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Noted Housing Analyst Robert Shiller Says Market Not in a Bubble

Nobel Prize–winning economist Robert Shiller, co-creator of the S&P/Case Shiller Index, says home values in 20 major U.S. cities across the country are still climbing as a tight supply helps push prices higher. But in an interview with Yahoo Finance, Shiller dismissed talk that the U.S. housing market is approaching “bubble” territory.

The S&P/Case-Shiller 20-City Composite Index rose 5.7% in January year-over-year, following a 5.6% annual gain in December. Eleven cities saw year-over-year prices climb at a faster rate in January than in December, with Portland, Seattle, and San Francisco posting double-digit annual gains. Portland led with an 11.8% year-over-year price increase, followed by Seattle with a 10.7% rise and San Francisco with a 10.5% jump.

“The price climb has been pretty steady since 2012. In a lot of cities, prices are up over 30%. I think people are cautiously optimistic,” Shiller said.

Despite the Federal Reserve’s decision in December to increase interest rates for the first time in nearly 10 years, the sustained growth in home prices has shown no signs of easing, Yahoo reported. And while “skyrocketing prices” have sparked some talk that the housing market could be approaching bubble territory, Shiller says there’s still some room for prices to run.

“It’s not bubble territory yet, but bubbles are always a possibility,” said Shiller. “Right now we’re sitting where we were in 2003, and that developed over the next three years into quite a bubble.” Yahoo noted that by 2006, there were more than 1.2 million foreclosure filings, a rate of one foreclosure filing for every 92 U.S. households nationwide.

Taking a look at the broader picture, Shiller said that he’s concerned about recent volatility and declines in U.S. stocks and overseas markets. He warns that further weakness could lead to a loss of confidence and cause investors to develop a “wait-and-see attitude.” Shiller added that he’s also keeping an eye on the recent plunge in oil prices, saying it would be “worrisome if these fears return.”

Below is a market-by-market report from our local San Francisco Bay Area offices:

East Bay – Our Berkeley manager reports a slight decrease in activity in the Previews luxury market. Listings under $1.1m remain the same – very active with over 100 people though every open house, large amounts of disclosure packets requested and multiple offers on the offer date. Buyers are having a tough time getting offers accepted and are now branching out to other areas that are less competitive. Our Danville manager says sellers are seeing a resistance from buyers to compete for a house. Sellers who were expecting multiple offers may be disappointed to just get one offer. That said, the pace of sales has picked up in March and is trending stronger.

North Bay – Our Greenbrae office has been involved in numerous multiple offer situations on our new listings – in most every price range. Offers range from 3 to 12, with some going over the list price as much as 30%. An Eichler is San Rafael listed at $1,150,000, had 12 offers with 5 all cash, and went into contract for over $1,4 million. Another Eichler went on for $1,350,000 and a buyer writing at $1,5 million did not get it. Multiple counter offers are the name of the game. Buyers are frustrated and are generally writing on at least 5 to 7 properties before they become the winning bid. There seems to be a frenzy around most every new listing that comes on the market. While inventory is increasing it doesn’t begin to meet the demand. Petaluma area open house activity continues to be robust with 20, 30, and sometimes 50 groups going through. Agents do not have the inventory they need to hold more open. Double digit multiple offers seem to be the norm. Although inventory is low agents are seeing homes come to market at a faster pace recently. Inventory in the Santa Rosa area has increased in the first two months of the year from record lows, but has fallen off in March. The market currently sits at 1.7 months of inventory. Multiple offers are still common, but the numbers and rate over asking seems to be calming. Median price is up 1% for the first 3 months for Sonoma County. The Southern Marin market is driven by new inventory and agents are seeing multiple offers on most properties under $2 million. The Previews luxury market is improving, but there still is a large supply of properties listed over $3 million. Only 10% of properties listed over $3 million are under contract.

San Francisco – Open houses and broker tours continue to be very well attended, and there’s a sense that new inventory is on the horizon, according to our Market Street office manager. Agents are still seeing multiple offers on many properties, but not all. As mentioned previously, word on the street is that inspectors and stagers were getting busy. So all that inventory should begin to be seen in the next couple of weeks.

SF Peninsula – Our Burlingame manager said the local market seems to be experiencing a slight increase in listings and sales are a reflection of that. Across the hills in Half Moon Bay, there is lots of activity on the homes listed below $1,000,000. Multiple offers are still common, however they now average 2-3 offers. The Menlo Park area market is low (in inventory) and slow (in transactions), according to our manager. Agents are doing more business out of Menlo Park than ever before – still seeing $300k to 400k overbids for good properties priced below $2.5 mil. Still, buyers outnumber sellers. The San Mateo area market is starting to come to life, our manager reports. To buy in the “country?” That’s the question according to our Portola Valley-Woodside manager. Rentals abound due to the high capital gains cost of selling. Everyone seems to be renting until parents die in order to avoid the horrendous capital gains. Open houses, although limited due to Easter Sunday, were well attended. Buyers are out there but slow.

Silicon Valley – Although inventory dipped a bit due to the Easter holiday, Cupertino area activity has definitely increased, reports our local manager. If the Cupertino/Sunnyvale tour is any indication, a lot more homes should be hitting the market. Our Los Gatos manager is seeing an influx of multiple offers as more properties are hitting the market. The Previews luxury market remains strong and steady. The San Jose market is still tight and homes priced right, i.e. at the current market as opposed to 3-5% higher than market, are selling quickly and some with multiple offers. Some sellers who see increasing sales prices and try to price at the next high sales price end up sitting on the market as buyers are not biting at the higher priced homes. Buyers are more willing to pay over list price with multiple offers as opposed to being the only offer at an originally listed higher priced home. Bottom line buyers are educated and although interest rates are still great you need to actually qualify for a loan and lending requirements and standards are still strong. Willow Glen listing inventory is like a roller coaster ride ­– one week active listings are up, the next week the number is down. The market seems to be holding steady around the mid 50 count. Is this sufficient active listing inventory to meet buyer demand? The market is telling us no. Properties go active, hold one open house over the weekend, and then they are typically in contract with multiple offers well over asking the following week. Our Saratoga manager say across the valley agents are seeing homes just under a million selling quickly. Those that are in the upper price range for their particular market linger longer. Buyers are hot for properties priced right. But they will not allow sellers to stretch up to 10% more than what the market will bear.

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