When it comes to unhelpful
averages for people seeking to predict the behavior of Bay Area real estate,
the national average is way up there. My last post discussed how deceptive the
average price per square foot (PP) of a single town can be without context. Throw
one out for a county as vast and diverse in single family (SF) product as the
United States, it tells you something, but perhaps more useful as to the United
States is performing relative to other countries as opposed to how the market
for your home in Walnut Creek might behave.
My main real estate interest is
the Bay Area, and California in general. I believe it is worth noting, the way
CA property behaves in inherently different from all other states due to the
existence of Prop 13. In this, deliberately restraining property taxes from increasing
naturally along with property values, we are unique.
Folks who are now locked in low
interest rates and pre-boom property taxes have more incentive, as well as
ability, to rent as opposed to sell in an unfavorable seller’s market. In
addition, I have many a friend who bought in 2010 or thereabouts tell me, I
know my house is bursting with equity yet too small for my family, but there is
no way I’m messing with my tax rate. For these folks, buying their same home at
today’s priced would mean a significant tax increase, a cost which, unlike a
mortgage, can never be paid down. Further, it makes no sense to sell a home and
buy the same one again. Unless one decides to relocate to a cheaper area, the
only reason to buy and sell is for a better home, which we could expect to cost
more…bringing one’s new tax rate higher still. This is when many people say,
forget about moving, I’m calling a contractor.
For better, and worse, Prop 13 incentives
long term ownership. A market distortion of this caliber should not be taken
for granted when looking at national figures. CA can be expected to behave slightly
differently.
A second point which recently resonated
with me is that areas with large swathes of new developments built over a
similar topography (think AZ and TX) are more at risk for a downturn than older
communities with more unique landscape features and/or a diverse housing stock
as a result of housing being refurbished and replaced over the course of approximately
100 years. The more unique the property, the harder to ascertain the true value
via comps. If two of the same model homes, built the same year and finished the
same way, more or less, are for sale at the same time in a slow market it is
hard to think a buyer would not have enough leverage to negotiate between the
two parties until one of them decided to make a lowball deal.
On the other hand, in a different
market, such as Lafayette, CA, two homes on sale nearby to one another could
very well be a 5 million dollar mansion built in 2018 on a 2 acre plot and a delipidated
1950s bungalow needing a full gut renovation on a less than a quarter acre
offered for the bottom price of 700K. This is less akin to comparing apples and
oranges than it is a watermelon and a pot roast.
Lafayette’s topography is diverse.
While there is a small centrally located area with standard lots being under 10K,
that is not representative of the whole. Beyond that there are hills. And Hills.
And HILLS.
Some hills are good. After you
meander away from the sound of Highway 24, you may find yourself in a resort-like
sanctuary, replete with pool, sport court, outdoor kitchen and cavernous living
spaces, ideally framing an unobstructed view of Mt. Diablo. The buyers own all
the surrounding land, and don’t care how far down their ridiculously long
driveway the trash is put at the city street for the garbage man because they
are never going to be the one who takes it there.
Some hills are less appealing.
The ones with steep lots with no yards, or the ones near the noise of 24 or Moraga
Road, or the ones where you are simply too far from takeout, and perhaps a
smidge closer to open space than the existence of fire season will comfortably allow.
Add to this more variation in lot size, and one would expect the data to be
behave differently than it would in a more uniform city.
While the housing stock in San
Mateo is varied, there are far fewer high-priced comps and almost zero true
estates: on the Peninsula lavish spreads tend to be concentrated in Hillsborough
and Atherton. We have a few hills with fancier homes with views, but it is far
less dominant a feature. The majority of San Mateo’s housing stock is on a flat
plain with a fairly uniform offering of 5K lots featuring 1000-1400 sq ft homes
with 3-bedroom/2-bathroom.
With this in mind, I did the same
analysis on San Mateo as I did for Lafayette. I took the comps from all sales of
SF homes in the San Mateo sold between Oct 11, 2021 and Nov 12, 2022 and
compared them with the same comps from the previous year. I expected to find more downward pressure and
less price variation on current sales in San Mateo compared to Lafayette.
|
Oct 11-Nov 12
2021
|
Oct 11-Nov 12
2022
|
Variation
|
San Mateo
|
|
|
|
SF Sold
|
66
|
28
|
41%
|
High Price
|
7,350,000
|
3,775,000
|
50%
|
PP of High Comp
|
1542
|
1099
|
70%
|
Low Price
|
1,175,000
|
1,060,000
|
89%
|
PP of Low Comp
|
1203
|
981
|
81%
|
High PP
|
1,691
|
1,500
|
88%
|
Low PP
|
668
|
702
|
104%
|
Average PP
|
1309
|
1120
|
85%
|
# Above 1300 PP
|
37
|
5
|
Minus 32
|
Number Below 1K PP
|
6
|
7
|
Plus One
|
% Sold Above 1300 PP
|
56%
|
25%
|
Down 28%
|
% Sold Below 1K PP
|
9%
|
25%
|
Up 16%
|
Difference H and L PP
|
641
|
798
|
123%
|
Sales volume in San Mateo has
gone down over 60%. This is nearly 30% more of a reduction than was seen in Lafayette.
Most of the decrease has been on the high end in San Mateo. Over 50% of the
houses which sold between this period in 2021 paid over 1300 PP. This is down
to only a quarter of today’s market, dragging the average down 15% despite the
lowest PP rising slightly.
In 2021 the difference between
the highest selling comp and the lowest was almost the same in San Mateo as it
was in Lafayette. In Lafayette in 2021 it was 648, which increased over 40% to
a full 915 a sq ft. In San Mateo the spread also increased, but by less than a
quarter.
The highest priced home in San
Mateo is off by 50% compared to the prior year, however homes selling there for
above 7 million are rare. There were only 4 in all of 2021. If you remove this comp,
the second highest value home sold in San Mateo in the period discussed is 4.25,
which is still a decrease, but one of a lesser degree – 89%.
The SF housing market in San
Mateo appears to have slowed. However, it feels like, to me, not so much
evidence of impending doom but a necessary mellowing of the exuberant uptick
the market experienced recently. No commodity in history has gone up that
rapidly forever…not even tulip bulbs.