Last months economic news put a damper on prospects for a robust national recovery. With lower-than-expected domestic job creation and a slight increase in unemployment, combined with equity market sell-offs and uncertainty in the eurozone, the national media immediately sounded broad-based alarms.
While the news from Washington may have seemed bleak, the truth is that the San Francisco Bay Area is thriving on its own regional economic drivers.
Our research at Pacific Union International suggests that, especially when it comes to the residential real estate industry, our markets continue to benefit from record-high demand and both seasonally and historically low inventory. Since February, we have been encouraging home sellers to join the party.
Here are positive economic indicators that drive our markets – and paint a fundamentally stronger picture of the real estate market.
- More jobs fuel the economy’s engine. The Bay Area economy is improving significantly faster than the rest of the country. In April, San Francisco’s unemployment rate was 7.4 percent – down a significant 3.5 percentage points from the statewide average of 10.9 percent, and down 0.7 percentage point from the U.S. average of 8.1 percent. Marin County’s numbers were even better, with an unemployment rate of 6.4 percent – the lowest in California. The six Bay Area counties served by Pacific Union International’s real estate professionals consistently post stronger employment numbers than any other region in California. This drives consumer confidence and residential real estate demand.
- Home sales are booming. Bay Area home sales are setting new high-water marks, with April up 9.2 percent compared with April 2011. In fact, we’ve already projected, based on our Q1 results, that 2012 sales will exceed the 10-year average in the Bay Area for the first time since 2005. The number of homes on the market is down as prices move up. We believe the market is changing with a velocity we haven’t seen since its collapse in September 2008.
- Mortgages are “on sale” at historically low rates. Treasury rates hit record lows last week, with the 30-year Treasury bond’s interest rate falling to 2.54 percent and the benchmark 10-year Treasury note hitting a low of 1.46 percent. Average U.S. rates on 30-year and 15-year fixed mortgages dropped to record lows with the 15-year loan dipping below 3 percent for the first time ever, according to Freddie Mac. That means it’s more affordable than ever to finance a home – and there are significant financial benefits to buying rather than renting a home.
- It’s a seller’s market. Demand is outstripping inventory in the Bay Area regions Pacific Union International serves, a trend that’s echoed in Silicon Valley. Once again, it’s time for sellers to join the party.
- Foreclosures are fewer. Foreclosure rates continue to drop around the Bay Area. In April, the last month for which data was available, default notices fell more than 9 percent from March in Santa Clara County, 24 percent in San Mateo County, 21 percent in Contra Costa County, and 25 percent in Alameda County.
- And don’t forget Facebook. The IPO may not have lived up to the hype, but it will still mint plenty of millionaires. And Facebook will create huge boosts for the tech industry, the local economy, and of course, real estate. Silicon Valley is seeing soaring housing prices, and the trickle-up effect will benefit San Francisco and other Bay Area cities – not to mention the Sonoma and Napa County wine country and Lake Tahoe second-home and vacation-rental markets.
Here are a few positive internal indicators driving a vibrant outlook from Pacific Union International. Our view is that the Bay Area economic recovery is healthy and as a result, our local real estate markets are thriving.
We’re constantly reminded that real estate is local – and you can’t assume that national trends apply to our neighborhoods.
Pacific Union International Sales Data (All Regions)
The table above illustrates significant and sustainable housing demand up over 30 percent year-over-year. Multiple offers are contributing to stable pricing. Units sold are significantly higher in Sonoma (Santa Rosa) and Contra Costa counties, which resulted in the modest overall decrease in average sales price.
Pacific Union International New-Escrow Trends (All Regions)
- The 26-week average increased year-over-year (trailing 12 months May 2012 vs. trailing 12 months May 2011) by 25.7 percent in unit volume and 23.5 percent in dollar sales volume.
- The 10-week average increased year-over-year (trailing 12 months May 2012 vs. trailing 12 months May 2011) by 17.5 percent in unit volume and 10.5 percent in dollar sales volume.
It’s interesting to note the significant increases in the 10-week averages through March and April exceeded the prior year averages in both units and sales volume by 30 to 40 percent overall.
These 10-week averages have held very steady at roughly 75 to 80 new escrow units per week and $70 million to $80 million in new-sales volume per week. Both are very positive leading indicators of sustained growth.
This equates to 10 percent or less in change/variance over the last 90 days. Our volume continues to be stable and consistently strong year over year.