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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The Jury May Still Be Out on the Lamorinda 2011 Spring Real Estate Market

29 03 2011

Whereas my last post was quite optimistic about the performance of our market based upon the February stats, it may be too early to predict a robust return to a “normal” Lamorinda real estate market.  The national press continues to be rather pessimistic, and inevitably that can wear off on consumers.  According to today’s Wall St. Journal, prices nationally slid from August of 2010 through January of this year, hitting lows not seen since 2003.  March was also not a good month for consumer confidence based upon a report released today that showed gloomier expectations about the economy and labor market.  Escalating petroleum product prices and the world-wide impact of Japan’s tragedy aren’t helping matters.

“These data confirm what we have seen with recent housing starts and sales reports,” said David Blitzer, chairman of S&P’s index committee. “The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”  Even with the microeconomic uniqueness of the Lamorinda real estate market, and its display of strength, it cannot separate itself entirely from what is happening on a national basis.  As Mr. Blitzer has pointed out, we are clearly not yet at a point of resurgence in the housing market.

With that said, let’s drill down a bit and see where the strengths and weakness lie in our present market.  Based upon the published February 2011 data, the median price of a sold home in Lamorinda was $836,000.  That should tell you a lot about the present market.  After all, it wasn’t that long ago that people used to joke about anything under $1M being sold for lot value alone.  Looking at the market’s leading edge, of the 43 “pending” sales in February;  a whopping 25 were priced at under $1M; 10 were priced between $1M – $1.5M;   only 4 were priced between $1.5M – $2M; and just 4 priced over $2M.  With some quick math… almost 60 percent of the sales were under $1M.

March looks like it’s been a very strong month based upon homes that are presently pending as of today.  In fact, it looks much stronger than the same period in 2010. Since the official stats won’t be released for about another 10 days, we’ll see how they look upon publication.  If you are interested some additional diversity in opinion on the local market, you might want to read the recent feature article in Diablo Magazine, “Boom, Bust, Bargain”.   You’ll see a photo of one of our beautiful, and now “pending” listings on page one, and you’ll find me quoted on pages two and three.   Stay tuned for what lies ahead in the Spring market!


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Steep Discounts in the Lamorinda Spring Real Estate Market? Perhaps.

26 03 2011

A flurry of reports emerged this past week indicating that we still have a ways to go before we see a resurgence in a healthy national real estate market. New home sales were sharply down, and the National Association of Realtors reported that February home resales were down 9.6%, with the median US home price dropping to its lowest level since February 2002.  Many economists are stating that the extremely low housing prices, coupled with low interest rates, and a recovering job market may finally spur people to jump into the housing market this year.  As reported in the Wall St. Journal,  ”The job market is getting better and that will make people feel more confident about their income-earning prospects,” said David Berson of the PMI Group. “You need that confidence to buy a house. Household formations are also very important. …”

As I’ve tried to communicate for years, among the doom and gloom… the hype and the celebration, it’s important to look at individual markets, not just the “national market”. In fact, there really is no “national market” for real estate.  No one moves to the US with an open mind to living anywhere within the “national market”.  People move and live in well-defined markets, each with its own specific set of market dynamics, economic structure, geography, and a myriad of other important attributes.  Case in point, the Lamorinda real estate market has behaved MUCH differently than the “national market”. Let’s take a look.

Whereas the “national real estate market” numbers were horrible for February 2011, the Lamorinda market saw the following… inventories decreased by 8% over February 2010; closed escrows (sold) increased by 4.3%; and the number of homes going into escrow as “pending” sales increased by a whopping 38.7%.  These statistics don’t even remotely mimic the national look.  Case closed! Don’t apply what the media says about the “national market” to our local Lamorinda real estate market.

So, are there steep discounts in the market?  On a historical basis, the answer is an unequivocal “YES”.  Even with all of the activity in Lamorinda during February, the median home price rose by a mere 1.7% over February 2010… one of the weakest months in recent years.  In fact, for those of you who still remember a few years ago when you barely find a habitable home in Lafayette or Orinda for under $1M, the median Lamorinda home price for February 2011 was a mere $836,000 !!

Stay tuned for next time when we’ll dive into the market and really take a look at where the action is.


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2011 Lamorinda Real Estate… Hitting Bottom and On Its Way Up?

9 02 2011

If we assume that Lafayette real estate and the surrounding Lamorinda real estate communities mimic the overall trends of 47 other national markets, we have officially hit bottom.   Moody’s Analytics tracks the ratio of median home prices to annual household incomes in 74 markets. Based upon that data, the affordability of housing has now returned to or surpassed the average reached between 1989-2003 in 47 of those markets. Most economists believe the housing boom took off in 2003.  ”Based on incomes, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”

Naturally, it’s not all good news.  The price declines are leaving more borrowers underwater, or in homes worth less than the amount owed.  As reported in the Wall St. Journal, nearly 27% of homeowners with a mortgage were underwater at the end of the fourth quarter, up from 23.2% in the previous quarter.  The statistics for Lamorinda real estate aren’t nearly as ominous, but the financial distress sales will have a bearing on 2011 prices… likely keeping them moderated this year until such time as this inventory makes its way through the pipeline and gets cleared in the market.

With all of this said, there is clearly a sense of energy that I’m hearing from our buyer clients and from other real estate agents in our market that I haven’t felt in years.  As an example, we placed a home on the market yesterday in Lafayette and had 6 showings by agents during its first day on-market!    It was almost reminiscent of 2005-6 when agents would be seen calling their clients from homes on the Brokers Open, telling them to start baking cookies for the seller and to bring their checkbook!  I don’t think we’ll see anything that approaches that behavior for a very long time, but it certainly was a nice way to kick-off the official post-Super Bowl real estate season!

Would you like to see the video presentation of the Lafayette home that received 6 showings during its day on-market?  Here it is:

3620 Madrone Drive, Lafayette

 

 


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Being a Contrarian in Lamorinda Real Estate

20 01 2011

The Lamorinda real estate market is still on “simmer” as the year starts and both buyers and sellers are plotting their courses for 2011.  I fully expect the burner to get turned up by the time we hit the second week of February, and we could find ourselves at a full boil by spring.  Within our own business realm, we seem to have a pretty even balance between buyers and sellers, and those who are selling aren’t doing so out of financial need… rather life choice.  That’s a good sign for the year ahead.

As I was slogging through the recent real estate news, looking for something that others might find stimulating, I happened upon a business editorial piece in the Wall St. Journal – “Real Estate — Finally a Good Investment?” Speaking of real estate with a broad US view and inclusive of all types, the author refers to it as a “mess”.  He goes on to say that of all segments of the real estate market, the most “hated” asset class are homes, which is precisely what happens when a “bubble” bursts.

“Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies”, explains the WSJ author.  He goes on to paraphrase Warren Buffett’s investment philosophy about, being “fearful when others are greedy and greedy when others are fearful.”  Mr. Buffett backed that philosophy with action when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009.

Some very smart people are buying real estate.  John Paulson, the hedge-fund manager who made $20 billion betting against the housing bubble, said in a fall 2010 speech: “If you don’t own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”  Paulson’s rationale is that interest rates are at historic lows and that they are unlikely to go lower, coupled with an expectation that the real estate market is about to rise.  Buffett has also predicted that the market will bottom in 2011.

As I’ve said many times before, Lamorinda real estate does not fit the norm for the broader US market.  If far brighter minds than mine are predicting that we’ll bottom in 2011, then I expect the Lamorinda real estate market to perform better than the “average” US housing market.  With a diversified economy, limited housing stock, top schools, and an appealing quality of life, Lamorinda should perform much better than other markets.  All-in-all, I believe the worst of the market is well behind us, and that we’ve begun the climb out of the cellar.


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More Predictions for Lamorinda Real Estate and Beyond for 2011

7 01 2011

If the calls and emails this week are any indication of what 2011 is going to look like, it should be a busy year in real estate.  Having weathered 2009 and 2010 without too many lasting scars, the question in my mind and everyone else’s seems to revolve around what to expect for the year ahead.  Will the market be much of the same… a little stronger or perhaps a little weaker?  One thing for sure, it’s way too early to tell.

With that said, it’s always interesting to hear from the “experts”.  As one of my Cal Berkeley professors once said, “If you line up all of the economists in the world, they’ll all be pointing in different directions.”  Well, the same may be generally true for the so-called real estate “experts”.   Let’s take a look at an article that just appeared in the LA Times, “When Will Housing Come Back In California?  Five Experts Offer Their Views.”

  • Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011. Professor Green suggests drawing a line on the map from El Centro to Sacramento, and then states that all of the areas along that line will unlikely ever see their peak prices again in his lifetime.  Dr. Green’s academic credentials are impressive, but the USC website doesn’t give his age, or the dates of his degrees.  Based solely on his photo, I’m guessing he’s got at least another 20+ good years left, so his prediction for the central valley housing market is a strong statement of its condition.  On the other hand, Dr. Green states that the recovery will be all about “location”.  He goes on to say, ”Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak.”  He doesn’t mention Lamorinda real estate specifically, but perhaps he might include us in the Bay Area market areas specifically noted.  I think that one of the most important quotes from Dr. Green is the following:  ”The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it’s going to come back quickly.”
  • Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011. Well, this may not win me any more friends within the inner circle of the CAR, but I think Ms. Appleton-Young is a bit off-base with her prediction.  I was also one of the many who shook my head on the sidelines as I saw the market begin its dip, yet the CAR and NAR (National Association of Realtors) economist continued to predict relatively strong housing markets.  Both organizations do a lot of good for the industry, but I think their economists are a bit too tightly tied to the trunk of the tree to be objective.
  • Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011. Well, I’ve never heard of this person, and he’s from Riverside where no one with a sane mind would choose to live.  Gosh, I hope that my oldest and best friend who is a physician in Riverside doesn’t read this post!  If I lived in Riverside, I’d be pessimistic, too.  Maybe he’d prefer to buy some Lamorinda real estate. In all seriousness,  ”You’ve had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening,” Norris said. “It’s definitely standing in the way of the natural process.”
  • Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to “stabilize” in 2011 but declined to make a specific price prediction. Haddad used to be the Chief Investment Officer for the large developer, Lennar.  In case some of you haven’t followed the tales of Lennar, they went bankrupt principally on betting long on the central valley real estate market… Sacramento, Elk Grove, etc.  I’m sure Haddad has learned a few things since past mistakes.  He states, “We are bumping along the bottom, and that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery.  He goes on to say, ”Affordability is something I look at, and obviously that is a very attractive metric right now…. There is a value proposition out there right now that is very attractive, that we haven’t seen in four decades.”
  • Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011. Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.  In that vein, he views the plunge in home values as its own recovery of sorts “because that is when prices went from stupid-high levels to levels that made sense again,” Thornberg said. “Now we are in a post-recovery recovery, if you will.”

Now that the experts have spoken, I’ll leave the Lamorinda real estate interpretation up to you.  Personally, I’m in the “bumping along the bottom” camp, and agree with Dr. Green that desirable parts of the Bay Area could see their way back up within 5 years, albeit I don’t see us hitting our highs within that time frame.  Let the game begin.


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Watching the Lamorinda Market in 2011

5 01 2011

As an avid and bit compulsive market watcher, I’ll be following a number of elements in the 2011 market in order to gauge its health and provide informed counsel to clients.  One of the most obvious, but often overlooked indicators of market health is the relationship of supply and demand. Ultimately, this relationship reflects the state of a given market, and drives the direction of prices.

Instead of looking at the number of months of inventory there is in a given month, I tend to prefer looking at “absorption rate” — the relationship between total inventory and the number of homes that hasvegone pending.  This provides a true indication of demand in a given month, and may have a carry forward effect to future market performance. The official MLS numbers for December 2010 have not yet been released, however November was a very strong month for Lamorinda. With 50 homes pending against a total Lamorinda real estate inventory of 154 homes for sale, the absorption rate of 32.5% was the best monthly performance of the year!  It surpassed November 2009 by approximately 11%.

A timely Wall St. Journal article discusses “The Four Housing Issues to Watch in 2011“.   Succinctly, they are:

  • Jobs: This is so obvious it barely is worth mentioning.  If people are unemployed or unsure of their employment status, they aren’t going to buy a home.  One of the things not reflected in the employment numbers is the large number of people who have become self-employed — building new businesses, doing consulting, or other revenue generating activities that escape the official reported numbers.  This is much more common in the bay are with our tech innovation, and may be a factor in contributing to improvements in our local economies that are not yet reflected in official government reporting.
  • Foreclosure delays: Some lenders have suspended foreclosures due to possible technical errors in bundling and selling mortgages.  If foreclosures are more difficult and expensive to process, banks and investors could step up bulk sales of loans or foreclosure alternatives such as short sales.  The quantity of homes being held back in “shadow inventory” is important to the health of the market, prices, and ultimately when we see more normalization.
  • Washington: There are lots of variables here.  The administration wants to see Freddie and Fannie, as well as the broader mortgage market remade.  The mortgage interest deduction will certainly see some debate this year, although most feel that it will remain largely in place.  Will policy makers seek to be more aggressive with measures that will put pressure on lenders to rework mortgages to forestall some foreclosures?  Finally, if we really do enter into a double-dip housing downturn on a national level, then we may see some quick action out of Washington to shore up the market via tax credits — similar to what we saw in 2010.
  • Lending standards and rates: Fanny and Freddie are dominating the mortgage market with 9 out of 10 mortgages backed by them.  Policy makers could make room for more private lenders to enter the market by scaling back the expanded “conforming loan” limits in fall of 2011.  If rates rise this year, we’ll see greater pressure on prices.

As we forge through the first week of our new year, it seems like we are seeing a healthy balance of buyers and sellers in the market, and the couple of lenders we’ve talked to say they are getting lots of calls from people wanting to get pre-qualified for loans.  All-in-all, a good start to the year for Lamorinda real estate!


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