Let’s Make a Deal in the Bay Area – Door #1 or Door #2?

While the land market in the Bay Area has continued to improve and in many primary in-fill areas the market is back within 20% of peak values, the secondary and tertiary markets are still bouncing along the bottom with land values that are typically only 20% of peak values. This seems to be an unsustainable condition. Back in 2003 or 2004 when land prices in the Bay Area were approximately where they are today, land in outlying markets (think the cities of Brentwood and Gilroy, for example) was consistently trading for 2 to 4 times what it is trading for today.

So it seems that the market is at an inflection point, either the 2,000+ units per year that all the public and large private homebuilders combined in Northern California need to produce to cover their fixed costs are going to come in the form of 50 lot and smaller infill developments (Door #1), or the outlying Bay Area land markets are set for a major rebound. Maybe it’s time to see consider what kind of deals you can find behind Door #2.

Source: Steve Reilly, Marketing Consultant, (925) 368-3128

Bay Area Tertiary Markets Recovering? Maybe…

In the depths of the downturn (say, March 2008), the City of Antioch had over 800 active listings of single family homes on the market.  According to the MLS, only 105 homes sold that month, which translated into an 8-month supply of inventory.  Needless to say those were also the months where we saw double digit price declines year-over-year.

Fast forward to today: In the first two and a half months of 2012, 247 homes sold in Antioch, or approximately 98 sales per month.  The current active inventory according the Contra Costa MLS is 103, meaning a 1.1-month supply of inventory!  While this may not mean that prices are going to rocket up anytime soon in East Contra Costa County, it is definitely a great sign that the market has found a “natural” bottom and might have even overcorrected on the way down.

This same story is being repeated in Brentwood, Oakley, Pittsburg and other tertiary Bay Area markets, which were first to fall off the “cliff” a few years ago.

This work-off of resale inventory is starting to show its affect on new home absorptions.  In 2011 builders in East Contra Costa County were struggling to get to 1 to 2 sales per month on average. In the first few months of 2012, absorptions have been running between 3 and 4 sales per month. If this trend continues we expect more builders to begin venturing back out to the tertiary markets to look for new residential land deals.

Source: Steve Reilly, Senior Marketing Consultant, (925) 368-3128