Look to NASDAQ to Give Us Clues About Bay Area Housing Market
What causes a red-hot seller’s market like we’ve seen here in the Bay Area, with well-heeled buyers bidding furiously on limited inventory, sending prices spiraling with every multiple offer?
The vibrant Silicon Valley economy certainly plays a huge role, churning out start-up millionaires along with highly compensated engineers and other knowledge workers. But the health of the stock market, especially the tech-heavy NASDAQ segment, may be one of the biggest factors.
If you’re looking for clues about where the Bay Area housing market will go next, look no further than the NASDAQ. As the chart below shows so clearly, the NASDAQ and Bay Area home prices are amazingly correlated. When the tech index moves higher, home prices also move higher in lockstep. Similarly a drop in the index is immediately followed by a drop in average sale prices.
Since the stock market began rebounding in March 2009, both the NASDAQ and average home prices here in the Bay have been on a steady parallel trajectory higher. NASDAQ just a week ago surpassed its all-time high previously set back during the dot-com boom of 2000, hitting 5056 before dipping back under 5000 this week.
NASDAQ vs Coldwell Banker San Francisco Bay Area Average Sale Price
It’s not surprising, of course, that the stock market would help fuel a surge in prices. Many tech workers and executives here receive stock options, and when prices go up in the market they can turn those gains into huge down payments for luxury homes – or even pay all cash.
Also, the gains in the stock market have a psychological effect on homebuyers; the more they see their 401Ks and other stock portfolios rise, the more positive they feel about their finances overall and their ability to take the leap into buying a new home.
Finally, as the value of stock portfolios increase, investors may look to other types of investments to diversify their holdings. Real estate is one very good alternative. We tend to see a lot more families who purchase second homes, rental properties or even raw land with the idea of building later.
Between the strength of the stock market and the tremendous growth of the tech sector and our overall local economy, I can’t help but be encouraged about the future of the Bay Area’s housing market.
Below is a market-by-market report from our local San Francisco Bay Area offices:
North Bay – Our Greenbrae manager says more properties are coming on the market in the last two weeks, and agents are expressing the feeling of the frenzy possibly starting to slow down a tad. In other words, not as many offers in multiple offer situations, but still multiple offers. She’s also seeing a few deals fall apart, as buyers pay more than 12 other buyers, and get buyers’ remorse after a few days. The Previews luxury market continues to be robust, with multiple offers on high-end properties as they hit the market. Homes in good school districts with flat lawns and family friendly layouts are doing especially well. Listing inventory in the Novato area is finally hitting the market. Our manager is anticipating a busier summer with sellers holding back properties until late spring this year. Agents still need a lot more properties to fill the void. They are not finding as many multiple offers unless value is below the average price point. Sales are increasing as more listings come on. Open houses are busy with buyers waiting for more inventory. Inventory is still limited in the Petaluma area. There is increased inventory coming on the market that does not last long. Most have multiple offers. Buyers who are competing are forced to be savvy due to their multiple offer submissions. Most buyers who are submitting have done so many tries before. Previews inventory in Sonoma County has increase of 38% and the properties under contract have increased 83% since the same time last year. There’s good Sunday Traffic at open houses in the San Rafael area with very low in inventory. Inventory is starting to increase ever so slowly, our Santa Rosa Bicentennial office manager reports. Many homes are still receiving multiple offers, but others are having to drop prices to get offers, which highlights the importance of sellers not demanding more than the home is worth, but allowing the buyers to pay more if they would like. Inventory in the Previews luxury segment continues to keep up with demand and is one of the more stable markets sub-categories. The Healdsburg and Sonoma markets are in high demand for properties over $4,000,000. There seems to be a sense that the market is not quite so frantic, notes our Santa Rosa Mission office manager. Still multiple offers but less offers per listing that 2 months ago. For example, 3 offers on a well-priced mid-market listing today when there would have been 5-8 earlier in the spring. The overall Southern Marin market continues to see upward pressure on prices due to inadequate supply of quality homes to meet demand. Agents are seeing marginally increased listing inventory. The market above $2 million continues to be increasingly strong, particularly between $2 million and $5 million. Above $5 million is consistent with the past several years, with moderate activity but a big supply of luxury properties.
San Francisco – An unusual week for our San Francisco Lombard office, which saw 37 offers on one starter house, but other listings which the agent thought was priced right still sitting. Some SF listings are lingering on tour for over 3 weeks. Pricing and the perception of competition dominate. Pre-emptive offers are still quite prevalent. Agents are sensing a definite shift in the market, according to our Market Street office manager. While most properties continue to receive multiple offers, the number has declined into the single digits (a max of 6 during this period). And some listing agents find themselves scrambling on their offer dates to get battle-weary buyer’s agents to bring an offer. Even though the number of offers has slipped, the sales prices are holding steady.
SF Peninsula – Several properties over the weekend had over 200 attendees, reports our Burlingame manager. These were mostly entry level in the North part of San Mateo County. Burlingame, Millbrae homes are seeing 300-400k overbids with no sign of buyer fatigue. Inventory for Previews luxury listings is low and not very many new listings are coming on the market. $2.5-3.5 million seems to be the sweet spot at this time. With low inventory, our Burlingame North manager says everything, particularly those move-in ready properties, sell quickly and with multiple offers. Over bidding is still intense. All cash or low LTV offers are desirable because of appraisal fears. However, agents haven’t experienced a significant amount of problems based upon appraisals. Sales during this period in San Mateo County were 219 Single Family Residences and 59 Condominium/Townhouses. There were 13 ratified sales in the county priced at $3,000,000 and above, eight of them were between $3M-$5M \four of them $5M–$7M+ and one at $13M. In the Menlo Park are, the local market is still swift for sellers. The bottom is rising the fastest. Still lots of multiple offers – 3 to 5 offers is not uncommon in the $1-2.5 million range. Some sellers are demanding higher listing prices and those properties will sit if they are simply too high. In Palo Alto, it’s more of the same. As it always has been, Palo Alto is seeing extraordinarily high prices on what inventory there is. Our Redwood City-San Carlos manager reports very little change in the market. There is still a drastic lack of inventory and an overabundance of buyers with some of the buyers being priced out of the market. Some good movement in properties this week in the Woodside-Portola Valley area. Even in the relatively high end, agents are seeing multiple offers. A $6.5 million home had 4 offers and went substantially over. A $3.2 million property had 4 offers and went over. Action is still rampant at well-located, well-presented and well-priced properties.
East Bay – Sales activity in the Danville area intensified in April. Inventory is still about 1 month supply, and the luxury market is doing well. Our Oakland-Piedmont manager reports lots of activity in all price points still as buyers are out competing for the homes on the market. A fabulous property in Alameda had over 900 people attend the open house over the weekend. The home is listed for $1.75m and has everyone in town talking. All other open houses throughout Oakland and Berkeley had great attendance as well. Lots of offers being written and several first time offers accepted this week. Prices are still going up in all areas. The Previews luxury market in the Lamorinda area is on the rise.
Silicon Valley – The market is still crazy, but it’s a bit spotty, according to our Cupertino manager. Most properties get lots of multiple offers, but a few don’t get as much attention as before. The same holds true for open houses. In the Los Gatos area, buyers are catching a break as more inventory comes on the market. In the San Jose Almaden area, buyers are continuing to compete with multiple offers in all areas of the market. One agent wrote an offer on a home that was listed at $1,525,000. They wrote at $1,810,000 and didn’t get the deal with only 3 other offers on the table. So inventory continues to grow but buyers are still quite aggressive on the attractive properties. Almaden is up to 38 SFR’s available, which is double from the beginning of the year. Blossom Valley is currently at 57 available for sale, which is 63% higher than the beginning of the year. Cambrian is an area where inventory really hasn’t increased much from the beginning of the year. We currently are at 40 available homes for sale and had 36 available at the beginning of the year. Our San Jose Main manager says sellers continue to reap the rewards of the low inventory market. After some signs of increasing inventory, buyers made their move and we saw inventory begin to stabilize and even dip again. Homes that are priced at market or even a little below still get the most action. And those sellers who try to take advantage of the market realize buyers are much smarter and stay away from those properties. The Willow Glen market has come back to life after tax day. Agents did experience a bit of a slowdown of new open escrows during mid-April. The last few weeks of the month have picked up steam with double digit new listing inventory coming on the market in most of the greater San Jose area, however the inventory is consumed within weeks of coming to market thus keeping us at a steady mid 40 number of active listing inventory in Willow Glen.
South County – There seems to be a marked increase in the level of activity in both Morgan Hill and Gilroy – listings are being taken and offers are being written. The South County real estate market is traditionally several months behind those cities to the North (San Jose, Santa Clara, Sunnyvale). Buyers are realizing that their money can go farther as they look at homes in Morgan Hill, San Martin and Gilroy. The most marked contrast between the two markets, however, involves “country properties.” Buyers can purchase a beautiful home on acreage in South County for hundreds of thousands of dollars less than similar properties nearer to Silicon Valley employment hubs. These past several weeks have seen several country properties (priced around $1.5 million) receiving multiple offers and ending up going into contract over asking price. Most of these contracts were written and then accepted without an appraisal contingency.