This post first appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

This month’s spotlight shines on an oft-forgotten portion of the East Bay, San Leandro.

While San Leandro lacks the famous name of an Oakland and the semi-swankitude of a Castro Valley, its central location and amazing affordability make it worth a second look for anyone looking to buy a home for less than $600,000.

Currently listed homes in the zip code range from a small 2 bedroom fixer upper listed at $200,000 to a $1.3 million dollar home with a pool and views of San Francisco. The large majority of homes (77%) are priced $600,000, large lots are common and Chabot Regional Park is a stone’s throw away. Downtown San Leandro is a vibrant commercial area with many common outdoor events.

As can be seen in the graph below, home prices in 94577 have come down significantly since their peak in 2005. Another noteworthy aspect of the sales graph is the enormous spike in supply that occurred in late 2007. As we have explained in the past, these supply spikes always correlate with precipitous declines in prices.

On the flip side, as supply pressures ease, values tend to stabilize. Clearly, the supply trend for this area is returning to more traditional levels. Simultaneously, there seems to be some support at current price levels, meaning that the decline in prices could be leveling out.

The public school system in San Leandro isn’t anything to write home about, but the attractive affordability levels mean private schools could be an option.

And in terms of commuting to San Francisco, the 24 minute ride from the San Leandro BART is identical to the commute from the Downtown Berkeley station.

Each month we examine a single zip code, identifying micro-trends within the area to try and figure out how close (or far) that market could be from a bottom.

This month we shine the Zip Code Spotlight on 94703, an area smack in the middle of storied Berkeley, CA. The area contains an eclectic mix (it is Berkeley after all) of houses, condos and apartments. For this month’s analysis, we’ll focus on the single family residences within the zip code.

Looking at the zip’s sales history, one can see a trend that sets it apart from many other areas in the East Bay. Since the peak of the market in mid-2006, prices for homes in this zip code have fallen by 15%. Normally, this would seem like a staggering drop, but a 15% decline is mild when you consider the East Bay as a whole has come down more than 40%.

The area’s relative stability is likely a product of several factors (affordability, proximity to San Francisco and UC Berkeley, etc). Perhaps the most important of these is the fact that during the recent housing boom, home prices did not run up as much as many of the surrounding areas.

The average sale price is up 95% since 2000 — which is significant — but a moderate rise compared to the East Bay as a whole, which saw gains of more than 130%.

This is only part of story, however, and doesn’t explain why prices in 94703 have just come down to 2004 levels, while overall East Bay prices have already returned to levels not seen since 2000.

So is 94703 primed for a bigger drop or has it weathered the storm?

Source: Cirios Real Estate, MLS data

Only time will tell, of course, but until then we can watch for a few telling indicators.

First and foremost in our minds is supply, which, as we explain in detail in this month’s By the Numbers, can be an important leading indicator for prices. Spikes in supply often lead to price declines, as buyers can be more patient and sellers become more desperate. The larger the spike, the larger the decline.

As can be seen in the graph below, supply in 94703 is certainly moving higher and sits at the upper bound of its range over the past dozen or so years. We are watching this level carefully, as further increases would likely foretell more severe price drops in the future.

If, on the other hand, buyers step in and pick up lower priced homes, supply may return to more historic norms, supporting prices at their current levels.