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

FORWARD TO THE PAST?
Intro: Variables pile on variables. Opinions accumulate in ungainly stacks. The financial markets have lost any semblance of predictability. Residential real estate stands out as a veritable lighthouse in the storm, the one asset that half of California is scheming to acquire. The result is a particularly robust February-to-March jump in activity, and regional records still being set.

Statistics:
Statewide: The median resale price of a single-family detached home in California for March was $495,400, an increase of better than 5 percent over February and roughly 16 percent over March 2004. Unsold resale inventory represented a 2.6 month supply, roughly at the 2003 level, compared to about 1.5 months (CAR is tweaking the figure) for the same month a year ago. Median number of days till sale was 31, up from 26 a year earlier. As the CAR points out, since 2000 there are over three million new Californians, and it seems as if an awful lot of them are either buyers or prospects.

Top Ten List: The ten California communities with the highest median home prices in March were: Los Altos, $1,605,000; Saratoga, $1,559,000; Manhattan Beach, $1,451,500; Laguna Beach, $1,350,000; Beverly Hills, $1,320,000; Palos Verdes Estates, $1,302,500; Newport Beach, $1,200,000; La Canada-Flintridge, $1,100,000; Palo Alto, $1,059,000; Los Gatos, $1,025,000. Hmm, first two and last two, representing some slippage since last month as the market climbs from traditional February lows; but last month we said “if Cupertino is on the list then Saratoga must be higher, and if Mountain View is on the list then where’s Palo Alto?” and here they both are, right on time. And, please note, nothing under a million – there’s been some grumbling lately that top-end sales are softening, but this list certainly doesn’t make it look likely. (If you care to hunt down medians for localities with sparser sales, Tiburon Belvedere – as one example – hit $1.8 million.)

Bay Area: The CAR’s March median price figure, $704,060, is yet another new record – improved by almost 4 percent from February and almost 14 percent from March 2004, which bolsters widespread insistence that this market is not losing steam. Part of the increase in price arises from resurgence of interest in more expensive homes moving more quickly. The Santa Clara County median price of $733,000 is up 4 percent for the month and almost 18% for the year, but although March sales are up by nearly 60 percent for the month, they’ve declined 8.5 percent from this time a year ago. Maybe just a whisper of an affordability crisis.

Monterey prices are higher by 15% to 20%, in both region and county, for the year; sales activity for month-to-month and year-to-year, ranging from 7% to 64% increase, is eclipsing last year’s heights. Santa Cruz County is somewhat holding recent gains, with median price at $725,000 – an increase of almost 20%, or well over $100,000, for the year – and sales activity figures climbing by 40% month-to-month, a decent showing, but losing 14.5% for the year. We’ll need early-summer figures before we know whether the South Bay’s declines in long-term activity are durable enough to signal an actually softening market.

Sacramento/Capitol Region: Going great guns and thank you. Median price up 1.6% for the month and 24.5% for the year; sales activity up 45.2% for the month and 1.7% for the year. Increase in the annual median is $70,000 overall, but some desirable communities like Granite Bay and Lincoln are doing much better than that. Totals have been boosted by sharply increasing sales of vacation and investment homes, which until recently have been undercounted.

Interest Rates: That smoke you whiff is the Fed burning chicken feathers. Thirty-year fixed rates are at 5.3%, and ARM’s are averaging 4.65%; after bottoming out at 5% in the middle of February, then peaking at 5.7% at the end of March, 30-year fixed is roughly where it was in mid-December – thus, this month’s headline. Last year we predicted that rates were “unlikely to go down much more, that they’re rather likely to creep up a bit,” and unfortunately, that still sounds as likely as anything. Some increased resistance among first-time buyers may result from the fact that, even after this year’s amazing gyrations in both indices, a 5/1 ARM – for most people – will not be materially less costly than a 30-year fixed.

Inventory: About where it was last month, meaning that – in general – it’s not tight enough to drive prices up on its own. But this is a general statement and we reiterate that, as has been true for roughly the last three years, available housing stock can vary wildly depending on the desirability of individual communities.

News Media: Turning gloomy, and perhaps with some reason. Gas prices and the looming specter of inflation over 3% – in some if not all sectors – is putting a sizable dent in consumer confidence. Job growth is uneven and there’s a substantial chance that rising prices will outpace rising salaries. Most writers, except those specifically in the business, have given up trying to predict interest rates. But the important countervailing pressure is that, since very few people want to predict the stock and bond markets now either, a lot of money is getting parked in residential real property – some as speculation and more for the long haul.

Overall Assessment: Time to get back to basics: California real estate is an investment and, as such, has a track record second to none. In uncertain times – which these surely are – quality of life is a true comfort, and a good roof over your head is a prime guarantor of quality of life. Encourage your prospects to take the long view and you’ll find them quite responsive.