Bay Area home sales continued to lose steam in January, but the high-end house market regained growth on a year-over-year basis along with an increase in the median price for luxury properties, according to a report by PropertyRadar.
Property sales records, cited by PropertyRadar in its latest report, in the Bay Area show sales of homes valued over $1 million grew by 1.5% compared to last January. Contra Costa, meanwhile, surpassed Silicon Valley, to become the fastest-growing upper-end real estate market in the Bay Area.
Defining "Luxury" The definition of "high-end" or "luxury" home varies from region to region. For the Bay Area, where there is a higher average household income and stronger demand, a $1 million home doesn’t necessarily equal luxury.
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San Francisco, San Mateo, and Marin counties all have median home prices exceeding $1 million. Coldwell Banker defines a luxury home in Santa Clara County as one priced at $2 million or above, but that threshold is lowered to over-$1.5 million in the East Bay.
In all, the higher-end real estate market in the Bay Area performed better at the beginning of 2017 compared to other tiers, according to public property records. The only price category that saw an increase in sales was the over- $1 million.
The most expensive Bay Area house sold in January 2017 was in Hillsborough, California. The four bedroom, seven-and-a-half-bath, 5,600-square-feet home located in San Mateo County and fetched $14 million.
Has Silicon Valley Lost Its Edge?
Sales transaction records in Santa Clara show 62 residential properties priced $2 million and higher were sold last month in the city, a 32% jump from last January, but 20.5% below the prior month, cited Coldwell Banker in its January report.
Santa Clara is home to the beating heart of Silicon Valley and has experienced a fast-growing real estate market after the recession, especially in the top-tier house market. But sales growth in this area has continuously slowed down since the summer of 2015, according to the county property records. "Silicon Valley is still ahead of the curve," said Skylar Olsen, senior economist at Zillow. "Santa Clara recovered more quickly from the recession than other counties in this area, which explains its higher median house price and less impressive growth rate.
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Data provided by PropertyRadar shows that in 2016, 6,420 homes in Santa Clara sold for more than $1 million, nearly double the 3,413 homes sold in San Mateo County and the 2,939 home sold in San Francisco and nearly triple the number in both Alameda and Contra Costa Counties.
Why the High-end Outperformed The General Market
January home sales across the board fell in all six San Francisco Bay Area counties, ranging from a decline of 6.5% in San Mateo County to a decline of 12.6% in Marin County according to public government records.
"January sales were likely impacted by the jump in mortgage interest rates late last year," said Madeline Schnapp, the director of economic research for PropertyRadar, a real estate investment service company. "Taking a longer-term look, Bay Area sales in 2016 were nearly 10% lower than they were in 2015 while prices rose. That tells us that there is a significant imbalance between supply and pricing."
On the other hand, both supply and pricing are less a problem for luxury house buyers.
"Buyers in the lower tier market are more constrained," Ms. Olsen said. "They would hesitate to sell their homes and become buyers in this high-demand market, which causes the further shrinking supply of houses."
But the high-end market is different. As buyers are less sensitive to the price fluctuations, the supply is also less tight. "The inventory in the top-tier market is increasing, not only the existing houses, but more and more new high-end projects have been developed in this area," Ms. Olsen added.
"Luxury homes took an average of 54 days to sell during the month, which is a bit longer than a year earlier but still a relatively quick pace for homes in that price range," Mike James, president of Coldwell Banker, pointed out in its reports on January market.
The fact that many high-end buyers skip mortgages and pay for properties in cash may help, too.
"Even in the most expensive region of California, cash sales continue to be an important component of total sales," Ms. Schnapp said. "Given the elevated risk in the stock and bond markets and the uncertain trajectory of mortgage interest rates in 2017, parking cash in real estate now remains an attractive alternative to a certain class of investor."