Market Watch Report September 2007

Call off the dogs. We are in the dog days of summer. That time when many families take their last vacation and many children start preparing to go back to school. This year we had a few more dogs. A new breed called the sub-prime Chihuahua---its bark is bigger than its bite and the jittery stock market terrier—a nervous little bugger. This was enough to keep more buyers at bay.

Sales activity has slowed since the sub-prime fiasco hit which sent reverberations through the financial communities and rippled through the stock market. Where are we two weeks later? The Fed doused the conflagration with $100 billion dollars of liquidity. The flames have subsided for the moment. The stock market has been buoyed by the latest economic indicators that reflect the economy is still on solid footing.

Although the media screams there is no money available for financing and one deal after another is falling apart---the reality is far from their myopic reporting. Transactions are closing even if buyers have to go to find new lenders---a small segment of transactions will not close, but this is far from the majority.

The conforming market, those loans under $417,001, has not been affected at all, as they have a secondary market to sell to. Yes, the jumbo side of the market has been affected by some larger mortgage companies that have not been able to fund loans because of their inability to find a market to fund their loans. But by no means is this a cataclysmic event. There are financial institutions that portfolio loans that have plenty of money to lend. Yes, qualifying criteria has changed. The days of loosey-goosey qualifying are over. The companies that have gone out of business and those that now find themselves in financial trouble and the investment brokerages that packaged the risky sub-prime funds have no one to blame but themselves. They are the ones that set the qualifying criteria. We are now back to basics insuring that those with poorer credit histories, stated income loans with a wink and loans that can put people in harms way will not put the whole system at risk. The after shocks will continue for a while. We even see a few more lenders re-entering the market at excellent rates as there are plenty of credit-worthy buyers who need loans.

It is more important than ever that buyers go with solid mortgage companies and professional and experienced loan officers. It is taking longer to qualify and sellers need to be cognizant of the environment. Sellers should make sure that the buyers are pre-approved by the lender who is actually funding the loan not just the mortgage company. Both buyers and sellers need to do their homework.

There has been much brouhaha made about foreclosures. It is true there are some areas in the Bay that have significant increases. The counties of Napa (particularly American Canyon), Sonoma, Solano and parts of Alameda and Contra Costa (east and west CC) have been impacted. However Marin, San Francisco, San Mateo and most of Santa Clara county are even or lower than last years numbers. According to Realty/ one out of every 333 households received a notice in July that it was in some stage of foreclosure----that is about 1/3 of 1%. I wouldn’t call that an alarming number. Everything has to be put in perspective. Headlines shout disaster, but reality speaks differently.

We are experiencing fewer multiple offers and fewer numbers of offers in multiple offer transactions. Only 40% of our offices reported having a multiple. Still amazing given the state of the financial markets. The upper end still is showing strength as that part of the market is less dependent on financing. A new Ross listing at $7.195 mil. received an offer in less than a week. A Marin listing priced at $1.7 mil. received a pre-emptive offer and went over by $100K.

Open house activity was mixed. Overall the buyer flow has been slowing. However in San Francisco and other more active markets like Central Marin and Montclair/Berkeley/Piedmont areas still are seeing positive buyer activity. A Greenbrae listing priced at $1.75 mil. had 100 people through (of course a number were neighbors). A San Rafael listing priced at $870K had 30 buyers through and is expecting 4 offers. A two unit building in the Potrero area of SF had 70 buyers through and a 3bedr./2ba. home in the NOPA (north of the Panhandle) had 40 groups. The wine country (Napa and Sonoma counties) and Contra Costa have slowed appreciably.

For the most part the listings currently on the market have been around for awhile. As sellers reduce prices to market levels these homes are beginning to sell. What we are hearing is that there are a number of well-priced and attractive listings coming on the market after Labor Day. Those buyers searching now have a unique opportunity as they have less competition and sellers who are motivated to sell their homes. Just like in the stock market you want to be buying when others are not.
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