Mixed Bag for Bay Area Housing Market, But Buyers Still Out There

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 11^th 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:

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.

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.

That’s it for now. Have a good week!