“For Sale” signs dot the residential landscape across the country, including more than 300 on the streets of Pleasanton as buyers, sellers and the real estate professionals who serve them confront a rapidly changing market.
For Pleasanton and, in fact, for much of California, analysts say there’s no bubble about to burst or even a significant change in a real estate market that shows continued strength with both sales and prices stabilizing.
With median prices nearing the $1 million mark and sales holding steady despite increased inventory, the real estate market here and in the Tri-Valley is considerably better than in many parts of the U.S. David Lereah, the National Association of Realtors’ chief economist, reported this week that the housing market is flattening out over much of the nation, with a national median price in June of $231,000.
But here in Pleasanton, while it could take sellers longer to find a buyer, the offers that are made are coming close to or at the asking price. For buyers, the less hectic market means more time to search for the house they want, a major shift from just a year ago when buyers stood in line to make offers on the house they wanted.
Besides continuing good news for the residential real estate market, Pleasanton is also seeing more favorable trends in its commercial office market that has languished since the dot.com bust days of the late 1990s and the unsettling times following the 9/11 terrorists attacks.
“I look at that glass as half full,” said Mark Sweeney of CM Realty, Inc., on Stoneridge Drive. “Clearly, the office market is not as robust as it was in 1998 and 1999, but on the other hand, we have had major companies located here in recent months, buying–not leasing–large office buildings that were either vacant or soon would be. Along with more activity for space in the smaller, multi-office buildings, these are very positive signs for Pleasanton.”
It’s the residential housing market that has caused the most concern for Pleasanton and the Tri-Valley. A report released Tuesday by the California Association of Realtors shows that California home sales plunged 26.3 percent in June compared to last year, although the median price of an existing home increased by 6.2 percent.
Compare that to a report made last week to the Pleasanton Chamber of Commerce by two experts in local real estate that showed June sales of 84 homes here with a median sales price of $906,750, down just $750,000 from June of last year when the same number of homes were sold.
In their presentations, David Stark, Government Affairs Director of the Bay East Association of Realtors, and Bob Shapiro of Keller Williams Realty, said that even with fixed mortgage rates hovering in the mid-to-upper 6 percent range and adjustables ranging up to 8 percent when fully adjusted, sales and price appreciation remain considerably stronger compared to other markets in the U.S.
Although inventory, or the number of homes listed for sale, has increased to 329, about a third of these listings have sales pending or firm offers in escrow awaiting closing, a ratio that is about normal for mid-summer.
The Realtors’ state association also reported that it now takes an average of 46 days statewide to sell a house, compared to only 26 days in Pleasanton. Even that is painful for sellers in a city where homes sold twice as fast just a year ago, and often overnight with multiple offers. The trade association also reported that statewide sales pricetags continued to climb in the state, although at a slower rate, reaching $575,800 in June.
“Compare that to the local market where the median is about $900,000 in Pleasanton,” Shapiro said. “If you were to buy a home in Danville right now, the median price would be almost $1.3 million. If you were to go to Livermore, it would be $750,000. So each community has different values and different prices by the nature of the community.”
Shapiro said that with a softer market and more homes available, the Tri-Valley and Pleasanton have become more attractive to home-owners in Tracy and the Central Valley, which means growing sales opportunities for sellers and Realtors, even if it takes longer.
“These folks have seen some appreciation in their homes, too,” Shapiro said. “Now, with gasoline at $3 a gallon and gridlock on the freeway, they’re using some of that equity to move back to this area and enjoy a better quality of life. Suddenly homes in Pleasanton, even with a $900,000 pricetag, look pretty good.”
Stark and Shapiro said that while sales are slowing down, price are holding with some appreciation, and demand for homes in Pleasanton and the Tri-Valley continues to be strong. There’s no slump or depreciation, as Pleasanton home-owners saw in the late 1980s, although asking prices have come down to marketable rates, but still affording significant gains for owners.
“Looking statewide, we saw increases in sales volumes in eight of the last 10 years, the longest sustained sales volume increases in 35 years,” Stark said. In 2005, alone, there was a 16 percent appreciation in prices.”
In the Bay Area, Stark added, the median home sales price rose to $712,850 at the end of 2005, a steady climb that started in 1996 and picked up double-digit speeds starting in 2000. During this period, however, home sales in Alameda County saw less gain, reaching a median price of $600,000 last year.
These price increases, while good for buyers and the Realtors whose commissions also rose, took more mid-to-lower-income families out of the market. Today, Stark said, only 14 percent of California households can afford a median- priced home, and only 11 percent in Alameda County.
Even so, the low interest rates over the last several years and a mortgage loan market that developed scores of special packages for buyers, proved to be a boon for first-time home buyers. But with interest rates rising and lenders tightening their requirements, Stark said fewer will be able to pay the $100,000 down payments frequently needed.
“Many can only bring $25,000 to the table, which may not be enough to buy a typical $600,000 home,” Stark said.
“This is why so many first-time buyers head over the hill to Tracy, Lathrop, even Modesto,” he added. “We can’t compete with prices there even with the best of financing terms.”
Shapiro also sees market changes in terms of the type of mortgage loans being made.
“In 2004, adjustable mortgages comprised 34 percent of the market,” he said. That climbed to 40 percent last year. Then, as fixed rate mortgages became attractive, adjustables have fallen back to about 25 percent of the loans we’re making now. Fixed-rate mortgages are much better than adjustables now with a variety of packages. Home ownership even with today’s higher interest rates is still an attractive investment.”
High office vacancy rate may see relief
Mark Sweeney, who is president of CM Realty, a commercial real estate advisory firm, was an executive in the investment group that built and managed Hacienda Business Park. He has seen at least four major downturn and upturn cycles here in recent years, and now sees some improvement in the commercial office market, indicating this downturn may be coming to an end.
As it stands, Pleasanton has 8,731,660 square feet of office space, more than any of the other Tri-Valley cities of Dublin, Livermore and San Ramon. But nearly 18 percent of that floor space is vacant, compared to 15.8 percent in San Ramon and 12.9 percent in Dublin. Livermore is higher with a vacancy rate of 32 percent, but the city has the least number of office buildings, only 1.9 million square feet. Dublin has 2.4 million square feet of office space; San Ramon with its Bishop Ranch complex has 6.1 million.
So far this year, Pleasanton has been losing ground in finding tenants for its vacant office space. Although property owners leased out 461,000 square feet in the second quarter of the year, more than that came on the market for a net deficit of 52,000 square feet.
Still, Sweeney sees growing interest by smaller businesses in vacant office space ranging from 2,000-10,000 square feet, space that can be found in multi-office facilities such as the Hacienda West office building at West Las Positas and Hopyard and Koll Center on Bernal at Valley.
Equally appealing are rents that have dropped from the $4-plus level to $2.30 a square foot and under.
Sweeney said the recent acquisition of two empty former PeopleSoft buildings in Hacienda Business Park that Oracle Corp. did not plan to use strengthened the Pleasanton business market. Later, the California State Compensation Insurance Fund acquired Cisco’s 321,000-square-foot complex at Willow and Owens, another significant gain for Pleasanton.
“These are buyers, not companies that are simply leasing vacant space for a few years,” Sweeney said. “Along with bringing their operations here, they are adding jobs. They now have a stake in Pleasanton and our economy. It’s good news.”
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