Chronicle Headlines: Sales falter

Bay Area home sales tumbled to their lowest level in five years last month, and prices hovered well below record territory, further evidence that the region's seemingly unstoppable housing boom may have peaked with the blistering market of 2005.

What remains to be seen is whether the new figures amount to a hiccup or the beginning of a prolonged slowdown.

"The various scenarios are that the market takes a deep, deep downturn to reach an equilibrium or comes in for a soft landing," said DataQuick analyst John Karevoll, who noted that the first two months of the year are generally poor statistical gauges of the market's direction.

January's performance is the latest sign of a cool-off that began 10 months ago when sales counts began declining. Experts have attributed the loss of steam to higher interest rates, prices climbing beyond the reach of many consumers and the inevitable maturing of the decade-old housing boom.

Last month, nearly 36 percent fewer houses and condos sold in the nine-county region in January compared with December and 20 percent fewer compared with January 2005, real estate information firm DataQuick reported Thursday. The month's total was 6,004; it usually ranges between 4,000 and 7,500.

Prices, while still up notably on a year-to-year basis, fell below autumn peaks. The median for a single-family home stood at $628,000, up 13 percent from last January, but 4 percent under November's $656,000. The condo median hit $475,000, up from $410,000 last January but below the October record of $490,000.

The combined median was $607,000; the record was $625,000 in November.

DataQuick's monthly reports are based on filings with county recorders' offices and usually reflect sales initiated 30 to 60 days earlier.

Clearly, the market is shifting to a lower gear as real estate agents report fewer bidding wars and a jump in the number of properties for sale. But housing experts are divided on how long the respite will last and whether 10 consecutive months of declining sales activity foreshadow falling -- or merely stalling -- prices.

Despite a fourth-quarter uptick in mortgage foreclosure activity in the Bay Area, Karevoll said indicators of "stress" -- which can signal an abrupt turn in the market -- are largely absent. Instead, Karevoll predicts sales volumes will continue to track below 2005's totals. Prices -- which could hit new records -- will keep rising in the next couple of quarters, although by single-digits, he said.

Beyond that, Karevoll said, much depends on, among other factors, the global economy, inflation, the federal budget deficit and the direction of interest rates.

For some hint of the Bay Area's trajectory, Karevoll pointed to San Diego, which has been termed the "canary in the coal mine" by economists who have watched closely as that city's price growth rocketed north of 26 percent in late 2004. A short time later, sales totals plunged, and price appreciation has sunk to about 2.5 percent annually.

In the last 12 months, annual appreciation around the Bay Area has dropped from just over 20 percent to about 13 percent.

"I don't see the sky falling (in the Bay Area), but we're coming in for a slower market," Karevoll said.

Those comments mirror predictions for the nation's housing market, which Federal Reserve Chairman Ben Bernanke suggested Wednesday will cool, but not dramatically, given rising incomes and still-low mortgage rates.

But other experts think the Bay Area's high-flying market is due for a steeper correction.

"At some point we have to come to grips with the basic affordability question. This is not an affordable market," said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. "I think prices could drop, and once these things start, they have a snowball effect."

Levy, who estimates prices could drop by as much as 20 percent in the next couple of years, said rising interest rates are quashing the segment of buyers who can only get into the market using riskier, adjustable loans, such as interest-only mortgages. Such products are attractive because they usually carry lower initial monthly payments than traditional mortgages. But when principal payments come due, those payments jump -- even more so if interest rates have risen.

"People chose to bet on future appreciation by choosing loans where they knew payments would go up by a lot -- but they got in cheap," Levy said. "There are no cheap loans now."

In January, the average rate for a one-year adjustable rate mortgage was 5.17 percent, compared with 4.12 percent in January 2005 and 3.93 percent in January 2004.

On Thursday, the benchmark 30-year fixed rate mortgage averaged 6.28 percent, compared with 5.62 percent at the same time last year.

Those rising rates were apparent in the typical mortgage payment buyers committed to paying in January: $2,798. A year ago, the typical payment was $2,344. Adjusted for inflation, mortgage payments are 13 percent higher than in 1990, the crest of the previous boom, DataQuick said.

Real estate agents -- who are usually among the first to sense changes in the market -- say power is now balanced between buyers and sellers after several years of rampant multiple offers, waived inspections and pleading "sell me your house" letters.

That new rubric was summed up earlier this week at a sales meeting at Zephyr Real Estate in San Francisco. Of the 25 sales, 12 properties went for above the asking prices, 9 went for the asking price and 4 sold for below.

"It's not last July where people were willing to pay $450,000 more (than the list price)," said agent Matt Fuller.

Some agents, like Lee Ginsburg of Prudential San Bruno, say they must price their listings more realistically and market them aggressively. On Thursday evening, Ginsburg tried to lure potential buyers to a 2-year-old $573,000 South San Francisco condo by offering a "wine and cheese" open house.

"Buyers have more choices, so I need them to come to my property rather than the others," Ginsburg said.

That said, Ginsburg and others contend the market has been more brisk in the last couple of weeks.

Michael Carney, executive director of the Real Estate Research Council of Northern California at California State Polytechnic University at Pomona, theorizes that an initial softening market may only drive more buyers out of the woodwork, buoying prices and sales over the longer term.

"People are saying we're going to have this collapse of the bubble, but I don't think we're going to have an enormous drop in home prices," Carney said. "One reason is that you have a whole lot of people out there hoping prices fall. Demand is still there somehow."