There's 2 things that stand out; 1) we're seeing some  improvement and 2) the influence that REO's have had in our markets.

I usually speak about the relationship between actives and pendings as being an indication of markets, just as months supply and median price comparisons give us a clue to better understand real estate on a local basis.

Pendings hit an all time low last fall in most areas. Surprisingly they have rebounded since the beginning of the year to their highest levels since I've been tracking them, (July 2005). Why the rebound?

1)      Investors looking for bargains, positive cash flows in markets that were virtually non-existent in the Bay Area 2 years ago.

2)      Ownership costs vs cost of renting as pointed out in an article written by Carolyn Said of the Sf Chronilce. View her article HERE.

3)      Prices have dropped to the point where buyers can now afford a house that they couldn't before.

4)      Much of what's selling are foreclosures. Typically, banks take longer to close escrow. This skews the numbers, keeping  them in  a pending status for longer periods of time.

However, it's obvious that the trend is moving towards improvement in most areas. The most dramatic improvements are coming from many of the areas that have shown the worst performances over the last two years. Obviously, the areas that have had the highest inventory levels and foreclosure rates have also shown the largest price declines.  Brentwood's a good example. Notice that inventory is now coming down while pendings are increasing. 74% of all sales in Brentwood over the past 3 months were foreclosures. There was a 14.2 months supply of homes there at the start of the year, now only 7.7 months.

Also, banks that we've been working with have become very aggressive in their pricing. I couldn't speak for other agencies involved heavily in foreclosure  sales, but we've seen multiple offers in about half of our sales and pendings transactions. As a rule, banks typically spend very little to improve their property's "curb appeal." They understand inventory and competitor factors in the markets. Reducing prices to attractive levels has become their strategy in an attempt to unload assets. As a result, those areas highest in inventory and foreclosure rates have suffered the largest price reductions overall.

 

As a follow-up to last month's REO surprise, "that one out of every five listings in the SF Bay Area is REO, Bank Owned Properties," we asked ourselves another question.

What is really influencing housing inventory and pricing in the SF Bay Area?

We've always heard that new construction has been the main culprit with overbuilding leading to a glut of houses for sale. All that new housing located along highway 4, Antioch, Brentwood, Pittsburg, Oakley seems to have led the way. After all, those areas are seeing between a 15 to 25% drop from last year's prices. (Median prices compared on a year to year basis for January).

So we ran some numbers again using DQ News and EBRD MLS services to see which has the greatest influence over listings and sales on a city by city basis. Numbers were pulled as of January 31, 2008.

SURPRISED again!

Well, with all of the subprime fallout, foreclosures, and REO news rolling around in the news, maybe it really isn't such a surprise.

The following list seems to put it in perspective. Reasons may vary, and differ depending on location. However, it is apparent that REOs, Bank Owned Properties, are now, the major influence on housing inventory and sales in the SF Bay Area.

Banks are the competition in a big way for sellers. Banks think differently about selling. Banks are becoming more aggressive in selling their properties. Not much in show or presentation, simply priced below the competition.

In many of our conversations this week, we've been hearing that activity has picked up. The word seems to be that "investors" are looking for bargains in the marketplace.

We have to agree that we are seeing that with our own REO listings. So we have to ask ourselves the next big question, will investors be leading the way?

Maybe they're smart enough to realize that timing a real estate market bottom is next to impossible. Maybe with low interest rates, lots of choices, and not many other buyers out there, this just may be the right time to pick up a bargain.

It seems that every day now, we see more and more properties for sale that are listed as REO (Bank Owned Foreclosures), and/or Short Sales.

Our team, has always run numbers as a means to better understand our markets. We researched the EBRD multiple listings service, following a conversation that we had last night. We were not surprised as to which cities had a higher percentage of REOs.

However, we did not expect the number for the entire San Francisco East Bay area to be this high, 21%. That means that roughly one in five houses that are for sale, are Bank Owned in the East Bay area. The interesting factor is that this number does not include "Short Sales."

When lenders allow a home to be sold for less than the amount still owing on the mortgage loan, that's called a pre-closure "Short Sale!"

I think you can see where this is going once you add "short sales" into the mix as well. The competition for many houses for sale in the market are from banks.

Here's our spreadsheet tracking cities in the San Francisco East Bay Area for Months Supply and REOs. Months supply is the ratio of inventory to sales. It tells us how many months the stock of homes for sale would last, if sales continued at their current rate.

For those living in other parts of the country, we'd love to hear what's happening in your market. We've already heard from one Las Vegas agent, that 20.8% of their listings are REOs or short sales.

 

Can anyone give me pros & cons on using Relay Transaction Management program?

What's in store for real estate in the Bay Area for the coming year? Most in the real estate industry agree that it will get worse before it gets better. However, predictions vary among our "experts." What are we in store for in 2008? When will prices begin to recover? Hear what some of them are saying.

"Don't count on market rebounding in '08, experts say." - Marni Leff Kottle of the San Francisco Chronicle.   "A real recovery in the housing market is probably at least a year off," said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.

California Association of Realtors's forecast for 2008; sales volume will continue to fall, 9% in 2008, as will the median price of a home, at 4%. Take a look at the 2008 California Housing Market Forecast presentation by Leslie Appleton-Young, Vice President and Chief Economist for the California Association of REALTORS® (C.A.R.).

"The best guesstimate most can come up with these days on a residential housing recovery is that 2008 will be more than half over before housing prices even stabilize. Right now, it's anybody's guess as to when they will start to grow positively." - Ryan Fuhrmann, an article printed in The Motley Fool.

It may take until the end of 2008 or beginning of 2009 for the market to hit bottom, said Mark Zandi, chief economist at Moody's Economy.Com.

"But the one thing that economists and real estate agents seem to agree on is this: As bad as it may get in the Bay Area, the region is weathering the downturn in the real estate market much better than most other places." "The housing market is fairly strong in the vast majority of the Bay Area," said Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley. "It's slipping a little, but it's not the free fall you have in some parts of the country."

"When you look at the rest of the state and even the rest of the country, the Bay Area has held up quite well," said Larry Klapow, president of Coldwell Banker's San Francisco Bay Area region. "The market has shown incredible resiliency." - So Long, '07

"Builder's expect recovery in second half" - Jessica Saunders, East Bay Business Times.   "At least two builders expect to see some recovery in the East Bay housing market in the second half of 2008, but another expert thinks it will be 2009 before demand and supply balance out."

"Once we get through the credit crunch, and buyers realize the world didn't end, they will come back," said Scott Menard, SummerHill Homes' chief operating officer, who predicts the market will continue down through at least the first quarter. "Next year will probably be a bit of an adjustment year."   Which brings us to the question; Will 2008 be a good time to invest in real estate? See what a recent survey showed taken by the East Bay Business Times.

This is a revision from the July Post as an update for what the months supply is doing on a city by city basis for Contra Costa & Alameda Counties.

What is months supply?  Basically, months supply is the ratio of inventory to sales.  And what it tells us is how many months the stock of homes for sale would last, if sales continued at their current rate.

See How your City is doing.

We currently have a 8.4 month supply of homes in the entire SF Bay Area. How does this compare historically? "A state of equilibrium" is considered 6 months, a point at which you would have an equal number of sellers and buyers. Considerably less, would be considered a "seller's" market, while anything more than that number would be considered a "buyer's" market. Since 1988, our low in California has been 1.3 months in April of 2004. It was even less than that in the San Francisco Bay Area. Our high was in February of 1991 at 18.8 months. The long run average has been 6.9 months. (Statistics are from C.A.R.)

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This is a revision from the May Post as an update for what the months supply is doing on a city by city basis for Contra Costa & Alameda Counties.

What is months supply?  Basically, months supply is the ratio of inventory to sales.  And what it tells us is how many months the stock of homes for sale would last, if sales continued at their current rate.

See how your City's doing.

We currently have a 7.5 month supply of homes in the entire SF Bay Area. How does this compare historically? "A state of equilibrium" is considered 6 months, a point at which you would have an equal number of sellers and buyers. Considerably less, would be considered a "seller's" market, while anything more than that number would be considered a "buyer's" market. Since 1988, our low in California has been 1.3 months in April of 2004. It was even less than that in the San Francisco Bay Area. Our high was in February of 1991 at 18.8 months. The long run average has been 6.9 months. (Statistics are from C.A.R.)

I've tracked the pending and active sales in El Cerrito along with 34 other East Bay Cities since July of 2005. Pending and Active Sales give us a better idea on how the market is doing on local levels. At the very peak of the market, during 2004 through the middle of 2005, there were more pending sales than homes for sale. Basically, there were more buyers than there were homes to buy. Now, in most cities, there are far more homes for sale than pending. El Cerrito doesn't always follow the trends of the Greater Bay Area. Compared to Albany, Kensington & North Berkeley, it remains a bargain that appeals due to its central location and proximity to the nearby shops & culture of it's neighbors. It boasts having two BART stations plus there's an abundance of parks. It has become an affordable and attractive alternative. The Bay Area as a whole now has over a 7 months supply of homes. Not so in El Cerrito. It remains relatively low at a modest 2.7 moths.

The unsold inventory index has climbed to 6.8 months for the San Francisco Bat Area, based on numbers derived from EBRDI, (East Bay MLS services). We haven't seen relative numbers like this since the late 1990's.

 The unsold Inventory Index tells us how long it would take to sell the existing supply of homes on the market if no more homes were added for sale.

Still, this is much better than California as a whole and put in historical perspective, close to the long run average since 1988 as viewed by the historical chart below.

 

 Source: California Association of Realtors

....And it is even much better compared to the rest of the country, as described in the recent article by San Francisco Chronicle staff writer, Carolyn Said, May 17th, 2007.

 Bay Area's Housing Prices Buck National Trend.