As detailed in our last report, there was considerable cooling in the market in the second half of 2018, though less so in San Mateo County than in Santa Clara. The month of January typically has the fewest sales of the year, sales which mostly reflect activity during the December market doldrums: We don’t consider its data to be a reliable indicator of conditions or trends. But activity is picking up as the new year gets started, and the beginning of the spring sales season – which in the Bay Area can start as early as February – will soon provide more direction as to where the market is heading.
Median sales prices can fluctuate significantly by month and by season, and they are not perfect indicators of changes in fair market values. Longer-term trends are much more meaningful than short-term changes.
Median House Prices since 1991
Median Condo Values since 1996
In this long-term chart on median condo values, monthly and seasonal fluctuations have been smoothed out.
Rent Rate Appreciation since 2010
Generally speaking, there should be a relatively close correlation between home prices and rents: They constitute the 2 main options for paying for one’s housing. It is not an apples-to-apples comparison, because there are other issues at play, such as building home equity, the ability to remodel and improve, certain tax benefits (though diminished by recent tax law changes), and so forth. Still, if one rises and the other does not, most economists would suggest an imbalance in the market that will probably be corrected sooner or later.
The most common home sale type in San Mateo County is a 3-bedroom house with a median size of 1500 square feet.
Silicon Valley Home Sales by Price Segment
Since the recovery began in 2012, the number of Silicon Valley home sales under $1 million has dramatically decreased as prices have migrated steadily higher. In 2018, more than half of those sales occurred in San Jose, which features many of the most affordable neighborhoods in the region. Generally speaking, in San Mateo County, smaller homes and the more affordable communities are in the north, close to the SF border.
San Mateo County Higher-Price Home Sales
In 2018, a new high in luxury home sales volume was hit in San Mateo, led by an enormous spike in Q2. Q2 is typically the biggest quarter of the year for high-end sales and home sales generally, a quarter we will soon be entering again.
Median Prices, Average Dollar per Square Foot
& Median Home Size by City
City values are influenced by many factors, including location, of course, but median home size is another basic consideration. All things being equal – especially in general quality of location – a smaller home will have a lower price, naturally, but typically a higher average dollar per square foot value.
When the community with the largest homes, Atherton, also has the highest $/sq.ft. value (and by far the highest prices), you know you have found the most expensive real estate in San Mateo – a county with many, very expensive cities and towns. In fact, by almost any measure, Atherton has the most valuable homes in the Bay Area. (Lot sizes are also a factor.)
The 2-4 Unit Building Market
The residential investment market of 2-4 unit buildings has seen a similar appreciation trend to that of homes, but sales volumes have been declining for the past 4 years.
Era of Housing Construction
The vast majority of home construction in San Mateo County occurred in the 4 decades from 1940 through 1979. As a point of context, in San Francisco, almost half of all housing units were built prior to WWII, when Silicon Valley was still very sparsely populated.
A Very Multi-Cultural Place –
Bay Area Demographics
Before looking at the charts below, here is today’s demographics quiz question: What 4 nationalities account for the origin of the highest numbers of Bay Area residents?
Market Dynamics by Price Segment
The next 3 charts measuring the Silicon Valley homes market are all consistent: 1) The first half of 2018 was crazy hot and then cooled off in the second half, and 2) Supply and demand dynamics in all price segments under $3 million were very similar, but a somewhat softer market prevailed in luxury home sales (which is not unusual).
Stock Prices & Interest Rates
As seen in the first chart below, the changes in the S&P 500 Index have been dramatic since the 2016 election, seeing an enormous jump to its most recent peak in September 2018 before entering a period of substantial volatility. Ups and downs and major volatility in financial markets – and their effects on household wealth – can play a large role in local real estate markets, especially in the higher price segments.
However, as illustrated below, the movements in the S&P 500 look distinctly modest compared to the stock price changes of some of our local high-tech giants. It has been has been a wild, queasy ride for investors and stock-owning employees – and for many home buyers.
If the big, Bay Area unicorn IPOs go forward as expected, and the market greets them enthusiastically, that could play a substantial role in demand as thousands of employees suddenly feel considerably more affluent.
Interest rates are a major factor in housing costs and the ability to qualify for home loans. After hitting its most recent high in November, rates have dropped off considerably. Such declines sometimes spark renewed buyer motivation to move forward quickly.