coldwell Banker - july 2005 MARKET FLASH
Statistical data from CAR and DataQuick

IT’S TOPPING OUT…NO IT’S NOT…YES IT IS…ACK! (Reprise)
Intro: Another double-digit increase in statewide median home prices will put many potential buyers in a serious bind for affordability. Interest rates, a dubious press, relaxing inventories and a fiendishly complicated international situation are all pulling the market in different directions, and how much elasticity it can muster to respond is anybody’s guess. As you read on, don’t be distracted by the big numbers that you’ll certainly find; instead watch for trends and countertrends.

Statistics:
Statewide: The median resale price of a single-family detached home in California for May was $522,590, an increase of about 13 percent over May 2004. Unsold resale inventory represented a 2.8-month supply, compared to 1.6 months for the same period a year ago. Median number of days till sale was 27 in May, up from 22 for May 2004.

Top Ten List: Los Altos, $1,620,000; Beverly Hills, $1,450,000; Saratoga, $1,428,500; Manhattan Beach, $1,375,000; Laguna Beach, $1,302,500; Newport Beach, $1,300,000; Burlingame, $1,237,500; Coronado, $1,225,000; Santa Barbara, $1,188,000; Palos Verdes, $1,147,500. Two years ago in May, only the top median on the list (and yes, it was Los Altos) was over a million; this month, they all are. The Southland shows strongly. Even though Northern California makes first, third, and seventh, that’s still only three out of ten. It’s no surprise to see Santa Barbara, which has been notable lately for doing well, and Coronado can be relied upon to make two or three appearances a year.

Bay Area: May median price, at $721,730, has shot up by 11-plus percent from May 2004 and sagged by a hair for the month; sales are up by over three percent for the month but down by 8.3 percent compared to a year earlier. The Santa Clara County median price of $721,730 is up 18% for the year. Santa Cruz County tells much the same story with a comparable increase in median but sales down over 20 percent from a year ago. Monterey County and region have robust medians, but sales activity is down significantly for both the month and year; sources of disposable income are fluctuating so rapidly that it’s impossible to speculate whether relatively weak sales are a product of sparse funds or simply changes in fashion. The Wine Country, meanwhile, is the strongest-performing region in Northern California, with a year-to-year median up by $170,000-plus.

Sacramento/Capitol Region: Showing strongly, with a countywide median price 24 percent over May 2004. Year-to-year sales are down, but by less than one percent. Lincoln and Rancho Cordova are bright spots.

Interest Rates: “Irrational exuberance” is hardly our favorite phrase given its checkered history, but at the moment there’s almost nothing to substitute for it. Rates sank to just above five percent at the end of May, rose to 5.25% in the middle of June, and at this writing have settled to just above five, in a mini-version of the big bounce earlier this year. With its eye on our international credit rating (and reputation), the Fed would be relieved if rates went up a little, but lenders with their purely domestic priorities are holding rates down; when the dollars being borrowed are weak, there’s no point in paying a lot for them. The national residential market is currently a pivotal source of economic strength, and no one – probably not even the Fed – seriously wants to cool it off.

Inventory: Unsold inventory, at roughly three months, is much better than it was last year; but is improved selection enough to counter the dire pressures of – in the words of C.A.R. President Jim Hamilton – “eroding affordability and concerns about rising interest rates?” Inventory has been, at least intermittently, a primary constraint on Northern California’s residential market for years; at the moment it’s not exerting its customary influence, because it’s being swamped by high prices and the inescapable volatility of pertinent economic indicators.

News Media: Currently the joker in the pack, because the stability – or alleged lack of it – in selected residential markets has become front-page-above-the-fold news for influential papers, including the New York Times. We’re not sure why so many people have started thinking that residential real estate might be a bubble, since it seems to us that real property has proven itself in the long run to be a particularly good investment.

Overall Assessment: Interest rates are still attractive by almost any standard, but prices in anything beyond starter neighborhoods are becoming truly painful, and it’s too soon to say how residential purchasing might be distorted by a falling dollar and changing patterns of cash flow. The market remains vigorous, but its long-term stability is hardly guaranteed, so take advantage of the beautiful weather to get out there and dazzle some prospects. You know you’d love to take a vacation this summer; now is when you’ll make the money to do it.