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2010 Halftime Report: Where our Market is Today

A look at January through June of 2010 versus the First Half of 2009 in the GRUBB Company’s major market areas*, in the price range of $500,000 and above.

MLS Statistics in our Market Area*

Units          $Volume        Median Price     Avg. LP/Sq Ft      Avg. SP/Sq Ft

1^st Q 2010 184       $149,599,952          $711,000                $413                      $422

1^st Q 2009 139       $118,927,329          $725,000                $414                      $405

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2^nd Q 2010 389      $339,470,300           $770,000                $414                      $419              

2^nd Q 2009 328       $278,619,321          $742,250                $432                      $429

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4^th Q 2009 329       $270,134,685          $718,000                $418                      $423

The GOOD NEWS:

Unit Volume: Up 18.5% for the entire MLS in our market*, while as a company we are up 47%.  In previous reports, I mentioned that the 1^st Quarter of 2009 was really the bottom of the market for Sales Volume.  I admit that was part prayer, part prediction, but luckily, it remains true so far.  While the Federal First Time Buyer credit may have given the market a boost in other areas, historically low interest rates were a strong force in our area.

The BAD NEWS:

Average Price/Square Foot: We are certainly in a directionless market for pricing.  I was predicting in 2009 that we would see the bottom of the market for prices in our area during the 4^th Quarter of 2009.  Once again, I found the bottom of the market by looking over my shoulder.  The real bottom appears to have been the 1^st Quarter of 2009.  But once prices stabilized and came off the bottom, we have been in a very directionless market with respect to prices.

The Confusing NEWS:

Median Price is Up: This just means that the upper end of the market is moving again. We are returning to a normal distribution of sales across all price ranges.  As predicted, this would have a big effect on moving the Median Price Index.  In fact, the newspapers have reported some areas of California experiencing as much as a 26% rise in the Median Price Index in the 2^nd Quarter.  The rise from the trough of the market to June of 2010 can show Median Price increases in excess of 50% (figure 1).  Once again, do not be fooled by this statistical aberration.  In 2009, the lower price ranges comprised 70 – 80% of the total market, forcing the Median Price down and being a poor determinant of actual pricing.

What Will Affect the Upper End of the Market

Will Interest Rates remain low?

• At the beginning of this year, the 10 Year Treasury was hovering around 3.8%.  The Mortgage Bankers Association predicted that the yield would go to 6.0%.  It peaked in April around 4.0 and by the end of June it dipped below 3.0.  If the yield goes below 2.7%, nearly every loan made in the last 3 years will want to be refinanced and rates will be at historic lows.

Will we begin to see a continual increase of liquidity in the Jumbo Market?

• We are seeing the very finest paper being written in 40 years.  Every aspect of a loan is documented and triple checked.  And yet, Wall Street is fearful of Mortgage Backed Securities.  It is very ironic that Wall Street had a huge appetite to purchase mortgages at a time when banks were willing to loan money to people who did not have a job, did not have income and were not credit worthy.  Until Wall Street wakes up, Jumbo loans (greater than $725,750) will still be available through very few lenders.

Will “Strategic Foreclosures” increase the inventory of higher priced homes?

• We have gone through many of the mortgage interest rate resets in lower price ranges.  Now, these interest rate rises are hitting the upper end of the market.  There have been many articles written about “Strategic Defaults” among the wealthy.  That is, the homeowner can still afford to make payments, but strategically allows their mortgage to go into default as a way to leverage their lender into agreeing to a short sale or loan modification.  Since this really amounts to a financial game of “Chicken”, only time will tell if these defaults actually result in increased foreclosures and distressed sales in the upper end of the market.

* Statistics from the EBRD Multiple Listing Service areas: Albany, El Cerrito, Kensington, Berkeley (01, 02, 09.10) , Piedmont, Oakland (94602, 94610, 94611, 94618, 94619)

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