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Home Value Forecast: Price Appreciation in San Francisco and San Jose CBSAs Slowing Down

In our most recent HVF Monthly Housing Report, we welcomed several new metros in our Top Ten — which, as a result, meant a few markets typically at the top were no longer on the list. Having held firm in our Top Ten CBSAs for most all of 2017, it was surprising to see both San Francisco and San Jose among the markets that didn’t make the cut. So what’s going on in these Golden State housing markets?

Our ranking system is purely objective, and is based on the directional trend of market indicators using actual data over the past eight quarters. The trends are then defined as increasing, stable or decreasing. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators, and is meant to identify those metros that have the highest probability of price appreciation over the next six to 24 months.

So, while these metros have fallen out of our Top Ten, it doesn’t mean they are not “hot” markets. Both San Francisco and San Jose are still the top two when looking at highest average sold price, but let’s take a deeper look at what’s happening in these two expensive communities to see if they are headed in a positive or negative direction.

Average Selling Price and Forecast

As of this quarter, the average home price in San Francisco is $1.35 million, an increase of 59% from its pre-crash high. San Jose is almost $1.1 million, up 41%. Let’s look to see if wages have kept up with these home prices.

Average HH Income

In San Francisco, average household income is up 49.5% from Q1 2007 ($76,319) to Q1 2018 ($114,063), lagging home sale appreciation by 9.5%. In San Jose, HH income is up 41.5%, equaling home price appreciation:

Economic displacement could be a factor in explaining why these two markets are on different trajectories.

Bubble Territory?

So, the next question always is, are these markets getting close to bubble territory? Let’s look at the Affordability Index.

Affordability is derived by examining the median income for a particular area as a ratio to the mortgage payment needed to purchase a median priced home. An index score above 100 signifies that a household earning the median income has more than enough income to afford the mortgage. Lower scores suggest more income is needed to cover mortgage expenses. The Collateral Analytics Affordability Index used by Home Value Forecast also looks at loan-to-value norms for a particular area to adjust for more affluent buyers usually putting more money down.

For both metros, you can see the 2005-07 bubble, where affordability fell quickly to all-time lows. While both metros are now trending in their historically normal ranges, there could be some issues on the horizon. Recent tax policy changes have heated up the economy, and hikes in interest rates are expected. These, combined with limits on state and property tax deductions, are reasons both San Francisco and San Jose could see a further slowdown in the coming months.

About Home Value Forecast

Home Value Forecast (HVF) is brought to you by Pro Teck Valuation Services. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.

HVF is built using numerous housing and economic data sources. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service.

Also, Pro Teck Valuation Services offers reporters the following:

  • National, regional or metro level housing data
  • Monthly updates and HVF insight articles
  • By-request data for your story — custom data, heat maps and charts are available
  • Expert commentary from Home Value Forecast Editorial Committee:
    • Tom O’Grady, Chief Executive Officer, Pro Teck Valuation Services
    • Michael Sklarz, Ph.D., President, Collateral Analytics
    • Jeff Dickstein, Chief Compliance Officer, Pro Teck Valuation Service