SAN FRANCISCO BAY AREA HOUSING 1Q17: Affordability Continues to be the Story, as the Supply of Lower Priced Homes Vanishes

  • Annualized New Home Starts are Down 6% YoY – Quarterly Starts are Up 5% YoY
  • The Average Base Price for New Single Family Detached Homes is Up 15% to $936k – 25% of New Home Starts this quarter are priced above $1 Million
  • The market continues to face a lot shortage – most importantly – an affordable lot shortage. At this point the Sacramento market is more attractive where 72% of the starts are under $500K vs. 10% in the Bay Area.

Metrostudy’s survey of the San Francisco Bay Area housing market shows that annualized new home starts in 1Q17 are down 6% compared to 1Q16, while closings are up 6%. For the quarter, new home starts were up 5% while closings are up 8% YoY compared to 1Q16.  Annual starts have been outpacing closings since 1Q13. As a result, total inventory levels that were once below equilibrium remain at the highest level since 2009. By the end of 2013, the annual start pace had significantly outpaced the annual closing pace mostly due to Condominium starts. Over the past year, total new home inventory has risen 3%.

“Our average “offer to build” base price for new Single Family detached homes is UP 15% over a year ago to $936K as builders have realized higher land and construction costs, plus strong demand,” said Greg Gross, Director of Metrostudy’s Northern California region. “The average price for Attached homes is $865K; an increase of 2%. Start activity has increased in the price ranges above $800K as builders adjust pricing based on increased demand and higher lot costs. The supply of homes priced under $500k is quickly being depleted. 25% of new home starts this quarter are priced above $1 million. At this point the Sacramento market is more attractive where 72% of the starts are under $500K vs. 10% in the Bay Area.”

Finished inventory of housing has been steadily increasing over the past year. With 1,818 Finished Vacant homes, the market has 3.1 months of supply. There are 601 Single Family Detached finished vacant homes; a 1.5-month supply. The inventory level of Attached product is 1,217 finished and vacant units, a 4-month supply and another 3,687 units under construction. The increase in finished vacant homes for the attached product is most likely due to lagging closing information. This is not yet a concern, as we anticipate a large number of this inventory to close during the second quarter.

While demand remains strong, lot deliveries continue to shrink. Only 4,078 new lots were delivered over the past year, 36% fewer than at this time last year. Months of supply increased slightly, now at 17 months.  Metrostudy is tracking about 117,000 future Single Family lots in the Bay Area and 8,232 in a stage of development – a small number considering the size and potential demand of the Bay Area. Considering the barriers to development, the market continues to face a lot shortage. More importantly, a more affordable lot shortage.

The San Francisco Bay Area market has enjoyed robust economic conditions for more than six years. Housing demand is strong and the general economic condition in the region is strong. Demand is stabilizing, prices have increased rapidly, and affordability limits are being pushed in almost all sub-markets. Job growth may have slowed recently from the highs experienced during the second half of 2015, but still remains among the best in the nation. However, there are challenges on the horizon that may slow housing starts in 2017. The very low unemployment rate and exorbitant cost of living is undoubtedly having an impact on growth.

“Given the above, Metrostudy does not expect the housing market to necessarily weaken, but experience more of a stable, slightly lower period of supply and demand through 2017 as the economy continues to moderate and the market adjusts to the rapid increase in home prices,” said Gross. “We expect demand to remain steady through 2017. But can this demand afford a new home? The overall cost of home ownership in the Bay Area is outpacing household income growth in most areas. With prices at or above peak pricing in most sub-markets, buyers may begin to rethink their home-buying decisions and decide to rent or move out of the area. The East Contra Costa, Solano, Sacramento and Stockton regions will likely benefit, as homebuyers seek more affordable homes outside of the core Bay area.”

Greg Gross @ 916.231.9370

About Metrostudy: Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

About Hanley Wood: Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit