Jobs Are Driving Bay Area Real Estate

Things are looking up for the country’s job situation and are even rosier in the Bay Area. And that’s great news for the real estate markets – because a healthy Bay Area job outlook drives consumer confidence, purchasing, borrowing, and home buying.
The highlights from last week’s U.S. Labor Department employment report:

• The nation’s jobless rate dropped to a near-three-year low
• Unemployment fell to 8.3 percent in January from 8.5 percent in December
• The drop marks the fifth consecutive monthly decrease
• Job gains of 243,000 (net new) blew away economists’ expectations of a gain of only 150,000

As good as that sounds, things in the Bay Area are even better. There are three factors swinging our way that are pushing us onward and upward.

1. We’re Not California
At the risk of sounding flippant, Northern California – and specifically, the Bay Area – isn’t “California.” There’s an important distinction between our state as a whole and our little slice of home. AlthoughCalifornia’s overall unemployment rate of 11.1 percent is still higher than the U.S. average, that doesn’t hold true for the Bay Area. According to the December county data from the California Employment Development Department,which were released last week, the six Bay Area counties we serve outperformed the California unemployment rate – and Marin and San Francisco rates were even lower than the national average.

Location & December 2011 Unemployment Rate
Marin County = 6.5%
San Francisco County = 7.6%
United States = 8.3%
Sonoma County = 8.9%
Alameda County = 9.3%
Contra Costa County = 9.3%
Napa County = 9.0%

California TOTAL = 11.1%

In all cases except in Napa County, the rates had dropped from the previous month — and without exception all represented decreases from December of last year.

2. The Rolling Tech TideWe have an added stimulus in our thriving technology industry, which is continuing to power healthy movement across various economic sectors. If this keeps up, we might even be willing to use the word “recovery” in tones louder than a whisper.Bloomberg reported last week that hiring in the technology sector is gaining momentum. Among U.S. technology companies with a market value of more than $100 million, almost 50 increased employment by more than half in the most recently reported two-year period. And 74 expanded their workforces by more than 10 percent – more than any other industry group measured by Bloomberg. The continuing trend of job creation in the tech industry should serve to support the declining unemployment rates and instill increasing confidence in Bay Area real estate markets.

3. The Facebook Factor
Finally, you can add the coming Facebook IPO into the mix. It’s an event expected to turn about 900 Facebook employees into instant millionaires (and a few billionaires) and will surely cause a ripple effect in spending on real estate, travel, and consumer and luxury goods.

In addition, the IPO will likely spur additional job creation, both within Facebook and in new start-ups as well as in companies already working with or leveraging the platform. The Facebook IPO effect could boost other sectors and even the U.S. economy as a whole, a position articulated by the DailyFX, a publication by the foreign exchange market (Forex), last week:

“With a history of acquiring companies that it believes could be complementary to its core business, investing in new developments and vast overseas expansion, many investors believe that the additional cash raised by Facebook could flow into other sectors such as advertising and marketing. The potential for job creation could help boost the U.S. economy, and accordingly the U.S. dollar.”

What’s Ahead for Us?T
his is likely the first time since 2007 that we have enjoyed consistent and positive trends in economic indicators. Most of our markets currently have more qualified buyers than we do realistically priced homes, and we are seeing the return of multiple serious offers on well-priced homes.
We see this optimistic economic news as a stabilizer to our local real estate markets, although it’s not yet a catalyst for price appreciation.
However, the increasingly positive employment outlook coupled with our somewhat supply-constrained real estate environment will likely encourage home owners to list their properties and make the trade-up, relocation, or lifestyle changes that they have previously deferred until now.

Happy New Year and Welcome to 2012!

The local real estate market is already off to a more vibrant start than this same time in 2011. This past year was filled with extraordinary global events including significant shifts in political, economic and social fundamentals that "normally" would have violently rocked our confidence, if not our real estate markets.

Our year in real estate effectively followed very similar movements in the equities markets, specifically the Dow Jones Index. We experienced fairly predictable, seasonal trends until late July and early August when S&P down-graded the US Treasuries. This resulted in closings falling below season averages in September before regaining momentum through a strong month of December
'11.

This could be one of the finest times in the past twenty years to be a buyer of real estate (assuming a five-plus year hold). The Marin County market fundamentals, single family home prices and historically low interest rates have created opportunity that will be reflected upon years down the road as, "the time to buy". I have provided links to four recently published economic/housing reports that support this observation.

As we see new inventory come into the market, we know that the right location, floor plan and pricing are attractive to the most motivated buyers. Our partners in the mortgage business remind us that it is the sub4% (and in some cases sub3%) mortgage rates that can create home ownership opportunities where monthly payments (principal and interest) can be aslittleas$4,000 per million borrowed on a 5/1 at a 2.5% interest rate (APR).

Marin County real estate fundamentals were fairly stable in 2011, especially when compared to the equity markets. Single family homes sold in 2011 increased by 3% to 1,912 closings. The average days on market improved by 9% for homes over $1 million, but decreased by 7% for homes under $1 million. Average and median prices for single family homes below $1 million decreased by 5% and 6% respectively; while over $1 million saw modest decreases of 2% and 1%respectively. The links below to tables and charts more specifically reflect market conditions in Marin County.

Downloadable Market Data

• Full Q4 2011 Report: http://issuu.com/lisa_norman/docs/pui.q4realestatereport?mode=embed&layout=http%3A%2F%2Fskin.issuu.com%2Fv%2Flight%2Flayout.xml&showFlipBtn=true
• January 2012 Report: http://www.box.net/shared/static/48o3kq14mdeozhh2q4re.pdf

Real Estate Downturn v2? Probably not.

August 2011

Since 2008 both the economy and the real estate markets have been put through a roller coaster of both real and perceived threats. It is safe to say with a large degree of qualitative and quantitative hindsight the ’08 crisis as it related to real estate was very real and there is some lingering, although greatly diminished, effects of that today. So what does the current crop of economic news mean to the real estate market?? That is the question we will try to better understand here.

The first thing to do is look at the 2008 market. The cause of the Fall 2008 crisis was predominately driven by two colliding failures:

1. The residential housing bubble finally collapsed deflating values by 25% - 40% depending on the region of the country.

2. Many of our financial institutions were undercapitalized and near a state collapse. Largely as a result of poorly underwritten residential mortgages.

The good news from this is that our country’s economic fundamentals are far stronger today than those present during the Fall 2008 and Spring 2009 financial crisis. We have consolidated our financial institutions into larger and arguably healthier banks due to more internal and government oversight. The Federal Reserve has made access to capital both plentiful and affordable. The residential housing market remains unpredictable; however, new home building is nearly a zero in our GDP so clearly the broader real estate market is not poised for a collapse.

In fact the volatility we are now navigating is not from a lack of economic confidence; it is one of a complete lack of political confidence. To quote Moody’s it is “the risk of political polarization and uncertainty that are among the drivers of our negative outlook”…on the USA and its debt. The Chief Investment Officer shared thoughts illustrating that our underlying real (or adjusted) GDP growth might be 3% v the recently reported 0.8%. Three phenomena seem to have constrained GDP from 3% to 0.8%. They were:

· The disruption in global supply chains as a result of the Japan earthquake (.25%)

· The increasing cost of oil which resulted in reduced consumer spending (1%).

· USA government fiscal policy, or lack thereof (1%).

If we believe the above are somewhat temporary and political rhetoric can be channeled to fiscal responsibility, then we may see GDP increase in the second half of 2011 to over 2%.

While all of this macroeconomic news is interesting, it certainly affects our local real estate markets. In the San Francisco Bay Area, we are a largely supply constrained market. In the six counties Pacific Union serves, only two counties really experienced over building in the pre-2007 housing boom. As a result, inventories are manageable and not causing downward pressure on pricing. Pacific Union (PUI) has representation across all of the Bay Area’s major markets and our regional managers weighed in with the following observations from our San Francisco, Marin and other selected regions:

· San Francisco – The market seems stable with typical light activity as expected in summer. Multiple new escrows in process and mainly in $1.25 to $2.25 million range.

· Marin – High-end of market is performing well. The larger share of sales activity is priced over $2m and all buyers seem stable, committed and feel values are still appropriate.

· Napa – The high-end of market is very active with multiple deal closing in excess of $7m.

· Sonoma – Like Napa there is no evidence of stress in this market as well.

As we look forward hopefully our politicians have read a few recent headlines and now feel the demand for fiscal responsibility to start stabilizing the markets. As for local real estate, as our children return to school we expect to see an increase in listing inventory and increasing units sold through Thanksgiving. Interest rates remain at historic lows (mortgages are “on-sale”) and real estate is relatively inexpensive. While many will retreat and wait for the comfort zone (near the next peak), now is the time to seek opportunity and buy! That said, for those who have high quality homes in good locations that are looking to sell expect price pressure, but nothing like we saw a couple of years ago.

The Cost of Waiting for Prices to Fall

Reproduced by permission of Adam Wise of MSP Loan

Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices. They should be concerned about cost.

The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point…

Prices
The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year. The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009. A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.

Interest Rates
The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said: “Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.” So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.
Let’s show you what the news means:


By sitting on the sidelines for the last 90 days a purchaser lost:
• $ 439.78 a month
• $ 5,277.36 a year
• $ 158,320.80 over the thirty year life of the mortgage

The Bottom Line
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year. Work with your local MSP Loan Mortgage Consultant to customize flyers for your buyer's that will illustrate the effect that the still rising interest rates will have on their home purchase.

2010 Was the Year of the Missing Spring

As the year ended I decided to look back on the year and try to make sense of what was *not* a normal year by any stretch of the imagination. By that I am speaking of how we in the real estate world look at cyclical trends throughout the year. Take 2009 for example: It looks like how real estate cycles typically play out over the course of any given year. To gauge performance I looked at the percentage of homes in contract as a measure of how the market was absorbing inventory across all 13 major Marin county cities. A measurement of over 35% in contract is usually indicative of a sellers' market. 25% in contract is usually indicative of a buyers' market. 25%-35% in contract indicates a balanced market. If we look at the 2009 numbers we saw a real estate market in the midst of a reasonably strong recovery. That shouldn’t be all that difficult to imagine in contrast to the truly difficult years of 2007 and 2008.

The key sub components of this graph to note is where the buying cycles typically occur. I think we are all used to seeing “for sale” signs going up as the days get longer and the weather gets better in March. This is the official start of the spring selling season and 2009 indeed shows a nice healthy upswing in inventory reduction from March to June much like and other typical year. Then comes the summer lull from June to September and again 2009 does not disappoint in terms of meeting typical expectations. The secondary sales cycle starts in September and runs through October and is usually a weaker upward trend compared to its spring brethren. In 2009, though, that expected trend took and unique turn. A general feeling that the worst of the economic downturn coupled with pent up buying demand and low inventory created an atypical surge in buying that propelled the market into what was beginning to look like a seller’s market for the first time in 3 to 4 years. Maybe both the economy and the real estate market was back on track? Not so fast. Read on…

The Spring 2010 Selling Season That NEVER Happened

Having been in the real estate market for 17 years I am hard pressed to remember a situation that I witnessed in 2010. There was literally NO spring real estate selling cycle this year. As mentioned above, we started the year hopeful, but many realities came home to roost. Let me see if I can rattle of a few of the key drivers that shattered the nerves of anyone considering buying a home this last spring: Huge deficit concerns, a meltdown in European banking across multiple weaker member states like Greece, the fallout from passing the Healthcare bill, the stark reality that job growth will not happen in 2010, the return of home foreclosures, continued war in the middle east and so on and so on. These factors are clearly reasons for people to rationalize sitting tight. The result: A steep decline in activity this last spring that totally eliminated the typical and expected upward sales trend from March through June. Even in 2008 when the market was still reeling from the recent banking collapse we saw this expected upswing, but not this year.

Does a Stronger Fall Mean An Improving Market in 2011?

The fall actually got off to an early start with an early upswing in activity starting in the typically slow June/July timeframe as inventories were being absorbed across the county. Once all of this bad news was digested and most people understood that although things we tough, they actually were getting better (albeit with expectations set that it will likely be very slow but steady) then the market got back in gear. With news that job growth was looking better, European banks stabilizing, inflation well in check and the Fed committing to low interest rates through 2011, the market experienced a stronger than average upswing in the typically tepid Fall selling cycle. One could assert that those buyers that were looking to buy in the fall and deferred in the Spring got back in the market. So as we close 2010, we are almost where we were last year! We are edging up and through a balanced market with trend lines pointing towards a more robust new year. That is what we saw last year and if we have all learned anything it is to expect the unexpected. The overall economy and real estate markets will continue to surprise us in both positive and negative ways, but if/should things actually continue to improve across the board in 2011 with no big surprises disrupting advancement then May/June 2010 may have been the recent bottom. That of course is speculation and I will keep you abreast of where the market continues to go in the coming year.

I’m looking forward to working with you in 2011!

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division

415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

How Low Can Rates Go?

I have to admit that I really did not see this coming. What am I referring to? Well, mortgage interest rates that is and their recent and dramatic slide. First, a little background on the basics; The Fed has kept the Federal Funds Target Rate at a historically low .25% since the beginning of 2009. That is compared to 6.5% in June of 2000 at the height of the Dot Com market which went down to a then historically low 1% by January of 2004 as we were digging ourselves out of the first recession of the decade. It was that condition, of course, coupled with relaxed regulatory constraints that set us up for the next and bigger Great Recession in late 2007 when the Fed rate topped out at only 5.25%.


Rates Falling Faster Than Gravity
I think it was fair to say that the overall consensus was that as we entered the spring of this year that the country was on a slow but predictable growth curve that would strengthen as we got into the second half of the year. In fact the market saw it that way as well. Below is a chart that shows the 2010 trend for the 30 year fixed interest mortgage interest rate for conforming loans. The valuation of the interest rate started out at just over 5.00% in January and increased as the spring selling season hit its cyclical stride in April when it topped out at 5.10%. But then something happened. Was it the expiration of the first time home buyers credit on April 30th? Perhaps, but that was not a likely big influencer. No, it was unemployment and fears of a double dip recession. Remember the notion that the second half of the year would bring accelerated economic growth? Well, it didn’t happen and the market predicted a much slower demand for loans…which were already tough to qualify for. Hence the rates slid off a cliff and by August were down to its lowest recorded rate ever: 4.43%!! (Source: Freddie Mac Monthly Average Commitment Rate On 30-Year Fixed-Rate Mortgages).

And What Happened to Marin Home Sales?
So what happened locally in the post-April time frame? Before we get into that, it is important to acknowledge that the average Marin buyer qualifies for loans more frequently than the rest of the market. That means that more buyers can actually take advantage of these low rates and get a loan to purchase a house. This is not the case in the broader regional and national market as a whole. The net result is that, despite the expiration of the first time buyer credit and news of impending economic doom in the form of a double dip recession, buyers continued to buy. Before the market headed into its predictable summer slump sales continued to accelerate through May and June as we see in the chart below.

In the chart below we see the above trend mapped against the interest rates trend. Are rates headed down some more? That is something no one can predict but certainly rates are very attractive these days.


So What Will Happen This Fall?
As most of you may know the largest volume of home sales in a year occurs from mid-march to the end of June. That is followed up by a smaller, yet not insignificant, “fall selling season” which typically runs from mid Sept and up to early November. In terms of rates, they very well could continue to be soft through the fall. I also am seeing properties, especially at the higher end of the market, moving as well. If you are looking to upgrade into a new home and you can qualify for a loan, then I think it is safe to say that this is a rare opportunity to secure a loan at a historically low rate. That said, do not be surprised that when you find that ‘must have’ move-in quality home with a view and high end finsished that competition is there to bid up your offer. For those of you who are thinking of selling, the premium is on “done” properties so make the investment to fix things up, stage and put your best foot forward into this unique market.

Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com

Demystifying the “Pocket Listing”

This may be an observation about human nature more than anything else, but most buyers that I work with always ask to be notified of any new listings that I may know of before it goes on to the MLS. “MLS” by the way stands for Multiple Listing Service and is the centralized system that provides information about all listed properties. You can actually look for listings yourself based on specific criteria on the MLS which can be accessed from a link on the left hand side of my web site. This is a fairly recent development as it used to be that only professional realtors had access to the system. I digress, but the point is that with information in this industry becoming more pervasive so has competition for prime properties as they come on the market. Why do most people ask about these unlisted properties? Why, to get a good deal on a great property of course! Without competition there is always the hope/chance that something special will pop up and a good price can be negotiated.

Defining the Pocket Listing
There is actually a mechanism in our business to market properties that do not go on to the MLS and that is called a “pocket listing”. In short pocket listings are when there is a signed listing agreement between the broker/agent and seller to sell a property but without the exposure through the MLS and usually without any other exposure except word of mouth. As a percentage of all listed properties it is minuscule, but that said I am aware of a decent number of pocket listings in prime communities here in Marin. So why do sellers opt for this type of listing? The reasons vary, but the listings typically apply to higher end properties which involve more complex transactions. Reasons why sellers might choose to go this route include;

• Testing the market value and interest level of the property.
• Sellers might not be 100% ready to sell but if the right buyer is ready, willing and able they would.
• There may be a strong desire for privacy and a quiet sale.
• Do not want unqualified buyers wandering through their home .
• Sellers might be in the process of looking for a home to move to-but not yet found one.

Weighing the Upside and Downside for the Seller
Ultimately, the seller must decide if exclusion from the MLS is in his/her best interests and does not limit exposure on the market. Sometimes sellers ask about treating their property as a pocket listing. People have often heard the term, but don’t always understand either the benefits or downside to having their property sold off the market. When a property is marketed directly to other agents and their buyers I am usually only showing the property by appointment and there are no open house showings.

There are benefits. Perhaps the sellers don’t want to do, or pay for the preparation work involved in bringing the property to market. As their agent, I want the property to show its best and sometimes that means the sellers are looking at some extensive and potentially expensive work to prepare the property for market including; packing and placing their items in storage, dealing with both structural and cosmetic repair work, and staging for their property. Then during the marketing period there’s personal disruptions including multiple open houses a week, evening showings, private showings and often people peering into the windows and ringing the door bell because there is a for sale sign on the property. Or perhaps, it’s a couple with young children and they just can’t tolerate that process, or a seller who just wants to quietly sell without all the neighbors knowing or coming through the home. They want to sell, but they don’t want the public exposure that comes with the marketing of the property. An off the market sale or pocket listing can make sense for them.

What’s the downside? Well, I always tell sellers that they will never know what the property would have sold for on the open market. There’s always a question as to whether they received the highest and best price. But each property sale is a snapshot in time, and perhaps the difference would be small. But if the home had been properly prepared and marketed, would the seller have received a better price? They will never know, and they need to be okay with that. It’s a trade off, but if it works for the client, that’s fine.

So How Many Are Actually Out There?
Let’s start with the top level numbers. In all of Marin County there are 1,095 single family homes currently listed. The actual number of pocket listings is not a known quantity as different firms have different ways of communicating and tracking them. Many firms have no way of tracking them. At Pacific Union we have a means to track internal pocket listings and currently we are tracking 33 pocket listings, which equates to 3% of the market. The average listing price comes in at a whopping $2.7m, which backs up my earlier point about these being typically higher end properties in higher end communities. In the mix is one $10m property with a couple $7m properties right behind. Below is the breakdown by community for the pocket listings available:

• Belvedere: 1
• Fairfax: 1
• Kent Woodlands: 2
• Kentfield: 3
• Larkspur: 1
• Mill Valley: 8
• Novato: 2
• Ross: 4
• San Anselmo: 2
• San Rafael: 3
• Sausalito: 1
• Tiburon: 5

So if you are interested in learning more about pocket listings, feel free to contact me and I’ll be happy to explain more and discuss these unlisted opportunities and your real estate needs. I am always grateful for your referrals.

Sharon Kramlich
Top Producer
Pacific Union International Real Estate/Christies Great Estates
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com