The Beat Goes On

I’m back. After a couple week hiatus, what has changed? In a couple of words—not much.  Number of units is up and there is a bit more momentum in the marketplace.  However, the same pattern still exists. The preponderance of activity is still in the lower end.  First time buyers and investors are out in droves looking for bargains they could not have afforded a year or two ago. A few examples include a Novato 4 bedr. 2 ba. home priced at $499K, wherein within 6 days it received 10 offers and went over listing price; a Montclair 2 bedr. 1.5 ba. home priced at $645K garnered 4 offers; a REO listing in Hercules received 20 offers; and an Inner Sunset listing in SF priced at $625K received 4 offers. All of these homes went over asking. We are even seeing pre-emptive offers like a St. Helena home priced at $675K. We haven’t seen one of these for many a moon.

These buyers are being motivated by the convergence of several factors including the steep drop in prices, the lowest interest rates since they began recording them in 1971, and the shrinking inventories.

Even the media has turned more positive and is talking about the increased activity with homes in the lesser price categories. It has taken them a while to notice.

The million dollar plus properties are moving, but nowhere near the pace of the lower priced homes. The upper price ranges are building inventory as the spring market unfolds. It is taking longer to receive offers and if properties are not priced within realistic price boundaries, it takes numerous price reductions to entice buyers to look at them. Occasionally, we will see multiple offers like the Piedmont 4 bedr. 3 ba. home listed at $1.55mil. or the 4 bedr. 3 ba. home in San Anselmo listed for $1.2 mil, which sold having received 4 offers. These homes are the exception, not the rule. They are aggressively priced, expertly staged, and in exceptional condition.

The good news is lenders are coming back in the market with jumbo product. Both buyers and lenders are still concerned that prices could fall further in the more expensive homes. Appraisals are more difficult as consequent of the uncertainty in the market, prompting both appraisers to be conservative in their estimates and some banks to drop values to protect themselves in case values drop further. Lenders have more confidence in the lower ranges despite prices having dropped from the peak anywhere from 35-70% depending on location.  The higher priced homes haven’t fallen as much, although those homes that are selling have seen their prices fall on average by 20-25% or more from the peak depending on location. It is surprising that the $3 mil. plus range is still experiencing good activity. One Napa Valley property listed at $3.3 mil. in escrow received another offer that went into back-up position. We also had several showings on a St. Helena estate property listed for $5.5 mil.

We did notice a rise of million dollar plus properties in the month of April. However, in the last week or two, the under million dollar properties have dominated sales once again.

Open house activity remains strong in most markets. The usual warm spring weather has increased traffic. Most open homes have double digit buyer activity. The strongest activity is in San Francisco and in the East Bay.  A Berkeley Hills home listed at $1.650mil. was visited by 75 groups of buyers, a Crocker Highlands home in Oakland priced at $985K had 80 buyers, an SF Inner Sunset 3 bedr. 2 ba. home priced at $1.497 garnered 50 groups, and a SF West Portal 4 bedr. 2 ba. home listed at $1.25mil. was visited by 42 groups.  Demand is still strong, but the urgency to buy is tempered with caution.

Consumer confidence is rising slowly, the increase in the number of unemployed workers is beginning to wane, and the stock market has risen nicely over the last month and half and seems to be steadying.  All these factors are helping in breathing life back into the housing market.  I know there is concern about the foreclosed properties that have been held off the market by lenders due to the moratoriums. The estimate in California alone is 80,000 homes. That could mean between 10,000-15,000 homes in the Bay Area could hit the market in a very short time. To be honest, I am not overly concerned with those properties in the lower ranges. I believe the watermark has been set and there is enough pent up demand of both first time buyers and investors to absorb those properties. I believe we will see more of upper end foreclosures and short sale properties entering the market, which will begin the process of setting the watermark for that category of properties much like it did for the lower end price ranges over the last year. 

When all is said and done, prices may roll back to 2002-2004 price levels, depending on the location of the properties. In the end, it will be healthy, allowing the housing market to come back into historical appreciation averages that can be sustained over the long run.