Only time will tell if the summers’ slowing sales in California are a momentary pause or a sign of a permanent change in the market. According to the latest data provided by CoreLogic, home sales barely increased for July 2018 above July 2017, following two months of lower home sales. The slowing volume of sales does not, however, mean that housing prices have dropped.
In California, home prices are volatile from month to month, with July 2018 prices dropping 0.8% over June 2018. However, when compared year to year, prices are up, and July 2018 prices increased 6.7% from July 2017. Further data from CoreLogic shows “the state’s median sale price has risen year over year for 77 consecutive months, since March 2012,” although year over year median price increases has trended down in four out of the most recent five months.
Translation – although prices have increased in 2018 in California, for the first time in a long time they are not rising as much, and sales are slowing notably.
What’s Happening in the Bay Area?
In the San Francisco Bay Area, home prices increased 12.9% through the first six- months of 2018 compared to the same six months last year. At the same time prices were rising, the number of sales of homes and condos decreased in all six bay area counties in June, except for San Francisco itself. But in July, according to an article in the Silicon Valley Business Journal, “CoreLogic found that the median price of Bay Area homes sold in July was down 2.9 percent from the $875,000 median a month before.”
All bay area counties showed a decrease, except Napa which remained flat. Santa Clara County was down 3.3%, Marin County was down 5.2%, and San Francisco County was down 3.7%. The Silicon Valley Business Journal put it into perspective by pointing out “That still left July prices up 11.4 percent across the Bay Area from July 2017, led by the 17.1 percent year-over-year increase in Santa Clara County.”
Is it a Buyer’s Market?
It’s impossible to speculate if this is a turning point in the Bay Area real estate market or just an adjustment brought on by more significant changes that have occurred this year. One of those changes has been the 0.5%+ increase in mortgage rates which has restricted the affordability of homes. Without a correlating rise in wages, the market of buyers is impacted, in turn affecting the volume of sales.
Scattered throughout the Bay Area counties, real estate agents are telling stories of reducing list prices and extending numbers of days that homes are staying on the market before a sale occurs. It will take some months to see if this anecdotal evidence shows up in the data. If that happens, it will lend credence to a permanent change in the Bay Area real estate market.
However, according to Zillow, “More than three quarters (76 percent) of experts said they don’t expect national housing market conditions to shift toward a buyers market until 2020 or beyond.”
One factor that continues to keep the Bay Area a seller’s market is the strength of the local job market. Companies like Apple, Google, Facebook, and other tech giants show no signs of slowing their growth – nor in their hiring. This will continue to put pressure on the housing market in the Bay Area, where lack of inventory due to high demand has been the number one reason behind its astronomical price growth.
Steady job growth in areas with strict local land use regulations (such as the San Francisco Bay Area) has also been shown to impact housing prices. According to Zillow, “for every additional ten-percentage-point increase in employment, home values grew 24.9 percentage-points in metros with the most restrictive land use regulation. The same increase in jobs was associated with only 14.4 percentage-points more home value growth in moderately restrictive metros and 4.5 percentage points in the least restrictive metros.”
Ultimately, while the pace of price growth and sales may continue to slow, the lack of available inventory in combination and continued job growth in the Bay Area, where unemployment stands currently at 3.8%, will keep home values high.