Market Conditions

Is housing bouncing back?

“The deeply depressed housing sector finally seems to have found its bottom — and may even be starting to bounce back.

A wide range of housing indicators — construction, home sales, prices — have stabilized in the past few months, although they remain at historically very low levels. And it looks as if construction activity in particular will pick up in 2012.

The latest evidence of the momentum — new-housing starts for November — was released Tuesday. The surprising 9.3 percent gain bumped the rate of new-housing construction to its highest level in 19 months, to a rate of 685,000 new units a year. The number of building permits issued for new houses and apartments also rose, to 5.7 percent in November.”

Click here to read the entire article.

Social Media Fuels SoMa Rental Boom — But Will It Be San Francisco’s Next Big Real Estate Bubble?

“SAN FRANCISCO — Walk through San Francisco’s bustling SoMa neighborhood and you’d be forgiven for thinking that the economic roller coaster of the last 12 years was nothing more than a bad dream. Both the dot com boom’s epic implosion and the misery of the Great Recession vanish behind a chattering group of enthusiastic engineers waiting in line for artisanal grilled cheese sandwiches.

At times, it seems like there has been steady economic growth in SoMa from the tech explosion of the late 1990s to today’s boom. While the newfound expansion, one based on the seemingly limitless possibilities of social networking, is re-inventing the way people communicate from China to the Carribbean, its beating heart lies in SoMa’s row after row of converted warehouses.

“The high-tech industry is a bright spot in an otherwise gray economic picture. High-tech jobs have grown nearly four times faster than the overall economy during the past 18 months,” a report by real estate services firm Jones Lang LaSalle noted.

Over that same period, tech job growth in San Francisco surged by 16.1 percent — the fastest of any area in the country, according to the report. That’s one and a half times the rate in Silicon Valley during the past year and a half — and growth has been the largest in SoMa. If tech is one of the most resilient parts of the U.S. economy, the strongest part of tech is in SoMa.

These jobs are largely generated by eager young companies champing at the bit to become the next Google or Microsoft, and they all need somewhere to house their employees. This need has led to a hyperactive scramble for office space that seems shocking so soon after an irrationally exuberant real estate market catalyzed the biggest financial collapse since the Great Depression.”

Click here to read the entire article.

Residential Housing Ready to Awaken

“After half a decade of withering sales and slumping prices, there are strong and diverse signs that the single-family housing market is poised for a rebound. In some metropolitan areas, the market has bottomed, with both sales and prices on the rise and foreclosures on the decline.

This contrarian — and largely overlooked — thesis flies in the face of the persistent gloom that has nagged the industry since 2007, when the subprime crisis flared.

Industry analysts and players cite a number of reasons — some traditional (employment), others unique to the post-credit bubble era (foreclosures) — for the long-awaited sea change. An analysis of industry and government data also support the forecast.

“It has become increasingly apparent to us that the pieces for a housing rebound next year are beginning to fall into place,” declared Barclays Capital analyst Stephen Kim in a recent note to investors.”

Click here to read the full article.

Positive Reports on SF

An article in today’s Chronicle, in conjunction with Bloomberg, while not particularly positive about near-future trends in US real estate, is much more positive regarding San Francisco.

“Your best bets: a small handful of “property-wealth islands,” including San Francisco and San Jose/Silicon Valley, both seen as “primary 24-hour gateways located along global pathways,” according to a report being released today at the Urban Land Institute conference in San Francisco.

San Francisco ranks third out of 51 cities as a place to invest in and develop commercial and multifamily apartment properties and fourth in for-sale home building, with San Jose two or three rungs lower in each category, according to the survey compiled by the institute and PricewaterhouseCoopers.

Washington, Austin and New York are the other top-rated cities.” …

“’There’s still an understandable reluctance by potential homeowners to get into the market,” said White. [Executive Director of the Urban Land Institute, San Francisco]

Not so, however, when it comes to renting or leasing commercial space in high-tech areas like San Francisco’s Mid-Market and South of Market, a trend driven largely by the influx of a younger, more mobile and urban-oriented workforce.

“Gen Y is driving up the demand for apartments and driving up rents, which makes investing in apartments a safer bet,” said White.

Depending on how long it lasts, such a trend could be a game-changer for real estate.”…

“California’s future is a lot more urban and transit-oriented than it has been historically. There’ll be an increasing demand for the 24-hour, livable city model,” said White. ”

The Chronicle Article is Here: www.sfgate.com

The full report – Emerging Trends in Real Estate — from the Urban Land Institute is here: www.uli.org

Paragon in the Examiner: Rent vs. Buy Analysis

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In San Francisco, 3 big factors are impacting the Rent vs. Buy equation: the 15-25% decline in prices since 2008, fast rising rents, and incredibly low mortgage rates. This chart compares the median SF asking rent for a 1-BR apartment ($2650) to buying a median-priced, 2-BR condo in SoMa ($650,000). With 20% down, adjusting for principal pay-down and tax deductions, the net monthly cost is actually lower for the buyer. And the financials get better over time.

To perform calculations using your own assumptions regarding interest rates, rent, down-payment, appreciation, purchase price and costs, go to www.paragon-re.com/Calculators/RentvsBuy.aspx. For the complete analysis, click on View Report.

UCLA Anderson Forecast of Rising CA Home Prices

“According to the U.S. Bureau of Labor Statistics, the preliminary unemployment rate in San Francisco-Oakland-Fremont areas for September 2011 declined to 9.2 percent. And, based on the State’s Employment Development Department, the unemployment rate in San Francisco’s metropolitan area is currently at 8.7 percent, the lowest in California.”

“The same panel of UCLA economists who earlier warned the California housing bubble was going to burst is now predicting homes prices are ready to rebound. The UCLA Anderson Forecast anticipates an 11.5 percent price jump next year. The forecast calls for another 10 percent increase in 2013 and a median price of nearly $440,000 by 2017 that would represent a 52 ∏ percent increase over today’s prices.”

Just FYI: the UCLA Anderson forecasts have been unrelentingly gloomy for a very long time, so this is a big turnaround in their forecast:

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“UCLA economists forecast that California home prices will rise steadily over the next six years, although the recovery in home sales isn’t projected to begin until 2013.

The UCLA Anderson Forecast predicted that the median price of an existing single-family home will increase 52.5% by 2017, rising to $438,980.
This year’s median house price is projected to be $287,904, down 0.3% from 2010.
But home prices are projected to turn around in 2012 — jumping 11.5% to $321,138 next year, then rising 10% more in 2013 to $353,411. The recovery is expected to run through 2017.
But house prices still will be below the housing market’s 2006 peak of $560,408 more than 10 years down the road, failing to retake that pinnicle by 2017.
The sales recovery won’t get under way until 2013, the statewide forecast shows. UCLA forecast that:

• California home sales will drop to 483,132 single-family home transactions in 2012, down 1.4% from this year’s projected level of 490,137.
• Sales will climb from 2013 through 2015, hitting a high-water mark of 547,945 transactions that year.
• By 2017, however, sales will settle back to 507,842 transactions — just 3.6% higher than this year’s projected total.
• By comparison, California house sales totaled nearly 625,000 transactions a year in 2004 and 2005.”

Weekly Market Charts

Market Dynamics by week for the past 6 months through October 23, 2011 for San Francisco houses, condos, TICs and 2-4 unit buildings.

Listings Accepting Offers: The week ending 10/23/11 had 155 listings accepting offers, but that number will go down as some of these deals fall through – probably to the low 140’s. Still, that is well above the 100 listings that accepted offers in the corresponding week in 2010.

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New Listings Coming on Market: The number of new listings since Labor Day has been well below the number last year. Insufficient new inventory is not meeting buyer demand.

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Listings for Sale: Inventory continues to decline and still reflects the situation for much of this year. Inventory is very low. At this time last year, there were almost 700 more listings on the market. On a percentage basis there were over 35% more listings on the market.

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Percentage of Listings Accepting Offers (going under contract): the percentage for the week ending 10/23/11 will probably decline to somewhere in the 7.7% range from the 8.4% showing today as it is adjusted for deals that fall through. Still, that would be among the highest rates we’ve seen in many years – last year at this time, the percentage was about 4%. Strong demand + very low inventory = very high percentage of listings accepting offers.

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Median House Sales Price: Weekly fluctuations in median price are not particularly meaningful, but for what it’s worth, the last 3 weeks have been above and sometime far above the average median for the past 6 months ($712,000). The week ending 10/23/11 saw a median house price of $749,000; the week before saw $841,000. (But frankly, we prefer to look at median prices for entire quarters or longer periods, as opposed to individual weeks.)

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Units Sold: Last year, reflecting the huge burst of new inventory in mid-September, the week corresponding to last week saw a huge burst of closed sales (150 closings). That compares to a number for the week ending 10/23/11 that will probably end up in the mid-nineties when all sales are entered into the system. Low inventory is certainly constraining the number of sales, and appraisal issues are probably increasing the number of deals that fall through now.

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Expired/ Withdrawn Listings: For about every 2 listings that sell, another listing expires or is withdrawn without selling, usually due to being perceived as overpriced. Many of these expired listings will be eventually re-listed at a lower price and ultimately sold – though they probably would have sold for more money if more aggressively priced to begin with.

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Weekly Charts

Paragon YTD sales: Comparing MLS sales YTD 2011 with those of the same period in 2010, Paragon’s total dollar volume is up 32%, and our increase in percent market share is 27%. For houses, condos, co-ops and 2-4 unit buildings selling for $2,000,000 and above, our dollar volume is up 62% and our percent market share is up 46%.

Below are weekly market condition charts for sales reported to MLS for houses, condos, TICs and 2-4 unit buildings, for 6 months, through the week ending 10-9-11.

Home Listings Accepting Offers: Last week saw a big surge of listings going under contract, to the highest level since the height of the spring sales season. It will be interesting to see if this continues or is simply one of those big weekly fluctuations that occur every now and then for no apparent reason. As a comparison, in the corresponding week in 2010, the number of listings accepting offers was 104.

Homes for Sale: low inventory levels already decreasing after barely rising in September. Last year at this time there were 2525 listings vs. this year’s 1852 listings for sale in the week ending October 9th – over 650 fewer homes on the market.

New Listings: Many fewer new listings so far this autumn selling season than last year.

Percentage of Listings Accepting Offers: a very high number of offers being accepted + very low inventory = a very, very high percentage of listings going under contract in the week ending October 9th.

Note that the number of listings accepting offers and the percentage accepting offers will be revised downward somewhat as some existing deals fall through. But it is unlikely that enough deals will fall through to change the fact of the significant surge in both statistics.

Stabilization in the SF market?

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San Francisco condos appreciated rapidly between 2000 and the peak value years of 2006-2008. (The spike actually began in 1996.) Then, after the 2008 market meltdown, median prices declined rapidly in these areas by 15–22%. Since 2009, they have either stabilized or fluctuated within a relatively narrow band. Small percentage changes in median price are not particularly meaningful until consistent over the longer term. San Francisco may be at the beginning of a new upward trend, but it’s too early to tell.

This graph is not proportional to the timeline, so the spike between 2000 and 2006 appears more dramatic than it was.

Conforming Loan Limits Dropping October 1, 2011

Eric Nelson of Silicon Valley Funding writes:

In 2008, as a response to the collapse of the mortgage market, federal regulators created a new category of mortgage, the high-balance conforming loan.  Since that time, loans have been available up to $729,750 in high-cost areas at rates lower than those for full “Jumbo” mortgages.

Conforming loans are those that have a loan balance under $417,000 which can be re-sold by an originating lender on the Fannie Mae and Freddie Mac federally sponsored mortgage markets. This allows the lender to re-lend the same funds over and over again and is important to the liquidity of the lending market.  The high balance conforming limits applies to mortgages between $417,001 and $729,750.  This program was created to support the economy by assisting high-balance borrowers during the financial crisis and was temporary.

Starting October 1, 2011, the high balance conforming loan limit will drop to $625,500.  This in turn means that interest rates on these loan amounts between $625,500 and $729,750 will be HIGHER starting October 1, since they will no longer be backed by the government. After October 1, any mortgage over $625,500 will officially be a “Jumbo.”

 Interest rates this week are among the lowest we’ve seen in 2011 and it is not expected that the federal government will extend the high balance conforming loans up to the $729,750 level again in the near future.  Fixed rate loans have seen the largest drop and are currently the lowest interest rates we have had in the past 40 years.

 If you are planning a purchase or refinance and you will need a loan amount between $625,500 and $729,750 you should get the process started immediately.

 Eric can be reached at eric@svcfunding.com  and 408-268-2442, and has been helping people finance their homes since 1987.