Thursday, March 17, 2005

Up, up and away -- home prices soar

Bay Area median for resale houses hits $569,000

Carolyn Said, Chronicle Staff Writer

Another month, another real estate record.

Median prices for existing homes in the Bay Area hit an all-time-high of $569,000 in February, rocketing 19.5 percent from $476,000 in February 2004 and up 2.3 percent from $556,000 in January.

Prices are increasing at their fastest pace in four years, according to DataQuick Information Systems, a La Jolla (San Diego County) real estate market research firm.

"It's stronger than we'd anticipated," said John Karevoll, a DataQuick analyst. "These numbers show there's still gas in the tank, and the market has a way to go before it levels off. We did not anticipate a downturn but thought we'd be coming in for a soft landing."

Instead, prices for single-family homes continued to soar.

Home buyers in the nine-county Bay Area snapped up 4,905 resale single-family residences in February, a slight decline from 4,925 last February. The highest median price was in Marin County, at $808,000, followed by San Mateo at $711,000 and San Francisco at $701,000, according to DataQuick.

Prices that once would have seemed suitable only for the ultrawealthy are becoming increasingly commonplace.

Arlene Baxter, a Realtor with Berkeley Hills Realty, is preparing a house in the Berkeley hills for its first showing this weekend. The three-bedroom, two-bathroom Mediterranean with "glorious views" and a large garden lists for $865,000, "the middle high end," she said.

Experts said low inventory continues to fuel the frenzy.

"The bottom line is lots of buyers and very few homes," said Joan Underwood, a broker with Marvin Gardens who specializes in El Cerrito and Richmond Annex.

'Galloping out of the gate'

In the Annex, she's seen "a huge surge in prices in the past month or so, almost like a racehorse galloping out of the gate." She sold one house for $621,000, 25.7 percent over its list price of $494,000. Another that listed at $429,000 went for $511,000.

Another factor in the increase is that interest rates are inching higher.

"In the last few weeks, interest rates have gone up, so there might be a little bit of panic in some buyers," said Bill McDowell, a Realtor with Berkeley Hills Realty. They're thinking, "If we're going to do this, we have to do it now," he said.

To snare houses, buyers are pushing themselves into bigger monthly mortgage commitments.

Bay Area home buyers in February committed to a typical monthly mortgage payment of $2,549, a record. That payment is up 21.9 percent from $2,091 a year ago.

"The disparity between the people who are doing well, namely the sellers, and the people who are struggling and scraping together every cent they have and still maybe not succeeding in their goal is terrible," Baxter said.

She just had 22 offers on a small two-bedroom, one-bathroom house in Oakland's Laurel neighborhood. It went for 33 percent above the $419,000 list price.

"We got presentations from buyers who were prospective first-time homeowners, schoolteachers, newlywed couples, single moms -- the letters broke our hearts," she said.

Everyone who looks at the market says the price acceleration can't last, but real estate agents and other experts said they expect a gradual leveling rather than a bubble bursting.

"I think it will taper off because it can't continue this way," McDowell said. When a slowdown does occur, he thinks it will hit the more-outlying areas hardest.

"In 1990, the door slammed shut with no warning, and we went through several years of declining prices," Underwood said. "This will probably be more gradual than a door slamming shut."

Interest rates a factor

Rising interest rates could finally put the brakes on the real estate market.

"If they get to be too high, it will cause the bottom of the market to erode because entry-level buyers will have to drop out," Underwood said.

DataQuick's Karevoll said he thinks the way lawmakers address the federal budget deficit could accelerate an increase in interest rates.

"If the deficit continues to grow and there are no indications to the financial markets that the growth will be seriously cut back, then interest rates will go up more than they would if the deficit were to be dealt with," he said.

"When the 30-year fixed interest rate starts to hit about 6.8 (percent), that's when buyers, instead of migrating from one mortgage type to another, will turn around ... and walk away," Karevoll said.

Meanwhile, there still seems to be plenty of life in the market. The record February prices, which reflect homes that were on the market in historically slow December and January, are likely to be exceeded once the spring season gets in full swing.

"The winter market picks up when the referee blows the whistle that the Super Bowl is over," McDowell said. "Our Thursday (broker) tours now are one-third of what they normally are when it gets really busy during April, May and June."

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