Prices Up, Fundamentals Down in the Bay Area (June 2010 Real Estate Insider Report)

Redfin’s monthly Bay Area real estate market report draws from our proprietary database of information on homes for sale and that just sold, along with insight from our agents to get a sense of what’s going on in the market right now. If you’d like to receive the report via email, just sign up.

Howdy Bay Area Redfinnians!

We just closed the books on Redfin’s analysis of the Bay Area market in June, and saw the first signs of a post-tax-credit correction drift through outlying areas, headed toward San Francisco and the Peninsula.

Why do we think the market is softening? While the median price of a home increased in five of the six core Bay Area counties, declining only in Contra Costa County, supply increased and demand weakened. Despite the federal and state tax credits that overlapped in June, sales volume declined in four of six counties from May to June 2010. And inventory increased across the entire Bay Area.

Inventory Increases Driven by New Listings

The increase in homes for sale across all six Bay Area counties has been driven in part by new listings from traditional home-sellers rather than bank foreclosures, which is good news for the market:

# of Houses for Sale in June 2010

All spring, we saw the same houses sit on the market, often because sellers lacked the money to spruce up or mark down the listing, frustrating buyers. But that has begun to change.

“In the past few weeks, we’ve gotten a lot of activity from people looking to list their home for the summer,” said Miawand Bayan, Redfin agent for Hayward and Fremont. “It came as a surprise to us since we expected new listings to peak when both federal and state tax credits were available. But more listings are being sold by owners, and fewer are being sold by banks.”

In San Francisco, the Peninsula, Berkeley and Oakland, where demand has been stronger, the increase in inventory may bring new buyers to the market. “A lot of my clients have been scouring the market since losing out on a few offers, and the problem they all talk about is inventory, inventory, inventory,” said Amber Zahn, Redfin agent for Berkeley and Oakland.

Demand Weakens in East Bay, Still Strong in the Peninsula, City

Even as some buyers clamor for more inventory, we expect demand to slacken later in the summer, when the California tax credit exhausts its funds. Already, after double-digit increases in sales volume in May, most counties declined significantly in June 2010, compared both to May 2010 and June of last year:

# of Houses that Sold in June 2010

The sales drop is ominous. Typically, sales increase from May to June, as most parents move during their children’s summer vacation. Taking into account the recent 30% sale drop in markets outside California, where the federal tax-credit expiration hasn’t been offset by any state credits, we are braced for a similar hangover in California.

This trend won’t affect the core neighborhoods in the Bay Area any time soon. According to Redfin agents, sales are still competitive in San Francisco and the Peninsula, often to the tune of ten or more offers on a single listing. Redfin agent Brad Le just bid on two million-dollar homes in Sunnyvale and Mountain View, which sold between $60,000 and $80,000 above list price.

“In San Francisco, we are still seeing homes sell for $100,000 over the asking price, particularly in Noe Valley and Bernal Heights,” added Redfin agent Gina Pio Roda. “But in Daly City and South San Francisco, investors are now taking profits, flipping the properties they bought last year to other buyers.”

According to Redfin agents Miawand Bayan and Amber Zahn, competition has eased in the East Bay, in part due to a decreasing number of bank-owned properties on the market; taking up the slack, short sales are now increasing, as banks are approving deals more readily. Overall Redfin’s Bay Area demand was flat or slightly down in June as the market began to stabilize somewhat from the commotion of the national and California tax credits; just this week we’ve seen demand jump, but it’s too early to say if that’s just a flash in the pan.

Median Prices Increase, But for How Long?

What does this mean for prices? In the most sought-after communities on the Peninsula, in San Francisco, Berkeley and Oakland there still may be too much demand to see any immediate price drop, but price increases will be at least moderate. Other areas may lose some of the gains made over the past 18 months, but not in a drastic way; precipitous drops are almost always caused by foreclosures, which appear to be under control.

What’s clear now is that prices increased in June 2010, everywhere except in Contra Costa County.

Change in Median Price of Houses That Sold in June 2010

“The market is very price-sensitive right now,” said Frank Wong, Redfin’s agent for San Leandro, Hayward and Fremont. “If the home is priced well, it will sell, and there will be multiple offers. But even in that case, competition is less intense. In the last three months, I would see eight to ten offers on bank-owned properties but since June it has been more like four to five. On regular sales, we are seeing two or three competing offers instead of three or four.”

And that’s all the new data we have for this month. To dive into more detail, just look at the raw numbers in this spreadsheet. Or check out the methodology for our reports. What do you think? Comment below! Have a good July!

Best, Glenn
CEO, Redfin