With the housing supply shrinking and prices climbing around the Bay Area, potential first-time homebuyers are likely to grumble, “Fuggedaboutit.” The very idea of buying a starter home in a region where the median price of a single-family house often tops $1 million seems like an antiquated concept.
But a new study by Trulia of 100 U.S. markets asserts that the San Jose metropolitan area is where the supply of starter homes tends to kick in more than anywhere else in the nation during the autumn off-peak season.
In reality, the increase — even in San Jose — only registers as an uptick because supply levels are “so very, very low to begin with,” said Cheryl Young, senior economist for Trulia. “So any swing you see is definitely relative to how low it already is.”
The report itself strikes a cautionary tone: “Starter-home inventory is now at the lowest count since we first started keeping track in 2012,” it says of the national market. Yet it suggests that “starter homebuyers should be able to find consolation at the end of the year,” when the supply tends to grow. Moreover, with more starter homes available late in the year, their prices tend to drop between January and March.
Young called this “a small silver lining” for first-time buyers who are discouraged by conversations about housing — particularly in the Bay Area, where prices have climbed so high that buyers often compete most fiercely for homes on the lower end of the pricing spectrum. That keeps pushing prices up for that segment of the market — making even so-called starter homes unaffordable.
Even so, Trulia backs up its assertions with an analysis of the 100 markets, including the San Jose, San Francisco and Oakland metropolitan areas.
Looking at data from 2012-17, the report measures the tendency for the starter-home supply to expand between October and December – and finds that San Jose’s supply on average is 42 percent higher in the fourth quarter than during the peak season of the second quarter. (Historically, starter homes are purchased by households in the lower third of the income-distribution curve.)
San Jose’s is the largest percentage spike in the nation, when averaged over those five years. San Francisco ranks fourth, with 33.7 percent more starter homes available in the fourth quarter. Nationally, starter-home inventory tends to increase 7.0 percent in the fourth quarter, compared to the peak season.
Yet the reality behind the percentage figures can be sobering.
On average, only 332 starter homes have been offered for sale in the entire San Jose metro area (defined as Santa Clara and San Benito counties) in the third quarter of 2017. That was down from 655 a year earlier, a 49.3 percent drop. Trulia’s numbers include all kinds of starter homes: new and existing single-family homes, condominiums and townhouses.
Likewise, the supply of starter homes stood at 230 in the San Francisco metro area (San Francisco and San Mateo County) in the third quarter of 2017, down from 396 in the same quarter in 2016, a 72.2 percent fall-off.
Looking back over the five-year period, the study also ranks the three Bay Area metros among the top 10 in the nation for having a seasonal downswing in prices for starter homes.
San Jose has the third largest drop in starter-home prices in the first quarter compared to the third quarter: 11.2 percent. The Oakland metro (Alameda and Contra Costa counties) ranked fourth, showing a 10.4 percent drop, while the San Francisco metro ranked eighth with an 8.7 percent drop for the years covered by the study. (Wichita, Kansas, had the nation’s biggest seasonal decrease: 18.6 percent.)
But before anyone gets too excited, look at the median home price for starter homes around the Bay Area in the third quarter of 2017. According to Trulia, the median was $436,250 in Oakland, up 8.3 percent year-over-year. It was $649,929 in San Jose, up 2.9 percent, and $778,667 in San Francisco, up 4.2 percent.
When put under the microscope, it seems, that small silver lining begins to contract. Trulia concedes as much, saying that the national supply of starter homes fell 20.4 percent year-over-year in the third quarter.
In the Bay Area, it’s not just first-time buyers who compete for starter homes, Young pointed out. It’s also investors and aging downsizers. The so called trade-up market has shriveled, because so many sellers find they can’t afford a larger home if they want to stay in the Bay Area.
All of this helps explain why a house measuring less than 2,000 square feet recently sold in Sunnyvale for $2,470,000 — nearly $800,000 above its listing price.
So what exactly is a starter home these days, and who can afford it?
The answer is not encouraging.
Richard Scheinin< San Jose Mercury News