What a difference a year makes.
This time last year, the question on the minds of local real estate mavens was, “Has the market finally stabilized, after several years of declining home prices during the recession?” And the answer was “Apparently, yes.” The average home price in Davis for the first quarter of 2012 was $433,160, almost exactly a tie with first quarter 2011.
Flash-forward to the present. Among the local homes that have been listed for sale this spring, many have sold quickly, at prices higher than they would have fetched last year. But the overall number of homes on the market is quite low by historic standards. Recently, at any given point there have been barely 50 Davis homes for sale — not a lot of homes for real estate agents to show, or prospective buyers to consider.
“We basically have one month of inventory right now — it’s rough,” said Claire Black Slotton, broker associate with First Street Real Estate.
The statement that seems to summarize the current market moment might be “We wish we had more homes to sell,” as Cory Gold, vice president of Coldwell Banker Doug Arnold Real Estate, put it. “Just about every property under $500,000 is having a minimum of two to four offers, and is going over the asking price,” Gold said. The sales sometimes are complete in a matter of days.
As a result, home prices are on the rise again. The average sales price for Davis homes is $489,855 during the first four months of 2013 (January-April), well above the average price during the same timeframe last year. And unlike recent years, when a great majority of real estate transactions were in the under-$500,000 category (with very little activity over the $1 million threshold), Davis is now seeing more deals involving higher-end homes, including sales in the $1 million-plus range.
It’s pretty much the same trend elsewhere in California and the nation — rising home prices, limited inventory. The median house price in the San Francisco Bay Area just went above $500,000 for the first time in about five years, even as the number of homes sold declined due to the small number of homes on the market. Several Bay Area counties reported that home prices are up 20 percent or more over the same period last year.
Many neighborhoods in Sacramento also are seeing prices running 20 or even 30 percent over last year — though in the case of Sacramento, where home prices took a bigger hit during the recession than in Davis, there is more ground to make up.
It’s partly a matter of pent-up demand. Ted Russert, who came onboard as manager of the Lyon Real Estate offices in Davis and Woodland in January, notes that since the market peaked around 2007, “people had kids, or got married, or got divorced, or changed jobs. … They’ve had reasons to buy or sell real estate. But they held on” and didn’t sell their houses — some out of financial caution during the recession, others because mortgage lenders were being picky and they couldn’t get a loan.
“So now, as the recovery hits, you’re seeing that pent-up demand, which I think we will be experiencing for the next two or three years,” Russert said. “And as prices appreciate, the appreciation unlocks that pent-up potential” as more homeowners decide that the recovery has proceeded far enough, and they are willing to enter the market as sellers.
Dave Taormino, chief executive officer at Coldwell Banker Doug Arnold Real Estate, agreed that even though real estate offices are busy at the moment, “a number of potential sellers in Davis have decided to hold off selling, anticipating appreciation during 2013. They’re attempting to recapture lost value, especially those who purchased near the height of the market in 2005 and 2006.”
Are we seeing a transition from what was widely viewed as a “buyer’s market” two or three years ago to a “seller’s market”?
“It is leaning that way,” Gold said, cautiously.
“I still think it’s a buyer’s market,” opined Russert, pointing out that interest rates are still low, and home prices still have a ways to go before they equal the market peak. “Only time will tell. But I think the market in the not-too-distant future will eclipse what you’re seeing today.”
Said Slotton, “I did not quite see it (coming back so soon). The term ‘seller’s market’ always worries me. But I did start saying to my clients back in November 2011 that ‘Now is the time to buy.’ ”
So what are other manifestations of today’s real estate market?
* All-cash offers, which appeal to sellers. “They used to be a rarity; now they are a norm,” Russert said. “An all-cash offer is going to circumvent certain bank practices and appraisals, all those lending issues that could make a deal go bad. There are not as many hurdles. So the seller is going to take a cash offer over a lender-driven offer.”
* Competition. “(If you are a buyer), don’t nickel and dime,” Taormino advised. “When there is a multiple-offer situation, even if they are all the same (in dollar terms), the seller looks to see who’s going to cost them the most grief. They are looking for some clue as to who is going to be the easiest to work with.”
Taormino suggested that motivated buyers should put their best offer forward when they see a property they like: “Over a number of years, a few dollars one way or the other is insignificant compared to buying the home you really want.”
* Personal appeals. In many transactions, the buyer and the seller never meet face to face. But increasingly, prospective buyers are sending a letter or a photograph to the seller, hoping to sway their sentiments. This sometimes takes the form of the prospective buyer explaining that the buyer’s children already attend a neighborhood school and the buyer is seeking a larger home in the school’s attendance area. Or the prospective buyer might send a photograph of the buyer standing in front of the home for sale, and forward the picture to the seller.
* The return of the flipper, thus far on a small scale locally. A flipper is someone who buys a property, makes some improvements and then sells at a profit before much time has passed. There have been a significant number of home sales involving flippers in Sacramento and other areas where home prices tanked during the recession — typically investors making cash offers on foreclosures and short sales.
“But we are starting to see a few flippers again … in Davis,” Gold said. “Just a few … they’re not a significant portion of the market here.” Davis home prices didn’t fall as far during the recession as they did in Sacramento, Woodland and elsewhere, and therefore have a more limited potential for the rapid appreciation that flippers seek.
* Staging of properties — a process in which a professional designer is hired to come into a home for sale with furniture, paintings, lamps, etc., to present the property in an attractive light, with the goal of attracting a higher offer for the property.
“Even with houses selling fast, we are seeing a significant number of houses being staged,” Gold said.
* The prospect of “buying up” by selling a smaller home and buying a larger one. Slotton explained that “If someone is thinking of selling a house for $500,000 and buying another house for $700,000, and prices are going up about 10 percent a year, the increase in value in their current $500,000 house will be $50,000 — but the increase in the $700,000 house will be $70,000. It doesn’t make sense to wait.”
Taormino said the shortage of new homes on the market in Davis is holding down the number of “buying up” transactions. In addition to Willowbank Park, a relatively small infill project, the biggest concentration of new homes on the horizon is the Cannery project, which would put 551 units on the old Hunt-Wesson tomato cannery on Covell Boulevard at J Street.
The Cannery project is moving through the city zoning and review process, but even if the project gets a green light, it likely will be several years before the homes are ready for sale.
The Verona development in Mace Ranch is gradually approaching buildout. There doesn’t appear to be any forward movement on the single-family homes portion of the West Village project on the UC Davis campus, which has already been postponed several times.
Taormino dismissively described West Village — which has netted UCD considerable coverage for its energy efficiency and sustainable design — as “an ill-conceived project … why would any rational person with a 3 percent interest (mortgage) market want a home with an equity restriction, and (have to) drive through what might be described as tenement buildings” — meaning student-oriented apartments like The Ramble — “to get to your single-family home?”
Notes: This has also been a year of transition in local real estate offices. Several people moved from one office to another, a few new faces came on the scene and a few familiar faces have moved on. Cary Arnold left Coldwell Banker Doug Arnold Real Estate several months ago; she told The Enterprise she is “taking a much-needed break and spending time with family.” Herb Cross, the longtime manager of Lyon Real Estate’s Davis office, moved over to the firm’s corporate offices in Sacramento. Ted Russert came in during January as manager of Lyon’s Davis and Woodland offices; Russert is a University of the Pacific grad (he studied music and business) who had been in sales management at Lyon’s Sierra Oaks office (serving the Fair Oaks/Fulton area of Sacramento). Russert came to Davis with his partner of more than 20 years, Matt Martinez, a UC Davis grad. Russert said he’s out to increase Lyon’s market share in Davis.
— Reach Jeff Hudson at [email protected] or 530-747-8055.