Silicon Valley Market Watch

Weekly Market Watch
September 8-14
They called it “Nightmare on Wall Street.” In the past two weeks, the government took over Fannie Mae and Freddie Mac, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America. If that weren’t enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to American International Group (AIG).
Our nation’s financial system is in the midst of a massive shakeup, caused largely in part by this decade’s housing correction. Between 2002 and 2006, household borrowing grew at an average annual rage of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can’t pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.
According to the Wall Street Journal this week, “At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets.”
Only time will tell how and when this shakeup will correct itself. Among the highlights:
"The pace of Bay Area home sales reversed its July uptick and dropped again last month, marking a return to the long-running waiting game that many potential buyers and sellers have been playing for more than a year.”
“A total of 7,232 new and resale houses and condos were sold in the nine-county Bay Area in August. That was down 4.7 percent from 7,586 in July, and down 0.9 percent from 7,299 in August 2007, according to San Diego-based MDA DataQuick.”
“Last month's sales total was the second-lowest for an August, behind 6,688 sales in August 1992, in MDA DataQuick's statistics, which go back to 1988. An "average" August had 10,031 sales, while the peak August in 2004 had 13,940.”
“At the county level, foreclosure resales ranged from 8.6 percent of resales in San Francisco to 61.3 percent in Solano County. In the Bay Area's other seven counties, August foreclosure resales were as follows: Contra Costa, 54.4 percent; Marin, 13.5 percent; Napa, 39 percent; Santa Clara, 24.7 percent; San Mateo, 16.6 percent; Sonoma, 41.6 percent.”
“The median price paid for all new and resale houses and condos sold in the Bay Area last month was $447,000, down 4.9 percent from $470,000 in July and down a record 31.8 percent from $655,000 in August 2007, according to MDA DataQuick.”
“Last month's median stood at the lowest point since January 2004, when it was $440,000. The median peaked at $665,000 in June, July and August of 2007.”
Waiting for the bright spot? Keep reading. There’s no question, the result of foreclosures have drastically hindered our median sales price in many of our markets. And for those sellers who are not under duress and are just looking to sell, they are forced to lower their prices dramatically just to compete.
But we knew that the housing correction posed the biggest risk to our economy and that our economy and our markets would not recover until the bulk of the housing correction was behind us. The good news is that we are in the midst of depleting much of our distressed inventory. With stats like 61.3% of sales in Solano County being foreclosure resales, 54.4% in Contra Costa and 41.6% in Sonoma County, we are starting to push through that negatively impacted inventory. And once we do, we will start to see a market rebound. No, it won’t happen overnight. But as it does, we will see first a leveling off and then, ultimately, an increase in marketing conditions.
So what has all of this week’s news done for our market? Honestly, people are concerned. I think we all are. This week’s news did nothing for consumer confidence which is why it is important that we remind our clients of the benefits of investing in real estate. Real estate is a strong, long-term investment and as long as our consumers keep that in mind, they may prevail in today’s market. Couple that with the fact that inventory levels are high, interest rates are low, the conforming loan limits have increased and prices have decreased substantially in many markets, we have one of the best buyers markets in decades. So buyers, if you’re considering buying, now may be the time!
So with this valuable insight in tow, let’s take a look at this week in real estate:
*Silicon Valley—Things are looking pretty bright for Silicon Valley real estate. Cupertino DeAnza notes that “things are picking up and there is a lot of optimism at the sales meeting.” Los Altos First Street reports that buyers are still lining up for a few select properties. We had one very nicely redone and staged Cupertino townhome listed at $588,000. The listing had 14 offers and sold in the mid $600,000s. Los Altos San Antonio reports that we are seeing more floor time activity including a walk-in that translated into a $3 million listing and a floor call on a $1.5 million listing. While the news throughout Silicon Valley seems to be good, San Jose Almaden did report that the Wall Street news was ruffling quite a few feathers and was causing concern for some. We’ll have to watch as this plays out over the next few weeks and I would once again caution would be buyers that despite the economic hardships that our nation is enduring right now, real estate remains one of the strongest investments that you can put your dollar towards.
Okay, so in looking at it, yes, the nation’s economic news did nothing for our wallets this week. Many of us are still sobbing over our investment portfolios. But as you can see, real estate has remained pretty stable in the face of the negative news on Wall Street. Overall I think buyers are starting to get the idea that it may just be time to get into the housing market and sitting on the sidelines may cost them plenty—in terms of higher prices, higher interest rates and less inventory—in the long run.

Have a great week!

Monica Manocha Re, CMRS

408 399 1495

*Your referrals are the lifeline of my business. Please let me know how I can help you or others you know with their real estate needs.

Weekly Bay Area Real Estate Update

Dear friends,
Here is a weekly report to keep you updated on the changes in the real estate market. Please feel free to pass this on to your friends, family & colleagues.
As you may know, earlier this week, Federal officials unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.
As CNN pointed out, “The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington’s most dramatic attempt yet to shore up the nation’s housing market, which is suffering from record foreclosures and falling prices.”
Under this new plan, the government is stepping in to stabilize the mortgage market by taking conservatorship of the two entities. Essentially, the government will temporarily run Fannie Mae and Freddie Mac until they are on stronger footing.
So what does it mean for consumers? I see this is a positive step for our industry, one that should have a positive impact on consumers. The ultimate goals are to help stabilize the mortgage market, improve mortgage rates in the near term, improve consumer confidence and possibly spur some new housing demand.

NAR President Richard F. Gaylord responded to the news with this statement, “I commend Treasury Secretary Paulson and Federal Housing Finance Agency Director Lockhart for their bold actions to bring stability and continued liquidity to the nation’s mortgage market. Fannie Mae and Freddie Mac have always played a vital role in the U.S. economy by making fair and affordable mortgage loans available for home buyers and owners. Their critical mission must not be interrupted, and Sunday’s announcement goes a long way in making sure that does not happen.
“NAR believes that the announced plan will help restore confidence in the secondary mortgage market. We appreciate the steps taken to calm the market, make mortgages more widely available and protect taxpayers. This demonstrates that the government is clearly committed to keeping the flow of capital uninterrupted, which is crucial to the housing sector and the economy.”

Soon after the takeover was announced, Wall Street rebounded and interest rates dropped. Take a look at these excerpts from Tuesday’s USA Today article entitled Mortgage rates drop; investors applaud Freddie, Fannie rescue:
“Wall Street staged its biggest rally in a month Monday as stock investors bet that the government's move to seize and backstop the USA's two largest mortgage finance companies will help stabilize the housing market, thaw credit markets and boost the ailing economy.”
“The Dow Jones industrial average jumped 289.78 points, or 2.6%, to 11,510.74. But common shares of Fannie and Freddie were essentially wiped out, since common-stock shareholders are last in line in any claims.”
“Average rates on 30-year fixed-rate mortgages, which have hovered well above 6% for months, plunged from 6.5% Friday to near 6% Monday, says Bankrate.com, according to national overnight averages. And most analysts expect the government's takeover of Fannie and Freddie to extend that decline, at least in the short term.
“In part, that's because in taking control of the two companies, the U.S. Treasury will buy mortgage-backed securities, thereby driving their prices up and mortgage yields down. The takeover should also shore up confidence in Fannie and Freddie and the mortgages they own or guarantee.”

I truly believe that the government rescue of Fannie Mae and Freddie Mac is a good thing for our industry and a great thing for interest rates and consumer confidence. It will be interesting to watch it unfold over the next several weeks.

With this week’s good news in tow, let’s take a look at this week in real estate:
Peninsula—My Half Moon Bay colleagues are singing the tune of new listings. Traditionally they have just about 110 listings on the market on the coast. Currently they have 148 which means better, more quality choices for buyers. The high-end market of the Peninsula seems to be moving well. Menlo Park is reporting that they had both a $3 million and a $5 million sale this week. Palo Alto continues to be plagued by lower inventory but is noting that though the inventory is low, buyers are looking for the right property that is priced well. Unless a home is priced well and shows well, even in a market that has limited inventory, it will sit. Buyers want value no matter what market you’re in. Our Redwood City office saw the first signs of the Freddie Mac and Fannie Mae takeover noting, “Slow week though buyers who were on the fence are now deciding to purchase with the government takeover of Fannie Mae and Freddie Mac.”
San Francisco—Our anticipated post Labor Day serge is coming to fruition in the City! We had a total of nine multiple offers amongst our five San Francisco offices this week. Our Market Street office noted, “Of the three multiple offers we had, one property had not even reached the open market. We had 10 new listings come on the market this week ranging from a condo at $499,000 to units at just under $3 million.” Our Lombard office saw a big post Labor Day week, too, noting that one sale was pre-emptive for 15% over in the $2 million range. The Van Ness and Noriega offices have yet to see the post Labor Day bounce but are confident they, too, will soon feel it. Van Ness continues to report success in the upper-end.
Silicon Valley—As our Cupertino office points out, “Lots of enthusiasm! Let’s hope it translates into transactions!” We’re definitely seeing increased buyer interest right now. Pendings are up 121% over this time last year and inventory is down. But buyers are still cautious and slow to make offers. Our Los Altos San Antonio office points out that “Activity was way up from last week. Buyers seem to be out in full force at our open homes.” Our Saratoga office concurs, despite what they thought was going to be a slow week. “Although sales have been decreasing,” said Saratoga Manager Pat McKeany, “we experienced a spike in sales yesterday with nine being processed. Hopefully this is a sign of improvement. Additionally we had 10 offers on a well-priced Saratoga home.”


I know I said it last week, but now that Labor Day is over and everyone is back from vacation, I think we’re going to see a spike in sales. Couple that with the Fannie Mae, Freddie Mac takeover and we’re in a pretty solid situation heading into fall.

Have a great weekend,

Monica Manocha Re, CMRS
408 399 1495

Your referrals are the lifeline of my business. Please let me know how I can help you or others you know with their real estate needs.

Bay Area Real Estate Market Update

Attention market watchers,
Labor Day is behind us! Let the buyer flood gates open! Well, maybe that is a bit of an over exaggeration but now that the traditionally slow July and August vacation months are behind us, we do anticipate that sales will begin to pick up in September and October. This is typically the time of year in which serious buyers begin to take action—hoping to get into their new home before the holidays.

And now that clients have returned from their vacations and are homeward bound, we should see a pretty decent pick-up in sales activity. Of course, only time will tell but if history is any indicator, we are anticipating a more robust September than we saw in July and August.

Overall, the Bay Area housing market is running pretty steady as we head into fall. Certainly there are pockets in which sales activity is thriving thanks to REOs. And in certain markets like San Francisco, the North Bay and parts of the Peninsula, we are seeing a lot of activity in the upper end. But for the most part, generally speaking, the market is moving steady—erring on the side of status quo for a buyer’s market.

Homes are selling. But again, only those homes that are priced right, show well, are in a good location and are seen as a “value” to buyers in this market, are moving in a timely manner. Others tend to sit.

Buyers are perusing. Yes, perusing seems the most appropriate choice of words. Tis is one of the best buyer’s markets in more than a decade to buy and the good news is that many buyers are starting to get their feet wet through increased open house activity, increased floor calls and even an increase in pendings—with Santa Clara County last week reporting that pending sales were up 121% this week, year over year. Those wet feet, however, haven’t resulted in closed sales quite yet and only time will tell if they do.

So while we wait to see what becomes of the wet feet, let’s take a look at this week in real estate:

· East Bay—Still a lot of activity based on REOs. Short sales are finally starting to get approvals which will help to decrease some of our standing inventory. Lamorinda is reporting that it is “hot, hot, hot!” In fact, the office noted that listings aren’t lasting long and most are seeing multiple offers. Of course this is one of the few Bay Area markets that hasn’t felt the effects of REOs and short sales. Our Walnut Creek office is noting that some REOs in Antioch are receiving 10+ offers, with the accepted offer 10-15% over the asking price.
· Monterey County—This largely second home market enjoyed the benefits of the last three day weekend as potential buyers came to Monterey in droves, particularly in Carmel. A number of offers were written over the weekend and we are holding twice as many deposit checks than usual so things definitely seem to be picking up. We put a $3.5 million and a $4.5 million listing into escrow this week.
· North Bay—Our Southern Marin office is noting that activity is picking up with more listings coming on the market. This week, in fact, our Southern Marin office introduced five new Previews listings to the market and put one Previews listing ($2.7 million) in escrow that had been on the market for 400 days. Things are looking better! Sonoma County is still seeing a lot of lower-end, REO activity. One REO out of our Sebastopol office this week received 27 offers.
· Peninsula—We have noted a lot of serious and motivated buyers. Palo Alto is still feeling the effects of low—painfully low—inventory. But the good news is that they expect that even in the next few days to get some good, quality inventory brought it to spur some more buyer interest.
· San Francisco—We are waiting for the market to heat up! Multiple offers are a result of proper pricing, not market conditions. This is a good lesson for sellers that if you price your home properly and competitively, you may be able to generate some good, solid interest from buyers. We’re awaiting some exciting new inventory to come on the market in the next two weeks which will move us back into a more normal market for the City.
· Silicon Valley—I think we are all glad since everyone is back in school and work, Silicon Valley especially. Certain areas of Silicon Valley are dealing with the challenge of a lack of quality inventory which is driving would-be buyers back on to the fence. There just aren’t enough quality listings to attract buyers to the market. This should help to stimulate things for our Silicon Valley clients as right now, things are pretty quiet.
· South County—The REO market and lower priced homes continue to drive our South County market. We continue to see multiple offers on REOs and short sales.

Now that the holidays over, we have a lot to look forward to. The dog days of summer are behind us and now we can move forward to the more robust Fall selling season. Buyers, start your engines! Sellers, get ready to negotiate, be reasonable and prepared, and don’t forget to remain competitive.