FOGGY VIEWS

We’re starting to see some positive news from the media.  For weeks REOs (aka: foreclosures) have been an adrenaline boost for much of the Bay Area housing market.  Well, this week, the media finally jumped on board with headlines like “Prices fall, California home sales surge” and “Bay Area home sales show life” thanks to the release of DataQuick’s July report (http://www.dqnews.com/News/California/Bay-Area/RRBay080819.aspx) which noted “July sales were the highest for any month since June 2007 and marked the first annual sales gain for any month since January 2005.”

Of course, this boost is undoubtedly the result of foreclosures which made up 33% of all Bay Area resales.  That was up from 29.9% in June and up from 4.2% from July 2007.  According to DataQuick’s report, “Foreclosure resales ranged from 4.6% of the resale market in San Francisco to 65.9% in Solano County.  In Solano and Contra Costa counties, where deeply discounted foreclosures are most common, 11 zip codes posted sales of exiting houses that were at least twice as high as in July 2007.”

So while all of the foreclosures are a good boost for sales, they certainly are dragging down our median. According to DataQuick, the median sales price dropped $47,000 or 3.1 percent lower than June and a 29.3 percent drop from the peak median home sale price of $665,000, reached a year ago.

Here is a graph supplied by DataQuick which provides more detail:

So who is buying these foreclosures?  Is it first time home buyers?  A surge of investors?  For the most part we are seeing a combination of both, but largely we are seeing a lot of first time home buyers entering the market looking for their first opportunity to own a slice of the Golden State.  Many of these people were priced out of the market for years—during the housing boom of the earlier part of this decade—and are now finally able to take advantage of purchasing their first home at a discounted rate, historically speaking, of course.

Foreclosures.  Lower medians.  It sounds bad, doesn’t it?  But in all honesty, this is all part of the economic cycle.  As much as we (home owners) all would’ve liked, our economy couldn’t maintain the double digital increases we saw in home prices in 2004 and 2005 without seeing a shift.  If we had continued with an increase of that magnitude, we would have completely eliminated the first time home buyer market which ultimately would have been detrimental to our economy.  We need first time home buyers to help drive our market.  They create that domino effect that ultimately affects all housing price points.

While the news seems mixed, keep in mind that we need this to regain our strength in the market.  Is this a trend? Is the market turning around?  It’s a little too soon to say officially but as we continue to burn off these foreclosures and buyers and sellers get off the sidelines, we’ll get a much better understanding of where our market is headed.

Let’s see how this week’s activity played out in our local markets: 

• East Bay—The REO market continues to drive a large portion of the East Bay.  The entry level market is flooding with activity with many REO (foreclosed) properties going into multiple offers.  Though prices are down in much of the East Bay, units are up and it is keeping our clients and Agents busy with activity.  Interestingly enough, the high end is starting to pick up in Blackhawk and Alamo.  Walnut Creek is reporting the same with two listings over $1 million selling in just a week.  A trend or an anomaly?  Only time will tell but we’ll certainly put these affluent markets on our radar to see how they pan out over the next several weeks.
• Monterey—With vacationers heading home in this largely second home market and the traditional slow August upon us, Monterey is entering a bit of a sleepy phase.  This week the entire region only opened five escrows so we’re definitely in the middle of the Monterey summer doldrums.  REO activity remains strong in the entry level market but overall, this is shaping up to be a slow month for the entire region.
• North Bay—The North Bay real estate market is about as diverse as its culture.  Sonoma County continues to thrive in the entry level thanks to the REO phenomena and yet their mid-level and upper-end is very quiet.  Nearby Marin County is seeing its blend of unique activity.  The upper-end in this market continues to see limited inventory and there are quite a few buyers who want to act but just can’t find the right property.  The lower-end continues to thrive—though you have to put “thrive” in perspective considering one San Rafael listing which sold this week.  It was originally purchased in 2004 for $480,000 and it sold this week for $275,000.  Value?  Sign of the times?  Probably a little bit of both.  But definitely worth sharing to give both buyers and sellers alike a reality check.
• Peninsula—A mixed bag.  From one city to the next you can have a completely different vantage point.  CB’s San Carlos and Redwood City offices report that buyers continue to sit on the fence “waiting to see” what is going to happen next, yet some of their listings are selling within a few weeks with multiple offers.   Half Moon Bay reports another slow week but does note that Agent activity, buyer showings, open house activity and office walk-ins are all showing an increase—another good sign that we’ll see a strong Fall.  On the flipside, the remainder of the Peninsula is looking pretty strong, falling short only in the area of inventory where limited inventory is causing fewer unit sales.  This week Burlingame reported two foreign investor sales with one property selling for $2.8 million and another for $9.8 million.  The dollar almost appears to have stabilized and foreign currency looks a little weaker, while oil has dropped the past few weeks.  Could this have caused some foreign investors to get off the fence and invest in Bay Area real estate?
• San Francisco—The City is seeing a surge of activity in the upper-end.  CB’s TRI/Van Ness office is reporting that nine of its 16 ratified offers were over $1 million and four were over $2 million.  The Market Street office concurs noting that it had four ratified offers this week on properties that were in the $700,000 to $2.3 million range and all four had four offers each.  Not bad! 
• Santa Cruz—Activity has slowed after a fairly active July.  Agents are reporting that open house activity has been steady although buyers continue to be skeptical about the market.  Sellers continue to be reluctant to adjust prices to a level that will attract offers.  Once in escrow, buyers want to continue to negotiate and are not hesitate to walk so our sellers need to be prepared.   How much you want to push an issue will depend on how bad you want that sale to go through.
• Silicon Valley—Though buyers are out there, vacations or “stay”-cations are causing a bit of a lull in the market.  Nearly the entire market reported decreasing or steady inventory.  But to be honest, it’s no surprise and we certainly expect it this time of year.  REOs continue to be a driving force for much of the entry-level market in Silicon Valley and this seems to be where much of the pulse of the market remains.  One interesting note this week was from CB’s in-house statistician (aka Los Altos First Street Manager), Fred Hibbert.  In his weekly statistical report he shared that we currently have 1,964 pending sales of single family homes in Santa Clara County and 596 pending sales of condos and townhomes.  Fred noted, “This is quite remarkable considering that this time last year was close to 900 pendings of SFRs and 330 pendings of condos/townhomes.  We now have nearly double the sales!  Wow!”
• South County—We’re seeing very little change from week to week in this market.  REOs continue to dominate the sales charts.  Much like its Sonoma County counterpart—another outlying, more affordable market—the entry level, ROE market thrives while the mid-level and upper tier sits.  We’ll more than likely continue to see this for at least a few more months as we continue to dwindle the inventory.

Overall inventories are decreasing in almost every community.  Interest rates are low and stable. With recent inflation concerns, the Fed will probably take them up before they’ll take them down.  The last several months of a $100k higher conforming loan limit should bring us good activity for the new well-priced inventory we need.