The Bay Area’s housing market certainly has come a long way since the recession, with sales recovering in every price segment from entry-level distressed properties through multi-million-dollar Previews estates. And although prices took a hit from 2008 through 2010, valuations have also turned the corner and have been heading higher once again as well.

While the market improvement is to be celebrated, I’m constantly reminded of just how fragile this recovery is – and why we shouldn’t take it for granted. Don’t get me wrong: I’m the last guy to see the cup as half empty. But we continue to face serious economic headwinds that could slow down or even reverse the encouraging gains we’ve seen in the market over the past year or so.

I was interviewed by the San Jose Mercury on Wednesday and told reporter Pete Carey that improvement in the Bay Area housing market could quickly turn in the other direction if consumer sentiment grows worse over Euro-zone fears and economic troubles right here at home.

It’s no secret that the economic recovery has slowed way down in most of Europe, and some weaker economies may already be in recession. A stalling European recovery dragged down by nations like Greece, Spain and Italy could significantly reduce demand for our products in the U.S.

Here at home, economic growth – while slightly better than much of Europe – has also become far too slow. The job recovery remains tepid at best. And as anyone with a 401K knows all too well, the stock market continues to be volatile as the financial markets weigh the economic future here at home and abroad.

Those are just some of the reasons why Fed Chairman Ben Bernanke this week announced plans to continue the government’s accommodative monetary policy designed to keep long-term interest rates low. In his speech, Bernanke noted “significant downside risks” to the economy, and said the Fed was prepared to step in to do more if things got worse.

All of this isn’t helping consumer sentiment in the U.S., as you can imagine. And as we all know, consumer confidence is a big part of what keeps the housing market going. The recent Thomson Reuters/ University of Michigan index for June hit a six-month low, as you’ll read in this Bloomberg news report: June Consumer Sentiment Index.

Nationwide, home sales in May were up considerably from a year ago but actually declined from the previous month. One reason is that inventory shortages are constraining sales in many parts of the country, according to Lawrence Yun, the National Association of Realtors chief economist.

Yun said the supply of homes for sale is extremely tight in all price ranges in the western U.S., except for perhaps the upper end. “Realtors in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property,” Yun said in the recent NAR report.

We’ve seen a severe shortage of homes for sale throughout the Bay Area. Inventory is down as much as 50 percent over last year in some communities. While this shortage has led to multiple offers and sales over listing prices in many cases, we shouldn’t assume this trend will last forever.

I know that many potential sellers have held off listing their homes, hoping to get higher prices down the road – if and when the economy improves further. Additionally, they figure newly minted millionaires from Facebook and other tech IPOs could boost prices further when they hit the market. But this is a very risky gamble for a number of reasons.

First of all, as I’ve noted here, the economy could possibly get worse before it gets better. And counting on new tech buyers isn’t a sure thing, either (as Facebook investors found out with the disappointing IPO performance).

In fact, much of the improvement we’ve seen in the high-end market today is not coming from new IPO beneficiaries or other young, newly minted millionaires.  It’s from buyers who most likely had the money in 2009-2011 and chose to sit on it as the housing market began to fight its way back from the recession.

The Facebook IPO may have made for interesting news stories talking about what the new wealth would do to the housing market, but the upper end of the market is still being driven by money that’s always been there. And it could turn the other way just as quickly.

The lesson here for anyone thinking about selling is this: Real estate has always been about supply and demand. That hasn’t changed. Right now, the demand is stronger than the supply by a long shot. But that could just as easily change tomorrow.

Below is a market-by-market report from our local offices:

North Bay – In Northern Marin, statistically it appears that both inventory and prices are remaining fairly stable. But inventory seemed to open a bit in Novato. We went from three properties on the brokers’ tour two weeks ago to 17 this week.   The median list price seems to have hit a plateau at $699,000.  The average days on market is now at 99, and 38% of all active listings have had a price reduction.  It is still considered to be a buyer’s market, but we are starting to see signs of some sellers moving toward listing. The Previews market is the exception to the lack of listings the north county is experiencing at other price points.   There are currently 25 active listings, which is actually a slightly higher number than our average inventory runs, and an additional nine, which are contingent or pending. There have been lots and lots of showings in the Santa Rosa area. More properties are coming on the market. Offers are not quite as abundant.

San Francisco – While inventory remains very low and demand high, the percentage of deals with multiple offers is down a little, as are the amounts over asking, according to our Lombard office manager. The frenzy is slightly reduced. As we approach San Francisco’s usual summer slowdown, our Market Street office manager says open houses continue to receive lots of traffic, and many listings continue to receive multiple offers (anywhere from 3 to 17).    Our office just ratified two properties (one seller, one buyer) that were pre-MLS based on agent relationships.  Activity has slowed down just a bit, our Sunset office reports, probably due to summer vacations.  Half of the office’s ratified offers were in multiple-offer situations.  Cash non-contingent offers are definitely winning.  At the moment, it is definitely a Seller’s Market. And our Lakeside manager says lending is the bugaboo these days.  Agents are seeing a broader array of financing options that are offered to buyers in theory, but in practice lenders are having difficulty producing results that meet the needs of the purchase market.  Low interest rates have flooded lending officers with applications for refinances and underwriters are having difficulty keeping up with the review that is necessary for the continuously increasing scrutiny placed on borrowers. Real underwriter preapprovals have mostly gone by the wayside or are taking 30 days or more to obtain.  And yet those real preapprovals can shave days off the escrow period, which means buyers can close on time rather than incur penalties for delays.  Choosing the right agent and right lender makes all the difference in success for this market.

SF Peninsula — Hillsborough currently has 65 active and 19 pending listings. Sales are happening, many all cash. Generally inventory has decreased. It may be reflective of the end of the school year, graduations and the start of summer vacations. Buyers are competing even more for the listings that are available. One Belmont duplex listed at $560,000 currently has more than 27 offers competing for bank approval on a foreclosure sale. This type of property is almost nonexistent under $700,00 countywide and the demand is very strong. While mid-range Hillsborough is in demand.  The $5+ million market is still stagnant. Good buyer prospects attending open houses. Across the hill in Half Moon Bay, activity has slowed down on the coast. But well-priced listings from the $500-600k range sell quickly; the $800-900k range homes are typically sought out by buyers from the Peninsula. Our Menlo Park manager says the local market is slightly less frenetic – however, the under $1,200,000 range is still very competitive.  He went in at 400k, no contingencies and did not get it. Woodside and Portola Valley have been lively markets of late.  A good balance has been struck, generally, between buyers and sellers, as the market has been stagnant for quite a while.  Buyers and sellers are coming to market and making deals so pent up demand is making its mark. It’s still a very busy market in Redwood City area with a lot of buyers and a lack of inventory. The positive is that the buyers are staying with their agent and continuing to make offers on other properties.  Seem to be a large number of buyers looking for the same type of home. The number of new listings is starting to increase and sales are still coming in at a steady pace.  Prices are increasing slightly due to multiple offers on most properties.

East Bay – The higher end of the market is popping, according to our Berkeley manager.  More million-plus homes coming on the market and going fairly quickly, even some with pre-emptive offers.  One buyer offered 200k over list price on a million plus home and came in 5th.  Open homes are receiving so many visitors, one host stopped counting at 130+.  She’s hearing the same cry everywhere, not enough homes for the eager and frustrated buyers. There does not seem to be much of a change in the Oakland-Piedmont area from a few weeks ago. Agents are still writing several offers in order to get their clients in to contract. Multiple offers are still the order of the day with clients willing to go the extra mile (price, no contingencies, free occupancy after close, etc.) to get the property. “Is your client willing to look at a pre-emptive offer,” is one of the first questions asked of a listing agent. The Lamorinda market continues to be very active. Buyers are competing with multiple offers and many homes are going into contract over the list price. Inventory remains low. Floor duty is extremely active with callers and walk-ins. The number of new listings is starting to increase and sales are still coming in at a steady pace.  Prices are increasing slightly due to multiple offers on most properties. Our Walnut Creek office reports that the number of new listings is starting to increase and sales are still coming in at a steady pace with prices rising slightly.

Silicon Valley – It’s still crazy out there, our Cupertino manager says. Last week she saw diminished activity due to graduations and vacations. One Los Gatos agent had an off-market listing in Saratoga, not in the school district, where the comparables were $3.9 to $4.2 million max. The buyer wrote 500K over list and closed escrow at $4.7 because they were tired of getting beat out by multiple offers. It’s hard to buy if you have to have a loan contingency or any lengthy contingencies.  One local agent made an offer on a $330,000 house in San Jose, which had 68 offers! Our San Jose Almaden manager said some buyers deciding to sit and let the market cool a little.  After losing so many times in multiple offer situations and bidding over 10% for some homes, they are careful not to find themselves in a situation that they may regret later if this was just an anomaly.  Other buyers have exercised their buyer’s remorse by either asking the sellers to reduce the price (once in contract) or backing out.  But still on the whole it is a sellers’ market. Our San Jose Main office said there was excellent weekend traffic at open houses. Most properties are still seeing multiple offers in all price ranges due to low inventory and low interest rates. In Saratoga, we have more buyers, especially in the lower end of the market, then available inventory. We are also seeing increased activity in the formally very slow $500-700k range.

South County – The lack of inventory continues to be a source of concern for most buyers and for Morgan Hill Realtors as well.  As of June 19 there was less than a three-month’s supply of homes for sale.  The “normal” monthly supply averages six to seven months.  Another amazing statistic is “Days on Market” for Morgan Hill listings has gone from 137 days to less than 60 days. As fast as homes are being listed, they are selling and closing just as quickly.  This is very frustrating for potential buyers but great news for sellers.  It seems that the South County market has truly become a “sellers” market (disregarding Short Sales and REO properties).

Santa Cruz County – Overall the market is improving, comparing 2011 to 2012.   The number of home sales is up 17% year over year through May.  This is a very positive sign as buyers are much more inclined to jump in. Many times are competing with other buyers for the properties especially in the entry level and mid-$500K price range.  Inventory levels are down about 21% over the same time last year, which seems to be driving prices upward.  The average price of a SFR is up 20% in May year over year.  There is also a buzz in the upper end segment.   We are seeing out of town buyers jumping in many times with cash and purchasing 2nd homes near the water.  Open houses have been a great source of new business for the agents.    The agents are very busy and are reaping the benefit of all their hard work the last 18 months.

Monterey County – The local real estate market continues to be very active with lots of offers and lots of multiple offers, especially in lower price ranges, resulting in lots of sales.  Right now, the Peninsula seems to be in a buyer’s market in some areas and where the prices are higher and inventory greater, and a seller’s market in others where inventory is getting tight.  These very low mortgage rates are definitely fueling the sales of homes from lower to mid-range prices. The high-end Previews market continues to improve as well.