The SF Bay Area Real Estate market continues on its torrid pace this Spring, as fierce Buyer-competition and low mortgage rates continue to drive home prices up to their original peak. The median price paid for a SF Bay Area home recently moved above the half-million-dollar mark for the first time in almost 5 years, pushed up by pent-up demand, an improving economy, investor activity, low mortgage interest rates and constrained supply, as well as a continued decline in distressed property sales. The median price paid in the 9-county SF Bay Area rose to $510,000 in April. That was up 17% from $436,000 in March, and up 30.8% from $390,000 in April a year ago. The 17% month-to-month increase is the highest seen in over 25 years.
It appears that a little more than half of April’s 30.8% year-over-year increase in the median was price appreciation, while the rest was shifts in market mix. Much of the median’s ups and downs the last five years can be attributed to shifts in the types of homes sold. When the recession hit, low-cost inland foreclosures dominated, while sales in mid- to high-end markets languished. In recent months the opposite has been the case: Sales of pricier move-up homes have surged and sales of low-cost foreclosures have plummeted.
The SF Bay Area’s median sale price first passed the $500,000 threshold in May 2004, when it rose to $501,000. It continued rising and held well above that level for 4 years, then dropped below $500,000 in June 2008 as home prices tumbled. From its $665,000 peak in June/July 2007 to its $290,000 trough in March 2009, the median plunged 56.4%, or $375,000. As of last month, most of the SF Bay Area’s peak-to-trough loss had been regained. The median was up $220,000 from its March 2009 trough, meaning that it had made up about 59% of its loss.
Distressed property sales – the combination of foreclosure resales and “short sales” – continue to decline steadily. Distressed property sales made up about 24% of April’s SF Bay Area resale market. That was down from about 27% in March and 44% a year ago. Foreclosure resales accounted for just 8.5% of resales in April, down from a revised 10.2% in March, and down from 21.9% a year ago. April’s foreclosure rate (of 8.5%) was the lowest since 8.2% in October 2007. Foreclosure resales peaked at 52% in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10%. Short sales made up an estimated 15% of SF Bay Area resales in April. That was down from an estimated 16.4% in March and down from 22.1% a year earlier.
In the mean time, there are signs that the SF Bay Area market could finally be trending towards a cool down. Residential real estate inventory went up in May, marking the 5th straight month it has gone up. At the beginning of this year, the combined South SF Bay and Peninsula residential real estate inventory had just 1,066 Active listings. Inventory has been gradually climbing since the beginning of the year and there are now 1,868 Active listings for the same South SF Bay/Peninsula combined area, a 94% net increase in inventory since the start of the year. Mortgage interest rates have also risen by an average of well over .5% over the past 5 weeks. The economy has shown positive signs and there have been hints that the Federal Reserve may soon taper its quantitative easing program, which includes massive purchases of mortgage-backed securities.
The last 2 and a half years has certainly a hot SF Bay Area Real Estate market, but if these recent trends continue (inventory and interest rates both continuing to climb), we could see the SF Bay Area real estate market start to cool down sooner than most people think, perhaps even by the end of this year.