Crunching the Median

Home prices rise in July even as sales fall to 12-year low

The protracted waiting game between home buyers and sellers continued in July, as Bay Area real estate sales slowed to a 12-year low while prices edged up, according to a report released on Wednesday.

A total of 4,990 existing single-family homes changed hands in the nine-county Bay Area in July, according to DataQuick Information Systems of La Jolla (San Diego County). That was down 13 percent from 5,721 home sales in July 2006.

The median price was $738,500, up 7 percent from $688,955 a year ago.

The median rose because a greater proportion of expensive homes were sold, said Andrew LePage, an analyst at DataQuick. Tighter lending standards after the subprime loan debacle have knocked many entry-level buyers out of the market because they lack down payments, good credit or solid income proof. "If you yank out a bunch of low-cost sales, then guess what happens to the median?" he said.

The situation is even more exaggerated in San Francisco proper, where homes in Pacific Heights in the 2-5 million range seem unaffected (if you're really rich, you ignore credit crunches because, if you feel like it, you pay cash) while those 500k-700k fixer-uppers out in the Avenues move about as fast as a herd of anvils. And all you need to do is drive around town and look at all the various condo projects moving to completion to know that whatever supply overhang exists today is only going to get bigger tomorrow.

I'm still seeing cramped 1200 square foot 3 bedroom condos in average nabes coming onto the market priced at a million plus. I suspect a lot of them are going to end up as rentals.


And here is the real kicker for our area:

In the latest developments in the mortgage market, "jumbo" loans above $417,000 have become more expensive and harder to get, and more lenders are falling by the wayside. All of that could hurt the high-end sales that have been strong up until now. Because sales typically take a month to close, the fallout will not be reflected until data are collected for this month and next.

I'd hazard a guess that it isn't the "high end" in San Francisco (where "high end" means low seven figures up) that will get slammed as much as the mid and lower ranges. Even if the effective median is now 600k, a 20% down deal will still involve a jumbo, since left unmentioned in this article is the fact that so-called "piggy-back loans" (dual loans where you borrow most, or all, of your down payment, as well as the rest of the purchase price) have been downgraded to the point lenders are reluctant to make them at all.

The most significant item about the fed easing of the bank discount rate on Thursday was that it said it would take CDOs and other risky mortgage bundles as collateral. This is, of course, an effort to ease the liquidity crunch. But the question is, will lenders take on even that much risk in today's environment?

Frankly, I doubt it.

I have maintained for some time that there are other factors that will tend to offer more support to the San Francisco market than to the other Bay Area markets, but even The City is going to see prices come down, and find itself with more people than it imagined underwater on their properties, no matter what their credit prospects are.

In other words, look for a lot of walkaways over the next year or two. If you're lucky enough to be in a situation where you have at least forty percent equity in your home, and a long-term fixed you can handle reasonably well, you can probably ride this one out without much of a problem. But if you're in hock on a seven figure property up to your gizzle with a couple of funny loans due to reset any day now, and with the prospect that your property may be actually worth a couple hundred grand less than your financing, well....

Rentals around Dallas are still pretty reasonable, I hear. And Sacramento is coming down fast, and hard.

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[Source: The San Francisco Real Estate Blog]