Wall Street volatility and economic issues weigh on housing market

It has certainly been a rough August for the financial markets, and we still have more than a week to go! Wall Street has taken us on a wild rollercoaster ride with volatility spiking to its highest level since the end of the recession. One day the Dow’s down 400 points, the next its up 400, then down again. Much of the turmoil is due to worries about the U.S. economy and whether we’re headed for a double-dip recession, as well as the political infighting in Washington over the debt ceiling, and the European sovereign debt concerns.

The troubled economic backdrop has many people wondering if this is 2008 all over again. And more specifically, what impact will all of this have on the nation’s housing market, and our local markets here in the Bay Area?

Without glossing over our current economic challenges, I strongly believe that we are in a very different place today than we were three years ago.  At the depth of the recession we had a liquidity crisis.  Today, banks aren’t lending as much as we’d like, but their balance sheets are strong with enormous cash reserves.   Top 500 corporate earnings continue to be very strong, and capital investment is increasing.  Although GDP growth rates are lukewarm, we’ve nonetheless had eight straight quarters of economic growth.

Nationwide, foreclosures have declined for a 10th month in a row. We have not seen the end of the foreclosure pipeline, but these declines are still a good signal to the public. There is no doubt that structural issues remain in our economy.  But they are not fundamentally different from two weeks ago, before the S&P downgrade of U.S. debt.  As such, there’s little justification for the current reaction other than issues of confidence and perception.

Real estate has always been a very local business. And while the national headlines may frighten us, it’s important to remember that the Bay Area has consistently had a stronger economic base and thus a more resilient housing market than most other parts of the country. That’s especially true with Silicon Valley, the Peninsula, and San Francisco.

Why is it that the Bay Area seems to fare better than many parts of the U.S. when economic turmoil strikes? One reason, of course, is the rapid growth of new Silicon Valley companies, and along with them, high-paying jobs. Another is the booming social media sector, which is also being led by Bay Area firms (Facebook, Twitter, LinkedIn). We’re also the center of the rapidly expanding biotech field and the burgeoning “green” technology industry.

According to the Bureau of Labor Statistics, seven of the nine Bay Area counties saw year over year employment growth. Additionally, the jobs being created tend to be much higher-paying positions than elsewhere in the U.S.  Santa Clara County recorded the highest average weekly wage in the state, as well as the nation, at $1943, more than twice the national average, followed by San Francisco ($1573) and San Mateo ($1564).

A couple of recent reports by the Bay Area Council underscore why our local region really is at the forefront of job creation.

According to a report released by the Brookings Institution, in partnership with the Bay Area Council Economic Institute, the San Jose-San Francisco-Oakland Bay Area now leads the nation in clean tech jobs, with 11 percent of all US clean tech jobs located in the region.  The Bay Area exports more than $1 billion in clean tech products, including building control systems and electric vehicles.

What does this translate into as far as hiring? The Bay Area now supports 70,679 clean tech jobs (51,811 in San Francisco and 18,686 in San Jose).  In San Jose, the largest segment is wind energy with 3,000 jobs, and the fastest growing segments were Fuel Cells, where employment grew 24.7 percent in the past seven years, and Wind Energy, where employment grew 17 percent.  In the San Francisco-Oakland area, the largest employment is Professional Energy Services with 7,532 jobs.

Likely due to the passage of the Global Warming Solutions Act, and various tax credits and incentives, between 2003 and 2010, clean tech jobs grew by an average annual rate of 5.4 percent in San Francisco and 12.6 percent in San Jose, far outpacing the 4.2% pace of job creation for jobs nationally.

The growth of the clean tech sector in the Bay Area is one more reason why local hiring is one the rise, according to another study by the Bay Area Council. In spite of the economic headwinds at the national level, small and medium Bay Area businesses are still looking to hire over the next six months, researchers found.  The business confidence index – the number that distills the survey findings – registered at 62. A reading over 50 signals positive economic times, while below 50 is negative.

“Despite all the national talk about a dreaded double-dip recession, the Bay Area seems to be weathering the recovery much better than other regions,” said Jim Wunderman, President & CEO of the Bay Area Council. While acknowledging the economic concerns, Wunderman said, “Confidence amongst business leaders continues to slowly build.”

All of this is not to sugarcoat our current economic problems. We’re certainly not out of the woods yet and we have a ways to go before we see a full housing market recovery.  But we are making progress, even if it’s not at the pace we’d all like to see. And given our region’s track record of economic growth and leading the way in the creation of jobs for the future, I’m confident we’ll continue to see better days ahead.

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

North Bay – Despite all the fluctuations in the stock market, the Greenbrae office reported a good weekend of increased activity in Central Marin.  There is a bit of buyer backlog coupled with our low inventory for well-priced well-presented homes, which is causing a multiple offer flurry. We are seeing activity in all price points – slower in the luxury market.  Unit sales are up in all Southern Marin communities through August 15 versus a year ago, but the median sales price is down 11% in Mill Valley, 16% in Tiburon, and 5% in Belvedere.  In Sausalito the median sales price is up 37% and unit sales are up 31% accordingly.  The median sales price figures are through July 31st.   Our Northern Marin office says the market for non-Previews properties remains quite busy.  There are 197 Active listings, of which 74 are distressed and 123 are “standard” offerings.  There is a large price differential between these types.  The average price in Novato of active distressed (short sales/REOs) properties is $382,000, whereas the average price of standard homes is $799,000. The Petaluma market has been steady with multiple offers in all price ranges.  Specifically the $500K – 900K range had increased activity. Multiple offers are starting to become more prevalent in this higher price range. The market in Santa Rosa is holding steady but is a little on the quiet side.   Open house attendance seems to be increasing again now that the County Fair is over.

San Francisco – According to our San Francisco Sunset office manager, there has been good traffic at open houses at all price points.  Additionally, he’s seen a little spike in sales activity.  It appears more agents and buyers are back from their summer vacations. There has been an increase in ratified offers in recent weeks, including multiple offers. Our San Francisco Market Street office reports that 1/3 of its signed contracts saw multiple bids.  They all shared one thing in common: they were turn-key and showed beautifully.   Renovations, staging and professional photography seem to command immediate interest and an increased activity compared to property that doesn’t show nearly as well.   A two-unit in district 5, with a tenant in one unit, saw four offers and was ratified within six days of list date.  A single-family Noe Valley home in terrific condition also saw a ratified contract in less than a week of being listed.  Of course price is everything.  A property listed for over a year that had seen a series of price reductions resulting in a most recent asking price of 50% off the original list price was ratified.

SF Peninsula — In Burlingame there is a shortage of inventory for a very focused, pent-up group of buyers in the $800,000-$1.5 million price range. There is inventory being prepared for the fall market, which should be coming after Labor Day. Our North Burlingame manager reports the local market has slowed down over the past two weeks as clients focus on this tumultuous economic environment. There are currently 65 active and 18 pending listings in Hillsborough. These numbers have been pretty consistent all summer. There are still cash buyers waiting for the right property at every price point. A home in old Palo Alto listed at $1.1 million received 34 offers and the property is pending for roughly $900,000 over list price.  A majority of the offers were all cash. Sales activity has quieted along with the end of summer in Menlo Park. In Palo Alto, listings and sales are generally low and will probably remain that way until mid- September at which time it should pick back up again after everyone returns from summer vacation. Woodside is at a bit of a standstill, possibly due to summer and the financial market volatility. There has been great open house activity in San Mateo. San Mateo Highlands had over 75 groups at two different listings.  But buyers are still reluctant to pull the trigger, he said, with unemployment and the debt ceiling political turmoil a factor.

East Bay – According to our Berkeley manager, the first two weeks of August have been strong, but not sure what the final two weeks will bring. Danville and San Ramon have slowed down in August as always as it seems everyone is on vacation. The story is echoed in Fremont, where our local manager says the slowdown is possibly due to parents getting ready the new school year. In Livermore, open houses are very active, but buyers are taking their time in making offers.  Active listings in Livermore have declined almost 10% in the past two weeks. The active inventory for Preview homes in Livermore dropped slightly from 23 to 21 listings. August is proving to be a busy month for vacations and slow for the local market, our Oakland/Piedmont manager says. Open house activity has been slow and buyers that are coming in are not in any rush to put pen to paper. Properties are still going into contract at a slower clip than the last few months. There are a lot of listings getting ready to come on the market after the Labor Day weekend. The Lamorinda market continues to remain strong in the $500,000 – $750,000 range.

Silicon Valley – This last week was slower than it usual in Cupertino due to economic uncertainty, causing buyers to be very cautious, our local manager reports. Our Los Altos manager said new listings and new sales were both much slower in recent weeks.  He attributes it to the end of summer vacation for many people, and the debt limit debates and stock market gyrations. Our Los Gatos office reports the local market has been steady with the Previews upper end of the market steadily improving. Our San Jose Almaden manager says many sellers are taking their homes off the market rather than reducing prices further.  Those motivated sellers must price accordingly to sell, he said. Our Saratoga office says the local market has been steady, although the upper end is quieter lately.

South County – Sales activity in the South County has tapered off in August, according to our Morgan Hill manager. The stock market volatility, unemployment numbers and uncertainty about our government’s ability to govern certainly have impacted consumer confidence and our local market.  Closings in the Morgan Hill office for July were almost half of those for June.  On the brighter side, agents report that there is increased attendance at open houses and there seems to be interest in homes priced at every level.  Last weekend one of our office listings (advertised for $1.5 million) had 35 groups of potential buyers walking through in one day.  Inventory is steady, interest rates and prices are incredible but getting buyers “off of the fence” remains the biggest challenge facing agents.

Santa Cruz County ­–The Previews/upper end market continues to be slower, although there have been more closings this year as compared with last and there are some great buys at the beach. Overall, the last two weeks have been a bit of a roller coaster ride with buyers/Investors reacting to the stock market swings.  A few transactions cancelled, and a couple were delayed as buyers did not want to pull the money out for down payment or to close an escrow.  On a $1.5 million listing, the buyer requested an additional 45 days extension, which fortunately was agreeable to the seller.   Most sales continue to be under $600K and the market seems to be unremarkable.  70% of the sales are $650K or less.

Monterey Peninsula – Our local manager says that the activity level in the lower price ranges has continued at a relatively constant pace this summer, and they’ve seen more sales in Carmel–Monterey Peninsula’s most active area– this summer than last.  However, there is lots of inventory, especially in the over $2 million category. And while a couple of those properties have gone into escrow in this past two weeks, there seems to have been a slowdown in past couple of weeks in showings in those higher prices.  The good news is the renowned Concours d’Elegance is here in Pebble Beach on August 21, with lots of activities each day for five days before.  And this event brings in not just magnificent automobiles but also the wealthy people who own them and run in those crowds, so we are anticipating some will become interested in our higher priced homes here, though sales from events do tend to occur months down the line.

All in all – given the schizophrenic numbers on Wall Street, summer vacations wrapping up, and school starting back for some families – not really a bad few weeks in Bay Area Real Estate.

Have a great week!

Rick

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One thought on “Wall Street volatility and economic issues weigh on housing market

  1. Pingback: Market Watch | San Francisco Real Estate - Preview SF Homes - Michael DiVita, Thea Miller

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