No Fall Slowdown in Bay Area as Buyers Snatch up Luxury Homes
Posted on November 18, 2012
The housing market is supposed to slow down as we get deeper into the fall season and inch closer to the holidays, but something very unusual is happening here in the Bay Area. Not only is the market remaining active overall, there's been a remarkable surge in luxury home buying – in particular, the mega-home sales.
A quick look at closed sales at the end of October caught my attention. Our company alone closed an amazing 13 sales over more than $5 million in the Bay Area just in the last two weeks of October! The vast majority of these deals were in San Francisco, the Peninsula and Silicon Valley, although one was in Healdsburg. The homes went for as much as $11.1 million, the price paid for a Los Altos Hills property.
In all, we saw the strongest October in sales volume since 2004 for the San Francisco Peninsula Region. And although I can't share with you Coldwell Banker's proprietary sales figures, I can tell you that this added up to a 56 percent gain from just last October.
For a market that still faces a number of economic and political headwinds, this is quite a remarkable spike in activity for the upper end of the market.
So, what do we make of all this? It's a strong signal that the so-called "smart money" is placing some very big bets that the housing recovery is well on its way. Well-heeled investors believe that real estate today offers a tremendous value and the long-term potential is quite attractive.
Additionally, we continue to see more and more signs that the economy nationwide is gradually turning a corner. But more importantly, here at home, the Bay Area economy and job market continues to gain steam, led by Silicon Valley, the biotech sector and the investment community.
A new report released last week by the Bay Area Council adds more evidence of the Bay Area's economic strength.
According to the Council's Economic Institute, the Bay Area job market should expand more quickly than California and the nation over the next two years, primarily because of solid employment growth in the San Jose and San Francisco area. The organization predicts job totals locally should expand by 7.2 percent over the next two years, or average growth in the 3.5 percent range annually.
Technology employment will drive much of the Bay Area's job growth, according to the group's report. Professional and business services, which consist of a number of tech job sectors, will grow most quickly, expanding by 15.5 percent over the two years, the forecast showed.
"The Bay Area economy has been outpacing California and the United States by a wide margin," said Jon Haveman, chief economist with the Economic Institute. "That is likely to continue."
Of course, buyers have to bear in mind a number of political and economic challenges ahead. Although one uncertainty has been resolved now that the presidential election is behind us, we still face the rapidly approaching "fiscal cliff" in Congress, which could result in deep spending cuts and higher taxes by year-end unless a deal between the two parties can be struck.
But I think the smart money that's investing in the Bay Area's mega homes understands more than anyone that real estate is a long-term investment. And when you take a long-range view, it's hard to argue that this is a pretty good time to jump into the market – no matter what your price range.
Below is a market-by-market report from our local offices:
North Bay – In Northern Marin, the Previews high-end market remains remarkably consistent. The Novato market is still running its steady inventory of 18-20 properties in the $1 million+ range for the past year. There is still a fairly large disconnect between what the sellers want and what the buyers are willing to pay – e.g. the average price for active listings is $488/sf, as opposed to those actually sold in the last 2-3 months, which is $307. Properties that are contingent are averaging $328/sf. All of these numbers have remained consistent for the last three months. Our Sebastopol manager says the seasonal slowdown has arrived early. Many agents are speaking with sellers who are saying “maybe next year,” but unfortunately the buyers are saying they want more inventory now.
San Francisco – Although there has been talk of a slower market due to election jitters, our San Francisco Lakeside manager said his experience is that buyers are ready to buy if only they can find a house that suits their needs in an increasingly picked over inventory. Sellers are seeing that the best way to get the highest price is not to price high. An agent reported that his client's offer of several hundred thousand dollars over the asking price in St. Francis Wood was scoffed at and the property sold for a million dollars over the list price! Our Lombard manager reports that listings are starting to slow down a little. The percentage of deals this week that drew multiple offers is down, but most sales prices are still going over asking. Mortgage offers often have to go into back-up position behind all cash deals. Low inventory continues to be the headline as sellers shifted their focus to the election and the upcoming holidays. Buyers are still out in force, our Market Street manager reports, but not all properties receive multiple offers. One agent described his $769K listing as a “feeding frenzy” and gave out 45 disclosures, while other listing agents are doing multiple counter-offers to ratify with a single party. Our Sunset manager notes that it continues to be an active market. Inventory has decreased slightly in the last couple of weeks. There are still a lot of multiple offers but the number of offers has decreased. Agents are reporting large turnout at their open houses. And our Van Ness office reports that activity for past 10 days closing out October, which was the biggest closing month of the year.
SF Peninsula — Multiple offers and lots of them are the rule of the day, according to our Burlingame manager. With so few properties and so many buyers trying to complete purchases by years’ end, the Peninsula is “Red Hot” – 20 plus offers on well-presented listings have become the new normal. Sale prices are trending at 200k to 300k or more over asking in these situations. As always cash is king and offers with no contingencies are winning the day. We are finally seeing some movement in the $10 mill.+ price range with two pending sales over $12 mill. and increased activity in general in Hillsborough and San Mateo Park. According to our Menlo Park manager, open houses on lower end homes (outside of MP but still local) have been amazing – lots and lots of people. The public has been trained – most are armed with lender letters already. Higher end has slowed. Additional cautiousness has crept into the market. Some of that cautiousness may be election related. Inventory is starting to slow down in the Palo Alto area from what it was a month ago. Nonetheless, demand for inventory is still extremely high. Homes that would list for $1.3 have sold for $1.8 – all cash. Lack of inventory leads to fewer open houses, which in turn gives less opportunity to meet new clients, our Redwood City manager says. Any property – single family home or condo or townhouse – that comes on the market priced right and showing well is immediately in a multiple offer situation. Still a lot of anxious buyers looking for a home. San Mateo area inventory is down sharply and our local manager is unsure if it is the season or sign of things to come. Upper end Woodside continues to be a struggle. Sales are slowing again across the board in all of Woodside and surrounding ‘rural’ properties.
East Bay – Berkeley is experiencing a busy fall, at least September and October had many sales. Buyers seem to understand that they must make their best possible offers when competing for the still too few listings. Our open houses have been packed, even our condos, and many that have been open several times before. The Previews luxury market is lively as well with more million plus listings and more selling quickly, often with multiple offers. Activity is still very brisk with new buyers to the market showing up every week at open homes, according to our Oakland-Piedmont manager. Lots of packets going out on our listings. It is not unusual to have upwards of 20 and as many as 45 being sent out for prospective buyers to look at. Buyers and their agents are getting very creative in the letters that are written in order to grab the owner’s attention and have them choose their offer even if it is not the highest. As we near the end of the year the buyers that have been writing offers all year do not appear to be getting tired but more steadfast in their resolve to own a home. Lamorinda sales seem to be slowing a bit, perhaps due to the upcoming holidays. Very low inventory in Pleasanton and Livermore. Buyers are still out there but competition is very high if you don’t have the right financing. Multiple offers continue to be the trend on all listed properties, according to our Walnut Creek manager. Properties are not on the market more than a few days and some are not making it on the MLS at all. Sales are slowing down due to low inventory.
Silicon Valley – People have to stand in line to get into some open houses, our Cupertino manager says. We’ve got too many buyers chasing too few homes and too many agents chasing too few deals. In the Los Gatos area, properties are continuing to go under contract in spite of low inventory. There has been a recent uptick in pendings across the board, especially in the Los Gatos Mountains. This is a great time of year to educate sellers about the opportunity of selling their home now versus later. Our San Jose Almaden manager says multiple offers continue to be the norm. Inventory has reached 52-week lows in six of our 19 areas. Percentage under contract is 66% for SFD’s and 77% for PUD’s for the county. Inventory is still dropping in Santa Clara County with approximately 1,076 single-family homes available at present. Multiple offers on most properties, especially in the lower priced properties, is the norm. Low interest rates are keeping buyers in the market. Open house traffic is still extremely active in all price ranges. Our Willow Glen manager says agents are still seeing multiple offers in the low end of the market. Anything under the $600k mark is extremely competitive at this price point. The mid-level market is still seeing strong demand for anything in the $650 to $850 range. It's not as competitive, however still multiple offers on most properties in this range. We have seen a bit of as slowdown in demand for anything over the $1 million price point. Some properties are sitting on the market, but it might be seasonal; we will see how the market responds in the next few weeks post-election. Saratoga sales activity for the month of October was incredible, our local manager says. With listing inventory at an extremely low point the agents are complaining daily that they can't find properties for their buyers.
South County – The South County market continues to be battered by low inventory. Gilroy’s inventory is down to 55 actives, our local manager says – which is 1/3 of what a healthy, balanced market looks like. Of those, 33% are the luxury market for the area. As a result of the low inventory, most properties are going with multiple offers in a matter of days or hours. There are few open houses and those that get held open are well attended. San Benito County is similarly bleak with a lack of inventory. There are just 72 homes listed in Morgan Hill and only 14 homes for sale in San Martin. The “Sellers’ Market Phenomenon” continues. The average home in South County is selling at or above 101% of list price. The average “days on market” has dropped from 137 days (one year ago) to just 40 days (Nov. 2012). A true indicator of the market is “months of available inventory." That statistic is at its lowest level in years (just under three months supply). Sellers are smiling, buyers are frustrated and agents are working very hard writing offers that are acceptable to sellers-- over list price with no appraisal contingency. There also seems to be no seasonal adjustment, as demand remains very high for the few available listings.
Santa Cruz County – Inventory continues to drop. The total inventory of properties available for sale in October was 580, down 15.5% from 686 last month, and down 42.8% from 1,014 in October of last year. October 2012 inventory was at its lowest level compared with October of 2011 and 2010. There is currently about a 2.6 mo supply of inventory and market times continue to shorten also. The average DOM is 60 days, down about 19% from this time last year. The market with the inventory we have vs. the number of buyers is moving very quickly and most properties have multiple offers.
Monterey Peninsula – It’s hard to believe that it’s already November and sales activity on the Peninsula continues on as it has been for some months now. In most years new escrows would have decreased by now. However, our steady pace continues, though our listing inventory is falling. We are now seeing persistent agents with buyers but no suitable home to sell them. Agents are going out and finding possible homes and contacting the owners to see if they would be interested in an offer, and in a number of cases it has resulted in a sale. The Previews luxury market has seen increasing sales the last few months as well.
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