Sunday, July 9, 2017

How Long Can the Bay Area Real Estate Boom Continue?

Since 2012, Bay Area home prices have increased an average of 72%, based on market research conducted by Paragon Real Estate Group. It cited dwindling affordability as a symptom of an overheating market.
The median Bay Area home price hit a record $755,000 in May, the third consecutive monthly record, according to the data analytics firm CoreLogic. However, there was a slight decrease in home prices between April and May.
Median home prices rose 3.1% in Alameda County between May 2016 and May 2017, but declined 1.1% between April and May of this year, according to CoreLogic. In Contra Costa County, home prices rose 6.5% between May 2016 and May 2017 but declined 0.7% between April and May of this year.
“We started seeing the latest round of price increases beginning in 2012,” said housing policy expert Carol Galante, faculty director of the Terner Center for Housing Innovation at UC Berkeley. “It’s moderated a tad in San Francisco, which has brought on some more supply of housing; but in the East Bay prices haven’t moderated at all because there’s not much new supply of housing.”

Other areas becoming more competitive than Bay Area

It’s no secret that the Bay Area’s housing price boom and crisis in housing affordability is largely due to decades of job creation exceeding development of new housing, said Jordan Levine, senior economist at the California Association of Realtors, who sees regions centering on Austin, Denver, Portland and Seattle as becoming economically more competitive than the Bay Area.
Galante said there are concerns that the current real estate boom risks making the Bay Area’s economy unsustainable. As more people are priced out of the local housing market, they will move further and further afield, or jobs will leave the Bay Area and the region will suffer economically, she said.
There may come a day when major tech employers seeking to attract talent will say enough is enough with housing costs in the Bay Area and decide to relocate elsewhere, potentially changing the economic dynamics of the region from growth to a downward cycle, she said.
Levine agrees with that assessment: “It’s going to be a tough sell if you want companies to keep creating jobs in the Bay Area if housing remains unaffordable.”
There are examples of this happening to a small degree already. Zapier, an apps integration company headquartered in Mountain View, offered its employees up to $10,000 in relocation reimbursements if they moved out of the Bay Area.
Galante doesn’t think, however, there will be a real estate collapse like there was after the dotcom crash of the 1990s and the recession of 2008, with their massive job losses.
There has been some recent slowdown in new tech jobs, but the local tech economy is still thriving, driven by Google and Facebook, she added.
“I can’t say how this boom will end, but I don’t think it will be a total crash like 2008,” said Galante.
Real estate booms and busts are cyclical but people often have an exaggerated notion about how long each will last, according to an updated report released in June by Paragon, which tracks housing market cycles in the Bay Area. But it doesn’t work that way.
In the aftermath of a real estate “bubble popping” (or market adjustment), the recovery period typically lasts five to seven years before the next downturn. “We are currently about five years into the current recovery, which started in early 2012,” the Paragon report said.

Predicting timing of cycles extremely difficult

It is still extremely difficult to predict with any accuracy when different parts of the cycle will begin or end. Market adjustments are not always necessarily devastating crashes, but sometimes can be more like air being released from an over-inflated tire.
Typically, housing at the lowest price range in less affluent neighborhoods experiences the greatest price appreciation and biggest price declines — during booms and busts. This year the market for more moderate priced housing remains “quite hot” with prices continuing to appreciate quickly, while the prices paid for more expensive homes have plateaued, according to the Paragon data. Prices for condos have declined.
If business as usual continues, the Bay Area faces a further hollowing out of its middle-income residents, continuing increases in home prices, larger household sizes for the less wealthy, more long-distance commuters, and more residents who live on investment incomes, rather than wages, according to the Association of Bay Area Governments (ABAG).
With the population of the Bay Area projected to reach 9.5 million by 2040, new housing construction needs to return to levels of production not seen since the 1980s to support the best scenario of sustained economic growth with new job creation and affordable housing, according to the Regional Forecast for Plan Bay Area 2040, a report produced by ABAG.

Monday, July 3, 2017

Top 20 List of the Hottest Real Estate Markets

Are you ready for the housing market's Endless Summer? At least it might feel endless, because there seems to be no end in sight for the national housing shortage now that we're waist-deep in the busiest season for buying and selling, according to a preliminary analysis of June data by®.

With limited growth in for-sale homes, prices remained high. Just a few months ago, the nationwide median home price pushed above $250,000 for the first time. We're predicting it will hit $275,000 when we close out June—an increase of 9% since one year ago.
“The housing market has now gone 24 months in a row seeing inventory drop on a yearly basis, the longest streak in over two decades," said Javier Vivas, manager of economic research at, in a statement. The shortage is hitting even more markets, he added—8 out of every 10 have fewer homes for sale now than this time last year.

June 2017 Hot List:

Rank (June)20 Hottest MarketsRank (May)Rank Change
1Vallejo, CA10
2San Francisco, CA20
3Kennewick, WA52
4Sacramento, CA40
5Columbus, OH72
6Detroit, MI1812
7Boston, MA3-4
8Colorado Springs, CO6-2
9San Jose, CA7-2
10San Diego, CA166
11Dallas, TX121
12Waco, TX3018
13Grand Rapids, MI130
14Stockton, CA10-4
15Midland, TX8-7
16Fort Wayne, IN11-5
17Santa Rosa, CA192
18Denver, CO17-1
19Yuba City, CA212
20Modesto, CA233

And that shortage is reflected in how fast homes are snapped up. Properties in June spend a median 60 days on the market—the same level as May, but five days faster than in June 2016.

It's not that homes aren't being listed for sale—in fact, 536,000 new listings entered the market in June. But total inventory is substantially lower than one year ago, at 11%. Plus, those new listings are primarily in the upper tier of the market, leaving middle- and lower-income buyers to fight it out over what's left.
"Most of this fresh inventory isn’t addressing the largest, most desperate group of buyers," said Vivas. "With no clear hints of new construction providing short-term relief, there appears to be no end to the inventory shortage on the horizon."
Amid all this, Vivas' team assessed the country's biggest metropolitan markets to find which were buzzing the most with buyer activity, in terms of listings clicked on our site and homes speeding off the market on their way to new owners. As is the norm in recent years, our top 20 is a list dominated by California, but seven other states made a showing, and a couple of big movers hail from the Midwest.

The top two spots are still held by the double threat of Vallejo, CA, and its infinitely swankier neighbor to the south, San Francisco. The San Francisco Bay Area's economic influence reached eastward to Sacramento, which has absorbed many San Franciscans fleeing that city's high prices. Sacramento sits at No. 4 on our hot list, after Kennewick, WA. And Columbus, OH, reached the top five for the first time in our ranking. Detroit, which fell just short of joining the club, moved up an impressive 12 spots since last month.

Wednesday, June 28, 2017

Tight Inventory Keeps Bay Area Home Prices Rising

The Bay Area housing market is tight, and it keeps getting tighter. A new second-quarter analysis by Trulia shows that the housing supply shrank from a year earlier in the San Jose and San Francisco metros, though the inventory expanded in the Oakland metro.
The problem is that the inventory was alarmingly low to begin with — only 1,269 homes came to market during the entire second quarter in the San Francisco metro, which includes San Mateo County. That said, there is a whiff of good news for first-time homebuyers: the number of starter-homes rose throughout the region: by 10.9 percent in Oakland, by 24.1 percent in San Jose and by 26.1 percent in San Francisco.

You’re feeling excited? Don’t. For those in the starter home market — the lower third of homes, value-wise — the percentage of income required to buy such a home in San Jose is 78.4 percent, Trulia says, compared with a crushing 99.6 percent in San Francisco and 60.5 percent in Oakland. Across the board, it’s a heavy burden for any buyer.
The median price of a starter home is $286,300 in Oakland, $445,667 in San Jose and $535,823 in San Francisco, the report says.
Yet competition for the limited home supply remains fierce. In fact, San Jose is the “fastest” market in the U.S., according to Trulia, with houses being snapped up in record time across all price ranges. Only 20.0 percent of homes remained unsold after two months in San Jose, compared with 20.3 percent in Oakland (the nation’s second fastest market) and 23.7 percent in San Francisco (the fourth fastest market).

Wednesday, June 14, 2017

Google's Downtown San Jose Development Project: Boom for Some, Bust for Others

SAN JOSE — While San Jose city officials and property developers are over the moon about Google’s quest to create a massive village of gleaming new tech offices and housing downtown, some local merchants fear the project could displace their shops and send them packing.
The city announced this week that the Mountain View-based search giant wants to create a huge tech campus, covering more than 6 million square feet on about 245 acres near Diridon Station and the SAP Center. It said the project could accommodate up to 20,000 employees and transform downtown. But as real estate developers continue buying up properties in the area, amassing land that could end up in Google’s hands, many local business owners have mixed feelings about what it might mean for them.
“I’m worried about having to move,” said Edgar Salcedo, owner of Ed’s Scientific Auto Body, which has been a fixture on South Autumn Street in the core area where Google intends to build a mega campus even larger than its Googleplex headquarters. “We’ll make it work somehow. But I don’t know if my customers will find us if we have to move.”
The prospect of San Jose becoming another Google town would mean more employment opportunities, particularly for skilled tech workers, and would be an economic boon for the city’s downtown.
“This is an unparalleled opportunity for San Jose,” said Nanci Klein, San Jose’s deputy director of economic development. “We are thrilled to have this interest from Google and to have this excellent partner, a world-class company that is committed to sustainability and great urban design.”
Yet, depending upon how it is implemented, the project could bring more of the headaches that have accompanied the expansion of Silicon Valley’s most innovative and disruptive companies: The same job boom that has driven Bay Area employment to record levels also has lifted home prices well out of reach for a growing number of residents, caused traffic jams and forced more people to flee the Bay Area altogether.
Nevertheless, Google would bring San Jose the prestige of being a key hub for one of the world’s largest companies, and create a transit-focused village where people could work, live and play.
“We’re excited to have the support of the San Jose City Council as we evaluate our options at Diridon Station,” a Google spokesperson said in comments emailed to this news organization. “We look forward to collaborating with officials and community members.”

Real estate experts believe Google’s push into downtown San Jose would be a game-changer similar to the dramatic reshaping of San Francisco’s eastern waterfront.
“Google is a digital nation-state, and they are going to transform Diridon Station the same way that Mission Bay in San Francisco has been transformed,” said Mark Ritchie, president of San Jose-based real estate firm Ritchie Commercial.
Some businesses that own their properties have already struck deals with Trammell Crow, a developer and Google property-buying surrogate, to sell their land. Through affiliates, Trammel Crow has been quietly buying up properties in the 245-acre area near SAP Center and Diridon Station, primarily along and near Autumn and Montgomery streets.
Other merchants who rent their buildings might be forced to relocate or close if Trammell Crow snaps up the properties.

“Our family depends on this business, and if we lose the business, it would be catastrophic,” said Rocio Salcedo, owner of Diamond Auto Detail on South Autumn Street and sister of Edgar Salcedo. Her business, next door to her brother’s auto body shop, has served customers at the same location for about 30 years.
For the second time in a decade, Tito Hernandez, owner of World of Sports Memorabilia on South Montgomery Street, faces relocation because of a new development if his landlord decides to sell the property that contains his business.
“We used to be on Stockton Avenue, but I had to move when Whole Foods went in there” in 2010, Hernandez said. “I would love to stay in San Jose, but it looks like I might be moving again.”
Some business owners in the Diridon Station neighborhood lament the dramatic changes that the technology industry has ushered in for the Bay Area.
“The whole culture of the Bay Area is being killed by this tech boom,” said Charles Vela, co-owner of C&C Architectural Glass on South Autumn Street. “People in service businesses, people who flip burgers, are being forced out of San Jose, forced out of the Bay Area.”
Nevertheless, Vela seemed to understand the motives of his company’s landlord, whom he and his wife described as a nice lady.
“Trammell Crow offered our landlord a lot, and it’s an opportunity for her, and we would probably do the same thing if we were in her place,” Vela said.
Eva Vela, co-owner of C&C Architectural Glass, said she and her husband might look for a new location in a nearby city where commercial rents won’t be brutally high.
“We’ve been looking in Morgan Hill,” Eva Vela said. “It would be nice to get some assistance from the city to help us move.”
Several business owners in the area agreed, but the city suggested it would only be obliged to aid those displaced from government-owned properties.
It’s possible that tenants renting from private property owners who sell their land in connection with the Google project could get no assistance.
“There are not that many tenants in this area that are on public property,” Klein said. “The city only has an obligation to provide relocation assistance when tenant is on public land.”
Google’s plans for downtown San Jose have emerged as two groups of property investors have quietly launched a shopping spree for properties in the Diridon Station area, a land assembly that could eventually accommodate one or more mega-campuses for tech workers, along with housing and stores. The two groups of buyers have spent a combined $124 million in the acquisition binge.
Several more sales are already in the works, with some deals due to close before the end of the summer. In some of those cases, the business owner also owns the property.
Jim Wagner, principal owner of Kearney Pattern Works and Foundry on South Montgomery, said his aluminum foundry has been in business for nearly a century, and he has mixed feelings about his decision to sell to Trammell Crow.
“We have had a feeling that we don’t have much of a choice about staying, especially after Trammell Crow gobbled up all the properties on the other side of Los Gatos Creek,” Wagner said. “If we didn’t sell, the city might take the property through eminent domain.”
The company over the decades has served customers including Lockheed Missiles and Space, and the defense contractor’s production of the famed Trident nuclear missile. Current customers include KLA Tencor and Lam Research, which have placed a steady stream of orders for their semiconductor equipment business.
“It’s sad to think about closing the business,” Wagner said.

Borch’s Iron Works & Welding was planning to close anyway, but Allan Borch, owner of the metal business on South Autumn Street, said he too has mixed feelings — even though he and his family own the property and also are selling to Trammell Crow.
“There aren’t a lot of people doing this kind of business in downtown San Jose anymore,” Borch said.

Tuesday, May 30, 2017

Home Prices Rising 2 Times Faster Than Wages

U.S. home prices climbed in March at the strongest rate in nearly three year as a dwindling supply of houses for sale is causing prices to significantly outpace income growth.

The Standard & Poor's CoreLogic Case-Shiller 20-city home price index released Tuesday rose 5.9 percent over the past 12 months ended in March, the most since July 2014. Home values are increasing at more than double the pace of average hourly earnings, making it more difficult for many people to afford to buy a home.

"Over the last year, analysts suggested that one factor pushing prices higher was the unusually low inventory of homes for sale," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "People are staying in their homes longer rather than selling and trading up.
A steady job market has bulked up demand among many would-be buyers, but there are fewer properties on the market. Sales listings have plummeted 9 percent over the past year to 1.93 million, according to the National Association of Realtors. The shortage of homes to buy has caused prices to rise sharply in many metro areas.

The largest annual gain was in Seattle, where prices have surged 12.3 percent. Portland, Oregon recorded a 9.2 percent increase, while Dallas prices rose 8.6 percent.

Of the 20 cities in the index, the weakest gain was in New York City-an area where home prices are already high relative to median incomes. Home prices in New York City have risen 4.1 percent in the past year, still much higher than U.S. average hourly earnings that have increased 2.5 percent over the past 12 months, according to the Bureau of Labor Statistics.

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.”