Bay Area Real Estate Market is Sizzling Carolyn Said

Tight inventory - a dearth of homes for sale - is driving bidding wars throughout the Bay Area, sending prices up and leaving scores of disappointed would-be buyers. Homes that do hit the market sell within days. So few homes are listed for sale that agents are resurrecting old ways of drumming up business - going door to door, leaving cards and flyers and writing personal letters, asking owners if they're interested in selling. Social networking and e-mail blasts are being used to increase inventory as well. "People are going old-school, farming their territory," said Lynda DiVito, an agent with Redfin in the East Bay, using real estate agent slang for can-vassing neighborhoods. While tight inventory is a nation-al trend, it's especially pro-nounced in the Bay Area. Alameda County, for instance, had 949 homes for sale in Feb-ruary, down 64 percent from the 2,617 on the market at the same time last year, according to data from Realtor.com, the listings website of the National Associ-ation of Realtors. Contra Costa County had 899, down 58 percent from 2,152 in February 2012. "Those are striking reductions in inventory," said Errol Samuelson, president of Realtor.com. While inventory numbers did tick up slightly from January to February, that was a normal seasonal change, not an indication of the logjam loosening. "After seasonal adjustments, inventory is still falling; the underlying trend is still downward," said Jed Kolko, chief economist with real estate site Trulia.com. However, he thinks the rate of decline is slowing. "Inventory tends to fall the most sharply after prices bottom, as no one wants to sell at the bottom, they just want to buy," he said. Trulia

shows that Bay Area prices bottomed more than a year ago. Price a factor Sellers remain reluctant and elusive for several reasons. Those who are still underwater - owing more than their house is worth - have the obvious impediment of not wanting to do a short sale. But many others "feel underwater based on the price they paid," Samuelson said. That is, someone who paid $700,000 for a home in 2007 won't feel good about selling it for $625,000 right now, even though the sale would cover their remaining mortgage. Some potential sellers, seeing prices surge, are hoping to hold out

for more. Others who might want to move up to a bigger house fear that the market frenzy means they won't be able to find or afford any-thing else. Now that it's spring, the busiest real estate season, more homes should start hitting the market. But many agents have been taking matters into their own hands, mak-ing pitches directly to potential sellers about why it's time to get off the fence. Although there are numerous

online sites to track homes for sale, "the way the market is set up now is forcing us to go back to the beginning where (agents) walk up to a door and knock and say, 'Hi, how are you, my name is ... ' " said Adelaida Mejia, a Realtor with Vanguard Property in San Francisco. Personal touch She recently worked with a client seeking a home in San Francisco's Clarendon Heights neighborhood, above Cole Valley. After losing out with bids, she walked the neighborhood with him and identified houses he particularly liked. Mejia looked up the homeowners and wrote personal letters to each, explaining that her client loved the area and was seeking a house there. "Three weeks later, one person called me back and said 'We loved your letter, we'd love to talk even though we're not on the market, come on over,' " she said. Rich and Renee Gimigliano, the homeowners, said they received two

or three agent solicitations a week after unsuccessfully trying to sell the house last year, but ignored them because they were form letters. "Adelaida's note was different; more personalized," Rich Gimigliano said. "We were planning to put the house on the market again, but the note just pre-empted that." Her client ended up visiting the house, making an all-cash offer and buying it. "It was a really stress-free ex-perience for both" the buyer and seller, she said. Beating the bushes for sellers is an about-face from just 18 months ago, when the challenge was to find people who wanted to buy. A corresponding trend is that homes are selling very quickly. 'Unbelievable' "The median days on market in Contra Costa is 13 days - that's unbelievable," Samuelson said. A year ago it was 33 days. Redfin has identified another trend it calls "flash sales" - homes that sell within 24 hours of being listed, usually because a buyer swoops in with an offer too good to refuse. Often, those are buyers who have lost other bidding wars and are deter-mined to land a property. In the past six months, almost 1,000 Bay Area properties went under contract within one day, Redfin said. "I just had that experience at a house in the Oakland hills," DiVito said. "I held the brokers' tour just before putting it on the market. A buyer and agent walked in and offered us our list price in cash on the spot." Underscoring how much the market has changed, she said her sellers had tried to sell the house a year ago "and could not move this property, even though they lowered the price three times."

Same-day offer The sellers, who were buying a new home and needed to sell quickly, were happy to take the same-day offer since a cash deal meant it couldn't be derailed by problems with financing or appraisals. "Flash-sale terms tend to be really good because (buyers) really want to lock down that property quickly," DiVito said. "They're more

willing to meet the sellers' needs to scoop it up before anyone else gets it." What happens next with inventory is a big question hanging over the real estate recovery. "My best guess is that you'll see an or-derly return of inventory to the market," Samuelson said. "I don't expect that you'll see the floodgates open and torrents of properties hit the market. But for each percentage point increase in price, there will be some people who for life reasons have wanted to sell for the past five years - their kids moved out, they got divorced - and now feel that the time is right and they have enough equi-ty." Tight inventory, fast sales The number of homes for sale in the six largest Bay Area counties has dropped dramatically compared with a year ago, according to data from the Multiple List-

ing Service. Correspondingly, the time the homes stay on the market

has also dropped

Sales of Existing U.S. Homes Climbed to Three-Year High

By Jeanna Smialek

Sales of previously owned U.S. homes probably rose in February to the highest level in more than three years, sustaining a rebound that is bolstering growth, economists said before a report today. Purchases increased 1.6 percent to a 5 million annualized rate, the most since November 2009, according to the median forecast of 77 economists surveyed by Bloomberg. Other data may show an index of leading economic indicators advanced for a third straight month. Multifamily investors seeking to capitalize on rents poised to surpass their 2006 peak are buying Manhattan properties with fewer than 50 apart-ments after a surge in demand drained the market of larger buildings. Photographer: JB Reed/Bloomberg . Growing demand for homes combined with limited supply is pushing property values up, leading to gains in household confidence and wealth that are helping propel consumer spending. Easier access to credit and bigger gains in employment may be needed to give the housing market an additional boost and ensure it will keep contributing to the economy. Housing “is finally in recovery mode,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “Housing as a share of the economy is small, but the roots are very deep and very broad.” The Realtors’ report is due at 10 a.m. in Washington. Bloomberg survey estimates ranged from 4.85 million to 5.15 million. Federal Reserve policy makers yesterday said they will continue to buy securities at a pace of $85 billion a month to spur eco-nomic growth and reduce unemployment. The central bank said it “continues to see downside risks to the economic outlook,” according to the statement. It also said “the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive,” acknowledging that the federal budget cuts triggered at the start of the month may restrain growth.

Market Peak Existing-home sales are counted when a contract closes and have rebounded since reaching a 13-year low of 4.11 million in 2008. The market peaked at a record 7.08 million in 2005. Resales accounted for about 93 percent of the residential market in 2012, and a total of 4.66 million previously owned houses were sold last year. That was the most since 2007 and up 9.4 percent from 2011.

Company results suggest the improvement in residential real estate will continue. Lennar Corp. (LEN), the third-largest U.S. homebuilders by revenue, said earnings and orders rose in the fiscal first quarter. “Current market conditions are driven by strong demand resulting from low interest rates and at-tractive home prices, which have led to very af-fordable monthly payments, compared to increas-ing rental rates,” Chief Executive Officer Stuart Miller said in a statement yesterday. New or-ders, deliveries and backlog have “shown strong increases,” he said. Housing Starts

Housing starts climbed 0.8 percent last month to a 917,000 annualized pace, Commerce Department data showed this week. Permits for future construction rose 4.6 percent to a 946,000 rate, the most since June 2008. The gains are filtering through to related companies and industries such as Plum Creek Timber Co. Inc. (PCL)

in Seattle. “A year ago, people would have been in the room wondering, when will housing starts recover and boy, what a difference a year makes,” David Lambert, chief finan-cial officer for Plum Creek, said in a March 5 presentation. “Right now, we see hous-ing is kind of the one growth engine in the U.S. economy.” The Standard & Poor’s Supercomposite

Homebuilding Index (S15HOME) has surged 71.6 percent in the 12 months through yesterday, outpacing an 10.9 percent gain in the broader S&P 500. (SPX)

Building permits are one of the 10 components of the Conference Board’s index of leading indicators. Figures due at 10 a.m. from the New York-based research group may show the gauge climbed 0.4 percent in February, according to economists surveyed by Bloomberg. The gain, following a 0.2 percent increase in January, suggests the world’s largest economy will keep expanding this year. Jobless Claims Another report may show claims for jobless benefits rose last week after unexpectedly falling to the lowest level in almost two months in the prior period, economists forecast ahead of 8:30 a.m. data from the Labor Department. Also today, 10 a.m. figures from the Federal Reserve Bank of Philadel-phia may show manufacturing in the region shrank at a slower pace in March. The real-estate agents’ group reported last month that the median price of an existing home was $173,600 in Janu-ary, up 12.3 percent from the same month in 2012. It was the biggest year-over-year gain since November 2005. Rising property values last year pulled 1.7 million households out of negative equity, meaning owners no longer owe more on their mortgage than the house is worth, according to CoreLogic Inc., a data provider based in Irvine, California. Nonetheless, more than 10 million homes, or 21.5 percent of all residential properties with a mortgage, remain underwater, CoreLogic reported this week. Household wealth rose in the fourth quarter to the highest level in five years, propelled by rebounding home prices, Fed figures also showed this month.

Bay Area home prices projected to surge REAL ESTATE Values outpace U.S. - growth seen in almost every ZIP code

Carolyn Said February 18, 2013

Almost every corner of the Bay Area is poised for robust home-price appreciation this year in a surge that will outpace projected national growth, according to a forecast from real-estate information site Zil-low.com. Looking at 245 Bay Area ZIP codes, Zillow projects that 244 will see home val-ues ratchet up by significant margins in 2013, with 27 ZIPs seeing double-digit appreciation. Only one of the ZIPs analyzed - 94515 in Calistoga - is forecast to see values recede, by a modest 1.4 percent. "The forces of supply and demand seem to be exacerbated here right now," said Svenja Gudell, senior economist with Zillow in Seattle. "We're happily surprised by how well (the market) is doing and how much it's picking up steam." Strikingly, some of the strong-est percentage increases are likely to happen in both the cheapest and the priciest areas in the nine-county re-gion, Zillow predicts. Low-end Solano County markets such as Vacaville, Fairfield, Dixon and Suisun City, where values plunged during the real-estate downturn and are still half off their peaks, should see values bump up by more than 14 percent - admittedly easier to do off a low base. At the same time, Portola Valley, Atherton and Palo Alto - with million-dollar-plus median values that now exceed their boom-time

heights - should see appreciation above 12 percent, Zillow said. Popular San Francisco neighborhoods such as Noe Valley, the Castro, Twin Peaks, the Mission and Bernal Heights are poised for double-digit appreciation, along with Menlo Park, Larkspur, Palo Alto, Alameda and North Berkeley, Zillow predicts. Regaining value

One major way that the low-cost and high-end markets diverge is in where values are now relative to their peak. Zillow shows 25 ZIP codes where values have regained all the value lost during the downturn and then some. All are in pricey Silicon Valley or San Fran-cisco neighborhoods where the median price is around $1 million. Meanwhile, about 100 ZIP codes are still 30 percent or more below their peaks - all in hard-hit, lower-end communities in Solano,

Alameda and Contra Costa counties. For the San Francisco metropolitan area (the counties of San

Francisco, San Mateo, Marin, Alameda and Contra Costa), Zillow projects that that values will rise 7.3 percent this year, more than double its predicted 3.3 percent national increase. The San Jose metro area (Santa Clara and San Benito counties) should rise 6.6 per-cent, it said. "That is a really great number in the San Francisco metro," Gudell said. "It is rather spe-cial compared to the U.S. as a whole."

Zillow's projections take into account both long-term historical trends back to 1997, as well as current data on how markets have behaved in recent months. It also factors in information on

employment, income and other economic factors to predict what housing values might do, she said. Can't meet demand Every market around the Bay Area - whether low-end, high-end or somewhere in the middle - now has one outstanding characteristic that is driving up prices: too few homes for sale to meet buyer appe-tite. "There is no place where we see a steeper decline in listed homes (for sale) than the Bay Area," said Lanny Baker, CEO of ZipRealty in Emeryville, which has agents throughout the Bay Area and the coun-try. "This time last year there were 13,000 homes listed here. Today we see about 5,000 homes - a 60 percent reduction." Moreover, the mix of homes being sold has changed dramatically, something that particularly af-fects lower-end markets such as Solano County. Far fewer bar-gain-priced, bank-owned foreclosures are on the market. In the low-cost markets, inves-tors waving fistfuls of cash are snapping up properties, usually to keep as rentals, sometimes to flip. In the high-end markets, it's tech millionaires - armed with far bigger wads of cash - who are jostling to live in homes in Sili-con Valley or San Francisco. "As soon as something new hits the market, it's snapped up," said Sandy Rainsbarger, an agent with ZipRealty in Vacaville. That town's 95688 ZIP, where the median value is now $287,900, is projected by Zillow to see values rise 17.1 percent this year - the biggest price appreciation in the Bay Area. "There are multiple offers on every single property." Buyers pushed aside Meanwhile, "regular" buyers, especially first-time home buyers who are relying on Federal Housing Administration mortgages, are finding themselves shoved aside time after time in frenzied bidding wars. "The Bay Area is one of the fastest-moving markets in the country," Baker said. "We see houses sell on average in 26 days here. One

statistic we look at is what percentage of homes sell in just seven days; that's like a red alert. If it gets to 15 percent, we know we're in a zany market. In the Bay Area, it's at 13 percent. In Sacramento, 25 percent of homes sell in less than seven days. "I think throughout this year, we'll see Bay Area markets continue to be very, very strong," Baker said. "On the lower end, the specter of foreclosures and 'Gosh, nobody's ever going to want to live this far out' has washed away, and there is more confidence in values recovering.

"On the high end, we've got Silicon Valley and the tech economy doing really well.

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