Check out Pacific Union’s comprehensive fourth-quarter report, which offers the latest regional and community-level real estate statistics for all of our Northern California regions, along with expert commentary from Chief Economist Selma Hepp.
Election Outcome and Rising Mortgage Rates Temporarily Slow Bay Area Home Sales
Home sales across the Bay Area declined more than usual in the final month of 2016. Pacific Union Chief Economist Selma Hepp takes a look behind the numbers in her latest analysis.
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Even with the uncertainties surrounding the incoming presidential administration, international investors remain almost unanimously confident in U.S. real estate, with San Francisco again ranking as one of the most popular global markets.
A survey by the Association of Foreign Investors in Real Estate found that 95 percent of international investors will maintain or increase their stakes in the U.S. in 2017. The U.S. ranks as the most stable and secure country for real estate investors by a large margin, as well as the country that provides the best opportunity for capital appreciation. Investors cited a strong American economy and transparency as key reasons for their confidence, and more than half believe that Brexit will positively affect the U.S. housing market.
Still, investors appear more cautious than they were at this time last year. Thirty-three percent of survey respondents said that their outlooks on the U.S. housing market had become more pessimistic compared with 8 percent who said the same last year.
“As uncertainty rises with a new government in Washington and interest rates that have risen dramatically, it is no surprise that investors have signaled a note of caution,” AFIRE CEO James A. Fetgatter said. “Previous, comfortable spreads between cap rates and interest rates have narrowed making the investment criteria more selective and difficult.”
For the seventh consecutive year, New York City ranks as the No. 1 U.S. city for international real estate investors. New York was also the most popular global city, followed by Berlin, London, and Los Angeles.
San Francisco as ranked fifth best city for real estate investors on a global scale, unchanged from last year’s survey. It also ranks as the fifth most popular U.S. city for real estate investors, slipping below Boston and Seattle.
As in last year’s survey, respondents were evenly split on the best type of properties in which to invest, with industrial and multifamily residential tied for the top spot. Office space moved up to the third spot, followed by retail and hotel.
Since the end of the recession, California’s economy has been one of the top performers in the U.S., buoyed by the robust home price appreciation recorded over the past half-dozen years.
A recent study by Expert Market ranks all 50 states’ economic performances between 2010 and 2015. The company uses six criteria to gauge economic prosperity: unemployment rates, gross domestic product growth, startup density, home value increases, a rise in new business owners, and household income gains.
Since the recovery began, unemployment has declined and household income has grown in every state. Forty-three states experienced GDP growth, 37 added more startup businesses, and 42 saw home values increase. Just 17 states experienced an uptick in the number of new entrepreneurs opening their own businesses, with the largest such gains in Hawaii.
The study ranks California No. 5 in the nation for overall economic performance, with the second-highest home value gains in the U.S. — 6.19 percent between 2010 and 2015. The Golden State’s per capita GDP growth (1.70 percent) and startup-density gains (1.16 percent) rank among the top 10 in the U.S., which Expert Marker Researcher and study author Bobbi Brant attributes to the many businesses that begin in Silicon Valley. Many of those startups appear to be the brainchildren of repeat business owners, as California places 36th for the rate of new entrepreneurs.
California didn’t rank particularly high for unemployment by Expert Market’s criteria, but the state’s jobless claims fell to 5.3 percent in November, the second time this year that they’ve reached a nine-year low. In a Dec. 21 analysis of California’s November job numbers, Pacific Union Chief Economist Selma Hepp puts the unemployment rate across the nine-county Bay Area at 3.7 percent, with San Mateo, Marin, San Francisco, and Santa Clara counties leading the state. As of November, the U.S. unemployment rate was 4.6 percent.
Expert Market says that California’s household income increased by 1.69 percent during that five-year period, 28th in the nation. Nevertheless, the Bay Area has some of the best-paying job markets in the nation. Hepp’s aforementioned analysis says that Santa Clara, San Francisco, and San Mateo counties rank among the top five in the U.S. for highest wages. Santa Clara is the nation’s highest-paying county with an average weekly wage of $2,252, almost twice the national average.
As 2016 draws to a close, demand for real estate across the U.S. and California shows few signs of letting up, with San Francisco retaining its title as America’s most sought-after market.
Realtor.com’s latest monthly analysis of the nation’s hottest real estate markets puts the U.S. median home price at $250,000, 9 percent higher year over year and a record for December. While home prices usually cool from November to December, they held steady this year, indicating higher than normal demand. Inventory conditions also reflect strong buyer demand — the year is set to close with record low supply levels.
Another factor in the mix is mortgage rates that have been steadily ticking up for the past two months. According to Freddie Mac, 30-year, fixed-rate mortgages rose to 4.30 percent for the week ended Dec. 22, a two-year high.
“Since the election, demand seems to have intensified — potentially as a reaction to mortgage rates moving suddenly higher,” Realtor.com Chief Economist Jonathan Smoke said in a statement accompanying the report. “The threat of rates approaching multiyear highs in the months ahead is creating a sense of urgency.”
California remains the epicenter of the country’s demand for real estate, landing 12 cities on the list of America’s 20 hottest markets. Realtor.com creates its rankings based on the most listing views on its website and the quickest pace of sales.
As in November, Bay Area cities took three of the top five spots on December’s hot list. The San Francisco metro area, which includes Oakland, once again landed in the No. 1 slot, with a median list price of $799,900. Vallejo held on to the No. 3 position, as homes listed for $412,300. San Jose moved up one spot from November to No. 4 and is the most expensive of any of the 20 hot markets, with a median list price of $866,900. Homes in all three of those cities sold significantly faster than the national average of 88 days — 49 days in San Francisco and San Jose and 57 days in Vallejo.
The Golden State’s other hot-list representatives in the final month of 2016: San Diego (No. 5), Stockton (No. 7), Sacramento (No. 9), Yuba City (No. 11), Santa Rosa (No. 12), Fresno (No. 13), Oxnard (No. 15), Los Angeles (No. 17), and Modesto (No. 20). Yuba City returned to December’s rankings after having dropped off earlier in the year.