Lack of Supply, Demand, interest rates

I read an article in yesterday's WSJ about how vacancy rates in the housing supply reached an all time high recently at 2.9% normally around 2.0% and how this could portend a futher erosion in home prices.

I don't see it. Here in the bay area, we can't find enough homes to sell that are located in good neighborhoods, with good schools and preferably in good condition. Home prices for these homes are slightly up from last year.

I've been looking for a home priced between $600K-$800K in southern Fremont and only 3 have come on the market since Dec. 31, with only 1 that met my definition above.

I've mentioned it in my January newsletter but I'll mention it again here now, that the buyers are back. In Fremont, which everyone buys for it's school's the buyer's are typically first time buyer's with pre-school kids or expecting parents. We're seeing less buyer's with kids already in school, primarily because most seats in the good elementary schools are filled up. However this is a familiar story with almost every great school (900+ API score).

Buyer's understand this, and therefore are not willing to pay a premium for a home whose school is impacted. In Fremont the junior and high schools are not impacted yet but it's important to always call the school for the grades of interest.

Rates have improved with the spread between the 30 yr interest only and the 5/1 ARM interest only becoming only a 0.25%. This is the lowest I've ever seen it. In 2003 the spread was like 1.25-1.50%. Today the 30 Year fixed is at 6.25% on a purchase compared to the all time low in 2003 of about 5.5%. Not much difference. Compare that to 2001 where the conforming 30 year fixed was at 8.00%. Rates have also improved from 6 months ago when they were 6.625%.

All in all, we've got low inventory, 1st time buyers ready to buy and interest rates that make payments affordable. Contrary to what the WSJ seems to think, bay area homes prices are looking stable to strong, for good properties, with great schools, and good communities.