Here are excerpts from Turley’s most recent report on what’s happening in the Silicon Valley and elsewhere in the SF Bay Area.
“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. …
“Silicon Valley – In Los Gatos, both inventory and sales activity are on the rise. The under $2 million segment of the market continues to be strong. There are a lot of buyers looking for inventory. The San Jose Almaden office reports brisk sales activity up to the mid level ranges. The low end is very hot. Open house traffic is phenomenal in Almaden Valley with some homes experiencing 30-50 groups a day. Similarly, the San Jose Main office says that buyer activity seems to be increasing. Listing inventory is low, which leads to multiple offers on competitively listed properties. And the Willow Glen office reports that activity is a bit slower than usual, although open houses have been well attended. ~ Rick Turley, President, San Francisco Bay Area, Coldwell Banker Residential Brokerage”
