Two New Reports Highlight California, Bay Area Housing Affordability Challenges

  • Seventy-five percent of the country’s 20 least-affordable real estate markets for first-time buyers are located in California.
  • Oakland and Berkeley are among the nation’s three least-affordable markets for first-time buyers.
  • Households earning the median income in Marin, San Francisco, and San Mateo counties cannot qualify for a mortgage in a single ZIP code.

The Golden State’s housing market is currently not particularly friendly to those looking to get a foot in the door, as it is home to the majority of the nation’s 10 least-affordable markets for first-time buyers. And here in the Bay Area, conditions are even more problematic for first-time buyers, as the median income won’t buy a home in any ZIP code in three local counties.

In an analysis of America’s 300 most and least affordable large, midsize, and small housing markets for first-time buyers, WalletHub found that 15 of the nation’s 20 least-affordable cities are located in California. The study ranks housing markets based on 23 criteria based on the broader categories of affordability, real estate conditions, and quality of life on a scale of zero to 100.

The East Bay is home to two of the nation’s three least affordable markets for first-time buyers. Berkeley narrowly ranks as the country’s second least-friendly market for first-time buyers behind Santa Barbara, with a score of 36.29. Oakland, which WalletHub gives a score of 37.48, followed in the No. 3 position, making it America’s least-affordable large city for those who have never purchased a home.

San Francisco is America’s sixth worst market for first-time buyers, with a total score of 39.01 and ranking dead last for the affordability metric. Other Bay Area cities with the dubious distinction of ranking in the 20 least affordable: San Mateo (No. 8), Daly City (No. 12), and Sunnyvale (No. 20).

Five California markets tied as the nation’s least affordable for first-time buyers: San Francisco, Glendale, Berkeley, Santa Monica, and Santa Barbara. San Jose, San Francisco, and Fremont tied New York and Honolulu for America’s highest total cost of living. Richmond, Vallejo, Sunnyvale, and Hayward all rank in the top five for highest median home price growth.

Although only about one-third of Golden State residents can afford the median-priced single-family home according to the most recent data from the California Association of Realtors, Freddie Mac’s Housing Affordability Index says that U.S. homes are still almost more affordable than they have ever been. One key reason for that is still historically low mortgage rates; the HAI bottomed out in the early 1980s, when mortgage rates peaked at nearly 19 percent.

Freddie Mac’s report features more sobering news for potential Bay Area homebuyers, particularly those who want to live close to thriving job centers. Buyers in Marin, San Francisco, and San Mateo counties can’t afford to qualify for a mortgage in a single ZIP code on the median household income. In Alameda and Contra Costa counties, the median income buys a home in only about 40 percent of ZIP codes.

More construction is key to solving California’s housing inventory shortages and affordability issues and keeping the state’s economy healthy, as The New York Times recently reported. San Francisco Sen. Scott Wiener sponsored a pro-development proposal that is expected to pass later this summer, though the state has rejected numerous such measures in the past.

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Real Estate Roundup: U.S., Bay Area Foreclosure Activity Drops Sharply in First Half of 2017

Here’s a look at recent news of interest to homebuyers, home sellers, and the home-curious.

Foreclosure activity continues to drop nationwide and here in the Bay Area, where rates are significantly lower than the national average.

ATTOM Data Solutions’ Midyear 2017 U.S. Foreclosure Market Report says that there were 428,400 foreclosure filings in the first six months of the year, down 20 percent on an annual basis. Foreclosures accounted for 0.32 percent of all homes, or one in every 311 properties.

Most Bay Area housing markets saw year-over-year foreclosure filings drop even more than the national average. In the San Jose metro area, activity dipped by 31.8 percent, with 0.11 of all properties in some state of foreclosure. Foreclosures filings dropped by 26.1 percent in San Francisco (to 0.15 percent of homes) and 19.6 percent in Santa Rosa (to 0.17 percent of properties).

Nationwide, foreclosure activity is below prerecession levels in 49 percent of housing markets, including Los Angeles and San Francisco.

California’s well-documented housing affordability problem is in the news once again, as one San Francisco lawmaker seeks to ease development restrictions before the high cost of living hurts the state’s thriving economy.

The New York Times reports that the California Senate passed a bill last month that would restrict communities from using zoning and environmental laws to impede development. Sponsored by Sen. Scott Wiener, the bill comes as California’s median home cost has risen to $500,000, twice the national average. In San Jose and San Francisco, home prices have increased by 75 percent over the last five years, forcing some residents into outlying communities and burdening them with staggering drives to and from the office.

“This is no longer a coastal, elite housing problem,” Wiener said. “This is a problem in big swaths of the state. It is damaging the economy. It is damaging the environment, as people get pushed into longer commutes.”

Democratic leaders expect the bill, one of 130 measures that have been proposed so far this year, to pass later in the summer. Still, California has been hesitant to pass development-friendly legislation in the past; last year, Gov. Jerry Brown’s proposal to force communities to build affordable housing failed due to opposition from environmentalists and homeowners threatened by the prospect of altered scenery.

One more reason for the Bay Area’s affordability crisis: The cost of renting has increased three times more than wages over the past five years.

Citing data from Silicon Valley Institute for Regional Studies, The Mercury News reports that wages in San Francisco, San Mateo, and Santa Clara counties increased by 2.8 per year percent between 2012 and 2016. During that same time period, the cost of renting a property grew by 9 percent per year. According to Zumper’s latest rent report, a one-bedroom unit in San Francisco rents for $3,450 per month as of early July — the most in the country — while a one-bedroom in No. 3 San Jose rents for $2,390.

The Mercury News article again highlights the Bay Area’s desperate need for additional housing construction. Between 2007 and 2017, the aforementioned three counties added 80,300 new residential units, almost 60,000 less than needed to keep up with the population growth spurred by the Bay Area’s high-octane economy.

Price appreciation is motivating more owners to invest in their homes, as remodeling spend has steadily improved over the past three years.

The Harvard Joint Center for Housing Studies’ Leading Indicator of Remodeling Activity says that U.S. home remodeling spend climbed to $304.8 billion in the second quarter of this year. The amount of money Americans spend on home remodeling has increased every quarter since the middle of 2014 and is expected to reach $324 billion by the second quarter of next year, though not all areas of the country are seeing equal activity.

“The remodeling market continues to benefit from a stronger housing market and, in particular, solid gains in house prices, which are encouraging owners to make larger investments in their homes,” Chris Herbert, managing director of JCHS said. “Yet, weak gains in home sales activity due to tight inventories in many parts of the country is constraining opportunities for more robust remodeling growth given that significant investments often occur around the time of a sale.”

(Photo: iStock/fstop123)

Sizing Up the Competition: How Many Offers Are You Betting Against?


Executive Summary:

  • Competition has increased again in Bay Area housing markets this summer, with 6 in 10 homes selling over the asking price.
  • In Alameda and San Mateo counties, 8 in 10 homes are selling over the asking price, generally speaking.
  • According to Pacific Union data, sellers in Alameda and Santa Clara counties received on average four offers per listing, while San Francisco and Contra Costa county sellers received an average of three offers. Other counties averaged two offers per home.
  • Homes priced below $2 million received three offers on average, while those priced above $3 million received two offers.
  • Staging a home helps increase buyer demand and brings at least one more offer than homes that are not staged.

Pacific Union’s recent second-quarter real estate reports showed that Bay Area housing markets are sizzling again, and buyers are facing tough competition. Overall in the Bay Area, 6 in 10 homes sold over the asking price in the second quarter, while in Alameda and San Mateo counties, almost 8 in 10 homes sold over the asking price. Naturally, some price ranges were in greater demand than others. For example, in the East Bay, competition increased for homes priced up to $2 million but cooled off for higher-priced homes.

Figure 1 illustrates the share of homes that sold over the asking price in the East Bay in June and the average premium obtained. Click here to see how bidding wars played out in other Bay Area regions.

Figure 1: Market competition in Pacific Union’s East Bay region

Knowing that Bay Area housing markets are competitive and that many buyers are making offers on a limited inventory of homes, we wondered how many offers are generally made on a home. To better understand market conditions, Pacific Union collects compelling transactional data. According to nearly 3,800 transactions in which Pacific Union professionals participated, Alameda and Santa Clara counties saw the highest average number of offers per listing in the first five months of 2017 — four. Figure 2 summarizes the average number of offers in each county and by price range. San Francisco and Contra Costa counties averaged three offers per listing. When looking at price ranges, lower price ranges remain in the most demand and generally received three offers, while listings priced above $2 million averaged two offers.

Nevertheless, Santa Clara County again stands out, with homes priced at $3 million and higher receiving six offers on average. About 4 percent of homes sold in 2017 in Santa Clara County were priced higher than $3 million.

Another highly competitive market segment are homes priced between $1 million and $2 million in Alameda County, where there were five offers on average per listing. Twenty-three percent of homes in Alameda County sold in that price range this year, which is an increase from 18 percent seen during the same period last year. Rapid price appreciation in some popular Alameda communities, along with continually declining inventory of lower-priced homes, is driving this increased demand.

Figure 2: Average number of offers in Bay Area counties by price range

Source: Pacific Union transaction questionnaire. Results based on 3,736 responses collected between Jan. 1, 2016 and May 31, 2017. Updated July 19, 2017.

Furthermore, as our recent analysis of the impact of staging on the time on market showed, homes that are staged sell quicker than those that are not. Similarly, Pacific Union data shows that staged homes also received more offers than those that were not. On average, staged homes received one more offer than those that were not. However, staging made the largest difference in Alameda County, where staged homes received five offers versus the average of three offers received for nonstaged homes. Figure 3 summarizes that average number of offers received for homes that were staged and those that were not. Across all Bay Area communities, data suggests that staging helps draw in buyers and boost competition.

Figure 3: Average number of offers on staged and nonstaged properties

Source: Pacific Union transaction questionnaire. Results based on 3,736 responses collected between Jan. 1, 2016 and May 31, 2017. Updated July 19, 2017.

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.

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Video: Pacific Union Market Pulse Q2 2017 – East Bay

This one-minute video offers a high-level overview of real estate activity in Pacific Union’s East Bay region in the second quarter of 2017.

Chinese Buyers Remain the Most Active International U.S. Real Estate Investors

  • Foreign buyers purchased $153 billion of U.S. real estate over the past year, a new record.
  • Buyers from China were again the most active, purchasing the largest number of homes and spending the most total money.
  • California remains the most popular U.S. location for homebuyers from China.

Foreign investment in the U.S. housing market surged over the past year, with California still a prime destination for overseas buyers, particularly those from China.

The National Association of Realtors’ 2017 Profile of International Activity in U.S. Real Estate survey, international homebuyers purchased $153 billion of residential property between April 2016 and March of 2017, a 49 percent gain from the previous year and a new high. Foreign buyers purchased a total of almost 285,000 homes in that time period, accounting for 10 percent of existing-home sales by dollar volume.

International buyers paid an average of $302,290 for an existing home, compared with the $235,792 spent by all buyers. Forty-four percent of foreign buyers paid for properties in all cash, down from 50 percent in the previous year’s survey.

The significant increase in international investment was driven by Canadian buyers, who purchased $19 billion of real estate, more than twice as much the year before. NAR Chief Economist Lawrence Yun attributed the spike in activity to the fact that home prices are rising faster in Canadian cities like Toronto and Vancouver than they are in the U.S.

For the third straight year, buyers from China were the most active investors, purchasing a total of 40,572 U.S. homes. The Chinese also spent the most by dollar volume: $31.7 billion, a new survey high. Chinese buyers paid an average of $781,801 for properties, more than those from Canada, India, Mexico, and the U.K.

Florida, California, and Texas were the three most popular destinations for foreign homebuyers, with the Golden State accounting for 12 percent of international purchases. Canadians gravitated toward Florida, while Chinese buyers showed a preference for California due to geography, cultural similarities, and thriving job markets. Thirty-seven percent of Chinese buyers purchased properties in California, more than twice as much as any other state.

Yun projects that foreign demand for U.S. real estate should remain robust given strengthening global economic conditions and the fact that the country is still seen as a safe, secure place to live and invest. However, he noted that tighter capital regulations in China and weakening currencies in Canada and the U.K. somewhat dampened activity in the early part of 2017.

(Photo: iStock/doortje69)

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California Homes Selling at the Fastest Pace in 13 Years

  • California single-family homes sold in an average of 22.4 days in June, while homes in the nine-county Bay Area sold in an average of 20.4 days.
  • The median sales price in the Bay Area rose to $908,740 in June, a year-over-year increase of 7.9 percent.
  • Home prices rose from June 2016 in all nine local counties. San Francisco, San Mateo, Marin, and Santa Clara counties are the only ones in California where the median sales price is higher than $1 million.

Stubbornly low inventory conditions motivated Golden State homebuyers to act quickly in June, while prices continued to rise statewide and in the Bay Area.

The latest home sales and price report from the California Association of Realtors says that single-family homes in the state sold in an average of 22.4 days in June, the fastest pace of sales recorded since May 2004. California home prices remain at their highest level in a decade, climbing to $555,150, an annual gain of 7.0 percent. According to CAR President Geoff McIntosh, the state’s inventory drought is the primary factor fueling the brisk pace of sales and price appreciation.

“With active listings 13.5 percent lower than last June, we’ve now experienced a full two years in which active listings have fallen on a year-over-year basis and the lowest inventory level this year,” he said. “Would-be sellers aren’t listing their homes as many of them would also face an inventory challenge if they were to turn around and buy another property.”

California’s monthly supply of inventory of single-family homes fell to 2.7 in June, down on both a monthly and yearly basis. The nine-county Bay Area continues to suffer from the state’s fewest number of homes for sale, with the MSI declining to 1.8. San Mateo, Santa Clara, Alameda, San Francisco, and Contra Costa counties have California’s most severe inventory shortages, all ending June with less than a two-month supply of homes on the market.

A limited number of homes on the market continues to drive Bay Area appreciation, with the median sales price for a single-family home at $908,740 in June, a year-over-year gain of 7.9 percent.  Home prices rose in all nine local counties from June 2016, ranging from 12.6 percent in Santa Clara County to 3.2 percent in Sonoma County. Five local counties have the state’s most expensive home prices: San Francisco ($1,469,000), San Mateo ($1,433,750), Marin ($1,272,500), Santa Clara ($1,182,500), and Alameda ($900,000).

Bay Area buyers needed to act in less than three weeks to score a home last month, with single-family homes in the region leaving the market in an average of 20.4 days. San Mateo County had the state’s fastest pace of sales, with properties selling in an average of 17.6 days, followed by Alameda (17.8 days) and Santa Clara (17.9 days) counties.

(Photo: iStock/LOUOATES)

Shared with permission from the Pacific Union Blog