FORECAST: REAL ESTATE INVESTMENT TO REMAIN STRONG IN 2017
Though it’s unknown exactly how President Trump’s policies will affect real estate, commercial real estate executives expect 2017 to be another strong year. According to KPMG’s 2017 Real Estate Industry Outlook Survey, real estate investors expect the industry to “sustain the boom” for the year, benefiting from continued improvement in real estate fundamentals and an ongoing ability to access funding.
KPMG’s respondents noted a number of uncertainties that could potentially put a dent in their high expectations for the year, despite their optimism. These uncertainties include the new president’s tax and immigration policies, threats to the Affordable Care Act from Congress and the administration, and rising interest rates.
Up to 63,500 acres of natural lands and farms and ranches in the Bay Area could be consumed by development in the next decade, according to the Greenbelt Alliance, which issued the report “At Risk: The Bay Area Greenbelt.” All told, the group says that more than 290,000 acres are at risk from urban sprawl.
Millions of acres of local greenbelt are already legally protected from development, but the Greenbelt Alliance says that the remaining available lands are under pressure from the region’s booming economy and high housing costs, which push people to go farther out from city centers until they find something affordable. To counter this threat, the group suggests funding affordable housing, develop housing for all income levels, change public policies to make it easier to build in cities, and to focus on “infill” development — finding unused or underused spaces in existing urban areas and building there.
PRICING PEAKS AND VALLEYS
Avert your eyes if you’ve seen this one before: Tech workers caused the year of the highest appreciation in house and condo prices, pushing them up 26.1 percent and 34.9 percent, according to a report by Paragon Real Estate Group. But you might not know this: That year of highest appreciation was in 2000, at the height of the first dotcom bubble.
For the current price hikes, 2013 was the peak year for houses, pushing prices upward 20 percent; For condos, 2015 saw the biggest rise, hitting 15.1 percent. Since then the supply of new condominiums has helped ease pricing pressure for condos, resulting in no growth in 2016, according to Paragon.
“When the dotcom bubble popped, SF condo prices were much more negatively affected than house prices: Young, high-tech workers play a bigger role in the condo market,” Paragon writes in its report, “Ups & Downs in Bay Area Real Estate Markets.” Last year, “the condo median sales price plateaued (and declined a little in some neighborhoods) while houses continued to appreciate. … We ascribe this plateauing in condo appreciation to, firstly, a big increase in new condo construction (more supply) and, secondly, to some cooling of the high-tech hiring boom (somewhat less demand).”
SELLING AND BUYING
The median price of a single-family home in San Francisco dipped 3.3 percent in December, though year-on-year prices rose 9.2 percent, according to a market update from the California Association of Realtors. The amount of time a single-family home was on the market was mostly steady throughout 2016, but it rose 17.3 percent in December. December is often a slow month for sales, but for the year as a whole, the amount of time single-family homes stayed on the market still rose 13.9 percent.
In January 2017, the number of homes sold in the city were 5 percent lower than in January 2016, and inventory of available homes for sale dropped 15 percent, Selma Hepp wrote in Pacific Union’s “Economic Straight Talk.” Inventory and sales were down in five of eight Bay Area counties she examined; only Alameda, Contra Costa, and (barely) Marin counties had increases in both categories.
“San Francisco and Silicon Valley saw some of the largest housing supply declines in December, a trend that started in the latter part of 2016,” Hepp wrote. “Consequently, home sales decreased relatively more in January than in other Bay Area regions. It is still hard to tell if slowing sales in those two regions are primarily due to falling inventory levels, or if anxiety over [the] new administration’s immigration policies has had an impact on the large number of Silicon Valley residents who rely on H1B visas. Anecdotal evidence noted in a recent San Francisco Business Times article suggests that some Silicon Valley H1B residents and foreign buyers in general have postponed their home purchases until there is more certainty around future immigration policies.”
“Income gains helped keep California’s housing affordability in check in the fourth quarter and even resulted in some modest improvements in the Bay Area, though only one-quarter of the region’s residents can afford to purchase a home.”
—”Wage Growth Slightly Boosts Housing Affordability in Three Bay Area Counties,” Pacific Union