The Goldman Report: January 26, 2008

Is there light at the end of the tunnel? The first two weeks of January was like being in Fairbanks—pretty much 24 hours of darkness. I guess we could call it the dead of winter. The good news is we now have at least an hour of daylight. Sales activity is beginning to pick up. Buyers are coming out of their caves (do you like my reference to bears). Open house activity continues to pick up and a few opens have been overflowing pointing to growing buyer demand.

Multiple offer activity is still moderate, accounting for about 9% of our total transactions for the week. The number of offers varied between 2-4. The most active were a $799K fixer in Corte Madera and a two bedr/two ba home in Piedmont listed at $945K. Both received four offers and went well over asking, illustrating that the lower end of desirable marketplaces have more buyers than saleable listing inventories.

Open house activity is still quite brisk for January and competition from the football playoffs. We know the most active parts of the market by the numbers of buyers coming through on Sundays. Here are a few examples of some of the most active open homes: the aforementioned Corte Madera fixer listed at $799K had over 100 groups through before receiving 4 offers; two homes in the Rockridge area of Oakland—a 3 bedr/2ba priced at $895K had 90 visitors and a 3bedr/2ba listed at $1.25 mil had 25 groups on Sat. and 85 on Sunday; and in San Francisco 80 groups were reported at a Central Richmond 3bedr/2ba home priced at $1.195 mil, 75 visitors showed at a Noe Valley 2bedr/1ba listed at $699K and finally a Miraloma home priced at $899K had 50 groups through on Sat and well over 100 on Sunday. On average most open homes had between 10-30 groups. Condo opens have continued to attract fewer buyers.

Last week the House introduced several bills aimed at stimulating the economy. One such bill could have a favorable effect on our region. This bill would raise loan limits on conforming loans from $417,000 to $625,000. House leaders of both political parties have endorsed the new limits. The Senate and the Bush Administration have not yet signed off on it. If the new limits go into effect, buyers would now be able to qualify for lower interest rates and more loans would have a secondary market to sell to. This could potentially increase sales activity by qualifying more buyers. We will see how fast our government can act. I think it will be sooner than later, as we are in the midst of an election year.

As I said last week the recession is here. I am feeling better every day. The fall out has been a volatile stock market and sagging consumer and investor confidence.

In light of this, Deustche Bank this past Tuesday surmised that the recession (if it is truly a recession) should be shallow and short due to several forces that could bolster our economy.

“First is monetary stimulus—if history is a guide, monetary policy acts with a six month lag. The first Fed funds cut was last September, six months would be in the April time frame.

It is expected that the Fed will remain vigilant probably taking the Fed funds rate to 3% or lower by year end. The 75bps cut last week and the projected 50bps next week will be stimulative longer term.

Fiscal stimulus with apparent bi-partisan support (it’s an election year) and support from the Fed, plus tax rebates should stimulate the economy.

Oil prices below $90 should also boost consumer spending.

And the cumulative effect of the weak Dollar should remain supportive to imports.”

If these factors can be combined with a steadying stock market we should see a positive Spring market. There are still many question marks and there are no guarantees. The year ahead is still a mine field. With a little luck and some positive action from Washington we could have the soft landing. The demand for housing is prevalent, now we just need the consumer to believe the sky is not falling.