San Francisco Real Estate Market Update for the week ending April 19, 2009
Time Home Buyers Are Fueling the Come Back
It’s finally happening. In my August 2008 Reality Check message I discussed our market’s need for the revival of the first-time home buyer. Because as we know, first time home buyers are a critical force that will help jump start our market rebound, creating that important domino effect that will ultimately benefit all price points. When first time home buyers purchase entry level homes, that allows the entry-level homeowners to sell and move-up to a mid-level, move-up market. By purchasing those homes, the move-up market is able to sell and ultimately purchase homes in the luxury arena. It’s a much-needed domino effect that will have significance in our market’s rebound. The numbers released over the last two weeks are showing that the process has already begun.
First, let’s look at NAR’s release this week of its March existing home sales. Now of course some media did use the nationwide month-over-month decrease in sales as an opportunity to take a negative spin but there were a lot of positives in this news. First, nationally, prices rose from February to March by 4.2 percent which is much higher than the typical 1.8 percent seasonal increase between those two months.
Second, housing inventory at the end of March fell 1.6 percent to 3.74 million existing homes available for sale, representing a 9.8 month supply at the current sales pace. This is important to note because March is frequently a strong listing month and more often than not, inventory grows in March.
In the West, existing home sales declined 4.2 percent to an annual rate of 1.13 million in March; however, of great significance is the fact that this number is 18.9 percent higher than last year at this time.
The fact is, the share of lower priced home sales have trended up, indicating a return of many first-time buyers. Sales in the upper price ranges remain stalled, but the last two weeks have produced more $1M+ pending sales than we’ve seen in a while as Buyers are taking advantage of two things in the upper end. One is the luxury of choice. Buyers can actually shop and compare.
When they find what they want at an attractive list price- they are making offers. The second fact is that although Jumbo loans still have practically no secondary market (which increases competition and lowers interest rates), the Jumbo rate appears to be currently within one percent of the conforming; and buyers are seeing that it’s still a very attractive rate. For example, Princeton Capital’s rate sheet on April 20 showed a 5/1 Conforming at 4.625 –I point, and the 5/1 Jumbo at 5.3% - 1 point. FICO scores and down payment are of course key, but the market is beginning to get used to the new requirements.
Another interesting note, the Mortgage Bankers Association this week released its Weekly Mortgage Applications Survey for the week ending April 17. The index showed an increase of 5.3 percent from the previous week and that was a 76.9 percent increase compared with the same week a year ago. Yes, a 76.9% increase in mortgage applications, that’s not a typo.
While there is some criticism of certain steps our administration has taken to revive our economy, it seems some of the early work like the first time home buyer tax credit is effective. Earlier this week Inman News reported that the preliminary numbers from the IRS suggest 1.4 million taxpayers will claim the federal first-time home buyer tax credit on their 2008 tax returns, meaning the program is likely to meet or exceed the 2 million target set by lawmakers before it ends November 30, 2009.
Finally and I think this is probably most notable, the Wall Street Journal reported this week that prices have fallen back into line with what the typical household can afford to pay in most of the U.S. The report showed that home prices are dubbed “fairly” valued in 202 of the 330 markets studied. That means the average price level is within a band 14% above or below the historical norm. Twenty-one markets are “overvalued” or between 14% and 34% above the norm. And 106 markets are considered “undervalued” or more than 14% below the norm. Take a look at this graph which showcases where we were in the early part of the decade as compared to today:
I know it’s difficult to view the drop in property value a positive thing. But the fact is that though the ride was nice in the big real estate boom of the early 2000s, we couldn’t sustain those types of record appreciation levels without eliminating certain consumer niches, including first time home buyers. Now that levels are back within range, the first time home buyers are once again able to reenter the market which is why we are seeing such a strong surge in sales in that level.
Locally, we had further news this week that symbolized the first-time buyer pick-up. Rather than summarize them, I’ll simply share the links for your own reading:
- http://www.dqnews.com/Articles/2009/News/California/Bay-Area/RRBay090416.aspx
- http://www.dqnews.com/Articles/2009/News/California/RRCA090416.aspx
Read the entire report here.
posted by SFResidence.com @ 6:23 PM
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