Fran Papapietro

REALTOR®, GMS, SRES, e-Pro, CNS

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Is the Market Changing?

June 9, 2016 by Fran Papapietro Leave a Comment

Graph-and-CoinsSchool graduations have started and family vacations are on the horizon. As 2016’s second quarter draws to a close, let’s take stock of what’s happening in SF Bay Area real estate. The market has been extremely busy and we’re enjoying some historic highs. Even so, the consumer confidence index –a measurement of consumers optimism on the state of the economy and their attitudes towards savings and spending — has been weakening.

The Big Picture

At the national level, we’ve had three years of positive job growth. In general, home prices have recovered from pre-Recession levels in most areas. And the foreclosure problem has worked its way through the system. With the changes in lending practices, the quality of mortgage portfolios is up and experts do not anticipate a repeat anytime soon.

The main issue is lack of inventory. Normal levels hold 6-7 months of home inventory and the U.S. is currently at 4.7 months.This may be the new normal. There is little to no risk of oversupply.

Low mortgage rates are fueling affordability. Economists indicate that rates would need to rise to 6% before impacting the ability to afford a home purchase. The age groups most likely to make a real estate transaction in 2016 are 25-34 (first-time home buyers) and 65-74 (downsizing).

Access to credit remains tight. Some would say too tight – making it difficult even for those with solid credit to satisfy stringent loan standards. One factor is that at current rates lenders have tight profit margins. Until rates increase, lenders aren’t expected to loosen up.

And yet consumers are less confident than they were at the end of 2015. In May, the Consumer Confidence Index stood at 92.6%. U.S. consumers remain cautious about the outlook for business and labor market conditions. This is a slight decline from April. You may have also heard the U.S. created 38,000 jobs in May versus the expected 162,000.  And the Labor Department reported the unemployment rate fell to 4.7%. The consensus? It’s too soon to tell.

The State of Bay Area Real Estate

The SF Bay Area economy is faring better than average:

  • San Jose unemployment is below the national average at 3.74%.
  • Real estate appreciation in Santa Clara County was ~10% in 2015.
  • The hottest zip code in Santa Clara County… Campbell; homes increased nearly 20%.

There’s been a lot of talk about a real estate bubble in the Bay Area. Two respected economists (Jonathon Smoke of Realtor.com and Chris Thornburg of Beacon Economics) cite these facts allaying fears that we’re approaching a real estate price correction:

  • The previous course corrections were fueled by loose credit. Credit guidelines are now much harder (perhaps too hard) to get.
  • Flipping activity, while it has increased, is still 38% lower than 2005 levels.
  • Real estate gains are a reflection of strong demand relative to light supply but these gains are still lower than 2004 levels.
  • Personal obligation ratios are at an all-time low (with the exception of college debt).

Buying or Selling Decisions

Regardless of the latest economic reports, I find that the decision to buy or sell a home is uniquely individual; the decision really depends upon 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: Ken Teegardin

Filed Under: Housing Reports

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FRAN PAPAPIETRO
REALTOR®, GMS, SRES, e-Pro, CNS

License #: 01358728

Phone: 408.335.1423
Office: 408.335.1400
Cell: 408.623.4155
Email: fran@serenogroup.com

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Los Gatos, CA 95030

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