Reasons for Optimism in San Rafael Housing Market

In recent years the there has been much pessimism in the housing market as values have dropped substantially.  A few years back at a company meeting somebody was talking optimistically about the market and I interjected with a dose of reality, earning me the moniker ‘Dark Cloud’.  I was looking at the amount of foreclosures, restrictions on lending and slowing sales activity, and it didn’t take a soothsayer to know the general direction of the market was not favorable.

Even a few months ago my outlook remained negative.  Foreclosures were forecast to hit record highs this year, which to me meant only one thing, more misery in the market.  It seems to me though that the local rate of foreclosures has begun to abate somewhat.  Also we are seeing a steady amount of buying activity in the market.  At some price levels there is a lack of inventory and an excess of demand.

Take single family homes in the 94903 zip code between $800,000 and $1,000,000 as an example (data is taken from BAREIS MLS as of May 21, 2011, is not verified or guaranteed, and is subject to change). In recent years this luxury market has been a tough price level for sales.  And yet currently there are only three homes on the market, and one is in contract.  There have been nine sales in the past six months, meaning we only have two months supply on the market at what is traditionally the busiest time of year.

The lack of inventory can be attributed to where we are on the supply curve.  At lower price levels fewer people are willing and or able to sell, and it’s no secret that we are at lower price levels.  This means that most of the sales we are seeing are from people who need to sell: divorces, deaths, foreclosures and job relocations all fall into that category.  As in the past we are seeing sellers ‘test’ the market, trying to squeeze a little bit more (sometimes a lot more) out of the market than it will bare.  In that same price level over the past six months six listed homes have either been canceled or withdrawn from the market.  So for every three homes that have sold, two have not.

It goes back to the axiom that if a home is priced accordingly it will sell.  Don’t blame the mortgage meltdown.  Banks are lending money.  Banks need to lend money, it’s part of their business model. They just aren’t lending money to people who can’t afford houses.  Banks are checking more than pulses now when lending thank goodness!  It’s not hard to get a loan if a buyer can afford the loan, buyers just need to demonstrate that to the banks again.

The issue is purely economic in nature.  We are at a lower price level on the supply curve, which is not a reality many sellers are comfortable facing.  The supply curve has shifted downward as well, because the majority sales are need based.  At the same time the demand curve has shifted lower because qualifications for buying a home, actually being able to afford a purchase, have changed (for the better).  Being at lower prices does create greater demand, as more people are willing and or able to purchase homes at today’s prices.  A new equilibrium is being established, and right now the supply in many neighborhoods is below that equilibrium.  There is a lack of supply and encouraging demand.  This doesn’t necessarily mean the prices are going to get pushed up again any time soon, but it does mean that this is a better time for sellers than we’ve seen in a while.