Random Thoughts in the World of Lamorinda Real Estate…

16 02 2012

Ah… what to write?  Do you really want to hear that economists at the International Builders Show are predicting a 16% improvement in new home sales for 2012, or that they think that the market “bottom” (in the non-existent “national market”, of course), will finally be reached in a year or so?  Does anyone really care, or hold them accountable for their predictions?  Personally, I view economists similarly to meteorologists.  Most of us wish we could get compensated for being right less than 50% of the time.  Locally, inventories climbed about 25% in January, while sales remained flat.  About one in four homes are selling — so all is well in the winter world of Lamorinda real estate!

There is always demand in a healthy Lafayette real estate market for great homes at fair prices.  One of our blog readers is the fortunate buyer of a spectacular, newly-constructed home in Lafayette that he was able to purchase prior to it going on-market. In fact, there seems to be so much pent-up demand for great homes in this price segment that we received numerous inquiries about this property via it’s website. Unfortunately for those people, the home was already in escrow.  The whole experience did validate the power of blogging, online marketing,  and proper use of Search Engine Optimization to insure that the client websites we build are actually found  by real buyers.

Other Thursday musings… if you haven’t yet attended any of the speaker series events at the incredible Lafayette Library and Learning Center , you are missing one of the great resources of this community.  As some of you may know, I am a life-long, passionate photographer who spends much of my time away from real estate, immersed in photography.  Last Sunday, the Lafayette Library brought in world-renowned portrait photographer, Michael Collopy, who spoke for over an hour about his impressive career photographing  the last 5 US Presidents, Mother Theresa, and almost every notable celebrity you can think of.  It was a fascinating glimpse into a man who has been able to live his passion, as well as into the personalities of many of the celebrities on the other side of his lens.  You can sign up for notifications of upcoming events via the Library website, or by “Liking” them on Facebook.  By the way, don’t forget to “Like” us on Facebook, too!


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

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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Lafayette, CA Real Estate Market Statistics and the Performance of the Lamorinda Market

11 05 2010

It’s that time of month again when we get to look back at how the Lamorinda real estate market has performed and to recalibrate our expectations for the future.  As most of you know by now, I try to be well-grounded in facts when counseling others on important real estate matters, even when their is an inherently high level of subjectivity in the interpretation of the data.  Let’s begin by taking a look at how the Lamorinda real estate market looked as of May 1st with the release of the official market statistics:

The Lamorinda Real Estate Market

  • Inventory levels are at a similar level to last year’s, however sales levels are running at more than double the 2009 rate.

Like all statistics, the more closely you look at them, the more useful they are.  Let’s begin by looking at the $1M and under market segment:

The Lamorinda Real Estate Market Under $1M

  •  Representing a little over one-third of the total inventory, the sub-$1M market segment in Lamorinda accounts for over half of the sales in the present market!

Let’s take a look at the broad “mid-market” segment of $1M – $2M:

The Lamorinda Mid-Market Segment of $1M - $2M

  • As one might expect, the performace in this segment is much different from the sub-$1M range.  Less than 20% of the homes on the market actuallysold and closed escrow in April, and the “pending” sales show forward momentum of roughly one in four homes selling.  Competition is much keener.

Let’s now look at Lamorinda’s upper-end market… homes priced at $2M+:

Lamorinda's Upper End Market at $2M+

  • A much different picture emerges for the upper-end market, although April was a sensational month with 7 homes over $2M going into escrow — all in the first two weeks of the month, and all but one located in Lafayette. 

There are some telling indicators of what lies ahead:

  • In the first week and a half of May, inventory levels in Lamorinda have risen more than 20%, and now stand at 270 homes… up from 221 homes at the close of April.
  • An incremental 24 homes have gone “pending” since May 1st, suggesting a sales run-rate approximately equal to April’s.  With the Memorial Day weekend ahead, we may see that this month’s sales end up at a lower level than April’s. 
  • The greatest competition is in the upper-end market… home’s priced at $2M+.  As of today, there are 40 homes in this price range on the market in Lamorinda and one incremental “pending” sale since May 1st.

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Looking Ahead in the Lafayette, Orinda, and Surrounding Markets…

2 01 2010

I often find the real estate news in local papers to be overly general or sensationalized, lacking substance.  In today’s CC Times, they’ve run a very well-written syndicated article by Matt Carter of the Inman News Service.  The article is timely, rich with well-documented information, and worth a read.  If only they had made it available via The Times online site, I would have provided a link.

Carter talks about the fact that both Sellers and agents usually look forward to the Spring for increased sales and spikes in housing prices, but that it will be harder to do so in 2010 within markets hard-hit by unemployment.  To further exacerbate the issue, he points to 3 “destabilizing events” that are expected to occur this Spring.  The first is an expected up-tick in interest rates by the Fed, something I mentioned in my previous post.  Second, the FHA has announced that it will be tightening its underwriting standards as soon as April.  Third, Congress is expected to let the new home buyer tax credit expire for those not under contract by April 30th.

Some would state that Lafayette real estate is not affected by the last two items, nor most surrounding areas.  I would argue that the road to recovery in real estate begins with a solid and healthy market at prices well below those found within the Lafayette, Orinda, Alamo, or Walnut Creek real estate markets.  This becomes the “foundation” for up-market properties. The “trickle-up” theory of economics has been found to apply to real estate.

Furthermore, the article underscores the fact that unemployment is expected to stay high through 2010, most likely in double-digits.  I also touched on this fact in recent posts, and also mentioned the “under-employment” problem that we are now facing.  It is an unfortunate byproduct of the recession, and we all know people who have been personally hit hard by this cold reality.  In combination with tougher underwriting guidelines and increasing interest rates, there is a significant probability of dramatic slowing of any housing recovery by Spring to Summer.

We all want to believe that we are well along the road to recovery and that our economy is going to come bouncing back this year.  I’m sure that there are many real estate agents out there talking about “the rebound”.  While I am much more optimistic about this year than what we all saw happen in 2009, I prefer to temper my enthusiasm with a fact-based look at reality.


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Categories : Lafayette Real Estate Forecast, Lafayette, CA Real Estate, Orinda Real Estate Forecast, Orinda, CA Real Estate, Walnut Creek Real Estate, Walnut Creek Real Estate Forecast, Walnut Creek, CA Real Estate


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