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MARKET FLASH – APRIL 2008

LOOKING FOR SIGNS OF SPRING

After several months of reshaping, there are glimmers that the Northern California real estate market is “stabilizing.” While the medians continue to move around, sales have pleasantly picked up in many areas. What does this mean? Well, while we don’t have a crystal ball, we look at the fact that our government has taken steps to try and boost the residential housing market and that buyer and seller expectations are starting to get more in line with the realities of today’s market. The arrival of spring, a traditionally strong season for real estate, has brought with it a sense of optimism too. Combined with historically low mortgage rates, increased conforming limits and plentiful inventory in many areas, the timing may be just right for those looking to enter the real estate market or “move up” to another home.

Statistics:

Statewide: The median resale price of a single-family detached home in California for February was $409,240, down almost 5% for the month and over 26% from February 2007. Sales activity decreased 28.5% from a year earlier. Unsold resale inventory represented a 14.3-month supply, compared to 8.2 months (CAR’s revision) for the same period a year ago; median number of days till sale was 69 in February, up from 66 (CAR’s revision; we said 70 at the time) for the month a year earlier.

County Statistics:

Alameda County: A slight rebound in sales, but still only about half of last February’s figure, and not yet near the thousand-plus of last October. Median is now below $500,000 for the first time in our records.

Contra Costa County: Read “Alameda County,” except with a median below $450,000. Sales are below the levels of last fall.

El Dorado County: After the drop in sales between December and January, a small rebound, but barely into triple digits. Median has shed almost $100,000 in the last year and seems, here as elsewhere, to be settling slowly.

Marin County: Median is better than most – meaning, still at a level that it has visited within the last two years – but, even after a February up tick in sales, activity is below the 200 level that seemed ironclad only last fall.

Monterey County: Median and volume have been flat since December, but both are below historical averages.

Napa County: This median is at the low end of its range for the last year. Sales are holding, but at only a third the level of last summer’s peak.

Nevada County: Sales, after sliding last month, have recovered almost to December level. Median is at its low for the year, but all of this year’s numbers have still been in the $400,000s.

Placer County: Not setting any records this month, but still one of the strongest counties with a high proportion of non-urban homeowners. Median has declined $80,000 in the last year, but without any steep breaks – simply participating in a general trend.

Sacramento County: Median trying to recover from the $250,000 level, and sales strong in the context of the last year – 50% above last February.

San Benito County: Median has slid in a year from almost $600,000 to barely over $400,000. Sales are at last February’s level, but at less than half of their peak last July. Sales may recover when summer comes.

San Francisco Bay: Thanks to pockets of strength within the region, median has declined only about 12% for the year; sales year-over-year are down by over a third.

San Francisco County: A bright twinkle as the county’s sales in February were 380 to 375 a year earlier, while median was about $738,000 to last year’s $749,000. Exceptional proportions of cash buyers and overseas buyers are lifting San Francisco serenely above the general turmoil.

San Mateo County: Hard to tell at the moment, because Dataquick has released two vastly different figures for February median. Taking the optimistic one, we find that the county median has declined only a bit over 3% for the year – but sales are half what they were this month a year ago.

Santa Clara County: Santa Clara County’s sales total cycles through several months of four digits, followed by several months of three digits. Right now we are in three digits, not surprisingly, but this summer we may see a switch to four. Median, at $660,000, is barely below last year’s $685,000.

Santa Cruz County: In a recovery from last month, Santa Cruz median jumped almost $100,000 to a sort-of-reasonable $631,000 – only about 5% below last February. Although we don’t have a sales figure for February 2007, we’re guessing it was roughly 200, and now it is 40% of that.

Solano County: Sales improved by 10% for the month but are still half of what they were a year ago, in spite of $100,000 loss in median. Warmer weather may improve the sales.

Sonoma County: Sales held level for the month; median has declined from over $500,000 to under $400,000.

Yolo County: Like Placer, showing some gratifying spunk. Sales and median were both up from January to February; sales, greatly improved since this month last year, are within the range that they occupied for most of 2007.

Interest Rates*: Cutting benchmark interest rates again and again, the Fed – at least temporarily – gives clear priority to helping domestic lenders at the possible expense of international investment; as we’ve been saying for years, this is a balancing act that the Fed may have the leverage to carry off intermittently, but it can’t be sustained forever. To quote (once again) the CAR’s formidable Chief Economist, Leslie Appleton-Young: “The…recent action to reduce the federal funds rate will have little near-term direct effect on the housing market, [but] should result in more favorable real estate finance rates as we move through the year.”

Thirty-year fixed mortgages are exactly where they were last April at 5.81%, 5/1 ARM is at about 5.8% and 5/1 jumbo ARM is at about 6.6%. Rates remain attractive, qualification is a little more difficult and it will probably be much later in the year before the situation changes materially in any direction.

Inventory: In almost all cases, hardly even worth thinking about. We do hear rumors about intensifying competition for really choice properties at the top end of the market.

Overall Assessment: Spring and summer are coming, and when they do, we hope that a fresh surge of interest in well-priced, well-presented properties will come with them. Warm weather and plentiful inventory may combine to exert powerful magic. Affordability is rising for some and the Northern California market glitters. Those who buy now may reap rewards for decades.

*Area interest rates are reported to be as follows:

Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of April 4, 2008, the 30-year fixed with one point is 6.875%, the 15-year fixed with one point is 6.375% and the 5/1 ARM with one point is 6.125%, on non-conforming loans of $500,000.