Oil Crisis

2008 Market Update – A July Snapshot Of East Bay Real Estate!

Jim Walberg’s perspective on the status of the East Bay real estate markets – what do the statistics really mean today?

In my lifetime, there has never been a real estate market like the one we are experiencing in the East Bay today!  The dynamics of this market are incredibly complicated with global factors impacting all aspects of our community. Some of the most critical of these factors are:

The mortgage melt down!  There have been almost 300 national lending institutions close their doors in the past year because of creating irresponsible mortgages – almost giving money away to anyone who could fog a mirror.  Greed and avarice were key factors for the mortgage industry for the past several years.  It is now payback time for the irresponsible lenders.

The world price of oil!  Who would have ever dreamed that oil prices could be manipulated by speculators and world events, such as Iran shooting off missiles this week. Because of this one event oil prices skyrocketed.  It cost Iran $5 a barrel to get their oil into storage tanks.  It is in their self interest to create instability in the world so a barrel of oil costs $150, instead of $30 on the open markets.  They are making BILLIONS of dollars a day.  Who would have ever dreamed that what is going on with oil would so dramatically impact the economic health of our national economy, and our local housing markets?

The world currency markets!  Who could have imagined that the world currencies are so much more valuable than the U.S. dollar today?  Euros – 60% higher; British pound – 100% higher: Swiss Franc – 40% higher; Canadian dollar – 4% higher.  The U.S. is the shopping center for the world because EVERYTHING is on sale for them that has a price connection to the U.S. dollar.

Lack of consumer confidence!  Consumers today are in a state of PANIC and FEAR as to what is happening with soaring expenses.  It cost the SUV owners almost $100 for a tank of gas.  The cost of fuel is causing cost of goods to rise in all sectors.  The major airlines and U.S. car manufacturers are losing billions each quarter because of their business models not taking into account the issue of oil prices on their profits.

So, how do all these factors impact the East Bay real estate markets?  What are both Sellers and Buyers facing today as they make real estate decisions?  What are the trends that should be paid attention to in our East Bay micro-markets?  Here are some of my thoughts. Sellers need to have their homes in turn key condition and priced for value or they will sit on the market for months.  Home pricing and appraisals ARE being impacted by short sales and banked owned properties.  Months of inventory used to be the statistic that told us if it is a Buyers market or a Sellers market.  Today “months of inventory” is so mingled with short sales and bank owned properties that it is now not a correct indicator as to what type of market we are in.  So, forget months of inventory,  we are in a BUYERS market today!

The current market statistics are so confusing right now because of all of the above factors.  How about three months of housing inventory in Brentwood and over 20 months of inventory in Blackhawk Country Club!  Dublin’s months of inventory is half of Danville’s.  Antioch had 254 sales in June and Pleasanton had 61.  Are you getting a better picture of the chaos in how to intepret what in the world is going on in our micro-markets.  June Pending sales in the East Bay are up 4%,  and months of inventory in the East Bay dropped 7% in June.

Here are some of my conclusions.  In some communities the majority of their sales are bank owned or short sales.  This is creating huge opportunities for first time home buyers,  move-up and move-down buyers, and investors.  Because of the current economic climate a very confusing time has been created for Buyers and Sellers.  Hire the best Realtor you can find to guide you through the current East Bay real estate “mine field”.  Until next time…

Oil Crisis

East Bay Real Estate IS Being Impacted By Oil Prices!

No matter what you may think, home pricing will change because of the length of one’s commute with today’s oil prices – $4+ a gallon for the first time in history!  There is an OIL CRISIS!

 I am a non-stop student as to what is happening within the local and global economies. I am reading or I am on the internet everyday regarding world wide economic issues.  (I do have a booboo on my head from a sailing accident.) They impact all aspects of real estate – from the Golden Gate to the Caribbean. What happens in London DOES effect what happens in the East Bay Real Estate market.  One of the economists that I read each week is Bob Doll from BlackRock.  They are a premier provider of global investment advisory services. Bob writes a weekly perspective as to his take on current economic events.  Here are some of his thoughts last week that focus on the impact of oil prices.  Some of you will ignore this article because of the word “economist” next to Mr. Doll’s name, but it does have some good stuff in it.

 Bob Doll – BlackRock: ( Mr. Doll is also the Global Chief Executive Officer For Equities, and was the President and Chief Investment Officer of Merrill Lynch Investment Managers.  BlackRock has $1.36 trillion in assets under management as of 3/30/08.)

The surge in oil prices comes at a bad time for the U.S. and world economies.  Consumer spending is already stretched, the housing market remains weak nationally, and the employment picture continues to soften.  High oil prices will no doubt detract from overall economic growth, but we would also note that aggressive monetary and fiscal stimuli should provide some offset.  Our overall forecast for the economy calls for continued weak, but positive growth.  The labor market remains under pressure, but unemployment claims have not increased as much as they typically would prior to a recession, and remain consistent with modestly positive economic growth levels.

To us, the critical oil-related issue is whether higher prices will trigger other inflationary problems, chiefly, accelerating wage growth.  To date, there has been no evidence of that, which is one of the reasons we maintain our belief that inflation will behave itself.  Headline inflation ( which includes energy and food prices ) continues to be boosted by surging commodity prices, yet core consumer inflation ( which excludes energy and food prices ) remains tame and labor costs have been easing.  Looking ahead, we expect that the weak economy could cause inflation pressures to moderate and that headline numbers could come back down to core levels.  The long-term case for higher oil prices is still intact.  Rising demand in China and other developing markets such as India, coupled with shrinking global supply, means that the ear of cheap oil is, unfortunately, over.  We do, however, continue to believe that oil is due for a near – term correction or consolidation.

Putting this all together, we believe that energy prices will correct at some point, that the the U.S. economy will slowly heat over the next 12 months and that inflation will eventually drift lower.  Ironically, a muddling economy is probably the best environment for stocks at present.  Slow growth will prevent inflation from becoming a problem, while also keeping the economy out of deflationary territory.  Markets are benefiting from some other tailwinds as well.  Earnings estimates, continue to fall for financial companies, but non-financial earnings remain sound.  Valuations remain attractive, and there is still a great deal of cash on the side lines that should eventually move back into the world markets.  Our view remains that the S&P 500 low of 1,270 (touched a couple of months ago) marked the bottom for the current cycle, but we also believe tha the S&P hit a temporary ceiling of 1,425 before last week (roughly corresponding to a Dow Jones level of 13,000).  At some point, we believe the positive factors we described will allow markets to break through these levels, but predicting exactly when that will happen is, of course, an impossibility.

After a minute or two of reading Mr. Doll’s economic thoughts, remember that the East Bay real estate markets are STRONG, and interest rates are GREAT!  We may be seeing higher housing prices closer to employment centers like Bishop Ranch and Hacienda Business Park.  Let me know your comments on the experience you are having with current economic conditions where you live.  Until next time.