Tuesday, July 31, 2007
Tuesday, July 10, 2007
JULY MARKET FLASH
SUMMERTIME HEAT WAVE?
Intro: While many housing markets across the nation continue to experience a slowdown in activity, Northern California seems to be picking up here and there, in little sparks and spots. And with summer here, it might bring the year’s best season for sales. Read on.
Statistics:
Statewide: The median resale price of a single-family detached home in California for May was $591,180, an increase of almost 5% over May 2006. Unsold resale inventory represented a 10.7 month supply, compared to 5.9 months for the same period a year ago. Median number of days till sale was 52 in May, up from 44 for May 2006.
Bay Area: May median price, at $853,910, has shot up by 8.7% from May 2006 and by just over 1% for the month; sales are up by over 14% for the month (part of a pattern of April-to-May gains throughout Northern California) but down by almost 13% compared to a year earlier. The Santa Clara County median price of $858,000, this month’s high for the region, is up over 7% for the year; sales are down less than 10%, also one of this month’s better numbers...Santa Cruz and Sonoma Counties have also held their medians, but sales are down 23% and 17% respectively, from a year ago. San Benito County sales are flat and median is down about 5% year-over-year. Monterey County and region have robust medians, but the region’s sales are down just under, and the County sales just over, 30% for the year. As a nice surprise, however, sales activity for Northern California as a whole has climbed almost 7% compared to May 2006.
Sacramento/Capitol Region: Median for the month has eased as sales activity shows a gratifying jump of almost 10% since April, but sales are down by almost a third compared to May 2006. Nine communities and areas showed sales growth in May, including Davis, El Macero, Folsom, Lincoln, Newcastle, Pollock Pines and parts of Auburn, Roseville and Sacramento proper. Medians are up in several zips in Sacramento and, outside that, Fair Oaks, Granite Bay, Newcastle, Shingle Springs, South Lake Tahoe, Truckee and parts of Rocklin and Woodland.
Interest Rates*: Thirty-year fixed, take your pick, HSH.com says 6.81%, Bankrate.com says 6.29%. Fifteen-year fixed, HSH.com says 6.50%, Bankrate.com says 5.99%. They agree on 5/1 ARM at 5.95%. Some of this is traditional climb in rates before peak selling season, some reflects the disappearance of cheap loans – but these rates are still lower than they were last year at this time. We said then, “We anticipate some psychological resistance to borrowing as soon as 30-year fixed crosses 7%,” and you notice it never did? With the Fed bound and determined to keep the funds rate at 5.25%, and subprime and Alt-A loans vanishing like the smoke they were, lenders are walking a tightrope to keep rates attractive. But prime, which was 8% a year ago, is 8.25% now, so we repeat our mantra: “A fixed mortgage, even at 7%, is some of the least expensive and therefore most effective money you can borrow.”
Inventory: Unsold inventory, having doubled between May 2005 and May 2006, has almost doubled again in the last year. Improved selection will be the single best factor to emphasize when you are marketing properties.
News Media: Local real estate news is emphasizing the fact that the current market has peaks and valleys, and that sales in desirable neighborhoods are reviving. National news continues to focus on ways that the cooling of the housing market may, or may not, have a moderating influence on the broader economy.
Overall Assessment: We are calling this a holding action. At the very top end, cash customers are keeping the market hot – as indicated by the fact that Atherton had 10 sales in May. Middle-income buyers and move-up buyers may be tempted by the tremendous selection that is available, while terms of loans are still reasonable. Summer is here, prices are low, interest rates are not high and inventory is terrific.
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of July 2, 2007, the 30-year fixed with one point is 6.500%, the 15-year fixed with one point is 6.125% and the 5/1 ARM with one point is 6.250%, on non-conforming loans of $500,000.
Intro: While many housing markets across the nation continue to experience a slowdown in activity, Northern California seems to be picking up here and there, in little sparks and spots. And with summer here, it might bring the year’s best season for sales. Read on.
Statistics:
Statewide: The median resale price of a single-family detached home in California for May was $591,180, an increase of almost 5% over May 2006. Unsold resale inventory represented a 10.7 month supply, compared to 5.9 months for the same period a year ago. Median number of days till sale was 52 in May, up from 44 for May 2006.
Bay Area: May median price, at $853,910, has shot up by 8.7% from May 2006 and by just over 1% for the month; sales are up by over 14% for the month (part of a pattern of April-to-May gains throughout Northern California) but down by almost 13% compared to a year earlier. The Santa Clara County median price of $858,000, this month’s high for the region, is up over 7% for the year; sales are down less than 10%, also one of this month’s better numbers...Santa Cruz and Sonoma Counties have also held their medians, but sales are down 23% and 17% respectively, from a year ago. San Benito County sales are flat and median is down about 5% year-over-year. Monterey County and region have robust medians, but the region’s sales are down just under, and the County sales just over, 30% for the year. As a nice surprise, however, sales activity for Northern California as a whole has climbed almost 7% compared to May 2006.
Sacramento/Capitol Region: Median for the month has eased as sales activity shows a gratifying jump of almost 10% since April, but sales are down by almost a third compared to May 2006. Nine communities and areas showed sales growth in May, including Davis, El Macero, Folsom, Lincoln, Newcastle, Pollock Pines and parts of Auburn, Roseville and Sacramento proper. Medians are up in several zips in Sacramento and, outside that, Fair Oaks, Granite Bay, Newcastle, Shingle Springs, South Lake Tahoe, Truckee and parts of Rocklin and Woodland.
Interest Rates*: Thirty-year fixed, take your pick, HSH.com says 6.81%, Bankrate.com says 6.29%. Fifteen-year fixed, HSH.com says 6.50%, Bankrate.com says 5.99%. They agree on 5/1 ARM at 5.95%. Some of this is traditional climb in rates before peak selling season, some reflects the disappearance of cheap loans – but these rates are still lower than they were last year at this time. We said then, “We anticipate some psychological resistance to borrowing as soon as 30-year fixed crosses 7%,” and you notice it never did? With the Fed bound and determined to keep the funds rate at 5.25%, and subprime and Alt-A loans vanishing like the smoke they were, lenders are walking a tightrope to keep rates attractive. But prime, which was 8% a year ago, is 8.25% now, so we repeat our mantra: “A fixed mortgage, even at 7%, is some of the least expensive and therefore most effective money you can borrow.”
Inventory: Unsold inventory, having doubled between May 2005 and May 2006, has almost doubled again in the last year. Improved selection will be the single best factor to emphasize when you are marketing properties.
News Media: Local real estate news is emphasizing the fact that the current market has peaks and valleys, and that sales in desirable neighborhoods are reviving. National news continues to focus on ways that the cooling of the housing market may, or may not, have a moderating influence on the broader economy.
Overall Assessment: We are calling this a holding action. At the very top end, cash customers are keeping the market hot – as indicated by the fact that Atherton had 10 sales in May. Middle-income buyers and move-up buyers may be tempted by the tremendous selection that is available, while terms of loans are still reasonable. Summer is here, prices are low, interest rates are not high and inventory is terrific.
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of July 2, 2007, the 30-year fixed with one point is 6.500%, the 15-year fixed with one point is 6.125% and the 5/1 ARM with one point is 6.250%, on non-conforming loans of $500,000.
Saturday, June 02, 2007
Market Flash
JUNE MARKET FLASH
ONE MARKET, MANY CHARACTERISTICS
Intro:
Summer days are just around the corner and as the weather warms up, so does the Northern California real estate market…in certain ways at least. While sales have slowed in comparison to last year, median prices continue to rise – making home investments even more valuable – and most areas are enjoying an abundant supply of available homes for sale. One aspect of the market that is certainly heating up is the million-dollar plus home category where sales are swift. This is one market with many different characteristics. Read on.
Statistics:
Statewide:
The median resale price of a single-family detached home in California for April was $597,640, an increase of 6.2% over April 2006 and 2.1% from last month; but sales activity has declined almost 28% year-over-year. Unsold resale inventory represented a 10-month supply, compared to 5.7 months (CAR’s revision) for the same period a year ago. Median number of days till sale was 53 in April, up from 42 for April 2006.
Bay Area:
April median price, at $843,710, is improved by 7.4% for the month and over 9% from April 2006; sales are down by almost 8% for the month and 19% compared to a year earlier.
The Santa Clara County median price of $868,410 is up 4.6% for the month and a strong 12.1% for the year; sales are down by a hair for the month and 17% from April 2006.
Santa Cruz County, at $744,000, is up 3.5% for the month, 4.5% for the year; sales are down a bit for the month, but almost 25% for the year.
San Benito County median of $587,000 is down slightly over 4% for the month.
And we are adding! – Sonoma County with a current median of $515,000, down slightly for the month but a little over 9% for the year. Sales have decreased almost 17% for the month and almost 24% year-over-year.
Monterey County and region median prices are quite strong with increases of 12% to 13% year-over-year; activity is down for both, with the County at a 36% drop from last year. Perhaps even more than in other regions, rising medians and falling activity mean that entry-level and midrange buyers are constrained by availability of financing, while the million-plus level is doing fine.
Sacramento/Capitol Region:
Led by an 80% sales increase for El Macero, 14 communities and areas showed sales growth in April, including Carmichael, Fair Oaks, Folsom, Lincoln, Pollock Pines, Rio Linda, Truckee, and parts of Roseville and Sacramento. In terms of medians Davis, Elk Grove, Rancho Cordova, Rio Linda and parts of Auburn and Sacramento showed a tiny increase. DataQuick reports meanwhile that regional escrow closings in April were the lowest since 1995. Median prices for new and existing homes ranged from $288,500 in Yuba County to a high of $458,500 in Nevada County, reflecting an overall decline in medians of 3.3% – about the same as 3.4% for Northern California as a whole.
Interest Rates*:
Thirty-year fixed at 6.41%, 15-year fixed at 6.06%, 5/1 ARM at 5.81%. (These may seem high, but we have switched sources for these figures, because many readers felt that the rates we reported were unrealistically low.)
Rates are still attractive although they have gone materially higher in the last couple of months; 6% fixed rates, which not long ago were regarded as a “psychological barrier” are now firmly established and may actually have a slight chilling effect on the market.
Inventory:
There are homes for sale in nearly every neighborhood, at nearly every price point, throughout Northern California. That said, by far the hottest market is million-plus, where the most desirable properties may visit the market for 14 days or even fewer. For the most part, buyers at entry level, in the midrange or in the “ordinary luxury” market, should have an adequate supply of homes to consider.
Overall Assessment:
A situation so complicated that experts are saying, with almost complete unity, “This is not one market; it is a whole bunch of tiny local markets each with its own characteristics, and you have to approach it that way.”
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of May 29, 2007, the 30-year fixed with one point is 6.25%, the 15-year fixed with one point is 6.00% and the 5/1 ARM with one point is 6.125%, on non-conforming loans of $500,000.
ONE MARKET, MANY CHARACTERISTICS
Intro:
Summer days are just around the corner and as the weather warms up, so does the Northern California real estate market…in certain ways at least. While sales have slowed in comparison to last year, median prices continue to rise – making home investments even more valuable – and most areas are enjoying an abundant supply of available homes for sale. One aspect of the market that is certainly heating up is the million-dollar plus home category where sales are swift. This is one market with many different characteristics. Read on.
Statistics:
Statewide:
The median resale price of a single-family detached home in California for April was $597,640, an increase of 6.2% over April 2006 and 2.1% from last month; but sales activity has declined almost 28% year-over-year. Unsold resale inventory represented a 10-month supply, compared to 5.7 months (CAR’s revision) for the same period a year ago. Median number of days till sale was 53 in April, up from 42 for April 2006.
Bay Area:
April median price, at $843,710, is improved by 7.4% for the month and over 9% from April 2006; sales are down by almost 8% for the month and 19% compared to a year earlier.
The Santa Clara County median price of $868,410 is up 4.6% for the month and a strong 12.1% for the year; sales are down by a hair for the month and 17% from April 2006.
Santa Cruz County, at $744,000, is up 3.5% for the month, 4.5% for the year; sales are down a bit for the month, but almost 25% for the year.
San Benito County median of $587,000 is down slightly over 4% for the month.
And we are adding! – Sonoma County with a current median of $515,000, down slightly for the month but a little over 9% for the year. Sales have decreased almost 17% for the month and almost 24% year-over-year.
Monterey County and region median prices are quite strong with increases of 12% to 13% year-over-year; activity is down for both, with the County at a 36% drop from last year. Perhaps even more than in other regions, rising medians and falling activity mean that entry-level and midrange buyers are constrained by availability of financing, while the million-plus level is doing fine.
Sacramento/Capitol Region:
Led by an 80% sales increase for El Macero, 14 communities and areas showed sales growth in April, including Carmichael, Fair Oaks, Folsom, Lincoln, Pollock Pines, Rio Linda, Truckee, and parts of Roseville and Sacramento. In terms of medians Davis, Elk Grove, Rancho Cordova, Rio Linda and parts of Auburn and Sacramento showed a tiny increase. DataQuick reports meanwhile that regional escrow closings in April were the lowest since 1995. Median prices for new and existing homes ranged from $288,500 in Yuba County to a high of $458,500 in Nevada County, reflecting an overall decline in medians of 3.3% – about the same as 3.4% for Northern California as a whole.
Interest Rates*:
Thirty-year fixed at 6.41%, 15-year fixed at 6.06%, 5/1 ARM at 5.81%. (These may seem high, but we have switched sources for these figures, because many readers felt that the rates we reported were unrealistically low.)
Rates are still attractive although they have gone materially higher in the last couple of months; 6% fixed rates, which not long ago were regarded as a “psychological barrier” are now firmly established and may actually have a slight chilling effect on the market.
Inventory:
There are homes for sale in nearly every neighborhood, at nearly every price point, throughout Northern California. That said, by far the hottest market is million-plus, where the most desirable properties may visit the market for 14 days or even fewer. For the most part, buyers at entry level, in the midrange or in the “ordinary luxury” market, should have an adequate supply of homes to consider.
Overall Assessment:
A situation so complicated that experts are saying, with almost complete unity, “This is not one market; it is a whole bunch of tiny local markets each with its own characteristics, and you have to approach it that way.”
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of May 29, 2007, the 30-year fixed with one point is 6.25%, the 15-year fixed with one point is 6.00% and the 5/1 ARM with one point is 6.125%, on non-conforming loans of $500,000.
Bay Area Home Sales - April 2007
As we head into the summer period and schools are beginning to wind down for the year, we are seeing the usual increase in inventory. Expect further increase in early summer, as is typical of our cyclical market. There is still no real indicator of a trend happening that is extremely dynamic.
We are part of an area where jobs are very strong and the ability to buy a house is high. The housing affordability index is now at 25% for California (up from 14% no so long ago). This is greatly due to prices decreasing in outlying, less desirable areas of the state. More particular to our local areas would be folks who are deciding that it is time to invest their fortunes in real estate. When one gets a roof over his/her head, stability, and a tax write-off, sooner or later one realizes the excellent investment that real estate is.
A common pattern across all counties in the report, Bay Area Homes Sales, is days on market decreasing. Last year was a slower year and homes tended to take more time to actually sell. This market has been stronger than last year's market. Inventory that sat around from last year should now all be absorbed. Look for the number of days on market to decrease even further.
San Mateo County boasts the highest percentage of list price received at 101.18% average! Santa Clara County is now averaging 100.36%. In all areas reported, since last month, single family home prices have increased, with exception of San Benito County. The average price of condos has decreased in all counties reported, with exception of Santa Clara County
We are part of an area where jobs are very strong and the ability to buy a house is high. The housing affordability index is now at 25% for California (up from 14% no so long ago). This is greatly due to prices decreasing in outlying, less desirable areas of the state. More particular to our local areas would be folks who are deciding that it is time to invest their fortunes in real estate. When one gets a roof over his/her head, stability, and a tax write-off, sooner or later one realizes the excellent investment that real estate is.
A common pattern across all counties in the report, Bay Area Homes Sales, is days on market decreasing. Last year was a slower year and homes tended to take more time to actually sell. This market has been stronger than last year's market. Inventory that sat around from last year should now all be absorbed. Look for the number of days on market to decrease even further.
San Mateo County boasts the highest percentage of list price received at 101.18% average! Santa Clara County is now averaging 100.36%. In all areas reported, since last month, single family home prices have increased, with exception of San Benito County. The average price of condos has decreased in all counties reported, with exception of Santa Clara County
Wednesday, February 07, 2007
Market Flash
A LITTLE SUNNY WEATHER
Medians are just about holding and the whole situation with the residential market feels more moderate than it did last summer. It will be interesting to see what happens when spring comes, but over a lot of Northern California, the sun is shining even now. Read on.
Statewide: The median resale price of a single-family detached home in California for December was $567,690, up 2.2% for the month and 3.7% over December 2005. Unsold resale inventory represented a 6.8-month supply, compared to 3.6 months for the same period a year ago. Median number of days till sale was 73 in December, up from 43 for the month a year earlier.
Bay Area: December median price, at $725,900, is about 2% below last month and 2% higher than the December 2005 figure. The Santa Clara County median price of $734,950 is almost 5% lower than last month but roughly level with last December’s figure. Santa Cruz County’s median is down a bit for the month. Monterey County’s year-over-year median shows about a 5% decline, but the region is more resilient at a little over 1% down. San Benito County median was $579,000, up 1.5% from a month earlier but down 11% from December 2005.
Sales activity is generally down, with the Bay Area off almost 14% from last year’s high. Santa Cruz is the only County actually posting an increase, of almost 9% for the year. Santa Clara County is down 14.9% and Monterey County is down 16.6% for the year. Sacramento region, compared to December 2005, shows a decline in activity at 25.6%…but that is much better than what the region was doing over the summer.
Sacramento/Capitol Region: Sacramento median price, at $362,660, is down 4.3% from this time last year. Davis, El Macero, Folsom, Pollock Pines, Shingle Springs, Sloughhouse and parts of Rocklin, Roseville and Woodland are up.
Interest Rates*: After climbing jaggedly for almost two months, 30-year fixed rates at 5.85% are easing slightly, but they are still 20 basis points higher than they were at the beginning of December. Fifteen-year fixed and 5/1 ARM are identical at 5.61%. Thirty-year jumbo fixed, at 6.08%, is now unequivocally above six; when that will also be true of conforming loans is a very good question we cannot answer (yet). Many loans that can be written today are still at five-something, and historically, that is a great deal.
Inventory: While inventory is more plentiful than in years past, there is still a limited supply in areas throughout the Bay Area and even Silicon Valley. Expect inventories to pick up as the traditionally hot spring market approaches.
Overall Assessment: Consider the strategic side of home purchase – the potential impact on quality of life, the savings as affordability improves and the excitement of a selection of homes to look at. If you consider every side of the question, it is obvious that this could be a really advantageous time to buy.
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of February 5, 2007, the 30-year fixed with one point is 6.125%, the 15-year fixed with one point is 5.75% and the 5/1 ARM with one point is 5.875%, on non-conforming loans of $500,000.
Medians are just about holding and the whole situation with the residential market feels more moderate than it did last summer. It will be interesting to see what happens when spring comes, but over a lot of Northern California, the sun is shining even now. Read on.
Statewide: The median resale price of a single-family detached home in California for December was $567,690, up 2.2% for the month and 3.7% over December 2005. Unsold resale inventory represented a 6.8-month supply, compared to 3.6 months for the same period a year ago. Median number of days till sale was 73 in December, up from 43 for the month a year earlier.
Bay Area: December median price, at $725,900, is about 2% below last month and 2% higher than the December 2005 figure. The Santa Clara County median price of $734,950 is almost 5% lower than last month but roughly level with last December’s figure. Santa Cruz County’s median is down a bit for the month. Monterey County’s year-over-year median shows about a 5% decline, but the region is more resilient at a little over 1% down. San Benito County median was $579,000, up 1.5% from a month earlier but down 11% from December 2005.
Sales activity is generally down, with the Bay Area off almost 14% from last year’s high. Santa Cruz is the only County actually posting an increase, of almost 9% for the year. Santa Clara County is down 14.9% and Monterey County is down 16.6% for the year. Sacramento region, compared to December 2005, shows a decline in activity at 25.6%…but that is much better than what the region was doing over the summer.
Sacramento/Capitol Region: Sacramento median price, at $362,660, is down 4.3% from this time last year. Davis, El Macero, Folsom, Pollock Pines, Shingle Springs, Sloughhouse and parts of Rocklin, Roseville and Woodland are up.
Interest Rates*: After climbing jaggedly for almost two months, 30-year fixed rates at 5.85% are easing slightly, but they are still 20 basis points higher than they were at the beginning of December. Fifteen-year fixed and 5/1 ARM are identical at 5.61%. Thirty-year jumbo fixed, at 6.08%, is now unequivocally above six; when that will also be true of conforming loans is a very good question we cannot answer (yet). Many loans that can be written today are still at five-something, and historically, that is a great deal.
Inventory: While inventory is more plentiful than in years past, there is still a limited supply in areas throughout the Bay Area and even Silicon Valley. Expect inventories to pick up as the traditionally hot spring market approaches.
Overall Assessment: Consider the strategic side of home purchase – the potential impact on quality of life, the savings as affordability improves and the excitement of a selection of homes to look at. If you consider every side of the question, it is obvious that this could be a really advantageous time to buy.
*Area interest rates are reported to be as follows:
Sacramento/Tahoe, San Francisco Bay Area and Silicon Valley regions: Princeton Capital reports that as of February 5, 2007, the 30-year fixed with one point is 6.125%, the 15-year fixed with one point is 5.75% and the 5/1 ARM with one point is 5.875%, on non-conforming loans of $500,000.
Tuesday, January 30, 2007
Wednesday, January 17, 2007
Mortgage industry pegs 30-year rate at 6.5% by year-end
The Mortgage Bankers Association expects the interest rate on a 30-year fixed-rate mortgage to jump from 6.2 percent to 6.5 percent by the end of the third quarter, as investors lose hope that the Federal Reserve will slash short-term rates any time soon.
In a long-term forecast released this week, MBA Chief Economist Doug Duncan predicted existing-home sales will decline by about 7 percent this year compared to 2006, and that sales of new homes will decline by about 8 percent. Sales in both categories are projected to rebound in 2008 by about 3 percent and 1 percent, respectively, in 2009.
Duncan expects existing-home price appreciation to slow "significantly" over the next three years, and that median prices should remain relatively flat for new and existing homes. Price gains for both types of housing are expected to be limited to about 2 percent in 2008 and 2009.
With interest rates up and home sales down, total residential mortgage production in 2007 is projected to be $2.39 trillion, a 5 percent decline from an estimated $2.51 trillion in 2006. The Mortgage Bankers Association projects total mortgage originations will decline an additional 4 percent to $2.29 trillion in 2008 and drop another 6 percent to $2.15 trillion in 2009.
Residential mortgage originations for purchase loans could reach $1.33 trillion in 2007 and remain flat in 2008 before edging up slightly in 2009. Residential refinance loans are projected to total $1.06 trillion in 2007 before declining to $957 billion in 2008 and hitting $800 billion in 2009.
Duncan sees the unemployment rate increasing from 4.5 percent to 4.9 percent by the end of the year, but envisions real GDP growth will pick up to an average of 3 percent in 2007, 3.3 percent in 2008 and 3.4 percent in 2009.
The MBA's top economist expects the Fed to hold the short-term federal funds interest rate at 5.25 percent. With financial markets lowering their expectations of an easing in the federal funds rate in the first half of this year, long-term interest rates are on the rise, he said.
Duncan warned that the housing sector could deteriorate more than projected, with sharper declines in single-family housing starts and home sales. If the core inflation remains high, the Fed might be reluctant to bring the federal funds rate down, increasing the risk of recession.
Continued deterioration of the housing sector "could lead to a marked slowdown in consumer spending growth and threaten an economic expansion," Duncan said in a prepared statement. "If so, the Fed could start easing to prevent a recession. However, if core inflation remains elevated or even edges higher, the Fed would likely remain on the sideline, increasing recession risks. We believe the probability for this scenario to be small."
In a long-term forecast released this week, MBA Chief Economist Doug Duncan predicted existing-home sales will decline by about 7 percent this year compared to 2006, and that sales of new homes will decline by about 8 percent. Sales in both categories are projected to rebound in 2008 by about 3 percent and 1 percent, respectively, in 2009.
Duncan expects existing-home price appreciation to slow "significantly" over the next three years, and that median prices should remain relatively flat for new and existing homes. Price gains for both types of housing are expected to be limited to about 2 percent in 2008 and 2009.
With interest rates up and home sales down, total residential mortgage production in 2007 is projected to be $2.39 trillion, a 5 percent decline from an estimated $2.51 trillion in 2006. The Mortgage Bankers Association projects total mortgage originations will decline an additional 4 percent to $2.29 trillion in 2008 and drop another 6 percent to $2.15 trillion in 2009.
Residential mortgage originations for purchase loans could reach $1.33 trillion in 2007 and remain flat in 2008 before edging up slightly in 2009. Residential refinance loans are projected to total $1.06 trillion in 2007 before declining to $957 billion in 2008 and hitting $800 billion in 2009.
Duncan sees the unemployment rate increasing from 4.5 percent to 4.9 percent by the end of the year, but envisions real GDP growth will pick up to an average of 3 percent in 2007, 3.3 percent in 2008 and 3.4 percent in 2009.
The MBA's top economist expects the Fed to hold the short-term federal funds interest rate at 5.25 percent. With financial markets lowering their expectations of an easing in the federal funds rate in the first half of this year, long-term interest rates are on the rise, he said.
Duncan warned that the housing sector could deteriorate more than projected, with sharper declines in single-family housing starts and home sales. If the core inflation remains high, the Fed might be reluctant to bring the federal funds rate down, increasing the risk of recession.
Continued deterioration of the housing sector "could lead to a marked slowdown in consumer spending growth and threaten an economic expansion," Duncan said in a prepared statement. "If so, the Fed could start easing to prevent a recession. However, if core inflation remains elevated or even edges higher, the Fed would likely remain on the sideline, increasing recession risks. We believe the probability for this scenario to be small."
Friday, January 12, 2007
How not to run out of hot water
By Paul Bianchina
Inman News
Running out of hot water before you finish your morning shower is one of life's little irritants. If you have an electric water heater, the answer may be as simple as adjusting a thermostat or replacing a heating element.
Your first task is to check the settings on the thermostats, of which there are two on most water heaters. First, check your electrical panel and locate and shut the circuit breaker that controls the water heater – you're dealing with 240 volts as soon as you open up the water heater, so DON'T TRY AND DO THIS WITH THE POWER ON. There is, however, no need to shut off the water for this first step.
Remove the two access panel covers on the front of the water heater, which are held in place by one or two screws each. Set the panel covers and screws aside and, if present, remove the small insulation blankets inside the access areas. This will expose the thermostats, which are simply two small dials marked in degrees Fahrenheit, with a small adjustable pointer.
First, check to see what number the pointers indicate, and that both pointers are set the same. For the typical residential water heater supplying hot water for bathing, laundry and a dishwasher, the thermostats should be set between 130 and 150 degrees, depending on how much hot water you use and what your personal preferences are. At settings much below 130, you'll have a hard time maintaining a large flow of hot water, and this may be below the minimum temperature recommended by your dishwasher manufacturer. On the other hand, settings above 150 will waste electricity and increase the risk of scalding, especially for small children.
To set the thermostats, simply use a screwdriver to move the pointers until they point directly at the desired temperature. Be sure that both thermostats are set to the same temperature.
To change a water heater element, you first need to drain the water out of the tank. After shutting the power, close the water inlet valve, which is typically located above the water heater on the cold water side (the lines are marked with C and H where they enter the tank). Connect a garden hose to the drain valve on the bottom of the water heater, and route the hose to a convenient location before opening the valve. To help the flow of water coming out of the hose, open a hot water faucet near the water heater, or loosen one of the flexible water lines where it enters the water heater.
When the tank is drained, close the drain valve and remove the access panel covers as described above. Near each thermostat, you will see a fitting that resembles a large bolt head with wires attached to it. Make a note of how the wires are attached, then disconnect them. Using a special water heater element wrench, which looks somewhat like a socket wrench, unscrew the fitting and remove the element. Element wrenches are available wherever the elements are sold.
Water heater elements are rated by their wattage, and are sized to specific tanks. Your best bet is to take the old element to a home center or plumbing supply retailer and have them match you up with a new one. For best results and longest life, it's best to replace both elements at the same time.
To replace the elements, simply reverse the above procedure. Be sure that any gaskets or washers are in place, then screw the element into the tank and tighten it securely. Reconnect the wires in the same configuration as before, then replace the access covers. Make sure the drain valve is shut and that you've retightened any pipes you loosened, then open the inlet valve to refill the tank. Leave a hot water faucet open near the water heater to allow air to purge out of the tank as it fills. Once the tank is full and water is coming out of the faucet, turn the power back on. NEVER turn the power on when the tank is empty or only partially full – that's a sure way to burn out the elements.
Remember, if you're uncomfortable with any of the plumbing or electrical connections, contact a qualified, licensed plumber or electrician.
Inman News
Running out of hot water before you finish your morning shower is one of life's little irritants. If you have an electric water heater, the answer may be as simple as adjusting a thermostat or replacing a heating element.
Your first task is to check the settings on the thermostats, of which there are two on most water heaters. First, check your electrical panel and locate and shut the circuit breaker that controls the water heater – you're dealing with 240 volts as soon as you open up the water heater, so DON'T TRY AND DO THIS WITH THE POWER ON. There is, however, no need to shut off the water for this first step.
Remove the two access panel covers on the front of the water heater, which are held in place by one or two screws each. Set the panel covers and screws aside and, if present, remove the small insulation blankets inside the access areas. This will expose the thermostats, which are simply two small dials marked in degrees Fahrenheit, with a small adjustable pointer.
First, check to see what number the pointers indicate, and that both pointers are set the same. For the typical residential water heater supplying hot water for bathing, laundry and a dishwasher, the thermostats should be set between 130 and 150 degrees, depending on how much hot water you use and what your personal preferences are. At settings much below 130, you'll have a hard time maintaining a large flow of hot water, and this may be below the minimum temperature recommended by your dishwasher manufacturer. On the other hand, settings above 150 will waste electricity and increase the risk of scalding, especially for small children.
To set the thermostats, simply use a screwdriver to move the pointers until they point directly at the desired temperature. Be sure that both thermostats are set to the same temperature.
To change a water heater element, you first need to drain the water out of the tank. After shutting the power, close the water inlet valve, which is typically located above the water heater on the cold water side (the lines are marked with C and H where they enter the tank). Connect a garden hose to the drain valve on the bottom of the water heater, and route the hose to a convenient location before opening the valve. To help the flow of water coming out of the hose, open a hot water faucet near the water heater, or loosen one of the flexible water lines where it enters the water heater.
When the tank is drained, close the drain valve and remove the access panel covers as described above. Near each thermostat, you will see a fitting that resembles a large bolt head with wires attached to it. Make a note of how the wires are attached, then disconnect them. Using a special water heater element wrench, which looks somewhat like a socket wrench, unscrew the fitting and remove the element. Element wrenches are available wherever the elements are sold.
Water heater elements are rated by their wattage, and are sized to specific tanks. Your best bet is to take the old element to a home center or plumbing supply retailer and have them match you up with a new one. For best results and longest life, it's best to replace both elements at the same time.
To replace the elements, simply reverse the above procedure. Be sure that any gaskets or washers are in place, then screw the element into the tank and tighten it securely. Reconnect the wires in the same configuration as before, then replace the access covers. Make sure the drain valve is shut and that you've retightened any pipes you loosened, then open the inlet valve to refill the tank. Leave a hot water faucet open near the water heater to allow air to purge out of the tank as it fills. Once the tank is full and water is coming out of the faucet, turn the power back on. NEVER turn the power on when the tank is empty or only partially full – that's a sure way to burn out the elements.
Remember, if you're uncomfortable with any of the plumbing or electrical connections, contact a qualified, licensed plumber or electrician.
Thursday, January 11, 2007
January Market Flash
LOOKS LIKE UP TO ME
Intro: If you compare the market realities of today with what they were last fall and last summer, you will see that what matters is motion, fluidity, interaction and inter-reaction. What the numbers are saying and what the trends are implying may be very different. Read on.
Statistics:
Statewide: The median resale price of a single-family detached home in California for November was $555,290, an increase of 0.7% from October and 1.4% over November 2005. Unsold resale inventory in November was sufficient for 7.4 months, up from 3.6 months (says CAR) a year earlier; median number of days till sale was 70, an increase from last year’s 39.
Bay Area: November median price, at $738,900, is up half a percent for the month and 2.2% from the November 2005 figure; a decline in activity of 11% for the month and 18% for the year – but remember those figures are relative to the unusually strong November of last year. The Santa Clara County median price of $775,000 is flat for the month and up 4% for the year. Santa Cruz County at $719,000 is down almost 5% for the month and about 9% for the year. San Benito County, with a $555,000 median, has declined 7% for the year. Monterey County and region’s medians have declined 3% for the year, which is within the scope of seasonal correction.
Sales activity is a story with some bright spots. Santa Cruz County is up 18% for the month and 9% for the year, so improved affordability has certainly counted for something. Monterey region year-over-year is down 12% in November, but it was down 24% in October and 48% in September, so do not let the general fact of a decline obscure a relative improvement in the situation. Monterey County year-over-year is down 26%, but that is only half the decline of September’s 52%. Northern California as a whole is down 9% in November compared to 14% in October, 26% in September, 31% in August. Most other Northern California regions are holding roughly steady. The numbers and the trends are telling...not opposite stories, but an equivocal story.
Sacramento/Capitol Region: Warming perceptibly. The market in resale properties, which seemed impaired last summer, is mending slowly. Looking at the list of communities and neighborhoods in the region, we find more than 25 whose medians have improved over last year. This market will take some time to bounce back, but we are betting it will not take long. Sacramento has lots of reasons to grow.
Interest Rates*: Last year we wrote “Core rates have been managed in masterly fashion for the last year and a half to two years…Most rates will probably bounce between high fives and low sixes for a while, but adjustable rates are now almost identical to the lower fixed rates – which speaks to a lack of elasticity in the system.” Situation today is much the same, except that rates are paddling around in the high fives, with only non-conforming 30-year fixed barely poking above six. 5/1 ARM is at 5.55% compared to conforming 30-year fixed at 5.72%. So far as rates are concerned, the bedrock conforming 30-year fixed can still be called “substantially under 6%” and that is cause for applause. Conforming 15-year fixed at 5.48% is an increasing favorite with baby boomers who want to pay off their houses while they have earned income to do it. Overall, rates are edging up slowly – we are sensing the complex interaction of a whole bunch of contradictory pressures – but they remain broadly attractive. If the Fed cuts rates in January or February, as many experts foresee, mortgage rates could stop inching up and start inching down.
Inventory: Mean time till sale is at 70 days and what more do you really need to know? You will have an incredible selection of compelling properties. We cannot imagine worrying about inventory at all.
News Media: Overall, reporting seems to be fair and highlighting reasons for optimism, such as normal seasonal adjustments, increasing sales and plentiful inventory for home buyers. The consensus seems to be that after the tremendous surge of increased home prices and sales a few years back, the market is now balancing out. For 2006 as a whole, the news media was surprisingly evenhanded in their take on real estate and seemed to avoid their once typical “gloom and doom” and the “bubble is about to burst” stories of recent years. The news media are grasping the fact that perceptive reporting on the market can even help to direct it.
Overall Assessment: A prospect’s attitude toward this market will depend on circumstance, but for many people, this might be the best time to buy in a decade. Long inventory means generous selection. Almost any mortgage you might want is still under 6%. Affordability is recovering as sellers price to sell. As buyers discover the interlocking advantages of this market, and if – that is, when – more buyers with more dollars chase fewer properties, the balance will tip slowly toward the seller. The message: The sooner you buy, the more chance you will give this market to work in your favor.
Intro: If you compare the market realities of today with what they were last fall and last summer, you will see that what matters is motion, fluidity, interaction and inter-reaction. What the numbers are saying and what the trends are implying may be very different. Read on.
Statistics:
Statewide: The median resale price of a single-family detached home in California for November was $555,290, an increase of 0.7% from October and 1.4% over November 2005. Unsold resale inventory in November was sufficient for 7.4 months, up from 3.6 months (says CAR) a year earlier; median number of days till sale was 70, an increase from last year’s 39.
Bay Area: November median price, at $738,900, is up half a percent for the month and 2.2% from the November 2005 figure; a decline in activity of 11% for the month and 18% for the year – but remember those figures are relative to the unusually strong November of last year. The Santa Clara County median price of $775,000 is flat for the month and up 4% for the year. Santa Cruz County at $719,000 is down almost 5% for the month and about 9% for the year. San Benito County, with a $555,000 median, has declined 7% for the year. Monterey County and region’s medians have declined 3% for the year, which is within the scope of seasonal correction.
Sales activity is a story with some bright spots. Santa Cruz County is up 18% for the month and 9% for the year, so improved affordability has certainly counted for something. Monterey region year-over-year is down 12% in November, but it was down 24% in October and 48% in September, so do not let the general fact of a decline obscure a relative improvement in the situation. Monterey County year-over-year is down 26%, but that is only half the decline of September’s 52%. Northern California as a whole is down 9% in November compared to 14% in October, 26% in September, 31% in August. Most other Northern California regions are holding roughly steady. The numbers and the trends are telling...not opposite stories, but an equivocal story.
Sacramento/Capitol Region: Warming perceptibly. The market in resale properties, which seemed impaired last summer, is mending slowly. Looking at the list of communities and neighborhoods in the region, we find more than 25 whose medians have improved over last year. This market will take some time to bounce back, but we are betting it will not take long. Sacramento has lots of reasons to grow.
Interest Rates*: Last year we wrote “Core rates have been managed in masterly fashion for the last year and a half to two years…Most rates will probably bounce between high fives and low sixes for a while, but adjustable rates are now almost identical to the lower fixed rates – which speaks to a lack of elasticity in the system.” Situation today is much the same, except that rates are paddling around in the high fives, with only non-conforming 30-year fixed barely poking above six. 5/1 ARM is at 5.55% compared to conforming 30-year fixed at 5.72%. So far as rates are concerned, the bedrock conforming 30-year fixed can still be called “substantially under 6%” and that is cause for applause. Conforming 15-year fixed at 5.48% is an increasing favorite with baby boomers who want to pay off their houses while they have earned income to do it. Overall, rates are edging up slowly – we are sensing the complex interaction of a whole bunch of contradictory pressures – but they remain broadly attractive. If the Fed cuts rates in January or February, as many experts foresee, mortgage rates could stop inching up and start inching down.
Inventory: Mean time till sale is at 70 days and what more do you really need to know? You will have an incredible selection of compelling properties. We cannot imagine worrying about inventory at all.
News Media: Overall, reporting seems to be fair and highlighting reasons for optimism, such as normal seasonal adjustments, increasing sales and plentiful inventory for home buyers. The consensus seems to be that after the tremendous surge of increased home prices and sales a few years back, the market is now balancing out. For 2006 as a whole, the news media was surprisingly evenhanded in their take on real estate and seemed to avoid their once typical “gloom and doom” and the “bubble is about to burst” stories of recent years. The news media are grasping the fact that perceptive reporting on the market can even help to direct it.
Overall Assessment: A prospect’s attitude toward this market will depend on circumstance, but for many people, this might be the best time to buy in a decade. Long inventory means generous selection. Almost any mortgage you might want is still under 6%. Affordability is recovering as sellers price to sell. As buyers discover the interlocking advantages of this market, and if – that is, when – more buyers with more dollars chase fewer properties, the balance will tip slowly toward the seller. The message: The sooner you buy, the more chance you will give this market to work in your favor.
Wednesday, January 10, 2007
Home Sales To Rise Gradually Into 2008
After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turn around by summer, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
Annual totals for existing-home sales in 2007 will be comparable to 2006, says David Lereah, NAR’s chief economist.
“Keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price appreciation,” Lereah said. “We are starting 2007 from a relatively low point, so even with a gradual improvement in sales it’ll be pretty much of a wash in terms of annual totals.”
The good news, he says, is that a steady improvement in sales will support price appreciation moving forward.
2006 Sales Third-Highest on Record
Existing-home sales for 2006 are expected to come in at 6.50 million, the third highest on record, with a total of 6.42 million seen in 2007. New-home sales in 2006 should tally 1.06 million, the fourth highest on record, with 957,000 projected this year.
Total housing starts for 2006 are likely to be 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade. Builders are pulling back on new construction to support prices of remaining inventory.
The 30-year fixed-rate mortgage will probably rise to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate at 6.18 percent, far below earlier consensus forecasts.
“The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah says.
The national median existing-home price for all of 2006 is expected to rise 1.1 percent to $222,100, and then gain 1.5 percent this year to $225,300. The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3.0 percent in 2007 to $248,900.
Soft Landing for Housing
“With all the wild projections by academics, Wall Street analysts, and others in the media, it appears that much of the housing sector is experiencing a soft landing,” Lereah says. “Despite the doomsayers, household wealth will not evaporate and the economy will not go into a recession. If you’re in it for the long haul, housing is a sound investment.”
The unemployment rate is likely to average 4.8 percent in 2007, following a rate of 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is expected to be 2.2 percent 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent in 2007, compared with 3.3 percent last year.
Inflation-adjusted disposable personal income should grow 3.4 percent this year, following a rise of 2.7 percent in 2006.
Annual totals for existing-home sales in 2007 will be comparable to 2006, says David Lereah, NAR’s chief economist.
“Keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price appreciation,” Lereah said. “We are starting 2007 from a relatively low point, so even with a gradual improvement in sales it’ll be pretty much of a wash in terms of annual totals.”
The good news, he says, is that a steady improvement in sales will support price appreciation moving forward.
2006 Sales Third-Highest on Record
Existing-home sales for 2006 are expected to come in at 6.50 million, the third highest on record, with a total of 6.42 million seen in 2007. New-home sales in 2006 should tally 1.06 million, the fourth highest on record, with 957,000 projected this year.
Total housing starts for 2006 are likely to be 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade. Builders are pulling back on new construction to support prices of remaining inventory.
The 30-year fixed-rate mortgage will probably rise to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate at 6.18 percent, far below earlier consensus forecasts.
“The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah says.
The national median existing-home price for all of 2006 is expected to rise 1.1 percent to $222,100, and then gain 1.5 percent this year to $225,300. The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3.0 percent in 2007 to $248,900.
Soft Landing for Housing
“With all the wild projections by academics, Wall Street analysts, and others in the media, it appears that much of the housing sector is experiencing a soft landing,” Lereah says. “Despite the doomsayers, household wealth will not evaporate and the economy will not go into a recession. If you’re in it for the long haul, housing is a sound investment.”
The unemployment rate is likely to average 4.8 percent in 2007, following a rate of 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is expected to be 2.2 percent 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent in 2007, compared with 3.3 percent last year.
Inflation-adjusted disposable personal income should grow 3.4 percent this year, following a rise of 2.7 percent in 2006.
Tuesday, November 21, 2006
Santa Clara County Inventory Trend
November 21, 2006
Single Family Homes - 3225 (Down 152 homes from last week)
Condo/TH - 1255 (Down 24 units from last week)
Total - 4480
Comments: Trending down which was expected as we approach the Holidays.
Single Family Homes - 3225 (Down 152 homes from last week)
Condo/TH - 1255 (Down 24 units from last week)
Total - 4480
Comments: Trending down which was expected as we approach the Holidays.
Wednesday, November 15, 2006
Santa Clara County Inventory Trend
November 14, 2006
Single Family Homes - 3377
Condo/TH - 1279
Total - 4656
Comments: Trending down which was expected as we approach the Holidays.
Single Family Homes - 3377
Condo/TH - 1279
Total - 4656
Comments: Trending down which was expected as we approach the Holidays.
Friday, September 08, 2006
Boom or Bust? - Six Years in Review
In the dot.com bust of 2000-2001, when 400,000 jobs were lost, prices declined 17% over a ten month span for a 2001 median price of $525,000. In the post-9/11 recession in 2002, prices declined 11% in 8 months for a 2002 median price of $545,000. Per our local MLS database, as of the end of August 2006, the median price is $770,000 and the percentage of List Price received was 99.39% in Santa Clara County.
In 2001 interest rates averaged 8% and 2002 the average was 7%. Today's rates are in the mid 6% range and conforming loan limits are higher.
Currently, disposable income is rising and inflation is in check. The Association of Bay Area Governments (ABAG) just reported that Santa Clara Country is expected to gain approximately 95,000 jobs in 2006-2007 (SJ Merc article on Tuesday, 08/29). The same report predicted a shortage of housing units in the whole Bay Area - not just Santa Clara County - that will reach 150,000 units by 2010. Another SJ Merc article on Wed., 8/30 reported that San Jose is #2 in the country for household income.
A thorough analysis leads me to believe that the sky isn't falling nor the bubble bursting.
In 2001 interest rates averaged 8% and 2002 the average was 7%. Today's rates are in the mid 6% range and conforming loan limits are higher.
Currently, disposable income is rising and inflation is in check. The Association of Bay Area Governments (ABAG) just reported that Santa Clara Country is expected to gain approximately 95,000 jobs in 2006-2007 (SJ Merc article on Tuesday, 08/29). The same report predicted a shortage of housing units in the whole Bay Area - not just Santa Clara County - that will reach 150,000 units by 2010. Another SJ Merc article on Wed., 8/30 reported that San Jose is #2 in the country for household income.
A thorough analysis leads me to believe that the sky isn't falling nor the bubble bursting.
Tuesday, August 29, 2006
Bay Area Real Estate Market Offers Rare Window of Opportunity for Savvy Home Buyers and Sellers
By Joe Brown
A lot has been written lately about the cooling of our red-hot real estate market, both in the South Bay and across the country. It’s hard to go a day without some news story suggesting the “bubble is about to burst” on the market, or the sky is falling, or something equally catastrophic.
But what’s missing in the avalanche of news coverage is the fact that while home sales have indeed slowed down, this current housing market offers a unique window of opportunity for savvy buyers and sellers to profit – a window may not be open again for many years if ever.
For the first time in quite a while, the stars are all in alignment for consumers: mortgage interest rates are near their all-time low, prices have stabilized, there’s a large selection of homes to pick from, and yet the prospects for long-term gains in the market remain strong.
Certainly, it makes a more exciting news story to dwell on the negative, but for smart consumers it is definitely more economically advantageous to seize opportunities as they present themselves. And this market does indeed offer some tremendous opportunities.
So who could benefit by this current market? You don’t need to read any further unless you fall into one of these categories:
- First-time buyers trying to break into the market;
- Existing homeowners looking for a new home;
- Consumers looking to profit from investment property;
- People planning for retirement; and
- Almost anyone looking to increase their net worth.
If you’re a first-time buyer who has been patiently sitting on the sidelines during this seller’s market, you couldn’t find a better time to get into the game. Prices have finally stabilized even as mortgage rates remain low. Add to that a good supply of homes, and you’ve got a window of opportunity that you rarely see. With rents going up, first-time buyers may pay little more for a mortgage payment than they do for their apartment today after considering tax advantages.
Because the pendulum has swung in favor of buyers, we’re seeing more sellers offering concessions than we’ve had in years. In fact, nearly every contract we get these days includes seller concessions. It’s not uncommon for homeowners to pay $10,000 or more toward a buyer’s closing costs. In other instances, sellers are offering to "buy down" the interest rate for buyers to make their home listing more attractive.
The point is that there may never be a more affordable time to buy a home than now. If you wait for prices to fall, you could be in for a shock. It’s a very rare year when the median sale price actually dips in California (more on that later). But even if they do go down a little, the savings could be more than offset by higher interest rates and fewer seller concessions next year.
For investors, now may also be a good time to buy into the market. Those interested in building wealth may find some temping sale prices on real estate. Savvy investors buy low (that’s now) and then trade up when they can get a higher rate of return somewhere else. Real estate investors also understand that leveraging can earn them greater returns than they can get with other investments. If a $750,000 property increases 10% in value, or $75,000, that actually equates to a 50% return on an investment if buyers put $150,000 or 20% down.
Those planning for retirement can also benefit by buying real estate now. Where would you be today if you had never purchased a home? Chances are your net worth would be a whole lot less than it is now. Now think where you’d be if 10 years ago you had purchased a couple of investment properties? Perhaps retired.
By owning real estate as part of your retirement portfolio, most of your retirement can be funded by others. The tenant, tax advantages and appreciation over time can fund quite a nest egg. When you do cash out, capital gains rules offer a much lower tax rate than the tax you’ll pay on your other retirement accounts. With proper planning, investing in real estate can be extremely effective in funding your retirement.
Over the years, real estate has been one of the greatest wealth creators. Not a lot has changed today, except that prices have temporarily leveled off, creating an attractive buying opportunity. Interest rates, selection, favorable tax laws, loan programs and seller concessions make this the perfect time to invest.
So what about existing homeowners? There are opportunities for you as well, particularly if you are interested in moving up to a larger home. Sellers may get a little less than they were hoping for in this market, but the good news is that they can more than make up for it on the move-up home.
If, for instance, your $600,000 home sells for 10% less, that’s $60,000. But if you are able to buy that larger, $1 million home for 10% less, that’s a $100,000 savings. If you were to wait for your existing home to go back up to $600,000, the move up home will most likely go up proportionately, too.
Despite reports to the contrary, the sky isn’t falling in on this market. It certainly has cooled off from the last two years, but those were record years. We’re back to a normal market – we just forgot what it’s like.
Those afraid of prices falling significantly should consider this: Since 1968, only five times has the median price of a single-family home dropped in California, according to the California Association of Realtors. Five times out of 38 years. And the average annual price increase during that time has been just about 9 percent.
So while much of the news coverage of the housing market has been dark and gloomy, there are actually a lot of bright spots for opportunistic consumers. The real estate market will always go in cycles. But by understanding the big picture, smart consumers can capitalize on this rare window of opportunity to realize their dreams.
----------------
Joe Brown is president and chief operating officer of Coldwell Banker Residential Brokerage in Silicon Valley, the area’s largest real estate brokerage.
Saturday, August 05, 2006
Friday, August 04, 2006
Silicon Valley Real Estate Update - August 2006
Intro: The rumors of a few months ago are doing what old, tired rumors always do – standing around with sulky looks on their faces saying “Who, me?” The bubble did not pop, the market is not stone cold, the sector did not collapse, and the sky is not falling. Now that we have reassured you on those points, do read on carefully, because since we last wrote, the residential market has evolved in some ways that will matter to you.
Statistics: In the nine-county Bay Area, May median price, at $752,830, has inched up by 4.3% from May 2005 and by a hair for the month; sales are up by almost 6% for the month (part of a pattern of April-to-May gains throughout Northern California) but down by 18% compared to a year earlier. The Santa Clara County median price of $800,000 is up almost 7% for the year, but sales are down 23%. Santa Cruz County tells a bright story with a median comparable to last year and sales down only 2% from a year ago.
Interest Rates*: Bye-bye five-and-something, we will miss you. Bankrate.com’s figures for the end of June are: Thirty-year fixed, 6.93%, climbing steeply for the second half of the month to its highest level in over four years. Fifteen-year fixed, 6.45% (but as today’s loans go, still a great way to save money in the long run). 5/1 ARM, 6.59%. On June 29, the Federal Reserve raised the discount rate yet again – but only to 5.25%, rather than to 5.5% as had been widely expected, so there will not be quite the upward pressure on lending rates that there might have been. Secondly, if the discount rate is 5.25%, then the prime (unsecured bank lending) rate will probably settle at 8.25%…making a fixed mortgage, even at 7%, some of the least expensive and therefore most effective money you can borrow.
Inventory: Unsold inventory, at almost six months, is double what it was last May, so just keep repeating the mantra: “Improved selection, improved selection, improved selection.” Buyers looking for their dream house (and who isn’t?) are now in the land of their dreams.
News Media: Whispering “soft landing” in a way that is reassuring and pointing out that – for example – the residential market is coupled to, and buffered by, the overall economy, which is acting pretty zippy. Years ago, columnists had a habit of overreacting to short and medium-term phenomena in real estate, because yelling “Fire” in punditry helped sell papers.Overall
Assessment: A very different market than we enjoyed even six months ago, but with its own advantages. Buyers have a better selection of attractive properties – and that kind of choice is exactly what is driving the market today.
Statistics: In the nine-county Bay Area, May median price, at $752,830, has inched up by 4.3% from May 2005 and by a hair for the month; sales are up by almost 6% for the month (part of a pattern of April-to-May gains throughout Northern California) but down by 18% compared to a year earlier. The Santa Clara County median price of $800,000 is up almost 7% for the year, but sales are down 23%. Santa Cruz County tells a bright story with a median comparable to last year and sales down only 2% from a year ago.
Interest Rates*: Bye-bye five-and-something, we will miss you. Bankrate.com’s figures for the end of June are: Thirty-year fixed, 6.93%, climbing steeply for the second half of the month to its highest level in over four years. Fifteen-year fixed, 6.45% (but as today’s loans go, still a great way to save money in the long run). 5/1 ARM, 6.59%. On June 29, the Federal Reserve raised the discount rate yet again – but only to 5.25%, rather than to 5.5% as had been widely expected, so there will not be quite the upward pressure on lending rates that there might have been. Secondly, if the discount rate is 5.25%, then the prime (unsecured bank lending) rate will probably settle at 8.25%…making a fixed mortgage, even at 7%, some of the least expensive and therefore most effective money you can borrow.
Inventory: Unsold inventory, at almost six months, is double what it was last May, so just keep repeating the mantra: “Improved selection, improved selection, improved selection.” Buyers looking for their dream house (and who isn’t?) are now in the land of their dreams.
News Media: Whispering “soft landing” in a way that is reassuring and pointing out that – for example – the residential market is coupled to, and buffered by, the overall economy, which is acting pretty zippy. Years ago, columnists had a habit of overreacting to short and medium-term phenomena in real estate, because yelling “Fire” in punditry helped sell papers.Overall
Assessment: A very different market than we enjoyed even six months ago, but with its own advantages. Buyers have a better selection of attractive properties – and that kind of choice is exactly what is driving the market today.
Tuesday, June 20, 2006
AN UP BEAT ON THE DOWN SIDE
According to the most recent report released by Harvard's Joint Center for Housing Studies, the housing market has definitely entered a down cycle, but is unlikely to suffer or have a severe reversal.
Even in the face of rising interest rates, crumbling affordability and rising inventories the market will experience a modest downturn, unless jobs growth and the broader economy collapse, according to the study.
"There may be tough times ahead, but housing will emerge stronger than ever," says Nicholas Retsinas, director of the Joint Center of Housing.
The number of homes needed to fill demographic changes and populations over the next 10 years will likely exceed 18.1 million units built from 1995 to 2004.
While the study rates the risks associated with adjustable rates, easy down payment requirements, and liberal underwriting standards as "uncertain" and "worrisome" it does not see a rush of foreclosures and forced sales.
"Having significant home equity is the best protection against foreclosure because homeowners can sell at a profit if they cannot cover their mortgage payments," says Mr. Retsinas.
Factors that support a continued solid housing market include:
Thriving household growth - Over 1.37 million new households will be added nationwide this year from population growth and foreign immigration.
Boomers going gray - The aging ranks of boomers is increasing the ranks of investors with vacation or second homes. This trend will increase as they near retirement.
Household composition changing - There is an increasing trend of more single-person households through divorce and adult children moving out on their own. Family size is shrinking creating more households from the same population.
Minorities on the move - The past 10 years have seen great strides in homeownership among Black and Latin minorities.
Government influence - Land use restrictions, zoning laws and building are limiting the suppy of housing. Retsinas says, "In many areas we see such an anti-development bias. And the trend is to more restrictions, not less, even though markets are softening.
Bottom Line - Retsinas summarizes, "Long term fundamentals are still positive, but some areas may be more susceptible to a slide."
Even in the face of rising interest rates, crumbling affordability and rising inventories the market will experience a modest downturn, unless jobs growth and the broader economy collapse, according to the study.
"There may be tough times ahead, but housing will emerge stronger than ever," says Nicholas Retsinas, director of the Joint Center of Housing.
The number of homes needed to fill demographic changes and populations over the next 10 years will likely exceed 18.1 million units built from 1995 to 2004.
While the study rates the risks associated with adjustable rates, easy down payment requirements, and liberal underwriting standards as "uncertain" and "worrisome" it does not see a rush of foreclosures and forced sales.
"Having significant home equity is the best protection against foreclosure because homeowners can sell at a profit if they cannot cover their mortgage payments," says Mr. Retsinas.
Factors that support a continued solid housing market include:
Thriving household growth - Over 1.37 million new households will be added nationwide this year from population growth and foreign immigration.
Boomers going gray - The aging ranks of boomers is increasing the ranks of investors with vacation or second homes. This trend will increase as they near retirement.
Household composition changing - There is an increasing trend of more single-person households through divorce and adult children moving out on their own. Family size is shrinking creating more households from the same population.
Minorities on the move - The past 10 years have seen great strides in homeownership among Black and Latin minorities.
Government influence - Land use restrictions, zoning laws and building are limiting the suppy of housing. Retsinas says, "In many areas we see such an anti-development bias. And the trend is to more restrictions, not less, even though markets are softening.
Bottom Line - Retsinas summarizes, "Long term fundamentals are still positive, but some areas may be more susceptible to a slide."
Thursday, May 11, 2006
How Adjustable Rate Mortgages Work
During the last decade, Adjustable Rate Mortgages (ARMs) have increased in popularity among consumers. These days, few homeowners (especially first-time buyers) remain in their homes for more than seven years. In this case, it often makes sense to get an adjustable rate mortgage with a lower rate, especially one with a 5-year or 7-year fixed portion, since they won't have the loan long enough to be concerned about rate fluctuation.
Adjustable Rate Mortgages have three main features: Margin, Index, and Caps. The Margin is the fixed portion of the adjustable rate. It remains the same for the duration of the loan. The Index is the variable portion. This is what makes an ARM adjustable. Margin + Index = Interest Rate.
It's important to understand that there are many different indices: The 11th District Cost of Funds (COFI), the Monthly Treasury Average (MTA), The One Year Treasury Bill, the Six Month Libor, etc. Each index has its own strengths and weaknesses; some are slow moving, others are more aggressive.
The third and final component of Adjustable Rate Mortgages is Caps. Caps limit how much the rate can fluctuate over time. Annual Caps limit changes to the annual rate, whereas Life Caps provide a worst case scenario over the life of the loan.
Adjustable Rate Mortgages have three main features: Margin, Index, and Caps. The Margin is the fixed portion of the adjustable rate. It remains the same for the duration of the loan. The Index is the variable portion. This is what makes an ARM adjustable. Margin + Index = Interest Rate.
It's important to understand that there are many different indices: The 11th District Cost of Funds (COFI), the Monthly Treasury Average (MTA), The One Year Treasury Bill, the Six Month Libor, etc. Each index has its own strengths and weaknesses; some are slow moving, others are more aggressive.
The third and final component of Adjustable Rate Mortgages is Caps. Caps limit how much the rate can fluctuate over time. Annual Caps limit changes to the annual rate, whereas Life Caps provide a worst case scenario over the life of the loan.
Wednesday, May 10, 2006
Survey: Younger Generations Spend More on Housing
(May 10, 2006) -- A recent survey of home buyers in three generations — Gen Y (those born between 1979 and 1994), Gen X (born between 1978 and 1965), and baby boomers (born between 1946 and 1965) — show that Gen X and Gen Y are outspending boomers in their first home purchase.
Both of the younger generations also devote a larger portion of their salaries to housing costs, according to the survey, conducted by Century 21 Real Estate. The goal of the survey was to understand and compare the experiences of the first-home purchase among members of three different generations.
Unlike boomers who purchased their first homes in response to life events such as a marriage or birth, financial incentives motivate both Gen X and Gen Y buyers with investment value cited as the “key driver” by the Century 21 survey with 42 percent of Gen X respondents and 39 percent of Gen Y respondents citing a “safe investment” as the reason for purchase.
A similar business-like approach is applied to the home search and purchase. “These guys don’t get caught up in the process. They’re very bottom-line oriented and results oriented,” says John Tuccillo, former NAR chief economist and principal of John Tuccillo Associates, an economics and business consulting firm in Virginia.
“Don’t expect them to fall in love with the property,” he cautions. “What matters is whether the house works for them and whether it’s a good deal.”
“Real estate professionals shouldn’t only get to know this group, they should also begin to look at their own materials, particularly Web sites, from the perspective of this demographic,” Tuccillo says.
A higher proportion of younger buyers use the Internet. For Gen Y it ranked as the primary source of home shopping information according to the survey. Experts such as Tuccillo and Melody Bohrer, vice president for education for ERA Real Estate say that being able to remain anonymous while they gather information is a top criterion for younger buyers.
Less relationship oriented than boomers, younger buyers are also more likely than boomers to say “next” if a salesperson doesn’t meet their expectations. However, Bohrer says, “They will be loyal if you work the way they want.”
— By Camilla McLaughlin for REALTOR® Magazine Online
Both of the younger generations also devote a larger portion of their salaries to housing costs, according to the survey, conducted by Century 21 Real Estate. The goal of the survey was to understand and compare the experiences of the first-home purchase among members of three different generations.
Unlike boomers who purchased their first homes in response to life events such as a marriage or birth, financial incentives motivate both Gen X and Gen Y buyers with investment value cited as the “key driver” by the Century 21 survey with 42 percent of Gen X respondents and 39 percent of Gen Y respondents citing a “safe investment” as the reason for purchase.
A similar business-like approach is applied to the home search and purchase. “These guys don’t get caught up in the process. They’re very bottom-line oriented and results oriented,” says John Tuccillo, former NAR chief economist and principal of John Tuccillo Associates, an economics and business consulting firm in Virginia.
“Don’t expect them to fall in love with the property,” he cautions. “What matters is whether the house works for them and whether it’s a good deal.”
“Real estate professionals shouldn’t only get to know this group, they should also begin to look at their own materials, particularly Web sites, from the perspective of this demographic,” Tuccillo says.
A higher proportion of younger buyers use the Internet. For Gen Y it ranked as the primary source of home shopping information according to the survey. Experts such as Tuccillo and Melody Bohrer, vice president for education for ERA Real Estate say that being able to remain anonymous while they gather information is a top criterion for younger buyers.
Less relationship oriented than boomers, younger buyers are also more likely than boomers to say “next” if a salesperson doesn’t meet their expectations. However, Bohrer says, “They will be loyal if you work the way they want.”
— By Camilla McLaughlin for REALTOR® Magazine Online
Tuesday, May 09, 2006
Housing Takes Breather, But Strong Year Still Expected
May 9, 2006) -- The housing market is settling but should experience its third-best year in 2006, with job creation and a growing economy offsetting some of the effects of rising interest rates, according to the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, says the market is adjusting to higher mortgage interest rates. “Coming off a prolonged period of record sales, housing is taking something of a breather this year,” he says. “Even so, interest rates remain historically low, we’ve added about 2 million jobs over the last 12 months and the economy continues to grow – that will sustain healthy levels of home sales in 2006, but they’ll stay below the peaks experienced during the last two years.”
Lereah forecasts the 30-year fixed-rate mortgage to rise to 7.0 percent this summer and hold at that level during the second half of the year. The unemployment rate is expected to average 4.7 percent, compared with 5.1 percent in 2005, while growth in the U.S. gross domestic product is seen at 3.5 percent in 2006, the same as last year.
Existing-home sales are likely to fall 6.4 percent to 6.62 million in 2006 from a record 7.08 million last year. New-home sales are projected to drop 11.6 percent to 1.13 million from last year’s record of 1.28 million. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005.
NAR President Thomas M. Stevens from Vienna, Va., says home prices are returning to normal patterns.
“Since the supply of homes on the market has improved to roughly balanced levels, overall home price appreciation has cooled to single-digit rates,” says Stevens, senior vice president of NRT Inc. “Most of the country is now entering a period of equilibrium in the housing market, which is good for the long-term health of the sector. Owners in most areas can now expect steadier and more normal rates of return on their housing investment.”
The national median existing-home price for all housing types is expected to rise 5.7 percent this year to $232,200, while the median new-home price is forecast to increase 2.2 percent to $242,500.
Inflation as measured by the Consumer Price Index is projected at 3.4 percent in 2006. Inflation-adjusted disposable personal income is likely to grow 3.4 percent this year.
—NAR
David Lereah, NAR’s chief economist, says the market is adjusting to higher mortgage interest rates. “Coming off a prolonged period of record sales, housing is taking something of a breather this year,” he says. “Even so, interest rates remain historically low, we’ve added about 2 million jobs over the last 12 months and the economy continues to grow – that will sustain healthy levels of home sales in 2006, but they’ll stay below the peaks experienced during the last two years.”
Lereah forecasts the 30-year fixed-rate mortgage to rise to 7.0 percent this summer and hold at that level during the second half of the year. The unemployment rate is expected to average 4.7 percent, compared with 5.1 percent in 2005, while growth in the U.S. gross domestic product is seen at 3.5 percent in 2006, the same as last year.
Existing-home sales are likely to fall 6.4 percent to 6.62 million in 2006 from a record 7.08 million last year. New-home sales are projected to drop 11.6 percent to 1.13 million from last year’s record of 1.28 million. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005.
NAR President Thomas M. Stevens from Vienna, Va., says home prices are returning to normal patterns.
“Since the supply of homes on the market has improved to roughly balanced levels, overall home price appreciation has cooled to single-digit rates,” says Stevens, senior vice president of NRT Inc. “Most of the country is now entering a period of equilibrium in the housing market, which is good for the long-term health of the sector. Owners in most areas can now expect steadier and more normal rates of return on their housing investment.”
The national median existing-home price for all housing types is expected to rise 5.7 percent this year to $232,200, while the median new-home price is forecast to increase 2.2 percent to $242,500.
Inflation as measured by the Consumer Price Index is projected at 3.4 percent in 2006. Inflation-adjusted disposable personal income is likely to grow 3.4 percent this year.
—NAR
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