The local housing market reached new record highs in 2018 although it cooled off in the second half, likely due to the political climate, the jittery stock market and the cancellation of the free trade agreement. The number of offers on listings declined in the second half of the year but houses generally were selling at or above the list price excluding the upper-end listings. The strong economy coupled with still historically low interest rates motivated buyers to buy before interest rates climb higher. However Chinese buyers were less active in the local market in 2018 due to their government's tightening of money outflow and the drop of the Chinese stock market.
The current hot real estate market cycle could be due for a pullback. It has been 10 years since the last market cycle ended in 2008. Average and median prices have more than doubled, and affordability is nearing lows that typically appear at the end of a cycle. Some economists predict that the next housing recession will begin in 2020. They note that, if the Fed raises rates too quickly, it could slow down the economy and thus lead to a recession. As discussed further below I believe the local market will remain strong in 2019.
Median home prices increased 8.5% in Palo Alto to $3,200,000, 14% in Menlo Park to $2,600,000, 40% in Atherton to $6,650,000, 12.6% in Los Altos to $3,400,000, +25% in Los Altos Hills to 4,850,000, 17% in Mountain View to,3,320,000, 11% in Portola Valley to $3,330,000, and 39% in Woodside to $3,262,500.
Median Sale Price and Appreciation In The Last Two Years
Challenges to Home Sales in 2019
- Long-time homeowners are expected to remain in their homes to avoid paying significant capital gains taxes due upon sale and to maintain low existing
property taxes and low rates on current mortgages.
More single family units are expected to become rentals.
Affordability has reached a new low of 17% in California.
Mortgage interest rates are expected to continue to move higher. According to mortgage professionals 30 year interest rates will rise to 5 percent but will still remain low by historical standards.
The Positives in 2019
- The local economy is strong and job growth will continue. The Silicon Valley economy grew 4.7% in 2018, much higher than the nation’s 2.8% growth.
- The stock market has experienced some correction without going into a freefall.
- Unemployment rate is 2.4% in Silicon Valley.
- Wages are expected to increase.
- More millennials will be leaving the nest and looking to buy homes.
- The net cash gain to sellers is the highest since 2006
2019 Real Estate Industry Outlook
I am optimistic about the economy and the housing market as the new year begins. High demand and robust economic conditions are reasons to be hopeful and rising interest rates alone may not slow down the market. Unless there are major changes in the fundamentals of the economy or significant political upheaval, prices will continue to rise. I expect our local market to increase 7-8% in value.
Here's the bottom line:
For buyers, interest rates will rise in 2019 but will remain at near historic lows and 2019 will be a better year to buy a home.
Home sellers need to be cognizant that buyers are more price sensitive now. You can still sell your home for a strong price if you price it competitively.
Please share my semi-annual report with your friends who might be looking to buy or sell their home. I will be happy to answer any questions or discuss in further detail the state of the real estate market.