Wikinvest Wire

Bay area home prices plunge

Friday, November 21, 2008

Well, Patrick Killelea of Patrick.net might be a little happier this month than last after the drubbing that home prices in the Bay Area took in October. Have a look at the damage as reported by the San Francisco Chronicle.
IMAGEThe year-over-year change in the median home price was a whopping -45 percent!

That makes the reported 33 percent annual home price decline in Southern California look tame by comparison, though that minus 45 percent figure does look a little suspect given all the numbers above it (i.e., Contra Costa had the most sales and the biggest decline, but, at first glance, it doesn't seem like it's enough to pull the overall figure as low as indicated.)

In correspondence some time ago, Patrick indicated that prices weren't coming down quite fast enough to suit him and, at the time I had to agree. The Bay Area had long been a stalwart, holding onto price gains while real estate in other parts of California plunged.

As shown in the graphic above, the raft of foreclosure sales are finally pushing down prices in the lower cost, outlying areas with higher priced areas likely to suffer the same fate in the period ahead - it seems that home prices are "sticky-down" until banks start realizing that the only way they're going to get rid of their portfolio of foreclosed properties is to slash prices.

With banks unloading a record number of foreclosures, Bay Area home sales soared and the median price plummeted in October, according to a real estate report released Thursday.

Most of the action - and the bargains - were in areas where bank repossessions have become a fact of life. Almost half of all existing homes sold were foreclosures. Their bargain-basement prices sent the Bay Area median tumbling 45 percent during the past year to $375,000, according to research firm MDA DataQuick of San Diego.
...
Besides investors, first-time home buyers who had been priced out of the market now are able to gain a foothold.

"I always dreamed, but never thought I would be able to swing it," said David Prazniak, 46, a United Airlines flight attendant. He is days away from closing on a two-bedroom stucco home near the Oakland Zoo.

He's paying $170,500 - about one third of the property's $495,000 price in early 2007. His monthly payments of around $1,100 for principal, interest, taxes and insurance will be less than his rent.

In a sign of the bargain-hunting competition, Prazniak was outbid on four foreclosed homes.
As has been the case for some time now, the relatively higher volume of lower priced homes, almost half of which are now distressed sales, has pushed the median price lower than it would otherwise be.

In many areas, higher priced homes (e.g., $400K to $800K) are just sitting, waiting for some dumb buyer to come along and make a foolish offer or for the seller to either start slashing the price or take the house off the market.

Looking back two years at this archived DataQuick report, it's easy to see how the volume of sales has changed, on a relative basis, in places like Alameda and Contra Costa County versus San Francisco and Marin.
IMAGEWhat used to be a ratio of about four or five-to-one has become a ratio of five or ten-to-one. This pushes the median price down regardless of how well prices may be holding up at the high end, something that is likely to change soon enough.

Surely, the high end is not immune.

14 comments:

Nostradamus, apparently said...

FYI - couldn't get your page to load in IE but it loads fine in Firefox today. That's been happening once or twice a week since you went to the new format. I don't know if it's related to the change or not. FWIW...

Bay Area prices have been insane for at least a decade. The area has a ton of money and could support the sky high prices while the internet boom kept Silicon Valley cranking at warp speed.

Then, the housing boom came along and kept it all up for a while longer.

It's hard to see what could possibly hold it up this time. I suspect the figures are correct and it's going to see a massive correction from top to bottom in housing.

Alt-A (Liar's Loans) defaults are accelerating now and will cause further major problems for lenders, the REIC and the overall economy next year (and beyond)..

http://www.moneymorning.com/2008/11/20/housing-outlook-2009/

As this all ripples thru the economy, the layoffs will mount and even prime mortgage borrowers will start to default, especially those who used home "equity" loans to buy every consumer item under the sun.

It seems very likely that we've got a long way to go before housing bottoms out.

Of course, "reversion to the mean" explains this all nicely. You just can't have the kind of wild excess we had during the stock and housing booms without an offsetting slide to even things out.

Tim said...

Thanks for letting me know - does it load OK now? Is anyone else experiencing any problems?

Anonymous said...

This might be a harsh thing to say, but maybe the lucky Californians are those that lost their homes in the recent bushfires (provided they were insured of course).

Preeti said...

The prices in the "good school districts" are holding up pretty well so I am not sure what all this noise is about prices coming down in the Bay area.
I have been waiting for the prices to come down 3-4X but its still got ways to go.

Anonymous said...

Now why does it seem that Cupertino/West Palo Alto and Sunnyvale are somehow immune to this downturn? Houses prices in Cupertino are STILL trending upwards!

Anonymous said...

1982 Los Gatos 3/2 on Summit$118,0000
2007 same house sold for $1,050,000
Did your wages go up the same amount? I didn't think so.doubling every five years for 15 years.
remember there is no housing bubble. and unrealistic overexhuberance is unlikely.
if you made $20 an hour in 82 you should be making $320 an hour now.

Anonymous said...

you mean to tell me the median price in the Santa Clara county last year was $785.4K??? No way!
If you do the math that's what you get based on the figures above. it make you wonder whether these numbers are accurate...

Anonymous said...

Can anyone post the housing data for the Bay Area PENINSULA? These homes have not come down that much. The data for the East Bay and other areas like Vallejo, etc. which were a hotbed for houses people could not afford -- is really what is dragging down the data.

We'll see how long the Logan's Run wealth dome covering Palo Alto, Cupertino, Los Altos, etc. can last. :-)

Anonymous said...

Some people are saying that the house prices in Cupertino are not going down.. This is a myth spread by existing home owners and real estate agents!

First of all for prices to come down, there has be some sales.... Otherwise you don't know what the house is worth. May be there weren't enough sales in that area but that does not mean the house there will sell at 2005 price. I bet!

Now.
As per Mercury news San Jose is the second richest city in the US after Plano, TX. The median HOUSE-HOLD income in San Jose in 75K per year.

This means Median HOUSE-HOLD income,(When I say household income, that includes both husband and wife's salary) in Cupertino is less than 75K.

How can then they afford a median home price of more than 700K with median income of 75K?

Let me tell you.

People who bought houses there took fancy mortgages like ARMs and Interest only mortgages in a hope of re-financing for rest of their lives or to sell at a higher price.
Or both husband-wife were making good salaries so they agreed to sacrifice one salary towards mortgages.

Now with:
1. Lending tightening, refinance will be hard to get.

2. Houses will not be appraised at bubble prices.

3. Economy is going through bad patch so more layoffs causing second jobs to disappear.

4. ARTMs will be resetting in a couple of years.


All this will contribute to lower sale prices in Cupertino as well.
Don't live in a fool's paradise.

You still want to buy there, go ahead.

Anonymous said...

Anyone know how much down payment is needed nowadays? I am assuming its 20% but hoping its less.

Ajeet said...

This is good news, and I hope home prices in general within the SF/greater Bay area continue to decline. Even good school districts will see a decline, for which I'm glad and waiting for.

SF Bay Area home prices are still very high, and the value returned for the hyper inflated price is not good at all.

Ajeet said...

I noticed many posters indicate hat prices have not come down yet. I think they'refocusing too much on listted sales price. A house is only worth the market value as what someone is willing to pay. You can list all homes at an artificially inflated price of a million, but if noone is willing to buy it, then its obvioulsy not worth it. SF Bay Area homeowners are also living in a dream world, where they feel they should make money off of their homes, regardless of how ridiculous the price they paid for it.

Anonymous said...

I agree with Ajit. I posted the comment as anonymous about Cupertino earlier..

Yes the price for which the house is listed is not the price of the house. After a few months on the market, the sellers are lowering the prices and are coming down further.. So what you see on MLS is not the price of the home.

And Yes. Prices although are comding down, are still high. They have to come down further...

And they will come down everywhere.

Those who bought in Cupertino in last 3-4 years are not all rich. many are people like me and you who bought with zero down and a fancy mortgages..

Wait until ARM resets!

Preeti said...

So I think there is a BIG difference between the median income of families in greater San Jose and that of Cupertino/Saratoga/Los Altos

It would be my guess that if you count only Cupertino/Saratoga/Los Altos the Median household would be more like 120K - 140K if not more.

Even so, the less than modest houses that try to sell for a million in these areas sounds ridiculous.
And yes it is true that just because they listed it for something it would not sell for that amount.

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