Lamorinda Real Estate 2012 — Where the market is now, and what lies ahead — Final Chapter in Series

3 02 2012

Our local Lamorinda market typically begins its cycle of increasing inventory in mid-February, and continues the growth in available homes for sale through June.  The best market for a buyer or seller really depends upon the relationship between available supply and demand.  We have seen years where the most favorable relationship for sellers is early in the cycle as buyers come out of their holiday season hibernation needing a home, and find very limited supply.  This often occurs with people involved with year-end corporate relocations.  Regardless, the real strength of the market normally runs through July, and then demand subsides significantly due to the fact that it’s often too late in the year for buyers to close an escrow and have their children start in our local schools prior to the first day of class.

For buyers and sellers in 2012, it may be best to engage the market earlier, rather than later due to the historically low interest rates.  If demand for loans increases significantly, lenders will increase rates slightly to moderate demand.  This will impact home affordability.

Today’s buyers are sophisticated and market-savvy by the time they write an offer on a home.  It is therefore imperative that sellers realistically price their home to the market and not simply try and “test” it, hoping for the “one right buyer”.  The latter “strategy” never works, and only serves to devalue the prime selling opportunity when a home first hits the market.  The old adage that “you only have one opportunity to make a good first impression” applies to the marketing and pricing of a home.

Be wary of placing too much credence on the national or even the local media that regurgitates “national market” real estate statistics.  We don’t live in a “national market”, and the statistics that get broadly published are many months out of date.  Even the coveted S&P Case-Shiller housing index is always looking one quarter in arrears, and even at its narrowest focus, it lumps us into a measure of performance for the entire bay area market.  In fact, a  Wall St. Journal  article from this week stated, “But right now, the connection between what the S&P/Case-Shiller index says and what is actually going on with housing may be lukewarm at best.”

We believe the tide has turned and that 2012 will present a unique opportunity to reengage the real estate market, either as a buyer or a seller.  Don’t hesitate to contact us with your questions or for assistance in navigating you through the market.


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Lamorinda Real Estate 2012 — Where the market is now, and what lies ahead — Chapter 2

29 01 2012

As we continue with “Chapter 2″ of a three-part series on our forecast for the Lafayette real estate market, Orinda, and Moraga — commonly referred to as “Lamorinda”– we find that in 2011 the strength of the market continued to be the sub-$1M homes.  This is underscored by the fact that the average list price of a Lamorinda home on-market in the 4thquarter was approximately $1.4M, while the average price of a SOLD home was just below $1M.

Looking in a more focused manner at the Lafayette real estate market, the $2M+ segment is still extremely slow, while the $1M – $2M market has been very active and suffers from a lack of quality inventory.  As of the end of December 2011, there were only 10 homes on the market in this segment, with 8 closed sales during the month and 1 pending sale.  Below $1M, 6 homes went into escrow during the month of December against an inventory of 22 homes — so a little better than 1 in 4 homes found a buyer.

A number of other external factors appear to give rise to further optimism for the 2012 market.  Since most people require a mortgage in order to purchase a home, the underlying interest rate of the note plays an important role in determining home affordability.  Interest rates for 30 year fixed rate mortgages have fallen to an all-time low, averaging about 3.89% for conforming loans – those under $729,000.  For those able to afford a higher payment in exchange for only a 15 year term, they are being rewarded with conforming loan rates averaging just 3.15%.  Jumbo loans – those over $729,000 – are readily available for qualified buyers from most major lenders at rates in the low 4% range!

Nationally, foreclosure filings have dropped to the lowest level since 2007 – another signal that the tide may be turning.  Some believe the decline may be due to delays by the banks in processing foreclosures and that we’ll see an increase in them as we head deeper into 2012.  Even if that is the case, the increase may be more than mitigated by new programs packaging large blocks of foreclosed homes for investors.  Numerous large commercial enterprises are now entering the single-family home market, seeking to bulk purchase large numbers of properties that will be turned into rentals.  One of the recent market entries is the private equity fund, GI Partners, out of Menlo Park.  They envision expanding their investment in single-family homes to about $1B in the next two years.  A very recent 26-page paper by the Federal Reserve outlined programs for converting the glut in foreclosed homes to rental stock.  Both Fannie Mae and Freddie Mac are expected to announce pilot programs in the weeks ahead.  What’s it mean?  It strongly suggests more decreases in inventory which will result in additional shoring up of the market, and will be supportive of strengthening home prices.

When you check back next time, we’ll finish up with where we think the Lamorinda real estate market is headed for 2012.

 


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The Case for Stabilized Prices in Lamorinda Real Estate

18 12 2011

My post from earlier this week displayed statistics suggesting a favorable relationship between inventory and demand across most price segments in the Lamorinda real estate market.  Since markets are driven by the relationship of supply and demand, the local stats seem to be suggesting that we may have reached the point of price stabilization in Lamorinda.  This past week, national data was released that is very supportive of what I’m seeing in our market.

According to Corelogic, an independent provider of financial and market data, “many housing statistics are basically moving sideways.”  The Corelogic stats suggest an emerging trend of price stabilization when one removes distressed sale transactions from a given market area.  In the case of the Lamorinda real estate market, there are very few distressed property transactions, therefore even a stronger case can be made for the stabilization of our market.

Early in the housing downturn, non-distressed properties were falling in price at at the same rate as bank-owned, distressed properties.  Not wanting to hold inventory longer than they had to, banks quickly cut prices to move foreclosed homes.  The downdraft in prices took non-distressed properties along for the ride.  That appears to be changing as consumers differentiate between distressed and non-distressed real estate.  In fact, according to an article in the Wall St. Journal, “…while price declines are resuming, they are not yet falling from one-year ago for non-distressed homes. In fact, during the first nine months of 2011, prices of non-distressed homes remained relatively stable, with year-over-year declines between 2% and 3%.”  This is on a national basis, and analysts at Barclays Capital called this “the most important trend in the housing industry right now.”

Taking this a step further, Barclay’s housing analyst Stephen Kim stated, “a distressed home is increasingly being seen as a poor substitute for a non-distressed home….bifurcation between distressed and non-distressed homes will only widen with the passage of time.”  To a large extent, I have seen this in the Lamorinda real estate market, with buyers shying away from the small handful of distressed properties that we’ve seen hit the market.  They are often in poor condition, and with a bank’s limited disclosure obligations, the buyer must be extraordinarily careful during their due diligence period.

The greatest stabilization in Lamorinda real estate will be found in the sub-$1.2M price segment, with progressive softening as one moves up-market.  Once the market re-awakens from its seasonal winter hibernation, I am expecting a fairly robust spring market.


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Lamorinda Real Estate Market Forecast For 2012

13 12 2011

I’m quietly stirring my healthful cup of green tea this morning as I carefully read the tea leaves and try to carefully craft my predictions for 2012 Lamorinda real estate.  Let’s begin with the broader economy and work our way to greater specificity:

1.  Volatility will persist in the US financial markets:  Volatility is driven by uncertainty, therefore we will continue to see broad swings in the market as we work our way through financial recovery and the winds of change in world markets.  The volatility will impact consumer confidence, potentially in both a negative and positive manner as 2012 unfolds.

2.  The Bay Area economy will significantly outpace overall US economic recovery:  We are most fortunate to be living in such a dynamic area of the US — rich with cultural and business diversity.  The foundation of net job growth in the Bay Area has its origin in entrepreneurship and the creation of new businesses.  According to the Ewing Marion Kauffman Foundation research on this subject,  about 3M jobs are created annually across the US from new businesses.  Within the Bay Area, there are approximately 470 entrepreneurs per 100K in population, with a resulting significant positive impact on job growth all around the bay, including within our world of Lamorinda real estate.  A strong job market bolsters consumer confidence, and in turn, strengthens our housing market.

3.  There are clear signs of improvement ahead in Lamorinda real estate:  For those poised to pounce on my words, don’t misinterpret them to mean that prices are going to start heading up, or that 2012 won’t have its real estate challenges.  I am going out on a moderately strong limb and suggesting that the Lamorinda real estate environment will be better in 2012 than it has been in the last several years.  Let’s take a look at some empirical data that seems to support my conclusion:

Lamorinda Real Estate Through Nov 2011

The chart shows:

A.  A significant drop in inventory from 2010 to 2011.

B.  A historically healthy relationship of 2-4 mos of inventory against pending sales throughout most of 2011

C.  Improved strength in the market during Nov 2011 when the market is normally sluggish.

4.  The strongest market segments will be homes priced under $1.5M:  Once one crosses the threshold into Lamorinda real estate’s “upper” price ranges of about $1.5M+, the market changes dramatically, as vividly shown by the following chart:

The following facts apply to this segment:

A.  The upper market segments were the last to be impacted by the housing downturn, and will be the last to recover.

B.  They are the least affordable homes in the present market, therefore simple supply and demand relationships suggest that it will be softer than more affordable segments.

C.  ”Shadow inventory” held by banks may still impact this segment.  We really don’t know how many homes the banks are holding in various states of foreclosure.  Until this inventory is cleared, the market cannot fully recover.  Fortunately, Lamorinda real estate has been only lightly affected by foreclosure properties.

5.  Investors and home buyers will seek investment in real estate as an asset class.  Real estate is a very attractive asset class given the volatility of the stock market, it’s seemingly unpredictable behavior, and our extraordinarily low interest rates.  As we saw happen in late 2001 and 2002, investment money flowed into real estate following the extreme volatility of the financial markets.  While I don’t expect a repeat of that volume of activity, I do foresee that confidence in real estate will increase in 2012, which will result in more people investing in the asset class for both cash flow, capital appreciation, and for home ownership.

6.  The imbalance of “power” will still reside with the buyer.   Just to be clear, sellers who have been “waiting out the market” hoping to get “their price” will be disappointed.  This is no time to be “testing the market” or looking for “that one right buyer” who will pay an over-market price.  We’ll be in a recovery mode in 2012, but that does not mean that prices will move up.  For buyers, interest rates will likely stay close to the present ultra-low levels throughout 2012, so your timing may never be better to jump into the market.

Let me know what YOU think!


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How’s Lamorinda Real Estate Doing vs. the “National Market”?

10 11 2011

A flurry of media attention is once again turning to the performance of the “national real estate market” as third quarter performance shows less than encouraging results.  According to a Wall Street Journal article, US home prices dropped 4.7% for the third quarter 2011 over 2010.  A nationwide interactive map shows locally that the San Jose metro area dropped 5.3%, the SF-Oakland-Fremont metro area dropped 10%, and the Sacramento area continued its decline with another 10% loss over the same period.  Looking just at the Lamorinda market, we also saw a 10% dip in the third quarter on a year-over-year basis — clearly sharing in the pain of the uncertain European economies and a turbulent stock market.  Inventories in Lamorinda dropped almost 26% versus the same period last year, while the number of closed sales dropped 11.5%.

Looking at just the month of October 2011, we saw a healthy 30% drop in inventory over October 2010, while seeing only an 8% drop in new pending sales, representing the leading edge of the market.  The sub-million dollar segment has been the strongest of all price segments in the last couple of years, and we saw a 14% rise in inventory in October vs. September of this year.  Perhaps more sellers were trying to jump in and capitalize on the segment’s strength with the month’s unseasonably warm weather. Pending sales as a percentage of total inventory in the segment was very similar to 2010, yet the median price for the segment sunk by a surprising 13% over October 2010.

The $1M – $1.5M segment showed a remarkable resurgence last month in the world of Lamorinda real estate.  Inventories dropped 28% over October of 2010, while pending sales jumped up 62% to a total of 13 sales for the month against an inventory of 41 homes.  Pending sales in the $1.5M – $2M segment showed some improvement over Oct 2010, as well, with a total of 3 units in this category against an inventory of 16 homes. The Lamorinda real estate market above $2M continues to be almost non-existent. There was just 1 new pending sale in October against an inventory of 20 homes — equating to 20 months of inventory in this segment!

Clearly, the last quarter was a very challenging one economically across ALL markets, not just real estate.  Ultimately, consumer confidence and jobs drive the real estate market, and we have a ways to go in both areas.  On a positive note, we’ve received several calls from agents representing buyers who are not finding good matches for their clients in the $1.5M+ segments, and have been seeking an opportunity to have us arrange showings of homes that are not on the market.  As the market continues to adjust, over-pricing is an issue in all segments, but particularly in the upper tiers of the market.


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Fall in Lamorinda Real Estate… Travels Abroad

25 09 2011

For those wondering if I fell off the globe for a few weeks, the answer is, “sort of”.  There never is an ideal time to take time off in this business, so early this year we planned an adventure to Italy and Croatia for early September.  The trip was epic, but the internet connectivity was marginal, at best.  So, with the best of intentions of keeping up on the blog, reality dictated otherwise.  In many respects, we take so much for granted here — the internet and ready-access to technology fall into that category.

Not a lot has changed in the market, but perhaps a fresh impression of matters upon returning from the trip has some advantages.  My sense is that in many cases, people are still struggling to find that delicate equilibrium that brings a willing buyer and seller together to consummate a sale.  Sellers of upper end homes are having a very difficult time processing whether their home is not selling because of price, or simply due to the the thin nature of the market.  Since there is almost always a willing buyer at the right price, the reality of the market is painful for many.  As always, when moving down-market closer to the $1M price point, simple supply and demand results in much more vigorous activity.  The world economic factors have clearly exacerbated matters, and the volatility of markets in the last week has certainly brought the issues front and center.

The Wall Street Journal quoted a senior economist, Sam Bullard, from Wells Fargo Securities, “With economic growth sputtering, the modest recovery we have seen so far in home sales is likely to become even more sluggish.”  The article goes on to mention that a survey of over 100 economists released by MacroMarkets, LLC,  predicts that national home prices will show a drop of about 2.5% this year, and then rise at just 1.1% annually through 2015.  Their chief economist is Robert Shiller of the noted S&P Case-Shiller Index. Even though we know that there is really no such thing as a “national market”, and that individual markets perform with some independence, “when the tide goes out, all ‘boats’ ride lower in the water.”

Let’s take a quick look at the latest Lamorinda real estate market statistics with data through August.  The number of pending sales dropped in August from July by 30 percent, and also declined by 14 percent from August of 2010 — likely reflecting the global market uncertainties that have clouded the economic news in recent weeks.  The upper end of the market continues to bear the majority of the pain with pending sales in the $1.5M+ segment dropping by 45 percent from the previous month, and an even 50 percent from August of 2010.

The good news is that economists seem to show some consensus that we’ve hit the bottom of the market, and it might diminish the uncertainty harbored by consumers. Furthermore, with equity markets displaying incredible volatility, perhaps people will look to real estate as one of the safer havens for their dollars.  We’ll see.


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Lamorinda’s July Defies National Markets

17 08 2011

I couldn’t resist the sensationalized headline to this post, especially since traditional media sources have been relying upon these types of headlines to broadcast how anemic the “national” real estate market has been.  If you are a regular reader of this blog, you KNOW there is no such thing as a “national” real estate market.  Until such time as someone can convince me that a Lamorinda real estate buyer is concurrently considering buying in some place like Oshkosh, WI, I’m holding firm to my belief.  No offense to Oshkosh, I’m sure it’s a lovely place, just not for me!

In recent days, we’ve heard that housing starts are almost non-existent and even that the “Bay Area market” took a dip in July with a decrease in sales over a more robust June.  Although it’s certainly not on fire, the Lamorinda market performed much better than most.  The leading edge of our market is always represented by our “pending” sales… those that actually entered escrow in a given month.  Looking at the transition from June to July of this year, we saw a 29% jump in pending sales in July.  That also represents a 24% improvement from July of 2010.  An amazing 63% of those July 2011 pending homes were priced under $1M, so it’s pretty clear where the action is!  Just think back to about 2005 when you could not find a habitable home in Lamorinda for under $1M.  Even moving up-market a bit, July was a pretty good month.  Seven homes in the $1.5M – $2M segment went pending, representing one-third of the total available inventory.  Finally, we reach for the life support systems in the $2M+ market where only 2 homes went pending against an inventory of 21 homes — both were in Lafayette.

Most certainly, we have interesting times ahead.  The Fed has committed to low interest rates, and has shot what might be their last economic bullet to infuse life into the economy.  With essentially zero to negative returns for cash positions, the Fed is trying to stimulate investment in the economy… either in equities or real estate.  Jobs drive housing, so we should keep a keen eye on those numbers moving forward.  The good news is that Lamorinda real estate continues to distinguish itself from other markets.


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June Swoon in the Lamorinda Real Estate Market?

7 07 2011

The stats were just released for June real estate sales, and it looks like buyers took a break from the market, while sellers were busy putting their homes on the market.  Let’s start with a broad brush view of what transpired last month. Inventories grew by 12% over May, but are running about 10% less than June of 2010.  Most notably, pending sales activity dropped by 29% from May of this year, and ran 22% under June of 2010.  The average price per sq. ft. for a Lamorinda home dropped by 7.65% from June of 2010.  The most positive stat for June was that home inventories held relatively steady at an acceptable level of 3.9 months of inventory, based upon pending sales.

The hardest hit segments continue to be the upper price ranges, so let’s take a brief look at some sub-segments.  The $1.5 – $2M segment has 6 mos of inventory.  The $2M – $3M segment actually showed some life in June, and has only 3 months of inventory.  The over $3M market in Lamorinda is essentially dead.  There have been only two pending sales in this segment since January 1st, and both occurred in February, yet only one has closed escrow.  There are presently 10 homes on the market in the $3M+ market and no buyers.

So, where’s all of the action.  Well, by volume, it’s clearly in the sub-$1M price range where 35 Lamorinda homes went pending in June, and where there is only 3 months of inventory.  Even with all of the activity, prices dropped about 7% in this segment from June of 2010.

None of these stats surprise me.  June was a tough month in the financial markets, and consumer confidence clearly slid.  We’ve recently seen some improvement in the European monetary crisis, and better than expected reports hitting Wall Street.  As a result, the stock market has been up over the last week, and we’ve also noticed a lot of showing activity on most of our listings.  I have a feeling that July will turn out to be a relatively strong sales month as buyers strive to buy ahead of the upcoming school year, and before the ceiling on conforming loan rates decreases this fall. More on that point in a future post.


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Will the Changing Loan Guidelines Impact the Lamorinda Real Estate Market?

12 05 2011

The subject for today’s post has its origin in a comment posted by one of our readers, asking whether the changing guidelines for federally backed mortgages (FannieMae and FreddieMac) will impact our Lamorinda real estate market.   The person posting the comment believes our market is due for another downward leg.  For those unfamiliar with this subject, via Fannie and Freddie, the federal government backs loans below the current “high value area” limit of $729,750 .  These are referred to as “conforming” loans, whereas loans above this amount are privately backed as “Jumbo” loans.  Many politicians and voters believe that the government should get out of the mortgage business and should not be, in effect, subsidizing the purchase of “high value” homes that exceed the national median price.

It is not my intent to enter into a debate about whether Lamorinda real estate owners should get more federal loan support than someone buying in Witchita, Kansas or Detroit, Michigan.  Due to the desirability of this area and the richness of the economy, this is a MUCH more expensive area to live in than most places in the US.  The basic market force of supply and demand has pushed housing prices and almost every other necessity of life to higher price points in the overall Bay Area, than what is commonly found elsewhere.  Take gasoline as an example, it costs considerably more in Lafayette, less than 10 miles from the refineries, than it does when trucked down into the central valley.  Companies will charge what the market will bear, and that’s just the way it is in a free market system.  Housing is no different.

The person who raised this issue referenced a very recent article in the NY Times “Federal Retreat on Loans Rattles Housing.”  The article is definitely worth reading, but the question is whether a September 30, 2011 reduction in the conforming loan limit from $729,750 to $605,000 will cause further decline in our market.  My initial gut reaction is that although this is certainly not a positive for our market, I don’t believe that it will have a significant impact on it.  Let me explain.

The average home buyer in Lamorinda is purchasing a home for just under $1M.  With the requisite 20% down, the current $729K conforming loan doesn’t quite get them to where they need to be, so they either dive deeper into savings or borrow more money via a second mortgage.  We saw numerous cases of the latter in 2009 and 2010 where the lender packaged a conforming first with a variable rate line of credit that gave the buyer an extremely low blended rate.  Obviously, they had to qualify for the total debt servicing.

For more expensive homes, reachng north of the million dollar mark, we saw a number of lenders carefully working their way back into the jumbo loan market.  Some even went out of their way to market their jumbo loans to the real estate community and consumers.  In a recent conversation with a direct lender from a major bank, I was told that the bank was packaging up and selling off its first large portfolio of jumbo loans.  If it went well, as he expected it would, he felt that they would be even more aggressive in seeking jumbo loan originations.

Although loan origination fees may increase as more private lenders step in, that may not be a foregone conclusion.  I will be the first to admit that I don’t know the answer, and can’t predict how financial markets will react.  With private lenders, I will welcome a departure from the regid, often ridiculous underwriting guidelines of the Fannie/Freddie loans — many of them have been the subject of my posts over the last couple of years.  What we all want is fiscal sanity, with banks making good business decisions about offering credit, employing rational decision making criteria and not just intractible guidelines hoping to make one size/flavor fit all.  Life and business simply aren’t like that.  What we may find is that loans are just as accessible following the reduction in the conforming loan amount, and that any increase in cost doesn’t significantly impact home affordabiity.  I guess only time will tell.  In the meantime, we just need to cognizant of the possible headwind we may face in the housing market’s recovery.


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Lamorinda — Spring 2011… A Buyer’s or Seller’s Market?

27 04 2011

Sometimes there is a precarious equilibrium that exists between a buyer’s vs. seller’s market.  I hesitate to suggest that there may be a subtle shift occurring in our Lamorinda real estate market, but there certainly are some signs of subtle change… perhaps only for a brief period of time.  A recent column in the Wall Street Journal discusses the shifting dynamic between buyers and sellers.  It’s something that we’ve observed this year, too.

Fundamentally, there is a significant amount of unsatisfied demand for quality housing within our Lamorinda market place.  The demand is higher at the lower price points, and it tapers off significantly as one climbs above the $1.5M mark.  The key here is “quality”, a highly subjective adjective.  Buyers are being cautious, so “quality” usually means that a home is located in one of the most desirable areas of the Lafayette real estate market… Orinda or Moraga; that it’s in turn-key condition; presented in pristine, turnkey condition; and that it is priced so that buyers will perceive it is a strong value.  When those elements line up,  then the properties are selling, and often selling fast.

I recently wrote an offer on a Lafayette home that had been on the market for two days prior to my clients being able to take time from their very busy schedules to see it.  We wrote an extraordinarily strong, full price offer on a $1M+ home; about $500K in down payment; offered to accept the home “as is” following a week’s inspection contingency period; 30 day escrow; and even offered the seller’s an extended rent-back period so that they could find a replacement property.  We didn’t get the property.  Another buyer either outbid us, or offered some other term that the seller’s preferred.  Coming out of 2-3 years of the most challenging housing market in US history, it was objectively and rationally very challenging for my clients to write such a strong offer.   Knowing that they had really stepped outside their comfort zone crafting their offer, they graciously accepted the fact that they didn’t get the home, knowing they had done the very best they could.  With patience, we’ll certainly find another home.

From the other side of the market, we just listed our 3rd home this year that is priced around $1M.  The first home on Madrone in Lafayette had 21 showings during the first week on market, and went into escrow after 9 days.  We clearly saw strong demand from prospective buyers.  A few weeks later, we listed a home on Orchard Road, Lafayette .  It had about 25+ showings and sold after approximately 3 weeks… closing escrow last week.  If it had a garage, it would have sold within a few days.  Two days ago, on the Saturday of Easter weekend, we put this Quail Ridge Road, Lafayette  on the market, and had about 7 showings that day!  Two agents contacted me yesterday and said they thought they would be writing offers today!  We’ll see.  Hopefully, our clients will receive at least one compelling offer!

Clearly, we are seeing significant energy within the most affordable segments of the market.  Buyers are being very careful about their selections, unlike the heights of the market in 2004-2006.  The winds of change are certainly moving in the right direction.


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