As home prices hit new highs in 2018 in a year characterized by a scarcity of inventory, changes are underway.
It’s nearly impossible to drive through Oakland these days without noticing the number of cranes working on new housing developments. I attended a recent city development symposium and was amazed to learn that there are over 45 new projects underway in downtown Oakland that will contribute 12,000 units to our housing stock. If you add to the mix an expectation of higher interest rates, a reduction in tax benefits from home ownership and anxiety over the stock market, 2019 may be the year when buyers finally enjoy a little negotiating power.
The new housing in Oakland appears to be focused on two segments of demand: Millennials looking for their first home close to the urban core and Baby Boomers seeking turnkey living and a change in lifestyle. Satisfying these two segments should help loosen up the entire market when these units are completed. Long time homeowners will finally have feasible options to exit their larger properties thereby creating opportunities for the “move-up market” that has largely been in a deep freeze due to a shortage of available homes. Competition for the “first home” market will be spread over a wider swath of options, reducing the competitive intensity for detached homes. In short, we should start to see an improvement of inventory at all price points in the near future.
Looking back at the latter half of 2018, homes that had flaws (i.e. on a busy street, challenging floorplan, lack of outdoor living, etc.) or were overpriced took a hit as buyers became more selective. There were some price reductions and offer dates where sellers were left empty handed. As I look at my own business of roughly $54 million in annual sales, 2018 saw my average listing take 15 days to market, 2 days longer than in 2017 and sell for 24% over the list, down from 30% in 2017. The big question is how the macroeconomic factors will affect demand in 2019.
While I remain bullish about our East Bay real estate market, I expect that 2019 will be a year when sellers will need to adjust price expectations amidst greater supply. There will be continued bidding wars and strong sales for quality properties with realistic list prices. For buyers who are willing to sacrifice proximity to the urban core for homes further up the hills, there will be some great opportunities, a phenomenon we haven’t seen for quite some time.
If I can be of any assistance in evaluating your options, please don’t hesitate to contact me. I wish you and your loved ones a happy, healthy and prosperous new year.