I had begun a market watch dialogue last week centered around the government shutdown and how it was beginning to slow a particular part of the loan process in a home purchase. Before I completed the story and had it ready to send out, the new week rolled around and we now have a fix, albeit a temporary fix to the debt and spending situation.
According to agents, managers and mortgage loan experts, many buyers were having trouble getting their loans processed because some lenders request IRS documents to verify income, but there was no one working at the IRS to provide that. In many cases, what’s needed is a 4506-T tax verification transcript, which is required by most mortgage lenders to ensure that the tax returns provided by borrowers are accurate. Additionally, many lenders also require verification of a borrower’s Social Security number. But the closure of the IRS and Social Security Administration offices had blocked the completion of that escrow process. That is now old news, at least until sometime in 2014 when it may need to be re-addressed. Suffice to say our Bay Area Market is still nicely intact and appears quite healthy, having just been through another economic challenge. I’d like you to have the bi-weekly office comments from our branches regarding market activity, and look for a new Market Watch from me at the end of next week.
Below is a market-by-market report from our local offices:
North Bay – We continue to see strength in all sectors of the market, most notably in the sale of luxury homes, according to our Central and Southern Marin manager. While inventory is increasing, demand is keeping pace. Emotions are running high for buyers and sellers in the escrow process, each trying to figure out who has the upper hand in the dealings. Tough negotiations, stressed out buyers and sellers and a restrictive lending environment (many conditions, documentation and scrutiny over appraisals are holding up many an escrow) are making some deals difficult, but savvy and communicative agents are getting the deals done. Multiple offers still rule the day on well-priced and well- presented homes, but don’t overprice in this market, our manager advises. Buyers will walk away. Our Santa Rosa manager says the market continues to be sluggish due to the uncertainty of the broader macroeconomic influences of the government shutdown, interest rate volatility and the loss of many investor clients who were on the leading edge of the market’s recovery. Foreclosure or bank owned properties are running at about 10 percent of all units entering the market and as a percent of inventory as well – a far cry from the 40% of inventory just a year ago. We are looking at a balanced market of 6 month’s supply of inventory in the million-plus category in Sonoma County. However, the market below a million is still running relatively hot at less than 3 month’s supply. Agents continue to see strong demand for properties below $500K with multiple offers for appropriately priced homes. Open houses are beginning to be well attended once again. The overall summary is one of trepidation in the marketplace with all of the noise being created by the federal government’s activities.
San Francisco – Open house are still well attended, according to our San Francisco Sunset office manager. Multiple offers are still the norm, but number of cash offers is decreasing. One particular listing, priced very reasonable, received 19 offers with 3 all cash and it’s in contract at 29% over list price.
SF Peninsula — Our Burlingame manager reports that the last two weeks have shown a slight improvement in listing inventory, which is being snatched up as quickly as it comes on the market. The number of offers per property may be 2-5 as compared to 10+ several months ago and buyers are feeling a bit more powerful in their bargaining ability. But someone always seems to step up and a new homeowner is created! The $800k – $1.5 million price point is the most active. We are seeing a lot of 1031 exchange deals with investors upgrading and modifying their investment portfolios. The last quarter is looking hopeful for the upper end market with sales under $4 million becoming more common. $2.2-2.5 million is extremely strong with entry-level buyers competing with each other for several mid-century fix up properties. There is a lot of inventory coming to the market over the next few weeks, hoping to sell before year-end. One of our listings in San Mateo listed at $1,895,000 received 5 offers. Prices are still being driven up. Our Menlo Park office saw some substantial sales this last week – up to $15 million new construction. The area wakes up in mid-September when everyone is back in town and settled down for the fall. Our local manager says they are seeing no effect from Washington shutdown – just continued faith in the power of Silicon Valley. In Palo Alto, the local market is seasonally slow. They only had a total of six homes on MLS tour last week. This creates a strong demand for the buyers – buy side and rentals – with extraordinary prices. Redwood City/San Carlos agents face a significant lack of inventory, which is creating multiple offers on several properties. One agent has made 10 offers for one buyer and has still not been successful in ratifying an offer, but the buyer wants to continue. Our Woodside-Portola Valley manager reports that there have been a few high-end sales up to $10 million. All properties were on the market awhile and prices had come down on all of them. Buyers are out there but very picky and waiting for the right prices.
East Bay – The consensus among the Berkeley office agents is that the market has slowed down. Fewer visitors to open houses and those who do visit seem a bit disheartened and cynical about the current market. The government shutdown has not helped their mood. Buyers seem as edgy as the stock market. Our Castro Valley manager says $350-450k seems to be where the most multiple offers are and 650 seems to be the cut off point for multiples. Inventory has been trending down for the past month, according to our Danville manager. The San Ramon Valley has about 1.5 months supply, except for Blackhawk, which has about 6 months supply and is the slowest market in that area. Our Walnut Creek manager says the local market is lukewarm with people waiting to see what happens with the federal government shutdown. There has been a lull in new listings and new sales.
Silicon Valley – “We need homes to sell,” our Cupertino manager pleads. Our Los Gatos manager reports that multiple offers are back with a vengeance on almost anything and everything under $2 million. In San Jose, our Almaden office manager says listings were down for the past couple of weeks but sales went up. Our San Jose Main office manager reports that inventory appears to be dropping but buyer activity is still brisk. Open houses are extremely busy in all price ranges. And in the Will Glen neighborhood, inventory continues to shrink and agents are experiencing a bit of a slowdown in sales activity this past week. The manager said it could be a byproduct of the government shutdown. Saratoga inventory is lower than it was last year by 46%, which is keeping up the demand for the move up market.
South County – The market in South County has started to slow down and stabilize, our Gilroy manager reports. Average Days on the Market for Morgan Hill and San Benito County are 30 days, while Gilroy is 17 days on the market. Many homes are just taking longer to sell, and multiple offers are really only for an under-market priced listing or a home in perfect condition in the right neighborhood. Homes with location issues, such as a busy street, are taking much longer to sell. Prices have dropped about 5% from their high in June. Many new builders are still breaking ground on new developments, making South County and San Benito County a good place to bring your home buyers looking for new construction. Most agents will agree that real estate is “local” but current ‘national ‘events seem to be having a strong impact on our market, according to our Morgan Hill manager. The government shut down has affected federally insured loans, and prompted layoffs at Silicon Valley businesses that work with government contracts. These events coupled with the recent increase in mortgage interest rates have certainly slowed down the market and impacted buyer interest. Morgan Hill agents are reporting that though attendance at open houses seems normal, getting buyers to commit to making an offer is difficult at best. Even with an increase in the listing inventory, sales for the last week of September and the first week of October have been unexpectedly low.
Santa Cruz County – The over $1 million market in Santa Cruz County continues to have an excess of inventory, making up over 30% of the active listings yet only 10% of the total closed sales. The Santa Cruz County real estate market overall for 2013 has remained relatively flat with regard to closed sales; to date, sales are up only about 4%. Inventory levels have increased somewhat, however still way below last year at this time, currently down 17%. The lion’s share of the sales are occurring in the $550,000 – $650,000 price range with the majority of those sales in the far north and far south part of the County, outlying areas, lower priced, San Lorenzo Valley and Watsonville. Well-priced homes in desirable areas are still receiving multiple offers, however 3 offers, maybe, not in high numbers. And still we are seeing investors and cash buyers influencing the outcome in many scenarios.
That’s it for now. Have a great weekend!