Lack of Home Supply Slows Down Sales, Not Financial Volatility

Lack of Home Supply Slows Down Sales, Not Financial Volatility

The last few weeks of the stock market’s wild swings has alerted many about a potential recession. Pacific Union’s economist, Selma Hepp, examines January’s housing market activity in the Bay Area, addresses recent financial market volatility and how it may affect real estate markets. I’ve provided a short summary of the article’s main points below, coupled with South Beach sales activity. If you want to read the entire report, click here.

  • Homes priced above $3 million slowed again, but not in San Francisco and Marin County.
  • Sonoma and Napa counties saw higher year-over-year activity in January, continuing the post-wildfire pattern.
  • Inventory levels continue to trend down, with overall supply down 20 percent from last January and declines seen across all price ranges.
  • Median home prices continue to climb, with overall appreciation in the Bay Area up 12 percent from last January.
  • Despite financial market volatility, the U.S. economy remains strong, with projected 2018 growth the best in a decade.

The graph below provides a compelling summary of average sales price growth in South Beach over the past 10 years, and it also highlights the annual seasonality of home price changes. Each dip occurs in December/January. At the end of 2017 into the beginning of this year, prices continued to hover at pricing comparable to 2015, which is when the highest peaks in South Beach pricing occurred. In Q4 2017’s report, we discussed a shortage of inventory drove up the average sales price in South Beach. Pricing is appreciating at a slower pace and properties are staying on the market for longer.

Click here to view graph on mobile.

With most markets posting fewer home sales, the trend is still being driven by large declines in sales of homes priced below $1 million. Otherwise, particularly for homes priced between $2 million and $3 million, which rose by 43 percent. This continues a trend that was seen throughout 2017. Silicon Valley generally saw growth in the $1 million to $3 million range, while San Francisco and Marin counties benefited from sales of homes priced above $2 million. Overall, the Bay Area’s median price was up by 12 percent from last January. With a median price of $910,350 in November 2017, Bay Area home prices reached yet another historic peak.

The risk of a recession has not increased, and economic fundamentals are solid. However, the problem with market volatility as seen over the last week is the impact it has on business and consumer confidence, which can then precipitate into a pullback in demand. Stock-market volatility is not a reflection of the economy, which is still projected to grow at the fastest pace in more than a decade this year. Most economists predict that the U.S. gross domestic product will rise by 2.8 percent in 2018 and that the unemployment rate will fall further below 4 percent.  Faster inflation could prompt higher interest rates than previously expected, which means that borrowing would become more expensive for U.S. companies and consumers.

Nevertheless, we anticipate stronger economic growth in 2018. Thus, the solid U.S. jobs report that was released on Friday, Feb. 2, which prompted the financial market volatility, was in line with expectations. The same day, Janet Yellen, on her last day as the Federal Reserve chair, said in a CBS interview that she believed that the stock market has been high in recent months and was concerned about high asset valuations, particularly in commercial real estate. She went on to say that ‘”If there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

Want to read the entire article? Click here.


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Do you want to know the price of condo residences in your building? We are offering you our comprehensive 2017 sales report for our neighborhood’s highrise residences. Fill out the form below the print version or view online at SFCONDOMARKETREPORT.COM









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