The median price of homes sold in the San Francisco Bay area was up 6.6 percent in April 2007 compared to a year earlier. For homeowners waiting for a signal that it’s time to sell, this could be good news. Or, is it?
Half the homes sold in a given time period sold for more than the median price quoted for that period and half sold for less. Changes in median price do not necessarily reflect changes in home values.
An increase in the median sale price for a period could reflect an increase in home values. However, even if home values didn’t change, the median price could increase if more higher-priced than lower-priced homes sold during that period. Conversely, a decrease in the median sale price could reflect a drop in home values. Or, it could be a result of the fact that were was more sales activity in the lower-priced ranges than there was in higher-price ranges.
The April increase in median sale price for the San Francisco Bay Area represented an increase in the number of higher-priced homes sold relative to the number of lower-priced homes sold. In this area of the country, the price range that has been hardest hit by the slowdown in the home-sale market has been the lower end, not the higher end of the market.
Speculative home building did not run rampant in the Bay Area as it did in places like Las Vegas and Miami. However, most of the spec building that did take place was in the low-end condo market. Surplus inventories of unsold properties in this segment of the market and tighter lending standards have been a drag on low-end home sales.
HOUSE HUNTING TIP: You could misread the market if you focus solely on published changes in median sale price. If you’re a low-end condo seller in the Bay Area, you might think that your property increased by 6.6 percent over the last year. This is unlikely.
Occasionally, a home sells within a reasonably short timeframe, without any modifications made to it during the intervening period. One such high-end property sold in the Crocker Highlands neighborhood of Oakland, Calif. This property on Paramount Road sold for $1.4 million in April 2006 and again for $1.475 million, or 5.4 percent higher, in May 2007. Even if you own a high-end property in the Bay Area, your property may not have appreciated 6.6 percent in the last year.
Changes in absolute home values are more difficult to quantify than changes in median price. The best approach is to compare a property to other similar properties in the neighborhood that have sold recently. In a changing market, the most recent comparable sales will have the most direct relevance to the expected market price of the subject property.
The comparative value approach to home pricing is somewhat subjective. In neighborhoods where there is a lot of variability in the housing stock, there will be a wider margin of error using this approach than there will be in tract developments, where there is little variability in the size, age and condition of the housing inventory.
The accuracy of the comparative value approach improves when the sample of comparable sales for a period increases. With fewer comparables, the margin for error increases.
THE CLOSING: It’s difficult for sellers who have called their property home for years to be objective about its value. This is why it’s advisable to consult with a real estate professional about the realistic market value for your home before making plans to sell it.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.