Let’s look at our local market as we work our way into the last quarter of the year and near the end of October. Inventories have decreased significantly from this time last year… running about 25%+ below where they were last year. In fact, we have been experiencing about 3 months of inventory in the Lamorinda market over the last several months – representing a very sound relationship between supply and demand. This compares favorably to the 4-5 months of inventory that we were running at this time last year. Absolute sales volumes have decreased from last year, particularly in August and September where we saw a reduction of about 20 percent from 2010. This clearly reflects the uncertainty emanating from global financial markets, and the extreme volatility we’ve seen in the US stock markets.
As one would imagine, the most active markets have been those most approachable to buyers. Approximately 70 percent of all Lamorinda sales this year have been at price points below $1M. Other trends worth noting include the move toward more central, urbanized locations. This began on a more macro basis as people began moving back to urban centers such as San Francisco several years ago. It has been a function of rising gas prices; aging baby boomers selling suburban homes; and general movement favoring locations where one can walk to shopping, entertainment, and restaurants.
This trend has played out within our community, too, as we’ve seen distinct premiums paid for perceived central locations such as Lafayette’s “Trail Neighborhood” and Happy Valley. In some cases, a 5 minute commute differential can command a 15% premium in the market. As an example, we had a recent listing near the “Trail Neighborhood” get bid up by $100,000 in the sub-million dollar price range within 3 days of going on-market. There have been larger properties in this area that were bid up several hundred thousand dollars during the peak of our spring 2011 market. Other segments have been much slower, such as the $1.5M – $2M range where there wasn’t a single home that went pending in the month of September throughout Lamorinda. Sales above $2M have been scarce this year, averaging about 1 per month in Lafayette.
So, what lies ahead? As we enter the wet winter months, we will see normal seasonality seize control of the market, and overall transaction volumes decrease. Typically, the market lies mostly dormant until mid-February when it seems to slowly come out of hibernation. Interest rates will remain low for the next couple of years, so job creation and consumer confidence will play the most dominant role in dictating the performance of the housing market as we enter 2012. Another “wild card” in the equation involves the disposition of bank assets… the properties in some phase of financial distress and not yet in the marketplace. Recent bank industry announcements have suggested this process will accelerate — a necessary element to cleansing the market and creating more stabilization. In the short term, it could increase inventories and put additional pressure on prices.
Finally, with immense amounts of cash on their books, we could also see significant hiring increases from corporate America in the months ahead if our elected representatives can find some common ground to provide the needed confidence and incentives to grow their businesses. Should that happen, we could see better than expected improvement in consumer confidence and the housing market as we move through the coming year.
