Reading business headlines these days is not for the faint of heart. I’m beginning to think that my morning paper should come with the same kind of legal disclaimers and health warnings that accompany some wonder drugs: Could cause shortness of breath, heart palpitations, sleepless nights and irritability.
Recent financial articles have noted that hiring has slowed, the stock market could be in a correction, and the nation’s economic recovery may be hitting a “soft patch.” It’s no wonder that the housing market, at least nationally, has struggled to gain traction after last year’s boost from the federal tax credit.
Against this backdrop of gloomy financial and housing news, it was interesting to open the Wall Street Journal last week and see in big, bold headlines: Why It’s Time to Buy. As the Journal put it, “The clouds haven’t quite parted, but the long-term case for home ownership is looking stronger.”
Journal reporters Ruth Simon and Jessica Silver-Greenberg researched and wrote one of the most thorough and rationally analyzed articles I’ve read on the market in quite some time. Far from being Pollyannaish, they acknowledged the economic headwinds facing the market and the clouds overhead. But they also spent a great deal of time arguing the positives for buyers today as well as the long-term investment opportunities.
“Despite all the gloom…there are growing indications that it is a good time to buy,” the Journal reporters noted. “Mortgage rates, which fell to 4.55%…are near 50-year lows. Homes have become more affordable than they have been in years. According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer’s market. There were about 15 million vacant homes in the U.S. last year—some 3.1 million more than normal.”
Simon and Silver-Greenberg then said what Realtors have been telling clients: “Such conditions might not last long,” they warned. “Moody’s Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply
overhang isn’t likely to get much worse. Meanwhile, demographic indicators such as “household formation”—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.”
In their analysis, the Journal reporters looked at several financial and psychological aspects of the market and determined that the winds are shifting: Lending: “As rates hover near historic lows, experts expect banks to ease borrowing standards over time; Psychology: If prices stabilize, it could tip the balance away from fear and pull more buyers back into the market; Affordability: In several markets, it’s becoming cheaper to own than to rent; Demographics: The rate of “household formation” is expected to climb in coming years; Employment: The strength of the housing recovery depends on job growth. Despite some hiccups, the job market is improving in most parts of the country;
For more detail on the current market and the opportunities for buyers right now, I encourage you to read the Journal article at http://online.wsj.com/Why Now’s the Time to Buy.html
Below is a market-by-market report from our local offices:
North Bay – While sales and inventory have eased recently, according to our Greenbrae office, they are noticing some increased activity around the office. They are still inventory starved, which makes the ideal homes go quickly when they come on the market. Greenbrae, Corte Madera, Larkspur and parts of Novato are very hot. Luxury sales are sporadic, but still happening. Cash deals are still prevalent. In Northern Marin, the lower end of the market is extremely active with multiple offers on properties in the $200,000-$500,000 range. Activity falls off around the $500k-$850k range but is still seeing some activity. Over $850k range is slow. Petaluma is starting to see more properties in the $500,000 to $900,000 range come on short or real close to being short. Open houses are well attended with 10 or more groups in most. Things are heating up in Santa Rosa, with the market surprisingly active given the recent holiday weekend. Our local manager says buyers are aware that interest rates are incredibly low and want to take advantage of the favorable rates.
San Francisco – Our San Francisco Lakeside manager says agents are working overtime to find sellers. More than half of the new sales this past week were multiple offers. It is too early to tell if this summer will see the typical inventory buildup but so far there are no signs of it. Our Lombard office says it was a good May and early June, but buyers remain very cautious – except on the “flawless” homes that generate multiple offers. It’s hard to pin down any trends. That assessment is echoed by our Market Street office manager, who says that the local market continues to be erratic. Some properties are seeing very little activity; broker tours and showings are minimal, whereas others are mobbed. Location, price and perceived value seem to be everything. A recent home listed in West Portal came on the market, a dozen disclosure packages went out, followed by multiple bids. A multi-family in average condition in the Castro area had a ratified offer within the first two weeks of coming to market. Other properties are oddly quiet. A turnkey Bernal Heights one bedroom is quiet, as is much of the TIC market. The Sunset office says their local market has been steady with 10 ratified sales, three of which were multiple offers. Finally, the Van Ness office says listings are taking longer sell in the lower ranges while the more expensive homes continue to move at a good pace.
SF Peninsula — In Burlingame, our local office says that open house activity is telling them that there are many buyers right now who feel that we are at the bottom of the market. This is late for our usual spring selling season but it seems that there may be a push going on to get into homes and register for school in the fall. Multi-million-dollar homes are continuing to see activity. There has been very good activity these past two weeks in Menlo Park, despite the holiday weekend. Buyers hungry for properties in “A” locations and will bid them up. Palo Alto continues to be a strong market with multiple offers on homes up to $4 million. Open houses have ranged from relatively quiet to extremely busy, depending on the neighborhood and area. Sales activity in Portola Valley is on the rise. Our local office had a large sale of more than $6 million. Our Redwood City office said buyers are taking time to make up their mind about purchasing at this time. In San Carlos the activity seems to have slowed down. The list price must be right on for the home to sell quickly. Redwood City and Redwood Shores have quite a bit of inventory. Townhouses and condos are taking a long time to sell, even when priced well. Belmont inventory is stable and again depends on list price as to days on the market. In San Mateo, late spring is showing signs of good activity. Properties priced right that show well often lead to multiple offers.
East Bay – The Berkeley office reports a steady market with more activity in the $900,000–$1.5 million range. The Castro Valley market has also been steady in recent weeks. In Fremont, inventory is remaining steady but sales are increasing. Buyers are taking longer to make decisions on purchasing, according to our Livermore manager. And when they do purchase, they want a good value or price for the home. The Oakland market has been steady with open house activity up over the past weekend. Offers have been ratified at all price points. There are still many homes with multiple offers and many with a few price adjustments. In Orinda, sales activity has been steady with 16 ratified offers, five of which were multiple offers. Finally, in Walnut Creek, the there are lots of buyers at open houses but they’re not making offers in many cases. But on some lower-end properties, agents are receiving multiple offers.
Silicon Valley – There is a lack of urgency among buyers in Cupertino, except in the case of the most special properties, which translates to the best schools. In Los Gatos, the pace of the market is picking up dramatically, especially under $2 million. A property was listed at market value at $1.4 million in Los Gatos and sold with four offers for over list price. Our San Jose Almaden office says there has been a slight increase in activity of late, which is a welcome sign since the cooling off period that began in April. It’s too early to say if it is a trend yet, but last weekends open homes were much busier than previous ones. Agents are seeing a lot of price reductions, as much as 4% since March. Meanwhile in Willow Glenn the local office says it has been steady as far as sales are going. There have not been many multiple offers lately. Open houses still get a lot of traffic.
South County – The local market has been steady, according to our Morgan Hill office. Agents are spending time trying to calm nervous buyers, who react to negative media reports that the sky is falling (again) on the housing market. Recent articles, especially on the national level, concerning prices and sales volume are having an adverse affect on potential buyers trying to make a decision to jump into the market. As we’ve said before, the South County market continues a steady recovery, but does so with agents working hard to assure buyers that they are receiving a good value.
Santa Cruz – The market seems to be changing from week to week depending on the current economic news and forecast. Bad news keeps buyers and sellers on the sidelines. There are flurries of activity, a cluster of sales, and what appears to be some momentum and then it slows. Sales in our offices are steady and fairly consistent although the prices are much lower than a year ago. The median price for a single-family home is down $105,000 (19%) from the same time last year, to $445,000. Overall prices have dropped 40% since the peak. Closings in the County appear to be up over 2010 by about 9% so far this year. Particular price points like $700,000 – $1,000,000 can be challenging and agents are counseling sellers to list slightly below the last sale to attract interest when going on the market. In the Previews end of the market, it’s good news for buyers that this is perhaps the best time ever to buy a wonderful beach property. There are many options ranging from $1 million up to $8 million, with views ranging from peeks of the ocean to living right on the sand.
Monterey Peninsula – May was a good month on the Monterey Peninsula. Our sales associates opened 86 new escrows across all price points. It appears that real estate is coming back into favor as an investment for the long term. The lower-priced homes, particularly REOs, are selling fastest. There are not enough of them on the market so that’s where we are seeing most of the multiple offers. That’s it for now.
Have a good week!