Rising home values is a great thing for sellers and for the economy of that particular area. But when prices are skyrocketing, it leaves out a lot of folks who just want to buy a home and can’t because the prices are out of their reach.
That might be changing in some areas where prices have cooled recently. That can leave the door open for first time home-buyers or those who are looking to up-size their living space.
One particular city — San Francisco – has seen big jumps in home prices since the beginning of a turnaround in early 2012. Now, those prices are going down.
San Francisco Leads U.S. On the Way Up & the Way Down
The city led the Bay Area and the nation when its real estate recovery began, says Patrick Carlisle, chief market analyst for the Paragon Real Estate Group in San Francisco. Within the city itself, the more rich neighborhoods led the rebound from the 2008-2011 recession and saw the highest rates of home price appreciation.
“That dynamic began to shift in 2014 when the more affordable neighborhoods began to take the lead in demand and in appreciation,” he says in his November analyst market report. “But all the price segments in San Francisco have cooled off from the overheated frenzy of the spring 2015 selling season.”
In fact, sales were down 19 percent in September and October from a year ago. That can be explained in many ways, Carlisle states, including the fact that there wasn’t a lot of inventory to buy. Plus, buyers from China had spent more than $600 million for Bay Area homes in the past two years, according to Real Capital Analytics study. They have backed away for a while on their aggressive buying because of the plunging stock market.
“What really pushes prices higher is competition between buyers. The more buyers are competing for individual properties, the more the bidding can raise those prices,” he says. “During those most frenzied times, offers were going 20-30 percent over asking prices. That’s pretty much absurd.”
So, hopefully with things calming down a bit, buyers who won’t have to go into a bidding war with others, and the prices will stay at the asking price and give others a chance, he says.
But Carlisle says that the renting market is even crazier than the buying market in his area. A lot of new construction is going on in San Francisco especially with new hi-rise apartments, where a lot of the employees working in the new technology boom want to live. Rent for a 500 square-foot studio apartment is going for $3,500 a month.
“I would love to see the market become more rational because school teachers, policeman and regular people still need a place to live. Their salaries don’t allow them to buy homes here,” he says. “But if you go to the county on the other side of this county, values go down drastically. Affordability is the biggest political issue in the Bay Area. New York City is the most comparable to our prices.”
Lower Home Sales Could Create Opportunity for New Buyers
The National Association of Realtors showed that existing home sales fell 3.4 percent in October. Much of that slowing came in pricey markets such as California, where younger and middle-income buyers can’t seem to get into the market.
The number of home sales are down 3.2 percent in the South, 8.7 percent in the west, .08 percent down in the Midwest and flat in the northeast, according to the NAR.
But lower home sales didn’t bring prices down in some areas. The West is experiencing an 8 percent jump in home prices this October compared to a year ago, and the South saw a 6.2 percent jump.
The national median home price fell to $219,600 from September, but is still 5.8 percent higher than October 2014. That means that prices nationally have risen 44 months in a row. Here are the towns where the average home price has gone down to allow more people to get into the market:
Cumberland, Md. — $82,400, down 11.6%
Decatur, Ala. — $111,900, down 9.9%
Springfield, Ill. — $124,200, down 8.5%
Bridgeport-Stamford-Norwalk, Conn. — $388,700, down 7.7 percent
Atlantic City, N.J. — $205,900, down 3.4 percent
“It’s still very challenging when values change radically. It just becomes more frustrating and aggravating for home-buyers,” Carlisle says.
Lee Nelson of the Chicago area writes for national and regional magazines, websites, and business journals. Her work has recently appeared in Realtor.org, Nurse.org, Yahoo! Homes, ChicagoStyle Weddings, and a bi-weekly blog in Unigo.com.