San Francisco Real Estate Market Update for week of
September 14, 2008
It’s been referred to as “Nightmare on Wall Street.” In the past two weeks, the government took over Fannie Mae and Freddie Mac, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America. If that weren’t enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to American International Group (AIG).
Our nation’s financial system is in the midst of a massive shakeup, caused largely in part by this decade’s housing correction. The housing correction has occurred largely because speculative investors as well as marginal borrowers were purchasing homes with unreal loans as fast as production builders could complete them. If you are living or working in an area that hasn’t had land available for substantial housing development in years, then you haven’t seen much of this in your local market. The higher-end communities around San Francisco that have showed the most resiliency to price declines have had extremely low levels of new home construction for decades. But overall, between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can’t pay back the loans, a problem that is exacerbated by the decline in housing prices in a majority of markets. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.
According to the Wall Street Journal this week, “At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets.”
Only time will tell how and when this shakeup will correct itself. The recent figures released by DataQuick (http://www.dqnews.com/News/California/Bay-Area/RRBay080918.aspx) this week are a hopeful sign, despite the negative news they unveil. Among the highlights:
- “The pace of Bay Area home sales reversed its July uptick and dropped again last month, marking a return to the long-running waiting game that many potential buyers and sellers have been playing for more than a year.”
- “A total of 7,232 new and resale houses and condos were sold in the nine-county Bay Area in August. That was down 4.7 percent from 7,586 in July, and down 0.9 percent from 7,299 in August 2007, according to San Diego-based MDA DataQuick.”
- “Last month's sales total was the second-lowest for an August, behind 6,688 sales in August 1992, in MDA DataQuick's statistics, which go back to 1988. An "average" August had 10,031 sales, while the peak August in 2004 had 13,940.”
- “At the county level, foreclosure sales ranged from 8.6 percent of resales in San Francisco to 61.3 percent in Solano County. In the Bay Area's other seven counties, August foreclosure sales were as follows: Contra Costa, 54.4 percent; Marin, 13.5 percent; Napa, 39 percent; Santa Clara, 24.7 percent; San Mateo, 16.6 percent; Sonoma, 41.6 percent.”
- “The median price paid for all new and resale houses and condos sold in the Bay Area last month was $447,000, down 4.9 percent from $470,000 in July and down a record 31.8 percent from $655,000 in August 2007, according to MDA DataQuick.”
- “Last month's median stood at the lowest point since January 2004, when it was $440,000. The median peaked at $665,000 in June, July and August of 2007.”
Waiting for the bright spot? Keep reading. There’s no question, the result of foreclosures have drastically hindered our median sales price in many of our markets. And for those sellers who are not under duress and are just looking to sell, they are forced to lower their prices dramatically just to compete.
But we knew that the housing correction posed the biggest risk to our economy and that our economy and our markets would not recover until the bulk of the housing correction was behind us. The good news is that we are in the midst of depleting much of our distressed inventory. With stats like 61.3% of sales in Solano County being foreclosure sales, 54.4% in Contra Costa and 41.6% in Sonoma County, we are starting to push through that negatively impacted inventory. And once we do, we will start to see a market rebound. No, it won’t happen overnight. But as it does, we will see first a leveling off and then, ultimately, a positive increase in market conditions.
So what has all of this week’s news done for our market? Honestly, people are concerned. I think we all are. This week’s news did nothing for consumer confidence which is why it is important that we remind our clients of the benefits of investing in real estate. Real estate is a strong, long-term investment and as long as our consumers keep that in mind, they may prevail in today’s market. Couple that with the fact that inventory levels are higher, interest rates are low, the conforming loan limits have increased and prices have decreased substantially in many markets, we have one of the best buyers markets in decades. So buyers, if you’re considering buying, now may be the time!
So with this valuable insight in tow, let’s take a look at this week in real estate:
- East Bay—Berkeley continues to struggle with low inventory in some of its core markets including Berkeley, Albany, Kensington and El Cerrito. Just to give you an idea, we had a mob scene at a new Berkeley listing the other day despite the fact that it was a 60-step walk-up to the door and there were two football games playing and a street fair down the street. Castro Valley remains a hot spot for the first time home buyer with the market sizzling in the $275,000 to $350,000 range. Fremont is reporting that REOs continue to drive much of its market and Livermore noted that of the seven new pending sales this week, five were REOs and four of those five were at or below $215,000—these are prices we haven’t seen in years, folks. Lamorinda, which hasn’t been quite as affected by REOs is reporting that the market remains steady, though Agents who have had trouble putting deals together due to financing issues, are finally starting to see success—a good sign (hopefully) of things to come.
- Monterey County—The market remained steady this week and we had a total of 17 ratified offers.
- North Bay—Marin County, according to our Greenbrae office, seemed to be impacted by the news on Wall Street. Buyers in this market were a bit skittish this week as they watched the news unfold on the nightly news. Having said that, Agents were still quite busy with activity and searches so we’ll wait to see if those housing searches translate into ratified sales over the next several weeks. Our San Rafael office is noting that some condos in San Rafael are listed at an all time low of $125,000 and Novato is seeing an increase in activity in the $400,000-500,000 price point. Our Southern Marin office reported a well-priced waterfront Larkspur listing had four offers in the first weekend. Sonoma County sales continue to thrive thanks to REOs. Petaluma reported this week that four out of the six multiple-offer sales had 10 or more multiple offers. Santa Rosa reports that the under $500,000 market is moving quickly with anything above (typically) sitting.
- Peninsula—News on the coast is bright! Our Half Moon Bay office reported that listings are up 40% this week, the largest increase in listings in several years. Overall the Peninsula seems to be enjoying a pick-up in the market this week, largely due to an increase in new inventory. Menlo Park Santa Cruz Avenue is reporting that new listings hit last week and more are to come; buyers, however, seem to be playing the wait and see game. Our Redwood City/San Carlos office reported that buyers are looking but aren’t quite ready to commit.
- San Francisco—Lots of new inventory in the City! The well priced listings are going quickly—some with multiple offers—as evidenced by our Market Street office’s news that all but one property this week received three or more offers. Our Lombard office noted that San Francisco is at a good inventory balance right now which creates a positive environment for both buyers and sellers. The Van Ness office is reporting that things are picking up (as expected after the Labor Day holiday) in all price ranges.
- Santa Cruz County—No information provided this week.
- Silicon Valley—Things are looking pretty bright for Silicon Valley real estate. Cupertino DeAnza notes that “things are picking up and there is a lot of optimism at the sales meeting.” Los Altos First Street reports that buyers are still lining up for a few select properties. We had one very nicely redone and staged Cupertino townhome listed at $588,000. The listing had 14 offers and sold in the mid $600,000s. Los Altos San Antonio reports that we are seeing more floor time activity including a walk-in that translated into a $3 million listing and a floor call on a $1.5 million listing. While the news throughout Silicon Valley seems to be good, San Jose Almaden did report that the Wall Street news was ruffling quite a few feathers and was causing concern for some. We’ll have to watch as this plays out over the next few weeks and I would once again caution would be buyers that despite the economic hardships that our nation is enduring right now, real estate remains one of the strongest investments that you can put your dollar towards.
- South County—The market seems to be relatively stable, driven largely by REOs. We saw a limited number of multiple offers this week, almost all were on REO properties.
Okay, so in looking at it, yes, the nation’s economic news did nothing for our wallets this week. Some are still sobbing over their investment portfolios. But as you can see, real estate has remained pretty stable in the face of the negative news on Wall Street. Real estate values don't ever reset to zero like you are seeing in some of the equities markets right now. There is only so much desirable land in our metropolitan areas, and as a result, real estate has always been more resilient than most other financial investments. Overall it appears buyers are starting to get the idea that it may just be time to get into the housing market and sitting on the sidelines may cost them plenty—in terms of higher prices, higher interest rates and less inventory.
Coldwell Banker SF/Peninsula