Thursday, May 25, 2017

Bay Area Home Prices Hit Another Milestone Peak

The Bay Area’s notoriously high home prices jumped to yet another record in April, as sales plunged compared to the same month a year ago.

The median price for a previously owned single-family home in the nine-county Bay Area region climbed to $800,000 — an all-time high — and eclipsed the prior record of $752,000 set in June 2016, the CoreLogic real estate information service said Wednesday in its monthly report on the region’s housing market.

The steady march higher for Bay Area home prices has put them out of reach for many prospective buyers.
“It’s discouraging to see how expensive homes are,” said Robin Vecchio, a San Jose resident who has lived in the South Bay her entire life. “I’m being priced out of the Bay Area, but I don’t want to leave.”

The high prices also have left numerous would-be sellers unable to find new places to go in the Bay Area even if they could sell their houses for handsome prices, according to industry experts.
“Most people can’t afford to buy the house they are living in now,” said Doreen Roberts, a broker with Master Key Real Estate Mission, a residential realty brokerage in Fremont. “That is stifling the ambition of sellers to move and put their houses on the market. Unless they have another place they really have to be, they just hang on to the house that they have.”
Santa Clara, Alameda and San Mateo counties also posted all-time median highs in April, CoreLogic reported. Contra Costa County, which has typically been more affordable, was about 9.8 percent below its record level.
The price for the typical previously owned home was $1,050,500 in Santa Clara County, which is steadily holding above the $1 million level; $805,000 in Alameda County; $590,000 in Contra Costa County; and $1.4 million in San Mateo County.
Austin James, 22, a Brentwood resident, works in the real estate business and said he wants to buy a home in Contra Costa County — at some point. It’s a seller’s market right now, in his view, but he believes things could swing in favor of buyers by year’s end.
“It’s impossible for buyers to find anything right now,” James said. “But I don’t think things will stay this way. It might go a little farther, but soon the buyers will get smart and stop paying these high prices.”
Home sales plummeted throughout the Bay Area, falling 9.4 percent regionwide in April compared to the same month in 2016, CoreLogic reported.
“Fewer people are able to afford anything,” said Andrew LePage, a CoreLogic research analyst, who added that prices are a factor in April’s sales numbers.
CoreLogic reported that 4,990 single-family, previously owned homes were sold in April — the slowest April in nine years, LePage said.
Industry experts said the lack of supply is contributing to both fast-rising home prices and the feeble sales activity.
“There is a real lack of inventory right now, although there are signs that more houses are coming on the market,” said realtor Craig Gorman, a past president of the Santa Clara County Association of Realtors and the sales manager of the Intero Meridian office in San Jose. “The biggest challenge buyers are having is there are just not enough homes to choose from. Unfortunately, a lot of people have been priced out of the market.”
Nearly every home that does make it onto the market entices multiple buyers to battle for the right to buy the residence, Roberts said.
“For just about any house, there are at least two buyers interested, and typically we see at least between four and eight buyers,” Roberts said. “But if the house is in a really competitive price range, like an entry-level home, you can have 20 or 30 offers.”
Technology workers’ generous pay packages also can help stoke bidding wars.
“You have these tech companies that provide stock options, like Google, Apple, Facebook and so forth,” Gorman said. “For many homes, you have young millennials coming into the deal ready to pay cash for the house.”
That doesn’t mean prospective buyers who can’t get into the market today have entirely given up on the idea of owning a house.
“Eventually I’d like to buy,” said Austin, the Brentwood resident. “Maybe in a year or 

Thursday, April 27, 2017

How Trump Proposed Tax Proposals Will Impact the Bay Area

Long on ambition, short on details, President Donald Trump’s promise of the biggest overhaul in the history of the American tax system could jolt the Bay Area, shaking up the housing market, afflicting charities and prodding tech giants to bring billions of their assets back home from abroad.
The Trump administration unveiled a broad outline of its tax plan Wednesday, proposing major cuts in the individual and corporate tax rates while eliminating many deductions. The proposal was released on a single sheet of paper — double-spaced — without any information about how the cuts would be paid for.
But if the proposals became law, an early look at the impact on the tax bills of Californians shows the implications could be profound
For Individuals
Overall, Trump’s reforms would likely mean a simpler process for tax filers. Instead of the current seven income brackets, ranging from 10% to 39.6%, there would be three brackets, at 10%, 25% and 35%, and a raft of tax deductions would be eliminated. There’s no word yet on what income ranges would fall into each bracket.  
The biggest deduction California residents would miss is the state and local tax deduction, which lets people deduct the payments they make for state and local taxes from their federal tax bill. In 2014, the latest year with data available, Californians deducted $101 billion from their federal taxes thanks to this deduction, more than any other state in the country.
“That’s a big deal for people in high income tax states like California,” said Annette Nellen, a San Jose State University business professor who studies tax law.
Trump’s tax proposal would double the standard deduction and eliminate most individual tax deductions other than those for a home mortgage and charitable gifts. Tax experts say that would mean more people choose to take the standard deduction instead of itemizing.
For a married couple filing jointly, for example, the standard deduction would double under Trump’s plan from the current $12,600 to $25,200. If the couple had $500,000 in mortgage debt and were paying a 4 percent interest rate, they’d be eligible for a mortgage deduction of just $20,000 — so it would likely make more sense for them to take the standard deduction, Nellen said.
More people taking the standard deduction could mean less incentive to donate to charity. “Some charities might see a drop in donations, because it won’t matter for people’s taxes,” Nellen said.
It could also be a blow to the home-buying industry. Deducting mortgage interest can be a real incentive for people to buy homes, especially in a place like the Bay Area with such sky-high real estate prices.
Denise Welsh, the president of the Silicon Valley Association of Realtors, said getting rid of the state and local tax deduction — which includes property taxes — and incentivizing the standard deduction could “cripple” the Bay Area housing market.
“Our whole housing market is intertwined by those tax deductions,” she said. “Eliminating those deductions may not impact people in some parts of the country, but it certainly would have a very significant impact to the local area.”
She said many of her clients who took out large home mortgages planned their entire finances around their tax deductions, and would flee California rather than pay the sky-high property taxes without being able to deduct them. “People are not going to move down from their $2.5 million dollar home in Los Altos to the dregs of San Jose in a 1,250-square-foot home,” Welsh said. “They’d leave the state.”
Meanwhile, the tax proposals would have some measures that could make high-income people dance. Notably, the plan would end the Net Investment Income Tax, which levels 3.8% on business and investment income for people with high incomes in part to pay for the Affordable Care Act. “For some really high income people — like the top two percent — it’s in the millions of dollars of taxes,” Nellen said.
The plan would also eliminate the federal estate tax and would be a boon for wealthy families who hope to pass on their wealth. And it would also “provide tax relief for families with child and dependent care expenses,” according to the summary.

For Businesses
With leading Silicon Valley technology companies parking hundreds of billions of dollars in cash overseas to avoid U.S. taxes, a lower corporate tax rate could encourage firms to stop hoarding money outside the country.
All five of the top overseas cash holders are tech companies, and four of them are headquartered in Silicon Valley, according to Moody’s. As of the end of September, Apple had $216 billion overseas; Google had $48 billion; Cisco had $60 billion; Oracle had $51 billion; and Microsoft had $111 billion, Moody’s reported in November.
With European countries taking aim at tech firms’ holdings — the European Commission ruled in August that Apple must pay $14.5 billion in taxes Ireland failed to collect from the company — the valley’s tech titans have good reason to keep cash at home, said Joe Kennedy, a senior fellow at the Information Technology & Innovation Foundation, a think tank sponsored by several tech companies.
Many firms that park money offshore end up paying a much lower tax rate than the U.S. 35 percent corporate rate. Apple, according to its most recent quarterly report, paid a 26 percent effective rate, while Google has reported a 19 percent rate, Facebook has reported 18 percent and Oracle 17 percent.
“From a Silicon Valley point of view, they all want to pay lower taxes, but I don’t think (a reduced corporate rate) is going to have a major impact. They are in many cases paying lower tax rates,” said International Business Strategies analyst Handel Jones.
Analysts expect that political wrangling over paying for tax cuts will ultimately mean a higher corporate rate than 15 percent.
The Trump plan also proposed a “one-time tax” on overseas cash brought back to the U.S., but did not specify a rate. The repatriation is expected to be mandatory.
“That’s a big deal,” Jones said.
However, firms benefiting from the change would not necessarily invest in their companies. Jones believes about 20 percent of repatriated cash would go to acquisitions, with about 80 percent returned to shareholders.
The plan would also reduce the tax rate for “pass-through” businesses, which include partnerships of doctors and lawyers and sprawling real estate partnerships like those Trump ran himself.
Aside from tech giants, small businesses in the Bay Area would applaud a lower corporate tax rate, said Steve Van Dorn, the president of the Pleasant Hill Chamber of Commerce.
“Whenever you say ‘tax cuts,’ most business owners are excited about that, especially in the state of California,” Van Dorn said. “That helps businesses grow and spend more on capital improvements and all those economic development things.”

Saturday, April 22, 2017

San Jose Skyline to Transform in 5 Years

Five years from now, San Jose’s skyline will look markedly different.
The city, with a population of just over 1 million people today, is booming with development. Many of those projects are not small endeavors, but tall, glassy, upscale towers that will bring new residents, office space and retail options.

Among the developments shaping the San Jose skyline is Silvery Towers at 180 W. St. James St., a glimmering 640-unit luxury condominium development with 30,000 square feet of retail space in two towers rising 228 feet tall. About a half mile away, the proposed Greyhound Station development would include two 23-story towers with 708 residential units and ground floor commercial space.

And in one of the biggest developments in San Jose's history, Trammell Crow is planning more than 1 million square feet of office and retail space under 325 residential units at 402 W. Santa Clara St., adjacent to Diridon Transit Station, which is slated to see high-speed trains come through by 2025.

Some, in recent months, have speculated that San Jose may be going through a renaissance — a true turning point for the city.

Chris Freise, a partner with San Francisco-based Lift Partners, is one of those who sees a shifting tide in San Jose. Freise is in the process of gutting and putting back together the historic building at 1 W. Santa Clara St. in San Jose’s downtown district. His is one of several old buildings in the area currently grabbing developers’ attention.

Across the street, San Francisco-based DivcoWest is renovating the historic building at 1 W. Santa Clara St., to make room for smaller, creative firms after the building for years has sat partially vacant.

Those projects are a part of a larger shift happening in San Jose, specifically in and around the downtown area, Freise said in an interview earlier this year.
“Downtown has got this great revitalization, or kind of urban renaissance happening, and the buildings in the historic district are a big part of why it is happening,” he said.

Older, authentic buildings have a way of drawing startups and tech companies, and that San Jose has a collection of the very few that exist south of San Francisco, Freise said.

It’s not the first time someone has suggested that San Jose, known as the capitol of Silicon Valley, may be on the verge of blossoming bigger. But this time, could they be right?

Crane Watch is starting with a focus first in the 176 square miles of San Jose. We’ll be logging and updating the status of the city’s projects that are 100,000 square feet in size or larger. In the coming months, we’ll expand the tracker to include other Santa Clara County cities.

Friday, March 24, 2017

How to Ride the Tide of California Home Prices

For decades, California has been one of the best places to invest in real estate. A lot of people want to live there. And, unlike the problem with Florida - another real estate favorite -  demand for housing isn't complicated by speculation in future retirement property. That said, strong demand in California tends to create boom-and-bust cycles driven by the fortunes of different industries.
Aircraft in Los Angeles, the navy in San Diego, finance and the Internet in San Francisco, computers and then biotechnology in Santa Clara county - all graft their rise and fall on top of a steady stream of in-migration from other states and abroad.
Homes in many California markets were high-priced well before a surge of sub-prime lending produced the great crash of 2008, so it's no surprise that prices dropped sharply at that time, but - and this is the important point - not nearly as much as in other boom markets like Arizona and Florida. The underlying appeal of living in California always produces a fast recovery.
In the past three years home prices have risen again - 25 percent in the LA area, 33 percent in San Francisco, similar amounts throughout California. And Local Market Monitor forecasts that increases of the same magnitude should be expected over the next three years.
When home prices rise like that, they eventually become unsustainable. That's the situation now in LA and San Francisco. That doesn't mean they'll fall any time soon - we do expect them to go higher for several years - but it does mean they have less room before eventually topping out. In such over-priced markets, it's difficult to buy rental property at a reasonable price - the ratio of home price to annual rent is too high. In LA that ratio is 26, in the city of San Francisco it's 44; a ratio of 20 is usually the highest you want to go.
In these markets, therefore, it's difficult to buy and rent out single-family homes; investment in rentals means apartment buildings. Or you can flip homes.
In other California markets, prices have risen briskly off the bottom but - because the crash was harder in these places - there's still plenty of room before prices get too high. These markets are of two types. Some, like Stockton and Modesto, were built out as cheaper alternatives to the near-by larger, expensive centers. Some, like Redding and Bakersfield, are currently mired in a poor local economy that may or may not recover anytime soon.
The investment strategy differs according to the kind of market you're dealing with. In the Stockton type, close to the larger centers, demand is almost certain to return - both for single-family homes and for rentals. Your main concern is that the physical structure you buy, probably put up in a hurry ten years ago, is in good shape.
In the Redding type, you'll need to spend more time assessing the economic prospects, how long before things turn around? - in California, markets don't die, they just transform - and in such markets it's best to invest at the higher end.
There are always investment opportunities. And in California there always seems to be another chance.

Friday, March 17, 2017

Bay Area Tops Nation in Home Bidding Wars

Amid rising interest rates and widespread concerns about the cost of housing, one might expect the Bay Area’s real estate market to run out of steam.
Apparently, that’s not happening.
In February, the fiercest bidding on homes took place in the Bay Area, according to a new national report from Redfin, the real estate brokerage. In San Jose, 63 percent of homes sold above list price, followed by 62 percent in San Francisco and 59.1 percent in Oakland. Among all U.S. markets, those were the three highest shares of “over asking” bidding. Next in line were two markets in the state of Washington: Seattle with 49.3 percent and Tacoma with 36.3 percent.
February’s fastest-moving markets were, in order, Seattle (with about half of all homes pending sale within 12 days of being listed); Oakland (where homes typically spent 15 days on market); Denver (18 days on market); San Jose (21 days); and San Francisco (28 days).
Still, industry observers point to an underlying problem: The housing supply is low in much of the country, and that doesn’t make for a healthy market in the long term.
Nationally, the number of homes for sale declined 12.9 percent in February on a year-over-year basis. It was the third consecutive month of double-digit drops in inventory, Redfin reported.

The number of homes for sale fell year-over-year by 12 percent in Oakland, by 5.3 percent in San Francisco, and by 2.0 percent in San Jose. (Sacramento inventory practically fell off a cliff — down 25.4 percent from a year earlier.)
With “low-tier” affordable homes in particularly short supply around the nation, first-time homebuyers are struggling to get a foot in the door. That’s because, with inventory at such low levels, competition persists: Those buyers who remain in the game keep putting upward pressure on prices.
Taking all of this under consideration, Nela Richardson, Redfin’s chief economist, painted a half-rosy picture of the current market.
“The total level of home equity reached a new peak at the close of 2016, according to recent Fed data,” Richardson said. “While great for homeowners, continuously strong price growth across the U.S. since 2012 has posed significant challenges for first-time buyers, especially given such low supply in affordable price-tiers.”
But she pointed to a silver lining: “Rising prices and increased equity may tip the scales for homeowners who have been delaying their decision to move up,” she said, “which could add much-needed starter-home inventory to the market.”

Thursday, March 9, 2017

Sales of Homes Priced Under $500K Plummet from Bay Area Inventory

The real estate site Property Radar reported that home sales overall dropped 9.4 percent across the Bay Area in 2016, a decline of 6,466 receipts. In San Francisco alone the decline was 11.2 percent.

Most of the damage was to the affordable category of housing stock: Those priced $500,000 or less.

In 2015, 18,945 such homes sold. In 2016 it was only 14,276—a whopping 24.6 percent decline—just over 62,000 homes sold across the region in total.
By contrast, sales of homes that cost more than a million dollars rose, albeit only by 1.5 percent to 19,277. Numbers for all categories of homes cheaper than seven figures declined year over year.

Casting about for some non-Property Radar figures, California Resource, a title company, recorded 110 home sales in San Francisco in January of 2017.
Of these, only 10 cost half a million dollars or less, with just eight more selling between $500K and $700K.

For January of 2016 the same database records 22 San Francisco homes for $500K or less, with two more inching in above the line at $505K and $502K.

Of course, a big part of the reason fewer cheap homes are selling is that fewer homes are priced comparatively cheaply to begin with.

Property Radar estimates that, even though sales are down and growth is happening only in the highest price bracket, median prices still went up over the year.

The site says that the average price for a single-family home in the region right now is $750,000, up from $730,000 a year ago. In San Francisco it’s $1.17 million, up from $1.15 million this time in 2016.

That’s higher but still largely in line with figures like the $1.15 million that Zillow estimates (up from $1.14 million a year ago) and Trulia’s $1.13 million, up from $1.05 million a year prior.

The most recent report from the Paragon real estate group estimates San Francisco’s median much higher at just over $1.3 million (up from $1.25 in 2016), but is closer to agreement with PR about the rest of the region, estimating a $765,000 median sale price today.

Of course, only magic can predict with complete accuracy whether apparent waning demand over the past 12 months will start to push prices down. Growth did noticeably slow all last year, even as it stubbornly insisted on rising by inches and degrees.

Friday, March 3, 2017

A Real Estate Growth Market or a Bubble? How to Tell the Difference

Home prices took a nosedive during the Great Recession that started in 2008. Prices fell in all local markets, but much more in some than others. And afterwards some had a better recovery than others. Why? And, more important, could we have predicted that?
Job growth is part of the story, but not a very useful one because nobody can predict which markets will have more jobs in the future. Furthermore, how come San Francisco and Denver had the same job loss in the recession, but home prices fell 20 percent in the former and only 5 percent in the latter?
Something else is at work here and we can capture it by comparing real home prices with the "income" price -- the price that balances with local income. It is what we at Local Market Monitor call the Equilibrium Home Price.
Then we see that San Francisco was overpriced 50 percent right before the recession, Denver only 20 percent. Markets that were the most overpriced before the recession -- many in Arizona, Florida and California -- also had the largest drop in home prices.
The income price has been a very successful forecasting tool for decades -- not just in this recession. When markets are overpriced or underpriced, home prices always return to the income price.
We can use this to our advantage in 2017 because some investment strategies have a better chance for success in markets that are overpriced and underpriced.
Overpriced Markets

You might think an overpriced market -- or one that soon will be overpriced because of big price increases -- is one to stay away from. But, as long as you avoid buying at the peak, these markets can have the strongest price gains. And overpriced markets don't necessarily crash afterwards -- most of the time they just level off. In these markets you're speculating, no question about it, but you can minimize your risk by paying close attention to the dynamics of the price changes and the state of the local economy.
First, the price dynamics. An overpriced market got that way because home prices accelerated, and the peak of the boom is reached after they decelerate -- they still increase but at a slower and slower rate.
Next, the local economy. Once prices do peak, a crash is only likely if the local economy is poor. If job growth remains reasonable, prices are most likely to just level off.

Underpriced Markets

Unless the market is dying -- a small market that has lost its only large employer -- home prices will eventually recover. But is it worth your while to wait? This, again, is a speculative proposition. But the payoff can be good because recovering prices will not just return to the income price, they'll probably shoot well above it because of shortage of housing.
In short, look for underpriced markets where prices are in fact rising again, and make sure the rise in prices is linked to better job growth.