Intro: The rumors of a few months ago are doing what old, tired rumors always do – standing around with sulky looks on their faces saying “Who, me?” The bubble did not pop, the market is not stone cold, the sector did not collapse, and the sky is not falling. Now that we have reassured you on those points, do read on carefully, because since we last wrote, the residential market has evolved in some ways that will matter to you.
Statistics: In the nine-county Bay Area, May median price, at $752,830, has inched up by 4.3% from May 2005 and by a hair for the month; sales are up by almost 6% for the month (part of a pattern of April-to-May gains throughout Northern California) but down by 18% compared to a year earlier. The Santa Clara County median price of $800,000 is up almost 7% for the year, but sales are down 23%. Santa Cruz County tells a bright story with a median comparable to last year and sales down only 2% from a year ago.
Interest Rates*: Bye-bye five-and-something, we will miss you. Bankrate.com’s figures for the end of June are: Thirty-year fixed, 6.93%, climbing steeply for the second half of the month to its highest level in over four years. Fifteen-year fixed, 6.45% (but as today’s loans go, still a great way to save money in the long run). 5/1 ARM, 6.59%. On June 29, the Federal Reserve raised the discount rate yet again – but only to 5.25%, rather than to 5.5% as had been widely expected, so there will not be quite the upward pressure on lending rates that there might have been. Secondly, if the discount rate is 5.25%, then the prime (unsecured bank lending) rate will probably settle at 8.25%…making a fixed mortgage, even at 7%, some of the least expensive and therefore most effective money you can borrow.
Inventory: Unsold inventory, at almost six months, is double what it was last May, so just keep repeating the mantra: “Improved selection, improved selection, improved selection.” Buyers looking for their dream house (and who isn’t?) are now in the land of their dreams.
News Media: Whispering “soft landing” in a way that is reassuring and pointing out that – for example – the residential market is coupled to, and buffered by, the overall economy, which is acting pretty zippy. Years ago, columnists had a habit of overreacting to short and medium-term phenomena in real estate, because yelling “Fire” in punditry helped sell papers.Overall
Assessment: A very different market than we enjoyed even six months ago, but with its own advantages. Buyers have a better selection of attractive properties – and that kind of choice is exactly what is driving the market today.
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