Whether you are a first time buyer or seller, or have been through multiple transactions, you might be surprised by how quickly the real estate market changes in Los Altos, Palo Alto and surrounding communities. You need hard-hitting historical data, current market analysis, and insider experience to stay informed and succeed in these real estate markets.
As a service to their clients, Jeff Stricker and Steve TenBroeck of Alain Pinel Realtors provide regular market analysis and commentary. You are invited to read the entries below, add your comments, ask questions or contact them directly.
The question on all our minds this week is, “What effect will the collapse of Lehman Brothers and the rescue of Merrill Lynch have on our local real estate market?”
Quite simply, moves in the real estate market cycle happen as a result of changes in supply and/or demand. Those changes occur due to a cause and effect relationship between the local economy and consumer confidence.
For example, the local (South Peninsula) real estate market had been “very good” for sellers during the 2003-07 timeframe due to a strong local economy, low interest rates, and low numbers of homes for sale. In late 2007, the real estate market slowed to a “good”, but more balanced market as the sub-prime mortgage debacle unfolded and consumer confidence was shaken. That is, demand weakened. The number of buyers more closely matched the low number of homes for sale.
We believe the current headlines of possible financial disaster will cause more homebuyers to wait on the sidelines (at least until after the elections). If any further calamity hits the financial markets, we will begin to see local home prices fall. As a matter of fact, homes with location “issues” are already decreasing in value.
Currently, most south Peninsula markets are in a “balanced” to a slight “sellers’ market” mode. To predict the upcoming fall real estate market climate (mid-August to early November), we are closely watching local employment figures, inventory of homes for sale, and closed home sales to ascertain trends.
The inventory and sales numbers we analyze are by individual community, in order to prevent the distortion of averaging. Currently, employment and closed sales (year over year) are both in a down trend, suggesting demand may slacken. Also, inventory (year over year) is in an up trend in many areas, indicating supply may continue to increase. At some point the fulcrum will tilt and it will become a “buyers’ market”, as it does in our area every seven to ten years.
Specific numbers can be viewed on our website: http://www.jeffandsteve.com/MarketAnalysis.ubr
As John D. Rockefeller said, “You make the most money if you buy when blood is running in the street!”
This colorful quote nails the current investing environment in the Central Valley. Stockton has the dubious honor of being the foreclosure capital of the U.S. Homes and multi-unit buildings are selling way below replacement cost. And the largest wave of foreclosures is expected to hit in Q4 of this year, at a time when banks are swamped with homes taken back through foreclosure.
But is it time to buy?
Since five central valley cities are listed in the top 10 of fastest growing in the nation. Interest rates remain at historic lows. We believe it is.
We can now add another wrinkle to the on-going mortgage mess. It seems that we are all impacted by it, in one way or another. The latest problem has to do with purchase money loans.
As if it weren’t hard enough to locate, negotiate, and beat out competing buyers for a good home in our area, now a buyer cannot be sure that their “pre-approved” loan is going to actually be there when it comes time to close escrow. Some lenders are now finding reasons, just prior to close of escrow, to call for another “review appraisal” or additional down payment money (due to “falling values in the Bay Area” – as if all Bay Area neighborhoods were falling in value! They’re not.).
The bottom line: A buyer cannot be sure they will be able to close escrow on time. This potentially puts the buyer’s deposit (usually 3% of the purchase price) at risk of loss, due to a breech of contract.
Advice to buyers: Allow more time (30 to 45 days) for close of escrow and be prepared to add to the down payment, if necessary.
Note: 2008 ½ yearly sales data and reports will be ready next week.
The Anderson Center for Economic Research at Chapman University reported last week that consumer confidence has “…collapsed in California” to the lowest level since the index began in 2002. One component of the index, future spending plans, had the greatest drop, year over year.
We believe that this is a clear sign that the inventory of homes on the market will likely rise significantly, moving the SF Peninsula real estate market into a “balanced” or perhaps even a “buyer’s” market.
The question now is, “When?” We believe the answer is, “Soon!”