Prices Up, Market Shifting
Originally appeared in Hills Publications, May 11, 2001
The boom market that began at the start of 1997 is now in transition. Although prices in our area and the inventory of available homes continue to rise, the percentage of homes sold is dropping. As time goes on, this could make purchasing significantly easier for buyers. Right now, however, we are at the beginning of a change that is not totally predictable.
If you accept that the market is wavering, and react accordingly, you will make better decisions. Conversely, denying that conditions are in flux could lead to costly mistakes.
A new way of thinking
Our local residential real estate market is in the midst of a paradigm shift. The model for how to behave is now different; there are buyers, sellers and agents who lack the experience to respond appropriately.
For almost four-and-a-half years, we have become accustomed to multiple offers on almost all properties, leading to ever-higher prices. Sellers had all the leverage; buyers had none. The tricky part is that, in some cases, this still is true.
Responding suitably means applying basic real estate principles, especially in these uncertain times. Keep in mind the key determinants of value: location; condition; style; floor plan; quality of construction; schools; outside living; privacy; quiet vs. noise; how many steps; light vs. dark; neighboring properties; and convenience to shops and transportation.
Caveats for buyers and sellers
Multiple offers remain common, although a home that might have received 15 to 20 offers at this time last year, may now be receiving five. The upper end of the market is softening, but this varies depending on numerous factors.
Prices tend to stay high for a while even when the number of units sold is diminishing. List prices today are based on closed sales during the past three to six months, when prices were escalating more rapidly. It takes time for the altered situation to reflect itself in moderate prices.
A clue to our new reality is how the market is treating homes that are unattractive, in poor condition, or both. Even in the chic neighborhoods, houses with deferred maintenance that are seen as overpriced are sitting unsold. Needless to say, unappealing properties in less glamorous locations are garnering even less attention.
Up until recently, almost everything sold within two weeks of marketing. At this moment, I know of homes in good areas that continue to be for sale after more than a month.
As a seller, you need to rely on the advice of an experienced, local agent, who has gone through these cycles and can help you price realistically for the changing environment. If you listen to the market you will do well, and possibly receive multiple bids. On the other hand, if you begin with too high an asking price, you could end up with a lot less in your pocket.
If you are a buyer, you must recognize value. For any given market, attractive houses in the best locations will sell at a premium. One of the biggest mistakes you can make is to overpay for an “ugly duckling.” Uninviting properties, particularly in less-in-demand neighborhoods, are the last to sell when the market softens.
Comparing neighborhood prices
Out of curiosity, I did a study using the Multiple Listing Service (MLS). I compared median prices in the first three months of last year vs. this year for various, popular Oakland neighborhoods.
The median prices for all the locations I surveyed rose from $541,000 to $581,000, a 7.4% increase. Although most neighborhoods grew in price, a few did not. For example, Rockridge declined from $567,000 to $526,500.
Despite these figures, I know from personal experience that prices are still climbing in Rockridge. What naked numbers do not show is that a majority of the 2001 sales were from “lower” Rockridge, which dragged down the median. For the same reason, Oakmore/Upper Dimond saw only a modest gain from $569,000 to $575,000.
Neighborhoods with substantial advances were: Crocker Highlands, $604,500 to $686,500; Glenview, $332,750 to $464,000; Montclair, $564,000 to $630,840; Piedmont Avenue, $375,000 to $477,500; Redwood Heights, $410,000 to $468,000; and Upper Rockridge/Country Club, $554,000 to $740,000.
What is considered “affordable”
It is a sign of the times when the $740,000 median price in Upper Rockridge/Country Club is not considered “upper end.” Likewise, the definition of affordable has stretched into the mid-$500,000 range. Finding a two-plus bedroom home in good condition that sells for under $450,000 in any of the more fashionable areas between Oakland and El Cerrito is a mega-challenge.
This has been the catalyst for rapidly rising prices in many other neighborhoods that might not have been previously considered. In those, a good house under $400,000 tends to attract multiple offers.
If all this information sounds contradictory, that is the point. We are in the midst of a shifting landscape. Your task is not to have all the answers — even the most professional Realtors are trying to figure it out. It is to know enough to ask the right questions.
Home prices may be moving skyward, but it is unrealistic to expect this to last indefinitely. Whether you are a seller or buyer, having a grasp of neighborhood pricing is essential. This is why working with a local agent who knows the territory is so important, especially as the Bay area market moves from sizzle to simmer.
Approaching the Peak
How to Buy Value