From the Golden Gate Sotheby’s Bay Area Market Report…
ROBUST DEMAND
SF Bay Area housing demand remained strong during the third quarter and lower mortgage rates helped expand the potential buyer pool. The average 30-year mortgage rate decreased by 70 basis points since the second quarter to the low-6% range. Lower mortgage rates supported stronger buying activity, particularly in the lower price tiers, while demand remained robust for higher-priced homes as well.
The SF Bay Area economy added 30,000 jobs since last year, an increase of 0.7%, with stronger job gains in the North Bay and Santa Cruz County. The unemployment rate remained tight in the low-4%range. The labor market should further improve through the remainder of the year, supporting continued buyer demand.
INCREASING INVENTORY
The inventory of single family homes for sale in the SF Bay Area increased during the third quarter to more than 7,000. The number of homes on the market in Alameda and Contra Costa counties grew to nearly 1,200 each, making these the top two counties for inventory, just ahead of Santa Clara County. Meanwhile, San Francisco County was the only county with fewer homes available than during the same time last year. While the recent increase put active inventory closer to atypical fall season level, inventory was still about 10% less than what might be expected for this time of year.
POSITIVE MOMENTUM DESPITE SEASONAL MODERATION
Sales activity in the SF Bay Area slowed as expected as the summer buying season transitioned to fall. However, even with this seasonal moderation and a relatively tight inventory, sales increased by roughly 10% from a year ago, highlighting continued positive momentum. While sales in most counties slowed during the last three months from a two-year high, there were still more than 2,000 sales in Alameda and Santa Clara counties this quarter.
LOW END OF THE MARKET RESPONDS TO INTEREST RATES
Demand for lower-priced homes is often more sensitive to moves in mortgage rates, and the recent decrease in rates supported stronger sales activity in the under $1.25 million price segment. Closed sales in this price range increased by 7% since the second quarter. This trend also bore out in neighborhoods with greater concentrations of these homes. The number of sales grew quarter-over-quarter and year-over-year in Solano and Sonoma counties, the only two counties where this was the case. Buyers of homes priced greater than $1.25 million can be less sensitive to small moves in rates and sales were little changed from the second quarter.
COMPETITION EASES
Competition among buyers subsided a bit as activity slowed from the summer buying season. More than half of homes sold for more than the listing price, a moderation in line with seasonal trends from the second quarter. These sellers received 10% more than asking on average. The share of homes sold for less than the asking price crept higher to nearly 40% with only a small portion paying the exact list price. Additionally, the average number of days a home spent on the market increased to 28, close to the long-term average of 30 days. The average time on market increased across much of the region, but homes in prime neighborhoods continued to move relatively quickly. In Santa Clara County, homes sold in less than three weeks on average.
Across the SF Bay Area, competition was particularly strong in the $2.5 million to $3.5 million price segment. Homes sold in this price range spent an average of three weeks or less on the market, and nearly two thirds of these homes sold for more than the list price.
ROBUST DEMAND
The end of the summer buying season and greater share of sales activity in lower price tiers resulted in a lower median sales price of $1.29 million. Though pricing decreased from last quarter, the median price was still greater than a year ago. The median price was stable in Solano, Sonoma and Napa counties, with prices nearly unchanged from last quarter. On a year-over-year basis, prices grew in seven of the ten SF Bay Area counties, and were nearly flat in the other three. Yearly gains were greatest in San Mateo and Santa Cruz counties, where the median sales price increased by 5.0% and 4.5%, respectively.
LOOKING AHEAD
The Bay Area housing market has strong momentum as the transition to the fall and winter season begins. Despite some moderation in headline numbers this quarter, healthy buyer demand and sales volume across a range of price tiers highlight the underlying strength of the market. The Federal Reserve also expects to cut the key interest rate one or two times this year. While the impact on mortgage rates is not one-to-one, these interest rate cuts will help lower mortgage rates and improve access to mortgages for potential buyers. Both the improving economy as well as lower borrowing costs could spur even stronger home buying demand in the SF Bay Area and draw more buyers off of the sidelines during what is typically a slower part of the year.
