SubscribeThe Market Report – June 2009
June 5, 2009
I send my clients a monthly market update and thought I’d share it with the blogosphere. If you agree and think that I’m a genius, please comment below. If you disagree and think I’m an idiot, keep your thougths to yourself. You can send me an email to subscribe to your city of interest (Atherton, Los Altos, Los Altos Hills, Menlo Park, Mountain View, or Palo Alto), and I’ll add you to my monthly update list. The commentary is as of June 1, 2009, that data is real-time.
May brought a ray of light into the local real estate market, as consumers, boosted by the rising stock market and low interest rates, began buying up homes on the market. Both Pending Sales and Pending Prices are up (see attached chart for a historical comparison), absorption numbers have outpaced new inventory both statewide and locally, and multiple offers on homes in Los Altos and Palo Alto have come back into play. At the low end, investors are superheating the Santa Clara and San Jose markets for single-family homes under $500,000, with many bank owned properties getting 20 – 30 mostly cash or all cash offers.
In general, prices are at about 2004 levels, and interest rates continue to hover near historic lows, with conforming loans under 5% for 30 years, and Jumbo loans staying around 6%. The big question on everyone’s’ mind is, “How long will this last?”
This past week we saw rates on the 10 year bond jump 0.5%, putting upward pressure on mortgage rates, which responded by rising for the different conforming loans. To get some additional input on whether this is short-term volatility or a longer term trend, I called my favorite mortgage bankers, who all had the same opinion, and all disagree (with all due respect) with Fed Chairman Bernanke that we will be out of the woods by the end of 2009.
The abridged version is that the government is subsidizing rates on loans backed by Fannie Mae and Freddie Mac (who are backed by taxpayers), so long-term mortgage rates are unsustainably low. The funds being used to subsidize these loans are finite, and limited, so there is upward pressure on the various conforming rates to rise to the real market rate of 6% as we are seeing in the Jumbo market.
Unusually, BOTH Buyers and Sellers are facing threats from market forces, creating compelling arguments to act now:
Sellers:
- Rising interest rates cut the purchasing power of Buyers, reducing the pool of potential Buyers for a given property
- The threat of rising unemployment and continuing slowing of the economy reduces consumer confidence and spending, especially on big-ticket items like cars and houses
- The current tax incentives for buying homes are limited to 2009. Reduced government from taxes due to lower incomes and corporate earnings makes it less likely that these are extended in 2010.
Buyers:
- That unemployment thing
- Qualifying for mortgages is getting more difficult, and the regulation of the process has tightened, adding new hurdles to the underwriting and appraisal process as the market overcorrects for the Wild West of the last few years.
- Rising rates cut purchasing power
Wow, kind of heavy stuff for a Friday. The good news is that summer is less than 3 weeks away!
On to the numbers:
Atherton:
Currently, the Median Price of a Single Family Home in Atherton is $3,996,500 with a range of $899,000 to 16,800,000. 48% (versus 41% last month) of the homes in Atherton have had price reductions, as Sellers are accepting that the market has shifted, and the average number of Days on Market has risen to 133 days from 114 last month, meaning that we should see more price reductions as the market searches for equilibrium.
Los Altos:
Currently, the Median Price of a Single Family Home in Los Altos is $1,999,900. 36% (up from 32% last month) of the homes in Los Altos have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped slightly to 98 days versus 96 last month.
Los Altos Hills:
Currently, the Median Price of a Single Family Home in Los Altos Hills is $3,146,500. 36% (up from 23% last month) of the homes in Los Altos Hills have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped to 173 days versus 187 last month.
Menlo Park:
Currently, the Median Price of a Single Family Home in Menlo Park is $1,447,000. 38% (versus 37% last month) of the homes in Menlo Park have had price reductions, as Sellers are resisting that the market has shifted, and the average number of Days on Market has risen to 127 days from 116 last month.
Mountain View:
Currently, the Median Price of a Single Family Home in Mountain View is $899,000. 55% (versus 38% last month) of the homes in Mountain View have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has decreased to 121 days from 127 last month.
Palo Alto:
Currently, the Median Price of a Single Family Home in Palo Alto is $1,595,000. 41% (versus 43% last month) of the homes in Palo Alto have had price reductions, as Sellers are resisting accepting that the market has shifted, and the average number of Days on Market has risen to 99 days from 94 last month.
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