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Diablo Valley & Lamorinda
Heading into the 2019 Market
February 2019 Report
As of early February, the government shutdown is over - at least for a couple weeks - the stock market has recovered dramatically from its late 2018 plunge, and interest rates are well down from November highs. A good number of large, local, high-tech "unicorns" continue to plan IPOs in 2019. All these are positive economic indicators for the Bay Area real estate market - but indicators have proven to be quite volatile over the past 5 months, and future movements are not to be taken for granted.
As detailed in our recent reports, there was considerable cooling in Bay Area markets in the second half of 2018. The month of January typically has the fewest sales of the year, sales which mostly reflect activity during the December market doldrums: We don't consider its data to be a reliable indicator of conditions or trends. But activity is picking up, and the beginning of the spring sales season - which in the Bay Area can start as early as February - will soon provide more direction as to where the market is heading.
Median House Prices since 2000
As illustrated below, median sales price changes across Diablo Valley and Lamorinda have generally followed similar trend lines over the past 20 years. The town of Diablo is not included, because its low annual number of sales causes abnormal fluctuations unrelated to changes in fair market value - but Diablo typically sees the highest median house sales prices in the region.
The most common home sale in the area is a 4-bedroom house with a median square footage of just over 2500 square feet. This is unusual for Bay Area markets, where the most common sale is almost always a considerably smaller 3-bedroom house. In San Francisco, the most common sale is a 2-bedroom condo.
Generally speaking, the Diablo Valley & Lamorinda region has the biggest percentage of larger homes of any major market in the Bay Area. In San Francisco, for example, less than 10% of homes sold are 2500 square feet or larger, while here the percentage is over 31%.
Median Home Price, Average Dollar per Square Foot
& Median Home Size
In the following series of charts, for further context, we've added in cities adjoining what we typically describe as the Diablo Valley and Lamorinda market area. Median sales prices and average dollar per square foot values are affected by a wide range of factors - location, of course, but also median home and lot sizes. Individual home values are affected by dozens of factors, which can only be addressed in a specific comparative market analysis (CMA): How a median sales price applies to any particular home is unknown without a CMA.
Median Sales Prices
Average Dollar per Square Foot
Median Square Footage
The range in median house size is wide, and that plays a major role - though it is not the only factor - in housing affordability across the many communities.
Home Size vs. Average Dollar per Square Foot
This next chart looks at how home size affects dollar per square foot values within a handful of affluent, local communities. All things being equal - especially in general quality of location - a larger home will sell for a higher price, but a lower dollar per square foot value. This explains why the $/sq.ft. values in very affluent cities with large or very large houses can sometimes be the same or even lower than values in less affluent cities with much smaller home sizes.
Luxury Home Sales
In 2018, the number of luxury home sales hit new highs in every price segment.
Market Dynamics by Price Segment
The next two charts illustrate the differences in buyer demand for homes above and below $2 million. Around the Bay Area, luxury homes have softer market dynamics than more affordable homes. As seen below, in our market, it's not unusual for the average days on market before acceptance of offer for more expensive homes to be twice as high (or more), while the percentage of active listings going into contract in a given quarter is often half the percentage of homes under $2m. Part of this reflects the much smaller buyer pool for luxury homes, but it also reflects a greater tendency on the part of sellers to overprice large, gorgeous homes.
Did Someone Say "Multi-Cultural"?
Bay Area Demographics
Before looking at the charts below, here is today's demographics quiz question: What 4 nationalities account for the origin of the highest numbers of Bay Area residents?
Stock Prices & Interest Rates
As seen in the first chart below, the changes in the S&P 500 Index have been dramatic since the 2016 election, seeing an enormous jump to its most recent peak in September 2018 before entering a period of substantial volatility. Ups and downs and major volatility in financial markets - and their effects on household wealth - can play a large role in local real estate markets, especially in the higher price segments.
As illustrated in this next chart, the movements in the S&P 500 have been distinctly modest compared to the stock price changes of some of our local high-tech giants. It has been has been a wild, queasy ride for investors and stock-owning employees - and for many home buyers.
If the big unicorn IPOs go forward as expected, and the market greets them enthusiastically, that could play a significant role in increasing demand as thousands of employees suddenly feel considerably more affluent.
Interest rates are a major factor in housing costs and the ability to qualify for home loans. After hitting its most recent high in November, rates have dropped off considerably. Such declines sometimes spark renewed buyer motivation to move forward quickly.
Compass is a licensed real estate broker (01991628) in the State of California and abides
by Equal Housing Opportunity laws. All material presented herein is intended for informational
purposes only. Information is compiled from sources deemed reliable but is subject to errors,
omissions, changes in price, condition, sale, or withdraw without notice. No statement is made
as to accuracy of any description. All measurements and square footages are approximate. Exact
dimensions can be obtained by retaining the services of an architect or engineer. This is not
intended to solicit property already listed