High Rents Nudging More Millennials Into Homeownership
It used to be nagging parents that prompted 20- and 30-somethings to finally get a home of their own, but a Bloomberg article reports that soaring rents are now nudging more Millennials into homeownership for the first time.
The U.S. rental vacancy rate hit a 21-year low at the end of last year, according to the Census Bureau. That’s giving landlords a lot more leverage to charge more. We’ve seen rents spiking all around the Bay Area, but especially in places like Silicon Valley, San Francisco and even parts of the East Bay.
Stan Humphries, chief economist at Seattle-based Zillow Group, said he expects rent increases to outpace home price gains by the end of the year as higher mortgage rates limit affordability and the rental market remains tight.
Young adults are realizing that in many cases they’re spending as much if not more on monthly rent than they would in a monthly mortgage payment. Bloomberg says to expect buyers to skew a little younger during this year’s spring home buying season.
According to the National Association of Realtors, Millennials made up 32 percent of the U.S. housing market in 2014, up from 28 percent two years earlier, and have pulled ahead of the older Generation X as the largest segment of buyers.
Bloomberg reports that as the economy improves, about 5.2 million renters say they expect to purchase a house in 2015, up from 4.2 million a year earlier, according to the Zillow Housing Confidence Index released last month.
Millennials still face some obstacles on their way to homeownership – things like student debt, lack of down-payment funds and even later family formation than previous generations, according to Jed Kolko, chief economist for Trulia.
But gradually, younger adults are working through those issues. And soaring rents are giving them lots of incentive to do so quickly.
Below is a market-by-market report from our local San Francisco Bay Area offices:
North Bay – All price ranges are seeing multiple offers, including most Previews properties, according to our Greenbrae manager. Inventory is down and most every property that comes on receives anywhere from 2 to 12 offers. There are more properties now that are receiving 2 to 3 offers, instead of 12 to 13. Well priced properties in good school districts continue to see multiple offers in the double digits, and are going over list price as much as 20% or more! There are several trends of great concern that are occurring in this frenetic market: 1) Buyers waiving all contingencies – both inspections and loan, even when they need a loan to purchase the property. Buyers are willing to take the risk of losing their 3% to make a stronger offer with no loan contingency, and win the multiple offer contest. 2) Lack of agent loyalty with Buyers – Buyers will use agents to keep them aware of new listings coming on, then go directly to the listing agent to represent them as buyers, thinking they will get a better deal. In the Novato area, listing inventory is increasing slightly but it will take a significant number of homes to satisfy demand. Novato has 2 times the number of contingent properties as active properties. Sales were more brisk at end of March but have slowed the past few weeks due to vacations and school breaks. Our manager expects a strong last two weeks of April and May if we continue to see new listing inventory. About 40% of active Novato properties are valued over $1 million. Sales activity is slower at this price point. Less than 10% of contingent properties in Novato are over $1 million. Our Santa Rosa Mission office manager says limited inventory prevails frustrating buyer and their agents. The luxury market is much more active than a month ago. Our Sebastopol manager says the market still needs more inventory. Buyers are trying lots of different methods to make their offer stand out. Long seller occupancy after the close and pre-emptive offers are not unusual. The Southern Marin market continues to suffer from a shortage of inventory, particularly in the affordable price points (under $1m). The Previews luxury market remains strong and steady. Southern Marin average prices have risen over 50% from April 2013 to April 2015 because of an abundance of luxury sales.
San Francisco – Listings are as scarce California rainfall, our Lakeside office manager says. Every sprinkle of new listings has been soaked up by buyers as if they were the parched earth absorbing a light rain. Our Lombard manager reports two weeks of sales prices much higher than asking. Some entry level and fixer deals bringing 25-30 offers. No economic indicators on the horizon to ease the inventory problem. New neighborhoods in the Southern districts breaking the $1m mark for single families. Our Market Street office manager says the local market continues to be more of the same: Not enough inventory for too many buyers. As a result, we continue to see deals ratified with multiple offers (as many as 10 during this period) for well over asking (sometimes beyond what even a seller had dreamed of getting). Agents are still hoping for the usual “Spring Bump” in inventory, but aren’t convinced we’ll see it this year.
SF Peninsula – With the increase of new buyers entering the Peninsula market, the demand compared to the supply is unprecedented leading to overbids like we’ve never seen before, our Burlingame North manager reported. The market is moving far faster than the comparable sales, which would make appraisals at purchase price difficult. However, we have not experienced noticeable appraisal issues in the transactions due to the high volume of all-cash or very low LTV financed transactions. The $2-6 million price range is seeing quite a bit of activity for the limited amount of inventory in the Previews category, as with all inventory. At the lower end of that price spectrum, aggressive overbidding can be common. Inventory is slowly increasing in the Half Moon Bay area. Buyers are being cautious and some of them are not willing to compete in multiple offer situations. Our Menlo Park manager said lots of agents and clients are out of town last week so it’s been a slow sales week. ‘Entry’ level homes continue to set new records. The Redwood City-San Carlos market continues to be challenging due mainly to the lack of inventory. Several of our buyers have been priced out of the market. Open houses, what few there are, are still very busy. It’s not unusual to have a hundred people through on any given day. Week was very slow in Woodside and Portola Valley, but our office got 4 new listings all over $4 million. There are good buyers too so new listings should sell.
East Bay – Low inventory and low interest rates makes for a very competitive market at any price range in the Berkeley area. A 1/1 bath condo received 18 offers; a 3/1 bath 900sqft home in Berkeley received 38 offers (sales price will be a new price per sqft record in this area); and Preview property listed at $2.15 million received 5 offers, also a jaw dropping sales price. Open houses in the Oakland area are still being overrun by first time buyers coming from San Francisco and the Peninsula. Buyers that have been looking in Oakland for a while are now moving out to San Leandro, Hayward, and Richmond – all cities that are heating up with multiple offers. Non-contingent offers are ruling the day even with inventory picking up.
Silicon Valley – Our Cupertino manager says that outside of the immediate market area, inventory is increasing. Certain properties are taking longer to sell and are getting fewer offers. There is hope for some of those frustrated buyers. In Los Altos hills some homes listed over $6 million came on this week. Los Altos is still on a tear. Very little inventory under $2M, and that sells in a week with multiple offers. One house with little parking and a steep lot and back yard noise from a major road, was listed at $1.5. Two years ago it was priced at $1.4 and it didn’t sell. This time it sold in 3 days with multiple offers. The A one locations are getting $4M and more. Mountain View is also on a tear. Every house and condo is on the market for 7 days, and then offers are received and sold. Inventory creeps on and screams off with a steady increase in sales price. Sunnyvale – this week, there is finally more than 3 houses. However, there is a pent up demand from Mountain View buyers who can no longer buy a house there as prices climb. Redwood city, San Carlos, Cambrian, and San Jose are the new locations that buyers priced out of Sunnyvale have gone to in search of a house in their price range. Our Los Gatos manager said there’s great news for buyers – more listings are hitting the market as we roll into spring. Continued extremely low inventory and a profound worldwide demand for Palo Alto. It’s been more of the same with sales and inventory in the San Jose Almaden area – lower than last year but higher than the previous month. The Almaden median sale price was down 5% compared to April 2014 and down 12% as well compared to last month. Blossom Valley was stronger (probably due to the lower price point) with an increase of 12% from last month and up 16% from April of last year. Cambrian median price was only up 2% from last month but up 13% from last year. This week the local Willow Glen market had a boost in new active listing inventory, increasing from a low of 37 up to 52. Most surrounding market areas saw double-digit growth in active listing inventory. The new inventory was a welcome surprise, however most buyers seemed to be preoccupied with getting their taxes done as we saw a dip in new open escrows for the week. The Saratoga market has warmed up. Sales north of $4 million have heated up in Saratoga. Recently a $6.9 million that had been on the market for a long time went pending as well. Properties north of $10 million are getting looked at too.
South County – It is very true that real estate markets are location specific. South County agents who list homes in San Jose are reporting huge attendance at their respective open houses. However, prospective buyers coming to open houses in Morgan Hill and Gilroy are fewer and far between. The demand remains very high for homes located closer to Silicon Valley—but lessens for homes situated in the South County. Buyers are keenly aware that they can purchase a larger home with a bigger lot in either Morgan Hill or Gilroy compared to what they can buy if they remain near the employment hubs of Silicon Valley. The South County market is usually three to four months “behind” what is taking place in San Jose and Santa Clara. During the past several weeks, however, we have, indeed, seen an increase in sales and listing activity.
Santa Cruz County – Single Family homes in Santa Cruz County are in high demand and agents are seeing multiple offers on any property priced well and appealing. Sales prices are well over asking price with backup offers and offers being made on homes not even listed on the MLS. The number of homes being listed has increased slightly in the month of April, proportionately to the season from years past. Overall, the inventory is still about 30% lower than this month in 2014. Interest rates are incredibly attractive, buyer confidence is strong, and the weather has been outstanding. Values appear to be going up quite fast right now and our local manager believes that until we have a significant amount of inventory on the market this trend will continue for a while.