Weekly Market Watch

Week of October 20-26
Today marks the end of a historically volatile month on Wall Street with some significant losses.And for the week -
I had all of my clever Halloween puns planned —“It was a Spooky Week on Wall Street”—or “The Market Takes Another Ghoulish Hit”—but alas, I am pleasantly surprised to say my puns were not necessary as things were definitely looking up for the market as the week progressed. For starters, the central bank cut the federal funds rate, a key bank lending rate, by half a percentage point to 1%, a low last seen in June 2004. The funds rate has not been lower since 1958 when Dwight Eisenhower was president.


Just one day later the government released the latest GDP report which showed that the economy shrank at a slower pace than expected in the third quarter (though, to keep things in perspective, it did endure its biggest decline in seven years).

And if all of this news wasn’t good enough, negotiators for the Treasury and Federal Deposit Insurance Corporation announced that they are nearing an agreement on a plan to have the government guarantee the mortgage of millions of distressed homeowners. The plan could cover as many as three million homeowners in danger of foreclosure. If this plan were to pass, it will help us deplete our bank-owned inventory and subsequently should help stabilize home prices nationwide.

As an aside, our parent company Realogy is doing its part to support the stimulation efforts by this week releasing a statement that proposed a short-tern government buy-down in mortgage rates to stimulate the housing market and accelerate broader economic recovery. In a statement released to media on Tuesday, Realogy called for a short-term government buy-down of mortgage rates of at least 4.5%, or lower, for a 30-year fixed rate mortgage (down from current rates of approximately 6.04%). This homebuyer incentive would apply to the purchase of all new and/or existing homes sold up to $1 million in price. Only time will tell if this solution is adopted but it is commendable to see our parent company working so hard on our behalf to stimulate the housing market.

Thursday, Wall Street reacted to the week’s good news with the Dow Jones Industrial Average gaining 190 points or 2.1%, The Standard & Poor’s 500 index rose 2.6% and the NASDAQ composite (COMP) gained 2.5%.

But is all of this enough to revive an economy hit by a long list of problems stemming from the most severe financial crisis in decades? It’s definitely a start.

Earlier this week Time Magazine reported that there is a sign that we are bottoming out noting “The rate of sales decline slowed in August, according to Case-Shiller, and in September existing home sales rose 5.5% nationally, which means buyers are finally being lured to the market by low prices.”

As you’ll recall, President Bush said prior to signing the Emergency Economic Stabilization Act of 2008 that all of the recovery plans in store would take time to work. And only time will tell whether or not these plans are successful. But we are starting to see some positive stories with some better than expected results which is a good sign for all of us.

Next week we’ll learn who our new President will be, which, historically speaking, should lessen some of the concerns and (hopefully) settle some of the unrest on Wall Street. Once investors know who will be running the government for (at least) the next four years, they’ll feel more apt to making longer-term investment decisions.

Now, let’s take a look at this week in real estate. My overall assessment is that after a slow couple of weeks due to the economic woes on Wall Street, Main Street’s real estate is looking brighter and buyer interest is increasing.

East Bay—Our Walnut Creek office reports that the REO market remains very active with listings in Antioch, Brentwood and other parts of East County receiving multiple offers. Open house activity was very good this past weekend with buyers more open to engaging in conversation regarding market conditions. In fact, the office also shares that the $1 million plus market is more active than it has been in a long time. Livermore is reporting that REOs continue to drive much of its business with 87% of new pending sales this week were REO sales with list prices from $47,500 to $310,000. The majority of the sales were located in the Central Valley. The upper end in Livermore is slow. We currently have 55 listings above the $1 million mark in Livermore. There have been three closed sales in the past 60 days and four pending sales with the last pending on September 19. Oakland shared some good news this week, however, noting that sales activity was increasing this week and that Agents felt that new buyers are coming into the market, based on open house activity. Our Danville office reported this week that nearly 1/3 of its sales this month are not REOs. That is wonderful news. If the percentage of “normal” sales increases, that is a very good sign for the real estate market turnaround.
Monterey County—No information provided.
North Bay—Our Sonoma County offices continue to report a lot of activity in the entry level market. Petaluma shares that Petaluma, Rohnert Park and Sonoma have very few properties coming on the market. There are typically double digit multiple offers in the $300,000 range. Santa Rosa concurs noting that the $500,000 range is very active though once you go above that it remains quiet. Neighboring Sebastopol continues to be driven by REOs though the office did note that it saw a substantial slowdown this week with more lookers than buyers at open houses. It is a real shame because there are some incredible opportunities in the wine country. Buyers—be aware! Marin County is a mixed bag. The more affluent neighborhoods of Southern Marin remain a bit quiet—though we did double-end a $2.5 million deal this week—but the more affordable markets of San Rafael and Novato are enjoying an increase of activity.
Peninsula—Last week’s better news on the sale of homes (thanks to DataQuick and NAR’s reports) led to a more positive turnout in open homes this weekend. One Millbrae home had over 35 groups through. It seems the price range between $800,000 to $1.2 million is most active in this market. Half Moon Bay has seen a seesaw in inventory (somewhat like the stock market) hitting a long-time high of 175 properties just a few weeks ago, then a drop to 140 properties and this week another jump back up to 165 current active listings. This represents an exceptional buying opportunity for homes near the bay or ocean. Our Redwood City-San Carlos office is sharing that it hasn’t seen many changes. Sellers are becoming a little more realistic and seem to be more apt to follow their Agent’s advice regarding pricing. We did have one sales this week where the buyers wanted to make sure they could take advantage of the jumbo loan amount before it changes.
San Francisco—Things seem to be a bit quiet in the City right now as buyers await the results of the issues on Wall Street. Buyers don’t seem to be willing to move forward, though they aren’t exactly abandoning their search for a home either. There is still a lot of activity at open houses but very few offers being written. Our hope is that this is a sign of good things to come as we enter the holiday months.
Santa Cruz County—Inventory levels have dropped considerably in the last three weeks—approximately 200 homes as we move into the winter/holiday season. The highest percentage of pendings remains in the south county area of Watsonville. Prices are continuing to move slightly downward although this is micro-geographic in different areas and neighborhoods. The office listed a bank owned property in the Seabright beach area and the open houses were extremely well attended both Saturday and Sunday. There were eight offers on the property; it sold for 10% over asking price. There are some great buys in Santa Cruz County!
Silicon Valley—Though buyers are still cautious, things seem to be brighter in Silicon Valley. Our Cupertino Stevens Creek reports “Sales continue to improve with good news looming in the media.” Our San Jose Main office concurs noting “Our immediate market continues to be brisk. Excellent open house traffic reported this weekend. Entry level homes and REO properties continue to receive the greatest attention and most reported sales are in the $350,000 to $550,000 range.” The upper-end has definitely taken a hit and the consensus is that it is slow all the way around in this niche. Our Almaden office reported that a buyer was about to pull out of one transaction this week unless the seller dropped his price from $2.2 million to $1.975. The seller reluctantly agreed. Definitely a sign of the times.
South County—The South County market continues to be driven by REOs The luxury market is South County is very slow with properties over $1 million seeing the following statistics:
Morgan Hill (100 listed, 9 pending)
Gilroy (53 listed, 5 pending)
San Martin (24 listed, 1 pending)

Overall, it was a better week for the Bay Area and momentum continues to build after a rough September and majority of October. Our market continues to be challenged by some buyers who are waiting to see what the market is going to do. Buyers should be reminded of the fact that waiting could cost them plenty in terms of higher prices, lower inventory and higher interest rates. It’s just a matter of time before we move from a buyer’s market to a more normalized exchange between buyers and sellers and we need to educate our buyers now that if they don’t act, they will reduce their purchasing power and may lose out on a bigger and better home!

The doorbell is ringing - I think we have Trick or Treaters. Happy Halloween, and have a great week!
Rick

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