May's most asked question...

The most often asked question I've gotten lately is, "Have we reached 'the bottom?'" Since no one really knows if we've reached the bottom until we've passed it, here are some indicators from the trenches:

Many agents are reporting increased numbers of buyers looking at homes, my clients included.

An investment advisor reports parents are liquidating investments to help their grown children buy homes.

Homes that are priced really well compared to the competition are getting multiple offers.

The average asking price of homes on the market is approaching the average price of the homes that have received offers, indicating sellers have gotten realistic about what it takes to get a property sold in this market.


Quick San Lorenzo Valley Statistics:
o 100 homes are for sale in the four towns;
 Average days on the market:108
o 33 homes are pending sale:
 average days on market 117
 average asking price $534,000
o 19 of those went into escrow in the last 30 days
o 13 homes sold in the last 30 days
 Average asking price $428,000; sales price $403,000
 That's a discount of about 5%

Although the Fed lowered interest rates again, this is not really benefiting the residential market, because the lenders themselves have tightened their lending criteria so fewer people can get loans. We have seen a few situations where the lender required the buyer to put up a larger down payment or make other adjustments in order to get the loan funded. Yet, there are positive developments including FHA and Cal HFA programs that have broader criteria. As of this writing, the 30 year fixed rate is just over 5.8%, the new conforming jumbo category is hovering around 6%, and the jumbo is over 7.5%. Despite the Fed's cumulative rate reductions, interest rates on mortgages are only slightly less this year than last.

Recent statistics show that even in markets that have declined the worst, homes have appreciated modestly over the last 5 years. Yet, many homeowners who purchased in 2005 and 2006 owe more than their home is worth. People who can afford their mortgage and intend to stay in the same home are relatively unaffected. Some are even benefiting from declining interest rates, which have reduced some adjustable rate mortgage payments. The nugget to glean from all this is that buying a home should be considered a long term investment, backed by adequate financial reserves to weather short term setbacks.

In the News:
Here's the Mercury News' latest take on local home value changes and the popular service Zillow
http://www.mercurynews.com/ci_9167620?source=most_emailed

The latest housing article in the Santa Cruz Sentinel indicates home sales rose 50% in April (normally, May's seasonal increases are 5% over March). The median home price rose to $661,000 from $650,000.
http://www.santacruzsentinel.com/ci_9253667?source=rss

Useful advice for all ages in last week's Santa Cruz Sentinel: http://www.santacruzsentinel.com/ci_9223937?source=rss

And finally, submitted by a client, is this great reminder about common contractor scams. Another valuable benefit of being a Century 21 Showcase client is that all you have to do is pick up the phone or e-mail me for the latest list of our approved vendors: people our clients have used with confidence. We update this list frequently, so if you ever have a negative experience, or discover a new someone wonderful, tell me all about it! http://www.scambusters.org/contractors.html

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April 2008 Update

UPDATE:
Yesterday, the Bush Administration announced additional flexibility for the Federal Housing Administration to insure more mortgages. Specifically targeted to help borrowers already in trouble, the FHA may be able to insure up to 500,000 refinanced home loans through FHASecure. For more details, visit http://www.hud.gov/news/release.cfm?content=pr08-050.cfm

Seems everyone wants to know what's happening with home sales. REALTORs in our offices are reporting consistently higher buyer attendance at open homes. Multiple offers are common on well-priced homes. In contrast to a few months ago, when the "short sales" often took a while to sell, it seems a new trend is emerging: "bank owned" homes are often priced to sell quickly. Today's savvy buyers can tell when there's a good value, and they are taking advantage of the downturn in increasing numbers.

ARTICLES:
We are also beginning to see a change in tone in the press, including writers from Forbes and the San Francisco Chronicle. There are signs of improvement in even the worst housing markets, and home sales picked up in February for the first time since last July nationwide. Here in California, February sales rose 10% over January's sales rate.


EVENTS:
Saturday, April 12th 10 am - 2:30 pm
Santa Cruz County Housing Expo
Free to the public:
Twin Lakes church, Monschke Hall
2710 Cabrillo College Drive,
Aptos, CA
Santa Cruz Association of REALTORS (831) 464-2000 for details, or visit
www.scaor.org for list of workshops, speakers, and more, including how to "green" a home!

OPEN HOMES:
Sunday April 20th 1 - 4 pm
Century 21, Showcase REALTORS will be hosting open homes all across the county; contact MC for details at
mcd@mcdwyer.com or (831) 419-9759

Mid March '08 Market Update

The other day a buyer remarked to me that there are a lot of homes are on the market right now, with all the foreclosures and everything. Actually, I shared with him, right now there are only 114 homes actively listed for sale on the MLS in the entire San Lorenzo Valley. In comparison, often during 2005, there were 100 homes for sale in Boulder Creek alone!

This past winter, there were a lot more homes listed for sale, so what happened? I think many of those sellers, if they had a choice, took their homes off the market to wait for a better selling season. Meanwhile, recent positive press articles and low interest rates have stimulated a new wave of buying here: in the last month, 22 homes changed to pending, and 7 closed escrow. The average time it took those 7 homes to sell was just 5 months, and the sellers received on average 93% of asking price. Looking closely at those 7 homes, one was a major fixer that sold for 72% of asking price. So if you took that one out of the mix, the other sellers got 95.5% of their asking price.


The key for sellers in this market is setting the right price and taking the time to make sure your home is more appealing than your competition. The key for buyers is to realize just how rare it is to be able to buy with the current combination of low interest rates, motivated sellers, and home prices their lowest in the past few years.

March Market Musings

As the subprime situation worsens statewide, somehow Santa Cruz County has managed to avoid the worst of it. However, the average and median home price dipped below $600,000 for the first time in years. While on the face of things this is an 18% drop in prices, the reality is more complex.

During most of 2007, sales in the million plus price range remained strong and steady, accounting for about 25% of all home sales. Similarly in 2007, homes priced under $500,000 accounted for only about 15%.

In contrast, this year has started out quite differently: about 33% of home sales in Santa Cruz County were sold for less than $500,000, while homes over a million dollars accounted for only 14%.

This dramatic change in the sales mix is what caused the average price to fall 18%. Homes haven't dropped 18% in value. In fact, over the last 4 months, most homes in the San Lorenzo Valley have sold for about 95% of the list price.

Here's where the difficulties lie: areas that experienced rapid building, sales and expansion, such as the Watsonville area and much of the Central Valley, where as many as 1% of homes have some sort of a foreclosure filing. There is no question that prices and sales are dramatically affected by the sub-prime loans, defaults and foreclosures. Statewide, home sales have fallen dramatically.

Many mortgage professionals draw sharp distinctions between geographic areas. One of the bix six lenders is in the process of re-evaluating the Santa Cruz County market as stable (up from soft); at the same time they expect to downgrade Santa Clara and Monterey Counties. Borrowers nowdays need to put more money into the purchase, have solid credit history, and provide better documentation. Sounds like good business practice to me.

Here in the San Lorenzo Valley, home values in each town have been affected differently. There are a few distress sales where the savvy buyer can negotiate a low purchase price and lock in today's low interest rates. A few homes are being sold at auctions. But the majority of homeowners here are not distressed: they are selling for the normal reasons. Well-priced homes in good condition with appealing features often sell within a matter of a month or two, often at or quite near the asking price.

Larger Loans Approved; Project Lifeline

On February 13th, the President signed the economic stimulous package as expected, so the conforming loan limit is officially increased in high cost areas like California. Many borrowers are expected to take advantage of lower interest rates, previously only available to people borrowing less than $417,000.

On February 12th, the President announced Project LifeLine - a program designed to help people who have fallen behind on their mortgage payments. Some of the nation's largest lenders, accounting for nearly half of all mortgages, are participating: including JP Morgan Chase, Washington Mutual, Bank of America, Countrywide, Wells Fargo Bank, and CitiGroup. These institutions have pledged to work with delinquent borrowers, including providing some people extra time prior to processing official foreclosure paperwork.

Meanwhile, a recent analysis of RealtyTrac foreclosure statistics shows that there may be counting errors. The company apparently counts each loan and each stage of a property default. It is possible that as a single property moves through the foreclosure process, there may be more than one loan being counted each time there is a notice of default, auction, or lender repossession. So it is possible the degree of the problem may be somewhat overstated. Nonetheless, this is a difficult stage in the real estate cycle, and an indicator we are watching carefully.

Better loans for California by mid February

Today, Congress completed passage of a $150 billion stimulus package designed to avert recession; next it goes to the President, who has indicated he will approve it.

The bill contains economic assistance for about 100 million US households. Here in California, the housing market is expected to greatly benefit from the expansion of the conforming loan size from $417,000 to as high as $729,750. These larger conforming loans can then be purchased by the government sponsored mortgage companies Freddie Mac and Fannie Mae; this will add much needed liquidity to the market. Larger loans can also be insured by the Federal Housing Authority.

Previously, any loan over $417,000 was considered a jumbo loan and there weren't as many investors buying those mortgages. Consequently, the interest rates on jumbo loans were much higher than conforming loans. In my opinion, this liquidity problem is what caused the average California home price to dip below $500,000 in December - for the first time in years - specifically because the number of people buying homes priced over $500,000 using jumbo loans, fell off after August 2007.

I expect this increase in the conforming loan amount, combined with 30 year fixed mortgage rates hovering between 5.375% and 5.5%, will lead to increased buyer activity. Further, as far more people will be able to refinance inexpensively now, we may see fewer homes going into short sales and foreclosure, which could stablize prices.

Isn't it ironic that when we were in a feverish sellers' market, buyers were eager and willing to pay more than ever for a home. Yet in a buyers' market like we have now, when offers below asking price are being negotiated and accepted, and homes are selling at a discount, there just aren't that many buyers. No one can predict the bottom of the market. But in my practise, I am seeing an increase in intelligent, educated buyers looking to lock in great interest rates on homes that are selling at prices that are the lowest in years.

Good News for Conforming Loans

According to the California Association of REALTORs president, William Brown, the White House and Congressional leaders have agreed to expand certain housing benefits long enjoyed by the states of Hawaii and Alaska. These two "high-cost" states have conforming loan limits higher than the rest of the nation. California has higher home prices than the national average, yet has only been allowed a conforming loan limit of $417,000. Any loans above that have been considered Jumbo Loans, which for a variety of reasons (including support from Fannie Mae and Freddie Mac, government sponsored entitites) are more expensive. The new conforming loan limit may be as high as $729,750!

This change is being contemplated as part of the current government stimulus package. There is still opposition from the Office of Federal Housing Enterprise Oversight, but the California Association of REALTORs has pledged to continue to advocate the reform for the benefit of all high cost housing areas.

January 2008 Market Update

In a dramatic, emphatic move, the Federal Reserve cut its benchmark interest rate by three quarters of a percentage point yesterday. The target overnight lending rate is now 3.5% (down from 4.25%). To provide perspective, this was the largest single reduction in the past 20+ years, and its first emergency reduction since 2001. Typically, the Fed adjusts rates in 1/4 and 1/2 percent increments; however, this was intended to signal to the world markets that the United States is prepared to move quickly and decisively to avert recession.

ECONOMIC PERSPECTIVE
The move garnered a variety of responses from economists, asset managers, politicians and other pundits, ranging from critical to supportive. Some say the move provided too much stimulus too late; others felt it was appropriate, and some are even expecting another move next week. By way of background, the Fed's action was in response to declines in many international stock markets, increasing write-offs of sub-prime loans, and the feeling that the US might slip into recession as a result of housing market woes. Banks and lenders are recognizing losses on their real estate loan portfolios, reducing their earnings to a fraction of stock analyst's expectations. Homebuilders have (appropriately) curtailed building new homes, homeowners are less able to pull equity out of their homes by refinancing, and home resales have slowed concurrently. While all these factors create a significant drag on our economy, trickling all the way to retail sales, the economy still appeared to be growing slightly at last measure. A recession is defined as a six month contraction of economic growth - negative growth, not slow growth. Our country's economy is linked to the entire global economy, as our consumer demands are largely fed by overseas production of goods, while the U.S. has become largely a service economy.

The Feds' rate cut, along with the governments' stimulus package, may help avoid recession. Already, interest rates on the 30 year Treasury bond have fallen to record lows of about 4%, as investors move from global stocks to US Treasuries in a global flight to quality. At the beginning of this year, rates on the 30 year fixed mortgage hovered between 5.5% and 5.875. Last week, they dipped to 5.375%, and today 5.0%! Adjustable rate mortgages will begin to ratchet lower as a result of the Fed's move. This may relieve stress for many borrowers. But those who have run into financial difficulties at the same time as their adjustable rate loans reset upwards, are often falling behind in their payments, receiving a notice of default. Some will be able to cure their default, others will try to sell their homes for less than they owe on them (a short sale, which requires the lenders' cooperation). The drag on national and statewide home prices will continue as homes move through the foreclosure process. If the lenders are not able to sell them using normal market processes, eventually some properties end up at auction. This tends to pull prices downward. However, in the past few weeks, there have been a few positive developments on the housing front: FHA has modernized their lending guidelines, there has been legislation offering tax relief to certain sellers, (those who would have had a tax liability on the amount of loan forgiveness received in a distress sale), and rates on jumbo loans (over $417,000) have fallen to the low 5% range from over 7% last fall.

HOW MIGHT THIS AFFECT YOU?
For the homeowner with an adjustable rate mortgage, the risk of further rate hikes is lower. For the buyer with sufficient reserves and a long term horizon, this may prove in hindsight to be amongst the best times to purchase in this decade. Why? Because interest rates are historically low at the same time as some home prices are a bargain, and many sellers are negotiable. Another segment of the housing market that can benefit are homeowners who need up upsize or downsize. Why? Because a buyer may be able to negotiate a purchase price on their new home that offsets price reductions on the home they are selling. Further, this is a great time to lock in very low interest rates and lower property taxes.

Santa Cruz County's sub-prime problems are most prevalent in the Watsonville area, where the inventory of unsold, distressed homes on the market could take years to absorb. Many Watsonville homebuyers were not good lending candidates, yet were able to buy into a rapidly rising market using risky loans they didn't understand. Any financial setback, including adjustable rate mortgage increases, put them quickly into foreclosure. Yet, according to a recent article in the Sentinel, the median home price in Santa Cruz County was $757,600, compared to the previous high in 2005 of $754,000. Behind these statistics are several underlying factors: fewer sales overall, combined with more affluent people, (less affected by the economy), buying and selling million dollar plus homes. The resiliency of our overall housing market still appears sound: areas like Scotts Valley, Santa Cruz, Ben Lomond and others have maintained values; experts tie this to our proximity to the Silicon Valley plus a relatively positive local economic outlook, combined with consistent demand and minimal supply of new homes.

Long term, home ownership accounts for roughly 60% of personal wealth. Call me to discuss how to make the most of your real estate endeavors.

Mid September 2007 Update

Today, the Federal Reserve lowered their key interest rate by 1/2% - double the widely expected 1/4 point - from 5.25% to 4.75%. The discount rate was also lowered to 5.25%. While this can't cure the problems in the subprime lending market, it is widely seen as a strong, pre-emptive move to help reduce the chances of recession.

The housing market will take time to work out the excesses that were fueled in part by aggressive lending that resulted in the failure of some 100 mortgage companies. Lower interest rates may help reduce the impact of the adjustable rate mortgage resets that have been causing homeowners on the brink to go over the edge. There is legislation underway that, if passed, could increase the availability of governement backed lending programs to help homeowners restructure.

Meanwhile, the National Association of Realtors notes that the volume of existing home sales may total about 6 million this year, down about 10% from last year. Nationally, prices are expected to slip about 1.7% this year, and then rise about 2.2% in 2008. Senior economist Lawrence Yun said, "The mortgage markets will calm further in the months ahead, but it's important to underscore the fact that conventional loans - the vast majority of available financing - are available to creditworthy borrowers," Yun said. "Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment."