CNN says California home prices rebounding- but is the worst part over?

“California housing prices on the rebound,” declared a CNNMoney.com headline last week.

According to the article, California home prices have climbed for nine consecutive months, posting a 10.4 percent gain year-over-year in July. Also, San Francisco posted the biggest gain “of any U.S. metro over the past year,” the article stated, with a jump of 14.3 percent.

While I’m as eager for good news on the real estate front as anyone else, I’m not yet ready to celebrate. Here’s why.

Prices are up—compared to last year’s rock bottom prices

Last summer, we saw a lot of foreclosures and short sales in California, which played a big role in seriously dragging down home prices. So when you compare current home prices to last year’s plunging values, it’s not too surprising to see improvement.

There’s a lot of inventory—which could cause prices to drop again

Right now, at least in San Francisco, there’s a lot of inventory on the market. In Noe Valley, for instance, there are at least three dozen homes for sale right now in the $1 million and up price range.

Many sellers who’d been waiting for the slow summer season to end listed their homes right after Labor Day. At the same time, plenty of homes have been sitting on the market for months.

In an inventory-heavy market like this, sellers often must drop their price to close a deal. If a seller near you drops his price, it brings down the comps for the entire neighborhood, too. In turn, that can force you to list or sell at a lower price.

Any rebound in home prices is good news for sellers, of course. But the bigger picture, in my opinion, is that we’re entering the second phase of a double-dip recession in the real estate market. I’ll write more about that in a future post.

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