Bay Area Prices Rise 20%

Good article in some part to counter the bubble theory.  While US employment trends, interests rates, etc. point to unfavorable dynamics, the Bay Area in particular is driven by a wider pool of demand.

Bay Area home prices increase 20%, sales skyrocket;

Low interest rates, overseas buyers lift market even higher

SOURCE: Chronicle Staff Writer

BYLINE: Kelly Zito

BODY:

The unrelenting Bay Area real estate market kicked off 2005 in high gear, as home prices in January soared 20 percent from a year ago and sales reached the highest level for the month since 1989.

Though the start of the year is typically the slowest time in the real estate market, abnormally strong demand, relatively short supply of properties and an influx of international buyers pushed the median price for a single-family home in the nine counties to $556,000, just below the record of $560,000 set in November but a whopping 20 percent more than the year-ago price of $463,000. It was the strongest year-over-year appreciation rate in four years.

The housing market's continued robust performance defies well-worn predictions of a slowdown. Following the technology meltdown and the loss of hundreds of thousands of jobs, many economists expected the region's real estate sector to suffer. But after a decline in sales of high-end homes in 2001, the market rebounded -- and then some -- driven by low interest rates, consumers' reluctance to plow money into stocks and newly flush trade-up buyers.

Last month's sales count of 7,509 was the highest for any January in at least 16 years, said DataQuick, a La Jolla (

San Diego

County

) real estate market research firm.

"I'm surprised," said DataQuick researcher John Karevoll. "I keep thinking demand will ease back, but it hasn't."

January sales

January's sales total, though 5.7 percent higher than last January's count, was down 32 percent from December's unusually strong sales tally. But Karevoll noted that a decline of about 30 percent between December and January is typical.

The median price for a single-family home has hit a record in nine of the past twelve months, according to DataQuick's research, which is based on filings with county recorders' offices and represents sales initiated 30 to 60 days prior.

In

San Francisco

, a typical single-family home now runs about $713,000, up a stunning 23 percent over last January's $580,000.

Marin

County

had the highest median at $850,000;

Solano

County

had the lowest at $389,000. The median price for a Bay Area condo was $410,000, up 21.3 percent year over year. By contrast, the nationwide median price for an existing detached home is just under $190,000. (The median is the midpoint; half of sales were below and half were above.)

Still, Karevoll -- who noted that January and February statistics are somewhat atypical and can't be used to predict trends -- believes higher interest rates could take some starch out of the market by making monthly mortgage payments less affordable. The typical Bay Area buyer committed to a monthly mortgage payment of $2,344 in January, up from $1,940 one year ago but below the peak of $2,450 in June.

Though interest rates have remained low in recent weeks, many economists expect rates to trend up through the year, with the 30-year fixed rising from its current 5.57 percent to about 6.5 percent by December.

Even if rates do rise and put pressure on home prices here, local real estate agents believe desirable areas will remain just that -- desirable. They point to the fact that attractive properties in good locations fetch many offers and sell for well over the listing price. Part of that stems from what real estate agents describe as a slim inventory of homes for sale.

During the weekly real estate agents' tour of newly listed homes on Tuesday, Jan Small showed a one-bedroom

Pacific

Heights

condo listed for $729,000. Small, an agent with McGuire Real Estate, said a "normal" tour list is about 60 pages long. This week's was 18.

"I've been in this business 16 years and I've never seen so little inventory," Small said, adding that a

Bernal

Heights

cottage recently garnered 40 offers. "I feel sorry for the poor buyers."

Overseas buyers

For overseas buyers, however, Bay Area prices are bargains. And those buyers may be playing a key role in bolstering the market.

Lee Julien, an agent at Herth Real Estate who Tuesday was showing a Hayes Valley Victorian listed for $1.2 million, said easily 10 percent of his buyers are from outside the

United States

.

"I can't tell you how many buyers I have from

Singapore

or

London

," Julien said. "They come here and they look at a house like this and they say, 'This in

London

would cost $4.2 million.' "

Other observers are more skeptical of the market's health.

In a study of 99 metropolitan areas, Richard DeKaser, chief economist of Cleveland-based bank

National City

, found that 20 markets had housing "bubblettes" and may be vulnerable to price corrections.

According to his research, which compensated for differences in income, interest rates, population and historical price trends, DeKaser said home prices in

San Francisco

were "overvalued" by 30 percent. Prices in

Stockton

are 34 percent higher than they should be, and 32 percent too high in

Los Angeles

, he said.

"While overvaluation in home prices presents a risk of future declines, these risks may well go unfulfilled," DeKaser said in his report last week. "The true test of today's premiums in these markets will be the economic environment, especially incomes and interest rates, in the years ahead."