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| Second Quarter Successes – And More Optimism Ahead |
As we close the books on the first half of 2012, we're pleased with what we see in the rear-view mirror.
Here in the Bay Area, we experienced an over-30 percent increase in homes sold, year over year. Many of Pacific Union International's regions continue to show robust and dynamic growth in homes sold, putting them on track to post their best years since 2005.
And we are even more excited about what lies ahead with Bay Area real estate. We've seen numerous positive indicators in our regional data, including firm pricing, multiple offers, and fewer days on the market – all of which support the belief that the current Bay Area housing demand is indeed sustainable.
Meanwhile, sellers are slowly coming off the sidelines, and we are finally seeing an improvement in the number of available homes for sale. This suggests that people are more confident of getting the sales prices they want.
On a larger scale, the real and marked improvement in our Bay Area economic engines, particularly with job growth and the successful technology sector, indicates that the bottom of the real estate market is finally behind us and we are at long last in a new market.
We recently had a conversation with Stephen Levy, one of the top economists in California, whose observations on these topics further fueled our optimism as we swing into summer. We're sharing that exclusive interview with you in this quarterly report and are confident you'll find it as valuable as we did.
We wish you all the best for a happy, healthy summer! |
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| Exclusive: Pacific Union's Interview With Stephen Levy |
 In late June, Pacific Union International spoke exclusively with Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy (CCSCE) in Palo Alto, about the state of the economy and the real estate market in the San Francisco Bay Area. Here are the highlights of our interview.
Pacific Union: Housing markets are on fire, but this seems to be consumer-led rather than job-led. What's your view of the Bay Area versus the state as a whole?
Stephen Levy: For the San Jose and San Francisco metro area, jobs are on fire. The San Jose metro area is the fastest-growing large metro area in the U.S., measured by jobs, and the San Francisco metro area (San Francisco, San Mateo, and Marin counties) is close behind. We've seen 2.8 percent (San Francisco) to 3.5 percent (San Jose) growth from May 2011 to May 2012, which is way ahead of the nation.
It's also IPO-led. It's job-related, but also tied to the ability to cash out from the successes of LinkedIn, Google, and Facebook.
Is the Bay Area still in economic recovery, or are we transitioning to growth?
Both. The Santa Clara valley and San Francisco are transitioning to catch this new wave of growth. Most of the state and most of the rest of the Bay Area is still struggling with the lack of construction and lack of government jobs; there hasn't been really any big pickup in home building. They're definitely in recovery. The only places you could say are in a new growth mode are San Francisco and San Jose.
How bullish are you on an appreciable drop in the unemployment rate?
Santa Clara is at 8.2 percent, and both San Francisco and San Mateo are below 8 percent already. Those counties will have their own special bonanza. The state is at 10.9 percent unemployment and won't see 8 percent for three years at an absolute minimum. But the Bay Area will be below 8 percent as a region.
I wouldn't worry about the unemployment rate quite as much as the rate of job growth. If it stays up, it's because people are pouring into the workforce.
Are you saying that the job-growth rate is a more meaningful economic indicator than unemployment?
Yes, absolutely. My mother, who made clothes, always said, "You're only as good as your next season." Our current "next season" is looking pretty good. It's not just Facebook and LinkedIn, it's the big run-up in value of Apple, Google … it's pretty broad.
What do you see happening in Contra Costa County? Many corporations have moved out there and it seems attractive for business.
I think it's an incredibly attractive area for the same reason it has been for past 15-20 years: It captures both the labor market within the region as well as the labor market close to it in the Central Valley — Stockton and Tracy, and further out. It's very well placed for the labor force. They're not doing what San Jose and San Francisco are doing, but for the long-term future they have a great location.
Housing has been on a tear in Marin lately. Is that due to a jobs uptick?
They have low unemployment, but a lot of those folks work in the city. I don't know about job growth — unemployment tends to affect you where you live, while job growth is where you work.
Is there any bright news ahead for the East Bay?
I think they're caught up in the national slowdown. I think they'll do fine once we get into a strong recovery nationally. They were a home-building center, and have been hurt by that. They're a very strong region, and historically have had location and price advantages.
In the Wine Country — Sonoma and Napa counties — we've noticed increased demand lately, especially for vacation homes. Do you see job growth as an engine there?
That area is not my specialty, but I don't think the home buying you are seeing is related to local job growth. Foreign investors from affluent areas find California prices cheap — in Napa as well as Palo Alto and Newport Beach. I think Napa and Sonoma are connected to both the overall Bay Area high-end economic growth and to the worldwide tourism/retirement demand.
The Pew Research Center just released a report, "The Rise of Asian Americans" talking about how Asians are now our largest immigrant group. What I see is that the Asian buyer market is on fire, both with new immigrants and because Chinese and other Asian folks are heading into tech companies as employees.
Finally, is there anything you see driving jobs besides tech?
There has been a resurgence in convention and tourist activity. Hotel and tourist numbers are up. Foreign trade has also been doing pretty well. Tech, trade, and tourism — the three Ts — bring other economic improvement along with them. Retail sales are picking up as the income flow from the tech sector begins to spread into restaurants, car dealerships, and other areas. |
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| San Francisco: Q2 Results |
Single-family homes and condominiums in San Francisco sold briskly at all price points in the second quarter of 2012. The percentage of homes under contract – homes with a sales agreement in place but the paperwork not yet completed – reached its highest point in more than two years, and sales prices also posted two-year highs.
Homes that didn't sell last year but were put back on the market in the second quarter ended up selling quickly, and with no price reductions. Turnkey homes sold best – that is, homes in move-in condition. Faced with tight lending regulations, new owners are finding it difficult to get a second line of credit for home repairs and construction, so turnkey homes are desirable.
The inventory of homes for sale remained critically tight in the quarter. The number of properties for sale dropped to roughly one month's supply in the second quarter, down from three months' supply of homes one year ago and four months' supply of condominiums. Predictably, most homes sold only after receiving multiple offers.
Looking Forward: Home sales show no sign of slowing down in the year ahead, and prices will keep rising. In such a competitive market, serious buyers are advised to get pre-qualified loans and be prepared to move quickly to put in a successful bid.
Defining San Francisco: Neighborhoods in San Francisco's District 1 include the Richmond, Laurel Heights, and Lone Mountain. District 2: the Sunset and Parkside. District 3: Lakeside, Ingleside, and Oceanview. District 4: Forest Hill and Sunnyside. District 5: Haight-Ashbury, the Castro, and Noe Valley. District 6: the Western Addition and Hayes Valley. District 7: the Marina and Pacific Heights. District 8: Civic Center, North Beach, Russian Hill, Financial District. District 9: the Mission, Bernal Heights, Potrero Hill, and SoMa. District 10: Bay View, Excelsior, and Visitacion Valley. |
| Single Family Homes – Median Sales Price |
| The median sales price — the midpoint in the range of prices paid – rose solidly in the first and second quarters for single-family homes in San Francisco, up more than $190,000 from December to June. In fact, June's median sales price was the highest in two years — fresh evidence that the Bay Area's housing recovery is real and sustained. |
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| Condos – Median Sales Price |
| The median sales price saw solid growth in the second quarter for condominiums in San Francisco, up more than $147,000 from January to June – with June's median price the highest in more than two years. |
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Single Family Homes – Months' Supply of Inventory
(Properties Under Contract) |
| Months' supply of inventory is a common measure of housing supply, and the latest number for single-family homes in San Francisco shows an extremely tight market: almost one-third the number of homes for sale in June compared with the same month last year. Next to the East Bay counties of Contra Costa and Alameda, San Francisco has the lowest supply of inventory in the Bay Area. |
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Condos – Months' Supply of Inventory
(Properties Under Contract) |
| The months' supply of condominiums in San Francisco is even tighter than that for single-family homes. June's measure, barely a month's inventory, is nearly one-fourth the supply of condominiums in the city one year earlier. |
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Single Family Homes – Average Days on the Market
(Properties Under Contract) |
| Average days on the market shows the pace of sales activity. In San Francisco, the number of days it took to sell a single-family home peaked in December at 75 days and has been shrinking every month since then – further evidence of an extremely active real estate market. By June, the average number of days on the market shaved a month off the time it took to sell a home one year earlier. |
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Condos – Average Days on the Market
(Properties Under Contract) |
| The number of days it took to sell a condominium in San Francisco peaked in December at 100 days and has been shrinking nearly every month since then. By June, the average number of days on the market shaved more than a month off the time it took to sell a home a year earlier. |
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| Single Family Homes – Percentage of Properties Under Contract |
| Percentage of properties under contract is a forward-looking indicator of sales activity, tracking expected home sales before the paperwork is completed and the sale actually closes. In San Francisco, the percentage of single-family homes under contract nearly doubled over the past year, rising in four of the past six months. |
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| Condos – Percentage of Properties Under Contract |
| The percentage of condominiums under contract in San Francisco more than doubled over the past year, rising in each of the past six months. |
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Single Family Homes – Sales Price as a Percentage of Original Price
(No Price Adjustments) |
| Measuring the sales price as a percentage of the original price, without price adjustments, measures the success of a seller in receiving the hoped-for sale amount, but it also indicates the level of sales activity in a region. Numbers above 100 percent are clear indicators of multiple bids. Steadily rising numbers for single-family homes in San Francisco point to aggressive activity in the market. |
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Condos – Sales Price as a Percentage of Original Price
(No Price Adjustments) |
| Solid growth in this benchmark over the past two quarters for San Francisco condominiums underscores the brisk real estate activity in the city. |
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| Click to view larger chart |
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| © 2012 Pacific Union International, Inc. CA DRE #00843865 | One Letterman Drive, Building C, Suite 300, San Francisco, CA 94129 |
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