Weekly Market Watch

Some good news was released this week from Fannie and Freddie: maximum loan limits will remain unchanged for 2010. The Federal Housing Finance Agency announced that the maximum conforming loan limits for mortgages originated in 2010 will remain unchanged from their 2009 numbers. The maximum loan limits for counties across the United States can be found on the Fannie Mae website.

The news in the media over the last two weeks has largely been about the potential benefits of the new expanded and extended home buyer tax credit which opens the doors for existing homeowners to take advantage of a $6,500 tax credit. There have certainly been quite a few articles regarding the tax credit over the last two weeks. I did come across an interesting article on Reuters.com which stated, “Up to 400,000 people bought a home for the first time due to the credit, boosting first-time buyers to a record 47 percent of sales over the past year, the National Association of Realtors has said. With the help of the credit, existing home sales will rise 2 percent this year and 13.6 in 2010, the group estimates.”

2009 was a challenging year in real estate. The good news is that we started to see a positive turn in the housing market as the year wore on, thanks in part to the first-time home buyer stimulus and indications that the economy was starting to improve. So what will 2010 bring?
With the increases we are seeing in the S&P 500 (up 20.5% YTD) and the economic improvements we are seeing on a global scale, things seem to be moving in the right direction. This makes prospective home buyers feel more confident about their future and the home they may choose to buy. So much of our business is affected by consumer confidence.

But I would caution that we probably aren’t out of the woods as it relates to foreclosures. With unemployment figures still frighteningly high, there are still quite a few homeowners out there who are struggling with their payments. And now there is a great deal of evidence that it isn’t just in the entry level arena; it is also hitting the mid-level and luxury market, too.

The big question remains: When will the “shadow” inventory of already foreclosed homes begin to be released, now that the government has lifted the moratoriums on foreclosures. Once we start to move through those properties, we should begin to see a better, more solid grounding for the real estate market.
The fact is, we live in one of the most desirable regions in the world. Certainly we’ve taken our fair share of hits over the last three years, but our region’s desirability, economic vitality, culture, weather and overall market conditions make it a sought-after place to live. We generally have a much healthier economy in the Bay Area. In terms of a US housing recovery, predicted to be slow, long, and modest; ours will probably be more favorable than most. Here’s an excerpt from a recent Wall Street Journal article on Atherton, which reminds us that real estate is very local, and home prices are very relative to that particular locale and economy.
“Only 60 home sales were completed in Atherton between January and the end of September, down from 70 in the same period in 2008, according to data tracker DataQuick. Median home prices also plunged to $2.78 million during that time from $4.15 million a year earlier. But behind that slowdown there has been more activity than meets the eye. Since May, Silicon Valley-ites have jumped back into the Atherton market, lured by the lower prices. Of the dozen or so Atherton homes sold for more than $5 million this year, 10 were completed in May or after, according DataQuick's analysis of public records. Last month, one newly built home sold for around $14 million.”
As we track Bay Area sales activity, we are seeing more encouraging signs. Based on what we’re seeing, we’re estimating that we can expect sales to moderate to a more sustainable pace. We are already seeing a rise in housing prices in the entry level, and may see a modest rise in our mid-level price points, and most likely we’ll see further adjustments downward in the high end. But this new normal is much more sustainable and will provide a solid foundation to build upon. It makes me excited about the future and gives us all hope for a productive and healthy 2010.

Now, let’s take a look at this week in real estate:
• East Bay—Berkeley buyers are difficult to read. One would assume the low interest rates and credits in favor of the buyer would move people off the fence. Agents are reporting that buyers are still waffling about writing offers, backing out in the face of multiple offers, or over offering and then coming back to sellers for credits or sales price reductions. Once in contract, loans and appraisals continue to slow the process or prevent a close. One deal was postponed because the buyer bought down the loan, thereby changing the rate just enough to trigger the mandatory delay of close. Fremont reported inventory is extraordinarily low. Most properties hitting the market are selling fast some with multiple offers. The buying pool is highly competitive. Livermore reported persistence is the name of the game on short sales. Oakland reported buyers like the new lower interest rates but finding the right property takes time. Still seeing multiple offers on well priced listings. We had 14 offers on a property listed for $1.5M in Pleasanton. Orinda and Danville both report low inventory, as does Walnut Creek –however agents in Walnut Creek are encouraged by two recent sales over $1M.
• Monterey County—We are beginning to receive a few more REO properties in last couple of weeks, as lenders have told us for weeks to expect. Agents continue to show properties, write offers at steady pace, and feel hopeful that the extension of the new home buyer credit of $8000 and the move-up buyer credit of $6500 and, even more importantly, the extension of the conforming rate to $729,750 for our area, will help boost our sales through next Spring at least.
• North Bay—Greenbrae reported one deal had recorded and the bank asked for funds to be returned because they found additional requirements for the buyer. SCARY! Buyers and sellers continue to negotiate deals once a price has been agreed to. Stubborn buyers + sellers= more deals falling apart. Agents must work around egos and emotions to get their clients what they want. Southern Marin reported the lower end is alive and well. Our office listed a fixer in Larkspur for $628K and received 4 offers while a property in Mill Valley, a foreclosure, listed at $728,000 received 10 offers. Petaluma reported multiple offers continue to be the norm under $500,000. We are seeing movement in the $600,000-$900,000 range. Inventory is scarce. Sebastopol reports lack of low end inventory is hurting sales. New properties held open this past weekend drew large crowds. Santa Rosa says lots of entry level transactions are coming together in spite of the low inventory. They are bringing on Previews listings and writing offers in the higher end –but finding negotiations very tough.
• Peninsula—Burlingame reports the inventory is continuing to shrink as buyers are becoming more willing to make offers. No one wants to over pay and counters go on 6 or 7 times but at least the will to make a deal is out there. The smart buyers see what is happening and fear a buyer’s market looming if there is no more inventory coming to the market. Q 4 is a great opportunity. Half Moon Bay reports still good activity for the under $1m range. Open house activity brings 12-15 groups through; which is considered good for the coast. Menlo Park El Camino reported the market is slow. Agents are getting really picky about taking over priced listings. The high end ($4 m plus) is very shaky and buyers are sitting on the sidelines waiting for the other higher priced shoe to drop. It feels like springtime is going to be a flood of listings (and hopefully some pent up buyers). Redwood City reports there seems to be more activity at the open houses. Agents have several buyers but there still seems to be a lack of good inventory. Buyers are watching for price adjustments and when they occur there are usually multiple offers but only two or three. Palo Alto reported that this is a very unusual market. One property could be hot, we presented an offer on a property a little over a million – there were over 30 offers. And yet around the corner, another property priced around a million received no offers.
• San Francisco—Lakeside reported less inventory than last year at this time yet more units have been sold. Lombard reported the reality of today’s market: most deals need lots of attention and tweaking and face lender problems. The good news: activity in the mid and upper markets. Average price point is rising. Market Street reports Agents are still busy writing offers, they are ratifying and some are not. For those who have not yet ratified, their buyers are persistently looking for homes to call their own by the end of the year. Still great traffic at open homes throughout the city. Noriega reported transactions are taking much longer to close, especially with financing involved. Typical deals with financing are taking at least 60 days to close. Van Ness shared some great news: we closed 44 deals during this period.
• Santa Cruz County—Market activity this week is winding down as the holiday nears. Inventory levels overall are extremely low and the under $500K market continues to draw multiple offers with cash being the deciding factor most of the time. The south county market - Watsonville has very little inventory. REO properties which we were listing are now dribbling in. The agents seem to be doing well with short sales, although the timeframes are long and if the client's expectations are not managed from the beginning, they lose interest.
• Silicon Valley—Cupertino reported it is very competitive in the lower price ranges. Short sales continue to be a major segment of the market. Los Altos reported the market is still active on well priced new listings under $2M. Some multiple offers are still coming in below asking, and most above asking by 5-10%. Willow Glen reported we have slowed down but still sales are coming in. Open houses are pretty slow though floor calls are still coming in meaning that there are interested buyers. Los Gatos and Saratoga say things are active in lower price points, while each of the offices have turned in a sale in the $4M range.
• South County—Hollister reported inventory is still low. Buyers are excited that the tax credit has been extended. Multiple offers continue on most listings under $400K. Cash buyers still prevail. Short sale listings are increasing. Morgan Hill reported all of us were very thankful that the first time home buyers tax credit was extended. That fact, accompanied by the $8000 tax credit for "move-up" buyers, provided even more encouragement that the housing market is on the road to recovery. The South County market is beginning to "seasonally" adjust--less activity at open houses and fewer consummated sales. In retrospect, however, many of our agents will end the year with solid production numbers.

I’ll leave you with a few interesting articles of note from the week:
• Cheaper Prices—More Than Tax Credit—Motivating Home Buyers; U.S. News and World Report
• Tax Credit Expands Home Buyer, Economic Opportunities; On Pace To Help 70% Of Potential Home Buyers; RISMedia
• Housing Cooled In October; Tax Credit Extension Expected To Drive Improvements; RISMedia
• Real Estate Outlook: Moving Towards Recovery; Realty Times
• And a local story regarding positive effects of Extended and Expanded Tax Credits http://www.insidebayarea.com/real-estate-news/ci_13801683

Finally, I’d like to take this opportunity to wish you and your families a very warm and blessed Thanksgiving. Despite the challenges in the market and the bumpy road we have taken to get here, we all have a great deal to be thankful for. Family. Friends. Health. Food. A roof over our heads. These are all things to hold close and cherish this special time of year. I for one am thankful for you and appreciate what you do each and every day. I feel very fortunate to be President of Coldwell Banker San Francisco Bay Area and am proud to be leading our excellent team into 2010.

Happy Thanksgiving! Please enjoy the time with your family and friends and we’ll return the week of the 30th with another edition of Weekly Market Watch.

Warm regards,
Rick

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