The real estate market is now in a transitional stage. Observations by real estate professionals, confirmed by statistics, show some areas are in-between a buyer’s and a seller’s market, while others are already in the beginning of a seller’s market.

Accurately analyzing such a market is an operation in hindsight. While in the midst of it, Realtors must turn to their previous experiences in similar markets to give them some guidance in helping clients. We can also use Multiple Listing Service (MLS) statistics to reveal market trends.

Whether you are a buyer or seller, understanding what these statistics mean can help you make informed decisions. Because of variations from city to city, I have broken them down by area. 

Remember, nothing is cut in stone; what may seem crystal clear as pertains to an entire city, may not be true for a given neighborhood within that city.

Oakland. When we look at the data compiled for 1996, we find that, in nine of the twelve months, the average sold price exceeded the average list price. 

In general terms, this means that buyers were willing to pay over asking price to get the home they wanted, a sign of a seller’s market. Yet, statistics are not always black or white. 

The variation here is that the list price used in these statistics usually was not the original list price. A house initially listed for $250,000 may have had a reduction to $225,000, ultimately selling for $230,000. Although it sold for more than final list, it sold for less than original list. This information is not enough to determine whether it is a buyer’s or seller’s market.

By adding in another statistic, we can come up with a better idea of market trends. Dividing the number of listings available in any given month by the number sold in that month, provides us an “inventory level.” The inventory level will tell us how long it will take to sell the backlog of homes presently listed.

If the number indicates it will take more than six months, it is referred to as a buyer’s market; less than three months reflects a seller’s market. From three to six months is considered a transitional period.

From January to November 1996, Oakland’s inventory level was about 6.5 months – a buyer’s market. In December, the number dropped to 4.3, showing the beginnings of a swing toward a seller’s market. 

We can say that, statistically, the Oakland market is in a transitional stage between a buyer’s and seller’s market. Many neighborhoods and price ranges, however, have the look of a seller’s market.

Berkeley. The signs of change have been far more dramatic and, therefore, clear cut than Oakland. In September 1996, Berkeley had an unsold inventory level of 5.2 months. In October it dropped to 2.48 months, November stood at 2.36 months and December had an inventory level of only two months. Although the average sold price was higher than the average list price for only three months in 1996, the inventory level is a stronger indication of where the trend is going. For Berkeley, the tide has turned in favor of sellers. Can higher prices be far behind?

Albany. Inventory levels were under three months for four of the last six months of 1996. Like Berkeley, only two months showed a higher average sold than average list price in 1996. Albany’s market activity is similar to Berkeley’s.

Kensington. With an inventory level of two months or less for seven of the last eight months of 1996, Kensington is another hot market. In terms of pricing, nonetheless, average sold prices outstripped average list prices in only two months of 1996. This, again, could be changing soon.

Objective vs. subjective signs

Since we cannot be sure until a relatively long-term pattern has emerged, Realtors use common sense indicators of activity.

  Multiple offers. We are seeing more cases of buyers bidding against each other.

  Buyers visiting open houses. Even during the rainy season, open houses have been busy. People are out there looking.

  Ad and sign calls. The phones are ringing. Buyers are calling about newspaper ads and inquiring about “For Sale” signs they have seen. Internet responses are up.

  Not enough inventory to meet demand. Most agents I know, including myself, have more buyers with specific needs than available listings which fit those criteria.

  The trickle-down effect. More people are thinking about selling and moving up to another home. Also, properties that would have sat unsold last year are now selling quickly.

  Ancillary services. Title companies, home inspectors, lenders, pest control companies, insurance agents and others who are part of the home buying and selling cycle are all busy.

Before you buy

Just because there is a trend toward a seller’s market, don’t panic. This can lead to ill-advised decision-making, especially in a changing market.  Remember that the market always moves in cycles. 

Keep your perspective. In the East Bay, we are not yet in the kind of frenzied atmosphere that marked the years from 1987 through early 1990. 

Awareness is an extremely important tool. Choose an agent who knows how, and cares enough, to look out for your interests. Have yourself pre-approved with a lender as soon as possible. 

This will give you a competitive edge over other buyers and show sellers you are serious. Be proactive and spend the time to get a sense of asking and selling prices in the neighborhoods of your interest.

Before you sell

Again, choose an experienced, competent agent who understands how the market is impacting your particular area. If you do not have a relationship with a Realtor, interview three agents and ask each to provide you with a Comparative Market Analysis.

Do not overprice your property. Overpriced listings in a number of locations are sitting unsold and will ultimately sell for less than if they had been accurately priced at the beginning.

Final thoughts

Both sellers and buyers need to understand the direction of the market and how this may effect their particular situation. Some economists are predicting the approach of a Bay Area boom market. These predictions themselves sometimes add fuel to the boom. Meanwhile, with interest rates still low, and as long as prices remain stable, this is an excellent window of opportunity for both buyers and sellers.

Related Articles: Understanding the Market; Buyers Do’s and Don’ts, Part I and Part 2; Sellers Do’s and Don’ts, Part 1 and Part 2; and How To Interview Agents, Part 1, Part 2, Part 3, and Part 4