01 Aug 2017

Bay Area Demographics

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A Survey of San Francisco Bay Area Real Estate Markets & Demographics

It is mid-summer – what better time to look across the bay area for both real estate trends and general demographics.  It is helpful way to determine where you might want to purchase investment property, a second home, or relocate!

Having complete confidence in my ability to predict what will happen in the past, I now recommend that everyone go back in time to 1995 or 2011 and buy as many homes as possible!

Median House Price Appreciation since 1990

Appreciation trend lines are largely similar across the Bay Area, but some counties have outperformed others. Solano is still well below its previous peak price ten years ago, and Sonoma and Napa are just now coming back up to their previous highs. Most of the other counties have exceeded their 2006-2007 peaks, sometimes by very wide margins. As will be explored further below, proximity to the heart of the high-tech boom has been one of the major factors in recent appreciation rates. Still, it is worth noting that in the past year and a half, appreciation rates in less expensive towns and neighborhoods have typically been higher than in more expensive areas, an indication of the sometimes desperate search for affordable housing – however that might be defined within the context of any given market.


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Average Dollar per Square Foot Values


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Annual Home Price Appreciation Rates
since 1996 and 2011

This table below illustrates annual compound appreciation trends going back to the post-recession recovery that began around 1995, and also from the current post-2008-crash recovery which started in 2012. This is based upon someone purchasing their home all cash: If one had purchased with a 20% downpayment, then the annual compound rate of appreciation of that cash investment would be much, much higher.

 

There are 3 big factors behind local appreciation rates: 1) the emergence of the Bay Area in the past 20 years as an international, economic powerhouse, which generally lifted all markets, 2) how close the specific market is to the white-hot centers of the high-tech boom (SF and Silicon Valley), and, 3) how badly the county was hammered by the foreclosure crisis, since those markets whose prices fell 50% or more to unnatural lows bounced back more on a percentage basis than those counties less affected by the subprime catastrophe.

SF has had the highest compound annual appreciation rate since 1996: It is the epicenter of the Bay Area high-tech, bio-tech and fin-tech economic miracle. But Oakland soars above all other markets in appreciation since 2011, because of a combination of factors: It is the closest affordable alternative to much higher SF prices; it is a lively, multi-cultural urban area appealing to high-tech workers; and its housing prices dropped an astounding 60% after the 2008 crash, which set them up to fly upward once the heavy anchor of distressed property sales was removed.

Employment & Unemployment

High-tech employment in SF & San Mateo Counties illustrates
broader trends in hiring: massive growth and some recent cooling.

Unemployment rates are bumping against historic lows.

Bay Area Housing Affordability

Housing affordability percentages are approaching historic lows in some counties, a huge Bay Area political, economic and social issue. If interest rates start to go up considerably, the picture will worsen, but so far they have remained quite low.

 


Bay Area Luxury Home Markets

Santa Clara is by far the biggest luxury home market in the Bay Area by the number of homes selling for $2 million+, but then its overall market is also the largest, more than 2½ times larger than that of San Francisco. Average dollar per square foot values for luxury house sales are surprisingly similar across Santa Clara, San Mateo and San Francisco, with Marin County just a notch lower. Moving further out, one gets considerably more luxury house for the money.

Generally speaking, SF luxury condos and co-ops command the highest dollar per square foot values in the Bay Area: Think fabulous units on high floors of prestige, ultra-amenity buildings with absolutely staggering views.

Calculating luxury markets by the top 10% of sales, the thresholds for the luxury designation vary widely: For example, in Sonoma, the threshold is about $1,125,000 for houses, while in San Francisco, it is about $3 million.

Other Angles on Bay Area Market Dynamics Bay Area Condo Markets

Overbidding

Average Days on Market

Bay Area Market Sizes

Bay Area Rents

Rents are even more sensitive to hiring trends than home prices.

S&P Case-Shiller Home Price Index
for the San Francisco Bay Area

Case-Shiller charts are complicated, which is why we have put them at the end of the report, but they do give perspectives on home price appreciation by price segment. The different price tiers had bubbles, crashes and recoveries of very different magnitudes, with the low-price tier having an extravagantly enormous subprime bubble and a disastrous crash, while more costly home tiers having lesser bubbles and crashes. The end result now is that all three tiers are relatively close in their current prices as compared to 2000 values, but are in very different circumstances when compared to their 2006-2007 bubble peaks. Around the Bay Area, generally speaking, San Francisco, San Mateo, Marin, Santa Clara and Diablo Valley-Lamorinda have high-price tier markets with smaller mid-price segments; Alameda, Sonoma, Napa, Solano and non-central Contra Costa have mixes of low-price and mid-price markets (though there are, of course, pockets of high-price homes as well).

All C-S data points refer to a January 2000 home price of 100. Thus a reading of 250 signifies a price 150% higher than in January 2000.

More affordable homes have been appreciating much more quickly in the past 15 months than more expensive price segments.


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These analyses were made in good faith with data from sources
deemed reliable, but may contain errors and are subject to revision. It is not
our intent to convince you of a particular position, but to attempt to provide
straightforward data and analysis, so you can make your own informed decisions.
Median and average statistics are enormous generalities: There are hundreds of
different markets in the Bay Area, each with its own unique dynamics. Median
prices can be and often are affected by other factors besides changes in fair
market value, and longer term trends are much more meaningful than short-term. It is impossible to know how median
prices apply to any particular home without a specific comparative market
analysis. All numbers in this report are to be considered approximate. 

© 2017 Paragon Real Estate Group

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