San Francisco Bay Area Real Estate :: Goldman Report 2008

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May 11, 2008

It’s getting better, better all the time. Yes, I admit, it’s getting a little better all the time. Great lyrics sung by the Beatles. And so it is with the real estate market. Not that the market has returned to halcyon days, but it has steadied itself and making modest steps toward equilibrium.

This is the local forecast, not the national. The Bay Area forecast is loaded with microclimates. Meaning that as usual San Francisco is still bright and sunny, Marin, Alameda, and Contra Costa are cloudy with breaking sunshine, while Sonoma and Napa are still rather cloudy. Even within each county we find areas that continue with rain storms mixed with bright sun. You can even find a rainbow or two.

The overriding theme is plenty of buyers circling, with many still trying to figure out the long term weather pattern. The majority of homes open for the first time are attracting ample crowds of between 10-40 potential home owners. The best and most attractive listings are drawing numbers in the high double to triple digits, like the Piedmont 3 bedr./3 ba. home that was visited by 140 guests and the SF Noe Valley listing priced at $2.095 mil. that garnered over 200 buyers. Buyer traffic drops off significantly after the first open home as buyers are constantly looking for the newest eye-catching listing. Usually the only exception is when a property has a noteworthy price reduction.

Those that are jumping in are doing so with gusto. Nearly 30% of our transactions during this period were involved in multiple offers (29% to be exact). The majority of these transactions are drawing between 2-4 offers and selling at asking or 2-6% over list. There are exceptions such as the Noe Valley listing in SF priced at a bit under $ 1 mil that did go over by 10%. The upper end of the market is still healthy in San Francisco and appears to be coming back in Marin. As evidenced by the multiple offer on a $4 mil. home in Tiburon and another Marin listing at $3.9 mil. that also went into escrow. Contra Costa is also seeing resurgence in their upper end where a $2.075 mil. home in San Ramon sold. The Oakland/Berkeley area is seeing a different pattern where listings between $1 – 1.5 mil are selling, but those over that level are being more challenged. Napa and Sonoma are experiencing the bulk of their activity in the lowest and highest ends of their market. As you can see, the weather is quite variable.

The majority of buyers are still lacking a sense of urgency. However, buyers do know value and when they see it; do not hesitate to make their move. Volume of sales was well off last year comparing first quarter 2007 to first quarter 2008. The pattern changed in April, where in a number of counties open sales were actually up over 2008. This is a positive trend if it holds for May and June.

We will continue to see volatility in our market, just as we have seen in the stock market. Inventories continue to shrink and new home building has pretty much come to a standstill in the Bay Area. At the same time buyer demand is increasing. At some point the pressure will have to release itself. Although this time it should come in a measured release rather than with hurricane force as it did in 1999/2000 and again in 2004/2005.

I am attaching two articles that acknowledge that the worst is behind us and that the repair has begun. One is by a hedge fund manager, Cyril Moulle-Berteaux and the other by George Soros the billionaire investor. These articles are significant because they are the first national articles that are beginning to look at recovery rather than continuing to dwell on the rubble in the rear view mirror. We will still experience the on-going fall out from the sub-prime debacle, but like after shocks from an earthquake they do diminish over time.

May 4, 2008

he market is bobbin’ and weavin’. It reflects the economic milieu to a tee. The most recent jobs report came out with both positive and negative features. Unemployment came down by a half of a percent to 5%, but total jobs declined by 20,000. This was the fourth month in a row of downward movement.

The housing market is like looking at a mirror reflecting the economy---it’s a mixed bag. I know you are all waiting with baited breath to see April results.
For the most part it showed a positive trend. Hard to believe with the daily barrage of negative news, but here goes.

There are two very important factors that give insight into a murky market. First is months supply of inventory both year over year and the last four months. Secondly is the number of sales that went into contract since the beginning of the year. If months supply of inventory goes up and the number of open sales goes down monthly we are headed for difficult times. If months supply of inventory goes down both on a year over year and increase from the beginning of the year, plus the number of open sales consistently increases we can conclude that we are moving in a encouraging direction. Not happy days are here again, but we are beginning to dig out of a deep hole.

Five out of the nine Bay Area counties dropped in months supply of inventory both on a year over year basis and month over month for the since the first of the year. What is interesting is that the counties that have the most affordable prices---Alameda, Contra Costa, Napa, Solano and Sonoma counties, dropped both months supply of inventory year over year and month over month since the beginning of the year. The other counties Marin, San Francisco, Santa Clara and San Mateo the month over month for the last four months has been declining. However, those counties were up year over year, but in most cases only in tenths of a month differences. Only Santa Clara county was up more than one full month. Those four counties represent the higher sales prices in the Bay Area. When you look at their individual months supply of inventory numbers they are still relatively low. San Francisco which has the lowest supply in the Bay Area is at 3.1 months to a high in Santa Clara county with a 5 months supply. Those numbers represent a slightly seller’s market to a balanced market profile. The highest months supply of inventory in the Bay Area is in Napa with 7.1, but this figure is far from the double digit supplies we were experiencing during the 3rd and 4th quarters of last year in the majority of the counties.

Eight of the Bay Area counties have consistently grown month over month in open sales when looking at number of open sales since the beginning of the year. Only San Mateo county slipped by 5 sales between March and April.

Checking on year over year for April only Marin (-1.5%) and San Francisco (-6%) dropped in number of open escrows. Every other county was up. Highlights were Solano +154%, Sonoma +66%Contra Costa +62%, Alameda (+26%) and Napa (+23%). Again all these counties are those with the lower median prices. The short sale and REO properties are rapidly becoming the fair haired children. As stated in previous reports the banks and other financial institutions are eager (although still sluggish in getting them closed) to rid their books of these properties which are now selling at very attractive sales prices. In Novato a short sale property listed at $550,000 sold with 9 offers. We are seeing a number of multiple offers in the lower price ranges as first time buyers and investors begin fighting over these housing bargains.

Examining closed transactions we find a different story. Closed sales are like looking in a rear view mirror. They represent the open sales from the first quarter which was significantly down. Every county was down year over year except for one. That was Solano county which was up by 10% over last year. Giving credence to the fact that the lower end properties are beginning to move once again.

Median as well as average sales prices dropped on a year over year for April, with three exceptions. They were San Francisco (med. price +5%/avg.price +11.4%), Marin (avg. price +12%) and San Mateo (+ 5%). The upper end price ranges in these counties are still doing well.

When we scan sales prices over the last four months, four counties have shown upward trends month over month. They include Marin, Napa, Sonoma and San Francisco counties. Mixed results, meaning those counties that have been up, then down, then up are Alameda, Contra Costa, Santa Clara and San Mateo. This is indicative of a bumping along the bottom pattern. Only Solano county was down over the last four months.

Overall the direction is trending upward. Months supply of inventories continue to drop, open escrows are increasing monthly and prices appear to be stabilizing. Buyer demand keeps increasing as evidenced by the strong attendance at open houses. We are still experiencing multiple offers like the Montclair 2 bedr. 2 bath home in the Oakland Hills listed at $799K that received 6 offers or the Berkeley 4bedr. 3 ba. home listed at $1.52 mil. that garnered 4 offers. There may not be as many multiple offers, but we are still averaging between 18-30% of our sales attracting more than one offer. Houses staying on the market over 30 days become more challenged to sell. Most buyers today are looking for that hot deal. If a home is not priced competitively and shows exceptionally well, sellers could be in for a longer haul.

Buyers are still being cautious. The roadblocks to the market are an uncertain economic future, lenders who have become overly cautious (almost paranoid) and liquidity in the jumbo sector of the mortgage market. As we resolve these issues the backed up buyer demand will unleash itself. It won’t be a flood, but it will allow us to return to a healthy balanced market. Much like we are seeing in San Francisco. The rest of the Bay Area will follow. It is only a matter of time.

April 27, 2008

Looking for trends. There aren’t any. It is a serendipitous market. One week up the next week a bit slower. Although with a few exceptions. Even for the Bay Area there is no uniform weekly forecast. There are ongoing trends that may not yet
calculate into sales but show a building demand. Just like they talked for years about the building bubble in the real estate market, we now have a balloon that is filling up with buyer demand.

Open houses continue to show strong attendance in the majority of markets. Showings average consistently between 10-40 groups. We are still seeing the “super” open homes with 50-100 plus groups. During the reporting period a 4 bedr./3 ba. Larkspur home listed at $2.495 mil. was visited by 120 groups. In
Novato a 6 bedr./5 ba. home listed at $1.46 mil. experienced close to 200 buyers. The Berkeley/Oakland/Piedmont open homes averaged between 30-100 groups. There is no lack in buyer interest.

Multiple offers haven’t gone away either. Thirty percent of the accepted offers ended up with more than one offer. Most are between 2-4 offers. There are the exceptions like the REO (banked owned property) in Napa listed at $397,750 that
attracted 13 offers. You can’t blame many of the buyers out there who are looking for that incredible deal only to find that others are doing the same. However most of our multiples are in highly desirable areas with lower inventories like the San
Rafael 3 bedr/2 ba home that received 4 offers and went substantially over asking price. Many of these homes are impeccable with listing prices that reflect current
market pricing.

The only things preventing a return to a balanced market is the pervasive negative economic news----accelerating oil and food prices, the downward trend in earnings reports (although a few bright spots with JP Morgan, Wells Fargo, Apple and Ford), and continuing liquidity challenges in the mortgage markets (meaning banks have become extremely reactive with increased underwriting requirements and a shrinking secondary market to sell loans to).

There is no shortage of demand. Even with the negative economic news, a recent Gallup poll, found that 53% of Americans still feel it is a good time to buy a home.
For those who make more than $75,000 that percentage increases to 69%. Seventeen percent of buyers felt there homes were worth less than what they bought them for. O.K., that sounds big. I like to look at the eighty-three percent that felt their houses were worth more than what they bought them for. I have
attached the results of that poll.

Buyers continue to put off their decisions. However this can only last so long. We are beginning to see those that have been waiting are taking the leap. The balloon can only fill up so much and then it needs to start releasing the pressure. That will
happen when we start to see more frequent news showing that we are on the road to recovery. We still have a few more bumps in the road to overcome, but they will pass and those buyers that took advantage of this period of adjustment will be
rewarded.

April 20, 2008

Looks like we ride with the stock market or maybe the stock market rides with us. As stocks had a very good week our market during this period had the highest number of open weekly sales since the fourth week of July, which was just before
the wheels came off the wagon. Have we hit bottom and now ascending? I think it is a bit too early to tell. One week does not make a trend. However, what it does tell us is that for a segment of buyers who have been waiting it was time to dive
in.

Who can blame them. No one knows when the market hits bottom. What we can observe is that in the lowest price ranges, there has been the largest amount of activity in more than 8 months. Buyers who have watched prices decline are
sensing that we could be getting close to the basement. Why wait and risk missing a golden opportunity. The largest single factor in declining inventories has been these low end properties finally beginning to sell. The banks and other financial institutions who are handling the short sales and foreclosures have
begun to clear the hurdles so these homes can be sold.

Bureaucracies, particularly financial ones, move slowly. We have been seeing increased multiple offers on these types of properties in the under $450,000 price point. This combined with
sellers who still have equity and have come to the conclusion that if they are going to sell their properties they need to come into the year 2008 not 2005; creates saleable listings. This was certainly the case in Alameda, Contra Costa, Solano and Sonoma counties which saw the largest drops in months supply of inventory since the end of last year.

We are even seeing this pattern in Marin county. Last year it was the over million dollar properties, especially the over $2 mil. properties selling extremely well. This year and especially since March, the under million dollar sales are dominating.

San Francisco is heating up again. The $1.2-2.1 mil. category is now being described as hot hot hot. A Parnassus/Ashbury 3bedr./2.5 bath home listed at $1.695 had 14 offers and went “well” above full asking price. Another SF 2bedr./1ba property in Eureka Valley/Dolores listed at $1.195 mil. received 4
offers and it too brought a final price considerably over asking.

On the other side of the Bay a Kensington 3bedr/1ba fixer property listed at $520K garnered 14 offers. These double digits multiple offers are rare. Most multiple offers tend to be 2-4 offers and of those many are at list price or a small amount
under list. What is amazing is that buyers are willing to go well over on properties that are either priced aggressively or have unique qualities even in these stressful economic times. Over 25% of our sales in the reporting period were multiple
offers. The bulk of them from San Francisco and Berkeley/Oakland/Piedmont
marketplaces.

Strong open house activity has continued in spite of the beautiful weather. You figure buyers may want to enjoy the sunny skies. Berkeley open homes have been in overdrive. A 4 bedr/3 ba. home listed at $1.520 mil. had 135 groups attend. While a 2 bedr./1 ba. priced at $599K entertained 150 groups.

Again San Francisco is hot on Berkeley’s heels with 100 groups through a Lake District 3 bedr./2.5 ba. home listed at $1.659 mil. Most homes had traffic between 10-40 buyers. Repeat home opens, those opened more than once tend to have the least
attendance.

The pent up buyer demand keeps building. Lenders are making it more difficult to process loans. They have become over reactive. Asking for increased documentation and questioning appraisals. In a number of cases they are seeking review appraisals. We are getting the loans done, but the time and effort can be daunting. This too will change in time.

In seems counter intuitive that in the darkest of economic times some consumers are still buying real estate. The wealthy in America see that the best opportunities in real estate are right now during the sluggish market. What do they know that
others may not. I have attached on the e-mail an article describing what the wellheeled are seeing in the current market.

At least we can see a few positive signs. If those trends continue we could be headed to a more normalized market. Look for that happening either during the summer or as we head to fall. The wealthy understand this. It is a great time for buyers.

April 13, 2008


Ever feel like the current market is like a roller coaster. Well, it is. Just when you thought things were settling down, General Electric reduces its profit forecasts and the stock market drops a bit over 2% in a day. A number of banks preceded that good news earlier in the week with freezing equity lines because they believe real estate values have gone down. I know they heard a few choice words from customers who spent good dollars obtaining those equity lines of credit without ever using them.

Housing inventories have been shrinking in the Bay Area since the end of the year in spite of the significant fall off of sales from last year. Prices overall have been steadying and in the case of San Francisco rising. Potential demand is still brisk as evidenced by open home activity. This reporting period is no exception. A 3 bedr./2 ba. home listed at $799K in Berkeley had a 150 parties through its open house. A 4 bedr./2ba. upper Rockridge listed at $1.150mil. was visited by 90 buyers and a 5 bedr. home in Piedmont listed at $1.499 mil. had 80 visitors. These examples are the top end, however most open homes are experiencing between 10-40 buyers. Lest we not forget, California we is still falling behind buyer demand by about 90,000 new units per year. Many areas in the Bay Area have no more room to grow.

We don’t have a real estate problem here---we have a financial and consumer confidence challenge. Whether the economy is in a recession is not the question. Most consumers today believe we are in one. That is why consumer confidence is at its lowest point since the early 80’s. Add that to the continuing liquidity issues in the banking community and you have little, if any growth.

Buyers want and need to buy. The concern is when will the economy bottom out. Until they feel that it is, there will be a reluctance to move forward. What amazes me is that there are still buyers out there that are moving forward in spite of the uncertainty. In fact, during this reporting period we have seen a pick up of sales activity in Marin, San Francisco and parts of the East Bay (Berkeley, Rockridge and Lamorinda).

Multiple offers have diminished and many of them are going at list price or slightly under list. There are exceptions like the SF Corona Hts. 3 bedr. 2.5ba. listed at $1.055 mil. that received 6 offers and went significantly over full price. In Lafayette home priced slightly under $3mil. garnered 2 offers in the first week on the market. The winning offer was all cash with a quick close. There is still wealth out there that feels real estate in the Bay Area still has value.

The mantra continues that sellers need to realistically price their homes, do all
necessary repairs and stage their homes before bringing them to market. It is the only way to insure they have a credible chance to sell their homes in a reasonable period of time.

Buyers still have the opportunity to find exceptional values and sellers who are willing to negotiate in the current environment. Like windows, opportunity periods open and shut.

Yes, it is a special week. On Tuesday the government celebrates its favorite holiday. That’s right---April 15th. In honor of the IRS I give you George Harrison playing with Eric Clapton in 1991. Enjoy!!

http://www.youtube.com/watch?v=uYiLoSPTknw&feature=related

April 6, 2008

This past week Congressmen earned their pay (so to speak) by pointing fingers at Bernanke, Timothy Geither (President of the NY Fed Reserve) and Christopher Cox (head of the SEC), while Henry Paulsen, Sec. of the Treasury, missed the berating as he was off to China and our President’s highlight of the week was throwing out the first pitch at the Washington Nationals’ new baseball stadium. The truth of the matter, it was Bernanke and Geither that took bold steps in quelling a potential financial meltdown---at least someone is actually doing something to get us through the stormy waters---Congress, the President and Sec. Paulsen have so far been pretty ineffective. It must be election time; no one wants to make a mistake. I have been critical of Benanke in the past for not moving more quickly and not being able to see the tsunami coming---I do have to applaud him now, not only for taking the bull by the horns, but enduring hours of harassment by Congress’ Monday morning quarterbacks.

The jobs report shows that the economy has weakened----duh. Still debating are we or aren’t we. Enough already----it’s a recession. Unemployment has moved up to 5% and is expected to hit 5.5% by year’s end. O.k.---that means 94.6% of the workforce is employed. For good measure, let’s throw in another half percent for those that have just given up on finding a job and are not in the numbers. Now we are at 94% employed---that still sounds solid to me. Jobs in education, health care and the service sector are up and as expected manufacturing jobs are down.

Beyond all of this there are signs of increasing stability in the financial markets. UBS, the giant Swiss bank whose shares have lost half their value, bounced back last week with their shares increasing 15%. The write downs over and with a recapitalization plan in place, the bank is on more solid ground. Obviously the market thinks so.

On the home front, the Bay Area is showing signs of stabilization. With March MLS figures in, we are seeing indications that our local real estate market is moving toward normalization. A few short months ago the months supply of housing inventory in the majority of our counties was in double digit figures. At the end of March all counties are now in single digits. The bulk is between 4-6 months, not outrageous by any measurement. San Francisco leads the pack with a 3.1 MSI followed by San Mateo at 3.7, Marin 4.8, Sonoma 4.8, Santa Clara 6.2, Alameda 6.3, Solano 6.3 (it wasn’t that long ago that Solano was 3 times that amount), Contra Costa 6.3 and Napa 8.1.

Although closed sales were down nearly 35% from March of 2007, sales that went pending in March were nearly equal to last year’s figures. Some counties fared better than others. Surprisingly the counties with the lowest average sales prices did the best in sales that went pending during March. Solano, the hardest hit county last year was up 89% in units that went pending, they were followed by

Sonoma +25%, Contra Costa +20.8%, San Mateo flat, SF -8.06%, Alameda -12.6%, Santa Clara -16.6%, Napa 17% and Marin -25.61% (interesting in that Marin was one of the healthiest markets in 2007).

Closed sales were quite different reflecting the slowness of sales in January and February. Again Solano performed best at -15% off from last March in closed sales. They were followed by Sonoma -33%, San Mateo -33.4%, Contra Costa -35.8%, SF -37.6%, Napa -41%, Santa Clare -41.9%, Marin -43.4% and Alameda -46.2%.

Prices have held best in the highest average sales price markets. San Francisco prices both for median and average, comparing March 2007 to March 2008, were up ---med. +4.25% and avg. +5.53%. They were followed by San Mateo -4.19%/10.5%, Marin -7.7%/-6.8%, Alameda -15.3%/-12.4%, Sonoma -21.3%/-16.8%, Solano -25.8%/27.4%, Contra Costa -27.2%/-23.9% and Napa -29.4%/-28.6%. One caveat, this represents only one month and that there can be strong variation within counties by cities. Another note is that three counties have shown consistent growth in median sales price over the last 90 days---Alameda, San Mateo and Santa Clara counties. Also Solano county were values have dropped the furthest over the last two years has shown a steadying of prices over the last 90 days, moving down from January at $330,000 to $325,000 in March. February was up to $334,000. If these trends continue in these counties and we see that pattern in the others, it could be that we are now bumping along the bottom of the pricing cycle.

More specifically for the reporting week, sales activity appeared to have slipped from the previous week, while listing activity increased. Multiple offers slowed with only 16% of our pendings involved in a multiple offer. There has been a resurgence of sales in the entry level price ranges---those under a million dollars. Open home activity is still strong as indicated by the 170 groups through the SF Pacific Hts 5 bedr. 2 ba. home listed at $2.995mil. or the 140 visitors to a new Castro St. listing. In the East Bay a No. Berkeley duplex listed at $935K garnered 80 groups and a new Piedmont Ave. 2bedr. 1 bath listing in Oakland priced at $799K had 100 groups. By the way, that listing received 3 offers and sold. Speaking of multiples in the entry level, a SF Inner Sunset 2bedr. 1 bath home priced at $549K received 11 offers and went well over full list price.

It is still a wacky world out there. Unlike previous course correcting markets this one still has pressing buyer demand. That is, if the home is priced at current market value and is properly staged.

If you ever think America has lost its vaunted position in the world I have included a clip of how much country western music is appreciated in Russia and Finland. Enjoy and hope it makes your week. http://www.tothepointnews.com/content/view/3114/85/

March 30, 2008

The wacky world of real estate continues this week with a third of our sales during the reporting period being involved in multiple offers. Some areas around the Bay have picked up a little steam—meaning Marin and parts of Oakland/Berkeley. Others have maintained---Sonoma and Napa---and some have backed off a bit---San Francisco and Contra Costa. It really doesn’t matter as one week’s activity doesn’t give much perspective. The elements that standout are that open homes continue to experience good traffic and in spite of all the economic turmoil we are seeing buyers taking the leap of faith.

There is little positive news on the global front as pontificators argue back and forth as to whether the action taken by the government will have the desired effect in stimulating the economy. Let’s just flip a coin---probably our chances are just as good as theirs.

You have to dig deep to come up with glimmers of light. Don’t know if this recent story on Thornburg mortgage, a premier lender in jumbo loans, is a glimmer, but it may indicate that those with the dough are beginning to realize that there may be some opportunities in the lending business. Thornburg, which has been on the ropes for months, not because of bad loans, but because they can’t find funds to make loans, needs to find cash to stay afloat. Last week Thornburg found a hedge fund investor that was willing to put up $450 million. They are now seeking an additional $550 million for a total of $1 billion to make their commitments. Although the terms are extremely good for the investors (18% interest and a chunk of the company—not a bad deal), it shows me that the pure capitalists---those that are all about the money and not do-gooders (those that are politically motivated) feel that being tied to the mortgage business can be profitable irregardless of the economic woes weighing on the economy in general.

As we head toward April, final March numbers should give us a good sense of the direction of the market. At this point, my impression is we will see an improvement over February---not hefty, but still moving in a positive way. We have seen the entry level buyer coming back into the market over the last month and the luxury buyers are still pursuing the trophy homes as evidenced by a $9.7 mil. sale in Kentfield.

The significant story this week is the sale of a $2.625 mil. home in Tiburon. The reason this sale is important is that it shows how by preparing a home for market and staging it properly can make all the difference in the world. The home was listed last year for $1.595 mil. After 3 months the seller took it off the market. In between now and then the seller spent over $75,000 on improvements and had the home properly staged. The result was a multiple offer and a sale at the higher list
price.

This sale shows the importance of having a home showing at its best. In our current market it is critical and can mean extra dollars to the seller.

Also of note was a listing in Moraga priced at $995K. It sold in 5 days. There were many inquires by agents who had buyers that had an interest in writing on the property. It was too late for these buyers. What this demonstrates is that a buyer cannot always depend on properties lingering on the market. Buyers desirous of properties in markets that have a dearth of inventory need to move quickly (Moraga has only 16 single family homes listed and 12 are pending).

Now for the group that came up with the half a billion dollars for Thornburg mortgage here is a little song for them (they know how to cut a good deal):

http://www.youtube.com/watch?v=N1yAVh5qFj4&feature=related

March 22, 2008

And now, live from New York City ---- The Goldman Report. While I review the activity around our marketplace, my wife Lori is out doing her best to keep us out of a recession.

New York City looks and feels the same. You still can’t get in the best restaurants without a reservation at least two weeks in advance (try two months for Per Se), forget trying to get a ticket to “Wicked” or Broadway’s latest “Cat on a Hot Tin Roof” with James Earl Jones, I see a few more sale signs in store windows, but the chic shops are still holding strong. Obviously the restaurants and shops frequented by the Bear Stearns 14,000 employees will be looking for new customers, although many of their employees will find other opportunities. This is still a vibrant city of eight million plus. Haven’t heard anyone talking about the recession. Like San Francisco, NYC is one of Richard Florida’s “super cities”, somewhat insulated from the general economic malaise. Plus, it is close to Europe where vacations in NYC are a bargain. If you love art, food, and theater, there is still no better place in the world to go.

Now back to reality. Given the fall out of Bears Stearns you would think this would have a dampening effect on our local real estate market. The answer is---not much---buyers are still out in force as evidenced by our open house visitors. The majority of open houses are in double digit attendance numbers. Yes, we still have a few slow ones, but they are relegated to those listings that have been on the market forever and those that are located in areas of voluminous inventories. We also had some outstanding ones like the home in Alamo listed for $2.2mil. with over 100 groups through. Montclair and Berkeley offices had a range between 12-80 buyers and San Francisco had several between 25-40 groups. Most offices reported that more buyers are coming into the market.

Sales activity is steady in the majority of our offices, although we did notice open sales falling off in the wine country (Napa and Sonoma). San Francisco still continues to be the most active market where almost 25% of our sales end up in multiple offers. This was the case during the reporting period where multiple offers ranged from 2-7 offers and going from list price to 8% over list. In the East Bay our Montclair and Berkeley offices had almost two thirds of there open escrows end up in a multiple offer. A Rockridge home priced at $799K received 17 offers. One of our agents went $50,000 over, but was one of the lower offers. You can also add to that a Piedmont Avenue home listed at $675K garnering 9 offers. Thus, in spite of trying economic times, there is money and desire to buy homes. Or at least homes that are priced and presented well in desirable neighborhoods

The lower price ranges in Contra Costa, Alameda and Marin counties are beginning to show a little more life, but it is still the high end that appears to be alive and well. Our average price in San Francisco during the reporting period was $1.975 mil. and in Ross a listing at $9.5 mil. went into escrow.

There are still treacherous economic waters ahead as evidenced by Standard & Poor’s changing of Goldman Sachs and Lehman Brothers outlook on profitability from stable to negative. They did not change their credit ratings. This reflects the difficulty these firms will have over the next year or two because of the decline of profitability in capital-market activities---translation---write-downs will take away profits.

The momentum in the housing market will not pick up until the public becomes more comfortable with the outcome of the current financial mess. The demand for housing is present---what we need now is confidence in the future. Again the smart buyers are out their buying before the bulk of the buyers re-enter the market.

Some buyers know are figuring that out. A friend recently bought a home after looking for two years. He had been waiting for prices to come down. Why did he buy now, knowing that the market may still have not hit the bottom? First, he was tired of living in a smaller rental; second, he found a home that met his families needs for the next ten years (meaning the right size home, big backyard, and good schools) at a payment he could afford; he was tired of throwing away dollars in non-tax deductible rent; and finally, it didn’t matter whether the market was at the bottom or not, he was not buying it as an investment, it was a home, where he was going to raise his family. Lest we forget why we really buy a home.

One last thought for sellers---this is no market to test price. The feedback from the market is, if you don’t have an offer in 3-4 weeks, seriously consider a one time substantial reduction. The drip reductions don’t work long-term. Decrease your list price to the lowest level you can. This will give you the best opportunity to stand out among the pack.

And for those who enjoy the Big Apple as much as I do, here is something to bring you back. http://youtube.com/watch?v=S0kpjyAFoxk&feature=relate

March 16, 2008


You have to like this, while Bear Stearns was going down last week, its former CEO and current non-executive Chairman James Cayne was what right on top of the situation. He was playing in the North American Bridge tournament in Detroit. He fared much better than his company, coming in 4th out of 130. And you wonder how we found ourselves in this financial mess. By the way if you haven’t heard, Bears Stearns is being taken over by JP Morgan. I guess James is out of a job. The good news he can play more bridge. My only hope is that someone wakes up in our government to corral these cowboys because they have certainly created a stampede.

Last week we experienced a barrage of unsavory news. The Bear Stearns meltdown was the highlight. The stock market’s volatility still sends out waves of uncertainty to the public. This in turns makes those contemplating buying a home more cautious and reticent.

I believe we are nearing the midpoint of this cycle. For the first time in many months I am seeing articles that are focused on the opportunities that exist in this bear housing market and that the word recovery is now entering the discussion. I have attached two such articles one written by Jonathan Clements of the Wall Street Journal outlining buyer opportunities in a sinking real estate market and the other by Eileen AJ Connelly of the Associated Press discussing that even given the present instability of the stock market, there is light at the end of the tunnel.

The Jonathan Clements article points out that for the move up buyer, the second home buyer, the parent thinking of helping their children with their first home and for those first time buyers who have been waiting for the right time, that time could be now.

Continuing in the same vain, Connelly states that while volatility isn’t going to disappear overnight, some experts suggest the market may be near the beginning of a recovery. Further she goes on to quote Brett Hammond the chief investment strategist for TIAA-CREF Asset Management, saying while it might take a few more quarters before the markets show signs of real strength, “ the chance of there being a much further downturn from here are less than there’s going to be an upturn.” Illustrating that we could be beyond the mid-point of the current cycle.

This is a good sign when the press begins to talk in these terms. We still have some pain to endure, but this market offers real opportunity for knowledgeable buyers and there are plenty of them out there.

Open house activity has been brisk as demonstrated by the good-sized crowds that have been frequenting them. In Marin the majority of our opens saw between 20-35 parties and San Francisco attendance varied between 20-70 groups for the bulk of the open homes.

Sales activity is steady. It appears that there is still strength in the upper-end of the market and surprisingly we are beginning to see movement at the entry level. Multiple offer activity has slowed in most markets during the report period except for parts of the East Bay specifically Montclair, Berkeley and the Lamorinda area where we saw between 50-70% of our transactions involved in multiple offers. Although, not every listing went over full price. We still have some crazy ones, like the Hayes Valley listing in San Francisco that sold with 11 offers and went well over asking, but those are truly the exceptions. Again what is amazing is that we are having any multiples at all. It shows that, even in an economy that is struggling, the demand for housing in particular areas is still quite strong.

There are some outstanding values in all marketplaces. Buyers are in a position to do exceedingly well. They certainly don’t want to be like Hall & Oates in the song Missed Opportunity. Another treat to start your week. Click on the link
http://youtube.com/watch?v=I1rKACfRvik

March 9, 2008

Here comes the sun---Dodadoda---here comes the sun---and I say it’s alright---Little darling it’s been a long cold lonely winter. Little darling it seems like years since it has been here. Here comes the sun---Dodadoda---Here comes the sun---and I say it’s alright--Little darling, the smiles returning to the faces.

I am sure all of you remember this song (hint: The Beatles). Why so optimistic. Haven’t you been reading the headlines and watching the news Avram? Oil is up to its highest price ever—the dollar is lower than the Azerbaijani manat, we are losing jobs, the only time we see our President is when he is shaking hands with John McCain, and the FBI is investigating all the lenders that put us in this mess. Call me the eternal optimist---I think it is more the pragmatic optimist.

Why so cheerful this week? After reviewing the Bay Area real estate numbers for February there are rays of sunshine. Who knows, maybe the weather has something to do with it. What I can tell you is that in every county the months supply of inventory is down. In fact, there is only one county in double digit numbers and that is Napa. All the other counties are below 8 months and San Francisco is at 3.4 months which is pretty close to a sellers market. Guess the papers missed it. The reason may be they are always looking in the rear view mirror.

No I am not saying we are in the go-go-go periods of 2004 and 2005, but I am seeing signs of stabilization and improvement in some markets. Closed transactions were significantly down over last year for February, very close to the almost 42% in January. It will probably end up in the high 30’s. However, in February, the hardest hit market in the Bay Area, Solano county, saw transactions under contract rise 63.5% over February 2007 (from 255 to 417). Over half the counties were on the plus side for transactions under contract. Joining Solano were Sonoma (+.52%), Napa (+29%) and Contra Costa (+12%). San Francisco (-11%), Marin (-17%) and Alameda (-17%) ended up on the negative side. It is a much improved position from the end of last year and January. Yes, prices have been walloped over the last year, but they appear to be dropping less and stabilizing. In San Francisco prices were actually up over last February.

What is happening? I believe there are several factors. First, sellers that are currently listing their homes are becoming more realistic with pricing and preparing them for this market. Secondly, increasing numbers of sellers whose homes have been on the market for some time are understanding that in order to sell their homes, they will need reduce their list prices to market values. For example, of the 23 listings that went pending over $500k in Oakland/Piedmont/Berkeley, 16 of them were on the market less than 22 days and 100% of those listings that were on the market over 30 days had price reductions. Another factor, particularly in those markets that have had the highest number of short sale and foreclosure properties, are that banks and institutions are beginning to shed these inventories. Lastly, those unmotivated sellers who have been clogging the market with listings that are non-saleable are now leasing them or taking them off the market and waiting for better times.

Demand is backing up and buyer activity is increasing as evidenced by the number of buyers attending open homes. In SF a Pacific Heights 2 bedr 1 ba. listed at $1.587mil was visited by 120 groups, a Parkside 2bedr. 1ba at $665K entertained 75 groups and a 2 unit building in Pac.Hts. $3.745 mil saw 40 groups through.

In Marin we had a San Rafael 3 bedr. 1 bath listed at $595K with 35 groups and a Novato 3 bedr. 2ba. home priced at $799K visited 25 groups. Not to say every open home is active, but the majority is seeing increased traffic. There are still yawners, but most of them have been on the market for some time and are still not realistically priced.

The number of multiple offers in many markets is beginning to increase again. The majority of our offices had multiples. In our Montclair and Berkeley offices 67% had sales with multiple offers, Orinda had 30%, our SF Presidio office had 33% and Sonoma had 25%. The vast majority of these sales occurred with listings that are new to the market as buyers are ready, willing and able if they see value.

If these positive trends continue in March, the remainder of 2008 could be a time when markets begin to recover and move toward a healthier balanced environment.

And now for a treat that will certainly bring a smile and start your week off on a upbeat note—click on this link http://www.youtube.com/watch?v=RuUhZxkr194

March 2, 2008


Thanks for all the calls and e-mails. It is nice to be missed. For those wondering why they haven’t received a report in two weeks---you don’t have to worry, you haven’t been cut off. A national business conference and other business commitments put the report on hold.

Not much has changed since the last report. The economy is still getting bruised by continued reports from the financial sector showing that we they are not out of the woods yet. Oil and food prices keep rising and Bernanke is frustrated that his moves have not shown the improvement he was hoping for. Looks like the Fed will continue to drop rates. Usually that has the effect of lowering mortgage rates, but this time around, just like in 2003, it is having the opposite effect on long-term rates.

The stimulus package won’t show much until the end of the second quarter. In fact it may protract the buyer decision-making process by holding out hope that higher loan limits will spell lower interest rates. If rates continue to rise, by the time the new limits are put in place, buyers may have been better off to buy now under a jumbo loan program, than wait until the loan they are seeking falls into the conforming loan category. From my understanding, lenders will still package loans between the existing limit today of $417,000 and the new limit that could be as high as $729,750. The interest rates of these loans will still be higher than those loans under $417,000. This will not become clear until the new program is rolled out sometime between May and June.

The media is back at it. Headlines of doom and gloom pervade which certainly colors consumers perception of the future. Consumer spending which accounts for two-thirds of the GDP (Gross Domestic Product) is slowing as consumers become more cautious in their spending habits as energy and food costs eat up more of their spendable income. That, combined with homeowners that are no longer have using equity in their homes as ATMs, you can understand why the economy is struggling.

There is an old saying that goes; it is never as bad as it appears and never as good as others would have you believe. This adage works well with trying to interpret government economic (assessment of current employment and personal income) reports and information provided by the media. A local company called TrimTabs Investment Research based in Santa Rosa uses new ways of analysis to better understand what is currently occurring in the economy. Their premise is that the Bureau of Labor Statistics and the Bureau of Economic Analysis rely on outdated figures and outmoded methods. These two bureaus have been reproached for years for their practices by critics, but still continue to use methods that focus too much on past data. TrimTabs uses an index based on how much consumers can actually spend right now to analyze where the consumer is today. They also have a newer, more germane method of measuring current job growth to give a more immediate indication of the state of the economy.

Instead of explaining in detail their methodology I will attach the column by Gretchen Morgenson that goes into detail.

The bottom line is that the government underestimated how strong the economy was from 2004 through 2006. We are now paying for all the liquidity that was created at that time. Charles Biderman, founder and CEO of TrimTabs, put it perfectly, “For a five-year period, no one lost any money buying anything. A lot of mischief was done, and now that mischief is being unwound.”

It is like a snake swallowing its prey; it will take some time to digest what was created. Biderman believes we are in a recession. He goes on further to say that he does not expect the recession to last much longer than the end of 2008. “I see this thing lasting longer than the bulls think but not as deep as the bears expect.” I will cast my vote with Biderman.

Where are we today and how can buyers and sellers benefit from this information? First we know that sales activity is down from last year. Sales activity has been significantly declining since last July or August when the large financial institutions went public with the sub-prime fiasco. O.K., the pendulum started swinging in the other direction as far back as the end of 2006. It really received an extra push at the end of last year and has continued into 2008.

We know buyers have become more cautious. They are looking for extraordinary value. However, unlike other downturns in the real estate market the demand is still strong. Open house activity, even in inclement weather, has been steady and in some areas fairly strong. San Francisco has seen the most active open home activity---a Sunset 2bedr. 1 bath home listed at $679K had 250 groups, a Noe Valley 2 bedr. 2 ba. home listed at $1.350 mil was visited by 130 groups and a Forest Hills 4 bedr. 3 bath $1.899 saw 100 plus buyers. Yes, these are the exceptions, but it still shows a demand, that at some point, will need to exercise itself in every market.

As this year unfolds we are seeing a steady increase in sales activity. Certainly not overwhelming and it comes in fits and starts. February opens were better than January. We are also beginning to observe movement in the first time buyer segment. We are noticing a better distribution of our sale’s prices. The upper tier of the market has continued to be the strongest segment, although we have seen a bit of a fall off in the East Bay due primarily to saleable inventory in that price range.

Multiple offers have not disappeared. Most have occurred in San Francisco and parts of the East Bay in areas like Rockrige, Piedmont, parts of Berkeley and Lamorinda. Marin and Napa county multiples have declined. Sonoma has had a steady flow. Don’t want to get ahead of myself, but last week we had an Inner Richmond 3 bedr. 1.5 ba. home priced at $989K that attracted 22 offers and went significantly over list price. So much for a down market. No, this is
not exemplary of the entire market, however this never occurred in the course-correcting markets of the 80’s and 90s. This time is different. There is still plenty of wealth out there, both realized and unrealized which will be inherited by baby and echo boomers.

Interest rates, although, rising are still historically low. Values in most markets, not all, have declined to 2006 levels. This presents an incredible opportunity for buyers. The $300,000 single family home almost disappeared in the Bay Area---it is now back in some market places. We are noticing investors are coming back into the market as various areas have declined in value and where as vacancy rates continue to decline and rents rise. Like all opportunities, they don’t last long.

I think by now, it has become clear for sellers that pricing and presentation is paramount. Buyers are only paying attention to new inventory and current price reductions. Great opportunities abound for those potential sellers that are considering selling in the high demand markets around the Bay—those that have low inventories and high demand---much like the home that received the 22 offers.

This year will go down as a transition market where the savvy buyers who bought, will do well and where the others will wish they had.

February 10, 2008

Mirror, mirror on the wall who can tell us where we fall? Will the market get off the dime or will it linger until summer time?

Here is what we know. Pending sales in December 2007 were off 29% from December 2006. Closed sales in January 2008 were off 39.6% from January 2007 and pending sales were off 24%. What this tells us is that it is taking longer to close transactions and that we are having more transactions falling out of escrow. On the positive side, months supply of inventory has decreased in every county from December 2007 numbers. However, absolute inventories are up in every marketplace from January of 2007, except Marin county.

San Francisco is still the healthiest of markets with only 3.9 months supply of inventory. Also on the bright side is Solano and Contra Costa counties which had been hit the hardest of all Bay Area counties due to the amount of new home growth over the last several years and the number of sub-prime loans taken to finance them. Solano was off only 9.4% and Contra Costa county was off 16% in pending sales versus last January. Could this mean we are getting close to the bottom of this cycle? If this trend continues it would be safe to say we are flattening out.

As I stated in my last report, the housing market is seeing the same kind of volatility as the equity markets. In the last reporting period sales activity had waned. In this report period, sales activity picked up in almost every market. Multiple offer activity also picked up with 20% of our sales being involved in multiple offer transactions. One interesting note is that an REO (foreclosure) property in Napa listed at $397,750 received 13 offers. Buyers today are seeking great value and when the see it, they leap. We are not out of the woods, but at least there is a glimmer of light.

Buyers are still out in good numbers even on the Super Bowl weekend. A SF Lone Mountain 3bedr/ 3ba listing priced at $1.649mil. had 50 groups on Sat. and 40 groups on Sunday and a SF Potrero Hill 3 bedr. /1.5ba home listed at $1.149mil had 60 visitors. Overall open house traffic averaged between 10-20 groups. Buyers remain cautious and are taking their time before writing offers.


Globally most economic news is not encouraging. The stock market took another downward swoop this past week on news of unemployment figures and continuing negative news in the financial sectors. With all the pessimistic chatter, it is difficult to hear or find signs that would point to a change in direction. Last week I shared the good news about the NY Giants winning the Super Bowl. The market just hasn’t caught up with the win---they will.

However on another front there is some heartening news. For the first time in 13 years U.S. company senior executives bought more shares than they sold as reported last week in the Financial Times. Insider purchases by these executives and directors totaled $663 million while sales tallied at $475 million. In the past, periods of net buying by executives and directors have been a signal that the market will rise sharply in the ensuing 12 months.

According to Jim Paulsen, chief investment strategist at Wells Capital Management, “insider buying and selling figures have historically been a good indicator of how the market will perform in the future”.

The last time this occurred was in January 1995. During that year the S&P rallied 34.1%. The last year of the housing down cycle in the 90’s was 1995. The most recent up cycle began in 1996 and continued through 2005 with a short correction in 2001. This year could be the most opportunistic market for buyers in the past 12 years. Just like predicting a recession, by the time it is proclaimed, the economy is already heading in another direction.

Mirror, mirror on the wall will this year be the fairest of them all?

February 2, 2008


Housing cycles are supposed to be characterized by long trend intervals---long periods of ups and downs. Today our markets are behaving much like the stock market---one week up and the next week down. My guess is depending on the news buyers ingest during the week, they tend to react much like investors in other asset classes. This makes it more challenging to predict where the market is headed.

As a kid I grew up next to railroad tracks, one of my joys (and the chagrin of my parents) was hopping onto slow moving trains. In order to know when trains were coming we would put our ears on the tracks and see if we could detect the faintest of sounds to know the train was on its way. It worked for the trains, let’s see if it can work for the housing market.

O.K. I stopped writing this report because it was time to go to the Super Bowl party. I did this deliberately so I could let the Patriots and Giants aid us in determining which way this market is moving. The reason being is that the equity markets have had an uncanny direct correlation to the housing market or visa versa for the past 11 plus years. They are tied at the hip. Who ever wins the Super Bowl, meaning which conference and which team, we can look at past Super Bowls and see how the market has performed over the ensuing year to determine which way the wind is blowing.

Going all the way back to 1967 and measuring return, it has been more advantageous when the NFC wins. The S&P 500 has been positive more often than negative (86% vs. 63% of the time) with above average market performance in the Super Bowl year (NFC +16.4% vs. AFC wins +7.1%). Since the Giants won, we have a good thing going.

Now from a team perspective, when the Giants have won, the results are more favorable than when the Patriots won. In the Giants two previous wins (1987 and 1991), the S&P rallied 17.8% on average. Although when the Patriots won (2002, 2004 and 2005) the market was -2.1% on average. More impressive when the Patriots lost in the Super Bowl (1986 and 1997) the markets rallied on average 25.8%. Now we are talking.

It is a good thing the Patriots lost because the last time we had a team go undefeated (the Miami Dolphins in the 1973 Super Bowl) it preceded the 1973-74 recession where the S&P 500 dropped 14.5%.

Finally the two times that the Giants won the Super Bowl the economic conditions were similar to our current one. The 1987 win preceded the October stock market crash and the 1991 victory was during the last major housing recession. The good news is that in both cases the markets moved higher (1987, +5.1%; 1991, +30.6%).*

Thank you Eli Manning and the N.Y. Giant’s defense. Your win is the best news we have had since last summer.

This is even more encouraging since the week of January 21st -27th saw sales slow once again. The best thing that could be said is that open house attendance was still brisk. Now from what I have heard about this past week from agents (which will be discussed in my next report) is a possible pick up in sales activity which might have been a precursor to the Giants win.

Go Giants---Super Bowl champions!


Now I wonder what this means for the Presidential election

*Statistics provided by Deutsche Bank

January 26, 2008


Is there light at the end of the tunnel? The first two weeks of January was like being in Fairbanks---pretty much 24 hours of darkness. I guess we could call it the dead of winter. The good news is we now have at least an hour of daylight. Sales activity is beginning to pick up. Buyers are coming out of their caves (do you like my reference to bears). Open house activity continues to pick up and a few opens have been overflowing pointing to growing buyer demand.

Multiple offer activity is still moderate, accounting for about 9% of our total transactions for the week. The number of offers varied between 2-4. The most active were a $799K fixer in Corte Madera and a two bedr/two ba home in Piedmont listed at $945K. Both received four offers and went well over asking, illustrating that the lower end of desirable marketplaces have more buyers than saleable listing inventories.

Open house activity is still quite brisk for January and competition from the football playoffs. We know the most active parts of the market by the numbers of buyers coming through on Sundays. Here are a few examples of some of the most active open homes: the aforementioned Corte Madera fixer listed at $799K had over 100 groups through before receiving 4 offers; two homes in the Rockridge area of Oakland—a 3 bedr/2ba priced at $895K had 90 visitors and a 3bedr/2ba listed at $1.25 mil had 25 groups on Sat. and 85 on Sunday; and in San Francisco 80 groups were reported at a Central Richmond 3bedr/2ba home priced at $1.195 mil, 75 visitors showed at a Noe Valley 2bedr/1ba listed at $699K and finally a Miraloma home priced at $899K had 50 groups through on Sat and well over 100 on Sunday. On average most open homes had between 10-30 groups. Condo opens have continued to attract fewer buyers.

Last week the House introduced several bills aimed at stimulating the economy. One such bill could have a favorable effect on our region. This bill would raise loan limits on conforming loans from $417,000 to $625,000. House leaders of both political parties have endorsed the new limits. The Senate and the Bush Administration have not yet signed off on it. If the new limits go into effect, buyers would now be able to qualify for lower interest rates and more loans would have a secondary market to sell to. This could potentially increase sales activity by qualifying more buyers. We will see how fast our government can act. I think it will be sooner than later, as we are in the midst of an election year.

As I said last week the recession is here. I am feeling better every day. The fall out has been a volatile stock market and sagging consumer and investor confidence.
In light of this, Deustche Bank this past Tuesday surmised that the recession (if it is truly a recession) should be shallow and short due to several forces that could bolster our economy.

“First is monetary stimulus---if history is a guide, monetary policy acts with a six month lag. The first Fed funds cut was last September, six months would be in the April time frame.

It is expected that the Fed will remain vigilant probably taking the Fed funds rate to 3% or lower by year end. The 75bps cut last week and the projected 50bps next week will be stimulative longer term.

Fiscal stimulus with apparent bi-partisan support (it’s an election year) and support from the Fed, plus tax rebates should stimulate the economy.

Oil prices below $90 should also boost consumer spending.

And the cumulative effect of the weak Dollar should remain supportive to imports.”

If these factors can be combined with a steadying stock market we should see a positive Spring market. There are still many question marks and there are no guarantees. The year ahead is still a mine field. With a little luck and some positive action from Washington we could have the soft landing. The demand for housing is prevalent, now we just need the consumer to believe the sky is not falling.

January 20, 2008

Let me be the first to make it official---we are in a recession. No more debating. No more wondering. O.K., now we have said it, let’s move on. I am feeling better already.

There is a constant din about the financial sector meltdown. The tsunami is not over, there is more coming. O.K. more is coming. That means more opportunity for those buyers that are ready and able. Last week that was the message on the Larry King show when he had three financial experts on who for the most part said now is the time to buy. If history is any judge, those that took advantage of the last down cycles did exceptionally well.

While the noise is negative (white noise) on the financial sector it covers up the sound of encouragement. You may have missed it, but venture funding was the highest it has been in six years. Twenty-nine billion was invested in 2007. The good news for us is a good part of that investment was right here in the Bay Area, in sectors like bio-tech, pharmaceuticals, the Internet and alternative energy.

According to the article in yesterday’s Press Democrat, venture capital dollars will continue to ramp up in 2008, although they may have more trouble in cashing out due to IPOs being more difficult in the year ahead. Deepak Kamra from Canaan Partners in Menlo Park puts it best, “We are very concerned about the public markets shutting down, but it is to be expected in times of unpleasantness”.
Sounds much better than the ship is sinking. We are in times of unpleasantness. I like that expression. I think it puts where we are in perspective.

There is no instant fix. We have serious issues that need to be worked through. In spite of our current economic malaise the venture capitalists still feel bullish---that is a good sign.

Through the second week of January it appears buyers are out looking, but not in hurry to make decisions. Open houses have been well attended as evidenced several busy open homes around the region--- a Belvedere lagoon home listed at $4.5 mil. had over 100 groups, an Oakland Hills (Montclair) 3bedr/2ba. home priced at $699k saw 130 buyers, a Piedmont 4 bedr home listed for $2.895 mil. had 90 visitors and a SF Pac. Hts. 3 bedr/3ba $2.595 mil. had 60 groups through. Most other open homes had between 10-50 buyers visiting. Again a positive sign with so many buyers out looking. They are cautious and only moving on the best values or most desirable properties. I believe we will see sales activity pick up as we approach February.

New listings and those with price reductions are attracting the greatest activity. In some areas the issue isn’t buyer reluctance, but a shortage of inventory. The most desirable areas in SF ----Noe Valley, Pacific Hts., Seacliff (much like the 3800sq. ft. home in Noe Valley listed at $2.395 mil. that sold over full price before the brokers open) or Eastside Sonoma where a home 2 bedr/2ba. home on a third of an acre priced at $1.150 mil. sold shortly after it came on the market. For sellers in markets where there is a shortage of inventory, now is the time to come on the market before the inventories increase as we head toward the Spring.

Multiple offers have slowed appreciably. We saw only 10% of our sales go in multiple offer situations and those that did went around asking price. This presents an opportunity for buyers as there is less competition and they are better able to negotiate.

The best advice I can give to buyers whose reluctance to buy is because of their concern that prices will fall further is from Walter Updegrave in an article in Money magazine. He states, “Even assuming you can figure out the ideal time to buy---that is, when prices have not only hit a trough but are on the verge of rebounding---by the time you find the house you want, line up the financing, and close the deal, the ‘best’ time may have already passed.” Instead, look for a house and location you’d be happy in for the next several years. Flex your negotiating muscle, if you like. Just don’t get too carried away. “You don’t want to overplay the haggling game and end up losing out on a great house for the sake of a few thousand bucks.”

December 31, 2007 - January 6, 2008

Happy New Year!!!  Welcome to 2008---Recession---No Recession---Recession---No recession.  Not a day goes by (or for that matter an evening) without the same mantra from the media. The year begins with the same economic uncertainties as it ended with.
 
If we look closer there still is much to be happy about.  Unemployment which is up, is still reasonable (95% of America is working); job growth is still on the plus side, although anemic; food and fuel prices are out of sight, although inflation is still manageable; and as far as the Fed is concerned, rates will come down. Most important for real estate here is that there is still demand. The only issue is the demand is reluctant to exercise itself. Why do you blame buyers, all they hear is wait, the prices will drop.  
 
Traffic through open houses tells the story. Usually January tends to be slower. Not the case this year, particularly in those markets that were the strongest in 2007. In San Francisco the traffic at last Sunday’s opens was brisk. The open houses averaged 18-35 groups with some notable exceptions.  A Cole Valley duplex listed at $1.349 mil. had 300 groups through and a Pacific Hts. triplex listed at $2.595 had over 100 visitors. It wasn’t just SF.  In the East Bay, a Crocker Highlands listing in Oakland, experienced 300 buyers. It was listed a bit over $1.6 mil. . We are still seeing good numbers of buyers in all areas. What this early activity indicates is that there is still plenty of pent up demand.
 
This year is reflecting the similar trends as last. The upper end of the market is the most prolific. This year started off with a $6.45 mil sale in Ross and a $5.3 mil sale in St. Helena.  There would be more, if the inventory was there on well-priced unique properties. The appetite for these upper end listing is certainly evident.
 
All markets depend on momentum. In summarizing last year it was a year of momentum----both halves of it---up and down.  The Bay Area market was a tale two markets-----the high average sales price counties---SF, Marin, San Mateo and parts of Santa Clara were going extremely well through mid July. The counties with the lower average sales prices---Solano, Napa, Sonoma, Alameda and Contra Costa---struggled from the beginning of the year. There were exceptions in Alameda and Contra Costa counties---Berkeley, the north part of Oakland, Piedmont, Albany and the Lamorinda (Lafayette, Moraga and Orinda) areas looked more like SF and Marin.
 
Once the sub-prime debacle hit, the momentum in the first half of the year began slowing to a point that by December all of the Bay Area markets were off from last year on a month over month basis. This is best demonstrated by comparing the year over year (06 vs. 07) with 4th qtr. over 4th qtr. (06 vs. 07).  This gives the clearest picture of how momentum can be affected by financial calamities.  Each county will have two percentage numbers, the first being year over year and the second will reflect 4th quarter over 4th quarter.  The comparisons are based on units for both single family residences and condos.
 
San Francisco   -9.69%    -19.11%
Marin               -12.0%    -29.0%
Sonoma            -23.26%  -39.04%
Napa                -25.13%  -42.02%
Solano              -40.02%  -48.43%
Alameda           -27.53%  -42.91%
Contra Costa     -29.30%  -42.89%
 
You can see the dramatic effect of momentum.  Just to highlight how the briskness of upper end markets can have a positive effect on a market even if units are tending down we can look no further than SF and Marin counties. Although units were down about 10% in SF, the volume of sales was down only 4.23% and in Marin units were down 12%, however the total dollar volume was only down 1.22%----so much for broad brushing a market place.
 
Given those numbers above you would think sales price would be significantly impacted. Think again. Yes, in those markets with the highest variances from last year, median sales prices have been affected. The majority of our markets have not gone appreciably and in some they have actually gone up.
 
Here is a look at median sales prices. I will give both year over year and 4th qtr. over 4th qtr.
 
San Francisco    +3.25%  +4.3%
Marin                +4.15%    +4.4%
Sonoma             -5.91%      -13%
Napa                 +.84%      +1%
Solano                -8.13%      -17.2%
Alameda            +1.0%       -3.36%
Contra Costa       -1.0%      -14.35%
 
Prices in SF and Marin counties have not only held, but have accelerated. This is a testament to the strong activity in the upper end. Even Alameda and Napa counties have held well.  This again reflects the strength in the upper price ranges.  Solano and Sonoma have been the hardest hit with prices dipping even further in the 4th qtr.  Contra Costa did well for most of the year until the 4th qtr. What these three counties have in common is that there was tremendous amount new home building over the last several years. The swollen inventories due to new homes and foreclosures have led to these price declines.
 
Let’s take a look at inventories.  Housing like any other commodity is influenced by supply and demand. We will look at months supply of inventory December 2006 vs. 2007.  The first MSI will be 2006 and the second 2007 and then the variance.
 
San Francisco   2.3    4.1   +1.8
Marin               4.8    5.7    +.8
Sonoma            8.1    12.0  +3.9
Napa                14.6  14.7   +.1
Solano              9.5    15.9   +6.4
Alameda           4.7    10.9   +5.2
Contra Costa     7.7    13.7   +6.0
 
Every county is up from last year. What is obvious is that in the counties with the smallest increases in inventory supply, median prices have held or gone up.   Alameda is the only exception and that could be due to the strength of prices in northern Alameda county where inventories are close to those in SF and Marin.   
 
Looking at the current inventories only Marin and San Francisco would be considered balanced markets. A balanced market is one with 4-6 months inventory----far lower than the national average of 10.7 months. The rest of the Bay is in double digits which is a strong buyers market. What does this mean going forward?  If inventories increase there will be further pressure on prices.  My view is if we look at the trends in the fourth quarter we can gain some insight into the future of inventories.
 
Let’s view the months supply of inventory October through December by county.
 
San Francisco    3.2    3.6    4.1
Marin                5.5     5.8    5.7
Sonoma            12.3    11.6   12.0
Napa                15.9    14.9   14.7
Solano              18.4    15.5   15.9
Alameda           9.2     10.2   10.9
Contra Costa    14.0    13.6   13.7
 
If the fourth quarter is any indication of what the first part of 2008 will look like, it could signify that we are at the bottom of this cycle. Inventories have not moved up much and in some cases have moved down. If this trend continues we could be looking at a flattening out and then it is just a matter of time before the market returns to equilibrium.  It will still take some time for those markets in double digit inventories to recover, but before you go down you have to stop going up.
 
For buyers it is a time of immense opportunity in some markets, certainly those that have inflated inventories.  These opportunities are like windows they open and close. For the savvy buyer the opportunity is now.  Interest rates are at the lowest they have been in several months and could drop a bit lower, but will then rise once again.
 
Buyers also need to be aware that not all markets are created equal. Even in this current market we are still seeing multiple offers.  They may not be going well over asking, but nonetheless they are occurring. I have attached a column by Carol Lloyd that illustrates that point. All markets are not the same even within the same city.  For buyers interested in the most desirable areas in the Bay Area they may find themselves competing with others for their dream home.
 
Sellers need to be aware that this is not a market to try and obtain your price. I think by now most sellers are conscious that today’s world is different from that of 2005.  We are in new territory. This is a market that sellers should have a reason to sell. It is not a time to test the market. It is well beyond that. A seller must price accurately and prepare their home to stand out among the competition. In spite of the times there are still opportunities for sellers, particularly the move up seller. That seller that is moving up to a higher priced home. Even if they have to take less on the home they are selling the discount in absolute dollars on the home they would be buying would be larger (i.e. if the market is off 5% the discount on a $600,000 home would be $30,000---if the home they are buying is $1,000,000 that same 5% is worth $50,000—a plus to the move up seller of $20,000).  This is not a new concept. Many move up sellers benefited from this during the early 80’s and 90’s.  If sellers are thinking of selling this year it is better to come on earlier to avoid the rush of listings in the second quarter. It cuts down on your competition. If the past is any indicator, best to come on not later than April.  The sooner the better.
 
If a listing has been on the market several months it is likely it will be difficult to sell in the current market. Buyers in today’s world are looking at new listings that are coming on and those listings that have had price reductions.  The best advice I could give is either reduce the current list price to adjust for the market along with making any needed improvements or withdraw the listing and wait for a more opportune market.
 
Back to recession vs. no recession----who cares.  Most recessions aren’t called for several months after they have actually happened. If in fact we are in or going into a recession, this one should be mild, at least for the Bay Area.  The Bay Area is the strongest segment of the California economy much due to the diversity of its economic base----technology, bio-med, financial, media and export/import.  The positive news on the dollar is that American goods globally are more affordable, including real estate. We will see more foreign investment both from Europe, Canada and Asia.  There still is a great deal of wealth in the Bay Area. Plus it is no denying, there aren’t many better places in the world to live.
 
As someone once said “perception is everything”.  We saw how quickly the market changed this summer once the consumer began losing confidence in the economy.  Until the majority of consumers begin to regain confidence it may be slow sledding for the first quarter of the year.  Momentum is a two street. Lest us not forget it is a Presidential election year.  It is always interesting to observe how an economy perks to life as we get closer to election. Look forward to better times beginning in the second quarter or perhaps even sooner.  

Avram Goldman
President and CEO
Pacific Union GMAC Real Estate