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Cooling of the Lafayette CA Real Estate Market

by Ron
April 7, 2016

A forecast for Lafayette CA real estateAs a Lafayette Realtor, I’ve always felt that it is important to be completely open and transparent with clients about the market and any other relevant factors concerning their home purchase.  One of the factors that I’ve recently shared with clients is my sense that the Lafayette CA real estate market is cooling and that some of the early 2016 market fever that we saw has been chilled by the devaluation of the tech sector on the NASDAQ.

Declining High End Home Sales in Lafayette CA Real Estate Market

According to a Fitch Ratings report earlier this year, we may be at the beginning of the correction that many have predicted for the Bay Area.  Analysts have been worried for several quarters about the overvaluing of homes in the area, but those concerns have largely been proven to be unfounded as prices continue to climb. Highlights from Fitch Ratings have exposed a shift in the high-end housing market that may be signaling the beginning signs of a correction. Traditionally, the second and fourth quarters are flush with higher end home sales in the Bay Area. During the second quarter of last year, 18 homes sold in the $6 million and up market, but by the fourth quarter only half that many were sold, which made analysts stop and take a look.

As a Lafayette Realtor, I’ve got a ring-side seat to our local market, and I am not seeing anything in the Lafayette real estate market statistics to cause me alarm.  Rather, I believe that we are simply seeing a healthy dose of caution in buyers reflective of the volatility that they saw in the first quarter equities market, and the significant devaluation of many tech companies in 2016.  The losses in tech can even run deeper for those invested in private equity deals within the tech sector — a little discussed, but factually correct side note to the market.  It’s never healthy for markets to run up without a breather, and I believe we’ve now entered that stage where buyers may be taking a bit of a deep breath.

Does that mean that they aren’t buying?  The answer is no.  It just means that they aren’t jumping with both feet into the fire of multiple offer situations, and instead of throwing down $3M for a house, perhaps they’ll “settle” for one priced around $2M… or maybe even a bit less.  As of today, there are 41 homes actively on the market in Lafayette and 29 pending in escrow.  Of the 29 pending homes, only 3 are priced over $2M; and there are many in the sub-$2M segment that would have received multiple offers just a couple of months ago, but recently only received one.

Technology Sector Fluctuation Triggers High End Slow Down

Analysts with CNBC  agree that the heavy fluctuations in the stock market are fueling much of the turmoil impacting higher end home sales in the Bay Area. The slower than normal IPO market has also been a cause of concern for typically confident home buyers in this price range. In the San Francisco market where so many buyers have their money wrapped up in technology sector stocks, fluctuations in the market can cause a noticeable slowing.

I’m keenly aware of at least one major tech-based company in San Francisco that originally planned a 2016 IPO, but has put those plans on-hold due to the current market climate.  They are profitable and will simply wait for 2017 and a more receptive market. For most employed in tech, that sort of decision affects liquidity and the money available to buy a home.  I’m quite confident that there are many other companies who have made similar decisions.

While there may be slowing in the upper end of the market, demand for homes priced under $1.5M is still very strong.  With seasonal slowing during our area’s school Spring Break period, the heart of the market starts next week.  We’ll see what’s in store for the Lafayette CA real estate market as the traditionally hot spring takes off.  I’m betting that those who have been shut out of the market for several cycles will see an opening to get in.