FIRST QUARTER MARKET FLASH 2008

HOUSING PRICES HIT HARD

As foreclosures, scarcer mortgages and general uncertainty continue to pummel the real estate market, Bay Area median home prices and sales volumes experienced significant declines in December, according to a report released Thursday.  For the nine-county area, the median home price fell 4.9 percent and sales volume plummeted 43.2 percent to a record low in December - the 35th consecutive month of decreasing sales..

REAL ESTATE PRICES DROP

The median price for an existing, single-family home in the region was $620,000 in December, down 4.9 percent from $652,000 a year ago. The resale median dropped in every county except Santa Clara, where it was up 4.6 percent.

Including condos and new homes, the median was $587,500, also a 4.9 percent drop from a year ago, when it stood at $618,000. It has now fallen 11.7 percent from the peak of $665,000 reached in July.  For all Bay Area home sales, the price drop was the largest year-over-year decline since February 1993.

AND NOW A LOOK AT SALES.

Even more striking was the plunge in sales volume. The end of the year is traditionally a slow time for real estate transactions, but last month stood out as the worst December since 1988.  Just 3,049 existing homes changed hands in the nine-county area in December, down 43.2 percent from 5,366 last year. Including new homes and condos, a total of 5,065 properties were sold, down 39.5 percent from 8,372 in December 2006.

December was extraordinarily weak, analysts say. We have lower and lower sales, and a higher concentration of stressed sales - such as people who were in foreclosure, facing foreclosure, or lenders trying to sell houses they've taken back. The market can't seem to gain any traction here. The sense of stalemate is reflected in ballooning inventories and the length of time some properties languish on the market..

LENDING WOES CONTINUE

The pricey Bay Area continues to reel from lenders' tighter standards for jumbo mortgages - those over $417,000. Starting in August, jumbos became more difficult to get and more expensive. Jumbo mortgages now carry interest rates that average 1.375 percentage points higher than conforming loans. Jumbo scarcity is clearly reflected in the sales results, which show 1,610 jumbo mortgage purchases in December, down 65.7 percent from 4,694 in December 2006. Across the Bay Area, 39.6 percent of December sales were jumbos - a significant shift from the first seven months of the year, before the credit crunch hit, when jumbos averaged 63 percent of Bay Area sales.  "There is still a credit crisis out there," said Marc Savoy, a mortgage broker with SF Pacific Mortgage Consultants in San Francisco. "The secondary market is in a logjam where these jumbo loans are not as trade-able as they once were."

Jumbos being scarcer and more expensive also finally put downward pressure on the median price. Even while sales volume has declined over the past three years, the median has continued to rise because the mixture of properties sold tilted toward the more expensive. But now that the mortgage market has put the kibosh on many higher-end home sales, the median is sliding.

BUT THE GOOD NEWS IS…

While price declines are bad news for home sellers, they might encourage more buyers to jump in. For well-qualified buyers, conforming mortgages under $417,000 carry interest rates of about 5.625 percent with no points. Affordability has definitely improved for first-time home buyers.

 If you have (a) high credit (score), a good job, can put down a good down payment and can document everything, it's a good time to get a mortgage loan. If (not), you should stay as a renter. 

THE LUXURY HIGH END MARKET HOLDS STEADY.

The Bay Area numbers come with some caveats, however. The median price is skewed by stronger activity at the upper end. Real estate in the region is composed of numerous micro-markets, which vary tremendously. In fact, affluent Bay Area housing markets are holding their own, while poorer areas are softening significantly. There are dual realities emerging here. There is one reality for mid- to upper-priced homes up through the luxury market. In a lot of areas, there are tentative signs of those markets stabilizing and maybe even inching up both in sales (volume) and price.  For the Bay Area, it’s safe to say that the more expensive the neighborhood, the more likely it appears to at least temporarily be stabilizing now.

My advice?

Almost as important as any economic forecast, however, is the reason for buying a property. Housing is not necessarily past its best day and we have uncertain times ahead it is true, but if you are buying to live in it for an extended period of time, timing is not a problem. If you are thinking of it mainly as an investment, you should think very, very carefully. If you have been on the fence in 2007 about buying because of market uncertainty, do your due-diligence; keep up with market price, become as educated as possible about the local housing market and stay focused on communities of interest. Traditionally, homes in the strongest school districts still continue to command premium prices. 

Think CROSSROADS in 2008!

We can introduce to our excellent mortgage brokers for loan pre-approval and to lock in the best possible rate. We can help you start looking at homes with any of our excellent relocation-trained Realtors throughout the Bay Area. All of our agents have access to special online sites that provide our clients with new listings daily.

Remember, the key is not in finding a deal, it is in negotiating a deal.  2008 looks like THE year to buy a home in the San Francisco Bay Area

Let CROSSROADS help you stay on top of market trends!