JOB MARKET AND POPULATION GROWTH IN BAY AREA AFFECT HOUSING MARKET
Lack of inventory has been a leitmotiv in my monthly reports and been on the news for some time now. Let’s take a quick look at the economic infrastructure that continues to contribute to this housing shortage in the San Francisco Bay Area.
In a state whose overall economic growth is outpacing the nation’s, San Francisco’s booming labor market is standing out as one of the fastest growing not only within California but also in the U.S. thanks to the tremendous growth of the tech sector and our overall Bay Area local economy. According to a recent Los Angeles Times article, Bay Area incomes have risen 30 percent in the past five years. In the third quarter of 2014, nearly a fifth of all jobs added in California were in San Francisco, San Mateo and Marin counties, according to an economic overview released by City National Bank.
While the U.S. unemployment rate has fallen to 5.4 percent in April 2015, our Marin County Jobless Rate has plummeted to 3.5 percent.
As a result it comes as no surprise that, in a study recently released by the U.S. Census Bureau, the nine county Bay Area was identified as one of the biggest areas of population growth across the state from April 2010 until July 2014. A recent SFGate article reports that only Placer, Riverside, and San Diego counties saw the same percentage growth that the Bay Area did in the entire state.
More specifically, San Francisco County saw a 5.9 percent jump in population during that four year period, Santa Clara saw a 6.3 percent increase and Alameda County saw a 6.7 percent increase, tied with Placer County for the largest increase in the entire state. Marin County experienced a 3.3 percent increase and our population grew to 260,750 from 252,409.
Being a hotbed for job and population growth means increased demand for housing. Rents have skyrocketed, and together with the low interest rates we’ve been enjoying, have contributed to make buying very attractive. Sellers, however, have been reticent to sell and the imbalance between demand and supply has continued to grow. In addition to the economic boom, there are also many other reasons for Marin County’s housing inventory dearth, as I explained in a recent blog post. In any case, the pent up demand and scarcity of homes for sale in turn translates into a frenzied housing market with a multitude of buyers competing for the same properties.
THE WILD CARD: INTEREST RATES
Most buyers understand the urgency in purchasing before the current low interest rates increase and higher property values further erode their ability to purchase. But let’s take a close look at what low interest rates really mean for buyers, and sellers. See the charts below documenting how low rates have been for the past four years, interest rate projections and the impact of an increase in interest rates on purchasing power. (Charts courtesy of KeepingCurrentMatters.com)
Mortgage rates have been on a downward path since the start of 2014 and, for the last 7 months, rates have averaged less than four percent. During that period home prices have risen, but the good news is that falling mortgage rates trump rising home values. This is because mortgage rates do more to influence home affordability and purchasing power than home prices do. Click here to read more about the effect of low interest rates on purchasing power.
Now I don’t have a crystal ball and cannot pretend to know when interest rates will go up, but I do know they will in the not so distant future. Fannie Mae, Freddie Mac, the Mortgage Banker’s Association and the National Association of Realtors believe they will soon.
The US economy grew an anemic 0.2 percent during Q1 2015, far short of the expected 1 percent, as it was hampered by the strong dollar, another harsh winter, a labor dispute on the West Coast ports and mass layoffs from energy companies. After its last meeting, the Fed’s interest rate policy guidance was largely consistent with that from March. However, unlike in March, it did not rule out a rate hike at the next meeting. FoA rate hike in June is possible if employment and inflation move closer to Fed targets, but unlikely. The next policy meeting is in June, giving the Fed two additional months of data to sort through.
What would the effect of an increase be for Marin County buyers? On a standard $1 million home purchase, with a down payment of 20 percent and a mortgage of $800,000, a rate increase of 1 percent would result in a loss of purchasing power of 10 percent and a 13 percent increase in the monthly payment (principal and interest) of $468 from $3,705 to $4,173.
A word to the wise: For you, the battle-weary buyers who are wondering if you should wait until the market slows down a bit, and prospective buyers who are also doing some soul searching and questioning whether they should postpone a purchase until next year, think of the effect rising interest rates will have on your purchasing power if you do decide to wait. Keep in mind that while higher interest rates typically result in lower home values, the pent up demand is so high that the effect of the increase in interest rates is likely to be lesser than in a more balanced market.
MARIN MARKET SNAPSHOT
The Marin home sale market has been moving at a frenetic pace. Limited inventory has spurred bidding wars on properties that meet the needs of the buyer market. This month over 75 percent of Decker Bullock Sotheby’s International Realty listings sold at or over the asking price. About 25% of the listings sold and closed within 15 days. These have been aggressive offers generally with limited or no contingencies and cash or pre-approved financing with only appraisal contingencies. Of these quick-close sales, the average was 11 percent over asking with some at 25-28 percent above the list price and up to $455,000 over the asking price on a $2 million property!
Compared to April 2014, the number of active listings was down from 353 to 296, and 1,017 at the peak in 2007. The number of homes in contract was up from 222 in April 2014 to 255. The number of homes sold was down from 236 in April 2014 to 222.
HOME SALES BY AREA
Sales volume increased slightly month-over-month. Sales rose across the board for all areas in Marin excluding Belvedere, Corte Madera, Kentfield, San Anselmo and West Marin, which decreased slightly. Novato, San Rafael and Mill Valley continue to occupy the top three sales volume spots.
HOMES IN CONTRACT
San Anselmo and Corte Madera have claimed the top two spots for the highest percentage of Marin single family homes in contract for April. Belvedere, Corte Madera, Fairfax, Greenbrae, Larkspur, Ross and San Anselmo homes in contract increased month-over-month. As a point of reference, a market with 25 percent of its inventory of homes in contract is generally considered to be a balanced market.
MARIN MARKET BY PRICE POINT
Sustainable, healthy growth continues to trend in the Marin market in each of the price ranges described in the chart below, with the exception of the $7m-$10m price range. Both the under $1m and $1m-$2m price ranges saw a substantial increase in sales to 91 and 84 for the month of April. The $3m-$4m range for the month increased sales to 13 and the $4m-$5m range increased sales to 7. Marin market April sales by price point presented a 20.65 percent total increase month-over-month.
NUMBER OF HOMES LISTED AND SOLD
The number of Single Family Homes sold in April climbed compared to the previous month, but was slightly lower than last April’s. The number of homes available for sale declined from the previous month, and was lower than last April. The low inventory was due to a combination of the number of homes listed decreasing from the March level, and new inventory continuing to receive excellent buyer traffic throughout April, spurring strong competition among buyers and driving the sale price up. In most cases, there were multiple offers on homes listed in April and fewer days on the market.
AVERAGE SALE PRICE
The Average List Price significantly increased in April jumping up to $2,608,416 as the average sold price steadily increases month-over-month. As we near the summer season, we should continue to see demand for homes growing and average listed prices increasing due to that demand. Inventory remains steady but no overwhelming growth takes place in the Marin market in April.
If you are considering selling, let’s meet to discuss how the numbers above have affected your neighborhood’s values and strategize on how to prepare and price your home for maximum returns. If it’s time to buy, let me know so I can give you the inside scoop on each neighborhood that may be right for you.
About the Author: The above Marin County Real Estate Market Update for April 2015 was provided by Sylvie Zolezzi. I am an award winning Realtor specializing in luxury residential real estate in beautiful Marin County, just north of the Golden Gate Bridge.
I offer a wide range of innovative and comprehensive real estate solutions for buyers, sellers and investors, attracting clients who demand excellence—in marketing, negotiations, market knowledge—and a genuine concern for their needs. My association with Decker Bullock Sotheby’s International Realty allows me to provide a high-end luxury experience to all my clients at every single price point. It also empowers me to leverage the unique combination of Sotheby’s global resources, Decker Bullock Sotheby’s International Realty’s growing market share and local knowledge with my unmatched social media networks to provide highly personalized service and unmatched exposure to my clients’ properties locally and worldwide.
I would welcome the opportunity to show you how I consistently get outstanding Real Estate results for my clients. I can be reached via email at Sylvie@YourPieceOfMarin.com or by phone/text at 415.505.4789.