Inventory shortages hampering local markets as fall begins

With the traditionally quiet end of summer behind us, Bay Area Realtors are gearing up for what could be a busy fall selling season. But according to many of our local offices, one obstacle standing in the way of a solid market isn’t a lack of buyers – but a lack of inventory. There just aren’t enough good, well-priced homes for sale to meet buyer demand.

Considering the downbeat national housing market news coverage, you might think that more homes on the market is exactly what we don’t need at this time. But the Bay Area is different from much of the country. In many of our markets, buyers are continuing to snap up homes that are seen as good values. The result is that a number of listings are attracting multiple offers and many buyers are frustrated by lack of supply. Agents only wish there were more homes on the market.

I know this defies logic. After the financial crisis in Oct 2008, I was thinking it would probably be a much slower market for several years.  However, I thought it might be due to homes not selling.  I never thought that we would have the kind of demand we see today and that weaker sales numbers would be from a lack of inventory rather than a lack of buyers.

It’s been widely reported that places like Palo Alto have a shortage of inventory. But the problem goes beyond the heart of Silicon Valley. Even outlying regions of the Bay Area could use more homes to sell, whether they are entry-level properties, move-up homes or even high-end Preview listings.

Active inventory is down 34.5 percent in the East Bay in September from a year ago, 44 percent in San Francisco, 49 percent in Santa Clara, 35 percent in San Mateo, 25 percent in Santa Cruz, 39 percent in Monterey, 42 percent in Marin, and 39 percent in Sonoma.  In most cases, the average sale price has held steady or even gained.

My guess is that a lot of potential sellers are sitting on the sidelines waiting for a number of issues to sort themselves out, whether it’s the direction of the housing market or the volatile financial markets. While the housing market was quiet as we closed out summer, the stock market has been anything but. This past week was particularly bumpy as the major indexes fell 3-4 percent on fears of a new recession and European debt contagion.

So where does this all leave us?

Despite the volatility of the financial markets we’re not seeing current buyers walking away. Given the global economic headwinds buffeting the financial markets, we’re likely to continue experiencing volatility for some time to come. Still, I think most homebuyers in the Bay Area are looking past the week-to-week gyrations of the stock market and focusing on the long term. If anything, the recent dip in the stock market makes real estate all the more attractive as a long-term investment option.

On the seller’s side, my sense is that we’ll start seeing more people coming back into the market to list their homes this fall, once they begin seeing the real demand that’s out there for well-priced properties. This is particularly true for those sellers who have lived in their homes for a number of years and, despite declines in prices in recent years, stand to walk away with significant gains when they sell.

One final note: As every Realtor knows, it can be hard enough to hold deals together in this turbulent market without added obstacles. But recent national reports say that mortgage financing and appraisal hurdles are increasingly knocking deals out of escrow and possibly holding back a housing market recovery.

Time magazine reported that 16 percent of all sales contracts failed in July because the buyers could not secure a mortgage, up from 4 percent just two months earlier. In other words, one out of every seven contracts is going down due to problems that buyers are having getting mortgages.

Difficulty in securing financing isn’t the only hurdle facing buyers. Low appraisals are also blocking sales, according to a recent article in the Wall Street Journal. According to the Journal’s reporters, real estate appraisers, who were criticized by some for being too generous in their property valuations before the housing market fell, may be going overboard in the other direction.

In talking with my offices around the Bay, this doesn’t seem to be a significant problem for us yet. But it’s worth keeping our eyes open to the potential. The last thing we need at this time are more roadblocks to home sales.

While it’s important for lenders and appraisers to be cautious and prudent given the problems of the past, they also need to make sure that the pendulum hasn’t swung too far in the other direction. The recovery of the housing market is too important to throw more hurdles in its path.

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

North Bay – Our Greenbrae office had two high-end deals close this week – one in Ross for almost $5 million and the other in Belvedere for $3 million. More luxury properties are coming on the market and more selling at discounted rates.  September is starting off at a good clip with the promise of many homes coming on the market. Still there is low inventory in Marin – the lowest in years. Yet, the market is outpacing last year in terms of the number of sales (indications of a pretty solid market). In Southern Marin, people seem to have come back from summer and are stepping up to the plate writing offers.  Two properties this past week got into contract prior to a broker’s open, one in the $1.1 million range and the other in the $3.5 million range.  In Northern Marin, both sales activity and the inventory of homes have dipped the past couple of weeks. Our Santa Rosa manager properties going into escrow are at a brisk clip. Inventory is the challenge; they are not getting as many homes on the market as they’d like.  The percentage of equity sales to distressed sales is rising. Sales activity is increasing in Petaluma. The lion share of the properties coming on the market seems to be regular sales compared to distressed properties. Finally in Sebastopol, sales remain strong in the lower price ranges but our local manager said they could use more inventory.

San Francisco – The San Francisco Lakeside office says that plenty of new listings have just come on the market, and they are being sold quickly. Our Market Street manager reports a steady local market. Price and Location seem to be the recipe for a quick sale. They had a recent ratified contract with a property that had been listed about two weeks prior.  It sold in 2007 at the height of the market for $1.9M and is now on for $1.65M. There was tremendous interest and activity.    Conversely on a Noe Valley property purchased around the same time has seen the initial interest waning. It appears buyers are just watching for the price to be reduced.  Our Sunset office says open houses are extremely active in all price point.  There are still plenty of multiple offers:  A single family home in the Ingleside (regular sale, price in the high $400K) received 16 offers and went into escrow for 15% over the listed price.  Footnote on this:  Out of 16 offers, only one offer had 20% down payment. Four were all cash, the rest were 50 to 70% down payment. 

SF Peninsula — Our Burlingame north office reports that agents are starting to see increased activity now that school has started and vacations have diminished. Previews market pricing is softening and properties are starting to sell faster.  Open house activity increased. Across the hill in Half Moon Bay, our local office says sales activity has been steady with increasing inventory. Listings have picked up on the coast, as sellers are ready for the fall push before the holidays with either price reductions or new on the market.  In Menlo Park, both listings and sales have been steady. A bit of life is coming back into the market after the Labor Day Holiday and volatile financial markets. There has been lots of activity and interest by both buyers and sellers these past few weeks during open houses. A $7 million home in Atherton drew 80 agents to tour the property.  Our midtown Palo Alto office reports that sales and listings are climbing with six multiple offer situations on 11 recent sales. Inventory is slow to come on after the holiday, but activity in Palo Alto nearby is still very strong. Our Portola Valley office says that both sales activity and listing inventory are declining. Similarly in Redwood City, the market continues to be slow with a lack of inventory and buyers being very cautious. Homes that are priced correctly and show well are the only properties that are selling. In San Mateo, inventory is down 24% from last year but pending sales are up 26% over 2010. The high end is increasing over $1M and $2M as well as sales in those price points.

East Bay – September is active in the Berkeley office, following very active summer months as well.  The same factors apply – hesitant concerned sellers and buyers, difficulty with lenders and appraisals, but agents are busy. In Danville, inventory has been hovering around 2 1/2 months in the San Ramon Valley for some time.  There are a few multiple offers, but the buyers are very deliberate and have no sense of urgency.  In general, people are just not confident about making the commitment to purchase.  Meanwhile rentals are scarce and rents are high. The Fremont market has been slow but steady with low overall inventory.  Most listings are still selling in less than 30 days with fewer multiple offers. Castro Valley listings and sales activity are increasing. Active inventory in Livermore has declined 15% from the high in 2011.  Buyers are sitting on the fence despite record-low interest rates and the most affordable home prices that we have seen in years.  Our Oakland/Piedmont office says open house activity is way up after the holiday. One of the listings near Lake Merritt had close to 200 people through it on a recent Sunday. Many new listings are coming on the market this month with terrific value so it’s time to see how the buyers react and how quickly they will write contracts. Although the Lamorinda market remains steady, there appears to be a lull in activity as buyers focus on back to school activities. Inventory is decreasing and sellers are becoming anxious as typically this time of year the market begins to slow. The Pleasanton market has low inventory, and our local manager is seeing a little slow down. But he said buyers are still out there but looking for the right priced homes. Finally in Walnut Creek, there’s a lack of good inventory.  As a result, there an increasing number of multiple offers on entry level priced properties in all corners of our market.   

Silicon Valley – In Cupertino, activity finally seems to be picking up now that kids are back to school. A similar story is echoed by our Los Altos manager, who said the local market is improving with vacation season behind us.  In Los Gatos, our office reports a definite uptick in the high-end market.  There has been a recent increase in buyers in the $5-10 million dollar range. Our office also closed a $5.2 million, a $4.2 million and a $2.65 million sale.  We have not seen that type of activity in the high end since early 2008. In San Jose, our Almaden office says prices have come down since April.  For the first time in a very long time, the median price in Almaden Valley is under $900K.  Inventory for the county is down a third from this time last year.  Consumer confidence seems to be the biggest deterrent.   The Willow Glen office reports a steady market with an uptick in the number of multiple offers. Our Saratoga manager says the Previews market is still lagging. But overall, the market is tracking as predicted for this time of year. Activity is back to normal after a slight slowdown due to the Holiday weekend.

South County – August proved to be a very interesting month in the South County.  Business started out slow but Morgan Hill agents managed to put almost 50 properties into escrow by month’s end.  There seems to be no real trend as far as buyers are concerned—they do not fit into one category.  Many are cash buyers and yet FHA loans are also a very attractive financing option for buyers.  Very few buyers are financing their purchase with a conventional loan.   As far as listings are concerned (in all price ranges) they seem to be in two camps:  either they sell within the first week of hitting the market or they tend to sit and sit as they are not correctly priced or they show poorly.   Short sales and REO properties continue to be about 40% of South County business.

 Monterey Peninsula and Santa Cruz – The Monterey peninsula area is in the midst of what’s normally the busiest season – August and September. Our local office has been very busy the last two weeks here, particularly around the Labor Day holiday, which was sunny and hopping with people in Carmel.  In fact, even with only four work days that week, our local office put 18 properties in escrow, across the price ranges up to $3.5 million, and they had 28 closed sales in the past two weeks, also across the price ranges up to $3.5 million. In Santa Cruz, listing inventory has decreased in recent weeks with sales activity steady.

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