Bay Area Update

The following is from an internal Coldwell Banker memo from our regional President, Rick Turley. I thought it was so well written that I wanted to post it here. I have highlighted some key points Rick makes.

Recent Housing Upturn Sparked By Buyer Leverage

The latest S&P/Case-Shiller home price index reveals home price for 10 major cities rose 3.6 percent between April and July. So does this recent uptick in the housing market mean we are on the cusp of an all-out housing boom? Probably not. In all likelihood, the recent upturn in the housing market has been sparked by several factors:

· The impending expiration of the $8,000 first-time home buyer tax credit
· The impending expiration of current conforming loan limits
· The recent uptick in the stock market
· Increased consumer confidence
· Continued low interest rates
· Increasingly low supply of entry level homes

As you look through our past weekly reports – you’ll see that in the Bay Area it’s our entry level that has continued to have the highest demand and lowest supply. This has resulted in multiple offers, often over the list price, in almost all of our entry markets. (Ex: Alameda and Contra Costa County homes under $600K= 1.6 Months Supply of Inventory –dropping every month this year) In some areas we’re beginning to see a trickle-up effect, where the next tier price-point of homes is getting some activity from move-up buyers. (ex: For homes priced over $1.5M: San Francisco = 4.9 Months Supply of Inventory, down from last month and down Year over Year. Santa Clara County over $1.5M = 6.8 MSI, down from last month, down Year over Year)

Will it last? It’s tough to say. Right now we’re in a slightly unique position because some of the stimulus dollars the government has put in play are working which may be causing a false front for the overall economy. The stock market is up, Dow hitting over the 10,000 mark this week. Consumer confidence is on the rise. The US housing market is looking up.

But, the fundamentals themselves haven’t changed. Outside of Fannie and Freddie, there are few resources for making home loans. It remains a challenge to get a good competitive market for Jumbo loans –and much of our Bay Area is Jumbo loan territory. Foreclosures remain a major issue. We know there is a shadow inventory of homes already foreclosed on and not yet released to the market place. Another new phenomenon is the creation of a market where under-performing and non-performing assets (mortgages) are being purchased in bulk by investors, most likely adding to a further delay of more foreclosed homes hitting the market. As unemployment remains a challenge and businesses and employers continue to tighten their belts, it would seem there are more foreclosures ahead of us. Loan re-sets will provide a challenge.

Sounds a little grim and sober, but probably a bit more realistic. Clearly we are in a much better position than the majority of the State. Our world-class desirability coupled with our finite amount of homes and buildable land will always keep real estate in the San Francisco Bay Area performing better than most markets. But we need our entry market to remain stimulated. One major factor that stands in our way is the impending expiration of the first time home buyer tax credit and the higher conforming loan limits. These have helped tremendously to drive much of our recovery. But right now the debate on Capitol Hill continues and everyone is waiting to learn whether the credit will be extended, expanded or will it simply expire. Many on the opposing side believe it is too costly to finance. But NAR had this to say: “Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.”

If the current tax credit and loan limits simply expire, NAR had this to say: “All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession. Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.”
As this debate continues, buyers seem to be leveraging today’s market advantages which continues to create great activity in our local markets. Let’s just hope the leveraging opportunities continue.