The latest reporty from the National Association of Realtors (NAR) continues to show positive news similar to that we have been seeing in our local area since last October. June existing home sales rose for the third month nationally (and for the sixth month locally in the entry price segment). Pending home sales results will be released next week but all indications are that these will also have risen (for the 3rd month nationally and for the 6th month locally). Existing home sales nationally are now running at a 4.85M unit per year rate, the highest since October 2008. Yet they remain 10% lower than in 1999 just before the real estate market took off.
One potential negative that could impact this trend of increasing sales is the pending end of the first-time home buyer tax credit which expires Nov. 30 , 2009. This credit, the lowest fixed rate mortgage rates in history, and the availability of decent homes priced under $430,000 have all led to the entry level home sales boom we have been seeing since October. Unless the Federal Government extends this tax credit, one strong impetus will be lost.
Locally we are in the midst of a "buyer boom" with many agents and brokerages reporting high buyer interest at open homes, walk-ins and inquiries on listings. Homes in the mid-price tier ($400,000 to $800,000) are moving and inventory is down markedly. Mortage rates on loans to $729,000 are also at historical lows. Buyers sense this trend, are getting off the fence and starting to buy! Now if we could just open up the upper tier above $1M.......
Monday, July 27, 2009
Tuesday, July 21, 2009
Steal or Deal??
There must have been something in the water recently. I’ve heard the following three times within the past ten days: “I want to get a steal!” Always in the context of finding and purchasing a new home and spoken by people who aren’t usually that aggressive or financially strapped.
There’s just one problem with “getting a steal” when buying a home, land, ranch or other property. Someone wins (the “stealer”) and someone loses (the “stolen from”). Transactions become a search for an edge in a competition instead of a search for a home. And oftentimes the deal doesn’t turn out to be quite the “steal” someone thought. I’ve seen transactions fall apart when one party begins to sense they are becoming more a victim than a seller (or buyer).
The definition of “fair market value” is what two parties, acting at “arms length” (i.e. they have no pressures or incentives other than the desire to buy and sell), agree on price and terms. But both parties have to come to the same agreed upon set of terms. Sometimes one party has a personal opinion of market value that isn’t substantiated in reality as determined by recent comparable sales. In these cases, the two parties usually don’t reach an agreement and no sale results (and no one gets a “steal” either!)
I actually run from potential clients wanting a “steal”. I’d rather shoot for a win-win in negotiations between buyers and sellers. In a win-win scenario, no one gets a “steal” but both parties can get a good, or even great, deal and both can walk away eminently satisfied. In these cases, both sides believe they got FAIR market value for their home or their money. I’ve found usually what one party considers a “steal” is just a few percent (or less) different from the “fair market value”. When the full costs to purchase or of ownership are calculated over a reasonable period of time, the difference between a “steal” and a “deal” usually melts into insignificance. When a transaction fails because of a monetary difference that is small in comparison with the happiness and satisfaction one could get through ownership of a property, or the benefits one could get from accessing the equity built up in a property over time, both sides lose. It’s just that the side seeking a "steal" will continue to lose, missing out on property after property (or sale after sale); while the side working to get a fair deal will eventually get their reward.
There’s just one problem with “getting a steal” when buying a home, land, ranch or other property. Someone wins (the “stealer”) and someone loses (the “stolen from”). Transactions become a search for an edge in a competition instead of a search for a home. And oftentimes the deal doesn’t turn out to be quite the “steal” someone thought. I’ve seen transactions fall apart when one party begins to sense they are becoming more a victim than a seller (or buyer).
The definition of “fair market value” is what two parties, acting at “arms length” (i.e. they have no pressures or incentives other than the desire to buy and sell), agree on price and terms. But both parties have to come to the same agreed upon set of terms. Sometimes one party has a personal opinion of market value that isn’t substantiated in reality as determined by recent comparable sales. In these cases, the two parties usually don’t reach an agreement and no sale results (and no one gets a “steal” either!)
I actually run from potential clients wanting a “steal”. I’d rather shoot for a win-win in negotiations between buyers and sellers. In a win-win scenario, no one gets a “steal” but both parties can get a good, or even great, deal and both can walk away eminently satisfied. In these cases, both sides believe they got FAIR market value for their home or their money. I’ve found usually what one party considers a “steal” is just a few percent (or less) different from the “fair market value”. When the full costs to purchase or of ownership are calculated over a reasonable period of time, the difference between a “steal” and a “deal” usually melts into insignificance. When a transaction fails because of a monetary difference that is small in comparison with the happiness and satisfaction one could get through ownership of a property, or the benefits one could get from accessing the equity built up in a property over time, both sides lose. It’s just that the side seeking a "steal" will continue to lose, missing out on property after property (or sale after sale); while the side working to get a fair deal will eventually get their reward.
Wednesday, July 8, 2009
No Skin in the Game
There was a fascinating article last week in the Wall Street Journal about the root causes of many foreclosures. Written by Stan Liebowitz, a director in the managament school at the Univ. of Texas in Dallas, Mr. Liebowitz used data on 30 Million mortgages compiled by McDash Analytics. The bottom line of his analysis was that low equity, either due to low money down at mortgage inception, or loss of equity due to refinancing or the market changes, was the major contributor and cause of the foreclosure crisis, not sub-prime loans. One interesting data point was that 51% of all foreclosed homes had prime loans, not sub-prime, and that the foreclosure rate for prime loans grew by 488% in the second half of 2008 compared to 200% increase for sub-prime mortgages.
The most comon factors leading to foreclosure were: (in order of number of occurrences)
1) Negative Equity- 285,000 loans
2) Unemployment - 183,000 loans
3) Sub-prime Loan- 149,000 loans
4) Low Downpayment (< 3%)- 130,000 loans
5) Mortgage rate reset upward- 61,000 loans
Items #1 and #4 are the factors that were included in the "Low Equity" category.
I have been discussing low "skin in the game" for several months in this blog. It was refreshing to see some actual mortgage and foreclosure data that supported my beliefs.
Another interesting part of the article was Mr. Liebowitz' conclusion that the Obama plans to help homeowners by adjusting mortgage rates may not be a big help in keeping people from foreclosure. His data supports that conclusion. It's not a rate issue. The major factor that causes people to walk away from their mortgage is lack of equity and a feeling that the situation will not turn around.
Mr. Liebowitz also concludes that lower morgage rates usually lead to more re-finances, not more sales. I agree with the first part of this statement, but the recent rebound in entry level sales is directly tied to lower mortgage rates, tax incentives and pent-up demand. Mr. Liebowitz correctly states that while refinancing keeps money each month in people's pockets, it is home sales that directly impact house prices. Precisely what our market is showing us today! What we have now occurring in our entry segments is low mortgage rates driving sales which are depleting inventory leading to increased competition, more multiple offers and higher selling prices. So one can make a claim that lower rates do drive selling prices IF certain other factors are in play to help drive down inventory and make homes affordable. Given the pent-up demand at the middle and upper tiers that I am seeing in our market today, lower rates at these levels would drive sales and provide support for prices as inventory stabilizes at more traditional levels. We still desparately need mortgage rate relief at the upper tiers of the market.
The most comon factors leading to foreclosure were: (in order of number of occurrences)
1) Negative Equity- 285,000 loans
2) Unemployment - 183,000 loans
3) Sub-prime Loan- 149,000 loans
4) Low Downpayment (< 3%)- 130,000 loans
5) Mortgage rate reset upward- 61,000 loans
Items #1 and #4 are the factors that were included in the "Low Equity" category.
I have been discussing low "skin in the game" for several months in this blog. It was refreshing to see some actual mortgage and foreclosure data that supported my beliefs.
Another interesting part of the article was Mr. Liebowitz' conclusion that the Obama plans to help homeowners by adjusting mortgage rates may not be a big help in keeping people from foreclosure. His data supports that conclusion. It's not a rate issue. The major factor that causes people to walk away from their mortgage is lack of equity and a feeling that the situation will not turn around.
Mr. Liebowitz also concludes that lower morgage rates usually lead to more re-finances, not more sales. I agree with the first part of this statement, but the recent rebound in entry level sales is directly tied to lower mortgage rates, tax incentives and pent-up demand. Mr. Liebowitz correctly states that while refinancing keeps money each month in people's pockets, it is home sales that directly impact house prices. Precisely what our market is showing us today! What we have now occurring in our entry segments is low mortgage rates driving sales which are depleting inventory leading to increased competition, more multiple offers and higher selling prices. So one can make a claim that lower rates do drive selling prices IF certain other factors are in play to help drive down inventory and make homes affordable. Given the pent-up demand at the middle and upper tiers that I am seeing in our market today, lower rates at these levels would drive sales and provide support for prices as inventory stabilizes at more traditional levels. We still desparately need mortgage rate relief at the upper tiers of the market.
Thursday, July 2, 2009
Conflicting Data
This week has seen alot of conflicting data on the real estate and econmic fronts. Last Friday, median home prices rose in Ca. for the third consecutive month, with May prices up 4.2% from April 2009. Inventory statewide continued to drop as well, down to 4.2 months for May compared to 4.6 months in April and 8.7 months in May 2008. That was some of the good news.
On the negative side, unemployment continues to rise and delinquencies on home loans with it. Now we are seeing significant increases in prime loan defaults and also on properties valued at $1M or more. This new round of increases in defaults is driven by job loss or underemployment for those who may have found a new job. 8.5% of all mortgages were 30 days or more past due in May, not inlcuding those in foreclosure. That's up from 5.7% a year ago. Consumer confidence also showed a decline this week likely reflecting concern about deficits and employment.
Local statistics reflect some of these trends, but not all. Inventory of homes in Gilroy and Morgan Hill priced below $400,000 stands at 18 DAYS, the lowest in many years. At the $1M price level, we have 15 MONTHS of inventory! Yet in Almaden one seller of a semi-custom home on a tract-sized parcel listed for $1.25M, received five offers within the first ten days of being on the market. Hollister reflects similar statistics with demand at the entry level (below $300,000) outstripping availability and country properties languishing. There is a huge compression in features available for the dollar in San Benito county properties. Inventory of country properties with acreage in Santa Clara county has been stable recently in spite of the fact that sales since February have been improving. This increase in activity is due primarily to lowered asking prices- we now have more than 50 homes on acreage priced less than $1M.
Another bit of good news is that short-sale transaction times are finally getting shorter. I have clients that received price approval within 25 days! This was primarily accellerated by the fact that the property already had a Notice of Default placed on it; but the listing agent had a complete package for the lender, and while there were two loans on the home, they were both with the same lender.
So what does this portend? I believe the market is stabilizing. Even with unemployment predicted to rise through mid-2010, I expect prices to begin to solidify and even rise in the "hot" market segments. There is pent-up demand across all price tiers. If mortgage money remains affordable and available, and especially if purchase incentives are extended to more buyers, this demand will surface and people will buy.
On the negative side, unemployment continues to rise and delinquencies on home loans with it. Now we are seeing significant increases in prime loan defaults and also on properties valued at $1M or more. This new round of increases in defaults is driven by job loss or underemployment for those who may have found a new job. 8.5% of all mortgages were 30 days or more past due in May, not inlcuding those in foreclosure. That's up from 5.7% a year ago. Consumer confidence also showed a decline this week likely reflecting concern about deficits and employment.
Local statistics reflect some of these trends, but not all. Inventory of homes in Gilroy and Morgan Hill priced below $400,000 stands at 18 DAYS, the lowest in many years. At the $1M price level, we have 15 MONTHS of inventory! Yet in Almaden one seller of a semi-custom home on a tract-sized parcel listed for $1.25M, received five offers within the first ten days of being on the market. Hollister reflects similar statistics with demand at the entry level (below $300,000) outstripping availability and country properties languishing. There is a huge compression in features available for the dollar in San Benito county properties. Inventory of country properties with acreage in Santa Clara county has been stable recently in spite of the fact that sales since February have been improving. This increase in activity is due primarily to lowered asking prices- we now have more than 50 homes on acreage priced less than $1M.
Another bit of good news is that short-sale transaction times are finally getting shorter. I have clients that received price approval within 25 days! This was primarily accellerated by the fact that the property already had a Notice of Default placed on it; but the listing agent had a complete package for the lender, and while there were two loans on the home, they were both with the same lender.
So what does this portend? I believe the market is stabilizing. Even with unemployment predicted to rise through mid-2010, I expect prices to begin to solidify and even rise in the "hot" market segments. There is pent-up demand across all price tiers. If mortgage money remains affordable and available, and especially if purchase incentives are extended to more buyers, this demand will surface and people will buy.
Subscribe to:
Comments (Atom)