Limited supply of houses lifts prices
After several months of house-hunting in and around Cupertino, Sury and Suhasini Balasubramanian became disheartened.
“We were outbid quite a few times,” said Sury Balasubramanian. “They were all-cash deals with no contingencies, way over our budget.” They decided to get aggressive. “We realized that our budget of $600,000 would not cut the mustard,” he said. They found a three-bedroom Sunnyvale townhome listed at $649,000 and beat out 14 other buyers with a $725,000 bid.
Their experience is the story of the day in the Bay Area real estate market, especially in the tech-fueled swath from San Francisco to San Jose.
Buyers are battling over tight inventory, with for-sale homes in such short supply that they sell up to twice as fast as a year ago and draw multiple offers. In many areas, asking prices and sale prices are up significantly from this time last year.
The combination signals a shift to stability for the once plummeting housing sector, experts say.
“The market has clearly turned,” said Christopher Thornberg, principal at Beacon Economics. “The question is: How high a bounce? Will it be a basketball or a bowling ball? The answer is more on the bowling ball end. While things have clearly (improved), it’s not like the problems are finished.”
Price per square foot
Asking price per square foot — a metric that captures the most current market snapshot while controlling for a change in the mix of properties being sold — rose in 105 out of 239 Bay Area ZIP codes analyzed in April compared with a year ago, with many of those areas in the South Bay and Peninsula, according to real estate information service Zillow. (Data were not available for some ZIPs.)
“There is more growth in listing prices in that area than elsewhere in the Bay Area,” said Stan Humphries, Zillow chief economist. “A desire to live close to the major technology companies is definitely helping those markets.”
Zillow shows that properties in towns such as Palo Alto, Los Altos, Mountain View, Cupertino, Sunnyvale, San Jose and Santa Clara are selling at above asking price.
Realtors specializing in Silicon Valley said the change is tangible.
“Over the past year, we have seen the market start to accelerate,” said Eric Boyenga of Intero Real Estate in Cupertino. “We could feel that job growth was happening when we started getting relocation calls almost every day.”
That revved up even more this year, said his wife, Janelle Boyenga, also with Intero.
“The light switch went on in mid-January, when (tech workers) realized, ‘Omigosh, Nasdaq stock prices are going up, the economy is doing well — we’d better jump into the housing market.’ We’re seeing hundreds of people going through open houses on the weekends; they’re like rock concerts.”
Asking prices are also up farther afield in suburbs both pricey (Corte Madera, San Anselmo, Moraga) and modest (Concord, Discovery Bay), according to Zillow.
“We’re seeing growth that’s organic, not stimulated” by government home-buyer tax credits, Humphries said. “We expect a lot more to spread throughout the San Francisco metro area, which will help stabilize prices.”
Inventory is the other “rea ltime” real estate metric — lower inventory signals a recovering market. It is down significantly in every Bay Area county this year as demand outpaces supply. Some have fewer than half as many houses for sale as a year ago, according to multiple listing service data provided by Realtor.com.
Besides a surge in demand, there are several factors on the sellers’ side. Many homeowners are staying put, waiting to put their houses on the market until they’re sure that prices are on an upswing. Many others are underwater, so they cannot sell without taking a loss. At the same time, the pace of foreclosures has slowed in response to government programs.
Quicker sales
Contra Costa County, for instance, had 1,875 homes for sale in April, down 59 percent from 4,525 homes a year earlier, Realtor.com said. The median age of those listings is just 18 days, compared with 47 days a year ago. San Francisco has 1,040 listings, down 44 percent from last year, with a median age of 35 days, down from 51. Santa Clara County has 3,764 listings, a 40 percent drop from a year ago.
“Inventory is a powerful statistic,” said Steve Berkowitz, CEO of Move Inc., a Campbell company that produces Realtor.com, Move.com and other real estate websites. “This tightness means prices will stay stable. If you break it out by price point, you see big movement in ‘reasonably priced’ (close to an area’s median price) housing in the Bay Area. Those houses are turning over very, very fast and getting multiple offers.”
Barbara Reynolds of Prudential California Realty in Berkeley said she saw the multiple offer phenomenon kick in about two months ago.
“Inventory is tight because properties are selling right away,” she said. “There are many more buyers and they are much more likely to make an offer” than in the past.
Record-low interest rates and home prices that have tumbled from once-stratospheric heights are bringing buyers, especially first-time owners and investors, out of the woodwork.
“Affordability is extremely high and there is pent-up demand,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. “Buyers who were sitting on the fence are now noticing that prices are firming up, which is bringing a significant number to the marketplace.”
But the biggest factor of all, he said, is employment. Despite disappointing national figures released Friday, showing that only 69,000 jobs had been created across the nation in May, Bay Area job growth remains strong, fueled by the technology sector, analysts say.
“What is helping the Bay Area is that San Francisco and Silicon Valley are showing the strongest job creation of any area of California,” he said. “Job growth basically translates into housing demand.”
‘It’s a boom’
Ken Rosen, chair of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, agrees that the “job engines of Silicon Valley and San Francisco” have ignited the real estate market.
“It’s a boom,” he said. “It completely turned around in the past six weeks and the bottom is in hindsight now.”
But it’s a checkerboard recovery, with prices still declining in some areas. And real estate distress — such as foreclosures, short sales and underwater homes — remains high by historic measures, even though it’s ebbing.
“We have a long way to go to a broad-based recovery in real estate in California,” Adibi said.
Zillow shows that negative equity — people who owe more than their home is worth — is still pervasive. Almost a third (30.7 percent) of homeowners with mortgages in the fivecounty San Francisco metropolitan region (San Francisco, San Mateo, Marin, Alameda and Contra Costa counties) are underwater. Almost 10 percent of those underwater homeowners are behind on mortgage payments by 90 days or more, presaging possible foreclosures.
Negative equity dampens both supply and demand. Underwater homeowners cannot become “move-up buyers,” who sell their home to buy a bigger one, since their lack of equity means they’re unlikely to have a down payment.
“Because we expect a slower pace of home value increases in the immediate aftermath of the bottom — thanks to the overhang of negative equity and elevated foreclosures — it may be a long time for some deeply underwater homeowners to resurface,” Humphries said. “For the nearly 2 in 5 underwater homeowners who owe more than 40 percent over the current value of their homes, it may be five to eight years, or even longer, before they have positive equity.”