By Alice Yin
As U.S. luxury market growth plateaued during the first quarter this year, Bay Area cities continued to surge ahead, with prices rising 10 percent from the same time last year.
According to a report by national real estate brokerage Redfin, luxury homes, defined as the top 5 percent of properties, saw a 9.2 percent year-over-year growth rate in San Francisco, compared to the city’s 13.5 percent change for the rest of the housing market. In San Jose, the priciest homes jumped 10.1 percent while the bottom 95 percent grew at an 11 percent rate.[contextly_sidebar id=”m2Kp4TfIpFDwGVNlRuM09OJIZngYmBsM”]The rest of the nation’s luxury homes only rose 1 percent from a year ago, while the rest of the housing market grew at a standard 4.3 percent rate.
Mia Simon, a Redfin agent, attributes San Francisco’s luxury market success to the same factors that guided the city’s median price to the highest it’s ever seen.
“I think we’re in one of the hottest real estate markets in the country,” Simon said. “The really big reason is the number of people coming here or [who] are here have very, very well-paying jobs, and as long as you have that type of demand, you are always going to have a hot real estate market in combination with low inventory.”
Indeed, job creation continues to attract talent to the Bay Area from across the country and world. With the allure of the Bay Area’s technology, financial and legal fields, a steady supply of people will always be looking for jobs, Simon said.
“Local companies are seeking out the best and brightest employees,” said Raziel Ungar, a real estate agent at Pacific Union in Burlingame. “It’s a great melting pot.”
Ungar said many of his clients in the Burlingame-Hillsborough area who look at luxury houses are young adults—often new parents—trailing the success of their tech companies. Some are also senior citizens looking to retire comfortably in a luxury home.
Simon estimated that Palo Alto, Menlo Park and Los Altos luxury homes were selling fastest in Silicon Valley. In San Francisco, Pacific Heights, the Mission and Dolores Park neighborhoods are seeing the most success in the luxury sector.
She also noted that Oakland was in the top-seven fastest-growing luxury markets in the country this past year, with a 28 percent luxury home price increase over the bottom 95 percent’s 16 percent growth rate.
“That is a fairly new turn of events,” Simon said. “A lot of people are moving out of SF in search of a happy medium, where they have a somewhat urban feel and restaurants, bars and public transit, but still have some perks of being in a suburb.”
Oakland’s luxury homes, with an average price tag of about $1.72 million, straddles that medium, she said. People are moving into the city, which is sometimes dubbed “the new Brooklyn,” Simon said.
Along with the new wave of buyers comes a shortage of overall housing, Simon said. The all-time low inventory is expected to drop further and push prices even higher. She added that many homeowners have resided in their luxury homes for quite some time, watching their property go from $300,000 to $3 million, and by now the tax for selling the house would be too big of a hit.
“Being the epicenter of so many high-paying jobs is fueling the steady increase,” Simon said. “But there’s also decreasing inventory.”
One issue in San Francisco and Silicon Valley is development, Simon said. Viable areas for expansion are shrinking—most development would mean tearing down an older home, causing a mere 1:1 regeneration.
These housing pressures have led to a phenomenon, Redfin reported, where San Francisco luxury homes are only 3.9 times the cost of the bottom 95 percent of the market—a pricy median of $1.16 million. San Jose’s luxury homes are 2.6 times the median of $737,000.
As a result, the face of a typical luxury home in the Bay Area is different from its counterparts in Florida, Simon said.
“What people are looking for has shifted,” Simon said. “Because the median price is overall so high … you don’t see that 20-bedroom, 3-acre home here. The difference between homes is less dramatic than it is in other parts of the country.”
Simon noticed that buyers now prefer being close to downtown and commercial areas rather than simply owning large plots of land. Ungar agreed, stating that most of the high-end buyer pool is “buying neighborhood first and home second.”
“’Trick-or-treatable’ is a phrase I use often in conversations with new buyers,” Ungar said. “That gets people to know that this is an appealing neighborhood—it’s friendly, it’s safe, and you can get to know neighbors and walk everywhere.”
However, Simon said that luxury homes and regular homes “are not going to blend into one.” A million-dollar house in Silicon Valley will still be a relatively small, single-family home or townhouse with two bedrooms and one bathroom, she said. A luxury home would be in a slightly more upscale area, with more stories and square feet.
“There’s certainly a difference in size and quality and construction,” she said. “I think the future of the luxury market is we’re going to see this increasing trend continue as buyers flood in this area. What luxury buyers want is specific.”