The June Market Metrics Reports,
validated what we’ve been saying for a number months. The Bay Area Real Estate Market is showing consistent increases in sales activity and median prices are
rising. A question that has come up
several times is “what kind of market is this, a seller’s market or a buyer’s
market?” We’ve become very used to categorizing the market one way of the
other.
I’ve been active in the real estate
and mortgage markets for 30 years and recovery’s always start at the same
place, the entry level. That’s right, it
takes first time buyers to get the market moving. First time buyers buy from sellers who
themselves “move up” to higher priced homes. A “trickle up” effect, if you
will, that eventually reaches the high-end of the market. That’s one of the reasons we see the focus on
first time buyers in federal and state stimulus programs that provide tax
credits to first time buyers.
The activity that is creating the
upswing in sales and median prices across the bay area counties shows extremely
strong activity in each market’s entry level price range. Moreover, in the
first week in June the number of pending listings in some areas exceeded new
listings for the first time since July of 2005. This is an indicator of a
healthier supply/demand balance.
Clearly, buyers at the market’s
entry level have decided that we are at or near the bottom. The $8,000 federal
tax credit provides extra incentive to move. And according to a recent Gallup
poll, 71% of Americans think it is now a good time to buy a home.
So if we’re on our way to recovery,
then we must be moving from a “buyers” market to a “sellers”, right? Perhaps. But there’s more to the story. You see, in many areas, the majority of the
sellers are banks, not people. In fact, according to DataQuick, a provider
of real estate market data, 55% of California home sales in May were properties
that had been foreclosed on in the prior twelve months.
The number of REO or “bank owned”
listings in our market is staggering. These are properties banks have
repossessed from foreclosed homeowners and must sell. When a bank-owned listing is sold, the
seller, the bank, isn’t going to “move up” into their own purchase at a higher
price. There’s just a bank selling a foreclosed
home.
So called “short sales” have a
similar effect. While the seller is a
real person, the lender that agrees to take less than owed to complete the sale
really controls the outcome, and very few “short sale” sellers are in a
position to “move up”.
You see my point: The market is
moving in a positive direction, but the climb up from the bottom is likely to
be a little bumpy along the way and may take longer this time.
This is great news if you’re a
buyer or investor: Prices at all levels of the market remain attractive. If
you’re a seller – particularly at the high end – you must continue to price
aggressively and have your home in top showing condition to sell.
In the meantime, we’ll continue to look for signs the market recovery is moving upward.