Dwindling Supply, Increasing Demand

In my last report to you, I predicted that the spring market would be active with signs of increasing demand and firming prices. The early data suggests that this is happening. In fact, 59% of The Grubb Company’s transactions during the first quarter involved multiple offers, an excellent sign that demand is coming back into the marketplace.

In terms of our local market*, 174 homes at a median price of $702,000 were sold during the quarter ended March 31, 2010, compared to 144 homes (+20%) at a median price of $710,000 (-1%) in the same quarter last year. At April 1, 2010, only 114 homes were available for sale representing approximately 2 months of inventory, a very thin supply.

Although property performance remains neighborhood specific, improving prices are evident across a broad spectrum of areas where I represent clients. Those neighborhoods that experienced the greatest decline in value from the peak during the spring of 2006 seem to have realized the most significant “bounce back” since the lows of the spring of 2009. For example, the “Other Oakland Areas” below which includes the Laurel District, Redwood Heights, Crestmont, Ridgemont and Hiller Highlands saw an 6% rise in median prices per square foot since the June 30, 2009 lows, when prices were 30% below the highs set during the quarter ended June 30, 2006. Comparatively, the “Berkeley Areas” shown below that includes North Berkeley, Elmwood, Claremont and the Berkeley Hills saw a further 2% softening in prices per square foot in the most recent quarter, but had previously experienced the most modest declines.

Although most short term values appear to have improved since the lows of last year, there is a healthy debate amongst economists and real estate professionals about whether we will see a “double-dip” in home prices later this year as federal and state tax credits begin to expire. In my view, this situation will have a more muted effect on our local market due to the relatively high prices of the properties in relation to other areas of the country and the virtually non-existent new housing stock. In other words, fewer transactions were directly impacted by the credits either because they exceeded the values allowed by the credit or were not newly constructed homes.

I continue to expect that the spring quarter will remain highly competitive for buyers based on the limited inventory available and improved consumer confidence. We are also entering into the typically strong period of the year when there tends to be a jump in buyer activity favoring those neighborhoods with good schools as families make their major moving decisions in time for the start of the school year. The thin inventory levels suggest that this is an excellent time for those sellers who have been waiting for improving conditions to put their homes up for sale.

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