Weekly Market Watch

Mr. Toad’s Wild Ride on Wall Street Week of October 6, 2008

It was a week of decisive action by the U.S. government as it worked to fix the problems affecting Wall Street and the ever expanding global economic unrest. Earlier this week, President Bush announced a historic and reworked financial-rescue plan, confirming that the U.S. will take equity stakes in nine banks (among them Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, to name a few), backstop virtually all non-interest-bearing bank accounts and guarantee most new loans between banks. The White House plan marks the first such deep government intervention in markets since the Great Depression.

The plan found support among economists and experts. “This is finally the comprehensive and detailed plan that the market has been looking for,” said Jaret Seiberg, financial institution analyst for the Stanford Group. “It addresses the biggest problems that banks face, which is a capital crunch, and it attempts to fix the short term debt markets, plus it reduces the risk of liquidity runs on banks. That’s a pretty powerful first punch.”

In layman’s terms, this plan means that the government will now own a stake in several private U.S. companies—something that has many Americans rightfully concerned—though for now provides a stable backing in an effort to increase the availability of financing for consumers and businesses. Without this backing, consumer and business spending was shrinking which ultimately leads to businesses cutting jobs or worse yet, closing their doors. In theory, this plan will allow for restoration of more normal market functioning, and reinvigorate the financial markets. But as evidenced by the week on Wall Street, this apparently will take a little time.

One day after the White House announced the plan, the Dow tumbled to its second worst session ever on a point basis. The slide of 7.9% was the Dow’s 9th worst ever. In fact, according to CNNMoney, the decline wiped out $1.1 trillion in market value on the Dow Jones Wilshire 5000, the broadest measure of the stock market.

Thursday, however, things seemed to get brighter as Wall Street rallied, finding positive momentum as the lowest oil prices in more than a year gave investors a reason to scoop up shares battered in the recent market sell-off. The Dow Jones surged 401 points late in the day leaving many to wonder if the market was finally taking a u-turn. Friday was yet another rollercoaster ride, another day like nine other days in October where the Dow has ricocheted in a range greater than 5% throughout the day’s trading. On Friday the Dow ended down 1.4% amidst a sell-off just prior to the closing bell. A quote I read in the WSJ Friday from a mutual fund firm CEO says it in a nutshell: “If you don’t like the (stock) price, just wait five minutes.”
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So what has this week’s rollercoaster ride on Wall Street meant for our local housing market? I am pleased to report that some offices are having near-normal new pending sales activity. They higher-end communities seem to be the most lethargic during the wild Wall Street ride, as you’d expect. The Santa Rosa office, with the most REO’s in our region, has hit 98% of their October projected open units prior to Oct 15th. Let’s take a look…

East Bay—The Berkeley office is again reporting low inventory in Albany, Berkeley, Kensington and El Cerrito which consistently have less than two months supply. Other nearby markets are experiencing a heavy influx of bank-owned sales with the office reporting 70% of its sales this month have been REOs. Danville’s REO surge from last week may have been an anomaly as sales slowed dramatically this week. The high-end is also seeing dramatic lulls with inventory in Alamo at 13 months and in Blackhawk and 14 months. Fremont continues to see some sales highs thanks to the large number of REOs. Pleasanton and Orinda saw very little change this week, both noting that buyers are cautious, most glued to their televisions and the latest news on Wall Street. Agents continue to guide their clients and educating them on the opportunities available in today’s market and doing what they can to get their buyers into their new homes buy the holidays.
Monterey County—Listing inventory and sales activity have been steady. We had two REOs this week—both with multiple offers. For the luxury market, we have 22 properties pending in the MLS above $1.5 million on the Monterey Peninsula. Of those, 14 properties are below $2.5 million and eight are $2.5 to $6.8 million.
North Bay—The Greenbrae office is reporting decreasing listing inventory and decreasing sales activity though they did have a Larkspur listing that was a major fixer upper that was listed in the high sevens and had 22 offers. It went for over $1 million. The San Rafael office noted that it listed a Novato house this week for $359,000—a price unheard of for Marin County. Even with these types of values, some buyers are leery to commit. Sonoma County continues to see increased activity in the bank-owned arena though Santa Rosa saw an increase in activity in the $900,000 to $1 million market this week (a market that has been asleep at the wheel for much of the year).
Peninsula—Half Moon Bay witnessed the results of Wall Street’s volatility this week as two buyers canceled contracts out of fear that their reserves were disappearing. Woodside is reporting that there are a lot of great deals right now with the high-end quiet, and some sellers are motivated. A $2.7M off-market sale in Menlo Park, plus several sales in Burlingame with multiple offers over $1M, all cash, reminds us that Buyers are out there for the right deals. The rest of the Peninsula seems to be seeing a lot of interested buyers who are entering the market, though waiting to see what comes of the economy. Perhaps they are measuring the market so they are prepared to jump in and buy at the first sign that consumer confidence is rising.
San Francisco—San Francisco saw a similar week to that of the Peninsula with buyers waiting to see what comes of Wall Street and the government’s new plan. The Market Street office also saw two deals fall through as buyers feared what was happening with the economy, although neither were having issues with securing funding. While we’ve noted that a few transactions have cancelled, it’s equally important to note that more than 27 new escrows were opened in our San Francisco offices during this volatile Wall Street week.
Santa Cruz County—Listing inventory is steady and sales activity seems to be decreasing. Overall YTD through September, units are down in Santa Cruz County 12-15% from 2007. Over 20% of the sales in the county have occurred in the Watsonville area (south county) and 87% are under $1 million. The upper end of the market has been pretty slow this year. In the county, YTD through September, there have been 20 sales over $2 million representing 1.8% of the closed inventory. The lower-end, like most regions, continues to drive the market. Lending continues to be an obstacle with strict guidelines, less money to loan and unyielding appraisals.
Silicon Valley—There are two types of buyers out there right now—those who see this as an opportune time and are acting on it and those who have adopted the wait and see philosophy and are afraid to act. For the most part, our Silicon Valley offices are reporting that buyer interest has slowed with floor calls and open house activity decreasing. However, our San Jose Main office disagrees noting that buyer activity at open houses this week actually increased. The market that seems to be fairing the best is the entry level and continued success lies in the bank-owned arena where REO properties continue to generate multiple offers. There are two types of clients who are seeing success in today’s market (the rest languish so clients of all regions take note):
Buyers who see real estate as a long-term investment and this market, in particular, as an opportunity and are acting on it
Sellers who price their home right, stage it and are motivated
South County—With all of the drama on Wall Street, things have slowed quite a bit. Activity has slowed with the exception of the bank-owned market where well-priced REOs are often selling quickly, with multiple offers. The luxury market in South County seems to be languishing with the exception of bank-owned properties. An Agent in the Morgan Hill office just sold a home that was listed earlier this year for $1.1 million—the final purchase price was $750,000 (as a short sale).

There is our market in a nutshell. Overall, things seem to be steady. Bank owned properties continue to drive much of our activity. The higher end properties are more sensitive to pricing than they have been in several years. But make no bones about it, homes are selling today, and not a week goes by without several reports of multiple offers. I am thankful that we have the very best in the business guiding our customers with great strategies and outstanding professionalism.
Until next week - Make it a great one!
Rick

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