This post first appeared in: Cirios Trends – Special Edition: 2010 Real Estate Roundup

This month, rather than looking at an individual zip code to spotlight a particular aspect of Bay Area real estate trends, we looked at the Bay Area as a whole (well, 5 counties worth: Santa Clara, San Mateo, San Francisco, Alameda and Contra Costa). We examined more than 45,000 residential real estate sales (condos and single family homes) and looked at median and average sale prices by month. As you can see, the path of Bay Area real estate prices has traced a nearly smooth parabolic arc over the last year. After coming off the lows of 2009, prices steadily rose through August of this year but have been falling ever since. At their peak, prices had come up a full 20% off their lows and have fallen 6% since then.

Two huge caveats should come along with such a broad analysis of price trends. The first is that these data have not been seasonally corrected. Much of the parabolic trend in prices can be attributed to the normal yearly cycle in real estate markets. Every year, prices come up in the summer and slip again in the winter months, as we see here. However, this yearly cycle is not likely to account for the entirety of the 20% price increase and a large portion of this should be seen as actual value increases in Bay Area Real Estate.

The second caveat — one that we continually try to hammer home at Cirios, is that by accumulating data over such a wide geographic range (5 counties) many more local trends can be masked. Indeed, to an extent, averaging data over such a large area makes this analysis more suited to evaluating economic trends rather than looking at actual real estate markets.

To drill a bit deeper, we sliced and diced the Bay Area into county specific data for each of the five counties. For all, the data graphed here represent moving averages of home sales over the past year.

The first thing you might notice is how different each of the graphs look. While each county can be seen to follow the rough trajectory of our Bay Area wide parabola, individual counties vary widely in the exact parameters of their trends. San Mateo County, for instance, has experienced a few large dips over the past year, both in January and September.

San Francisco has shown a lot of volatility in the past year. While some of the apparent volatility in the SF price trend graph can be attributed to the effects of a smaller sample size (San Francisco is by far the smallest county of the 5) and a wide range of local price ranges, a good portion is real market volatility.

Contra Costa County, on the other hand, actually followed a fairly smooth arc and followed pretty closely the Bay Area trend as whole.

Alameda County bounced along nearly flat for the year, but still ended the year up significantly from where it started in January.

Last but not least, after a rough start to the year, Santa Clara County rebounded in the spring and held steady through the summer and into the fall. Recent months have seen weakening, however, so we could have another rough start in 2011.

Of course, looking at county wide trends is also not the best way to evaluate the value of an individual home. At best, it can only give a rough idea of regional activity. As we have pointed out often in the past, even looking at zip code level price trends can be confusing or even counterproductive when trying to make individual real estate decisions. This being said, however, comparing neighborhood trends to larger geographic areas can be very informative, allowing one to identify neighborhoods that are going against a downtrend in prices or outpacing value increases. These differences can be immensely important in choosing one city over another or one neighborhood or another and can allow considerable narrowing of available real estate choices.

At Cirios, we are always working to improve our data analytic capabilities, with particular care paid to metrics and visualizations that allow our clients to make the best real estate decisions for themselves. Over the next year, we will be unveiling a variety of astoundingly useful tools to help all real estate market participants, from first time home buyers to the savviest of long term real estate investors, make the best possible real estate choices. And as always, we have the expertise, integrity and passion to make sure those choices become reality.

This post first appeared in the February edition of: Cirios Trends: In Search of Real Estate Opportunities.

It’s been our long-held view that the housing recovery would be a prolonged, localized event. That is, even while pundits are out there hailing that the bottom is in, or that it’s a great time to buy, we are more cautious. It certainly is a great time to buy … certain properties at certain prices in certain locations with a certain strategy. To say much more borders on recklessness, since current market strength is so heavily reliant on government intervention to support prices. And, if a picture is in fact worth a thousand words, this graphical depictions of a few representative Bay Area real estate markets are certainly worth a look.

Judging by the activity shown above, there are a whole lot of under water borrowers in Morgan Hill, a southern suburb of San Jose that saw a huge pop in luxury homebuilding during the dotcom then housing booms. Even buyers as late as Mid-2007 are in rough shape, but prices are trying to stabilize here at levels not seen since the early part of the decade. We would urge caution however, as based on current foreclosure data there is a decent amount of looming shadow inventory in the Morgan Hill market. This, along with pricing pressure in desirable parts of San Jose like the Almaden Valley, could make calling a bottom in Morgan Hill home prices a bold call indeed.

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Menlo Park, CA has seen an immense boom in wealth in the past two decades. But what stands out to us isn’t the bulge in home prices during the dotcom mania of 2000-2001. It isn’t even what looks like a precipitous drop in values in the latter half of 2008. Instead, any market where in a given year you see more than a $1000 / sqft spread in sales prices warrants a deeper look. And indeed, if you flip to the next page, you will find that deeper look.

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Zip code data is great, but it rarely tells the whole story. Dig into individual neighborhoods and you often find a very different story. Menlo Park is a case in point. On the east side of 101 lies a Menlo Park few residents have ever visited, except on the way to the Dumbarton Bridge: Belle Haven (and even then most probably think they’re in East Palo Alto). Vastly different demographics yield property values that belie the trend in West Menlo. In Belle Haven, starting in early 2007 prices truly fell off the proverbial cliff even as the rest of Menlo Park hung tough. The difficult question is now what part of town is now the safer bet? Would you pick the established, wealthy neighborhoods where prices have just dipped back to 2004 levels, right in the middle of the boom, or the rougher area in the midst of gentrification long over-due, where prices are now back to pre-dotcom levels?

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Next door to Menlo Park lies sleepy Atherton, CA, a town constantly ranked in the top 5 wealthiest communities in the country. With a single sale below the $500 / sqft mark since 2004, Atherton is truly a luxury market. It’s also a case study in understanding your market. Even at the peak of the recent housing boom, prices didn’t reach the astronomical heights of the dotcom boom, when every overnight millionaire in Silicon Valley rushed to buy in Atherton (if their stock options had to time vest, of course). More recently, it took the stock market’s crash (see red line) to dent this exclusive community’s housing market. So, with history as a guide, in Atherton it appears that stock prices lead home prices. As the stock market struggles to hold its recent gains, let’s see which way the wealth effect cuts in the coming months.

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Let’s end this month’s newsletter with what could be a feel good story in the making. San Leandro, CA has the misfortune of being located immediately south of Oakland, a city rife with violent crime. San Leandro may not win any awards for its French Cafes or
Ballet troupes, but there is precious little affordable housing left in the Bay Area. Many San Leandro neighborhoods are quiet, safe and convenient to job centers around the Bay. Inventory is being severely limited by government-led efforts to forestall foreclosures, and buyers armed with government loans are chomping at the bit to get in. It remains to be seen if the recent trough in prices can hold, but the fundamentals exist for a sustainable recovery.