Bay Area Housing Market on the Cusp of Change

By Sharon Simonson

The Bay Area housing market is starting to slow.

Mountain View Home for Sale The Registry real estateAgents doing business in downtown San Jose, on the Peninsula and in the East Bay report a tapering off in buyer demand in recent weeks. Homes marketed for sale are still receiving multiple offers—but they are not receiving nearly as many. Buyers are expressing indecision on prices and value sustainability.

The question is whether the change is seasonal or cyclical. True market transitions are hard to see except in hindsight, agents said.

The recent rise in mortgage interest rates—six consecutive weeks up, followed by a tick down this week, Zillow Inc. says—is another variable. Boom markets, by definition, also must end.

“My personal prognosis is that barring any significant world or financial event in the United States, we will have a strong market right through the end of the year,” said Jeff Stricker, a broker and attorney in the Los Altos office of Alain Pinel Realtors. “Who knows about the beginning of next year? These bull markets last two or three years, and right now we are about two years into it.”

Prices in ritzy Los Altos Hills, where multimillion-dollar homes on large lots are the most expensive in the Los Altos market, have been rising since the beginning of the year, he said: “The high-end usually appreciates towards the end of the cycle.”

New numbers for the nine-county Bay Area from ZipRealty Inc. indicate a possible pullback. Distressed sales have fallen from 40 percent of the market to 14 percent year-over-year. At the same time, while the price-appreciation rate is still 44 percent year-over-year, that’s down from 46 percent at the end of April. Inventory levels, while still down compared to a year ago, are up by more than 30 percent since March, to 7,460 homes as of mid-May, the most recent Zip accounting. New listings are entering the market at a steady pace.

“It is still a sellers’ market,” said Jeff Hansen of Keller Williams Realty in San Jose. “But it is becoming less of a sellers’ market.”

Hansen oversees the company’s San Jose office and sells homes and condominiums in and near downtown. The median price of single-family, re-sale home in Santa Clara County reached $830,000 in May—up $30,000 from April, according to Hansen’s research. That is a mere $38,500 below the all-time market high of $868,500, reached in October 2007.

Buyers are aware, he said: “At the beginning of 2012, everyone asked, ‘When is the bottom?’ Now, they are all wondering if it is the peak.”

Hansen and others say they began to detect change over the last four weeks to three months. Terry Baldwin, a real estate agent for Zip in its Walnut Creek office, said he is seeing fewer bids for homes and fewer agents touring homes new to market, which tells him that fewer buyers are looking.

In the past, he would count as many as 25 business cards from agents who had visited new listings in their first days on the market. Now he counts “four or five,” he said.

“Three months ago, I had a client [buyer], and we were going against 20 or 30 offers. Two months ago, I noticed it was only 10 to 15 offers, and six weeks ago, one of my listings had nine offers. Then last week, I got four offers for another of my listings. And I just had an offer accepted today from my buyer, and in that situation there were only two other bidders,” he said.

Los Altos’ Stricker is advising buyers and sellers to adopt defensive measures. In the past, he said, agents would accept a slow summer of sales as part of a normal seasonal pattern and realize only when the typical fall buyers failed to materialize that in fact the market had changed, he said.

Unless they want to own their home for another three years to five years, sellers should get on the stick, he said. Buyers should be prepared to own their homes for seven years or more and should avoid properties with obvious flaws such as highly trafficked streets. “If the market goes down in Santa Clara County 20 or 25 percent, the worst properties fall 30 to 50 percent and the better ones in the best locations go down the least,” he said.

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