The Brexit vote in June has already impacted the United States economy, including the real estate market here in San Francisco. As a result, mortgage rates have dropped almost a quarter of a percent. As decreases in interest rates always do, this will support continuing increases in sales prices. For instance, a $1,000,000 loan at 3.75% costs $4,631/month, but at 3.5% you can borrow $1,032,000 for the same monthly payment. This matters because monthly payments are what buyers tend to focus on.
The June Economic Forecast published by The Federal Reserve Bank of San Francisco indicated continued strong economic and job growth, steady mortgage interest rates and low business (this was published prior to the vote in Britain), combined with historically low inflation and unemployment. The conclusion is that they predict Gross Domestic Product growth around 2% for the year, at a “pace consistent with moderate ongoing expansion, which we expect to continue over the next few years.”
In particular interest was their findings about the cause of the lower labor force participation rates, which have been occurring since 2001. Because of the notable shift in the wage gains during this time period to the higher income households, these households have fewer multiple earners. On the other side of this, lower wage earners continue to require multiple earners to make ends meet.
The Federal Reserve Bank of San Francisco report hypothesizes that this is a change that the upper-income households have made in the work-life balance, which indicates the workforce participation in this group could remain low. Labor force participation by the young workers in upper-income households, which is significantly lower than in the general population, also mimics this trend.
Since peaking at $1,400,000 in February 2016, San Francisco Single Family Home median prices have been hovering between $1,352,000 and $1,380,000. This was the second time median prices hit that number, first back in May of 2015. With the drop in interest rates, we could break through that median price soon because that drop from 3.75% to 3.5% finances another $45,000 in the loan amount for the same monthly payment.
The Condo/Loft Median Sales Price hit an all time high of $1,180,000 in June 2016, up 4.9% from June 2015.
Resale Condos-Lofts jumped 59% in both Days on Market and Months Supply of Inventory compared to June 2015, but both are still in strong sellers market territory.
Single Family Homes are up slightly in Days on Market from 16 to 20 both for May to June, 2016 and from June 2015 to June 2016. Months Supply of Inventory dropped from 2.3 in May to 1.9 in June 2016 and was also down from June 2015’s 2 months. Both market indicators continue to show a strong sellers market.
Single Family Homes New Listings dropped by 55 from May to June 2016. Of additional continuing importance is that the year-to- date number of new listings is down 60 from year-to-date 2015, a 4.1% decline. This helps explain why Months Supply of Inventory is lower than last year.
Resale Condos/Lofts had the reverse trend, with 1 more new listing on the market in June than May, 2016, and 27 more new listings in June 2016 than June 2015. And, significantly, year-to-date new listings are up 167 over year-to-date 2015, which represents a 10.3% increase in inventory. This helps explain why Months Supply of Inventory and Days on Market has risen sharply for Resale Condo/Lofts.
The Bay Area Council presented its latest poll of Bay Area residents at last month’s SFARMLS Building Boom forum. Their results show that a third of Bay Area residents “are likely to bolt the region in the next few years”. However, that is an overstatement of the poll results.
The question actually asked in the poll was clarification on the statement: “I am likely to move out of the Bay Area in the next few years.” The answer people gave was: 13% said they strongly agree with that statement and 21% said they somewhat agree.
As you can see, this response is certainly not a third of the residents saying they are likely to “bolt” in the next few years. It would beg the question, exactly where would they go? San Francisco Bay Area residents understand that jobs are here, families are here, and the great weather is here-- it's all about location, location, location. The San Francisco Bay Area is a fabulous place to work and live, and in spite of high prices and congestion, the population in this location is growing.
Want to see the full July 2016 market report from Keller Williams San Francisco? Click here!
