Real Estate Analysis and Commentary

The Bay Area, infamous for high home prices and stiff competition for housing, is unique in California’s housing landscape. Of course, it’s relatively expensive and difficult to be a homebuyer almost anywhere in California, but these complications are multiplied exponentially in the Bay Area, leading to what many have deemed a housing crisis.

But have high home prices and competition finally reached their tipping point? Signs across the Bay Area point to: yes.

The Bay Area’s housing market is cooling in more ways than one, according to a recent Trulia report.

The average days on market has increased across the Bay Area in 2018. This increase has been most significant in the:

• Napa neighborhoods:
  • Springwood Estates, from 57 days on market in 2017 to 79 days in 2018;
  • Fuller Park, from 66 days on market in 2017 to 83 days in 2018;
  • Westwood, from 44 days on market in 2017 to 55 days in 2018;
• San Francisco neighborhoods:
  • Russian Hill, from 45 days on market in 2017 to 56 days in 2018;
  • Telegraph Hill, from 46 days on market in 2017 to 57 days in 2018;
• Richmond neighborhoods:
  • Hilltop Green, from 49 days on market in 2017 to 60 days in 2018;
  • Coronado, from 59 days on market in 2017 to 67 days in 2018; and
• Mill Valley neighborhood, Cascade Canyon, from 75 days on market in 2017 to 97 days in 2018.

As homes have sat longer on the market, the share of listings receiving a price cut has also increased in cities across the Bay Area, including in the:

• Richmond neighborhoods:
  • Southwest Annex, from 4.9% of listings in 2017 to 28.0% in 2018;
  • Atchison Village, from 7.7% of listings in 2017 to 19.2% in 2018;
  • Santa Fe, from 1.6% of listings in 2017 to 11.6% in 2018;
• Napa neighborhoods:
  • Sheveland Ranch, from 6.1% of listings in 2017 to 24.6% in 2018;
  • Shurtleff, from 12.6% of listings in 2017 to 23.8% in 2018;
• Oakland neighborhoods:
  • Rancho San Antonio, from 2.2% of listings in 2017 to 17.4% in 2018;
  • Toler Heights, from 2.2% of listings in 2017 to 14.7% in 2018; and
• San Rafael neighborhood, Glenwood, from 4.7% of listings in 2017 to 17.3% in 2018.

Prices to follow next

After nearly seven years of consistently rising home prices and competition for limited inventory, Bay Area homebuyers are finally beginning to see some relief. But for sellers and real estate professionals, a slower market can be problematic.

As homes have begun to sit longer and more price cuts have occurred, home prices are starting to decline. In fact, mid-tier prices in San Francisco have experienced a decline each month since June 2018.

This may be news to our readers, as most media reports choose to focus on annual gains — after all, prices can be volatile on a month-to-month basis, and mid-tier home prices are still 9% above a year earlier in San Francisco due to gains experienced earlier in the year. But first tuesday is confident that the decline in home prices in the latter half of 2018 is only the start of a longer trend.

This forecast is based on three criteria:

• home sales volume is declining across the state, contributing to longer days on market and more price cuts;
• mortgage interest rates are increasing, decreasing buyer purchasing power and discouraging homebuyers; and
• the economic indicator, the yield spread, is quickly approaching zero, indicating an economic recession is imminent 12 months hence, likely in 2020.

What are real estate professionals to do with this information?

Armed with knowledge of a coming slowdown, real estate professionals can prepare today by:

• increasing marketing efforts to homebuyers, who will have the most to gain in the coming buyer’s market;
• expanding their skillset by becoming a broker, short sale specialist or property manager to increase their profits;
• partnering with like-minded individuals to invest in property once the recession takes hold and prices have hit their bottom; and
• saving their earnings for the rainy days ahead.