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June 13, 2016

Lamorinda & Diablo Valley Market Remains Strong Even as San Francisco Starts to Cool

June 13, 2016

Lamorinda & Diablo Valley Market Remains Strong Even as San Francisco Starts to Cool

Link to our updated, interactive Lamorinda & Diablo Valley Home Price Map

Link to our updated SF & Bay Area Home Price Maps

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As illustrated in the first chart above, Lamorinda & Diablo Valley median home prices are below that of San Francisco, San Mateo and Marin Counties, though SF and San Mateo only overtook Marin and Central Contra Costa during this latest tech boom. The difference in price and affordability is actually much greater than shown, because Lamorinda & Diablo Valley houses are also significantly larger on average: Over 30% larger than those in the city, 10% to 20% larger than the average in Marin or Central San Mateo. And that leads to the second chart, which illustrates the enormous differences in dollar per square foot values.

People move to Lamorinda and Diablo Valley for many quality of life reasons, but now a particularly critical component of market pressure is that its real estate is substantially more affordable than Bay Area homes of similar quality in locations of similar affluence. One simply gets much more home for the money, and that is driving new buyers here from other markets.

The market in San Francisco remains strong by any reasonable measure except that of the overheated frenzy it has experienced in the last few years, but it has cooled a bit in 2016 by a number of standard measurements. Of course, it is possible this is only a temporary lull. However, if it is not, it may be an indication that other Bay Area markets may see a cooling and a transition to a more normal, less competitive market in the not too distant future.

Median Home Prices since 2012

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The appreciation of our median house sales price slowed this spring, but, at $1,100,000, was still 5% over that of spring 2015. As a point of comparison, in San Francisco, houses experienced only a 2% increase in median sales price to $1,350,000, while SF condos, which are far more expensive than anyplace else in the Bay Area, experienced a year-over-year plateauing of median price at $1,125,000.

The second chart above is from an analysis we performed in May illustrating comparative median prices for houses of different bedroom counts around the region.

It should be remembered that median prices are generalities that can be and often are affected by other factors besides changes in fair market value.

Luxury Home Sales

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So far in 2016, luxury home sales have actually dropped in San Francisco from the previous year, even though inventory has significantly increased. Much of this has to do with changes in the luxury condo market, which is very specific to the city. In Lamorinda & Diablo Valley, luxury home listings and sales both increased a little year over year.

Supply & Demand

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As seen above, to an astonishing degree the 2016 market has been almost a mirror image of 2015.

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Months supply of inventory measures how quickly it would take to sell the current supply of homes for sale at current rates of market activity. The lower the MSI, the hotter is the demand and the more inadequate the supply of listings. The MSI for Lamorinda and Diablo Valley homes under $2 million is incredibly low, perhaps as low as in any market in the country. The MSI for luxury homes is appreciably higher and more affected by the ebbs and flows of seasonality, with spring being the most dynamic season and mid-winter the slowest.

In markets around the Bay Area, luxury markets are significantly less heated than more affordable home segments, which have generally become more competitive as prices have escalated. Part of this is because there are simply far fewer buyers for the most expensive homes, but it is also true that sellers and agents of high-end homes are more prone to egregious over-pricing than at lower price points. (Just because a house is gorgeous does not mean buyers will pay more than what they determine is fair market value for the area.) Last but not least, the most affluent segment of the population is also the most attuned to economic news and the past 12 months of national and international market swings may have made them somewhat more cautious in their larger investments.

Advice for Buyers

Buy a home that is affordable now and in the foreseeable future, keeping an appropriate reserve for the unexpected. Buying for the longer term is usually safer than for the shorter term. Lock in a low, fixed, interest rate for an extended period. Expand the list of communities you are willing to consider and do not just run after brand new listings, but look at those the market has passed by: There will often be good buying opportunities with greater room to negotiate. Do not be afraid to make offers below asking price and to negotiate, but carefully review the most recent comparable sales and market indicators. During the summer and mid-winter holiday seasons, the competition for listings significantly declines, and can be excellent times to buy. Be patient: New homes come on the market every day.

Historically, homeownership in Lamorinda and Diablo Valley has been a very good investment, because of long-term appreciation trends, the advantages of leverage, what is called the forced-savings effect (each mortgage payment including principal pay-down), and the many tax advantages. Talk to your accountant or financial planner regarding how these factors might impact you specifically. Admittedly, if one has to sell at the bottom of a down cycle, it can be painful.

Advice for Sellers

There are still plenty of motivated, qualified homebuyers in Central Contra Costa, but do not take for granted that mobs of desperate buyers will show up waving over-asking offers. Price your home correctly right from the moment of going on market as overpricing can have significant negative ramifications. Prepare your home to show in its best possible light: You only have one chance to make the right impression on buyers. Hire an agent who will implement a full-court marketing plan to reach every possible prospective buyer and seize their attention. Stay up to date on comparable listings and sales, market conditions and trends, and adjust appropriately. If you receive an unacceptable offer, do not be insulted: It almost always makes more sense to issue a counter offer instead of outright rejection.

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Statistics are generalities, longer term trends are much more meaningful than short-term, and we will always know more about what is actually going on in the present, in the future.

© 2016 Paragon Real Estate Group