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.


  • 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.


  • 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



San Francisco Real Estate Update- October 2015


The pace of single-family home sales in San Francisco has been remarkably consistent since the early summer, and in October, properties sold in an average of 28 days, one day faster than in September. The median sales price was up on both an annual and monthly basis, finishing the month at $1,295,000.

Competition for homes in the city remains intense, with the average single-family home selling for 110.4 percent of original price and the MSI falling to 1.5.


It has taken more than $1 million to buy a San Francisco condominium for most of this year, and that pattern held fast in October, with the median sales price at $1,111,500. Sellers took home an average of 108.4 percent of asking price, a bit less than in September.

As with single-family homes, the MSI for San Francisco condominiums dropped from the previous month to end October at 1.9. Properties sold in an average of 27 days, in line with what we observed earlier in the summer.


What a Tech Bubble Could Mean for San Francisco Real Estate Market

Should history repeat itself and the Bay Area’s mighty tech empire again come crumbling down, homes may lose some of their value, but long-term demand seems almost certain to persist.

A blog post examines the likelihood of a tech bubble and what effects its bursting might have on the housing market. While stopping short of saying that current economic conditions indicate a looming bubble, the article notes one unsettling similarity to the dot-com era: the proliferation of so-called “unicorns,” companies valued at at least $1 billion without the financial results to warrant it.

During the late 90s tech-industry meltdown, employment in Silicon Valley in the sector declined by 17 percent, and home prices dropped by 25 percent. Chief Economist Jonathan Smoke said that while a tech downturn would certainly impact Bay Area real estate prices, the silver lining could be relaxed demand and fewer bidding wars. But even if a tech bubble were to temporarily cause frenzied demand to ease, the Bay Area’s lack of housing inventory will always be a moderating factor.

Source: Pacific Union

(Photo: Flickr/Anthony Quintano)


San Francisco Leads World for Annual Luxury Home Price Gains

seacliff Sea Cliff, one of the premier San Francisco neighborhoods

Demand for high-end homes in San Francisco is driving up prices, so much so that they grew more than in any other luxury market around the globe.

Citing data from the most recent Knight Frank Prime Global Cities Index, CNN reports that high-end home prices in San Francisco grew by 14.3 percent over the past year, edging out Bangalore, India, for largest annual increase in the world. San Francisco was one of three U.S. regions to crack the top 10 for appreciation, along with Miami, where prices increased by 12.2 percent, and Los Angeles, where they grew by 8 percent.

The index echoes findings from Christie’s International Real Estate’s 2015 Luxury Defined report, which ranked San Francisco as the second hottest luxury real estate market in the world.




How did home sellers handle multiple offers situations?


San Francisco-the biggest share of Million-Dollar Listings in the nation



In some parts of the country 1 million dollars can buy  a huge mansion sitting on a lot of acreage. In others, 1 million can barely buy a starter home.

Nationwide, only 4.6% of homes are priced at $1 million and above. Largest concentration? Right here, in San Francisco. Our city might not have the same upper market price level as NYC or LA, but it sure has a high- end entry level market. According to Trulia,  43.5% of San Francisco listings are priced at $1 million and above. That means an average of 1,774 properties per year. Fairfield County, Connecticut ranks a distant second with  29.7%( 3,234) of homes listed over $1 million, while San Jose, Califiornia comes in third with 25.7% ( 2,161) of properties reaching the $ 1 million listing price or above.

The question is if the $1 million listings sell for the asking price or above.  Homes sold for over this amount made up 1% of total U.S. home sales for the past decade. Since mid-2013, the number  has risen to 2% of all sales, according to Sam Khater, deputy chief economist at CoreLogic, which specializes in mortgage and real estate information. It is expected that the number will continue to increase as long as the stock market is improving and the interest rates remain low.

Million-dollar listings are more common in the coastal cities and not so much in Midwest and South. San Francisco and San Jose are driven by a healthy tech economy, while Connecticut is a satelite of the NYC and has strong ties with the investment banking and trading community.
New York metro area comes in sixth place on Trulia’s list.

How much are the $ 1million listings are sellig in San Francisco? Well, as many of you know, most of the time they sell way over asking and with multiple offers.

By Alina Aeby
Sources: WSJ, Trulia

SF Single Family Homes value up

According to the S&P/Case-Shiller Home Price Index, single-family home values in the San Francisco MSA ticked up 0.5% from December 2013 to January 2014. Up 22.1% on a year-over-year basis, the San Francisco Index remains 16.9% below a May 2006 peak.

For the broader 10-City composite, home values were unchanged from December to January and are up 13.5% year-over-year but remain 20.4% below a June 2006 peak.

The Sun Belt showed the five highest monthly returns. Las Vegas was the leader with an increase of 1.1% followed by Miami at +0.7%. San Diego showed its best January performance of 0.6% since 2004. San Francisco and Tampa trailed closely at +0.5% and +0.4%. Elsewhere, New York and Washington D.C. stood out as they continued to improve and posted their highest year-over-year returns since 2006. Dallas and Denver are the only cities to have reached new record peaks while Detroit remains the only city with home prices below those of 14 years ago.

While home values ticked up for the top and bottom thirds of the San Francisco market, they slipped for the middle tier, the third consecutive decline for the middle of the market which hasn’t happened since the third quarter of 2011.

S&P/Case-Shiller Index San Francisco Price Tiers: January 2014 (

The bottom third (under $488,183 at the time of acquisition) gained 0.6% from December to January (up 32.8% YOY); the middle third dropped 0.5% from December to January (up 21.9% YOY); and the top third (over $788,312 at the time of acquisition) gained 1.0% from December to January, up 20.0% year-over-year.

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back above August 2003 levels (37% below an August 2006 peak); the middle third slipped back to August 2004 levels (18% below a May 2006 peak); and the top third is just below July 2005 levels and within 4% of an August 2007 peak.

Condo values in the San Francisco MSA slipped 0.3% from December to January 2014, the fourth month in a row without any gains. That being said, condo values are up 23.9% year-over-year and within 5.1% of their December 2005 peak.

S&P/Case-Shiller Condo Price Changes: January 2014 (

Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).



San Francisco has 3rd lowest unemployment rate in California



Marin County has the state’s lowest unemployment rate, followed by San Mateo County and San Francisco, the latest data show.

The unemployment rate was 4.7 percent in Marin County, 4.9 percent in San Mateo County and 5.3 percent in the City and County of San Francisco, the state’s Employment Development Department reported for the period ended January 2014.

Those numbers compare to a state unemployment rate of 8.5 percent.

Between January 2013 and January 2014, the total number of jobs in those three counties expanded by 37,000 jobs, or 3.6 percent.

The majority of the increase was spurred by professional and business services, which rose by 15,400 jobs.

Leisure and hospitality industries had a net gain of 5,000 jobs. The largest increase occurred in food services and bars. Private educational and health services grew by 4,900 jobs.

Construction increased by 4,100 jobs, recording the fastest year-over job growth rate of any of the major industry at 11.6 percent.

Trade, transportation and utilities added 3,900 jobs.

Source: San Francisco Business Times, Eric Young

Bay Area -highest housing prices in the nation in Q4, 2013



A pair of recent reports – one from the National Association of Realtors and another from a Southern California real estate consulting firm – recount an exceptional 2013 in Bay Area residential real estate and deliver an optimistic forecast for the coming year.

According to NAR’s recent fourth-quarter report, two Bay Area metropolitan areas led the country in terms of median sales price as 2013 drew to a close. The San Jose area had the highest median single-family home sales price in the U.S., at $775,000, while San Francisco ranked No. 2 at $682,400. Two of the other top five priciest housing markets were also in California.

San Jose and San Francisco both posted double-digit year-over-year price hikes, along with 40 other U.S. markets of the 164 included in the report. Prices grew by 15.0 percent in San Francisco and 13.1 percent in San Jose.

NAR chief economist Lawrence Yun said that slim inventory was responsible for the double-digit appreciation in many markets, adding that new home construction could help alleviate rising prices.

A short supply of available homes and vigorous price growth across Northern California also took center stage in the January 2014 Regional Analysis and Forecast published by John Burns Real Estate Consulting.

The report divides the country into 10 regions and ranks each based on a combination of five factors: job growth, resale transaction volume, resale supply, supply of unsold homes, and year-over-year price gains. As of January, the report puts Northern California as the No. 1 real estate market in America, up one position from the previous month.

According to the company, Northern California leads the country in smallest months’ supply of inventory for both resale and unsold homes: 1.9 and 0.6, respectively. Constrained inventory appears to have heavily affected home resale activity in the East Bay market, which the report says had the smallest resale volume in the country for the trailing twelve months ending November 2013.

Northern California was one of just three markets that the report believes is heading up, noting healthy price appreciation and employment growth as particular strengths.

Our overall region was tied for first place when measuring year-over-year home price growth, which the Burns report places at 20 percent. Additionally, the company ranks two Bay Area subregions within the top 10 in the country for year-over-year job growth: San Jose and San Francisco each added nearly 27,000 jobs over the past year, gains of 3.0 and 2.7 percent respectively.

Pacific Union blog

(Image: Flickr/German Poo-Caamano)

San Francisco’s waterfront future



Behind the development controversies now coming to a full boil on San Francisco’s waterfront is a question that city officials and voters alike need to step back and answer first, for it will help guide the decisions which follow. It’s a simple one, but it has profound implications for the future of this vital area:

Do we want the waterfront to be a part of urban, 21st Century San Francisco, or should it be something distinctly different and apart from it?

That’s really the fault line that runs down the middle of this debate. That’s what separates those who insist that the port should remain subject to restrictive development rules imposed in a different century under different circumstances, from those who want to see those rules loosened so that the waterfront can evolve in a similar manner to the rest of the city’s center.

Looked at in that way — how and whether this area fits into contemporary San Francisco — the waterfront doesn’t stand on its own. If the waterfront’s place in San Francisco needs to shift, it is because the city has changed over the last two decades: Dramatically and unexpectedly in many cases and, we’d argue, often for the better.

First, San Francisco’s longrunning war over tall buildings ended. The tall buildings won. Sure, there is still some occasional troglodytic grumbling about “Manhattanization.” But a simple glance at the skyline (and what is still to come in areas like Transbay) tells you that vertical is here to stay in San Francisco.

Second, and unexpectedly, was a renaissance in city living. From suburban empty nesters to hipsters to young families, two generations have rediscovered the appeal of urban life. This discovery has a lot to do with the crop of tall buildings — many of which hold residents rather than office workers, a change largely unforeseen in the 1990s.

Many of the other changes in San Francisco have flowed from those two. Walkability has become more important, and prized. The virtues of density are recognized, if not universally. Bars, restaurants and nightlife have flourished. Some perennially down-at-heel neighborhoods, like Mid-Market, have been lifted aloft on the upwind.

If San Francisco has changed so much, can it sensibly be argued that the waterfront should change as little as possible? We don’t think so. The waterfront proposals generating controversy — the Warriors arena, Pier 70, Seawall Lot 337 — may run well ahead of what planners of the 20th Century ordained for these areas. But they run in tandem with what is happening in today’s urban core.

This can and should be a healthy debate about the overarching future of the waterfront, an area that for decades was walled off from its neighbors by the Embarcadero Freeway and is still reintroducing itself. But it’s a debate that the no-change brigade is eager to derail before it starts — by forcing each and every decision to be treated separately,on its own, instead of as part of a larger whole. Under the ballot initiative for which signatures were submitted last week, every waterfront land use decision that conflicts with the 1990s-vintage vision of low-slung buildings primarily serving a vanishing maritime industry would require separate approval from the voters.

It’s not hard to see what’s behind this ruse: by robbing complicated planning questions of their necessary complexity and context, they hope to decide the future of the waterfront in a series of popularity polls.

But the ballot box is a poor means for sorting out technical, individual land use decisions. And “everybody votes on everything” is not a recipe for effective democracy. It’s a recipe for chaos, one that shields elected officials from having to make and defend hard decisions, and from being accountable for them.

San Francisco Business Times, Staff