Weekly Market Watch

Weekly Market Watch
August 11-17

Finally, we’re starting to see some positive news from the media. For weeks we’ve been remarking on the fact that REOs have been an adrenaline boost for much of the Bay Area housing market. Well, this week, the media finally jumped on board with headlines like “Prices fall, California home sales surge” and “Bay Area home sales show life” thanks to the release of DataQuick’s July report (http://www.dqnews.com/News/California/Bay-Area/RRBay080819.aspx) which noted “July sales were the highest for any month since June 2007 and marked the first annual sales gain for any month since January 2005.”

Of course, this boost is undoubtedly the result of foreclosures which made up 33% of all Bay Area resales. That was up from 29.9% in June and up from 4.2% from July 2007. According to DataQuick’s report, “Foreclosure resales ranged from 4.6% of the resale market in San Francisco to 65.9% in Solano County. In Solano and Contra Costa counties, where deeply discounted foreclosures are most common, 11 zip codes posted sales of exiting houses that were at least twice as high as in July 2007.”

So while all of the foreclosures are a good boost for sales, they certainly are dragging down our median. According to DataQuick, the median sales price dropped $47,000 or 3.1 percent lower than June and a 29.3 percent drop from the peak median home sale price of $665,000, reached a year ago.

Here is a graph supplied by DataQuick which provides more detail:


Sales Volume
Median Price
All homes
Jul-07
Jul-08
%Chng
Jul-07
Jul-08
%Chng
Alameda
1,577
1,428
-9.4%
$605,000
$440,000
-27.30%
Contra Costa
1,328
1,730
30.3%
$599,000
$350,000
-41.60%
Marin
306
277
-9.5%
$887,500
$770,000
-13.20%
Napa
85
125
47.1%
$614,500
$440,000
-28.40%
Santa Clara
1,910
1,660
-13.1%
$700,000
$585,500
-16.40%
San Francisco
564
609
8.0%
$799,000
$749,000
-6.3%
San Mateo
728
648
-11.0%
$800,000
$670,000
-16.30%
Solano
408
592
45.1%
$415,000
$275,000
-33.70%
Sonoma
517
517
0.0%
$520,000
$362,500
-30.30%
Bay Area
7,423
7,586
2.2%
$665,000
$470,000
-29.30%

So who is buying these foreclosures? Is it first time home buyers? A surge of investors? For the most part we are seeing a combination of both, but largely we are seeing a lot of first time home buyers entering the market looking for their first opportunity to own a slice of the Golden State. Many of these people were priced out of the market for years—during the housing boom of the earlier part of this decade—and are now finally able to take advantage of purchasing their first home at a discounted rate, historically speaking, of course.

Foreclosures. Lower medians. It sounds bad, doesn’t it? But in all honesty, this is all part of the economic cycle. As much as we (home owners) all would’ve liked, our economy couldn’t maintain the double digital increases we saw in home prices in 2004 and 2005 without seeing a shift. If we had continued with an increase of that magnitude, we would have completely eliminated the first time home buyer market which ultimately would have been detrimental to our economy. We need first time home buyers to help drive our market. They create that domino effect that ultimately affects all housing price points.

While the news seems mixed, keep in mind that we need this to regain our strength in the market. Is this a trend? Is the market turning around? It’s a little too soon to say officially but as we continue to burn off these foreclosures and buyers and sellers get off the sidelines, we’ll get a much better understanding of where our market is headed.

Until then, the news is bright and the media finally has something new to report which is good news for all of us. So now, let’s take a look at our local markets for the week:

East Bay—Castro Valley’s micromarket is continuing to experience a frenzy of buyer driven activity. We are noticing an influx of buyers who want to relocate from the Tracy area into the Bay Area and they are happy to take advantage of the opportunity to get closer to their Bay Area jobs. Berkeley is telling a similar story, with a new addition—properties going up for auction. In fact, we have two REOs going to auction and one of our Agents recently represented a buyer who was successful at an auction in Berkeley. Berkeley, Albany and Kensington still have less than two months supply. Interestingly, San Pablo in West Contra Costa is showing much less inventory than three months ago. The REO sales have really picked up since May and have decreased the supply by half in some communities. The remainder of the market seems mixed with REOs moving briskly and other resales remaining a bit quiet during this traditional August slowdown.
Monterey County—Units are up year-to-date on the Monterey Peninsula, but that is mostly in the lower-priced Seaside and Marina, not in the higher-priced areas like Carmel and Pebble Beach. We had two multiple offers this week, both on REOs.
North Bay—Now that many schools in the North Bay are back in session, we’re starting to see a real estate surge. It seems our vacationing clients and Agents, for that matter, are back to work. In fact, Petaluma is reporting that 85% of the offers that were written were in multiple offer situations and the majority of them were under $500,000. In Sebastopol, multiple offers were prominent in the under $400,000 mark and over the $1.2 million mark. But where is the move-up market? Seems to be in a bit of a lull. In San Rafael, our average days on market has dropped compared to last August, although the average sales price is down. In Novato, you can purchase a townhome for under $300,000—something we haven’t seen in years. Welcome home first time home buyers! The more affluent Southern Marin seems to remain in the midst of the traditional August slowdown though I’m sure that will lift over the coming days and weeks.
Peninsula—The Peninsula is one of three markets that has been hardly affected by REOs and short sales. In fact, on a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties—an historic norm. Burlingame is reporting good news this week, noting that more buyers are deciding that now is the time to make offers. And the best is yet to come as many of our sellers are preparing for some exciting fall inventory. We’re looking forward to introducing those to the marketplace. The Half Moon Bay coast remains slow though they are quick to report that open house activity is strong and buyer negotiations are serious so hopefully that is a sign of good things to come for our coastal neighbors. In Menlo Park, open house activity is good, particularly in the low to mid $2 million range. This is good news as we need good inventory as buyers are preparing to buy. We can feel it! Palo Alto continues its fourth week of low inventories. Almost all properties that are priced well go into multiple offers in this hot market.
San Francisco—With San Francisco having the lowest foreclosure rate in the Bay Area (just 4.6% of sales were in foreclosure last month), the City continues a pretty steady pace. Our high end market, which isn’t as affected by the variations in mortgage rates, the hardening economic times and other influences, seems to be fairing quite well. The entry and mid-level markets are a mixed bag and hard to judge. Open house activity is strong. But sales are slower, though, again, certainly expected for this time of year. Having said that, our Noriega office this week reported that one Sunset home received nine offers and went $70,000 over asking. Again, it’s hard to judge just what will generate the buyer interest in today’s City market.
Santa Cruz County—Open house activity is steady and buyers continue to check out the market and watch prices. It appears in some instances that continuing to lower the price on listings will not necessarily generate an offer if the property has been on the market for a while. The best strategy for sellers—and this goes for all regions, not just Santa Cruz—is to price the property strategically when it is put on the market and attempt a multiple offer situation or at minimum, increased buyer interest.
Silicon Valley—It depends on which part of Silicon Valley and which price point we are talking. Some areas like Cupertino, Los Gatos and Los Altos are reporting that the summer doldrums are taking their toll on the market, though they expect a decent bump once school is in session beginning next week. The majority of the activity is to no one’s surprise, REOs and short sales. REOs and properties that are perceived as a value are selling briskly so those sellers who are looking to sell should consider what they are going up against and price their homes accordingly. One of the bright spots in this market is the fact that we continue to see a lot of buyer interest and activity. Our floor calls are up in the offices. Open house activity is increasing. And pendings are even reportedly up in Saratoga, a community that hasn’t been as hard hit by the REO boom.
South County—This market is still driven by REOs. We continue to see multiple offers on many REOs and we’re pleased to report that several short sales are getting approved. Listing inventory has steadily decreased in Gilroy as have the days on market. Both good signs for a market rebound.

School will soon be back in session which means vacations and the summer doldrums will soon be over. Historically speaking, we typically see a bump in the housing market during September so we may expect that over the next few weeks, especially in light of the increased buyer interest we are seeing.

My best advice? Stay on course. Savvy buyers may want to take advantage of the opportunities that are available to them in today’s market because these may not come around again for another decade (or more). Sellers, it can be a tough market but keep it in perspective. We saw years of double digit appreciation and while that has slowed, our market has remained relatively stable through this housing correction.

The future is bright for Northern California real estate. We’re seeing it each and every day with new, eager buyers entering the marketplace and inventories beginning to show signs of decrease. Couple that with the fact that the media may be finally coming on board, things couldn’t be looking better.

Have a great week!
Rick

Rick Turley
President, San Francisco/Peninsula/North Bay
Coldwell Banker Residential Brokerage