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2016 Wrap Up and 2017 Market Forecast

January 26 2017
January 26 2017


They say that the three most important things about real estate are location, location and location. But last year it was more about inventory, inventory and inventory. Lack of homes for sale is still the driving issue affecting home sales and prices here on the Midpeninsula as well as across the greater San Francisco Bay Area.

Looking back, we can see that the rate of acceleration of prices peaked in the spring of 2015. We saw some small appreciation in 2016, but nothing like the rapid price escalation of the previous years. For example, in Portola Valley the median price has been holding relatively stable for the last three years, with only a 2.3% appreciation in prices from 2014 to 2016. In essence, we have transitioned from an overheated market to a more normal / balanced market.

2017 and Beyond

From what I read and according to the economic analysts I follow, including John Burns Real Estate Consulting, it looks like in 2017 we will see some small appreciation in the low single digits--maybe 3%-4%. And in 2018 there will likely be even lower appreciation in the 1%-2%range. In 2019 we might start to see a bit of a decline in prices.

If the Federal Reserve raises interest rates .75% as they have predicted, this may have somewhat of a drag on buyers’ ability to afford homes, especially in the lower price range. I saw an interesting statistic that stated 25% of Bay Area residents can afford a $1 million loan assuming a 4% rate. If that interest rate rises to 5%, then only 20% of residents can afford a $1 million loan.

The softest part of the market is the $2 to $3 million price range. The strongest part of the market is still the lower end--anything below $1 million, which tends to be the East Bay. Somewhat of an outlier is the luxury part of the market--$10 million and up, which is still going strong and seeing some great great sales. Recently a home in Woodside sold for $50 million!

It’s all the basic economics of supply and demand. As long as there is a strong local economy creating jobs and lots of demand and inventory continues to be scarce, there will be continued pressure on housing prices. And if you’re planning to stay in your home for the long-term, history tells us that there’s no better place for appreciation than the Midpeninsula.



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Gail De

January 27, 2017 1:02 PM

Great article!!!  Well written blogs, keep them coming!!

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