Talking Charts – Divergence Continues
This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities
The concept that current housing data is masking true market activity is slowly gaining mindshare. Of course, readers of Cirios Trends will recall that this is a concept we have been pushing for months, even if the mainstream financial media is just catching on. Just last week, Housing Wire quoted Altos Research, a Silicon Valley-based real estate data provider, as saying that anyone who generalizes the size and length of time it takes to clear the shadow inventory will be wrong. Altos even went so far as to compare three Central Valley markets which have been acting very differently of late, analysis which we performed last month here in the Bay Area. As housing perma-bears predict an imminent collapse in home prices, smart investors are seeing opportunities in markets where fundamental supply-demand dynamics look positive, while avoiding markets that look primed for more declines.
Richmond isn’t exactly known for a quiet, family community. Less infamous but almost as crime-ridden as Oakland to the south, Richmond has its share of problems. The real estate collapse was particularly acute here, and as homes were repossessed, blight spread into an already struggling community. But since early last year, investors have been stepping into Richmond. With prices the lowest they have been in a decade and rental yields looking juicy, investors have shown a willingness to deal with Richmond’s gritty streets.
The lesson here is not that it’s time to move the family to Richmond, per se, but there are precious few places left in the Bay Area where homes can be bought for $100/sqft. These investments aren’t for everyone, to be sure, but it pays to know where investor money is flowing.
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If it seems like we highlight East Palo Alto just about every month, it’s probably because we do. In keeping with the theme of this issue of Cirios Trends, looking at long term demographics trends to figure out where to buy real estate, we would be remiss if we did not bring East Palo Alto, or EPA, into the equation. By far the most affordable city on the Peninsula, EPA is also the most dangerous. During the housing boom gentrification sped up, as developers and investors swooped in for (relatively) low prices. Values collapsed 66% from the peak of the market in 2006 to the recent nadir in 2009, only to have recovered more than 17% since early last year. As we wrote in June, “Investors are finding value on these once dangerous streets, betting the disparity between EPA home prices and everywhere else will narrow in the years to come.”
Like Richmond, this is not some ringing endorsement of moving to East Palo Alto, or even buying real estate there. What it is, however, is an observation that homebuyers – be they investors or first home buyers – are looking for value. Some of the hardest hit areas are some of the strongest markets right now, and not just because of government-sponsored efforts to stem the flow of foreclosures. These areas that are cheap relative to their peers, not the ones that have already been discovered, are most likely to prove to be the best long term real estate buys.
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Danville isn’t know for sky high foreclosure rates like other cities in Contra Costa County, but it’s housing market has certainly not been spared from its share of pain. With prices down almost 30% from their peak, the city has been spared the worst of home price declines in the area, with prices are only back to levels not seen since 2003. Nevertheless, Danville has most of what suburban home buyers want: Good schools, quiet safe streets and a bustling downtown. One negative, however, is that it’s a 15 minute drive to the nearest BART, so the commute into San Francisco isn’t the best.
The ultimate question, however, isn’t where Danville home prices have been, rather where they are headed. And if you are looking for an expert on Danville real estate, check out www.bayarearealestatetrends.com, a blog by Greg Fielding, founder of real estate community HousingStorm.com. A friend of Cirios, Greg knows Danville (and much of the Bay Area) as well as anyone, and is definitely worth a read.
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In last November’s Cirios Trends, we highlighted Mountain View, CA, the suburb best known as the home to Google. And while we didn’t go as far as predicting a rise in prices, we did point out that inventory was subsiding from recent highs and the proximity to Google and other Silicon Valley job centers would bode well for real estate values in the long run. Since that time, prices are up more than 9% as measured by price per square foot. However, at $650/ft, true affordability remains elusive. Recent data show that sales are slowing in Mountain View and that buyers remain picky. And with prices back just to where they were in 2008, its not unreasonable to believe that in the near term there could be more pain for this well-to-do Silicon Valley locale. But in the long run, if home prices are driven by jobs, there are worse places to be than Mountain View.
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