Gary Peckham
Coldwell Banker
Email: carealtor@comcast.net
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Leslie Appleton Young, the chief economist for the California Association of Realtors, recently noted that all that California’s real estate market really needs to right itself is six straight months with no surprises. All the ingredients for a turnaround are there — record low interest rates, outstanding affordability, and very attractive home prices. But economic and political headwinds at home and abroad kept the market from really gaining much momentum this year. To be sure, 2011 was anything but predictable. On top of the tepid economic recovery here in the U.S., there was one crisis after another around the world — the Japanese Earthquake and Tsunami, the “Arab Spring” uprising, a spike in oil prices, political standoffs on Capital Hill, the debt limit ceiling and downgrade of U.S. debt, and most recently the sovereign debt crisis in the eurozone and the subsequent stock market volatility here at home. While the Bay Area’s real estate market did show some encouraging signs of improvement in certain price segments and communities, skittish consumer confidence, the sluggish economy, stubbornly high unemployment and volatile financial markets all combined to keep home prices and sales flat in most areas. DataQuick, the La Jolla research firm, reported that Bay Area home sales in October — the most recent figures available — increased 5.3 percent from a year ago, but the median price of $350,000 was down 4.1 percent from last year. CAR in its annual forecast predicts that home sales in California will rise just 1 percent in the coming year. But Appleton-Young says that our region has advantages over other parts of the Golden State that could come into play. “The Bay Area, particularly Silicon Valley, stands out as having the strongest economy and housing market,” she said. Indeed, real estate is all about location, and nowhere is that truer than here in the Bay Area. We really have four distinct micro-markets: Silicon Valley and other west bay regions, the distant suburbs in the east, north and south bay, the dense urban market of San Francisco, and everyone else. So how did they fare in 2011? While the local markets in San Francisco, Silicon Valley, the Peninsula and Marin in general held up reasonably well, many of the more-distant regions continued to be challenged by distressed properties, softer pricing and slower sales. Distressed Markets While the release of additional distressed properties could keep prices of all homes down in 2012, we suspect that strong demand by investors for these homes will probably keep prices from falling much further. We’ve seen multiple offers for many bank-owned properties, sometimes all cash offers, as investors snap up what they believe to be great bargains. Luxury Market Buyers in the luxury segment of the market ranged from high-tech, biotech and financial executives to well-healed overseas investors from Asia and Europe who are drawn to the attractive pricing of luxurious properties compared to the higher prices back in their home countries. Russian billionaire Yuri Milner, a big investor in Facebook, Groupon and Zynga, made headlines this year when he reportedly paid $100 million for a lavish 25,500-square-foot mansion in Los Altos Hills. But he was hardly the only luxury buyer. Sales of homes valued at $5 million and above soared 80 percent in the Bay Area this year, jumping from 44 transactions in 2010 to 79 so far in 2011, according to MLS figures. Non-distressed mid-market Equity homeowners stayed on the sidelines, perhaps due to a lack of confidence in the housing market and the economy in general. They may have been frightened away by doom and gloom news headlines about the housing market, or maybe fear over whether they might lose their job should the economy stumble again. This uncertainty and lack of confidence, I suspect, will continue to some degree into 2012 until there is more positive improvement in the economy. But as we approach the new year there are glimmers of hope that the housing recovery could finally gain some traction. Gradually we’re seeing fewer distressed sales and more “normal” transactions. Despite the recent downturn, the high-end market had a solid year in 2011, which is a good sign for the entire market. In the past, luxury homebuyers — the so-called “smart money” — are often the first to declare a market bottom and jump back in because they have the means to do so once they are convinced the time is right. The other segments eventually follow. Buyers are far more active right now and that, coupled with tight inventories, is helping to firm up pricing while getting serious buyers to be a little more realistic when making offers–especially in the entry-level arena. Properties priced correctly and that show well are getting a tremendous amount of traffic as well as multiple offers in some cases. Additionally, we are finally seeing many banks starting to process short sales in a more streamlined fashion, allowing us quicker short sale approvals. Finally, the news media are starting to join the chorus suggesting a turnaround is near and that now is the time to get back into the housing market. A recent Fortune magazine article declared, “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” And The Wall Street Journal followed with a headline declaring, “It’s Time to buy that House.” So will 2012 usher in a steady, predictable economic recovery at long last or another wild rollercoaster ride of economic and political surprises? Only time will tell how it all plays out. Fasten your seat belts! |
