Bay Area rebuffs real estate slump

Slowdown less thanks to region's economy, draw as place to live

October 30, 2007 

  • AT A GLANCE

    • Six percent of the people in San Francisco and San Mateo counties could afford a median-priced home in the second quarter of this year. The figures were 13 percent for the South Bay and 11 percent from Oakland to Fremont. Nationwide, it was 43 percent.

    • Nearly half of Bay Area households pay more than 30 percent of their income for housing, compared with a third nationwide. • Builders produced only 73 percent of the 230,000 housing units that state officials said were needed in the Bay Area from 1999 to 2006.

    Sources: Wells Fargo Housing Opportunity Index; University of California at Berkeley Center for Community Innovation

The tide might finally be cresting around the Bay Area: A typical house, costing $655,000 in August, could be had for $625,000 last month.

The housing market has slowed in the region after a decade-plus run-up that nearly tripled the already high median price.

But it's a less pronounced slowdown than in the neighboring Northern San Joaquin Valley, thanks to the Bay Area's strong economy and its appeal as a place to live.

"You're talking about going from a really, really tight housing market to only a really tight housing market," said Shiloh Ballard, director of housing and community development for the Silicon Valley Leadership Group, which serves businesses in the South Bay.

The hot Bay Area market was a boon to people who bought for less than $100,000 in the 1970s and sold for many times that in recent years.

But it has been tough on other people. Working-class families struggle to make mortgage and rent payments. Homeless people struggle for even basic shelter. Many workers commute from Stanislaus and other valley counties, where home prices are much lower.

"I did the commuting thing for about seven years," said Jason Dixon of Salida, who now works for Modesto's waste-water treatment system. He used to drive 70 miles to Newark, where he worked in waste oil collection. "It was literally killing me. I don't think it's a natural way to spend your life."

Dixon and his wife, Sarah, said they have come to like the Mo- desto area and would not want to try the housing market in Fre- mont, where they grew up.

"We could rent there, but you get to a certain point where you don't want to live in apartments," the father of two said.

Luxury sales skewing stats?

The Bay Area's median home price has dipped in the past few months, settling to $625,000 in September, according to Data- Quick Information Systems, which tracks real estate. Still, the figure is up slightly from a year ago.

Several experts said the apparent stability in the median price could be misleading because a large number of luxury homes have sold in recent months. Below the median, the market is softer.

The region had 5,014 home sales in September, down 40 percent from a year before, DataQuick reported. Observers said buyers and sellers have hesitated to close deals in the uncertain climate, and the loan market has tightened up.

"I think buyers have every reason to believe that bargains are becoming more available in the Bay Area and that we haven't hit the bottom yet," said Larry Rosenthal, executive director of the Berkeley Program on Housing and Urban Policy at the University of California.

The Bay Area has seen an increase in foreclosures, but it is not as severe as in the valley, DataQuick reported.

The slow pace of home sales has led to an increase in rents, which averaged $1,539 this summer, up 9 percent from a year earlier, according to RealFacts, which tracks large apartment complexes.

Suffered previous setbacks

Experts said home prices will rise over the long term because of the region's resilient economy. In the past two decades, it has survived a major earthquake and wildfire, the loss of military bases, the dot- com bust and a drop in tourism after the 2001 terrorist attacks.

Today, a new wave of Internet commerce is thriving. Biotechnology has taken off, and renewable energy could follow. The Bay Area remains a leading center for health care, education, finance and the arts. Its climate and scenery draw people, too.

"The economic fundamentals of the region are still outstanding," Rosenthal said.

Per capita income in the Bay Area was $52,543 in 2005, nearly double the $26,810 in Stanislaus County, the U.S. Department of Commerce reported. That helps Bay Area families make mortgage payments that are about $3,000 a month for typical recent buyers, according to DataQuick.

But the region also has many people who can't find affordable housing, said Paul Peninger, research director for the Non- Profit Housing Association of Northern California in San Francisco.

The Bay Area continues to create jobs faster than it builds houses. Hence the over-the- Altamont commute.

"They want the suburban, single-family home, but they want it within their means, and it's hard to find in the Bay Area," said Joseph Perkins, president of the Home Builders Association of Northern Cali- fornia, based in San Ramon.

Much of the Bay Area's vacant land has been closed off to development to provide parks and wildlife habitat and to preserve ranch and farmland.

High-density developments are popping up around the Bay Area, notably in Dublin, the South Bay, the Peninsula, San Francisco and Oakland. Perkins said developers are willing to build more of them, but often are blocked by neighbors.

For now, the valley commute is the reality for many Bay Area workers. But a recent report by UC Berkeley's Center for Community Innovation says the savings on housing prices could be canceled out by the rising cost of fueling and maintaining a car.

"Ideally," Peninger said, "we would have a situation where we matched people's jobs and their housing in a better way."

Bee staff writer John Holland can be reached at jholland@modbee.com or 578-2385.

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