How high can the market fly?
Originally appeared in Bay Area News Group publications on July 17, 2015
“Common sense is a flower that doesn’t grow in everyone’s garden.”
Is the present, scorching Bay Area real estate market the new normal or one step away from a daunting descent? As a current or potential buyer or seller, this should be a question in your mind. Reviewing local history, including recent sales, can be a clue to the future. Use the statistics below for reference when reading the rest of the article.
First half Oakland closings
Following up a previous article, Three Zip Codes, Eight-year Price Look Back, I researched the sales of homes (condos excluded) covering the first six months of 2014 and 2015 in zip codes 94602, 94611 and 94618. In addition, I compared these with the January to June sales in our mid-2000s seller’s market that reflected the zenith for these zips.
94602 Includes Glenview, Dimond and Oakmore. 2014 closed sales numbered 125, and there were 131 this year. This compares to 161 solds during the last peak in 2006. Average Days on Market were 21 last year, 17 this year and 23 in 2006. Average Sales Prices were $680,444 in 2014, $792,510 in 2015 and $660,199 in 2006. Prices are 20 per cent higher now than during the 2006 apex for this zip ($792,510 vs. $660,199). There were six 2006 closings at a million dollars or more. In 2014, 12 sold in that category and the figure was 24 in 2015.
94611 Montclair and Piedmont Avenue area are in this zip. Closed sales in 2014 totaled 127 and 146 in 2015. In 2005, 184 sold. On average, it took 28 days for a closing in 2014 as opposed to 23 in 2015 and 17 in 2005. $996,189 was the 2014 Average Sales Price; 2015 showed $1,052,542. This is slightly higher than the 2007 pinnacle of $1,004,025. In 2014, 47 homes sold for a million dollars or more, 73 this year and 54 in 2005.
94618 Rockridge and the County Club area encompass this zip, making it one of the most desirable and expensive areas. In 2014, there were 55 solds; 2015’s tally was 61 and 2006 saw 64. Nineteen was the Average Days on Market in 2014 and 17 in 2015. At 22, the 2006 figure was a bit higher. The 2014 Average Sales Price of $1,290,250 was surpassed at $1,485,118 in 2015. The previous high in our last seller’s market was $1,108,468 in 2006. At this moment, the current apogee for Rockridge is 34 per cent higher than in 2006. Of the 55 solds in 2014, 39 (71 per cent) were a million dollars or more. The 37 of 61 in 2015 was similar. A 50 per cent computation (32 of 64) in 2006 no longer looks so astonishing.
As we can see from these three zips, it is important to understand specifics from areas you are considering (buying or selling), rather than relying on national, regional or even city-wide averages portrayed in the media or spouted by non-experts. Also, do not trust statistics on how much higher properties are selling than their asking price, which I will explain in a future article.
Analyzing the info
Looking at the data, it is clear that each zip has a distinct price profile. An examination of additional neighborhoods will uncover their pricing “secrets.”
My research revealed something I knew from experience – there was more inventory, consequently more closings, during the last peak than now. This, combined with an improving economy and historically low interest rates for a protracted period, has lead to a buying frenzy and much higher prices.
One sobering fact is how expensive it is to buy in the sought-after neighborhoods of Oakland. We have reached a moment where these sections can now be considered “million dollar” locations. While this is fantastic for sellers and long-time homeowners, it is creating a crisis for buyers who want to live in a popular place, but do not have the means to do so. This dichotomy between “have” and “have not” purchasers can eventually lead to a serious market slowdown, especially because first-time buyers will not be able to move up.
Buying at a price that is lower than the highest in the neighborhood, or lower than the average sold amount may appear to be a good move when it is not. It is critical to factor in exact location, size, style, floor plan, outdoor living, condition and many other variables.
When licensees speak about “comparable sales,” we mean properties that are similar in significant ways. For example, a 1960s home that needs total updating plus pest control and other work is not comparable to a 1920s “charmer” that has been tastefully remodeled and has no major condition issues.
Despite similar size and location, the older home will have substantially greater value. Rather than a bargain, buying the 1960s home for $100,000 less than the 1920s one can be a financial faux pas. For a seller, pricing the 1960s property the same or close to the 1920s one would not be a wise decision. Comparable sales, in order to be meaningful, must be analyzed individually and in detail.
Too few buyers consider historical trends when making their home-buying decisions. Rather, they mistakenly assume that what is true today will just continue. This proved tragic for many in the mid-2000s.
Buying your own home is a beautiful thing. Paying too much for the wrong property in the wrong location at the worst time, however, can be a life-altering event. Do your homework and use common sense.