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Rising inventories, along with rising interest rates, have helped cool the once red-hot housing market.
Inventory is the number of homes for sale. Inventories go up when more homes are put on the market, when fewer homes are sold, or both.
During the housing boom, inventories were low and multiple offers were common. But the market started changing in April 2005. Year-to-year sales volume started declining, followed by a slowdown in home appreciation rates.
"It's not temporary," said Chris Thornberg, senior economist with the UCLA Anderson Forecast, of the slowing market.
"All the signs point to that the housing bubble is starting to deflate."
The market is still healthy although inventory levels are rising, according to Thornberg. "We are not predicting that prices are going to collapse," he said. "It's going to be tougher and tougher to sell your house."
In many parts of the East Bay, there are now many homes for sale, which means buyers face less competition. That's not the case on the Peninsula, where inventory is lower, and there is a lot less land to build on.
In February, the Bay Area's unsold inventory index of existing single-family houses was 3.6 months - twice that of February 2005, according to the California Association of Realtors. The index measures the number of months needed to sell all homes on the market at current
In Alameda County, the index was 3.2 months in February, compared with 1.7 months in February 2005. In Contra Costa County, the index was 5.2 months in February, compared with 1.3 months a year earlier.
So why are there more homes on the market now than last year?
"My biggest feeling is that a lot of people saw those great price (gains of recent years) and think it's a great time to cash out and move on or move up and take the equity gain," said Kristle Rittenbach, a Realtor with the San Leandro office of Keller Williams Realty. "People who bought houses in the late '90s have definitely seen a big increase."
Another factor, she said, is a tax break for federal income tax returns relating to the capital gain made on a home sale. The tax break lets single people exclude up to $250,000 in capital gains and married couples filing jointly up to $500,000 in capital gains on the sale.
"Houses are still selling if they are priced within a reasonable amount," Rittenbach said. "It's still a healthy market."
"What we are seeing week after week is increasing inventory," said Earl Rozran, a Realtor with the Pleasanton office of Prudential California Realty. His territory includes the Tri-Valley area. "The pool of buyers for properties at all price levels has shrunk simply because borrowing costs have been increasing steadily since the beginning of the year. I think in the spring we are going to see lots of inventory for buyers, without question."
That's not the case for all of the East Bay.
"In some areas, we have a dearth of inventory. In (Oakland's) Rockridge, there is just not enough," said Avram Goldman, president of Coldwell Banker Residential Brokerage, San Francisco Bay Area. "In Berkeley and Oakland, demand is outstripping supply."
The median price for a Bay Area home rose 18.2 percent in 2005, to $597,000 from $505,000 in 2004, according to DataQuick Information Systems. The median is the point where half sold for more and half sold for less.
In February, 6,206 homes changed hands in the Bay Area, a 16.8 percent drop from a year ago, while prices rose 12.2 percent to $616,000. However, February 2005 homes sales were the strongest since DataQuick started keeping records in 1988.
After several years of double-digit appreciation, DataQuick expects year-to-year appreciation in the Bay Area to slip into single digits this spring. That last happened in January 2004, when home values went up 9.7 percent.
DataQuick's projection is in line with an internal projection by California Prudential Realty calling for prices to rise 5 to 7 percent this year for existing single-family houses, condominiums and townhouses along with a 5 to 7 percent drop in sales volumes.
"Home price appreciation is still (rising) but not as strong as before. We have started to see inventory increasing and also the total number of escrow closings is dropping," said Kei Matsuda, senior economist at San Francisco-based Union Bank of California.
The slower pace for home sales is likely to continue during the spring selling season, traditionally the busiest time of the year home for sales, according to Matsuda.
"We will continue to see those trends - that homes sales will take longer and more houses will stay on the market longer. The prices are remaining relatively firm," Matsuda said. "It's just that the seller has to do a lot more work and put in more value." Such efforts by sellers can show up in the form of upgraded kitchens and more willingness to make repairs, he said.
January and February are traditionally slow for home sales. The rains that fell hard in the Bay Area during March and April may also put a damper on sales along with climbing interest rates, Matsuda said. In the first week in April, rates on a 30-year, fixed-rate mortgage rose to 6.43 percent, the highest in 2 1/2 years. Still, by historical standards, rates are low.
While some observers expect a continued slowdown in the housing market, others have a different take.
Goldman said more escrows were opened on homes in March than in January and February.
"Opened sales have been steadily increasing since the beginning of the year," he said. "I think what you will find in the next several months is the gap (in sales volume) is going to start closing."
Renee Becker, past president of the Central Valley Association of Realtors, said she expects home sales in San Joaquin County to pick up in the spring.
"We've had a couple slow months due to weather," said Becker, owner-broker of Stockton-based Beck Realtors. "So builders are now offering large incentives and sellers in resale areas are also offering incentives."
- Business writer Eve Mitchell can be reached at (510) 208-6474 or emitchell@angnewspapers.com.
