It's almost Memorial Day and the "official" start of summer for most people. And in N Ca, the start of the slowdown in home sales for the summer. We hit the "summer doledrums" in August and Sept but the slowdown starts now.
April sales in southern Santa Clara County were down slightly from March and also February except in our weak spot, homes above $1M. Some good news there at last! Rural inventories climbed in April as the did in all categories except the entry level below $400,000.
The NY Times reported on Monday that banks are holding approximately 872,000 homes in foreclosure on their books at present with more in some stage of pre-foreclosure. In April, 40% of all Santa Clara County real estate sales were short-sales. On average, 66% of these will not close and likely end up in foreclosure. So the pipeline of foreclosed homes will still have significant volume if down from previous months (especially during 2009 and 2010).
Mortgage rates average 4.6% for a 30 year fixed rate loan this week and have been bouncing around at that level for several weeks. But lender requirements remain tight.
What does this mean for our summer home sales? Likely more of the same that we have seen the past month or so. A gradual slowdown in sales activity due to seasonality but also due to gasoline prices (which thankfully are receding somewhat!). Entry level home sales will remain popular especially when values are compared to those in southern Silicon Valley and San Jose. Patience will remain a pre-requisite for sellers, while buyers should have greater choices. "Steals" aren't going to happen but good values will continue to be available for buyers who can look ahead four or five years. The upper tier will remain weak as loans and buyers are both hard to come by over $1M. Unless your property has a unique advantage (equestrian facilities, views, amenities AND price), the going will be tough at the high end.
Now, even more than ever, if you are buying or selling you need a professional in your corner.
Wednesday, May 25, 2011
Monday, April 4, 2011
Why Case-Schiller is Out of Date
Last week the Case-Schiller Housing Sales report described the fall in sales and selling prices in most US cities in January. Unfortunately, Case-Schiller uses CLOSED TRANSACTIONS as its data. So home sales that closed in January were reported. These sales were actually contracted in Nov and Dec 2010. So the data in studies like C-S reflects older data than that you can get in my monthly emails and newsletter. I track pending sales and sold transactions each month in several market segments and report these within the first few days of each month. So you get the latest data, reflecting the latest trends in the market.
For example, I am now reporting actual March sales and inventory levels. Weeks before you will see this data in Ca. reports or national reports like C-S and others.
Here's a summary of March 2011 sales data:
1) Sales in all segments except >$1M were up in March compared with Jan and Feb 2011 and approx 2x what was being sold in same period in 2009.
2) Median selliing prices remained essentially flat as they have since Feb 2010.
For more details, and to join my email list, just send me an email.
For example, I am now reporting actual March sales and inventory levels. Weeks before you will see this data in Ca. reports or national reports like C-S and others.
Here's a summary of March 2011 sales data:
1) Sales in all segments except >$1M were up in March compared with Jan and Feb 2011 and approx 2x what was being sold in same period in 2009.
2) Median selliing prices remained essentially flat as they have since Feb 2010.
For more details, and to join my email list, just send me an email.
Wednesday, March 23, 2011
Local Market Trends Belie National Data AGAIN!
Data just out from National Association of Realtors shows that February existing home sales nationwide were down 9.6% from January 2011. Nearly 40% of all sales were foreclosures and short-sales. And , as reported here over the past year, there were many "All Cash" sales. 33% of all sales were to cash buyers which is twice the rate of a year ago. Most ominously, the nationwide median price fell 5.2% to the lowest level since 2002.
Many of these statistics reflect the situation we SAW here locally a year or more ago. Cash sales are still a significant portion of the local market, as are short-sales. However, in all categories that I follow: rural homes on acreage, homes over $1M, entry level homes less than $400K, and the total Morgan Hill, Gilroy, San Martin market, our median selling prices have remained basically constant for over a year. In January and February 2011, in fact, they showed increases.
Other statistics of note from NAR include that existing home median prices are now 45% lower than new home prices for comaprable home size, location, etc. The traditional difference runs around 15% so the market for new homes is naturally depressed. On a positive note, the number of first time home buyers bounced back to about one-third of all buyers, the most since the expiration of the Home Buyers Tax Credit last July. Nationwide there is about a 9 month inventory of homes for sale, not including whatever lies in the "shadow market" of soon-to-be-foreclosed homes and homes that have been foreclsoed upon but which ar enot yet on the market. Locally our inventories vary between 3 months (entry level) and 2 years (above $1M).
As in Silicon Valley to our north, the local market is stronger in many respects than the national market. Not as strong as we may like, and not as strong as some areas of the country where prices and sales are increasing. But we are hopefully leading the way out of the housing doldrums.
Many of these statistics reflect the situation we SAW here locally a year or more ago. Cash sales are still a significant portion of the local market, as are short-sales. However, in all categories that I follow: rural homes on acreage, homes over $1M, entry level homes less than $400K, and the total Morgan Hill, Gilroy, San Martin market, our median selling prices have remained basically constant for over a year. In January and February 2011, in fact, they showed increases.
Other statistics of note from NAR include that existing home median prices are now 45% lower than new home prices for comaprable home size, location, etc. The traditional difference runs around 15% so the market for new homes is naturally depressed. On a positive note, the number of first time home buyers bounced back to about one-third of all buyers, the most since the expiration of the Home Buyers Tax Credit last July. Nationwide there is about a 9 month inventory of homes for sale, not including whatever lies in the "shadow market" of soon-to-be-foreclosed homes and homes that have been foreclsoed upon but which ar enot yet on the market. Locally our inventories vary between 3 months (entry level) and 2 years (above $1M).
As in Silicon Valley to our north, the local market is stronger in many respects than the national market. Not as strong as we may like, and not as strong as some areas of the country where prices and sales are increasing. But we are hopefully leading the way out of the housing doldrums.
Friday, March 4, 2011
Local Numbers
Local (Southern Santa Clara County, Ca) inventory and sales continue to show some strength. Inventory is down with pending sales up in all segments except homes priced over $1M. Sales in Jan anf Feb were consistent with the past few months while selling prices were UP in all segments except homes priced over $1M.
As I have been saying for the past year, we have appeared to have hit the bottom on selling prices but have yet to see an upturn. Hopefully the Feb numbers portray the start of a new trend upwards!
The nationwide Case-Schiller Index is now reflecting this bottoming out in price.
As always, consult your local real estate professional if you have questions on your specific local market!
As I have been saying for the past year, we have appeared to have hit the bottom on selling prices but have yet to see an upturn. Hopefully the Feb numbers portray the start of a new trend upwards!
The nationwide Case-Schiller Index is now reflecting this bottoming out in price.
Thursday, February 3, 2011
NOW is a Great Time to Buy!
You hear this all the time from real estate agents: "Now is a GREAT time to buy!" And I am sure that most of the time, you dismiss these claims as simply hype or optimism (or as Paul Volker said "irrational exuberance"!).
This blog I would like to explain why I truly think the next six to nine months will be the best time to buy a home that we will see for awhile.
1) Prices have stabilized in most price ranges in our area. Since early 2010, median selling prices for homes in Morgan Hill, Gilroy and San Martin have pretty much been flat month to month. Locally we are at the bottom. In Silicon Valley, prices have begun to rise once again , even with the December 2010 small price decline included. Even the most pessimistic economic forecasters are predicting small real estate price declines nation-wide ranging between 5% and 7% in the first half of 2011 and then beginning a slow, but steady increase. The key to home prices remains the employment picture which, while murky, is showing signs of improvement. Statewide unemployment is running 10.7%, down from 10.9% in November. In Silicon Valley, some firms cannot find qualified employees in certain critical fields. San Benito County continues to trend behind these averages.
2) Mortgage rates have begun their inevitable rise. Fixed rate, 30 year, mortgage rates are bouncing along just below 5% for conforming loans (below $417,000) , up from lows in late 2010 at or below 4%. Rates are expected to continue to rise as the Federal reserve winds down their long-term securities purchase (Quantitative Easing II) in June 2011. if the economy continues to improve, expect the Fed to raise overnight bank rates beginning in the second half of 2011.
3) Buying is less expensive than renting. Trulia has published data showing that in 72% of the largest 50 real estate markets, buying a home is now less expensive than renting. Locally, a 3 bedroom, 2 bath home with a small back yard will rent for approximately $1800 to $2100 per month. Renters insurance will add a small amount. You can purchase a similar home for less than $400,000 today. That purchase will entail a mortgage of 4.75%, property taxes and insurance which will include $2088 per month for mortgage principle and interest, taxes of $400 / month and $75 per month for insurance. The total is $2563 of which approximately 25% is tax deductible netting a monthly cost of $1922 per month cost.
4) California real estate appreciation rates are positive and some of the best in the nation. Forbes magazine has just published a study that shows San Jose has the best potential for appreciation in the major markets nationwide. Other Ca communities also were in the top ten locations showing good appreciation. Forbes estimates property value appreciation for San Jose in 2011 will be 3% and will average 2% annually for the next 3 years.
5) Inflation is beginning to be seen in commodity prices and may follow to consumer prices, including real estate. Commodities such as oil, copper, wheat, corn, tungsten and others are at or near historic high prices driven by demand by China, India, Brazil and other countries. It is just a matter of time before this price pressure impacts consumer prices. The beginnings of inflation are being seen today in European countries as well as China and Brazil. The unrest in the Middle East, along with increased demand in China and India, is driving oil futures higher. Expect oil to top $100 a barrel by summer. The Fed's QEII securities purchase has flooded the markets with cash. Once inflation rears its head, the Fed will have no choice but to raise interest rates.
6) Foreclosures will peak in 2011. RealtyTrac has projected a record 3.8 Million properties will be in some part of the foreclosure process in 2011. However, once these properties are processed and sold, the number of delinquent home loans is expected to gradually decline. In California, the number of foreclosures have already shown a decline from the peak in 2009. Statewide foreclosures in 2010 were down 14% from 2009. While some of the nationwide foreclosure decline (4.7% nationwide) can be attributed to the "robo-signing" curtailment of foreclosure processes, California is not a judicial foreclosure state and only a minimum of foreclosures were delayed in late 2010. If foreclosures do peak in 2011, inventory of these homes will decline late in the year and a large source of price pressure holding prices down will be removed.
7) Cash buyers are coming back into the market. Whether the property is a duplex, a single family residence or a rural ranch, we have a significant number of "ALL CASH" buyers purchasing properties lately.
8) Expensive homes are selling. High-priced residences in Woodside, Portola Valley and other exclusive areas in Silicon Valley have seen sales increase. This segment of the market has historically been a leading indicator and is sometimes referred to as the "smart money".
9) The early "short-sale sellers" can now re-enter the market. Many of the earliest sellers who utilized short-sales to release themselves from their mortgage burdens have completed the period where their credit scores were negatively impacted. These former owners can start to re-enter the housing market if they can qualify for a loan under today's more stringent lender guidelines.
This blog I would like to explain why I truly think the next six to nine months will be the best time to buy a home that we will see for awhile.
1) Prices have stabilized in most price ranges in our area. Since early 2010, median selling prices for homes in Morgan Hill, Gilroy and San Martin have pretty much been flat month to month. Locally we are at the bottom. In Silicon Valley, prices have begun to rise once again , even with the December 2010 small price decline included. Even the most pessimistic economic forecasters are predicting small real estate price declines nation-wide ranging between 5% and 7% in the first half of 2011 and then beginning a slow, but steady increase. The key to home prices remains the employment picture which, while murky, is showing signs of improvement. Statewide unemployment is running 10.7%, down from 10.9% in November. In Silicon Valley, some firms cannot find qualified employees in certain critical fields. San Benito County continues to trend behind these averages.
2) Mortgage rates have begun their inevitable rise. Fixed rate, 30 year, mortgage rates are bouncing along just below 5% for conforming loans (below $417,000) , up from lows in late 2010 at or below 4%. Rates are expected to continue to rise as the Federal reserve winds down their long-term securities purchase (Quantitative Easing II) in June 2011. if the economy continues to improve, expect the Fed to raise overnight bank rates beginning in the second half of 2011.
3) Buying is less expensive than renting. Trulia has published data showing that in 72% of the largest 50 real estate markets, buying a home is now less expensive than renting. Locally, a 3 bedroom, 2 bath home with a small back yard will rent for approximately $1800 to $2100 per month. Renters insurance will add a small amount. You can purchase a similar home for less than $400,000 today. That purchase will entail a mortgage of 4.75%, property taxes and insurance which will include $2088 per month for mortgage principle and interest, taxes of $400 / month and $75 per month for insurance. The total is $2563 of which approximately 25% is tax deductible netting a monthly cost of $1922 per month cost.
4) California real estate appreciation rates are positive and some of the best in the nation. Forbes magazine has just published a study that shows San Jose has the best potential for appreciation in the major markets nationwide. Other Ca communities also were in the top ten locations showing good appreciation. Forbes estimates property value appreciation for San Jose in 2011 will be 3% and will average 2% annually for the next 3 years.
5) Inflation is beginning to be seen in commodity prices and may follow to consumer prices, including real estate. Commodities such as oil, copper, wheat, corn, tungsten and others are at or near historic high prices driven by demand by China, India, Brazil and other countries. It is just a matter of time before this price pressure impacts consumer prices. The beginnings of inflation are being seen today in European countries as well as China and Brazil. The unrest in the Middle East, along with increased demand in China and India, is driving oil futures higher. Expect oil to top $100 a barrel by summer. The Fed's QEII securities purchase has flooded the markets with cash. Once inflation rears its head, the Fed will have no choice but to raise interest rates.
6) Foreclosures will peak in 2011. RealtyTrac has projected a record 3.8 Million properties will be in some part of the foreclosure process in 2011. However, once these properties are processed and sold, the number of delinquent home loans is expected to gradually decline. In California, the number of foreclosures have already shown a decline from the peak in 2009. Statewide foreclosures in 2010 were down 14% from 2009. While some of the nationwide foreclosure decline (4.7% nationwide) can be attributed to the "robo-signing" curtailment of foreclosure processes, California is not a judicial foreclosure state and only a minimum of foreclosures were delayed in late 2010. If foreclosures do peak in 2011, inventory of these homes will decline late in the year and a large source of price pressure holding prices down will be removed.
7) Cash buyers are coming back into the market. Whether the property is a duplex, a single family residence or a rural ranch, we have a significant number of "ALL CASH" buyers purchasing properties lately.
8) Expensive homes are selling. High-priced residences in Woodside, Portola Valley and other exclusive areas in Silicon Valley have seen sales increase. This segment of the market has historically been a leading indicator and is sometimes referred to as the "smart money".
9) The early "short-sale sellers" can now re-enter the market. Many of the earliest sellers who utilized short-sales to release themselves from their mortgage burdens have completed the period where their credit scores were negatively impacted. These former owners can start to re-enter the housing market if they can qualify for a loan under today's more stringent lender guidelines.
Tuesday, July 20, 2010
Freddie and Fannie
This week President Obama will sign the financial reform legislation passed recently by the U.S. Congress. As mentioned here previously, the reform measure did NOT include any provisions about what to do with the two government lending giants Freddie Mac and Fannie Mae. These private institutions were taken over by the government in 2008 to prevent a giant mortgage meltdown as the financial crisis expanded.
The Wall Street Journal last week estimated that the government has put $145 Billion into these institutions since their takeover to maintain solvency. Other estimates place the possible taxpayer-funded short-fall at three to four times that amount (or more than $450 Billion) if only a fraction of the mortgages in trouble fail in the short-term. Freddie and Fannie guarantee mortgages; i.e. they pay the note holder in case of a default by the borrower. Between the two institutions, they guarantee almost 50% of all mortgages in the USA, about $5 Trillion worth. Together with the Federal Housing Administration (FHA) they guarantee 90% of all residential mortgages in the country.
Any plan to revamp Freddie or Fannie will have to include some form of government subsidy and control. The question is how much and what incentives and requirements will have to be placed upon the private portion of the firms to ensure that mortgage monies will continue to flow. The only reason most, if any, mortgages are available today is because of the government guarantees. Mortgage rates will have to increase which will negatively affect teh already weakened housing market, which is the primary reason no action has been taken to date by the Obama administration or the Congress. However, continued waiting will only postpone the day of reckoning with the risk that the burden taxpayers may have to carry increases daily.
The Wall Street Journal last week estimated that the government has put $145 Billion into these institutions since their takeover to maintain solvency. Other estimates place the possible taxpayer-funded short-fall at three to four times that amount (or more than $450 Billion) if only a fraction of the mortgages in trouble fail in the short-term. Freddie and Fannie guarantee mortgages; i.e. they pay the note holder in case of a default by the borrower. Between the two institutions, they guarantee almost 50% of all mortgages in the USA, about $5 Trillion worth. Together with the Federal Housing Administration (FHA) they guarantee 90% of all residential mortgages in the country.
Any plan to revamp Freddie or Fannie will have to include some form of government subsidy and control. The question is how much and what incentives and requirements will have to be placed upon the private portion of the firms to ensure that mortgage monies will continue to flow. The only reason most, if any, mortgages are available today is because of the government guarantees. Mortgage rates will have to increase which will negatively affect teh already weakened housing market, which is the primary reason no action has been taken to date by the Obama administration or the Congress. However, continued waiting will only postpone the day of reckoning with the risk that the burden taxpayers may have to carry increases daily.
Friday, June 25, 2010
The Next Few Months
The next few months are going to be critical for the housing market. If things go anywhere near the vision of some optimists, we will begin to see a sustainable upturn in home prices. Here's why:
1) A significant majority of CEOs are bullish about hiring. When those who will not lay off anymore are added, the percentage of CEOs who will keep the same number of employees or hire more employees hits nearly 80%.
2) Interest rates are at their loweset in recent history! Given 30 year fixed rate mortgages can be found at 4.5% interest rates, a borrower with a moderate tax bracket of 25% total state and Federal will see an "effective interest rate" (after taxes) of 3.4%. Where else can you borrow up to $429,000 at those kinds of rates with a 30 year payoff period?
3) The upcoming mid-term elections will see candidates (and non-candidates) positioning themselves as pro- anything that will help the consumer. Things like additional help for the housing market if needed, slow rate hikes in interest rates, etc.
4) New home construction has dropped off a cliff as builders have mostly quit building "spec" homes. New home sales in May declined 32% from the rate in April, mostly fed by the expiration of the home buyers tax credit. Unless construction picks up, we could have a shortage of new homes by 2012 which will only fuel demand for existing homes.
5) Consumer confidence (and spending) continues to rise. While not always an accurate indicator of what will actually happen (more an indicator of what consumers wish would happen!), bullish consumers spend money and feel more confident about making major purchases.
Will all these factors actually drive home prices up in the coming months? Stay tuned as we look at the sales numbers for June, July and August. Normally the "last gasp" before the market takes a short recess for "back-to-school", the expiration of the tax credit should have pushed sales forward into April and previous. If sales continue at any reasonable pace, we could be seeing the beginning of a sustained rally in home prices.
1) A significant majority of CEOs are bullish about hiring. When those who will not lay off anymore are added, the percentage of CEOs who will keep the same number of employees or hire more employees hits nearly 80%.
2) Interest rates are at their loweset in recent history! Given 30 year fixed rate mortgages can be found at 4.5% interest rates, a borrower with a moderate tax bracket of 25% total state and Federal will see an "effective interest rate" (after taxes) of 3.4%. Where else can you borrow up to $429,000 at those kinds of rates with a 30 year payoff period?
3) The upcoming mid-term elections will see candidates (and non-candidates) positioning themselves as pro- anything that will help the consumer. Things like additional help for the housing market if needed, slow rate hikes in interest rates, etc.
4) New home construction has dropped off a cliff as builders have mostly quit building "spec" homes. New home sales in May declined 32% from the rate in April, mostly fed by the expiration of the home buyers tax credit. Unless construction picks up, we could have a shortage of new homes by 2012 which will only fuel demand for existing homes.
5) Consumer confidence (and spending) continues to rise. While not always an accurate indicator of what will actually happen (more an indicator of what consumers wish would happen!), bullish consumers spend money and feel more confident about making major purchases.
Will all these factors actually drive home prices up in the coming months? Stay tuned as we look at the sales numbers for June, July and August. Normally the "last gasp" before the market takes a short recess for "back-to-school", the expiration of the tax credit should have pushed sales forward into April and previous. If sales continue at any reasonable pace, we could be seeing the beginning of a sustained rally in home prices.
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