Greg Stange

With the expiration of the federal tax credit, the housing market is facing a key inflexion point as we head into the summer vacation season. The government stimulus has certainly helped spur a rebound in the real estate market, but the recovery is fragile and observers are watching closely to see if the market can grow without the support of government aid.

Several key economic announcements out this week could bolster the nascent recovery. On Thursday, mortgage finance giant Freddie Mac announced that U.S. mortgage rates have fallen to a record low. Rates for 30-year fixed loans declined this week to 4.69 percent from 4.75 percent. The previous record was 4.71 percent, set in the week that ended Dec. 3. The average 15-year rate was 4.13 percent.

While the overall level of real estate activity has eased in recent weeks with the expiration of the tax credit deadline, many economists believe that low mortgage rates will spur growth in the market by reducing borrowing costs for home buyers. Mortgage interest rates have tumbled in the past two months as concern that a debt crisis in Europe may spread boosted demand for the safety of bonds, including mortgage-backed securities.

Meanwhile, Reuters reported on Friday that consumer sentiment rose in June to its highest level since January 2008 while reports of job losses were down sharply from a year ago.

The Thomson Reuters/University of Michigan's survey of consumers, a key gauge of consumer sentiment, rose to 76 from 73.6 in May. The figure was above the median forecast of 75.5 among economists polled by Reuters. At the same time, reports of job losses fell by half since last June, from 65 percent of respondents to 29 percent, the survey showed.

"The June 2010 survey recorded the most favorable news heard by consumers about jobs in five years," Richard Curtin, director of the surveys, said in a statement. But he cautioned that consumers "do not anticipate significant declines in unemployment during the year ahead."

Consumer sentiment is seen as a proxy for consumer spending, which fuels around 70 percent of the U.S. economy. Positive consumer sentiment is particularly critical to the housing market. If buyers are more optimistic about their future, they're more likely to take out a mortgage and buy a home.

So where does this all leave us as we look at the Bay Area housing picture? As reports from our local offices indicate, the market continues to be steady in most communities. But the recovery from last year's recessionary lows will likely be a gradual one with its share of fits and starts along the way. Unemployment levels will play a key role in the recovery, as will the health of the stock market and the overall national economy.

While there are certainly economic challenges right now, for buyers with a long-term view the current market provides an attractive opportunity to invest in real estate while mortgage rates are at historic lows and homes are priced very competitively. To put this in perspective, took a look at conditions in the mid-June 2001 market. In many of our Bay Area communities today, we are seeing mid-level homes near 2001 prices. The average June 2001 mortgage interest rate for a 30 yr fixed conforming loan was 7.2% - and today's record low is 4.7%. That's over a $1,000 monthly savings on a $650,000 loan - from $4,412 to $3,371. Savvy buyers are taking advantage of this great combination of home prices and interest rates.

Opportunities for foreign real estate investors have increased over the last few years due to the strength of foreign currencies against the U.S. dollar and no shortage of deals in the market. California still has one of the strongest economies in the world. The quality of life and the warm weather make this state a popular place to buy a vacation home that would previously have been considered out of reach; or an investment property that will translate into savvy investment down the read.

If you're a foreigner, there are many reasons why you should invest in the U.S. real estate market now:

Northern California regions have experienced a price decline, but overall there is limited inventory. In a recent survey conducted by RealTrends, of the leading Broker/owners of the real estate industry, 69% of respondents said that, as of end of May, they strongly or somewhat agree that their market is showing signs of improvement.

Unfortunately too many buyers right now are relying on data reported by the media that has a three or even four month lag. Their perception may be that nothing is selling, when in fact; the sales rate may be brisk for well-priced property.

Our market continues to be challenged by some buyers who are waiting to see what the market is going to do. As a Realtor, the best thing to do for our client is educate them on why waiting could cost them plenty in terms of higher prices, lower inventory and higher interest rates. It's just a matter of time before we swiftly move from a buyer's market to a more normalized exchange between buyers and sellers and we need to educate our buyers now that if they don't act, they will reduce their purchasing power and may lose out on a bigger and better home!

Richard Smith, Chief Executive Officer for Realogy, released a video statement. He advised, "Like all downturns, this too shall pass. It's not a matter of if, but when."

Later on, Freddie Mac and NAR both predicted stabilization of the market towards to the end of 2008 and recovery and following growth in 2009.

Although nobody is a fortune teller, if these highly regarded sources a year from now we would be looking at back and kicking ourselves. Just like in the past... Sounds familiar?

For instance, our Palo Alto office noting that an all time low in inventory with about 80% of offers going into multiples.

Stay cool!