Sparks in the Wilderness

Is there even a glimmer of light at the end of the tunnel? The economic forecast continues to be cloudy with rain. However, I do think there are sparks in the wilderness. President-elect Obama will officially announce more cabinet selections on Monday as he tries to show both the American people and the world that he will to hit the ground running once he takes office. The apparent appointment of Timothy Geithner for Secretary of the Treasury should be a plus for Wall Street. This is the earliest a President has selected cabinet heads in recent years. Our current state of affairs has suffered due to a vacuum of leadership. Hopefully this action will take the bull by the horns (pun intended) and give the markets something to hang on to and set a floor. Although the upcoming holiday buying season looks grim, some are predicting that early, deep discount sales will bring out shoppers in spite of the shaky economy. If this occurs, it could give a lift to the market, or at the very least create a calming effect. The greatest challenge will be to stop the domino effect of layoffs. Our President-elect says he has a plan to create or save 2.5 million jobs—the sooner the better, as the number of layoffs increases weekly.

As it has been for the last several months, the sparks in the housing market are in the sales of the lower end homes. Multiple offers have virtually dried up in homes priced over a million dollars. But those homes that are priced aggressively under $800K are attracting the buyers, as evidenced by the Berkeley 2 bedr./1 ba. home that received 8 offers and went well over asking price. By the way, all of the offers on this home were over its list price of $565K. For those homes over a million dollars that receive multiples, the majority of the accepted prices were actually under list. As long as this situation continues, our median and average sales prices will decline. Geographically most of the multiples are occurring in the East Bay and in Sonoma and Napa counties.

The good news is that inventories continue to decline as the REOs (bank owned properties) are moving quickly off the shelf. Much of last year’s huge increases in inventories were created by two primary reasons: (1) There was an influx of properties that were difficult to move because banks were in denial and not willing to take the deep discounts required in order for them to sell; and (2) sellers were unrealistic in their valuations of their properties. Currently, sellers who have been unsuccessful in selling their homes are now either renting them or taking them off the market permanently to wait for better days. If inventories can remain reasonably low until banks are more willing to lend in the jumbo loan category (loans over $625,250), a recovery will begin to take shape.

As I have stated before, buyers are out there. Open house traffic is still quite good given the time of the year. The homes that are open for the first time are still attracting the largest crowds like a Berkeley home listed at $900K that entertained 75 buyers; a SF Eureka Valley 3 bedr./2 ba. home priced at $899K had 65 groups; or a SF Sea Cliff 4bedr./3.5 ba. listed at $2.949 mil. was visited by 40 buyer groups. The buyers are just waiting for a sign that we have reached bottom. They don’t have that feeling yet.

Until the economy can stop its precipitous slide, sales will be soft. This is good news for buyers who have the upper hand and will be able to obtain exceptional values. Sellers, who do not have a pressing reason to sell, should not put their house on the market. For those sellers who need to sell, it is best to be the most aggressively priced home in the neighborhood and make sure that when their homes go on the market they look their best. For sellers that have the ability to provide seller financing, either in the form of a first or second deed of trust, it is an additional plus in attracting potential buyers. It can make their homes more attractive and/or net them more dollars.

Sellers cannot get stuck on a particular price. They must be flexible and realistic in they want to sell there home in the current market. Buyers will not pay more than what they think a home is worth. It is more important to focus on getting from point A to point B. If you are buying another house after you sell yours, you will be in a position to make up any dollars you may have thought you lost in selling your home.

Just as reminder, believe it or not, buyers do buy through the holidays. There are many reasons buyers will continue to purchase including financial considerations (there accountants say they need to buy for tax reasons, exchanges, etc.), relocations, and many other personal reasons. Be prepared to write or receive offers.

Have a wonderful Thanksgiving. Even though we have challenges ahead, we have much to be grateful for.