Thursday, August 27, 2009

Market Downturn Hits Piedmont Market

2Q09 Market Update

After several years of steady prices (sales prices had been quite flat at around $600/sf since our market peak in November of 2005), and a winter and spring of very few sales and prices all over the place, this spring market makes the market direction clear: Prices are down as much as 16-18 percent compared to a year ago (see detailed spreadsheet at the bottom of the page).

I think our market has been affected by several factors unique to our high-end market. First, market distress has been focused below our price range, but those sellers are our move-up buyers. If they are having trouble selling, they have trouble turning around and buying. This pattern applies to less-expensive homes in Piedmont as well--their owners were very frequently the buyers of more-expensive homes in town.

Second, Piedmont buyers are often in law, finance, and corporate management, and each of these sectors is under great stress in today's economy. If high-income colleagues are being laid off, is now the time to commit to a Piedmont home and a hefty mortgage?

And third, Piedmont homes typically involve large mortgages, which are much more difficult to secure these days. Even if a buyer had a 50% downpayment for a $2 million home, securing that million dollar mortgage is not a piece of cake (but definitely can be done!).

There are plenty of reasons to buy in Piedmont, however, and these are arguments I lay out every time I market or hold open a Piedmont home:

--Props B+E passed, securing funding for our great schools and insulating them to a large degree from the state's budget woes;

--our free public schools offer great alternatives to private schools and their perennial inflation increases;

--our 911 services are exclusive and just a few blocks away, so no need to worry how long an ambulance will take to respond to a heart attack;

--our ''it takes a village'' lifestyle is very comforting to many; and

--our Census-tracked demographic mix (everything from typical commute times, to proportion of working moms, to ethnic and racial diversity) is more attractive to many households than similarly high-end communities through the tunnel, for instance.

Clearly, these arguments have traction. Our home prices have fared well by comparison (meaning in part, that if you purchased last summer, your investment here did better than your old home elsewhere would have). Average prices for homes in Alamo and Blackhawk sit at $376/sf for 2Q09 (a 34% decline from 2Q06), compared to $509/sf for all of Piedmont's market this past quarter. And the number of successful sales is down 55% in those towns, compared to our sales, which are down only 25% compared to 2Q06.

Looking only at Piedmont, the average home price was $1.401 million this past quarter, compared to $1.714 million for 2Q08 (based on data from the MLS). On a per square foot basis, the average, as noted, is $509/sf for 2Q09, compared to $605/sf in 2Q08. Homes are selling in an average 38 days, and a few more homes sold this last quarter, compared to the second quarter of last year.

Not too bad when placed in national context (see next post) and in light of the highest unemployment rate in a generation. Looking regionally, prices in Oakland were up 14.1% in May compared to April (but down 63.6% compared to May '08 [we saw a sneak preview of May data recently at the Oakland Assoc. of Realtors]); those in Alameda County more broadly were up 6.1% in April over March (but down 25.1% compared to April '08); and those in San Francisco were up 7.7% in April over March (but again down 23.2% compared to April '08).

Overall homeowner affordability is up dramatically in California compared to the recent past--moving from a point where only 25% of homes were affordable to someone with a median income in the state, to very near the national average of 70% affordability.

For information about reassessments and property tax reductions, read on-----

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