Four Reasons 2014 Could Be A Very Strong Year for Local Housing Market
Happy New Year! As we kick off 2014, it’s a good time to take a look at what might be in store for the local housing market in the coming year. While I don’t claim to have a crystal ball, I feel very optimistic about the potential for a strong housing market in 2014.
The Wall Street Journal reported this week that home prices across the country – but especially in Silicon Valley and other parts of the Bay Area – have zoomed back to near record territory. Valuations jumped 25% or more in some communities over the past year, nearing or even exceeding their pre-recession highs. Prices in Palo Alto are nearly 40% above their 2007 peak, one of the largest gains in a recent survey.
So what do we do for an encore in 2014? I see four major reasons why the Bay Area’s housing market will continue to be strong in the coming year:
1. A robust local economy. The Bay Area economy is one of the strongest in the country. Silicon Valley, the Peninsula and San Francisco are the high-tech, Internet, VC and social media centers of the world. CNNMoney’s tech job forecast for 2014 is “Hot and Getting Hotter.” Tech job site Dice.com reports that 55% more employers — a record high — say they’re ready to hire a large numbers of techies, up from 42% in the second half of 2013. These well-paid knowledge workers will provide an even stronger, better-capitalized pool of buyers for our housing market in the coming year. Just noted in USA Today, the bay area’s fourth largest city, Fremont, has seen a return to a strong housing market, and is regarded as one of the best run cities in the country. http://usat.ly/1crnbWi From the Wine Country in Sonoma, south to Carmel and Pebble Beach, and across to Livermore, we are fortunate to have healthy, diverse, and prosperous cities and towns in our nine Bay Area counties.
2. Supply and demand. While the demand side of the equation was extremely strong last year with buyers out in force, the supply continued to be historically low. This resulted in prices getting bid up in multiple-offer situations and many would-be buyers walking away empty-handed. No one knows for sure what will happen to inventory in the coming year, but our agents are telling us more listings are expected in the coming weeks. I suspect homeowners are reading the same news stories we are and seeing that prices have been shooting higher, and they may finally be ready to cash in. Rising prices also change the dynamics for many homeowners who had been underwater in their mortgage as recently as six months or a year ago and weren’t in a position to sell. With prices jumping, many of these homeowners now have positive equity once again and have the option of selling and walking away with cash for the first time in years.
3. Interest rates. Interest rates remain historically low, but make no mistake about it: They are moving higher once again. Some economists are forecasting mortgage rates could rise a full percentage point before the year is over. This is a clear wakeup call for those buyers who have been on the sidelines waiting for the perfect time to get into the market. The time is right now before mortgage rates move higher. An increase of just one percentage point on a $500,000 mortgage adds $300 to a monthly payment or $3,600 a year. Buyers know that and will be rushing to beat the next rate hike.
4. Increasing costs of renting. As the Bay Area economy comes roaring back from recession, available apartments are drawing long lines of potential tenants and rents are spiraling higher, according to a recent story in the San Francisco Chronicle. “Rents in San Francisco are escalating at breakneck clips this year, largely driven by an influx of tech workers. Oakland and San Jose likewise are seeing steep run-ups,” the article notes. Median asking rents for San Francisco apartments listed on http://www.livelovely.com hit a record $3,398 in the third quarter, up 21 percent from 2012, according to the Chron. Such huge rent increases continue to make buying a home a better financial proposition. My sense is that buyer demand will only increase in the new year as renters see their personal economy improving with a better job market and higher salaries.
Three of the four above are particularly unique to our Bay Area. Few cities around the US have this same alignment of economic conditions. NAR is predicting growth in the 5+% range across the nation in 2014 and I feel that number is conservative for us. Every one of our offices expect a strong first quarter as some new inventory comes to the marketplace.
Below is a market-by-market report from our local offices:
North Bay – Our Greenbrae manager says it has been dead quiet in the local offices, but expect activity to pick up considerably next week. In San Anselmo and San Rafael, it was a very quiet beginning on the new year with agents and clients finishing up their holiday time off. The Santa Rosa area Previews market ended the year with a balanced inventory of about 7 months of supply. This is much improved from December 2012 when there was 15 months of supply. The median sale price of properties priced over $1 million was down approximately 12 percent year over year although the median for sale price remains at approximately the same level. Overall, buyer activity is still robust in Sonoma County. Appropriately priced homes are still receiving multiple offers and overall inventory is at less than 2 months of supply. The number of for sale properties is down 15 % from last year and our local manager expects to continue to see inventory shortages for the foreseeable future, which will only further bolster the median sale price. Our agents are focused on helping sellers who are emboldened by the increases in sales prices to finally make the lifestyle choices they may have put off due to being stuck with an asset (their home) they felt was previously undervalued. In Sebastopol, open houses were lightly attended during the holiday with most agents reporting single digit visitor counts. New sales and listings have been almost no existent. Inventories throughout our county remain at record low numbers, however many agents report upcoming listings after the first of the year.
San Francisco – Although our Lakeside office manager says it has been holiday quiet over the past couple of weeks, there were opportunities for savvy buyers. One agent is in the process of helping his buyer negotiate a contract on a property that another buyer just decided not to buy. With everyone out of town or paying attention to the holidays, this will be an opportunity to acquire the property without multiple offers. It has also been a slow and quiet holiday week for our Lombard office, except for the sellers who wanted 2013 closings with their buyers , but unable to get loan docs out of vacationing bankers. Many buyers and sellers in the Market Street area are in full hibernation. Those rare sellers that ventured into the holiday market were rewarded with multiple offers (anywhere from 2 to 15 during this period). Our local manager is hoping for greater inventory in 2014.
SF Peninsula – It’s really just in holding pattern in the Burlingame area, gearing up for the early spring market. There are many fine listings being prepared right now, which bodes well for buyers who have been waiting for that special property. A few very smart buyers who have stayed on top of the market and waited patiently through many rounds of multiple offers were finally able to secure their home while the competition was focused on the holidays. Congrats to them and to the diligent agents who kept their eye on the market for the perfect property. It’s also been extremely quiet in the Menlo Park area, but agents are expecting buyers to re-enter the market soon to grab properties before prices go even higher in the new year. The same story is holding true in the Redwood City and San Carlos area – a quiet market and expectations for more listings in the weeks ahead.
East Bay – The Berkeley market slowed considerably over the holiday and pre-holiday weeks. There were almost no for sale signs in the city, although some buyers are making offers on what is available and getting into contract. The one million plus market has been selling well – usually quickly with multiple offers and generous over asking offers. It’s also been very quiet over the holidays for the Danville area with very little activity of any kind. Agents are looking forward to inventory coming on the market this month. The end of the year and so far the beginning of 2014 is showing a severe lack of inventory in the Oakland-Piedmont area. Buyers are willing to look at anything in order to get a home. It was a quiet last few weeks and agents are contacting potential sellers in order to have something to sell in the new year.
Silicon Valley – Not much going on in the Cupertino market with agents planning for the new year and recharging their batteries. One more sign of the scarce inventory level: the last two single-family homes for sale under $1 million in Los Gatos just went “pending,” meaning there are NO SFH homes under a million in that entire city. Amazing! It’s not much better in San Jose’s Almaden area, where there are only 11 active SFR listings for all of Almaden. In the Willow Glen neighborhood, listings rule the market with limited inventory and still strong buyer demand. Despite the slow holiday season, sellers are in the driver’s seat in the local market. Our Willow Glen office posted new sales during both the short Christmas week and the New Year week. As we open 2014 inventory will continue to be contracted with high buyer demand meaning sellers will see strong demand for all new listings coming to the market.
South County – Most South County agents seem very positive about all aspects of the market for the coming year. As the listing inventory was very low during the last quarter of 2013, there remains pent-up demand for homes in all price ranges. It would seem logical that those sellers who were waiting for the new year to sell their homes could demand “top dollar” should they decide to list. Along with this scenario of “supply and demand,” interest rates remain at an affordable level and the bay area’s economy continues to grow. In the South County (Morgan Hill and Gilroy) new construction is going strong and is always among those choices shown to prospective buyers.
Monterey Peninsula – The Peninsula had a very strong finish for 2013 with 5-7 closings per day for the last 7 business days. The price point is still from the entry level mid $300,000 to over $3 million. Agents have been reporting strong interest in existing listings and several agents plan to bring new listings on line next week through mid- January. They’re looking forward to a strong first quarter of 2014. Local trends still point to out of area buyers being very interested in the most desirable neighborhoods, such as Carmel and Pebble Beach. Next week agents will be announcing the initial phase of the last 90 vacant home sites available in Pebble Beach near Poppy Hills Golf Course. This is an opportunity for a few lucky buyers to design their dream estate within Pebble Beach.