Real estate sales activity was slow in virtually all areas throughout 2006 for reasons that are easy to define.

The superheated market that we experienced for the past few years came to a sudden end in the last quarter of 2005. Multiple offers became a thing of the past and home sales ground to a halt. Most sellers were unwilling to accept that buyers were no longer willing or able to pay the prices being asked for homes, so many sat on the market for a long time. As price is a function of supply and demand, a high level of inventory caused home prices to fall further and the only way to achieve a sale was to price your home at a lower price than similar homes were being offered at. Motivated sellers achieved sales. Less motivated sellers had homes sitting on the market for months and many just failed to sell.

Inventory levels peaked in September and have been steadily reducing since then. Amazingly, they have fallen by almost 50% in just the last 3 months. Even so, sales have not increased noticeably. It is therefore apparent that the reduction of inventory is as a result of people failing to sell their homes and taking them off the market rather than them having achieved a sale.

It can also be seen that the average sale price has fallen over the past few months, although perhaps not so much as one might expect.

Now lets take a look at some year on year figures. Rather than just looking at average sale prices of homes, let us consider average sales price per square foot. As can be seen from the table below, this reveals a telling story.

Average Sale Price/Sq. Ft. - Single Family Homes

Throughout much of 2005 home prices rose at an extremely high pace. This was the time when sellers were frequently achieving a sale within days of listing their homes for sale. And with multiple offers, all above the asking price.

Now, we have seen the inevitable correction. Alamo and Lamorinda have shown resilience, the former having consistently increased in value. Danville and Walnut Creek prices have fallen back to 2004 / 2005 levels while San Ramon prices are even lower than they were 2 years ago. Although I haven’t shown the figures here for the lower priced areas of Concord, Martinez and Antioch etc., I can state that prices in these areas have fallen even further, as a result of excessive inventory in these areas.

But the worst does look to be behind us and we can probably look forward to a more stable time in 2007. Prices appear to be steady and we may even see a little growth but there will be no frenzied buying activity and buyers will be able to consider their options before deciding to make an offer on a home. This is what is supposed to happen in a normal real estate market. If you plan to buy or sell a home this year, I wish you every success.