Bay Area home values increased at a sizzling pace in the second quarter, the online real estate site Zillow reported Tuesday, reinforcing hopes that at least some parts of the region are in the early stages of a housing market recovery.

Home values increased 3.9 percent in San Francisco from the first quarter of this year; 3.79 percent in Santa Clara County; 2.75 percent in Alameda County; 2.18 percent in San Mateo County; and 1.47 percent in Contra Costa County.

For the nine-county Bay Area, which includes areas hit hard by negative equity and foreclosures, the quarterly increase was a surprising 2.5 percent.

While such increases are unsustainable over the long run, according to Stan Humphries, Zillow's chief economist, the rising values eventually should persuade more people to put their homes up for sale. That will ease the current lack of inventory that has put a damper on sales, he said.

Home sales in the region have been crimped because so many houses are worth less than their mortgages, so owners don't list them, he said. Also playing into the low inventory is "seller psychology," Humphries said. "No seller wants to sell at the bottom," he noted.

With inventory low, parts of the Bay Area are experiencing bidding wars, and some buyers are even enticing sellers with paid vacations or a couple of months of free rent in their home or a condo. Last month Zillow ranked the San Jose and San Francisco metro areas as the top two "sellers' markets" in the U.S.


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"I have so many frustrated buyers spinning their wheels, having a difficult time getting offers accepted when there's a multiple-offer situation or quite simply just finding home," said real estate agent Linette Edwards of Better Homes and Gardens Real Estate in Piedmont.

Edwards, who represents homebuyer and sellers in Contra Costa and Alameda counties, said she has started getting queries from would-be sellers who were too far underwater last year to consider putting their homes on the market.

"Now they're calling me and realizing they may be able to start listing their houses," Edwards said. "I anticipate we'll see more of that in the coming year as homeowners realize the market has picked up."

She said one homeowner in Danville is listing his home for $700,000. Last year the valuation was too low for him to consider selling, she said.

Zillow uses a proprietary formula for its home value index for detached single-family homes, as well as condos and co-ops. It includes homes that were sold, but also looks at other factors, including various attributes of homes sold, and excludes foreclosure resales.

For the greater Bay Area, the median home value was $453,255, Zillow said. San Francisco's median home value was $680,000, followed by San Mateo County, $608,800; Santa Clara County, $575,200; Alameda County, $392,500; and Contra Costa County, $297,500.

Paul Kim of San Jose said he stopped looking to buy after a home in San Jose's Rose Garden district drew 70 offers. Kim said he bid $80,000 over the asking price but the winner bid $140,000 over the price. "I'm going to start aggressively looking again in late September, when hopefully there won't be as many buyers," he said.

If rising prices spread to other areas, more homes may go on the market.

"When prices go up, more people will put their homes on the market and inventory will come back to normal levels," said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California. "There are places in the Bay Area where that could happen pretty quickly."

Negative equity -- the plight of homeowners who owe more on their mortgage than their home is worth -- will probably remain high for the next two to five years, gradually lessening as home values increase, according to Zillow.

In some areas, negative equity is "not as much as people think," said Silicon Valley real estate agent Brenda Avilla-Kintz. "We need another 10 to 15 percent growth and a lot of people won't even need to do short sales," in which a home is sold for less than is owed on it. "That's still a couple years out," she added.

"It's becoming less negative as house prices are going up around the Bay Area," said Ken Rosen, chairman at the Fisher Center for Real Estate and Urban Economics at UC Berkeley. "It only affects those people who bought at the peak two or three years. Part of the reason they have negative equity is that they borrowed a lot of money."

Contact Pete Carey at 408-920-5419.