Upgraded to stable from critical
It’s been said that time heals all wounds. When we think back to 12 months ago, we were all wondering how long it would take to heal the critical injuries our economy and real estate markets incurred in the wake of the global financial crisis. Today our economy is on the mend and our local real estate markets are showing signs that the patient will not only survive but possibly thrive again in the future.
While we are nowhere close to the transaction volume of recent boom markets, there were 299 new escrows in the Bay Area during the month of October. That’s the best month since July 2007, which is encouraging, considering the fourth quarter is cyclically a slow time of the year for real estate sales. Mark McLaughlin of Morgan Lane Realtors says volume is still down 28 percent year over year but that’s a far cry from being down 70 percent as it was a year ago. McLaughlin is realistic about how far we have come in the last 12 months, and while we are not back to business as usual in Marin real estate, the leading indicators are pointing to a stabilization of prices and volume, both of which are the cornerstones for future growth.
Homes selling for $3 million or more have started to move according to market statistics. In fact, over 45 homes with an average value of $4.2 million sold in the Bay Area during 2009, and 80 percent of those were in San Francisco and Marin. More impressive is the fact that 10 transactions are still to close in 2009 and have an average value of $6.7 million. However, the high end of the market (typically cash purchases) can only carry us so far, since the majority of the volume is in the $1.5 million and under segment, where financing is still difficult. Realtors admit that mortgages are easier to come by today, but the time of no-document loans is a point in history that is unlikely to repeat itself.
Penny Wright-Mulligan, of Decker Bullock Sotheby’s International, echoes McLaughlin’s upbeat sentiment: our local real estate market dynamics are improving and the patient is no longer in critical care. Wright-Mulligan says that “in the last 60 days a significant number of ‘on the fence’ buyers have stepped up to purchase homes they’ve been keeping an eye on.” That’s an important vital sign because some properties in the lower price ranges are now attracting multiple offers. Although this increase in demand doesn’t necessarily create price appreciation, the inventory of homes for sale, currently at 1,100 in Marin, has only increased 4 percent year over year. This activity is a start, but the definition of a strong market in Marin real estate has to include multiple offers in the mid-price range, which typically occurs when demand outpaces the home inventory supply.
Supply and demand has not yet created a hot market, but the 45 percent increase in the Dow Jones industrial average since March has certainly added enough fuel to warm it up. Consumer confidence in the economy and the feeling of financial stability go a long way in driving the market forward. Stock market returns and the certainty of cash in the bank is where it all starts for buyers who are on the fence. In fact, while the ratio of cash in money market funds to the value of Wilshire 5000 is still above its long-term average, retail money market fund assets are down 17 percent year to date. One could conclude that cash is looking for a home, which bodes well for the value of our largest asset as buyers continue to step forward.
Perception does begin to create reality, especially when it comes to turning the market around in the right direction. In turn, the market’s vital signs indicate that our patient isn’t getting any worse and the growing consensus is the bottom of the market has formed. And while nobody is expecting a sharp rise in property value, the opportunity for those willing to step forward appears to have become less risky.