First Republic Bank’s Prestige Home Index indicates luxury homes in San Francisco had a strong finish to 2013. But some suggest that California’s high-end housing market is starting to see a slowdown.

Mark Calvey
Senior Reporter- San Francisco Business Times

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The Bay Area’s luxury home market is signaling a slowdown ahead even as prices late last year were still showing year-over-year double-digit increases.

First Republic Bank’s Home Prestige Index released Monday found that luxury home prices in the Bay Area and other key California markets are near records amid tight supplies of homes selling for $1 million and often more.

But it’s the commentary from real estate agents that set off alarms for careful followers of the luxury housing market. The commentary follows recent economic reports pointing to a national housing slowdown, which some blame on the extremely cold weather. The National Association of Realtors said last week that January existing home sales fell more than 5 percent nationally, the worst showing in 18 months. But if bad weather is to blame, some ask why were sales down 7.3 percent in the warm and sunny West?

In discussing First Republic’s latest quarterly figures released Monday, real estate agents in California’s luxury housing market are using telltale language of trouble ahead, with such phrases as “supply is plentiful” and the “market is solid,” while others see “buyer resistance” and “expect the market to level off.”

That type of talk could put a further chill on the housing market and prompt more home owners to put their properties on the market before prices fall.

Real estate agents say that pricing and demand for the limited supply of homes on the market is approaching levels last seen just before the housing market began to crater in 2007.

Earlier this month, Christopher Stafford and Terry Wright, both of Paragon Real Estate Group in San Francisco, sent an email to clients alerting them to “shifts in the San Francisco real estate market.”

“It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts,” the Paragon agents said. “From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, three or four are coming in now; where three or four offers would have arrived, the seller is getting one.”

For those who don’t fully appreciate what the decline in offers mean, the Paragon brokers put it bluntly, “The amount of competition deeply affects home-price increases.”

“And, according to Broker Metrics, for every two listings that accepted offers in December and January, another listing expired or was withdrawn without selling.”

The Paragon agents see plenty of potential buyers checking out online listings and open houses, but more of them are first-time buyers who are “proceeding more cautiously.” Plus that group doesn’t come in with the buying power of home equity built up over the years.

“Though the market remains hot by any reasonable standard, by some statistical measure it is cooling,” the Paragon agents advised clients. “This may reflect a transition or only a lull before the spring sales season begins.”

On Monday Stafford echoed a frequently heard lament in Bay Area real estate circles, “There is no inventory.”

“It seems some of the heat has been taken off the market,” Stafford told me, adding that he views any references to the market “cooling” as overstating the case.

Those hoping that the Bay Area’s luxury housing market gets a big lift this spring might be disappointed as the affluent experience what Marcum’s accountants call “tax shock” as their higher 2013 tax bills must be paid. This segment of the market is also greatly affected by stock market performance, given how much wealth is created in the Bay Area through stock options and initial public offerings. The IPO market also helps set prices paid by acquirers of private companies. The tie between stocks and luxury housing is so strong that one real estate agent, when asked for his outlook on the region’s luxury home market, said, “You’re asking me to predict what the stock market will do.”

The traditionally strong spring housing market may see even more inventory come to market if home owners decide that they’ll get better prices by selling sooner than later.

On Monday, First Republic’s closely watched survey of luxury home values clocked in strong gains from a year ago, but more modest gains from the third quarter, especially when looking at the third quarter’s gain over the second quarter of 2013.

In the Bay Area, luxury home values in last year’s fourth quarter rose 12.4 percent from the fourth quarter of 2012 and 1.8 percent from the third quarter of 2013. That was just below the third quarter’s gain of 1.9 percent from the second quarter of 2013.

In Los Angeles, the fourth quarter’s luxury home values rose 13.7 percent from from a year ago and 1.3 percent from the third quarter. The quarter-over-quarter gain was down sharply from a 6.7 percent gain seen in the third quarter from the second quarter.

In San Diego, luxury home values rose 16.6 percent year-over-year and 1.3 percent from the third quarter of 2013. Again, that represented dramatic slowdown in price gains from the third quarter’s 6 percent increase from the second quarter.

San Francisco-based First Republic Bank produces the quarterly Prestige Home Index with Core-Logic Case-Shiller, a provider of automated property valuation services to the financial services industry. First Republic has tracked luxury homes since the bank’s founding in 1985.

The fourth quarter figures and analysis may provide a snapshot of rising luxury home values as the market was turning down.

“Luxury home prices again posted double-digit gains on a year-over-year basis,” said Katherine August-deWilde, president and chief operating officer of First Republic Bank. (NYSE: FRC) “Market conditions in California’s luxury communities continue to be very strong. Limited inventory, robust demand and low interest rates are driving prices higher.”

In Marin County, higher-priced homes saw gains.

“Going into the end of the year, homes $4 million and above finally picked up,” said Pat Montag of Sotheby’s International Realty in Mill Valley. “Prices are getting close to the peak of the market in 2007. We have very little inventory and that’s constraining the market.”

San Francisco also participated in the strong housing market last year.

“Prices continue to rise because there is so little inventory and so much demand,” said Mary Lou Castellanos of Sotheby’s International in San Francisco. “There are a lot of people who want to buy. The homes that do come to market generate multiple offers and offers over the asking.”

And new tech wealth is spurring luxury home buying on the Peninsula.

“From Palo Alto to Atherton, we are seeing offers 20 percent to 40 percent over the asking price,” said Pat Kalish of Alain Pinel Real Estate in Palo Alto. “It’s tech money as well as foreign buyers. From all indications, prices will keep increasing because the inventory is so low. If you’re a homeowner, this is one of the best times ever to sell.”

Hope springs eternal among those selling real estate.

Southern California also enjoyed a strong market as the stock market clocked in with one of its best years ever in 2013.

“The demand is incredible. It is much stronger than it was in 2006 at the height of the market. Homes that were selling at $10 million in 2005 and 2006 are now $20 million and $25 million. It’s astounding,” said David Mossler of Tele Properties in Beverly Hills.

Further south in Orange County Ron Miller of HOM Sotheby’s in Newport Beach told First Republic Bank that homes at $4 million are selling above year-earlier comps.

“The attractive properties are generating multiple offers,” Miller said. “I see some buyer resistance now and expect the market to level off.”

Even further south in the San Diego area, more signs of a cooling market are evident.

“We’re seeing multiple offers and offers over the asking for properly priced homes up to $3 million,” said Linda Sansone of Willis Allen in Rancho Santa Fe. “From $3 million to $5 million, the market is solid, prices are appreciating and supply is tight. For homes $5 million and above, there is plenty of supply, and prices are rising modestly.”

Sue De Legge of Sue De Legge Associates, also in Rancho Santa Fe, said home-price appreciation was driving the market.

“Rising prices are motivating more sellers to list their homes,” she said. “We expect more inventory to be brought to market in coming months.”

And as a reminder for those who missed Econ 101, rising supply is likely to put downward pressure on prices. One thing is certain: this spring’s home-selling season will be well worth watching.

Mark Calvey covers banking and finance for the San Francisco Business Times.

Article source: http://www.bizjournals.com/sanfrancisco/blog/2014/02/home-prices-san-francisco-real-estate.html?page=all

Home prices were up over 12 percent in the nation’s top 20 housing markets in July, according to a report this week from SP/Case-Shiller. While the price gains are moderating, the jumps make it increasingly difficult for first-time home buyers to get into the housing market.

(Read more: Forget easing prices, new homes are up, up, up)

Article source: http://www.cnbc.com/id/101065140

Mortgage applications had been lower for much of the summer, and refinances continue to fall, but applications to purchase a home rose 2 percent last week from the previous week, according to the Mortgage Bankers Association.

This, even as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $417,000 or less increased to 4.8 percent, the highest since April 2011. They are still down 6 percent in the past month. Mortgage rates, however, have been moving lower this week on weak economic data.

Higher home prices could also be hurting potential sales, as very low inventories continue to cause bidding wars from coast to coast. Inventories of existing homes are down significantly in most of the nation’s major housing markets.

(Read more: Map: Tracking the recovery)

San Francisco, for example is seeing some of the highest home price appreciation, as listings were down 29 percent in July year over year, according to the California Association of Realtors.

“More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems,” Yun said.

Single family housing starts were down 2.2 percent in July month to month, as home builders still struggle to find finished lots and skilled labor. Underlying demand is running nearly twice the rate of housing completions, according to IHS Global Insight. Some home builders admit they are slowing production in order to gain pricing power.

(Read more: Home prices across the US defy gravity)

Article source: http://www.cnbc.com/id/100993579

Based on the change in mortgage rates from early May to today, the average buyer would have to pay 13 percent more in monthly payments, including taxes and insurance, according to Mark Hanson, a California-based analyst. They also have to earn 10 percent more in income to qualify for a loan based on a typical qualifying debt-to-income ratio of 45 percent.

“These are huge moves especially considering—when purchasing a house using a mortgage—most people buy based on ‘monthly payment and the maximum allowable debt-to-income ratio.’ This means first-timer share will fall even further. They are already at a multiyear low even with record-low rates,” said Hanson.

(Read More: As Prices Rise, Banks Repossess More Homes)

First-time homebuyer participation was at just 29 percent, according to the Realtors, a five-year low. Without these buyers, as investors pull back and prices rise, home sales will likely lose steam. June’s report on pending home sales, or signed contracts in May, will tell just how much rising rates are impacting sales. That report will be released Thursday, June 27.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100831431

While prices continue to improve, there are still headwinds, specifically a relatively weak employment picture and a tight mortgage market. Existing home sales are also recovering far faster than new home sales, and much of the gains in new home construction is in multi-family apartments, as single family housing starts lag.

(Read More: Record High New Home Prices to Grow)

“Housing is making a positive impact on the economy, if one goes through the GDP numbers, residential construction is adding to economic growth,” said Blitzer. “But when you look at this, buying and selling existing homes, is recognized, we all feel good, the prices are going up, it doesn’t add anything to GDP.”

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100769361

(Read More: Despite Rising Demand, Some Builders Slow Production)

Listings were down 17 percent in March from a year earlier, according to the association, with several factors affecting inventories. Millions of Americans still owe more on their mortgages than their homes are worth, and that makes it impossible for them to move without incurring major expense.

Others are watching home prices rise and may be waiting to see just how high they go before listing their homes.

Meanwhile, home builders, while trying to ramp up production, are faced with a lack of land, labor and materials. Single-family starts were at a seasonally adjusted annual rate of just 619,000 units, an improvement from the worst of the crash but far below historical norms.

(Read More: Map: Tracking the US Real Estate Recovery)

Regionally, the pending home sales index was unchanged in the Northeast from February, up 0.3 percent in the Midwest, up 2.7 percent in the South and up 1.5 percent in the West.

Existing home sales in March, based on closings, fell just under one percent in March. While higher than a year ago, home sales appear to have leveled off, despite this being the normally busy spring season.

(Read More: Government Mortgage Fix Is Failing)

Article source: http://www.cnbc.com/id/100683911

Supplies are down across the nation, not just in the former crash markets, like Phoenix and Las Vegas, where investors decimated inventories of distressed homes in bulk purchases. Listings are down 31 percent in Seattle from a year ago, down 32 percent in Denver, down 20 percent in Houston, down 37 percent in Boston, according to local Realtor associations.

(Click Here: Recover Watch Map, Complete Coverage)

“At the moment it’s a seller’s market again,” said David Fogg, a real estate agent in Burbank, CA. “Very low inventory, very low interest rates, almost no bank inventory of homes, it’s crazy out there. Every good property I’ve listed this year has brought 10-50 offers and sales prices 10-20 percent over comps. Cash is King.”

Nearly one third of all existing home sales in January were paid for in cash, and not just by investors, who are making up a shrinking share of the market. Fierce competition is forcing buyers to use every advantage, given that so many are going after so little.

In California’s San Fernando Valley there are usually over 9,000 homes for sale this time of year, according to real estate agent Billy Wynn. Today there are just over 1,400.

“Realtors are getting so many offers they are taking the homes off the market and not accepting additional offers before any offer is even accepted,” said Wynn. “This is real estate bubble 2.0 on steroids.”

It is a puzzling situation, given all the warnings of a tsunami of so-called “shadow inventory” that was supposed to be flooding the market right now. As it stands, fewer distressed properties are coming to the market.

“The ticking time bomb of shadow supply has been diffused by a combination of foreclosure processing delays in judicial states, legislation slowing down the foreclosure process in non-judicial states, foreclosure prevention programs and initiatives encouraging short sales,” said Daren Blomquist of RealtyTrac. “Notably, in 2012, was the National Mortgage Settlement, which both encouraged foreclosure prevention and short sales as an alternative to foreclosure, and the loosening of short sale guidelines by Fannie Mae and Freddie Mac in November.”

As a result, short sales, where the home is sold for less than the value of the mortgage, are rising as a share of total distressed sales, while bank-owned home sales are falling. Investors are now competing for such little supply that they are ironically pricing themselves out of the market.

(Read More: Distressed Homes Still Drive Sales)

“We are hearing also, that new home buyers are not really looking at the foreclosure market—the houses are either not in good neighborhoods or the house is in bad condition and needs a lot of updates,” noted Paul Miller, an analyst at FBR. “So home buyers are either going to new-builds or being very picky with the type and shape of the house. We are hearing from plenty of mortgage brokers that they are working with many couples, and they just can’t find the perfect house.”

Article source: http://www.cnbc.com/id/100512238

Sales of existing homes are recovering slowly, but a drop in supplies of those homes is pushing confidence among the new home builders to a six year high.

There are just 2.1 million existing homes for sale, which is a 22 percent drop from a year ago, according to the National Association of Realtors (NAR). Much of this is due to a drop in foreclosed and distressed homes, as lenders try to modify troubled loans more aggressively.

“In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today’s favorable prices and interest rates,” wrote Berry Rutenberg, chairman of the National Association of Home Builders in a release Monday.

That pushed home builder sentiment up 5 points in November on the NAHB’s monthly survey. It now stands at 46, just 4 points shy of the line between positive and negative sentiment. Last year sentiment was around 19. The component of the index gauging current sales jumped 8 points, and sales expectations jumped 2 points, the only component now in the positive range. Again, much of that is due to a lower overall supply of homes on the market, as distressed homes fell to 24 percent of all sales, down from nearly 40 percent at the worst of the housing crash.

(Read More: Existing Home Sales, Homebuilder Sentiment Rise)

The nation’s five largest banks report that since March 1 of this year they have extended more than $26 billion in mortgage relief to more than 300,000 borrowers. $6.339 billion of that is in the form of principal reduction on first or second liens. All of this is in accordance with the National Mortgage Settlement signed this year by those banks with 49 state attorneys general and federal agencies over so-called “robo-signing” fraud.

While lenders are also pushing foreclosures that cannot be saved through the system more quickly, there is a ready cadre of investors waiting to buy. Investors made up 20 percent of buyers in October, according to the NAR. Since investors largely use cash, regular owner-occupants who largely need to use mortgages, can’t compete. 29 percent of existing home buyers used all-cash.

(Read More: Let Real Estate Help Pay for Retirement)

First-time home buyers, who usually make up 40 percent of the market, are still down at just 31 percent. So add up first timers and owner-occupants using a mortgage, and that is where you get the jump in demand for new construction. Home builders are clearly seeing this, with many of the big public companies seeing huge jumps in net new orders.

Sector Watch: U.S. Home Builders

—Toll Brothers
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