The Goldman Report- Weekly Bay Area Market Report

If you read the SF Chronicle’s Business section Friday you would think Governor Schwartzenegger should declare a state of emergency and apply for FEMA funds for sellers---the headline read Home sales in Bay Area plunge to 15 year low----lines like “a credit crunch that is quashing home shoppers’ ability to buy”. I thought this is supposed to be news reporting not prose. With a bit of a fizzle Kelly Zito states the median price rose 4% but had to add it was down 1.7% from the peak. Just a little history, Kelly has been predicting a bubble since May 2003. Finally, now that the market has cooled due primarily to the sub-prime fiasco, she is having her day---well at least for the moment.

These kinds of stories create an uncertainty among consumers by focusing only on one side of the story instead of giving a balanced presentation. I am not saying newspapers don’t give another view. The do at times, but those stories end up on page 4 at the bottom of the page, like Kenneth Harney’s column in this Sunday’s real estate section. It gave a picture of the mortgage situation quite different than one that has been portrayed by regional newspapers over the last several months. It was entitled “National view of mortgage mess is not so disastrous”. The overall theme was that delinquencies and foreclosures are very localized and are not a national threat. He pointed out that 97.4% of outstanding mortgages are paying on-time and that in 34 states foreclosures actually decreased. Even in California sub-prime borrowers outperformed those nationwide.

Bottom line buyers have become more cautious and reticent to write offers. The outcome was the market has slowed which is reflected in the declining numbers. What it doesn’t mean is that the market has come to a standstill. Yes, fewer sales, but still good activity for well priced homes in desirable areas. Open home activity has begun to increase now that we are past Labor Day. This is particularly the case in San Francisco, Berkeley, Piedmont and in parts of Oakland. A Berkeley listing priced at $1.475mil had 100 groups through and requests for 4 disclosure packets. A Piedmont listing had over 150 groups through and requests for 6 disclosure packets. A Berkeley listing in the Claremont area priced at $1.150mil. saw 150 groups through and requests for 8 packets. A listing in the Sequoyah view area of Oakland listed at just under a million had 40 groups through and an offer being written. This is not our entire market, but it shows that in spite of the media harbingers there is still lively demand. Whether that demand exercises itself is a function of price, condition, and inventory.

A good example of how pricing plays a significant role in a sale was demonstrated by a Montclair home that went into escrow during our report period. The home originally came on the market in June priced at $1.997mil. It sat without an offer and was taken off the market at the end of July to do some touching up and would come back on the market after Labor Day. It was brought back on the market at $1.849mil. received 3 offers and sold over asking. Buyers have done their homework and will not pay a penny more. When they see value they leap like they did with a “fixer” Lafayette listing priced at $900k that garnered 5 offers and sold over asking.

Mortgage rates have begun to decline and are now at a 4 month low and lower than they were a year ago. All signs point to the Fed lowering rates at their next meeting. This is both good for potential borrowers and those they may need to refinance. If the stock market continues to settle itself down, the economy does not hit any speed bumps, rates continue to drop, and the newspapers have some other tragedy to report on other than the housing market---buyers will regain their confidence in the future and be more willing to move forward. The demand is there, financing is available, we just need the boat to stop rocking.