Median Home Price - Fools Gold

An article ran yesterday in the Contra Costa Times that claimed "Housing Prices Stay High in Pockets". The article claimed that some of the affordable areas of the East Bay, such as Livermore and Oakley, were actually experiencing increases in prices.

While most Bay Area home values stagnated or dropped in August, the less expensive pockets of the East Bay saw home prices rise or stay the same, housing analysts reported.

Andrew LePage, an analyst with DataQuick Information Systems, said that it was not uncommon to see higher gains in appreciation in more affordable areas.

"It doesn't surprise me that their median prices are still up; it's a general trend across the state," he said. "But obviously we need to see a long-term study to make a compelling argument."

According to DataQuick's monthly city report for California, housing in established cities in the East Bay burdened with a resale market and little new growth declined the most in value. In Alameda County, housing in Alameda, Berkeley and Emeryville dropped in value while both Oakland and Livermore prices rose. In Contra Costa County, Richmond, Walnut Creek and San Ramon prices dropped while San Pablo, Pittsburg and Oakley sported higher pricetags.

Now if I owned a home in Oakley or Livermore, I would be excited. However, this does not match what is actually happening in the markets in both of these cities. Both of these markets are soft, with lots of unsold inventory, price reductions, longer market times, and builders offering incentives to skeptical buyers to entice them to purchase.

My point is simple... Median Home Price statistics have to be the most misleading measure of the relative strength of a housing market available. Yet it is widely published and quoted as the ultimate source of market information. As a broker who is on the front lines, however, I can tell you that drawing any conclusions from this statistic is fools gold.

Here is the problem. Median home price is a measure of the median sales price of homes in a given area for the period of time. It represents the figure where an equal number of sales occured below and above the median home price. It is used in statistics because it eliminates wild fluctuations that would distort a general average figure. For example, if an $8 million dollar home closed in a small city, it would dramatically change the average sales price, but would have little effect on the median home price. But the median home price is really only significant for large data samples (i.e. the whole State of California, for example). I recently tracked the median home price for closed sales in Pleasanton. In March, the median sales price for single family homes in Pleasanton was $800,000. In April, the median home price in Pleasanton jumped to $965,000, a 21% increase. And there in lies the problem. Before you go out and list your Pleasanton home, I can assure you the market value did not go up 21%. Anyone who has their home for sale knows that it was moving the other direction.

Let's say a new high end development opens up in Byron, for example. If all other things remain the same (which, of course, is never the case) you would expect the median home price in that area to increase over the time period where they new homes close, as a higher percentage of home sales will be on the high end of the scale. But this increased competition from the new homes on the market might actually decrease demand for existing resale homes, and there could be an actual decrease in market value for many of the homes in that area. But because a higher percentage of closings are higher end homes, the median home price would be higher, prompting headlines such as "Byron Market Shows Price Increases" and "Appreciation soars in Bryon". But in fact just the opposite could be the case.

So why does the media focus so much on the Median Home Price for it's data on the housing market? For one thing, it is easily attainable. Several sources release data about the Median Home Price, including the National Association of Realtors, the California Association of Realtors, Dataquick, and others. Another factor is the dynamics we have discussed in this article, which can show increases in the median home price even when the market is declining. This benefits the Real Estate industry, which likes to portray the real estate market in a positive light. Lastly, other more telling measures of the strength of the market are much harder to aggregate. You do see statistics released on the supply of unsold resale homes, inventory turnover (number of month's supply of homes on the market), new home sales levels, etc. But none of these statistics can accurately measure the relative value of homes over a period of time. The best measure would be to find homes that closed escrow, and subsequently sold again a year later, or two years later, and determine the gain or loss on the sale of that home. If the home had not been improved since the sale, that would be a good indication of the change in market value. But even this is imperfect, as perhaps there was desperation in one of the sales that skews the value, or the home gets improved during the period of time.

The bottom line is that there is no one statistic that is readily available that can give you an accurate picture of the relative increases/decreases in real estate values. Savvy experts in the field will consider several factors to determine the trend in property values, including resale inventory levels, days on market, inventory turnover, builder sales levels, builder incentives, and % of sales price to asking price for closed sales. By watching all of these market indicators over time you can get a strong sense for the direction of the market. As always, be careful what you read into statistics.

Home Prices Drop Nationally - 1st time in 11 years

And now some breaking news.... home prices have dropped! This is certainly no big news to Pleasanton area residents, who have seen a sluggish real estate market for the better part of a year. But this is the first time there has been an actual decline in the national median home price since 1995.

The National Association of Realtors report on existing home sales showed that the median home price in August was $225,000, down 1.7 percent from a year earlier.

It was the first year-over-year decline in median prices since April 1995, when that measure slipped only 0.1 percent. And it was the biggest year-over-year drop since the record 2.1 percent decline recorded in November 1990, when the nation was in recession.

While month-over-month declines in prices are not uncommon, year-over-year decreases in prices are a more serious sign of a slumping housing market. Even in other recessions, home prices generally have risen year-over-year on a national basis. The median price is the point at which half the homes sell for more and half sell for less.

The decline in home prices follows a period of record sales and very strong sales gains up through the end of 2005. The average price of a home in 2004 was up 9.3 percent from the previous year, and last year the full-year price average was up 12.4 percent.

The downward pressure on prices came from the record inventory of homes on the market in August. The group said there were 3.9 million homes on the market, up 38 percent from a year earlier. That gave the market a 7.5-month supply of homes, also up sharply from the 4.7-month supply available in August 2005, and the average 4.3-month supply throughout 2004.

The last time the group estimated a 7.5 month supply was April 1993.

Here is a graph of the inventory of unsold resale homes nationally. Funny, it looks much the same as the graph of the Pleasanton and Tri-Valley Markets



If you are looking for a great time to buy, now would certainly qualify

Read the whole article here.

Luxury Market Update

The high end home market in the Tri Valley showed continued growth in inventory in August, with sales remaining fairly steady. Here is the latest graph for homes over $1.5 million in the Tri Valley, including Alamo, Blackhawk, Danville, San Ramon, Dublin, Pleasanton, and Livermore. It shows about an 8 month supply of homes on the market given the current sales rate.



Click on the image to enlarge. The light green bar represents the inventory of resale single family homes. The dark green bar represents closed sales. The red line shows pending sales for the month.

There remains strong donward pressure on most homes in this area, with a handful of homes with outstanding ammenities or characteristics (lot size, view, location, etc)seeing strong demand.

In the Luxury catagory (homes over $2.5 million) the market is even softer, with over a 20 month supply of inventory on the market.



This market is somewhat like a middle school dance, where buyers and sellers are lined up at opposite ends of the room, and very few are in the middle actually dancing. Buyers have a lot to chose from right now, and sellers in this market segment have the resources and assets to wait it out. Expect much of the same as we head into the fall.

Tri Valley Market Update

The real estate market conditions in the Tri Valley region remained much the same in August, with high inventories of homes and steady but unspectacular sales levels. Here is a summary graph of the inventory and sales levels for the cities of the Tri-Valley, which includes Alamo, Danville, Blackhawk, San Ramon, Dublin, Livermore, and Pleasanton.



Click on the image to enlarge. The light green bar represents the inventory of resale single family homes. The dark green bar represents closed sales. The red line shows pending sales for the month.

As you can see, the inventory of unsold homes continued to rise, and sales remained steady. These dynamics continue to put downward pressure on prices in most neighborhoods. However, prime properties with unique features that are in demand (views, oversized lots, exceptional ammenities, etc) continue to attract attention from serious buyers.

Dublin Market Update

The Dublin real estate market in August showed a reduction in inventory, which will help to stabilize the market. Right now, there is a 6 month supply of inventory on the market, which is down from June and July. The sales activity has been remarkably consistent this year, while the inventory has recently declined after several months of steep increases.



Click on the image to enlarge. The light green bar represents the inventory of resale single family homes. The dark green bar represents closed sales. The red line shows pending sales for the month.

As you can see, sales levels have been very consistent, although they are down 30 to 40% from last year. The inventory has been reduced because many sellers have become discouraged and taken their homes off the market.

The high end market (over $1 million) in Dublin shows much the same dynamics.



As we enter the fall, we are seeing some hopeful signs. Lower interest rates and the perception of bargains in the marketplace will ultimately draw buyers into the market. And corporate relocation activity has picked up. But still, it is a buyers market, and sellers are finding that they have to swallow hard and sell for less than they had hoped if they want to get their home sold.

Dublin Update - More Development on the Way

Dublin is poised for continued explosive growth, according to Chris Foss, Dublin's Economic Development Director. Dublin has experienced rapid growth for most of this decade, and there are more exciting things on the horizon. Here are some of the projects in the works:

- A new West Dublin/West Pleasanton BART station is planned. It will encompass both sides of I-580, similar to the existing Pleasanton/Dublin station. It will be located South of Dublin Blvd and East of Outback Steakhouse. It will also feature residential and hotel development. The Pleasanton side will be adjacent to Stoneridge Mall. Construction is slated to begin this fall, and be completed in 2009.

- The Elephant Bar, a popular restaurant in Concord and San Jose, will be opening at the old El Torito restaurant site on Amador Plaza Rd near Expo.

- The old Pak 'N Save shopping center has been torn down, and will be a new mixed use residential and retail development called Tralee Village. It will have 103 townhomes, 130 condominiums, and over 35,000 sq ft of retail space

- The old Albertson's supermarket site at the corner of San Ramon Road and Alcosta Blvd will be the site of 56 new townhomes by Braddock & Logan, along with a remodel of the existing retail stores

- The existing BART station in East Dublin will see 4 new residential projects adjacent to the station. There will be one low income project, with 3 high density condo projects slated for construction, up to 10 stories high.

- The Palo Alto Medical Group/Sutter Health will be opening a 55,000 sq ft medial facility at the corner of Tassajara Rd and Dublin Blvd.

- Kaiser has purchased 58 acres of land East of Tassajara Rd and South of Dublin Blvd for a future hospital/medical clinic

- Lowe's home improvement is planning a store East of Tassajara Rd and South of Dublin Blvd.

- In West Dublin along I-580, they are currently grading for the opening of Schaefer Ranch, a large development by Discovery Homes. It will ultimately have 302 single family homes, a 10 acre sports park, a 5 1/2 acre commercial site, fire station, and 350 acres of permanent open space. The homes will begin construction in 2007

In all, there are over 10,000 residential units planned for Dublin in the next few years, with a majority being planned for East Dublin off Falon Road, as well as the Dublin BART stations. The city of Dublin predicts that the intersection of Dublin Blvd and Dougherty Road will ultimately handle 80,000 cars per day. They are in the process of improving this intersection now, and it will be under construction for some time (it might be best to avoid this intersection for a while).

Pleasanton Market Stabilizes in August

The Pleasanton real estate maket showed stability in August. Inventory, which had been climbing steadily since the beginning of the year, was relatively flat for the month of August.



Pending sales in Pleasanton for the month of August showed a nice increase, certainly welcome news after the drop in July. It seems that more buyers are starting to recognize that there are some very good opportunities in the market place.



The Market Velocity in August, which shows the Number of Month's supply of homes on the market, dipped slightly after a huge jump in July



Overall, market conditions in Pleasanton continue to favor buyers, with price reductions and discounts common on many homes. There is still strong demand for unique homes with exceptional locations, or upgrades, or homes that are priced agressively to attract interest.

The New Reality for Sellers

Great article in the SF Chronicle about the current market, and how sellers are having to adjust their expectations. Certainly in the Pleasaton and Tri-Valley real estate markets sellers are learning the dynamics of a balanced market where buyers have more leverage.

According to La Jolla (San Diego County) research firm DataQuick, Bay Area home sales slowed in July to their lowest levels in 10 years, while prices increased at their slowest pace since 2003. Translation: It's not a seller's market anymore. The only problem? Many sellers don't want to hear that.

"There's a disconnect between buyers and sellers," says Dona Crowder, a former president of the San Francisco Association of Realtors and a broker with Pacific Union-GMAC, "We've shifted to a normal market where buyers can negotiate, where they're no longer in hurry. But some sellers are not aware of the change."

She describes a recent listing in which sellers put their home on the market for $1.75 million but when they got a single offer for $1.68 million, with no contingencies, the sellers turned it down. "We urged them to take it," Crowder said, "but they didn't want to go below 1.7."

She says it's hard to convince sellers on issues regarding pricing because they are often basing their ideas on sales prices from months before. "Pricing is a matter of perspective. Until you have the perspective, you can't see anything."

Eventually, the asking price for the house was reduced to $1.699 million. It received no offers. Now it has been removed from the market and will soon be relisted at $1.599 million.

Read the whole article.

Pleasanton Named Wealthiest Suburb in US

Recent U.S. Census Bureau data shows that Pleasanton has the highest income in the U.S. for cities with populations under 250,000, with a median income of $101,022. Livermore came in at number 3 on the list with a median income of $96,632. Among larger cities, San Jose ranked second with a household median income of $70,921.

This certainly helps explain the dramatic growth of high end real estate developments in Pleasanton and Livermore, as builders cater to high income buyers attracted to the Tri-Valley regiion.

Read the whole article.