The 411 on 94010 Blog

Last year closed on several positive notes when it came to the housing market, and a number of recently released reports suggest we could be seeing the market stabilizing and even gaining some momentum as we begin the New Year.

Noted housing economist Liz Ann Sonders of Charles Schwab said in a recent report that “we’re seeing a light at the end of the housing tunnel.” The senior vice president and chief investment strategist for the brokerage firm pointed out that the pending-home-sales index surged more than 7% last month to its best level since April 2010.

“At that point, housing was artificially supported by the homebuyer tax credit,” she said in her new economic forecast. “The last time pending sales were at the current level without government support was June 2007.” Adding to the optimism, Sonders said, was the fact that the latest construction spending report was well ahead of expectations with most of the gains in private housing.

Sonders isn’t alone in her estimation that real estate could be bottoming out. In a report released Monday, Clear Capital, a real estate valuations company, predicted that prices in the San Francisco-Oakland-Fremont metropolitan area will remain flat this year versus a 4.7 percent drop in 2011.

The firm said Silicon Valley should see a 1.6 percent increase in home prices, compared with a 2.5 percent drop last year. “This region overall is doing pretty well,” Clear Capital research director Alex Villacorta told the San Jose Mercury News.

Also encouraging was a report out Thursday that California foreclosure notices and actions decreased by 21.7 percent in 2011, although the state still had the nation’s third highest foreclosure rate, according to Irvine-based data firm RealtyTrac.

The positive signals add more evidence that the housing market overall is moving in the right direction as we begin 2012.

Of course, we’ll continue to face headwinds. While foreclosures declined sharply last year, the drop was in part due to legal and regulatory issues that prompted lenders to delay action on delinquent borrowers. That “shadow inventory” of distressed homes could come back on the market this year, although it’s doubtful we’ll return to 2010 levels again.

The jobs picture is improving, although there will be bumps along the road as we saw this week. Weekly unemployment claims spiked last week more than expected after companies let go of thousands of holiday hires.

And while predicting that the real estate market has bottomed, Schwab’s Liz Ann Sonders believes the recovery in housing will be a slow and gradual one, similar to how she sees the recovery in the overall economy playing out.

Nonetheless, the economic and housing news in recent months continues to trend higher and offer reason for encouragement that 2012 will truly be a “Happy New Year.”

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

North Bay – Lack of inventory was the story in 2011, according to our Greenbrae manager. However, several listings are coming back on the market after being on hiatus for Q4, including a number that were put “on hold” and rented a few years back.  Marin overall had a strong close to the year, but that strength slowed mid-December and is just now starting to perk up. Our Southern Marin manager says that the number of units sold in all of Marin per the MLS system increased 7.29% versus 2010 while the average sales price decreased 8.57%.   We are seeing promising activity with offers being written and some even being ratified.  Most offers recently start well below the list price and ultimately have great concessions made on both sides if there is any chance of ratification.  The lower end REOs are getting the most multiple offers, as properties are available in Marin at prices lower than they ever have been in years. The northern Marin market is still quite slow going into the New Year.  The inventory is still low, with 100 active properties, which have been on the market for an average of 141 days.  Both prices and inventory levels are relatively unchanged.  By far the majority of activity has been in lower end properties, which are being targeted by “flippers,” rather than first-time homebuyers.  Condos are averaging an asking price of $249,000, with an average sold price in this time period of $255,400 – a sold percentage of 102.6% over asking!  Homes are selling right now at an average of 92% of asking price. December is ending with increased and great activity, according to our Santa Rosa office.  Phone/floor calls were strong. In Sebastopol, The majority of the sales remain under $400k. Offers were being written on Christmas Eve and New Years Eve, which indicates plenty of demand in the market. The challenge is not enough inventory to satisfy demand.

San Francisco – The end of year seemed quiet, according to our Lakeside office, but the activity was more than double that in the last days of the prior year. December was a very slow listing month, the Lombard office manager says. You’d think that buyers were on vacation until a well-priced, turn-key home pops up and there’re 11 offers. Hoping for a post-holiday listing surge as inventory remains thin. Still 11th hour lending problems occur on many closings. Our Market Street office reports that the last two weeks of the year seemed to indicate that much of the unsold inventory was finally spoken for.    Properties that sold in the final two weeks were on the market for an average of 85 days, compared to our final quarter of around 36 days.  Inventory diminished significantly toward the end of the year, and buyers saw an opportunity to go out and make deals on unsold property.    We also saw a flurry of ratified contracts with very clean terms and buyers desiring to close by year-end, so perhaps tax benefits fueled a last minute surge as we approached 2012. In the Sunset district, it looks like the buyers did not take time off during the holiday season.  Sales activities did not drop off during this period but remained very strong.  Listing inventory is extremely slow.

SF Peninsula — Burlingame agents were busy all through the holidays but waiting for some inventory to come to the market. In the Previews high-end market reportedly there will be some great listings coming on in the next 30-60 days. Across the hills in Half Moon Bay, listings came off the market for the holidays but sellers are looking to re-start the marketing mid-January.  Agents were busy the week between Christmas and New Year’s as buyers are sensing it’s a great time to buy. Our Palo Alto manager reports that the local market is seasonally slow after the holidays.  Inventory is very, very low in the local communities – from entry level on up. It has definitely been a holiday market, according to the Redwood City office, with very little activity and low inventory. The San Mateo area market is showing good signs of buyer and sellers interest – more balanced than 2011, the local manager says. Per MLS of the four Hillsborough listings that closed escrow in December only two had a sales price over $2 million and of the four homes with ratified sales in Hillsborough, only one had a list price over that level.  Of the 48 homes ratified in San Mateo, one had a list price above $2 million.  There appears to be pent up demand for higher priced homes not in MLS.

East Bay – In Castro Valley, sales activity moved higher during the holiday period while inventory remained steady. Fremont also saw an uptick in activity with 41 ratified offers, 12 of which were multiple offers. The overall market in 2011 in Livermore was stable compared to the previous year with 1,081 closed sales versus 1,091 in 2010. But active inventory is significantly lower than a year ago.  Well-priced listings that are in good condition, show well, and in a good location, will receive multiple offers. Our Oakland manager reports that ratified contracts have slowed down throughout the holiday season. Agents are still showing property and are beginning to fill their pipelines with listings and viable buyers for 2012. Inventory is quite low in the Lamorinda area, and the market was quiet lately due to the holidays. And in Walnut Creek, our local manager says that many listings are selling with multiple offers and inventory continues to decrease.  Buyers are out there looking, although there still is a lack of urgency among many.

Silicon Valley – It was holiday light, according to our Cupertino office, with both sales activity and inventory declining in recent weeks. A similar story was told by our Los Altos manager, who said agents saw very little activity over the holidays with few buyers out looking and fewer listings coming to market. But in Los Gatos, the typical seasonal slow-down was absent.  Agents managed to attend their walk-throughs, sign offs and continue to show and sell properties amidst the hustle and bustle of the holiday season.  While most of the San Jose area saw the usual holiday slowdown, the Willow Glen office reports that things were fairly busy with 20 new sales.  According to our Saratoga office, the local market experienced its typical holiday slowdown. The agents working are the ones that have deals that need to close by 12/31 and those that are determined to plan for 2012.

South County – It was a very busy end of year in South County. Floor activity was busy, with several “come list my house” type of calls. Typically it is quiet in January, and it is proving to be anything but quiet. Lack of inventory is making it more of a challenge to find buyers a home, so multiple offer situations are very common. We are looking forward to a strong start to 2012. Our Morgan Hill office says optimism prevails as we enter 2012.  Agents seemed poised to take advantage of stronger buyer confidence as interest rates and prices remain relatively low.   New listings are coming on the market and “regular” listings are now outnumbering short and REO listings.  With the new optimism comes opportunity—the fact remains that it is still a buyers’ market and the time has never been better to purchase a home in South County.

Santa Cruz – 2011 is turning out to be much like 2010 in the number of home sales in Santa Cruz County.    The closed single-family home sales have tracked about 5% ahead of 2010 all year long until November, when the number fell below the 2010 number by 2%.    In 2011 the average closings per month were 124 units for the entire County.    Currently there is exactly the same number of homes on the market in November of this year vs. last year, about 875 units.  The prices have continued downward with a 24% drop in prices from last year.  This is significant.   In Santa Cruz County the number of bank owned properties and short sales that continue to occur has had a tremendous influence on the continued decline in prices.   Currently the median price in the County is $415,000, which was the median price (looking back) to February of 2000, 11 years ago.

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The Bay Area housing market is seeing the usual year-end slowdown as buyers, sellers and yes – even agents – turn their attention to the holidays, family and friends, and last minute shopping. There are pockets of activity here and there as focused buyers compete for limited inventory, determined to wrap up transactions before 2011 closes for tax purposes. But for the most part, the year is ending fairly quietly as always.

2011 has been a wild rollercoaster ride for the nation’s housing market, the economy, the financial markets and geopolitical events. Volatility is the new normal, as some Wall Street pundits have observed. Still, through all this, there is reason for hope that the real estate sector could see better days very soon.

Economic indicators here in the U.S., as well as corporate financial reports, continue to point higher. The job market, consumer confidence, and consumer spending all continue to show decent improvement as the year draws to a close. All of these indicators are critical for a healthy housing market.

The labor department reported this week that new jobless claims hit a 3-1/2 year low last week, adding further evidence that the economy may be gaining momentum. Initial claims for state unemployment benefits dropped to a seasonally adjusted 364,000, down 4,000 from the previous report. That was the lowest amount since April 2008. In November, the unemployment rate also dropped to 8.6 percent, a two and a half year low.

Also reported this week, a widely followed measure of consumer confidence showed solid improvement. The Thomson Reuters University of Michigan’s final reading on the overall index on consumer sentiment rose to 69.9 points in December from 64.1 the previous month, a sign that Americans are feeling better about the economy’s prospects for 2012.

Finally, the Commerce Department said that the nation’s GDP grew at a 1.8 percent annual rate in the July-September quarter, down from the previously estimated 2 percent. Spending on health care dropped by $2.2 billion to drive the revision slightly lower. But encouraging news in the report showed that spending on durable goods was stronger than previously estimated, an indication that consumers still have a strong appetite to spend their money despite the economic challenges.

While the recent reports all indicate the economy could be gaining momentum, we know that there are still economic headwinds that could slow the economy and the housing recovery – the European debt situation, the squabbling in Washington and the still high unemployment rate. Nonetheless, we’re moving in the right direction. And if we see this trend continue, it bodes very well for our housing market here in the Bay Area in 2012.

Thank you for taking the time to read Weekly Market Watch throughout this year. I really appreciate your interest and your feedback. I hope you have a wonderful holiday season and best wishes for a happy and healthy New Year!

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

North Bay – In Northern Marin County, it is very slow right now. Inventory has been falling in recent weeks.  The Market Action Index, which measures Buyers/Sellers’ “Advantage Zone,” shows we are in a strong buyer’s market, which is no surprise to anyone selling real estate in this area.  Our Southern Marin office says there are currently 117 properties on the MLS, which have been on the market for an average of 158 days. Total unit sales are up in Southern Marin versus a year ago (YTD) but the last two weeks have slowed down in all price ranges. The number of sales in the $2 million plus range in Mill Valley and Tiburon year to date is down 42% and 35% respectively.  Belvedere is equal to a year ago and Sausalito is up 50%.     In Santa Rosa, our local office has seen strong activity with 54 ratified offers in recent weeks, including four multiple offers. Sebastopol agents report exceptional activity at open houses for this time of year. Agents are still struggling with appraisals and lender requirements but on the flip side they are also seeing lots of cash sales.

San Francisco – San Francisco Lakeside’s office manager says inventory just keeps dropping.  Buyers who are serious are feeling frustrated with few new listings to see and pouncing on properties that meet their need  – but only if they are well priced, and then they are not backing off from offering more than the asking price. Our Market Street office is still seeing a flurry of activity as we approach the year-end.   One third of contracts saw multiple offers, as demand is still strong and property priced well commands significant interest.   One interesting observation is that property that has been on the market for some time that had not previously seen interest is now selling.  Three properties in SF all actively being marketed for over 120 days finally saw ratified contracts in December, which speaks to the diminishing inventory versus the pent up demand to buy property here in the city. The Sunset office reports decreasing inventory but steady sales activity.

SF Peninsula — Our Burlingame manager says there is a large group of very “pent up” buyers who are looking for that perfect family home. They are ready to buy, financially qualified and will make an offer as soon as the right home comes on the market. This would seem to be a good indication of an early spring market. It’s a great time to be a seller. The Burlingame North office says they’re seeing the normal holiday slow activity with a slight increase in sales. In the Previews high-end segment, many listings are coming off the market for the holidays although there are still very motivated buyers looking at this time. It appears that there is a lot of inventory waiting to come on in Jan/Feb. Across the hills in Half Moon Bay, some properties coming off the market to refresh the DOM and putting the homes back on in mid-January. Agents are still working at putting last minute offers together. It’s a good time to put an offer in front of sellers. Things have slowed down in Redwood City with both inventory and sales activity easing.

East Bay – Berkeley agents are still busy showing property, writing offers, saving deals and closing.  They’re looking at December as the first month of 2012, time to renew ones energies, create leads, and plan for a great 2012.  There is optimism among agents – No exponential leaps, just steady determination and appreciation for the several signs of recovery. The overall active inventory in Livermore hit another low for the year with 208 listings on the market. Total pending sales in Livermore continue to decline with 234 properties in escrow.  Only serious buyers and serious sellers are in the real estate market today.  In the last couple of weeks the Previews inventory in Livermore has declined from 21 listings to 16 listings on the market.  The inventory level of Preview homes in Livermore is very close to low inventory level for 2011. Our Oakland/Piedmont office reports a property offered at $1.95 million that was not on the MLS went into contract within 3 days. The rest of the market activity is slowing down due to the holiday season. Very few new listings are coming on the market now; most are waiting until after the first of the year. Buyers who are attending our open houses are looking but letting the agents know that they are just starting their search, waiting for the new year to buy. The Lamorinda market remains steady, our local manager says. Buyer’s still out there in Pleasanton making offers on the right-priced homes.  Inventory is still low. In Walnut Creek, our local manager says there continues to be very low inventory, multiple offers on most properties, and appraisals coming in a little higher on some sales.

Silicon Valley – Our Cupertino manager says both listings and sales activity are down with most buyers and sellers in a holiday and vacation state of mind. Similarly, listings and sales are down in Los Altos but new single-family home listings in good school district continue to draw buyer interest. The high end between $1-$2M is active due to low inventory, but when you move up to $2-5M it slows down to about the same as the previous quarter at 3 months of available inventory.  Above $5M is slower but still has activity. Our Los Gatos office says the last two weeks have been very exciting to say the least.  Our office recorded the highest residential sale in the history of Santa Cruz County at $7 million, the third highest sale in the history of Los Gatos listed at $15 million and closed an Atherton sale for $6.5 million. The holiday slowdown has hit, according to our Menlo Park manager, with both listings and sales tapering off. In San Jose, the Almaden office manager says there are very few new listings.  Those that hit the market are selling within days provided they are priced at or near the most recent sales.  People are willing to pay quite a bit more for fully remodeled homes.  Recently in a local neighborhood, a turnkey seller got $649K for the same size house that sold weeks later that only had new carpet and paint at $545K. Open houses continue to show lots of activity, according to our San Jose Main office. Many open homes had more than 15 groups over the weekend. Low rates and low inventory are creating excitement in the market. Many of the sales the past two weeks have been “multiple offer” sales in all price ranges. And our San Jose Willow Glen manager reports that even after the Thanksgiving holiday, agents turned in six ratified contracts and there were seven closings delivered on Monday. Our Saratoga manager says the holiday mode is in full swing. Agents are working hard to develop business for next year though.

South County – We are seeing a huge decline in the inventories of Gilroy and Morgan Hill, our Gilroy manager reports. Gilroy only has two months worth of supply. Hollister has seen an increase in inventory, although that community only has about 2.5 months worth of supply. Well-priced homes are getting multiple offers. Prices have stabilized, and South Santa Clara County and San Benito County continue to be a great buy. According to our Morgan Hill manager, 2011 started out very slowly, then, during the mid part of the year, really took off.  The last three months, however, showed a sharp decline—revealing a graph that is an almost perfect “bell-shaped” curve.   During the last months of this year, homes stayed on the market an average of 150 days before garnering an offer compared to 99 days for May thru August.  Inventory remains very low, with only 125 Morgan Hill homes currently listed on the MLS.  On the positive side, demand remains high, interest rates are good and agents are reporting fairly good attendance at open houses.

Santa Cruz – Sales for Santa Cruz County continue tracking about the same they have all year.  The local market is relatively flat; closed home sales will be up slightly from last year – about 5%.  The inventory is down year over year and currently there are about 800+ single-family residences for sale in Santa Cruz County. Agents are struggling to find good inventory for their buyers. And once again, good properties, priced competitively, are selling, some with multiple offers.  The overall market has been and continues to be heavily impacted by the number of “distressed properties” which is hovering just under the 50% of the total market.  This inventory is impacting pricing on “equity sales” and driving prices downward.  The median price for the County is under $500,000 and our median for our three offices last month was in the mid-$400,000′s, down from the mid to high $500,000 last year.   We are also seeing more Short Sales in the over-$800,000 price point.  On a brighter note, an Aptos Agent sold a property this week for over $2 million – exciting as those sales are few and far between these days.

Monterey Peninsula – Our local Peninsula offices continue to be amazed at the steady pace of activity going on in the marketplace even as we head into the holidays when minds are usually more into holiday activities.  Between these appealing prices and the low, low mortgage rates right now, it appears that we still have many folks who feel they should act now in buying homes. They’ve had 28 ratified offers in recent weeks, including two multiple offers.

That’s it for now. Have a great 2012 everyone!

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Between the euro zone debt crisis, the sluggish economic recovery here at home and the bickering in Washington, we’ve certainly had a share of bad news this year. But there were encouraging signs in recent weeks that the tide could be turning on the economic and housing front.

Pending home sales both nationally and in California shot up in October, the most recent figures available. We also learned that the economy grew faster than expected. And unemployment actually moved lower last week as well – all very positive signs for the real estate recovery.

Nationally, pending sales rose 9.2 percent in October compared to the same month a year ago, according to the National Association of Realtors. Meanwhile, the California Association of Realtors reported that pending home sales in our state were up for the sixth straight month in October, climbing 3.1 percent from the previous month and 10.7 percent from a year ago.

A sustainable recovery in the housing market depends a great deal on the labor market bouncing back. And last week we saw signs that could be starting to happen, albeit slower than any of us would like.

The Labor Department last week announced an unexpected drop in the unemployment rate in October to 8.6 percent from 9 percent, raising hopes of a solid recovery. Although some of the improvement was due to a contraction in the labor market, the country did add 80,000 jobs, marking 13 straight months of employment gains.

Finally, U.S. manufacturing expanded at a faster rate in November than expected and the overall economy grew for the 30^th consecutive month, according to a closely watched index released last week by the Institute of Supply Management.

All of this is not to suggest that the economy and the housing market are out of the woods yet. But the combination of positive economic trends – coupled with strong corporate earnings reports through much of this year – certainly gives us reason for optimism as 2011 comes to a close. If these trends continue into the new year, they will go a long way toward reigniting the housing market across the country.

One final note: Getting Congress to agree on anything these days seems virtually impossible. So it was all the more surprising – and encouraging – when the U.S. House of Representatives and the Senate pulled together a couple of weeks ago on a critical piece of legislation returning the  maximum loan limit on FHA-backed mortgages to $729,750.

The bill that was passed by Congress and signed by President Obama will give more homeowners access to lower cost loans at higher limits, especially necessary in high-priced markets like the Bay Area. Moreover, it was an encouraging sign that our Congressional representatives understand how fragile the housing recovery is right now and the importance in doing whatever they can to create sustainable growth.

The limit on the loans, known as FHA-conforming loans, had been $625,500 after a temporary increase on limits expired on Oct. 1. The House voted in favor 298 to 121, with 101 Republicans voting against the bill. The Senate voted 70 to 30 in favor of the bill.  The vote raising the FHA limit was a big victory for the housing industry and for consumers. Credit goes to industry groups like the National Association of Realtors and the National Association of Homebuilders for making persuasive cases on Capitol Hill in recent weeks.

“Restoring the higher loan limits for the FHA will provide homeowners and homebuyers with safe and affordable financing, while providing a much-needed boost to housing markets all around the country,” James Tobin of the National Association of Homebuilders wrote in a letter to Republican Speaker John Boehner.

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

North Bay – November marked the best month for open sales in our Central Marin operations for the past three years, according to our Greenbrae manager.  Buyers are coming out in force to make offers on properties they feel are finally priced appropriately for the market.  With good news in real estate, the European economic crisis, consumer confidence from Black Friday and Cyber Monday, people seem to be ready to make a move. Our Northern Marin office says there have been 16 new listings in the last two weeks, ranging from $90,000 to one Previews property at $1.1 million.  The average listing price is $412,494.  There are 33 properties that went contingent, with an average listing price of $410,673.  This price point is remaining consistent with an average sale price of $413,167.  Distressed properties are still strongly impacting the market – out of the Active & Contingent properties currently on the market, 125 are distressed, and 108 are not – representing a market with 54% distressed properties. The seasonal slowdown is slowly creeping up, according to our Sebastopol office – lots of lookers but no sense of urgency. Both the Previews market and general market have slowed down in the last two weeks, according to our Southern Marin office, as it seems everyone is turning their focus towards the holidays.   Open houses are slower, and many agents say their clients are waiting until late winter or early spring of 2012 to put their houses on the market.  Inventory is quite low, so the buyers who are motivated, are having a smaller pool from which to choose.   Showings are still happening on the available listings, but buyers aren’t stepping up to the plate, even with lowball offers.

San Francisco – Holiday season has arrived, our Lakeside office noted, with listing inventory standing at only two-thirds of last year’s level and buyers getting distracted by seasonal duties. Our Lombard office says sales activity is increasing. It was a busy November for open houses, but a holiday drop in inventory started early. The Market Street office reports that listing inventory has begun to diminish for the holiday season, which is resulting in much of the unsold inventory being spoken for.   We continue to see a demand for well-priced property in prime locations.   The office ratified this week a two-unit property in the Mission that saw over 150 parties at the open house resulting in 21 offers.   The driver here was location, price and perceived value.   Ironically I am told that 4 of the 21 offers were buyers from Google.   We also recently ratified on a small house, 26 offers… all at ask or above, all buyers with a minimum of 20% down, several 50% and some cash purchases.   To sum it up, there are a lot of well-qualified, motivated buyers out there- our challenge remains inventory. The Sunset office said they are seeing surprisingly strong pending sales, open houses are well attended but many sellers are holding off putting their property on the market until after the new year.

SF Peninsula — Burlingame agents are busy and looking for inventory for the many smart buyers who are waiting to take advantage of the interest rates and end of year slow down. There are currently 50 active and nine pending listings in Hillsborough. This is a reduction in inventory from the past months and probably reflective of the end of year slowdown, which is typical. Upper end San Mateo listings are very slim with only 10 active at this time. Our Half Moon Bay office says the local market is starting to reflect the holiday slow down – buyers are looking but difficult for them to put the pen to the paper. The local market is slowing down, according to our Menlo Park office. There were only six properties on tour last week, an extraordinarily small number. But our manager says there still is a fair amount of “off-market” activity. Our Portola Valley manager said the seasonal slowdown has begun, but one $8 million-plus sale did take place. Similarly, the Redwood City office reported the holiday slowdown has hit that local market as well. In San Mateo, listings are decreasing while sales activity is steady.

East Bay – Our Berkeley office says sales activity is increasing and listing inventory is declining. Overall, they’ve seen good sales since June and it is continuing.   There still are the usual frustrating stories of having to deal with banks and appraisers, but also some happy tales of banks acting faster than anticipated.  Sales activity and inventory are both decreasing, according to our Livermore office. Total active inventory in Livermore hit a new low for 2011 with 215 homes on the market.  Total pending sales, 236, in Livermore are also on the decline, but still above the low of 186 total pending sales for 2011.  The average sales price has declined nearly 11 percent since last year. Our Pleasanton office reports low inventory with multiple offers on right-priced homes. Lastly, our Walnut Creek office reports inventory is still very low.  Buyers are still in multiple offer situations with some overbidding.  Some sellers are still waiting until the beginning of the year to list.

Silicon Valley – Our Cupertino office says they have lots of buyers and few good houses to sell. Inventory is half of what it was this time last year in Cupertino. In Los Altos, our local manager says open houses are still drawing buyers at recent listings for single-family homes, but condos and townhomes are still slow. Our Los Gatos office reports multiple offers are increasing due to the low inventory. All three San Jose offices report a slowing market as we approach the end of the year. The Saratoga market is tracking just like we would expect for this time of year as we go into holiday mode.

South County – The holiday season slowdown has begun in the South County, our Gilroy office reports. While open house activity has remained steady, averaging eight groups each open house, overall buyers are not pulling the trigger and writing on properties. Inventory is low and there are a lot of short sales and REOs. Year to date the local market is about 37% short sale, 35% traditional sale, and 27% REO. Morgan Hill agents managed to put 34 homes into contract in November despite the short month and the four-day Thanksgiving weekend.   Buyer demand for entry level (and investment) properties remain high—as listing inventory for these types of properties is very limited.  The South County market continues to prove that a well-priced, well-presented home will garner an offer (or perhaps several offers) once it hits the market.  This is very true for homes in all price ranges—but those priced under $400,000 sell exceptionally well.  There is also increased demand for “upper-end” homes—those priced over one million dollars.

Santa Cruz – Seasonal slowing down of the market has begun as we wind into the holidays.    Distressed properties – REO’s and Short Sales – continue to represent approximately 44% of the local market.    We have seen a decline in prices overall in the county this year, with closed sales up slightly.     New home sales in our 3 offices are up 7%, closed home sales are up 18%, and average sale price is down 7%.

Monterey Peninsula – While listings have slowed down on the Monterey Peninsula, as is generally true around the end of the year, the sales activity has remained at a steady level, not so much affected by the holiday season.  It looks like we will march toward the end of the year with a relatively strong market here, certainly a good increase in numbers of sales for the year and the appearance of a leveling off in prices.

Seeing the erratic activity and volatility daily on Wall Street, and trying to keep up with global economic news each day (this past week it was “European sovereign debt credit swaps” )  is causing more and more investors and homebuyers to look to San Francisco Bay Area real estate as a terrific investment.

That’s it for now. Have a good week!

While the Bay Area housing market has had its ups and downs much of this year, a couple of segments of the market remained resilient through much of 2011. In previous columns, I’ve talked about the strong rebound in the luxury market from Silicon Valley up through Marin. But one other sector has also played an important role in keeping the overall real estate market going: the investment segment.

According to DataQuick, the La Jolla-based real estate information service, absentee buyers – real estate investors for the most part – bought one out of every five single-family homes and condos in August. Buyers paying cash accounted for more than a quarter of sales. And short sales – those transactions where a home sells for less than the homeowner owes on the mortgage – added up to another 20 percent of sales.

The trend has caught the attention of the local news media with the San Francisco Chronicle and San Jose Mercury both running long articles on the topic in recent weeks.

In her article, Chronicle reporter Carolyn Said noted that, “Real-estate investors have become a potent force in a moribund housing market…” She went on to say that, “despite record low interest rates, many consumers simply don’t have enough confidence in their economic outlook to buy houses. Investors have kept prices from falling further…”

Today’s market is extremely attractive to investors. Record low mortgage interest rates, coupled with very favorable asking prices for distressed properties and other entry level homes, mean that rental income can easily cover the expenses for a new landlord owner. And given the volatility in the stock market and with other investments, real estate is looking like a better and better alternative.

While not everyone would agree, I think real estate investors are playing an important role in our market. When they buy, they’re often upgrading properties that in many cases are badly in need of maintenance. They’re helping to clear out the supply of vacant, bank-owned properties that can be a blight on neighborhoods. And in general, they’re reducing the huge inventory of distressed properties that serve to keep all home prices down.

“The market would be quite a bit sicker were it not for investors snapping up a lot of the properties,” Andrew LePage, an analyst at DataQuick, told the Chronicle. “They account for a meaningful portion of the demand. To the extent to which there’s at least a temporary floor under this market, they’ve helped to build it.”

However, real estate investors – many of whom are paying all cash for entry-level properties – are making it hard for some first-time buyers and others to compete for those homes. Given the choice, it’s understandable that a seller would opt for a cash offer that’s likely to close quickly rather than take their chance that a buyer can secure mortgage financing.

Unlike past investors, today’s new landlords are generally not expecting to quickly flip a home for a profit, according to the Chronicle story. Instead, they see are seeking reasonable returns by simply owning and managing a rental property.

Realtors who work with these buyers say that many are first-time investors who like the long-term potential of investing in real estate over other investment vehicles. With prices and interest rates this low, they reason, there may never be a better time to jump in.

It’s also important to remember that most housing recoveries are preceded by a rise in rental housing rates.  This has two effects, both positive for our housing recovery.  The rise in rents attracts more investors as purchasers.  As we noted earlier, they also unfortunately cause stiff competition among first-time buyers; but in some areas these investors are necessary to help stabilize hard-hit foreclosure areas and thus stabilize pricing.  The other effect of rising rental rates?  It causes more renters who qualify for homeownership to consider a purchase, especially with today’s interest rates.

As we approach a New Year, we are expecting more and more of both types of buyers in 2012 to come to the same conclusion.

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

North Bay – Our Greenbrae office just reduced the price of a home in Kentfield in the $2.2 range and received multiple offers.  Buyers are out there and perhaps coming out a little more aggressive in the search now.  The Chronicle article on investors buying local homes has been encouraging for buyers to get into the market.  In Northern Marin, agents are reporting a definite increase in open house traffic.  We are seeing more multiple offers on well-priced properties.  There has also been an increase in floor calls and walk-ins of interested buyers. In Petaluma, the competition is fierce for buyers in the under-$500,000 price range. The inventory is dwindling and well-priced properties are snatched up as they come on the market. With Sonoma County featured as one of the top 20 destinations by National Geographic, many buyers are trolling the open houses. First-time customers are becoming more and more common. The Santa Rosa market remains steady with some increase in REO inventory and a number of new escrows. Finally in Sebastopol, the majority of activity is in the lower end of the market with emphasis under $400k. One new listing in the country, priced at $399k, attracted over 22 groups. We are seeing a little activity in the move up range of $600-$800. Low appraisals continue to be problematic.

San Francisco – Our Lakeside office manager declares “outstanding lenders or cash” – that is what it takes to buy a home in this market.  In spite of the dramatically low interest rates, deals are being held up by the lender’s increasingly high hurdles for property qualification.  Buyers are being weighed down by poor lender choice.  Still, we are finding a large number of cash buyers who can sail through transactions without the underwriting obstacles. Meanwhile, the Market Street office says sales activity is increasing and they finished a strong October with new transactions.   The strategy seems to be price to sell or even price to induce multiple offers.  The average list-to-contract time frame is less than three weeks, and on average they are selling at or slightly above asking price with 64% of the transactions seeing multiple offers.  The Sunset office reports decreasing inventory but steady sales while the Van Ness office says inventory and sales activity have been steady in recent weeks.

SF Peninsula — Our Burlingame offices report that light inventory is fueling multiple offers for well-prepared and priced homes. There are waiting buyers out there.  One home had over 200 attendees at open house and sold on the spot to a well-prepared buyer who had lost out in other recent multiple offers. The home had been carefully prepared and staged by the agent down to the last detail. In the Previews market, inventory is beginning to come off for the holidays if it has been on the market for a while, with sellers anticipating a better, more optimistic spring. At the same time there are some fabulous buys in Hillsborough at this time. Nov. Dec. could be the best time to negotiate with little competition. Across the hill in Half Moon Bay, the market has for $750k to $1m homes has been slow.  However, homes in the $550k range move quickly, as do second homes over the $1.5m, sometimes for all cash. Our Menlo Park offices say inventory continues to be scarce. Open houses have been busy and the office is getting a lot of calls and walk-ins from interested buyers. In Palo Alto, the market changes on a weekly basis. In general, there’s very short inventory – including Palo Alto and surrounding communities, Mt. View particularly, compared to last year.  The move-up market is slow and as a result we are slow to see new inventory. There also has been a serious lack of inventory, according to our Redwood City office, with most sales activity in the lower-price ranges. Sales activity has slow in the San Mateo market, possibly due to a lack of inventory, the uncertain economy or the upcoming holidays.  Finally in Woodside, both inventory and sales activity are down in a fairly quiet market.

East Bay – Berkeley agents are busy working with buyers, getting price adjustments from sellers who want to move their properties, and telling renewed horror stories of appraisers creating obstacles by reading online disclosure packets and demanding repairs/clearances. Our Castro Valley office reports increasing inventory and steady sales activity. Inventory continues to decline in the Danville area while the buyers are becoming more active. Inventory stands at about 2 ¼ months in the San Ramon Valley – San Ramon and Danville are very active, while Alamo and Blackhawk are very slow. Our Livermore office reports inventory is increasing while sales are steady. In Fremont, both sales and listings are increasing. Our Oakland-Piedmont office says listings have picked up with clients making the decision to get their house sold before year-end. Open house activity was steady even at properties that have been held open for several weeks. Buyers are still being very discerning and don’t exhibit any urgency in writing an offer quickly. Our Orinda manager says it’s becoming more difficult to obtain loan docs and loan approval. Extensions of escrows are becoming more common. In Pleasanton, the local market has been steady with buyers still out there looking. Finally in Walnut Creek, our local office says inventory remains low and there are multiple offers on all well-priced properties.

Silicon Valley – Steady sales activity is reported in Cupertino. With inventory declining, open houses are busier than ever. In Los Altos, sales activity is increasing including a small increase in the $2 million and up market. Open houses are well attended at new single-family listings. Our Los Gatos manager says that overall, the high end continues to remain strong. Inventory remains low in most entry-level markets. The San Jose Almaden office says sales activity has been steady. Properties are selling, but buyers wish there was more to choose from.  Pending sales in this region are 10% up over last year at this time but listings are down 33%.  Low-end buyers are having trouble competing against all-cash or large-down payment buyers.  All properly priced listings are getting multiple offers.  The San Jose Main office also has seen a continued drop in inventory but activity at open houses is very strong. There are multiple offers on most homes in a variety of price ranges. Low interest rates and low inventory are main factors in the multiple offers we are currently experiencing. And our Willow Glen manager reports that regular sales are taking a little longer to close than expected and banks are slowly approving short sales. The Saratoga market seems like it’s slowing, which is normal this time of year.

South County – The Gilroy and Hollister markets both saw an uptick in REO listings coming onto the market. Open houses have been fairly well attended, but a lot of buyers are sitting on the fence. Sales are slow. Inventory is steady, but low for both markets. Gilroy has 3.3 months of inventory and Hollister has 3.6 months of inventory. Our Morgan Hill manager says that as the year winds down, the number of Morgan Hill listings has increased dramatically, but the ratio of listings to sales has decreased.  In January 2011 there were only 138 listings available in Morgan Hill—with 27 closings (20%).  October showed 311 listings with 51 closings (16%).   While sales are up from the first months of 2011, a lower percentage of listings are actually selling.  Prices on the other hand are down.  The average sales price of a single-family home in Morgan Hill has dropped from a high of just under $600,000 to about $475,000 (a 25% differential).   Morgan Hill remains a buyer’s market—many listings, good prices and great interest rates.

Santa Cruz – As we move into November and toward the end of the year and the holiday season, sales continue to be steady in the Santa Cruz area.  There is definitely more activity in the under $600,000 price range, heavily influenced by short sales and REO business.  We are finding some of the banks on the short sales are reacting much more quickly and we are seeing a shorter process with some of lenders, Chase being one of them.   On “organic deals” financing is the biggest hurdle and agents need to pre-approve and counsel their clients through the buy process.  Appraisals are all over the map, and we have had a couple of deals where the property did not appraise and the buyer and seller were able to come to a successful resolution and the sale went through.  It is all about perceived value for the buyers. The home has to be a really good deal – and sometimes even then, the property may sit on the market.

Monterey Peninsula – The beat goes on with the steady activity in the Monterey Peninsula marketplace.  These low mortgage rates seem to have brought some of those hanging-back buyers into the market, especially in the lower prices ranges.  In looking through the lower priced homes in Seaside and Marina, for instance, we see that most of them are pending with very few “actives” on the market.  And on the other end, the higher-priced properties, the volatility in the stock market may be contributing to increased sales there, many of them all cash.  While we normally would be beginning to slow down about now, we continue to have a pretty consistent number of sales each week.