goldman report

The jobs report shows that the economy has weakened----duh. Still debating are we or aren’t we. Enough already----it’s a recession. Unemployment has moved up to 5% and is expected to hit 5.5% by year’s end. O.k.---that means 94.6% of the workforce is employed. For good measure, let’s throw in another half percent for those that have just given up on finding a job and are not in the numbers. Now we are at 94% employed---that still sounds solid to me. Jobs in education, health care and the service sector are up and as expected manufacturing jobs are down.

Beyond all of this there are signs of increasing stability in the financial markets. UBS, the giant Swiss bank whose shares have lost half their value, bounced back last week with their shares increasing 15%. The write downs over and with a recapitalization plan in place, the bank is on more solid ground. Obviously the market thinks so.

On the home front, the Bay Area is showing signs of stabilization. With March MLS figures in, we are seeing indications that our local real estate market is moving toward normalization. A few short months ago the months supply of housing inventory in the majority of our counties was in double digit figures. At the end of March all counties are now in single digits. The bulk is between 4-6 months, not outrageous by any measurement. San Francisco leads the pack with a 3.1 MSI followed by San Mateo at 3.7, Marin 4.8, Sonoma 4.8, Santa Clara 6.2, Alameda 6.3, Solano 6.3 (it wasn’t that long ago that Solano was 3 times that amount), Contra Costa 6.3 and Napa 8.1.

Although closed sales were down nearly 35% from March of 2007, sales that went pending in March were nearly equal to last year’s figures. Some counties fared better than others. Surprisingly the counties with the lowest average sales prices did the best in sales that went pending during March. Solano, the hardest hit county last year was up 89% in units that went pending, they were followed by

Sonoma +25%, Contra Costa +20.8%, San Mateo flat, SF -8.06%, Alameda -12.6%, Santa Clara -16.6%, Napa 17% and Marin -25.61% (interesting in that Marin was one of the healthiest markets in 2007).

Closed sales were quite different reflecting the slowness of sales in January and February. Again Solano performed best at -15% off from last March in closed sales. They were followed by Sonoma -33%, San Mateo -33.4%, Contra Costa -35.8%, SF -37.6%, Napa -41%, Santa Clare -41.9%, Marin -43.4% and Alameda -46.2%.

Prices have held best in the highest average sales price markets. San Francisco prices both for median and average, comparing March 2007 to March 2008, were up ---med. +4.25% and avg. +5.53%. They were followed by San Mateo -4.19%/10.5%, Marin -7.7%/-6.8%, Alameda -15.3%/-12.4%, Sonoma -21.3%/-16.8%, Solano -25.8%/27.4%, Contra Costa -27.2%/-23.9% and Napa -29.4%/-28.6%. One caveat, this represents only one month and that there can be strong variation within counties by cities. Another note is that three counties have shown consistent growth in median sales price over the last 90 days---Alameda, San Mateo and Santa Clara counties. Also Solano county were values have dropped the furthest over the last two years has shown a steadying of prices over the last 90 days, moving down from January at $330,000 to $325,000 in March. February was up to $334,000. If these trends continue in these counties and we see that pattern in the others, it could be that we are now bumping along the bottom of the pricing cycle.

More specifically for the reporting week, sales activity appeared to have slipped from the previous week, while listing activity increased. Multiple offers slowed with only 16% of our pendings involved in a multiple offer. There has been a resurgence of sales in the entry level price ranges---those under a million dollars. Open home activity is still strong as indicated by the 170 groups through the SF Pacific Hts 5 bedr. 2 ba. home listed at $2.995mil. or the 140 visitors to a new Castro St. listing. In the East Bay a No. Berkeley duplex listed at $935K garnered 80 groups and a new Piedmont Ave. 2bedr. 1 bath listing in Oakland priced at $799K had 100 groups. By the way, that listing received 3 offers and sold. Speaking of multiples in the entry level, a SF Inner Sunset 2bedr. 1 bath home priced at $549K received 11 offers and went well over full list price.

It is still a wacky world out there. Unlike previous course correcting markets this one still has pressing buyer demand. That is, if the home is priced at current market value and is properly staged.

Goldman report

Ended July with a bang. It was our 2nd best open and closing month since last July. I think we will see that same trend when I do the July Bay Area summary next week. For the second week in a row the Sunday SF Chronicle went sans any financial calamity stories. The best it could muster was another story on the Housing Bill. From the real estate section the main story was on how the internet has become the prime source of marketing homes. Two other stories, one on how buyers and sellers can negotiate closing costs with title and escrow companies and the other on the on-going trend of hedge funds buying bad loan portfolios from banks and brokerage houses. If this trend continues it shows the media is moving on. It doesn’t mean we won’t see stories on a declining housing market; however the frequency is diminishing rapidly. In other words, we are unwinding the mess that Wall Street and other financial services created with the sub-prime and the coming Alt-A problems.

Fewer and fewer new listings are on coming on the market. This is not uncommon for the month of August. The most active part of the market remains in the under $ 1mil range. REOs and short sales are still a significant part of the markets in Sonoma, Napa, Solano and parts of Contra Costa and Alameda counties. Every now and then, a higher priced listing will fall in that category of sales as did a $3.25 mil dollar Lafayette home that went into escrow.

We have noticed an increasing number of sales in the higher price ranges in the No. Bay. Most recently we sold the multi-million dollar Cloudview Estate winery. It was sold to the Mondavi family. Believe it or not, there was a back-up offer. There appears to be a premium now on boutique wineries.

Open house traffic remains steady. The most popular and well priced listings are still attracting good sized crowds as one Oakland Hills listing priced at $1.025 mil. did with 100 groups passing through. Not far behind was a Berkeley listing listed at $599K that had 75 visitors. Across the Bay in SF a Jordan Park 2 bedr. 2.5 ba. home listed at $1.875 mil. entertained 70 groups. The majority of our open homes averaged between 10-20 buyer groups. This is contrary to the normally slow open house traffic during the month of August.

Multiple offers still are strong in the Berkeley, No. part of Oakland, Piedmont, San Francisco and Lamorinda marketplaces. Our Montclair office had over 40% of their sales involved in multiples. Most of the multiple offer activity was in the under million dollar price range.

August could be a telltale month as to the direction of the market as we head into the Fall. Last August was the beginning of a strong downturn in the second half of 2007 when the sub-prime fiasco first manifested itself.

Today’s rally in the stock market, the highest single day rise since April 1st, , could be a positive omen. Can’t wait to see gas prices fall under $4.00 a gallon and they will----given that we are getting close to a Presidential election.

Just those lazy hazy days of summer. While the stock market is gyrating up and down. The housing market is doing the lazy river cruise----summer vacations, weddings and bar-b-ques. It has slowed some since June, but not appreciably. At our current pace, July could be the fourth best month since last July.

We have seen the volume of multiple offers slow. Only 14% of our total transactions had more than one offer. The most number of offers peaked at four and in some cases the winning offer was under full listing price.

Open homes, particularly in San Francisco and parts of the East Bay (Berkeley, Piedmont and parts of Oakland) are still attracting good-sized crowds. A Berkeley listing priced at $800K had a 140 buyers through its open house. A few other notable open homes were a Piedmont Ave. (Oakland) listing priced at $635K had 110 visitors; two Crocker Highlands (Oakland) homes one listed at $975K and the other at $1.195mil attracted 80 and 55 groups respectively; a Noe Valley (SF) home listed at $1.298mil. had 120 buyers and a Bernal Hts. (SF) home priced at $749K had 55 visitors. Buyers are very active in these markets. Homes that have been on the market for sometime are seeing limited traffic, except when there is a significant price reduction. The majority of open homes are attracting between 10-20 buyers. Overall positive for a summer market.

Well priced and eye-catching listings are attracting the most attention. A home in Yountville priced just under $ 1 mil. sold in 3 days. These well priced and presented listings sell quickly in spite of all the headlines. Sellers who garner offers soon after listing should heed the old saying “a bird in the hand is worth two in the bush”. One seller in the Montclair area of Oakland received an offer during the first week on the market at 1% below asking price. They declined it thinking other offers would follow. Not so in this case. The buyer has gone away and the home has now been on the market for six weeks.

Goldman report

Looking for the light. Currently, it is challenging to find positive input in regards to the economy. Last Thursday seemed promising when the Dow went up 200 points and oil prices appeared to be subsiding. Then on Friday the Dow dropped nearly 400 points on news of oil breaking another record high at $139 a barrel and unemployment hitting 5.5% (highest since 2004---from my view still 94.5% working---guess I am an optimist). The words stagflation (inflation and no growth) and recession are back in the news.

Stories that the percentage of housing price declines are at historic highs pervade the media. One point these stories miss was the historic appreciation over a five year period before the declines. In the Bay Area, prices doubled in most areas over that time, so even if prices are off 30% (which they aren’t in the majority of areas---in fact in SF the average sales price has not dropped over the last two years) that is still a 70% gain. Meaning that over the last 7 years prices appreciated on average 10% a year—pretty good for a leveraged investment. Yes, for those that bought at the peak it is difficult, however in no way does that represent the vast majority of home owners.

Like in past course-correcting markets patience is a virtue. It took some time before prices returned to previous levels. This was particularly true in Southern California during the last down cycle when they were hit by the contracting defense industry. The Bay Area was more fortunate. This time there will be counties in the Bay Area that will take longer because of the over building and the easy access to money during the boom period.

So in light (no pun intended) of the current milieu, let me share some positive news about the Bay Area housing market based on the month of May data. All of my numbers are based on single family and condo sales.

I believe the last national figures for months supply of inventory was about 10 months worth. The Bay Area figures for May vary between 2.9 months in San Francisco to a high of 6.6 months in Napa. A year ago the range was between 2.3 in San Francisco to a high of 14 months in Solano county. Ranging from lowest to highest they are SF 2.9, San Mateo 3.7, Sonoma 4.5 (7.9 months last year), Santa Clara 4.7, Marin 4.7, Solano 5.2 (14 months last year), Contra Costa 5.3 (8.8 months last year), Alameda 5.3 and Napa 6.6 (11.5 months last year). Interesting enough there were dramatic decreases in four of our 9 counties. These occurred in the counties with the lowest average sales prices. Those counties were hardest hit with REO (bank-owned properties) and short sales. Financial institutions are now off-loading these properties. It is by far the most active part of the market in those counties.

Under contract sales (pending sales) were significantly higher this May than last May. The entire Bay Area was up in this category with the exception of Marin. The rankings from highest percentage increases to lowest are as follows: Solano +142%, Contra Costa +65%, Napa +55%, Sonoma +52%, Santa Clara +13%, Alameda +12%, San Mateo +2%, San Francisco .5% and Marin -10%.

Closed sales are still behind last year’s pace. There were only three counties that showed positive improvement. The numbers are as follows: Solano +33%, Contra Costa +7%, Sonoma +.5%, San Francisco -14%, Alameda -17%, Napa -19%, Santa Clara -19%, San Mateo -20% and Marin -34%. June closes, given the positive numbers in pending sales for May, should reflect a more encouraging trend.

Prices have held best in the highest average sales price markets. The largest price decreases May 07 compared with May 08 occurred in those markets with the highest increases in sales year over year. Those markets are the ones being dominated by the highest number of REO and short sales. This will have an effect to skew prices downward. Median and average price drops occurred in those counties because the bulk of sales occurred in the lower price ranges. It doesn’t necessarily reflect that values on all properties dropped in that proportion. It indicates a greater number of sales in the lower end as compared to all price ranges. I will give both the median and average sale gains or decreases May 07 compared with May 08. They are as follows: Marin (+11%/+3.56%), San Francisco (-.5%/+4%), San Mateo (-12%/-3.3%), Santa Clara (-12%/-9%), Alameda (-23%/-19%), Sonoma (-24%/-24%), Napa (-25%/-23%), Solano (-34%/-37%) and Contra Costa (-38%/-30%). Price levels over the last 90 days have been relatively flat. Indicating again that we are bouncing along the bottom of the price continuum.

One of the most significant differences between this May and last May is the increase in average number of days homes are on the market. This May varied from 42 days in San Francisco to 118 days in Napa. Percentage increases varied from last year with a low of 5% in Sonoma to a high of 70% in Alameda county. They are by county as follows: San Francisco 42 days (+50%), San Mateo 53 days (+65%), Alameda 53 days (+70%), Santa Clara 57 days (+65%), Contra Costa 61 days (+65%), Marin 65 days (+15%), Sonoma 82 days (+5%), Solano 86 days (+7%) and Napa 118 days (+25%). Due to these increases sellers should be aware that pricing and presentation are critical to determining marketing time. These numbers only reflect sold properties. Unsold properties could be on the market longer than the ones represented here.

The good news in these numbers is that months supply of inventory have either remained close to last year’s figures or in some cases have significantly decreased and in all cases decreased in last 90 days; that pending sales have increased over last year’s numbers and over the last 90 days the number of pending and sold properties have increased.

Will these trends continue? Only time will tell. One thing we can say is open homes are still well attended and during this week’s reporting period 28% of our sales were involved in multiple offers. The vast majority of them were over list price. I believe sellers are becoming more realistic and buyers who are very aggressive in their offers (meaning that in offers where they are not involved in a multiple offer situation they are coming in under asking price) are willing to negotiate.

This could be a time that even for sellers, there are opportunities. This was highlighted in a dinner conversation over the weekend with good friends of ours who have their home on the market. Although they have had interested parties, an offer has not been forthcoming. Inevitably, the discussions lead to should we lower the price to make it more attractive. One of the sellers answered their own question. Even if they had to take less than they expected, the homes where they are going to buy have also dropped in value. The bright side is that we will make up any perceived loss on the new home and that our tax bill will be less than if we bought in an accelerating market. I could not have said it better myself.

Let’s hope it holds, the Dow is up 100 points this morning.

This week in RE-

Meaning that not much has changed in the last 30 days. The real estate market certainly has improved from the beginning of the year. However, it appears to be lumbering along. A bit up one week and a little slower the next week.

Multiple offers picked up from the previous week and we are now back over 20% of our transactions receiving more than one offer. Ninety-five percent of those transactions went over list price. One listing in the Richmond district in San Francisco, listed at over $2 mil., went considerably over asking price. A No. Berkeley 2 bedr. one bath home listed at $650K received 11 offers while another 2 bedr. 1 bath in the same area priced at $779K garnered 8 offers. Obviously No. Berkeley entry level homes are in short supply. The majority of multiple offers continue to occur in San Francisco and the Berkeley/Piedmont/Montclair and Rockridge areas of the East Bay.

The number of sales was also up over the previous reporting period. Much like the financial markets, the housing market, is at the vagaries of attractive listings, economic news and seasonal influences (weddings, graduations and holidays). For a Memorial Day weekend open homes were fairly well attended, particularly a few in the East Bay---one in the Upper Lakeshore area of Oakland had 80 guests and another in No. Berkeley (surprise) entertained 75. Most opens had between 8-20 buyers---a nice crowd given the holiday weekend.

Economically speaking, there is still much controversy as to whether we are out of the woods. Some say we still have rough sledding ahead while others think we have seen the worst.

Life is like a see-saw and so is our real estate market. The first few days of May were down and then the week before Mother’s Day was back solidly. The strongest open sale week since the beginning of last July. Even open house activity, in spite of the holiday, was brisk in most areas.

Multiple offer action remains in the plus twenty percent range (22% this reporting period---with 80% of the accepted offers going over full listing price). Yes, there were some other worldly transactions like the 21 offers on a SF Inner Richmond 4bedr./1.5 ba. home listed at $1.049 mil. that went over 25% beyond list price and the Berkeley 3 bedr./1ba home priced at $785K that went significantly over with 7 offers. They are the exceptions, but given the current state of the market pretty remarkable.

Still the majority of sales are not in that category. Clearly 80% of transactions have a single offer. The N word is in full swing---negotiation. It is the key to success in the current environment. Negotiations are many times long and arduous. Buyers and sellers have to manage their expectations. Given the volume of negative media exposure buyers have the mindset that sellers should be giving their homes away, while sellers still long for the days of bring me the gold. For the most part homes are not worth what they were in 2005, but neither are they worth what they were in 1999. I do believe sellers are being more realistic about current values and buyers are beginning to realize that this may be the best time to strike a deal.
The operative word is patience. If each party is willing to continue to communicate we are finding that the chance of a sale is greatly increased. Many sales are now taking weeks to put together. Negotiations can extend through the escrow period due to issues that arise out of inspections. Again issues can be resolved if cooler minds prevail.

Although consumer confidence has taken a beating and fuel and food costs keep rising, there is a glimmer of positive news leaking out of the media. I have attached a Wall Street Journal article from May 14th showing that the recession is not a sure thing. In fact, Jay Bryson of Wachovia said just a few months ago we were on the edge of the abyss---now there are a several figures that would indicate that the economy could skirt a recession. Wachovia projected a 90% chance of recession just a month ago. Now they have it pegged at 45%. In a recent WSJ survey of economists showed a 60% chance of recession compared to a month ago at 90%. We are not out of the woods. We could still be in for a protracted period of sluggish growth. However, like I noted last week, the tremors have lessened and it is time to focus on recovery.

This story coupled with the latest figures on unemployment in the Bay Area could bode well for sales in the third and fourth quarters. For those of you who missed the new figures the SF Metro area that includes SF, Marin and San Mateo counties added 700 jobs in April and unemployment fell to 4.2% down from 4.4%. The San Jose Metro area added 1100 jobs fell to 5.2% down from 5.5%. Although the Oakland Metro area lost 1500 jobs, unemployment numbers still fell to 5.3% from 5.5%. The Bay Area has been more resilient than the rest of the state which stayed steady at 6.2% in April.

This may explain why we are still seeing strong numbers of buyers in the market place because of the strong employment numbers. Buyers are still slow to move until they see more consistent positive signs of recovery. These signs will come in time as indicated by the article that is attached. In the meantime buyers have a unique opportunity to negotiate exceptional values.

Looking for trends? There aren't any. It is a serendipitous market. One week up
the next week a bit slower. Although with a few exceptions. Even for the Bay Area
there is no uniform weekly forecast. There are ongoing trends that may not yet
calculate into sales but show a building demand. Just like they talked for years
about the building bubble in the real estate market, we now have a balloon that is
filling up with buyer demand.
Open houses continue to show strong attendance in the majority of markets.
Showings average consistently between 10-40 groups. We are still seeing the
“super” open homes with 50-100 plus groups. During the reporting period a 4
bedr./3 ba. Larkspur home listed at $2.495 mil. was visited by 120 groups. In
Novato a 6 bedr./5 ba. home listed at $1.46 mil. experienced close to 200 buyers.
The Berkeley/Oakland/Piedmont open homes averaged between 30-100 groups.
There is no lack in buyer interest.
Multiple offers haven’t gone away either. Thirty percent of the accepted offers
ended up with more than one offer. Most are between 2-4 offers. There are the
exceptions like the REO (banked owned property) in Napa listed at $397,750 that
attracted 13 offers. You can’t blame many of the buyers out there who are looking
for that incredible deal only to find that others are doing the same. However most
of our multiples are in highly desirable areas with lower inventories like the San
Rafael 3 bedr/2 ba home that received 4 offers and went substantially over asking
price. Many of these homes are impeccable with listing prices that reflect current
market pricing.
The only things preventing a return to a balanced market is the pervasive negative
economic news----accelerating oil and food prices, the downward trend in
earnings reports (although a few bright spots with JP Morgan, Wells Fargo, Apple
and Ford), and continuing liquidity challenges in the mortgage markets (meaning
banks have become extremely reactive with increased underwriting requirements
and a shrinking secondary market to sell loans to).
There is no shortage of demand. Even with the negative economic news, a recent
Gallup poll, found that 53% of Americans still feel it is a good time to buy a home.
For those who make more than $75,000 that percentage increases to 69%.
Seventeen percent of buyers felt there homes were worth less than what they
bought them for. O.K., that sounds big. I like to look at the eighty-three percent
that felt their houses were worth more than what they bought them for. I have
attached the results of that poll.
Buyers continue to put off their decisions. However this can only last so long. We
are beginning to see those that have been waiting are taking the leap. The balloon
can only fill up so much and then it needs to start releasing the pressure. That will
happen when we start to see more frequent news showing that we are on the road
to recovery. We still have a few more bumps in the road to overcome, but they
will pass and those buyers that took advantage of this period of adjustment will be
rewarded.