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Despite a record streak of higher real estate prices, some economists believe homes in certain Bay Area communities should be considered a bargain. And that’s even with median price tags easily topping a million bucks.

An analysis of historic and current income and housing trends by real estate data firm CoreLogic found the pricey markets in San Mateo, San Francisco and Marin counties are, by some measures, under-valued.

The analysis, which considered disposable income, home values and past real estate market experience, also found the San Jose and Oakland metro areas priced about right by historic standards.

It’s good news for homeowners but sobering for prospective home buyers looking to purchase in some of the country’s most expensive counties, including San Mateo (median home sale price in June, $1.36 million), San Francisco ($1.4 million), Marin ($1.2 million), Santa Clara ($1.13 million), Alameda ($865,000) and Contra Costa ($660,000).

“It’s expensive here. I wouldn’t really say San Mateo County is under-valued,” said Jeff LaMont, a Coldwell Banker broker in San Mateo. Still, he added, Bay Area homes have soared in value since 2012 and have proved a good, historical investment.

The steady climb of Bay Area sales prices hit a plateau this year, with home prices slumping in core Silicon Valley cities in Santa Clara County. Regional home sale prices fell 2.3 percent from the previous June, according to CoreLogic, to a still-whopping median of $855,000.

Despite one indicator suggesting part of the region is undervalued, would-be buyers have been delaying or giving up on the market. Home sales in June hit their lowest level for the month since 2008, according to CoreLogic.

The San Jose metro area is one of the least affordable regions to purchase a home, according to a recent report by Clever Real Estate.  A buyer needs about 10 years worth of  the region’s median annual income to afford the typical home, nearly five times as much as it took in the 1960s.

San Francisco and the East Bay are slightly more affordable, requiring about 9 times the median income to afford a home, according to the analysis of census and real estate data. The median family income in the Bay Area is around $100,000 per household.

The typical U.S. homeowner spends about 3.5 times their annual salary on a home.

The CoreLogic market analysis is based on historical, per capita disposable income and real estate data. The report compares the price of homes and incomes from 1976 to 2003 with current real estate and income data. The analysis considers markets over-valued if they are priced at least 10 percent above long-term levels that are supported by disposable income and other factors. Markets are considered under-valued if they are priced at least 10 percent below historic, sustainable levels.

Although Bay Area home prices are among the highest in the nation, the region’s median income — fueled by growth and high-paying tech and professional jobs — has meant San Mateo County households are spending a smaller percentage of their disposable income on housing, according to the report.

A company spokeswoman said the analysis, called the market condition indicators, is a useful tool, but not the whole picture of a housing market. Other factors, including how expensive it is to rent versus buying a home, tell a more complete story about an individual market, she said in an email.

CoreLogic analyzed the country’s top 100 metro areas in June, and rated 38 as over-valued, 24 as undervalued, and 38 at a normal value.

Several popular escapes for Bay Area ex-pats — including Las Vegas, Denver, and the Washington, D.C. metro — are seen as overvalued. Los Angeles is considered a normal market, with prices in line with historical spending.

CoreLogic economists see Bay Area home values staying strong for the next five years. They forecast the San Jose area to remain at normal values, while expecting Oakland and the East Bay to be over-valued. San Francisco and San Mateo counties should dip back into the normal range, the analysts say. Marin is expected to stay under-valued.

Penelope Huang, a broker with Golden Gate Sotheby’s in Menlo Park, said it’s difficult to make a sweeping judgment about a county as diverse as San Mateo, which includes blue-collar communities in East Palo Alto and wealthy enclaves in Hillsborough.

“I’m not buying it,” said Huang, a 30-year veteran of Bay Area real estate. “It’s such a wide swath of different types of housing, you can’t make that generalization.”

LaMont said relative bargains can be found in some neighborhoods of Pacifica, Daly City and Redwood City. First-time buyers can find condominiums under $1 million — which counts as a deal. “Nothing is cheap here,” he said.

“Under-valued? No. Over-valued? No,” LaMont added. “I think it’s spot on.”

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Article source: https://www.eastbaytimes.com/2019/08/15/is-bay-area-real-estate-a-bargain-in-some-places-maybe/

Key highlights from this article:

• Real estate markets across California have begun to cool down in 2019.
• Home-price appreciation has slowed over the past 12 – 18 months.
• Home prices in many cities could plateau, or even drop, in 2020.
• And yes, the Silicon Valley real estate market is crashing.

A few years ago, California cities were popping up on rankings of the “hottest” housing markets in the country. But that was then, and this is now.

In 2019, a lot of real estate markets across the state have cooled considerably. Home-price appreciation has slowed, and even reversed in some cities. Price reductions are more common. And homes are sitting on the market longer.

Some forecasts for California real estate markets predict a continuation of these trends, going into 2020. For the first time in a long while, home buyers need to ask themselves some hard questions: “Is it a good time to buy a home in California? Or should I take a wait-and-see approach?”

Let’s take a look at what is happening statewide, and then drill down to some of the metro-area real estate markets in California.

California Real Estate Market Cooling in 2019

According to a recent report from the California Association of REALTORS® (C.A.R.), home sales in the state “fell below the benchmark 400,000 level in June as sales declined from both the previous month and year.”

In July, the state’s Legislative Analyst’s Office pointed to this trend as well, noting that California home sales dropped in June 2019 compared to the same month last year.

“Nonetheless, sales remain relatively weak, but not as weak as is typically seen before economic downturns,” the report stated.

We can also see evidence of a cooling trend within the California housing market by looking at home prices. According to the latest data published by Zillow, the statewide median home value rose by just 1.3% over the past year or so. That is significantly less than the 5% – 6% annual gains of a few years ago.

The company’s research team also issued a forecast for the California real estate market stretching into 2020. And it doesn’t inspire a lot of confidence. In July 2019, they wrote:

“California home values have gone up 1.3% over the past year and Zillow predicts they will fall -0.1% within the next year.”

Granted, home prices in California (and much of the U.S.) were rising unusually fast for a while there. That was part of a market “correction” that followed the housing crash and Great Recession. So it’s only natural to see a slowdown in price growth. Call it a return to normalcy, if you like.

Still, home buyers in some California real estate markets should pause for reflection. The cold, hard truth is that now might not be a good time to buy in some cities across the state.

If you purchase a house in a market where prices are falling steadily — and there are plenty of those at present — you are buying a depreciating asset. And that’s rarely a wise investment.

San Diego: Will Home Prices Flatline in 2020?

Home prices in San Diego rose by around 1.8% over the past year or so. Zillow’s economists predicted smaller gains over the next 12 months, issuing a forecast for just 0.5% price growth.

Of course, that’s just a forecast. We should treat it as an educated guess. But it’s not surprising. The San Diego real estate market was overheated for several years in a row, posting above-average home price gains. That kind of “fast and furious” growth is usually followed by a cooling period.

Which begs the question: Will 2020 be a good time to buy a home in San Diego? Or will declining house prices give buyers a reason to hesitate?

Like most major cities in California, the San Diego real estate market has clearly cooled down over the past couple of years. And this trend could continue into 2020 as well.

But this market has two things going for it that could continue to put upward pressure on home prices — population growth and tight inventory.

As of later summer 2019, the San Diego real estate market was still experiencing a shortage of supply. In short, there aren’t enough homes available for sale to satisfy the collective demand from buyers in the area.

Meanwhile, the metro area’s population continues to rise. According to the U.S. Census Bureau, the population of San Diego County grew by 8% from April 2010 to July 2018. The nation as a whole grew by 6% during that same eight-year period. Population growth tends to increase demand for housing, on both the rental and purchase side.

With limited inventory and steady demand, it seems likely that home prices in San Diego will continue to inch upward for the foreseeable future. But that’s far from certain.

Los Angeles: Inventory Growth Gives Buyers More Options

The Los Angeles real estate market also appears to be slowing a bit, in terms of sales and home-price growth. It too received a modest forecast from the team at Zillow. (Again, just an educated guess.)

In July 2019, the company wrote: “Los Angeles home values have gone up 2.0% over the past year and Zillow predicts they will rise 0.5% within the next year.”

As of late summer, the median house price in L.A. was nearing $700,000. That’s within the city itself. In the broader Los Angeles-Long Beach-Anaheim metro area, the median value was around $650,000 as of July 2019.

Inventory growth is the big story within this real estate market. And it might have something to do with the relatively modest forecast issued by Zillow.

According to a report published by Douglas Elliman Real Estate, housing inventory in the greater Los Angles area increased significantly during the second quarter of 2019 (compared to a year earlier).

To quote that report:

“With lower [home] sales levels, listing inventory expanded year over year for five consecutive quarters as well as cooling the pace of the market. Months of supply, the number of months to sell all listing inventory at the current rate of sales, increased 33.3% to 6.4 months.”

Inventory rose in nearly all parts of the metro area, and for all property types (condos, detached homes, etc.).

Historically, large inventory gains lead to smaller home-price growth down the road. With more properties to choose from, buyers don’t have to compete so fiercely with one another. There’s less urgency, and less reason to make aggressive offers. This tends to ease the upward pressure on home prices.

San Jose: A Housing Market in Decline

We’ve written a lot about the San Jose real estate market lately. It’s a story marked by extremes. Extreme competition. Extreme growth. Extreme prices.

A few years ago, home values in San Jose, California were climbing faster than nearly every other city in the country. The median price for this housing market shot above the $1 million mark and seemed to have no ceiling in sight. Until it hit one.

Home prices in San Jose leveled off in late 2018, and began to drop steadily in early 2019. Now the questions is, how far will they fall? When will this housing market hit bottom? And that’s a hard question to answer as of summer 2019.

The median home value for San Jose dropped by -7% over the past year, according to Zillow. Looking forward, the company predicts “they will fall -8.0% within the next year.” That forecast was issued in July 2019, and therefore extends into the summer of 2020.

It’s hard to make a case for buying a home in the San Jose area right now — or anywhere in Silicon Valley, for that matter. The market is volatile right now, and home prices probably have farther to fall.

San Francisco: An Exception to the Rule?

San Francisco’s real estate market is unique in its physical constraints. There’s hardly anywhere to build in the city, given its historical and geographical nature.

As a result, homes located within the city tend to hold their value well — even at times when surrounding real estate markets are in decline.

According to a recent report from C.A.R., median sale prices declined in eight of the nine Bay Area counties in June, compared to a year earlier. The one exception was San Francisco County, which experienced a gain of 8.8% from June 2018 to June 2019.

Home sales, on the other hand, dropped significantly within San Francisco County during that 12-month period. So even though prices are still moving north, the market appears to be cooling in terms of overall activity.

Disclaimers: This story contains California real estate forecasts and predictions issued by third parties not associated with the Home Buying Institute. We have included them here as an educational service to our readers. Such forecasts are the equivalent of an educated guess and should be treated as such. HBI makes no claims or assertions about future housing conditions.

Article source: http://www.homebuyinginstitute.com/news/california-housing-markets-cooling/

Despite today’s high tech salaries, two-income households, and a swelling economy, the current generation of Bay Area residents spends much more of their income to buy a house compared to their parents and grandparents.

The typical Bay Area home buyer in the 1960s paid about twice the median annual income for a house, while home hunters today pay nearly nine times the median annual income, according to a new study by Clever Real Estate. The region’s median annual household income is roughly $100,000.

San Jose is the least affordable metro in the U.S. to buy a home, requiring nearly 10 times the median income to buy the typical house, according to the real estate company’s study of household income and housing costs. The East Bay and San Francisco demand nearly 9 times the median salary for a home — far above the recommended 2.6 price-to-income ratio.

“It’s a crazy disparity in some parts of the country,” said Thomas O’Shaughnessy, head of research at the St. Louis-based discount real estate website. Although affordability has declined in most major cities, he said, “it’s really the most noticeable in San Francisco and San Jose.”

The Bay Area housing market has already raced into record territory this decade with an unprecedented, seven-year run of increasing home prices.

Median home prices have leveled off this year in most of the nine-county region since hitting a peak of $928,00 in May 2018, according to real estate data firm CoreLogic. Home sales have also slowed, although more units have come on the market in recent months.

Real estate agents say prices may be soaring past the budgets of most would-be home buyers. Affordability remains elusive for many potential home buyers unable to save nearly $200,000 for a down payment on a median-priced Bay Area house, and then pay $4,500 in monthly mortgage, taxes and insurance.

Steve Levy, director of the Center for Continuing Study of the California Economy, said the region had always been expensive, but the recent, dramatic increases in housing and real estate prices have pushed up the cost of living. Restaurants, dry cleaners, barbers and other service providers are pressured to raise prices as their rents go up.

A person can’t order and get a haircut online, Levy noted.

The national picture also has gotten bleaker for prospective homeowners since their parents and grandparents generations, according to Clever Real Estate’s analysis of census and home data. Since 1960, median home prices in the U.S. adjusted for inflation have increased 121 percent, while rents have grown 72 percent. At the same time, U.S. median household income has grown 29 percent, according to the study.

In 1960, a typical U.S. family needed two years of income to pay for a home, a price-to-income ratio of 2 to 1. Today, the ratio is about 3.6 to 1.

Just a handful of cities across the country meet the affordability guideline of a price about 2.6 times annual income, mostly in the Rust Belt and Midwest. Two Ohio cities, Toledo and Dayton, were among the most affordable spots, along with Scranton, Pa., Syracuse, N.Y., and Wichita, Kan., according to the study.

Eight of the ten least affordable cities were in California, including Los Angeles, San Diego, Sacramento and Oxnard. The typical home buyer in San Bernardino, spends a greater percentage of income on a home than a buyer in New York City.

Elliot Eisenberg, partner economist at MLS Listings, said the combination of high costs for land and materials, shortage of labor and the state’s difficult regulatory environment have choked new homes and apartments from being built.  “These are failed markets,” he said. “This is truly a housing market that’s a complete wreck.”

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Article source: https://www.mercurynews.com/2019/07/29/bay-area-housing-its-even-harder-than-you-thought-to-buy/

Earlier this month, UCLA’s Anderson School of Management and law firm Allen Matkins released their most recent survey of California developers and found that those with a stake in building housing are feeling gun shy about the Bay Area.

The report, titled a “Commercial Real Estate Survey” but focusing on multi-family home development as well as office and retail, surveys “supply-side participants”—i.e., commercial developers and financiers of commercial development—about the immediate future.

For the most part, the news is fairly sunny, but there’s one dark cloud hovering right over the bay:

• In general, the forecast is positive across California, even defying recession fears: “The positive prediction for 2022 development leapfrogs UCLA Anderson Forecast’s prediction of a very weak economy through 2020 to its prediction of faster growth thereafter. The results indicate, that although construction activity is expected to slow down over the next 18 months, developers are already gearing up for the next CRE expansionary cycle.”
• The Bay Area, however, is the big exception: “For all three markets—the East Bay, San Francisco, and Silicon Valley—developers think that 2022 will see worse economics than 2019.”
• Production of multi-family homes specifically is expected to decline: “In the last six months, Bay Area developers have pulled back on new development, and half of the panelists stated that they were not planning to start a new development in the next 12 months.”
• Souther California is considered a brighter prospect: Of the six regions cited, developers felt mostly optimistic about LA, Orange County, and San Diego, but downbeat specifically about SF, the East Bay, and Silicon Valley, with Silicon Valley retaining the lowest degree of confidence. In general, those surveyed were less optimistic about nearly every market compared to last year, but markedly less so in SoCal than the Bay.
• The survey authors cite market fluctuations as one potential explanation for this caution: “Home prices are falling in the Bay Area and the inventory of homes listed for sale has grown.” The idea that home prices are falling in any major sense in the Bay Area is likely an exaggeration; however, it’s true in isolated cases that suggest the market is much weaker than in the past five or six years. According to the California Association of Realtors, the median price for a Bay Area home—multi-family and single-family included—declined 3.1 percent year over year in July to $950K.
• They also speculate rent control talk might be the culprit: “As the most expensive rental market in California, [the Bay Area] is the most likely to be impacted by the growing movement towards rent control.” Gov. Gavin Newsom recently backed SF-based Assemblymember David Chiu’s rent cap bill AB 1482, but that law would sunset in just three years and still allows annual rent hikes up to 10 percent in most cities, so development that begins now is unlikely to be troubled by it. LA-based AIDS Healthcare Foundation wants to put a more aggressive rent control measure on the ballot in 2020, but the most recent previous bid to expand rent control failed with voters.

Notably, the forecast doesn’t mention the spiraling cost of construction in the Bay Area as a potential mitigating factor.

According to the San Francisco Planning Department, SF has nearly 73,000 new units “in the pipeline,” but only 8,500 of those are under construction.

Article source: https://sf.curbed.com/2019/8/19/20812750/ucla-anderson-allen-matkins-commercial-survey-housing-san-francisco-bay-area

Adam Singer is tired of San Francisco.

The former Google marketing manager said that after living in the Bay Area for over a decade, he’s had enough of the astronomical home prices and the city not making progress to improve living conditions.

In a tweetstorm last Wednesday, Singer aired his hang-ups with San Francisco and announced that after a trip to Austin, he and his wife (and their rescue dog, Dash the Dingo) would be moving to Texas’ capital, increasingly known for its hot startup scene as much as its barbecue.

“So Austin suburbs are beautiful. Houses really reasonably priced. Easy ride to the city. Great food and music scene nearby. What’s the catch,” Singer tweeted, adding: “For same price of your SF rental you can afford basically as much house as you want here. Crazy.”

Singer said he recently purchased land in Austin and would work with a local design center to construct his home.

Read more: 11 facts about San Francisco’s housing market that will make you glad you live somewhere else

With housing prices in the San Francisco Bay Area continuing to reach record highs, many like Singer are questioning whether it’s worth it to live in the region at all. In a survey of Bay Area residents in February, 44% said they were likely to leave within the next few years. They cited high housing prices as the top reason they were feeling pressure to move.

Another report by the real-estate company Compass found just how costly it can be to buy a home in the San Francisco Bay Area. Including mortgage payments, taxes, and insurance, owning a median-priced home in the Bay Area costs about $8,500 per month — and in order to afford that kind of monthly expense, a person would need to earn more than $340,000 per year, the report said.

The former Googler told Business Insider in an interview this week that after two years of house-hunting across the Bay Area, he became all too frustrated seeing the type of homes he could actually afford.

“I’m not paying $2 million to live in some boomer’s starter home next to a strip mall,” Singer said of certain houses he looked at south of San Francisco, near San Jose.

In Austin, Singer said, he was able to find “gorgeous” homes for under half a million dollars.

‘A Nimby state’

The former Googler put much of the blame for San Francisco’s housing prices on city officials who don’t want to increase the number of condos and apartments in the area. Other cities, such as Austin and Seattle, Singer said, have been able to keep housing prices from reaching untouchable rates because they’ve been willing to develop.

“People think supply-and-demand economics don’t exist as soon as you get into the Bay Area,” Singer said. “It’s not a thing here.”

Singer also pointed the finger at longtime San Francisco residents who bought their homes years before prices spiked. Those owners are cashing on the demand from renters, Singer said, and thus have little incentive to advocate for the city to increase its supply of homes.

“For the people who already own here, I think they quietly don’t give a f—,” Singer said. “They have theirs. Whether they want to admit it or not, this is a Nimby state. What they will accomplish — they will squeeze out the middle of San Francisco.” (Nimby, an acronym for “not in my backyard,” is often used to describe opposition to development in a particular area.)

On top of the extravagant housing costs, the Bay Area faces major problems like how to best support its homeless population and provide adequate transportation options for residents, Singer said. He also said he sees much of what initially appealed to him about San Francisco — like local cafes and restaurants — being displaced by trendy restaurants with “$500 prix fixe menus.”

Good weather and FOMO

So why are some San Franciscans still choosing to stick around?

Singer said he thinks that, besides the weather, some people, especially those in tech, stay in the Bay Area because of FOMO, or fear of missing out. The thought, he said, is that if you’re not in San Francisco, you won’t have the chance to work for top tech companies like Uber or Pinterest or Google.

That might be true for those just starting their careers, said Singer, who now works as a digital marketing lead at the biotech company Invitae. But for someone who has worked at a company for at least a couple of years and has proved to be a “linchpin” for their team, it’s unlikely that the company wouldn’t let them work remotely, Singer said.

“The unwritten rule at any given mega-corp is if you’re a talented individual contributor they will let you work from wherever you want,” Singer said. “It is not posted on their website. They will not admit that to you ever. But I’ve never seen that not be true at any big company.”

As for the reaction to his Austin relocation, Singer told us that none of his friends or family were all too shocked.

“The biggest reaction is ‘Why did you stay in San Francisco so long?’ from all my non-San Francisco friends,” Singer said. “None of my San Francisco or Bay Area friends were surprised. They’re like, ‘It’s totally reasonable to leave.’ No one’s fighting to keep me here.”

Article source: https://www.businessinsider.com/former-googler-leaves-bay-area-buys-land-austin-texas-2019-8