Cash is King in a Competitive Market
April 16, 2013
- The Bay Area’s housing market during the first quarter could best be described as hyperactive and intensely competitive as high demand and low supply once again drove up prices. Inventory is at 20 year lows in some areas of the county, according to Steve Murray of Real Trends, and the Bay Area is no exception. After years of sitting on the sidelines, buyers are back, feeling confident that the real estate market is once again golden. The low inventory and abundance of buyers has led to an unbalanced market, tipped solidly in favor of sellers.What does this mean? It means that prices are rising, homes are selling faster and we’re seeing multiple and, in some cases an increasing number of, all-cash offers. Across the eight Bay Area counties in which we are active, we saw the average price of a single family home jump 29 percent to $664,187 compared with the same period a year earlier. With little supply, buyers are being forced to act fast. The average number of days on market declined to 45 across the eight markets, a drop of 32 percent from the first quarter 2012. Although prices have returned to pre-2007 levels, volume has not as the rising prices are not enough to draw sellers into the market.Another significant trend that we saw was a significant uptick in all-cash offers. During the first quarter 35 percent of McGuire transactions were all-cash. In some areas that number was much greater – cash deals accounted for half of all transactions in Marin County first quarter, for example. In many cases, buyers are paying in cash to make their offer more attractive to sellers. These buyers are then turning around after the deal closes and financing their homes.Finally, we are beginning to see interest rates climb. Freddie Mac data shows the average 30-year fixed loan rate was 3.63 percent in early April, the highest in more than six months. Experts say this is not necessarily bad news for the housing market in a recent Fortune magazine article. First, it’s a sign of that the U.S. economy is strengthening, which is clearly good news for the housing market. Second, it may spur even more buyers into action as they hurry to buy before rates rise more significantly.The busiest season of the year for real estate is now upon us and we have not seen any significant increase in listings. I expect the low levels of inventory will continue to drive prices upward, at least in the short-term. Looking to the second half of the year, I expect much of the same as low supply continues to drive a sellers’ market. In order to return to a more normalized market, we must see a balance of power between buyers and sellers, which won’t happen until supply and demand are on more equal footing. Ultimately, the key to a healthy, sustainable real estate market is job creation. While we feel “blessed” for our local market successes, we can really only feel confident when U.S. wealth production per capita expands.
To view the complete report, visit mcguire.com/quarterly_report
Charles E. Moore, CEO