On one hand, it was good to see improved GDP growth figures announced Friday. The U.S. economy grew at a better-than-expected 2 percent annual rate in the third quarter, the Commerce Department announced. That’s up from a 1.3 percent growth rate in the second quarter.
The improvement was driven in part by greater consumer spending, but also defense spending and the government sector. Many analysts cautioned that the economy is still facing significant headwinds and warned that GDP isn’t likely to climb much above this level through the coming year.
On the bright side, real estate continues to be one of the better performing sectors of the economy, as the recent Bay Area housing report from DataQuick reaffirmed. The La Jolla-based real estate research firm reported that Bay Area home prices last month rose to their highest level in more than four years and attributed it to a slowly improving economy, low mortgage interest rates and shifts in market mix.
The median sale price for all new and resale homes in the nine-county Bay Area rose to $429,000 in September, up 17.5 percent from a year ago. It was the highest since August 2008 when it was $447,000, according DataQuick.
Additionally, sales continue to climb steadily. A total of 6,850 new and resale homes were sold in the Bay Area last month, up 1.5 percent from 6,749 for September 2011. And the mix of homes is encouraging with a continued decline in the percentage of foreclosures and distressed sales and a steady increase in “regular” sales and transactions in the middle and upper ends of the market.
“It’s obvious that a lot of fence-sitters are getting active,” John Walsh, DataQuick president, said in a statement. “We’re probably past that most attractive of mathematical sweet spots, the one that combines low interest rates and low prices. In other words, price increases the past few months outweigh mortgage rate declines.”
What was particularly interesting to me is that higher-priced markets around the Bay saw the biggest uptick in sales. San Francisco led the way with a whopping 23.3 percent increase in sales volume, followed by Marin County with 12.1 percent, San Mateo with 7.9 percent, and Santa Clara with 2.6 percent.
Those sales volume gains were offset by declines in less expensive markets in our region, including an 11.4 percent drop in Solano, 5.5 percent decline in Sonoma, and 1.9 percent in Alameda. Contra Costa was up fractionally while Napa was 1.6 percent higher.
In the last year alone, we’ve seen inventory in San Francisco drop 62 percent from 2,003 units to just 758 units for sale; while the price has climbed 27 percent, as this chart shows:
Silicon Valley has seen the same trend with Santa Clara County inventory down 66 percent over the past year and the price up 31 percent:
Of course, in this choppy economic recovery we continue to expect setbacks. And Wall Street has given us those in recent weeks. The majority of companies reporting earnings this season are announcing they have fallen short of forecasts. The market has responded to the disappointing numbers with the Dow off about 4 percent from its peak level and hovering just about 13,000.
With the upcoming presidential election and the impending “fiscal cliff” staring us in the face, I suspect we’ll see more volatility in the financial markets and the economy in the weeks and months ahead. But all indications are pointing to a continued healthy, if not robust, housing market.
Below is a market-by-market report from our local offices:
North Bay – At our Marin sales meeting on Wednesday, our local manager asked, “How many of you have a listing you’ll be putting on before the end of the year?” Only one hand went up, along with a few tentative half raised hands. When he asked how many had buyers, nearly everyone raised their hands– about 50 agents. And, so goes the Marin market. Agents were counseled to search high and low to uncover potential homes for sale, look up expired listings, send out inquiries to neighborhoods where they have buyers, network and encourage those on the fence to sell. We need the inventory. Otherwise, we are experiencing fairly robust sales for this time of year, so it’s good to see that deals are actually happening, despite the low inventory. In Santa Rosa, we are finding that appropriately priced homes are still receiving multiple offers, as the pent up demand at the lower end is still evident. Many homes are coming on to the market at prices that seem to be low for the market. This may be due to agents determining price with their sellers and then by the time they actually come to market, other buyers on comparable homes have already bid the comparable sales higher. This lag in timing is proving to be a challenge for appraisals, but is often taken care of by the buyer bringing more cash to the table. Inventory across all price categories for Single Family dwellings in Sonoma County is down approximately 20 percent from early June of this year.
San Francisco – While some agents report a slight drop in traffic and activity, most offers remain multiple, our Lombard office manager reports. A number of pre-emptive offers were made this week, as buyers will pay a premium to avoid open competition. Market Street agents are looking for inventory as most listings continue to receive multiple over-asking offers. Buyers are out in force (one modest house near Glen Park BART had over 100 groups during its first open house), and savvy agents continue to get their buyers in to properties pre-MLS when possible. In the Sunset district, open houses continued to be very active. Multiple offers are still the norm as majority of the ratified deals are in multiple offer situation. Listing prices continued to edge upward as sellers are starting to get aggressive in their pricing. In the preceding week our Van Ness office ratified 30 sales vs. 22 sales the week before. There is heavy competition for the finer north side of the City homes at record prices. Multiple offers on most sales.
SF Peninsula — We’re seeing busy open homes at every price point. One listing in South San Francisco listed at $449,000 had over 150 groups attending open houses both Saturday and Sunday. One San Carlos listing had six offers and will close well above asking. One Burlingame property listed at $1,449,000 just closed at $1,651,000 with cash purchasers. The scarce inventory is being snapped up and bid up in the price range under $1,500,000, our Burlingame manager says. Too few properties to meet the demand. There are currently 61 active and 16 pending listings in Hillsborough. Our local manager is starting to see interest in some of the most expensive properties that have been on the market for some months. Buyers are looking at end of year, low interest rates and the perception of softness in the 5+ million range and certainly in the 10 + million range. Our Half Moon Bay office said they need more inventory under the $1m mark. Sales are brisk in the $550k-850k range. In Menlo Park area, all price ranges are still moving. Good properties come on, they sell right away albeit with only one or two offers now. Our Palo Alto buyer’s agents have been winning in multiple offer situations, fortunately. Sales are up. Multiple offers are nearly 100%. Move up buyers are reluctant to market a home without inventory to move up to, our San Mateo manager says. They cannot use a contingency offer in this market where certainty is demanded in contracts. Low inventory continues to plague our market. Nearly 56% of all September closed escrows in our market place sold for the list price or more. Friday, we had 19 offers on a single family home in San Mateo listed at $799,000. Several of our agents are working with buyers who are writing offers with all cash or substantial down payments, short periods to close escrow, and despite our advice against a contingency free offer, still choosing to do so.
East Bay – Our Oakland-Piedmont manager said last weekend’s open house traffic was slower and it seemed as if there might not be as much competition for the listings. But that all changed in a flash as the week went agents found clients in competition with 11 offers, 8 offers, 15 offers and so it goes. Several clients who have continued to lose out in multiple offer situations are ready to do whatever it takes in their offers to get accepted. There is still a lot of cash winning the multiple offer battle at all price points. Even though inventory is decreasing, buyers continue to make offers, our Orinda manager says. Multiple offers continue resulting in many homes going into contract over asking price. Many cash offers and open homes heavily attended. In Walnut Creek, local inventory is still low. New construction has really become an alternative and even those projects are starting to sell out quickly.
Silicon Valley – The market’s been steady, our Cupertino manager reports. There were 180 groups at a fixer upper on a busy street in Sunnyvale listed for $728K with 47 disclosure packages handed out. Need we say more about the lack of inventory? There has been a recent uptick in agents getting their buyers into contract, our Los Gatos manager says. Buyers are continuing to struggle with meeting short time frames on multiple offers and whether or not they should waive their appraisal contingency. Our San Jose Almaden manager notes that multiple offers prevail. One listing came out at $610K and, after 2 weeks and no offers, they lowered the price to $589K. They got multiple offers in four days and sold for $625K, proving you cannot under price a home in today’s market but you certainly can over price one. And buyers only want it if other buyers want it as well. The psychology of today’s market. Willow Glen overall inventory is down slightly. Our manager says agents are seeing a slight decrease in the number of multiple offers and the bidding up and over list prices has leveled off. Demand for lower end to midlevel priced homes in the $400k to $600k range is still very strong. We continue to have sellers listing homes through the holiday season, and many may be trying to get on the market and in contract prior to the election and by the end of the year.
South County – Inventory is at such dire levels that only 54 homes are active in all of Gilroy. REO’s have all but dried up. Five REO’s are for sale in Gilroy, six in all of San Benito County, and five in Morgan Hill and San Martin. San Benito County has only 90 homes for sale in the entire county. Overbidding homes is constant, with offers going 5%+ over asking price. And there seems to be no slowing down. It has been a nice change of pace for a seller, but brutal on buyers. Houses don’t make it hours or days on the market – they sell that fast. It seems that this has been the year for South County and San Benito County to cycle through most of the backlog short sales and to make way for the new move-up buyer coming back into the market. As the inventory “crisis” worsens the average price of a home sold in Morgan Hill has increased by over 20% (over the last three months). Multiple offers are driving prices skyward with anxious buyers willing to pay substantially over asking price for property. In addition, many buyers are willing to waive appraisal contingencies in order to be competitive in this marketplace. It is not uncommon for moderately priced homes (that show well) to garner seven to 10 offers—all at above the list price.
Santa Cruz County – The market overall has experienced improvement over the last year. Sales continue to come steadily in and like other markets our challenge is the demand is way exceeding the supply for Buyers. Agents must be creative to find properties off market, and honing their skills in putting forth their best effort as many homes are in a multiple offer situation. About 65% of our closed sales are under $600,000 although as prices inch upwards we are noting that that stat has dropped from a high of 70% last year. The Previews market is fairly steady and there are sales occurring, although it still represents only a small percentage of local sales. Properties from $1 million to $2 million represent about 6% of the total closed sales and sales over $2 million represents 1%. Agents are looking for properties that are off market, which tend to be cash transactions and short closes.
Monterey Peninsula – We’re continuing to have excellent sales activity with very few REOs anymore – now short sales and many more regular sales. And most of the lenders seem to be getting more efficient at handling the short sales, and with that lessening of the time spent between offer and lender approval, we are not having as many short sale fall-outs from buyers getting tired of waiting for approval as we did some months ago. Our open houses continue to be well attended, particularly in the second home areas of Carmel and Pacific Grove. The Preview luxury market is improving but still has a lot of inventory.