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Current Economic Overview // Q3

Stronger 2017 housing market activity in San Francisco continued into the third quarter. Still, buyers remained constrained by very limited inventory. The quarter ended with fewer overall sales than during the same period last year, and inventory for both single-family homes and condominiums fell by double-digit percentage points.

At the same time, strengthened activity and competition among buyers caused properties to sell faster than they did in the third quarter of 2016 across all price ranges except for $3 million-plus. Bidding wars were common, and seven in 10 homes sold above the asking price, with premiums for single-family homes reaching 16 percent. Buyers of homes priced between $1 million and $2 million are facing more intense competition, and most paid 20 percent more than the asking price.

As a result, the median sales price showed moderate growth. Nevertheless, prices of newly constructed condominiums continued to trend lower, while prices of existing units maintained their solid upward momentum.

Looking Forward: The Bay Area’s strong economic drivers should continue to fuel demand for San Francisco real estate. Despite newly constructed condominiums, inventory levels remain severely undersupplied, which will hold back future home sales activity.

Market Statistics of Note

San Francisco home sales are struggling to push beyond depleted inventory, which fell across most price ranges. Sales of homes are priced between $1 million and $2 million, which represent half of San Francisco’s home sales, managed to inch higher amid double-digit drops in inventories. The highest price range is maintaining the year’s momentum.


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Real Estate and Economic Forecast 2020

Yesterday, Pacific Union held its fourth annual Real Estate and Economic Forecast in partnership with John Burns Real Estate Consulting to project Bay Area activity through 2020. Below are some key, high-level takeaways from the live event.

  • Most U.S. markets remain at low-to-normal risk levels, short term and medium term.

  • Mortgage rates are projected to grow by about 80 basis points by 2020, increasing annually at ±20 basis-point.

  • Across the Bay Area, housing markets are generally at normal risk, though San Francisco and Silicon Valley show some signs of above-normal risk due to a lack of affordability.

  • Employment growth remains steady, though the increasing share of jobs in lower-income groups does not bode well for affordability in the Bay Area

  • Proposed tax changes could significantly reduce future buyers’ deductions, making it more expensive to own a home. Also, the proposed changes could further disincentivize current homeowners from selling, thus exacerbating the region’s inventory shortage.

  • An analysis of the impact of the wildfires on Sonoma County and Napa County real estate markets suggests:

  • The rebuilding of homes will occur over several years.

  • A revised forecast of 1% to 3% higher home prices than previously expected

  • A revised forecast of 2 % to 4 % higher new home construction costs than previously expected in the first year of rebuilding due to the additional demand for labor and materials. This special bump in cost above previous expectations should moderate down in future years.

  • In segmenting the markets by median home price changes, we use four categories: normal, double-digit, slowing, and heated.

  • Normal (up to 10% appreciation): Similar to last year, most Bay Area markets fall into this category, and median prices average about $761,000.

  • Double-Digit (10% to 20% growth): Unlike last year, double-digit percent median price growth was seen in many San Mateo County and Santa Clara County cities. Median prices averaged about $1.15 million.

  • Heated (20 % to 40 % appreciation): This year, two cities in Marin County — Sausalito and Tiburon — saw median price growth of more than 20%, a respective 22 % and 28 %. Overall, the median price in ZIP codes with the highest growth rates was $1.16 million, unlike last year, when the median price in heated markets averaged $800,000.

  • Slowing (22% depreciation to flat): Although fewer cities saw slowing prices this year than last year, these are again relatively more expensive markets where the median home price averaged $1,900,000.

  • Affordability and access to transportation and jobs continue to drive differences in home price appreciation.

  • When analyzing how the landscape has changed from last year, the main differentiator is intensified buyer competition in almost all markets. More homes are again selling above asking price in 2017 across the Bay Area.

  • Overall, Bay Area inventory has continually dropped in 2017, with year-to-date supply down 14

  • While condominium prices in San Francisco took a breather in 2017 for newly constructed units, the continued price increase for resale units and the declining inventory of new units are likely to prop up prices going forward.

  • Lake Tahoe’s housing market has benefited from wealth creation in the Bay Area, and sales of homes priced above $3M jumped by 141% year over year in the 3rd quarter.

  • From 2018 to 2020, home prices are projected to grow by 12 % in Napa County; 12% in Sonoma County; 2% in Santa Clara County; 2% in Marin, San Francisco, and San Mateo counties; and 5% in Alameda and Contra Costa counties.

  • Lastly, the panel agreed that price trajectories are more likely to resemble a tabletop compared with the mountain peak that occurred following the housing bust in 2006, where the tabletop suggests moderating price growth through 2020.

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