Feelin' Better

The Dow this past week had four straight days of gains, finishing up slightly over 9% for the week and having its best week since the end of November. I may not be popping the champagne yet, but doesn't it feel good. I wouldn't fool myself for a minute that we are out of this economic mess, but it is at least a flash of light in the darkness. There were other good signs as reported in the WSJ-the three major banks-BofA, Citigroup and J.P. Morgan Chase all turned a profit in their underlying businesses in the first two months of the year; retail sales for February fell only 0.1% from January exceeding expectations, and January sales were revised up by .2% to 1.8%; prices for copper and scrap steel rose indicating increased demand for metals typically used in manufacturing; and global shipping prices began to increase having completely collapsed last year. Even the consumer confidence index rose-not much, but at least in the right direction. Warren Buffett, in a televised interview, reemphasized his confidence in our ability to weather the storm.

Finally those sparks in the wilderness that I mentioned last month are burning a bit more brightly. Our local Bay Area housing markets continue to take baby steps. The February results are in and the trends of the last six months continue. The lower price ranges are the most active. Sold units were up significantly over February 2008 in those counties that have the lowest median prices.  Solano county was up 105%, Sonoma was up 80 % and Contra Costa was up 38%. Counties that have a mix of lower and upper end ranges were down slightly. as was the case in Alameda was down 11% and Napa was down 12%.  Those counties with the highest median prices dropped significantly in closed units. Santa Clara was down 25%, San Mateo was down 27%, San Francisco was down 50%, and Marin was down 54%.  Pending escrows reflected the same pattern, although it was more positive as six out of the nine counties posted positive increases over 2008. Solano was +234%, Napa +134%, Contra Costa +87%, Sonoma +82%, Alameda +27%, Santa Clara +11%, San Mateo -19%, Marin -25%, and San Francisco -32%.

Median prices year over year dropped in all counties.  The counties with the largest declines were those that had the highest increases in sales.  This being another indicator of how active the lower price ranges have been.

Months supply of inventory was down from the peak in all but one county and down from last February in four counties.  The following numbers show the current, last year's, and peak MSI numbers. The first number is the peak MSI over the last two years, the second is February 2008, and the third is the current MSI:  Napa 24/9.9/9.9, Solano 22/14.5/4.7, Contra Costa 16/7.8/5.1, Sonoma 14.5/14.5/5.1, Alameda 13.7/4.8/6.0, Santa Clara 13.0/3.8/7.9, Marin 11.4/4.3/11.4, San Francisco 9.9/2.6/8.8, and San Mateo 9.8/3.7/7.3.

New listings coming on the market this year in February compared to last year were down in 6 of the 9 counties.  The numbers are as follows: Contra Costa -33%, Sonoma -32%, Alameda -28%, Marin -19%, Napa -5%, and Solano -2%.  Residual inventory, that is, those listings that were on the market prior to February and still available, was up in 6 of the 9 counties over last year. The six counties are San Francisco (+94%), Santa Clara (+75%), San Mateo (+56%), Alameda (+43%), Marin (+39%), and Contra Costa (+11%). The bottom line is that prices have come down substantially in the lower end of the market over the last year resulting in the reduction of inventories in those markets. The high residual inventory and the increases in MSI in the upper end markets show that prices in those markets still need to adjust downward before we reach equilibrium. As sellers in the million dollar and up ranges (in some market places $700K and up) price their properties in accordance with market conditions, we will begin to see unit sales increase and inventories decline in those markets.

The market is fluid. A recent newscast highlighted a shift in San Francisco, particularly in the lower ranges. Our sales during the second week of March were up over last year. There seems to be a greater sense of confidence in buyers, particularly in the last couple of weeks. We are beginning to see more multiple offers. Although most are in the lower end, we are now seeing a few in the million dollar plus range. A Piedmont 4 bedr. 2 ba. listing priced at $1.295 received 4 offers and went over asking.  Buyers are moving quickly when they come across a value priced home in a desirable area.  A 3 bedr. 2 ba. Larkspur remodeled home listed at $1.595 went into escrow 48 hours after going on the market.  Homes that are priced appropriately to today's environment and show well are selling.

Serious price reductions are producing results. Our listing in San Ramon originally listed at $635K was reduced by the seller to $535K and sold immediately. Value is on every buyer's mind.  Irregardless of the economy, there are many serious buyers looking to purchase homes. as evidenced by increasing number of buyers attending open homes. As the economy improves over the next year or two, lending in jumbo mortgages is made more available, unemployment numbers steady and consumer confidence begins to rise, we will approach a more balanced market. In the meantime buyers have a "golden opportunity",  but it won't be there forever.

Source: The Goldman Report

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