2009 in review: from deep freeze to partial thawing.
In 2009 local real estate emerged, either partially or entirely, depending on type of housing and price, from the deepest freeze in my eleven years of selling homes and, according to more veteran agents, in at least the past twenty-odd years.
Anyone who wants graphic proof of this can go to the charts in the December edition of What's happening in local real estate now. Otherwise, just hum along with me.
As always, local real estate can be divided into at least five differing sub-markets, based on type (condo, townhouse, single-family) and price range (low, medium, top end). Those of you skillful in multiplication may have noticed that this works out to nine sub-markets, not five, but the following five will serve us nicely:
Together these five sub-markets account for perhaps 95 percent of the sales volume of local real estate. Let's see how they fared in 2009.
Early 2009 was a harsh and frosty environment for all but low-end SFR, which had bottomed a few months earlier. Indeed, the contrast between late 2008 and early 2009 at this end of the market was dramatic, with bank-owned homes, formerly overpriced and under-appreciated, suddenly hot commodities. What happened?
In what seemed like no time at all, low-end SFRs were routinely attracting multiple offers, sometimes as many as thirty or forty. Continued scarcity—in many local markets, believe it or not, bank-owned homes are in short supply—and pent-up demand have kept low-end SFR prices climbing all year, although they have a long way to go before they regain their 2006 highs. Slim bank-owned inventory has forced low-end buyers to turn their attention to "short sales", sellers often but not always on the brink of foreclosure, although banks seem no more willing to approve sales prices "short" of the loan balance than they were when distressed sales became a factor in late 2007.
Condo sales started out frigid in 2009 and, depending on price range, were either nearly as frigid by year's end or, like low-end SFR, thawed out completely. Cheap bank-owned condos sell like hotcakes, often to investors, while pricier condos often sit for months and may never sell. Unless you're a bank, holding onto your condo until the market improves seems like the best idea—whether it is or not—and many owners of more expensive condos can do this. Bank-owned condos are fairly rare in the immediate area, and almost always confined to the lowest price range, but they're anything but rare in places with a large supply of affordable housing such as San Jose.
Townhouses have made a slightly better comeback from their early-2009 lows than have condos, perhaps because a townhome's "dirt" and greater size and privacy makes it more appealing to buyers. Although the charts don't show it, I've sensed a slight price creep at the lower end of this sub-market since September, in keeping with the overall trend in low-end real estate in this area.
Midrange SFR has been a relatively strong performer since spring 2009, and in a handful of markets such as Palo Alto, the sub-$1.5M market has been unqualifiedly strong. Why?
Which leaves top-end SFR, the weakest of our sub-markets, and the only one that never fully recovered from the dot-bust earlier this decade. At the very top of this sub-market, loan availability is a non-issue simply because so many well-heeled buyers pay cash, but further down the price range illiquidity in the jumbo loan market has been a major factor in the lack of top-end sales. Like the rest of local real estate, the top end has recovered from its winter 2008 lows, but those lows were so low that even down would look like up, and it remains very much a buyer's market. So much so, in fact, that I've heard reports of investors buying in top-end neighborhoods, although you need very deep pockets to invest in multi-million dollar homes.
Would I call 2009 a boom year? Certainly yes, at the low end, and certainly no at any other price point. But as someone once said, you've got to go through "less bad" to get to "good", and in 2009 the midrange got "less bad". And despite what I've told you about forty offers on a house, this recovery has been a cautious one, with buyers' enthusiasm tempered both by the lingering effects of the Great Recession and by appraisers who've suddenly gotten religion (or word from lenders) about neutralizing any outbreaks of irrational exuberance, real or perceived.
Do I have a fearless forecast for next year? Yes, I do. Would it surprise you to learn that I'm optimistic? Probably not, but it may surprise you to learn that most agents I've talked to or overheard are decidedly pessimistic about the future of local real estate over the next few years. "Flat is the new up" etc.
Which simply confirms an idea I've had since, oh, maybe 2002 that if you want to know where the market is going, don't ask an agent. I see far too much pent-up demand, now appearing most strongly in the under $1M price range, to think that this area will be in the doldrums for long—we really are special. This year I've met and worked with first-time buyers who've been circling real estate since 2004 or 2005, unwilling to buy at peak prices but also unwilling to give up the dream of owning their own home here in paradise. Now is a great time for them to buy, and they know it. And when first-timers buy "starter" homes, it frees the sellers of those homes to move up to the next price range, etc. etc.
Yes, I have a feeling that next spring is going to be a very busy time for local real estate agents.