While the nation’s housing market has bounced back from the depths of the recession, the nascent recovery has been slow and sporadic in many parts of the country, including here in the Bay Area. The question on everyone’s mind is, “When will the market return to normal?” No one knows for sure when that will happen (the definition of “normal” is rather subjective – it seems today’s market is the “new normal”), but there are a number of signs out there that we should be watching for – economic indicators that will point to a more robust recovery in the market.
On a macro-economic level, consumer confidence and unemployment levels are crucial, along with overall economic growth figures such as the nation’s GDP. Buyers won’t take the chance on purchasing a home if they’re out of work, or concerned they may be before long. If they don’t have confidence that things will be getting better, they’re not likely to move forward with a major purchase.
Additionally, because real estate is such a local business, our local market indicators will also give us some clear signals. In addition to seeing overall sales rise in our local communities, we will be looking for inventory levels to fall, median prices to edge higher, the average days on market figure to drop, and the upper end of the market to heat up. Historically, it’s been the high-end market that comes out of a recession first because buyers have the means to take advantage of good values.
So are we seeing these signs yet? Nationally, it was a mixed bag this week. We enjoyed a slew of positive economic data points early in the week – rising car sales, upward revisions to growth and productivity and a busy start to the holiday retail season. Private sector payrolls rose by the most in three years in November. And finally, the Conference Board reported Tuesday that the Consumer Confidence Index jumped to 54.1 in November, up from a level of 49.9 a month earlier. Although the index remains well below its prerecession levels (which were above 100), the boost provides an encouraging sign for the economy.
But as we took two steps forward with the positive economic data, we went one step backwards on Friday when the nation’s jobs report was released. November’s job growth came in far lower than expected and the unemployment rate rose to 9.8%. U.S. employers added 39,000 jobs to their payrolls in November, the Labor Department reported. That marks a major slowdown from October, when the economy added an upwardly revised 172,000 jobs. The number also fell short of the 150,000 jobs economists were generally expecting. However, most economists are concluding by week’s end that the mixed bag of employment data was overall a bit more positive than negative.
Locally, we’ve seen encouraging growth in luxury home sales. It’s widely believed that the so-called “smart money” – well-healed investor – is the first to jump back into the housing market, ultimately leading a sustainable recovery in the overall market. The Month’s Supply of Inventory of San Francisco homes over $3M dropped to 6 months in November, 18% improvement over November ’09 and 24% better than November ’08 when it was at 8 months supply. While San Mateo County’s number is quite a bit larger at 15 month’s supply of homes over $3M, it’s a remarkable 34% improvement over November ’09 when it was at 24 month’s supply.
Sales of million-dollar homes in Silicon Valley and the median sale price edged higher in October, according to Coldwell Banker Residential Brokerage’s luxury home report. It was the eighth time in the past nine months that year-over-year sales in the luxury market increased. Luxury sales also edged higher in the East Bay. In Marin, although sales dipped slightly in October, the median price rose 7 percent.
The broader Bay Area housing market, however, is still working to move back to normalcy. Sales in October were off sharply from year ago levels. Analysts believe much of the drop had to do with the fact that 2010 home sales were “front-loaded” earlier in the year as buyers rushed to take advantage of the tax credit before it expired. But certainly tighter credit and concerns over jobs played a role.
So where does this all leave us as we head toward year-end? Our local housing market recovery – like those in many regions – has been slow and choppy at times. Yet we are seeing enough positive signs overall to believe better days are ahead of us as we move into the new year. For those looking to buy a home, the stars are in perfect alignment. Interest rates are at historic lows in the low-4% level in 30-year fixed-rate loans. Home prices are very attractive. And housing affordability is at the highest point in years. Buyers need to examine their own “personal economy” and decide if they’re in a position to invest in a home. If they are, there may never be a better time.
North Bay – We are still getting word of good buyer traffic at open homes in all parts of Marin. Newer listings are getting the bulk of the traffic, showing that the buyers may be dissatisfied with what’s currently on the market (or perhaps the prices at which those homes are selling for). Our Greenbrae manager says that we many buyers are looking to close before the end of the year. In Petaluma, serious buyers continue to circle the new inventory, snatching it up as it comes on in the under $300,000 range. Open Houses are well attended. One west Petaluma property had 27 groups through. Inventory is scarce in the under $500,000. More and more buyers in the $600,000 to 800,000 range trolling the market. The Northern Marin market is reflecting a seasonal slowdown across the board- higher-end properties are the slowest moving. Investors are still looking for below market deals and often pay cash. A similar story is told by our Sebastopol office. The seasonal slowdown came early this year. The buyers that are looking want to see everything on the market and are slow to pull the trigger. In Santa Rosa, listing activity has slowed the past 2 weeks but sales are holding steady. Open houses are unpredictable; many get only a few groups while others are seeing 30 groups through. Likewise, Southern Marin has seen a typical end-of-year slowdown with both sales and inventory declining.
San Francisco — Sales are increasing and inventory dropping, according to our San Francisco Lakeside office. Nonetheless, buyers are highly price sensitive. It’s like holiday gift shopping the way that buyers are looking for bargains. A $2,000,000 cash buyer opted for a $400,000 cash purchase as an investment because he could get it for 50% off. The Lombard offices that that despite lots of talk of a slowdown, the local market had an OK start to November. Open house traffic is slower but still good numbers on fresh listings. The Market Street office reports steady open house attendance over the weekend at all price points and areas. A condo in the Dolores Park area received 14 offers with a very quick close. Properties that went into contract over the last two weeks range in list price from $240,000 to $2,879,000 – buyers for all price points are out there. Finally, the Noriega office says both sales activity and inventory is on the decline of late. But buyers are out there; if they see value, they will make the commitment. A four unit bldg in the Sunset had 3 offers in less than a week and is in contract for full price. Another listing in Glen Park went into contract over asking price being on the market for less than a week. Another agent in the office submitted an offer on an 18 unit building, $150,000 over asking, and all cash and did not get the deal. The offer came in 3rd place, there were 7 offers on it.
SF Peninsula — Our Burlingame office says there is a general feeling of a slowdown, although it could well be the typical slow holiday slowdown. Well priced, or rather “DEAL” priced properties can’t be kept a secret. One new listing that had a huge price reduction from the previous broker has kept the phones ringing with multiple disclosure packets out for the Dec. 6th offer date. The slight rise in interest rates has moved some buyers and certainly refi “fence sitters” into action. Over the hill in Half Moon Bay, sales activity has been steady while inventory is falling. The local market remains fairly steady in Menlo Park and Palo Alto. But in Redwood City and San Carlos, things have definitely slowed down as the holiday season kicks into full swing. The same is true according to our San Mateo office manager. Finally, in Woodside, listing inventory is steady while sales activity has dipped.
East Bay –Buyers continue to wait for prices and interest rates to decline further, our Berkeley manager says. Additionally, buyers seem to be foregoing previously sought-after neighborhoods like Kensington and Berkeley’s hills and wanting high scoring “walkability” areas. Both sales and inventory are on the rise, according to our Oakland/Piedmont office. In Castro Valley, agents are continuing to see a good turnout at their open houses. In Orinda, inventory has decreased. Sellers are waiting until after the holidays to list their home. Danville had a significant jump in sales activity in the past week, particularly in condo/townhouse sales. Inventory is decreasing – they have about a three ¼-month supply. Our Pleasanton manager says the local market is very slow. Buyers are looking but not making as many offers. In Fremont, surprisingly the market is holding steady, contrary to the typical holiday slowdown. Active inventory and total pending sales in the Tri-Valley area have declined in all three cities – Livermore, Pleasanton, and Dublin – since the first of November. This is pretty typical as we move into the holiday season. Finally, in Walnut Creek, we have experienced a positive spike in sales in the past week. In addition to entry and mid level priced sales, we are seeing our upper end market selling too. One of our Walnut Creek properties priced at $1,000,000+ went pending after 180+ days on the market. A bank owned listing located in Alamo priced at $l,500,000+ received 7 offers
Silicon Valley – Our Cupertino office reports decreasing sales and inventory. Nonetheless, many agents are working hard despite the upcoming holidays and open house traffic remains steady. In Los Gatos, our local manager says both sales and inventory have increased and the overall market has picked up. Sales have been steady in Los Altos, but inventory is falling. Open house traffic is slowing to a crawl, according to our local manager. New listings are rare and many properties are being taken off the market for the holidays. Our San Jose Almaden office reports that sellers of homes above $1 million need to aggressively price their property if they hope to solicit an offer. The low-end market continues to be consistent but not as hot as it was 6 months ago. Investors are still grabbing low-end homes with all cash offers from banks. Sales are taking longer to close for a variety of reasons though they are staying intact, our San Jose Willow Glen office says. Open houses have slowed down a little. Finally, in Saratoga, there seems to be a reduced number of problem escrows in the last few weeks. The local manager has seen a number of multiple offers lately including one where a Saratoga listing had 8 offers! The properties priced right and in the best locations have no problem selling as always.
South County – In a recent Inman News article, author Matt Carter, suggests that the housing recovery hinges on lending. He writes that, “money is easy, but credit is tight—another way of saying what many would-be homebuyers have discovered during the downturn: loans may be dirt cheap, but they are hard to come by.” All of this manifests itself in the local South County real estate market, our Morgan Hill manager says. There is demand – but jobs and consumer confidence, along with the lending crunch, remain critical drivers when a buyer is trying to make the decision to purchase. In Gilroy, sales and inventory have declined in recent weeks. But several agents are writing offers with people they have met at open houses. This time of the year seems to separate serious buyers from lookers.
Santa Cruz – As in many real estate markets the Santa Cruz County market took a tumble in October with about 100 homes closing escrow, which was down 38% over October of 2009. The median price dipped to its lowest level since January to $501,250. Prices continue to be affected by foreclosure and short sale pricing; foreclosures are up 20% over last year’s record setting pace. Short sales are reported to be taking longer, with less incentive it seems for the banks to work with the borrowers. The short sale process has become more cumbersome and lien holders are requesting additional money at the last minute. Inventory is up slightly with about a 9-month supply of inventory.
Monterey Peninsula – While Peninsula market generally slows as the holidays approach, we seem to be continuing at a steadier pace of sales than in past years. It appears that the homes well priced for this market and the continuing low mortgage rates are helping sales maintain a consistent, though not earth-shattering, pace of three to five new sales per day for us. New listings have slowed, however, and some listings that have been on the market for a year or more are now expiring, with many sellers deciding to take those properties off market until the new year.
A final note on the Previews Market: As I mentioned above, the high-end market is showing some positive signs although it really is a market-by-market situation. Some regions are seeing stronger interest than others. We noted several weeks ago that Woodside had a huge uptick in sales over $5M, all within just a few weeks. In Hillsborough currently, there are 72 active and 18 pending listings, not a bad ratio. We had a sale of an $8.5 mill listing this week. Several high-end homes that have been on the market 8 months or longer have just sold in recent weeks. Many buyers are bringing cash and many buyers are coming from outside the U.S.
That’s it for now. Have a great week!