Median home prices have risen by nearly 50 percent over the past three years, as the region’s robust job market and growing population have increased demand for limited housing opportunities. Yet today’s home prices have some historical precedent. In inflation-adjusted terms, they are comparable with the early 2000s before the housing bubble peaked. Persistently high home prices reflect the region’s failure to produce sufficient housing over the past half-century. Constrained housing supply – and booming demand due to regional job growth – has sent home prices soaring.
Home prices are a reflection of many factors, including the supply of homes and the strength of the local economy (as reflected in the incomes of would-be homeowners currently in the market). The desire to own a home – rather than rent – is also a factor. Both in the Bay Area and elsewhere in the United States, demand has historically been quite strong. Given our region’s robust economy, limited supply of developable land and overall desirability as a place to live, it is no surprise that Bay Area home sale prices significantly exceed the national average.
The most affordable housing options in the region are primarily located in inland communities. Median home prices in Solano County were less than half the regional average at around $300,000 in 2015. Antioch and Pittsburg in eastern Contra Costa County have similar home prices. While homes in these cities are often newer and more affordable than the region as a whole, residents may face higher commute costs and longer travel times due to their lack of proximity to major job centers. Lower incomes can leave homeowners in these locations paying higher shares of income on housing than in more expensive, but more affluent parts of the region.
At the other end of the spectrum, median home prices in many Silicon Valley communities easily exceed $1 million. Palo Alto’s median home sale price has tripled since 1997 to well over $2 million, and the city now has the fastest growing home prices in the Bay Area. The booming economy has also contributed to rising home prices in San Francisco. The city has weathered the recent recession-caused retrenchment in housing prices, and strong sales have sent the median home price soaring well past the level reached during the pre-recession housing bubble.
Home Prices by Year
With their mild climates, dynamic economies, and constrained housing markets, California’s top two metro areas lead the nation in home prices. Over the last two decades, the Bay Area has led the nation every single year, with recent data ranking Los Angeles number two. The region’s home prices are approximately triple those of Miami, Philadelphia, Chicago, Dallas and Atlanta. The Bay Area is truly in a league of its own when it comes to the affordability of buying a home.
Housing prices have increased in major metropolitan areas across America but, since 1997, the greatest percentage growth in home prices has been in the Bay Area. This stands in stark contrast to Chicago and Atlanta, where weaker regional economies have prevented significant growth in home prices. Interestingly Miami, which has a weaker economy and experienced the fastest decline in home prices during the recession, is the only other large metro area to see major increases in home sale prices over the same period.
Zillow: Median Sale Price (1997-2016)
Bureau of Labor Statistics: Consumer Price Index
ll Urban Consumers Data Table (1997-2016; specific to each metro area)
Image: Flickr (Creative Commons license), Photographer: Thomas Hawk
Median housing price estimates at the regional-, county-, city-, and zip code-level come from analysis of individual home sales by Zillow based upon transaction records. Zillow’s median home sale series is computed from public record transaction data as reported by counties. All standard real estate transactions are included in this metric, including REO sales and auctions. Zillow makes a substantial effort to remove transactions not typically considered a standard sale. Examples of these include bank takeovers of foreclosed properties, title transfers after a death or divorce and non arms-length transactions. The median sale price is the price separating the higher half of sales from the lower half. In other words, 50 percent of home sales are either below or above the median value. Zillow defines all homes as single-family residential, condominium, and co-operative homes with a county record. Single-family residences are detached, which means the home is an individual structure with its own lot. Condominiums are units that can be owned in a multi-unit complex, such as an apartment building. Co-operative homes are slightly different from condominiums in that the homeowners own shares in the corporation that owns the building, not the actual units themselves.
For metropolitan area comparison values, the Bay Area metro area’s median home sale price is the population-weighted average of the nine counties’ median home prices. Home sales prices are not reliably available for Houston, because Texas is a non-disclosure state. For more information on non-disclosure states, see: http://www.zillow.com/blog/chronicles-of-data-collection-ii-non-disclosu...
Inflation-adjusted data are presented to illustrate how home prices have grown relative to overall price increases; that said, the use of the Consumer Price Index does create some challenges given the fact that housing represents a major chunk of consumer goods bundle used to calculate CPI. This reflects a methodological tradeoff between precision and accuracy and is a common concern when working with any commodity that is a major component of the CPI itself.