MARKET FLASH – MARCH 2008

SPRING REVITALIZATION?

The real estate industry is abuzz with the new FHA loan limits for California finally approved by HUD. All in all, 14 California counties saw their loan limits for FHA, Fannie Mae and Freddie Mac increased to the $729,750 cap. Most were in the San Francisco Bay Area or other parts of Northern California, including Alameda, Contra Costa, Marin, Monterey, Napa, San Benito, San Francisco, San Mateo, Santa Cruz and Santa Clara Counties. The Sacramento area also saw its loan limits increase to $580,000. What does this mean for the Northern California real estate market? Increased opportunity for new and existing home buyers. The purpose of this increase in loan limits is to assist individuals who currently have “jumbo” loans (greater than $417,000) to refinance into lower and more affordable rates and payments. With the traditionally strong spring market just around the corner, the new loan limits may be just the thing to revive the Northern California market. Read on.

Statistics:

Statewide: The median resale price of a single-family detached home in California for January was $430,370, a decrease of almost 10% for the month and about 22% from January 2007. Unsold resale inventory represented a 16.8-month supply, compared to 7.6 months (CAR’s figure) for the same period a year ago. Median number of days till sale was 72 in January, up from 69 a year ago.

San Francisco Bay: Spring and summer monthly sales were 7,000 to 8,000; in September, they declined to roughly 5,000 and stayed there for awhile; now in January they have declined again, to about 3,600. After staying above $600,000 for over two years, regional median is currently at $550,000.

County Statistics:

San Francisco County: Sales for this county have shown a hectic collection of peaks and valleys as far back as we go, but 262 for January seems to be about half the recent historical average. Median, though, has fallen less than 1% year-over-year and is less than 4% below the three-year average; the typical San Francisco County buyer is probably well-off and may be international, and we have always thought that sales here can depend on a reliable core of cash (or at least high-down-payment) customers.

Alameda County: January’s 494 sales were about a quarter as many of March 2007’s recent peak of 1,840. Median was in the vicinity of $600,000 from the summer of 2006 to the fall of 2007 and since then has dropped off.

San Mateo County: January sales of 237 were down by more than half year-over-year. Median is down more than 10% year-over-year and 11% from the two-year average.

Santa Clara County: Sales in January were 628, less than half of 1,607 a year earlier; not great until we look at January 2006 with 335, or January 2005 with 423. Santa Clara monthly sales are constantly bouncing between a few hundred and somewhere over 2,000, so in context, they are typical. Median meanwhile has lost about 5% year-over-year and, perhaps more to the point, about 8% from the two-year average…not bad.

Santa Cruz County: Now what is this about, with the same county showing both the steepest drop in median and the best – or, well, “least bad” – decline in sales month-over-month? Clearly Santa Cruz will bear watching, as is often true. Median has lost almost 20% from the two-year average and sales are down to double digits.

Interest Rates*: 30-year fixed, 5.90%; 15-year fixed; 5.27%; 5/1 ARM at 5.03% is showing an awfully big discount from 30-year fixed, since not long ago the two rates were almost comparable (remember how we kept complaining?). Nonconforming loans are obviously a different story with 30-year fixed at 6.88% and 5/1 ARM at 5.68%. Rates were headed for the sky for most of January, but the new pegging of the Fed funds rate at 3% – including, bear in mind, the biggest single cut in the history of the rate, 75 basis points in one swoop – will let lenders keep loan rates attractive.

Inventory: Once more with feeling: “In many areas, inventory now and probably for the rest of this year, simply does not have to figure into deliberations.” True last year, true now.

Overall Assessment: Last year we said, “Loans are easy to get and cheap, bargains are plentiful, and those who buy now may reap the rewards of their good luck for years or decades.” Let’s edit that for the new reality: With the conforming loan limits increased through the end of 2008 and bargains almost everywhere, those who buy now will enjoy the comfort of a roof over their heads and a historically strong, long-term investment. A home is an asset and the comfort and security that it brings offers incomparable stability to an entire household. Those wishing to buy a home owe it to themselves to consider the long-term benefits – there may be no time like the present to act.

*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of March 10, 2008, the 30-year fixed with one point is 7.25%, the 15-year fixed with one point is 6.375% and the 5/1 ARM with one point is 6.625%, on non-conforming loans of $500,000.