We’re nearing the final days of Summer and the July real estate reports are coming in. As we gear up for Labor Day and end-of-season barbecues, let’s take a look at what’s happened in the Bay Area’s home economy over the last several months.
The Macro View
The U.S. economy is showing some strong numbers. Note, that government statistics run about one quarter behind. Here are the latest official numbers for 2016:
- The Gross Domestic Product (GDP) remains sluggish but still positive at 1.1%, and Consumer Consumption is 1.3%.
- National unemployment is 4.6%, nearly at 8-year lows. According to the US. Department of Labor, the Bay Area is faring even better: Santa Clara County’s unemployment rate is 3.8% and Santa Mateo County’s is the region’s lowest at 3.0%.
- National job growth is 1.6%. According to the CA Employment Development Division, the San Jose/Santa Clara metro area is growing at 4.1%.
- Sale of existing homes across the U.S. increased 6.3% in 2015. With half of the year to go, 2016 is pacing at 3.0%.
- Appreciation of the U.S. median home price in 2015 was 6.8%. Last year the Bay Area enjoyed ~10% growth with pocket areas reaching 20%.
- U.S. Housing affordability is still lower than other countries. According to the International Monetary Fund, the U.S. is not the only country with housing affordability issues. New Zealand tops the list followed by several European countries.
The Brexit news shook up the financial markets. If you were in the process of purchasing a new home or refinancing, you may have noticed that mortgage interest rates fluctuated over several weeks. According to Freddie Mac, mortgage rates are still at their lowest since mid-2013.
Major Predictions to Wait Until After the Election
According to the Chief Economist at the California Association of Realtors (CAR), housing sale growth typically rises after an election. We’re familiar with the drop in home sales that occur as buyers (and sellers) are focused on year-end holidays. Even so, CAR expects sales to increase October through December as consumers become less anxious once election season is over and there’s more certainty for the next four years.
So with all this number-crunching and political hand-wringing, what does it all mean for the San Francisco Bay Area and our housing market?
- The median home sales price for a single-family home in Santa Clara County increased 9%. Comparing July 2015 to July 2016, the median sales price increased from $963,000 to $1,050,000 in Santa Clara County. San Mateo County saw a gain of 3.85%.
- Days on Market (DOM) and Number of Months to sell has increased slightly. In Santa Clara County, DOM increased 3 days and months to sell rose to 1.7 (from 1.3). San Mateo County DOM increased only 2 days but months to sell rose to 1.6 (from 1.1).
- Sellers still receive multiple offers but they are not as high as last year. Comparing list price to sale price, the average % over asking has dropped to 102% from 105% in Santa Clara County. San Mateo County sellers are getting 106% over listing compared to 110% in 2015.
- Bay Area rents continue to rise. According to RentJungle.com, the average apartment rental in San Jose is $3,005 and within the city of Santa Clara is $3,078. Rental increases averaged 5% over the prior 6 months.
- Qualifying for a mortgage is still difficult. As I mentioned in my Q2 update, mortgage lenders have very thin profit margins. There’s simply little incentive for them to loosen their guidelines. Greater availability of capital willing to invest in long-term mortgages most likely won’t occur until rates rise to 4%.
- Demand still outpaces inventory. In June, sales improved the most in mid- and higher-priced homes. There was an 8.3% increase in home sales priced between $500K-$749K and 8.45% for homes $750K – $999K and 10.1% for those priced $1M – $1.9M.
- Current homeowners are reluctant to sell or trade-up. Many homeowners are enjoying low mortgage rates and relatively low property taxes. These potential sellers are concerned about qualifying for a new mortgage or simply don’t feel they could afford to trade-up or downsize. The average number of years a homeowner owns before selling is the highest it’s been in 30 years; the average homeowner stays in their home for 10 years.
- Investors are renting properties rather than flipping. Before the Great Recession, it was common that real estate investors would buy a distressed home, repair/upgrade it, and flip it for a handsome profit. Now with rents providing a positive cash flow, they aren’t selling investment properties at the same rate.
- New construction is recovering but not very fast. The number of new housing permits is up 4.8% according to the Construction Industry Research Board.
- Housing affordability is a growing concern. Lack of lower-priced homes is affecting moderate income households who cannot afford homes in or near communities where they work.
So what’s Sereno Group’s take on the 2016 real estate market? First, we anticipate a positive uptick in home appreciation and sales growth. While we may not see 2015’s double-digit growth, real estate in the Bay Area is still an excellent investment. However, we need to keep an eye on other important drivers.
Perfect Timing Buying or Selling
Regardless of the latest economic reports, I find that the decision to buy or sell a home is uniquely individual; your decision really depends on many personal factors. When is the best time to buy and sell? When it makes the most sense for you and your family. I’m happy to be a resource for you whatever your situation.
Photo credit: frankleleon