Rising mortgage rates and skimpier tax benefits haven’t slowed Bay Area home prices yet, especially in Santa Clara County, where the median price surpassed $1 million for the first time last month.
For the nine-county region as a whole, the median price paid for a home or condo rose to $750,000 last month, up 5.6 percent from January and 12.5 percent from February 2017, CoreLogic reported Thursday.
The Bay Area’s “greatest strength is also your greatest weakness,” said Jordan Levine, senior economist with the California Association of Realtors. “You are firing on all cylinders, but the housing supply isn’t there. That’s what’s resulting in the high prices and the market conditions where (buyers) are having to move so quickly.”
The association predicted that the federal tax bill passed in December would curb demand for homes because some people would see their mortgage interest and property tax reductions reduced starting this year. Higher mortgage rates also were expected to reduce demand. Freddie Mac said Thursday that the average rate on a 30-year fixed-rate mortgage rose to 4.45 percent from 4.44 percent last week and 4.23 percent a year ago. Rates averaged less than 4 percent last year.
The rate increase hasn’t had an impact yet because it only started in mid-January and may have encouraged some buyers who were on the fence to jump in before rates go even higher, Levine said. And even though homeowners “don’t have as many of the tax advantages they used to have, California has such a chronically undersupplied market and heavy demand that there is still upward pressure on the market.”
Santa Clara County remained the region’s hottest spot. Its median price jumped to a record $1,080,000, up 12.5 percent from January and up a whopping 27.8 percent year over year. That marked the third straight month that prices in the heart of Silicon Valley rose more than 20 percent year over year. The county’s previous peak was $1 million in December.
The median price in San Francisco and San Mateo counties topped $1 million in November 2014 and May 2015, respectively, according to CoreLogic.
For existing single-family homes, the median days on market fell to just eight in Santa Clara County in February, the Realtors association reported this week. That compares with 21.1 days for the entire Bay Area and 26.1 days for the state.
The median days on market is the time between when a home is listed and when an offer is accepted. Eight days means that half of the homes sold in Santa Clara County last month were on the market for that amount of time or less.
That sounds hard to believe, but “I think eight days is inflated to be honest,” said Doug Goss, broker associate with Keller Williams Bay Area Estates in Los Gatos. For most homes in Santa Clara County, “We could sell them on day one. Most brokers will purposely hold off looking for offers” for five to seven days to generate multiple bids.
Typically, agents list a home midweek, have an open house for agents and another for the public over the weekend and set an offer deadline for Tuesday or Wednesday of the next week, said Sandy Jamison, a broker with Tuscana Properties in San Jose. “We review offers. They come in so strong we don’t even spend a day negotiating. We just pick one … usually the one with the highest price and very few if no contingencies.”
This month’s poster child for market insanity was 1062 Plymouth Drive in Sunnyvale. The 848-square-foot home was listed at $1.45 million and sold in two days for $2 million, said Kevin Swartz, a Realtor with the Sereno Group in Saratoga.
“It’s very rare that homes are taking longer than two weeks to sell,” Swartz said. “If it’s more than 14 days, you question if it’s overpriced or termswise there is something strange they are asking.”
Prices often spike in February and March and “mellow out through the summer,” Jamison said. That’s because buyers come out in force after the holidays, but sellers “aren’t quite ready to put their homes on the market. They start trickling out after the Super Bowl. Guys say, ‘Football’s over, now I can get out and work on the house,’” to prepare it for sale.
At the end of last year, there were only 271 homes and condos on the Multiple Listing Service in Santa Clara County. Now there are 659, which is still a smidgen for a county with nearly 2 million people.
“Our inventory is the lowest it’s ever been,” Jamison said.
The same is true in many parts of the Bay Area and other U.S. cities.
One reason demand exceeds supply is that new-home creation has not kept up with population growth and demographic changes. But the existing-home market is also not as fluid as it used to be.
Many people who bought entry-level homes in the Bay Area would love to move up, but are afraid to sell because they might not be able to buy another home, agents say. And many long-term Bay Area homeowners would like to downsize, but won’t for tax reasons. If their home is worth more than they paid and put into improvements, they’d generally owe capital gains tax on the amount that exceeds $500,000 (married) or $250,000 (single).
And their property taxes might go up, even if they buy a smaller house. In California, under Proposition 13, property is reassessed only when it changes hands, with certain exceptions. In between transfers, its assessed value can’t go up by more than 2 percent a year.
Many longtime homeowners are paying a fraction of what they would pay in property tax if they sold their house and bought another of equal or even lesser value in a different county.
California homeowners who are 55 or older get a once-in-a-lifetime chance to sell their primary residence and buy another of equal or lesser value and transfer the assessed value of their current home to the replacement house, thereby preventing a property tax increase. However, the new home must be in the same county or in one of 11 counties that accept transfers of property tax values.
More Net Worth
The California Realtors Association levied a $100 assessment on its members to finance a ballot initiative that would let homeowners 55 or older transfer their existing property tax to any California county an unlimited number of times. It also would let them transfer it to a more expensive home, although in this case the difference in market value between the old and new homes would be added to the property tax assessment. If they bought a less expensive home, their property tax base would actually be reduced.
The association expects to announce Monday that it has gathered enough signatures to qualify the Property Tax Fairness Initiative for the November ballot. If approved by voters, the law would take effect in January.
The Legislative Analyst’s Office estimated that in the first few years, the initiative would cut property taxes by a few hundred million dollars per year, split between schools and local governments. “Over time these losses would grow, likely reaching between $1 billion to a few billion dollars per year (in today’s dollars) in the long term,” it said.
Other Net Worth columns by Kathleen Pender: