The real estate market in Pleasanton CA in July looked a lot like the market in June. The activity level is remarkably steady, though not brisk. Inventory is up slightly, especially in the under $1 million price bracket. But for now the market seems to have settled into a slow but steady pattern. The good news is that there are sales occurring… 45 pending sales in July to be exact, down slightly from 49 pending sales in June. The bad news is that there are now 269 houses on the market, which is up from 243 houses available at the end of June.

For sellers this means you will have to be competitive with other homes on the market. You need to be one of the best values in your price range to attract the attention of buyers, which is no easy task. In fact, buyers today have an attention span seemingly measured in hours or even minutes. “Yes, I kind of like that house” in the morning turns into “It’s okay, but let’s see what else is out there” by mid-day, and by evening they have completely moved on. For buyers, this is a prime opportunity to get a great house in a prime neighborhood for prices well below the peak of 2005. So here is what the market looks like at the end of July (click on graph to enlarge)

In the under $1 million bracket, inventory increased to 146 homes for sale at the end of July, up from 120 at the end of June. There were 33 pending sales in July, which has remained fairly steady (30 in May, 32 in June). There is a 4.4 month supply of homes on the market now at the July sales rate (click on graph to enlarge)

In the $1 million to $2 million bracket, inventory has crept up slightly, with 33 homes on the market at the end of July, up from 32 at the end of June, and 30 at the end of May. However, sales have declined, with 9 pending sales in July, down from 14 in June and 20 in May. (Click on graph to enlarge)

In the luxury home bracket over $2 million, there were 36 homes on the market at the end of July, down from 42 at the end of June. Some of these were the result of price reductions, and some sellers simply decided they no longer wanted to play in this market. There were 3 pending sales in July, which is the same level as May and June. Overall, conditions in this price bracket remain sluggish, and there is currently a 12 month supply of homes at the current level of inventory and sales. (Click on graph to enlarge)

I expect inventory to edge up slightly as we get towards the end of Summer, and sales to remain fairly stable at current levels. Still a great time to buy. And if you are going to sell, you had best price your home to reflect the current market, or be very, very, very, very patient.

Popularity: 100% [?]

I love this sign, courtesy of the Knoxville News Blog. With so many “bottom feeders” out there posing as buyers, it is refreshing to see someone tell it like it is. I know everyone wants a deal, and I am generally good with that. But it gets annoying getting calls from people asking if the sellers on your home that is listed (correctly, by the way) at $899,000 will take $650,000. Sure, as soon as John Lennon plays his next live tour (Click on image to enlarge)

Popularity: 92% [?]

It is always amusing when Realtors meet with potential sellers, and the conversation around pricing is often filled with comments from the seller such as “I want X amount for my house” and “my house is worth X because the house around the corner sold for Y, and mine is nicer”. And Realtors, sometimes under pressure to tell the seller what they want to hear, chime in with “yeah, I think you can get X for your home! It is magnificent!” or “yeah, the market is slow, but looking at your home, I’m thinking it is worth Y”. Often, Realtors and sellers get into a kind of “groupthink” situation where each one reinforces the other, and before you know it, they have worked each other up into a frenzy. The only problem is that there is one party who is a huge part of the equation regarding the value of the home, and their point of view is usually not represented in these meetings of the mutual admiration society… I am speaking of course about buyers. And guess what? Surprise… they usually have a totally different opinion about the value of your home.

The fact of the matter is that it is the opinion of the buyer that counts the most. They are the one(s) writing the check, so you must see the market through their eyes if you want to sell your home in this market.

Price Vs. Value. You see, all the seller and the realtor can do is set the asking price for the property. They can not set the value. The value is determined by buyers and the strength of the market in that price segment. So the seller and Realtor might agree to set the asking price of a given home at $900,000, for example. But if they receive no offers and very little interest after 30 -60 - 90 days, then the value of the house is not $900,000.

So if buyers ultimately hold the power in determining the value of a home, it makes sense to try and understand how buyers view the market. What is the mood of buyers today? What is important to them? What are their concerns? So here are some things that buyers think about when evaluating a house in this market.

How Long has it been on the market? This is the first question buyers ask about a home without fail. Why? Buyers want to gauge how much “room” there might be in the asking price, and how desirable the house is to the market in general. If the answer is “90 days”, then the buyer will generally assume it is overpriced, and mentally discount the value of the house. Or worse yet, buyers will ask themselves “what is wrong with this house that no one else is interested in it?”. Either way, it is not good. Of course, if the price has recently been reduced, it helps reduce the impact of this question. If the answer to the question is “3 days”, then the buyer knows that there is likely not as much room in the asking price, and will need to be fairly aggressive in terms of the offering price if they want to make an offer. The fact is the seller’s position weakens the longer the house stays on the market.

I don’t want to be a fool. Buyers, whether they verbalize it or not, are afraid of making a mistake. No one wants to buy a house for $900,000, only to find out it is worth $800,000 six months or a year later. In a soft market like this, buyers need to feel somewhat insulated against future price erosion. Translation: buyers want to buy your home at a good enough price that the market can slide some more, and they will still feel okay about it.

It needs to be as close to move-in condition as possible.. To have success in this market, buyers have to be able to move in without having to do a lot of updating or work. Buyers just don’t seem to be in the mood to buy homes that need a lot of work, unless it is at a substantial discount. So carpeting should be new or newer, paint should be fresh, and there should not be any repairs or touch up items needed. Sellers in this market need to eliminate as many possible buyer objections as possible before the home goes on the market.

The value has to be justified. Buyers have to be convinced that the price is justified by hard data. Comps or comparable sales are great. The only problem is that sellers tend to gravitate towards the sales at the higher end of the spectrum, and guess which sales the buyers tend to give most importance to? The lowest ones, of course. It takes a seasoned professional to explain both the high comps and the low comps to the buyer so that they can be reasonably certain that the value is there for that home.

If it’s not near perfect, I am better off waiting You can’t blame buyers. There has been an onslaught of negative media attention on the real estate market, and the economy. This leads to insecurity and uncertainty on the part of buyers today. So if the house is not exceptional in terms of value, or close to perfect in terms of condition, buyers often revert to waiting.

It takes strong value in today’s market to get buyers to act. Your home has to stand out in your price segment in order to attract the attention of serious buyers. Smart sellers know that they have to leave some money on the table if they want to sell today.

Now that we talked about what buyers care about, here are some examples of what buyers don’t care about:

* How much the seller “needs” in terms of the sales price. Adding the phrase “because the seller really needs the money” to an ad will have zero impact with buyers. They don’t care.

* How much potential there is. Buyers buy what they can see, and they buy what the property has now. Buyers don’t generally assign much value to the fact that you could add a guest house, pool, sports court, or family room addition for example.

* The seller is offering a credit of $50,000 to remodel the kitchen, or baths, or flooring, etc. Bad news: Buyers are not willing to undertake remodeling or updating unless there is substantial incentive to do so. Sellers see a dollar amount associated with upgrades. Buyers see spiraling costs, flaky contractors, living with chaos, stress, and a huge hassle. Buyers are more likely to pass on your house and buy one that they can move right into.

* That you spent major money remodeling your kitchen and master bath 10 years ago. That was then, this is now. In fact, improvements you made 10 years ago might be out of date today.

Popularity: 14% [?]

The Pleasanton CA real estate market continued on a slow and steady trend in January, as rainy weather and the dark clouds of bad news on real estate and the economy dampened most buyer’s moods. Fears of a recession and dismal national real estate news were instrumental in prompting the Federal Reserve to again lower short term interest rates by 3/4%, which is certainly good news for mortgage rates in the short term. And the impending stimulus plan being proposed in congress, but not yet signed into law, brought even more hope that the bottom of the cycle is near. Perhaps most significantly, the much discussed increase in the FNMA loan limits, which are currently stuck at a laughable $417,000, seemed to pick up steam, with speculation that an increase into the low $700,000’s for the Bay Area was being considered. This figure, which is based on 125% of the area’s median home price, might be the spark everyone is hoping for to signal the end of the home price declines. As the Senate and House reconcile their stimulus bills, it is not yet certain that an increase in the Federal conforming loan limits is imminent. But most industry insiders are hopeful that the increase in the loan limits will become a reality. All of this is prompting cautious optimism that we will see some stabilization in the Pleasanton area real estate market as we go into the Spring market.

Overall in January, pending sales remained at a low level, ending the month of January at 25 pending single family home sales, up from just 24 in December. The inventory at the end of January rose to 159 single family homes on the market, up from 136 at the end of December. This is still a low inventory figure, although it is expected to rise as we enter the Spring. (click on graph to enlarge).

In the under $1 Million market segment in Pleasanton, pending sales declined in January, ending the month with 14 pending sales, as compared to 17 in Decembr. Inventory rose, with 81 single family homes on the market at the end of January, as compared with 69 at the end of December. (click on graph to enlarge).

The $1 million to $2 million market segment saw an increase in pending sales, with 10 pending sales in January, up from 5 pending sales in December. Available inventory of homes in this bracket rose from 43 available homes at the end of December to 50 available homes at he end of January. (click on graph to enlarge).

In the $2 million plus market segment, there were no pending sales in January, a decrease from 1 pending sale in December, and 9 and 4 pending sales in October and November respectively. Inventory rose slightly, with 28 homes on the market at the end of January, up from 26 at the end of December. (click on graph to enlarge).

Look for both inventory and sales activity to pick up as we get into March and April. Lower interest rates, along with the possibility of the increase in FNMA loan limits, seem to be prompting more buyers to start looking. Most agents are reporting an increase in traffic at Open Houses, and there seems to be more inquiries from potential buyers. While this is no guarantee that sales will increase, it is certainly a good sign. Another positive sign is the emergence of “vulture funds”, where investors seek out bargains on foreclosed properties. This is a signal that at least some professional investors feel we are nearing the bottom of this down market.

Stay tuned… the next couple months promise to be interesting. And yes, there are some excellent purchase opportunities in the market.

Popularity: 9% [?]

Lost in all the negative news about real estate and the on again off again talk about recession (mostly on again lately) is the fact that mortgage rates are down… a lot. As I have written about on numerous occasions, long term mortgage rates are not generally directly effected by Fed rate cuts. Long term mortgage rates are more closely tied to long term bonds and treasury securities. It is the long term outlook for inflation, and the strength of the economy that has the greatest impact on long term mortgage rates. Here is the latest interest rate graph, which clearly shows both conventional (loans up to $417,000) and jumbo 30 year fixed rate mortgages in California. As you can see, both conventional and jumbo rates have trended down significantly, especially the conventional mortgage rates which are well under 6%. Jumbo loans are down as well, though not as much as conventional rates. (click on graph to enlarge)

This is great news for buyers, and helps make homes, especially entry level homes, more affordable. With prices down, and uncertainty rampant, buyers are finding excellent opportunities in today’s market. Indeed, a home will cost you less today than it would have even a year ago.

For short term fixed loans (3 year to 7 year fixed rate loans), rates are down even more sharply. This is to be expected, as short term fixed rate loans are directly impacted by moves in short term interest rates, and the Fed has continued to lower short term rates to stimulate the economy and try to avoid a recession. The graph below shows Jumbo 3 and 7 year interest only loans in California. As you can see, they are down sharply. (click on graph to enlarge)

While inflation jumped in December, mainly due to spikes in the cost of energy, it is the threat of recession which is driving the lower rates. If you pay attention, there are some tremendous buying opportunities in the market right now.

Popularity: 10% [?]

Okay, so word on the street is that the Fed is going to lower the Federal Funds rate tomorrow. Wall Street and the Bond Market has already priced in a 1/4% rate drop. If Bernanke lowers the rate 1/2%, it could give an additional boost to the stock market, and ease short term rates even more, which is good news. The impact on the long term rates is less certain, as Bond traders sometimes consider short term rate cuts as inflationary. However, with the recent sluggishness in the economy, there is probably not a lot of concern about inflation at the moment. The Fed has certainly made it known that it will do everything in its power to prevent the sluggish real estate markets from tipping our economy into recession. So everyone on Wall Street, in the bond market, and in the real estate and mortgage market are anxiously awaiting word on how much of a rate cut we get tomorrow. I’m betting on 1/2%. Of course, I also thought my first born was going to be a boy, and I was wrong then. We’ll find out tomorrow…

Popularity: 10% [?]