Consumer confidence has long been a leading economic indicator for the housing market. The more we feel good about the direction of the economy, the stock market, home values, and improvements in the job market, the more likely we are to take the leap and buy a home. So it was encouraging to see Friday’s announcement that a key consumer sentiment index moved to a four-month high in September.
The Thomson Reuters/University of Michigan sentiment index rose to 78.3 this month from 74.3 in August, the highest level since May and one more sign that our slow but steady economic recovery remains on track.
Consumer confidence gains can be attributed to a number of factors, according to a report in Bloomberg news: Rising property values, higher stock prices and a stabilization in the cost of gasoline could all be combining to lift our view of the economy. (by the way, I’m late in getting this report out, and when I started a little over a week ago gas prices seemed to be stabilizing. Take nothing for granted – all week long we’ve been reading about new highs in prices at the pump!)
The stock market’s three-year rally has brought key indices to near their pre-recession high, making it a lot easier for all of us to open our monthly 401k statements. And certainly home prices – along with home sales – have begun to climb higher in most parts of the country, especially here in the Bay Area.
“The wealth effect created by rising home prices can lift consumer spending on other big ticket items,” Steven Ricchiuto, chief economist at Mizuho Securities USA Inc., said in a research note on Sept. 25, according to the Bloomberg report. “Households believe that the economy is getting better and will continue to do so.”
Of course, we’re not out of the woods yet, economically speaking.
The economy is growing at a very slow pace, unemployment remains above 8 percent, and stagnant incomes are undoubtedly holding back household spending, which accounts for about 70 percent of the economy. We continue to battle economic headwinds here and abroad, as well as the prospect of the “fiscal cliff” of sharp budget cuts and higher taxes if Congress can’t work out a compromise by year-end.
Nonetheless, steady gains in the housing and financial markets offer reason for hope that our recovery will continue to move ahead – and that the rally we’ve seen in the housing market will continue into the fall home selling season.
As you’ll see below in our branch office reports below, the Bay Area is still suffering from a lack of good homes to sell. Depleted inventory coupled with high demand. Multiple offers are still likely the norm when a new listing comes to market, provided it shows well and is competitively priced. A few areas are hinting at a leveling off, and a few cities report the higher end seems just a bit more sluggish.
San Francisco – The local market has changed, according to our Lakeside manager. It appears to be the sign of a market that is becoming more stable. Fewer disheartened buyers because they are holding back on offers. Why? Some say it is due to the uncertainty of the election season. But there is no clear theme. And we are seeing more sellers intransigent in their price expectations so they are staying on the market longer. A good sign of a more stable market is that we are seeing a few more opportunities for buyers to actually negotiate with sellers because of the decreased competition. This assessment is echoed by our Market Street office manager, who says a gradual slowdown is causing SF inventory levels to tick up slightly over the past couple of weeks. Even so, the majority of sales still are multiple offers. Our Sunset office manager reports that September listing inventory grew slightly, but not enough to satisfied buyer demand. Investment properties are also extremely active with many buyers chasing after very few listings.
North Bay – Inventory in Marin continues to drop, as sales rise. There hasn’t been a flood of homes come on post-Labor Day as agents had hoped, but homes are trickling on the market and being received with multiple offers. Our Central and Southern Marin manager believes that sellers planning to put their home on the market from now through the end of the year may have a fairly easy time selling as long as the home looks good and is priced well. The luxury market continues to sell, though at reduced prices. The Northern Marin market is definitely picking up in terms of listings. Our local brokers’ tour is averaging between 15 + new showings each week, compared to three or four in the past. Inventory is still not high enough for demand, particularly in the lower price ranges, where multiple offers are still the norm and a number of sales are all-cash. The active listings have been on the market for an average of 53 days, half the norm. Prices for sold properties have risen from $256/sf to $280/sf a year ago, and the percentage of Sold/Asking prices has gone from 98.8% last year to 100.6% this year, so our market is definitely looking healthier. Our Petaluma office reports multiple offers in all price ranges – 21 offers on s Rohnert Park home listed at $275,000, 20 offers on a Petaluma home with a $305,000 list price, 15 offers on a Petaluma home listing at $500,000. Santa Rosa agents are becoming adept navigators in the marketplace. With Short Sales being a little squirrely, appraisal challenges, keeping buyers upbeat about their prospects of winning in multiple bid situations, assisting sellers with finding interim housing options if they are selling their home in order to buy up and a host of other assorted challenges, they go into the fray every day. All of these challenges will continue into the foreseeable future as our lack of inventory rules the market. Many of the higher-end properties that have been on the market before and did not sell are receiving attention.
SF Peninsula — One Burlingame listing at $1 million had 17 offers selling significantly over asking. Agents are looking for new and exciting inventory for a growing group of pent-up buyers who have been making offers in competitive situations. Hillsborough currently has 55 active and 18 pending listings. The pace has picked up since August. Inventory is increasing in the Previews market. The lower end of the market is moving well while the upper end is still sluggish. Some younger buyers are disenchanted with huge estate type homes and are drawn to close in locations and renovated homes, according to our local manager. Across the hills in Half Moon Bay, there has been good activity on the coast. Listings under $600k move within a week of being on the market, and agents are seeing many Peninsula buyers looking at ocean view home for their second home. Menlo Park continues to be hot. Six houses on tour last week in central MP – all sold, most with multiple offers. Menlo Park is pretty much a million-dollar town; most houses west of highway 101 are a minimum $1 million and houses west of El Camino are $2 million, even the dirt itself. Loans continue to be a nightmare – lenders keep coming back to the clients wanting more and more detail, verification of every little deposit, duplicates of many documents and even back balances taken off the internet to be a certain format. It creates an enormous amount of stress for buyers and sellers. The Palo Alto market is consistent with the rest of this year – a large number of multiple offers and properties selling 20% over list price. Some properties are valued at $1,400 to $1,500 per square foot. Only two new listings in San Carlos on tour Tuesday and sellers are still getting multiple offers on the mid priced homes. One of our listings in San Mateo priced at $650,000 received 10 offers. Our San Jose manager says the local market suddenly picked up speed again with good volume and open house turnout. Been quiet the last month, according to our Portola Valley-Woodside manager. There remains a dearth of high-end listings both on and off the MLS.
East Bay – With 56 single-family homes on the market in Berkeley through August, inventory is down 46.7% from last year to a one-month inventory level. It’s definitely a sellers’ market, with increasing inventory, but not enough to assuage the many buyers. Agents spend a lot of time writing up to five good offers for a client, with buyers needing to offer way over asking or drop out at most price points. There’s an increase in the number of million-plus listings coming on the market and higher end properties, listed below a million, are now often closing over a million. Agents reported that there was much more traffic at open houses in the Oakland-Piedmont area than the past week and it was not just people looking around but those determined to buy. This included homes that have been on the market for quite a bit longer than usual. We have had multiple offers on all our entry-level transactions and the properties above $1m as well. In the Lamorinda area, homes that are priced right continue to go into contract very quickly. Multiple offers continue with competition ultimately driving up the sales price. Buyers seem driven by low interest rates and low inventory. Things appear to have slowed down in the Walnut Creek area general market. Sales are slightly decreasing, but inventory is still very low. There are still a lot of buyers but few homes available.
Silicon Valley – In Cupertino, practically everything is a multiple offer sale and buyers’ agents are stressed. Open house activity is brisk and complaints about a lack of inventory are pervasive. Our Los Gatos manager says agents are still battling multiple offers everywhere. Low inventory continues to be a hot topic in Los Gatos, as well as San Jose. Our Almaden manager noted San Jose only has a one-month supply of homes on the market and Santa Clara County in general has a 1.4 month supply – the lowest numbers ever as we head into the holidays. Prices are up nearly 15% over last year at this time in the local market. The Willow Glen area continues to be challenging for buyers under the $500K range, where it’s extremely competitive. We see no slow down for buyer demand as we move closer to the Presidential election and the fall holidays.
South County – Gilroy is having an extreme shortage of properties – only 60 on the market. For the past two weeks there have been no homes for Gilroy on the broker tour because they are all selling too fast. There are multiple offers on every property on the market. Low inventory is stifling this market. Short sales and REO’s are a much smaller percentage of the active inventory. It is as if we are cycling through our distressed inventory in 2012, and it will be interesting to see what 2013 brings. In Morgan Hill, a million dollar property is considered very “high-end”. This week the Morgan Hill office sold two such properties—both for cash. Agents report that well qualified buyers (including those with cash) are actively looking for elusive listings to buy. The inventory in Morgan Hill remains low, with only 99 active listings—ranging in price from $200,000 to over $3 million. Multiple offers are the norm—a recent South County listing (home on acreage) received 14 offers and ultimately sold for $100,000 over asking price.
Santa Cruz County – Overall, the market appears much improved. Some statistics supporting this are less sales of distressed properties, down from mid 40% to 28% of the market, prices are up – median is now at $545k up from $490 a year ago, the number of sales are up, and the 3.9 mo supply of inventory is not enough to support the buyer demand currently. What we are seeing is multiple offers on the $500k – $600k price range, buyers jumping in, getting in escrow impulsively, and backing out. Currently there are approximately 822 homes on the market compared to 1028 a year ago. An agent in our Capitola office closed a $5.5 million home this month – a cash sale not on MLS, no sign, and listed just under $7 million. Sales in this high, high end of the market, while not the norm, are occurring. Agents have had a very busy summer with sales of luxury properties, which has influenced the prices going up overall.
Monterey Peninsula – Sales activity has settled down just a bit on the Peninsula, not quite the frenzy of the summer months but still a good pace of sales in all price ranges. Of course the lower price ranges are still a seller’s market, with multiple offers coming in fueled by these extraordinarily low mortgage rates of late. But even the highest price ranges are moving, with those properties generally selling for higher prices than last year. At this time last year 11 homes had sold over $4 million, ranging from $4,000,000 – $8,600,000; while to date in 2012, 17 homes have sold, ranging from $4,100,000 to $10,500,000.