If you have not noticed yet, fear sells.
The unconventional nature of the President elect has already generated the worst scenarios: stocks will stumble by 50%, bond market will fall, the Bay Area real estate will crash, the locusts are coming... you name it.
Since I am probably not as smart as I think I am - Thank you, David Foster Wallace Infinite Gest for pointing this out. In all fairness he later adds " We are not as stupid as we think we are." - , I tend to turn to field experts to hear what they have to say, based on their years of experience and observation: Ken Rosen, Chairman, Fisher Center for Real Estate & Urban Economics, UC Berkeley, and C.A.R. (California Association of Realtors) Vice President and Chief Economist Leslie Appleton-Young.
I will conclude with my grain of salt, based on fourteen years of experience as a full-time Realtor on the Peninsula.
Last November Ken Rosen launched the bi-annual symposium with his outlook for 2017, based on the President elect's campaign economical proposals, funneled to the Bay Area economic reality.
- More growth: Expected real GDP growth is 1.5% to 2.5% (2019) - Messy in 2020.
- More job creation on the national level. However, the tech slowdown becomes more real in the Silicon Valley and San Francisco: the lack of clear path to profitability means no funding and less IPOs. The good days of venture capital are over (less $ in, less $ out.) Refer to the Fortune magazine article chillingly titled the "Slaughtering of the Unicorns." Note: the Bay Area is at full employment capacity, beside the normal residual mismatch of job openings and skills.
- More inflation: On the macro economic level expect an explosion of the deficit (2.5% to 6.5% of GDP), more inflation (up to 4% in 2019) and some economic growth due to 1/ promised lower tax rates on personal income, lower capital gain tax, elimination of Obamacare and inheritance tax, and 2/ $550 millions spent on infrastructure and defense spending (to be borrowed.)
- Higher interest rates: They have been too low for too long. Expect an increase of 3/4 point, spread out over the year.
- Less lending regulation and bureaucratic oversight: Regulatory and financial reforms, namely repealing Dodd-Frank, should make it easier to obtain a loan, especially for first-time home buyers.
- Proposed trade and immigration reforms pose a risk, especially critical in the Bay Area, so dependent on flows of capital, people, goods etc...
What it means for real estate
- The foreign residential and commercial acquisition is decreasing.
- Luxury market: The high-end apartment market has seen the turn (rents are lower) but retail is at its best. On a general note, the high-end consumers feel great, the low-end consumers feel left behind.
- The treasure market bubble is correcting - NOT a residential real estate bubble.
From a perspective of the whole Californian market, C.A.R. Vice President and Chief Economist Leslie Appleton-Young plans for a robust demand for housing in 2017, even faced with low supplies and deteriorating housing affordability. Therefore the housing market should post a modest increase.
- Housing affordability has been the lowest in six years in 2016. Expectations for the 2017 market show an increase in price (47% surveyed) and interest rates (65%), slight inventory increase (36%) and flat sales (47%.)
- The number of sales decreased in 2016 but is expected to climb in 2017.
- Prices will continue to increase steadily in 2017 (up 5.8% in 2016 and also 5.8% in 2017.)
Keep in mind that she is looking at the Californian market overall. Figures in our area are more acute.
As for me, I can only report what I experience.
Be it a condo in the City or a larger single family home on the Peninsula the scenario plays identically: A desirable and well-priced property will be viewed by many and obtain multiple offers. Therefore it tends to sell well over asking price, with very competitive terms... regardless of comparable recent sales. I'll say it again: regardless of recent comparable sales.
However any flaws not addressed by a corrected list price, or an inflated list price to begin with, result in a property aging on Multiple Listing System.
We live in a dynamic, diverse and steady area, with available jobs from established companies in a booming industry, a promise of a better life. Financing is available and affordable. The expected end-of-cycle correction in 2017 will result in a cleaner market place, but not shake the residential market at its core.
Quoting Leslie Appleton-Young: The biggest challenge in 2017 is affordability, well before lack of inventory. All is not lost: learn about down-payment assistance program, debt management and improving credit, borrow from your family, get married!
In conclusion, if you plan a real estate purchase next year, be prepared, be informed, work with a professional and invest in confidence. Prices are not coming down but they keep going up, don't they.
If you are concerned about selling your real estate investment, unless your personal situation changes, keep it in confidence. But if you are holding on to many real estate investments, let go and make a profit to reinvest somewhere else. It is time: Numerous well-qualified and motivated buyers are waiting.
