Nobody Move! Bay Area Home Sales Seize Up (July Insider Report)

Redfin’s monthly Bay Area real estate insider 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!

Even though we’ve been busy adding school ratings to our website’s map, Redfin just cranked out our latest analysis of the Bay Area housing market, based on proprietary data and local broker insights.

The news is not good, at least for real estate agents: as federal and then California home-buying credits expired, the overheated Bay Area market began to cool in July, except where technology-driven employment continues to be strong.

From June to July, the mix of buyers has likely shifted away from the first-timers responding to the tax credit. In these situations, you expect to see median prices increase, but even so median home prices were down or flat from June to July in five of six counties.

While inventory declined slightly except in the beleaguered East Bay market, across all six counties sales volume fell through the floor. We think demand is going to continue to ease for the rest of the year, as buyers now take their time, unhurried by either interest rates or tax credits.

Prices Flat to Down in Five of Six Bay Area Counties

The result: the market is definitely softening. From June to July, prices dipped across the Bay Area except on the Peninsula:

Change in Median Price of Houses That Sold in July 2010

The trend was most pronounced in the South Bay and the East Bay. “In the East Bay, we saw demand weaken most for listings priced above $650,000,” said Charmaine Frank, Redfin team lead in the East Bay. “For the first time in over a year, I am finally seeing properties sit in sought-after neighborhoods, even at good prices, sometimes for two or three months. Short-sale buyers are still out in force, and anything below $400,000 is still getting multiple offers, but everyone else got gun shy after the tax credit expired, waiting to see which direction the market would take.”

The decline in demand has made it easier for home-buyers who have smaller down-payments and government mortgage insurance. “In areas where competition is declining, like parts of San Jose, I’m seeing more offers with FHA financing being accepted, mainly on listings under $700,000,” said Brad Le, Redfin’s team lead for the Peninsula. “We’ve started to see the listing agent call the lender to make sure he has the experience to get the loan funded, which is helping everyone get more comfortable with buyers who once were getting blown out of deals right and left. It still takes patience, since an FHA loan usually takes 45 days to close rather than 30.”

Troubles in the South and East Bay haven’t yet reached the remote shores of Palo Alto and San Francisco. “One thing I’ve noticed in the past few weeks is a lot of activity on listings over $1 million, especially in Palo Alto and Menlo Park, where even all-cash buyers have lost out in bidding wars,” Redfin agent Brad Le said. “There’s more activity because there’s better inventory, with more turn-key homes.”

San Francisco has been a microcosm of this gap between the tech-industry haves and the economically anxious have-nots. Desirable neighborhoods close to 101 and 280 have continued to see strong demand, even as the low-end has languished.

“San Francisco is a highly strung market, sensitive to the smallest changes,” said Sean Sullivan, a Redfin agent in San Francisco. “I’m still seeing anywhere from three to ten bids on single-family homes in Noe Valley, Bernal Heights and Eureka Valley, mostly coming from tech workers in Silicon Valley. Desirable homes usually take about a week to go into contract, with sellers only waiting that long to give the house full exposure to all comers. Meanwhile, in the high-end market, above $1.5 million, business is very slow.”

Inventory Declines Except in the East Bay

One factor limiting price declines: scarce inventory. Where others parts of the country are starting to see inventory pile up, in the Bay Area four of six counties saw the number of houses for sale drop:

# of Houses for Sale on July 31, 2010

We actually think the market would benefit from an increase in inventory. Catherine Jardine, Redfin market manager for the Bay Area, noted that the many Bay Area markets have too many listings but not enough of the right kind. “At our home-buying classes in July and August, the refrain from the attendees has been ‘the only things on the market for more than a week are either dumps or overpriced. Why do the good ones have to go so fast?’” Other Redfin agents have noticed that sellers have become more realistic in their pricing.

“Fewer folks are making offers, but it still feels like there’s a ton of buyers out there hunting for the best-priced listings,” said Miawand Bayan, Redfin team lead for the East Bay. “Once a listing hits the market in decent shape and at a good price, it’s as if a group of hyenas found a carcass: they all attack.”

The Hangover is Here: Sales Volume Plunges

But the big news is really the drop in the number of homes sold. While California’s state credit staved off declines in sales volume for an extra month, the July numbers showed sickening declines across all six counties, including even San Mateo County.

# of Houses that Sold in July 2010

In Redfin’s Bay Area business, the number of new customers we meet at properties has declined 13% from its all-time high in the first week of April to the last week of August, but the numbers are up slightly from early July, when business got very light.

And that’s the news from the Bay Area! Check out the full report here. For a review of our methodology, come hither. And if you’ve got any comments or quibbles, just post ‘em below! Thanks as always for your support of Redfin.

Best, Glenn
CEO, Redfin