Dramatic Inventory Shortages Driving Bay Area Home Prices Higher
A red-hot, full-blown seller’s market has engulfed Bay Area real estate. Buyers are fighting each other to land the winning bid on homes from Novato to San Jose, Burlingame to Pleasanton. Six-figure properties are being bid up into the seven-figures. In all my years of real estate, I’ve rarely seen a situation quite like this. The only thing missing from this wild seller’s market is…well…sellers!
There’s a dramatic shortage of homes for sale all around the Bay. This mirrors a national trend, which has seen inventory drop from a 12-month supply at the low-point of the recession to a 4.6-month supply today, according to the National Association of Realtors. But the lack of available inventory may be even more acute here in the Bay Area.
Homes for sale in the Bay Area markets we serve were down sharply last year, and so far this year things have only gotten worse (or better for sellers). Inventory stands at just over a third of where it was two years ago at this time!
Needless to say, the law of supply and demand is having a huge impact on home prices. The overall median sale price in the Bay Area finished last year up nearly 24 percent from the previous December, according to a recent report by DataQuick, the La Jolla research firm.
According to our Berkeley manager, houses in that area are being bumped into the $1 million-plus price points just by the over bidding alone. Homes that in a normal market would sell in the $600-700K range are getting $800-900K. And the $800,000 to $1 million homes are “headed to the stratosphere.”
Our Burlingame North manager said, “Sales comps are irrelevant when submitting an offer today.” When discussing the comparable sales with buyers, he said agents are asking them “what wouldn’t you pay for the property,” and then work backwards. “Supply is as low as I can ever remember, and competition for listings is fierce. “
Multiple offers are back with a vengeance, notes our Los Gatos manager. A property in Campbell recently fetched over 30 offers. And sellers are getting four or more multiple offers for most every property in the Tri-City area of Fremont, Union City and Newark.
This chart below on Bay Area inventory and price trends over the past two years says it all. The message to anyone who owns a home today couldn’t be any more clear: If you’ve been thinking about selling, but held off, you can’t afford to wait any longer. It’s time to jump into the market and cash in on big gains in home values. It’s a red-hot seller’s market, but no one knows how long this will last! An important message potential sellers need to know is that as prices go up and interest rates along with them as they are predicted to do this year, there will eventually be fewer buyers who can qualify and compete to buy their home. At some point, Bay Area Affordability (actually, lack thereof) will be the likely cause of price correction.
Below is a market-by-market report from our local offices:
North Bay – The Greenbrae local market is improving slowly, but agents still need more listings. In San Rafael, 12 listings have been added since the last report. There’s a lot of activity, and open homes are very busy. Our Santa Rosa managers say many buyers up to $1 million are being cautious in placing offers. While there is little inventory, there seems to be little reason for them to jump into a home that is less than ideal. They are also reducing their offers by the value of any shortcomings the home may have. In addition, two things seem to be keeping the buyers from acting: interest rates do not seem to be moving up and there is a sense that more homes will be hitting the market in the coming months for them to choose from. It will be interesting to see if they are correct. Agents believe an inventory shortage will continue to be the case in 2014. In the Previews luxury market, inventory is increasing and homes that are priced appropriately are receiving attention and offers. In Sebastopol, there are multiple offers on all price ranges. Most agents and clients are putting date certain response time in order to get the greatest exposure. New listings have been exceedingly slow coming to market but there is lots of talk around the office of upcoming listings some of which are secured but not yet in the MLS for various reasons. Good, well-priced inventory is the name of the game for buyers.
San Francisco – Listings are scarcely available on the multiple listing service because sellers say they don’t want to fight with other buyers in purchasing their replacement property, according to our Lakeside office manager. But buyers, while feeling frustrated, are mostly determined to get their foot in the door on properties and there are still investors vying for the limited inventory. The bottom line is that we are experiencing a strong sellers’ market right now. Our Lombard manager says it seems that only the bold and the bravest of buyers are winning the day. Waiting for higher interest rates, market changes or an influx of sellers is not a viable buyer plan. We had plenty of fence-sitters in 2013, but having made their move then, are now sitting on about 15-20% more equity. Our Market Street manager says the song remains the same – too many buyers for not enough inventory. This period agents saw multiple offers ranging from two to 26. One of our listings that struggled to get an offer late last year, and eventually fell out of escrow, received an offer this month for $100K more than last time. One of our buyers wrote an offer for $700K over the asking price, and was told they’d come in second place. Our Sunset office says most open houses have 100+ visitors. With the current low inventory level, most listings are getting 10 to 20 offers. Sales at the upper end of the market have new life in the new year. There were several in the $8 million to $10 million range last week out of the Van Ness office. Our manager says the year began with a bang. January had two times the number of sales of the same month a year ago, which was also twice as high as the year before that.
SF Peninsula – There have been very busy open homes in the Burlingame area, despite the rain. Buyers are out in force and ready to jump on the right home. Our manager says some very beautiful listings are coming on the market the next three-plus weeks. Our Menlo Park manager said local sales are up about 20 percent, but agents are still starved for inventory. Lots of agents have clients in every price category. In Palo Alto, historically low inventory and a high number multiple offers continue. All of the listings that sold recently by our Redwood City/San Carlos office had multiple offers. They ranged in price from $450,000 (a condo) to $989,000 (single family home), with three to 15 offers. All went considerably over list price and most had few if any contingencies. It’s a very, very challenging market. In the San Mateo area, there’s been a slight increase in inventory but demand still extremely strong and it’s still a seller’s market.
East Bay – Open houses in Berkeley are well attended, but buyers are disheartened by the market. Agents are very concerned by the lack of inventory. There were four Berkeley houses on tour this week after eight last week – not heading in the right direction. Traditionally, homes begin to blossom for the spring market around this time of year, much like the lovely fruit trees throughout the area. The air feels clean, the robins are caroling, the trees are budding and blossoming. But where are the for-sale signs? In the Oakland-Piedmont area it’s the same story: No inventory, No inventory, No inventory. Homes in the area are routinely going $100k or more over asking due to all the buyers competing for the same home. Homes that should be going on the market in the next couple of weeks are having their dates pushed back so our manager is not sure when this will ease up. Our Orinda manager said February has started off with a bang. Listings are on the rise with 11 new listings being submitted in one day. Some sellers with listings that have not been moving are submitting price reductions. Activity and excitement amongst the agents is high. Our Walnut Creek manager reports that there’s low inventory in all markets. A few more listings have come on the market lately, and a little more is expected in March and April. Some sellers are deciding to wait because they think prices are still increasing. Others are afraid to sell because there is nowhere to go if they do.
Silicon Valley – Our Cupertino office says agents are seeing lots of strong pre-emptive offers. Although the inventory is similar to this time last year, there is an increased sense of desperation among buyers to get a home, almost at any price. Multiple offers are back with a vengeance, according to our Los Gatos manager. A property in Campbell recently fetched over 30 offers. There are 17 active single-family listings and 34 pending in the San Jose-Almaden area, with more than half of those over $1 million. The local Willow Glen market is hungry for listing inventory, the same story each week as we move into the post Super Bowl weeks. Open house traffic has been crazy with some homes drawing hundreds of people. Buyers are going all in – no contingencies, offering well over the listed price. This past week a “flipper” set a new high water mark for pricing in a local Willow Glen neighborhood.
South County – South County remains a “bargain” for buyers when comparing prices to other parts of Silicon Valley. Buyers continue to discover that they can purchase a larger home with more amenities in both Gilroy and Morgan Hill. In some cases, they are finding even better value in Hollister. A recent article in the San Jose Mercury indicated that, though employment is strong in the Silicon Valley, qualified buyers are having great difficulty securing a home—as demand far exceeds supply, and prices for some are just too expensive. Many are finding that, as a compromise, they are willing to increase their commute time in order to purchase a home farther from their jobs. It is interesting that this phenomenon occurred in the early 1980’s when many buyers, who found Bay Area home prices too expensive, purchased homes in communities such as Tracy and Salinas.
Monterey Peninsula – The high-end home sales continued in the last two weeks, with more than a dozen sales in the $1,800,000 plus price range going into contract. The AT&T Pro-Am traffic was not as busy as usual, probably due to the weather, but this was the opportunity for future homebuyers to see the beauty of Monterey Peninsula via ESPN. New listings seem to be coming on the market and getting several showings out of the gate if the property is priced right. The under $1 million price range is picking up as well. Agents have seen a few recent multiple offer situations again if the property is priced right. January was an incredible month and is a great start for 2014. So far February is shaping up to see an improvement over last year as well.