Bay Area Housing Hits a Peak in July

 

The Bay Area's housing market staged a breakthrough in July, reaching the highest level of sales for any month in nearly seven years, according to a report Thursday. The housing recovery has been bogged down by a lack of inventory. This month's report indicates that is no longer the case, as sellers respond to double-digit price increases.

 

July's median sale price of $562,000 for all types of homes is up 33.5 percent across the nine-county Bay Area in 12 months, according to real estate information company DataQuick, meaning that homeowners who have been sitting on the sidelines for years can finally sell at a profit.
Jonathan and Breanna Everett just sold their Walnut Creek townhouse for $425,000, about $100,000 more than they paid for it 3 years ago. 

"It was a really big win we never anticipated," said Jonathan Everett. The money was enough for a 20 percent down payment on a single-family home in a desirable neighborhood in Portland, Ore., where the couple is relocating for new jobs in the health industry.

With 9,339 sales in July of all types of homes -- houses, condos and townhomes -- the nine-county region has topped sales for every month since July 2005, before the housing market slumped with the bursting of a home price bubble, DataQuick reported.

"The pendulum is swinging back to normalcy," said Andrew LePage of DataQuick.
Sellers are coming back into the market, said Realtor.com's president Errol Samuelson. "You're seeing the market start to stabilize, which is a really good thing. We didn't want a nice recovery to turn into an overheated market."

Sellers are benefiting from the large yearly gain in median sale prices. Single-family home prices were up 31.7 percent from July 2012 across the nine counties.

In the South Bay, Peninsula and East Bay, median sale prices for existing single-family homes were up double digits from a year ago to $570,000 in Alameda County, $450,000 in Contra Costa County, $740,000 in Santa Clara County and $833,000 in San Mateo County.

Single-family sales in those four counties were not at their highest in seven years for any month, but Santa Clara and Alameda counties had the strongest July in sales since 2005; San Mateo County topped any July since 2006, while Contra Costa had the best July since 2009.

There's good news for buyers, too. Some real estate agents are reporting fewer numbers of multiple offers and some sales for less than the asking price, making it easier for move-in buyers to get into the market. That may be partly because investors are bidding on fewer homes. Absentee buyers -- typically investors -- were 20.9 percent of the market in July, down from a peak of 28.7 percent in February.

"It seems like the investors have backed out of the market abruptly," said Kevin Kieffer of Keller Williams Realty in Danville. "There's enough owner-occupy buyers coming in to fill the gap, and they're getting a better price."

An investor himself, Kieffer said that lately people buying to move in "will beat me back every time."
Bryce Ellsworth of Windermere Ellsworth Associates in Brentwood said he is seeing fewer multiple offers. "Houses that two months ago would have gotten 20 offers are now getting six or seven," Ellsworth said. "One of my clients said he was surprised at the number of choices he had and how nice the homes were."

One of Kieffer's clients, patent lawyer David Chung, is buying a home in downtown Walnut Creek with money from the sale of homes in Sacramento and Santa Clara."We timed it well," Chung said. Even though interest rates have jumped above 4 percent, he's not complaining. "These are incredibly low rates. I couldn't be happier," Chung said.

While overall sales were up, they fell in the most affordable markets, said DataQuick. Sales of homes below $500,000 dropped 14.6 percent from a year earlier, and home sales above that price increased by 55.9 percent.

The median price reached a low of $290,000 for all types of homes in March 2009. It peaked at $665,000 in June and July 2007 -- and at $562,000 in July, the median price has recovered nearly 85 percent of that high.

The median price is partly affected by a decline in the sales of lower-cost homes and an increase in higher-priced homes, DataQuick noted.

What You Can Expect From Housing In The Second Half of 2013

The U.S. housing recovery continues to make gains. New home sales have surged 38% since last year, hitting a five-year high in June, according to the newest figures from the Commerce Department. And despite a monthly drop in activity, sales of previously owned homes remain 15% higher than last year as well, according to the National Association of Realtors.


If housing in the first six months of 2013 could be summed up in one sentence, it would go something like this: Inventory is painfully tight, sales activity is surging and home prices have jumping.Now real estate experts are sounding off on the trends that will help shape the sector in the second half of 2013. Here’s what you need to know.

We Are Not Re-inflating A Bubble
Home prices have clocked double-digit price appreciation this year. Prices across the 20 major U.S. metro markets were 12% higher in April than they were a year before, according to the S&P/Case-Shiller Home Price Index. Other indexes have registered similarly dramatic gains. The last time prices appreciated by double digits were during the last housing bubble, motivating to question whether a new bubble is beginning to inflate.

It isn’t.  The current pace of growth, while certainly unsustainable for long term market health, is nothing to worry about just yet. “Prices are now rising as fast as they were during the bubble years, but they are still low relative to the levels where they were back then,” explains Jed Kolko, chief economist of Trulia TRLA -0.05%, a San Francisco, Calif.-based real estate site.

He says prices are actually undervalued across most of the country, lower not just than their bubble-era peaks but also lower than their historical norms when adjusted for inflation.
“You can sort of think of it as we overshot on the way down and this is sort of a correction back to something more normal,” adds Mark Fleming, chief economist of CoreLogic, an Irvine, Calif.-based real estate data firm.

Economists do believe home prices will continue to climb throughout the rest of this year. CoreLogic CLGX -0.26% projects 2013 will end with a 6% increase over 2012. And Altos Research, a Mountain View, Calif.-based firm that tracks real estate data in real time, believes 2013’s final tally will be even higher. “Based on the actual supply and demand data, we are looking at 12% year-over-year,” says Michael Simonsen, chief executive of Altos Research.

Still, it won’t last. They say several variables, including increased inventory and higher mortgage rates, will slow the pace growth, which to be clear, is expected to stay positive over the next several years.

More Homes Coming To Market
I’ve said it before. The abnormally tight inventory levels fueling the return of such frothy buyer practices as bidding wars and contingency-free offers will slowly begin to ease. Inventory – which hit a 12-year low earlier this year — is already starting to increase and economists believe that trend will continue despite the season.

In June, there were 7% less home for sale than a year earlier, according to Realtor.com, but the monthly numbers offer the forward-looking story. From May to June, inventory grew by 4%; last year that monthly increase was only 1%.“We think inventory levels on a year-over-year basis will probably flatten out by the end of this year. That will be the first time since 2007,” says Errol Samuelson, president of Realtor.com. “I think you are actually going to see inventory growth on a year-on-year basis starting in the fall, but prices nonetheless will continue to appreciate.”
“Inventory started to expand very slowly maybe about four months ago,” echoes Kolko. “We will see that continue as rising prices help owners get back above water and help other sellers decide to take advantage of price appreciation.”

Still, some experts, like Simonsen, believe we could see housing shortages in the most sought after locales as far out as the next three years.

It will come down to new construction as more homebuilders continue to gain confidence and roll new developments. Kolko expects to see more construction commence in places like Texas, the Carolinas, Northern California and other parts of country where there’s strong housing demand, spurring job growth in both construction and housing-related industries.

Since an unusually large portion of new construction is multifamily, increased inventory won’t just help slow the rapid rate of home price growth but also quell rent prices. As many as six million more households will join the rental market ranks over the next decade, according to the National Association of Realtors;  more building in major cities will help keep rents from rising too much in response.

Mortgage Rates Will Keep Climbing
Mortgage rates have risen over the past two months. A recent Trulia survey found rising rates was the number one worry among prospective buyers right now.

Economists believe rates will continue to climb, though at a much less feverish pace than recently witnessed. But while the higher rates – the 30-year fixed loan is about a point higher than it was in early May – mean borrowing is getting more expensive, housing won’t become unaffordable anytime soon. “Prices are still low relative to rents, so at 4.5%, it’s still more than a third cheaper to buy than to rent on average across the U.S.,” notes Kolko. “Not every market will remain cheaper to buy but on average… buying will stay cheaper than renting until rates reach 10.5% — a level we haven’t seen since 1990.”

Still, in metro areas like San Francisco, San Jose, New York and Honolulu, markets that were always historically cheaper to rent than buy before the downturn, rates will begin to tip the scale back toward renting once they rise above 5%.“Our estimation is it would take a 6.5% interest rate to bring affordability just back up to the level of early 2000s, [meaning] neither too affordable nor unaffordable,” adds CoreLogic’s Fleming. “There’s plenty of room for appreciation and rate increases before that and we will probably get a little of both.”

Rising rates may help fuel another trend in the coming months: an easing of tight mortgage credit that has hampered the purchases of even qualified homebuyers. As rates rise, refinancing business dries up, pushing lenders to begin ramping up the mortgages they underwrite for prospective buyers.

Southern California Home Market Cools Off, Prices Flatten

The red-hot Southern California housing market finally got a dose of cold water.

The region's median home price in July remained flat from a month earlier, at $385,000, real estate firm DataQuick said Wednesday. The figures followed a record-setting June, when the median price rose 4.6% over the previous month and 28% year-over-year, the highest percentage since DataQuick started tracking the statistic in 1989.

The cooling off came with a surge in the number of sales to an eight-year high, indicating a growing supply of homes that could steady the market after this year's frenzy. Rising mortgage rates may also have propelled more buyers to close deals, fearful that rates could climb higher, the San Diego research firm said. "We are slowly moving toward a normalized market," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. The market nonetheless remained strong, with the median price up 25.8% from July 2012.

Prices have risen at a breakneck pace this year with an improving economy, a short supply of homes and heavy investor demand. The gains have frustrated many would-be buyers who found themselves on the losing end of bidding wars and raised questions about whether the market is getting overheated. Many economists say the increases should moderate as the inventory crunch loosens. Rising prices, many have predicted, will spur new-home construction and lure more sellers into the market.

Rising mortgage rates should also eventually help cool the market. But rate increases could also spur more sales and price increases in the short term, as buyers look to get into the market before rates go up further. Mortgage rates have risen about 1 percentage point since the beginning of May. Inventory has increased in all six Southern California counties last month from June, according to Realtor.com. Los Angeles County, for instance, saw 7.8% more home listings in July than a month earlier. Orange County inventory rose 8.4% last month.

The increasing supply and rising rates could now be putting a damper on prices, although economists usually like to see three months of data to prove a trend. "As the mismatch between supply and demand eases, it will be more difficult for home prices to rise as steeply as we've seen over the past year," DataQuick President John Walsh said in a statement. This year's sharp price rebounds have brought both pain and gain.

For those who bought during last decade's housing bubble, just before the housing crash, rising prices brought relief in the form of increased home equity. Thousands of homeowners have escaped negative equity positions — so-called underwater mortgages, on which they owe more than their home is worth. But many buyers have struggled in the fast-paced recovery, often losing out to cash buyers in bidding wars over the paltry selection of homes.

Many have been priced out of the market entirely as prices have soared. Only 36% of Californians could afford a single-family house at the state's median price in the second quarter, according to the California Assn. of Realtors. That's down from 44% during the first three months of this year and 56% during the first quarter of 2012.

Blair Newman, a real estate agent who specializes in Lakewood, said the market remains hot. Two weeks ago, Newman said one of his clients signed a contract to sell her three-bedroom home for about $15,000 over the asking price after receiving six offers within a week. "It's been pretty consistent," he said. Investors remained a heavy presence in the Southland in July, although their presence is receding.

Absentee buyers — mostly investors — purchased 27.4% of homes last month, down from 28.6% in June and the lowest level this year. Esmael Adibi, director of Chapman University's A. Gary Anderson Center for Economic Research, said because the market fell so hard during the bust, there is still room for future price appreciation. Still, he said interest rates are likely to rise, inventory expand and the year-over-year median price figures will soon be compared with a period of more robust growth.

California Real Estate Recovery Continues with 200% Drop in Bank Owned Sales

In June, home sales with equity value jumped again to their highest level in over a year. At the same time, a large drop in distressed sales, fueled by a 200% drop in bank owned sales showed that the real estate market is growing a healthy, wide spread recovery. "These are the types of good numbers everyone can be happy with," said Chris Pollinger, Senior Vice-President of Sales for First Team. "Bank owned sales this time last year represented more than 1 in every 5 sales. Today that number is down to less than 1 in 15. That just shows how positive growth is." In the latest analysis from the California Association of Real Estate, healthy equity sales of residential property grew by almost 50% year over year to 79.9% of June's sales from 57.8% in June 2012. During that same time frame, bank owned real estate sales dropped to 6.6% of sales from a June 2012 high of 20.4%. "Distressed sales are just that. The seller is either absent or distressed by the sale, the property is often the same, so seeing these healthy numbers is very encouraging," continued Pollinger. "And the numbers in Orange and San Diego counties are substantially better than the state average shows the time to enter the market is now!"