Housing Costs Stretch Bay Area’s Geographic Footprint

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Altamont Pass as seen from the San Joaquin Valley.

MORE THAN 600,000 LONG-DISTANCE COMMUTERS POUR INTO THE BAY AREA EACH DAY
The Bay Area’s roaring job market is attracting workers from all over Northern California, but an increasing number of them don’t live within the traditional nine-county region, largely due to housing-affordability issues.

Citing research from the Bay Area Council, The Mercury News reports that, on average, 602,000 vehicles enter and leave the nine-county region each weekday from what is called the “Northern California Megaregion.” Not including the Bay Area, this region includes six counties in the Sacramento area, three in the Northern San Joaquin Valley, and three in Monterey.

A quick look at housing costs and price growth goes a long way to explaining why so many workers endure such brutal daily commutes. The Bay Area’s 2015 median home value of $750,000 is three times more expensive than in San Joaquin, Stanislaus, and Merced counties combined. And while home values in San Francisco Countyhave increased 49.1 percent over the last 10 years, they decreased by 48.4 percent in Merced County over that same time period.

So what can be done to keep more of these workers off the road and ease Northern California’s worsening gridlock? The Bay Area Council recommends investing in public transportation, streamlining the housing-permit process in urban job centers, and growing employment in the Sacramento and San Joaquin Valley regions.

Source: Pacific Union blog

(Photo: Flickr/Michael Patrick)

Bay Area’s Cities – Nation’ Best Prepared for the Future

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Good news for Bay Area residents and homeowners who are in it for the long haul: Our region’s two largest cities have been named the nation’s most prepared to meet the challenges of the future.

That’s according to findings from a recent conference by Harvard University and computer giant Dell, which ranked the top 25 most future-ready cities in America based on three major economic criteria:  the ability to attract innovative citizens, businesses that thrive on collaboration, and infrastructure strength. Based on those factors, San Jose stands as the most future-prepared city in the U.S., ranking high for its job market, worker productivity, and wage growth. San Francisco ranks No. 2 for future-readiness, earning points for human capital, innovation, and investment.

San Jose and San Francisco also had some of the highest percentages of college-educated residents in the country, although the summit found that both trail other top future-ready cities in terms of infrastructure.

 

Source: Pacific Union blog

New Construction in San Francisco- 62,000 Housing Units On The Pipeline

San Francisco’s housing pipeline totals a record of 62,000 units now. This number includes  proposals for over 3,000 units that have been submitted to the City in the forth quarter of last year and 8,700 units which are already under construction and should be ready for occupancy within the next year or two.

In addition, there are another 12,900 net-units for which building permits have either been issued, approved or have been requested, which is double the number from the quarter before. 23,100 units are in projects that have been approved but not yet permitted. These are large, long term projects that may span decades, such as Candelstick, Treasure Island and Parkmerced.

Finally, there are proposals for another 17,900 units of housing being reviewed by the City’s Planning Department.

Out of the 62,000 new construction units, 8,900 will be Bellow the Market Rate ( BMR’s).

At the same time, demand for new construction condos in San Francisco has slowed and sone indexes suggest  year-over-year slight declines in value.

 

Source: SocketSite.com

San Francisco’ s Millennials Are the Nation’s Highest Taxed


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SAN FRANCISCO MILLENNIALS FACE HIGHEST TAX BURDEN IN U.S.
Bay Area millennials are already pessimistic about their housing options over the next few years, so news that they fork over more in taxes than their counterparts in any other area of the country is unlikely to come as any consolation.

In a recent analysis, SmartAsset found that although millennial workers in San Francisco earn the second-highest median annual wages in the country — almost $60,000 — they also have the highest effective tax rate, at 26.84 percent. The average San Francisco millennial pays just over $16,000 in taxes, including federal, state, and local fees. San Jose millennials have an effective tax rate of 22.91 percent, shelling out nearly $12,000 each year, 11thhighest in the U.S.

As SmartAsset points out, one key difference between millennials and previous generations is that the barrier to homeownership is greater than in the past. In 1980, 44 percent of adults under 35 owned a home, compared with 35 percent today.

 

Source: Pacific Union

(Photo: Flickr/Phillip Ingham)

 

To panic or not to panic? Bay Area Real Estate Market Analysis

  • The 2018 Pacific Union Real Estate Economic Forecast called for market “normalization,” with cumulative home price growth of 10 percent over the next three years. The market is still on track for this appreciation.
  • Stock-market volatility is primarily driven by oversupply of oil in the global markets. Volatility will persist a little longer until markets adjust.
  • China is doing just fine — still growing at over 6 percent, with jobs and incomes increasing steadily.
  • U.S. economic fundamentals are still strong, with exceptional job growth.
  • Consumers are happy, but businesses are concerned about the strong dollar.
  • In the San Francisco Bay Area, Pacific Union’s business is off to a good start, with prices 13 percent higher than last January and units sold up 16 percent
  • We are seeing higher activity in lower price ranges helped by low mortgage rates and job growth. Higher price segments may see some impact later this year if the stock market remains at today’s levels.

What Happened Since Pacific Union’s 2018 Real Estate Economic Forecast Last November

  • At the 2018 Pacific Union Real Estate Economic Forecast in November of last year, we talked about what’s to come in the next couple of years for Bay Area housing markets. One main theme that emerged was “normalization” of the technology growth in the Bay Area and its potential impact on home sales and price appreciation. The conclusion suggested that housing markets are expected to normalize, with home prices and sales continuing to grow at a steady but slower pace. Home prices are expected to grow about 10 percent cumulatively over the next three years.
  • Since the forecast in November 2015, financial-market volatility has sent shivers down our spines, leading to many questions about what’s to come.

What Is Causing the Stock-Market Volatility?

  • Most of the volatility in the financial markets is coming from falling oil prices. During the first three weeks of January, oil-futures prices declined 27 percent. Over the last two years, the price of a barrel fell from over $100 to $27. That’s pretty staggering! The main reason for the drop in oil prices is the oversupply of oil in the global market, as well as an oil-production boom in the U.S. In the chart below, the U.S. (the blue line) is now the largest producer of oil globally. Production of oil has increased to an all-time high, growing by over 1 million barrels of oil between July 2014 and July 2015.

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  • At the same time, the other oil-producing countries have not scaled down their production as a result of the oversupply, which is how they usually control prices. OPEC is in the process of vigorous negotiations over limiting production in an effort to stop oil prices from continuing to stumble. However, competition for influence and market share has grown fierce for OPEC countries, which is keeping their oil production elevated. Hence, the oversupply is expected to continue over the next few years, and markets will have to go through a period of adjustment.
  • However, there is something to be said about fast money and technological advancement, which have allowed investors to move monies instantaneously on any spook. For example, anticipation over higher Federal Reserve rates led those looking for a quick return to move their monies into banks in anticipation of higher rates. However, since the rates have not budged and have actually fallen, the money moved as quickly out of the banks. This is another cause of volatility.
  • As a result of this volatility and fears over poor economic results in emerging markets, demand for U.S. currency denomination (for example, treasuries) keeps growing, causing the dollar to strengthen. A strong dollar is bad for our trading partners and it further perpetuates slower growth abroad, which can in turn have a bad impact on the U.S. economy. The good news is that the U.S. dollar has begun to weaken slightly, which may help dispel some fears.

What’s Going on in China?

  • Some have argued that oil oversupply is due to a slowdown in demand for oil from China. However, Chinese consumption has been on a solid upward trend for several decades. And though the pace of annual increases has slowed in last couple of years, China continues to consume increasing amounts of oil. Keep in mind that China was going through a major industrialization process over that period, and it is natural that consumption would eventually slow as industrialization reaches a certain point. China is still growing strong though, at a staggering rate of 6 to 7 percent. Also, the main reason for the slowing of consumption of oil is that the Chinese economy is moving from mainly relying on construction and industrial growth to relying on service-industries growth. Chinese people are richer than they were before, and their consumer spending is showing positive signs, hence supporting the service-industries growth. Income and job growth are solidly moving upward.

Should We Be Worried?

  • Despite volatility, recent U.S. economic data points to continued growth ahead. Most importantly, job growth remains strong. The last jobs report showed the unemployment rate falling below 5 percent (considered full employment) and more people participating in the labor force. Also, people are working longer hours and are more likely to quit a job in pursuit of something better. This means that the pressure on wages that John Burns discussed at the November forecast is coming to fruition.
  • California continues to grow employment at one of the fastest paces in the country. With 60,400 jobs added in December, job growth in 2015 reached an amazing 459,400 net new positions. This marks the fourth year in a row that California has added more than 400,000 jobs and also marks the largest job gain of any state. The chart below shows the year-over-year changes in the tech sector, which is still growing at a healthy 5.2 percent.

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  • Business and consumers have different perspectives on the state of the economy, though. Consumer spending, which accounts for 70 percent of GDP, showed impressive numbers in January. Lower oil prices and lack of inflation are helping with retail sales growth and not just with the purchase of new automobiles. There are also signs of income growth, and mortgage rates continue to remain incredibly low. This is all good news for U.S. consumers.
  • Businesses, on the other hand, have been more concerned about the future. A strong dollar has not been helpful for U.S. businesses selling abroad. With less demand coming from overseas and volatility in the market, businesses are showing less confidence and anticipate slowing of job formation. However, it’s hard to draw any conclusions about the entire year ahead based on data that comes in January, and particularly if the winter was harsh in some parts of the country. Generally, many economic indicators are reported at the national level, yet indicators that have been disaggregated by regions of the country have shown the West outperforming other regions for several years now.
  • Housing is still a really bright spot in the economy, both locally and nationally.

Where Do We Stand in February 2016?

  • In the Bay Area, we continue to see some strong numbers for January. The California Association of Realtors’ January report showed single-family home prices for the region continuing to soar at double-digit rates year over year. Pacific Union real estate professionals report similar price increases, with average prices 13 percent higher among properties sold by our firm when compared with the same time last year. Sales of single-family homes have also shown advances, growing by almost 7 percent from last year, according to CAR. Pacific Union professionals have had a better year with sales and sold 15 percent more homes this January than last one. Also, many clients are facing delays related to new Consumer Financial Protection Board regulations, with sales being pushed to spring months.
  • Still, we cannot generalize across all price segments. Preliminary data shows that homes priced below $1.5 million are seeing much more activity than homes priced between $2 million and $5 million. Affordability remains the main concern in the Bay Area, and homes in the lower price range are being buoyed by very favorable mortgage interest rates.
  • In fact, what’s still giving everyone a headache is the lack of inventory. Pacific Union listings are down 9 percent for the first 50 days of this year. We are in the third year of extremely low inventory in the Bay Area, with markets like Santa Rosa showing less than half a month of supply. Pacific Union professionals, however, suggest that spring may open some doors, with more listings in sight. Data on single-family permitting also suggests that we may be seeing more homes available for sale in the East Bay and San Francisco, with both areas showing more than a 23 percent increase in permits in December from last year. New permits in San Jose are much slower to catch up and have only increased 5 percent during the same time.

What Are the Concerns?

  • At the 2015 forecast event, we also talked about “normalization” of IPO valuations and uncertainty of what will happen to increasingly unsubstantiated valuations. It is still very hard to predict where these “unicorns” are going to land. In other words, how much appetite will investors continue to have for “unicorns”?
  • We do know that the stock market is down about 10 percent from last year. While the volatility in the stock market will probably persist a little longer, making it very hard to predict where it will stabilize, some correction has been anticipated for a while. The problem for the Bay Area stems from the fact that the housing market is relatively more sensitive to the stock-market-wealth effects than in other area of the country (previous academic research by Richard Green from University of Southern California has confirmed this).
  • That means that if the stock market stabilizes at a lower level than last year, we may see some softness later this year. The softness will not be uniform across all price tiers, however, and will primarily impact sales in the range between $2 million and $5 million. Lower price ranges will continue to benefit from strong job growth, advantageous mortgage rates, and high demand among younger buyers in search for more affordable housing. Sales of homes priced above $5 million will also see a lesser impact, as the wealth among those buyers is more diversified and less reliant on the stock market’s movements.

All in all, we are off to a solid start for the housing market in the Bay Area. Stock-market volatility will persist for a little while longer, but economic fundamentals remain strong for the region. Barring some unexpected market surprises, we anticipate to remain on track for 10 percent cumulative appreciation over the next three years, which certainly aligns with the idea of “normalization” when compared to the past several years.

Source: Pacific Union

Written by: Selma Hepp, Pacific Union Economist

 

 

Bay Area Home Affordability Improves in the Forth Quarter

Housing affordability improved in the Bay Area and across California in the fourth quarter of 2015 — welcome news for homebuyers.

The California Association of Realtors said its fourth-quarter Housing Affordability Index reached 24 percent in the nine-county Bay Area, up two percentage points from the previous quarter and up three points from a year earlier. Statewide,  housing affordability stood at 30 percent — a gain of one percentage point from the third quarter but down one point from the fourth quarter of 2014.

The Housing Affordability Index tracks the percentage of homebuyers who can afford to purchase a median-priced, single-family home, and CAR credits the improved affordability to lower interest rates and level home prices.

Even with the rising numbers, however, homeownership remains out of reach for many more Californians and Bay Area residents than elsewhere in the United States. Nationwide, 58 percent of homebuyers could afford a median-priced home in their community.

In the Bay Area, housing affordability rose from the third to the fourth quarter in seven of nine counties. It stayed the same in one (Napa) and fell two percentage points in another (Marin).

Solano was the Bay Area’s most affordable county in the fourth quarter, with 45 percent of buyers able to afford a home there. It was followed by Contra Costa (37 percent), Sonoma (26 percent), Alameda (22 percent), and Napa (21 percent). The least affordable counties in the state that CAR tracks were San Francisco (11 percent), San Mateo (14 percent), Marin (17 percent), and Santa Clara (20 percent).

Homebuyers in the Bay Area needed to earn a minimum annual income of $147,080 to qualify for the purchase of a $735,170 median-priced, single-family home in the fourth quarter. The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,680, assuming a 20 percent down payment and an effective composite interest rate of 4.07 percent.

(Image: Flickr/Pictures of Money)

Source: Pacific Union

California Real Estate Market – Strong Start in 2016

Golden State real estate continued to command high demand in the inaugural month of 2016, with the Bay Area’s largest two cities once again ranked as the nation’s hottest.transamerica_sunset

That’s according to the latest analysis from Realtor.com, which determines the nation’s 20 most in-demand housing markets each month by calculating the number of listing views on its website along with the fewest days on market. As in December, California cities took more than half of those slots, including seven of the top 10.

As it has for most of the past six months, the San Francisco metro area ranked as the nation’s hottest real estate market in January, with a median list price of $716,000 and homes selling in an average of 51 days. San Jose followed in the No. 2 position, where homes listed for $854,000 and left the market in 50 days.

Homes in these two Bay Area cities sold twice as fast as the national average of 100 days and were more than three times more expensive than the U.S. median list price of $227,000. Slower sales are typical in January, though Realtor.com says that it expects activity to pick up heading into the spring season.

“Our traffic, searches and listing views exhibited the January ‘pop’ we saw last year, which made for a strong spring,” Realtor.com Chief Economist Jonathan Smoke said in a statement accompanying the report. “In addition, a large number of prospective buyers have been telling us since the second half of 2015 that they plan to purchase in the spring and summer of 2016.”

Vallejo ranks as the country’s No. 4 hottest housing market, down one spot from December. Other California cities named among the nation’s top 20: San Diego (No. 5), Sacramento (No. 6), Stockton (No. 8), Los Angeles (No. 10), Santa Rosa (No. 11), Oxnard (No. 12), Yuba City (No. 14), Modesto (No. 14), and Santa Cruz (No. 18). Eleven of those 12 cities made the hot list in December, with Santa Cruz returning to the mix in January.

Realtor.com predicts that Florida could challenge California this year as the nation’s top warm-weather housing market, but as of January, just two cities in that state — Palm Bay and Tampa — were named among the nation’s most sought-after.

(Photo: Flickr/Joe Parks)

Source: Pacific Union

U.S Home Sales Projected to Reach Decade High in 2016

U.S. home sales should climb in 2016 to levels we haven’t seen since the last housing boom — with millennials leading the charge — as continued economic prosperity appears to be on the horizon.cb

In its 2016 Housing Forecast, Realtor.com projects that new and existing home sales will reach 6 million in 2016, the highest level since 2006. According to the report, home starts will see a 12 percent annual uptick, while sales of new homes will grow by 16 percent year over year. Home price appreciation will moderate to 3 percent next year, which Realtor.com Chief Economist Jonathan Smoke says signifies that the housing market is normalizing.

Millennials — defined here as those ages 25-34 — are expected to make up the largest percentage of homebuyers in 2016, spurred on in part by growing incomes. Generation Y buyers are most concerned with neighborhood safety and home-construction quality, and they also want a reasonable commute.

Having rebounded from the recession, Gen Xers on the younger side of the spectrum (ages 35-44) will account for the second-largest pool of buyers. Two-thirds of this demographic are move-up buyers and will be trading up for a larger property or a nicer neighborhood.

Older Americans ages 65-74, the third-largest projected buyer demographic, will look to do the exact opposite, selling their spacious homes for smaller, newly constructed ones. These homeowners are expected to put their properties on the market in March or April and will place an emphasis on customization when searching for their next home.

Realtor.com predicts the U.S. economy’s health to hold in 2016, with the GDP increasing by 2.5 percent, up from 2.1 percent growth in 2015. Unemployment will decline from 5 percent at the end of 2015 to 4.8 percent by the end of 2016, while the number of jobs created — 2.5 million — will remain roughly unchanged. The forecast warns that tougher access to credit and rising home prices could ultimately stifle demand for housing and temper the benefits of the thriving economy.

(Photo: Flickr/Sean Creamer)

Source: Pacific Union

Credit Restrictions to Ease in the New Year/Longer Timeframes for Real Estate Transactions

Mortgage lenders expect to further relax credit standards in the coming year, which could help some first-time buyers who have been shut out of the market finally get a foot in the door.

Fannie Mae’s fourth-quarter 2015 Mortgage Lender Sentiment Survey found that 16 percent of lenders plan to ease credits standards for GSE-eligible loans in the next three months compared with 2 percent that expect to tighten them. In a statement accompanying the report, Fannie Mae Senior Vice President and Chief Economist Doug Duncan noted that loosening standards could spur an uptick in first-timer buyers, who have been hampered by limited inventory, rising mortgage rates, and home prices that are growing faster than incomes.

“Thoughtful easing will help mitigate some of the affordability decline moving into 2016,” he said.

On the other hand, new mortgage regulations implemented by the Consumer Financial Protection Bureau are responsible for longer closing periods and for the substantial November drop in U.S. existing-home sales, which fell to their lowest level in a year and a half.

According to a report from the National Association of Realtors, there were 4.76 million existing-home sales in November, a decline of 10.5 percent from October and the fewest since April 2014. NAR Chief Economist Lawrence Yun explained that because signed sales contract have remained steady over the past few months, the decrease may be more of aberration as the industry adapts to the new mortgage regulations.  Nearly half of all respondents to a NAR survey reported longer closing time frames in November compared with 37 percent in the previous month.

“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” Yun said. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”

 

 

Source: Pacific Union Blog

 

Supply-Demand Imbalance and Low Mortgage Rates Drive California Home Price Growth


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Rising demand for real estate and shrinking supply have caused San Francisco to become one of the most expensive places to live in the U.S. since the beginning of the decade, while falling mortgage rates have boosted purchasing power.

According to an analysis by John Burns Real Estate Consulting, home price growth has outpaced income growth by 70 percent in the San Francisco metro area since 2001, the second highest rate in the country, behind Los Angeles. That figure includes the 44 percent benefit homebuyers have obtained from low mortgage rates, which have dropped from 7.2 percent in June 2001 to 3.97 percent for the week ended Dec. 17.

The analysis points out that California homeowners have benefited the most from the imbalance between supply and demand. Six of the nine U.S. housing markets where JBREC says that “home prices have risen faster than can be explained” are located in the Golden State, including San Jose, where they have outpaced incomes by 53 percent over the past 14 years.

Source: Pacific Union blog

(Image: Flickr/FutUndBeidl)