Bay Area median home price fell 2.3% last year, first drop since 2011
The median price paid for an existing, single-family home in the Bay Area fell in 2019 for the first full year since 2011, according to data from the California Association of Realtors.
The median price, the point at which half of homes sold for more and half for less, fell to $928,000, down 2.3% from $950,000 in 2018.
Forces pushing prices up — the region's booming economy, chronic housing shortage and a hotly anticipated flood of initial public offerings — were offset by negative factors, including strained affordability, outmigration to cheaper locales and shrinking federal tax breaks for homeownership.
The association's numbers do not include condominiums, new construction and homes that were not entered into a multiple listing service.
Of the nine Bay Area counties, Santa Clara had the biggest price drop, 5.6%. However, it had been the strongest the year before, rising 13.5%, said Patrick Carlisle, chief market analyst with Compass, a real estate brokerage.
Oakland-Berkeley was the strongest submarket last year, attracting buyers seeking an "urban ambience" at a lower cost than San Francisco, he said.
Abio Properties agent Shannon Prokup was stunned when a home she listed on Ashby Avenue in Berkeley attracted more than 400 people at open houses last Saturday and Sunday. The home has two bedrooms, one bathroom and 1,100 square feet; it is priced at $825,000. "I was not expecting that kind of turnout," she said. But "there is not a ton on the market under a million dollars. And interest rates are still low."
Prices in all of Alameda County, however, fell 2.1% last year. Prices were also down in Marin, San Mateo and Sonoma counties but up slightly in Contra Costa, Napa and Solano counties. San Francisco's median price, $1.6 million, was dead even with 2018.
The median price in San Francisco hit a high in the second quarter of 2019, "probably driven by IPO hype," Carlisle said.
A string of large San Francisco companies went public, starting with Levi Strauss and Lyft in March, Pinterest in April, Uber in May and Slack in June. Most employees of these companies, except for Slack, which sold shares in a direct listing, were prohibited from selling their shares for up to six months.
In March and April, "A bunch of people said, 'I'm not going to sell now, I'll wait until the millionaires come out.' Then there were buyers who said, 'We need to buy now before we are competing with all these millionaires,'" Carlisle said. "The second quarter got exacerbated by the sellers waiting for the millionaires and buyers trying to beat millionaires to the market."
And it wasn't just in San Francisco. "The rush happened before everything went IPO," said Linnette Edwards, co-founder of Abio Properties in the East Bay. "I had buyers who were adamant about buying before the IPOs," including one couple that was expecting a baby. "They called it baby IPO," she said.
Jason Buttorf, a Compass agent in San Francisco, had a client who works for Slack. He and his wife had been renting in Golden Gate Heights and eyeing homes there for years. In July, shortly after Slack went public, their "dream home" came on the market and they snapped it up for over $2.5 million.
By the time fall rolled around, however, the market "was mysteriously quiet and uneventful," Buttorf said.
Carlisle agreed. "The hype might have affected (the market) more than the reality," he said.
Prices typically peak in the spring and summer and decline in the fall and winter. On a year-over-year basis, Bay Area home prices did better in the second half than the first, largely because interest rates declined, said Jordan Levine, the Realtor association's deputy chief economist.
But there's no doubt that the market has cooled. The median price paid for a single-family existing home in the Bay Area fell from $727,000 in 2006 to $430,000 in 2009. It rose to $500,000 in 2010 (thanks in part to a first-time home buyer credit), then dropped again in 2011, to $460,000. After that it embarked on a string of stratospheric increases that brought it to $950,000 in 2018.
"As the economy picked up, home prices in the Bay Area, where the economy was outperforming the state and nation, bounced back very quickly," Levine said. "As prices have risen, affordability has become more of a problem, which limits some price appreciation."
Federal tax changes that took effect in 2018 have also "increased the cost of homeownership compared to what it was in the past," he added. Congress reduced the mortgage interest deduction on loans originated after 2017 to interest on $750,000 in debt, down from $1 million. It also capped the previously unlimited deduction for all state and local taxes combined, including income and property taxes, at $10,000.
"You are seeing that play a role, particularly in the Bay Area, where most homeowners are going to be impacted by those caps," Levine said. But, he added, you can't blame it all on tax changes. "We have seen the pace of growth slowing for several years."
For the month of December only, the median price paid for a single-family, existing home in the Bay Area was $908,750, down 1.8% from November but up 6.9% from December 2018, according to numbers released Friday by the Realtors association.
"December and January are almost always the lowest prices of the year," Carlisle said. "The whole market is seasonal but the luxury market is fiercely seasonal." High-end sellers leave for the holidays and take their homes off the market, assuming high-end buyers have also left. As a result, the market gets dominated by lower-end sales, which pulls down the median price.
The median price paid for a single-family home in San Francisco fell to $1.45 million in December, down 10.4% from November and down 3.3% from December 2018. That was the worst showing of any Bay Area county.
On a year-over-year basis, the December median price was up 3.7% in Alameda County, 8.6% in Contra Costa, 2.3% in Marin, 5.5% in Napa, 6.5% in Santa Clara, 7.2% in Solano and 1.3% in Sonoma. It fell 0.5% in San Mateo.
For the state as a whole, Levine predicts that low interest rates will continue to bolster buyer demand but shrinking inventories will keep sales from rising more than 1% or 2% this year. "We see price growth in the mid-single-digit range."
Whether the Bay Area does better or worse than the state "is a tough call," he said. The Bay Area "has upward momentum from the demand side," as job growth keeps unemployment near record lows. But the inventory shortage is even more acute in the Bay Area, "which is spilling over to the demand side," with people leaving the area in search of cheaper housing.