Back to location, location, location
The great real estate boom is dead. Buyers can check out dozens of houses without dreading that they suddenly will be priced out of a delirious market. Sellers are eager, sometimes desperate, to make a deal.
But not in a narrow strip of land across from San Francisco. Buyers here often find themselves paying more than expected -- if they get the house at all. In a few laid-back towns in the East Bay, the boom lingers.
Jimmy and Elaina Chan coveted a three-bedroom contemporary that had a fine view and a nice Japanese garden. Although the house hadn’t been updated in decades, the couple’s agent warned that it would definitely go for more than the asking price of $699,000.
The Chans wrote a letter to the elderly owner, expressing the hope “that you could consider us as the future stewards of your home.” They mentioned they had grown up nearby and wanted to return to start a family. They promised to “nourish and preserve” the garden.
The letter and $720,000 bid weren’t enough. After nine days on the market last month, the house received eight offers. The winner paid $780,000. Four of those who were outbid were asked to submit backup offers in case the deal fell through.
During the boom, the adage about location being the only thing that matters in real estate was turned on its head. Everything everywhere, including newly built tract homes in Victorville and Rancho Cucamonga as well as estates in Malibu and Beverly Hills, spiraled upward.
Things have come full circle. Location counts again. That’s why the East Bay towns -- along with a few other places around the state, including neighborhoods in Santa Barbara, San Luis Obispo, Pasadena and Silicon Valley -- are still reasonably hot. There are more people who want to live in these areas than there are available houses.
Not every East Bay house inspires a bidding war. Houses that buyers collectively deem flawed or overpriced can sit for weeks. And the bidding never matches the truly wild excesses of 2004, when prices could shoot up 50% over asking.
But it’s still wild enough to first perplex and then disappoint many would-be buyers in these towns, which include middle-class El Cerrito, family-oriented Albany, woodsy Kensington, university-dominated Berkeley and a few neighborhoods in north Oakland.
Julianna and Penn Phillips, both architectural designers, want to stay in the Berkeley area but are seeking something bigger in a better neighborhood.
“We kept reading about how the real estate market is slowing down,” Julianna Phillips said. “Family members back in Pennsylvania were saying people couldn’t sell and were lowering their price.”
The Phillipses bid on two houses in the last six months. Both times, Julianna Phillips said, the process was the same: “You stretch your budget to a very uncomfortable place, and then someone comes in with a bid that sails way over your head.”
Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia University in New York, calls the Bay Area “the last bastion” of the boom.
Mayer helped develop the concept of “superstar cities,” a theory that may help explain the brisk bidding in the East Bay. Superstar cities are places where people flock but where there is little room to grow outward. Because these communities often have constraints on density that prevent them from building upward, housing prices continually rise over the long term.
The San Francisco metropolitan area had the highest average annual rise in prices among the 50 biggest metropolitan areas for the five decades that began in 1950, according to Mayer and the Wharton School’s Joseph Gyourko and Todd Sinai in a research paper released in June.
Its long-suffering relation across the bay, Oakland, which the study considered a separate metropolitan area, was a surprising second, probably because of spillover from San Francisco. (The Los Angeles-Long Beach metropolitan area was fifth, after Seattle and San Diego.)
The East Bay’s coveted neighborhoods are north of downtown Oakland, and they benefit from both that city and San Francisco.
Living in the Bay Area, the researchers concluded, “is like owning a scarce luxury good.” Not everyone can afford it, but it’s always in high demand among those who can.
So why don’t Jimmy and Elaina Chan, who live in a rented condo, go a few miles east over the San Pablo Ridge to Concord or Antioch or Livermore? They could get more house for less money with less hassle.
“We want to be in the heart of things, where it’s more culturally diverse, where there’s more energy and opportunity,” Jimmy Chan said.
They want, in other words, to live in a superstar suburb of a superstar city.
They’re far from the only ones who have been frustrated.
Rob Rambo, a biophysicist who arrived from Connecticut in July, has bid on three houses with his girlfriend, a therapist.
“The first time, we made an offer we were comfortable with,” he said. “Then we were a bit more aggressive. Then very aggressive.”
The third house was in El Cerrito, which has never boasted the allure of Berkeley, much less the glamorous city across the bay.
That didn’t daunt Rambo or 10 other prospective buyers interested in a mid-century home equipped with an impressive bay view and enhanced with a recent architect-designed addition. But there was little usable outdoor space, and the splendid vista couldn’t be seen from the living room. Asking price: $698,000.
Rambo bid $798,000, but it was a few thousand dollars short of what was needed. “Crazy, isn’t it?” he said. “This area is nice, and we do like it, but you pay a premium.”
As the home market in California has contracted, sales volume has fallen less in the in-demand East Bay towns than elsewhere in the state, according to the tracking firm DataQuick.
Sales of homes in Sacramento County were down 41% in the third quarter from 2005, and Los Angeles County dropped 25%. But San Francisco fell a relatively modest 17% and the East Bay towns 13%.
The price data are more equivocal. When DataQuick measured changes in the median price per square foot for single-family houses -- a calculation that eliminates a lot of the routine but insignificant fluctuations in housing data -- the best market in the state is hundreds of miles away, in San Bernardino County.
The median price per square foot grew 8% in San Bernardino County over the last year, compared to 2.4% in the East Bay. But the raw numbers might not tell the whole story.
“While San Bernardino is still coming down off its peak, the East Bay has already returned to a normal market,” said DataQuick analyst John Karevoll. “Properties that sit right smack in the middle of the needs of those buying are doing well.”
Agents in the Inland Empire confirmed that the market there was visibly in decline. “The average home is on the market 50 or 52 days,” said John Bernardi of the American Dream Realty Co. in San Bernardino.
As for letters designed to sweet-talk sellers, “No one’s writing them,” he said. “No one needs to.”