A Closer Look Into the Fundamental Shift in the East Bay Housing Market

photo credit Angelo DeSantis

While compiling the monthly numbers for August, I decided to take a closer look at sales during the ups and downs we’ve experienced over the past few years. The news we’re hearing today seems to always focus on one or more of these questions:

1. Sales. Are we seeing more or less in our local markets?
2. What’s going on with price?
3. How much of a factor are distressed properties?

I wanted to identify trends in our market without getting into too much detail. I looked at sales of single family homes in Alameda and Contra Costa Counties by focusing on key months.

1. Current Month (August 2010)
2. End of Year (December 2009)
3. Last Year (August 2009)
4. “Trough” (February 2009)
5. “Peak” (May 2007)

What I looked at was changes in markets that have occurred in; sales, price, price levels and the influence of distressed properties. As we’ve already seen, the “mix” (sales by price levels), and the influence of distressed properties are very important factors.

“Peak” and “Trough” months were identified as such for the San Francisco Bay Area by the California Association of Realtors (based on average median price). Price levels were also suggested by CAR as a means of further breaking down markets to identify what the actual “mix” has been on sales for any given month.

In looking at what is considered our “Peak,” you can see how high price was for both counties compared to the “Trough” and our current market.

Peak (May 2007) to Trough (February 2009)

1) Average Sales Price;
Alameda County, Down 52.5%   Contra Costa County, Down 64.5%

2)Median Price;
Alameda County, Down 54%   Contra Costa County, Down 69.8%

Although there has been some recovery since the “Trough,” we are still well below the “Peak” of May, 2007.

Peak (May 2007) to Current (August 2010)

1) Average Sales Price;
Alameda County, Down 33.6% Contra Costa County, Down 44.6%

2) Median Price;
Alameda County, Down 36.7% Contra Costa County, Down 56.0%

The Weight of Distressed Properties on the East Bay Housing Market

We gain some additional insight by taking a closer look at what sold, “mix” (price levels), and how much the market has been influenced by distressed property over the last few years.

During the “Peak”, May 2007, distressed properties had very little influence in our market. As we experienced “the credit meltdown” with economic/employment concerns, more and more foreclosures came onto the market increasing inventories adding downward pressure to home values. The “Trough,” (our lowest median price levels), was when distressed properties were at their highest levels.

Alameda County Distressed Sales as a % of Total Sales

Contra Costa County Distressed Sales as a % of Total Sales

“Mix” (Price Levels)

Lower priced home sales were very minimal during the “Peak” with the bulk of the sales coming from price levels above $500,000 for both counties, and even more importantly, looking at houses under the $300,000 price range.

Here are the total sales in Alameda country from the Peak in May ’07 to Now. Notice, the “mix” has changed dramatically.

& here’s the data for Contra Costa County.  Once again, notice how the “mix” has changed dramatically.

Take some precaution in making comparisons based on Median Price because the “mix” in sales will always “skew” the numbers. If the “mix” in sales changes from fewer lower priced homes to many as has happened in our market over the past few years, the change will appear to be more dramatic than it actually is. This has led to some recent misleading headlines and interpretations.

In summary, I believe that it is safe to say that the “mix” of sales, based on price levels, has dramatically changed.  During the “Peak” sales were primarily over $500,000 with very few foreclosures. Over the past 3.5 years, we’ve seen an increase in the number of distressed properties.  The ease of credit and the psychology of the markets prior to the “peak” were both factors that led to an increase in inventories fueled by the number of foreclosures coming onto the market.

We’re now seeing far more activity in the lower price levels, primarily below $500,000. Homes are now more affordable, investment activity has increased, plus federal incentives and low interest rates have been factors at this level.

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