January Market Flash

LOOKS LIKE UP TO ME

Intro: If you compare the market realities of today with what they were last fall and last summer, you will see that what matters is motion, fluidity, interaction and inter-reaction. What the numbers are saying and what the trends are implying may be very different. Read on.

Statistics:

Statewide: The median resale price of a single-family detached home in California for November was $555,290, an increase of 0.7% from October and 1.4% over November 2005. Unsold resale inventory in November was sufficient for 7.4 months, up from 3.6 months (says CAR) a year earlier; median number of days till sale was 70, an increase from last year’s 39.

Bay Area: November median price, at $738,900, is up half a percent for the month and 2.2% from the November 2005 figure; a decline in activity of 11% for the month and 18% for the year – but remember those figures are relative to the unusually strong November of last year. The Santa Clara County median price of $775,000 is flat for the month and up 4% for the year. Santa Cruz County at $719,000 is down almost 5% for the month and about 9% for the year. San Benito County, with a $555,000 median, has declined 7% for the year. Monterey County and region’s medians have declined 3% for the year, which is within the scope of seasonal correction.

Sales activity is a story with some bright spots. Santa Cruz County is up 18% for the month and 9% for the year, so improved affordability has certainly counted for something. Monterey region year-over-year is down 12% in November, but it was down 24% in October and 48% in September, so do not let the general fact of a decline obscure a relative improvement in the situation. Monterey County year-over-year is down 26%, but that is only half the decline of September’s 52%. Northern California as a whole is down 9% in November compared to 14% in October, 26% in September, 31% in August. Most other Northern California regions are holding roughly steady. The numbers and the trends are telling...not opposite stories, but an equivocal story.

Sacramento/Capitol Region: Warming perceptibly. The market in resale properties, which seemed impaired last summer, is mending slowly. Looking at the list of communities and neighborhoods in the region, we find more than 25 whose medians have improved over last year. This market will take some time to bounce back, but we are betting it will not take long. Sacramento has lots of reasons to grow.

Interest Rates*: Last year we wrote “Core rates have been managed in masterly fashion for the last year and a half to two years…Most rates will probably bounce between high fives and low sixes for a while, but adjustable rates are now almost identical to the lower fixed rates – which speaks to a lack of elasticity in the system.” Situation today is much the same, except that rates are paddling around in the high fives, with only non-conforming 30-year fixed barely poking above six. 5/1 ARM is at 5.55% compared to conforming 30-year fixed at 5.72%. So far as rates are concerned, the bedrock conforming 30-year fixed can still be called “substantially under 6%” and that is cause for applause. Conforming 15-year fixed at 5.48% is an increasing favorite with baby boomers who want to pay off their houses while they have earned income to do it. Overall, rates are edging up slowly – we are sensing the complex interaction of a whole bunch of contradictory pressures – but they remain broadly attractive. If the Fed cuts rates in January or February, as many experts foresee, mortgage rates could stop inching up and start inching down.

Inventory: Mean time till sale is at 70 days and what more do you really need to know? You will have an incredible selection of compelling properties. We cannot imagine worrying about inventory at all.

News Media: Overall, reporting seems to be fair and highlighting reasons for optimism, such as normal seasonal adjustments, increasing sales and plentiful inventory for home buyers. The consensus seems to be that after the tremendous surge of increased home prices and sales a few years back, the market is now balancing out. For 2006 as a whole, the news media was surprisingly evenhanded in their take on real estate and seemed to avoid their once typical “gloom and doom” and the “bubble is about to burst” stories of recent years. The news media are grasping the fact that perceptive reporting on the market can even help to direct it.

Overall Assessment: A prospect’s attitude toward this market will depend on circumstance, but for many people, this might be the best time to buy in a decade. Long inventory means generous selection. Almost any mortgage you might want is still under 6%. Affordability is recovering as sellers price to sell. As buyers discover the interlocking advantages of this market, and if – that is, when – more buyers with more dollars chase fewer properties, the balance will tip slowly toward the seller. The message: The sooner you buy, the more chance you will give this market to work in your favor.