The newspapers called it “Gray Friday” as the stock market dropped 360 points this past Friday on the 20th anniversary of “Black Friday” when the stock market dropped 23% in one day. I think I would have called Friday’s drop “Silver Friday” (like silver lining). Those 360 points represented only a 2.6% decrease. I would have expected a larger drop given the downgraded earnings reports for the 3rd quarter combined with the on-going sub-prime dilemma.
There was a time when the housing market and the stock market tracked in opposite directions. Actually economists had a word for it----“disintermediation”. When the stock market went up the housing market went down as investment dollars poured into stocks. And conversely when the stock market went down the housing market increased. All that changed about 25 years ago. In fact in the last great run up of the NASDAQ we tracked the rise of housing prices to the rise of the NADAQ and unbelievably the curve tracked perfectly with the two variables. It also tracked perfectly after the dot.com bomb in the opposite direction when prices declined. Obviously the wealth made with rising company values in the NASDAQ, particularly in the Bay Area, fueled the escalating prices during the run up in the late 90’s to 2000. The reason I mentioned this is that housing prices in the past moved quite slowly. Since this change of the markets running in similar patterns, the housing market has acted much like the stock market in being more vulnerable to wider swings and being influenced more by emotion and conjecture on the future of the economy.
As the stock market goes so does the housing market---instability in the stock market follows with instability in the housing market. And I should also
comment that housing from 2002-2005 played a significant role in driving the economy with the dramatic increase in new home building and in resale transactions. Certainly supply and demand plays its card and more recently easy qualifying sub-prime mortgages, but today more than ever the housing market is tied to the vagaries of the investment markets and visa versa.
Given the fragility of the stock market and the ever incessant drone of the media highlighting the demise of the housing market I am amazed our local market is doing as well as it is. During the reporting week our SF Presidio office had 31 sales and we saw a bit of resurgence in the wine country with sales doubling from previous weeks. However all parts of the Bay Area markets do not run together. The point is that in spite of all the negative news homes are still selling.
Part of the reason is that you can’t sleep in your stocks. First and foremost buying a home is part of the American Dream and a place to raise our families. Secondly it is one of the very few tax deductions left to most Americans. Thirdly, over the long term, it has proved to be an exceptional investment. The positive news in this course-correcting market is that interest rates are still historically low.
The demand is out there. Although open house traffic has slowed, the best of the properties are still attracting good numbers of buyers. Buyers today feel there is no sense of urgency. The caution is created by uncertainty in economic conditions and the prospect of housing prices continuing to drop. This condition has impacted the lower and middle price ranges of markets. The upper end seems to be doing just fine as indicated by two $12 million sales in SF and seven sales over $ 3 million. Let me add we had another sale in Ross over $ 6 million with multiple offers. What do the wealthy know that others do not? Obviously they feel confident in holding real estate.
Until the uncertainty in our economic future and the sub-prime fiasco unwinds itself the housing market continues to be sluggish in areas of first time buyer homes and those overloaded with inventory. There is some bright news. Unemployment is still at 4.7 nationally. In the Bay Area we are a bit under the national average at 4.4%. We still have job growth. Also on the bright side regarding the sub-prime situation Citigroup, JPMorgan and B of A are setting up a $75 billion fund to purchase mortgage securities and other distressed debt. This fund is designed to stave off any threat to financial world markets. The G7 nations met to strategize on limiting any further damage the credit crisis. All these efforts should have a positive effect over the long term to stabilize the credit markets.
The most important factor is the one I had talked about in several other reports and that is that recessions are created by consumers changing habits. The more the media focuses on negative events without balancing there stories will create a downward spiral among consumers that will impact their buying patterns. This is not just my theory, Robert Shiller of The New York Times wrote an article last week succinctly pointing out that the last recession was shaped by such a pattern. Right now he sees the economy as having the sniffles whether it turns into the flu will be based on whether or not the “salient, emotion-arousing narratives lead people to change in their spending habits.” He goes on to say, “the housing crisis and the credit crunch have people talking about ‘foreclosures and failures of financial institutions’. If that downbeat conversation continues the economy’s aches and pains may well turn into full-blown flu.” Words and thoughts are powerful. I don’t mind the media reporting on the facts, just make sure you balance it with all the facts.
So for my part I am going to focus on the positive elements of our economy and spread the word that there are great buys out there in the market (which there are). It is kind of like taking a flu shot to protect against the ill effects of the flu. If more of us do this, it will be a good antidote against the economy getting the flu.
Tuesday, October 23, 2007
Monday, October 8, 2007
The Goldman Report- Weekly Bay Area Real Estate Market Report
Let me start with the good news---homes are still selling---they are just not selling at the pace they were 3 months ago. What a difference 90 days makes. Much has changed since the start of the sub-prime and liquidity crisis. It disrupted financial markets, made obtaining jumbo loans more difficult and most importantly changed the confidence factor among potential buyers.
As we review the month of September certain trends (based on residential single family and condo properties) become evident. With few exceptions median and average sales prices have not changed much from last year at this time. The big winners are Marin, San Francisco, San Mateo and Santa Clara counties with gains both in median and average sales prices compared to last September. They have been buoyed by the upper end of those markets being the most active of price ranges. Alameda, Contra Costa and Sonoma counties were off 1-4%. It was Solano that has been hit the hardest with prices down by 12%. Prices have held surprising well.
Absolute inventory numbers vary widely compared to last September. Marin (-13.5%), San Francisco (-5%), and Contra Costa (-6%) were all down from last year at this time. Probably the cause for San Francisco and Marin prices doing well. Sonoma county was flat. Alameda (+8%), San Mateo (+9%), Santa Clara (+12%) and Solano (+11%) were all up compared with last September.
The most significant trend is that pending and sold properties have declined sharply compared to last September. Pending sales by county were off anywhere from 19-43% and closed sales varied from 30-56% off from last September. This was a deep slide given that absolute inventories had not increased hugely and in some cases decreased from last year. Here are the numbers by county—first number is percentage off on pendings and the second is by closed sales: Alameda (-42%/-56%), Contra Costa (-45%/-51%), Marin (-34%/-41%), San Francisco (-19%/-30%), San Mateo -30%/-34%), Santa Clara (-40%/-46%), Solano (-43%/-61%) and Sonoma (-34%/-42%). As Sam Zell, the billionaire property developer and owner said, we don’t have a liquidity crisis we have a confidence crisis. The confidence crisis has had a meaningful effect on our markets. As noted above it usually takes large increases in inventory to prompt sales to fall drastically. This was not the case this time around.
With fewer sales, months supply of inventory has swelled. Most counties find themselves in a buyers’ to a strong buyers’ market environment. Only San Francisco at 4 months supply is still in a balanced market. Marin (6.9) and San Mateo (6.3) counties are on the edge of a balanced and buyers’ market. Alameda (10.7) and Santa Clara (9.1) are in a buyers’ market. Contra Costa (15.3), Solano (18.3) and Sonoma (12.3) find themselves in a strong buyers’ market. Cities within these counties can vary widely. There are number of examples of cities or areas within counties that could still be in a sellers’ market when the overall county finds itself in a balanced or buyers’ market. Or conversely a city or area could be in a strong buyers’ market when the county market is balanced. These numbers could change quickly if a number of sellers decide to take their homes off the market or fewer sellers decide to go on the market to replace listings that have been sold. These numbers have gone up quickly over the past 60 days. As we head toward the end of the year my guess is they will subside.
In spite of the current conditions nearly thirty percent of our sales the past week were involved in multiple transactions. The majority of the multiple offers received two offers. There were two notable transactions, one in the Central Sunset area of San Francisco that received six offers and went 7% over and another in Sonoma listed at $1.395 mil. and garnered 4 offers and went well over list. Again price is critical. In both of these cases the homes were priced exceptionally well. In the case of the Sonoma property, the seller between the time the property was listed and the broker’s open, reduced the price by $100,000. They would not have been in a multiple had they not changed their pricing strategy. Most properties selling in today’s environment are selling shortly after they come on the market or after significant price reductions. The others listings are just sitting.
Open house traffic has slowed. Attractive new listings are still seeing good numbers of buyers. A 3 bedr/1 ba. listing in the Cow Hollow area of San Francisco had a 100 groups through. It has been reported recently that many of the buyers visiting open homes are just beginning their search. This bodes well for the new year as many of these buyers will be prepared to buy.
Hopefully, with more good stories about the economy like the one at the end of last week reporting that employers actually added more jobs in August than previously reported; that there was positive job growth in September; and that unemployment is still at a low 4.7% will bring a greater degree of confidence that we are not slipping into a recession. It will take a while to unwind the damage of the sub-prime fiasco. The good news is that the economy is moving forward and a good deal of the bad weather has passed.
As we review the month of September certain trends (based on residential single family and condo properties) become evident. With few exceptions median and average sales prices have not changed much from last year at this time. The big winners are Marin, San Francisco, San Mateo and Santa Clara counties with gains both in median and average sales prices compared to last September. They have been buoyed by the upper end of those markets being the most active of price ranges. Alameda, Contra Costa and Sonoma counties were off 1-4%. It was Solano that has been hit the hardest with prices down by 12%. Prices have held surprising well.
Absolute inventory numbers vary widely compared to last September. Marin (-13.5%), San Francisco (-5%), and Contra Costa (-6%) were all down from last year at this time. Probably the cause for San Francisco and Marin prices doing well. Sonoma county was flat. Alameda (+8%), San Mateo (+9%), Santa Clara (+12%) and Solano (+11%) were all up compared with last September.
The most significant trend is that pending and sold properties have declined sharply compared to last September. Pending sales by county were off anywhere from 19-43% and closed sales varied from 30-56% off from last September. This was a deep slide given that absolute inventories had not increased hugely and in some cases decreased from last year. Here are the numbers by county—first number is percentage off on pendings and the second is by closed sales: Alameda (-42%/-56%), Contra Costa (-45%/-51%), Marin (-34%/-41%), San Francisco (-19%/-30%), San Mateo -30%/-34%), Santa Clara (-40%/-46%), Solano (-43%/-61%) and Sonoma (-34%/-42%). As Sam Zell, the billionaire property developer and owner said, we don’t have a liquidity crisis we have a confidence crisis. The confidence crisis has had a meaningful effect on our markets. As noted above it usually takes large increases in inventory to prompt sales to fall drastically. This was not the case this time around.
With fewer sales, months supply of inventory has swelled. Most counties find themselves in a buyers’ to a strong buyers’ market environment. Only San Francisco at 4 months supply is still in a balanced market. Marin (6.9) and San Mateo (6.3) counties are on the edge of a balanced and buyers’ market. Alameda (10.7) and Santa Clara (9.1) are in a buyers’ market. Contra Costa (15.3), Solano (18.3) and Sonoma (12.3) find themselves in a strong buyers’ market. Cities within these counties can vary widely. There are number of examples of cities or areas within counties that could still be in a sellers’ market when the overall county finds itself in a balanced or buyers’ market. Or conversely a city or area could be in a strong buyers’ market when the county market is balanced. These numbers could change quickly if a number of sellers decide to take their homes off the market or fewer sellers decide to go on the market to replace listings that have been sold. These numbers have gone up quickly over the past 60 days. As we head toward the end of the year my guess is they will subside.
In spite of the current conditions nearly thirty percent of our sales the past week were involved in multiple transactions. The majority of the multiple offers received two offers. There were two notable transactions, one in the Central Sunset area of San Francisco that received six offers and went 7% over and another in Sonoma listed at $1.395 mil. and garnered 4 offers and went well over list. Again price is critical. In both of these cases the homes were priced exceptionally well. In the case of the Sonoma property, the seller between the time the property was listed and the broker’s open, reduced the price by $100,000. They would not have been in a multiple had they not changed their pricing strategy. Most properties selling in today’s environment are selling shortly after they come on the market or after significant price reductions. The others listings are just sitting.
Open house traffic has slowed. Attractive new listings are still seeing good numbers of buyers. A 3 bedr/1 ba. listing in the Cow Hollow area of San Francisco had a 100 groups through. It has been reported recently that many of the buyers visiting open homes are just beginning their search. This bodes well for the new year as many of these buyers will be prepared to buy.
Hopefully, with more good stories about the economy like the one at the end of last week reporting that employers actually added more jobs in August than previously reported; that there was positive job growth in September; and that unemployment is still at a low 4.7% will bring a greater degree of confidence that we are not slipping into a recession. It will take a while to unwind the damage of the sub-prime fiasco. The good news is that the economy is moving forward and a good deal of the bad weather has passed.
Subscribe to:
Posts (Atom)