“It all depends on how we look at things.” Those words by Carl Jung describe the importance of perspective… which is exactly what last week’s economic reports on home sales require! Existing Home Sales were reported well below expectations and a significant 27% decline from last month. As you can see in the chart below, New Home Sales were also ugly – coming in well below expectations and at the lowest reading on record. But as Carl Jung said, let’s take a step back and gain a wider perspective about how we look at those reports… and what they mean!

With all due respect, the actions from the Washington academics are invariably filled with unintended negative consequences. The First Time Homebuyer Tax Credit is a good example. It’s now clear that the tax credit has done more harm than good…all at an enormous cost to those who pay taxes. Here’s why: The tax credit simply rewarded those who were already going to purchase homes, as well as those who moved up the timing of an inevitable purchase. But now… the “sugar rush” is over, and the void remains. Worse yet, potential buyers are feeling reticent to make a move after “missing out” on the free money. The obvious problem that remains within our faltering economy is the job market. Yet the focus from Washington has been elsewhere. And it can be argued that each landmark passage of reforms – from aviation to healthcare to financial – has made job creations more challenging.

But eventually we expect some better decisions to come out of Washington. This, along with time, will help the housing market and overall economy recover – making for a good long-term buying opportunity in today’s market. Remember, the best investors buy during the most pessimistic times.

To highlight this – as well as give us better perspective and some hope towards the future – here’s something that was recently pointed out by Dennis Gartman, a well-respected market analyst. Back in 1992, an article in Time Magazine included this passage:

“The US economy remains almost comatose. The slump already ranks as the longest period of sustained weakness since the Depression. The economy is staggering under many ‘structural’ burdens, as opposed to familiar ‘cyclical’ problems. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health care cost explosion and the runaway federal deficit.”

It’s amazing how eerily similar the picture from 1992 compares to today. We all know that the period following 1992 included terrific growth and opportunities in the economy, stock market and housing. If history repeats itself, which it often does, this could point to much better days in the future with opportunities in the present.

Read the entire article and see the graphs here.

- Foster Weeks

In the quarter ended June 30, 2010, the Index indicated the following:

• Los Angeles area values decreased 1% from the first quarter of 2010 and declined 5.9% compared to the second quarter of 2009. The average luxury home in Los Angeles is now $1.96 million.
• San Diego area values dropped 0.3% from the first quarter of 2010 and fell 2.1% year-over-year.  The average luxury home in San Diego is now $1.72 million.
• San Francisco Bay Area values climbed 1.8% from the first quarter and dropped 1.3% over the past year.  The average luxury home in San Francisco is now $2.59 million.

“Luxury homes in most high-end communities in California held their value in the second quarter of 2010,” said Katherine August-deWilde, President and Chief Operating Officer of First Republic Bank.  “Prices have stabilized since the beginning of the year.  Although buyers are somewhat uncertain due to current economic conditions, low mortgage rates are attracting buyer attention.”

First Republic Bank produces the Prestige Home Index each quarter with Fiserv CSW Inc., a leading provider of automated property valuation services and home price metrics to U.S. financial institutions.  Historical results of the Index, which has tracked luxury homes since 1985, are accessible at www.firstrepublic.com.  First Republic Bank is an active lender in the luxury home market for both primary residences and vacation homes.

Los Angeles Area Values

The rate of decline decreased in the Los Angeles market compared to the first quarter, as well as the second quarter a year ago.

Kathryn Shafer of John Aaroe Group in Beverly Hills said pricing is even more critical than normal in the current market.  ”There is pent-up demand among buyers,” Shafer said. “If a home is priced well, it will sell.  If it is on the market for 60 days to 100 days, you will see a 10% to 17% reduction in the sale price.  I don’t see any large fluctuations in price either negative or positive for the remainder of the year.”

Barry Host of South Bay Brokers in Manhattan Beach agreed that buyers are demanding properties be priced to reflect current value. “Clients want to see that the properties are priced at or very close to the actual value, or the homes will sit,” he said. “There is a lot of emotion in the market right now about what is going to happen for the rest of the year.”

San Diego Area Values

Values in San Diego dipped slightly from the first quarter, while the year-over-year decline in the second quarter was the smallest in more than two years.

In La Jolla, Rancho Santa Fe and Del Mar, agents said the higher end of the market has been soft.  “Under $2 million, there is a market for sellers, but proper pricing is critical,” said Greg Noonan of Prudential California Reality in La Jolla.  “For homes over $2 million, the market is more challenging.  I’m not convinced it has bottomed out. Buyers will have phenomenal opportunities to find properties at great prices over the next 18 months.”

Peggy Chodorow of Prudential California Real Estate in La Jolla agreed. “We have reasonable activity up to the $2 million range, and virtually nothing over $4 million,” she said.  “Our high end has been hit very hard.  Buyers are not sure whether we are in a recovery or whether we’re going to have a slump for the next three years.  On the other hand, the inventory is sensational. You’ll be hard pressed to find a market with this much choice.”

San Francisco Bay Area Values

Values in the San Francisco Bay Area increased for the second straight quarter.

“As the volume comes back, we’re expecting to see modest appreciation over the next 24 months,” said Mark McLaughlin, CEO of Pacific Union International & Christie’s Great Estates.  “The second quarter was substantially better than what I think the third quarter will be. But it is hard to predict because there has been so much disruption to the market cycle.”

Ana Dierkhising of Hill & Co. Real Estate in San Francisco said affordable loans are stimulating demand.  “Historically low interest rates are keeping buyers in the marketplace.  Buyers are pickier and are deducting for any challenges to the property.  However, they are definitely buying if they feel the property is worth it.  There have been multiple offers in Pacific Heights and Presidio Heights — the places with unique views and one-of-a-kind properties.”

In the South Bay, the market was not as active as in San Francisco.  “As soon as we entered the summer, the markets definitely started to slow,” said Benjamin Guilardi of Alain Pinel Real Estate in Los Gatos.  ”People really do want to act and have the ability to act, but they are paralyzed by uncertainty. We’re not missing wealth. We’re missing confidence.”

About The First Republic Prestige Home Index

The First Republic Prestige Home Index™ is the first statistical model of its kind customized to measure changes in homes valued at more than $1 million in key California urban markets.  Some common features of luxury homes in the Index: 3,000 to 6,000 square feet, three to six bedrooms, and three to six bathrooms.  San Francisco Bay Area properties include a cross-section of luxury homes in Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.  Properties in Los Angeles represent a cross-section of luxury homes in Arcadia, Beverly Hills, Calabasas, La Cañada Flintridge, Encino, Los Angeles, Malibu, Marina del Rey, North Hollywood, Pacific Palisades, Pasadena, Playa del Rey, Santa Monica, Studio City and the West Los Angeles enclaves of Bel Air, Brentwood and Westwood.  San Diego properties represent a cross-section of luxury homes in Carlsbad, Coronado, Del Mar, Encinitas, La Jolla, La Mesa, Poway, Rancho Santa Fe, San Diego and Solana Beach.  In producing the Index, Fiserv CSW Inc. draws upon its economic database and years of experience in tracking single-family home values; collects and cross-checks data from multiple sources; achieves a weighted balance of validation elements such as repeat sales, comparable sales, and physical home characteristics; and combines this with First Republic’s extensive local market knowledge.

About First Republic Bank

Founded in 1985, First Republic Bank and its affiliated companies provide private banking, private business banking and private wealth management. First Republic specializes in exceptional, relationship-based service offered through preferred banking or wealth management offices in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Seattle, Boston, Greenwich and New York City.  First Republic offers a complete line of banking products for individuals and businesses, including deposit services, as well as residential, commercial and personal loans. More information is available on the Bank’s website at http://www.sfresidence.com/.

About First Republic Private Wealth Management

First Republic Private Wealth Management is the investment management, trust and brokerage group of First Republic Bank. First Republic Private Wealth Management offers objective advice and fully customized solutions with the same level of exceptional client service that has been the hallmark of First Republic Bank for more than 25 years.  First Republic has the flexibility to provide individuals, families, businesses, endowments, schools and non-profit organizations with appropriate choices that responsibly meet a client’s specific investment objectives.

Contact:
Greg Berardi
Blue Marlin Partners
(415) 239-7826
Email Greg Berardi

Calif. median home price: $314,850 (Source: C.A.R.) (note: compared to $311,950 previous month)

Calif. highest median home price by C.A.R. region: Santa Barbara So. Coast $871,250 (Source: C.A.R.) (note: compared to $914,760 previous month)

Calif. lowest median home price by C.A.R. region: High Desert $128,950 (Source: C.A.R.) (note: compared to $126,620 previous month)

Calif. First-time Buyer Affordability Index - Second Quarter 2010: 64 percent (Source: C.A.R.) (note: compared to 66 percent First Quarter 2010)

Mortgage rates – week ending 8/19/10:

• 30-yr. fixed: 4.42%; Fees/points: 0.7% (note: compared to 4.56% and 0.7% points last report)
• 15-yr. fixed: 3.9%; Fees/points: 0.6% (note: compared to 4.03% and 0.7% points last report)
• 1-yr. adjustable: 3.53%; Fees/points: 0.7% (note: compared to 3.7% and 0.7% points last report)

- California Association of Realtors & Freddie Mac