Real Estate Economic Forecast to 2020

Pacific Union held its fourth annual Real Estate and Economic Forecast in partnership with John Burns Real Estate Consulting to project Bay Area activity through 2020. Below are some key, high-level takeaways from the live event. To watch the full one-hour presentation, click here

    •       Mortgage rates are projected to grow by about 80 basis points by 2020, increasing annually at about a 20 basis-point pace

    •       Employment growth remains steady and there is no evidence of a foreseeable tech correction.

    •       Proposed tax changes could significantly reduce future buyers’ deductions, making it more expensive to own a home. Also, the proposed changes could further disincentivize current homeowners from selling, thus exacerbating the region’s inventory shortage.

    •        This year saw more strong home price growth in California. Across the entire Bay Area, the median home price increase averaged 9 percent year to date through September.

    •       An analysis of individual Bay Area communities shows that there is continual variation in home price fluctuation, which is driven by local market conditions and relates to prices in neighboring communities but most importantly is tied to jobs and income growth.

    •       Affordability and access to transportation and jobs continue to drive differences in home price appreciation. The highest appreciation was seen in markets where job growth with higher-income jobs led the local economy. 

    •       When analyzing how the landscape has changed from last year, the main differentiator is intensified buyer competition in almost all markets. More homes are again selling above asking price in 2017 across the Bay Area — particularly in San Francisco, San Mateo, and Santa Clara counties — and in higher price ranges. Premiums paid this year are also higher in all counties.

    •       Overall, Bay Area inventory has continually dropped in 2017, with year-to-date supply down 14%. Santa Clara County has seen the largest inventory decline this year, down by 25%, while Alameda County has seen the smallest supply drop, with 5% less inventory year to date. Furthermore, while the inventory of homes priced higher than $2 million saw some improvement earlier in 2017, year-over-year changes now show declines.

    •       Lake Tahoe’s housing market has benefited from wealth creation in the Bay Area, and sales of homes priced above $3 million jumped by 141 percent year over year in the third quarter.

    •       From 2018 to 2020, home prices are projected to grow by 12% in Napa County; 12% in Sonoma County; 2% in Santa Clara County; 2% in Marin, San Francisco, and San Mateo counties; and 5% in Alameda and Contra Costa counties.

   •       Lastly, the panel agreed that price trajectories are more likely to resemble a tabletop compared with the mountain peak that occurred following the housing bust in 2006, where the tabletop suggests moderating price growth through 2020. Nevertheless, unexpected changes to housing supply and demand or job and income growth would destabilize the housing market and lead to a different outcome. 

In segmenting the markets by median home price changes, we use four categories: normal, double-digit, slowing, and heated.

Normal (up to 10% appreciation): Similar to last year, most Bay Area markets fall into this category, and median prices average about $761,000. These were generally more affordable markets, and no San Mateo County city falls into this category. Among cities with normal appreciation, an average of 56% of homes sold for more than asking price for an average 6 percent premium.

Double-Digit (10% to 20% growth): Unlike last year, double-digit percent median price growth was seen in many San Mateo County and Santa Clara County cities. Median prices averaged about $1.15 million. Many of these markets lost steam last year, but Silicon Valley’s strong job market helped prop them up. Buyer competition also increased, with 67% of homes selling for more than asking price for an average 9 percent premium.

Heated (20% to 40% appreciation): This year, two cities in Marin County — Sausalito and Tiburon — saw median price growth of more than 20%, a respective 22% and 28%. Overall, the median price in ZIP codes with the highest growth rates was $1.16 million, unlike last year, when the median price in heated markets averaged $800,000. Two ZIP codes that were heated last year continued at the same price growth rate: 94610 in Oakland and 94303 in Palo Alto. In Sonoma County, two of the fire-impacted cities, Glen Ellen and Kenwood, have also seen strong price growth in 2017.

Slowing (22 percent depreciation to flat): Although fewer cities saw slowing prices this year than last year, these are again relatively more expensive markets where the median home price averaged $1,900,000. Still, about 43 percent of homes in these areas sold for more than asking price, for an average 8% premium.