Market Update: April
California Home Sellers Want 2017 Prices,
but Buyers Are Patient in 2019
California housing markets are at a critical juncture at the beginning of 2019. After experiencing the tightest market conditions seen over the past three years in the first half of 2018, the number of homes sold in the Bay Area has continuously declined since mid-2018. In January 2019, the year-over-year decrease in home sales continued at double-digit-percent rates, with the three-month average decline in the Bay Area at 16 percent. In other words, over the last three months, about 700 fewer units sold on average per month than last year in the Bay Area.
The decline in sales activity comes amidst sustained economic strength, improved inventory levels, and more recently, stable mortgage rates. Nevertheless, it is clear that financial-market volatility, trade-war concerns, last year’s mortgage-rate jump, and the government shutdown have weighed on consumer sentiment and housing decisions.
Sellers have noticed the cooling buyer demand, which has led them to change their pricing expectations. But even with more price reductions, added inventory, and lower mortgage rates, buyers are not as confident as they were last spring.
So how will California housing markets fare in the spring of 2019?
To demonstrate the divide in seller and buyer behavior, Figure 1 illustrates Bay Area market dynamics over the last three years.
Figure 1: Home price reductions, sales changes, and median price changes in the Bay Area, June 2016 through January 2019
The black line in the chart above illustrates seller behavior by measuring the share of homes that sold for less than asking price. By contrast, the dark gray line illustrates buyer behavior by tracking the three-month moving year-over-year change in total units sold in the Bay Area. Lastly, the light gray line tracks year-over-year changes in the region’s median home price.
The percentage of homes that sold at reduced prices increased from 14 percent in June 2016 to 23 percent in November 2016. Buyer demand followed this trend, and the number of units sold increased by 6 percent from the previous year.
Coming into 2018, the Bay Area’s year-over-year median home price growth accelerated notably, reaching 19 percent in March. At the same time, price reductions fell to some of the lowest levels in three years, with only 7 percent of homes selling at a discount. Buyers were at their competitive peak in the early spring of 2018, pushing sales up by 4 percent year over year. As the chart shows, it appears that the spring of 2018 was the tightest housing market that the Bay Area has seen in the last three years.
For sellers, hanging on to 2017 pricing expectations will likely result in multiple reductions and increased time on the market, which itself may lead to sales prices that are below actual fair market value. In high-end markets, where homebuying decisions are more subjective than those based on affordability, buyers are focused on fully renovated homes that are priced at market value, as opposed to buying in anticipation of further price gains to rationalize their purchases.
In conclusion, while a dismal end to 2018 branded California housing markets with a big question mark in 2019, many conditions have shifted in favor of buyers: lower mortgage rates, slower price growth, more inventory, and less competition. If sellers rethink their expectations, the spring homebuying season could start strong.
Great New Restaurants Headed Our Way in 2019…
By David Weil
There are so many more great places to eat coming our way than the recently opened Shake Shack in Stanford Shopping Center. Not that there’s anything wrong with Shake Shack (I’ve heard good things), but some of the restaurants on this list sound amazing. I’m really looking forward to Verjus (528-555 Washington St.), an upscale wine bar and retail shop in Jackson Square (owners Michael and Lindsay Tusk shown at right). Routier, a full-service restaurant at 2801 California Street in SF also sounds worth a drive. The chef will be a Manresa vet, Michel Suas (Manresa is a fav). Here’s to some great eating in 2019 (one of the perks of living in our wonderful Bay Area)…
Real Costs to Maintain Your Home in California…
Some of the trends for home maintenance include:
- Atherton ranks as the most expensive city in California for home upkeep, an average of more than $27,000 per year.
- Costing nearly $1,800, replacing a swimming pool’s filtration system is the most expensive routine home-maintenance task, . Most pools require owners to do this every two years.
- California homeowners can expect to spend nearly $17,000 each year to maintain their properties, higher than the national average.
Almost all new homeowners have calculated their monthly mortgage payments, but fewer have likely factored in the cost of routine maintenance tasks.
An analysis by home-remodeling portal Porch breaks down home-maintenance costs by states and ZIP codes, as well as individual jobs. Though it’s commonly accepted wisdom that owners should expect to spend 1 percent of a home’s cost on maintenance each year, Porch determined that nationwide, Americans spend an average of $16,000 on home upkeep annually, assuming that the work is outsourced to professionals.
Not surprisingly, Golden State homeowners can expect to pay a bit more than the typical U.S. homeowner. Californians spend an average of $16,957 per year on home maintenance, the seventh most in the country and the highest of any Western state.
And anyone who has purchased home in the exclusive Silicon Valley community of Atherton — America’s most-expensive ZIP code as of last fall — can expect sticker shock when it comes to maintenance, too. There, the average homeowner spends an average of $27,242 each year on home upkeep, the most in California and the third-highest in the nation.
Los Angeles presents a study in contrasts when it comes to home-maintenance spend. The city’s 90077 neighborhood, which includes Bel Air, is not far behind Atherton, with owners paying an average of $26,474 each year on regular maintenance jobs. Close by in zip code 90073, owners spend less than half that, at $12,746 each year, the lowest in California.
On a final note, home shoppers considering a property with a swimming pool should take note of the amount of money it will take to keep it operational. Replacing a pool’s filter system is by far the most expensive maintenance chore, costing an average of $1,786 every 2.3 years. And cleaning a pool is the most frequently required maintenance task, which happens every 1.9 months, for an annual total of $649.