June ’13 Numbers
We continue to see a slow but steady increase in the supply of homes available for sale.
- Our inventory for the East Bay (the 38 cities tracked) is now at 2,413 homes actively for sale, up from the December low of 1,086 homes. We’re used to seeing between 5,000 and 8,000 homes in a “normal” market in this area.
- The month’s supply for the combined 38 city area is now at 34 days up from the December low of just 15 days. Historically, a 3 to 4 months supply is considered normal here.
- Our Pending/Active Ratio is at 1.83. This is first time in the last 16 months that we’ve seen a ratio that is below 2. It still signals a strong seller’s market but is now approaching what is considered a more normal and balanced market, (a ratio of 1 with an equal number of listings and pending sales).
- Distressed properties, (REOs and Short Sales), are still declining. 10% of the active listings, 36% of our pending sales (primarily due to the large number of short sales – 31%), and 21% of the sales over the last 4 months have been distressed properties.
- Sales over the last 4 months, on average, are almost 5% over asking.
What we’re hearing is that multiple offers and stiff competition remain but are becoming less of a factor than before with fewer offers and some homes that are priced “too high” now beginning to sit. Houses are still selling quickly and for more money. However, the pace seems to be slowing down due to the increase in inventory, a dramatic increase in interest rates and some frustrated buyers leaving the market altogether.
How much will the recent increase in interest rates and price gains factor in? What buyers can afford may cause them to consider moving into other less expensive areas. Some of the more desirable cities have actually “recovered” and are back or near their previous “peaks.” Some buyers now seeing themselves priced out of their preferred areas are spilling into the surrounding cities that are more affordable yet still far from recovery. Many of these areas are still 20 to 60% below their “peaks” making them a more attractive alternative with a good “upside.”
Mortgage-rate jump is a mixed blessing; Fence sitters may buy in, bidding wars could ease: By Carolyn Said, San Francisco Chronicle, June 30, 2013
Last week saw the biggest one-week jump in a quarter century. Interest rates now stand at 4.46 percent for a 30-year fixed mortgage, according to Freddie Mac – a full percentage point higher than just two months ago and a two-year high.
The rapid run-up has fueled fears that surging rates could dampen the housing rebound that has provided a strong economic engine. Rates are likely to continue to trend up as the Federal Reserve scales back its huge bond-buying campaign to keep them low.
Most experts, though, say the real estate market will shrug off the impact – and may even benefit.
“Higher mortgage rates may dampen some housing market activity, but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,” said Frank Nothaft, Freddie Mac chief economist, in a statement.
The two obvious potential impacts of higher rates are on home purchases and refinancing. But it’s unlikely that the higher rates will curb buyer appetites, especially in the fevered Bay Area.
The Bay Area’s frenzied housing market, marked by soaring prices, short supply and a scramble for homes, is showing signs of cooling.
Some buyers, fearful of a new bubble or worried about higher interest rates, are putting their plans on hold, while new listings of homes for sale have been increasing since March, which should put the brakes on spiraling prices.
“It’s a welcome break in the trend, even if it ultimately means prices start to cool off a bit too,” said ZipRealty CEO and President Lanny Baker.
“Some buyers are seeing that the market is so crazy they are stopping and catching their breath,” said Mark Wong of Alain Pinel Realtors in Saratoga.
“I’d call it a little calming of the bubble,” said Kerry McCarty of ZipRealty in Santa Clara.
Higher interest rates could also trim the ranks of eager buyers.
Average rates for a 30-year fixed mortgage remained above 4 percent for the second week in a row, according to a report by mortgage giant Freddie Mac on Wednesday. The average rate was 3.35 percent in May.
Also helping to cool off the frenzy is an increase in the number of desirable homes for sale in the middle to upper price range. As sellers face more competition from other sellers, prices should stabilize.
SF leads as gains in U.S. home prices top forecasts: By Michelle Jamrisko, San Francisco Chronicle, June 26, 2013
Led by a gain of nearly 24 percent in San Francisco, home prices in cities across the country climbed more than forecast in the 12 months through April, rising by the most in more than seven years and showing further strength in the U.S. housing market.
Short supply, record-low mortgage rates and an improving job market combined to boost housing demand and spark the rebound in prices. San Francisco topped the 20-city index, with sales prices up 23.9 percent over the same month a year ago.
Asking home prices took off in June, soaring 10.7 percent year-over-year, Trulia reported Wednesday.
According to Trulia’s chief economist Jed Kolko, the increase in home prices and mortgage rates has added a significant cost to homeownership.
“In the past year, buying a home has become at least 20 percent more expensive,” said Kolko. “For young first-time homebuyers who don’t remember life during and before the bubble, these rising costs are a rude awakening.”
Rents rose at a slower pace of 2.8 percent year-over-year, though it was still the biggest increase since January.
When it comes to price appreciation, California markets are expected to continue leading growth over the next year, while certain areas concentrated in the Northeast should see a decline in home values, according to Veros Real Estate Solutions’ most recent forecast ending June 1, 2014.
The company’s forecast covers 969 counties, 324 metro areas, and 13,502 zip codes.
In the next 12 months, Veros projects San Francisco will come out ahead with a 12.7 percent increase.
The predictive technology software company described San Francisco as having a “serious housing shortage,” combined with “historically good affordability” and a lower unemployment rate of 6.7 percent compared to the national average of 7.6 percent as of May.
“It’s encouraging to see steadily rising appreciation expectations,” said Eric P. Fox, VP of statistical and economic modeling for Veros. “What we are seeing now indicates a return to a healthy market with improvements appearing in a conservative yet correcting manner.”
Low inventories driven by reluctant sellers, high levels of underwater homeowners, and meager rates of new construction have all played a role in driving home prices upward of late, Radar Logic explains in its RPX Monthly Housing Market Report for April.
Over the years, distressed sales and REO inventory have also played a major role in impacting national price gains. Foreclosure and REO sales increased from a small minority of sales—about 5 percent—to more than one-third of home sales—about 35 percent—between 2007 and 2009, according to the New York-based analytics firm.
Recently, however, these sales—termed “motivated sales” by Radar Logic—have declined somewhat drastically. From February of last year to April this year, REO sales declined from 26 percent of all home sales to 11 percent.
“As motivated sales declined as a percent of total sales, aggregate price metrics increased faster than supply and demand analysis would suggest they should,” the RPX report read.
Looking forward, Radar Logic predicts the recent price gains will dissipate. “Eventually, rising prices will reduce demand and attract supply to the market and reduce the rate of price growth,” Radar Logic stated in its report. “However, it is not clear how long this will take.”
Rising prices will also deter investors, which have made up a significant portion of home purchases since the housing crisis, and not only will investors slow down on purchasing, they may also begin to try selling properties.
“The result could be a significant decline in demand accompanied by an increase in supply, which could cause prices to reverse their current upward trend,” Radar Logic said.
Also contributing to demand, rising prices may encourage some homeowners to sell their homes. Whereas, traditionally, these sellers would then become buyers, today’s market may push these homeowners into renting as a result of declines in personal wealth, damaged credit, and “the psychological trauma they have endured due to falling home prices in the past.”
Glen Bell, (510) 333-4460 http://MyEastBayAgent.com