Trend puts market players on more even field

By Eve Mitchell, BUSINESS WRITER

January 30, 2006

Matt and Lori Smith are veterans of the real estate bidding wars of the last few years. In January, they finally left the battlefield when they became first-time homeowners.

A year ago, Cynathya Mouton wouldn't have thought about putting her Union City house on the market, a time when the market was soaring. Now, she is.

The reason she is considering selling is the same one that made it possible for the Smiths to buy a home: The once red-hot real estate market of a year ago is cooling off, which is evening out the playing field between buyers and sellers.

"Timing is a factor," said Mouton, 39, who paid $220,000 for her four-bedroom home in 1996. "I think (the market) has reached its peak. I've taken the ride. I'd like to take what I have. I'm a little bit nervous about what can happen in the next few months."

The market is becoming more balanced after several years of favoring sellers. Buyers have gained more clout, with more homes listed for sale and multiple offers now the exception instead of routine. Sellers have to negotiate more and put a greater effort into marketing their homes. But with prices still rising — albeit at a slower pace — don't expect to find many deals.

"I think everyone benefits in a slow market. I think the buyers benefit in getting a property at a better price, and I think sellers are still getting a very fair price for their property. There is not an imbalance," said David Kerr, a senior sales associate with Emeryville-based ZipRealty who helped the Smiths buy their home. The Smiths took a break in mid-2004 from earlier rounds of house hunting that resulted in bidding wars fueled by a lot of multiple offers on properties that put home prices way above listed prices.

"The asking price didn't mean anything. ... You can only get brushed off so many times. We stopped writing offers," said Matt Smith, 33.

After the once red-hot market started to cool down in the spring, the Smiths started looking again for a home. They ended up buying a $551,000 two-bedroom house in Alameda.

"The market slowed, and it just seemed more manageable and more approachable. The process was more manageable rather than the prices being more manageable. The prices didn't really soften, (but) you didn't have (as many) multiple offers," Smith said.

Inventory — the number of homes on the market — has generally increased in the Bay Area from a year ago. That's why it's easier to buy a home. But it is not necessarily cheaper because appreciation has continued in a region that is one of the country's most desirable and least affordable areas to live.

The median sales price for a Bay Area home has soared from $377,000 in December 2001 to $609,000 in December 2005, though it rose only 14 percent, or $76,000, in the past year, according to DataQuick Information Systems.

Prudential California Realty has an internal projection for median home prices in the Bay Area to increase by 5 to 7 percent this year while home sales will fall by 5 to 7 percent compared with 2005.

Fueled by rising interest rates and more homes on the market, the slowdown in home sales started last spring. The slide has continued for nine months, with December sales down 15.5 percent from a year earlier.

"What I'm finding now, is (buyers and sellers) have to take a much closer look at the dynamics and psychology of the local market than during 2003 and 2004 (and early 2005). That's when sellers held the cards," said Steve Dhillon, a Realtor with ERA. "There is definitely more negotiation. The buyers don't see the urgency. Pricing has to be very competitive. Now you have to pull out additional things like staging a home."

Since the market began slowing last year, business has been picking up at Oakland-based Home Staging, which helps home sellers present their homes in hopes of getting the optimum price.

Typically, the services of a home stager are more in demand for high-end homes, but in a slowing market there is also some demand in mid-priced homes, according to Joanne O'Donnell, owner of Home Staging.

"As the market tightens, it moves down the ladder," O'Donnell said. "There is a wider range of people who see the need. ... They begin to look for any method to make themselves stand out in a market, and staging will really help them do that."

Indeed, in a slowing market sellers have to make sure their houses are in good shape and attractively presented, said Kerr, the ZipRealty agent.

"(Buyers) start noticing things like leaky faucets," he said. "Buyers start to scrutinize more. You want to be able walk into a (home for sale) and know it's in good shape," he said.

Still, sellers who price a home realistically can do well in a slowing market.

"Buyers are looking for a deal. It does not necessarily mean there are any deals out there. A well-priced house still sells at a premium even in a transitional market," Kerr said.

While multiple offers were routine when the market was hot, Kerr said getting the right offer from just one buyer is all that's needed to move a sale in a slow market.

With more homes on the market, buyers are taking their time before signing on the dotted line. But if they wait too long, in hopes of seeing prices soften in coming months, they could face higher interest rates, Dhillon said.

While interest rates are still relatively low, the National Association of Realtors is projecting they will reach 6.7 percent for a 30-year fixed-rate loan by year's end.

"The buyer has to keep an eye on interest rates," Dhillon said.

In a slowing market, the inventory of homes for sale tends to be higher in high-end markets than entry-level markets.

"There's less strength in that market, the upper end," said Dennis Pantano, a Realtor and owner of Belmont-based Pantano Properties.

In Hillsborough, Woodside, Portola Valley and Atherton, about

15 percent of homes for sale in the third week of January were in escrow, compared with 20 percent a year ago, according to Pantano.

But sales are also slowing in other less pricey places such as Redwood City, San Carlos and San Mateo. Some sellers have even taken their homes off the market.

In the third week of January, about one-third of the homes for sale were in escrow. Last year at that time, Pantano estimates, about half of homes for sale were in escrow.

"What that tells me is that the handwriting is on the wall for the seller, that this market is really changing," Pantano said.

In a slowing market, a move-up buyer is more likely to benefit than a first-time buyer in terms of seeing a possible price reduction on a house, said Avram Goldman, president of Coldwell Banker Residential Brokerage, San Francisco Bay Area.

"You've got a lot of first-time buyers out there. But as you move up in the price range, you've got fewer buyers. This is a wonderful market for the move-up buyer. This is really an opportune time for those people selling a first-time buyer's home," he said.

While first-time home buyers may not see the same kind of price breaks given to high-end buyers, a slowing market can also benefit first-time buyers because there is less competition than a year ago, Goldman said.

"For first-time buyers, prices have stabilized. At least they don't have to be in the bidding wars of six to eight months ago."

Eve Mitchell can be reached at