Mainstream financial media drummed up a narrative in 1H19 about how this summer’s tech IPOs would lead to overnight millionaires across the Bay Area, and in return, would produce the next leg up in the region’s real estate market.
The economic narrative never gained traction, partly because of the IPO market imploded. New issues like Lyft and Uber have seen shares nearly halved in the last six months, leaving many investors underwater.
As for the IPO market pumping out overnight millionaires, well, that remains to be seen as the Bay Area real estate market continues to deteriorate, with expectations of a further plunge in 1H20.
The Bay Area median sales price in September for an existing home, across nine-counties including Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, plunged 4.7% YoY to $810,000, according to real estate data firm CoreLogic.
Bay Area home prices are some of the most expensive in the country and might have put in a cyclical peak in 2019.
“I think the immediate trigger a year ago was the run-up in mortgage rates,” said Dr. Frank Nothaft, a chief economist at CoreLogic.
“Mortgage rates got posted about 5% a year ago, and that put up a chill on all potential buyers in the market place. When mortgage rates go up, that means the monthly mortgage payment is just taking that much bigger of a bite from family income.”
San Jose-based realtor Holly Barr told NBC Bay Area that prices have been slipping for more than a year. Barr noted that price growth has stalled in the last several years, likely marking the top of the market.
“If you look at the trend over the last two years, it’s definitely come down,” she said.
The region has seen YoY sale price declines in the last several months as the slowdown continues to worsen. This recent period of waning demand comes after seven years of rapid price growth.
Agents overwhelmingly said buyers have been on the sidelines waiting for the right deal. Many wanted to avoid a bidding war and needed prices to correct further before they entered offers.
Some buyers were concerned about a late 2020 recession, trade war uncertainties, and the threat of a corporate debt bubble implosion.
The S&P CoreLogic Case-Shiller San Francisco Home Price Index has likely peaked in a double top fashion.
The Federal Reserve usually embarks on an interest rate cut cycle in preparation for macroeconomic headwinds developing in the economy that eventually damages the housing market.
As shown below, the Case-Shiller San Francisco Home Price Index tends to fall in a cut cycle.
Bay Area home prices will continue to weaken through 1H20. At what point do millennial homeowners, most of whom bought the top of the market, panic sell into a down market?