Glen’s SF East Bay Real Estate Market Update
June 30, 2016
I had an agent ask me how we did on a NOBE Townhouse listing that just went pending last week. My response was that we had 11 disclosure packets out but received only 2 offers. It went for over asking but did not do nearly as well as the unit behind it that sold 2.5 months ago. They both have identical layouts, square footage, both were remodeled and converted to condos in 2013. Ours had a nice front yard, an upgrade to the floors and more light. Both were staged, vacant and showed well. Yet ours sold for quite a bit less. The agent then asked, “interesting, What’s your gut say: Market slow down, or just summer? ” My response was that I thought it was a combination of both.
Here’s a quote from the popular “Sound Off” section in Sunday’s Chronicle when asked: How do you view recent trends in the Bay Area’s real estate market? I liked the response from John Solaegui, a Paragon agent;
“Fellow agents and sales data are pointing to a shift in the market from the breakneck pace that we have experienced over the last four years. The changes are neighborhood specific, but properties are taking longer to sell and they are not garnering as many offers as they did before. Inventories are increasing for luxury homes greater than $3 million.”
(I might add to this that we’re beginning to see more price reductions, and more properties that don’t receive any offers on their stated “offer dates.” Also note that we have increased the number of homes available for sale by 140% since the beginning of the year.)
“This does not mean that the sky is falling. Interest rates are still attractively low. I think we will look back at this time and see that there were great deals to be had, just as we look back to 2009 and wish we had purchased then. The real estate market is cyclical and savvy investors take advantage of those cycles.”
“To use an analogy, we are moving from a furious sprint to a healthy jog. It feels like we may be entering a more balanced market that presents opportunities for both buyers and sellers.”
There’s an interesting article included below under Recent News entitled; How to Use Real Estate Trends to Predict the Next Housing Bubble, by Teo Nicolais, Harvard Business School
Part of what he talks about are the “four phases of the real estate cycle,” and the indicators that are found in each.
“Perhaps the most stunning aspect of the real estate cycle is not its inevitability but rather its regularity. Economist Homer Hoyt, through a detailed study of the Chicago and broader US real estate markets, found that the real estate cycle has run its course according to a steady 18-year rhythm since 1800.”
“With just two exceptions (World War II and the mid-cycle peak created by the Federal Reserve’s doubling of interest rates in 1979), the cycle has maintained its remarkable regularity even in the decades after Hoyt’s observation.” You can see this chart in the full article below.
Where are we now?
“It’s important to remember that the Great Recession was not caused by an unexpected event. To those who study the real estate cycle, the crash happened precisely on schedule. It was painful, but it inaugurated the next iteration of the real estate cycle.”
“For many cities and asset classes the expansion phase is well under way. According to Glen Mueller, Boston, New York, Denver, and San Francisco, for example, are already experiencing incredibly tight rental markets and robust new construction in apartments.”
“Those who lived through the financial crisis of 2008 will (we hope) always be weary of the next major crash. If George, Harrison, and Foldvary are right, however, that won’t happen until after the next peak in 2024.”
“Between now and then, aside from the occasional slow down, the real estate industry is likely to enjoy a long period of expansion.”
However, this brings up another interesting point in our markets. The chart focuses on new construction. New construction always happens as a response of what’s going on in the market. It’s a supply and demand factor. Why build when there’s a glut of homes available coupled with declining prices and/or rent amounts.
Building happens as a result of a picked up demand (maybe it’s an increase in population possibly due to more jobs). There’s not enough inventory to fill that demand. With rising prices and rents, building follows, however, it’s always completed long after that signal to pick-up. That’s when markets are the most competitive, during the wait for more inventory. As a result we see prices/rents increase until there’s a glut again and/or a change in the economy. Then the cycle begins all over again.
We’re seeing this take place in the San Francisco condo market now according to a recent study, (see article below).
“There are more condos now on the market in San Francisco than in the last four years, according to a report from real estate outfit Polaris Pacific, and there are even more under construction, swamping an already crowded market.”
As a result, we’re now seeing a softening in the San Francisco condo market
Here are some highlights for the 38 East Bay Cities that I track:
Inventory increased by 13.4% in the last 30 days and has more than doubled, (increased by 140%), since the beginning of the year. Inventory is now at about where we were last year at this time. Our monthly supply is now at 42 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 42 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.
The number of pendings, (homes that are in contract), decreased by 6.8%. That’s 9% less than what we experienced during this time last year. The pending active ratio has decreased to 1.18. 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. This is at a lower level than we saw last year at this time, (1.60), and this may be an indication of a slight weakness in the market.
The percentage of homes “sitting” remained the same as last month. 35% of the homes listed now remain active for 30 days or longer, while 15% stayed on the market for 60 days or longer.
The “distressed” market, (foreclosures and short sales) are no longer much of a factor representing only 2.7% of the active listings and 3.5% of sales over the past 4 months.
Median Price recovery on a city by city is beginning to see a slight increase. This is typical as we approach Summer. 17 out of the 33 East Bay cities tracked are now at or above their median price “peak” levels with another 12 cities within 20%. That means that only 4 cities are still well below their peaks, falling into the 20% to 30% range.
- The month’s supply for the combined 38 city area increased to 42 days, a slight increase from what we saw last June, in 2015. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area.
- Our inventory for the East Bay (the 38 cities tracked) increased to 2,864 homes actively for sale. This is still well above the December 2012 low of 1,086 but about the same as we were last year at this time of 2,631. 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 have decreased to 3,372, lower than where we were last year at this time of 3,743.
- Our Pending/Active Ratio decreased to 1.18. Last year at this time it was 1.42. This continues to slightly favor sellers. We anticipate that it is primarily seasonal and will begin to move towards what is considered a more normal and balanced market as we move towards summer and fall, (a ratio of 1 with an equal number of listings and pending sales).
- Sales are increased 17.9% from what we saw in May based on a (4 month period) now at 8.812 for the 38 cities tracked. This is 5.8% less than where we were last year at this time.
- Sales over the last 4 months, on average, are 4.6% over the asking price for this area.