Two recent housing reports confirm what homebuyers and sellers already know: home prices have surged over the past year, especially in the Bay Area. But the bump in mortgage interest rates in recent months may be slowing those gains a bit and could lead to a more balanced market.

S&P/Case-Shiller’s most recent home price index showed prices in the nation’s 20 largest cities rose 12.1 percent over last year. The San Francisco metropolitan area had the second biggest jump in prices, surging 24.5 percent year over year. Las Vegas at 24.9 percent led all cities. Others in the top five were Los Angeles (19.9 percent), Phoenix (19.8 percent) and San Diego (19.3 percent).

According to the report, which was based on June figures, prices in Dallas and Denver hit all-time highs, while San Francisco housing prices turned in the biggest rebound, rising 47% from their low in March 2009.

But analysts say the gains may be slowing as interest rates move higher. June marked the first time in more than a year that the overall annual increase was smaller than the month before, albeit fractionally lower.

“With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened,” David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a press release. Here’s the story in CNNMoney.

Rates have climbed more than a full percentage point since May when Fed Chairman Ben Bernanke signaled that the Federal Reserve may begin tapering its bond-buying program later this month.  That program has largely been credited for keeping interest rates at or near record lows.

Despite concerns that rising rates could put a damper on price increases, analysts say there are still enough economic reasons for prices to remain firm for now. There’s still a significant shortage of homes on the market in most areas, and although rates have bumped higher they remain near historically low levels. Moreover, prices in much of the country are still well below their previous peaks.

In the Bay Area, the median price for new and existing homes sold last month rose 31.7 percent from a year ago to $540,000, according to DataQuick, the La Jolla-based real estate information firm. However, the median did decline 3.9 percent from July’s level. A seasonal decline from July to August is normal, the firm noted.

In its report, DataQuick suggested the Bay Area is moving back to a balanced market after being a strong seller’s market. “As the market pendulum swings back toward normal, trends will be affected by more mundane market factors such as interest rates, employment, economic growth, affordability, mortgage availability, and how fast demand is generated and met,” said John Walsh, DataQuick president.

Of course, no one can know for sure what the future will hold for home prices. But if in fact the sharp price increases we’ve seen over the past year were to slow a bit, that may not be such a bad thing for the housing market. A more balanced market could bring frustrated buyers back off the sidelines and create a healthier environment for both buyers and sellers.

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

North Bay – The promise of post-Labor Day inventory has not materialized yet, but there is still hope more will come on the market, according to our Central and Southern Marin manager.  There has been some sign of price stabilization in Marin, yet all price points are in hot demand.  The hottest markets are San Rafael, Mill Valley and the Marin mid-markets (Greenbrae, Corte Madera/Larkspur/San Anselmo – always popular). Our Sebastopol manager reports that the local market has experienced a general slowdown in the past couple of weeks.  School is back in session and consumers seem preoccupied with other things.

San Francisco – Our Lombard office manager reports a healthy post Labor Day increase to the citywide inventory this week. Currently reasonably priced properties are still garnering pre-emptive offers, multiple offers and 105 – 130% of asking prices. We’ll see if the interest rate and inventory increases slow down the fall market. Similarly, our Market Street office manager says that now that Labor Day has passed, there’s much hope that agents will see new listings coming to the market.   Some buyers, fatigued by losing out in multiple offer situations, may be encouraged to know that half of the sales ratified this period had but a single offer.   And those homes that received multiple offers had fewer to choose from than sellers did earlier this year (from 2 to 6 during this period).   Other buyers, in an attempt to avoid competition completely, have begun looking at the many new construction condo properties.

759 E Meadow Dr Palo Alto, CA 94303

759 E Meadow Dr
Palo Alto, CA 94303

SF Peninsula — The Burlingame market has had a very busy last two weeks. There are serious buyers and multiple offers. It seems that the fall market has begun in earnest. The amount of new beautiful listings that has come to market this week is very encouraging. High-end listings took a break during August and activity was down. We are seeing renewed interest now that school has started. There are a lot of new listings being prepared for the market over the next few weeks. Our Burlingame north office reports multiple offers are still occurring, but the number of offers varies by location, price range, and the condition of property.  The highest number of multiple offers is in the entry-level markets.  And those numbers decreased from about 20 to 5-10. There’s also been encouraging activity in the over $5 million segment of the market. Our Menlo Park manager says it has been relatively quiet after the holiday and back to school.  Agents are waiting for more inventory to place serious buyers.  They saw 12 offers on $1.1 million Menlo Park home. Our Palo Alto office had two very high-end properties go into contract this past week – over $10M each. San Mateo has seen a good second half of August with strong buyer demand. But the number of buyers on a property seems to be declining and there are more offers under asking price.

East Bay – Berkeley continues to experience low inventory, with multiple offers on many properties.  The local market’s “month’s supply of inventory” has not risen above two months since this February, and has not risen above 4.2 since January 2012. Currently the market is at one month’s supply. Properties are going well over list price, 8-18% over and have been doing so since January 2012. The Berkeley Previews market is healthy and active.  More properties listed over one million and more over two million than we had seen in 2012.  More inventory is coming on the market in the Oakland-Piedmont area, so the number of offers have decreased. There are still those “hot” properties that generate multiple offers in the double digits but that number is coming down and the new offer number is 2 – 5. Prices are still going over but not as much as the end of spring. Higher interest rates have affected the first time homebuyer’s purchasing power and it’s showing.  Our Walnut Creek office is seeing more inventory come on the market, allowing buyers to be more selective.   The properties priced competitively and staged are getting multiple offers.  Over-priced listings and properties not turnkey ready are sitting on the market longer.  This is causing price reductions. From all reports, Woodside and Portola Valley agents are getting new listings lined up for September.

1853 Booksin Av San Jose, CA 95125

1853 Booksin Av
San Jose, CA 95125

Silicon Valley – The best properties in the most sought after areas are still flying off the shelf, according to our Cupertino manager. The next best properties are hanging around a bit longer. Open houses are still very popular. Our Los Gatos manager says there has been a recent uptick in high-end homes hitting the market in the $5,000,000 and up range. The lower end of the San Jose Almaden market, below $500,000, is still on fire.  Our office there had a listing that had 47 offers. Our San Jose Main office says there has been steady traffic at open houses over the past two weeks in all price ranges. Multiple offers are definitely slowing but still happening on many properties. Interest rates are keeping buyers in the market today. Our Willow Glen office reports the late August / Labor Day holiday slow down appears to be over in that area. Agents have seen a noticeable uptick in sales activity and especially in the open house traffic the last two weekends. Many buyers are now back to a sense of urgency on premium properties in desirable locations and school districts. They are seeing properties receiving offers within days on the market and multiple offers over asking are back. The lack of new inventory coming onto the market to meet buyer demand is a major factor.  In Saratoga, things are now starting to gain momentum again now that school is in session and we’re heading into the fall.

South County – The South County market is experiencing a speedy cooling trend, according to our Gilroy manager. In one gated neighborhood that was having double-digit appreciation and a severe shortage of inventory, now has not had a sale in two weeks and has 8 active properties. An investor owned listing that came on the market at a top price has now sat for 30 days without an offer. It was pulled off the market and now has two offers. So, it is a market that is returning to some normalcy, buyers having choices, and sellers having to prepare their home and price it well to generate offers. What a concept! Overall South County is seeing a lot of dirt moving around with new homebuilders springing back to life on a lot of projects that were on hold. Our Morgan Hill manager says the local market continues to be a viable alternative for buyers who are “priced out” of homes in the San Jose area.  In addition, South County is experiencing a new construction boom with new home tracts springing up all over.  Though inventory shortages are common throughout the Bay Area, there seems to be more of a selection (and better pricing) in South County.  The fact that all of the new home tracts are cooperating gives agents more alternatives when showing properties to prospective buyers.   In addition to new homes, the inventory of resale homes has increased significantly as well.

3000 Pleasure Point Dr Santa Cruz, CA 95062

3000 Pleasure Point Dr
Santa Cruz, CA 95062

Santa Cruz County – The Santa Cruz County listing inventory hovers about the 3.3 months supply. Currently there are 694 homes for sale, which is down 20% from this time a year ago.  229 are under contract and 465 are active listings.  Sales were up overall in the county for the months of July/August over the same time last year. The short sale/REO market is less and less in the Santa Cruz area, now representing 15-20% of the market.   Agents are continuing to experience great open house activity, from second home buyers and investors looking for the right property. There are a lot of homes for sale in the over $1 million price range. This represents about 35% of the total homes on the market although only about 9% of the total sales.  This is a vast improvement from the down years when at times this segment represented about 3% of the total sales.
That’s it for now. Have a great weekend!