The average new home base price for single-family homes reached $1.01 million in the San Francisco Bay Area in second quarter 2017. This is 4% above the all time high reached back in the first quarter of 2006.
This factoid comes from Greg Gross, director of BUILDER sibling Metrostudy’s Bay Area region, coming out of Metrostudy’s second quarter survey of all new home communities in the market.
It comes to this. And the fact is, demand is there so far, even, as Greg points out, as job growth rates are losing steam.
Redfin’s latest capture of demand data from its markets reveals that record levels of requests for home tours virtually have kept up from high-water marks in May to June. In the San Francisco market, in particular, Redfin’s Demand Index is showing strength.
As CNBC correspondent Diana Olick reports, surging demand but fewer transactions may be the result of two factors. One is that potential buyers may not move aggressively enough for what limited for-sale inventory is out there. The other is that they may be downright dismayed by the price they need to pay for a home. Olick writes:
“There is still plenty of demand for housing. Potential buyers, both young and old are trolling listings online and packing in to crowded open houses. But they are not rushing to write offers. The culprit may be sticker shock.”
Now, bubble market optics are fully capable of morphing, as we’ve seen, in to something more sinister. Human beings’ “Animal Spirits”–which can, at any moment flip from individual households’ enthusiasm into collective households’ mania–have been known to behave in ways counter to their self-interests.
A good healthy housing recovery’s way of shooting itself in the foot.
As affordability moves in the social and economic discourse from being “not a problem” for builders, into a “medium term problem,” and in some places like San Francisco and most of California, Seattle, Maryland, New Jersey, and Denver, “an immediate problem,” both builders and localities need to be smarter to remain viable going concerns.
If nothing else, the velocity of price changes in many hot markets is starting to ring warning bells. Add upward change in interest rates in to the equation, and monthly cost of ownership calculations start to feed into why people are starting to get feverish in their pursuits to snag their purchase sooner than later.
“It’s sometimes less an issue of the absolute price in relation to historical values or affordability metrics,” said one financial advisor in the housing space we spoke with this week. “It’s the amplitude that gives people that shock.”
Municipalities don’t tend to show a lot of interest in progressive appoaches to making housing more affordable within their precincts. Residents fixate on the bane of added traffic and higher school costs when the thought of adding density. Nor are municipal officials–elected or appointed–accountable when it comes to trying to solve for the fact that a lack of housing attainable to workforces, to median income households, is an endgame that won’t work out well for anybody.
One developer we spoke with sees a moment of opportunity. Add up the urgencies, the national coversation about housing affordability, and the basic mismatch between what kind of housing is available in the supply pool and what kind of buyers are out there clamoring for it.
“We understand that as developers, we should bear some of the cost of adding infrastructure, expanding capacity, and filling some of the cost gaps a town or city takes on with adding new housing to the community,” this executive said. “We just don’t think it’s appropriate nor manageable for new development to pay all the bills for all the ills of the local area.”
The idea this executive proposes is to go directly to the mayor of a municipality and work on an agenda that starts with this question.
“How has this no-growth mentality in your municipality worked out for you so far?”
The answer should open up an opportunity for a discussion. The locality needs attainably-priced housing, and builders and developers can emerge as part of the solution, rather than the alternative. Our developer source suggests that close to downtown suburban infill is a prime area for focus.
“We can sit down with them and reason, and say, ‘listen, people have to have housing they can afford if you want your city to thrive. Being underhoused is a death spiral. Here’s what we–the developer and builders–can do and here are the conditions we have that we need in place before we go in and spend a lot of money on entitlement and development etc. You do this, and your schools would improve, your housing values in the neighborhood will go up, your Yelp scores will go up, area residents’ credit ratings will improve.’ The domino effect is impressive. You do that with the mayor, and then you do the same thing with the residents in the area, the community groups, etc.”
A kind of across-the-aisle moment for residential developers and builders with local municipal leaders. Instead of looking at builders as the villain, seeing him or her as a local hero, even just for one day. What a concept!
