This year picked up where 2009 left off as many homebuyers rushed to take advantage of the expiring federal tax credit, as well as capitalize on historically low interest rates and outstanding home prices. Our Bay Area housing market, as well as others across the nation, enjoyed healthy gains in unit sales and the median sales price in the first half of the year.
However, with the expiration of the homebuyer tax credit and continued sluggishness in the economy, the market cooled off considerably in the second half of 2010. The rush to get in before the tax credit deadline in June likely “front-loaded” many sales that otherwise would have occurred in the summer and fall.
As the overall market moved in fits and starts in 2010, it’s interesting to note that the luxury market – those homes priced at $1 million or $2 million and above depending on the city – quietly turned in very strong years. It is often said that the so-called smart money – the well-healed investor – is often the first to jump back into the housing market after a steep downturn, leading the way for the rest of the marketplace.
While the Bay Area has not been immune from challenges facing the nation’s real estate market, we generally fared better than many other parts of California and the nation. This fact was underscored in recent weeks by reports from S&P/Case-Shiller and Zillow.
In its third quarter price index, S&P/Case-Shiller found the San Francisco metropolitan area’s price index rose 5.5 percent year over year, the most of 20 metro areas in the U.S. Nationally, the index was down 1.5 percent over the same period.
In the Zillow home price index, the San Francisco metropolitan area was one of just six regions out of 25 that saw an increase in the third quarter from the previous year, up 1.5 percent. By comparison, the U.S. was down 4.3 percent and Miami fared the worst in the nation, down 15.2 percent.
So where does this leave us as we approach 2011. It’s always risky to make specific forecasts because there are so many factors that could dramatically impact the industry – unemployment levels, the stock market, consumer confidence, and political decisions, to name just a few. But there’s reason to believe that we’re trending in the right direction.
The California Association of Realtors in its 2011 housing market forecast predicted that the golden state should see a modest 2 percent increase in sales to 502,000 homes in the coming year. And after two consecutive years of record-setting price declines, the median home price in California will climb 2 percent in 2011 on top of this year’s 11.5 percent rise, according to the CAR forecast.
“California’s housing market will see small increases in both home sales and the median price in 2011 as the housing market and general economy struggle to find their sea legs,” said C.A.R. President Steve Goddard.
While there are certainly challenges ahead, the upcoming year presents a trifecta of opportunities for buyers: Continued near-record low interest rates, extremely affordable housing prices, and plentiful inventory in all price levels. We haven’t seen this combination in many years.
The caveat is that there’s no guarantee mortgage rates will remain where they are today. In fact, in recent weeks, we have seen rates tick higher as the 10-year and the 30-year Treasury bill rates edge upward. And even a one percentage point increase on a $500,000 mortgage can add several hundred dollars to a monthly payment. But for now, the rates are still extremely low by historic standards.
Additionally, the nation’s economy continues to grow, albeit slower than many of us would like. But corporate earnings have come back quite strong this year, which could bode well for employment growth in the new year. And a potential compromise in Washington to extend the lower income, dividend and capital gains tax rates for two more years promises to encourage real estate investors and bolster the housing market.
Below is a market-by-market report from our local offices:
North Bay – Our Greenbrae office says that houses that are well priced are lingering on the market in Mill Valley, San Anselmo and Fairfax. We are seeing more activity in Tiburon, but still somewhat slow. What is interesting is open house traffic is up and we know that when a house gets to that magic number, it does eventually sell. In Petaluma, sales are very steady and very competitive in the under $400,000 range. Multiple offers are the norm. Our Northern Marin office manager says it has been very slow of late. There were only three new listings this week in the entire town of Novato. In Santa Rosa, open house activity is still strong with 6 to 30 groups being reported. Sales have slowed to one third of where they were a month ago. Agents are busier then the numbers suggest, our Sebastopol manager says. There are lots of inquiries and showing activities resulting in few ratified contracts. There is much talk about new inventory after the holidays. Finally, in Southern Marin, well-priced homes are actually still selling, even during a traditionally slow time of year. It seems more buyers are starting to appear in the Preview’s price range, with the goal of wanting to buy next year and getting started in the process now.
San Francisco – It has been a slow start to December, our San Francisco Lombard office reports. Lack of urgency and fence sitting are often as big a challenge as pricing. Meanwhile, our Market Street office says that it’s been steady, with good traffic at the open homes. Several properties that have been ratified over the last two weeks took almost all of that time negotiating a contract that both parties were satisfied with. Sixty percent of the multiple offers were on short sales or REO’s. Both sales and inventory are down, our Noriega office said. Depending on location, open houses are still well-attended. Signs of our seasonal slowdown are definitely here.
SF Peninsula — It’s the typical seasonal slowdown, our Burlingame office says. Nonetheless, there are new listings coming to the market and continued buyer activity as people scramble to close before year end. There is a lot of new inventory in the pipeline for next year while old, stale inventory is either coming off the market or finally dropping the price and selling. Across the hills in Half Moon Bay, the holiday slump has hit with the only sales being homes that are perceived well below market. In Menlo Park, the market is steady to slowing. Big sales in Menlo Park are still pretty rare; however, the price ranges that are selling are climbing. Strong sales in the $2 mill plus range and demand is climbing. There were a couple of sales over $5 mill in the last week in Atherton. Atherton has stayed fairly resilient price wise. We had two offers on a $7 mill LOT and it sold in 2 weeks. We are short of inventory and have buyers waiting. There’s been very little activity of late in Redwood City, San Mateo or Palo Alto as the seasonal slowdown takes hold. According to our Woodside manager, The mid-Peninsula in general is slowing down now. However, the Previews market is definitely showing signs of life. Buyers are out there. Another one of our listings went into escrow at $12.9 mill and there’s an offer working on a $10 mill listing.
East Bay – This past week found buyers buying, according to our Berkeley office. Price reductions helped and usually got immediate responses. Agents in Castro Valley are seeing a decline in the number of prospective buyers attending open houses. This may be due to the weather or the fact that many people are busy preparing for the upcoming holidays. Many prospective sellers are making the decision to wait until after the first of the year to put their homes on the market. It has recently become much more difficult to get loans approved. Several agents shared that the Alameda market is very “HOT” right now. Sales and listings in the Tri-City area are remaining steady, our Fremont manager reports. There have been more short sale transactions than REO’s in the past two weeks. In Livermore, there have been 22 new pending residential sales in the month of December. Seventeen of the new pending sales were below $500,000, with 16 of those distressed sales. The Oakland-Piedmont office says the market is very busy. Listings slowed down for November, but they are at a good pace for December. Although sales activity has slowed down in Orinda, our manager says there is a large surge of interested buyers attending open houses. In Pleasanton, the market is slowing down partly due to the season and just the frustration of financial concern, the local manager reports. Finally, in Walnut Creek, sales activity has been steady and agents are going on listing appointments for homes coming on the market in January.
Silicon Valley – Things are definitely starting to taper off for the holidays, says our Cupertino manager. Eager buyers are still visiting open houses, but there’s a lack of inventory. Both inventory and sales activity has dipped in recent weeks, our Los Altos office reports. Open houses for newly listing single family homes in Mountain View and West San Jose drew approximately 100 visitors over the past week end with list prices of $1.2M and $1.05M. Buyers are still out there. A West San Jose home drew five offers yesterday. According to our Los Gatos office, sales are continuing to remain strong through the holiday season. An agent met a buyer in one of her open houses about 6 weeks ago and just went under contract with that buyer on a property listed for $3.2 million. The buyers are out there. Our San Jose offices say that the holidays have ushered in a slowdown in activity, although a handful of sales are still happening. The same story is echoed by our Saratoga office, which also said agents are working hard at prospecting and holding open houses to try to create a strong first quarter for 2011.
South County – Our Morgan Hill manager says there seems to be a feeling of optimism and hope for the coming year. As agents are preparing their individual business plans for 2011, there exists a feeling that, if they made it through this past year, they can make it through anything. Agents are working hard to relay this feeling of optimism to their sellers and buyers and that has been the case here in South County. Despite the holiday season, agents report that they have ready and willing buyers who are anxious to find a home—most however, are holding off until after January 1. Sellers also seem to be in a waiting mode until the New Year arrives.
Santa Cruz – Inventory levels are down significantly, which is somewhat seasonal. Our market continues to be steady given the current market conditions and number of short sales we are still seeing. Second lien holders are very rigid with their payoff amounts. The “organic” sales are happening too and prices – depending on market segment and area – are generally lower year over year. Median price continues to hover about the $500K mark. The agents are looking optimistically to 2011.
Monterey Peninsula – While our listings are decreasing, many because owners want to have them off the market for a holiday “breather,” sales activity is continuing at a steady pace. We had a very busy and beautiful Thanksgiving holiday weekend, with lots of people in town, some looking at property, and a good number of offers written. Some of our agents said it was one of the busiest Thanksgiving holidays ever, and we are now seeing some of those contracts coming together.
The level of activity in our offices throughout the Bay Area seems quite healthy as we move well into December, seasonally one of the slowest months. This could be a good indicator that the upcoming spring season, always the busiest period for home-buying, could be very robust in 2011.
That’s it for now. Have a great week!