As we head into Spring many clients are curious as to what’s happening in the Bay Area’s real estate market. Recently I received an economic update from the Sereno Group Market Analysts; they provided keen insight on the factors that shape our economy and housing market. I’ll share the most significant nuggets and, more importantly, the implications to buying or selling real estate in the coming months.
Much of our economy is tied to exporting goods to the global economy which is showing signs of stress. If you’re interested in the intricacies of global economic and financial developments, consider reading The Federal Reserve’s January meeting minutes. Specifically, economists are concerned that the slowdown in China may drag down the U.S. market.
Closer to home, there are rumblings that major Silicon Valley employers — like VMWare and Yahoo — may announce layoffs. Other pre-IPO companies may find it harder to find VCs or other sources willing to fund their burn rates due to risk concerns. That said, other Bay Area companies are experiencing growth. The Silicon Valley employment growth rate was 4.3% according to Joint Venture Silicon Valley, a partnership between business, academic and political leaders. Coupled with low unemployment (3.9% according to the Bureau of Labor Statistics), job seekers — as a result of layoffs — will most likely land quickly.
Both the San Jose Mercury News and Silicon Valley Business Journal remain optimistic about the Bay Area’s economic outlook. 2015 was an amazing year, hitting record-breaking numbers despite a slowdown in the fourth quarter. Joint Venture Silicon Valley released a report that warns that rising housing costs, worsening transportation and the shrinking middle class will cloud continued growth for 2016.
Housing Demand Remains Strong
2015 was a phenomenal year. 2016 is forecasted to be strong as well. The statistics below are specific to Santa Clara County. The Sereno Group analysts cite these reasons:
- Housing demand will remain strong in the SF Bay Area due to low interest rates and continued job creation.
- The number of homes available for sale remains low. To put things into perspective, 6 months of inventory is considered average, where supply to demand is balanced between buyers and sellers. Inventory is at historic lows at 1.3 months for single-family homes and 0.8 for condo/townhomes.
- The median sale price for a single-family home and condo/townhomes from January 2015 to January 2016 increased 9-10%. These appreciation values make investing in Bay Area real estate attractive.
- The sale price to list price indicates multiple offer activity. Our “sellers market” continues with this ratio at 103-104%.
- Capital investors — monies from other global economies and the stock market — are looking for alternatives. U.S. real estate provides that safety.
Implications for Buyers
- The Bay Area’s economic growth and low unemployment rates provide job stability compared to other U.S. markets.
- Low mortgage interest rates help make monthly payments more affordable compared to rising rents. This Mercury News article provides interesting insight into the rental market. Given recent experience, I sense that that rents may be stabilizing, if not dropping in some locations. As buyers calculate the cost of renting versus owning, they may still find home ownership an attractive option. For some neighborhoods and cities, the benefit may not as significant as it was in 2014 and 2015.
- Appreciation levels prove that investing in real estate is still an attractive and winning proposition.
Implications for Sellers
- Even with low inventory levels, sellers need to price their home carefully. Transactions involving multiple offers — especially offers significantly over asking price — are on the decline. Incorrect pricing can mean a property can sit on the market and require price reductions.
- We anticipate inventory levels to increase. Our 1.4 month-inventory level will trend closer to 2 to 3. While still considered a “seller’s market,” it’s not as one-sided as it was in 2015. As a result, there will be more pressure to price appropriately in order to close in reasonable timeframes.
- Due to appreciation rates and low mortgage interest rates, this may be an excellent time to sell in order to downsize or trade up.
Whether you’re looking to buy or sell, I can help. I’ve helped hundreds of Bay Area individuals find the right place to call home.
Photo credit: Sail