November 1, 2018

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Executive Summary:

  • Bay Area home sales declined by 20 percent year over year in September, with all counties posting drops, led by Sonoma and Contra Costa. In 2018, the region’s housing market activity is trending 4 percent lower year to date.
  • Santa Clara County posted sales declines across all price ranges.
  • Bay Area inventory increased by 14 percent year over year in September — about 2,000 more homes — with Santa Clara County contributing more than 50 percent to the total increase.
  • While appreciation has slowed from its spring peaks, Bay Area home prices are still up by 10 percent on an annual basis. San Mateo County maintained the strongest price growth at 19 percent.
  • Home price reductions were up by 7 percentage points, from 16 percent last year to 23 percent this September. Sonoma and Santa Clara counties posted the largest increases in price reductions.
  • The re-balancing between buyers and sellers is driven by affordability constrains and buyer fatigue, with the biggest change seen in relatively affordable and previously fiercely competitive markets.

September Bay Area home sales slowed markedly from one year earlier, with an overall decline of 20 percent, ranging from a 9 percent decrease in San Francisco to a 27 percent drop in Sonoma County. With September’s decline, year-to-date sales are now 4 percent below 2017.

Figure 1 summarizes changes in sales by Bay Area county from last September and overall year-to-date changes compared with last year. San Francisco is the only region where overall 2018 sales are still above last year despite September’s decline.  By contrast, Santa Clara County posted the region’s largest year-to-date drop of 8 percent. Note that for the purposes of this analysis, all property types have been included.

Figure 1:Year-over-year and year-to-date change in home sales by Bay Area county

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Source: Source: Terradatum, Inc. from data provided by local MLSes, Oct. 7, 2018

Figure 2 illustrates September home sales activity for the last four years. While activity between September 2015 and 2017 trends relatively in line, this year’s drop appears most obvious in all counties. As noted in Figure 1, Sonoma County posted the relatively largest decrease, followed by Contra Costa County.

Figure 2: September home sales activity by Bay Area county, 2015-2018

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Source: Source: Terradatum, Inc. from data provided by local MLSes, Oct. 7, 2018

All told, September market activity shows a changing dynamic between buyers and sellers. As noted above, both sides may believe that housing price growth has reached its peak and are acting accordingly, with buyers pulling back and sellers rushing to list their homes before the slow winter season kicks in. To some extent, volatility in financial markets and geopolitical developments may be exaggerating consumer fears. However, the underlying macroeconomic environment and California’s continued growth confirms that housing markets may be returning to a more normal balance between buyers and sellers rather than preparing to topple.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY),Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.