While Overall Economy Struggles, Housing Market Continues Improving
As we begin the third quarter and the final weeks before the presidential election, more eyes will be focused on the nation's economy, which continues to struggle to gain traction. The most recent data showed the U.S. economy grew at a seasonally adjusted annualized pace of just 1.3 percent in the second quarter, down from the previous estimate of 1.7 percent and well below the target growth rate of 2.5 percent.
But while job growth has been anemic and broader U.S. economy sluggish at best, the housing market certainly is not. For the first time in years, the housing sector is a significant positive contributor to the nation's GDP growth. A new report out today shows we're in the midst of a "durable housing recovery," one that is spreading across more and more states and regions of the country all the time.
CoreLogic, one of the nation's leading real estate information companies, said in its report that the 2012 housing recovery is expected to be more durable than in prior years because of an improved balance between supply and demand. Among the findings in the latest analysis:
· The most recent CoreLogic Home Price Index showed a 4.6 percent year-over-year increase and, more importantly, prices increased in all but six states;
· According to CoreLogic estimates, new home sales are up 24 percent over a year ago and existing home sales are up 11 percent over a year ago.
· Given the solid performance of home prices in the spring of 2012, even a stronger-than-projected decline in the fourth quarter of this year is unlikely to diminish the gains made.
· Demand is fundamentally being driven by institutional investor interest in single-family residential properties as an asset class, pent up demand returning to the market, and increasing consumer confidence in housing.
CoreLogic economists say the housing recovery is much sustainable now than in past years because of an improved balance between supply and demand. The current supply nationally is 6.4 months, and analysts say it's much tighter in many large markets.
We know that all too well here in the Bay Area where many of our markets are being constrained by extremely limited inventory of homes for sale. In some of the hottest markets, such as the Peninsula and Silicon Valley, it's not unusual to see the days-on-market average dipping below a month or two and multiple offers on many homes for sale.
While record low mortgage interest rates are helping fuel demand, CoreLogic noted that many borrowers have been unable to take advantage of these attractive rates.
"Supply is being constrained in large part by negative equity, a unique feature of this housing recovery compared to past regional housing recoveries," saidCoreLogic Chief Economist Mark Fleming.
Fleming estimates that 45 percent of all mortgaged homeowners are what he terms "under-equitied," meaning they have insufficient levels of equity in their current home to provide a down payment on a new home. That's because they're either underwater on their current mortgage or don't have the 20 percent needed for a traditional down payment.
I can’t recall going into a fourth quarter and sharing a market report this strong in many years. With the limiting factors of tighter lending restrictions and certainly a tight inventory, I believe we are able to sustain a healthy Bay Area real estate market through the close of the year. There’s always a Wild Card, however. Whether it’s close at home such as election results, or across the Atlantic with deep concerns over European debt, if I were a potential home seller, I wouldn’t wait for the unknown. We know what it is today, and it’s a high demand, limited inventory market.
Below is a market-by-market report from our local offices:
San Francisco – From our Lakeside office manager, the local market is good; buyers are steadily pursuing properties but with some reserve. There are multiple offers but in fewer numbers per offering. The momentary increase in listings seems to be dissipating. Our Lombard manager says there is slightly less frenzy than two months ago. The inventory has neither surged nor dropped significantly since Labor Day. Most well priced properties are selling within a week. Loan conditions are time-consuming, but no appraisal issues of late. After a slow September, things are once again picking up in San Francisco’s Market Street office . The majority of deals during the past two weeks were the result of pre-emptive offers or ones that were sold prior to hitting MLS. Those sellers that waited for offer dates were rewarded with multiple offers. The multi-family market is just as tight as the rest of the market, our Sunset manager reports. A six-unit building in the Richmond District received 16 offers, with six of them “all cash” and all the offers were over asking price. The listed price was 12.8 GRM and it end up selling for over 16 GRM, or more than 25% over asking.
SF Peninsula — So many multiple offers, our Burlingame manager says. Buyers are coming through open homes well-conditioned to ask for disclosures and offer date. Two recent Burlingame listings sold for $200k over asking in multiple bidding. There have been fewer listings coming on the market the last few weeks. There were several Hillsborough sales in the $4-5 million range, which indicates that buyers are taking advantage of those amazing low interest rates, which are translating into more buying power. However, our Burlingame North manager says if a listing doesn’t sell quickly (i.e., first week) it tends to stay on the market. This quarter so far is quieter than our Menlo Park manager expected. She suspects that the flatness of the recent IPO market has calmed some of the buying frenzy. Open houses are still quite busy, but now only the best locations and best houses are still attracting the greatest interest. Still, houses are moving, albeit, slower. Rates continue to be compellingly attractive and buyers are certainly aware of this. All are exercising caution however. In Palo Alto, agents are seeing an unusually heated market that hasn't slowed down. There still are multiple offer situations on well-priced properties – all cash – 20% over listing price. Several of our Redwood City-San Carlos buyers have waited too long and have now priced themselves out of the current market, the local manager says. There seems to be more buyers wanting to negotiate after they are in contract, which is irritating sellers. We seem to be seeing a small spike in inventory in selective towns, according to our San Mateo manager. There's been a slowdown in the Woodside market, even the higher end.
East Bay – Last weekend was quiet open houses, due no doubt to all the activities in the Bay Area. Agents staying late into the evenings writing offers and we eagerly await each “coming soon” listing. We echo the same song heard throughout the market area, not enough homes for the number of buyers. It’s been noticed by our Oakland-Piedmont agents that the number of multiple offers has dropped as many buyers are holding back not wanting to be in competition any longer. They are still actively looking but are not as eager to jump in to the fray. The number of offers received proportionate to the number of disclosure packets out have dropped. Open houses are still very well attended and homes are selling but not quite as quickly as a month ago. Inventory has leveled off in the Lamorinda area even as sales increase, our Orinda manager says. Buyers are not letting multiple offer situations discourage them and agents continue to write offers. Open homes are seeing heavy traffic. There still is a low inventory in the Walnut Creek area. Appraisals are all over the place, some high, some low. Still seeing lots of cash buyers, as well as an increase in sales and listings in the high-end market.
Silicon Valley – Nothing has changed, according to our Cupertino manager. Everyone except sellers are complaining about a lack of inventory. In Los Gatos, the lack of inventory continues to be a challenge while the high-end market is improving. Our San Jose Almaden manager says there is no sign of inventory increasing. Prices have increased about 15% over last year. One example: A recent Blossom Valley listing that would not have sold last year for $600K listed for $649K and sold with multiple offers above $700K. What a difference a year makes! Our San Jose Main manager reports an extremely low inventory in all price ranges. Meanwhile in Willow Glen, It appears that the multiple offers are leveling off a bit and the amount of bidding on most homes now is also leveling off. Most multiple offers are now coming in close to asking and slightly over. The sales activity seems to be continuing at a fast pace in the Saratoga area. Listings are low since they are selling so quickly. Listings sold are 20% higher than last year.
South County – The lack of inventory seems to be impacting every aspect of the housing market, our Morgan Hill manager says. Low inventory translates into fewer open homes and thus less interaction with potential buyers. The low inventory is obviously impacting the number of sales that are being reported and agents who are working with buyers are very frustrated. Perhaps the biggest bright spot in the present market is that sellers are receiving multiple offers and are often selling their properties for over asking price. Multiple offers are certainly the norm in South County—in all price ranges. A Morgan Hill “fixer” was listed for $279,000 and received seven offers and sold for substantially over asking price. Another Morgan Hill agent wrote an offer for a buyer on a San Jose condo that was listed for $250,000. There were 40 offers!
Santa Cruz County – 2012 has been a much better year in real estate overall for Santa Cruz County. There are challenges like other markets in the Bay area, lack of inventory being the biggest. Our SFR inventory is just above 800 homes leaving us with a 2.4 mo supply currently. The median price is currently at $540K, up 10% year over year, a very encouraging sign. Every real estate market is different and this one is no exception. The low inventory and the number of buyers ready, willing and able to buy has created a multiple offer market. Buyers are feeling the pressure going into escrow and later changing their mind is causing about 25% of our contracts to cancel. The number of distressed properties has decreased from a high here of about 44% of the total market down to about 25% of the sales. There remain lots of sellers upside down, still making their payments, but unable to move forward. The Previews market has greatly improved year over year. Our prices are still way off the mark from the downturn however. Buyers in the $1.5 price range and up are active, especially beach property buyers. Approximately 30% of these buyers are using cash for their purchase. There seems to be a much higher level of confidence in the upper end of the market and those that are getting a loan are finding rates so low and the prices so appealing that these homes are selling for once in our lifetime prices and terms.
Monterey Peninsula – Sales on the Monterey Peninsula keep going at a steady pace, our local manager reports, with over three dozen new escrows bi-weekly for many months now. And increasingly these are “regular” sales and not REOs or Short Sales. News in the media of home prices increasing over most of the country coupled with the low mortgage rates, have made buyers more focused on - and less nervous about - buying these days. They're also more willing to accept minor imperfections in a property than any time in the last 4-5 years.
