Berkeley Bay Area Realtors
 Your real estate team for Berkeley, Albany, Kensington, El Cerrito and Oakland

Heidi and Jerry Long
Red Oak Realty
1891 Solano Avenue, Berkeley
Direct Line: (510) 835-6218
E-mail: |

Bay Area Real Estate Market News

©Jerry Long - January 2006

The long-running volcanic real estate market has definitely stalled. At least for now. Several questions emerge. Was it a bubble and did it burst? If it was a bubble, how far will prices fall? If it wasn't a bubble, what was it and what does it mean for the future?

We don't think it was a bubble. At least not like the other bubble, the Internet bubble. It was possible to buy Internet stocks of companies that had wild ideas for products that had never been produced or ideas for services which no one had ever thought of wanting, much less ordering. These fantasy companies were getting funding and going public and selling shares.

During the real estate boom prices skyrocketed. In the area where we work: Berkeley, Oakland/Rockridge and Montclair, Albany, Kensington, El Cerrito, and Southern Richmond, prices doubled every five or six years during the past ten years. In the last three months, this phenomenon has stopped.

What does this mean? Analyzing data from the MLS we find that, in all of the above areas, there was significant appreciation in 2005 over 2004. But a deeper analysis shows that in most of these areas the median was lower for the last three months of 2005 than for the first nine months. But even that lower median was way over the median for 2004. So although some of the people who sold their houses in the last three months of 2005 might not have made as much money as if they had sold earlier in the year, they still made more than they would have made a year earlier.

It's hard to believe these people lost money. Still, we know from stories about sellers, it seemed to them that they were losing money. When they talked about what price to ask for their houses, in September, they were thinking in terms of the trend of the last eight or nine years. They took the comparables of the recent sales and determined a range of probable value. Then they priced their houses in the lower half of that range and waited for the crowd of buyers to drive the selling price up beyond the top of the original range.

Well, big surprise! It didn't happen. Their agents were shocked to find themselves sitting at open houses after the proposed offer dates. Then, in some cases disconcertingly low offers started to dribble in, in other cases, nothing. In time, both types of sellers lowered their prices and the houses usually sold. But these sellers were understandably disappointed. Their houses didn't set the records they had been conditioned to expect. Things were back to what we used to think of as normal.

So what is really going on? Prices are still very high. Unless you just bought your house six or eight months ago, you'll probably sell it for a whole lot more than you paid for it. And if it's really nice, it may still set a record. Despite the lower median, there have still been great houses selling for the top of the range.

How long will this state of affairs last? No one knows. Just like no one knew when the volcanic appreciation would end. At any moment during the long rise, there were always nay-sayers advising caution and those who said they were going to wait for prices to go back down. These people missed the boat. But what about now? In another month or month and a half the market may come charging back on the usual Spring momentum. Or it might not.

No one could explain why things died down when they did. Interest rates had gone up a bit, but they were still very low in any historical sense. They still are. And it doesn't look like they're going up much in the future. Our economy is still flourishing. A world wide string of natural disasters-tsunami, earthquake, hurricanes-all hit in a row, but nothing drastic happened around here. So here we are, interested to see what the next few months may bring. Good luck to us all.

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