After the Bay Area housing market’s biggest price run-up in years in 2013, with frenzied bidding wars in some markets and cash investors snapping up homes in others, experts are predicting a much calmer market in 2014.
That’s good news for potential homebuyers, since there will be more homes to choose from, fewer bidding wars and less worries about spiraling prices.
It’s not necessarily bad news for sellers. They may see their homes take longer to find buyers, but last year’s big price gains are giving many plenty of equity for the down payment on their next home.
“It will be a sustainable market we can enjoy all year,” said Rick Turley, president of Coldwell Banker Residential Brokerage in the Bay Area.
Lisa Brown, of Pleasanton, watches as her son Dylan, 9, reads to his little brother Chance, 3, before bedtime at their townhouse in Pleasanton, Calif., on Thursday, January 9, 2014. The Browns live in a four-bedroom townhouse and are starting the process of selling their home so they can purchase a bigger home in the same area. Recently the Browns got a flier from a local realtor asking homeowners if they are interested in selling their home. (Jose Carlos Fajardo/Bay Area News Group) ( JOSE CARLOS FAJARDO )
But rising interest rates, expected to top 5 percent before the year’s end, could be a drag on the market, economists and real estate professionals say. And prices, which are already so high, pose a challenge for first-timers.
The East Bay, which has some of the most affordable homes in the Bay Area, is expected to see continued growth in sales. The South Bay should too, although buyers in its most expensive enclaves may still struggle to find their dream home.
The online real estate site Zillow is forecasting moderate price increases, ending the year up 6.4 percent in the San Francisco, Peninsula and East Bay region, and 4.3 percent in the South Bay. That compares with 21 percent in the San Francisco area last year and 16 percent in the South Bay.
“We think there’s going to be more construction and a lot of people who have been freed from negative equity will put homes on the market,” said Zillow’s chief economist, Stan Humphries.
More homes for sale could help Chuck and Lisa Brown, of Pleasanton, who are nervously watching the market.
With only a few single-family homes for sale in Pleasanton, they don’t want to sell their townhouse and end up renting an apartment for themselves and their three children.
Chuck Brown, of Pleasanton, holds his son Chance, 3, as they prepare for bedtime at their townhouse in Pleasanton, Calif., on Thursday, January 9, 2014. The Browns live in a four-bedroom townhouse and are starting the process of selling their home so they can purchase a bigger home in the same area. Recently the Browns got a flier from a local realtor asking homeowners if they are interested in selling their home. (Jose Carlos Fajardo/Bay Area News Group) ( JOSE CARLOS FAJARDO )
“We’re up in the air about how to go about the process,” Chuck Brown said.
They decided to put off listing their home for sale until February, even though they’re already receiving inquiries from agents representing potential buyers.
But this could be their year to make the big move. Trulia economist Jed Kolko calls 2014 the year of the “repeat buyer” who is either moving up to something bigger or downsizing to a smaller home.
Kolko said last year’s double-digit price run-up has helped owners build equity for a down payment on their next home. And buyers will face less competition from investors this year, he said, as 2013’s giddy price increases make it tough to profit from flipping homes or even renting them out.
Tim Sullivan of Meyers Research, a consultant to the home-building industry, would advise the Browns not to sell until they find a home to buy.
In an attractive market such as Pleasanton, with its good schools and strong job base, even if the Browns find something to buy, they “might end up paying a lot more than they think they should because prices have moved so quickly,” he said.
Even though the market is expected to be more balanced between sellers and buyers this year, first-time buyers may find prices already out of their reach. “Affordability is the biggest concern,” said Jennifer Branchini, president of the Bay Area East Association of Realtors in Pleasanton. “Rents and housing prices are both going up.”
Chuck Brown and his wife Lisa Brown, of Pleasanton, hold a flier that was dropped off in front of their townhouse in Pleasanton, Calif., on Thursday, January 9, 2014. The Browns live in a 4-bedroom townhouse and are starting the process of selling their home so they can purchase a bigger home in the same area. Recently the Browns got a flier from a local realtor asking homeowners if they are interested in selling their home. (Jose Carlos Fajardo/Bay Area News Group) ( JOSE CARLOS FAJARDO )
Before the dot-com bubble, Bay Area homeowners spent 38 percent of their income on home payments, said Zillow’s Humphries. They’re now spending just over 40 percent.
“Our concern is when rates go back to even 5 percent, people will be spending 46 percent of their income. That’s substantially above the historical rate. And if (rates) go to 6 percent, they will be spending more than half their incomes on house payments,” he said.
Another trend expected to continue is the “globalization” of the hottest parts of the Bay Area’s housing market.
Sun Ming, 45, who lives in Hangzhou, China, was here last week shopping for a house. She said she’s looking in Cupertino to be near a friend who recently bought a home there, and plans to tell several other friends to think about buying a home in Silicon Valley.
Sun said through her translator — Coldwell Banker agent Coco Tan — that her son is probably going to attend graduate school in the Bay Area in a couple of years, and she plans to come here then.
She said she’s looking for homes under $2 million, and as far as prices go, Silicon Valley beats China two ways. The cost per square foot of a home here is less than in China, and there, you buy the home but lease the land from the government. In the U.S., “It’s yours forever,” Sun said.
Carole Rodoni of Bamboo Consulting, a San Mateo real estate consulting group, said she’s “optimistic but cautious” on increases in the number of homes for sale, and doesn’t expect last spring’s frenzied price appreciation to be repeated.
“It will be a good year, a decent year, but not like last year,” she said. “We need a couple years of decent.”
But she said sellers “need to understand that interest rates will go up and appreciation will flatten out. Everybody waits until it’s too late.”