Pacific Union’s California Regional Real Estate Forecasts to 2020
December 21, 2017
Source: Pacific Union Bay Area Real Estate Blog
On Nov. 15, Pacific Union held its fourth annual Bay Area Real Estate and Economic Forecast in partnership with John Burns Real Estate Consulting at the SFJAZZ Center in San Francisco. Two weeks later, we presented our first-ever forecast for Los Angeles at the Skirball Cultural Center.
The downloadable whitepapers below summarize our overall and California metropolitan statistical area (MSA) outlooks for the real estate market and the economy over the next three years. The analyses feature commentary from Pacific Union CEO Mark A. McLaughlin, Pacific Union Chief Economist Selma Hepp, and John Burns Real Estate Consulting CEO John Burns. To watch a video of the full, one-hour Bay Area forecast, click here. To view the Los Angeles area forecast, click here
East Bay (Alameda and Contra Costa counties)
- The East Bay MSA is currently at 7.6 on the Burns Affordability Index (10 indicates lack of affordability and 5.0 the historical mean) but is projected to further worsen, with continued price appreciation and increased mortgage rates. FHA loan limits will increase in 2018 to $683,000, easing the affordability issue to some extent, though this limit is still below the median resale price in the MSA.
- Employment growth remains solid. Currently, job growth is at 2 percent for 2017, slightly lower than the 3 percent-plus experienced in 2015 and 2016.
- The East Bay MSA pulled over 10,700 permits over the last year, 61 percent of which were multifamily homes. Some submarkets within the East Bay have traditionally been known for family-oriented product (single-family homes), though as affordability worsens, we have seen a rise in for-sale attached and apartment construction. Multifamily permits are anticipated to outpace single family permits through 2020.
Los Angeles (Los Angeles County)
- Los Angeles currently ranks at 8.5 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical mean). While incomes have grown, home prices have consistently increased by 7 percent or more per year since 2012.
- Despite the current lack of affordability, the MSA is projected to add nearly another 13 percent in appreciation by 2020.
- Employment growth in 2017 has slowed from 2016 (up 109,000 jobs), but the local economy has still added over 50,000 jobs in the last year (or about 1 percent employment growth).
Napa (Napa County)
- The Napa MSA has solid employment growth, with 2,800 new jobs over the last year.
- Similar to Sonoma County, Napa has a generally middle-class to upper-middle-class income profile, with a median income of about $80,000. Further, most of the jobs gained are at lower- and middle-income salary positions ($20,0000 to $80,000), and higher-income jobs ($100,000-plus) are actually decreasing.
- New construction is extremely limited, with less than 100 new home sales in 2017. This is not expected to change markedly in the immediate future. New construction in Napa is typically aimed at the higher-end, second-home market or higher-density product attainable with local incomes.
San Francisco (Marin, San Francisco, and San Mateo counties)
- Existing home sales are being held back by a lack of supply and more importantly, a lack of affordability.
- San Francisco currently ranks at 7.9 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical mean). Though pricing is at an all-time high, the BAI also takes into consideration strong incomes in San Francisco, as well as low mortgage rates.
- Employment growth has slowed, but the MSA still added over 21,000 jobs over the last 12 months (or about 2 percent employment growth).
San Jose (Santa Clara and San Benito counties)
- The San Jose MSA ranks at 8.5 on the Burns Affordability Index (10 indicates a lack of affordability and 5.0 the historical norm). Even with regards to the higher price standards of Silicon Valley, San Jose is in a historically unaffordable period. Prices continue to increase to new highs, and more residents are being priced out of the market and pushed to more outlying locales.
- Employment growth has slowed from 3 percent-plus in 2012 – 2016 to 1 percent in 2017. This is the lowest rate of employment growth since 2010, but job gains remain positive.
- The San Jose MSA had just over 8,200 permits over the last 12 months. With the recent lower levels of employment growth, this equates to an employment-to-permit ratio of about 1.3, or roughly at equilibrium. This is down significantly from recent years when the employment-to-permit ratio was 4.0-plus. San Jose has historically been a demand exporter, meaning those employed in San Jose often live outside of the MSA (for example, Alameda or Contra Costa counties) due to affordability issues.
Santa Rosa (Sonoma County)
- The Santa Rosa MSA has begun to experience job losses for the first time since 2010 and is currently down 1,300 jobs over the last year.
- Employment in Santa Rosa caters more towards middle-income jobs than most people expect, with a median salary of $71,000. With a large proportion of its workforce in the tourism and service industries, the bulk of jobs in Sonoma County earn $20,000 to $60,000. Further worsening the problem, jobs being lost in Sonoma County are at the higher-income tiers. For example, jobs earning $120,000 to $140,000 have fallen by 7 percent over the past year, while lower-income jobs are stagnant or have experienced minimal growth.
- New construction is extremely limited, with only 300 new home sales in 2017. While construction activity is expected to increase going forward given the decrease in housing inventory caused by wildfires near the end of 2017, the Santa Rosa MSA will remain a comparatively slow-growth market.