Friday, August 20, 2004

Bay Area home sales, prices decline in July

Experts say dip might portend a cooler market
Kelly Zito, Chronicle Staff Writer

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Bay Area home prices and sales last month throttled back from their record-setting pace in June, signaling what could be the start of a cooling trend in the local housing market, according to some experts.

The median price for a home in the nine Bay Area counties in July was $514,000, down 0.4 percent from July's median of $516,000.

On a month-to-month basis, sales declined 8.8 percent, with a total of 12, 862 houses and condos changing hands last month, compared with 14,104 in June, a study by DataQuick of La Jolla (San Diego County) found.

While sales and price declines between June and July are common, DataQuick researcher John Karevoll said, the housing market might be heading into a lull.

Along with feeling the effects of weaker-than-expected job growth and declining consumer confidence, demand may be weakening because low interest rates this spring accelerated sales activity, leaving fewer buyers in the summer months.

DataQuick's reports, based on filings with county recorders' offices, reflect sales initiated 30 to 60 days earlier.

"The pool of buyers may have been tapped significantly by those circumstances, which means prices may start to level off and sales might come down a bit," Karevoll said, noting that the typical sales decrease between June and July is 5.5 percent.

Given that home prices have risen faster than incomes, it is not surprising the frenzy is dying down, UC Berkeley economist Ken Rosen said.

"We've had so much exuberance in the last 18 months, it's natural to see some decline," Rosen said in an interview.

Nevertheless, July's sales count was the second-highest on record behind June, and the median price represented a nearly 16 percent rise from the median of $444,000 a year ago. The median is the midpoint; half of sales were above and half were below.

Only three counties saw a decline in sales from July 2003, and that was limited to sales of existing, single-family homes. In Marin, Napa and San Mateo counties, those home sales dropped 2 percent, 4 percent and 7 percent respectively, DataQuick said.

In San Francisco, single-family home sales jumped almost 19 percent to 447.

In the short term, Rosen said, prices probably won't tumble, in part because the recent lackluster economic indicators won't play out in the housing market for a while. In addition, interest rates remain near historic lows.

This week, the average rate for a fixed, 30-year mortgage dipped for the third week in a row, dropping to 5.81 percent, said mortgage giant Freddie Mac.

By the end of next year, however, Rosen expects the long-term mortgage rate to hit 7.75 percent. Even if rates rise more modestly and job and income growth remains anemic, he and other economists say home prices could stagnate or decline.

"If the job gains don't materialize, it's harder than before to imagine that prices don't take a hit," said Michael Dardia, vice president at the Sphere Institute, an economic think tank in Burlingame.

Some industry insiders welcome a downshift in the market.

"We look at this as good news because the increase in the last couple of years has created a really tough situation, especially for first-time home buyers," said Leslie Appleton-Young, economist for the California Association of Realtors in Los Angeles.

In retrospect, 2004 will be viewed as a turning point when the market moved from frenzied to robust, she added.

By the trade group's measure, only about 14 percent of Bay Area households could afford the median-priced home in June, down from 19 percent one year ago.

The typical monthly mortgage payment in July was $2,361, compared with the peak $2,450 in June and $1,953 one year ago, DataQuick found.

A shift in the market might mean that more sellers have to rethink their asking prices, Appleton-Young said.

That prospect doesn't concern people like Bette Noll, a retired reading specialist in the Mount Diablo school district who lives in Walnut Creek. Noll, 65, plans to sell her four-bedroom Eichler home, which has a pool on one- third of an acre, within the next year.

She estimates that she'll be able to sell it for between $600,000 and $700,000 -- a good price in an area with excellent schools.

Noll said she is shocked at the asking prices for tiny, rundown homes in areas with subpar schools.

"I think there needs to be a reality check in the market," she said.

Bay Area home sales

While the number of Bay Area homes sold in July dropped from their record monthly high in June, this chart shows that sales remain strong.

Homes sold Median price
County July 2003 July 2004 Change July 2003 July 2004 Change
Alameda 2,354 2,804 19.1% $417,000 $499,000 19.7%
Contra Costa 2,334 2,544 9 394,000 450,000 14.2
Marin 471 482 2.3 661,000 726,000 9.8
Napa 196 209 6.6 427,000 505,000 18.3
San Francisco 656 806 22.9 543,000 650,000 19.7
San Mateo 1,015 986 -2.9 559,000 646,000 15.6
Santa Clara 2,690 3,056 13.6 475,000 537,000 13.1
Solano 903 1,016 12.5 308,000 370,000 20.1
Sonoma 882 959 8.7 386,000 459,000 18.9
BAY AREA 11,501 12,862 11.8 444,000 514,000 15.8.
Source: DataQuick Information Systems


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