Between the euro zone debt crisis, the sluggish economic recovery here at home and the bickering in Washington, we’ve certainly had a share of bad news this year. But there were encouraging signs in recent weeks that the tide could be turning on the economic and housing front.
Pending home sales both nationally and in California shot up in October, the most recent figures available. We also learned that the economy grew faster than expected. And unemployment actually moved lower last week as well – all very positive signs for the real estate recovery.
Nationally, pending sales rose 9.2 percent in October compared to the same month a year ago, according to the National Association of Realtors. Meanwhile, the California Association of Realtors reported that pending home sales in our state were up for the sixth straight month in October, climbing 3.1 percent from the previous month and 10.7 percent from a year ago.
A sustainable recovery in the housing market depends a great deal on the labor market bouncing back. And last week we saw signs that could be starting to happen, albeit slower than any of us would like.
The Labor Department last week announced an unexpected drop in the unemployment rate in October to 8.6 percent from 9 percent, raising hopes of a solid recovery. Although some of the improvement was due to a contraction in the labor market, the country did add 80,000 jobs, marking 13 straight months of employment gains.
Finally, U.S. manufacturing expanded at a faster rate in November than expected and the overall economy grew for the 30th consecutive month, according to a closely watched index released last week by the Institute of Supply Management.
All of this is not to suggest that the economy and the housing market are out of the woods yet. But the combination of positive economic trends – coupled with strong corporate earnings reports through much of this year – certainly gives us reason for optimism as 2011 comes to a close. If these trends continue into the new year, they will go a long way toward reigniting the housing market across the country.
One final note: Getting Congress to agree on anything these days seems virtually impossible. So it was all the more surprising – and encouraging – when the U.S. House of Representatives and the Senate pulled together a couple of weeks ago on a critical piece of legislation returning the maximum loan limit on FHA-backed mortgages to $729,750.
The bill that was passed by Congress and signed by President Obama will give more homeowners access to lower cost loans at higher limits, especially necessary in high-priced markets like the Bay Area. Moreover, it was an encouraging sign that our Congressional representatives understand how fragile the housing recovery is right now and the importance in doing whatever they can to create sustainable growth.
The limit on the loans, known as FHA-conforming loans, had been $625,500 after a temporary increase on limits expired on Oct. 1. The House voted in favor 298 to 121, with 101 Republicans voting against the bill. The Senate voted 70 to 30 in favor of the bill. The vote raising the FHA limit was a big victory for the housing industry and for consumers. Credit goes to industry groups like the National Association of Realtors and the National Association of Homebuilders for making persuasive cases on Capitol Hill in recent weeks.
“Restoring the higher loan limits for the FHA will provide homeowners and homebuyers with safe and affordable financing, while providing a much-needed boost to housing markets all around the country,” James Tobin of the National Association of Homebuilders wrote in a letter to Republican Speaker John Boehner.
North Bay – November marked the best month for open sales in our Central Marin operations for the past three years, according to our Greenbrae manager. Buyers are coming out in force to make offers on properties they feel are finally priced appropriately for the market. With good news in real estate, the European economic crisis, consumer confidence from Black Friday and Cyber Monday, people seem to be ready to make a move. Our Northern Marin office says there have been 16 new listings in the last two weeks, ranging from $90,000 to one Previews property at $1.1 million. The average listing price is $412,494. There are 33 properties that went contingent, with an average listing price of $410,673. This price point is remaining consistent with an average sale price of $413,167. Distressed properties are still strongly impacting the market – out of the Active & Contingent properties currently on the market, 125 are distressed, and 108 are not – representing a market with 54% distressed properties. The seasonal slowdown is slowly creeping up, according to our Sebastopol office – lots of lookers but no sense of urgency. Both the Previews market and general market have slowed down in the last two weeks, according to our Southern Marin office, as it seems everyone is turning their focus towards the holidays. Open houses are slower, and many agents say their clients are waiting until late winter or early spring of 2012 to put their houses on the market. Inventory is quite low, so the buyers who are motivated, are having a smaller pool from which to choose. Showings are still happening on the available listings, but buyers aren’t stepping up to the plate, even with lowball offers.
San Francisco – Holiday season has arrived, our Lakeside office noted, with listing inventory standing at only two-thirds of last year’s level and buyers getting distracted by seasonal duties. Our Lombard office says sales activity is increasing. It was a busy November for open houses, but a holiday drop in inventory started early. The Market Street office reports that listing inventory has begun to diminish for the holiday season, which is resulting in much of the unsold inventory being spoken for. We continue to see a demand for well-priced property in prime locations. The office ratified this week a two-unit property in the Mission that saw over 150 parties at the open house resulting in 21 offers. The driver here was location, price and perceived value. Ironically I am told that 4 of the 21 offers were buyers from Google. We also recently ratified on a small house, 26 offers… all at ask or above, all buyers with a minimum of 20% down, several 50% and some cash purchases. To sum it up, there are a lot of well-qualified, motivated buyers out there- our challenge remains inventory. The Sunset office said they are seeing surprisingly strong pending sales, open houses are well attended but many sellers are holding off putting their property on the market until after the new year.
SF Peninsula — Burlingame agents are busy and looking for inventory for the many smart buyers who are waiting to take advantage of the interest rates and end of year slow down. There are currently 50 active and nine pending listings in Hillsborough. This is a reduction in inventory from the past months and probably reflective of the end of year slowdown, which is typical. Upper end San Mateo listings are very slim with only 10 active at this time. Our Half Moon Bay office says the local market is starting to reflect the holiday slow down – buyers are looking but difficult for them to put the pen to the paper. The local market is slowing down, according to our Menlo Park office. There were only six properties on tour last week, an extraordinarily small number. But our manager says there still is a fair amount of “off-market” activity. Our Portola Valley manager said the seasonal slowdown has begun, but one $8 million-plus sale did take place. Similarly, the Redwood City office reported the holiday slowdown has hit that local market as well. In San Mateo, listings are decreasing while sales activity is steady.
East Bay – Our Berkeley office says sales activity is increasing and listing inventory is declining. Overall, they’ve seen good sales since June and it is continuing. There still are the usual frustrating stories of having to deal with banks and appraisers, but also some happy tales of banks acting faster than anticipated. Sales activity and inventory are both decreasing, according to our Livermore office. Total active inventory in Livermore hit a new low for 2011 with 215 homes on the market. Total pending sales, 236, in Livermore are also on the decline, but still above the low of 186 total pending sales for 2011. The average sales price has declined nearly 11 percent since last year. Our Pleasanton office reports low inventory with multiple offers on right-priced homes. Lastly, our Walnut Creek office reports inventory is still very low. Buyers are still in multiple offer situations with some overbidding. Some sellers are still waiting until the beginning of the year to list.
Silicon Valley – Our Cupertino office says they have lots of buyers and few good houses to sell. Inventory is half of what it was this time last year in Cupertino. In Los Altos, our local manager says open houses are still drawing buyers at recent listings for single-family homes, but condos and townhomes are still slow. Our Los Gatos office reports multiple offers are increasing due to the low inventory. All three San Jose offices report a slowing market as we approach the end of the year. The Saratoga market is tracking just like we would expect for this time of year as we go into holiday mode.
South County – The holiday season slowdown has begun in the South County, our Gilroy office reports. While open house activity has remained steady, averaging eight groups each open house, overall buyers are not pulling the trigger and writing on properties. Inventory is low and there are a lot of short sales and REOs. Year to date the local market is about 37% short sale, 35% traditional sale, and 27% REO. Morgan Hill agents managed to put 34 homes into contract in November despite the short month and the four-day Thanksgiving weekend. Buyer demand for entry level (and investment) properties remain high—as listing inventory for these types of properties is very limited. The South County market continues to prove that a well-priced, well-presented home will garner an offer (or perhaps several offers) once it hits the market. This is very true for homes in all price ranges—but those priced under $400,000 sell exceptionally well. There is also increased demand for “upper-end” homes—those priced over one million dollars.
Santa Cruz – Seasonal slowing down of the market has begun as we wind into the holidays. Distressed properties – REO’s and Short Sales – continue to represent approximately 44% of the local market. We have seen a decline in prices overall in the county this year, with closed sales up slightly. New home sales in our 3 offices are up 7%, closed home sales are up 18%, and average sale price is down 7%.
Monterey Peninsula – While listings have slowed down on the Monterey Peninsula, as is generally true around the end of the year, the sales activity has remained at a steady level, not so much affected by the holiday season. It looks like we will march toward the end of the year with a relatively strong market here, certainly a good increase in numbers of sales for the year and the appearance of a leveling off in prices.
Seeing the erratic activity and volatility daily on Wall Street, and trying to keep up with global economic news each day (this past week it was “European sovereign debt credit swaps” ) is causing more and more investors and homebuyers to look to San Francisco Bay Area real estate as a terrific investment.