The Bay Area Housing Market Slowing – But “Affordable” Segment Still Going Strong
August 17, 2016
EXECUTIVE SUMMARY • Home sales slowed across the Bay Area from last year, but not uniformly. • Slower sales are most evident for homes priced less than $1 million as a result of rising average sale prices over multiple years which moves inventory from below $1 million to the$1-to-$3 million category. • Sales slowed above the $3 million price point due to affordability conditions and more discerning buyers. • The slowing of luxury sales is mostly the result of worldwide economic uncertainty. • The current market appears more balanced between buyers and sellers, with buyers taking longer to purchase and premiums less common. • In the Bay Area, San Francisco activity slowed most notably, while adjacent “affordable” areas – Alameda, Contra Costa counties – showed continued strength in price appreciation. The Bay Area housing market has indeed shifted in 2016 when compared with years before. Home sales activity has slackened, and price appreciation has leveled off, but the picture is not that simple. The differences in housing markets are notable across the regions and within price categories. In July of this year, home sales were overall down 21 percent from last July in eight of nine Bay Area counties (excluding Solano). The drop in sales is evident across all counties and price points. The only segment of the market that saw a pickup in activity from last July was luxury homes priced at $3 million and above in Contra Costa County. However, even that change was only four units more than last year. At the regional level, Alameda and Contra Costa counties both saw drops of about 20 percent in sales activity overall from last July, the largest deceases in the Bay Area. Nevertheless, home sales in both counties peaked last June and July, and thus the drop appears more notable. The July sales could be an anomaly and partially explained by changes in school calendars compared with last summer. In most of the region’s school districts, the first day of school is a few days earlier this August and could have prompted families to take vacations sooner, thus slowing July sales activity. At this point, it is hard to tell how much impact those couple of days had on the housing market and whether sales will rebound in August. Nevertheless, comparing sales activity for the first seven months of this year with last year’s numbers illustrates a slightly different picture. While overall sales volume is 8 percent lower, it largely fell for homes priced below $1 million and above $3 million. Sales of homes priced between $1 million and $3 million actually increased by 4 percent. Overall sales are lower in all Bay Area counties, but not equally across all price segments. Sales in the most affordable price segment, homes priced up to $1 million, fell everywhere but that is also a function of lack of supply of affordable homes. Due to rapid price appreciation and absorption of the affordable segment of the market over the last few years, there is very little of that market segment left to discuss. In July, the inventory of homes priced below $1 million was 8 percent lower than last year, while the inventory of higher-priced segments rose by about 17 percent. Changes in sales of homes priced anywhere above $1 million varied quite a bit throughout the region but were also dependent on the available inventory and price appreciation within the segments. The chart below illustrates year-to-date changes by county and price category. The chart clearly highlights that demand is still strong in what now appears to be the “affordable” category, meaning homes priced between $1 million and $3 million. Similarly, when looking only at July 2015 to 2016 changes in sales activity, that segment has shown the smallest drop in activity, 11 percent, compared to the 24 and 23 percent decline for the lowest- and highest- priced segments respectively.


