Saturday, January 14, 2017

Say Goodbye to 2016

With taxes kept low by Prop 13, mortgage rates locked-in at historic lows, and the prospect of capital gains taxes dropping in the next tax reform package, we potential sellers are experiencing what economists call "stickiness."  We're not overcoming inertia and moving when our circumstances change, but rather we're responding to incentives and staying put.  

As a result, a large proportion of my work is educating my clients so they are comfortable and confident whenever they decide to make their next move.  What's an electronic signature program?  Why should you care about the financial strength of a new co-housing development? What options are out there to defer or avoid capital gains taxes on the sale of a long-held home, and make a planned charitable donation or get some nice monthly income in the bargain?  I help people make great real estate decisions, and I get paid when they or their friends and colleagues rely on my advice when they buy or sell a home.

As I've said here before, the center of the Bay Area economic engine has been shifting gradually from Silicon Valley to San Francisco and Oakland.  Based on Pacific Union's transaction data, we're increasingly seeing tech households purchasing in the East Bay rather than households from the legal, management and finance/insurance/real estate (FIRE) fields.  And that means a number of tech households, looking for great schools and good housing stock, are focusing on Piedmont for the first time. 

The median home price in Piedmont increased 5% this year (based on MLS data, through 12/29).  Since 2014, prices jumped from a median $1.75 million ($652/sf) to $2.1 million ($791/sf), with a 15% increase in 2015.  Not only did the rate of price increases slow down in 2016, so did the volume--only 95 homes traded in 2016 in contrast to 147 in 2014, and 116 in 2015.  In fact the total volume of real estate sold in town declined by nearly $50 million/25% between 2014 and 2016, meaning transfer tax revenue is down rather dramatically.  

We saw this decline in the number of homes sold across all markets and submarkets in the East Bay, even though underwriting criteria have eased.  Downpayment requirements are the likely culprit--20% of a big(ger) number is a big(ger) number, and area incomes have not kept pace.  With interest rates increasing since early November, we're likely to see more Bay Area first-time buyers falling away as their window for homeownership closes.

Prices in Berkeley shot up even further, particularly for the sweet spot of $1 million-$1.5 million homes.  There, prices went up 16% in 2015, and then 8.6% over the course of this year.  At this point, buyers will pay roughly the same for a 3 BR/1 BA home in 1600 sf in Berkeley as in Piedmont!  

Prices in Oakland 94610 (Crocker), 94611 (Montclair/Piedmont Ave.) and 94618 (Rockridge/Upper Rockridge) also increased about 25% over the two-year window, but in a reverse of the trend in Piedmont and Berkeley, prices rose nearly 15% in 2016, but only 9% the previous year. Perhaps regional buyers have come to appreciate the great commutes, restaurants, movie houses, shopping districts and those fabulous La Farine savory morning buns only more recently. The entire Oakland market is up 31% over the two-year window, as neighborhoods recover from those deep dives of the housing crisis, and first-time homebuyers again find that Oakland neighborhoods offer affordability.

As always, I'm happy to help you think through your real estate options, whether buying, selling, renting or renovating.  If you have colleagues, clients, friends or family who plan to buy or sell in the East Bay Hills, I promise to work hard to earn their trust, protect their privacy, and exceed their expectations.

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