Home Price Change by City
2011 to 2015
to 2016 YTD
below look at median sales price appreciation 2011 to 2015, a period of very
fast home-price increases, and then more recent changes, 2015 through the first
half of 2016.
One of the
trends that has been showing up recently in Bay Area real estate markets is
that homes in the more affordable price ranges have continued to see median
sales price increases (sometimes substantial increases), while in the more
expensive communities, median prices have generally plateaued, or the rate of
appreciation has significantly slowed, or prices have even ticked down a
little. Part of this is certainly a (somewhat desperate) buyer search for affordable
homes in a general market that has appreciated so rapidly in recent years. It
may also be true that some of the most affluent buyers are choosing to hold off
on large purchase decisions because of all the financial market turmoil lately.
It may simply have to do with inventory coming on market, or it may be an
indicator of a significant developing transition, i.e. buyers have reached a
limit on how much they will pay, even for an appealing home. Things should
become clearer in the second half of the year.
impossible to know how a median sales price or median price changes apply to
any particular property without a specific comparative analysis.
Dollar per Square Foot Values
speaking, average dollar per square foot values have continued to increase in
2016 in Lamorinda and Diablo Valley communities.
& Sales of $2 Million and Above
of Lamorinda and Diablo Valley homes listed for $2 million and above hit an
all-time high in Q2 2016, up 15% from Q2 2015. However, the number of homes selling
for $2 million or more dropped 8% year over year, and the number of listings
expiring without selling
(typically due to buyer
unwillingness to meet seller pricing) jumped by 65%. Indeed for every 3 luxury
homes that sold, 2 other listings expired or were withdrawn without selling.
Market Dynamics by Price Segment
Further illustrations of how the more affordable homes markets in Lamorinda and Diablo Valley are running significantly hotter than the luxury and, especially, ultra-luxury segments as measured by statistics such as days on market, the percentage of listings accepting offers, and the percentage of listings expiring or being withdrawn with selling. Of course, the more expensive a property is, the smaller the pool of prospective buyers, and sometimes it just takes longer to find the right buyer for a very special and very expensive home. On the other hand, the higher the price segment, the more prone it is to egregious overpricing by listing agents and sellers.
usually the peak selling season. Typically, market activity slows in July and
August before picking up after Labor Day with another smaller surge of new home
listings. Then in mid-November, the market begins to go into deep hibernation
until stirring to life again in mid-January.
slowdown periods can be excellent times to buy because of the significant
decline in competition from other buyers. It is competitive bidding that leads
to the highest prices and its absence allows much more scope for negotiation.
Interest Rate Trends
financial market volatility, most recently caused by the Brexit vote in Great
Britain, has continued to push mortgage interest rates lower. It is now just
above the all-time low hit 3 years ago. Decreasing interest rates play a big
role in lowering ongoing housing costs for buyers (and owners who choose to
refinance). For the time being, this is a very good time to get a new home
Ramifications of Overpricing
undertaken studies of many thousands of home sales that have occurred in recent
years, looking at both homes that sold without going through a prior price
reduction and homes selling subsequent to one or more price reductions. Across
the Bay Area, the results are remarkably consistent: Overpricing a listing when
it first comes on the market will typically result in the home selling for significantly
less money than it would have if it had been priced properly to begin with, if
it sells at all. (The number of expired listings has been increasing lately.)
The longer a
home stays on market, the less value it holds in the minds of prospective
buyers, and the less likely buyers will compete for its purchase. If the Bay
Area market is moving into a less heated period of the market cycle, and we
believe it probably is (the San Francisco market has definitely cooled in 2016),
it is more important than ever not to overprice and waste the optimum period of
marketing, i.e. when the home first hits the market and motivated buyers are
paying the most attention.
These analyses were made in good faith with data from sources
deemed reliable, but they may contain errors and are subject to revision. It is
not our intent to convince you of a particular position, but to attempt to
provide straightforward data and analysis, so you can make your own informed
decisions. Statistics are generalities, longer term trends are much more
meaningful than short-term, and we will always know more about what is actually going on in
the present, in the future.
© 2016 Paragon Real Estate Group
A look at recent market values, trends and dynamics in Diablo Valley "Lamorinda" in Central Contra Costa County, and along the Hwy 580 Corridor of southern Alameda County.
Median Home Price Map, 1/1/16 - 5/21/16 MLS Sales
Move cursor over map to reveal median home prices.
Median price is that price at which half the sales
occurred for more and half for less.
Median Home Price Trends
In 2014, the Central Contra Costa region re-attained the previous
peak values reached in 2006. In 2015, median home prices surged well past that
point to new highs. Central Contra Costa has strongly outperformed state and
national real estate markets, but lags somewhat behind that of San Francisco,
which, as an epicenter of the high-tech boom, has been experiencing especially
feverish market conditions.
Charts delineating median home-price movements since 2000 for
specific Central Contra Costa communities are here: City Home Price Trends
And we recently performed an interesting analysis of the demographics
of Central Contra Costa communities: Central Contra Costa Demographics
Unit Sales by City
The sizes of the
real estate markets in the Central Contra Costa region vary enormously: San
Ramon, Walnut Creek and Danville are by far the largest markets, while
Blackhawk and especially Diablo, are by far the smallest. Only San Ramon and
Walnut Creek have significant condo markets at this time. As a point of
comparison, in San Francisco, condo sales now outnumber house sales.
Unit Sales by Price
Luxury Home Sales Trends
Sales of homes of $1,500,000 and above constitute about 5% of the overall Contra Costa County market and approximately 15% of the Central
Costa Costa market, and for the purposes of this report shall be classified as luxury homes. In the central county region, the number of luxury home listings has more than doubled and
the number of luxury home sales has tripled on a quarterly basis since 2012. The second quarter of 2015 saw particularly large
spikes in both high-priced homes for sale and sold. Other high-end communities and neighborhoods of the Bay Area saw similar spikes in activity.
Luxury Home Sales by City
Most of these Central Costa County cities have significant luxury home market segments.
Central Contra Costa Market
Inventory, Days on Market, Sales Prices to List Prices,
The chart above clearly illustrates the seasonal nature of the
real estate market with new listings surging in spring (especially) and autumn, with the resultant increase in accepted offer activity; then dropping in mid-summer and then most dramatically during the mid-winter holiday months.
Sales Prices to List Prices, Price Reductions &
Days on Market
The great majority of home sales in the second quarter occurred
without any previous reduction in list price – these homes sold very
quickly and, on average, for over
asking price. Those homes
that went through price reductions prior to sale took much longer to sell and
sold at a significant discount to original list price (further illustrated in the following 2 charts). And, even in a very hot market, some homes did
not sell at all and were withdrawn from the market, typically due to being perceived as overpriced.
The Effect of Over-Pricing
Prices and Days on Market
As seen above, over-pricing consistently has significant, negative effects on both
time on market and sales price to list price percentages obtained upon sale.
Average Days on Market
& Non-Luxury Home Sales
For the last few years, spring has been the hottest and most
competitive selling period, and that is reflected in the average number of days
on market prior to acceptance of offer. Generally speaking, higher priced homes
take longer to sell than lower priced homes, and the luxury home segment is
even more dramatically impacted by seasonality than lower priced homes.
Months Supply of Inventory (MSI)
reading below 3 months of inventory is considered to indicate a seller’s
market. Below 2 months of inventory indicates an extremely strong seller’s
market, and homes selling for under $1,500,000 have been deep in such territory for the last few years – MSI has sometimes dipped below 1 month of inventory,
which is almost unheard of. Again, the luxury home segment is more dramatically
impacted by seasonality – with MSI dipping low or very low in spring and autumn,
but then increasing significantly in late summer and mid-winter.
of Listings Accepting Offers
This statistic compares buyer demand to the supply of homes
available to purchase: The higher the percentage, the hotter the market. In
Central Contra Costa, the more affordable segment has seen the greatest amount
of demand and the highest level of competition between buyers. Typically, the more
expensive the home, the smaller the pool of potential buyers.
The California Association of Realtors Housing Affordability
Index (HAI) measures what percentage of households in a given area can afford
to buy a median priced home at a given time. It uses household income, interest rates and home
prices in the calculation. In Q2 2015, affordability dropped in every Bay Area
county, and is getting particularly low in San Francisco. Central Contra Costa’s
affordability percentage is dropping, but still above the percentages prevalent
during the period of 2000 to 2007 – and very low interest rates are certainly a
large factor. The lowest HAI reading for both SF and Central Contra Costa was
in Q3 of 2007, when it hit 8% (not shown on chart).
Affordability Index Methodology
Bay Area Housing
Return on Cash Investment
Comparing Buying a Home in Central Contra Costa
to Inflation, Gold, the S&P 500 & Apple Stock
For the purposes of this analysis, we’ve broken home
ownership into 2 aspects, the first being ongoinghousing costs– mortgage interest, home insurance,
property taxes, maintenance – which after tax deductions could be compared to
the cost of renting a similar home. The second aspect, illustrated in the chart
above, is the cashinvestmentside of buying a home and the compound annual
return on that investment, after closing costs and loan principal repayment are
deducted, if one had purchased a median Central Contra Costa house in 1994.(For the purposes of this analysis,
Central Contra Costa is comprised of Danville, Lafayette, Orinda, Moraga,
Blackhawk, Alamo, Diablo, San Ramon and Walnut Creek.)
For the Central Contra Costa Median House
calculation, we used the estimated 1994 median sales price ($335,000), with a
20% downpayment ($67,000) and paying 1.5% in buy-side closing costs ($5025) for
a total cash investment of $72,025. Net proceeds were calculated using the 2015
YTD median sales price ($1,055,000 as of September 2015), deducting 6% in
sell-side closing costs ($63,300) and the original 80% mortgage balance ($268,000),
which equals $723,700. This equals an approximate annual compound return on cash
investment of 11.6% over the 21-year period, which reflects a huge premium over
the inflation rate.
All of us should have put every penny we had into
Apple stock in 1994, but barring that, purchasing a home in Central Contra
Costa would have been an excellent alternative. Three factors not included in
the above analysis further increase the financial benefits of home purchase
over the other investments graphed: 1) the $250,000/$500,000 capital gains tax
exclusion on the sale of a primary residence (potentially saving up to $75,000
in taxes), 2) the “forced savings” effect of gradually paying off one’s
mortgage (if one resists refinancing out growing home equity), which has a
substantial wealth-building effect, and 3) over time, the ongoing cost of
housing with a fixed rate loan, strategically refinanced when rates go
significantly lower, will usually fall well below rental costs that continue to
rise with inflation.
Please note that with financial assets subject to market
cycles, such as real estate, stocks or gold, changing the buy or sell dates in
this analysis can dramatically affect the return.
Case-Shiller Home Price-Tier Indices
The S&P Case-Shiller Home Price Index for
the SF Metro Area covers 5 Bay Area counties, including Contra Costa. There are
separate indices for the low, mid and high-priced tiers of homes – and these
different price segments experienced bubbles, crashes and recoveries of
radically different magnitudes: The low price tier, hugely affected by subprime
lending and foreclosures had by far the biggest bubble and crash; the high
price tier had the smallest with the mid-price segment in between the two. (The Case-Shiller Index is a rolling 3-month average, published 2 months after the month delineated.)
Homes in the more affluent communities of Central
Contra Costa generally fit into the mid-price and high-price tiers
many of the other communities of the county have low-price-tier real estate
markets). There are charts tracking median home price trends by city further
down in this report.
In the charts below, the index readings refer to a January
2000 home value of 100. Thus, a reading of 218 indicates home values 118% above
that time. It’s interesting to note that even with their drastically different
bubbles and crashes, all 3 price tiers now show a appreciation rate of
118% to 119% % since January 2000.
Low-Price Tier Homes, Under $560,000
Huge subprime bubble (170% appreciation, 2000 -
2006) & huge crash
(60% decline, 2008 - 2011). Strong recovery but
well below 2006-07 peak values.
Mid-Price Tier Homes: $560,000 to
Smaller bubble (119% appreciation, 2000 - 2006)
and crash (42% decline)
than low-price tier. Strong recovery has returned it to its 2006 peak.
High-Price Tier Homes: Over $900,000
84% appreciation, 2000 - 2007, and 25% decline,
peak to bottom.
Now climbing well above previous 2007 peak values.
Central Contra Costa & the Hwy 580 Corridor of Alameda County
Home Values and Price Trends by City
Median sales price is that price at which half the sales
occurred for more and half for less. It is a very general statistic, which
typically disguises a huge range of prices in the underlying individual sales.
It can be affected by other factors besides changes to fair market value, such
as inventory available to purchase, interest rates, and significant changes in
the luxury, new-construction or distressed-home market segments. Homes in
different communities often cannot be compared on an apples-to-apples basis,
but median sales prices do give an indication of comparative home values and
longer term trends in home prices.
How a city’s median sales price applies to a particular
property is unknown with a specific comparative market analysis.
Note that median sales prices will usually change if the
period being measured is changed even slightly. Especially if the number of
sales is relatively small, prices can sometimes fluctuate dramatically, simply
depending on the specific homes that sold within the period.
Bay Area Demographics
Bay Area & San
Francisco Home Price Maps
short New Yorker
article is excellent on the likely economic ramifications of recent, financial-markets
volatility: Drop in the Bucket
National, SF & Contra Costa unemployment trends: Very
and mortgage-debt-service ratios –
huge issues in the 2007-2008 crash – have declined significantly since then.
movements in the S&P 500 largely correlate to Bay Area home-
price trends. Short-term financial-market fluctuations, even if dramatic, typically
have no effect.
Price to Earnings
(PE) Ratios of the S&P 500 Index climbed a bit high
in mid-2015, but not egregiously so
compared to historical averages.
With the recent
correction, the ratio has declined again.
make sense as a lifestyle choice or because of income constraints.
As a means to building wealth, however, there is
no practical substitute for homeownership.”
& Wealth Creation, 11/30/14, NYT op-ed article
Sales per Agent
Largest Bay Area Residential Brokerages
with 100+ Agents, per SF Business Times
These analyses were made in good faith with data from
sources deemed reliable, but they may contain errors and are subject to
revision. Statistics are generalities and all numbers should be considered
statistics of one month generally reflect offers negotiated
4 – 6 weeks earlier.Header photo by Falcorian, gratefully used by permission
under the Creative Commons License.
© 2015 Paragon Real Estate Group