Existing Home Sales Rise For Second Straight Month

The National Association of Realtors released its existing home sales report which noted that existing home sales rose for the second straight month in May, signaling low prices and incentives are attracting buyers.

NAR says existing home sales, including single family homes, condos and coops rose 2.4 percent in May. It was the first back-to-back monthly gain in existing home sales since September 2005.

NAR chief economist Lawrence Yun had this to say, “Historically low mortgage rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates. First time buyers are also being drawn off the sidelines by the $8,000 tax credit which is helping to absorb inventory.” The numbers could be even better if it weren’t for appraisal issues. While pending sales of existing homes—those with signed contracts but not yet closed—indicate stronger activity, some contracts are falling through from faulty valuations that keep buyers from getting a loan, said Yun.
We’re starting to experience more challenges with low appraisals here in the Bay Area, most often from out-of-area appraisers who have no experience and limited knowledge of local markets. The pendulum could be swinging a little too aggressively in some cases as regulatory controls meet market demand. You’ll find quite a few references to appraisal issues as you look through our activity for the last two weeks from our branches:
East Bay—The Berkeley office reported same old story. REOs are flying off the shelf with 15-24 offers and most are cash. In our core area, there are still not enough listings. Sellers are either waiting for some magical return to previous years, or concerned that their appropriately priced house won't appraise. Appraisals are the big bug-a-boo now for all parties. Buyers are torn between "shoot the moon" offers and whether their offer price will appraise. Listing Agents and sellers are wary of extravagant offers for the same reason. Short sales are popping up in more affluent neighborhoods. Our Castro Valley reports the market continues to improve for our local market. We have an active base of buyers and we continue to support them in the competitive market. We are continuing to see increased activity in the mid-range markets and we have even sold some of our oldest inventory. In fact, listings that fall out are quickly back into escrow, since there is no shortage of buyers for us. Our Livermore office reports in the Tri-Valley Area, active listings in Livermore are decreasing and total pending sales are increasing: active listings in Pleasanton had a small increase while total pending sales decreased; active listings in Dublin decreased and total pending sales remained stable. The overall market in the Tri-Valley area is improving. Walnut Creek reports listing inventory is increasing with more REO, short sale and regular listings. The Walnut Creek mid-priced listings, $500-700K are starting to move. Sales activity is good. Multiple offers on most listings under $500K and even some on the higher priced listings.
North Bay—San Rafael and Novato are still moving inventory. Relatively in the $500-$750k range. More REOs expected this summer. $1-$1.3M market strong in Corte Madera, Greenbrae and Mill Valley. In the past week we have seen an increase in sales activity in Novato with 28 homes and condos going into contract versus San Rafael with only 19. We continue to see buyers driving the prices up in the entry level market with multiple offers. One home listed @ $240k sold well over $300k in Novato this month. Our Santa Rosa office reports inventory continues to tighten with multiple offers being the rule rather than the exception. Price point is key as over priced listings can still sit with little or no activity. The Sebastopol office reports almost all REO and short sales are multiple offers. Lots of lookers at open houses over 30 groups on Father’s Day at a listing in the low $300,000s.
Peninsula—Our Burlingame office reports as hard and challenging as all the transactions are these days, there are sales being made and Agents are busy. We have had sales at every price point $200k to $4.5mil. The North County is seeing large numbers of multiple offers 10 to 20 per property, most all sales are REO or short sales. We have had a few appraisal challenges mostly the result of out of area appraisers unfamiliar with the neighborhoods and agents are doing their best to be proactive in meeting the appraiser and providing comps. Our Menlo Park El Camino office reports open houses were slow but we also had quite a bit less. Agents feel most buyers still have no “fire to buy” still waiting for the perfect house and the perfect price. Palo Alto reported everyone seems to be on vacation. Open houses have been quieter in the Palo Alto area. There is still good demand for well priced homes. The Woodside office reports the market feels a little slower. Open houses were not as active. Is it the interest rate movement or the summer doldrums? Inventories are still short on the best properties that buyers are looking for.
San Francisco—The Lakeside office reported the under $800,000 market is going crazy in San Francisco. There is a lot of over bidding and then complicated escrows, but a lot of activity. The Lombard office reported all deals were sol and under asking except with REOs which were all multiple and all over asking. But some over asking REO deals of late have had appraisal challenges and required adjustments. Lots of loan problems and delays of late; requires patience and cooperation from all sides. The Market Street office reported this week was one where buyers were flocking around certain houses driving up the price and garnering multiple offers. We lost out on a couple where 10 or more offers came in and our Agent wrote $75,000 over. Fortunately we had a couple of listings that benefited and received multiple offers after the first open house. The Noriega office reported sales activity is up. A lot of negotiations going back and forth. Financing is getting tighter with a lot of loan conditions. Marketing a listing used to be location, location location. Now it’s also price, price, price and affordability!
Santa Cruz County—The market is clicking along; we are having one of our better months in quite some time and will probably end up with 60 sides for the month. In the county, inventory levels are down about 21% from May of 2008, median price is down the same amount to approximately $450,000, while overall unit sales are up 23% reflecting the strong REO market.
Silicon Valley—The Cupertino Stevens Creek office reported listings have slowed down for our office, but we are strong with sale transactions coming in. The Los Altos office reported the market is active with low end REO getting multiple offers. Mid range homes need to be exceptional to draw offers. The high end continues to be slow. The Los Gatos office reports our mid-level properties are selling in Los Gatos (finally). Great energy in the open house arena-lots of buyers feeling that the bottom is passed. The San Jose Almaden office reported 53% pending in Blossom Valley with inventory shrinking. Only 96 homes were available in Blossom Valley. That is down from 200 just one year ago. Attractively priced homes in Almaden are selling fast. REOs continue to receive multiple offers. Our San Jose Main office reported open houses were absolutely crazy the past two weeks. One property in Almaden in the $875,000 range had over 200 visitors on Sunday alone! Most lower priced homes are selling with multiple offers, sometimes as many as 5 to 10 offers on each. Upper end properties are starting to see better activity.
South County—Gilroy reports a lack of inventory continues to cause a decrease in sales. Most properties are receiving multiple offers. Appraisals are now becoming a challenge due to lack of comparables. Hollister reports contracts are being presented with multiple offers the norm on most REO listings. Some listing Agents are not responding in a timely fashion adding to the frustration of the buyers and buyer Agents. Floor time has picked up with buyers ready to buy. Seeing other contracts besides the typical CAR or PRDS being used by some REO listing Agents. Morgan Hill reports Agents are looking for listings. The inventory is way down and our office inventory of listings (entry-level and moderately priced homes) is also down. Properties listed over one million dollars, however, continue to languish on the market—but those priced under $600,000 are selling briskly.

One potential challenge that may begin affecting our market is the rise in interest rates. I recently came across this CNNMoney.com article which offers a good look at interest rates and inflation: http://money.cnn.com/2009/06/19/news/economy/higher_inflation.fortune/index.htm. Currently, today’s historic low interest rates are the major driver of the recovery we’ve seen so far. Housing affordability, better than it’s been in California in over a dozen years, is a balancing act of lowered pricing and attractive interest rates. If higher interest rates take more buyers out of the market, we can expect longer standing inventory and further price declines.

I recently sat down with our partners at Princeton Capital to discuss what strategies the Fed and Treasury may have in store for interest rates as inflation concerns become more real. Our discussion will be found in your upcoming July edition of Reality Check, which we’ll distribute after the July 4th weekend.
In the meanwhile-.
Have a great week!
Rick
Rick Turley
President
Coldwell Banker Residential Brokerage San Francisco Bay Area


Rick Turley
President, San Francisco Bay Area
Coldwell Banker Residential Brokerage