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Property Values Continue to Rise

Pending Home Sales Increase in May
Thompson Reuters

In a report from the National Association of Realtors (NAR) earlier today, the association’s Pending Home Sales Index (PHSI) increased in May, increasing 6.11 percent from pending sales in April. The index in the West rose 7.6 percent in May to 95.4, but remains 11.1 percent lower than in May 2013. The increase in pending homes seems to reflect the latest Case Schiller numbers that have the San Francisco price index showing values increasing 18.19% in the last twelve months.

The rapid increase in values in the Bay Area and in the Oakland market can be attributed to a several factors.

1. Home values plummeted by historic levels during the last recession. Many areas are seeing a readjustment of values with some home owners still finding themselves under water.

2. Positive employment. Employment, especially by the tech sector in the San Francisco Bay and South Bay have had helped provide more employment opportunities and also employment opportunities usually with a nice salary tied to it.

3. The East Bay in particular has seen an influx of San Francisco buyers. The average home price in San Francisco is $1 million dollars. Finding something you can afford is not always easy there and many buyers look to other surrounding communities for more reasonably priced housing.

In the report NAR chief economist Lawrence Yun said that the increase in pending sales in May could be a sign of a better second half of the year. "Sales should exceed an annual pace of five million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation," he said. "However, second-half sales growth won't be enough to compensate for the sluggish first quarter and will likely fall below last year's total."

At some point the rapid increase will have to level off, or at least it should. Continued double digit increase in property values has the potential to put us back in the same problem we ran into before. There are some indications that there might be some leveling off. The summer months are typically slower. There are properties that are selling with one or maybe four offers instead of 15. There are even some properties are actually having price reductions.

It will be interesting to see how the data shows after the summer market. Still to be seen!