The New Year is upon us and there are anticipated trends that should make for good cheer in 2016. Here’s what we see happening that will make for an even better Bay Area market that will impact Lafayette CA real estate.
Since the beginning of the economic downturn, people have been longing for a return to normalcy. The last few years have seen anything but a “normal” market. “One-off” sales have sometimes steered the market towards inflated valuations that make it difficult for all parties to the market to determine correct valuations. I could probably fill a book with anecdotal stories over the last several years of a soaring market that challenged sound valuation methodology for everyone.
There was the case of the senior executive of a Bay Area corporation that knocked on the door of a Lafayette home that had recently closed escrow, offering the new buyer $1M over what they paid for it. His wife was upset that they had not made an offer when it was on the open market, and insisted he try this unconventional tactic. Then, there was the San Francisco entrepreneur who had realized around $300M in cash from his recently sold company, so he told his Lafayette Realtor to make an offer on one of our listings at $400K over the anticipated highest offer, just because he wanted the home, regardless of cost. Ironically, before he could move in, he accepted a job internationally. The home ended up as a rental property!
In a thinly traded market, such as for Lafayette CA real estate, these “one-off” sales can make future valuations difficult for buyers, sellers, appraisers and real estate agents. Sometimes they cause momentary price spikes, or set false expectations for future sellers who wonder why someone didn’t pay the same inflated price for their “similar” home. With over 50,000 units of new housing in the San Francisco construction pipeline and the construction of numerous multi-unit condo developments in downtown Lafayette and Walnut Creek, we should begin to see more new housing across all price points and some “leveling” in the market.
Rental Cost vs. Home Ownership
Rental costs in the Bay Area are quite steep, but then again, so are purchase prices. In our greater San Francisco area, home ownership vs. rental cost margins, have been shrinking over the last years. This discrepancy is primarily due to an increase in single-family home prices and affordable housing shortages throughout the region. A shift in this trend is to the benefit of the market and young families and renters hoping to build wealth. With the introduction of more new inventory to the 2016, we hope that it provides the opportunity for more younger couples to afford a home purchase. Even when these buyers purchase elsewhere in the Bay Area, it helps Lafayette CA real estate over the long term, since those couples may be buyers in Lafayette in years to come.
Mortgage Interest Rates
The Federal Reserve will continue to adjust the rate in the coming year based on the overall economy, but most predict a trend of higher mortgage rates, although they will not move in lockstep with the Fed. The Fed rate increase directly affects short term rates, not the long money of a mortgage. As an example, mortgage rates initially dipped after the recent Fed announcement, then edged up slightly from an average of 3.96% to 4.01%, as reported by Fannie Mae. They are predicting that average 30 year rates will be around 4.7% by the end of fourth quarter 2016 — very low by historical measures. With a clear direction in rates, this could add impetus for some buyers to jump in and buy in 2016, as well as for homeowners to sell in more normal market conditions while interest rates are still artificially very low.
The coming year will hopefully bring even more stability and manageable appreciation to both the national market and the San Francisco Bay Area. Our hope is that the 2016 market will offer broader housing opportunities for future buyers and a return to “normalcy”.