DECEMBER 2018 STATISTICS

The official December market reports are now available. December 2018 did not outshine the previous year. Let’s review the Santa Clara County’s single-family homes stats which took a dip at year end:

• Median sales prices dropped to $1.15 million from $1.30 million.
• 154 fewer sales closed, 757 sales compared to 729 in 2017.
• Sellers, on average, received their asking price which is 9% lower than the previous December.
• Sales took longer, days on market increased to 37 days (from 21) and months to sell increased to 1.1 months (from 0.5).

ANTICIPATING 2019’S REAL ESTATE MARKET

CAR’S STATE OF THE MARKET FORECASTS

In her October 11 forecast presentation, Leslie Appleton-Young, California Association of Realtor’s Chief Economist released several market forecast after analyzing these key pieces of data:

• Employment was at an all-time high
• The Unemployment rate was at its lowest point in 40 years
• Consumer confidence was at its highest point in 18 years
• Inflation remained low at 2.2YTY
• Mortgage rates hit 5% for the first time since 2011

In her 2019 forecast Appleton-Young pointed out:

• The market had a definite shift in April 2018 where inventory rose
• The percentage of international buyers in the California market remained flat for the last three years.
• Sellers aren’t selling due to several reasons: low rate on their current mortgage, low property taxes, concerns over the capital gains hit and affordability of buying elsewhere. The number of years of owning a home before selling is lengthening (11.5 years) as sellers decide to remodel and stay.
• 29% of sellers move out of California; this figure is up 10% compared to 2013.
• California has less new housing per capita than other states, putting upward pressure on home prices.
• The majority of California residents is tipping towards “renter” as the homeownership rate continues to decline. California has the dubious distinction of being the 2nd lowest in the nation.

RECENT SANTA CLARA COUNTY STATS

As we know, the SF Bay Area is unique. High employment and job growth fuel confidence in the local economy which impacts real estate appreciation. So, let’s take a look at some local statistics:

• The December adjusted unemployment rate was 2.5% in Santa Clara County. This compares with an unadjusted unemployment rate of 4.1 for California and 3.7% for the country.
• California employers added 30,700 positions in December, representing nearly a fifth of the nation’s new jobs.
• The median sold price of an existing single-family home dropped 11.5% when comparing 2018 to 2017. It’s important to note that while we did see a dip for some single-family homes and neighborhoods, this statistic doesn’t apply to all Santa Clara County homes.

Source: California Association of Realtors, median sold of existing single-family homes.

SOUTH BAY IN THE NEWS

Zillow released their hottest housing market list in January 2019. San Jose topped the list for the second consecutive year. Zillow’s economic data analyst told The Silicon Valley Business Journal that tech jobs with their high salaries are fueling the South Bay’s home value growth. According to Zillow’s Research, the San Jose real estate market rose more than 10% in 2018 and is expected to grow 12.7%. However, this rosy picture may change once December’s statistics are officially reported.

You may also recall Redfin’s list of Bay Area hottest neighborhoods in 2018 from my 3rd Quarter Market Update. Eight of their top ten were located in the South Bay. Two of San Jose neighborhoods — Bucknall and Cambrian — were at the top of the “hot” list. Overall, Redfin’s predictions were quite accurate.

HOUSING AFFORDABILITY

During November’s election, California’s rent control initiative was defeated. But the issue of housing affordability is expected to raise its head again, potentially with amending the Costa Hawkins Rental Housing Act rather than repealing it. With uncertainty about rent increases, many Bay Area residents look to homeownership as a way to stabilize their housing expense and improve their financial situation over the long term.

The California Department of Finance released new county population estimates in December 2018; it shows a steady slowdown of regional population growth. The Bay Area Economic Institute noted the Bay Area grew 38,000 residents, down from 80,000 and 100,000 just three years earlier. While statistically less than previous years, there still is population growth in the Bay Area. New residents drive the demand for either rentals or housing purchases.

MORTGAGE INTEREST RATES & BUYING POWER

Buyers and would-be sellers are paying close attention to mortgage rate fluctuations. When rates go up buying power erodes. The following chart by Tracie Southerland of Opes Advisors shows how rates affect monthly mortgage payments.

Note: Example assumes a 30-year fixed mortgage with a 20% down payment by qualified homebuyers and represents principal and interest, taxes and insurance. The chart is a mathematical calculation of interest rate impact on affordability and not intended to represent currently available rates.

During the December meeting, The Fed Committee raised the fed funds rate to 2.5% which affects short-term interest rates. At the end of 2018, the committee had announced their plans to raise rates again to 3% but now Federal Reserve Chair, Jerome Powell, says the case for raising interest rates has weakened.

IS THE ECONOMY HEADED UP OR DOWN?

According to a Special Market Commentary by Investment Performance Services, LLC, GDP growth dropped by 3% to 2% but it doesn’t signal that a recession is imminent. “Corrections are a normal part of the history of the stock market. We have been through a period of extraordinarily low volatility given the accommodative policy of the Federal Reserve. As Fed policy is now trending back to normal, so is volatility and the frequencies of corrections.”

With news headlines full of hyperbole, it’s unclear what’s going to happen to the economy in 2019. However, if you look at long-range trends, investing in real estate — especially here in the San Francisco Bay Area — is a smart financial choice.

BULL OR BEAR? REAL ESTATE ADVICE THAT’S TIME TESTED

Ideally, you’re buying a piece of property because you want to live in it. Or, you’re selling a home because you’re ready to upsize, downsize or relocate. Clients who are clear about their “must-haves” list and have realistic expectations fare best whether the market feels bullish or bearish. That advice applies to both sides of a real estate transaction — buying or selling.

IF YOU’RE THINKING ABOUT SELLING IN 2019, THEN…

1. Invest in home improvement projects that will make your home “turnkey.” Nothing is more irresistible to buyers than a well-maintained home. Would-be buyers, especially busy professionals, are swayed by properties that don’t need a major overhaul before moving in. Kitchen and bathroom updates have proven ROI. Of course, curb-appeal is another influencing factor.
2. Rely on a real estate expert. When marketing your home, an experienced Realtor will know exactly how to target your buying audience and how to handle negotiations. Successfully managing a real estate transaction from end-to-end requires skill and finesse.
3. Timing is an important component, but there are many other variables. A detailed and accurate market analysis is the first step in creating an effective marketing plan. Again, hiring a trusted real estate expert will help you navigate the process.

IF YOU’RE THINKING ABOUT BUYING IN 2019, THEN…

1. Be prepared with a mortgage pre-approval and other documentation. Chance favors the prepared. Not only will you be able to take advantage of new opportunities quickly, but it also demonstrates you’re a serious and qualified buyer.
2. Rely on a real estate professional to assess a property’s value. With over 17 years of buying and selling experience, I know what to look for and avoid in a property. I also have a deep network of professionals to call upon if a specialized opinion is needed. When you have accurate information available, you can make better choices.
3. Communicate often, especially if anything in your situation changes. Life is dynamic (e.g., growing family, job change), so let your Realtor know if any items on your “must-have” list have changed. By understanding what you need, we are better able to help you.

BUYING OR SELLING REMAINS A PERSONAL DECISION

Whether you’re looking to buy or sell, you need an experienced guide in this complex and fast-paced real estate market. I’ve helped hundreds of individuals just like you successfully negotiate the most important financial transaction you’ll ever make. Contact me today to get started.