Bay Area Undergoing Housing Market Correction in the Third Quarter

Inventory gains slowing as frustrated sellers take a break from the market
Inventory gains slowing as frustrated sellers take a break from the market

RISMEDIA, October 25, 2006?The resale housing market continued to weaken in the third quarter with unit sales decreasing 31 percent across the Bay Area, year-over-year, according to a report released today by Prudential California Realty. Price appreciation also slowed considerably, sustaining a two percent increase across all housing types over the same period last year, with several counties experiencing negative growth. Inventory gains began to slow (+34%, year-over-year) from peak levels in the second quarter.

“The market correction took hold in the third quarter with unit sales dropping further, modest levels of median price appreciation in most areas, as well as areas of softening,” said Sherry Chris, chief operating officer of Prudential California Realty based in Pleasanton. “Inventory, however, began to level off which is an early sign that the market is finding its balance. Sellers who had to sell were making the necessary price reductions, but those who could wait were often electing to remove their homes from the market. If this trend continues it will tighten inventory.”

Third Quarter Bay Area Market Summary 2006

Housing Type Median Price* Unit Sales

% %

Q3 2006 Q3 2005 change Q3 2006 Q3 2005 Change

Single-Family

Detached Homes $753,805 $734,764 +3 12,220 17,801 -31

Single-Family

Attached Homes $487,691 $482,166 +1 2,737 3,901 -30

Housing Type Average Days on Market Active Listings**

difference %

Q3 2006 Q3 2005 (in days) Q3 2006 Q3 2005 change

Single-Family

Detached Homes 49 32 +17 49,977 37,773 +32

Single-Family

Attached Homes 48 23 +24 10,462 7,222 +45

Market conditions for buyers in the Bay Area during the third quarter were among the best in several years, providing an excellent selection of homes, few multiple offer situations and sellers who were willing to negotiate, particularly when it came to making home improvements and covering buyers’ closing costs. Serious price reductions were more difficult to come by, but with the amount of listings available buyers could afford to pass over any properties that were not in top sales condition.

Although activity was slower over the year before, homes priced above $1 million demonstrated remarkable price resilience and some of the strongest price appreciation in the quarter. Notably, homes at this price point and above sustained double-digit price hikes in areas including Los Gatos, Sausalito, Alamo and Portola Valley.

Added Chris: “Despite the current weakness in the housing market, the economic climate in California remains strong with solid levels of consumer spending and business investment, which diminishes the likelihood of a protracted downturn. In the fourth quarter, current levels of activity are expected to persist with some further price erosion as the market rebalances, however it is unlikely that median prices will drop sharply.”

For more information, visit www.prurealty.com.

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