Doubt seeps into housing market
Experts expect slower rise in Bay Area home values than U.S. rate
Housing economists and real estate professionals are pessimistic about the Bay Area in 2020 — but don’t expect a crash to bring saner prices or slower sales.
A survey of more than 100 economists and industry insiders by Zillow found that the majority think Bay Area median home values will rise more slowly than the national average. After years of soaring prices, gains of less than 3% could be the norm in 2020.
“Pessimism is one way to put it,” said Zillow senior economist Cheryl Young, noting that local home prices have been flat or dropping for about 18 months. The nearly decadelong, recordbreaking escalation in prices, she said, “really wasn’t sustainable any more.”
The Bay Area saw hints of buyer fatigue in 2019, with falling sales and prices in core Silicon Valley counties. In 2020, the soft market could be influenced up or down by several forces, including low interest and unemployment rates and what’s likely to be a destabilizing presidential election, economists say.
The Zillow survey of economists and real estate professionals found about 6 in 10 expected Bay Area home values to grow slower than the anticipated 2.8% national rate. Just 1 in 4 felt more bullish about the region than the U.S. market as a whole.
In fact, the housing econo
mists are sour on the state, with low expectations for the Sacramento, Los Angeles, Riverside and San Diego metro areas.
Housing market watchers are bearish on California because high prices have pushed homebuying out of reach for many residents, Young said. But low-interest rates and strong employment in the Bay Area stokes demand, and Young sees little chance the market will drop dramatically.
Expectations are high for several spots popular with ex-Californians: Austin and Dallas, Texas, and Phoenix. Also showing signs of strong growth in home values: Atlanta; Charlotte, North Carolina; and Nashville, Tennessee.
In a marked contrast to the Bay Area, Young said, “In the Texas market, we’ve actually seen a good amount of homebuilding in the last few years.”
Frank Nothaft, chief economist at real estate data firm CoreLogic, said the national outlook is good — low-interest rates and unemployment numbers are fueling a strong U.S. economy. The U.S. has not had interest and unemployment rates both slip to current levels — below 4% — since World War II, he said.
For the Bay Area, Nothaft also sees slower growth in home prices after years of record-setting sales. A significant slowing in home price growth is “good and important” to make homes affordable to buyers, he said. The San Jose, East Bay and San Francisco markets have seen housing costs far outpace wage growth in recent years.
Steam has been leaking out of the Bay Area housing engine during the last 12 months. Year-over-year prices in the Bay Area grew about 8% in October 2018, while they dropped nearly 1% in October 2019, according to CoreLogic. “That’s a big swing,” Nothaft said.
Still, local agents report strong demand, as Silicon Valley continues to add jobs at a fast pace. But buyers are more reluctant to jump into bidding wars and have raised their standards on amenities, locations and school districts.
Median prices in more affordable counties have inched upward, with Alameda and Contra Costa prices gaining about 1% in November from the previous year.
But sales data show Santa Clara County has been especially hard hit in the last year. After home sales in the county raced up more than 10% year-over-year through much of 2017 and 2018, buyers have become more cautious, and median sale prices have dropped steadily. In November, the county’s median prices fell nearly 2% from the previous year, the 11th straight month of year-overyear declines, according to Zillow.
Ramesh Rao, an agent with Coldwell Banker in Cupertino, said he’s encouraging clients to put their homes on the market in the first few months of 2020. The number of houses for sale in the region has dropped from the previous year, and Rao expects home shoppers to be active in the new year.
“The pent-up demand,” Rao said, “has not gone away.”