Tuesday, December 29, 2009

Case/Shiller Index up again - have we really turned the corner?

The Case/Shiller Index, which tracks composite home prices across 20 major metro areas including the SF Bay Area, shows those areas mainly up again in October. The SF Bay Area edged up 0.4% from September to October, which is three months in a row of increases. Here's the story from the SJ Mercury News:
http://www.mercurynews.com/business/ci_14086439

Does this really mean we've turned around? I'd say yes. As posted previously, both the median and average selling prices in Los Altos have increased each quarter this year. Also, inventory levels have been dropping steadily which helps drive more demand. That has been happening in Los Altos as well as Mountain View and Los Altos Hills.

You're probably wondering - why? In my opinion, low interest rates and a strong interest in living here. Rates are ridiculously low so anyone who can get a loan is getting one.

As for living here, we've got some of the best schools in the state, a comfortable semi-rural lifestyle (no streetlights, etc), and low crime. People want that and are willing to pay for it. We were one of the last areas to drop during the general market decline. We're among the first to recover.

We'll see how it goes but I think 2010 will be a really good year. I have a 4BR/2BA listing in Los Altos coming on the market in February so we'll see how that goes.

Monday, December 14, 2009

Snapping up investment properties in the Bay Area

The SJ Mercury News printed a story this morning about a significant increase in purchases of investment properties in 2008 versus 2009. The original article is here:
http://www.mercurynews.com/top-stories/ci_13972794

Investors have been active in other areas as well including Menlo Park (east of 101), East Palo Alto, Sunnyvale, and San Jose for the same reasons stated in the article; prices are low enough that costs can be covered by rents.

There was another article in the SJ Mercury earlier this year saying that a group of investors in the East Bay had pooled $6 million to buy homes priced at $100K or less to do the same thing. Their expectations were that values would double in 5 years or less. I don't see that happening, but I do see low end values going up.

Investors should also be looking at Los Altos but with a longer term picture in mind. There have been several homes priced in the $1-1.3 million range where rents would probably be in the $3500-4000 range. That rent won't cover the cost of PITI but it will cover most of it. Down the line, Los Altos has shown a history of solid growth in equity.

The homes today selling for $1.2 million would have sold 2-3 years ago for $1.3-1.5 million. Assuming the recovery continues and we see the value of entry-level homes increase in Los Altos, an investor in Los Altos could easily see gains of $100-300K in these homes in the next 2-3 years.

It's my opinion that the entry-level homes in Los Altos will move up the usual 7% per year we've seen in the past while the mid-range and high-end will grow at much slower paces.

Thursday, December 10, 2009

First Republic Bank - Prestige Index - latest update

The latest figures for the SF Bay Area have come out. Look here for the details:
http://www.firstrepublic.com/lend/residential/prestigeindex/index.html

The average luxury home value for Q3 was $2,521,840, down 3.8% from Q2. In the article a Coldwell Banker manager states that buyers in the $4M+ range are waiting for the market to stabilize.

For Los Altos, this means that the high-end within our area is having and will continue to have problems. However, there are very few homes in Los Altos priced over $4M. As of today, there are 46 active listings for single-family homes. Of those, only 3 are listed for more than $4M and one is very close ($3.988M). the majority of homes are listed for $1.5-3.0M.

In Los Altos Hills, there are 42 active listings available. Of those, 17 are priced at $4M or more and two of those homes are exceptionally expensive; the ones on Natoma and Stonebrook priced at $22M and $28M respectively.

I think the Prestige Index is a nice indicator of how well the market is doing. However, most listings that get sold in Los Altos and Los Altos Hills are priced below the threshold of that index. With the turnaround in the economy, I expect we'll see continued strength in sales in Q4 2009 but with the average selling price dropping. That will probably change in Q1 2010 as high priced listings come back on the market and start to close in late Q1.

Time will tell but I think we've hit the turning point.

Friday, December 4, 2009

Now is definitely the time to buy because...

Interest rates are incredibly low, prices are much lower than the highs of early 2008, and inventory is still high for this time of year.

An article published in the SJ Mercury News points out that interest rates are at record lows and buyers are taking advantage of the opportunity.
http://www.mercurynews.com/business/ci_13917606

Loans at these rates are for conforming loans up to $729,750 - which isn't a price point seen in most Los Altos homes. However, several homes have recently come on the market priced under $1.3M. This makes a conforming loan possible for a lot of "move up" buyers.

As of today there are 49 single-family homes available in Los Altos. Of those, 8 are priced under $1.3M . In addition, there is also one undeveloped lot at this price point.

There are 18 townhomes/condos available in Los Altos. Of those, 16 are priced under $1M.

This means that there are easily 23 properties in Los Altos that are prime targets for buyers, with good cash down payments, who can then take advantage of these record low interest rates. There are more buyers than there are available properties, so now is a great time to buy in Los Altos.