Bay Area Market Bifurcation
(I originally wrote this article as a reply to Pete Flint's question on Trulia Voices about the current direction of the Bay Area housing market... I reposted the answer here in order to show the map and links)
The latest word on the Bay Area housing market - bifurcation - def: forked or divided into two parts or branches
(click on map to link to commentary on the Bay Area housing market... hint: click on the shapes)
The current market obeys classic supply and demand - the limited supply of higher priced housing ($1mm+) in demand cities like San Francisco, Burlingame and Palo Alto maintain a seller's market where multiple offers (we've heard instances of up to 40 on the Peninsula) are still common. The large supply of entry level housing ($700k and lower) in counties like Solano and those in the Central Valley were being bought by folks priced out of that San Rafael to Cupertino corridor (trace a thick line between the two cities). Demand has softened now that buying a home has been portrayed as risky by the media, along with the fact that it's harder to get an entry level loan due to credit tightening.
Bifurcation is happening where there is a high demand area (often supported by a strong economy) with limited housing supply (Silicon Valley, New York City, London, Maui) and a suburban / exurban ring built around the city. Here are some recent citations:
JustQuotes: They Say Bifurcated, We Said Bipolar - SocketSite, June 11
“It is a bifurcated market, with continued brisk sales of homes in desirable neighborhoods, especially in the $750,000-and-up range. At the same time, lower-priced homes, and houses in outlying areas, are simply not moving -- in large part because tighter lending standards, a fallout of the subprime loan crisis, mean there are fewer entry-level buyers. The shift in market mix has caused median prices to continue rising, despite the hordes of buyers sitting on the sidelines.” (from SF Chronicle, June 11 )
BHS Report: Brooklyn Up Less Than Manhattan - Brownstoner, July 3
"We suspect that there was something of a bifurcation of the market in which neighborhoods that were perceived to have made it safely over the gentrification hump saw prices bid up faster than those with greater perceived risk."
What does it mean? - Wailea Ekolu Real Estate, July 13
"What this means on Maui are sluggish unit sales, longer marketing periods, a bifurcation between trophy properties and everything else and only the best priced properties in each class (other than trophies) is getting any attention."
Related article:
Using Google Maps for Marketing Local Expertise
Technorati Tags:
bay area housing market, san francisco, housing bubble, marin, san mateo, santa clara, alameda, contra costa, solano
Fascinating.
Thanks Pat.
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I'm in the Central Valley market (as a commercial broker/agent - it's marked with a grey-color in the map) and I would concur with your assessment of the bifurcated market closer to the Bay area. This market has a larger number of foreclosures, more effects of the credit crunch on overall spending habits and noticeable affects to the overall economy. When folks can't use their equity to buy the 5th wheel, the effects of overall spending trickle down throughout our market.
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The gray color for the Central Valley was very well chosen (sad to say but true). Unfortunately for homeowner who bought from Stockton-Merced areas in 2005-2006 with a 2/28 hopping to make thousands of dollars because of the low home prices and the fast appreciation, will now be underwater for thousands of dollars. A lot of the subprime had to with the consumer falling in love with their equity and not being educated about credit. All of the sudden their ATM (home) is empty and they are now in debt, at the same time consumers did not improve their score and now are stuck with either loosing their home or obtaining a hard money loan when their loan adjusts.
But we cant point fingers without looking at our own industry as well, we've all heard the big legal problems Century21 SuCasa (sup positively helping the Hispanic community) and other untrained agents and unscrupulous ones negotiating for an overvalued purchase.
Here are some stats from Realty Track
Top foreclosure markets
#1 Stockton #2 Merced #3 Modesto....
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Pat, I believe the Solano area built out with people overflowing from jobs in Central Contra Costa (Walnut Creek/Concord/Martinez) where houseing prices have really jumped up to Sac on the northern end. There is a strong tech sector in Sac so my guess is a lot of people bought in the Solano corridor for affordable housing and a split commute either north or south. The commute from Solano down to Concord is under 30 minutes is traffic flows.
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I've watched people buy in the Valley willing at first to make the long commute into the Bay Area for work. They want the piece of the American dream with a large home, yard and community. What they soon realize is that the cost of that commute negates the savings on housing. That cost has risen as gas has risen but it isn't just the cost of gas but the wear and tear on the human spirit and now that the value of those homes as diminished these people are trapped into a lifestyle that gives them little time to spend with their families and a house that hasn't appreciated, as they had hoped, so that they could spring into the Bay Area and cut that commute. Perhaps were there true public transportation like we see in the east this kind of exurb might work for many.
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Pat:
I have sold Peninsula real estate as a broker for nearly 30 years.
Time after time, prospective buyer and sellers ask "what will happen to the market?" "how can prices go even higher?".
Of course, no one has a "crystal ball".
I have been through the very strong markets in the late 70s, 80s and 90s and the strong market during the past 7 or 8 years.
I have sold homes when interest rates were 16.5% adjustable and when the market slowed - even in a slow market, property values rarely dropped any significant amount.
My answer to the questions above is "The Peninsula is a world class area - people from all over the world come here to find their "fame and fortune". With little land left to develop on the Peninsula and with most communities having a no or slow growth development stance, the amount of housing will remain fairly fixed while the demand to live here will continue to remain strong - the economic opportunity and the personal freedom, not to mention the weather found in our area is, in my opinion, unmatched anywhere else in the world.
I can tell you from first hand experience, buying a home on the Peninsula is a very competitive endeavor. There are clearly more qualified buyers than there are homes.
Considering all the negative publicity about how bad the housing market is, it is hard to believe how strong our local market is. But the truth is - the market is strong on the San Francisco Peninsula - ask anyone looking to buy a home in this area.
Arn
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The Alameda Contra Costa area should be further segmented, with three factors influencing the segmentation: quality of schools, proximity to BART/transit corridors, and age of housing stock. It might also be useful to use Applestats.com's summary info to do some heat mapping.
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