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.