Despite a record streak of higher real estate prices, some economists believe homes in certain Bay Area communities should be considered a bargain. And that's even with median price tags easily topping a million bucks.
An analysis of historic and current income and housing trends by real estate data firm CoreLogic found the pricey markets in San Mateo, San Francisco and Marin counties are, by some measures, under-valued.
The analysis, which considered disposable income, home values and past real estate market experience, also found the San Jose and Oakland metro areas priced about right by historic standards.
It's good news for homeowners but sobering for prospective home buyers looking to purchase in some of the country's most expensive counties, including San Mateo (median home sale price in June, $1.36 million), San Francisco ($1.4 million), Marin ($1.2 million), Santa Clara ($1.13 million), Alameda ($865,000) and Contra Costa ($660,000).
"It's expensive here. I wouldn't really say San Mateo County is under-valued," said Jeff LaMont, a Coldwell Banker broker in San Mateo. Still, he added, Bay Area homes have soared in value since 2012 and have proved a good, historical investment.
The steady climb of Bay Area sales prices hit a plateau this year, with home prices slumping in core Silicon Valley cities in Santa Clara County. Regional home sale prices fell 2.3% from the previous June, according to CoreLogic, to a still-whopping median of $855,000.
Despite one indicator suggesting part of the region is undervalued, would-be buyers have been delaying or giving up on the market. Home sales in June hit their lowest level for the month since 2008, according to CoreLogic.
The San Jose metro area is one of the least affordable regions to purchase a home, according to a recent report by Clever Real Estate. A buyer needs about 10 years worth of the region's median annual income to afford the typical home, nearly five times as much as it took in the 1960s.
San Francisco and the East Bay are slightly more affordable, requiring about 9 times the median income to afford a home, according to the analysis of census and real estate data. The median family income in the Bay Area is around $100,000 per household.
The typical U.S. homeowner spends about 3.5 times their annual salary on a home.
The CoreLogic market analysis is based on historical, per capita disposable income and real estate data. The report compares the price of homes and incomes from 1976 to 2003 with current real estate and income data. The analysis considers markets over-valued if they are priced at least 10% above long-term levels that are supported by disposable income and other factors. Markets are considered under-valued if they are priced at least 10% below historic, sustainable levels.
Although Bay Area home prices are among the highest in the nation, the region's median income — fueled by growth and high-paying tech and professional jobs — has meant San Mateo County households are spending a smaller percentage of their disposable income on housing, according to the report.
A company spokeswoman said the analysis, called the market condition indicators, is a useful tool, but not the whole picture of a housing market. Other factors, including how expensive it is to rent versus buying a home, tell a more complete story about an individual market, she said in an email.
CoreLogic analyzed the country's top 100 metro areas in June, and rated 38 as over-valued, 24 as undervalued, and 38 at a normal value.
Several popular escapes for Bay Area ex-pats — including Las Vegas, Denver and the Washington, D.C., metro — are seen as overvalued. Los Angeles is considered a normal market, with prices in line with historical spending.
CoreLogic economists see Bay Area home values staying strong for the next five years. They forecast the San Jose area to remain at normal values, while expecting Oakland and the East Bay to be over-valued. San Francisco and San Mateo counties should dip back into the normal range, the analysts say. Marin is expected to stay under-valued.
Penelope Huang, a broker with Golden Gate Sotheby's in Menlo Park, said it's difficult to make a sweeping judgment about a county as diverse as San Mateo, which includes blue-collar communities in East Palo Alto and wealthy enclaves in Hillsborough.
"I'm not buying it," said Huang, a 30-year veteran of Bay Area real estate. "It's such a wide swath of different types of housing, you can't make that generalization."
LaMont said relative bargains can be found in some neighborhoods of Pacifica, Daly City and Redwood City. First-time buyers can find condominiums under $1 million — which counts as a deal. "Nothing is cheap here," he said.
"Under-valued? No. Over-valued? No," LaMont added. "I think it's spot on."
