Loading ...A Recent Article in the S.F. Chronicle displays the headline “Bay Area’s housing prices buck national trend. Median cost is up 6.6%, driven by strong upscale market, but number of homes sold is down 20%”. Further in the article the author states “Local home prices are still going through the roof”. Is this an accurate reflection on the Pleasanton CA and Tri-Valley real estate market?
I have written on this subject several times before, but for the benefit of clarification, median home price DOES NOT equal value. Medain home prices can go up while real estate values decline. This is part of what is happening with this latest round of median home price statistics released by Dataquick. It shows the median home price for the bay area up 6.6% from April of 2006, while simultaneously it shows the number of sales in the bay area down by almost 20%.
Median home price tells you the midpoint, or median, of all home sales in the bay area. Theoretically, there is an equal number of home sales above and below the median price. But changes in the market can skew these numbers. If there is a steep decline in low end sales due to economic factors or changes in interest rates, resulting in fewer sales in the low end, then the median home price can actually increase as higher end sales make up a larger share of the total homes sold. This can occur even as home prices soften up or even deteriorate. Of course, the opposite is also true. A increase in activity in the low end of the market can cause the median home price to decline, even though home prices might be rising.
The lesson is this. Real Estate does not lend itself well to statistical analysis. The best we can do is come up with broad, general statistics like median home price, but it should be taken with a grain of salt. Part of the problem is that “the real estate market” is actually made up of many micromarkets, and they can often be moving in different directions. This from the same Chronicle article:
The Bay Area numbers come with some caveats, however. The median price is skewed by strong activity at the upper end. Real estate in the region is composed of numerous micro-markets, which vary tremendously. In fact, affluent Bay Area housing markets are getting stronger, while poorer areas are softening.
“The volume (of sales) being low tells you that we’ve lost the bottom 20 to 30 percent of the market that can’t qualify for mortgages,” Rosen said. Banks have tightened lending standards in recent months since numerous homeowners started defaulting on subprime loans. Subprimes are higher-cost mortgages sold to people with poor credit.
Both Rosen and DataQuick analyst Andrew LePage said the Bay Area market is a dichotomy.
“There are dual realities emerging here,” LePage said. “There is one reality for mid- to upper-priced homes up through the luxury market. In a lot of areas, there are tentative signs of those markets stabilizing and maybe even inching up both in sales (volume) and price.” For the Bay Area, he defines mid-priced as $800,000.
When someone asks me “how’s the market?”, I inevitably reply “which market?”. I am not saying that to be flippant. In Pleasanton, there are several markets. The luxury segment (Ruby Hill, Foothill Rd custom homes, Golden Eagle, etc) is limping along, with long market times and abundant inventory. The high end semi-custom neighborhoods like Laguna Oaks and Bridle Creek are struggling right now, although the Ruby Hill neighborhoods of Premia and Ascona are doing well. The lower end below $1 million is strong overall, but especially strong in Pleasanton Valley/Birdland and The Gates, where homes sell quickly. In the Ponderosa area, the homes in original Country Fair, which feature large lots, are selling with multiple offers. But the smaller lot homes in the subsequent phases in Ponderosa are limping along. And in other neighborhoods such as Stoneridge and the West Side it is hit and miss. I have had some homes get multiple offers and sell for over asking price, while others are not getting much interest.
So be careful about making broad generalizations about the real estate market, and more importantly, drawing too many conclusions from the media and the median home price statistics. When in doubt, ask a real estate professional who is active in the market.
Article courtesy of sfgate.com
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Bay Area Median Home Price Up, Sales Down