to 30% of the homes listed now remaining active for 30 days or longer, while only 12% have stayed on the market for 60 days or longer. This is lower than what we saw last year at this time with 37% of the homes listed remained active for 30 days or longer, while 17% stayed on the market for 60 days or longer.
- The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.
- The month’s supply for the combined 39 city area is 36 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are at about the same supply levels compared to last year at this time, of 33 days.
- Our inventory for the East Bay (the 39 cities tracked) is now at 2,505 homes actively for sale. This is slightly higher than last year at this time of 2,339 or (7.1% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased slightly to 2,909, slightly less than what we saw last year at this time of 3,035.
- Our Pending/Active Ratio is 1.16. Last year at this time it was 1.30.
- Sales over the last 4 months, on average, are 6.2% over the asking price for this area, similar to what we saw last year at this time, 6.4%.
Rachel Swan I SF Chronicle, July 6, 2018
Construction cranes loom over the Richmond shoreline, a briny landscape of weeds and eucalyptus trees that’s on track to become a transportation hub.
Come fall, passengers will board ferry boats from a new $20 million terminal at Harbour Way South, an industrial strip of roadway that spills onto the Bay Trail. From there it’s a half-hour commute by water to downtown San Francisco.
Officials, business owners and real estate developers see the terminal as a trigger for economic development. They say it could spur the revival that Richmond leaders have talked about for years, although it’s always seemed just a little out of reach.
It will probably bring new shops and restaurants to the area around the former Ford assembly plant, now a gleaming brick-and-windowed showroom called the Craneway Pavilion. It may draw tourists to the Rosie the Riveter WWII Home Front National Historic Park Visitor Center or lure tech workers into shoreline housing developments — including a planned apartment building on a weed-choked lot at Harbour Way South, which could hold as many as 600 units.
The developer of that building, Todd Floyd, whose firm, New West Communities, is also planning a 200 unit mid-rise on nearby Seacliff Drive, said he picked those sites because they are near the ferry terminal.
“That’s what got our attention,” he said. “I mean, it’s an absolute game changer.”
Most importantly, it could change outside perceptions of Richmond, a scrappy East Bay city long known for crime, the Chevron oil refinery, struggling schools and boarded-up storefronts downtown.
“As far as Richmond is concerned, perception is everything,” said Mayor Tom Butt, who believes negative stereotypes about blight and violence have slowed economic development.
But the possibility of an economic boom on the shoreline worries members of Richmond’s progressive political wing. Some are concerned that the ferry will speed up tenant displacement in one of the Bay Area’s least costly places to rent that is connected to a BART station.
If a new mass transit option entices newcomers and there isn’t enough housing to accommodate them, they will compete for Richmond’s existing housing stock, said the city’s vice mayor, Melvin Willis.
Alternatively, Willis said, the ferry could lead to prodigious development but also bump up property values.
“If rents go up in certain areas around the ferry, that would cause rents to go up in other parts of Richmond,” Willis said. He worries that longtime residents will get priced out.
Such fears prompted Richmond voters to approve a rent-control ballot measure two years ago. Since, then, the median rent for a two-bedroom apartment has climbed marginally, from $2,381 a month in November 2016 to $2,500 a month in April 2018, according to real estate tracking site Zillow.
Willis said the ferry is “something to be very vigilant about.”
To transportation and housing experts, the ferry service is a form of smart urban planning. Up to 1,000 apartment and condominium units are planned for the vicinity of the terminal, and the people who live there would have easy access to San Francisco — with no need to drive.
“So they’re not creating congestion or exacerbating air quality issues,” said Nick Josefowitz, a board director for BART and the San Francisco Bay Area Water Emergency Transportation Authority, which oversees ferry service throughout the region.
When East Bay cities build dense housing near transit nodes, they help ease the housing crisis in San Francisco, Josefowitz noted.
Eli Moore, a researcher at UC Berkeley’s Haas Institute for a Fair and Inclusive Society, expressed guarded optimism. He speculated that many low-income residents may miss out on the convenience and job opportunities provided by the ferry because they won’t be able to afford tickets.
The proposed fare is $9 one way for adults, $6.75 with a Clipper card, which is more expensive than BART. It will probably be half price for seniors and those ages 5 to 18, $2.90 for those in school groups and free for children younger than 5.
Yet when a city adds a new transit service — even a service that only a slice of the population can afford — it helps alleviate congestion for everyone, said Matt Lewis, an environmental consultant in Berkeley. Officials from the Water Emergency Transportation Authority predict that the boats from Richmond will carry 500 to 1,000 passengers per day during their first year.
That number will probably go up. Data from the authority show that in the past six years, ridership nearly tripled on the ferry boats between Oakland’s Jack London Square and San Francisco— from about 40,000 people in April 2012 to more than 108,000 in April 2018. The number of passengers riding ferries between Vallejo and San Francisco jumped from about 100,000 to more than 236,000 over the same time interval.
If commuters use the service in Richmond, fewer cars will jam the interlocking streets and boulevards that feed the Interstate 80 and 580 freeways, Lewis said.
The area around the ferry is already starting to change, with the addition of Assemble Restaurant, a popular brunch spot next to the Craneway, and the R&B Cellars winery.
Park Ranger Betty Reid Soskin hopes that small crop of businesses will mushroom with the addition of the ferry service in October.
“My fantasy is that we’ll make this the East Bay entrance to Alcatraz, which gets a million visitors a year,” said Soskin, arriving to work at the Rosie the Riveter Center on a recent weekday morning.
Nearby, Mohan Ram was walking along the Bay Trail. He stopped by the soon-to-be-developed lot at Harbour Way South and craned his neck to look at the ferry construction site.
“Do you know anything about this ferry opening?” asked Ram, who owns a condo in the Marina Bay area — an outcropping of town houses and wraparound streets near the waterfront.
He said the condo will be vacant soon, and he’s hoping the ferry will attract prospective tenants. He also anticipates that it will raise his property values.
Kevin Brown, owner of R&B Cellars — one of several wineries to open along Richmond’s waterfront in the past few years — said the former shipyard is “on an upswing.”
When Brown opened his business three years ago, restaurants and tech companies were already moving into the ramshackle warehouses that dot Richmond’s waterfront. He sees the addition of the ferry as part of that evolution.
“The nice thing is that now it will be easier for people to get to us from San Francisco,” he said.
By Diana Olick, CNBC, July 12, 2018
The most competitive and tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.
The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s very hot housing market. But it is just a start.
“This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters,” according to Alexandra Lee, a housing data analyst for Trulia’s economics research team.
Thirty of the nation’s 100 largest cities, including New York City, Miami and Los Angeles, now have more supply than a year ago.
Historically, prices lag sales by a few months, and sales have been slowing this year in most major markets. This housing cycle, however, has so far been unique. The drop in sales is due to the tight supply, and that just pushes prices higher. The tight supply is due to very high demand and still below-normal construction, as the market continues to recover from the worst housing crash in history almost a decade ago.
Home sales in Southern California fell in May by 3.4 percent annually, according to CoreLogic, but the median price of a home sold in May was up over 8 percent to a record $530,000. This even with the slightly increased inventory.
“With inventory tight and affordability worsening, the number of Southern California homes sold has fallen on a year-over-year basis during three of the last five months,” said Andrew LePage, a CoreLogic analyst. “Total sales during the first five months of this year fell about 2 percent from the same period last year, reflecting limited inventory particularly in more affordable price ranges.”
While home builders are slowly ramping up production, they are doing so largely in the move-up and luxury market. Sales of newly built homes have been rising in Southern California, easing the inventory shortage somewhat, but not enough.
“New-home sales continue to run well below historically normal levels, with the sales through May of this year 37 percent below the average number sold during that five-month period over the past three decades,” noted LePage. “Also, most of the new homes sold this year were aimed at mid-market to high-end buyers, with almost two-thirds selling for $500,000 or more and 15 percent selling for less than $400,000.”
Mortgage applications to purchase a newly built home plummeted nearly 9 percent in June compared to June 2017, according to the Mortgage Bankers Association. This suggests lower new home sales going forward, despite higher prices.
By ERIN BALDASSARI | Bay Area News Group, June 28, 2018
At its current level of housing construction, it would take the East Bay city of Concord until 2984 — almost the next millennium — to reach its 2040 housing goals, according to a new map from the Metropolitan Transportation Commission (MTC).
Oakland residents would have to wait until 2295 before enough housing is built for its projected 2040 population. San Jose and San Francisco residents have it better off; residents’ grandchildren would see an adequate supply of housing for its 2040 population in 2066 and 2063, respectively.
The map, released last month, highlights the continued challenges of building housing in the Bay Area. Comparing Department of Finance housing production data from January 2010 to December 2017 with the state-mandated housing goals outline in MTC’s Plan Bay Area 2040 forecast, it shows the year in which each city or town would meet its housing goal for 2040 if it continues at the current pace of construction.
“It’s a sobering reminder of how far we have to go to get the Bay Area’s red-hot economy and its anemic residential sector into better balance,” Steve Heminger, the MTC’s executive director, said in a report to the commission.
Perhaps not surprisingly for most Bay Area residents, the majority of cities — and all Bay Area counties — are lagging behind their 2040 housing goals while at the same time continuing to add jobs. That imbalance between the number of jobs and the housing that’s available does two things, said Matt Regan, the senior vice president of public policy for the Bay Area Council: Force working and middle-income people to move further away in search of affordable housing and make commutes a lot longer and highways more congested.
“Development follows the path of least resistance,” Regan said. And, the evidence is in the map.
The cities that are actually on track to add housing are the ones furthest from the job centers in the Bay Area and are places with fewer public transit options, which forces more people to drive: Dublin, Pleasanton and San Ramon in the Tri-Valley; Pittsburg and Brentwood in east Contra Costa County; Fairfield in Solano County; and Gilroy and Morgan Hill in Santa Clara County.
“That means we are building homes on virgin land and open space … far away from the job centers in the urban core, where housing production is anemic,” Regan said. “Almond orchards don’t file CEQA lawsuits or show up at council to fight new housing, but angry neighbors do.”
That might seem counter-intuitive to some residents, especially in the Bay Area’s three largest cities, where cranes dot the skyline, said Pilar Lorenzana, deputy director for Silicon Valley at Home, an affordable housing advocacy nonprofit. In other cases, such as Marin or San Mateo, which have historically resisted development, the stereotypes are confirmed, she said.
“We are churning out a massive number of jobs,” she said. “So, even though community members are up in arms against development, because they feel like too much development is happening, it’s actually not enough. Or at least, it’s not enough for the number of jobs we are creating.”
The map doesn’t distinguish between affordable or market-rate housing, said David Vautin, a principal planner at MTC, who helped create it. But, other data from the MTC shows the gap between what is being built and what is needed when it comes to affordable housing is even wider, he said.
Still, Lorenzana is hopeful this trend can be reversed, or at the very least, slowed. Housing bills approved by the legislature last year removed some of the control cities have over approving new housing projects if they aren’t meeting their targets. Cupertino, a city historically resistant to development, allowed a 2,400-unit housing development to move toward approval, which is expected to be finalized in September, after years of delays because it was lagging far behind its 2040 housing goals.
“We have more tools now to hold cities accountable and more tools to make housing production happen in a much quicker time-frame,” she said.
And, Vautin said, there has been an acceleration of growth in recent years, even if the pace of housing construction was particularly sluggish following the Great Recession. The MTC, which primarily focuses on transportation planning, is paying close attention to housing data because it has such a big impact on traffic congestion, he said.
“It’s a primary driver of all our transportation problems,” he said.
Plan Bay Area is a roadmap to long-range planning in the Bay Area. It sets goals for reducing greenhouse gas emissions, providing adequate housing, preserving open space and improving health, along with creating a plan for needed transportation infrastructure, to accommodate projected population growth.
By LOUIS HANSEN | Bay Area News Group, July 3, 2018
Bay Area rents have yet to hit a ceiling, fueling the debate over a November ballot measure to allow price controls on more California properties.
Rents increased in June across the region, led by a 2.5 percent median increase in Oakland from the same time last year, a 1.7 percent increase in San Jose and 1 percent growth in San Francisco, according to a study by Apartment List released this week.
Rents across the state are up 2.1 percent from last year, continuing a trend that makes California home to some of the most expensive communities for renters.
Housing affordability is “absolutely a major issue in the Bay Area,” said Chris Salviati, housing economist for Apartment List. He noted that new construction has not met the growing demand for housing in the region. “Overall, we need to increase the supply of all housing.”
Voters will consider lifting restrictions on rent control by local cities — a law known as Costa Hawkins. The law generally bans cities from imposing controls on single family homes, condominiums and new construction, depending on when a city enacted rent control. Cities are barred from capping rents on properties built after 1995, and cannot limit rent hikes on empty units.
The ballot proposal would allow cities to apply rent control to new apartment buildings.
Renter rights advocates say the measure would help stabilize the runaway housing market, and prevent families and middle class workers from being forced out of their homes.
“The most critical thing that rent control can do is drastically slow down displacement,” said Stephen Barton, former director of the City of Berkeley’s housing department and adviser on the campaign to repeal Costa Hawkins.
Barton believes cities will be able to balance the needs of property owners and renters with changes to Costa Hawkins.
Property owners are fighting the repeal of Costa Hawkins, saying it will hurt their businesses, discourage new construction and make affordable housing even more scarce.
The California Apartment Association has been lining up allies to defeat the measure. The State Building and Construction Trades Council of California last week announced it opposed the proposition, joining the state NAACP, Chamber of Commerce and several veterans organizations.
Rents have risen steadily since 2011 across the country, although the trend is more pronounced in the Bay Area.
The median rent in June for a two-bedroom apartment was $2,610 in San Jose, $2,200 in Oakland, and $3,070 in San Francisco, according to Apartment List. San Francisco and San Jose were the two priciest major cities in the country for renters, followed by New York and Oakland.
Several Silicon Valley cities remain red-hot. The median price for a two bedroom in Sunnyvale was $2,910, an increase of 4.4 percent. The price for a similar apartment in Santa Clara went up 4.8 percent to $2,760, according to Apartment List.
In the East Bay, the median price in June for a two bedroom in Fremont was $3,750, a 5.7 percent jump from the previous year, while a two bedroom in Richmond went for $2,690, a 3.7 percent increase.
Monthly prices have gone up year-over-year in San Jose for the last 15 months, Salviati said. He added that growing wages have blunted some of the impact of the higher prices.
By ALI TADAYON | Bay Area News Group, June 29, 2018
People selling Oakland properties for more than $2 million would have to pay more in taxes if voters approve a measure being proposed for the November ballot.
Berkeley also is considering asking voters to increase the taxes levied when people sell property, called a real estate transfer tax.
The tax rate in both cities currently is 1.5 percent.
The proposed Oakland ballot measure would reduce the rate to 1 percent for properties selling for $300,000 or less and increase it to 1.75 percent for properties selling for more than $2 million and 2.5 percent for properties selling for more than $5 million.
A ballot measure proposed in Berkeley would increase the rate to 2.5 percent for properties selling for more than $1 million.
Oakland Councilmember Dan Kalb, who is proposing that city’s measure, said in a statement the tiered approach would keep things fair for Oakland property owners looking to sell.
“There is nothing fair about all property transfers being taxed at the same rate, since it disproportionately places the tax burden on the middle class,” Kalb said.
“Changing the structure of this tax will not only create a system that is both progressive and fair, but also will allow Oakland to increase funding for important city services,” he said.
Money generated from the Oakland transfer taxes goes to the city’s general fund, which is not earmarked for any specific purpose but can be spent however the council feels best. Had this proposal been in effect since the 2012-13 fiscal year, Kalb said, the city would have raised an average of more than $9 million a year.
Berkeley’s proposed transfer tax increase would pay for homeless services, including shelter, rental subsidies, supportive services and staffing for those programs, according to the recommendation from Berkeley City Manager Dee Williams-Ridley to the City Council to put the measure on the ballot.
The tax increase would raise about $6 million to $8 million each year, the city administrator’s office estimated.
The Berkeley measure was supposed to be considered at Tuesday’s council meeting, but was postponed to July 10.
The Oakland measure will be discussed at the council’s July 10 council meeting.
Kathleen Pender, SF Chronicle, July 6, 2018
California lost a very small but statistically significant percentage of high-income residents after voters approved Proposition 30 — the 2012 ballot measure that raised the top state income tax rate to 13.3 percent, the highest in the nation — according to a new working paper from three researchers.
The state lost an estimated 138 high-income individuals, or about 0.04 percent of the roughly 312,000 people subject to the tax increase, said co-author Charles Varner, associate director of the Stanford Center on Poverty and Inequality.
The research comes at a time when more Californians are at least threatening to leave the state because of high taxes and housing costs. The rumblings have escalated since the federal tax law that passed in December capped the previously unlimited federal itemized deduction for state and local taxes at $10,000.
“It remains to be seen what kind of effect (that change) might have, and we will be looking at that as the numbers come in,” said Varner, adding that he expects any effect on migration to be small.
The new paper updates a study on migrating millionaires that Varner and Stanford sociology Professor Cristobal Young published in 2012. That report looked at the movement of millionaires into and out of California after voters in 2004 approved a 1 percent tax on income over $1 million to fund mental health services.
Contrary to expectations, they found that the net migration of millionaires into California — millionaires moving in minus those moving out — increased slightly after that tax increase.
“In other words, the highest-income Californians were less likely to leave the state after the millionaire tax was passed,” their report said.
The tax increase approved in November 2012, however, was much larger than the mental health surcharge.
“One reason we wanted to update our previous paper is that this tax change in 2012 is the largest state tax change that we have seen in the U.S. for the last three decades,” Varner said.
For singles, Prop. 30 raised the rate by one percentage point on income between $250,000 and $300,000; by two points on income between $300,000 and $500,000; and by three points on income over $500,000. The income thresholds are doubled for married couples and indexed to inflation.
This brought California’s top rate, including the mental health tax, to 13.3 percent. (These increases were supposed to expire in 2019, but in 2016 voters extended them to 2030.)
The new working paper looked at taxpayers who were and were not subject to those rate hikes and found that in the two years before the increase (2011 and 2012), net in-migration for both groups “was positive and roughly constant.”
However, after 2012, net in-migration declined for those facing an effective tax increase of 0.5 percent or higher. The drop was largest for the group facing the highest effective tax increase, wrote the authors, who included Allen Prohofsky of the California Franchise Tax Board.
They noted that domestic migration accounts for a tiny portion of the change in the state’s millionaire ranks. That population fluctuates by more than 10,000 people from year to year, and migration accounts for 50 to 120 people, or about 1 percent. The remaining 99 percent “is due to income dynamics at the top — California residents growing into the millionaire bracket, or falling out of it again.”
The millionaire population is highly correlated to the financial markets. The researchers found that the median person who earned at least $1 million in a given year earned at least $1 million in only seven of the 13 years before and after that year.
That could be one reason people don’t pull up stakes after a tax increase. Another reason: It’s hard to move when you have a high-paying job, a spouse who may work and kids. The report found that married people with children are less sensitive to the tax increase than married people without children.
One thing that tends to make people of all income levels leave the state is divorce.
“In the year of divorce, the migration rate (for all taxpayers) more than doubles, and remains slightly elevated for two years after the event,” the report said.
The “core question” of both studies “is whether raising taxes on the rich reduces their net migration into the state,” the paper said.
Although the first study showed a counterintuitive result (more rich people coming than leaving), after the 2012 tax increase, “we observe a statistically significant effect in the expected direction,” albeit a small one, the authors wrote. “We estimate that California lost 0.04 percent of its top earner population over the two years following the tax change.”
The latter result was “consistent with what we found” in a 2011 study that examined the migration response to a tax increase in New Jersey, which raised its top rate by 2.6 percentage points, Varner said.
This year, Massachusetts voters will decide whether to increase its tax on income over $1 million by 4 percentage points. Its current rate is 5.1 percent.
The Pioneer Institute, a free-market think tank in Massachusetts, published a paper citing eight reasons why it thinks Young and Varner’s previous paper underestimates millionaire migration. Young published a rebuttal to those assertions.
Among other things, Young noted that only 11 percent of millionaires in the study made their money primarily from capital gains and that most “are the working rich.” He found no difference in tax flight among the two groups but is still doing research on capital gains.
“What we found is that net migration of millionaires to California was positive over the whole period we studied,” from 2007 to 2014, Varner said. “This suggests that the state has consistently become a more attractive place for top income earners to live.”
That echoes the results of another recent study conducted by Beacon Economics for San Francisco think tank Next 10. It tried to explain why California lost nearly 1.1 million more people to other states than it gained between 2006 and 2016.
It concluded that “the main driver for net out-migration appears to be high housing costs,” not high state income taxes. That’s because the “vast majority of people who moved out of California were concentrated in lower-skilled, lower-paying fields.” People moving out probably paid little or no state income tax because California’s tax structure is highly progressive, it said.