THE FIRST QUARTER OF 2004 HAS PROVEN TO
BE EXCEPTIONALLY ROBUST FOR HOME SALE PRICES ACROSS THE BAY
AREA.
Beginning in early March, multiple offers began edging home
sales close to – and in some cases beyond – dot-com
pricing.
This is nothing new for the traditional San Francisco and
East Bay neighborhoods such as Noe Valley, the Oakland Hills
and Pacific Heights. Those neighborhoods have been experiencing
robust sales and multiple offers throughout the economic recovery.
It is, however, welcome news for the many homeowners in transitional
neighborhoods, particularly for those that purchased properties
during the boom.
Real estate in the Bay Area has proven to be a fickle commodity.
Sale prices in January 2004 seemed like relative bargains compared
to the new closings coming in for March and April. The three
major factors fueling this sellers’ market are:
- Interest rates and new creative financing options
- Renters becoming first time buyers in record amounts
- Lack of available inventory
First and foremost are the historic low interest rates, which
to everyone’s amazement, continue to fall. Even though
mortgage rates have been at historic lows for several years,
many new aggressive interest-only loans and 100 percent financing
options, which used to be quite difficult to get, have become
the industry standard. All this is fueling higher pricing as
buyers find they can afford much more than they would otherwise
have been able to cover on a monthly basis.
In addition, the new loan programs are pushing many otherwise
shy renters into the purchase market, which has helped make
up for the exodus of unemployed tech buyers over the past several
years. First time buyers are becoming increasingly aware that
mortgage payment options can often be tailored at or lower
than rental prices. To give an example, a client recently procured
a loan fixed for 5 years at 4 percent, with an interest only
payment and a loan amount of $500,0000. Her payments are just
$1,667 a month. With mortgage payments that low, it isn’t
surprising rental prices have not kept pace with the increase
in sales prices as they did during the dot-com boom.
Lastly, even though the gap between income and the affordability
of homes continues to grow at an alarming rate, there appears
to be an even wider gap between the demand for new homes and
the inventory available to supply it. The Bay Area has been
one of the hardest hit (losing 15 percent of its workforce
compared to the 2 percent lost in the U.S. during the same
period) and among the slowest to recover. However, as long
as the interest rates and financing options continue to stay
this enticing, we are likely to see this sellers’ market
continue. Most economists agree that the interest rates will
eventually rise, but appear to hold consensus that Greenspan
will do his best to take small steps so as not to endanger
the continued economic recovery.
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Spring 2004 Table of Contents 
