San Francisco and the surrounding area experienced a sharper dip in home sales in July than what DataQuick analysts expected for the month. Buyer interest usually slows during this time of year, and the 13.9% drop is attributed to a dysfunctional market, an unpredictable economy and a more unpredictable price bracket. Observers note that sales for homes priced above $500,000 were hit hardest due in part to the discretionary nature of spending at that level. Buyers of more expensive real estate can afford to take it or leave it, and low consumer confidence coupled with low investor expectations are encouraging potential purchasers in the nine-county area to hold on to their money. For more on this continue reading the following article from The Street.
After posting a strong month-to-month sales gain in June, the Bay Area housing market took a breather in July as potential buyers and sellers watched the strange political show in Washington D.C. and pondered a rising tide of dreary economic reports.
Sales fell more than usual from June – especially for homes above $500,000 – but edged higher than July last year, which was 2010’s first month to lose the full force of homebuyer tax credits, a real estate information service reported.
A total of 6,887 new and resale houses and condos sold in the nine-county Bay Area last month. That was down 13.9% from 7,998 in June and up 1.7% from 6,773 in July 2010, according to San Diego-based DataQuick.
A decline from June to July is normal for the season, with that dip averaging 6.8% since 1988, when DataQuick’s statistics begin. July sales have varied from a low of 6,666 in July 1995 to 14,258 in 2004. Last month’s sales were the third-lowest on record for a July, behind July last year and in 1995, and fell 26.8% below the average July sale tally.
"Last year’s tax credits were by and large gone by July, so last month’s year-over-year comparison is pretty much apples and apples. We’re still looking at a dysfunctional market. Distribution curves are lopsided, bottom-feeding is still prevalent and the lending market is just plain weird. We’re off bottom by all metrics, but far from anything resembling normal," said John Walsh, DataQuick president.
Last month’s sales fell harder in the higher price ranges: The number of $500,000-plus homes sold dropped 25.4% month-to-month and 19.2% year-over-year, while sales below $500,000 fell 17.1% month-to-month and increased 3.5% from a year ago.
"There’s certainly a lot more discretionary buying in the higher price ranges," Walsh said. "A lot of those buyers have the option to just take it or leave it and, lately, it looks like more have been leaving it. There was a lot of uncertainty out there over the economy, home prices and the nation’s future. And that was before the stock market turbulence hit in early August."
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The median price paid for all new and resale houses and condos sold in the Bay Area last month was $374,000, down 1.0% from $377,750 in June and down 7.0% from $402,000 in July 2010. The June median was the highest this year, while the July median was the second-highest.
The median’s low point during the current real estate cycle was $290,000 in March 2009. The peak was $665,000 in June/July 2007. Around half of the median’s peak-to-trough drop was the result of a decline in home values, while the other half reflects a shift in the sales mix.
Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 26.6% of resales in July. Last month’s figure was up slightly from a revised 26.1% in June and up from 25.3% a year ago. Foreclosure resales peaked at 52.0% in February 2009. The monthly average for foreclosure resales over the past 15 years is about 9%.
Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 18.8% of Bay Area resales last month. That was up from an estimated 17.9% in June, 17.2% a year earlier, and 14.4% two years ago.
Last month 35.3% of Bay Area sales were for $500,000 or more, down from 37.7% in June and down from 41.1% in July 2010. The all-time low for the current cycle was in January 2009, when just 22.7% of sales crossed the $500,000 threshold. Over the past 10 years, a monthly average of 47.3% of homes sold for $500,000-plus.
Fueling many lower-end transactions are low-down-payment, government-insured FHA home purchase loans, a popular choice among first-time buyers. They accounted for 22.4% of all Bay Area home purchase mortgages in July, up from 20.6% in June and down from 23.1% a year earlier.
One indicator of mortgage availability that has seen improvement this year dropped in July. Last month 14.2% of the Bay Area’s home purchase loans were adjustable-rate mortgages, a drop from June’s 16.8, which was the highest portion since 20.7% in August 2008. The average monthly ARM rate over the past 10 years is 45.3%. ARMs hit a low of 3.0% in January 2009.
Jumbo loans, mortgages above the old conforming limit of $417,000, remain relatively hard to get but accounted for 32.7% of last month’s purchase lending, down from 36.8% in June and 36.4% a year ago. Jumbo use hit a low for this cycle of 17.1% in January 2009. Before the credit crunch struck in August 2007, jumbos accounted for nearly 60% of the Bay Area purchase loan market.
Last month absentee buyers – mostly investors – purchased 21.2% of all Bay Area homes sold, up from 20.0% in June and 17.4% a year ago. The peak was 23.4% in February this year, while the monthly average since 2000 is 13.8%. Absentee buyers paid a median $236,000 in July, up from $235,000 in June but down from $269,250 a year ago.
Buyers who appeared to have paid all cash – meaning no corresponding purchase loan was found in the public record – accounted for 26.3% of sales in July, up from 26.0% in June and up from 25.1% a year ago. The record was 30.5% this February, while the monthly average is 11.9% since 1988. Cash buyers paid a median $230,000 in July, down from $248,000 in June and $270,000 a year earlier.
San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Because of late data availability, sales were estimated in Alameda and San Mateo counties.
The typical monthly mortgage payment that Bay Area buyers committed themselves to paying last month was $1,525, up from $1,533 in June and down from $1,641 a year ago. Adjusted for inflation, last month’s payment was 44.7% below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 59.1% below the current cycle’s peak in July 2007.
Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but below peak levels reached over the last three years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying is above average, DataQuick reported.
This article was republished with permission from The Street.