Goldman Report

These are truly historic times. Last week, Barack Obama was elected as America’s first African-American president. I don’t envy his new job. He faces as great a challenge as FDR did in the 30’s. All of America, no matter whether you voted for him or not, is now dependent on what he does as he assumes the presidency on January 20th. I know all of us wish him well as he leads us out of our current economic crisis.

It is too early to tell what it will mean for the housing market. However, the declines on Wall Street and the focus on the election have slowed most segments of the local housing market over the last couple of weeks. Financial uncertainty, the fear created by a protracted recession and declining home values, has made buyers reluctant to move forward.

Believe it or not, there are bright spots. Although housing prices have declined, so too have inventories. In addition, the number of units closed over the last several months has increased over last year during the same period. These gains, however, have been in the lower price ranges. With the decline in median price first hitting in these same ranges beginning at the end of 2006, we are now seeing declines in areas that have been immune previously i.e. San Francisco.

The numbers from the month of October clearly demonstrate these trends. Where we have seen the most significant price declines year over year (the lower price ranges), we have also seen both the largest reduction in inventories and the greatest gains in homes sold year over year. Where there were few, if any, multiple offers in the lower price ranges last year, they currently represent the majority of multiple offers.

Both Contra Costa (-44%) and Solano (-37%) counties, which have some of lowest median prices, saw the greatest declines in price. They also had the largest increase in unit sales over last October---Solano (+242%) and Contra Costa (+185%). On the other end, the counties with the highest median sales prices have had the smallest declines in price---San Francisco (-10%), Marin (-25%) and San Mateo (-25%), but also had either a decline in units sold or much smaller increases in units sold over last October---San Francisco (-20%), Marin (+12%) and San Mateo (+17%). The rest of the counties were as follows (the first number is decline in price and the second is increase in units sold): Alameda (-35/+75%), Santa Clara (-33%/+35%), Napa (-32%/+58%) and Sonoma (-32%/+122%).

All but one county (San Francisco) declined in months supply of inventory over last year. The greatest percentage declines in supply occurred in those counties with the biggest declines in median price. The most dramatic decline was in Solano County, which has the lowest median price in the Bay Area. It went from a 22.4 months supply last year to a 5.4 months supply this year. The rest of the counties are as follows (the first number is October 2008 months supply of inventory and the second is October 2007): Sonoma (4.4/12.7), Contra Costa (4.7/15.1), Alameda (4.9/10.1), San Francisco (5.2/3.5), San Mateo (5.3/6.0), Solano (5.4/22.4), Marin (6.0/6.7), Santa Clara (6.4/9.0) and Napa (8.5/15.7).

The number of days on market has declined in counties with the lowest median prices, while they increased in the counties with the higher priced homes. The changes in percent in the number of days on the market are as follows: Napa (-27%), Solano (-20%), Sonoma (-20%), Contra Costa (-16%), Alameda (+15%), Marin (+17%), Santa Clara (+29%), San Mateo (+32%) and San Francisco (+44%).

The higher price counties remained healthy through most of last year while the lower priced counties took the brunt of the sub-prime fiasco. This year the higher price counties have not been immune. The worsening economy has now affected all income levels. What the lower end market experienced in the end of 2006 and all of 2007, the higher priced markets are experiencing now. We are beginning to see prices stabilize in some of our lower end markets. The recovery always starts at the bottom. The pace of the recovery will depend on many factors---most notably is how protracted a recession we will face. To be sure, the man who we elected President last Tuesday will have a profound effect on the housing market.