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The number of rabid bidding wars among Bay Area home buyers is sinking, with some of the steepest declines in the San Jose metro area, a new report says. But despite that, the Bay Area remains one of the nation’s most competitive housing markets.
Just 13.3 percent of offers in the San Jose metro area last month faced bidding wars, compared to a whopping 80 percent during the same time last year, according to a report from the real estate brokerage Redfin. That was the steepest decline in the country.
In the San Francisco metro area, which includes Oakland and Hayward, 35 percent of Redfin offers faced a bidding war in July compared to 72.4 percent a year ago. But San Francisco remains the nation’s most competitive market, according to Redfin, and San Jose ranks number eight.
Still, the drop in bidding wars is a sign of just how far the housing market has cooled. The Bay Area declines mirror a national trend, in which the percentage of offers with bidding wars sunk to 11 percent last month, according to Redfin — the lowest level since 2011.
“Right now there is so much uncertainty with the stock market and with the economy, that’s frightening some buyers away,” says Redfin chief economist Daryl Fairweather. “We are seeing a lot of people refinancing but not a lot of people entering the market, despite the fact that interest rates are low, which usually brings buyers back.”
Sales of existing Bay Area homes already have swooned. In June, sales fell 13 percent from the previous year, according to CoreLogic. That was the slowest June since 2008, when the real estate market tanked and the U.S. economy sank into a deep recession.
Bay Area median home prices also continued to cool in June, dropping 2.2 percent in the nine-county region from the previous year, the biggest dip since February 2012, according to CoreLogic.
“Buyers do seem a little reluctant to get into bidding wars. Mostly it seems to be because they’re worried about a recession or ‘overpaying,’” says Redfin agent Kalena Masching, who works mostly in Palo Alto, Mountain View and Menlo Park. “Buyers aren’t feeling as much urgency to make offers.”
Even though prices have come down, they’re not falling far enough, says Matt Regan, a housing expert for the Bay Area Council. “A limited number of people can afford a million dollar mortgage. More and more people are waiting on the sidelines to see if the insanity will end.”
San Jose may be reaching a state of equilibrium after last year’s highs.
“San Jose is starting to get back to normal,” says Fairweather. “People are starting to take a step back and see that the price growth was getting crazy in terms of how competitive it was.”
But the San Francisco area remains super competitive. Despite escalating economic pressures, bidding wars have not vanished from the city.
“It’s not surprising that San Francisco is still leading the pack,” says Fairweather. “San Francisco has such a strong tech base, the Uber and Lyft and other IPOs continue to make the city a hot market.”
In other parts of the Bay Area, Masching says many realtors are now purposely underpricing homes to goose interest and stimulate a bidding war. She saw that when she submitted an offer recently for a home that got 15 other offers.
“We offered $400,000 over the asking price and still weren’t in the top five offers,” she said. “The listing agent had gone low with the price to get buyers excited about the house and it worked.”
Alan Barbic, an agent and president of the Silicon Valley Association of Realtors, says bidding wars still happen when a home has been realistically priced.
“But it’s not as off-the-charts as it was last year,” says Barbic. “A lot of sellers just don’t get it. You have to price it right. That’s critical. Otherwise you may have to do multiple open houses and price reductions.”
Barbic represents a client who is in middle of making a bid on a $1.475 million house in San Jose’s Santa Teresa neighborhood. He says there were about a dozen interested parties and three made an offer.
“It’s not a red-hot area but it is a desirable house,” he says, “and it was priced right on the money. Bang.”
San Diego was the second most competitive market in the nation, with 21.3 percent of offers on Redfin facing competition. It was followed by Boston (16.4 percent), Los Angeles (16 percent), Philadelphia (14.3 percent) and Denver (14 percent). Miami was the least competitive market in July, with just 1.3 percent of offers submitted by Redfin agents facing competition.
“I expect homebuyer demand to strengthen in the second half of the year as the housing market continues to stabilize, but we may not see a big pop in bidding wars until early next year,” Fairweather says. “Next year should be much more competitive and the market should heat back up, unless there’s a recession.”
Barbic expects a less intense bidding process might bring first-time home buyers back into the market.
“A lot of buyers got fed up,” he says. “They got tired of getting getting beat out by hundreds of thousands of dollars, tired of bringing a knife to gunfight. That’s hard if you are just starting out. But they are still out there. They’re waiting.”