Weekly Market Watch

Weekly Market Watch
Covering Week of July 27-August 2

There was a lot of good, solid news for our industry this week:

· NAR released its Pending Home Sales Index—a forward-looking indicator based on contracts signed in June—which showed pending home sales rose 5.3%. Here in the West, the Index reports that pendings rose 4.6%. Though one month of increases doesn’t substantiate a rule, it is a good symbol of a housing market in transition. NAR Chief Economist Lawrence Yun noted, “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery. With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009.”
· Another article of interest, the Washington Post’s Housing Collapse Ahead? Not According to the Data, article reported on the finding of the Office of Federal Housing Enterprise Oversight report which stated, “We conclude that declines in house prices are highly likely to remain small. Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states—but will not collapse.”
· And finally, possibly the best news of all, Bloomberg reported in its July 31, 2008 article entitled California's Discount Foreclosure Sales Point to Housing Bottom, “California led the U.S. into the worst housing recession since the 1930s. Now the most populous state may be the first to find the bottom.” The reporter’s findings were based on the fact that sales in our state have risen three consecutive months starting in April after 30 straight months of declines, according to CAR. About 40% of those transactions were foreclosure sales. What this trend is showing is that we are slowly starting to deplete our inventory, especially in the entry-level market where foreclosures and REOs are most common. In fact, statewide, CAR is reporting that our inventory last month dropped to 7.2 months of supply, down from 10.2 months a year ago.

Things are definitely starting to move out there. There are a number of reasons for this. Yes, REOs do become a factor in many of the outlying and more affordable markets like parts of the East Bay, Sonoma County, South County, Santa Cruz and parts of Silicon Valley. But there are many markets that have been almost immune to the REO phenomena; instead these markets are seeing the opposite challenge—a lack of inventory. Believe it or not, in many cities of the Bay Area, lack of inventory remains a major problem. Consider Berkeley where its inventory is hovering in the 2-3 month arena. Just to give you an idea, within the last two weeks, the Berkeley office has had nine multiple offers or about one in every three listings is going into multiples. Consider, too, Palo Alto where this week alone, there were only four new properties on tour. Wow, can we remember the last time we had a market with such limited inventory? It seems like ages.

So with our excitement in tow, let’s head into the market update:

East Bay—Agents exhausted because of buyer activity. Myth? No. It’s happening. Castro Valley is reporting that they are showing properties every day and writing tons of offers. “The competition is fierce within our micro-market for those great deals. Agents are writing, two, three, four, even five offers on behalf of their clients, hoping at least one will be accepted. Nonetheless, we are getting our clients into contract.” While Castro Valley is on fire, not all parts of the East Bay are feeling the heat. The Tri-Valley and San Ramon Valley are moving quite smoothly in the REO and entry-level market but the high-end is very quiet.
Monterey Bay—We’re seeing multiple offers on REOs in this market, including on one $2.5 million listing. We are starting to see a lot of cancellations on listings. In fact, we’ve had 17 canceled escrows in the last four weeks. Nevertheless, listing inventory and sales activity remains steady.
North Bay—For months I’ve been talking about Sonoma’s REO activity. Interestingly, this week is different. Sebastopol reported six offers this week, three of which went into multiple offers. Surprisingly, the three multiples weren’t in the $400,000 range, they were all in the $1.3 to $2.2 million range. A good sign for the upper end in this region. The buyers are out there! Santa Rosa is reporting a decline in activity in REOs this week—the first time in four months. But the entry-level is still where the action is in this market. Marin seems to be the same as last week with sporadic activity at open houses and still some strong upper-end activity; a Corte Madera property at $2M+ received multiple offers and went immediately into contract. The good news is that we are starting to see some price reductions in this market as well—Southern Marin is reporting that 55% of their inventory has reduced its price—so this could breathe a little life into some our Marin buyers.
Peninsula—You just can’t predict it. One Atherton teardown (not on the MLS) had five offers and went substantially over the $4.2 million asking price. In Menlo Park, multiple offers are the norm. Some, however, don’t even garner the list price while others go way, way over. Again, hard to predict. Palo Alto MLS only had four new listings on tour this past week! Burlingame is reporting that the market is changing—for the better. Offers aren’t always being accepted but at least buyers are back in the saddle and trying. A San Mateo agent was able to get a Foster City condo seller to follow advice on pricing and staging, and received four offers immediately while the competing units still sit. Really interesting note is that 3 of the 4 were totally non-contingent. Half Moon Bay buyers seem to be enjoying summer vacations as activity has been very slow. Yet the good news is that listing inventory is decreasing and Manager Robert Ross is reporting that this is one of the best times in years to purchase a home on the coast.
San Francisco—Buyers are our there and we know how to find them! That seems to be the case even in light of the City’s summer slow down, buyers are willing to act as long as the home is priced well and shows well. One SF Lombard listing received five offers and went about 10% over asking. Another Lombard listing received three offers and went slightly over asking. As I reported last week, the high-end for our TRI office is moving briskly and this week was no different with three multiple offers. All of our San Francisco offices are reporting steady or increased sales activity, a sign of good things to come as we head into the fall market.
Santa Cruz—Activity is better overall. Sellers continue to try to come to grips with the reality of the market and the real price it will take for a home to sell. It has got to be a good deal in the buyer’s eyes or they’ll move on to the next property.
Silicon Valley—Floor calls and open house activity are music to our Agents’ ears in Silicon Valley and we’re finally seeing both in this market. Activity is definitely picking up in Silicon Valley and the phone is ringing with buyer interest. Los Gatos is reporting that open houses are great with solid buyers coming through. Los Altos San Antonio is reporting that listings and sales are up. San Jose Willow Glen is reporting that it is busy with sales and lots of floor calls—a great sign as we head into the end of the summer doldrums.
South County—Inventory, sales and activity seem to all go unchanged in South County. Overall, the market continues to be driven by REO activity. Most multiple offers are on REO properties and the mid to upper end tends to sit for a much longer period of time. However, in this market, one thing is certain, homes that are priced right and competitively and show well, will sell.

Regardless of the market or the reason behind the recent upswing, things are starting to pick up throughout Northern California. It seems buyers are finally starting to get the message that we may have hit bottom and, as buyers take action, we’re slowly but surely working our way into a transitioning market.

I am excited to see what is to come this Fall. Remember, this time last year, we were heading into the heat of the mortgage crisis. Now, a year later, we have come out of what some may say was one of the worst housing markets in decades and, yet, we’ve managed through it and are moving forward, progressing and finally starting to see a breakthrough in the market. It’s been challenging but what we have to look forward to is exciting. Prepare! The coming months and into 2009 are going to be an exciting ride!