Shifting Inventory Mix Pushes Bay Area Median Price Over $400,000

Declining foreclosure activity has resulted in extreme shortages of entry-level homes for sale in California. In May, tax credits and fewer low-end transactions have pushed the Bay Area median home price to the highest level in 21 months.

DQ News reports Bay Area $500K-Plus Home Sales Jump

La Jolla, CA.—-Sales rose across the Bay Area last month in many mid- to high-end neighborhoods, helping to push the median sale price over $400,000 for the first time in 21 months. But as tax credits, low mortgage rates and an ample supply of homes for sale fueled the $500,000-plus market, sales fell in many affordable inland areas where investors and first-time buyers faced a dwindling inventory of low-cost foreclosures, a real estate information service reported.

Last month a total of 8,264 homes closed escrows in the nine-county Bay Area, up 18.0 percent from 7,003 in April and up 11.0 percent from 7,447 in May 2009, according to MDA DataQuick of San Diego.

On average, Bay Area sales have risen 6.9 percent between April and May since 1988, when DataQuick’s statistics begin. Last month’s sales tally was the highest for a May since 9,935 homes sold in May 2006, but it was 16.0 percent below the May average of 9,842 sales since 1988.

Last month sales over $500,000 rose 33.8 percent from May 2009, when the high-end was just starting to emerge from a deep slump. Conversely, May sales of homes priced below $300,000 fell nearly 22.7 percent below the year-ago level. Last spring, sub-$300,000 sales were unusually high thanks to robust sales of low-cost inland foreclosures.

“For now, at least, we’re seeing a more normal mix of sales across the region and across price categories, thanks in large part to the state and federal tax credits coupled with incredibly low mortgage rates. It also appears that high-end financing is gradually loosening up,” said John Walsh, MDA DataQuick president.

“In the second half of the year, there’s obviously going to be less wind in the market’s sails, given the fading tax credits,” he said. “A healthier job market and low mortgage rates will be key to driving demand. Price stability would be threatened if lenders suddenly pushed much larger numbers of distressed properties onto the market.”

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – fell to 27.3 percent of the Bay Area’s resale market last month. That was the lowest since April 2008 and was down from 29.5 percent in April and 40.5 percent in May 2009. Foreclosure resales peaked at 52.0 percent in February 2009.

The continued decline in sales of low-cost inland foreclosures helps explain how the Bay Area’s median sale price could rise more than 20 percent in a year. Last month the median paid for all new and resale houses and condos combined jumped to $410,000, up 10.8 percent from $370,000 in April and up 20.1 percent from $341,500 in May 2009.

The median has risen on a year-over-year basis for eight straight months, though in May it was still 38.3 percent below the $665,000 peak in June/July 2007.

The May median’s 20.1 percent annual gain reflects several factors, including the decline in foreclosure resales, price stability and modest price pressure in some areas, and the shift toward more high-end sales. Activity has picked up in the higher-cost areas in part because distress has increased over the last year and sellers have become more motivated and realistic.

Last month 40.7 percent of the homes sold in the Bay Area were priced $500,000 or above, up from 36.9 percent in April and up from 31.3 percent a year ago. The May figure was the highest since $500,000-plus transactions were 44.7 percent of all sales in August 2008.

Viewed another way, zip codes in the top one-third of the Bay Area market, based on their historical prices, accounted for 35.3 percent of existing single-family house sales last month – the highest in two years. Last month’s level was up from 31.6 percent in April and 27.2 percent a year ago. Over the past decade, the top third of the market averaged 32.1 percent of total regional sales, while the low point was 17.9 percent of sales in January 2009 and the high point was 43.5 percent in June 2007, just before the credit crisis began.