coldwell Banker - FEBRUARY MARKET FLASH
Statistical data from CAR and DataQuick

LOST IN CONTRADICTION
Intro: Sometimes the sheer variety of factors involved in evaluating the real estate market is overwhelming. Affordability. Consumer confidence. Inventory. The job market. Interest rates. The strength, or otherwise, of the dollar. First-time buyers. The need for property to invest in. Word on the street. Countless others that apply to individual regions, communities or neighborhoods.

Keeping a grip on the situation is especially difficult when many of these indicators are pointing in different, seemingly contradictory, directions. And, friends, that’s the situation we’ve got now, and we’ll do our best with it.

Statewide: The median resale price of a single-family detached home in California for December was $474,480, essentially level for the month but an increase of almost 20 percent over December 2003. Unsold resale inventory represented a 2.8-month supply, compared to two months for the same period a year ago. Median number of days till sale was 43 in December, up from 27 for the month a year earlier.

Top Ten List: The ten California communities with the highest median home prices in December were: Los Altos, $1,485,000; Burlingame/Hillsborough, $1,417,750; Beverly Hills, $1,275,000; Manhattan Beach, $1,250,000; Palos Verdes Estates, $1,117,500; Saratoga, $1,000,000; Hermosa Beach, $976,500; Newport Beach, $925,000; Calabasas, $915,000; Rancho Palos Verdes, $900,000. Northern California’s looking pretty typical for the day, with the top two but only one more in the top ten. Of course, there were some far higher medians in small communities further up the scale, but with 2004 sales totals ranging from Ross’s 27 and Atherton’s 49 to Belvedere/ Tiburon’s 240, they’re no longer making CAR’s cut.

Please note that the Top Ten list consists of cities which have a minimum of 30 closings per month according to the County Recorder. Dataquick, which compiles the information, sorts closings according to zip code, not city.

Bay Area: December median price, at $658,910, is roughly level with last month and about 13 percent higher than the December 2003 figure. The Santa Clara County median price of $660,000 has risen about 2 percent from last month and 16 percent from last December’s figure. Santa Cruz County median is up almost 3% for the month and over 18% for the year. San Francisco itself, incidentally, is up almost 17% for the year, which is surprising considering where it started.

Sales activity, however, is mixed, with the Bay Area off almost 3% from last year’s record high. Santa Clara is down just over 3 percent and Santa Cruz down just over 5 percent for the year. We feel these numbers may finally be a sign for a welcomed normal, more balanced market. The brightest spot in the region is Monterey County up almost 22 percent compared to December 2003, but that area is atypical for reasons we frequently discuss.

Sacramento/Capitol Region: Sacramento median price, at $347,790, is up 30% over this time last year; and sales activity is up a perky 6.7% from last year’s level. Sacramento performing better than the Bay Area?! No surprise when you look at the fundamentals; attractive properties are substantially less expensive than they are farther south, and the Capitol Region’s job market is improving.

Interest Rates: Thirty-year fixed rates at 5.75% are about level with this time last year, after all the leaping around they’ve done in the interim; adjustable rates, at 4.18%, are significantly higher than last year’s 3.63%, and the spread between average ARM and average thirty-year fixed has been cut almost in half in the last six months. (A cynic would say that, as ARM is become steadily more popular, lenders are sorely tempted to make them more lucrative.)

There is actually another substantial influence at work here. Interest rates are difficult to understand in depth, so much so that intelligent people make excellent livings trying to do it, but briefly: Various rates do not all respond to the same stimuli and do not, like some school of fiscal fish, swerve and swim perfectly in the same direction. Prime can be going up while one-year ARM stays put and Treasuries are off in their own ballpark. But the consumer, whose understanding of rates is perhaps simplistic, looks at the business page of a daily paper, sees prime or the discount rate going up by some sliver, and probably says “Wow, I’d better grab [insert variety of] mortgage while it’s still cheap.”

Inventory: It would be nice to say “Inventory’s no longer a constraint.” But in Northern California, that’s unlikely in the foreseeable future, so let’s just say that inventory is no longer a primary constraint in most places. Having said that, we’ll emphasize that existing inventories are more uneven than usual; some popular communities in the Bay Area currently offer a one-month supply, at best.

News Media: Cautionary, since affordability is dismal, but not overly so, since the market is still hot – although the occasional little voice will say “Not as hot as it was this time last year!” Mostly, the media are a little worried about the market, which is part and parcel of being a little worried about money and finance in general.

Overall Assessment: Since the February Flash is a compilation and evaluation of December statistics, it’s always tempting to include a projection for the coming year as a whole. We won’t do that, but our advice does take that perspective: Don’t worry much about where the market is, but give some thought to where it’s going. On one hand, this is still (or isn’t far off) a record-setting market. On the other, affordability in Northern California is currently at 20 percent – half the figure for the rest of the country – and it’s getting worse. First-time buyers in California in 2004 were only 26 percent of all buyers, a record low and not a happy one. Move-up buyers have money, but seem to be showing new restraint expressed by rising days-on-market. The future is looking decidedly mixed and not predictable.