I just carried out an extensive analysis (thanks Redfin sales listings!) of prior sales in two Oakland neighborhoods I like.

Redwood Heights peaked at $468/sq ft in 2006, and has dropped to $379 in August-November of 2007 and $322 in the past 3 months. Very significant drops.

Interestingly over the past 6 months, prices for houses above 1500 sq ft sold for $333/sq ft, but under 1500 sq ft the average has been $429. Historically, the premium for a smaller house (before the subprime craziness began in 2004) has been 5-15%. Therefore right at this moment, smaller homes are way overpriced in Redwood Heights. By the way, at the height of the last peak in 1989, homes were about $150/sq foot. Adjusting for inflation, homes "should be" about $300/sq ft, being quite generous (as they were still selling for just a little higher--$160/sq ft in 1996-97), with smaller houses maybe commanding ~$330/sq ft.

Glenview shows similar characteristics. The smaller house premium there is historically closer to 20% (why I have no idea), but in the past 6 months, the price premium has jumped to 60%!!

This is due to the $/sq ft in Glenview dropping to $321/sq ft during the past 6 months for houses over 1500 sq ft from $385 in the first half of 2007, but smaller houses dropping only 6% from $550 to $514/sq ft.

My conclusion is that smaller homes in at least these two 'hoods are HORRIBLE deals. they need to drop 15-20%, minimum, assuming "move-up" houses don't drop at all. This conclusion is backed up by the fact that you can rent these houses for amounts that justify home prices at least 20% lower than what they are.

For me it really doesn't make sense to buy a $490K "starter home" at about $410/sq ft in Redwood Heights, when there is literally a house up the hill that's almost twice as big selling for $300/sq ft, so it's "only" $600K. I might as well save for another ~4 years and buy the bigger house, saving myself the hassle of an extra move and home sale.

Judging by the sales volume recently, I can't be the only one thinking this way. Starter home sellers either have to sell for way less, or more banks have to drop their prices on the short sales and REOs out there.

Hi David:
thanks for your thoughts. Yes, the Laurel is dropping, and I think will likely drop some more, as well as my neighborhood, which is the area between Park Blvd. and 14th Ave.

Eh, comparing price to rent, I think Rockridge can drop, but $350 is probably too low, unless we have some SERIOUS economic problems, in which case, unless you're really flush, you'll be too busy worrying about the soup kitchen's location than your house location.

But, on the other hand, I've seen price/sq ft drop significantly in the Laurel and similar areas in Oakland (from $450/sq foot to $400 typically). Another 10% would be $350, I think we'll get there this year. Not too long ago it was $200/sq ft.

Hi Alison,
Probably wishful thinking, i know, but I'm still hoping!

Hmm. 4011 39th sold in 2005 for 515K. There's one place that's actually sold above a 2005 mark.

Interesting.

Thanks for your comment GFW. I think it would be amazing if Rockridge reduced to $350 per s/f. When I check out the Redfin mapped area for Rockridge, the current properties for sale range from $510 per s/f to $813 per s/f. Temescal looks as though it's already met your prediction: current listings go from $254 per s/f to $347 per s/f. Grand Lake is a wide range: $342-$524 per s/f. Piedmont Ave. is harder to tell since as you know from previous posts, some properties listed as being in "Piedmont" the city are really on the Ave. but from the looks of the Redfin map, the current range is: $386-$568 per s/f, so still a ways yet to drop to $350. Thanks for your predictions; we'll see!

My predictions still hold: ~$350 per square foot, for the "average" home in Rockridge, Temescal, Grand Lake, Piedmont Ave. ~$250 to $300 for a fixer.

That would represent a 25 to 30 percent reduction from the peak price of ~$480 last year. Not sure when that will be reached, but hopefully by summer.