Reading the economic tea leaves: improvement in consumer confidence and financial markets bodes well for housing market

The health of the housing market has long been tied to other key economic indicators – everything from consumer confidence to the stock market to unemployment rates and hiring trends. For instance, the direction of the Dow is rarely in opposition to Bay Area real estate activity.   Local economists and Realtors alike have often noted that the valuation trend lines of the NASDAQ and Silicon Valley home prices typically have a significant correlation.  The chart below shows the strong link between Consumer Confidence and Home Sales in the US.

Last week, the Conference Board announced that its consumer confidence index rose in April to the highest level in more than a year and a half. The rise in the index was considerably higher than economists had expected. Although the University of Michigan’s consumer sentiment index took a small step back in April, it’s still hovering at levels not seen since early 2008.

Similarly, the financial markets continue to march higher as growing evidence appears that the nation’s economy is gradually finding its footing. The Dow Jones Industrial Average is up 7 percent year to date and a whopping 70 percent since its March 9, 2009 low.

One last headline of interest: The Federal Reserve last week upgraded its economic outlook amid a better-than-expected recovery, saying the beleaguered labor market is beginning to improve. But the Fed voted to keep interest rates at historically low levels and signaled that wouldn’t change anytime soon.

Low mortgage rates, coupled with the April 30 deadline for the homebuyer tax credit, have helped to fuel strong home sales in many of our markets. In my travels last week to a number of our offices, I’ve heard from agents that many of their buyers have been rushing to beat the tax credit deadline.

All of this is encouraging, but it’s not to say that we’re completely out of the woods. The jobless rate is still extremely high in California and across the country. A new wave of foreclosures could hit the housing market in the months ahead. And the economic recovery is fragile and expected to be slow. But one has to be at least cautiously optimistic by these economic trends, which are so vital for the health and well-being of our housing market.  One of the most important trends to follow is our Bay Area Month’s Supply of Inventory.  It continues to drop at all price points, from less than 2 months at the entry level, to between 10 and 18 months in some of our Luxury markets.  ( ex: San Francisco over $5 million:  19 months supply March ’09,  dropped nearly in half to 10 months supply March ’10)

Below is a market-by-market report from our local offices:

North Bay — We continue to see increases in the Previews price range, both in listings and in sales in Marin County.  Most recently the Southern Marin office secured the Marin Designer Showcase listing for $7,795,000. While the Greenbrae office says sales are increasing in that area, there is still some downward pressure on pricing.  Areas such as Corte Madera and San Anselmo are doing well with a good percentage of homes in contract. The low end – under $1 million in Marin – is moving steadily.  More much needed inventory continues to come on market. In Northern Marin, there has been a decline in REO’s coming on the market and a steady stream of Short Sales.  One home in Novato by our office at $1.4 million went into contact the following day.  Cash is still king when buyers are making offers. The Santa Rosa market is holding steady with 350K and under listings very active, and the over $1 million market is seeing increased sales. In between it’s very quiet. Open homes remain well attended in Sebastopol, with more activity in the $500 – 700K range.

San Francisco— The Lakeside office reports the market is in full bloom. There are loads of well priced listings, and sales continue to increase. There are eight to 10 multiple offers every week.  It’s also been a very busy two weeks, according to the Van Ness office – good sales activity at all price points.  Over a third of the ratified transactions were multiple offers.  Presentation and staging of property are still critical, as only the gems are getting the high activity. The Noriega office is seeing well-attended open houses and homes below $800,000 are in hot demand. One third of the sales had multiple offers. April has been very erratic, according to the Lombard office: a busy few days, then quiet.  Open houses are well attended. There have been a variety of deals from stale listings going way under asking to 11 offers going 10% over asking. Fewer loan problems this month. The Market Street office tells a similar story. Ratified offers seem to be coming in spurts. Open house activity was slow over the weekend. Several closings are being held over from April to May in order to qualify for both federal and state tax credits.

SF PeninsulaBurlingame continues to see great listings get snapped up in multiple offers and well qualified buyers are waiting for the right inventory to come on the market. There are 75 active listings and 17 pending sales in Hillsborough.  There is great value in a great area and some excellent buys available right now. In Half Moon Bay, more offers are being accepted with ‘sale of property’ contingencies.  There’s good traffic at the open houses with serious buyers wanting to get into the market.  We’re also seeing more activity on the higher end $1m + range. Our Menlo Park offices report agents have been really busy the last couple of weeks.  Parents soccer field talk is that bonuses are coming back and 401ks are being reinstated.  General feeling of stability is giving ‘lookers’ a basis to buy. There was a bit of the April 15th hangover last week, previous weeks had several offers written as the market heated up.  Well priced listings are selling quickly.  Two outstanding properties in San Carlos had multiple offers and sold for more than the asking prices of $1.85 million and $1.95 million. Open houses are very well attended. The San Mateo office reports that pending sales for the six nearby cities are up 33% from 2009 and closed sales are up about 50%.  Quality inventory (shows well and priced right) is not as available causing the multiple offers. Similarly, the Woodside office says is has been as busy as they’ve seen it in since spring of 2007 and 2008.  Buyers are far more cautious however.  Many will make an offer and walk away if they do not have their terms met or discover any type of problem.

Silicon Valley– Our Cupertino office reports that they have never seen the market busier. Outstanding schools continue to propel the market. With decreasing inventory and strong demand, about a third of all sales are attracting multiple offers. Market activity is continuing to pick up steam in all price ranges in the Los Gatos area, with a Monte Sereno home closing at $3.45 million. Almaden pending sales are up slightly while Cambrian remaining very steady at 57% of inventory pending and Blossom Valley at 67%. REO listings have slowed and short sale approvals have increased. The Willow Glen office reports sales picking up for homes between $500,000 and $800,000. Open homes have been busy as well. Business is booming in the Saratoga area due to an improved Previews market and buyers focused on taking advantage of the federal tax credit. Sales of million-dollar homes are on the rise.

South County– The scramble was on last week – anxious buyers wanted to get into contract before the April 30 deadline for the federal tax credit, the Morgan Hill office reported. The South county market remains slow but steady – prices seem to be increasing as demand outpaces supply.  There seems to be a more positive feeling among buyers, sellers, and especially agents. The fact that the media is reporting good housing news is also helping buyers feel more comfortable about purchasing. The Gilroy market has also been steady, but seems to have leveled off the last two weeks.

Santa Cruz – Overall, the Santa Cruz market appears to be improving. The median price is $519k vs. $399K a year ago.  Inventory is down about 15% from a year ago, and the number of sales is slightly up – 109 closed transactions in March ’09 vs. 129 in March ’10.  The unsold inventory index is down to 6.9 months vs. 9.7 months a year ago.  Distressed properties continue to be a very large part of the market with 43% of the sales representing either bank owned or short sales. Issued default notices are down slightly about 10% from a year ago.  Homes are selling at deep discounts and as one of our agents noted, “the market is looking for value.” The Previews market is ever so slightly improving. However prices are significantly lower depending on beach vs. country properties.  In March, the latest figures available, 12% of the sales in the country were over $1 million compared to 5% in February.

Monterey Peninsula — In the Carmel area, market activity continues at a steady pace.  There were 37 new escrows in the last two weeks, which was very good.  Listings are coming in at a steady pace.  There have been a lot of price reductions, though not as substantial as we saw for a while.  Prices on properties coming on the market seem to be more realistic now in most cases, so sellers are more in tune with current market place. There were a total of 82 open houses held over the past few weeks.

East Bay – Buyers are attending open houses in droves in Berkeley, up to 100 people at some listings.  Buyers were scrambling to get into contract by the April 30 tax credit deadline.  They are not necessarily late comers, but frustrated first time buyers who have been beaten out of multiple offer situations all spring. Multiple offers occur at all price ranges where there is perceived value, reports the Oakland/Piedmont office. Even with multiple offers, prices are realistic. Buyers do not want to overpay but seek out the best neighborhoods and houses. Castro Valley reports a big jump in listings, but well-priced homes are still flying off the shelves, sometimes before agents can get the sign up.  There are still a lot of short sales and a few REOs, but the pace is beginning to pick up for traditional listings. Sales in Danville are strong and open houses are well attended. Inventory is still low so there are many multiple offers. The Walnut Creek, Orinda and Pleasanton offices report that many first-time buyers are looking to take advantage of federal tax credit.  Well-priced listings are receiving multiple offers in most all price ranges.  There is a “positive” buzz in the air. Meanwhile, the Fremont office reports with the home buyers tax credit expiring there has been a decline in buyer activity. Listings are up which is typical for this time of year. Both sales and listings are increase in Livermore. The office reported five new listings over $1 million, and closed two sales above a million and higher end activity strengthened.

The weather is fantastic this weekend, open homes should be busy.  Will we see a little less urgency on the part of some buyers now that the Federal tax credit purchase deadline hit on Friday?  Or will the new California tax credits pick up the slack?  Stay tuned, we may have some indication in another few weeks.  That’s it for now. Have a great week!

Rick

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2 thoughts on “Reading the economic tea leaves: improvement in consumer confidence and financial markets bodes well for housing market

  1. Pingback: Woodside Real Estate Consumer Confidence. « Mlockwood’s Weblog

  2. Pingback: Marin County Real Estate Market Trend – April 2010 « Your Piece Of Marin

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