Issue date: February 24, 1999

The Boom is back: Realtors say the market is back to last year's madness, but more so The Boom is back: Realtors say the market is back to last year's madness, but more so (February 24, 1999)

By JENNIFER DESAI

To borrow from Yogi Berra, as far as the local real estate market is concerned, it's deja vu all over again.
Last fall, Realtors who were still reeling from the Spring 1998 boom, said more houses were coming onto the market at a time when the stock market was softening -- so they began to see conditions swinging back in favor of buyers. Houses were on the market longer, and some sellers even reduced their expectations -- and their asking prices -- when their houses didn't sell immediately.
But now, with the return of winter rains, buyers are back, and they're bringing the boom with them.
Multiple offers are mushrooming all over the Midpeninsula, buyers are once again making offers above asking prices -- and, in general, as far as Realtors are concerned, it's February 1998 all over again.
Prices are higher than last year's on average: In each of the four Almanac towns -- Atherton, Menlo Park, Portola Valley and Woodside -- prices were up in 1998 as a whole. And for 1999, PenWest Association of Realtors projects that prices on average will increase in those towns in the range of 3 to 16 percent.
Realtors are saying that the stampede for homes has started even earlier this year, with buyers flocking to open houses and flooding real estate offices just after New Year's Day -- even earlier than they did in 1998.
The bad news is the usual downside of a real estate boom. Realtors remain concerned about the lack of affordable housing and its impact on our communities. "It's impossible to supply housing to people on this tiny amount of land," says Julia Keady of Cashin Company. "Inventory is at an all-time low, demand is up -- and that makes housing unaffordable for many people who work in the area." For buyers, high competition for low inventory brings not only higher prices and multiple offers, but the disappointment that comes with being edged out of buying -- sometimes, over and over again.
The good news? Realtors remember how last year more houses entered the market in March and April, and predict the same pattern this year. Still, as Barbara Tyler of Coldwell Banker in Menlo Park says, "This is a pretty surreal market. What you can get for $1 million is so minimal. But it is the reality."
Open season on open houses

After what most agents agree was a quiet fall, prospective buyers are more than making up for the lull. Realtors in general are surprised by the early interest they've seen on the part of prospective buyers, who have been flooding open houses since the beginning of the year.

"We were out of the gate and running at the beginning of January," says Carlos Aguilar of Coldwell Banker. "Mid-spring to midsummer used to be peak activity, but last year it started strong at the end of January and got more frenzied from there. I'd expect it to be the same this year."

Foot traffic at open houses since January 1 has been heavy -- and dominated by prepared, serious buyers. "I would say the traffic at open houses in Woodside has tripled since January 1," says Margot Lockwood of Coldwell Banker in Woodside.

Ms. Tyler agrees. "Open houses have been very busy -- and with qualified buyers, who come in prepared to decide whether to offer. It's such a hectic market that they have to be prepared; there's no time for buyers to catch their breath," she says.

Some attendees are new prospects, says Ginny Kavanaugh of Coldwell Banker's Portola Valley office, but not all. "We're seeing buyers from 1998, who couldn't find a home and have laid back for a while to see what would happen, as well as people new to the market," she says.

Even houses that didn't sell last season are finding buyers, and sometimes more than one. "I had one listing from before Christmas that went through a price reduction," Ms. Kavanaugh says. "Over the President's Day weekend, it sold over the asking price -- with multiple offers."

Realtors say buyers are even more motivated than they were in late 1998. That motivation can make even less-than-ideal properties seem downright desirable. "Before January 1, I would show people this one property and they'd describe it as a teardown that might be worthwhile for the land value," says Ms. Lockwood. "In January, I had an open house and everyone was oohing and aahing. It was just weird. Nothing had changed; it was exactly the same house."

"I've frequently seen homes sell within a week," says Kathleen Alexander of Alain Pinel. "What comes on the market is often sold before the next house tour."

Multiple mania

"Even on the highest-end houses, we're seeing multiple offers," says Ray Walton of Coldwell Banker. "In the past couple of weeks, I've seen a house in Atherton that was listed for $4.6 million go for $5.5 million after five or six offers, and a Woodside home listed at $4.8 million get an enormous overbid and four or five offers. We're seeing it everywhere; it's like last year, only more so."

Mr. Walton includes more "affordable" housing, as well. He mentions a house on Olive Street in Menlo Park that listed at $895,000 and went for a high bid of $1 million after "six or seven" offers, and a house on American Way that closed after seven offers for almost $100,000 over the asking price.

Ms. Kavanaugh says she has seen multiple offers on three properties in Portola Valley since the season started, in the price range of $800,000 to $1.3 million. And Ms. Tyler, who declined to give specific examples, estimates that half the properties she knows of were bid on by more than one buyer. "Of course," Ms. Tyler says, "if you have more than two offers, you're likely to have a very successful sale; it works out very well for the seller in these situations."

It doesn't always work out so well for the buyer. Ms. Alexander remembers a client who flew in from New York to find a home. With the added pressure of possibly losing $200,000 in tax benefits if she didn't find something in 10 days, she lost out on two houses that sold with multiple offers and high overbids. She placed one last overbid on a property and beat out five other offers. It was a success story, of sorts -- except the New York client bought the house with a one-week closure, agreed to let the current owners stay on rent-free for a while -- and bought the house from back in New York, sight unseen. "I advise against that," Ms. Alexander said. "But my client was happy."

More than money

What's new about the situation this year, however, is the effort buyers must often make to sweeten their offer in intangible ways. "Sellers are looking for good terms, and being a little more selective," says Sandie Pugh of Merrill Properties. That selectiveness often comes down to the highest bid, but Realtors are cautioning prospective buyers to look at the whole package when they construct an offer, to predict what the seller might want in addition to a high bid. Ms. Kavanaugh says that free rent-backs, in which sellers are allowed to stay on as tenants for an agreed-upon time, are becoming more common. Mr. Walton says homes are once again closing with no contingencies, and closing on a timetable very much determined by the seller's convenience.

And sometimes it just seems to be destiny. Maya Sewald of Coldwell Banker in Menlo Park reported that a couple who had been house shopping for several months and had become discouraged by multiple bids recently struck it lucky in Menlo Park. The sellers, who retired to Oregon and had lived in their home for over 40 years, wanted a "nice family" to enjoy the home they had raised their children in. "This was more important to them than the potential of multiple bids or a builder tearing the house down," Ms. Sewald says -- but noted that the retirees still saw quite a healthy return on their investment.

Buyer backlash?

The market may be hyperactive right now, but all that competition is starting to discourage some disgruntled buyers -- and, in turn, the Realtors who represent them. "It's difficult for someone who earns somewhere in the neighborhood of even $100,000 a year to afford a home," Ms. Sewald says.

"There's just so little out there, and it is very hard on buyers," says Carmen Lynch of Seville Properties. "When we get our tour sheets now, they'll be one page long for all of, say, Menlo Park -- and that covers condos, duplexes, and houses ranging from $500,000 to $4 million."

At press time, Ms. Lockwood said there were currently 16 properties available in Woodside, with prices ranging from $898,000 to $10 million, and four sales pending at $1.295 million to $5 million. Since January 1, seven properties have closed.

In Portola Valley on the same day, Ms. Kavanaugh could find only 12 properties for sale on the multiple listing service, or MLS. "It was about that last year at this time, and we all know what that was like," she said.

The frustration level, Realtors say, is rising. "There are first-time buyers trying to enter the market at seven to nine hundred thousand dollars," says Mr. Walton. "These are people who are looking for a house to stay in for a while and they spend $800,000 -- but they might have to add a new kitchen, or roof. You'd think you'd get a complete package for $800,000."

Realtors feel that frustration, too. "Every day you pull up the listings on the computer, and you sort of pray," says Annette Jahnke of Pacific Peninsula Properties. Ms. Jahnke and her partner have just completed a direct mailing to residents of the Allied Arts and Willows neighborhoods. "The letter just basically said that we have buyers who are ready to go, if you are," she said.

Nowhere to go but up

Realtors are heartened, however, by last year's trend of increased inventories by April or May. "Last year, during the first three weeks in May, inventory almost tripled," said Ms. Lynch. "The good thing is that once inventory goes up, buyers get a little calmer."

It isn't just history that has Realtors hoping. Several real estate agents see the fact that inspectors are overbooked is a sign that more home owners are readying houses for the market.

"You try to schedule a building inspection, and find that they're booked up for three weeks. With so little inventory to inspect, there has to be new stuff being readied," Ms. Lynch says.

Ms. Tyler agrees. "All the allied businesses are overbooked now: termite inspectors, remodelers, everything. Everybody's busy; it's a hectic time."

Realtors try to maintain a Zenlike calm amidst the market madness, if only for self-protection. "It's mild hysteria, but I think buyers are getting a little more patient, and the market will find its own level," Ms. Pugh says.

Another facet of that Zenlike calm? Realtors resolutely focus on the present market, and try not to make any predictions for the future. "We've all been thinking this would level off," Mr. Walton says. "It's just one of those amazing situations. Who knows how long it will go?"