While the nation’s housing market has bounced back from the depths of the recession, the nascent recovery has been slow and sporadic in many parts of the country, including here in the Bay Area. The question on everyone’s mind is, “When will the market return to normal?” No one knows for sure when that will happen (the definition of “normal” is rather subjective – it seems today’s market is the “new normal”), but there are a number of signs out there that we should be watching for – economic indicators that will point to a more robust recovery in the market.
On a macro-economic level, consumer confidence and unemployment levels are crucial, along with overall economic growth figures such as the nation’s GDP. Buyers won’t take the chance on purchasing a home if they’re out of work, or concerned they may be before long. If they don’t have confidence that things will be getting better, they’re not likely to move forward with a major purchase.
Additionally, because real estate is such a local business, our local market indicators will also give us some clear signals. In addition to seeing overall sales rise in our local communities, we will be looking for inventory levels to fall, median prices to edge higher, the average days on market figure to drop, and the upper end of the market to heat up. Historically, it’s been the high-end market that comes out of a recession first because buyers have the means to take advantage of good values.
So are we seeing these signs yet? Nationally, it was a mixed bag this week. We enjoyed a slew of positive economic data points early in the week – rising car sales, upward revisions to growth and productivity and a busy start to the holiday retail season. Private sector payrolls rose by the most in three years in November. And finally, the Conference Board reported Tuesday that the Consumer Confidence Index jumped to 54.1 in November, up from a level of 49.9 a month earlier. Although the index remains well below its prerecession levels (which were above 100), the boost provides an encouraging sign for the economy.
But as we took two steps forward with the positive economic data, we went one step backwards on Friday when the nation’s jobs report was released. November’s job growth came in far lower than expected and the unemployment rate rose to 9.8%. U.S. employers added 39,000 jobs to their payrolls in November, the Labor Department reported. That marks a major slowdown from October, when the economy added an upwardly revised 172,000 jobs. The number also fell short of the 150,000 jobs economists were generally expecting. However, most economists are concluding by week’s end that the mixed bag of employment data was overall a bit more positive than negative.
Locally, we’ve seen encouraging growth in luxury home sales. It’s widely believed that the so-called “smart money” – well-healed investor – is the first to jump back into the housing market, ultimately leading a sustainable recovery in the overall market. The Month’s Supply of Inventory of San Francisco homes over $3M dropped to 6 months in November, 18% improvement over November ’09 and 24% better than November ’08 when it was at 8 months supply. While San Mateo County’s number is quite a bit larger at 15 month’s supply of homes over $3M, it’s a remarkable 34% improvement over November ’09 when it was at 24 month’s supply.
Sales of million-dollar homes in Silicon Valley and the median sale price edged higher in October, according to Coldwell Banker Residential Brokerage’s luxury home report. It was the eighth time in the past nine months that year-over-year sales in the luxury market increased. Luxury sales also edged higher in the East Bay. In Marin, although sales dipped slightly in October, the median price rose 7 percent.
The broader Bay Area housing market, however, is still working to move back to normalcy. Sales in October were off sharply from year ago levels. Analysts believe much of the drop had to do with the fact that 2010 home sales were “front-loaded” earlier in the year as buyers rushed to take advantage of the tax credit before it expired. But certainly tighter credit and concerns over jobs played a role.
So where does this all leave us as we head toward year-end? Our local housing market recovery – like those in many regions – has been slow and choppy at times. Yet we are seeing enough positive signs overall to believe better days are ahead of us as we move into the new year. For those looking to buy a home, the stars are in perfect alignment. Interest rates are at historic lows in the low-4% level in 30-year fixed-rate loans. Home prices are very attractive. And housing affordability is at the highest point in years. Buyers need to examine their own “personal economy” and decide if they’re in a position to invest in a home. If they are, there may never be a better time.
Silicon Valley – Our Cupertino office reports decreasing sales and inventory. Nonetheless, many agents are working hard despite the upcoming holidays and open house traffic remains steady. In Los Gatos, our local manager says both sales and inventory have increased and the overall market has picked up. Sales have been steady in Los Altos, but inventory is falling. Open house traffic is slowing to a crawl, according to our local manager. New listings are rare and many properties are being taken off the market for the holidays. Our San Jose Almaden office reports that sellers of homes above $1 million need to aggressively price their property if they hope to solicit an offer. The low-end market continues to be consistent but not as hot as it was 6 months ago. Investors are still grabbing low-end homes with all cash offers from banks. Sales are taking longer to close for a variety of reasons though they are staying intact, our San Jose Willow Glen office says. Open houses have slowed down a little. Finally, in Saratoga, there seems to be a reduced number of problem escrows in the last few weeks. The local manager has seen a number of multiple offers lately including one where a Saratoga listing had 8 offers! The properties priced right and in the best locations have no problem selling as always.
A final note on the Previews Market: As I mentioned above, the high-end market is showing some positive signs although it really is a market-by-market situation. Some regions are seeing stronger interest than others. We noted several weeks ago that Woodside had a huge uptick in sales over $5M, all within just a few weeks. In Hillsborough currently, there are 72 active and 18 pending listings, not a bad ratio. We had a sale of an $8.5 mill listing this week. Several high-end homes that have been on the market 8 months or longer have just sold in recent weeks. Many buyers are bringing cash and many buyers are coming from outside the U.S.