Housing recoveries – like housing downturns – never move in a straight line. As much as we’d like a clear, fast turnaround, real estate cycles are never that way. They seem to have lots of fits and starts, two steps forward and then one step back. We’re reminded of this economic truism as we looked at the Bay Area housing market over the past month.
As DataQuick, the La Jolla-based real estate research firm, reported recently, Bay Area home sales increased in August – the most recent figures available – by a solid 12.2 percent from a year ago. But the good news was partially offset by the fact that median sale price dipped nearly 4 percent with distressed property sales accounted for nearly half of the sales. It was the 11th straight year-over-year monthly decline in prices.
Clearly, bargain-hunting buyers chasing distressed properties continue to be a driving force in the market. That’s as true here in the Bay Area as it is in markets across the country. And it’s not just entry-level prices that are attracting bargain shoppers. An REO listing in our Southern Marin office priced at $858,000 received 16 offers and will sell for substantially over list price. We’ve seen similar stories play out in the East Bay and South Bay as well.
But this doesn’t tell the whole story of what’s happening in the Bay Area housing market. It’s not just the bank-owned and short-sale properties that area getting buyer attention. As I mentioned in my last column, we have a real, honest-to-goodness housing shortage in many of our communities – at least a shortage of reasonably priced, well-presented homes. And it’s not just at the lower price ranges.
A $2 million plus home went into contract immediately following the broker’s open house last week in Mill Valley, continuing to prove there are buyers for homes that are perceived to be good values, even on the high end. Another one for $1,350,000 received offers right away.
Marin County isn’t the only region to have buyers ready to purchase but is struggling with a shortage of attractively priced listings:
Our San Francisco Market Street office said two-thirds of its sales had multiple offers, generally more than five for every property. “Ratified contracts seem to be happening almost immediately after the first open house with strong back up offers in place,” the manager noted. “Price, location and well-staged, clean property sells fast quickly. We are starved for inventory, as buyer demand is very strong.”
In Berkeley, our local office says they’ve had a string of four strong months of home sales since the end of May. Even though there are still challenges with sellers, buyers and lenders, sales are steady. And even those homes that saw deals fall through are selling again quickly. And buyers, who may have dropped out or canceled deals, are coming back to the market.
In Sebastopol, our local manager said as surprising as it may seem, they have a “sellers’ market” once again. One new listing had more than 45 people at the open house and another new listing had multiple offers the first day on the market.
The current market is sort of a catch-22 for sellers: Many pulled their listings off the market or decided not to sell at all for fear that they couldn’t get top dollar for their homes in this challenging housing market. But in doing so, they’ve created an inventory shortage – not in every town or every neighborhood, but in many communities.
As our San Jose Almaden manager noted, with inventory shrinking, it seems to be leaving only motivated buyers and sellers. Those sellers who “had to get a certain price” seem to have taken their properties off the market. Those left are more willing to price their properties competitively given the market realities, which is leading to sales – and multiple offers in many cases.
This all is not to say that every home in every community is seeing buyers beat a path to their door. As another manager noted, while some new listings flew off the shelf, others have languished. A number of agents who held open houses for homes that have been on the market for quite a while received no visitors in recent weeks, even after price reductions.
Two steps forward, one back.
So where does this all leave us? The Bay Area housing market has fared considerably better than most other parts of the country. We’ve seen solid improvement in many communities since the nadir of the recession. The high-end markets in Marin, San Francisco, the Peninsula and Silicon Valley have all have bounced back nicely – if not all the way back to normal. And the entry-level market and distressed housing market continue to see good activity from investors and average buyers alike.
But at the same time, many lower and mid-priced markets are still churning through the recovery process. Some buyers are still hesitant to pull the trigger on a purchase while they remain concerned about their job future, the stock market and the economy in general. And distressed sales continue to put downward pressure on prices.
We’ve come a long ways since the recession and are moving in the right direction. But it’s going to take time. Housing recoveries always do.
Below is a market-by-market report from our local offices:
North Bay – We are seeing strong movement at all price points in Marin County with more unit sales than last year, but lower volume overall, according to our Greenbrae manager. There is more activity in the Previews marketplace with cash sales. Multiple offers are common for homes in the million-dollar price range. There still is a shortage of inventory, but more is trickling on the market. The Novato market is still being impacted by distressed sales, with the lower-priced properties accounting for most of the brunt of it. In the last three months, the majority of sold properties in the lower price range were distressed. Just 12% of the properties over $1 million are distressed. We have seen a slight increase in the average sale price of high-end properties this quarter, from $1,281,817 to $1,311,000. In Santa Rosa, the local market is improving, but in fits and starts, our manager says. In the Previews high-end market, the $2-3 million segment is around 25% stronger. Equity sales are trending upward, which is important because there is a buyer coming out of these transactions. In Sebastopol, sales are moving higher but inventory shrinking. One new listing had more 45 people at the open house. Another had multiple offers the first day on the market.
San Francisco – The San Francisco Lakeside area has been steady, our local office reports. Tuesday Broker tours are slow, but well-priced public open houses are mobbed and buyers are active and fight for properties when they are well priced. Sales activity is on the rise, according to our Market Street office manager. The office saw a strong finish to September with two-thirds of the sales multiple offers, generally more than five offers per property. Ratified contracts seem to be happening almost immediately after the first open house with strong back up offers in place. We have limited inventory, and location seems to be key. Price, location and well-staged, clean properties sell quickly. He says agents are starved for inventory, as buyer demand is very strong. Our Sunset manager says the local market remains steady – great open houses activity and market pricing the key to getting the listing sold.
SF Peninsula — Our Burlingame offices say there is a lack of inventory in the $800k to $1.5 million range. There are lots of buyers in the pipeline all just waiting to jump on low rates and waiting for the perfect property to come along. It is a bit slower than normal but open house attendance has picked up and our managers anticipate a good last quarter. Some very dramatic price reductions are making Hillsborough a great buy right now. Inventory has built up over the summer, offering many choices to luxury home purchasers. The Menlo Park offices report sales activity is increasing with listing inventory holding steady. Our Palo Alto manager says the market is seasonally slow in the mid-Peninsula high-end area. One week it seems to be doing well and the next week it’s slow. In Portola Valley, our office reports that they have seen some strong sales these last two weeks. List prices include properties priced at $12.5 million, $6.9 million and $4.4 million. The Redwood City market has been quiet of late. There is a great amount of focus to get escrows closed prior to drops in loan limits at Freddie Mac and Fannie Mae, our San Mateo office says. Escrow and lenders are working hard to meet the deadline. There have been fewer closings in September, but a slight increase in pending sales.
East Bay – Our Berkeley office reports steady sales in the local market since the end of May. Houses where deals fell through are selling again quickly and buyers, who may have dropped out or canceled deals, are coming back. Both sales activity and inventory is increasing in Castro Valley. In the San Ramon Valley, the local market has really slowed down. Active inventory stands at 918 units, down from 956 one week ago. New pending sales in the past week were at 57, while the week before there were 80. It is especially quiet are Alamo, Blackhawk and Diablo. Fremont has also been slow but steady, according to our local office. The overall housing market in Livermore is healthy. Active inventory continues to decline from high of approximately 275 total listings to 227 today. At current selling rates we have less than two months of inventory on the market in Livermore. Lots of great traffic at open houses, according to our Oakland-Piedmont office, but there has been no urgency to write the offers. Finally in the last few days people have started to put pen to paper and submit offers resulting in multiples and rounds of counter offers. We’ve seen an increase in the move-up market in the last couple of weeks, clients wanting to take advantage of the great interest rates and looking for more room for family. The Lamorinda market has been steady of late with 19 ratified offers, five of which resulted in multiple offers. In Pleasanton, inventory is still low but sales activity has been steady. Finally in Walnut Creek, there continues to be very low inventory. After a short reprieve, some are buyers are back on the fence, our local manager reports.
Silicon Valley – In Cupertino, well-priced homes with excellent schools are still getting lots of attention and multiple offers. Open houses continue to be busy. Los Altos has seen an increase in sales activity, but buyers are still very selective. Multiple offers are coming in closer to list price. The Los Gatos market has been steady as the high end continues to remain strong. In San Jose, our Almaden office says that shrinking inventory seems to be leaving only motivated buyers and sellers. Those sellers who “had to get a certain price” seem to have taken their properties off the market. Those left are increasingly pricing them correctly for the market, which is leading to sales. REO listings and sales continue to dominate the market when it comes to multiple offers. The San Jose Main office manager reports listing activity is down, however buyer interest seems to be increasing. Open houses the past two weekends had lots of activity and the upper end of the market is picking up. Sales activity is increasing, according to our Willow Glen office. But short sales are taking longer for bank approval. In Saratoga, September started out slow and then increased as we headed to the end of the month. The end result put the local market on target for monthly sales.
South County – South County agents are reporting that open houses are very well attended—yet sales were down for September and the first part of October, according to our Morgan Hill office. Buyers seem cautious but with interest rates and prices at record lows, it is the perfect time to purchase. In-house lenders are very busy providing pre-approvals for potential buyers and agents are busy showing the ever-decreasing listing inventory. Local builders have started construction on two major projects in Morgan Hill and are reporting brisk sales—even for houses that are not yet constructed. This is a positive sign that demand remains high. Morgan Hill’s proximity to Silicon Valley also has a very positive influence on our market. Buyers can purchase a good home in South County for less money than a comparable home in San Jose, Campbell, or Los Gatos. Gilroy’s market has been relatively quiet, although there has been an uptick in multiple offer situations – about 10 in the past two weeks. There has been very light open house traffic, our Gilroy manager reports.
Santa Cruz – The Santa Cruz County market overall remains status quo. In a general sense the unit count of closed escrows comparing 2010 with 2011 is up slightly, 5%. This is not a significant change, although prices reflect a lower price point than this same time a year ago, down about 6-8% with the median price for the County under $500,000. Inventory levels are down 8% from this same time last year, hovering right around 1,000 homes currently on the market. Most of the escrows are taking longer, and there is more negotiation with new and always different complexities on each deal. We continue to see a steady stream of short sales coming on the market, and limited releases of REO properties.
Monterey Peninsula – Carmel and Pacific Grove continue to be the bright spots of the Monterey Peninsula in sales, with both showing some gains in median price when compared to 12 months ago, while other areas here are generally showing declines in prices. Both towns are particularly popular for second homes, and we are still seeing many such buyers coming from Silicon Valley. However, all areas here except Seaside – where inventory itself is down – are showing an increase in pending sales when compared to this time last year. So as local agents approach the fall season, normally a good selling season for the Monterey Peninsula, they are in a positive frame of mind that the real estate activity we’ve seen thus far will continue.
That’s it for now. Have a good week!