Welcome to our Q1 Market Report. The following pages present the current state of the Real Estate market throughout the entire San Francisco Bay Area. We begin with economic and real estate commentary presented in partnership with the Rosen Consulting Group (RCG). For our statistical report of the regional housing market, we take a close look at the ten counties associated with the Bay Area. This report focuses primarily on detached single family homes, with added coverage of the significant condominium market in San Francisco. All data is sourced from local Multiple Listing Service (MLS) organizations.
EMPLOYMENT KEEPS RISINGS
Bay Area employment grew by 2.1% year-over-year through February 2019, according to the most recently available data, on par with recent years and greater than the national rate of 1.7%. In absolute terms, payrolls increased by nearly 85,000 jobs. The professional and business services sector, which includes a significant share of technology-related employment, accounted for nearly a third of total job creation. Employment in the sector increased by more than 3.0% year-over-year, or 26,000 jobs. While a few technology firms announced layoffs in recent months, the technology expansion continued and drove elevated hiring in the information services sector, which added 15,000 jobs within the last year.
Employment in the educational and health services sector expanded by 2.5% year-over-year, for a total of 15,000 jobs added, and while payroll growth slowed in the leisure and hospitality sector, the sector still added 10,000 jobs. Payrolls in the trade and natural resources and mining sectors contracted, the only two sectors to not post gains. Hiring in the retail trade sector has been increasingly constrained by the tight labor market and employers continued to report difficulties in finding workers.
While a wait-and-see approach defined homebuyer attitudes through much of the first three months of 2019, tracing back in part to the sudden stock market sell-off that ended 2018 and eroded consumer confidence, the Federal Reserve did its part in March to resolve one source of unease that had weighed on the economy by taking any further interest rate hikes off the table in 2019 and the foreseeable future. Not only did this move soothe investors and provide further momentum to the stock market rally this year, which should encourage some luxury homebuyers to come off the sidelines, but it also provided direct support to the housing market through lower financing costs. The drop in mortgage rates that immediately followed the announced Federal Reserve policy wiped out the last of the increase in mortgage rates from 2018.
Total home sales activity in the Bay Area housing market, as well as statewide, was especially sensitive to the availability and terms of financing in recent years. RCG estimates that a one percentage point decrease in the average mortgage rate could boost total home sales significantly in the current environment. As compared to just four months ago, homebuyers can now purchase more than 10% more home than before, when financed with a 30-year fixed rate mortgage, and between 5% and 6% more home when financed with a 15-year fixed rate or adjustable rate product. While cash will always be king, the material increase in purchasing power for those financing their purchase will increase the number of qualified buyers and competition for homes on the market. We expect the reset in the home finance market to support both increased sales activity and prices in the Bay Area. Current homeowners that either purchased their home or refinanced within the last few years to take advantage of historically low interest rates, may now have an opportunity to trade up without losing their favorable financing terms. As importantly, increased confidence in the local and state economy and recent equity market rally should motivate some buyers and sellers to close on home purchases this year.
As the weather and buying season began to warm up, Bay Area home sales accelerated from February to March, and a number of positive tailwinds are forming that may carry that momentum into April, May and June. In addition to the surprise boon of lower financing costs, which should motivate buyers and sellers, the minting of new Bay Area millionaires has begun. Lyft was the first unicorn out of the IPO gate in March, and there are a handful more to follow. Continued regional economic growth, a surge in newly minted all-cash buyers, and favorable financing terms for those utilizing a mortgage, should contribute to a strengthening housing market through the spring and summer.
The median Bay Area home price increased incrementally to $890,000 in the first quarter of 2019, as compared to $880,000 in the first quarter of 2018. The median home price was relatively unchanged or decreased modestly in a number of Bay Area counties, including Alameda, Marin, Napa, San Francisco, San Mateo, and Solano. Santa Clara and Sonoma counties showed the largest decreases in the median home price, while the largest increase in the median home price was 6% in Santa Cruz County. The median home price also increased by 3% in Contra Costa County.
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