Executive Summary:
- Total sales in the eight Bay Area counties (excluding Solano County) were 10 percent higher than last November.
- Sales decreased by only 6 percent from October. The monthly decline in the last four years averaged 16 percent.
- San Francisco, Silicon Valley, and the East Bay saw the largest sales increases from a year ago, led by Santa Clara County.
- The luxury market picked up again, with sales of homes priced between $2 million and $3 million up 38 percent from last November and up 1 percent year to date.
- The median price for the aforementioned eight Bay Area counties was 8 percent higher from last November, with a more than 10 percent gain in Alameda and San Mateo counties.
- Competition heated up again in Silicon Valley, with more homes selling over the asking price than in October — especially luxury homes. In San Francisco, competition increased for homes priced below $2 million.
- Maintaining November’s momentum will prove challenging, as the inventory of affordable homes continues to decrease and mortgage rates are expected to increase more after the Federal Reserve’s December meeting.
- Almost 126,500, or about 5 percent fewer Bay Area households, will no longer be able to afford a $1 million mortgage if interest rates rise from 4 percent to 5 percent.
November home sales improved in the Bay Area, with total transactions 10 percent higher from one year ago and a smaller year-to-date decrease than seen in October. The annual increase is quite impressive, given the average 8 percent year-over-year drop in sales of single-family homes in the last three Novembers, according to data from the California Association of Realtors. Additionally, November sales decreased by only 6 percent from the month before, while the last four years of October-to-November monthly declines averaged 16 percent.
Regionally, the year-over-year increase was relatively more noticeable in some areas — particularly in San Francisco, Silicon Valley, and the East Bay. Marin County continued to lag, with no increase in sales from last November and the largest year-to-date decline in the Bay Area, at 7 percent. Napa and Sonoma counties remained relatively consistent with last year. Figure 1 summarizes the changes in year-over-year and year-to-date sales in Bay Area counties.
The annual change in sales by price category also took an interesting turn from previous months. The largest sales gain was for homes priced between $2 million and $3 million, up 38 percent from last November, followed by a 26 percent increase in homes priced between $1 million and $2 million. And while $1 million-to-$2 million homes have generally sold at a higher rate this year, the November increase in sales of $2 million-to-$3 million homes brings the total number of those sales almost 1 percent higher on an annual basis. Again, since the majority of that inventory is located in Santa Clara County, the November rebound there helped push up the numbers.
Figure 1: Year-over-year and year-to-date sales across Bay Area counties
Source: Terradatum, from data provided by local MLSes, Dec. 5, 2016
Median home prices, however, did not budge in November from the month before, with the total median price for the eight Bay Area counties remaining at $785,000. On an annual basis, the median price was up 8 percent for the region, although Alameda and San Mateo counties recorded more than 10 percent year-over-year appreciation. Napa, Marin, and San Francisco counties saw respective annual declines in home prices of 4 percent, 5 percent, and 1 percent. Napa’s median home price, however, peaked in November 2015, which is reflected in the decline.
Year to date, median home prices are higher in eight Bay Area counties, with Sonoma leading the appreciation rates. Figure 2 shows year-over-year and year-to-date changes in median prices across Bay Area counties.
Figure 2: Year-over-year and year-to-date changes in median prices across Bay Area counties
Source: Terradatum, from data provided by local MLSes, Dec. 5, 2016
Furthermore, relatively higher market activity in San Mateo County was also reflected in increased competition. While the share of listings selling over the asking price has continually declined this year across the entire Bay Area, November saw increased competition from the month before.
In San Mateo County, 62 percent, or 4 percentage points more homes, sold over the asking price than in October. Twenty-eight percent, or 10 percentage points more, sales of homes priced above $3 million sold over asking; 58 percent, or 7 percentage points more, of homes priced between $2 million and $3 million; and 68 percent, or 5 percentage points more, of homes between $1 million and $2 million.
San Francisco also saw increased competition, with more homes priced below $2 million selling over the asking price. On the other hand, no homes priced above $3 million sold over the asking price in Alameda and Contra Costa counties, a notable decline from 50 percent selling at premiums in October. In general, fewer homes sold over the asking price from last year across all price ranges, and premiums are lower from last year and from October. Figure 3 summarizes the percentage-point change in the share of listings selling over the asking price between October and November.
Figure 3: Percentage-point change in the share of listings selling over the asking price from October to November
Source: Terradatum, from data provided by local MLSes, Dec. 5, 2016
Lastly, can we expect the November sales pickup to maintain its momentum? The spike in activity was in large part due to increasing mortgage rates following the election and anticipation over further hikes — particularly in light of the belief that the Fed is going to raise interest rates at its December meeting. Buyers may continue to feel pressure to take advantage of current rates ahead of future increases.
A lack of homes for sale has been an ongoing issue for the last few years, and the November inventory numbers do not show any relief in sight. Total inventory for the eight Bay Area counties was 5 percent lower in November from a year ago, and larger declines of 10 percent and higher were seen in Napa, Sonoma, and Santa Clara counties. Some relief is evident in Alameda and Contra Costa counties, where inventory is up 2 percent overall, with the highest increases in the relatively affordable range of homes. Figure 4 illustrates changes in inventories by price group from last November.
Unfortunately, the most affordable inventory — homes in the sub-$1-million range — continued to decline by double digits and was 10 percent lower than last year. Higher-priced inventories are on average 6 percent higher. The lack of affordable inventory will play a critical role going forward, as the increase in mortgage rates will narrow the pool of eligible buyers who can afford homes. At Pacific Union’s recent third annual Real Estate and Economic Forecast, presented in partnership with John Burns Real Estate Consulting, an analysis showed that almost 126,500 additional households will not be able to afford a $1 million mortgage if interest rates increase from 4 percent to 5 percent. Another 121,150 households will drop off if mortgage rates reach 6 percent. Affordability will be the dominant constraint in the new era of higher mortgage rates.
Figure 4: November year-over-year change in the number of homes for sale
Source: Terradatum, from data provided by local MLSes, Dec. 5, 2016
Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include chief economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.