• Expiration of the federal tax credit for home buyers is fast approaching. In order to qualify for the credit, you must have a signed purchase and sale contract in place by April 30. (In addition, the sale must close by June 30th.)The credit is equal to 10 percent  of the purchase price of the home and first-time home buyers (those who have not owned a home in the past three years) can qualify for up to an $8,000 credit.  People who already own homes (and have lived in them for 5 out of the past 8 years) can get a credit of up to $6,500 if they purchase a replacement home.

  The IRS has more information about the federal tax credit for home buyers, including eligibility requirements on their website.

• California’s housing market has shown signs of stabilization since early last year. Sales of existing, single-family homes bottomed out in August 2007, and the median home price reached its trough in February 2009. In January, California’s median home price was 17.2 percent above the low for the current cycle.

• The Federal Reserve has helped maintain low interest rates, which, in turn, has assisted home buyers. However, the agency plans to stop purchasing mortgage-backed securities at the end of this month, which likely will increase rates on 30-year fixed mortgages. You may be able to lock in a low interest rate now.  Contact a reputable lender for more information.

Click here for a complete analysis of the state of the local economy and the housing and mortgage markets.

We live in a constant storm of analysis and opinion as to what is happening and will happen in real estate. Due to national statistics in December (and other economic indicators), some have predicted a nasty “double dip” in the home market subsequent to the recovery which began last spring. But the market goes into hibernation in December: there are far fewer transactions, mostly by first-time buyers purchasing at lower price points, while families and upper-end buyers generally withdraw for the holidays. When the data is reduced and skewed, it’s less reliable. January isn’t much better because it takes a while for the market to wake up.

Therefore, the market data for February is of particular interest. While it’s unwise to make too much of one month’s data (a failing of many pundits), it is surprising how sharply February’s statistics indicate a strengthening market. That is not to say a double-dip isn’t possible — the state, national and world economies are still fragile — just that we are not yet seeing indications of one here in San Francisco.

Those who have spent the last year waiting eagerly for further price declines have so far waited in vain. (For the record: according to the Case-Shiller index, home values in the 5-county SF Metro Area have increased 4 – 5% in 2009, but the city accounts for only a small percentage of those sales.) It will be interesting to see if the trends seen below continue, as spring gets under way — and what implications that might hold regarding price movements.

Data is from sources deemed reliable but may contain errors, and is not warranted. Sales not reported to MLS, such as many new-development condo sales, are not reflected in these statistics. Median price is that price at which half the sales are above and half are below.

Rates traded up and down about .375% this week on fears about business inflation and Fed rate hikes. Today’s tame consumer inflation contributed to rates dropping again, and rates end the week roughly .25% above all time record lows. But this record low rate window looks to be closing. Rates could rise by about 0.5% by summer for three reasons:

(1) The Fed will end it’s $1.25t mortgage bond buying program March 31 (they’re 95.8% into their MBS buying budget as of today), and then we’ll likely see profit taking on mortgage bonds as private investors sell, which pushes prices down and yields—or rates—up. The San Francisco Chronicle published a very good consumer-friendly story on this topic Monday explaining other factors affecting rates after March 31:

(2) An improving economy and resulting inflationary fear will cause mortgage bonds to sell off because inflation eats up bond returns, so this would also push bond prices down and rates up. This happened yesterday when business inflation numbers came out hotter than expected, and we may see more of this in the coming months.

(3) Inflation will cause the Fed to start hiking short rates from current near-zero levels. Global investors currently borrow on these short-term rates to buy long-term securities with higher returns. When short rates rise, it will erode the benefit of this interest rate trade and force selling of long-term securities—including mortgage bonds—to repay short-term loans. That selling will also push rates higher. The Fed hiked the overnight Fed-to-bank Discount Rate by .25% (to .75%) last night and this is the first sign that the Fed is starting to move toward a short-rate hiking bias.

Volatility will continue next week with a packed economic calendar as follows:

Read more

Below is a summary of the market for the past two years.  Overall we are doing far better than most cities.  Click this link to download the corresponding Broker Metrics charts.

San Francisco Homes for Sale: As of January 31^st, 2010, at lowest level in past 2 years.

SF Homes Going under Contract (Accepting Offers): Climbing up from the typical December trough; much higher number in January 2010 than for previous months of January.

SF Homes Sold vs. Listings Expired/Withdrawn from Market: even in this high-demand market, many listings are expiring without selling (typically due to being viewed as overpriced). More listings expired in January than sold, though this is typical for the month of January.

Average Days on Market for those SF Listings Accepting Offers: it fell to the lowest number since September 2008 in January 2010, a clear sign of increasing demand.

SF Homes, Months’ Supply of Inventory (the number of months it would take to sell the current inventory of homes for sale at current rate of sales): relatively low. This is for all homes (houses, condos, TICs), but the MSI for houses is lower than the charted here, while the MSI for condos and TICs is higher. Typically, the lower the MSI, the hotter the market.

Median Sales Price for SF Houses: down to $720k from October & December’s $760k (and November’s $820k spike). Sales in January were quite low and fewer sales = lower statistical reliability. For median prices, which often fluctuate, it is preferable to look at quarters, not months. We need to wait until March/April for conclusions on price movements.

Median Sales Price for SF Condos: declined to $592,000 in January 2010 from very stable median price in the last 5 months of 2009 ($675,000 – $692,000), but again the rate in sales in January was very low, so it’s much too soon to come to definitive conclusions regarding the large drop. It may well be an anomalous fluctuation, which is not uncommon when looking at monthly median prices.

Click here for the larger version.