Howdy Bay Area Redfinnians!

Even though we’ve been busy adding school ratings to our website’s map, Redfin just cranked out our latest analysis of the Bay Area housing market, based on proprietary data and local broker insights.

The news is not good, at least for real estate agents: as federal and then California home-buying credits expired, the overheated Bay Area market began to cool in July, except where technology-driven employment continues to be strong.

From June to July, the mix of buyers has likely shifted away from the first-timers responding to the tax credit. In these situations, you expect to see median prices increase, but even so median home prices were down or flat from June to July in five of six counties.

While inventory declined slightly except in the beleaguered East Bay market, across all six counties sales volume fell through the floor. We think demand is going to continue to ease for the rest of the year, as buyers now take their time, unhurried by either interest rates or tax credits.

Prices Flat to Down in Five of Six Bay Area Counties

The result: the market is definitely softening. From June to July, prices dipped across the Bay Area except on the Peninsula:

Change in Median Price of Houses That Sold in July 2010

The trend was most pronounced in the South Bay and the East Bay. “In the East Bay, we saw demand weaken most for listings priced above $650,000,” said Charmaine Frank, Redfin team lead in the East Bay. “For the first time in over a year, I am finally seeing properties sit in sought-after neighborhoods, even at good prices, sometimes for two or three months. Short-sale buyers are still out in force, and anything below $400,000 is still getting multiple offers, but everyone else got gun shy after the tax credit expired, waiting to see which direction the market would take.”

The decline in demand has made it easier for home-buyers who have smaller down-payments and government mortgage insurance. “In areas where competition is declining, like parts of San Jose, I’m seeing more offers with FHA financing being accepted, mainly on listings under $700,000,” said Brad Le, Redfin’s team lead for the Peninsula. “We’ve started to see the listing agent call the lender to make sure he has the experience to get the loan funded, which is helping everyone get more comfortable with buyers who once were getting blown out of deals right and left. It still takes patience, since an FHA loan usually takes 45 days to close rather than 30.”

Troubles in the South and East Bay haven’t yet reached the remote shores of Palo Alto and San Francisco. “One thing I’ve noticed in the past few weeks is a lot of activity on listings over $1 million, especially in Palo Alto and Menlo Park, where even all-cash buyers have lost out in bidding wars,” Redfin agent Brad Le said. “There’s more activity because there’s better inventory, with more turn-key homes.”

San Francisco has been a microcosm of this gap between the tech-industry haves and the economically anxious have-nots. Desirable neighborhoods close to 101 and 280 have continued to see strong demand, even as the low-end has languished.

“San Francisco is a highly strung market, sensitive to the smallest changes,” said Sean Sullivan, a Redfin agent in San Francisco. “I’m still seeing anywhere from three to ten bids on single-family homes in Noe Valley, Bernal Heights and Eureka Valley, mostly coming from tech workers in Silicon Valley. Desirable homes usually take about a week to go into contract, with sellers only waiting that long to give the house full exposure to all comers. Meanwhile, in the high-end market, above $1.5 million, business is very slow.”

Inventory Declines Except in the East Bay

One factor limiting price declines: scarce inventory. Where others parts of the country are starting to see inventory pile up, in the Bay Area four of six counties saw the number of houses for sale drop:

# of Houses for Sale on July 31, 2010

We actually think the market would benefit from an increase in inventory. Catherine Jardine, Redfin market manager for the Bay Area, noted that the many Bay Area markets have too many listings but not enough of the right kind. “At our home-buying classes in July and August, the refrain from the attendees has been ‘the only things on the market for more than a week are either dumps or overpriced. Why do the good ones have to go so fast?’” Other Redfin agents have noticed that sellers have become more realistic in their pricing.

“Fewer folks are making offers, but it still feels like there’s a ton of buyers out there hunting for the best-priced listings,” said Miawand Bayan, Redfin team lead for the East Bay. “Once a listing hits the market in decent shape and at a good price, it’s as if a group of hyenas found a carcass: they all attack.”

The Hangover is Here: Sales Volume Plunges

But the big news is really the drop in the number of homes sold. While California’s state credit staved off declines in sales volume for an extra month, the July numbers showed sickening declines across all six counties, including even San Mateo County.

# of Houses that Sold in July 2010

In Redfin’s Bay Area business, the number of new customers we meet at properties has declined 13% from its all-time high in the first week of April to the last week of August, but the numbers are up slightly from early July, when business got very light.

And that’s the news from the Bay Area! Check out the full report here. For a review of our methodology, come hither. And if you’ve got any comments or quibbles, just post ‘em below! Thanks as always for your support of Redfin.

Best, Glenn
CEO, Redfin

Howdy Bay Area Redfinnians!

We just closed the books on Redfin’s analysis of the Bay Area market in June, and saw the first signs of a post-tax-credit correction drift through outlying areas, headed toward San Francisco and the Peninsula.

Why do we think the market is softening? While the median price of a home increased in five of the six core Bay Area counties, declining only in Contra Costa County, supply increased and demand weakened. Despite the federal and state tax credits that overlapped in June, sales volume declined in four of six counties from May to June 2010. And inventory increased across the entire Bay Area.

Inventory Increases Driven by New Listings

The increase in homes for sale across all six Bay Area counties has been driven in part by new listings from traditional home-sellers rather than bank foreclosures, which is good news for the market:

# of Houses for Sale in June 2010

All spring, we saw the same houses sit on the market, often because sellers lacked the money to spruce up or mark down the listing, frustrating buyers. But that has begun to change.

“In the past few weeks, we’ve gotten a lot of activity from people looking to list their home for the summer,” said Miawand Bayan, Redfin agent for Hayward and Fremont. “It came as a surprise to us since we expected new listings to peak when both federal and state tax credits were available. But more listings are being sold by owners, and fewer are being sold by banks.”

In San Francisco, the Peninsula, Berkeley and Oakland, where demand has been stronger, the increase in inventory may bring new buyers to the market. “A lot of my clients have been scouring the market since losing out on a few offers, and the problem they all talk about is inventory, inventory, inventory,” said Amber Zahn, Redfin agent for Berkeley and Oakland.

Demand Weakens in East Bay, Still Strong in the Peninsula, City

Even as some buyers clamor for more inventory, we expect demand to slacken later in the summer, when the California tax credit exhausts its funds. Already, after double-digit increases in sales volume in May, most counties declined significantly in June 2010, compared both to May 2010 and June of last year:

# of Houses that Sold in June 2010

The sales drop is ominous. Typically, sales increase from May to June, as most parents move during their children’s summer vacation. Taking into account the recent 30% sale drop in markets outside California, where the federal tax-credit expiration hasn’t been offset by any state credits, we are braced for a similar hangover in California.

This trend won’t affect the core neighborhoods in the Bay Area any time soon. According to Redfin agents, sales are still competitive in San Francisco and the Peninsula, often to the tune of ten or more offers on a single listing. Redfin agent Brad Le just bid on two million-dollar homes in Sunnyvale and Mountain View, which sold between $60,000 and $80,000 above list price.

“In San Francisco, we are still seeing homes sell for $100,000 over the asking price, particularly in Noe Valley and Bernal Heights,” added Redfin agent Gina Pio Roda. “But in Daly City and South San Francisco, investors are now taking profits, flipping the properties they bought last year to other buyers.”

According to Redfin agents Miawand Bayan and Amber Zahn, competition has eased in the East Bay, in part due to a decreasing number of bank-owned properties on the market; taking up the slack, short sales are now increasing, as banks are approving deals more readily. Overall Redfin’s Bay Area demand was flat or slightly down in June as the market began to stabilize somewhat from the commotion of the national and California tax credits; just this week we’ve seen demand jump, but it’s too early to say if that’s just a flash in the pan.

Median Prices Increase, But for How Long?

What does this mean for prices? In the most sought-after communities on the Peninsula, in San Francisco, Berkeley and Oakland there still may be too much demand to see any immediate price drop, but price increases will be at least moderate. Other areas may lose some of the gains made over the past 18 months, but not in a drastic way; precipitous drops are almost always caused by foreclosures, which appear to be under control.

What’s clear now is that prices increased in June 2010, everywhere except in Contra Costa County.

Change in Median Price of Houses That Sold in June 2010

“The market is very price-sensitive right now,” said Frank Wong, Redfin’s agent for San Leandro, Hayward and Fremont. “If the home is priced well, it will sell, and there will be multiple offers. But even in that case, competition is less intense. In the last three months, I would see eight to ten offers on bank-owned properties but since June it has been more like four to five. On regular sales, we are seeing two or three competing offers instead of three or four.”

And that’s all the new data we have for this month. To dive into more detail, just look at the raw numbers in this spreadsheet. Or check out the methodology for our reports. What do you think? Comment below! Have a good July!

Best, Glenn
CEO, Redfin