In a quarter that saw Bay Area average sales prices continue to reach record highs, there was a less pronounced but arguably more important occurrence. Slowing appreciation rates are finally beginning to kick in after several years of activity that left many wondering if a sales price ceiling actually existed in the Bay Area housing market. In short, the gap between supply and demand is finally beginning to narrow, and those potential buyers who’ve weathered the storm could not be greeted with better news.
For the casual observer, it might sound like business as usual that five of the seven counties we represent achieved new record average sales price highs, and that sales volume was down in each county. But when one considers that what is typically a peak quarter only saw a 5 percent year-over-year average home sales price gain across the Bay Area—including San Francisco actually seeing its average sales price drop—the picture starts to come into focus. After all, the market had grown at an average of nearly 12 percent per year from Q2 2012 to Q2 2015.
Does this mean that Bay Area homeowners should start selling homes quicker than brokers dropped European equities in the wake of Brexit news? Quite the opposite. The market is, after all, still appreciating. It’s simply just going do so at a stable rate, as opposed to the frenetic pace of the past five years. As much was expected when the California Association of REALTORS® released its late-2015 report in which statewide home appreciation was predicted to reach just 3.2 percent in 2016—half of the previous year’s predicted gains.
Among prevailing trends this quarter was a major interest in sub-$1 million properties, which due to a dearth of such inventory, affected both San Francisco’s home and condominium sector. San Francisco luxury homes—defined by the top ten percent of all sales—saw a noticeable year-over-year average sales price decrease of 15 percent. Meanwhile, more affordably priced counties in the East Bay and North Bay raked in the spillover. And when buyers did look for the Bay Area’s most luxurious homes, they generally set their sights on the Mid-Peninsula and Marin County (with the Mid-Peninsula and North Bay both seeing luxury sales price average up 10 percent from Q2 2015).
As we look ahead to the fall elections, an economic uncertainty akin to the summer and fall of 2012 could restrain buyers and will certainly test the resilience of consumer confidence. We expect the single-family home markets in the lower end throughout San Francisco to be active given the need for affordable housing and the finite amount of supply. We’ve also learned from Q2 2016 that the market seems to finally be evening out—a factor that could incentivize both potential sellers and buyers to step out from the sidelines and create a more active and negotiable market.