Lamorinda Real Estate 2012 — Where the market is now, and what lies ahead — Part 1

21 01 2012

As we commence 2012, we are about 6 years into the current real estate cycle that saw prices hit their peak in Contra Costa County around June 2006, and then begin their well-documented decline phase.  Much has transpired on the economic front lines over the last year that has impacted consumer confidence, ranging from the European financial crisis on the negative side of the balance sheet, to the positive impact of a fourth quarter resurgence in our domestic stock markets.  Although one never knows for sure that the real estate market has bottomed until historical data shows that it has already turned up, we believe that it is doubtful that we will see any further erosion in Lamorinda real estate prices.   The bottom may have already been reached, and we think that 2012 will bring price stabilization and perhaps some slightly improved property valuations over recent years.  The downward leg of the cycle may be broken.

Although our micro-market of Lamorinda often behaves much differently than the overall Contra Costa market, and profoundly different than the “national market”, it is worth evaluating the encouraging trends we are seeing on a county-wide basis.  Keep in mind that an enormous proportion of the county sales data is comprised of Antioch and Pittsburg which have been at the forefront of the national foreclosure market.  As a result, strong positive movement in the county inventory and sales statistics serve to make an even more significant statement about the improving conditions of our market.

The December 2011 market data showed a profound 44% drop in inventory from the same period in 2010, while pending sales grew by 17%.  This resulted in reducing the 3.2 months of inventory in December 2010 to only 1.8 months in December 2011.  It’s a very significant improvement in the market, and we believe it signals price stabilization and perhaps even selective shoring up of prices in some areas.

Within our Lamorinda real estate market, the inventory decline tracks with the county, experiencing a reduction of 46% over December of 2010.  The statistic that we didn’t really expect to find is that inventory levels for December 2011 dropped to the lowest level we have seen for 5+ years!  To underscore the apparent health of the market, closed sales for December 2011 were up 36% over the previous December.  Pending sales, the leading edge of the market, were up slightly over last year.  This was likely due to the depletion of inventory and the shortage of homes in many price segments.   Prices decreased 4.7% in Lamorinda when evaluating the 2nd half of 2011 over the same period in 2010.

When this series continues… you’ll find out about the strength and weakness of particular segments of the Lamorinda real estate market, and what we believe lies ahead!


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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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Categories : Lafayette CA Real Estate Market, Lamorinda Housing Market, Lamorinda Real Estate, Lamorinda Real Estate Market Statistics, Lamorinda Real Estate Pricing

It May Be About the Inventory in the Lamorinda Real Estate Market.

23 10 2011

A recent Wall Street Journal article raised several questions about supply and demand in the housing market, and it struck a resonate chord with what we are seeing in the world of Lamorinda real estate.  The Journal article raised the question about whether “it’s low demand or poor supply that’s hurting the housing market.”   Due to the fact that we tend to market a substantial number of homes in the Lafayette real estate market, we’ve received at least 5 calls from other agents in the last couple of weeks, asking if we have any new inventory that will be coming on the market.  The agents all explain that their clients simply aren’t finding what they want among the current Lafayette real estate offerings.  Almost all of the calls have have been in the $1.5M – $2M segment — an area of the market that has been one of the most negatively impacted over the last couple of years.

The Journal article discusses a number of factors contributing to the perception of poor quality or inadequate inventory, and notes that over-pricing is a significant factor.  We have found this to be true, particularly over the last few years as the market has been declining. In at least 50 percent of all of our interactions with sellers, the challenge for us is to help the client understand the state of the market and where their home should be priced in order to compete effectively.  It’s often as emotional as it is intellectually challenging, because it is sometimes very hard for sellers to grasp that the home they cherish so much has been impacted by the broader market conditions. They often want to believe that they’ve somehow been spared from the degradation in home values, or that “the right buyer” will come along who “will pay our price”, but ultimately they need to face the market realities.  In the end, over-pricing hurts them as the market discounts their price over time, and consumers begin to wonder “what’s wrong with that house”.

As we look at the current Lamorinda real estate inventory, there is a fair amount of over-pricing in certain segments that is undoubtedly keeping buyers away, coupled with overall declines in inventory over the last year.  Some sellers have simply taken their homes off the market and are deferring plans to downsize until they see stabilization in prices.  That stabilization is already happening in certain price segments, and may spread to others if we see broader confidence in the economy as we move into the Spring market. Ultimately, that may solve our inventory problem.


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A Look at the Lamorinda Real Estate Market YTD 2011 and What Lies Ahead

21 10 2011

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.


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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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Categories : Lafayette CA Real Estate Forecast, Lafayette CA Real Estate Market, Lafayette Real Estate Forecast, Lafayette, CA Real Estate, Lamorinda Home Search, Lamorinda Housing Market, Lamorinda Real Estate, Uncategorized

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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Does Anyone Really Know What’s Going On in the Lamorinda Real Estate Market?

28 06 2011

I apologize for the brief break in the continuity of my normally frequent blog posts.  The truth is that I’ve been swamped with real estate work, and getting that done is the first priority.  Quiet moments for reflection and writing have been few and far between the last couple of weeks.  With that said, does anyone really know what the heck is going on with Lamorinda real estate these days?

According to an article in today’s Wall St. Journal, “national” home prices were up a bit in April, even managing to get David Blitzer, Chairman of the S&P’s home index committee to refer to it in positive terms as a “welcome change”.  Naturally, it’s too early to tell if April was an anomaly, just a run of good weather, or if it’s the beginning of a national turn-around in the market.  I’ve given up on predicting these things as there are too many moving parts.  Besides, as I’ve said, there is no national real estate market, anyway.

There IS a Lamorinda real estate market, and I’m trying to figure it out.  Looking at the stats, one would come to the conclusion that anything priced over $1.5M will have an extended period of market time; $1M – $1.5M is looking fairly solid; and decent homes priced under $1M are a HOT item.  Looking at the overall Lamorinda real estate market and comparing it to the “national” market stats from Case-Shiller, we see some differences.  Whereas the “national” market was up in April over 2010, Lamorinda was down slightly with the average per square foot price dropping from $396 in April of 2010 to $379 in April 2011.  Since we’re a bit faster to record and publish our data than Case Shiller, the May prices took another drop — going from $442 per sq. ft. in 2010 to $389 per sq. ft. in May of 2011 — a 12% drop on a year-over-year basis.  One would think the market might be in trouble based upon the stats, but that’s not been my experience the last few weeks.

Last week, a property went on the market in Lafayette with a so-so ranch style home that needs significant remodeling and expansion, on a superb lot of almost a half-acre — perfectly level and centrally located.  I’ve heard that there are at least 7 agents writing offers on it today.  Another home went on the market Friday… close to the “magical” Lafayette bike trail, substantially remodeled, but within proximity to a fair amount of road noise.  There was so much interest in the home that the sellers decided to wait 5 days to review offers. Finally, we put a home on the market late Friday at almost $1.5M.  Late Saturday, we got an offer that our clients countered.  Without a response yet from the first party, on Monday a second offer came in, followed by a third offer!  I guess the Larmorinda market isn’t on life support when the right home at the right price comes up.

The truth is, I’m still scratching my head a bit about what I’ve seen in the last few weeks.  I guess I’m seeing people step forward and be less tentative than in recent months.  Perhaps there is a fairly large unsatisfied demand for housing in this area that is jumping into the market… perhaps, it’s just a blip.  It’s impossible to tell at this point, but it certainly presents a much more positive view of the market than what we’ve witnessed in the months leading up to now.  Stay tuned… it could be an interesting summer!


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Why the time may be right in Lamorinda Real Estate…

7 06 2011

The national media jumped all over last week’s Case-Shiller data announcement that real estate markets had dropped to 2002 pricing levels and that we were entering a “double-dip” period of the housing market decline.  Bad news sells, and the media hounds were all over this one.

It’s important to look at matters like this with a sense of proper perspective.  When the tide goes out, all boats ride lower in the water, but that does not mean that they all sink equally low, nor that that some won’t rise to higher levels when the tide comes back in. The current downturn is being driven by a glut of foreclosures in the broader market, and an employment market that is still weak due to the vastly improved efficiency of America’s private sector employers.  The foreclosures are artificially lowering “the tide” in Lamorinda real estate, even though we have relatively few of them within our immediate market.

According to CoreLogic, national residential prices dropped 7.5% in April over April 2010 levels, yet stripped of the foreclosure sales, prices were only off one half of one percent (0.5%).  In Lamorinda, the April 2011 median price was down just 2.5% from April 2010 — a much healthier performance level than the “national” markets.  Ah… remember, there is NO such thing as a “national” real estate market, yet that is what the media keeps referring to in the myriad of bad news real estate articles.

It’s refreshing to see some balanced perspective in the press, for example in this past weekend’s Wall St. Journal article “Why It’s Time to Buy“.  According to the article, there are numerous reasons to buy now:

  • Mortgage rates at near 50 year lows, dropping to an average of 4.55% last week.
  • Moody’s Analytics reporting that the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average.
  • Nationally, Moody’s is predicting that the glut of foreclosure homes will subside by 2013, and that prices will begin edging upward then… sooner in areas such as the land of Lamorinda real estate where we have not been severely impacted by distressed properties.
  • Demographic indicators such as “household formation”—the number of new households each year—are on the rise, and will take a sizable “bite” out of housing inventory… helping the “tide” to rise.
So, what does the future hold? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over. According to CoreLogic’s chief economist, Mark Fleming, “The regular housing market is hanging tough.”  With a highly diversified economy surrounding Lamorinda, record low mortgage rates, and foreclosure levels FAR below those found in most parts of the country, it’s hard to imagine a better time to buy for the long term.  Just remember, you’ll never know when the market has bottomed out until its on the way up.

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Categories : Lafayette CA Real Estate Forecast, Lafayette CA Real Estate Market, Lamorinda Foreclosures, Lamorinda Housing Market, Lamorinda Real Estate, Lamorinda Real Estate Market Statistics, Lamorinda Real Estate Pricing

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