The Year Ahead

At this time of year, I’m often asked what the future brings for real estate in our local residential market*. As with any prediction, I’m wrong as often as I’m right. Last year at this time, I predicted a turnaround during the spring quarter. However, tight financing and sellers hesitant to lower their pricing expectations kept a lid on sales until the fall quarter, when we experienced the first signs of strengthening. My prediction was off by two quarters, but those people brave enough to make purchases in the early part of last year were rewarded with little or no competition and ample inventory to choose from.

During the fourth quarter of 2009, volume in our local residential market*continued to improve, with sales of 316 detached homes compared to 304 homes in the same quarter last year, the first time in four years that we experienced an increase in year-over-year activity. The median price of a home sold during the quarter was $711,500, down 6% from the $755,000 in the same quarter last year, as the demand for luxury homes lagged behind entry level properties that continued to enjoy first time buyer tax credits.

Now, to my predictions for 2010: The future of California’s infrastructure is becoming a topic in real estate decisions. With significant cutbacks in public funding, areas that have enjoyed good public schools are now scrambling for ways to maintain quality services. In addition to increases in special assessments on properties, certain municipalities are beginning to search for new sources of revenue and, in doing so, are putting a greater burden on homeowners in their districts. For example, Piedmont now requires that homeowners retroactively obtain permits for any improvements to their properties, even if done many years ago. In short, our local market is not immune to the broader issues of our state. How these play out in the next 6 to 24 months are anyone’s guess.

In the short term, our local market remains a desirable place to live with a limited supply of inventory. Given pent up demand and only 114 homes available for sale at year end (one month of inventory), I expect that the spring market will be active and prices will remain stable. The Worker, Homeownership and Business Assistance Act of 2009 that was signed into law late last year extended the first time home buyer tax credit to those first time buyers that are in contract by April 30, 2010. The credit is now available for taxpayers with incomes of $125,000 or $225,000 for those filing jointly. In addition, a move-up credit of up to $6,500 is available for those joint taxpayers who have lived in their home for five consecutive years during the eight years before closing on a new property. These credits will continue to help drive activity in homes under $800,000.

We are also seeing an improvement in the mix of homes sold with more in the mid to high end of the market. This should cause an upward bias on median prices that are reported in our area which will have a positive impact on local consumer confidence. The combination of high demand, extended tax incentives and positive headlines should bode well for the spring market. It will be an excellent time to be a seller of well-located property.

*detached homes over $450,000 in Albany, El Cerrito, Kensington, the hill areas of Berkeley and Oakland and Piedmont