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September 30, 2018

Real Estate Market Numbers

Here are some highlights for the 38 East Bay Cities that I track:

 

  • I’ve been watching this market since mid-June and although we typically see a “lull” during the summer, this one has continued to cool more than usual. My suspicion was that we’re seeing an actual change in the market. I couldn’t really say that we’re seeing trend with any certainty until we went beyond just one or two months. It’s been 3 months now since we reported that June was the slowest for that month in four years in terms of sales. We saw more of the same for July and August.
  • Here’s where we stand as of the end of September. There’s 42% more inventory now as compared to last year at this time. However, despite that increase, we’re seeing fewer go into contract. There’s 16.5% less pendings compared to last year. This creates a pending ratio of .71, the lowest we’ve seen since March of 2009. This is also the 6th straight month this ratio has dropped, but more importantly the third month in a row that it falls under 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with fewer pendings) favors sellers as has been the case now for quite some time. A number below 1 favors buyers. This is the case throughout the East bay with 92% of the cities that I track now having a ratio of below 1.00. In short, we have been moving from a strong seller’s market towards a more normal and balanced market since Mid-June and in some cases, now favoring buyers.
  • Some of the articles below further support this. Some key statements made;
  1. Homebuyers’ activity in the region last month dropped 10 percent from last year — the slowest for the month of August in seven years, according to a recent Corelogic
  2. F. housing inventory hits seven-year high as price cuts spike.
  3. In the four weeks ending on September 16, 26.6 percent of homes listed for sale had a price drop, the highest level on record since Redfin began tracking this metric in 2010.
  4. In the four weeks ending on September 23, homes that sold above asking price dipped below 2016 levels, according to the latest data from
  5. In the Bay Area, the poor are moving out, the wealthy are moving in and gentrification is picking up steam.
  • Many economists are still predicting a recession in 2019 or 2020 and although the Real Estate Market will not be the trigger as it was in our last recession, it will be a factor. For many buyer’s there may be some opportunities to be realized, but keep in mind that for whatever modest corrections we may see, much of it may be offset by rising interest rates.
  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. We’ve increased our available housing inventory by a whopping 382% since the beginning of the year, now 42% higher than where we were last year at this time.
  • Our monthly supply is now 48 days. Last year, our months’ supply, at this time, was 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 48 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. September is typically our high point over the year in terms of inventory.
  • It’s hard to predict how much tax reform will play into this but see the this article, “Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee.” We are seeing interest rates starting to go up. Prices have continued to rise and are only now beginning to flatten out. 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.
  • The number of pendings, (homes that are in contract), decreased again. The pending active ratio decreased to .71, now at the lowest point we’ve seen since March of 2009. This compares to last year at the same time of 1.21. 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” remains at 42% of the homes listed now remaining active for 30 days or longer, while 20% have stayed on the market for 60 days or longer. This is higher than last year at this time with 37% of the homes listed remained active for 30 days or longer, while 19% 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.

Months_Supply

 

 

  • The month’s supply for the combined 39 city area is 48 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 higher when compared to last year at this time, of 33 days.

Active_and_Pendings

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 3,321 homes actively for sale. This is higher than last year, at this time, of 2,340 or (42% higher). The last time we’ve seen inventory this high was in July of 2014. 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 to 2,367, less than what we saw last year at this time of 2,832, or 16.5% lower.

Pending_Active_Ratio

 

  • Our Pending/Active Ratio is .71, now at the lowest level since March of 2009. Last year at this time it was 1.21.
  • Sales over the last 3 months, on average, are 3.9% over the asking price for this area, lower to what we saw last year at this time, 4.1%.

Glen's Numbers pg 1

Glen's Numbers pg 2

 

Recent News

S.F. housing inventory hits seven-year high as price cuts spike

By Hannah Norman, SF Business Journal, 10/10/2018

September saw yet another high watermark for the number of San Francisco homes on the market, though an increasing number of active listings underwent price cuts.

San Francisco had 950 homes actively listed for sale last month, up 6.6 percent from August and hitting a seven-year high, Socketsite reports. That’s 30 percent higher year over year and 41 percent above 2015 levels, which saw 680 homes on the market.

A recent study by Realtor.com found that nationwide, housing inventory turnaround like that seen in San Francisco is concentrated in high-priced markets. The real estate website found that for July in the 45 largest metros, home prices were significantly higher in cities where inventory is rising — averaging $494,000 — compared to markets where inventory is still sloping down — an average of $302,000.

San Francisco condominium inventory is up 24 percent year over year, and that’s not including the bulk of newly constructed condos for sale, according to Socketsite.

Meanwhile, almost a quarter of the city’s home listings see at least one price cut, up from 18 percent to 22 percent in September 2018.

Even as the Bay Area sees more and more cities hitting the $1 million median home price mark, San Francisco’s prices are sagging slightly. Now, one-third of San Francisco’s homes are listed for under $1 million, with inventory at that level up 3 percent from 2017, according to Socketsite.

“Inventory levels have likely peaked for the year and should start to decline though the end of December while the percentage of listings with a price cut should continue to increase,” Socketsite reports.

The fiercely competitive San Francisco-area housing market has been notorious for low inventory, cash deals and accelerated closing timelines in recent years, with 64.5 percent of homes selling for above asking in 2017, according to Zillow.

 

Here’s how growing income disparity is changing the Bay Area

By LOUIS HANSEN, Bay Area News Group,  October 4, 2018

In the Bay Area, the poor are moving out, the wealthy are moving in and gentrification is picking up steam.

The region had the highest income disparity between newcomers and out-going families of any major metro area in the country between 2010 and 2016, according to a new study by BuildZoom and UC Berkeley.

The rising cost of housing is driving low-income workers out of the Bay Area into cheaper, nearby communities, while higher income workers are migrating in. Researchers say high housing costs have hit minority communities, including black and Hispanic residents, hardest.

“It has real implications on how inclusive and diverse the region can be,” said co-author Elizabeth Kneebone, research director at UC Berkeley’s Terner Center for Housing Innovation. “We’re losing lower-income households and lower-income households of color.”

About half of the people moving into the region between 2010 and 2016 had a household income of at least $100,000. Nearly 20 percent had incomes over $200,000.

But the people leaving the Bay Area had significantly smaller paychecks. For every worker with a household income of at least $200,000 moving out of the region, six low-income workers making less than $100,000 abandoned the Bay Area, according to the study.

Kneebone said if black and Hispanic residents continue to leave, the trend would weaken the social ties of historically ethnic neighborhoods.

Home ownership has moved out of reach for many two-income families. The median sale price in August for a single family home in the nine county region was $860,000, according to CoreLogic data.

Rent for a two-bedroom apartment in San Jose was $2,640, and $2,282 in Oakland, according to Apartment List.

Researchers found the high cost of housing is limiting opportunities for many residents. About two-thirds of residents moving out of the Bay Area from 2010 to 2016 made less than $100,000, according to the study.

Low-income earners moving out the region were more likely to settle around Sacramento or the Central Valley. The study did not examine if these displaced workers still maintained jobs in the Bay Area and accepted longer commutes.

Kneebone said the outward migration has started to creep up the income scale. “These pressures are really mounting,” she said.

Issi Romem, the study’s co-author and chief economist at BuildZoom, said moving out of the Bay Area means low-income workers are cut off from economic and social opportunities, including a broader range of jobs, possibilities for career advancement and a strong education system.

“You have a very different set of options if you live in Sacramento or the Central Valley than in other parts of the country,” he said.

As low-income workers leave, many businesses struggle to staff blue-collar jobs in restaurants, hotels and hospitals, as well as public service jobs in education and public safety.

Cupertino Education Association president Kai Brown said teachers are feeling the pinch from rising home costs. The median home value in Cupertino has risen to $2.3 million, according to Zillow.

Some union members have moved to cheaper, more distant communities such as Gilroy to afford a home and raise a family, Brown said.

Others live with their parents or lease apartments in the Bay Area. “I have teachers who live paycheck to paycheck because they pay so much in rent,” Brown said. “We’re definitely losing teachers.”

John McAlister, Mountain View City Council member and owner of two Baskin-Robbins ice cream shops, said it’s become a constant challenge to find year-round, full-time employees at restaurant pay. The minimum wage in the city is $15 an hour.

Some key workers live near the ice cream parlors in subsidized housing, he said. Without the affordable housing to support his workers, running a small business “would be very hard.”

Bay Area home sales slowed to lowest point in seven years, as prices spiked

By Hannah Norman  – San Francisco Business Times, Oct 1, 2018, 

San Francisco Bay Area residents can no longer keep up with the region’s record-shattering home prices.

Homebuyers’ activity in the region last month dropped 10 percent from last year — the slowest for the month of August in seven years, according to a recent Corelogic report. The only two counties where sales activity didn’t drop were Napa and Marin.

Amid skyrocketing home prices, many residents have found building a successful life in the region out of reach. A recent report by the Public Religion Research Institute, for instance, found that only 45 percent of Bay Area residents say the American Dream — if you work hard, you will get ahead — is still true today, compared to 44 percent who say it “once held true but not anymore.”

Core_logic_bay_area__home_sales

Meanwhile, the median sale price increased 12 percent year over year, although it fell month to month. In August, San Francisco Bay Area homebuyers paid a median price of $830,000, which was 2.4 percent down from $850,000 in July 2018 though up 12.2 percent from $740,000 in August 2017. The median price hit record highs at $875,000 in both June and May.

Over the last three months, Bay Area home sales have repeatedly fallen year over year, contributing to “the slowest…June-through-August period in seven years,” according to CoreLogic analyst Andrew LePage.

“Much of the recent slowdown can be attributed to the lack of affordable inventory on the market,” LePage said in the report. “Unlike the frenzied market of the mid-2000s, many struggling to buy today don’t have the option to stretch financially with the sort of subprime and other risky financing that fueled a lot of homebuying late in the last cycle.”

The research found that across the nine counties, 7,659 new and existing houses and condominiums were sold, down from 8,504 total sales in August 2017.

“Waning affordability reflects price hikes and a significant rise in mortgage interest rates this year,” LePage added.

The monthly mortgage payment on median priced homes went up 21.5 percent due to a roughly 0.7-percentage-point gain in mortgage rates over that time period, according to LePage.

More than One in Four Home-Sellers Dropped their Price Last Month

By Matthew Lynleyon, Redfin, September 20, 2018

Signs continue to point toward a changing market that’s letting homebuyers be more selective as supply constraints begin to ease in the hottest markets. As a result, sellers are feeling compelled to adjust their expectations — and their prices. In the four weeks ending on September 16, 26.6 percent of homes listed for sale had a price drop, the highest level on record since Redfin began tracking this metric in 2010. We define a price drop as a listing price reduction of more than 1 percent and less than 50 percent.

 

Redfin_Price_Drops

 

“After years of strong price growth and intense competition for homes, buyers are taking advantage of the market’s easing pressure by being selective about which homes to offer on and how high to bid,” said Taylor Marr, Redfin senior economist. “But there are some early signs of a softening market, and the increase in price drops may be another indicator that sellers are going to have trouble getting the prices, and the bidding wars, that they may have just months ago. Instead, many are finding their homes are sitting on the market without much interest until they start reducing their prices.”

According to a Redfin analysis of all homes actively listed on the MLS for sale in the markets where Redfin operates during the four weeks ended September 16:

  • The share of home-sellers who dropped their price increased 4.8 percentage points from the same period a year earlier, when 21.7% of homes had a price drop.
  • The share of homes with price drops has been posting year-over-year gains consistently since late March.
  • Las Vegas (+12.3 points to 28.1%), San Jose (+10.7 pts to 25.7%), Seattle (+10.1 pts to 37.1%), and Atlanta (+9.0 pts to 27.9%) were among the markets that posted the biggest year-over-year increases in the share of homes with price drops.

The Redfin Housing Demand Index — a monthly indicator of homebuyer demand that was flat for the third consecutive month in July — also suggests easing inventory is giving buyers more room to carefully consider their purchases.

“In a market where we’re seeing more inventory, sellers may choose to use price reductions to continue to generate interest in their home for sale,” said Jessie Culbert, a Redfin agent who works with sellers in Seattle. “Ultimately, the market dictates the appropriate price for any given home. We use data and on-the-ground insight to recommend the initial price, but sometimes we just need more exposure to the market, or more time to hear feedback, and then we’ll work with our clients to adjust the price accordingly.”

Redfin: Number of homes selling above list price drops

Only 23% of homes sold for more than asking

By Alcynna Lloyd, Housing Wire, September 28, 2018

In the four weeks ending on September 23, homes that sold above asking price dipped below 2016 levels, according to the latest data from Redfin.

According to the company, 22.9% of homes sold for more than asking price, declining from 25.5% of homes the same time last year. Notably, the share of homes that sold above asking price has been steadily decreasing from June, when it was at 29%.

“With home price growth slowing to 4.7% in August, and a record-high share of sellers dropping their prices, the fact that fewer homes are selling above their asking price is another indication that competition is getting less intense than it has been in recent years,” Redfin Senior Economist Taylor Marr stated.

The report indicates that the decline is most apparent in highly competitive markets like Seattle, Denver, Portland and the Bay Area.

In Seattle, the share of homes sold above list fell to 30.3% from 50.6% the same time in 2017. Remarkably, this is the lowest the share of homes has been since 2014.

Competition is tighter in affordable inland metros, including Buffalo, New York, Indianapolis and Las Vegas, according to the report.

This is largely attributed to a steep decline in inventory, resulting in the share of homes selling above list price growing significantly.

“Inventory pressures are easing in the hottest markets, which is welcome news for homebuyers who are increasingly able to submit an offer without competition and get bids accepted without offering above list price,” Marr concluded.

As California Debates Rent Control, More Supply Is Contributing to a Slowdown in Rents

By Aaron Terrazas, Zillow, Sep. 28, 2018

Perhaps no part of the country has seen rents rise as quickly in recent years as California, driven by population growth in the Golden State’s booming job centers and, in some areas, restrictive building codes that hamper the ability for cities and towns to add new supply to meet this demand. Rent affordability across the state is historically poor, and Californians are searching for policy solutions that might bring some relief.

Among the solutions being considered is Proposition 10, which would repeal a decades-old statewide ban on local governments enacting rent control, potentially paving the way for some local governments to enact new limits on how fast rents can increase. Although popular among voters, most economists say that blanket rent controls ultimately limit new construction, reducing the number of rental units on the market and pushing up rents in the long term.

But beyond the ongoing policy debates, the undercurrents of the California rental market are shifting on their own in response to more fundamental market forces. In the past two years, rent growth has slowed sharply across the state. And the slowdown in rent growth has been particularly large in the communities that have succeeded in adding the most new housing supply.

Zillow compared the number of new apartments permitted in the past few years to the slowdown in rents since that time. Across California cities for which we have data, those with the strongest permitting activity – which, at the median, permitted 11.5 new apartments for every 100 existing multifamily units – saw the average pace of annual rent appreciation slow by 2.0 percentage points. Those with the fewest new apartments permitted – which, at the median, permitted no new apartments – saw the average pace of annual rent appreciation slow by 0.9 percentage point over the past few years.

For example, Silicon Valley communities Milpitas and Pleasanton experienced the most aggressive permitting activity between 2014 and 2016 – respectively permitting a total of 28 and 26 apartments for every 100 existing multifamily units. Annual rent growth in those areas has since fallen approximately 8 percentage points, to the current annual pace of 2.4 percent and 0.2 percent, respectively.

As Californians embark on an important debate about how to address the state’s housing crisis, the most recent data shows that rent growth does ultimately cool when new supply is allowed to catch up. Where supply has been allowed to catch up, rents are slowing or falling. Given the state’s steadily strong demand for housing, policies that reduce the rental supply can be expected to push up rents.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

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