Mortgage rates fall to record lows while consumer confidence moves higher

Mortgage rates fall to record lows while consumer confidence moves higher

With the expiration of the federal tax credit, the housing market is facing a key inflexion point as we head into the summer vacation season. The government stimulus has certainly helped spur a rebound in the real estate market, but the recovery is fragile and observers are watching closely to see if the market can grow without the support of government aid.

Several key economic announcements out this week could bolster the nascent recovery. On Thursday, mortgage finance giant Freddie Mac announced that U.S. mortgage rates have fallen to a record low. Rates for 30-year fixed loans declined this week to 4.69 percent from 4.75 percent. The previous record was 4.71 percent, set in the week that ended Dec. 3. The average 15-year rate was 4.13 percent.

While the overall level of real estate activity has eased in recent weeks with the expiration of the tax credit deadline, many economists believe that low mortgage rates will spur growth in the market by reducing borrowing costs for home buyers. Mortgage interest rates have tumbled in the past two months as concern that a debt crisis in Europe may spread boosted demand for the safety of bonds, including mortgage-backed securities.

Meanwhile, Reuters reported on Friday that consumer sentiment rose in June to its highest level since January 2008 while reports of job losses were down sharply from a year ago.

The Thomson Reuters/University of Michigan's survey of consumers, a key gauge of consumer sentiment, rose to 76 from 73.6 in May. The figure was above the median forecast of 75.5 among economists polled by Reuters. At the same time, reports of job losses fell by half since last June, from 65 percent of respondents to 29 percent, the survey showed.

"The June 2010 survey recorded the most favorable news heard by consumers about jobs in five years," Richard Curtin, director of the surveys, said in a statement. But he cautioned that consumers “do not anticipate significant declines in unemployment during the year ahead."

Consumer sentiment is seen as a proxy for consumer spending, which fuels around 70 percent of the U.S. economy. Positive consumer sentiment is particularly critical to the housing market. If buyers are more optimistic about their future, they’re more likely to take out a mortgage and buy a home.

So where does this all leave us as we look at the Bay Area housing picture? As reports from our local offices indicate, the market continues to be steady in most communities. But the recovery from last year’s recessionary lows will likely be a gradual one with its share of fits and starts along the way. Unemployment levels will play a key role in the recovery, as will the health of the stock market and the overall national economy.

While there are certainly economic challenges right now, for buyers with a long-term view the current market provides an attractive opportunity to invest in real estate while mortgage rates are at historic lows and homes are priced very competitively. To put this in perspective, took a look at conditions in the mid-June 2001 market. In many of our Bay Area communities today, we are seeing mid-level homes near 2001 prices. The average June 2001 mortgage interest rate for a 30 yr fixed conforming loan was 7.2% - and today’s record low is 4.7%. That’s over a $1,000 monthly savings on a $650,000 loan – from $4,412 to $3,371. Savvy buyers are taking advantage of this great combination of home prices and interest rates.

Below is a market-by-market report from our local offices:

North Bay — There has been a huge increase in sales over the past two weeks, our Southern Marin office reports. Long, tough escrows are closing. Offers are coming in on properties that have been on the market for months. Price reductions seem to bring in offers, but often below new reduced prices. The Northern Marin office also reports both sales and inventory steady to increasing. In Petaluma, a lack of inventory in the under $500k price range continues to result in multiple offers. The $500k - $800k range is still slow. REO's are trickling onto the market at a moderate pace. Meanwhile, the Santa Rosa market has come back to life a bit. Multiple offers are common now up to $500K. Our local office reports that there are plenty of buyers, but not enough inventory. Similarly, in Sebastopol sales are on the rise with more activity between $500,000 and $1 million than they have seen in a long time. A $1 million dollar property had two offers and sold within days of listing. Sebastopol open houses have been well attended these past two weeks.

San Francisco — With the tax credit expiring, our Market Street office says there doesn’t seem to be any sense of urgency on the buyer's part to submit offers. It feels as if everyone is hovering waiting for something and none of the agents are sure what that something is. Once again multiple offers outweighed the properties with single offers. Open house traffic was slow last week and it's not expected to pick up until after the fourth of July weekend. Similarly, the Lombard office reports that new sales and open house traffic are down with the beginning of summer.

SF Peninsula — In Burlingame, buyers seem to have slowed down a bit in their purchase decisions with the expiration of the tax credit. Looking at the Previews market, there are currently 96 active listings in Hillsborough – a larger supply than we have seen in a long time. There is some very well priced inventory on the market now. At the coast, our Half Moon Bay office reports stronger sales activity in the $600k to $800k range only when the property is in top condition and priced slightly under market. The $1 million-plus market is sluggish with many properties sitting on the market for months. In Palo Alto, sales and inventory activity remain steady to increasing, while a lack of inventory continues to plague the Redwood City/San Carlos market. While there’s good attendance at open houses, the market seems to be quiet. Buyers are still being very cautious. In San Mateo, inventory has also been low until this week when 10 new listings came on the market. It still seems that the lull experienced after the Federal Tax Credit is still upon us for many areas of the county. Finally, the Woodside/Portola Valley market is moving fairly well in the under $2.5 million segment of the market. Portola Valley has been pretty strong in sales in general. But it’s very soft over $5 million.

East Bay – The Orinda market has been robust lately with many interested buyers in all price ranges. More properties are coming on the market in Berkeley, and there are more price reductions on the ones that have been sitting. In Oakland, the beginning of June was slow but they are seeing the market pick up steam recently. A few open houses have had no groups while others have been very busy. Short sales are 50% of the pending sales. The Castro Valley market seems to be changing from week to week. There are more listings, although they are not moving as quickly because of the expiration of the tax credit deadline. Despite the changing climate and hesitant buyers, they are still seeing multiple offers, although less than before. Lower and midrange price points are moving. The number of new pending sales in Danville has slowed, possibly due to graduations and summer vacations. Similarly, the Livermore market has slowed along with the summer vacation season. Inventory has risen about 10% and total pending sales are down about 5%. Homes that are priced right, show well, and are located in a good location still bring multiple offers. Meanwhile, sales are increasing in Fremont. Our local office says there is still a lot of buyer activity. Open house showings are still busy, but actual purchase time/decision making has been lengthened.

Silicon Valley – According to our Cupertino office, listings are on the rise and sales are steady. They report that buyers seem to have summer fever, but open house activity is still good. About one in five sales are still resulting in multiple offers. The Los Altos market is slowing due to several factors related to the economy, but also vacation time is here. Still, about half of the sales are resulting in multiple offers. In Saratoga, agents are still dealing with many short sales. The Previews market is still sluggish. But agents are hopeful that the market is simply feeling the effects of the June vacations, graduations, and weddings. Meanwhile, the Los Gatos office reports that there seems to be greater optimism among buyers. They are receiving multiple offers in the lower end of the market, and when homes are priced competitively and show well. The San Jose market appears to have slowed down in recent weeks. As the Willow Glen office reports, activity and sales are up and down. They are getting a few rejected offers and several sales have fallen through. But with graduations over, agents are hopeful that the market will begin to pick up again. Sales of lower priced homes slowed a bit in recent weeks, according to the San Jose Main office, but the mid to upper price market is improving.

South County – The Gilroy market has improved with increased sales and buyer activity. Although May was extremely slow compared to past years, things have picked up in June. Meanwhile, listing inventory in Morgan Hill is increasing ever so slightly. Moderately priced homes, once listed, are selling quickly. The upper-end market, however, is not selling at the same pace. Homes listed above $800,000 are sitting on the market. Agents are reporting that traffic at their open houses has been steady but there are lots of "lookers" and fewer buyers who are actually ready to make a commitment. As we have heard many times, high statewide unemployment remains the biggest factor slowing down our housing recovery. Morgan Hill's proximity, however, to Silicon Valley (where employment is on the rise) is a positive factor for our local market.

Santa Cruz – Our local office reports that the market remains steady with mostly lower priced properties making up the lion's share of sales and the upper end fairly quiet. Sales are on par with last year with prices up slightly. They are seeing a lot of short sales and it has become notable when a property is not a short sale or an REO.

Monterey Peninsula – Both sales and listings are on the rise on the Monterey Peninsula. The U.S. Open and all the hoopla accompanying it was there last week, bringing many people to the Monterey Peninsula. It is very good publicity for this market, as often people who are here fall in love with the area and want to own a home here. In fact, our local offices even had a couple of calls from people watching TV, which was broadcasting beautiful scenes, inquiring on prices in Pebble Beach. While most visitors are focused on golf and don't really look at properties while they are in town, many do come back later. In general, the past two weeks were very active with 42 new listings and 34 new escrows, much higher figures than usual.

To sum it up, graduation and the first few weeks of summer created a bit of a lull in many markets, giving some additional opportunity to buyers who were writing contracts during early June. However, by the third week of the month, we are already seeing new sales activity picking up in most offices. Record low interest rates will do that.

That’s it for now. Have a great week!

Stella