I am taking some time off from writing over the holidays, but good friend Barry Ritholtz offered to write this week's letter. It is a very thought-provoking piece on the importance of what he calls the "real estate industrial complex" to the economy. Loaded with charts and statistics, it is the type of work I have come to expect from Barry over the years. Barry is Chief Market Strategist for Ritholtz Research and Analytics in New York.
I will be doing my annual forecast issue for next week's letter, and this piece by Barry is a good set-up. But before turning you over to Barry's capable hands, let me wish you and yours a very Happy and Prosperous New Year. I want to thank you for letting me come into your life with my weekly musings, and sincere note of appreciation for all the comments and kind words.
~~ John Mauldin
John@FrontLineThoughts.com
This is definitely a worthwhile read. Click to see the article.
~~ Ray the Realtor
http://www.itsourmove.com/Nav.aspx/Page=/PageManager/Default.aspx/PageID=1985780
Saturday, December 30, 2006
Friday, December 29, 2006
Prices Down 0.8% from 2005 to 2006 in West
Realtors report drop in existing-home sales, prices
Median home price rides 4-month downtrend
David Lereah, National Association of Realtors
Existing-home sales and prices dropped in November compared to the same month last year, the National Association of Realtors reported today.
Nationally, the median price of existing homes dropped for the fourth consecutive month to $218,000, down 3.1 percent compared to November 2005. The average price of existing homes, at $266,000 in November, fell 1.8 percent compared to the same month last year.
The seasonally adjusted annual rate of existing-home sales dropped 10.7 percent in November compared to November 2005, to 6.28 million. However, home sales rose over October, possibly signalling a bottom in the housing market. It was the second month in a row of increases in the sales rate after six consecutive months of decline earlier in the year.
The rate is a projection of a monthly sales total over a 12-month period, adjusted for seasonal fluctuations in sales activity. The sales statistics include single-family homes, town homes, condominiums and co-ops.
David Lereah, NAR's chief economist, said in a statement, "Existing-home sales should be rising gradually during 2007 -- it looks like we may have reached the low point for the current cycle in September. We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down."
He added, "For every 1 percent drop in home prices, we project an additional 50,000 buyers are drawn into the market."
[Note: I expect that home prices in our area will drop slightly less than 1% per month locally until April, when we will see a flattening of prices for much of the remainder of the year.]
Total housing inventory levels fell 1 percent at the end of November [Also noted in the local market] to 3.82 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace. The unsold inventory index is somewhat higher locally. A for-sale supply of greater than six months is generally considered to be a buyer's market.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.24 percent in November, down from 6.36 percent in October. The rate was 6.33 percent in November 2005.
NAR President Pat Vredevoogd Combs said in a statement, "Mortgage interest rates are the lowest they've been since January, and it's the first time since August of 2005 that interest rates are lower than a year earlier. Combined with a plentiful supply of homes on the market, there's a window for buyers now with conditions that we haven't seen prior to the beginning of the housing boom in 2001."
[While interest rates remain historically low, you have to love the NAR positive spin on the housing market.]
Single-family home sales increased 0.2 percent to a seasonally adjusted annual rate of 5.52 million in November from a pace of 5.51 million in October, but were 10.2 percent lower than the 6.15 million-unit level in November 2005. The median existing single-family home price was $217,200 in November, which is 3.6 percent lower than a year ago, the Realtor group reported.
Existing condominium and cooperative housing sales rose 3.1 percent to a seasonally adjusted annual rate of 757,000 units in November from a downwardly revised 734,000 in October, but were 13.6 percent below the 876,000-unit pace in November 2005, according to the report. The median existing condo price was $224,600 in November, which is unchanged from a year ago.
Regionally, existing-home sales in the Northeast increased 6 percent in November and were 4.5 percent below November 2005. The median existing-home price in the Northeast was $269,000, down 2.2 percent from a year earlier.
Existing-home sales in the West rose 0.8 percent to an annual pace of 1.32 million in November and were 17.5 percent lower than a year earlier. The median price in the West was $351,000, down 0.8 percent from November 2005.
Existing-home sales in the Midwest were unchanged in November and were 9.6 percent below sales in November 2005. The median price in the Midwest was $165,000, which is 3.5 percent below a year ago, according to the report.
Existing-home sales in the South fell 1.6 percent in November and were 10.2 percent below a year ago. The median price in the South was $179,000, down 3.2 percent from November 2005.
Existing-home sales statistics are based on transaction closings, the association noted, and the sales data is based on about 40 percent of multiple listing service data each month.
***
Summary: Not a great housing market... not a horrible housing market. The Notice of Default rate is up, but still below the historic mean for our area.
Advice to buyers: incorporate an aggressive stand on purchase price, and pick off a weak seller, as long as your buying criteria is fairly broad. If only one home on the market meets all of your criteria, you may not get a steal of a deal but you can get the home of your dreams with still-favorable interest rates.
Advice to sellers: get your head out of the [sand]. If you are pricing high compared to the competition, don't expect to sell. You need to be priced at the bottom of the competition, and work with whatever buyer makes an offer. The market is declining... don't follow it down with incremental price cuts yet just uncompetitive enough not to generate offers to purchase. It is a losing strategy. Of course if you really don't have to sell, pull your home off the market. After all, if you think it is worth more than the buyers do today, congratulations, you just bought your house back. While you are at it, add another zero at the end of whatever you think it is worth. Why not? You may be living in it for a while!
Harsh words? No. It's reality-based real estate.
Median home price rides 4-month downtrend
David Lereah, National Association of Realtors
Existing-home sales and prices dropped in November compared to the same month last year, the National Association of Realtors reported today.
Nationally, the median price of existing homes dropped for the fourth consecutive month to $218,000, down 3.1 percent compared to November 2005. The average price of existing homes, at $266,000 in November, fell 1.8 percent compared to the same month last year.
The seasonally adjusted annual rate of existing-home sales dropped 10.7 percent in November compared to November 2005, to 6.28 million. However, home sales rose over October, possibly signalling a bottom in the housing market. It was the second month in a row of increases in the sales rate after six consecutive months of decline earlier in the year.
The rate is a projection of a monthly sales total over a 12-month period, adjusted for seasonal fluctuations in sales activity. The sales statistics include single-family homes, town homes, condominiums and co-ops.
David Lereah, NAR's chief economist, said in a statement, "Existing-home sales should be rising gradually during 2007 -- it looks like we may have reached the low point for the current cycle in September. We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down."
He added, "For every 1 percent drop in home prices, we project an additional 50,000 buyers are drawn into the market."
[Note: I expect that home prices in our area will drop slightly less than 1% per month locally until April, when we will see a flattening of prices for much of the remainder of the year.]
Total housing inventory levels fell 1 percent at the end of November [Also noted in the local market] to 3.82 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace. The unsold inventory index is somewhat higher locally. A for-sale supply of greater than six months is generally considered to be a buyer's market.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.24 percent in November, down from 6.36 percent in October. The rate was 6.33 percent in November 2005.
NAR President Pat Vredevoogd Combs said in a statement, "Mortgage interest rates are the lowest they've been since January, and it's the first time since August of 2005 that interest rates are lower than a year earlier. Combined with a plentiful supply of homes on the market, there's a window for buyers now with conditions that we haven't seen prior to the beginning of the housing boom in 2001."
[While interest rates remain historically low, you have to love the NAR positive spin on the housing market.]
Single-family home sales increased 0.2 percent to a seasonally adjusted annual rate of 5.52 million in November from a pace of 5.51 million in October, but were 10.2 percent lower than the 6.15 million-unit level in November 2005. The median existing single-family home price was $217,200 in November, which is 3.6 percent lower than a year ago, the Realtor group reported.
Existing condominium and cooperative housing sales rose 3.1 percent to a seasonally adjusted annual rate of 757,000 units in November from a downwardly revised 734,000 in October, but were 13.6 percent below the 876,000-unit pace in November 2005, according to the report. The median existing condo price was $224,600 in November, which is unchanged from a year ago.
Regionally, existing-home sales in the Northeast increased 6 percent in November and were 4.5 percent below November 2005. The median existing-home price in the Northeast was $269,000, down 2.2 percent from a year earlier.
Existing-home sales in the West rose 0.8 percent to an annual pace of 1.32 million in November and were 17.5 percent lower than a year earlier. The median price in the West was $351,000, down 0.8 percent from November 2005.
Existing-home sales in the Midwest were unchanged in November and were 9.6 percent below sales in November 2005. The median price in the Midwest was $165,000, which is 3.5 percent below a year ago, according to the report.
Existing-home sales in the South fell 1.6 percent in November and were 10.2 percent below a year ago. The median price in the South was $179,000, down 3.2 percent from November 2005.
Existing-home sales statistics are based on transaction closings, the association noted, and the sales data is based on about 40 percent of multiple listing service data each month.
***
Summary: Not a great housing market... not a horrible housing market. The Notice of Default rate is up, but still below the historic mean for our area.
Advice to buyers: incorporate an aggressive stand on purchase price, and pick off a weak seller, as long as your buying criteria is fairly broad. If only one home on the market meets all of your criteria, you may not get a steal of a deal but you can get the home of your dreams with still-favorable interest rates.
Advice to sellers: get your head out of the [sand]. If you are pricing high compared to the competition, don't expect to sell. You need to be priced at the bottom of the competition, and work with whatever buyer makes an offer. The market is declining... don't follow it down with incremental price cuts yet just uncompetitive enough not to generate offers to purchase. It is a losing strategy. Of course if you really don't have to sell, pull your home off the market. After all, if you think it is worth more than the buyers do today, congratulations, you just bought your house back. While you are at it, add another zero at the end of whatever you think it is worth. Why not? You may be living in it for a while!
Harsh words? No. It's reality-based real estate.
New Rules for Real Estate: Buy and Hold
Property investors obtained large mortgages during the most recent housing boom in the hopes of capitalizing on rapid home-price appreciation by quickly buying and reselling, or "flipping," single-family homes and condominiums. No more. In the current market downturn, investors are focusing their attention on small rental apartment and commercial buildings, primarily in Texas and other markets where price gains are still anticipated. Rather than flip these properties, investors are concentrating on cash flow and generating profits over the long term.
Developers, especially those in Florida and Philadelphia, are responding to market changes with deals that promise five years' worth of rental income. Investors accounted for only 8.4 percent of home sales from January through September, according to First American LoanPerformance — down from 9.5 percent during the corresponding period in 2005.
In the third quarter, the company reports a 70-percent drop in mortgages to purchase investment homes from the previous July-through-September period.
Jack McCabe, a Deerfield, Fla.-based real estate consultant, says investors have largely fled southern Florida, Phoenix, Las Vegas, San Diego, and the District of Columbia — markets where high home prices and a slowdown in sales have made property investments less feasible.
Experts report that single-family homes and condos will experience minimal appreciation during the next five years. Therefore, investors who bought during the boom either can sell at a discount or take a moderate loss by holding onto their properties while waiting for the market to pick up.
Source: Wall Street Journal, Ruth Simon (12/24/06)
Developers, especially those in Florida and Philadelphia, are responding to market changes with deals that promise five years' worth of rental income. Investors accounted for only 8.4 percent of home sales from January through September, according to First American LoanPerformance — down from 9.5 percent during the corresponding period in 2005.
In the third quarter, the company reports a 70-percent drop in mortgages to purchase investment homes from the previous July-through-September period.
Jack McCabe, a Deerfield, Fla.-based real estate consultant, says investors have largely fled southern Florida, Phoenix, Las Vegas, San Diego, and the District of Columbia — markets where high home prices and a slowdown in sales have made property investments less feasible.
Experts report that single-family homes and condos will experience minimal appreciation during the next five years. Therefore, investors who bought during the boom either can sell at a discount or take a moderate loss by holding onto their properties while waiting for the market to pick up.
Source: Wall Street Journal, Ruth Simon (12/24/06)
Consumer Confidence Soars in December
Consumer confidence rose to an eight-month high in December, which could signal the worst of the housing downturn is over. The Conference Board reported Thursday that consumer confidence was at 109.0 in December. That is only slightly below last April’s 109.8, when confidence hit the highest point in four years. The slumping housing market and gas prices have been blamed for its more recent declines.
This rise reassured some analysts that a slowing housing market won’t cause people to stop spending, which could then possibly contribute to an outright recession — similar to the bursting of the stock market bubble in 2000 that helped trigger the 2001 downturn.
But others remain cautious. "Given the seesaw pattern in recent months, it is too soon to tell if this boost in confidence is a genuine signal that better times are ahead," says Lynn Franco, director of the Conference Board's consumer research center.
Source: The Associated Press, Martin Crutsinger (12/28/06)
This rise reassured some analysts that a slowing housing market won’t cause people to stop spending, which could then possibly contribute to an outright recession — similar to the bursting of the stock market bubble in 2000 that helped trigger the 2001 downturn.
But others remain cautious. "Given the seesaw pattern in recent months, it is too soon to tell if this boost in confidence is a genuine signal that better times are ahead," says Lynn Franco, director of the Conference Board's consumer research center.
Source: The Associated Press, Martin Crutsinger (12/28/06)
Thursday, December 28, 2006
More 2007 and 2008 Housing Projections Across the US
http://money.cnn.com/popups/2006/fortune/invguide_realestate/4.html
CNN Money and Fortune Magazine project a chilly housing market in our market area for the next couple of years. Take a look at the graphics... while the Southwest is getting hit, much of the rest of the nation will escape significant price drops.
CNN Money and Fortune Magazine project a chilly housing market in our market area for the next couple of years. Take a look at the graphics... while the Southwest is getting hit, much of the rest of the nation will escape significant price drops.
Friday, December 22, 2006
Fallout Seen From Subprime Lender Abuses
1 in 5 subprime loans in trouble, report says
2.2 million borrowers seen as likely to lose their homes
By Ron Nixon
NEW YORK TIMES NEWS SERVICE
December 20, 2006
About one in five subprime mortgages made in the past two years is likely to go into foreclosure, according to a report released yesterday, with Southern California among the regions expected to be hard hit.
About 1.1 million homeowners who took out subprime loans in the past two years will lose their homes in the next few years, the report said. The foreclosures will cost those homeowners an estimated $74.6 billion, primarily in equity.
The report, written by the Center for Responsible Lending, a research group in Durham, N.C., was based on data supplied by Moody's Economy.com. Researchers examined more than 6 million mortgages made from 1998 until the third quarter of 2006 in the first nationwide study on the performance of subprime mortgages.
The highest default rates are expected to be in cities in California, Nevada, Michigan and New Jersey as well as Washington, D.C.
The report projected that 22 percent of subprime loans issued in Los Angeles/Long Beach in 2006 will end in foreclosure.
The report offers a somber assessment of loans that had helped millions of Americans with blemished credit attain homeownership. About 2.2 million borrowers who took subprime loans from 1998 to 2006 are likely to lose their homes.
Subprime loans are made to borrowers with unfavorable credit histories. They have interest rates that are higher than the prime rate and carry higher fees and pre-payment penalties than other mortgages.
Foreclosures
Top 10 largest increases in expected subprime foreclosure rates:
Region Projected foreclosure rate Projected percent change
Santa Ana-Anaheim-Irvine 22.8 668%
Santa Barbara-Santa Maria 19.6 596%
San Diego-Carlsbad-San Marcos 21.4 567%
Santa Rosa-Petaluma 21.1 527%
Napa 16.4 527%
San Francisco-San Mateo -16.7 462% Redwood City
Oxnard-Thousand Oaks-Ventura 17.6 453%
San Luis Obispo-Paso Robles 13.6 416%
Salinas 20.4 413%
Vallejo-Fairfield 23.8 405%
SOURCE: Center for Responsible Lending
Mortgage companies, banks and investors began aggressively marketing and trading the loans in the early part of the decade because their higher interest rates make them more profitable.
As a result, subprime loans now make up more than one-quarter of the mortgage market, more than $600 billion in 2005.
“This is no longer a niche part of the market that can be dismissed,” said Keith Ernst, senior housing counsel at the research center and one of the authors of the report. “It's a major component of the mortgage market, and the growing rates of foreclosures should be a cause for alarm.”
Much of the greatest exposure to foreclosure risk was found to be in California and Nevada. Of the 10 cities deemed most at risk, only two were outside the two states. Merced led the list with a projected rate of 25 percent, followed by Bakersfield at 24.2 percent.
With a rate of 21.4 percent, San Diego placed 21st among the cities surveyed. Places with rates expected to be greater included Las Vegas, 23 percent; Washington, D.C., 22.8 percent; Riverside/San Bernardino, 22.6 percent; and Los Angeles/Long Beach, 22 percent.
Ernst said San Diego and other Western cities are catching up to what has happened in housing markets in Ohio and other Midwestern states where subprime lending has become a significant problem.
“In many parts of the country, housing markets have been fairly weak for some time, and the subprime foreclosure rate is 15 to 20 percent,” he said. Even more at risk are those borrowers who took out subprime loans that were based on stated incomes or minimal documentation, he said.
John Karevoll, a real estate market analyst for San Diego-based DataQuick Information Systems, said he had not studied the report, but that its projection for the San Diego area “doesn't sound too far out.”
Karevoll said there is no uniform definition of a subprime loan, which he described as “basically a loan given to people who don't qualify for mainstream loans.”
He said the report's findings “may not be as dramatic as it looks,” and instead might illustrate a market that is normalizing after an unprecedented run-up in prices, during which foreclosures were abnormally low due to continuing equity gains by home owners.
“San Diego saw the (price) surge earlier than others,” Karevoll said. “Foreclosure rates went way down, as low as you can get.”
Gary Wong, senior vice president of residential lending for Union Bank of California in San Diego, agreed that the foreclosure rate in San Diego was rising, but from a small base.
He said subprime loans “frequently have features not beneficial to a customer and are sold to people who should not take these loans.” Union Bank is not a subprime lender, he noted.
But Ed Smith Jr., a Mission Valley mortgage broker and director of the California Association of Mortgage Brokers, said subprime loans are not necessarily a bad product.
“They have put more people into homes who wouldn't qualify for traditional products,” he said.
Report author Ernst agreed that the loans might have opened the door to homeownership to many.
“The problem is the loans in the subprime market are being made on risky terms and very risky circumstances,” he said. “The pendulum may have swung too far.”
Smith said that for subprime borrowers, the goal should be to transition into more conventional lending products.
“Many have not planned ahead,” he said. “Now their (home) values are plateauing and interest rates are rising a bit. That's a bad cocktail.
“The key is that people need to be judicious in the use of these products and make sure and sit down and analyze them and ask, 'Is this the right product for me?' ”
The report cited several factors for the increase in subprime mortgage foreclosures – including adjustable-rate mortgages with steep built-in rate and payment increases, pre-payment penalties, limited income documentation and no escrow for taxes and insurance. The report said the features cause a higher risk of default regardless of the borrower's credit score.
“This means that people are not going into foreclosure just because they have low incomes,” Ernst said. “The foreclosures are higher than they need to be because a number of loan features in the subprime market place borrowers at unnecessary risk.”
San Diego Tribune Home Editor Carl Larsen contributed to this report.
2.2 million borrowers seen as likely to lose their homes
By Ron Nixon
NEW YORK TIMES NEWS SERVICE
December 20, 2006
About one in five subprime mortgages made in the past two years is likely to go into foreclosure, according to a report released yesterday, with Southern California among the regions expected to be hard hit.
About 1.1 million homeowners who took out subprime loans in the past two years will lose their homes in the next few years, the report said. The foreclosures will cost those homeowners an estimated $74.6 billion, primarily in equity.
The report, written by the Center for Responsible Lending, a research group in Durham, N.C., was based on data supplied by Moody's Economy.com. Researchers examined more than 6 million mortgages made from 1998 until the third quarter of 2006 in the first nationwide study on the performance of subprime mortgages.
The highest default rates are expected to be in cities in California, Nevada, Michigan and New Jersey as well as Washington, D.C.
The report projected that 22 percent of subprime loans issued in Los Angeles/Long Beach in 2006 will end in foreclosure.
The report offers a somber assessment of loans that had helped millions of Americans with blemished credit attain homeownership. About 2.2 million borrowers who took subprime loans from 1998 to 2006 are likely to lose their homes.
Subprime loans are made to borrowers with unfavorable credit histories. They have interest rates that are higher than the prime rate and carry higher fees and pre-payment penalties than other mortgages.
Foreclosures
Top 10 largest increases in expected subprime foreclosure rates:
Region Projected foreclosure rate Projected percent change
Santa Ana-Anaheim-Irvine 22.8 668%
Santa Barbara-Santa Maria 19.6 596%
San Diego-Carlsbad-San Marcos 21.4 567%
Santa Rosa-Petaluma 21.1 527%
Napa 16.4 527%
San Francisco-San Mateo -16.7 462% Redwood City
Oxnard-Thousand Oaks-Ventura 17.6 453%
San Luis Obispo-Paso Robles 13.6 416%
Salinas 20.4 413%
Vallejo-Fairfield 23.8 405%
SOURCE: Center for Responsible Lending
Mortgage companies, banks and investors began aggressively marketing and trading the loans in the early part of the decade because their higher interest rates make them more profitable.
As a result, subprime loans now make up more than one-quarter of the mortgage market, more than $600 billion in 2005.
“This is no longer a niche part of the market that can be dismissed,” said Keith Ernst, senior housing counsel at the research center and one of the authors of the report. “It's a major component of the mortgage market, and the growing rates of foreclosures should be a cause for alarm.”
Much of the greatest exposure to foreclosure risk was found to be in California and Nevada. Of the 10 cities deemed most at risk, only two were outside the two states. Merced led the list with a projected rate of 25 percent, followed by Bakersfield at 24.2 percent.
With a rate of 21.4 percent, San Diego placed 21st among the cities surveyed. Places with rates expected to be greater included Las Vegas, 23 percent; Washington, D.C., 22.8 percent; Riverside/San Bernardino, 22.6 percent; and Los Angeles/Long Beach, 22 percent.
Ernst said San Diego and other Western cities are catching up to what has happened in housing markets in Ohio and other Midwestern states where subprime lending has become a significant problem.
“In many parts of the country, housing markets have been fairly weak for some time, and the subprime foreclosure rate is 15 to 20 percent,” he said. Even more at risk are those borrowers who took out subprime loans that were based on stated incomes or minimal documentation, he said.
John Karevoll, a real estate market analyst for San Diego-based DataQuick Information Systems, said he had not studied the report, but that its projection for the San Diego area “doesn't sound too far out.”
Karevoll said there is no uniform definition of a subprime loan, which he described as “basically a loan given to people who don't qualify for mainstream loans.”
He said the report's findings “may not be as dramatic as it looks,” and instead might illustrate a market that is normalizing after an unprecedented run-up in prices, during which foreclosures were abnormally low due to continuing equity gains by home owners.
“San Diego saw the (price) surge earlier than others,” Karevoll said. “Foreclosure rates went way down, as low as you can get.”
Gary Wong, senior vice president of residential lending for Union Bank of California in San Diego, agreed that the foreclosure rate in San Diego was rising, but from a small base.
He said subprime loans “frequently have features not beneficial to a customer and are sold to people who should not take these loans.” Union Bank is not a subprime lender, he noted.
But Ed Smith Jr., a Mission Valley mortgage broker and director of the California Association of Mortgage Brokers, said subprime loans are not necessarily a bad product.
“They have put more people into homes who wouldn't qualify for traditional products,” he said.
Report author Ernst agreed that the loans might have opened the door to homeownership to many.
“The problem is the loans in the subprime market are being made on risky terms and very risky circumstances,” he said. “The pendulum may have swung too far.”
Smith said that for subprime borrowers, the goal should be to transition into more conventional lending products.
“Many have not planned ahead,” he said. “Now their (home) values are plateauing and interest rates are rising a bit. That's a bad cocktail.
“The key is that people need to be judicious in the use of these products and make sure and sit down and analyze them and ask, 'Is this the right product for me?' ”
The report cited several factors for the increase in subprime mortgage foreclosures – including adjustable-rate mortgages with steep built-in rate and payment increases, pre-payment penalties, limited income documentation and no escrow for taxes and insurance. The report said the features cause a higher risk of default regardless of the borrower's credit score.
“This means that people are not going into foreclosure just because they have low incomes,” Ernst said. “The foreclosures are higher than they need to be because a number of loan features in the subprime market place borrowers at unnecessary risk.”
San Diego Tribune Home Editor Carl Larsen contributed to this report.
Thursday, December 21, 2006
Shortest Day of the Year
And it has been very cold out, hasn't it?
As we finish up the old year and bring in the new, I wanted to say that it has been a pleasure to be your source for real estate news in our local area. While every end-of the-year summary of mine has a fond look back at new friends and clients made and general progress and achievement noted, this year has been especially good for me.
And while there are problems with the overall housing market, with prices gently drifting downward and volume overall lower than years past, there is a lot of opportunity in the housing market as well.
Next week I will be taking a good hard look at our housing market, and making some projections based on a close examination of the numbers. While a couple of the readers will be awaiting this analysis with nearly held breath (and you know who you are!), realistically, the condition of the housing market depends on where you are and whether you are on the buying side, the selling side, or both.
In the meantime I have some Christmas shopping to finish up. Yes, once again work demands have pushed back the big shopping excursion, so am I at all close to being ready for friends and family? Nope! I will be among the crowds out there shopping my brains out. Joy to the World!
I hope that you and yours have a wonderful Christmas or whatever holiday that you celebrate this time of year!
And for those couple of buyers who just might be ready to see those homes I have told them about, go ahead and call me. We can fit in showing a couple of homes here and there over the next few days. Besides, wouldn't buying a home be an absolutely outstanding Christmas gift!?
Merry Christmas to one and all!
As we finish up the old year and bring in the new, I wanted to say that it has been a pleasure to be your source for real estate news in our local area. While every end-of the-year summary of mine has a fond look back at new friends and clients made and general progress and achievement noted, this year has been especially good for me.
And while there are problems with the overall housing market, with prices gently drifting downward and volume overall lower than years past, there is a lot of opportunity in the housing market as well.
Next week I will be taking a good hard look at our housing market, and making some projections based on a close examination of the numbers. While a couple of the readers will be awaiting this analysis with nearly held breath (and you know who you are!), realistically, the condition of the housing market depends on where you are and whether you are on the buying side, the selling side, or both.
In the meantime I have some Christmas shopping to finish up. Yes, once again work demands have pushed back the big shopping excursion, so am I at all close to being ready for friends and family? Nope! I will be among the crowds out there shopping my brains out. Joy to the World!
I hope that you and yours have a wonderful Christmas or whatever holiday that you celebrate this time of year!
And for those couple of buyers who just might be ready to see those homes I have told them about, go ahead and call me. We can fit in showing a couple of homes here and there over the next few days. Besides, wouldn't buying a home be an absolutely outstanding Christmas gift!?
Merry Christmas to one and all!
Monday, December 18, 2006
Leading Indicators from CNBC's Diana Olick
Leading Indicators
Posted By:Diana Olick of CNBC.com
Topics:CEOs and CFOs Carl Icahn Bill Gates Henry Paulson Real Estate
Companies:Pulte Homes Lennar Corp Centex Corp KB Home Realogy Corp Apollo Group Inc
Last week the Secretary of the Treasury, Hank Paulson, was asked if the residential real estate market had bottomed. He refused to answer the question. But as we approach the New Year, that is arguably the biggest question in real estate. The spring season is right around the corner, traditionally the busiest for buying and selling, and many believe it will tell the true story of the state of the market.
Until then, however, we look to the indicators: The NAHB/Wells Fargo Housing Market Index (HMI), out today, shows how builders perceive the market to be on an upswing, specifically in gauging future sales expectations.
Click for entire article, and video
“Other recent indicators confirm that buying conditions have improved and that demand is stabilizing - including improvements in measures of housing affordability, strengthening consumer assessments of home buying conditions and an upswing in applications for mortgages to buy homes,” added NAHB Chief Economist Dave Seiders.
Posted By:Diana Olick of CNBC.com
Topics:CEOs and CFOs Carl Icahn Bill Gates Henry Paulson Real Estate
Companies:Pulte Homes Lennar Corp Centex Corp KB Home Realogy Corp Apollo Group Inc
Last week the Secretary of the Treasury, Hank Paulson, was asked if the residential real estate market had bottomed. He refused to answer the question. But as we approach the New Year, that is arguably the biggest question in real estate. The spring season is right around the corner, traditionally the busiest for buying and selling, and many believe it will tell the true story of the state of the market.
Until then, however, we look to the indicators: The NAHB/Wells Fargo Housing Market Index (HMI), out today, shows how builders perceive the market to be on an upswing, specifically in gauging future sales expectations.
Click for entire article, and video
“Other recent indicators confirm that buying conditions have improved and that demand is stabilizing - including improvements in measures of housing affordability, strengthening consumer assessments of home buying conditions and an upswing in applications for mortgages to buy homes,” added NAHB Chief Economist Dave Seiders.
Tax Law Changes for 2007
IRS Tax Law changes:
1. The gift tax annual exclusion is $12,000 for 2006.
2. The capital gains rate of 15% was extended through 2010. For 2006 taxpayers in the 10%-15% tax rate will pay 5% tax on capital gains.
3. Business mileage is $.445 for 2006 and will be $.485 for 2007 (check Pub. 463).
4. Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. Individuals, businesses and tax-exempt organizations are eligible to request it. Businesses and tax-exempts can dig through their old bills. Or they can review their bills for 2 months and use a special formula to figure the refund.
For more information on any of these topics go to www.irs.gov .
While you are there, check out Publication 523“ Selling a Home."
New California Laws:
1. Minimum Wage will be $7.50 for 2007 and $8.00 for 2008. Looks like I will get a raise.
2. Assembly Bill 1169 “ This law reestablishes the sixty (60) day notice which is required by landlords to give to residential tenants on periodic leases (e.g., month-to-month lease) when the tenants have been living in the property forat least one year. This law maintains the exception of a thirty (30) day notice for certain qualifying properties for sale."
3. Assembly Bill 2429 “ No more conditional Real Estate Licenses after 10/1/07."
4. Senate Bill 1609 “ This law provides protection to consumers who obtain reverse mortgages."
5. Assembly Bill 2618 “ This new law essentially is clean-up legislation which increases the jurisdictional limit in small claims court to $7,500 on certain issues which were left unchanged when general limits increased from $5,000 to $7,500 last year."
For more information on these bills go to www.leginfo.ca.gov/bilinfo.html.
1. The gift tax annual exclusion is $12,000 for 2006.
2. The capital gains rate of 15% was extended through 2010. For 2006 taxpayers in the 10%-15% tax rate will pay 5% tax on capital gains.
3. Business mileage is $.445 for 2006 and will be $.485 for 2007 (check Pub. 463).
4. Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. Individuals, businesses and tax-exempt organizations are eligible to request it. Businesses and tax-exempts can dig through their old bills. Or they can review their bills for 2 months and use a special formula to figure the refund.
For more information on any of these topics go to www.irs.gov .
While you are there, check out Publication 523“ Selling a Home."
New California Laws:
1. Minimum Wage will be $7.50 for 2007 and $8.00 for 2008. Looks like I will get a raise.
2. Assembly Bill 1169 “ This law reestablishes the sixty (60) day notice which is required by landlords to give to residential tenants on periodic leases (e.g., month-to-month lease) when the tenants have been living in the property forat least one year. This law maintains the exception of a thirty (30) day notice for certain qualifying properties for sale."
3. Assembly Bill 2429 “ No more conditional Real Estate Licenses after 10/1/07."
4. Senate Bill 1609 “ This law provides protection to consumers who obtain reverse mortgages."
5. Assembly Bill 2618 “ This new law essentially is clean-up legislation which increases the jurisdictional limit in small claims court to $7,500 on certain issues which were left unchanged when general limits increased from $5,000 to $7,500 last year."
For more information on these bills go to www.leginfo.ca.gov/bilinfo.html.
Sunday, December 17, 2006
Southland home sales slowest since 1997
Southland home sales slowest since 1997
by Real Estate Analyst John Karevoll
December 13, 2006
La Jolla,CA----Southern California home sales remained at their slowest pace in nine years last month as the market continued to rebalance itself after several years of heated activity. Prices are still leveling off, a real estate information service reported.
A total of 20,388 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 7.8 percent from 22,117 in October, and down 26.2 percent from 27,637 for November a year ago, according to DataQuick Information Systems.
A decline from October to November is normal for the season. Last month's sales count was the lowest for any November since 1997 when 18,305 homes were sold. Since 1988 November sales have ranged from 13,537 in 1991 to last year's 27,637, the average for the month is 21,200.
"Sales levels are still closer to the middle than to the peak or the bottom. As buyers and sellers, especially sellers, adjust their expectations to the new reality, we're carefully watching what prices are doing. While it appears that they peaked last summer, we need to remember that summer buyers generally pay somewhat more for their homes than winter buyers. Additionally, different markets appear to have peaked at different times," said Marshall Prentice, DataQuick president.
The median price paid for a Southland home was $487,000 last month, up 0.6 percent from $484,000 in October and up 1.7 percent from $479,000 for November a year ago. The year-over-year increase was the lowest since February 1997 when the $160,000 median was up 1.3 percent from $158,000 a year earlier.
The median peaked at $493,000 last June. Historically, summer buyers pay about three percent more for their homes than buyers in the November- to-February period. Homes in lower-cost neighborhoods appear to be appreciating more than five percent, while homes in move-up and prestige neighborhoods have flat or slightly declining prices.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,265 last month, down from $2,287 the previous month and up from $2,238 a year ago. Adjusted for inflation, current payments are 1.5 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 6.6 percent below the current cycle's June peak.
Indicators of market distress are still at a moderate level. Financing with adjustable-rate mortgages is flat. Foreclosure activity is rising but is still below average. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity, DataQuick reported.
Source: DQNews.com
by Real Estate Analyst John Karevoll
December 13, 2006
La Jolla,CA----Southern California home sales remained at their slowest pace in nine years last month as the market continued to rebalance itself after several years of heated activity. Prices are still leveling off, a real estate information service reported.
A total of 20,388 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 7.8 percent from 22,117 in October, and down 26.2 percent from 27,637 for November a year ago, according to DataQuick Information Systems.
A decline from October to November is normal for the season. Last month's sales count was the lowest for any November since 1997 when 18,305 homes were sold. Since 1988 November sales have ranged from 13,537 in 1991 to last year's 27,637, the average for the month is 21,200.
"Sales levels are still closer to the middle than to the peak or the bottom. As buyers and sellers, especially sellers, adjust their expectations to the new reality, we're carefully watching what prices are doing. While it appears that they peaked last summer, we need to remember that summer buyers generally pay somewhat more for their homes than winter buyers. Additionally, different markets appear to have peaked at different times," said Marshall Prentice, DataQuick president.
The median price paid for a Southland home was $487,000 last month, up 0.6 percent from $484,000 in October and up 1.7 percent from $479,000 for November a year ago. The year-over-year increase was the lowest since February 1997 when the $160,000 median was up 1.3 percent from $158,000 a year earlier.
The median peaked at $493,000 last June. Historically, summer buyers pay about three percent more for their homes than buyers in the November- to-February period. Homes in lower-cost neighborhoods appear to be appreciating more than five percent, while homes in move-up and prestige neighborhoods have flat or slightly declining prices.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,265 last month, down from $2,287 the previous month and up from $2,238 a year ago. Adjusted for inflation, current payments are 1.5 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 6.6 percent below the current cycle's June peak.
Indicators of market distress are still at a moderate level. Financing with adjustable-rate mortgages is flat. Foreclosure activity is rising but is still below average. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity, DataQuick reported.
Source: DQNews.com
Friday, December 15, 2006
Polish It Up and Sell It Fast(er)
10 Ways to Make Your House More Salable
1. Get rid of clutter. Throw out or file stacks of newspapers and magazines. Pack away most of your small decorative items. Store out-of-season clothing to make closets seem roomier. Clean out the garage.
2. Wash your windows and screens to let more light into the interior.
3. Keep everything extra clean. Wash fingerprints from light switch plates. Mop and wax floors. Clean the stove and refrigerator. A clean house makes a better first impression and convinces buyers that the home has been well cared for.
4. Get rid of smells. Clean carpeting and drapes to eliminate cooking odors, smoke, and pet smells. Open the windows.
5. Put higher wattage bulbs in light sockets to make rooms seem brighter, especially basements and other dark rooms. Replace any burnt-out bulbs.
6. Make minor repairs that can create a bad impression. Small problems such as sticky doors, torn screens, cracked caulking, or a dripping faucet may seem trivial, but they’ll give buyers the impression that the house isn’t well maintained.
7. Tidy your yard. Cut the grass, rake the leaves, trim the bushes, and edge the walks. Put a pot or two of bright flowers near the entryway.
8. Patch holes in your driveway and reapply sealant, if applicable.
9. Clean your gutters.
10. Polish your front doorknob and door numbers.
5 Ways to Speed Up Your Sale
1. Price it right. Set a price at the lower end of your property’s realistic price range.
2. Get your house market ready for at least two weeks before you begin showing it.
3. Be flexible about showings. It’s often disruptive to have a house ready to show on the spur of the moment, but the more often someone can see your home, the sooner you’ll find a seller.
4. Be ready for the offers. Decide in advance what price and terms you’ll find acceptable.
5. Don’t refuse to drop the price. If your home has been on the market for more than 30 days without an offer, be prepared to lower your asking price.
1. Get rid of clutter. Throw out or file stacks of newspapers and magazines. Pack away most of your small decorative items. Store out-of-season clothing to make closets seem roomier. Clean out the garage.
2. Wash your windows and screens to let more light into the interior.
3. Keep everything extra clean. Wash fingerprints from light switch plates. Mop and wax floors. Clean the stove and refrigerator. A clean house makes a better first impression and convinces buyers that the home has been well cared for.
4. Get rid of smells. Clean carpeting and drapes to eliminate cooking odors, smoke, and pet smells. Open the windows.
5. Put higher wattage bulbs in light sockets to make rooms seem brighter, especially basements and other dark rooms. Replace any burnt-out bulbs.
6. Make minor repairs that can create a bad impression. Small problems such as sticky doors, torn screens, cracked caulking, or a dripping faucet may seem trivial, but they’ll give buyers the impression that the house isn’t well maintained.
7. Tidy your yard. Cut the grass, rake the leaves, trim the bushes, and edge the walks. Put a pot or two of bright flowers near the entryway.
8. Patch holes in your driveway and reapply sealant, if applicable.
9. Clean your gutters.
10. Polish your front doorknob and door numbers.
5 Ways to Speed Up Your Sale
1. Price it right. Set a price at the lower end of your property’s realistic price range.
2. Get your house market ready for at least two weeks before you begin showing it.
3. Be flexible about showings. It’s often disruptive to have a house ready to show on the spur of the moment, but the more often someone can see your home, the sooner you’ll find a seller.
4. Be ready for the offers. Decide in advance what price and terms you’ll find acceptable.
5. Don’t refuse to drop the price. If your home has been on the market for more than 30 days without an offer, be prepared to lower your asking price.
Who Does The Realtor Work For?
I work for you!
Understanding Agency
It’s important to understand what legal responsibilities your real estate salesperson has to you and to other parties in the transactions. Ask your salesperson to explain what type of agency relationship you have with him or her and with the brokerage company. California law and real estate practice is very specific about agency and agency relationships. You won't be surprised to learn that there is a two page disclosure for it that will be the very first form for you to sign when we begin to work together.
1. Seller's representative (also known as a listing agent or seller's agent). A seller's agent is hired by and represents the seller. All fiduciary duties are owed to the seller. The agency relationship usually is created by a listing contract.
2. Buyer's representative (also known as a buyer’s agent). A real estate licensee who is hired by prospective buyers to represent them in a real estate transaction. The buyer's rep works in the buyer's best interest throughout the transaction and owes fiduciary duties to the buyer. The buyer can pay the licensee directly through a negotiated fee, or the buyer's rep may be paid by the seller or by a commission split with the listing broker.
3. Disclosed dual agent. Dual agency is a relationship in which the brokerage firm represents both the buyer and the seller in the same real estate transaction. Dual agency relationships do not carry with them all of the traditional fiduciary duties to the clients. Instead, dual agents owe limited fiduciary duties. Because of the potential for conflicts of interest in a dual-agency relationship, it's vital that all parties give their informed consent. In many states, this consent must be in writing. Disclosed dual agency, in which both the buyer and the seller are told that the agent is representing both of them is legal in most states.
This is the barest of summaries for agency and as with all the the forms, documents, agreements, and disclosures, I urge you to read everything you are given and/or asked to sign by me.
Understanding Agency
It’s important to understand what legal responsibilities your real estate salesperson has to you and to other parties in the transactions. Ask your salesperson to explain what type of agency relationship you have with him or her and with the brokerage company. California law and real estate practice is very specific about agency and agency relationships. You won't be surprised to learn that there is a two page disclosure for it that will be the very first form for you to sign when we begin to work together.
1. Seller's representative (also known as a listing agent or seller's agent). A seller's agent is hired by and represents the seller. All fiduciary duties are owed to the seller. The agency relationship usually is created by a listing contract.
2. Buyer's representative (also known as a buyer’s agent). A real estate licensee who is hired by prospective buyers to represent them in a real estate transaction. The buyer's rep works in the buyer's best interest throughout the transaction and owes fiduciary duties to the buyer. The buyer can pay the licensee directly through a negotiated fee, or the buyer's rep may be paid by the seller or by a commission split with the listing broker.
3. Disclosed dual agent. Dual agency is a relationship in which the brokerage firm represents both the buyer and the seller in the same real estate transaction. Dual agency relationships do not carry with them all of the traditional fiduciary duties to the clients. Instead, dual agents owe limited fiduciary duties. Because of the potential for conflicts of interest in a dual-agency relationship, it's vital that all parties give their informed consent. In many states, this consent must be in writing. Disclosed dual agency, in which both the buyer and the seller are told that the agent is representing both of them is legal in most states.
This is the barest of summaries for agency and as with all the the forms, documents, agreements, and disclosures, I urge you to read everything you are given and/or asked to sign by me.
10 Things Your Lender Needs From You
Get ready to buy a home!
1. W-2 forms or business tax return forms if you're self-employed for the last two or three years for every person signing the loan.
2. Copies of at least one pay stub for every person signing the loan.
3. Copies of two to four months of bank or credit union statements for both checking and savings accounts.
4. Copies of personal tax forms for the last two to three years.
5. Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
6. Copies of your most recent 401(k) or other retirement account statement.
7. Documentation to verify additional income, such as child support or a pension.
8. Account numbers of all your credit cards and the amounts of any outstanding balances.
9. Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
10. Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.
1. W-2 forms or business tax return forms if you're self-employed for the last two or three years for every person signing the loan.
2. Copies of at least one pay stub for every person signing the loan.
3. Copies of two to four months of bank or credit union statements for both checking and savings accounts.
4. Copies of personal tax forms for the last two to three years.
5. Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
6. Copies of your most recent 401(k) or other retirement account statement.
7. Documentation to verify additional income, such as child support or a pension.
8. Account numbers of all your credit cards and the amounts of any outstanding balances.
9. Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
10. Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.
How to Take the Trauma Out of Homebuying
10 Things to Take the Trauma Out of Homebuying
1. Find a real estate agent that’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality.
2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.
3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.
4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.
5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.
7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.
9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.
10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.
1. Find a real estate agent that’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality.
2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.
3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.
4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.
5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.
7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.
9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.
10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.
Exotic Loans Give Buyers More Options
Daily Real Estate News December 12, 20064
Exotic Mortgages Growing in Popularity
While the 30-year, fixed rate mortgage is still the most popular for prime borrowers, many are exploring a host of other possibilities. Some of the slightly more exotic are:
2/28 and 3/27 ARMS. The rate is fixed for two years and then adjusts higher each remaining year based on an underlying interest rate index. Subprime loan rates vary more than prime rates but most are now near 8 percent.
Interest-only loans. Mortgages that allow the home buyer to pay only the interest on a loan, typically for a period of three to 10 years before the principal is amortized. The loan may cut monthly payments on a $200,000 loan by almost $200 a month based on current interest rates.
80/20 loans. Two mortgages in one loan that finances 80 percent of the house and another "piggyback" loan that covers up to 20 percent, depending on the down payment. A new tax law recently passed that gives a deduction for mortgage insurance makes this less attractive.
Payment-option ARM. Mortgages that give the home buyer a variety of payment options each month. They've been a lightning rod for criticism because they allow the home buyer to raise the balance of their loan — called negative amortization — by skipping payments of principal and part of the interest for a limited time.
Source: Reuters, Al Yoon (12/11/2006)
Exotic Mortgages Growing in Popularity
While the 30-year, fixed rate mortgage is still the most popular for prime borrowers, many are exploring a host of other possibilities. Some of the slightly more exotic are:
2/28 and 3/27 ARMS. The rate is fixed for two years and then adjusts higher each remaining year based on an underlying interest rate index. Subprime loan rates vary more than prime rates but most are now near 8 percent.
Interest-only loans. Mortgages that allow the home buyer to pay only the interest on a loan, typically for a period of three to 10 years before the principal is amortized. The loan may cut monthly payments on a $200,000 loan by almost $200 a month based on current interest rates.
80/20 loans. Two mortgages in one loan that finances 80 percent of the house and another "piggyback" loan that covers up to 20 percent, depending on the down payment. A new tax law recently passed that gives a deduction for mortgage insurance makes this less attractive.
Payment-option ARM. Mortgages that give the home buyer a variety of payment options each month. They've been a lightning rod for criticism because they allow the home buyer to raise the balance of their loan — called negative amortization — by skipping payments of principal and part of the interest for a limited time.
Source: Reuters, Al Yoon (12/11/2006)
BusinessWeek Online Paints Rosy Picture for Housing
Daily Real Estate News December 13, 2006
Why Real Estate Markets Will Improve in 2007
There are reasons to be optimistic about real estate next year, a BusinessWeek Online analyst says. New and existing home sales might slide further in 2007, but there won’t be a sharp decline like there was in the early ‘80s and ‘90s. Why? Because the overall economy is in good shape.
Some markets will become much more affordable, making a home purchase possible for people who never could have afforded one previously. Speculators who drove up housing prices will move on to speculate on something else. Fewer new homes will be built, and surplus inventory will be absorbed, so prices will stabilize.
Mortgage rates will remain at relatively low prices and could go even lower if the Federal Funds Rate falls, which it might.
Source: BusinessWeek Online, Maya Roney (12/12/2006)
Why Real Estate Markets Will Improve in 2007
There are reasons to be optimistic about real estate next year, a BusinessWeek Online analyst says. New and existing home sales might slide further in 2007, but there won’t be a sharp decline like there was in the early ‘80s and ‘90s. Why? Because the overall economy is in good shape.
Some markets will become much more affordable, making a home purchase possible for people who never could have afforded one previously. Speculators who drove up housing prices will move on to speculate on something else. Fewer new homes will be built, and surplus inventory will be absorbed, so prices will stabilize.
Mortgage rates will remain at relatively low prices and could go even lower if the Federal Funds Rate falls, which it might.
Source: BusinessWeek Online, Maya Roney (12/12/2006)
WSJ Says First Time Homebuyers Are Back
First-Time Homebuyers Jump Back in the Game
Sellers are getting the message and cutting their asking price, real estate professionals say. That, along with the recent drop in interest rates, is encouraging first-time buyers to start looking again.
The interest rate picture "has created some momentum for first-time buyers, not to write an offer today, but to start looking again and be serious about moving in January or February," says Phil Sveum, broker-owner of Coldwell Banker Sveum, REALTORS®, in Madison, Wis.
A growing number of first-time buyers in Florida's Tampa Bay area are taking advantage of special deals from builders looking to unload newly constructed homes that are bloating their inventories, says Craig Beggins, president of Century 21 Beggins Enterprises.
Affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that to make homes as affordable as they have been in the last decade, home prices would have to drop another 7 percent in 2007 while incomes rose 4 percent.
Source: The Wall Street Journal, Ruth Simon (11/13/2006)
Sellers are getting the message and cutting their asking price, real estate professionals say. That, along with the recent drop in interest rates, is encouraging first-time buyers to start looking again.
The interest rate picture "has created some momentum for first-time buyers, not to write an offer today, but to start looking again and be serious about moving in January or February," says Phil Sveum, broker-owner of Coldwell Banker Sveum, REALTORS®, in Madison, Wis.
A growing number of first-time buyers in Florida's Tampa Bay area are taking advantage of special deals from builders looking to unload newly constructed homes that are bloating their inventories, says Craig Beggins, president of Century 21 Beggins Enterprises.
Affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that to make homes as affordable as they have been in the last decade, home prices would have to drop another 7 percent in 2007 while incomes rose 4 percent.
Source: The Wall Street Journal, Ruth Simon (11/13/2006)
Stable Market Predicted by NAR
Daily Real Estate News December 11, 2006
Existing-Home Sales to Trend Upward in 2007
Existing-home sales are expected to rise gradually in 2007 from current levels, with annual totals slightly lower than 2006, while new-home sales will continue to slide, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, says market conditions will vary around the country next year. “Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year,” he says. “Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards.”
For Buyers, a Window of Opportunity
“Buyers, especially first-time buyers, with the combined benefits of seller flexibility and an unexpected drop in mortgage interest rates, have a window of opportunity,” he adds. “These conditions will persist in many areas until early spring when inventory supplies are likely to become more balanced.”
Existing-home sales for 2006, finishing the third-best year on record, are projected at 6.47 million, a decline of 8.6 percent from 2005. For 2007, sales expected to rise steadily to an annual total of 6.40 million, which would be 1 percent lower than this year’s total. “By the fourth quarter of 2007, existing-home sales will be 4.6 percent higher than the current quarter,” Lereah says.
Builders Slow New-Home Construction
New-home sales in 2006 are expected to fall 17.7 percent to 1.06 million, the fourth highest total on record, before sliding an additional 9.4 percent in 2007 to 957,000. Much of the contraction in the new housing market results from cuts in builder construction to support pricing for current inventories. In addition, high construction costs in many areas are taking a bite out of potential profits. Total housing starts for 2006 are likely to drop 12.3 percent to 1.82 million units, with another 15.1 percent decline in 2007 to 1.54 million.
Mortgage Rates Seen Rising to 6.7%
The 30-year fixed-rate mortgage is forecast to gradually increase to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.11 percent.The national median existing-home price for all of 2006 is projected to rise 1.4 percent to $222,600, with another 1.0 percent gain next year to $224,700. The median new-home price should ease by 0.5 percent to $239,700 this year, and then rise by 0.8 percent in 2007 to $241,700.
“Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year — prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market,” Lereah says. “This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains.”
Unemployment, Inflation Forecasts
The unemployment rate is expected to be 4.8 percent in 2007, after averaging an estimated 4.6 percent this year. Inflation, as measured by the Consumer Price Index, is forecast to be 3.4 percent for 2006 and 2.3 percent in 2007, while growth in the U.S. gross domestic product is likely to be 3.3 percent for all of this year and 2.3 percent in 2007. Inflation-adjusted disposable personal income is projected to grow 2.6 percent for 2006 and 3.5 percent next year.
— REALTOR® Magazine Online
Existing-Home Sales to Trend Upward in 2007
Existing-home sales are expected to rise gradually in 2007 from current levels, with annual totals slightly lower than 2006, while new-home sales will continue to slide, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, says market conditions will vary around the country next year. “Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year,” he says. “Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards.”
For Buyers, a Window of Opportunity
“Buyers, especially first-time buyers, with the combined benefits of seller flexibility and an unexpected drop in mortgage interest rates, have a window of opportunity,” he adds. “These conditions will persist in many areas until early spring when inventory supplies are likely to become more balanced.”
Existing-home sales for 2006, finishing the third-best year on record, are projected at 6.47 million, a decline of 8.6 percent from 2005. For 2007, sales expected to rise steadily to an annual total of 6.40 million, which would be 1 percent lower than this year’s total. “By the fourth quarter of 2007, existing-home sales will be 4.6 percent higher than the current quarter,” Lereah says.
Builders Slow New-Home Construction
New-home sales in 2006 are expected to fall 17.7 percent to 1.06 million, the fourth highest total on record, before sliding an additional 9.4 percent in 2007 to 957,000. Much of the contraction in the new housing market results from cuts in builder construction to support pricing for current inventories. In addition, high construction costs in many areas are taking a bite out of potential profits. Total housing starts for 2006 are likely to drop 12.3 percent to 1.82 million units, with another 15.1 percent decline in 2007 to 1.54 million.
Mortgage Rates Seen Rising to 6.7%
The 30-year fixed-rate mortgage is forecast to gradually increase to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.11 percent.The national median existing-home price for all of 2006 is projected to rise 1.4 percent to $222,600, with another 1.0 percent gain next year to $224,700. The median new-home price should ease by 0.5 percent to $239,700 this year, and then rise by 0.8 percent in 2007 to $241,700.
“Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year — prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market,” Lereah says. “This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains.”
Unemployment, Inflation Forecasts
The unemployment rate is expected to be 4.8 percent in 2007, after averaging an estimated 4.6 percent this year. Inflation, as measured by the Consumer Price Index, is forecast to be 3.4 percent for 2006 and 2.3 percent in 2007, while growth in the U.S. gross domestic product is likely to be 3.3 percent for all of this year and 2.3 percent in 2007. Inflation-adjusted disposable personal income is projected to grow 2.6 percent for 2006 and 3.5 percent next year.
— REALTOR® Magazine Online
Thursday, December 14, 2006
The Real Estate B.S. Artist Detection Checklist
In this time of real estate transition, there are lots of promises and claims made by agents & brokers, sellers, buyers, and seminar scammers. Take a look at this list and protect yourself, after all, fore-warned is fore-armed.
~~ Ray
The real estate B.S. artist detection checklist
This is from two articles which were published in the January 1990 and July 1998 issues of John T. Reed’s Real Estate Investor’s Monthly newsletter. I have also added additional points since 1998. Copyright by John T. Reed. All rights reserved.
~~ Ray
The real estate B.S. artist detection checklist
This is from two articles which were published in the January 1990 and July 1998 issues of John T. Reed’s Real Estate Investor’s Monthly newsletter. I have also added additional points since 1998. Copyright by John T. Reed. All rights reserved.
The Buyer's Market in the SCV
The real data on our local real estate market is pretty interesting, and I invite you to click on the links to the data at www.SCVhometeam.com .
I've had a chance to do an analysis of the Santa Clarita and San Fernando Valley sales data, and there are a couple of things that are just as apparent to me as they would be to you if you take a look.We are in a buyer's market.With the ratio of inventory to new sales now at 11 months this is definitely a buyer's market. Historical sales data indicates that a 6 to 8 month supply of inventory indicates a balanced market. Less than a 5 month supply of inventory would be a seller's market. At 11 months, there can be no doubt that we have gone through the transition to a buyer's market.
Home prices are holding fairly steady, with home prices slipping about 3% year to year. Yes, while media reports have moderated from alarmist 'collapse of the market' and have gone to a more realistic 'housing slump' headlines, there has been a general downward trend which has tipped into slight depreciation as we go through both a seasonal slump in activity along with a generalized slowdown from the past few years.
Locally and indeed regionally there is an uptick in delinquencies in payments as reported by Dataquick, but so far the foreclosure market and REOs are at such a low level as to be nearly insignificant, comprising less than 1% of our local market of homes for sale.
While a mixed bag of data shows change in the market, it does show a steadiness and normalization compared to past years. The next few months will be interesting.
What does this mean for buyers?
Buy. In a buyer's market with a lot of inventory and relatively low interest rates, start making offers. If you aren't that choosey about what you buy, try to pick off a weak seller. You never know what kind of deal you can get. Depending on seller motivation, what you get just might surprise you. Stay on the sidelines and you will never know. If you are real choosey, there is a lot of inventory to choose from and the home of your dreams is out there, and on the market. Take action. Call me.
What does this mean for sellers?
Price your home to sell. Be at the bottom price of comparable homes, not comfortably in the middle and definitely don't use the losing strategy of pricing high at the beginning. If you are a seller and aren't working with any buyer who comes in with an offer close to the sales comparable data for your home type, you are a fool. But you aren't a seller. If this describes you, do yourself and the rest of the market a favor. Take your home off the market. If you don't need to sell in this market and if you don't price your home to sell, you aren't really a seller. Stop fooling yourself. You aren't fooling the market.
What will the market look like in six months or a year?
Depends on interest rates and the supply of inventory and the rate of sales. People make projections which are sometimes right and sometimes wrong. Overall, the demographic pressures of demand for our area remain strong, and there are many who want to buy but a psychology of fear has entered the market. Instead of irrational exuberance of the past few years there is now an irrational pessimism that is unsupported by broader economic indicators. These swings in market psychology do have an effect on housing, just as any student of economics understands their affect on stock markets. The fear of loss among some potential buyers has put a significant brake on housing market activity. So I suppose the short answer to the above question is: I don't know. There are a lot of factors involved, and there certainly is not agreement among analysts.
The current data is always at www.SCVhometeam.com
I stay on top of the current market data for our immediate market area. You can take a look at the Santa Clarita and San Fernando Valley data by clicking on the links.
Give me a call whether you are a prospective Buyer or Seller in this market, and let's get together.
I've had a chance to do an analysis of the Santa Clarita and San Fernando Valley sales data, and there are a couple of things that are just as apparent to me as they would be to you if you take a look.We are in a buyer's market.With the ratio of inventory to new sales now at 11 months this is definitely a buyer's market. Historical sales data indicates that a 6 to 8 month supply of inventory indicates a balanced market. Less than a 5 month supply of inventory would be a seller's market. At 11 months, there can be no doubt that we have gone through the transition to a buyer's market.
Home prices are holding fairly steady, with home prices slipping about 3% year to year. Yes, while media reports have moderated from alarmist 'collapse of the market' and have gone to a more realistic 'housing slump' headlines, there has been a general downward trend which has tipped into slight depreciation as we go through both a seasonal slump in activity along with a generalized slowdown from the past few years.
Locally and indeed regionally there is an uptick in delinquencies in payments as reported by Dataquick, but so far the foreclosure market and REOs are at such a low level as to be nearly insignificant, comprising less than 1% of our local market of homes for sale.
While a mixed bag of data shows change in the market, it does show a steadiness and normalization compared to past years. The next few months will be interesting.
What does this mean for buyers?
Buy. In a buyer's market with a lot of inventory and relatively low interest rates, start making offers. If you aren't that choosey about what you buy, try to pick off a weak seller. You never know what kind of deal you can get. Depending on seller motivation, what you get just might surprise you. Stay on the sidelines and you will never know. If you are real choosey, there is a lot of inventory to choose from and the home of your dreams is out there, and on the market. Take action. Call me.
What does this mean for sellers?
Price your home to sell. Be at the bottom price of comparable homes, not comfortably in the middle and definitely don't use the losing strategy of pricing high at the beginning. If you are a seller and aren't working with any buyer who comes in with an offer close to the sales comparable data for your home type, you are a fool. But you aren't a seller. If this describes you, do yourself and the rest of the market a favor. Take your home off the market. If you don't need to sell in this market and if you don't price your home to sell, you aren't really a seller. Stop fooling yourself. You aren't fooling the market.
What will the market look like in six months or a year?
Depends on interest rates and the supply of inventory and the rate of sales. People make projections which are sometimes right and sometimes wrong. Overall, the demographic pressures of demand for our area remain strong, and there are many who want to buy but a psychology of fear has entered the market. Instead of irrational exuberance of the past few years there is now an irrational pessimism that is unsupported by broader economic indicators. These swings in market psychology do have an effect on housing, just as any student of economics understands their affect on stock markets. The fear of loss among some potential buyers has put a significant brake on housing market activity. So I suppose the short answer to the above question is: I don't know. There are a lot of factors involved, and there certainly is not agreement among analysts.
The current data is always at www.SCVhometeam.com
I stay on top of the current market data for our immediate market area. You can take a look at the Santa Clarita and San Fernando Valley data by clicking on the links.
Give me a call whether you are a prospective Buyer or Seller in this market, and let's get together.
Take a Look at The Real Numbers
Everyone has an opinion about the real estate market. The media, neighbors and family all sound off with voices that are often compelling, especially if you are considering making a move by either a purchase or sale of real estate.
Turn off the voices inside your head. When you are in the housing market everyone wants to give you advice, including the media, neighbors, and family. You would do best to listen to a trusted professional's advice, rather than the voices of these others. Frankly, the decision to buy or sell a home is huge, and listening to these other sources may not be in your best interests. The media reports gross numbers usually on a national basis, which has only limited utility for an individual. Polling the neighbors is never a great idea when you are making a large purchase or sale. And family. Uncle Ernie and sister Sue have been butting into your business for years, whether it is a control issue or they just have an opinion about everything. While we love our relatives, their advice is sometimes just plain wrong.
Where can you turn to for sound advice? First, insist on a look at the real numbers... the numbers in your local market or the area where you want to buy or sell. My website at www.SCVhometeam.com keeps active links to the most recent data in our local market area. The data has been formatted to be fairly easily understood, and we keep them posted here because the numbers form the foundation for our services to our clients, whether they are buyers or sellers.
What do the numbers say? It appears to us that this is a remarkably stable market, albeit there is a reduced sales volume in both numbers of homes sold and in total dollar volume. However, the prices show great stability for both single family detached homes and for attached homes such as condos and townhouses. Home ownership is not a month-to-month investment, but something that you both live in and leverage for long-term wealth creation.
Just as you wouldn't turn to the media or relatives for legal representation or medical treatment, why should it be any different when it comes to real estate counsel? That is where I come in. I'll give it to you straight. Sometimes folks would be better off staying right where they are. If so, I tell them that. Usually, however, people delay a decision to make a move well beyond the time that they should, either living in a home that no longer suits their lifestyle or delaying a purchase and long-term, hurting their opportunities. While I only get paid after an escrow closes, if a move doesn't work for my clients I'll tell them and they can make up their own minds. When it makes sense to make a move, I'll work with you from beginning to end, and beyond.
But the place to start is with your needs and goals. Give me a call and let's get started.
Turn off the voices inside your head. When you are in the housing market everyone wants to give you advice, including the media, neighbors, and family. You would do best to listen to a trusted professional's advice, rather than the voices of these others. Frankly, the decision to buy or sell a home is huge, and listening to these other sources may not be in your best interests. The media reports gross numbers usually on a national basis, which has only limited utility for an individual. Polling the neighbors is never a great idea when you are making a large purchase or sale. And family. Uncle Ernie and sister Sue have been butting into your business for years, whether it is a control issue or they just have an opinion about everything. While we love our relatives, their advice is sometimes just plain wrong.
Where can you turn to for sound advice? First, insist on a look at the real numbers... the numbers in your local market or the area where you want to buy or sell. My website at www.SCVhometeam.com keeps active links to the most recent data in our local market area. The data has been formatted to be fairly easily understood, and we keep them posted here because the numbers form the foundation for our services to our clients, whether they are buyers or sellers.
What do the numbers say? It appears to us that this is a remarkably stable market, albeit there is a reduced sales volume in both numbers of homes sold and in total dollar volume. However, the prices show great stability for both single family detached homes and for attached homes such as condos and townhouses. Home ownership is not a month-to-month investment, but something that you both live in and leverage for long-term wealth creation.
Just as you wouldn't turn to the media or relatives for legal representation or medical treatment, why should it be any different when it comes to real estate counsel? That is where I come in. I'll give it to you straight. Sometimes folks would be better off staying right where they are. If so, I tell them that. Usually, however, people delay a decision to make a move well beyond the time that they should, either living in a home that no longer suits their lifestyle or delaying a purchase and long-term, hurting their opportunities. While I only get paid after an escrow closes, if a move doesn't work for my clients I'll tell them and they can make up their own minds. When it makes sense to make a move, I'll work with you from beginning to end, and beyond.
But the place to start is with your needs and goals. Give me a call and let's get started.
Complaint Says Zillow's Estimates Are Misleading
The National Community Reinvestment Coalition, a Washington, D.C.-based nonprofit that promotes equal access to credit and capital for underserved communities, is taking aim at real estate Web site Zillow.com. In a 12-page complaint filed with the Federal Trade Commission, NCRC insists that Zillow's home-valuation tool is inaccurate and misleading. An audit by NCRC reveals that Zillow's so-called "Zestimates" are wrong over 67 percent of the time, and many home owners have expressed concerns about valuations that are too high or too low. NCRC Executive Vice President David Berenbaum says the complaint is in no way tied to NCRC's close relationship with the Center for Responsible Appraisals & Valuations; he says the coalition is worried about low-income home owners falling prey to unscrupulous lenders that use inaccurate valuations from Zillow. However, Don Kelly of the Appraisal Institute notes that no bank he knows of uses Zillow's Zestimates when writing mortgages.
Source: Seattle Post-Intelligencer, John Cook (10/27/06)
© Copyright 2006 Information Inc.
Copy from The Real Blog v.2 10/30/06
Source: Seattle Post-Intelligencer, John Cook (10/27/06)
© Copyright 2006 Information Inc.
Copy from The Real Blog v.2 10/30/06
Wednesday, December 13, 2006
For Sale, By the Owner's Ego
Feelings Often Play as Big A Role as Logic in Setting Prices, Research Finds
By Kirstin Downey
Washington Post Staff Writer
Saturday, November 4, 2006; F01
Sam LeBlanc tried to cushion the blow when he gave his wife, Karyn, the bad news. He told her to take a breath and think it over, because he knew that what he was telling her would hurt.
Her condominium isn't worth nearly as much as she thought.
"I was a little crushed," Karyn recalled.
People may think they make cold, hard decisions in financial transactions such as buying and selling a house. Increasingly, though, research shows that emotions play as big a role as intellect.
For Karyn, for example, the condo she bought in the District's Palisades neighborhood in 2002 was the first big, independent purchase she had ever made. She proudly added many special touches, including a closet organizing system she thought would be the envy of any woman. But she and Sam got married, had a baby and decided to sell the condo. Over the past few months, Sam did a lot of market research and decided they should ask $269,000.
The number came as a blow to Karyn, because she knew similar units, including some she thinks weren't as nice, sold last year for $280,000.
"You want to believe it's worth a lot more because you've invested your time and energy on it," Karyn said.
Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market.
Click for full article
By Kirstin Downey
Washington Post Staff Writer
Saturday, November 4, 2006; F01
Sam LeBlanc tried to cushion the blow when he gave his wife, Karyn, the bad news. He told her to take a breath and think it over, because he knew that what he was telling her would hurt.
Her condominium isn't worth nearly as much as she thought.
"I was a little crushed," Karyn recalled.
People may think they make cold, hard decisions in financial transactions such as buying and selling a house. Increasingly, though, research shows that emotions play as big a role as intellect.
For Karyn, for example, the condo she bought in the District's Palisades neighborhood in 2002 was the first big, independent purchase she had ever made. She proudly added many special touches, including a closet organizing system she thought would be the envy of any woman. But she and Sam got married, had a baby and decided to sell the condo. Over the past few months, Sam did a lot of market research and decided they should ask $269,000.
The number came as a blow to Karyn, because she knew similar units, including some she thinks weren't as nice, sold last year for $280,000.
"You want to believe it's worth a lot more because you've invested your time and energy on it," Karyn said.
Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market.
Click for full article
MarketWatch: Mortgage delinquencies jump
MarketWatch: Mortgage delinquencies jump
U.S. homeowners had a harder time keeping up with their mortgage payments in the third quarter, the Mortgage Bankers Association said Wednesday, with the delinquency rate rising to 4.67% from 4.39% in the second quarter. A year ago, 4.44% of mortgage holders were 90 days or more past due on their loans.
The foreclosure rate inched higher in the third quarter, with 1.05% of mortgages in the foreclosure process vs. 0.99% in the second quarter, the MBA said. While delinquency rates on all types of loans rose in the third quarter, it was the subprime category -- loans made to less creditworthy borrowers, that shot up the most to 12.56% from 10.76% a year ago."As we expected, in the third quarter delinquency rates increased across the board. However, increases were noticeably larger for subprime loans, particularly for subprime ARMs," said Doug Duncan, chief economist for the MBA. "This is not surprising given that subprime borrowers are more likely to be susceptible to the cumulative increases in rates we've experienced and the slowing of home-price appreciation that has resulted," Duncan said.
The jump is modest and not a significant factor in the local market. For example, the Santa Clarita area has less than 20 REOs on the market out of an inventory level of around 2,500 homes on the market.
U.S. homeowners had a harder time keeping up with their mortgage payments in the third quarter, the Mortgage Bankers Association said Wednesday, with the delinquency rate rising to 4.67% from 4.39% in the second quarter. A year ago, 4.44% of mortgage holders were 90 days or more past due on their loans.
The foreclosure rate inched higher in the third quarter, with 1.05% of mortgages in the foreclosure process vs. 0.99% in the second quarter, the MBA said. While delinquency rates on all types of loans rose in the third quarter, it was the subprime category -- loans made to less creditworthy borrowers, that shot up the most to 12.56% from 10.76% a year ago."As we expected, in the third quarter delinquency rates increased across the board. However, increases were noticeably larger for subprime loans, particularly for subprime ARMs," said Doug Duncan, chief economist for the MBA. "This is not surprising given that subprime borrowers are more likely to be susceptible to the cumulative increases in rates we've experienced and the slowing of home-price appreciation that has resulted," Duncan said.
The jump is modest and not a significant factor in the local market. For example, the Santa Clarita area has less than 20 REOs on the market out of an inventory level of around 2,500 homes on the market.
DataQuick: Southland home sales slowest since 1997
Southern California home sales remained at their slowest pace in nine years last month as the market continued to rebalance itself after several years of heated activity. Prices are still leveling off, a real estate information service reported.
The median price paid for a Southland home was $487,000 last month, up 0.6 percent from $484,000 in October and up 1.7 percent from $479,000 for November a year ago. The year-over-year increase was the lowest since February 1997 when the $160,000 median was up 1.3 percent from $158,000 a year earlier.
A total of 20,388 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 7.8 percent from 22,117 in October, and down 26.2 percent from 27,637 for November a year ago, according to DataQuick Information Systems.
A decline from October to November is normal for the season. Last month's sales count was the lowest for any November since 1997 when 18,305 homes were sold. Since 1988 November sales have ranged from 13,537 in 1991 to last year's 27,637, the average for the month is 21,200.
The median price paid for a Southland home was $487,000 last month, up 0.6 percent from $484,000 in October and up 1.7 percent from $479,000 for November a year ago. The year-over-year increase was the lowest since February 1997 when the $160,000 median was up 1.3 percent from $158,000 a year earlier.
A total of 20,388 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 7.8 percent from 22,117 in October, and down 26.2 percent from 27,637 for November a year ago, according to DataQuick Information Systems.
A decline from October to November is normal for the season. Last month's sales count was the lowest for any November since 1997 when 18,305 homes were sold. Since 1988 November sales have ranged from 13,537 in 1991 to last year's 27,637, the average for the month is 21,200.
The Archive of The Real Blog
Longtime readers of The Real Blog know that this is actually the third version of The Real Blog. Yes, there is ancient history back there in the archives, starting from a very modest reverse chron page at It's Our Move (click for the Original), to a later, fairly short-lived version at Prospero/Delphi that used a standard Blog format (click for The Real Blog v.2). While I liked how it looked, it wasn't really made for commercial use so I have come over to the Blogger format.
Many of the articles have been moved over, but there may be a few articles back in the archive that you might like to see.
As I re-populate this v.3 with current articles and commentary, I will also be jazzing up the look. If you have any comments or suggestions on how The Real Blog can be improved, I invite you to make them!
Wednesday, December 06, 2006
Special Report: Risks of a Serious Home Price Decline
Special Report
December 2006
Straight talk about our local housing market
Tired of the ‘happy talk’ by your neighborhood Realtor or mortgage broker about the condition of our local housing market? The housing market is changing and headed on a trend downward, recently dropping through the line dividing price appreciation and into modest drops in prices. While there is significant evidence of a general stability in prices in our local market, there is increasing doubt about the future. While economic growth has been high and unemployment low, many analysts see an increasing possibility of a shallow recession over the next 14 months. How much of this is a psychological reaction away from the heady speculative fever of just a few years ago and a swing to unreasoning pessimism in the market can only be assessed at some time in the future. Right now there is a serious reluctance of many buyers to make a home purchase, and a lot of uncertainty that is holding them back. As this pessimism continues, the probability of a serious housing downturn is much higher—and that of an much-heralded "soft landing" much lower—than most people acknowledge.
An Atypical Housing Market
Home prices are notoriously "sticky" on the way down. As demand decreases and sellers find they can't get the prices they want, many take their homes off the market and stay put. This reduction in supply helps to offset the reduced demand, and prices pretty much stay flat until wages rise or economic conditions improve enough that demand starts to rise again. Thus, a sustained rise in home prices is typically followed by a period of flat or mildly declining prices until the cycle can begin again.
December 2006
Straight talk about our local housing market
Tired of the ‘happy talk’ by your neighborhood Realtor or mortgage broker about the condition of our local housing market? The housing market is changing and headed on a trend downward, recently dropping through the line dividing price appreciation and into modest drops in prices. While there is significant evidence of a general stability in prices in our local market, there is increasing doubt about the future. While economic growth has been high and unemployment low, many analysts see an increasing possibility of a shallow recession over the next 14 months. How much of this is a psychological reaction away from the heady speculative fever of just a few years ago and a swing to unreasoning pessimism in the market can only be assessed at some time in the future. Right now there is a serious reluctance of many buyers to make a home purchase, and a lot of uncertainty that is holding them back. As this pessimism continues, the probability of a serious housing downturn is much higher—and that of an much-heralded "soft landing" much lower—than most people acknowledge.
An Atypical Housing Market
Home prices are notoriously "sticky" on the way down. As demand decreases and sellers find they can't get the prices they want, many take their homes off the market and stay put. This reduction in supply helps to offset the reduced demand, and prices pretty much stay flat until wages rise or economic conditions improve enough that demand starts to rise again. Thus, a sustained rise in home prices is typically followed by a period of flat or mildly declining prices until the cycle can begin again.
The Southern California real estate market, however, is anything but typical, and there is no good reason to think that the ride down will be any more typical than the ride up. As a matter of fact, there are several factors that pose great risks to the standard-issue "soft landing" scenario:
- Southern California prices are so far out of line with incomes, and income growth so slow, that it would take a very long time for incomes to catch up in the usual manner.
- Southern California's poor affordability renders it unusally susceptible to rising interest rates and tightening lending standards.
- A significant portion of Southern California homebuyers are dependent on continued home price growth to maintain their fiscal solvency.
- The local Southern California economies are vulnerable to a slowdown in either housing activity or home price appreciation.
- Southern California homes are priced based on purchases made over the past few years of unrealistically high expectations of future gains.
Nobody can predict exactly how a market is going to play itself out; the best one can do is to assess the probabilities of potential outcomes. To that end, my purpose as I detail each of the above points is to explain why the probability of a serious housing downturn is far higher—and that of a soft landing far lower—than most market participants acknowledge.
Incomes Have a Lot of Catching Up To Do
As discussed above, if home prices overshoot there usually follows a period where prices stay somewhat flat or decrease mildly until wages "catch up" and the ratio of home prices to incomes returns to normalcy. For instance, the last housing downturn saw nominal home prices decline about 10% from peak to trough. Ten percent may have felt like a lot to homeowners at the time, but such a fall was actually quite mild compared to that experienced by the ratio of home prices to incomes, which fell by a full 25%.
The price-flattening scenario is not likely going to happen this time around due to the last six years tremendous increase in home prices far outstripping smaller gains in per capita income. Santa Clarita’s median home price is $477,000 (Money Magazine) and its 2005 per capita income is $26,861 according to Wikipedia. If prices were to suddenly flatten out right now, assuming a continuation of last year's national wage growth at 4.6%, it would take nearly 17 years for home prices to get down to the historical average of 8.5 times per capita income. It would take 23 years for home valuations to get down to the low points that have followed each prior boom.
That's a long time to go without the local economy experiencing any hardship. Keep those figures in mind the next time someone tells you that home prices "will just flatten out for a while until incomes catch up."
It should be noted that if incomes were to start growing significantly faster than they are now it would not take so long for home prices to get back in line. However, such wage inflation would in all likelihood be accompanied by rising mortgage interest rates, which brings me to the next area of concern.
Credit Risk
The California Association of Realtors (CAR) Affordability Index places Los Angeles affordability at 19% at the time of this writing. This means that only the top 19% of income earners can "afford" to purchase the median-priced home using a 20% down payment on a fixed-rate mortgage.
It is obviously not the case that fully half of all homes are being bought by the most highly-paid 19% of Los Angeles county residents. Instead, what's going on is that people have been getting around the low affordability by making very small down payments and getting "creative" loans whose monthly payments start quite low but increase over time (interest-only, negative amortization, adjustable-rate, or "option ARM" mortgages). This kind of borrowing is quite prevalent—of all Southern Californai mortgages issued in 2004, 75% were adjustable-rate, over 40% were interest-only, and about 25% involved no down payment.
While this "buy now, pay later" strategy has worked well for many, it has rendered the Southern California housing market unusually vulnerable to rising interest rates or tighter lending standards. If rates were to rise or lending standards tighten (e.g. higher required down payments, lower acceptable payment to income ratios, or fewer "stated income" loans a.k.a. “liar’s loans”), large swaths of potential buyers would effectively be priced out of the market at current home valuations.
Moreover, if rates are significantly higher when all those ARMs start to adjust, some of the more overleveraged ARM-holders might find themselves unable to afford the higher payments and be forced to sell their homes. The resulting increase in "motivated sellers," combined with the above-described inability for homes to be purchased at current prices, would almost guarantee a significant home price decline.
Dependency on Rising Prices
Certain homeowners are vulnerable not just to rising rates but to flattening home prices, as well. The nature of many mortgages being taken out in our local market area all but ensures that, even if interest rates stay low, monthly payments on those mortgages are rising and/or will rise significantly in the future. Holders of interest-only loans, which as I mentioned made up almost half of all Southern California mortgages in 2004, will see their payments increase once the principal payoff period begins. Negative amortization borrowers' payments will increase even more, as their principals actually increase for the first few years of the loan. If holders of these loans do not have a home equity cushion to fall back on, a lot of them will find that their payments eventually increase more than they can afford.
Many buyers of rental property are even more overtly dependent on rising prices. The disparity between sale prices and rent prices is bigger in our local area than many other areas of the country. Landlords have willingly taking on negative cash flows with the expectation that future equity gains will more than cover the loss.
A lot of Southern California property owners, be they investors or not, are banking on equity gains. As those equity gains fail to materialize and prices simply remain flat, or fall, many of these overleveraged homeowners will be in trouble. An increase in foreclosures and must-sell inventory could very well be the result.
Housing and the Economy
The entire Southern California economy, as a matter of fact, has grown quite dependent on a robust housing market. Growth in the construction and real estate industries has significantly outstripped overall level of job growth:
Santa Clarita has an impressive 18% job growth over the last five years, as compared to an average job growth in the nation of under 10%. Given the growth in the real estate and mortgage industries locally, as well as construction and remodeling, an estimated 50% of new local jobs over the past several years have been related to the housing market. The slowdown in home sales is beginning to cause job losses in the housing sector, increasing unemployment or precipitating further out-migration from our local market area. As to the glut of Realtors and mortgage brokers in our local market area, there are already indications that many are leaving the business or moving to part-time status.
Southern California's economy has also benefitted from the housing boom, albeit in a less direct manner, via the "wealth effect." As Californians have watched their net worth skyrocket along with home prices, they have spent more money due to their perceived fiscal health and in many cases have pulled out home equity to directly finance their spending. Sales tax revenues, which is a pretty good proxy for retail sales activity, has outstripped income growth. That money has to come from somewhere, and home equity loans are the source.
Between 2002 and 2004, retail activity grew twice as fast as incomes. While it's difficult to nail down the causes of this disparity with any precision, there is little doubt that the home equity wealth effect played a major role. If California home prices were to flatten for any length of time, the stimulus provided by equity gains would eventually be removed and economic activity would have to fall back in line with incomes. Southern California's economic dependence on both continued brisk housing activity and ever-increasing home prices poses a major risk to the soft-landing scenario.
Speculative Premium
Considering mortgage interest, property taxes, insurance, and maintenance, it typically costs well over twice as much per month to purchase a given home than it does to rent. (I am talking about actual money spent—principle payments are not included in this calculation—and I have taken the mortgage interest tax deduction into account). While home ownership certainly has its advantages, such as long-term wealth formation as well as an excellent source of retirement funds, people have never before been willing to pay so much more to buy than to rent. Why did they do it over the last six years?
The answer is that the expectation of future equity gains has become priced into the housing market. When people feel that an investment is sure to go up in price, they are willing to pay more for that investment—especially if they fear being eventually priced out of the chance to buy it. The widespread acceptance of the idea that real estate provides enormous, relatively low-risk gains had caused a "speculative premium" to be added to the price of homes in Southern California.
According to The Economist magazine, a 2004 poll of Los Angeles homebuyers found that they expected their home prices to increase a stunning 22% per year for the next decade. This has been moderated over the housing market’s performance over the past two years, but is an indication of just how unrealistic and a little bit crazy many people had become. That rate of appreciation is obviously quite impossible: assuming current interest rates and income growth rates, Los Angeles homebuyers one decade hence would find that the monthly payment on a median-priced home was over 3 times the median monthly income! Whether it's realistic or not, however, Los Angeles homebuyers actually were expecting gains of this magnitude, and they were paying whatever they had to in order to "get on the ride."
As home price appreciation has flattened out and prices begin to fall, this artificial source of demand has disappeared, as has the mistaken idea that no price is too high for real estate. As people have once again started to see a home as a place to live instead of a lottery ticket, many have started to ask themselves why they were paying so much in mortgage when they could rent for so much less. The speculative premium, in other words, has begun to be removed.
Miscellaneous Objections
The factors discussed above should give a good idea why it is possible—and likely—that home prices will experience a downturn, and why the odds could be stacked against a soft landing. Having said my piece about the risks, let me address some of the common objections to the idea that home prices could decline significantly:
It would take a recession to cause a housing downturn. The fact that Southern California's last housing bust coincided with a recession, as housing busts often do, seems to have given this idea special tenacity. However, several of the above-outlined risks to the market, including interest rate increases, credit tightening, and increased foreclosures, could take place absent a recession or possibly even cause a recession. Additionally, people making this argument rarely acknowledge that the region is especially prone to recession due to its dependence on continued gains in the housing market. Besides, there are other developing macro-economic factors that may lead to a recession that are beyond the scope of this article.
There isn't that much speculation going on. This is simply not true. People have gotten interest-only or negative amortization mortgages because that's was the only way they could afford a house and were manifestly speculating that their equity will rise faster than their payments. The fact that they lived in the house doesn't mean that they weren’t speculating. Furthermore, while single family homes are still mostly owner-occupied, condos have seen a lot of speculative activity: I would estimate that about 30% (or more) of condo purchases over the last few years were made by speculators in our local area.
Southern California has a limited supply of land. It sure does, but this in no way renders it immune to a housing downturn. As one of many examples, home prices in Japan, whose land supply is quite a bit more limited than ours, have fallen almost 40% since the early 1990s. Los Angeles prices fell 20% in the early 90s, after a boom that pales in comparison to the current price runup. A limited supply of land does not justify a rapid rise in home prices, nor does it preclude a home price decline.
Everyone wants to live here. Suffice it to say that it is the ability of people to sustainably afford homes at these prices, and not Southern California's desirability, that is in question. In fact, California was no less desirable five years ago, but prices were a lot less.
People need somewhere to live. This argument seems to be implying that because people need somewhere to live, and you can live in homes, homes therefore cannot decline in price. It's certainly true that housing markets are not as liquid and volatile and crash prone as the stock market. But the idea that homes can't decline in value because people live in them is neither borne out by the evidence (homes have declined in price many, many times in the past) nor by logic (didn't people need somewhere to live 5 years ago?).
People have been saying we're in a bubble for a while, and it still hasn't popped. We have been in an obvious bubble for quite some time now—how does the fact that someone recognized it as such make the idea any less valid? A bubble occurs when excessive optimism pushes an asset price higher than its fundamentals would dictate. That Southern California homes were overpriced two years ago and are now more expensive doesn't mean that they weren't overpriced in the first place. It means that they are even more overpriced now. And the price trend has tipped from appreciation to decline.
Playing the Odds
Again, neither I nor anyone else can predict exactly how the market will behave in the future. If a five percent decline in housing prices are going to cause you to lose sleep, you probably shouldn’t be buying real estate right now. If your ownership timeline is under four or five years, you may be better off renting over that time. It is true that everyone needs a place to live and as long as you have a good idea of your timeline and you use an appropriate mortgage instrument in combination with a rational financial plan, you should be fine in buying a place, but keep speculative mania out of your decision. All-in-all, given the risks facing Southern California housing, there is a significant risk that a serious price decline is a much greater probability than most people expect.
If you are considering a home purchase, give me a call and my team of trusted mortgage advisors and financial planners will work with you to help you determine the best course for you and your future.
Monday, December 04, 2006
The Real Data for Our Local Market Area
Everyone has an opinion about the condition of the local housing market.
While most people outside of the business use national media sources for their real estate news, I find that there is a disconnect between what the national media says housing is doing, and our local market.
I depend on the real sales data to assess the market. Even within the local market, which I will define as the northern Los Angeles area valleys and most particularly the Santa Clarita Valley and adjoining areas, there are neighborhood and other small area sub-markets. While the national and even some of the local data can give an overall direction, when we are talking real money if you are either a serious prospective seller or buyer, a close analysis of the numbers and trends is needed for comparable homes and areas. Not every Realtor is skilled at it. I am.
But I digress.
The real numbers show that prices have gone down slightly in our area year-to-year, and while the numbers of homes on the market has gone up the rate at which homes are coming on the market is slowing. The home sales number has leveled off instead of showing a continued drop, and overall the market is stabilizing. While many home buyers have been hoping for a significant drop in prices, it hasn't happened so far and with conditions as they are now, is not likely to happen. So those who are looking to steal homes will continue to wait. In the business these people who wait are referred to as 'renters'.
For homeowners who have depended on continued appreciation to fund their lifestyles, that train has left the station. Stable or slightly dropping prices is a pause in the market. If you bought your home a year or so ago with the idea that you could cash out at a substantial profit, it should not be news to you that it's not happening. If you can't handle the mortgage as it re-adjusts, you might consider refinancing into a more stable loan with payments you can make, or consider selling your home and moving to one with more sustainable payments.
People are buying homes. Homes are being sold. It's not at the rate either in numbers or with the appreciation that was happening just a few years ago, but despite the opinions of some, our local market is making an adjustment but prices in general are holding up fairly well.
The real data for our local market can always be found at www.SCVhometeam.com . Just scroll down to the local information section and look for the local market data section.
Are you a serious home buyer or home seller? Please give me a call today at 661-312-9461.
While most people outside of the business use national media sources for their real estate news, I find that there is a disconnect between what the national media says housing is doing, and our local market.
I depend on the real sales data to assess the market. Even within the local market, which I will define as the northern Los Angeles area valleys and most particularly the Santa Clarita Valley and adjoining areas, there are neighborhood and other small area sub-markets. While the national and even some of the local data can give an overall direction, when we are talking real money if you are either a serious prospective seller or buyer, a close analysis of the numbers and trends is needed for comparable homes and areas. Not every Realtor is skilled at it. I am.
But I digress.
The real numbers show that prices have gone down slightly in our area year-to-year, and while the numbers of homes on the market has gone up the rate at which homes are coming on the market is slowing. The home sales number has leveled off instead of showing a continued drop, and overall the market is stabilizing. While many home buyers have been hoping for a significant drop in prices, it hasn't happened so far and with conditions as they are now, is not likely to happen. So those who are looking to steal homes will continue to wait. In the business these people who wait are referred to as 'renters'.
For homeowners who have depended on continued appreciation to fund their lifestyles, that train has left the station. Stable or slightly dropping prices is a pause in the market. If you bought your home a year or so ago with the idea that you could cash out at a substantial profit, it should not be news to you that it's not happening. If you can't handle the mortgage as it re-adjusts, you might consider refinancing into a more stable loan with payments you can make, or consider selling your home and moving to one with more sustainable payments.
People are buying homes. Homes are being sold. It's not at the rate either in numbers or with the appreciation that was happening just a few years ago, but despite the opinions of some, our local market is making an adjustment but prices in general are holding up fairly well.
The real data for our local market can always be found at www.SCVhometeam.com . Just scroll down to the local information section and look for the local market data section.
Are you a serious home buyer or home seller? Please give me a call today at 661-312-9461.
Are You a Serious Home Buyer?
Home Buyers are not equal.
Perhaps that is a provocative statement, but let me take a moment to explain.
Home Buyers buy homes. That might be self-evident, but some people think that because they might look at homes either on the Internet, through whatever open houses happen to be open on a particular afternoon, or they get a Realtor to open up some homes so they can see them that they are 'Home Buyers'.
While some of these people might eventually become home buyers, these activities in themselves don't make people home buyers. These activities are among those that home buyers will take, but there are two other essential steps that must be taken before one is a serious home buyer.
1) Pre-approval with a reputable lender. This is not a pre-qualification, which means next to nothing these days with some lenders' requirements so loose that their qualification guidelines basically involve not much more than fogging a mirror. Pre-approval means that the lender is committed and will give you the money to purchase a home up to a maximum, subject only to the appraisal coming in at or above purchase price and delivery of clear title and termite report. Verification of income, debt and credit? Already done. All we have to do is find a suitable house. Serious bonafide home buyers do this.
2) Signed Buyer Broker Agreement. Serious home buyers employ a Realtor directly, and while this is relatively new in California real estate practice, it gives a level of seriousness to the home search that is essential for the home buyer to be assured that every possible home meeting (or exceeding!) the buyers' needs are considered, and that the home is purchased at the best price possible. While all of the usual Multiple Listing Service homes are included in the home search, there are other 'under-market' homes that can also be brought to the attention of the home buyer. Non-MLS homes such as For Sale By Owner homes, various distress sales such as NODs and REOs, agent and office exclusives, and various classes of pocket listings can be ferreted out and brought to the attention of the serious home buyer. Some of the best deals are made this way.
Some of you are wondering why these so-called 'under-market' homes aren't within the home search criteria of every agent from the get go. There are three reasons: 1) these homes take a lot more effort to find to begin with, 2) they are usually not 'clean' deals, in that there are usually problems associated either with the properties, title, or seller, and 3) because the agent commission is not determined up front in most cases, the risk of doing a lot of work for nothing is substantial.
The first two situations go with the territory, in my opinion. It's why it is called 'work'. The third condition is critical to my doing my best work on your behalf. This is almost self-evident if you think about it, but most people are pretty oblivious to how Realtors get paid. This business isn't conducted as a public service out of the goodness of our hearts by independently wealthy knuckleheads. Like you, Realtors have bills that have to be paid.
One of the terms of the Buyer Broker Agreement is the matter of commission. If the seller does not offer a commission (unlike all MLS listings), the buyer agrees to pay the agent's commission at a pre-agreed upon rate at close of escrow. That way, your agent (me) knows that there will be a paycheck after all the work is done and you the buyer know that absolutely every stone was turned over in a comprehensive home search. Commission is not paid up front, it gets included in the other costs of sale and are paid at close of escrow.
The very best deals are made by home buyers and their Realtors when a Buyer Broker Agreement (BBA) is entered into up front. There are of course other details advantageous to the home buyer in a BBA that we will cover in detail. One of the big ones is that if the seller offers a selling commission upfront as in all the MLS listings, there can be a substantial credit to you the buyer for closing costs. All the way around you, the buyer, win with a Buyer Broker Agreement. Serious home buyers take the time and effort to understand this and often embrace this tool.
However, there will be some home buyers who balk at it, even though there are substantial benefits to them by using a BBA. That is still workable with me when I am representing you on a home purchase. Penciled out and bottom line a BBA is to your benefit, but as the old saw says, 'You can lead a horse to water...'
It just is not an effective use of time to pre-negotiate a sales commission with every single FSBO or REO or other owner of property that otherwise meets your purchase criteria but does not offer sales commission up front. After all, this happens before you have even seen the property and after sometimes lengthy negotiations and all the paperwork, we might drive up to the curb and you may well just turn up your nose and say 'Next!' for one reason or other.
In summary, home buyers who get pre-approved and have a signed BBA are the most serious home buyers, get the majority of the Realtor's time and attention, and get the best deals. Together we will get you the best house and the best deal possible, without question.
So what are the other types of buyers? Casual buyers, or 'if the right house and the right deal happens to appear' types of buyers might be how some buyers can be described. Most of them terrific people of course, but they just don't have that serious intent and motivation of a serious home buyer. To start off, many of these people won't talk with a reputable lender and get pre-approved for a purchase loan before they go shopping for a home. This shows a definite lack of seriousness. Some actually say they don't need a loan and are an all cash buyer. While people with 'all cash' do exist, at this market's current price level they are fairly rare. When people tell me that they will buy a home for all cash but are unwilling to provide any verification, warning bells start ringing. Unless I have a personal level of knowledge about their abilities, I start thinking 'drug dealer' or 'pathological liar'.
Most people who buy a home or investment property need a loan for the purchase, and many who have described themselves as an 'all cash buyer' have ended up getting a loan for a purchase. More of these alleged all-cash buyer types just disappear after a while and end up as a waste of time. And they do not buy homes, so can they really be regarded as 'home buyers'? No. Then there is the very unfortunate situation of clients falling in love with a home that they just cannot afford to buy. Be smart, get pre-approved as the first step in a home purchase, not the last.
Of course, there are those who refuse to talk with a reputable lender, or have an unknown lender who will tell them anything but end up in basically as bait and switch artists, or simply can't actually fund the loan at close of escrow. As you can imagine, that situation causes problems for everybody. If the home buyer has their lender put a pre-approval letter in writing, subject only to appraisal, etc., that is what we want. If there is a question or concern I may urge the home buyer to make a back-up application with someone I know will actually fund the loan. If the lender is questionable, most listing agents require a prospective home buyer make a back-up loan application with a reputable local lender as well. It doesn't cost anything and it is good insurance in case the original lender will not perform. People who fool around with deals and interest rates just too good to be true are often burned by what often turn out to be disreputable mortgage brokers.
So how about the people that I come across who describe themselves as 'buyers', from sources such as open houses, my website (www.SCVhometeam.com), sign calls, ads, referrals, or just people I know? There are lots of people that I know who will buy a house that if it is priced so low that if they could buy and then sell tomorrow for a guaranteed no-risk big profit, might do so. Of course some of these folks are Big Story tellers, and even if given the best deal in the world served up to them on a platter would in the end not write an offer to purchase. But some would. While the stories of quick riches in real estate are the stock in trade of late night infomercials, and $200 seminars, let's get real.
You've got to walk the walk if you want me to take the talk seriously. If your primary criteria for purchase is a screaming great deal, then a Buyer Broker Agreement is essential. That puts you at the very front of the line. Call me today and let's get together if you want to get serious. If you just want me to send you information by email, fine. But I can't regard you as a serious home buyer.
Finally, there is a huge number of people who indicate by their actions that they are simply not home buyers. There folks give incomplete or wrong information on open house cards or on the website forms, or who don't respond to emails or phone calls or letters or generally have a reduced or even non-existent level of contact. Somehow, they will never manage to get together face-to-face with me... there's always some excuse. I am pretty sure they have the same kind of non-relationship with one, two, or a half dozen other Realtors. Fine. It takes all kinds. But they cannot in any way be described as 'serious home buyers.'
While I understand that not everyone is ready to buy a home today, unless someone who has self-described themselves as a 'home buyer' has some level of communication, if only to say 'not now, maybe next year', is certainly not going to get a lot of attention from me, but may get a periodic email or letter so that they know they can contact me when the time is right for them. Honestly, until the level of communication goes up a few notches and we get together face-to-face I won't be spending a lot of time finding the best deal on the market for these non-serious people. I concentrate my time and resources on the serious one. Again, this is not a public service. This is what I do for a living.
So for those who won't get pre-approved and/or won't enter into a Buyer Broker Agreement, maybe they are home buyers, and maybe not. The lack of commitment to taking the steps that will actually result in a home purchase is an indicator of a certain lack of seriousness or even of loyalty and/or respect for my time and efforts. While some will eventually buy a home, I can't commit unlimited time and efforts to those who won't take some basic steps that indicate they are serious home buyers. There are people who will and those wonderful folks get undivided attention. The rest get what is left.
That is just how it really works in the real estate business. While other Realtors probably won't give it to you straight, I will, and just have. People in the real estate business don't have unlimited time, and Realtors only get paid on commission at the successful close of escrow. There is no wage or salary involved, we are paid only after escrows close. A lot of time is spent trying to identify serious home buyers, and frankly, any time spent on those who don't buy homes is time wasted.
So, if you are serious about buying a home, call me. Let's get together and let's get you into a wonderful home and a great investment. For those who are honest and loyal, there will be some terrific rewards in a great deal of a home purchase and service second to none. Period.
I look forward to meeting with you!
Perhaps that is a provocative statement, but let me take a moment to explain.
Home Buyers buy homes. That might be self-evident, but some people think that because they might look at homes either on the Internet, through whatever open houses happen to be open on a particular afternoon, or they get a Realtor to open up some homes so they can see them that they are 'Home Buyers'.
While some of these people might eventually become home buyers, these activities in themselves don't make people home buyers. These activities are among those that home buyers will take, but there are two other essential steps that must be taken before one is a serious home buyer.
1) Pre-approval with a reputable lender. This is not a pre-qualification, which means next to nothing these days with some lenders' requirements so loose that their qualification guidelines basically involve not much more than fogging a mirror. Pre-approval means that the lender is committed and will give you the money to purchase a home up to a maximum, subject only to the appraisal coming in at or above purchase price and delivery of clear title and termite report. Verification of income, debt and credit? Already done. All we have to do is find a suitable house. Serious bonafide home buyers do this.
2) Signed Buyer Broker Agreement. Serious home buyers employ a Realtor directly, and while this is relatively new in California real estate practice, it gives a level of seriousness to the home search that is essential for the home buyer to be assured that every possible home meeting (or exceeding!) the buyers' needs are considered, and that the home is purchased at the best price possible. While all of the usual Multiple Listing Service homes are included in the home search, there are other 'under-market' homes that can also be brought to the attention of the home buyer. Non-MLS homes such as For Sale By Owner homes, various distress sales such as NODs and REOs, agent and office exclusives, and various classes of pocket listings can be ferreted out and brought to the attention of the serious home buyer. Some of the best deals are made this way.
Some of you are wondering why these so-called 'under-market' homes aren't within the home search criteria of every agent from the get go. There are three reasons: 1) these homes take a lot more effort to find to begin with, 2) they are usually not 'clean' deals, in that there are usually problems associated either with the properties, title, or seller, and 3) because the agent commission is not determined up front in most cases, the risk of doing a lot of work for nothing is substantial.
The first two situations go with the territory, in my opinion. It's why it is called 'work'. The third condition is critical to my doing my best work on your behalf. This is almost self-evident if you think about it, but most people are pretty oblivious to how Realtors get paid. This business isn't conducted as a public service out of the goodness of our hearts by independently wealthy knuckleheads. Like you, Realtors have bills that have to be paid.
One of the terms of the Buyer Broker Agreement is the matter of commission. If the seller does not offer a commission (unlike all MLS listings), the buyer agrees to pay the agent's commission at a pre-agreed upon rate at close of escrow. That way, your agent (me) knows that there will be a paycheck after all the work is done and you the buyer know that absolutely every stone was turned over in a comprehensive home search. Commission is not paid up front, it gets included in the other costs of sale and are paid at close of escrow.
The very best deals are made by home buyers and their Realtors when a Buyer Broker Agreement (BBA) is entered into up front. There are of course other details advantageous to the home buyer in a BBA that we will cover in detail. One of the big ones is that if the seller offers a selling commission upfront as in all the MLS listings, there can be a substantial credit to you the buyer for closing costs. All the way around you, the buyer, win with a Buyer Broker Agreement. Serious home buyers take the time and effort to understand this and often embrace this tool.
However, there will be some home buyers who balk at it, even though there are substantial benefits to them by using a BBA. That is still workable with me when I am representing you on a home purchase. Penciled out and bottom line a BBA is to your benefit, but as the old saw says, 'You can lead a horse to water...'
It just is not an effective use of time to pre-negotiate a sales commission with every single FSBO or REO or other owner of property that otherwise meets your purchase criteria but does not offer sales commission up front. After all, this happens before you have even seen the property and after sometimes lengthy negotiations and all the paperwork, we might drive up to the curb and you may well just turn up your nose and say 'Next!' for one reason or other.
In summary, home buyers who get pre-approved and have a signed BBA are the most serious home buyers, get the majority of the Realtor's time and attention, and get the best deals. Together we will get you the best house and the best deal possible, without question.
So what are the other types of buyers? Casual buyers, or 'if the right house and the right deal happens to appear' types of buyers might be how some buyers can be described. Most of them terrific people of course, but they just don't have that serious intent and motivation of a serious home buyer. To start off, many of these people won't talk with a reputable lender and get pre-approved for a purchase loan before they go shopping for a home. This shows a definite lack of seriousness. Some actually say they don't need a loan and are an all cash buyer. While people with 'all cash' do exist, at this market's current price level they are fairly rare. When people tell me that they will buy a home for all cash but are unwilling to provide any verification, warning bells start ringing. Unless I have a personal level of knowledge about their abilities, I start thinking 'drug dealer' or 'pathological liar'.
Most people who buy a home or investment property need a loan for the purchase, and many who have described themselves as an 'all cash buyer' have ended up getting a loan for a purchase. More of these alleged all-cash buyer types just disappear after a while and end up as a waste of time. And they do not buy homes, so can they really be regarded as 'home buyers'? No. Then there is the very unfortunate situation of clients falling in love with a home that they just cannot afford to buy. Be smart, get pre-approved as the first step in a home purchase, not the last.
Of course, there are those who refuse to talk with a reputable lender, or have an unknown lender who will tell them anything but end up in basically as bait and switch artists, or simply can't actually fund the loan at close of escrow. As you can imagine, that situation causes problems for everybody. If the home buyer has their lender put a pre-approval letter in writing, subject only to appraisal, etc., that is what we want. If there is a question or concern I may urge the home buyer to make a back-up application with someone I know will actually fund the loan. If the lender is questionable, most listing agents require a prospective home buyer make a back-up loan application with a reputable local lender as well. It doesn't cost anything and it is good insurance in case the original lender will not perform. People who fool around with deals and interest rates just too good to be true are often burned by what often turn out to be disreputable mortgage brokers.
So how about the people that I come across who describe themselves as 'buyers', from sources such as open houses, my website (www.SCVhometeam.com), sign calls, ads, referrals, or just people I know? There are lots of people that I know who will buy a house that if it is priced so low that if they could buy and then sell tomorrow for a guaranteed no-risk big profit, might do so. Of course some of these folks are Big Story tellers, and even if given the best deal in the world served up to them on a platter would in the end not write an offer to purchase. But some would. While the stories of quick riches in real estate are the stock in trade of late night infomercials, and $200 seminars, let's get real.
You've got to walk the walk if you want me to take the talk seriously. If your primary criteria for purchase is a screaming great deal, then a Buyer Broker Agreement is essential. That puts you at the very front of the line. Call me today and let's get together if you want to get serious. If you just want me to send you information by email, fine. But I can't regard you as a serious home buyer.
Finally, there is a huge number of people who indicate by their actions that they are simply not home buyers. There folks give incomplete or wrong information on open house cards or on the website forms, or who don't respond to emails or phone calls or letters or generally have a reduced or even non-existent level of contact. Somehow, they will never manage to get together face-to-face with me... there's always some excuse. I am pretty sure they have the same kind of non-relationship with one, two, or a half dozen other Realtors. Fine. It takes all kinds. But they cannot in any way be described as 'serious home buyers.'
While I understand that not everyone is ready to buy a home today, unless someone who has self-described themselves as a 'home buyer' has some level of communication, if only to say 'not now, maybe next year', is certainly not going to get a lot of attention from me, but may get a periodic email or letter so that they know they can contact me when the time is right for them. Honestly, until the level of communication goes up a few notches and we get together face-to-face I won't be spending a lot of time finding the best deal on the market for these non-serious people. I concentrate my time and resources on the serious one. Again, this is not a public service. This is what I do for a living.
So for those who won't get pre-approved and/or won't enter into a Buyer Broker Agreement, maybe they are home buyers, and maybe not. The lack of commitment to taking the steps that will actually result in a home purchase is an indicator of a certain lack of seriousness or even of loyalty and/or respect for my time and efforts. While some will eventually buy a home, I can't commit unlimited time and efforts to those who won't take some basic steps that indicate they are serious home buyers. There are people who will and those wonderful folks get undivided attention. The rest get what is left.
That is just how it really works in the real estate business. While other Realtors probably won't give it to you straight, I will, and just have. People in the real estate business don't have unlimited time, and Realtors only get paid on commission at the successful close of escrow. There is no wage or salary involved, we are paid only after escrows close. A lot of time is spent trying to identify serious home buyers, and frankly, any time spent on those who don't buy homes is time wasted.
So, if you are serious about buying a home, call me. Let's get together and let's get you into a wonderful home and a great investment. For those who are honest and loyal, there will be some terrific rewards in a great deal of a home purchase and service second to none. Period.
I look forward to meeting with you!
Friday, December 01, 2006
Great Deals During Holiday Season
Sellers benefit from pool of serious buyers
If you are a serious home buyer, the absolute best time of the year to buy is between Thanksgiving Day and New Year's Day and extending into January. There are fewer home buyers are in the market during the holiday season so competition is low while those homes that are on the market during the Holidays have anxious sellers who are usually highly motivated to sell and will listen to any reasonable purchase offer.
During the Holidays most unmotivated sellers take their listings off the market, thinking that there are no buyers ready to buy. Actually, there are many home sales that take place during this "slow season," and for buyers who are ready to take action, there can be some terrific incentives either offered by motivated sellers, or negotiated into the deal by your Realtor (me, of course!).
Sellers that have their homes on the market now are ready to listen to all reasonable purchase offers. And for a select few buyers, we can get some extraordinary deals! In other words, it's a great time to be a home buyer.
If you are a motivated home seller, especially in the lower price ranges in your community, this can be a superb time of year to sell.
Buyers who are in the market now are usually very anxious to buy, perhaps motivated by a job transfer, marriage or divorce, birth or death in the family, down-payment gift from parents, year-end salary bonus, or other buying incentives. The tax advantages to closing the sale before the old year runs out can also be substantial.
For example, many home buyers want to close their purchases by Dec. 31 to claim the extra tax deductions, such as for loan fee points, pro-rated property taxes, and prepaid mortgage interest. However, if you can't move out by year-end, you can probably rent-back for a month or two from the buyer providing the sale is recorded before New Year's Day.
An extra seller bonus is if the home was your principal residence at least 24 of the last 60 months before the sale, Internal Revenue Code 121 gives you up to $250,000 tax-free capital gains (up to $500,000 for a qualified married couple filing a joint tax return).
If you want a deal in our local market area, let get started! Give me a call at 661-287-9164.
If you are a serious home buyer, the absolute best time of the year to buy is between Thanksgiving Day and New Year's Day and extending into January. There are fewer home buyers are in the market during the holiday season so competition is low while those homes that are on the market during the Holidays have anxious sellers who are usually highly motivated to sell and will listen to any reasonable purchase offer.
During the Holidays most unmotivated sellers take their listings off the market, thinking that there are no buyers ready to buy. Actually, there are many home sales that take place during this "slow season," and for buyers who are ready to take action, there can be some terrific incentives either offered by motivated sellers, or negotiated into the deal by your Realtor (me, of course!).
Sellers that have their homes on the market now are ready to listen to all reasonable purchase offers. And for a select few buyers, we can get some extraordinary deals! In other words, it's a great time to be a home buyer.
If you are a motivated home seller, especially in the lower price ranges in your community, this can be a superb time of year to sell.
Buyers who are in the market now are usually very anxious to buy, perhaps motivated by a job transfer, marriage or divorce, birth or death in the family, down-payment gift from parents, year-end salary bonus, or other buying incentives. The tax advantages to closing the sale before the old year runs out can also be substantial.
For example, many home buyers want to close their purchases by Dec. 31 to claim the extra tax deductions, such as for loan fee points, pro-rated property taxes, and prepaid mortgage interest. However, if you can't move out by year-end, you can probably rent-back for a month or two from the buyer providing the sale is recorded before New Year's Day.
An extra seller bonus is if the home was your principal residence at least 24 of the last 60 months before the sale, Internal Revenue Code 121 gives you up to $250,000 tax-free capital gains (up to $500,000 for a qualified married couple filing a joint tax return).
If you want a deal in our local market area, let get started! Give me a call at 661-287-9164.
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