Weekly Market Watch

Recent Housing Upturn Sparked By Buyer Leverage

The latest S&P/Case-Shiller home price index reveals home price for 10 major cities rose 3.6 percent between April and July. So does this recent uptick in the housing market mean we are on the cusp of an all-out housing boom? Probably not. In all likelihood, the recent upturn in the housing market has been sparked by several factors:

· The impending expiration of the $8,000 first-time home buyer tax credit
· The impending expiration of current conforming loan limits
· The recent uptick in the stock market
· Increased consumer confidence
· Continued low interest rates
· Increasingly low supply of entry level homes
As you look through our past weekly reports – you’ll see that in the Bay Area it’s our entry level that has continued to have the highest demand and lowest supply. This has resulted in multiple offers, often over the list price, in almost all of our entry markets. (Ex: Alameda and Contra Costa County homes under $600K= 1.6 Months Supply of Inventory –dropping every month this year) In some areas we’re beginning to see a trickle-up effect, where the next tier price-point of homes is getting some activity from move-up buyers. (ex: For homes priced over $1.5M: San Francisco = 4.9 Months Supply of Inventory, down from last month and down Year over Year. Santa Clara County over $1.5M = 6.8 MSI, down from last month, down Year over Year)

Will it last? It’s tough to say. Right now we’re in a slightly unique position because some of the stimulus dollars the government has put in play are working which may be causing a false front for the overall economy. The stock market is up, Dow hitting over the 10,000 mark this week. Consumer confidence is on the rise. The US housing market is looking up.

But, the fundamentals themselves haven’t changed. Outside of Fannie and Freddie, there are few resources for making home loans. It remains a challenge to get a good competitive market for Jumbo loans –and much of our Bay Area is Jumbo loan territory. Foreclosures remain a major issue. We know there is a shadow inventory of homes already foreclosed on and not yet released to the market place. Another new phenomenon is the creation of a market where under-performing and non-performing assets (mortgages) are being purchased in bulk by investors, most likely adding to a further delay of more foreclosed homes hitting the market. As unemployment remains a challenge and businesses and employers continue to tighten their belts, it would seem there are more foreclosures ahead of us. Loan re-sets will provide a challenge.

Sounds a little grim and sober, but probably a bit more realistic. Clearly we are in a much better position than the majority of the State. Our world-class desirability coupled with our finite amount of homes and buildable land will always keep real estate in the San Francisco Bay Area performing better than most markets. But we need our entry market to remain stimulated. One major factor that stands in our way is the impending expiration of the first time home buyer tax credit and the higher conforming loan limits. These have helped tremendously to drive much of our recovery. But right now the debate on Capitol Hill continues and everyone is waiting to learn whether the credit will be extended, expanded or will it simply expire. Many on the opposing side believe it is too costly to finance. But NAR had this to say: “Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.”

If the current tax credit and loan limits simply expire, NAR had this to say: “All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession. Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.”
As this debate continues, buyers seem to be leveraging today’s market advantages which continues to create great activity in our local markets. Let’s just hope the leveraging opportunities continue.

Now, let’s take a look at this week in real estate:
East Bay—Berkeley reported a much busier week than the start to October. We took in some good listings as well as sales. Still hard to get those listings; certainly not enough in Berkeley, Albany, and Kensington. Castro Valley reported REOs continue to trickle into the market, and there are still some incredible prices in San Leandro and Hayward, especially in the lower range market. Prices have stabilized overall, and are going up, except that appraisals continue to shock the market, although getting better. Danville reports we had 26 new pending sales in San Ramon this past week and we have only 1 month supply of inventory. Demand is clearly stronger than inventory. Fremont reports prices and interest rates are going to maintain a steady stream of qualified buyers, however increased moratoriums and state mandated extensions are hindering the inventory of bank owned properties which is why the listings are low. Livermore comments that REO business seems to be in somewhat better price ranges at the moment. Our sales are in all price ranges and our listings are selling faster than the listings coming in at the moment. And from Oakland/Piedmont: Sales are still taking more time to close. But agents are busy and the sales are coming in.
Monterey County—The market continues on at its sluggish pace, with listings declining as they do as we head into the final months of the year and without yet the surge of REOs we've been told to expect.
North Bay—Greenbrae reported the low end of the market is hopping! Two properties in Novato SFR under $450,000 with 7-8 offers each. Everybody is loving a bargain. San Rafael/Novato reported we are continuing to see multiple offers on homes priced to market value from entry level to million dollar homes. Southern Marin reported entry level prices slowly rising. One of our Agents was one of 15 offers on a bank owned property in Novato which went way over asking, and higher than when it was on the market as a Short Sale. Also seeing some buyers for a second and third time at Southern Marin open houses. Petaluma reports inventory continues to be snatched up as it comes on in the $500,000 and under price range in the double digits multiple offers continue to be the norm. Starting to see some strong movement in the $500,000 and above price range. Santa Rosa reported the market is strong but the shortage of inventory is keeping open escrows at bay.
Peninsula—Burlingame reported continuing appraisal problems are causing sales to fall out or to be negotiated down in price. Inventory is thinning somewhat. Half Moon Bay reported that we’re finally seeing some activity in the $1.0m+ listing range – one property sold in 2/08 for $2.9m now on the market for $1.9m with 3 interested parties. Menlo Park El Camino reports a bit of a lull here on the mid peninsula – slow on both listings and sales. Agents are busy but no results yet. Inventory is low. Palo Alto Downtown reports the market is very quiet. Multiple offers occur but volume of sales is down throughout Palo Alto in the $1.5 million and above. Redwood City reports slowly there is more inventory coming on the market and the list price seems to reflect the current market. Good activity at the open houses.
San Francisco—Lombard reports a slow October so far. REOs have dropped off. The rare property, priced right has multiple offers. A couple of cases this week where sellers took cash over higher price. Market Street reports two multiple offer situations. Three counter offers were what it took to get many of our contracts ratified. Lots of activity at open houses and buyers are mindful that the first time home buyers credit is going away at the end of November. Noriega reports well priced properties are still getting multiple offers. We noticed more investors are out making offer on well located and well priced properties.
Santa Cruz County—The market activity is good. We have received a couple of new REO listings in the last few weeks, and although the process is long, these are selling quickly if priced right. While the lower end continues to drive the market - we are seeing some slight activity in the higher end properties which is promising.
Silicon Valley—Cupertino reported most of the activity continues to be in the lower price ranges, which are very competitive. Lots of offers are getting written compared to the number ratified. Open house traffic continues to be excellent. Los Altos reported there is a shortage of low end properties for first time buyers that are scrambling to try to close before Nov 30 and the tax credit expires. The mid range is getting moderate interest and some of the higher end is getting a lot of interest in the best school districts. San Jose Almaden reported the low end still continues to drive sales. Listings picked up a little this week. Open house traffic was spotty. Homes even 3% above comps seem to linger while those -1% below are sold quickly and above asking. San Jose Main reported buyer demand is increasing due to low interest rates. Open houses are extremely busy in all price ranges. Sales of properties in the lower price range between $250k-550k are brisk and usually involve several offers. Upper market moving slowly at present. San Jose Willow Glen reported multiple offers are the norm on regular deals and REOs. As far as the REOs go, they are going well over the asking price in all cases. Homes in the $600,000 to $800,000 are selling quickly as well.
South County—Gilroy reported the local market remains pretty much the same as it has for several months. FHA buyers are out there competing against cash and conventional buyers for homes less than 400k. Every sale and closing seems to present new challenges. Morgan Hill reported you just can't keep some Agents down. A Morgan Hill Agent put five homes in contract this past week--they ranged in price from $350,000 to $1.2 million. He is a very hard worker and despite this "quirky" market manages to be a consistent "top producer" in this office. In addition, another of our top agents is expected to "close" five transactions during the last two weeks of October. These two agents are shining examples that hard work and dedication does pay off and no matter what the market.

This week I’ll conclude with a few story highlights:

USAA Praises Biggert Bill To Extend First-Time Homebuyers Tax Credit; Reuters
Hopes Run High For Tax-Credit Expansion; MarketWatch
Washington Report: $8,000 Home Buyer Tax Credit; Realty Times
Also, CAR released its 2010 forecast this week. Please read it here: http://www.car.org/newsstand/newsreleases/2010forecast/.

Until next week-Make it a great one,
Rick

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