Bay Area Weekly Market Update----- Happy Halloween to all

I had all of my clever Halloween puns planned for the week—“It was a Spooky Week on Wall Street”—or “The Market Takes Another Ghoulish Hit”—but alas, I am pleasantly surprised to say my puns are for not as things were definitely looking up for the market this week.

For starters, the central bank cut the federal funds rate, a key bank lending rate, by half a percentage point to 1%, a low last seen in June 2004. The funds rate has not been lower since 1958 when Dwight Eisenhower was president.


Just one day later the government released the latest GDP report which showed that the economy shrank at a slower pace than expected in the third quarter (though, to keep things in perspective, it did endure its biggest decline in seven years).

And if all of this news wasn’t good enough, negotiators for the Treasury and Federal Deposit Insurance Corporation announced that they are nearing an agreement on a plan to have the government guarantee the mortgage of millions of distressed homeowners. The plan could cover as many as three million homeowners in danger of foreclosure. If this plan were to pass, it will help us deplete our bank-owned inventory and subsequently should help stabilize home prices nationwide.

As an aside, our parent company Realogy is doing its part to support the stimulation efforts by this week releasing a statement that proposed a short-tern government buy-down in mortgage rates to stimulate the housing market and accelerate broader economic recovery. In a statement released to media on Tuesday, Realogy called for a short-term government buy-down of mortgage rates of at least 4.5%, or lower, for a 30-year fixed rate mortgage (down from current rates of approximately 6.04%). This homebuyer incentive would apply to the purchase of all new and/or existing homes sold up to $1 million in price. Only time will tell if this solution is adopted but it is commendable to see our parent company working so hard on our behalf to stimulate the housing market.

Thursday, Wall Street reacted to the week’s good news with the Dow Jones Industrial Average gaining 190 points or 2.1%, The Standard & Poor’s 500 index rose 2.6% and the NASDAQ composite (COMP) gained 2.5%.

But is all of this enough to revive an economy hit by a long list of problems stemming from the most severe financial crisis in decades? It’s definitely a start.

Earlier this week Time Magazine reported that there is a sign that we are bottoming out noting “The rate of sales decline slowed in August, according to Case-Shiller, and in September existing home sales rose 5.5% nationally, which means buyers are finally being lured to the market by low prices.”

As you’ll recall, President Bush said prior to signing the Emergency Economic Stabilization Act of 2008 that all of the recovery plans in store would take time to work. And only time will tell whether or not these plans are successful. But we are starting to see some positive stories with some better than expected results which is a good sign for all of us.

Next week we’ll learn who our new President will be, which, historically speaking, should lessen some of the concerns and (hopefully) settle some of the unrest on Wall Street. Once investors know who will be running the government for (at least) the next four years, they’ll feel more apt to making longer-term investment decisions.

Now, let’s take a look at this week in real estate. My overall assessment is that after a slow couple of weeks due to the economic woes on Wall Street, Main Street’s real estate is looking brighter and buyer interest is increasing.

Silicon Valley—Though buyers are still cautious, things seem to be brighter in Silicon Valley. Our Cupertino Stevens Creek reports “Sales continue to improve with good news looming in the media.” Our San Jose Main office concurs noting “Our immediate market continues to be brisk. Excellent open house traffic reported this weekend. Entry level homes and REO properties continue to receive the greatest attention and most reported sales are in the $350,000 to $550,000 range.” The upper-end has definitely taken a hit and the consensus is that it is slow all the way around in this niche. Our Almaden office reported that a buyer was about to pull out of one transaction this week unless the seller dropped his price from $2.2 million to $1.975. The seller reluctantly agreed. Definitely a sign of the times.
South County—The South County market continues to be driven by REOs The luxury market is South County is very slow with properties over $1 million seeing the following statistics:
Morgan Hill (100 listed, 9 pending)
Gilroy (53 listed, 5 pending)
San Martin (24 listed, 1 pending)

Overall, it was a good week for the Bay Area and momentum continues to build after a very rough September. Our market continues to be challenged by some buyers who are waiting to see what the market is going to do. Buyers should be reminded of the fact that waiting could cost them plenty in terms of higher prices, lower inventory and higher interest rates. It’s just a matter of time before we move from a buyer’s market to a more normalized exchange between buyers and sellers and we need to educate our buyers now that if they don’t act, they will reduce their purchasing power and may lose out on a bigger and better home!

Have a great week and a Happy Halloween,

Please feel free to contact me for any real estate questions you may have.

Monica Manocha Re, CMRS
408 399 1495
monica.manocha@cbnorcal.com
www.mmgproperties.com