Bay Area real estate: There are more starter homes on the market… but don’t get too excited

724b0 Sale pending Bay Area real estate: There are more starter homes on the market… but dont get too excited

Lack of housing supply is a frustration — a constant one — for prospective homebuyers in the Bay Area. With so few homes available and the region still gaining jobs, competition among buyers keeps driving prices up.

So here’s the good news: A new analysis by Trulia shows the supply of starter homes rising year-over-year in the San Jose, Oakland and San Francisco metros. Any sign of growth is a good thing, given that inventory has been at or near historically low levels for months.

But here’s the bad news: Even with the increased numbers, the supply of starter homes remains alarmingly low.

On average, there are only 360 in the entire San Jose metro (defined as Santa Clara and San Benito counties) in the first quarter of 2017. That’s up 7 percent from 337 in the first quarter of 2016 — not much to celebrate, especially since these numbers include homes of all kinds: new and existing single-family homes, condominiums and townhouses.

In the Oakland metro (Alameda and Contra Costa counties), Trulia reports that the starter-home inventory is up 19.0 percent year-over-year — from 489 to 582. And in San Francisco (San Francisco and San Mateo counties), the numbers rose 11.6 percent — from 190 to 212.

“Let’s be real,” said Ralph McLaughlin, Trulia’s chief economist. “We have a long ways to go for inventory to come back.”

The inventory shortage is nationwide — read about it here — but it’s particularly acute in the Bay Area and other costly markets where even so-called “lower-priced” homes are beyond the means of many first-time buyers.

Consider the median list price of a starter home in Oakland ($409,142), San Jose ($618,333) and San Francisco ($729,833). Historically, starter homes are purchased by households in the lower third of the income distribution curve. According to the U.S. Census, the median household income in that lower third is $32,714 in Oakland, $39,938 in San Jose and $35,294 in San Francisco.

There’s not much likelihood that those earners can now buy so-called starter homes in the Bay Area.

More likely, McLaughlin said, they will be snapped up by investors or bought by mid-tier earners who normally would buy mid-tier “trade-up” homes. Instead, some of those higher earners are now “moving down the ladder” to the starter home market, McLaughlin commented.

The biggest shock comes from Trulia’s comparison of current inventory levels to those of five years ago — in the first quarter of 2012, the year that prices started to recover after the great recession. Over the past five years, total inventory — including starter homes, trade-up homes and premium homes — has declined 59.6 percent in Oakland, 63.5 percent in San Jose and 62.0 percent in San Francisco.

Which makes the so-called housing recovery in the Bay Area a horse of a different color.

“During other housing market recoveries, we’ve seen those recoveries associated with a rise in inventory, rather than a drop,” McLaughlin said. “The fact that we’re in a pretty well-recovered housing market and we’re looking at a decline in inventory rather than a rise is really a head-scratcher.”

Finally, this graph will show you just what the national inventory crisis is all about:

110eb Trulia Inventory LineGraph Mar2017 450x349 Bay Area real estate: There are more starter homes on the market… but dont get too excited

Photo: A home for sale in Palo Alto.  (Paul Sakuma/AP)

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