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Housing Bubble 2 Lost its Mojo in the San Francisco Bay Area: House Prices Drop 8%
by Wolf Richter • Jul 18, 2019 • 68 Comments • Email to a friend
For the 9 counties, the median price in June dropped back to June 2017 levels.
Today we got the final numbers from the California Association of Realtors (CAR) about the status of the housing bubble in the nine-county San Francisco Bay Area, which includes some of the most expensive sub-markets in the US, such as the most expensive zip code in the US, plus the Wine Country (Napa and Sonoma), Silicon Valley (Santa Clara and San Mateo), San Francisco itself, beautiful Marin just across the Golden Gate Bridge from San Francisco, the East Bay (Alameda and Contra Costa), and Solano County, toward Sacramento.

In eight of these nine counties, house prices fell in June compared to June last year. June is around the seasonal peak in terms of prices, but by Bay Area standards, it just wasn’t very peaky. The median price of house sales that closed in June dropped 8.1% compared to June last year, which put it back on the same level as June two years ago

Patrick says

dropped 8.1% compared to June last year

It should be a pause for now. Unless they fix more sustaining building per demand, very likely it will go up on limited supply.

It's not just supply and demand.

It's also lending standards. Fortunately, lending standards are tighter than they were during the great housing bubble of 2007.

My prediction: Bay Area housing prices will slowly decline for the next decade.

TrumpingTits says

Patrick says

Fortunately, lending standards are tighter than they were during the great housing bubble of 2007.

Seriously?

I see signs for 'no money down' at the Muni stations all the time now.

I don’t think any lender today is writing such a loan. You may be missing something in the fine print.

What do people think is driving the prices down?

I would guess a combo of rising interest rates, along with the changes on writing mortgage related interest off on your taxes, which disproportionately hits big ticket housing like the bay.

btw - It's nice to see a housing post, opposed to yet another political post.

Patrick says

My prediction: Bay Area housing prices will slowly decline for the next decade.

Due to tighter lending standards, or other factors?

I am bearish on housing in the Bay Area due to Prop 13, high median age of homeowners, some businesses leaving due to the regulatory climate, a lot of speculation by domestic/foreign investors. Also, for fun... look up Academy Art University, they own a chunk of downtown SF and is coming on the market due to lawsuits.

I should note, I worked in a mortgage company and refis were common for some homeowners every two years. I do not think SF is different outside of the rest of the country. HELOCs anyone?

Also I have been prepping for a marathon, most houses I see have crappy lawns for a million dollar house and a Mercedes-Benz in the driveway. Something doesn’t match. I expect a crash, which is one reason I moved here.

Hircus says

What do people think is driving the prices down? ... interest rates ... writing mortgage related interest off on your taxes ...

I think 30 year fixed mortgage interest rates have come back down to 3.5%, although they were at 4.5% a year ago. If 4.5% was hurting the housing market then the drop to 3.5% should help. Maybe there is a delay. That said, even 4.5% is very low by historical standards. My parents bought their house in 1965 when the USA was sort of kind of under the gold standard; they just missed 4.0% and instead got 4.25%. Still, that was considered very low interest rates for a 30 year home mortgage.

Mortgage writeoff... If you're itemizing to take mortgage deduction, you only get to write off $10k of state and local taxes ("S.A.L.T.") under the 2018 Trump Tax Plan. However, many people who tried to write off $40k of SALT in the past found out that alternate minimum tax ("A.M.T") severely limits their writeoffs anyway. Overall, the new tax rules probably aren't helpful to silicon valley residents with a big mortgage. If you watch the anti-Trump news, you'd be convinced you were doomed, but the reality is more of a mixed bag and probably not as bad as the anti-Trumpers would have you believe.

One thing I've noticed here in Sunnyvale 94087 is that there is an enormous increase in apartments and condos coming online. That's going to depress the existing real-estate market two ways: there are now alternatives to owning a home and living in the more-congested area is even less desirable than ever.

Another drop might be from rich Chinese people slowing up. Uncertainty of trade tensions as well Chinese government crackdown on sending money overseas may be putting a damper on all-cash purchases.

Hircus says

What do people think is driving the prices down?

The prices have got so high that it does not make sense to be a landlord. The hoi polloi can only be squeezed so far. At this point there is nothing left but the rind.

Hircus says

What do people think is driving the prices down?

Underwriting standards, rates, Chinese money has slowed considerably, but the #1 most important factor, prices are way too high.

No one is going to lock themselves into a 30 year loan dependent on them making $300,000 for every year of the loan. That's lunacy.