Key Takeaways from Pacific Union International Bay Area Real Estate Forecast Through 2019
November 17, 2016
San Francisco, Calif., Nov. 17, 2016 – For the third consecutive year, Pacific Union International teamed with John Burns Real Estate Consulting to present a live webcast forecast of what’s ahead in Bay Area real estate through 2019. To watch last night’s full, one-hour presentation, click here.
Presenters Pacific Union CEO Mark A. McLaughlin; Pacific Union Chief Economist Selma Hepp; John Burns Real Estate Consulting CEO John Burns; and John Burns Real Estate Consulting Senior Vice President Dean Wehrli combined research and analysis to project what’s ahead for the Bay Area real estate market.
Here are the highlights and what to watch for over the next three years:
- President-elect Trump will put pressure on mortgage rates, though it is not certain how fast rates will increase. Nevertheless, an increase in mortgage rates will significantly reduce the potential pool of buyers who can afford to buy a home in the Bay Area.
- Despite being in the seventh year of economic expansion, the economy will continue growing through 2019 before slowing in 2020.
- The Bay Area real estate market is one of the few in the U.S. classified as overheated.
- Demographic changes will continue fueling demand as more millennials approach the age when they start their own households.
- Bay Area millennials will benefit from the transfer of intergenerational wealth from their parents and grandparents who help them with their down payments.
- More “surban homes™” – those that offer urbanlike living in a suburban market – will be built.
Across the entire Bay Area, home prices appreciation averaged 7 percent so far this year when compared with the same period in 2015.
- Individual Bay Area communities fall into four categories when measured by year-to-date appreciation: normal, double-digit, heating up, and declining.
Markets that fall into each category include:
- Normal (up to 10 percent appreciation): The majority of markets fall into this category, including San Jose, Santa Rosa, and San Francisco. The median home price in these markets averages $940,000.
- Double-Digit (10 to 20 percent growth): These markets include Oakland, Hayward, and Petaluma. The median home price in these markets averages slightly above $500,000.
- Heated (20 to 40 percent appreciation): While no city-level appreciation exceeded 20 percent, some ZIP codes have seen these levels of appreciation, including those in Oakland, Berkeley, Cotati, Glen Ellen, Larkspur, St. Helena, and East Palo Alto.
- Slowing (6 percent depreciation to flat): Cities in which median price is lower than last year include Palo Alto, Tiburon, Menlo Park, and Lafayette. The median home price in these markets averages $1,700,000.
- Differences in home price appreciation were driven by affordability and access to public transit and jobs. The highest appreciation was seen in markets that are still relatively affordable. The slowest appreciation and depreciation was seen in relatively more expensive markets and those that lack easy accessibility to jobs.
- Cooling buyer sentiment is evident in almost all markets. Fewer homes are selling above asking price in 2016 across the Bay Area, particularly in San Francisco, San Mateo, and Santa Clara counties, and in higher price ranges. Premiums paid this year are also smaller in all counties.
- Overall Bay Area inventory has increased by 5 percent year to date when compared with last year, with San Francisco and San Mateo counties seeing the largest gains. The buildup in inventory levels is mostly seen among homes priced between $2 million and $3 million.
- Bay Area job growth will continue to outpace the number of homes built in 2017. The majority of new construction is concentrated in San Francisco, while no new supply is occurring outside of the city.
- The new supply is mostly in higher price segments, so even though the ratio of new employment to new permits may be falling, it does not reflect the true availability for the average worker.
- From 2017 to 2019, overall home prices will grow by 11 percent in Napa County; 9 percent in Sonoma County; 8 percent in Santa Clara County; 4 percentin Marin, San Francisco, and San Mateo counties; and 3 percent in Alameda and Contra Costa counties.
- The number of new San Francisco condominiums for sale has spiked in the second half of 2016 but will begin slowing over the next three years.