Mixed Messages—November 2008 Review

In a sea of negativity, is there anything we can say that is positive?  Yes, the stock market survived a week of economic news that could have taken it into a nosedive. Some, if not all, of its optimism was based on the prospective bailout of the U.S. auto industry from the TARP funds after Congress failed to pass legislation authorizing dollars.

Another bright spot were retail sales for November. Although they declined for the fifth straight month, there were sectors that showed improvement. If you take away vehicle sales, gas sales (due to drop in prices—hooray), and building materials, retail sales increased a half percent. A small number, but given the current state of job losses and the turmoil in the financial industry, it’s at least something that we can be encouraged about. The article by Sudeep Reedy of the WSJ shared other positives, such as a continued decline in wholesale prices. The link to the article is below: http://online.wsj.com/article/SB120040314051191209.html?mod=hpp_us_whats_news

The best we can say about the Bay Area housing market is that months supply of inventory is down significantly from last November and that sales units are up significantly in those counties that have the lowest median prices. 

Overall, both median and average sale prices have declined considerably from last November.  What is interesting is the relationship between sale price declines, sales unit increases and months supply of inventory. Generally, where prices have had the greatest declines, sales have increased the most and months supply of inventories have dropped most significantly.  The counties of Contra Costa, Napa, Alameda, and Solano, which had the greatest declines and lowest median prices, had the greatest increase in sales units and the largest drops in inventories from last year. Conversely, the counties with the smaller declines of median price had the greatest declines in sales units and, for the most part, increases in months supply of inventory—-San Francisco, Marin, San Mateo, and Santa Clara counties. 

To illustrate, Contra Costa county had the largest decline of median sales price down 43%, sales units were up 105%, and months supply of inventory declined from 15.1 to 6 months; while San Francisco county, with the highest median price in the Bay Area, had the smallest decline in median price down 14%, a decline in sales units down 44%, and the months supply of inventory increased over last year from 3.3 to 7.4 months. 

The lower priced markets in the Bay Area, which were most impacted by the sub-prime fiasco, felt the brunt of the declining real estate market first.  As their prices have dropped, the bloated inventories of last year have declined considerably such that, as noted in previous reports, many of the lower end properties are now receiving multiple offers.  The switch was due to both the dramatic increase in affordability for first time buyers over the last year and for investor buyers, as a result of the declining prices, properties can now cash flow with reasonable down payments. 

With the continued meltdown of financial markets and the striking drop of the stock market over the last several months, the higher end markets have now been hit much like the lower end markets were last year. This sector of the market has become a part of the national decline in prices as the continued economic decline has now impacted every income level.  However, it was not caused by foreclosures and ballooning inventories. It was preceded by a locked credit system for jumbo loans, declining investment funds, a de-leveraging of numerous asset classes, actual as well as perceived layoffs, and incredible levels of economic uncertainty. Today’s SF Chronicle addresses the remarkable change of the San Francisco market in just a few short months. 
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/14/MN5M14MKSQ.DTL&hw=marni+kottle&sn=001&sc=1000

What lies ahead?  I don’t see any new pattern other than the ones just articulated. New listings coming on the market this November versus last dropped in every market but one. Interestingly enough it was Solano, although its residual inventory (meaning that inventory on the market more than a month) dropped by 17%.  The residual inventory in every market declined with the exception of Marin (+8%) and San Francisco (+43%).  What this means is that inventories should stay fairly level or decline with the possible exception of counties with higher median sales prices. 

For those rugged, savvy buyers there could be some rewarding opportunities between now and the first few months of next year.  There are some good values that can be found, but it takes a bit of digging.

Late winter and early spring should bring new listings to the market.  The majority of current sales have come from new, well-priced listings entering the market, as sellers who have been on the market for a while are either chasing prices downward with small reductions or holding pat, waiting for a positive change in the economic environment.  Will the sellers entering the market next year price their homes at the current market values or will they be pricing with a rearview mirror?  If sellers do price at market value and in addition, jumbo loans are priced more competitively with greater accessibility along with the new administration making some headway in turning the ship around, the spring market could see a little lift. If not, the hedge hog will not see his shadow in 2009—and you know what that means—it will be a long winter.

In the meantime, we can be thankful for all we have and enjoy our friends and families during this holiday season.

The winners of my coffee blends are Kirk Dobson, Trecia Knapp, Kathee Shatter, and Susanna Schlendorf. You can be a winner too. Just comment on this week’s post and you are automatically entered.