The median price paid for a San Francisco Bay Area home rose at its fastest pace on record in June, the result of disappearing distress sales, an improving economy, and mortgage rates that, while up off bottom, remain very low.
The median price paid for a home in the 9-County San Francisco Bay Area was $555,000 in June, the highest since it was $587,500 in December 2007. June’s median was up 6.9% from $519,000 in May, and up 33.1% from $417,000 in June 2012.
The San Francisco Bay Area median peaked at $665,000 in June and July 2007, then dropped to $290,000 in March 2009. Much of the median’s ups and downs can be attributed to shifts in the types of homes sold. When adjusting for these shifts, it appears that the majority of June’s 33.1% year-over-year rise reflects an increase in home values, while the rest is the result of a change in market mix.
Another big part of the picture is that distress sales (Foreclosures and Short Sales) are quickly becoming a thing of the past. Foreclosure resales accounted for just 6% of resales in June, down from a revised 6.5% in May, and down from 17.8% a year ago. June’s 6% level was the lowest since 4.4% in August 2007. Foreclosure resales peaked at 52% percent in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10%. Short Sales also continue to decline. Short sales made up an estimated 12.1% of San Francisco Bay Area resales in June. That was down from an estimated 13% in May and down sharply from 22.7% a year earlier.
Tracking San Francisco Bay Area residential real estate inventory levels, San Francisco inventory rose 5.6% in July (over June), Peninsula inventory rose just 1.6%, Upper South Bay inventory actually went “down” slightly, and San Jose inventory rose 10.6%.
Overall, San Francisco has seen a cumulative 72.7% rise in inventory since the beginning of the year, the Peninsula a cumulative 60.6% rise, and San Jose a cumulative 170.6% rise.
It’s generally easier for a market to regain lost ground than to push into new territory. It appears that we’re still bouncing off the bottom. This next part of the cycle should be fairly self-adjusting. As prices go up, more homes will be coming on the market and price pressures should ease. The only element we don’t know much about right now is how much pent-up demand there really is out there.
Mortgage rates inched down this week after the latest monthly employment report disappointed investors. The recent upswing in rates (which occurred mostly between May and July) has affected home affordability, but demand remains high and the more recent positive trend for interest rates should help to fuel continued demand. However, overall current trends indicate that it’s only a matter of time before the market turns and prices level off.