Heading into its slowest sales period of the year, the San Francisco Bay Area saw a significant spike in home sales in October (vs. September) and inventory dropped for the 3^rd straight month.  Inventory is still close to “double” what it was at the beginning of the year, but it has dropped by nearly 40% since June and is expected to drop further this month and next.

In U.S. economic news, the temporary settlement of the Federal government shutdown and debt crisis issues has helped to settle down financial markets and mortgage rates for now.  The recent Federal government deal, however, provides only a temporary fix.  It doesn’t resolve the fundamental issues of spending and deficits. It only funds the government until January 15th and raises the debt ceiling until February 7th, leaving the U.S. to face the possibility of another government shutdown early next year.

Meanwhile, C.A.R. (the California Association of Realtors) recently released its 2013 California Housing Survey.  The survey cited the glaringly large percentage of properties that have been sold above their asking price this year, as tight supply conditions continued to heat up market competition in the first 3 quarters of 2013. Nearly half (49.5%) of all homes sold in 2013 were sold above asking price, nearly twice the share in 2012 (25.9%) and triple the share in 2011 (16.6%).  The 2013 figure was more than twice the long-run average of 18% during the past 20 years.  For homes that sold above the list price in 2013, the median premium paid over the list price was 4.8%, unchanged from 2012.  Overall, California has seen a 28% spike in the median home price this year.  A much more modest 6% increase is expected for 2014.

For the third consecutive year, an increasing number of home sellers – nearly half – planned on purchasing another home in the future.  According to C.A.R. President Don Faught, “Sellers are more upbeat about the housing market and are more comfortable with their financial situation.  As the real estate industry and the economy continue to recover, many sellers have regained confidence in owning a home since the Great Recession.”  The number of home sellers planning on repurchasing increased to the highest level since 2007, which suggests that repeat buyers could be the driving force in the housing market in 2014.

For the remainder of the year, I expect the typical (Fall) seasonal patterns to play out.  San Francisco Bay Area inventory should drop further as a shrinking number of Sellers are willing to put their homes on the market during the slower holiday selling season.  Sales volume should also drop significantly this month and next.  Despite the significant drop in Sales activity, home prices should maintain at their current levels the remainder of the year due to the shrinking inventory and interest rates remaining historically low.

While the San Francisco Bay Area Real Estate market has begun its typical Fall (seasonal) sales cycle, you have probably been watching the news lately and wonder how the recent Federal government shutdown and impending debt ceiling deadline will affect the San Francisco Bay real estate market.

As you may know, the Federal government runs on a fiscal year from Oct. 1 to Sept. 30. The Federal Government was forced to
shut down last Tuesday (Oct 1^st) since Congress couldn’t agree on a spending bill in time, leaving the government without the legal authority to spend money.  Economists say that every 3-4 days of this shut down will begin to shave decimal points off economic growth and a sustained shutdown of 3-4 weeks would do significant economic damage. If the shutdown drags on for 3-4 weeks, as it did in the 1995-6 shutdown, it could subtract 1.4 percentage points off of 4^th quarter GDP growth. In an economy that’s already fragile, that’s a massive consequence to Congress’ budget impasse.  That’s more than half of the 2.5% Avg quarterly rate of economic growth in the U.S. right now. The government shutdown will also negatively affect hiring by small businesses in the near future and consequences will be even worse if a deal on the federal debt isn’t reached.

Although technically a separate issue, a major point of contention in Congress is the issue of the impending debt ceiling.  The Federal government will run out of money around Oct. 17th.  In addition to using tax revenues, the government will have to borrow more money to pay bills the nation has already racked up. But Congress will have to raise the debt ceiling/limit to allow the increased borrowing needed to pay these bills — and that permission won’t come without another fight from the congressional “Tea Party” Republicans.

Many Economists feel that if the debt ceiling “isn’t” raised, the resulting loan defaults could cause the U.S. Economy to suffer even more than it already is under the current government shutdown. The financial markets might lose faith in the ability of the U.S. to pay its bills.  As a result, the nation’s creditworthiness — and global influence — could take a beating and interest rates on credit cards, student loans, auto loans, and mortgage loans could rise.  Then again, it could also result in “lower” interest rates as shaky/fearful investors put their money into safe places such as treasuries, high quality investments, and savings accounts.  But the very fact that no one knows what to expect from hitting the debt ceiling is probably what makes it such a terrifying proposition at this point. And it’s why many economists want Washington to resolve the government shutdown right away so that it can also have time to get the debt ceiling issue out of the way before Oct 17th.

Meanwhile, life goes on here in Silicon Valley and San Francisco Bay Area Real Estate is following its typical Summer-to-Fall transition pattern.  Inventory dropped slightly for the 2^nd straight month in September and home sales have leveled off as prices have undergone a modest seasonal dip. While there are still imbalances in the sales mix and purchase patterns, indications are that the market continues to normalize incrementally. The overall market condition remains positive for San Francisco Bay Area home sellers, despite inventory trending on the rise.  Since August, sales volume has dropped 20-25% San Francisco Bay Area wide, which is typical for this time of year.  The median price paid for a home in the San Francisco Bay Area in August was $540,000. That was down 3.9% from $562,000 in July, and up 31.7% from $410,000 in August/2012. Due to seasonal shifts in sales patterns, the San Francisco Bay Area median almost always declines from July to August and Sales Volume also typically drops 20-25% between Summer and Fall.

Looking ahead, C.A.R. (California Association of Realtor) recently published its 2014 California Housing Market Forecast and it projects California property sales to increase by 3.2% next year to reach 444,000 units, up from the projected 2013 sales figure of 430,300 homes sold. C.A.R.’s forecast also projects the average 30-year fixed mortgage interest rate to rise to 5.3%, but to remain at historically low levels. The California median home price is forecast to increase 6% to $432,800 in 2014, following a projected 28% increase in 2013 to $408,600.  The U.S. Gross Domestic Product is expected to grow 2.8% in 2014, after a projected gain of 1.8% in 2013. The state’s unemployment rate is expected to decrease to 8.3% in 2014 from 9% in 2013 and 10.5% in 2012

Overall, the Federal Government shutdown shouldn’t have a major short term effect on the San Francisco Bay Area Housing market, despite the likely loss in some U.S. GDP growth.  It’s hard to predict how the debt ceiling resolution will affect interest rates and the economy, especially since we don’t know what the resolution will be yet.  However, it’s something to keep on eye on as it may have major long term implications on our economy and mortgage rates.

In the mean time, San Francisco Bay Area Home sales volume should be light the remainder of 2013, inventory should continue to drop a bit further, and home values should be stable, holding the ~30% gain that it has seen between January and August.

As the hottest buying season of the year winds down for the San Francisco Bay Area, home prices continue to climb while inventory also continues to rise and interest rates have stabilized.

The median price paid for a San Francisco Bay Area home rose at its fastest pace on record in June, the result of disappearing distress sales, an improving economy, and mortgage rates that, while up off bottom, remain very low.

The median price paid for a home in the 9-County San Francisco Bay Area was $555,000 in June, the highest since it was $587,500 in December 2007.  June’s median was up 6.9% from $519,000 in May, and up 33.1% from $417,000 in June 2012.
The San Francisco Bay Area  median peaked at $665,000 in June and July 2007, then dropped to $290,000 in March 2009. Much of the median’s ups and downs can be attributed to shifts in the types of homes sold. When adjusting for these shifts, it appears that the majority of June’s 33.1% year-over-year rise reflects an increase in home values, while the rest is the result of a change in market mix.

Another big part of the picture is that distress sales (Foreclosures and Short Sales) are quickly becoming a thing of the past.  Foreclosure resales accounted for just 6% of resales in June, down from a revised 6.5% in May, and down from 17.8% a year ago. June’s 6% level was the lowest since 4.4% in August 2007. Foreclosure resales peaked at 52% percent in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10%.  Short Sales also continue to decline. Short sales made up an estimated 12.1% of San Francisco Bay Area resales in June. That was down from an estimated 13% in May and down sharply from 22.7% a year earlier.

Tracking San Francisco Bay Area residential real estate inventory levels, San Francisco inventory rose 5.6% in July (over June), Peninsula inventory rose just 1.6%, Upper South Bay inventory actually went “down” slightly, and San Jose inventory rose 10.6%.

Overall, San Francisco has seen a cumulative 72.7% rise in inventory since the beginning of the year, the Peninsula a cumulative 60.6% rise, and San Jose a cumulative 170.6% rise.
It’s generally easier for a market to regain lost ground than to push into new territory. It appears that we’re still bouncing off the bottom. This next part of the cycle should be fairly self-adjusting. As prices go up, more homes will be coming on the market and price pressures should ease. The only element we don’t know much about right now is how much pent-up demand there really is out there.

Mortgage rates inched down this week after the latest monthly employment report disappointed investors.  The recent upswing in rates (which occurred mostly between May and July) has affected home affordability, but demand remains high and the more recent positive trend for interest rates should help to fuel continued demand.  However, overall current trends indicate that it’s only a matter of time before the market turns and prices level off.

With the housing market on its way to prosperity again, consumers are contemplating whether it’s more beneficial to buy a property now or continue renting. To assist with this decision, C.A.R. (California Association of Realtors) has looked at the costs and benefits of renting versus owning property in California and 8 of its local regions over a 7-year period.  The costs of buying include the monthly mortgage payment, insurance, taxes, and improvements and repairs.  These costs were offset by the benefits of buying: mortgage interest and property tax deductions, and investment appreciation. The costs of renting include the monthly rent payment and renter insurance, which were offset by the benefits of renting: the appreciation on investing the down payment in the stock market.

For the State of California as a whole, statistics show that consumers can save 32% per month by buying a property.  Home buyers in Sacramento will save 34% monthly and 12% in San Francisco.  However, buying is not the best solution everywhere.  You are better off renting in Alameda and Santa Clara Counties, with monthly rent savings ranging from 711%.