The Market Has Found Its Groove

The year is flying by or a least it seems that way. We are close to the mid-year point. The trends are clear and the market has found its groove.  The good news is that months supply of inventory (MSI) has dropped dramatically from last May. This May, six out of nine counties are under 5 months MSI with 5 months being average for a normal real estate market. Last May, only one county was under 5 months (SF at 3.3 months). In fact, five of the nine are currently under 4 months MSI.

The change has come from banks unloading the bulk of their REOs and short sale properties. The under $500K properties have flown off the shelf. Inventories are now anemic with few exceptions. Seven out of nine Bay Area counties have less than a 3 months supply of inventory (MSI) in the $500K and under price segment. Only Napa at 3.3 MSI, Marin 5.6 MSI and SF 5.7 MSI are above the 3 month mark. We have begun to see improvement in the $500K to $1 mil. price range.  Five counties are under 5 months, only Marin 5.4, Sonoma 7.2, Solano 9.0, and Napa 12.6 are over. However, eight of the nine counties have fallen month over month for the last 3 months. Some of the reduction is due to seasonality, however as prices have dropped, buyers have taken advantage of the values and interest rates.  The most challenged price segment has been the million dollar plus.  The MSI has been most impacted in this sector. It varies from a low of 7.3 months in SF (last May it was at 2.4 months) to a high of 50 months in Napa (Napa varies significantly from month to month depending on the no. of closes in this price segment–last month was 35 months).  There is a bit of a silver lining in that six of the nine counties months supply of inventory has dropped month over month for the last three months. Only Solano, Napa and Alameda have varied up and down in the million dollar plus price range.

Median and average sales price continues to fall in all counties, but at a slower pace than over last year. In fact, 6 out of the 9 counties (Alameda, Contra Costa, Napa, San Francisco, San Mateo and Santa Clara counties) have actually had median price increases month over month for the last three months. Eight out of nine counties increased median price over April.  Only time will tell if this can be sustained, but it is a positive sign.

Those counties with the highest declines in median sales price have had the greatest increase in sales over last May and conversely, those with the smallest declines in median sales price have had either the lowest increase or actually declined in units sold over last May.  The three counties that had the largest declines in median price had some of the highest increases in sold units—Contra Costa (-41% MP/+21% Solds), Solano (-36%MP/+56% Solds) and Santa Clara (-33%MP/+14% Solds). The counties with the lowest median price declines had decreases in solds—San Francisco (-14%MP/-35% Solds) and San Mateo (-17%MP/-7% Solds). Only Marin county did not follow this pattern. Marin median price declined -33% and also solds declined -10%. A bit of the double whammy.

New pending sales this May compared to last May have shown marked improvement. Every county except for San Francisco is up over last year. Anywhere from a high of 130% in Solano County to 21% in San Mateo. San Francisco, the only county not up over last year, was off a mere 4%.  

These trends seem to be continuing in the month of June, in spite of interest rates rising nearly a percent over the last three weeks.  Although interest rates have increased, they still are at historic lows. Multiple offers are still occurring primarily in the under $900K range. A Berkeley 3 bedr. 2 bath home listed at $895K received 7 offers selling above list price.  We did have a $1.5 mil. Piedmont 3 bedr. 3.5 bath home that garnered 4 offers and also sold over list price. 

Open house activity appears to be strongest in San Francisco and the East Bay.  Most open houses are attracting double digit activity. The North Bay is mixed depending on location. Wine country open home activity lags in comparison to other Bay Area locations.

Have we hit bottom?  I think in the lower third of the market we have. REOs and short sales have set the bar. We are beginning to see the upper two-thirds readjusting as prices drop.  All buyers are looking for value-pricing, location and exceptional condition when deciding to make an offer. There is no shortage of demand or ability. Jim Cramer, the outspoken CNBC host thinks we are there. He is buying.  Listen to the interview by the Huffington Post.

If you really want to know when the economy has turned around, just track men’s underwear sales.  Michael Brush in his column on CNN Money writes that when men start buying underwear again, we know there is a turnaround. Read more on what other indicators can track the bottom of the current recession.

I think we can look for brighter days ahead in 2010 and a more balanced market in 2011, as the fear that griped consumers in the last quarter of 2008 and the first quarter of this year has turned into a cautious, deliberate, reasoned pragmatism that is allowing the real estate market to heal itself.  It will take time and it could still have some falls along the way, but when all is said and done, owning a piece of the rock is still one of America’s most cherished values.