Bay Area Real Estate Forecast: 2018 and Beyond

Pacific Union’s fourth annual Real Estate and Economic Forecast featured these key points:

  • The median home price in the Bay Area averaged 9 percent over 2016. These is no reason to believe this trend will not continue
  • Job growth remains strong although the increase in lower income groups is a negative for affordability
  • Proposed tax changes could reduce buyers’ deductions in the future, making it more expensive to buy
  • Proposed tax changes could also keep current homeowners from selling thereby limiting inventory even further
  • Home prices in Alameda and Contra Costa counties are projected to grow by 5 percent from 2018 to 2020

Analysts: Chances of Another Housing Bubble Are Low

As housing prices continue to climb to prerecession levels – 31 of the top markets in the U.S. -re ached that last year, the questions becomes: haven’t we seen this before?

According the recent reports from Freddie Mac and the answer is: No.

Analysts point out that current lending standards are much stricter than they were ten years ago when subprime rates and low documentation requirements were common.

In addition, Americans have sigificantly better credit scores than they did in 2006 and the job market remains stronger.

Sales of Homes Above $1 Million Remain Strong

Sales of homes priced between $1 million and $3 million in Contra Costa County have seen a 21 percent increase so far n 2017. As with other Bay Area counties competition remains fierce as strong demand and low inventory reamin the norm.

In September, more that half of Contra Costa County homes sold for more than the asking price, led by Pleasant Hill where two-thirds of the homes sold have been over the asking price.

Overall, median home prices in Contra Costa County markets have increased by 9 percent in 2017 and analysts expect the trend to continue over the next few years.

Bay Area Real Estate and Proposed Tax Changes

While hardly a done deal, the proposed tax changes in Congress would have a significant impact on first-time and Bay Area homebuyers.

  • Deductions for state and local income taxes would be eliminated
  • Mortgage deductions on new loans would be lowered to $500,000 down from $1 million
  • Deductions on second or vacation homes would be eliminated
  • Property tax deductions would be capped at $10,000

Of particular note is that limiting the mortgage to $500,000 would impact approximately 70 percent of Bay Area home sales. Buyers with a new mortgage of $1 million would stand to lose $20,000 in deductible mortgage interest in the first year alone.

U.S. Median Home Price Continues to Rise

The latest report from ATTOM Data Solutions says that the median home price in the United States n the third quarter was $248,000 – a record high and 3 percent above the peak set in 2005. Home prices in the United States rose 10 percent from the third quarter of 2016.

Home sellers in San Jose and San Francisco gained the greatest profit on their transactions at 80 and 71 percent respectively.

Nationwide, home sellers reaped profits of 31 percent, the highest figure in over 10 years.

Difficult Time for First-Time Homebuyers

Despite good mortgage rates and a strong job market first-time homebuyers are having a difficult time in the current market. According to the National Association of Realtors’ 2017 Profile of Home Buyers and Sellers the percentage of first-time homebuyers declined slightly in the last year to 34 percent.

Fist0time buyers made average down payments of 5 percent in the last year, down from 6 percent in 2016.

One of the biggest obstacles for first-time buyers is student debt. Over 40 percent of first-time home buyers have student loans, averaging $29,000.

Two-Thirds of California Homes For Sale Receiving Multiple Offers

The National Association of Realtors’ latest Pending Home Sales Index for September reports as home sales in California continue to drop, two-thirds of those home that are on the market are receiving multiple offers.

Home that sold over the asking price averaged an increase of 13 percent, up from 8 percent in 2016.

Pending home sales in the Bay Area declined by 10.8 percent, the 12th consecutive month of year-over-year decline

Once Again With Feeling: Bay Area Home Prices Up, Sales Down

The latest monthly home sales and price report from the California Association of Realtors says that the median single-family home price in the Bay Area was $852,230, up 11.5 percent year over year while home sales dropped 14.2 percent from August and 4.2 percent year over year.

Once again, tight inventory is responsible for the rise in prices and the decline in sales.

Active listings continued to fall by more than 10 percent every month and declined by 11.2 percent in September.

Millennials & Home Ownership

A recent article in Realty Biz News tries to explain why millennials have been slow to embrace home ownership. The four main reasons are:

  • High student debt – many millennials have student debt that far exceeds credit card debt and auto loans. They simply can’t afford to take on mortgage payments
  • Getting married later – home ownership is often associated with having a family and this is being postponed by many millennials who are often living independently or, more likely, with their parents
  • 20 percent down payment – simply out-of-reach for many
  • Living in cities – millennials feel a strong pull to the cities where rent and expenses are high, making saving for a home very difficult

Bay Area Housihg Forecast 2018

According to the California Association of Realtors’ 2018 housing market forecast Bay Area home can expect a 4.2 appreciation in 2018. This will, of course, continue to diminish affordability with approximately one-quarter of California households able to afford the median-priced home by the close of next year.

While home price appreciation will slow somewhat there is nothing to suggest that California’s low inventory will improve.

CAR expects the state’s unemployment rate to dip to 4.6 percent while mortgage rates will rise to 4.3 precent.