– and he may not be alone

When Warren Buffett talks, people listen. In particular, the Oracle of Omaha gets investors’ attention when he issues his annual Berkshire Hathaway shareowner letter, a frank and enlightening assessment of the economy and investment outlook. What jumped out in this year’s letter released last week: Buffett is bullish on housing again, and he’s putting his money where his mouth is.

In his letter, Buffett notes that, “a housing recovery will probably begin in a year or so. In any event, it is certain to occur at some point.” He said that “home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates,” adding, as an aside, that “the third best investment I ever made was the purchase of my home.” The first two, he says, were wedding rings.

Consequently, Buffett told shareowners, he has made several strategic investments in the housing sector in recent months. Among these ­are five corporate acquisitions in the building components field, a $50 million acquisition of a brick manufacturer, a new $55 million roofing plant for Johns Manville, and $200 million capital expansion of his Shaw Industries carpet company.

"Buffett doesn't spend money unless he thinks he's going to make money," Jeff Matthews, hedge fund manager and author of Pilgrimage to Warren Buffett's Omaha, said in a recent interview. Matthews said Buffett’s housing bullishness is "interesting because that didn't happen last year and didn't happen the year before that."

The legendary chairman of Berkshire Hathaway isn’t the only one suggesting a turnaround in housing may be at hand. The Wall Street Journal ran an article recently headlined, “Why 2011 May be the End of the Housing Crash.” The Journal gives a number of reasons as to why we may have seen the bottom, including the fact that housing is the most affordable it has been in decades.

Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years, Moody’s Analytics says. Prices usually average close to two years' pay, although that varies nationally.  At the peak, midway through the last decade, a home in Los Angeles, the Journal said, cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years.

"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.  Such analyses are “definitely bullish,” the Journal said. "Housing prices will probably bottom in 2011," agreed Scott Simon, a managing director at money-management firm Pimco in Newport Beach. His views are important because Simon foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.

 The Journal also points out that investors are stepping up to buy real estate, which is usually another sign that the market has bottomed out or is near a bottom. In some instances, they’re paying entirely in cash. “That's a far cry from the heady bubble days when borrowed money seemed the key to riches,” the paper reported.  “It's a sign that these investors are betting on a rebound.”

Finally, one other story caught my attention this week. The Sacramento Bee, interestingly enough, ran a piece on the growing Bay Area economy, noting that, “Silicon Valley is starting to pop again.

Green tech is alive, as is anything in social networking. Venture capitalists are investing. Google is hiring 2,000 workers this year; Facebook is moving into new quarters with room for hundreds of additional employees” and Skype’s Palo Alto office is doubling its local employment.

What's happening in Silicon Valley, and throughout the Bay Area, is a striking example of California's "bifurcated recovery," said Stephen Levy, the noted economist and director of the Continuing Study of the California Economy in Palo Alto. Simply put, the Bee reported, “Inland California remains depressed while coastal California is showing life.”

Why the split? Experts told the Bee that the California economy doesn't recover all at once. Coastal industries like technology and international trade are doing better and wealthier Californians, who tend to live on the coast, are enjoying greater gains in the stock market over the past couple of years.

What to make of all this? It gives me reason for optimism that the real estate market in general – and the Bay Area market in particular – may see much brighter days in 2011. As the economy continues to mend, it’s reasonable to expect some of the greatest economic gains to be in the tech sector in Silicon Valley and the financial and biotech sectors in San Francisco and the Peninsula. That bodes well for our local housing market.

As for our East Bay Market, we're off to a quick start this quarter. Sales are up over last year this time and inventory is not growing appreciably yet. Buyers sitting on the fence may miss the last great opportunity to buy before home appreciation returns.    Larry

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

My how things have changed in just one year! A year ago at this time, many homes were languishing on the market as buyers stayed on the sidelines, worrying about their jobs, the sharp decline in their 401k accounts, and whether housing prices would ever rise again. Today, many of those buyers have swallowed their fears and are out in force once again, spurred by an improving economy, a solid recovery in the financial markets, and federal home buyer tax credits that will expire this spring.

While no one claims the housing market is out of the woods yet, an unusual dynamic is occurring in many communities around the Bay Area:  Despite the choppy housing market, there is an army of confident, well-qualified buyers out searching for homes, but many sellers are now sitting on the sidelines! One listing in San Francisco’s Outer Mission neighborhood priced in the mid-$500,000 drew more than 100 groups during a two hour open house during the past holiday weekend.

 Inventory shortages continue to be the challenge in many areas.  In Santa Clara County and the East Bay, for example, the number of homes for sale is standing at half of what it was a year ago! This has resulted in as many as half of the listings on the market attracting multiple offers as buyers fight it out for the best properties.

This conundrum has resulted in prices rising even as sales are falling.  DataQuick, the La Jolla-based research firm, reported that the median sale price of homes and condos in the Bay Area shot up almost 17 percent year over year in January while sales dipped 4 percent. The biggest jump in the median price was 18.3 percent in San Mateo, but all counties (except Napa) saw strong increases.  (see chart below) The upper end of the market is particularly sensitive to this trend, as illustrated by Santa Clara County, which saw sales of million-dollar homes half of what they were a year ago even as prices rose 4 percent, according to Coldwell Banker Residential Brokerage’s luxury market report.

Source: MDA DataQuick Information Systems, www.DQNews.com

Inventory levels are slowly rising in some communities, and the balance between buyers and sellers could shift in the weeks and months ahead. But right now it’s a good time to be a seller if you price your home for today’s market.

Feb. 26, 2008

Economic news was sketchy again this week, with housing related headlines continuing to point out the scary negatives.  Fortunately, we continue to see a surprising amount of interest from buyers who are finally deciding to take the plunge.  Really, the deals that are out there are getting to be irresistible, and with mortgage rates starting to creep back up, buyers are recognizing that now really just may be the best time to buy. 
Sales are increasing in some  areas, and it is perhaps the passing of the economic stimulus package that is spurring these buyers into bringing their checkbooks with them when they’re looking at properties. If not the passing of the package itself, it is the added degree of consumer confidence that came as a result of it. Buyers are also being properly educated by the real estate industry and doing their research, not just being scared by skewed headlines.  Now they’re jumping in while the deals are out there.  We are also starting to see homes that have been on the market for quite awhile starting to get some interest. It is all about being the best price and condition in your class of property.  First time buyers are also finding affordable, desirable homes in lower price ranges and through REO sales and they’re buying them.

In Sonoma county we continue to see improved sales activity especially in the lower price ranges and on REO properties. Marin county sales are continuing to improve from January levels as well. In San Francisco , as in other parts of the Bay Area, the high end market remains particularly strong with homes well over the $1 million mark in high demand. A Burlingame property had seven offers and sold for $125,000 over the listing price.    Parts of the Peninsula keep seeing this phenomenon occurring, but other sub markets still languish. In Southern Alameda County we have a mixed bag with parts of Pleasanton and Fremont attracting motivated buyers while entry level interest in Livermore still anemic.
Like never before, markets differ from one city to another and in some markets foreclosure pricing is driving the market. It’s worth keeping in mind that many of these off-market sales aren’t included in sales figures collected and reported by the media.  Everything isn’t as bleak as some would have us all believe. We are certainly seeing what I would call a split market with the high end doing well, and with the median priced homes slowing their price dive.