Spring is in the Air
April 14, 2009
It is not only the blossoms that are blooming; sales are starting to bud too. The pace of sales has quickened over the last week. Maybe the consumer perspective is changing with the media now indicating that the economy may be showing signs of life. The first week of April home sales compared to last year were up over 30%. This being the best week since July of last year. Average sales price is still off by 25%. Although the lower end of the market is still experiencing most of the activity, we are seeing some life in the upper end. Over a week’s period we had four sales between 3-4 million dollars. We are also just beginning to see a lift in sales over the million-dollar threshold.
As we finished the first quarter of the year, there are some interesting observations to note. In those counties where average and median price are down 30% or more, inventory this year versus last is down, pending sales are up, sold homes are up, and months supply of inventory is down. In those counties (San Francisco and Marin) where median and average prices haven’t dropped by 30% or more, inventories are up from last year, pendings and closed sales are lower, and months supply of inventory is up. These counties are the only ones where residual inventory (inventory that is on the market over 30 days) is up over last year. Months supply of inventory is substantially down over last year in those counties with the lowest median and average sales prices. Those counties whose median prices are under $400K—Alameda ($305K), Contra Costa ($200K), Napa ($334K), Solano ($179K), and Sonoma ($349K)—all with one exception have MSIs under 5 months. The national average is 9 months. Napa is the only exception with 7.2 months supply. However, when you consider that last year Napa had the highest MSI of all counties in the Bay Area with 18.4 months, they had the largest drop in MSI both in absolute and relative terms of any county. Marin (10.1 MSI) and SF (7.5) had the two highest MSIs for March. For San Mateo and Santa Clara whose median sales price are $520K and $415K respectively, months supply were steady or below last year’s MSI.
In a few counties we are beginning to see price stabilization. Alameda, Marin, San Mateo, Santa Clara, and Sonoma counties have seen a small rise in average price over the last 90 days. Median price has varied only a few percentage points in each month this quarter in the majority of Bay Area counties. We could be close to the bottom of price swings. How long will we stay at this level is difficult to predict. This is particularly true of the lower price ranges, which have dominated sales activity in the first quarter. A recent article in USA Today estimated when each state would see a housing recovery. California was one of a few states to begin recovery in 2009. The recovery begins with price stabilization. Just to show you how crazy it has become in the lowest end of the market, a 3 bedr. 1 bath home in Oakland listed for $195K received 17 offers. Most of our multiples offers occur in the under $800K price level. Even in the most challenged real estate market in our lifetime, we are still experiencing multiple offers. This rarely occurred in past down-cycle markets. I think that the building buyer demand, historically low interest rates, the significant price drops over the last 2 years, and the REO/short-sale markets have created this rare anomaly (opportunity).
Open house activity at all price levels continues to increase as the weather and increasing number of listings come on the market. Most open homes are attracting a double-digit number of buyers. The most popular are bringing in well over 30 guests. This was the case for a Greenbrae 3bedr./3ba. listing priced at $995K which had 60 visitors, a Montclair home listed at $1.650 mil. which had 55 buyers, and the SF Seacliff 6bedr./5ba. listed at $4.580 mil. which entertained 40 groups.
There are plenty more reasons to buy other than the ones mentioned above. Among them are the Federal government’s $8000 tax credit for first-time buyers and, in addition, the state of California just passed a $10,000 tax credit for new homes purchased this year with fewer restrictions than the feds program. I believe this spring will be a bright spot for home sales after a lackluster first quarter.
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1.
arvada darnell | April 14, 2009 at 9:10 PM
Thank you Avram. I have been seeing the same trends as you have….open houses are very busy, buyers seem very motivated and there is even a little ’spring’ in their step!
2.
Michael Fanelli | April 15, 2009 at 5:29 AM
FYI, Marin luxury sales ($2M +) appear to be on the rise…during the first 3 months of 2009 just 18 such sales took place (and 8 of those were in the final two weeks)…by comparison, in the past 30 days, fully 27 luxury homes have either gone into contract or sold (15 in contract plus 12 closed escrows)…measurable movement in Marin.
3.
Lee Ann Monfredini | April 15, 2009 at 9:23 AM
I definitely agree- through our successful listing in Silver Terrace, we received a referral to list a fabulous home in Bernal Heights with almost 3000 square feet and great views and the seller said that at a dinner party last week everyone was talking about the San Francisco market being back. He wanted to sell in September-he now feels this is a good market to move forward.
4.
Jessica Waterston | April 15, 2009 at 9:36 AM
I hope you’re right and we are on a permanent upswing. Open houses have been very busy – let’s hope for the best.
5.
Becky Layton | April 15, 2009 at 9:46 AM
Just listed a lovely one bedroom condo in the Richmond for $639K and on my first Broker Tour had 30 agents/principals through. I expect Sunday to be very busy!
6.
Pam Buda | April 15, 2009 at 2:31 PM
Hi Avram-thanks for the update and the overview of the Bay Area market-I have 3 clients just putting their homes in SF, Larkspur and Los Altos on the market so they can move to Sonoma County for a little more room and relaxation so word on Bay Area trends is helpful.
We have fewer than 2 months supply of inventory under $400,000 as buyers have been snatching up entry level properties for quite some time now, whether for rental income or for their first homes. Yet at prices from 500 to $1million or more there is not a sense of stability and proper pricing is really an art. Here is a link to a post I did recently on our market trends. http://winecountryandhorses.com/blog/2009/04/03/march-median-price-rise-in-sonoma-county-real-estate/
7.
Denise Milburn | April 15, 2009 at 2:44 PM
Hi Avram,
It’s never been a better time to buy. I am also seeing lot’s of activity at open houses, phone calls from past clients wanting investment properties, etc.
Keep up the great work!
8.
Lee Ann Monfredini | April 16, 2009 at 2:43 PM
Avram, there is a definite upswing in the market- a good feeling during open houses as well- one closing today and another in ten days- sellers are asking for lsiting proposals-enjoying the rebirth of the San Francisco real estate market
9.
Andrew Jeffery | April 22, 2009 at 9:53 PM
The NAR mixes a strong batch of Kool aid.
While it is true that buyer demand is strong due to low rates and home prices that have fallen, the supply side of the equation paints a decidedly different picture.
With foreclosure moratoriums just lifted, shadow inventory of bank owned homes is due to come onto the market starting in May. To expect the home buying public to sop up this glut of dilapidated bank owned properties is to ignore reality.
Further, average and median home price measures are being lifted, but not by some myth of stabilization. As higher end markets see more forced sales, the proportion of these transactions that make up the monthly stats grows, pushing up the median measures.
Any real estate professional proclaiming its a great time to buy is doing their client a disservice. The NAR has been pounding the table that the bottom is night for over two years — how long can the charade continue?
10.
Andrew Jeffery | April 22, 2009 at 9:57 PM
To follow up on my last post, how can prices be close to a “bottom” when this is reality?
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/04/22/financial/f101457D10.DTL&type=realestate
I fail to see how economic fundamentals can support any rational claim that home prices are stabilizing for anything but a breather as a result of the foreclosure moratoriums … which are now done.
11.
avigee | April 23, 2009 at 7:01 AM
I think your comments have some merit. I agree with you that the higher end of the market prices have not stabilized. And certainly in a number of areas across the country inventories will take years to diminish. However I am discussing the Bay Area. The fact is that inventories in lower end price range counties were up in the high double digit months supply of inventory last year. They are now down to under 4 months. First time buyers and investors have scooped up those foreclosure and short sale properties. Yes, more of those properties will be coming on the market. I think there are waiting investors and more first time buyers who will be there to buy those properties as evidenced by the 16 offers on an East Oakland property last week. I think those sales are setting the bottom of the market. We are not out of the woods, but there are signs that there is light at the end of the tunnel. Thanks for your insightful comments.
12.
Andrew Jeffery | April 23, 2009 at 9:34 AM
Hi Avigee-
From what I have seen in the market, one of the main reasons inventory is down so much in the past few months is the foreclosure moratoriums that were in place (Freddie, Fannie, major banks and the CA law) that held back this inventory from the market. This created an environment where, as you note, attractively priced properties are few and far between. Now that those are listed, bank owned properties will be coming back on the market and inventory is likely to rise again.
I agree with you that in some areas there is certainly a light at the end of the tunnel, but looking at aggregate data (ie, Bay Area, or even county level) to try and extrapolate that an individual market is recovering doesn’t really work.
So to say “It’s never been a better time to buy” (posted above by someone else) with qualifying that by …”in neighborhood X because of A, B and C” is simply salesmanship and doesn’t represent the best interest of buyers. Most buyers don’t truly appreciate what being under water can do to their lives.
Good back and forth,
Andrew
13.
avigee | April 23, 2009 at 4:32 PM
Again you make good points. However, given the current mortgage rates and the building buyer demand—meaning that we form about 150,000 new households per year in Calfiornia with very limited new home growth—the prices for the new round of foreclosures are being set by the current sales. I believe there are enough first-time buyers and investors to absorb the new supply. Prices are now at levels that make sense for investor returns and for first time buyers it makes sense to buy as payments are close to what they would pay for rent with no tax advantage.
What we both agree on is that you can’t generalize. You need to evaluate based on each individual market and there are many in our region. I have been through several down real estate cycles. This one has its own unique personality. To be honest I can’t remember one where I have seen so many multiple offers. I believe that is due to prices dropping so rapidly, existing buyer demand and historically low interest rates.
Thanks for your insightful comments. I know all of our readers appreciate them.
To say there has never been a better time to buy may be stretching it, however rates will not stay down forever and supplies will dwindle. given an individuals personal situation and the price they could negotiate we may very well look back and say it was a good time to buy. Only history will make that call. Unless you have a crystal ball. I don’t.
14.
Andrew Jeffery | April 23, 2009 at 4:59 PM
No doubt, there are some buyers out there getting what will likely turn out to be good deals. But I believe they are the exception rather than the rule.
As for the multiple offers, I would offer that many of those situations are cases where a particular market has a very limited supply of a certain type of home that is in high demand, for example a 2/1 that is turnkey and recently updated with a nice yard among multi families that need work. Even if the home is priced above market, buyers get excited that they may miss out. This is a situation where I think many agents/brokers do their clients a disservice by telling them the house is a great deal because so many people want it and will bid up the price. I will give you an example, I would be interested in your thoughts.
There is a property listed right now in the Temescal neighborhood in Oakland. Its a very nicely remodeled home, 2/1, around 1200 sqft living area on a 5000 sqft lot, which is large for the area. The developer bought it in February for $170,000 out of foreclosure and rehabbed it. They did a very nice job. This developer also did a similar project nearby and sold the home for 10% or so over list after just a week on the market.
The property in question is listed at $399,000. Some friends of mine are thinking about putting an offer and asked my opinion. In looking at the comps, I put the value at $285,000. I note that this is my perceived value of the houses based on comps and my expectation of the market outlook in the near to medium term, not what I believe it will sell for.
(As an aside, value is of course an incredibly objective measure, but in this case it is what I believe a buyer should be willing to pay based not only on comps, but also the potential future supply and trajectory of housing prices in the next 12-24 months. Although I do not have a crystal ball, seeing 16 homes for sale in a neighborhood, all fixers, and 200 coming down the pipe on RealtyTrac, I can say with pretty good confidence prices in that neighborhood will keep sliding for the foreseeable future because investors are not yet active as they do not see good value in rehabbing bank owned homes.)
Anyway, back this house. My friends’ agent says he thinks the house will go for 10-20% over list, like the last one the developer sold. To be honest, I don’t necessarily disagree with the agent, but I would also say that that buyer would be in a world of pain come this time next year should they need to sell. In the current economic environment, this is a consideration every responsible buyer should give thought, and every responsible agent should ensure their buyer think about.
The market in this area is dominated by REOs and there are very few turnkey homes listed, or recently sold. Everything that is selling needs work. You can buy a comparable property needing $30-40k of work to make equivalent to this house for $200-220k right now. So after the work, transaction expenses and a profit, a rehabbed property should be selling for around $300k. With values declining and the foreclosure supply looming, I arrived at a conservative $285,000 which I believe looks out for the buyer’s interest.
Would they miss the house if they listen to my value? Absolutely. But what is this house “worth?”
I could see it selling for well under $300k two years from now if things keep declining, which would be $100k out of pocket if the buyer was forced to sell for some reason. That’s a very risky buy, in my opinion, yet one which is likely to receive multiple offers and go over list.
So, without generalizing, my question is this: is a market that has seen price declines of over 50% (this one has), with limited supply (3-4 months currently) and multiple offers on desirable properties that end up selling over list, one that is stabilizing? That seems to be the consensus among most real estate professionals I speak with.
My ultimate premise is that the financial risk of buying a home in these areas that are supposed to be “stabilizing” now is way too high to make up for the financial reward, namely owning a home one can afford while avoiding foreclosure if the owner loses his or her job in the next 12 months.
And seeing how banks operate, and watching markets (like Brentwood, CA, East Palo Alto, San Leandro, etc) where sales activity is way up experience consistent 3-4% m/m price drops even though houses sell in days with multiple offers on each one, these institutional sellers will keep undercutting the market to unload their inventory.
The right time to buy may be different for each buyer, but in the end it comes down to risk and reward. I am yet to see a market where the reward outweighs the risk.
15.
avigee | April 24, 2009 at 8:33 PM
You analysis makes good sense. You see no one knows where this market is headed. However, history can tell us patterns and trends. One thing we do know, as Will Rogers said, God is not creating more land. In areas that are built out, which is a good part of the Bay Area, building will be minimal for single family homes. In previous downcycles, including the Great Depression housing prices did come back. It did take awhile, but a home is more than an investment. It is a place to raise a family, a place to gather with friends, a place to call your own (don’t have to worry about having the owner say they are selling the house) and as you and I know, the only tax deduction for most Americans. There is an emotional component. The buyers you mention are experiencing that with the desire to purchase the home you describe in spite of the information you are sharing with them.
You see those buyers that bought at the top of the market in the beginning of 1990 and saw prices fall precipitiously in the early 90’s felt like they had been had, that was until they sold their homes in the late 90’s or early part of this decade. Then they thought they made the best investment in their lives. A home is a home first an investment second. As I say you can’t sleep in your stocks.
You say the mulltiple offers are occurring in areas of low inventories. That is not necessarily true. The house I mentioned in East Oakland that sold with 16 offers was one of many homes on the market. The reason it sold with mulitple offers is becasue of its price. Buyers are quite savvy and cautious. Some homes do sell on an emotional appeal and perhaps sell for over their current fair market value, but that is a decision a buyer has to make. Some buyers don’t want to hassle with fixing up a home. They just want to move in and have their open house party. They do pay a premium. You can always wait for that perfect deal. Very few people hit that perfect moment. It is just like with interest rates. If you keep wiating you will miss the bottom. The idea is to get as close as possible. Much of what created the inflated prices in the last run up was mortgage products that put homeowners in harm’s way because their payments rose quickly because of teaser rates. They could no longer afford their payments and in some cases this was compounded when they lost their jobs. The positive news is that today’s home buyer is looking at primarily fixed rates and adjustable products are less risky than those of the go go days.
I do believe we are seeing the bottom of value drops in the lower end. Prices may vary up and down, but not dramatically. Yes, there is always a chance of a catastrophic economic event, but so is there a chance of natural disasters. Still life goes on. Households are created and housing is still needed. The upper end will still dereasie in values, however, perhaps by the end of this year or the middle of next they too will see a steadying of values. One thing I have learned in my thirty years in real estate is that what goes down will go up, it is just a matter of time.