Buy It Now and 2009 Housing Review

I’m not going to spend oodles of time showing you the analytics of a bunch of properties. Suffice to say, I sifted through more than 100 homes and 40 multi family properties currently on the market, and narrowed it down to 15 homes, and 8 multi family properties I would characterize as “Interesting” and worthy of watching. There are a few that, if I can borrow the eBay phrase, I would “Buy It Now.”


Buy It Now #1

711 Bayview in Emerald Hills, Redwood City listed at $825,000. It has some issues with a leaky roof, and some interior damage. But the property is 2500 square feet with a view that lives up to the streets name. And with larger homes in Emerald Hills trading in todays market at $500 per foot, this property has plenty of room to make the repairs necessary. In addition, the property would fetch $3500+ in monthly rent which gives an investor an option to buy and hold or just fix and sell.

Buy It Now #2

68 Arch St, Redwood City for $438,000. This is a 2 unit property with a 2 bed 1 bath unit plus a studio. Great Westside location, close to downtown, and at this price, produces positive cash flow with limited money down. With a $200,000 down, property would make more than $500 per month.

I’ll keep watching for more, because as time progresses, many property that fall under the “Interesting” category, can become buys very quickly. Speaking of interesting…below is a review of the housing markets in 2009 compliments of my friend and collegue Mark Martinho……

The end of this decade was one huge reset button for everything of value. The Down Jones Index started 2000 at around 10,500 and it ended 2009 at around 10,500. The DJI did shoot up to 14,000 in 2007, but that was all wiped away over the next two years.

Similarly, average single-family home prices in San Mateo County started at around $900,000 in 2000 and shot up to $1,400,000 by 2007. However, we closed the past decade with an average home price of about $900,000.

The good news for local homeowners was that 2009 ended on a strong note. December home inventories in San Mateo County were about 20% below the past couple of years, but still well above those in the hot seller’s markets. December sales were also strong, 358 homes vs. around 250 for this time of year in both 2007 and 2008. Home prices also bounced back from around $700,000 in December 2008 to $950,000 in 2009. This increase in average value was due to two phenomenons. First, high-end homes were not selling at all in early 2009, but did begin to sell once more towards the end of the year. Despite selling at discounted prices, the mere presence of expensive homes once again in the average price calculation was enough to skew the average upwards.

Second, the start of the year began with the bottom of the market selling like hot cakes, homes in the $300-$500K range were selling quickly and often at 40-50% off their 2007 prices. Multiple offer situations became common at the bottom towards mid 2009 and this market actually increased in price. An increase in value at the bottom was not surprising since it appeared the huge price drop was unwarranted. During this period cash became king at the low-end as investors poured in to purchase many of the cheaper homes, leaving regular home buyers hoping to purchase a home with a loan, out to dry. Many of the cheaper properties were bank owned and banks preferred cash offers, even if they were a little lower, over waiting for a loan that may never materialize.

Overall sales for the year were a little better in 2009 (4,068 homes) vs. 2008 (3,876). This 5% increase in sales was a welcome improvement, but it is still a far cry from the 6,000 homes per year of the mid 2000s. Over all, only about 65% of homes put up for sale in 2009 sold vs. about 85% in years like 2004. In my opinion, price stability depends on this 65% ratio not decreasing too much. The biggest catalyst that could negatively impact this ratio are the inventories owned by banks that are not yet on the market for sale; sometimes referred to as shadow inventories. In Q3 of 2008, shadow inventory was 1.1M homes, in Q3 2009 it shot up to 1.7M. How many of these are in the Bay Area and how quickly will they be put up for sale?

Where does all this go next, as mentioned above, housing inventory will play a significant role, but so will jobs and interest rates. Both are still a complete unknown to anyone offering an honest opinion. While unemployment rates are slowing down in the US, we need about 120,000 jobs created per month just to keep up with the population growth and new college graduates. Yet every month, we have been loosing jobs. As for the future of interest rates, opinions are all over the board. Today, they are extremely low and let’s hope they stay that way for both buyers and sellers.

I do believe the real estate market is at least in a good position to recover if no shocks are applied to the system. The overall 20-30% price drops have made homes much more affordable for buyers coupled with the low interest rates. In addition, the rent vs. own comparison also bodes well for home sellers. Today, with tax savings calculated into the equation, the monthly payment for a homebuyer is not that much more than renting in many cases. Most people will always be willing to pay a small premium to own their home vs. living in someone else’s property.

           No. of     Avg.           Avg
Year   Closed     Sales Price DOM    New Listings

1998    5,746     $520,901   40         7,830
1999    6,434     $620,436   45         7,273
2000    5,659     $838,782   29         6,944
2001    4,740     $791,809   46         8,033
2002    5,951     $787,021   44         8,211
2003     6,454    $805,867   46         8,471
2004     6,564    $957,347   33         7,756
2005     5,877    $1,097,324 32        7,998
2006     5,006    $1,126,572 43        7,723
2007     4,172    $1,209,838 51       7,452
2008     3,876    $1,038,395 71        7,550
2009     4,068    $876,820    72        6,496
Dec-09               $948,117