This is a synopsis of a recent Chronicle article which outlines an important way we calculate supply/demand for homes– by measuring how long it would take at the current rate of sales to sell all homes on the market. It’s often a good indicator of where prices are headed based on supply and demand. In San Francisco this number is dropping.

Home Sales Get Lift, But Lid Still On Prices

On Tuesday, DataQuick released numbers showing that sales of existing Bay Area homes jumped 33 percent in April from March - the biggest month-to-month increase in at least 20 years. Compared with the previous April, however, sales were still down a painful 14.2 percent.

Some people saw last month’s unusually big surge as a sign the market may be bottoming out. Others see no relationship between the volume of sales and prices, and believe home values will continue to drop.

One of the more useful ones is days of unsold inventory, which measures how long it would take, at the current rate of sales, to sell all homes on the market. It’s often a good indicator of where prices are headed based on supply and demand.

In Santa Clara County, it would take 149 days to sell all the single-family homes on the market. That’s way down from the 335 days it took at the beginning of this year, but still well above normal. Historically Santa Clara homes would take 45-90 days to sell.

What’s most striking about the inventory numbers is how they vary within the county. Outlying areas like Morgan Hill, San Martin and Gilroy hit 600 days of unsold inventory last fall. Now they’re around 250 days.

In the county’s expensive northwest quadrant - Sunnyvale, Cupertino, Los Altos, Mountain View and Palo Alto - they are only at 60 days unsold inventory. Prices in these communities are continuing to rise.

Different markets in the same county - even in the same city - are wildly different. In San Mateo County, it would take 122 days to sell all the single-family homes on the market. The normal range for San Mateo is 40 to 80 days.   Foster City and Redwood Shores have roughly 80 days of inventory and the balance of San Mateo County is at 100 days with the exception of the coast, which is at 200.  Experts speculate that slower sales in some communities involve the commuting costs.

Subprime lending was concentrated in affordable and outlying markets. From 2002 through 2006, these areas saw rapid price appreciation. Expensive communities were having more normal increases.  

When the financial crisis hit in 2007, lower-end neighborhoods were hit hardest. Because they had not gone up as fast, prices in higher-end neighborhoods didn’t come down as much. In some cases they continued to rise.

San Francisco, for example, has 4.6 months’ worth of inventory. ,  While that seems like a large number, it’s actually reflective of a fairly balanced market.

The same ways inventory amount varies from city-to-city, in SF it varies neighborhood-to-neighborhood. Inventory in Bayview is seven to eight months. And Prices in some lower-priced neighborhoods have come down so far they are beginning to attract buyers.

Sales in Solano and Contra Costa counties, which have been hit hard by the housing crisis, were up 5.3 percent and 8 percent, respectively, in April compared with the previous April. They were the only Bay Area counties to post annual sales gains. Prices in all Bay Area counties, however, showed annual declines.

This entry was posted on Wednesday, June 4th, 2008 at 9:00 pm and is filed under Buying Strategies. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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