Weekly Market Watch

Home Sales Are Up…But Can Someone Please Tell the Stock Market? Week of Oct 13-19

It was an interesting week in news. More specifically, it was a great week in news for real estate activity—but in its third consecutive week of volatility, the stock market did little to support the cause.

Let’s start with the good news. NAR released its Pending Home Sales Index—a forward-looking indicator based on contracts signed in August—noting pending homes “jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July - 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.”

Days later, DataQuick News reported “Bay Area home sales soared last month above the record-low levels of a year ago, marking the largest gain in over six years. The median sale price did the opposite, diving to $400,000 - 40 percent below its summer 2007 peak - as more sales shifted to lower-cost inland markets laden with foreclosures…Last month's 45 percent year-over-year sales gain was the highest for any month since April 2002, when sales shot up 49 percent.”

Both the prices and sales from NAR and DataQuick’s reports reflect the dominance of foreclosure sales, which according to Data Quick accounted for 42% of all homes that traded hands in Contra Costa, Napa, Sonoma and Solano counties. Of course not all markets are being hit as heavily by foreclosures. San Francisco remains the lowest Bay Area county with just 9.5% of homes sold in foreclosure. Second was Marin at 14.9%.

What the heavy foreclosure sales figures are telling us, however, is most important. The dramatic increase in sales suggests that more investors are deciding that prices have fallen to bargain levels and they are now getting into the market. Historically speaking, it is investors who determine where the bottom is. When they think prices have reached a point where they can potentially buy low, wait a bit and in a few years turn a profit, they’ll swoop in. We’re starting to see this now and that is welcome news to many.

Of course housing recovery as a whole is dependent on the course of the overall economy which had less than stellar news this week. By Thursday, the Dow rallied back after two days of declines—including a loss of 500 points on Wednesday—but the NASDAQ slipped to its lowest point in more than five years.

The volatility on Wall Street is causing concern for many of our local consumers. We have a lot of buyers and sellers who are watching their portfolios each day and are concerned about taking action in purchasing a home until the volatility subsides. In more than one instance we’ve seen a buyer back out of a contract in fear of what may happen—even if they were having no problem with obtaining the loan.

And while I think we all understand the reasoning and the concern, what I do remind consumers of is the fact that we are in one of the best buyer’s markets of our generation. Despite the turmoil in credit markets, home mortgages are available, and at very attractive interest rates. Couple that with the fact that the majority of the communities around San Francisco are amazingly resilient in economic downturns. That’s true because we have very limited land, and we are in one of the most desirable locations in the world. It’s why we are still seeing some multiple offers each week.
Let’s take a look at this week in real estate:

East Bay—With 37.9% of home sales in Alameda County being foreclosures, and 58.7% in Contra Costa County, it is no secret that the East Bay real estate market is being driven by the bank owned market. This week we get the feeling that a lot of people are dizzy from Wall Street’s rollercoaster as we saw fewer walk-ins and fewer floor calls. Castro Valley saw a slower week with listing inventory starting to pick up. Prices are stable although we are beginning to see some price drops in the mid-ranged properties ($500-700K) in Castro Valley. Fremont shared that the REO market is still hot and that we’re starting to see the Fall slow down which is typical for this time of year.
Monterey County—No information reported this week.
North Bay—In Sonoma County, the last two weeks, according to our Petaluma office, listing inventory has come to a literal stand still. Sales activity is good but we are having challenges with stock market funds affecting escrows. Santa Rosa concurs noting that we are very active under $500,000 with multiple offers common. The Santa Rosa office also reported success in the high-end this week with two of their high-end properties going into escrow this week. In Marin County our Greenbrae Manager points out, “For every Agent who tells me things are slow, another is fielding multiple offers or participating in a highly contested bid. Sales continue to happen though not at the same pace as spring.” Nearby San Rafael notes that it continues to see more cash buyers. One property listed under market value in a good location had 12 offers on it and went into contract $200,000 over asking.
Peninsula—Another week of mixed stories. Some sellers are taking their properties off the market because the market won’t bear what they want to realize in the sale. Smart buyers who have cash are making some very good buys. We had one Burlingame condo sell for $100,000 under asking to an all cash buyer. In Half Moon Bay, more sales than usual were ratified over this busy weekend and one even had two offers, selling over its listed price of $1,350,000. We also had two cash deals in excess of $1,500,000 supporting the fact that high-end cash customers recognize good value and have confidence in today’s real estate market. Palo Alto office reports that activity at open houses in surrounding areas is relatively slow, while Palo Alto itself—with its lack of inventory—is still strong with higher activity.
San Francisco- Open houses appear to be filled with real buyers but they are slower to write offers and are being very selective about the properties that they are willing to write on. Our Noriega office had one fixer upper in Sunset that had 10 offers. The listing went well over $459,000. The same office was involved in three other multiple offer situations this week. The heavier activity this week has definitely been in the lower price points.
Santa Cruz County—No information reported this week.
Silicon Valley—Silicon Valley changes from week to week and from neighborhood to neighborhood. This week our Cupertino office is reporting that although sales are treading steady, new listings that are coming on to the market are slow. Buyers continue to come through in waves looking for the under valued deal. We are seeing increased buyer activity and stronger sales, mostly in the REO price range. We are also seeing increased traffic at open houses. Entry level homes seem to get the best traffic. Overall I’d say that things are slowing down quite a bit but buyers are out there. They’re just looking for the best deals and then they act.

On a final note, I’ll share with you a comment released by NAR this week— regarding projections for 2009. NAR Chief Economist Lawrence Yun “expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.” You can be certain that once the national economy begins a turnaround, our San Francisco Bay Area will be one of the first regions in the nation to get firm on housing prices, and begin the upward climb of appreciation as it does in every cycle.
Have a great week-
Rick

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