Weekly Market Watch

Regardless of your political persuasion, Tuesday’s inauguration of the 44th President of the United States was one for the history books.
In the words of our new President during his inaugural address, “Starting today, we must pick ourselves up, dust ourselves off and begin again the work of remaking America. For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act—not only to create new jobs, but to lay a new foundation for growth.”

There’s no question, Obama has his work cut out for him. This week CNN reported, “The scope and intensity of problems facing President Obama are similar only to those that Franklin D. Roosevelt faced in 1933.”

Obama is expected to hit the ground running. History shows that the first year of a President’s term is most critical. At some point, he will own the problems he has inherited and so time is of the essence; he knows he must take immediate action.

In the short run, Obama has pledged to work with Congress to implement aggressive policies—including as I referenced last week, making better use of the TARP funds—to prevent foreclosures and strengthen existing home sales. With the second half of the TARP funds now available to him (totaling some $350 billion) we should see the beginning use of those dollars sometime within his first 100 days in office. Obama has promised to devote $50 billion to $100 billion to a new foreclosure prevention program, leaving him between $250 billion and $300 billion of TARP money to address the continuing credit crisis.

As Obama was being sworn in, the world as we know it continued. One of the current issues most affecting our market is the drop in mortgage loan limits for conventional financing as of the end of 2008. This is dramatically hurting home sales and trade-up activity in higher price ranges. According to NAR, “The latest existing home sales data shows transactions under $400,000 are just 3 percent below a year ago (referring to number of sales). However, sales of homes priced at $750,000 or more have declined a whopping 47 percent.” Buyers who need jumbo mortgages must pay interest rates that are nearly 2 percentage points higher than conventional financing; as a result, the high-end market is very slow and buyers in higher price ranges are at a severe disadvantage.

Currently NAR is pushing for the permanent increase of mortgage loan limits back to the $729,750 cap. According to a statement released this week by NAR, “To illustrate in dollar terms - if mortgage limits are permanently raised to $729,750…the mortgage payment on such a loan would drop by $942 per month by lowering interest rates 2 percentage points. Over the life of a 30-year loan, the homeowner would save $338,000.”

Especially here in our market, we need the increased loan limits so people in all prices are able to purchase. Every segment of the housing market needs a turnaround to spark an overall housing recovery.

With this information in tow, let’s take a look at this week in real estate, including Wednesday’s release of DataQuick figures: http://www.dqnews.com/News/California/Bay-Area/RRBay090121.aspx

East Bay—The Castro Valley office reports that it has seen the low end picking up ($100-250K) driven by lots of FHA loans for first time home buyers, low interest rates and great prices. Prices in Castro Valley continue to dip, making it a hot market due to the desirability of the area. In fact, there is a single family residence currently listed in Castro Valley for $199,000, which is an unseen precedent for this area. Our Danville office reports that the market is slow but steady. Agents are reporting good attendance at open houses and sellers are getting more realistic which are two signs of good things to come. Our Fremont office notes that we have had a slow down in the REO market that reflects in the decreasing listings and sales in our office. The REO market has slowed due to the temporary freeze that some loan agencies incurred during the holidays. Our Orinda office notes that Agents are talking about working with many buyers and how excited they are about what is about to happen in the real estate market. Finally, our Walnut Creek office shares that activity has increased. Open houses have been well attended and buyers are finally starting to take action. People who have been renting have stated they believe prices have finally hit bottom and they are ready to buy.
Monterey County—While our closed escrows have been slow since the beginning of January, our open escrows have been good, with 32 new escrows for the first two weeks of the year. Also within the last week we have seen an increase in new listings and 22 price reductions for our approximately 260 listings. These price reductions are a welcome sign to restore buyer interest.
North Bay—In Marin County, our San Rafael office notes that we continue to see interest from buyers in the entry level condos in San Rafael and Novato. One home we had listed in Mill Valley had multiple offers as it was priced well - making it very desirable for the area, even though it needed work. One property in Marin had 17 offers; the property was listed at $350,000. In Sonoma County, our Petaluma office notes that short sales and REOs are 50% of our inventory and 75% of our closings. Multiple offers are dominating the landscape. Our Santa Rosa office concurs noting that the inventory and pricing are critical when representing buyers of REO properties. An increasing trend is to under price by 5-20% and wait for multiple offers, leaving many buyers blindsided by the process. The Previews market in Santa Rosa picked up a bit this week with two showings on the rise and two new Previews listings coming on the market this week.
Peninsula—Our Burlingame office shares that things appear to have stalled a bit this week for many Agents. The buyers we are working with seem to be in no hurry to make decisions and are choosing to take the “wait and see” approach with listings they have seen. On the other hand, we have two listings of multi-units which have received immediate and numerous offers, several of which are all cash. We are seeing sophisticated and savvy buyers with cash who are ready to jump when the right property presents itself. Our Half Moon Bay office notes that the San Mateo coast is finally experiencing short sales and some REOs. Open homes were moderately busy over the long weekend and Agents reported that buyers are anticipating that we’re close to a bottom in pricing and probably interest rates as well. Our Menlo Park El Camino office listed a house in prime West Menlo at a price that was 14% less than the almost identical house two houses away, which sold for $1,900,000 two years ago. It sold immediately. Additionally, our Menlo Park El Camino Manager looked at every house that closed in Menlo Park and Palo Alto since December 1 (with a listing date prior to September 10, 2008). The closed price as compared to the original list price was a low of 9% and a high of 24%, averaging 16% off the original list price. Our Redwood City San Carlos office notes that open houses are very busy and buyers are becoming serious about purchasing, largely due to great interest rates and motivated sellers. San Mateo notes that inventory is becoming very low which may lead to more people bidding on fewer properties. This environment could lead to more multiple offers, thereby putting a floor on declining prices. The result could be price stabilization.
San Francisco—Our Lombard office notes new listings, as well as some December resurrected ones are coming on. Open house traffic is light though increasing. The hottest market in this office is the $400,000 to $700,000 range with REOs leading the way. One word of caution: buyers don’t get too complacent. One client waited for the third day to see a new listing on the market and by then the listing was already ratified and they had to compete with three back-up offers – list price was $1.2M. Our Market Street office notes that Agents are signing up listings and getting good traffic at their open houses, they are just waiting for offers to be written. The Agents with qualified buyers that are looking at a property say that buyers are holding off sure that any day prices are going to soften or money may get a little cheaper. Our Noriega office notes that though we seen an active floor and LeadRouter requests, we are not yet seeing an uptick in sales.
Santa Cruz County—Listings seem to be coming on slow though the market continues to be driven by REOs. We do see multiple offers, though almost solely on REO properties.
Silicon Valley—Our San Jose Almaden office notes that condition and aggressive pricing yield sales even with conventional sellers. Almaden days of inventory is 288 days and Blossom Valley is at 105 days. But, we just sold a beautiful Almaden home in four days with aggressive pricing. Sellers consider this before you place your home on the market. Our San Jose Main office notes a series of increases in buyer activity, weekend traffic and listing inventory. There is good activity in the $400-700K range. Our Saratoga office notes that the luxury market remains slow and REOs are still the hottest area of the market.
South County—Our Gilroy office reports that we are starting to see the market pick up with buyers becoming more active now that the holidays are behind us and interest rates are better than ever. We are seeing great opportunities for the first time buyer and investors. Our Hollister office reports that we are seeing multiple offers on most REO listings. In other updates, REO listing inventory is decreasing, floor activity is on the rise and prices are decreasing. Our Morgan Hill office reports that South Valley homeowner’s are in mourning over their declining property values though buyers continue to rejoice over how affordable homes are becoming coupled with today’s low interest rates. Agents are delivering this message loud and clear: It’s time to buy. Sellers face fierce price competition from neighboring homes that are either short sales or REOs.
In speaking with many consumers as well as Realtors this week, it appears to me that the change in executive leadership of the United States has increased people's attitude and confidence at a time when we need it most. The next 30 days will probably set the tone for the recovery mode our economy can hope for – as to how fast, how effective. Plans and policy need to be put in place immediately for credit markets to flow properly. For us in the San Francisco Bay Area, properties in our lower priced communities are moving fairly well. The higher priced communities of $1M+ homes are ready for an increase in activity from this new-found confidence. They just might see it, as several examples this week of multiple offers in the million-plus price range says that when buyers perceive value, they write offers, and another home sells.
Until next week,
Rick

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