Alain Pinel Realtors’ President & COO Larry Knapp made these recent comments on the local real estate market:
“All indications are that the market at the lower-end has not only bottomed out – but is on the rebound. Almost everywhere around the Bay Area first-rate properties priced under $1 million are selling, and in many cases selling in multiple-offer situations.
Inventory has dropped considerably since this time last year, and the market is vigorous. On average, the number of homes closed in the first six months of this year for all seven Bay Area counties was up 28% over 2008.
The bigger question for many of our agents who work in the luxury market is what’s happening there. Between October of 2008 and June of 2009 closings of homes over $2 million hit the wall. Year-to-date through June, closings in this segment were down 50% to 80%, depending on where you were in the Bay Area. On average for our entire market area, closings above $2 million were down 57%. Until October 2008, few luxury markets had felt the impact of the slumping economy. After October it was quite dramatic.
Starting in late April and continuing through June, open business in the over $2 million market has shown notable improvement over previous months. While still below last years numbers, the rate of decline grew smaller.
In June, pending sales for homes over $2 million across the Bay Area was down only 21% from 2008. While certainly slower than last year, it is still a healthy improvement over the first five months of this year. This trend in open business has continued into July.
We have also heard of a healthy “shadow market” in the extreme upper-end where homes above $10 million are being quietly marketed and sold under confidentiality agreements – not through the MLS but through the network of agents who are known to specialize in that selective market. For a number of reasons, these clients choose to work behind the scenes and outside of the public eye.
There are two phenomena taking place once a property goes into escrow. First, there is twice as much work required to get the sale closed compared to a couple of years ago. Second, sales on the whole are taking much longer to close. In the past we could have expected most open sales to close in 30 to 45 days; it is now commonplace for those same sales to take between 60 and 90 days. With this in mind, tracking open business is a much better indicator of what is happening today than tracking closings.
Perhaps our biggest challenge is the situation in the appraisal arena, particularly as it relates to conforming loan product. There is an enormous disconnect from the old way of doing things versus the new. Regulations that have been introduced to try and avoid the abuses of the past have the appraisal evaluation business in disarray. Appraisers who are not familiar with the nuances of our Bay Area micro-markets are often struggling to justify sales prices. While some might say that this is needed, the new system is not open to drilling into facts on comps that should be considered in many cases.
A good example of this appraisal issue is an REO property that came on the market in the South Bay a couple of months ago. It was listed at a really great price for the neighborhood: $450,000. The listing generated eleven offers, with most over $500,000, and the highest being $570,000. A sale in the mid $500,000’s could have been supported with a good appraisal, but instead, the third party asset management company chose to take a $350,000 all-cash offer. How would you like to be a shareholder in the bank that authorized that decision? But, more importantly, it set a very low comparable sale for the neighborhood that is not a true reflection of market value.
In today’s appraisal environment, an appraiser would likely ignore the facts and stand on the $350,000 price as a comp in the neighborhood. The facts are that the property had eight buyers willing to pay over $500,000 for the property. The consequences of the seller’s decision and the new appraisal rules will end up doing damage to all of the other property owners in the area.
In closing, I’m happy to report that our open business for June and into July was very positive in all of our markets around the Bay Area. In addition to the robust market under $1 million, we are finally seeing a generous amount of activity in the $1.5+ million properties, including a good number of sales in the $2 to $4 million range. Our open business for June was the best we’ve seen since June of 2007.
Whether this level of activity will sustain itself is yet to be seen, but it certainly is a breath of fresh air to see the buyer demand at such a high level.”