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

A TIME OF MYSTERIES
Intro: Let’s all practice the mantra for this month: contradictory indicators. You will find that this mantra applies to many situations. You will say it many times a day. Yes, this was last month’s mantra too, and it will be next month’s – if we’re lucky.
In almost ten years of preparing Market Flash, this writer has rarely if ever seen a residential market as complex as today’s. It seems to be an overheated microcosm of the whole economy, to which it’s intricately connected for better and for worse. Yes, the numbers look good, but do the trends look as good as the numbers? Read on.

Statistics:
Statewide: : The median resale price of a single-family detached home in California for April was $509,230, an increase of 12.5 percent over April 2004 and 2.6 percent over last month, and once again (naturally) a new record. Unsold resale inventory represented a 3-month supply, compared to 1.3 months (CAR’s revision) for the same period a year ago. Median number of days till sale was 28 in April, up from 23 (revised) for April 2004.

Top Ten List: The ten California communities with the highest median home prices for April were: Los Altos, $1,762,500; Saratoga, $1,525,000; Laguna Beach, $1,485,000; Manhattan Beach, $1,405,000; Newport Beach, $1,297,500; Carmel, $1,294,000; La Canada-Flintridge, $1,290,000; Burlingame/Hillsborough, $1,250,000; Calabasas, $1,225,000; and at a tie for tenth Woodside, $1,100,000; Rancho Palos Verdes, $1,100,000. Five out of the top ten. There are a few impressive things about this list, the primary one – probably – being that since these are CAR’s figures, they presuppose at least 30 sales in the month. There were actually 50 sales in Los Altos – look at that median and swallow hard – and 54 in Saratoga. And when was the last time there were 30 sales in Woodside in a month?! Belvedere/Tiburon, with 25 sales, just missed the cut and would have topped the list with a $1,850,000 median. There’s an awful lot of interest in high-end properties.

We rarely consider southland communities individually, but La Canada-Flintridge is worthy of note. That respectable $1.3 million median is over fifty per cent higher than last April’s; if any California community before this has made the CAR’s Top Ten List and Most Improved Medians list in the same month, we don’t remember seeing it.

Bay Area: April median price, at $723,070, is improved by just under 3 percent for the month and almost 14 percent from April 2004; sales are up by 5.4% for the month, down by about 13% compared to a year earlier. The Santa Clara County median price of $750,000 is up 2.4% for the month and 21.4% for the year; sales have increased by 8 per cent for the month, but are down 15% from April 2004. Santa Cruz County, at $715,000, is down 1.4% for the month, up 15.3% for the year, and has been playing tag with Santa Clara for months; sales are up almost 2% for the month, but down 22% for the year. Santa Cruz may finally be reaching equilibrium at its price point, or this might be part of a general cooling of the market.

Monterey County and Region median prices, up 11% to 13% for the year, are reaching Bay Area-like levels as sales activity shows slight – but unequivocal – declines compared to April 2004. Higher medians with tapering activity may mean speculative buying, or prospects for second homes with attractive mortgages.

Sacramento/Capitol Region: Year-over-year medians are roaring, the best in Northern California at almost 25%. Sales activity, though, is up only a hair for the month and down almost 4% compared to a year earlier. Midrange prestige communities, like El Dorado Hills, Elk Grove, Citrus Heights, and Folsom, lead the pack in buyer interest. The region’s inventories, after declining steadily since the early nineties, have been rebounding for the last year thanks to extensive new construction.

Interest Rates: This time last year: “If up, then only slightly up, but if down, then down hardly at all.” Hey, still sounds great! Rates, continuing to shrug off their late-March surge, have drifted back to late-February levels.

Improving numbers, though, mask an enduring contradiction. For reasons beyond the scope of this newsletter, the Fed has lots of factors in play when they look for reasons to move rates; and the minutes of their May 3 meeting, when you cancel out the upticks, shortfalls, superficial disappointments and encouraging fundamentals, say “We’re keeping the lid on long-term rates because inflation wouldn’t be good for this economy, but we’re letting short-term money off the leash because it’s still too cheap.” Translation: Great 30-year fixed at about 5.25%, awesome 15-year fixed at about 4.8%, indifferent 5/1 ARMs at about 4.75%, and very volatile HELOCs heading for 6%. Short-term money will now effectively cost a lot more than long-term money, so lock in the lowest rate and longest term you can afford. To have 15-year fixed loans and 5/1 ARMs at the same rate is not a promise of stability.

Inventory: So uneven that you can find numbers to prove anything, and almost not worth talking about. A couple of months ago, we thought upscale properties were cooling; right now they’re looking pistol-hot, but that can be misleading since there are so few homes at the top end. Our prediction: Generally tighter over the summer if buyer interest holds up.

News Media: Front-page articles in major papers including the New York Times have raised the specter of a real estate bubble potentially as disruptive as the technology bubble of four years ago. Some of this is honest apprehension. More of it is a numbing effect of record sales and prices for quarter after quarter, the total impossibility of predicting a direction for this economy, and a nagging feeling that the whole picture is just too manic and weird. You can be sure that prospects will talk about some of this stuff, so stay on top of the news.

Overall Assessment: : Okay, look. In April, for the first time in a long time, year-over-year sales activity declined in every Northern California region – from 2.9% in Monterey County to 22% in Santa Cruz County. The two steepest declines are in the counties (Santa Cruz and Santa Clara) with the highest median prices. There’s a chance that the affordability crisis we’ve been predicting roughly forever will finally hit with real force.
If it does, two counterforces will cushion the punch. One is that a lot of cash flowing into real estate is coming from outside the state and outside the country; the whole world knows that California can be a great place to park your money. The other is that fixed-rate mortgages are still really cheap, and the Fed is working hard to keep them that way. Move-up buyers now have the equity to swing the big down payments that make fixed-rate loans accessible. First-time buyers may resort to ARMs briefly, but fixed rates are so low that refinancing to a fixed loan will be relatively inexpensive. (Interest-only loans, though, are enjoying a popularity they don’t deserve. Those who take out California-sized interest-only loans and can’t handle them may be headed for disaster – spelled “foreclosure” – before they know it.)
All in all, an interesting time to be a Sales Associate. But the prospects are still coming in your office door and it’s time to remind them: For decades, a home in California has been a solid investment with consistently excellent performance, as well as a roof over your head in good times or bad. And in good times or bad– that’s a stellar combination.