SAN FRANCISCO – (Sept. 29, 2008) – As storm clouds cover financial markets, at least we can say our current weather pattern has been extraordinary. Indian summer is upon is upon us. I could review the litany of current events, which included bank failures and sales, emergency wrangling over the bailout plan, the gyrations of the stock market (at least we ended the week on a positive number), the debate, or the perpetual discussion as to whether we are in a recession, depression or repression, but I will save you from details. I will just focus on the one closest at hand – the bailout plan.
Congress and the President did agree on a plan, which should give the markets a little relief. The most positive outcome would be the restoration of a modicum of confidence that would ideally quell the extreme daily swings in the market. It probably won’t prevent a recession, but at least it has the possibility of preventing a deep one.The most important implications for the housing market would be: keeping rates low; increase supply of dollars for affordable jumbo loans (those above $729,750); and slow the number of foreclosed properties. These actions would continue to reduce inventories and would potentially slow price declines to a trickle, giving buyers a positive indication that prices have stabilized. This would allow the housing market to heal and return to balance. This won’t happen overnight, however it would be a welcome sign to both buyers and sellers.The local market continues the pattern of the last several months. Open sales units have increased over last year, although average sale price continues to decline. Essentially, the lower end of the market maintains its dominance in number of sales. A good example of this is during this report period for the area of Oakland, Berkeley, Piedmont, Albany, Kensington and El Cerrito where 64 of the 93 sales over this period were under $500K. Incredibly, 55 of the 64 were actually under $400K (the bulk of those sales were REOs – bank-owned properties; 47 to be exact).Multiple offers have slowed to about 10% of our sales. Two thirds of them are occurring in the under million dollar range. Trophy homes are still finding those buyers with dollars to spend. A wine country 5 bedr/5ba. home listed at $3.6 mil. obtained 3 offers and went well over list price.
Many transactions are requiring more negotiating, both before ratification as well as during the escrow period. This creates increased stress for both buyers (who don’t want to leave anything on the table) as well as sellers (who are trying to squeeze as much out of their homes as possible). The good news is that although the rate of homes falling out of escrow has increased, that number is not rising significantly.Overall, open home traffic is still active in most markets. Meaning that demand is still strong. It is just that decision making has been put on pause for most buyers. In fact, a Berkeley listing priced at $995K had over 100 visitors while a Lake district (SF) 2bedr/1 bath listing similarly priced garnered 95 groups. Most of our opens had groups ranging anywhere from 10-40 buyers.I sound like a broken record, but for sellers who genuinely need to sell their homes, they must be competitively priced and presented in the best condition. Buyers are still in the driver’s seat in most sales. The current market gives them a distinct opportunity. As noted earlier in this report, the lower end is selling briskly and many of those buyers are investors realizing that prices will not be at these levels forever. Savvy buyers are out there buying while others wait.In the weeks ahead we will find out if the final bailout plan does what it was intended to do. If it provides more liquidity for the home loans, slows the number of foreclosures and short sales thus reducing inventories, and renew confidence, it could help both buyers and sellers and return the housing market to equilibrium.How did we get here?
Dr. Teeth of the Muppets explains it.
Editor’s Note:Avram Goldman is the President and CEO of Pacific Union GMAC Real Estate in the San Francisco Bay Area.