LOCATION LOCATION LOCATION

Bay Area housing market: It’s all about location

It’s an old real estate adage, but it couldn’t be truer today. When it comes to the health of the Bay Area (and the rest of the country, for that matter), the three most important rules for the housing market are location, location and location.

As readers of this column know by now, the upper end of the Bay Area market has fared relatively well in recent years while entry-level and mid-priced communities around the Bay have struggled far more to recover from the recessionary downturn.

I talked about this disparity in an interview with the San Jose Mercury for an article that was published on Sunday. As the Mercury noted, housing prices in many affluent cities in Silicon Valley and the Peninsula are nearing their pre-recession highs while other working-class communities have a long ways to go in their recovery.

One reason for this trend, as I pointed out to reporters, is that more-expensive markets never saw home prices drop as sharply as the areas with more subprime lending and subsequent foreclosures. Lower-priced communities had more marginal buyers, many of whom also made zero or small down payments. More of those buyers also took out resetting adjustable loans.

On the other side of the coin, residents and potential buyers in high-end communities generally haven’t been impacted by the overall economic downturn as much as homeowners in other areas. In Silicon Valley in particular, the strength of the tech industry and the growing number of successful start-ups and initial public offerings have created a tremendous number of affluent, well-capitalized buyers who are bidding up prices of a limited number of homes.

Because home prices in affluent communities never dropped as much as those in entry-level markets, these cities have less ground to make up in recovering from the downturn. Palo Alto’s median sale price, for example, is off about 12 percent from its peak in 2008 while the median in several low-to-middle income markets is still down nearly 50 percent, according to the news report.

Two of the largest Bay Area cities with a diverse mix of housing are recovering, albeit not quite as fast as Silicon Valley, according to the reports. San Francisco’s median sale price is about 22 percent below its 2007 peak while San Jose is 36 percent below its high-water mark. It’s important to note the sheer size of San Jose and San Francisco populations reflect diverse housing and incomes, compared to a small upscale community such as Palo Alto or Hillsborough. The same would hold true for Sausalito’s recovery versus County of Marin, for example. The smaller the community, the quicker median prices can move in either direction with just a few sales. In the East Bay, prices are rebounding faster in high-end communities like Orinda, Lafayette and San Ramon. Never before has the role of the local real estate professional been more important to help customers understand all the data available and sort through the appropriate comparable properties when home shopping or selling.

The market figures came from DataQuick, the La Jolla-based real estate information service. DataQuick compared quarterly median prices for single-family resale homes in 74 Bay Area cities since 2007 for stories that ran in the Mercury, Oakland Tribune and several other Bay Area news organizations.