Can You See the Bottom Yet?

I am consistently being asked, “have we reached bottom yet?” Whether it is buyers, sellers, the press or agents, everyone wants to know is the worst behind us. 

The current Bay Area data reflects that the watermark in the under $500K market has been set.  Median price has either been flat or rising in all counties in that price range over the last 90 days and depending on the county, we are beginning to see price stabilization in properties up to $700K. Last week you might have thought it was 2005, our SF Sunset 2 bedr. 1ba. listings priced at $545K received 53 offers. A new record for this market. Now some may say the property was a bit under priced, maybe, however it went well above the asking price. This listing demonstrates that there is certainly strong demand for that neighborhood and that buyer’s confidence is rising.

These price ranges are steadying because of diminishing inventories and sellers, which includes both banks and individuals, now coming to a more realistic view of pricing. Buyers have done their homework and know values. There is no “greater fool theory” operating. More and more buyers are evaluating based on dollar per sq. foot.

There are still challenges in the million dollar plus price range as I stressed in my last posting. Inventories are building and days on market are increasing. The million dollar plus market is hampered by lenders’ apprehensions over value. The lending industry feels prices will continue to drop and are requiring larger down payments, solid gold borrowers and, in some cases more than one appraisal. They are also concerned about the potential inventory that will be created when lenders begin to foreclose on homes whose mortgages are currently delinquent.  However, not every million dollar property reflects the current trend, as we witnessed in the closing of a SF Marina $1.8 mil. listing that received 16 offers and sold 20% over the asking price or the 5 offers that were garnered on the San Anselmo 4 bedr. 2 ba. home on an acre that was listed at $1.2 million and went into escrow over list price.  These are the exceptions, not the rule. Buyers will not overpay even in multiple offers.  A $1.15 mil. listing received 4 offers, but still went under the asking price. What it does reflect is that every area is unique and so is each home. We can’t broad brush an entire geographic area. This sector of the market will remain challenged.

The three million dollar and up range is still seeing some activity. The very special properties in exclusive neighborhoods with exceptional amenities are finding buyers.  Our $3.2 mil listing in the Shiloh gated community of Santa Rosa went into escrow a week ago. Most of the transactions in this price category and up are primarily all cash transactions.  Even the buyers in this range are looking for value as they realize that prices have come down substantially from the peak.

Activity at open houses still remains active, especially in the single family home category. The majority of these open homes are in double digit numbers with a number of homes attracting 30-50 groups. This is particularly the case in the East Bay and San Francisco.  The North Bay is slower, but in the most desired areas we are still seeing well attended open houses.

Interest rates have held steady and have decreased slightly from the current high watermark. Jumbo loans are still more difficult to come by, although a couple of lenders have re-entered the market. The issue with jumbos is that in most cases you need a minimum of 25% down and 700 plus FICO score. The positive news is that we are beginning to see a few 20% down loans. However, lenders are concerned that values in this price range are still declining.

Whether jumbo or conforming, appraisals have become more difficult, as the new Fannie and Freddie appraisal requirements have now been instated. Appraisers coming to markets that are unfamiliar to them have had a negative impact on transactions. More and more appraisals are coming in lower than purchase prices, which lead to additional negotiations or transactions falling out of escrow.

Overall the market appears to be marching in place, not rising nor falling. As long as consumer confidence holds relatively steady, we will see the same pattern in the housing market as we have witnessed in the stock market—a little up and little down.  On the bright side, sellers continue to become more realistic and buyers are willing to make offers if they perceive value. I see more of the same through the end of the year. 

The question mark for the second half of the year is how the next round of REOs and short sales will impact the market.  I think in the lower end there is enough demand and enough money to lend that those inventories will be absorbed fairly quickly which should increase the number of units sold over last year. In the upper price ranges I think buyers will have some great opportunities and it will help establish the bottom of values in the upper end priced homes. All this is necessary to get back to a healthy, balanced market.  I am looking at the end of next year or the beginning of 2011. In the meantime it will continue to be a buyer’s market. Those that take the leap now will be rewarded in the future. Only a Monday morning quarterback would understand that.