Tale of Two Markets for Lafayette CA Real Estate

by Ron
March 18, 2016

If not already on two separate paths, the local Lafayette CA real estate market is likely destined for two tales in 2016 – one occupied by the more affordable segment of the market, and one occupied by Lafayette homes that are priced above the market mean.   Rather than relying solely upon the pundits of real estate, the numerous predictors of the market, etc., I’m also drawing upon some of the take-aways from a recent conference that I attended for the top 5% or so of our company’s 550+ agents with a geographic span that covers the Bay Area’s major markets.

For most, 2016 has started off slower than last year. There are certainly a number of possible reasons for the delayed start… a wetter than normal winter, lack of inventory, etc. However, the better bet is that the turmoil in global equities and specifically the tech sector is the real culprit.  In fact, the inflection point in the Bay Area market seems to go back to about October of last year when we saw the months-of-inventory for “luxury” home product soar substantially above 2014’s level.

The bay area luxury home market has softened.

October 2015 was the inflection point for the Bay Area luxury home market. – Graph courtesy of First Republic Bank.

If one placed a graph of the NASDAQ on top of a graph of the Bay Area real estate market, they would be virtually indistinguishable from one another. No surprise. So, the implosion of certain tech company’s valuations this year should and will have an impact on Bay Area real estate.

It will be subtle, and nothing to be alarmed about, unless you were hoping to ride last year’s wave of luxury home sales. That train may have left the station, and in its place will be a much more cautious, patient set of buyers. They may still buy in the various enclaves of exclusive homes in the Bay Area, but they will do it much more deliberately than in recent years.   The return to mean for tech valuations has been a mini-deflation of a bubble that was generating some irrational exuberance in the purchase of upper end properties throughout the Bay Area. Homes in Lafayette will be no exception to the broader trend, and we will see this play out this year.  In fact, we’ve witnessed it with buyers who have substantially scaled back their plans for buying in the luxury segment.

Looking at the current market, we saw about a 20% boost in the inventory of Lafayette homes for sale this past week, but what is most profound is the number of homes in the over $2M segment — typically the point where we move into the “luxury home” category for the Lafayette real estate market. Almost half of the homes presently on the MLS today in Lafayette are priced at over $2M, with “days-on-market” ranging from 1 day to 258 days. Even more telling is a look at the pending home sales in Lafayette. Of the 19 homes pending in escrow, only one is priced over $2M.

Ultra-low interest rates and a continued flow of younger couples relocating into the area or migrating from San Francisco/Oakland to Lafayette will keep our market hot, but the bulk of the demand will be in the price points below $2M.  It is in this segment that we expect to see a continuation of multiple offer situations for homes that are properly priced to the market.