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

WATCH CAREFULLY
Intro: “We’ve rarely seen greater discrepancy between what the market is doing and what experts are saying.” You know what? That’s been true all summer this year, and in June and July last year, and we’re not going to call it rare anymore. Maybe we need to call it “an early clue to a new direction,” or maybe “this market’s getting weirder and harder to second-guess”…or maybe both. Frankly, “both” is what we’re afraid of. Read on.

Statistics:
Statewide: The median resale price of a single-family detached home in California for June was $542,720, an increase of about 16% over June 2004 and just under four percent for the month. Unsold resale inventory represented a 2.7-month supply, compared to 2.6 months for the same period a year ago. (That’s our figure for last year. CAR says “2.7 compared to revised 1.7,” which is too big a revision to let pass without comment.) Median number of days till sale was 27 in June, up from 25 for June 2004.

Top Ten List: The ten California communities with the highest median home prices for June were: Manhattan Beach, $1,570,000; Malibu, $1,550,000; Laguna Beach, $1,537,500; Los Altos, $1,424,000; La Canada Flintridge, $1,395,000; Palos Verdes Estates, $1,360,000; Saratoga, $1,350,000; Newport Beach, $1,300,000; Coronado, $1,275,000; Hermosa Beach, $1,249,500. Okay, two out of the top ten, with one reservation; Dataquick’s figures for Burlingame, with a $1,355,000 median and 61 sales, should have put it in seventh place on this list.

But beyond that, our typical logic of “Oh, the upscale communities just didn’t have enough sales” doesn’t work. Regardless of sales, Belvedere/Tiburon at $1,262,500 would have earned ninth; Atherton at $1,249,500 would have tied for tenth; Woodside at an even million and Menlo Park at $961,000 wouldn’t have made the cut. Communities with truly robust medians, like Portola Valley, Ross, San Martin and Stinson Beach, had sales in the single digits and therefore don’t prove much.

Bay Area: June median price, at $734,610, is up almost two percent for the month and 12% for the year; sales are up 16% for the month, but down about 11% for the year. The Santa Clara County median of $760,000 is up slightly for the month and almost 19% for the year; sales are up 13% for the month, down 14% for the year – a significant difference from last year when Silicon Valley sales were going through the roof... The Santa Cruz County median price is up 32% year-over-year, giving it the second-highest median of all CAR regions (after Santa Barbara South Coast), but sales activity is down by 20% from June 2004. The Monterey region and County are both showing just under an 18% price increase with essentially stagnant sales activity compared to a year earlier.

Sacramento/Capitol Region: The Sacramento median price is up almost 20% for the year, but sales activity is down eight percent from last year. Inventories are rising to levels not seen for several years, and high-end homes – regionally defined as $450,000 and up – are moving slowly. But prices remain at record or near-record levels, so – we’ll see.

Interest Rates: Thirty-year fixed rates were at 5.33% at the end of July, down almost a full point for the year; adjustable rates, at 4.93%, are up almost a full point from June 2004. It’s now incontrovertible that the ARM, which was once a real way to save real money, has become – like its even more pernicious cousins, the interest-only mortgage and the balloon note – a way to qualify for those who can’t climb the more demanding slope of a thirty-year fixed.

As for where rates are headed more generally, and how they’ll ultimately influence the market, we have very little idea. In the last three years, they’ve gone steeply up and almost as sharply down three times. No, they’re not at five percent anymore, but a fixed mortgage is still a bargain; it’s worth remembering that, for most of the turn-of-the-century housing boom, rates were at least 6.5%, and for the beginning of it, they were above seven percent… which hardly prevented people from borrowing when they wanted to. Unless rates climb sharply again and stay high, they probably won’t be much of a restraint on buyers. Of course, the perception that rates are going to climb is not at all the same thing as rising rates, and the influence of that perception may be very different.

Inventory: Plentiful in most communities and, for the moment, probably not much of an influence one way or the other. Gee, we never thought we’d say that again.

News Media: The New York Times, under the triumphant headline “Home Sales Still Rising to Records,” pointed out that national home sales for June, at 7.33 million, broke a record that was just set in April, and that the median home price in the West has risen 50% in three years…ouch! But although their writer is correct when stating “frenetic sales activity…defied expectations that the market was starting to cool,” still a lot of local real estate writers are convinced we’re in an affordability crisis that won’t be fixed by cheap loans. And they’re probably right.

Overall Assessment: First-time buyers grab dubious loans as “entry-level” properties drift out of reach. Some existing owners aren’t moving up because cashing out and buying bigger would saddle them with mortgages whose face amounts they can’t afford. Some people are predicting a leveling market. Sales will continue through the rest of the summer. Beyond that…we’re watching trends and developments daily. You might want to, too.