Bay Area luxury housing market cools as economy slows
Bay Area luxury housing market cools as economy slows
Venture capitalists tightening their purse strings, startups shedding jobs and the continuing dearth of IPOs could be taking their toll on the Bay Area’s housing market.
By almost any measure, the Bay Area’s roaring economy is cooling. The region’s housing market is fueled by wealth creation and new jobs that have been hallmarks of the regional economy.
The hardest hit segment of the Bay Area’s housing market is the luxury sector, according to research released Monday by San Francisco-based Paragon Real Estate Group.
“It appears the luxury segment has softened to a greater degree than more affordable segments, some of which remain very competitive,” Paragon said. “The number of high-end listings in MLS has jumped while sales have plateaued or declined.
“When economic uncertainty swells, this is a market segment often affected first,” Paragon said.
Paragon cites the supply of high-end condo projects to market as well as the fact that expensive homes are usually a buyer’s second or third home, not a primary residence.
Apartment rentals also reflect job losses more quickly, with Paragon saying asking-rent appreciation has plateaued and that “it is quite possible that actual lease rents have already started to decline.”
There’s been no shortage of things to worry about when it comes to the Bay Area economy.
“In mid-2015, fears regarding the world economy burgeoned,” Paragon said in its report. “Bay Area IPOs started to dry up — over 80 in 2013 to mid-2015; one so far in 2016,” Paragon said. “The valuations of many high-profile IPOs and unicorns declined, and the fire hose of venture capital investment slackened.”
Paragon notes that employment in San Francisco dipped from December 2015 to April 2016 for the first time in six years. Granted, the employment decline was only 900 jobs, but the shift in direction could have a chilling effect on the jubilation that San Francisco homeowners felt in recent years when seeing what their neighbor’s home just sold for — information often highlighted by real estate agents mass mailing postcards to them. Some of those postcards in recent weeks highlight the agent’s ability to navigate a slowing housing market.
That’s grim news for those who had been counting on soaring home equity who are now nervously waiting to see whether their neighbor’s lower-than-expected asking price was designed to spur a bidding war or if it reflects new realities of the housing market.
Paragon is quick to point out that a slowdown doesn’t mean a crash.
“Slowing or plateauing does not imply a crash, and the cooling of a desperately overheated market to something closer to normal is not bad news,” Paragon said. “Indeed, an improvement in housing affordability — and supply — would be good news, both socially and economically.
“Likewise, a shift from irrational exuberance in the local economy to rational optimism would be a healthy change,” Paragon said.
Unfortunately, a plateauing, or even slight decline, can feed on itself as those shopping for a home step back from the market in anticipation of lower home prices later.
The cooling housing market is no surprise. Zillow (NASDAQ: ZG) said last summer that the nation’s housing market would cool, even in the white-hot Bay Area.
Paragon previously reported that the Bay Area’s luxury housing market was cooling.
This month Equity Residential lowered its revenue forecast for the second time this year, citing in part under performance at its San Francisco properties.
“The revision is being driven by continued weakness in its New York portfolio and recent underperformance in the company’s San Francisco portfolio,” Equity Residential (NYSE: EQR) said. “New lease rates are not meeting original projections due to new rental apartment supply.”
San Francisco’s cooling economy is taking a toll on the Bay Area’s hot housing market, according to a new report from San Francisco-based Paragon Real Estate Group.
