16 Aug August 2016 Newsletter: What Bay Area markets had the biggest bubble or crash?
I hope your summer is going well and you are squeezing in those last minute vacation plans before school starts. We are in Santa Barbara for a few days at the UCSB Family Vacation Center, which is billed as “the best vacation you’ve had since you had kids.” There are lots of activities for the kids and adults to enjoy, separately and together. Down time is hard to come by with kids, particularly on vacation, so I’m super excited about this trip and look forward to getting a little rest before the craziness of September kicks in.
What’s going on with real estate these days? Well, there are some fun charts below showing that if you bought a home in SF with a median sales price in 2011, you would have gained 651K on average! Wow!! Even if the market is cooling a little, sellers in general are in the very fortunate position of walking away with a fantastic return on their investments.
We are headed into September with a bang. It’s always one of the busiest months in real estate. We will have several exciting listings coming on, so stay tuned for more information about those.
In other news, I am super happy to announce we’ve expanded our team to include one more member. We currently have five people including myself on the team. We have two exceptional support staff members and three fantastic people in sales. I couldn’t be prouder of how far we’ve come. My goal is to set the benchmark for customer service across all industries–our clients get five people for the price of one! While many agents try and keep all the profits for themselves, I am happy to invest in my business. This approach allows me to be in five places at one time, concentrating my time and energy on the most important aspects of the business: negotiation and creative problem solving. Our newest team member, Megan Matheny, joins us from a five year stint with the number one real estate team in Sacramento County. Together, they closed properties totaling over 100 million the year that she left. Megan has a keen attention to detail, impeccable organization, and strong communication skills. I feel very lucky to have her and we are going to continue crushing our goals while providing an even better customer experience than ever before.
The fall selling season is a short one, so if you are looking to buy, please get in touch soon and we can help you find something while inventory is high. If you are looking to sell, your window is closing very quickly for this year but I’m happy to speak with you about it and develop a strategy that will work best for you.
Enjoy the last moments of summer! And please come visit me at one of our many open houses this fall.
& The Krishnan Team
including 20 custom charts and tables
Ups & Downs in Bay Area Real Estate Markets
- BUBBLE: Generally speaking, the lower price ranges and the less affluent areas saw much bigger, crazier bubbles than other segments, inflated in the years prior to 2007 by predatory lending, subprime loans and the utter abandonment of underwriting standards.
- CRASH: In 2008-2011 distressed-property sales devastated the lower price segments, which suffered the biggest declines in home prices. When the recovery started in 2012, they began from unnaturally low points, which had little to do with fair market values. Other market segments were affected but to much lesser degrees.
- PROXIMITY to the high-tech boom: SF and Silicon Valley have been the white-hot hearts of economic expansion. Oakland and the rest of Alameda County were the closest, significantly-more-affordable housing options. Then, as one moves further away, the electrifying effect on home prices gradually lessened.
- AFFORDABILITY: The more affluent areas led the recovery in 2012-2014, but then the highest pressure of demand started shifting to less expensive, comparatively more outlying neighborhoods, cities and counties. Buyers desperately searched for affordable housing options, or simply wanted more home for the dollar. Now, some of the most expensive markets are beginning to cool, while less expensive ones remain very competitive.
A fifth factor just beginning to impact some markets now (such as the SF condo market) is the significant increase in new home construction, most of which is on the more, or much more, expensive end.
Price-change percentages up and down are not created equal: If a price drops 60%, it then has to go up 150% to get back to where it started.
SAN FRANCISCO, more expensive and affluent, had a much smaller bubble and much smaller crash with far fewer distressed sales (and those mostly concentrated in its least expensive districts). The high-tech boom then supercharged its recovery: Its median house price is up 93% from the bottom hit in 2011 (much less than Oakland), but is 51% higher than its 2007 peak, the biggest increase over the 10 years of any of the markets measured. Silicon Valley has similar statistics, and other high-price markets like Marin and the Lamorinda/Diablo Valley area of Contra Costa County, saw comparable, if somewhat less dramatic, dynamics.
These county market descriptions are gross generalizations, as each county has both very affluent and less affluent communities, with their own unique dynamics.
Trends in Home Values since 1988
per the S&P Case-Shiller Home Price Index
Note how much higher the peak of the bubble in 2006-2007 was for the low-price tier of homes (light blue line): Prices jumped an incredible 170% from 2000 vs. 119% for the mid-price tier and 84% for the high-price tier. Then came a correspondingly gigantic crash.
San Francisco Home Prices by Neighborhood,
Property Type and Bedroom Count
SF Home Values Analysis by Neighborhood
Selected Bay Area Market Dynamics
real estate market by number of sales.
Virtually no place else in the country has seen competitive
overbidding comparable to the inner core of the Bay Area.
(Though some of it is caused by strategic underpricing.)
Selected Demographic Snapshots
All Bay Area counties have been growing in population. San Francisco
in particular is very densely populated and getting denser.
In the spirit of the times, a look at Bay Area political party demographics.
Along with Washington DC and Seattle, the Bay Area ranks among
the best educated metro areas in the country.
The single biggest factor behind strong rent control laws: