Recommeded Reading for First Time Home Buyers

Recommended Reading for Real Estate Investing

Recommended Reading for Forclosures

George’s July 2009 State of the Bay Area Real Estate Market

Interest rates have recently dropped back down ~1/4 Pt after moving up ~3/4 Pt in June. We are now at 5.25% for 30-Yr Fixed Conforming loans with 0 Pts and 5% for 30-Yr Fixed Agency Jumbo loans with 1.5 Pts
30-Yr Fixed Jumbo loans (loans higher than $729,750) are averaging 6.9% IY and they typically now require at least a 700 Credit Score, 6 months reserves, & 20-25% downpayment (30% downpayment for loans of 1M+). This tightening of jumbo loan money is a big reason for the recent downturn in values of high end (1M+) homes, by the far THE housing sector taking a value hit right now (while the 750K and under market surges). According to Princeton Economist Bernard Baumohl, the high end is unquestionably the worst performing sector of the residential real estate market right now. Sales of existing homes priced above $750,000 made up 2.3% of all sales in the first quarter of 2009. That’s down from 4.4% of homes sold in 2007, before high priced mortgages dried up. The recession and collateral damage in the stock markets have knocked many luxury buyers out of the market.
As to why the 750K and under market sector is doing so well these days, C.A.R.’s 2009 Survey of California Home Buyers shows that favorable home prices, record-low interest rates, and the belief that rates will rise in the near future has been the primary motivators leading home buyers to purchase this year. 68% of buyers said price decreases motivated them to buy a home, 39% reported low interest rates helped them move to a better location, & 23% claimed the likelihood that rates will go up as the motivating factor. Housing affordability has improved dramatically in response to the decline in home prices along with historically low mortgage rates, creating a tremendous opportunity for California home buyers. According to the survey, 49% of all buyers purchased a home though a traditional market sale, while 38% purchased an REO/bank-owned property, and only 13% of buyers purchased a short-sale property.
Meanwhile, recent news indicates that another wave of foreclosures is poised to strike, possibly as soon as this summer. Amid rising unemployment and falling home prices, mortgage defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on troubled properties, instead modifying loans to make it easier for troubled borrowers to make payments. It’s unclear how big this next foreclosure wave will be or how much of it will be concentrated on the Bay Area, but loan defaults are up sharply and many government and banks’ self-imposed foreclosure moratoriums are expiring with the biggest lenders indicating that they are likely to move more aggressively to clear up a back log of troubled mortgages. Mark Zandi of Moody’s Economy.com estimates that 15.4 million homeowners (or about 1 in 5 of those with first mortgages) owe more on their homes than they are worth. Many Real Estate experts (including myself) think that this next wave of foreclosures could be as big as the one we saw through 2008, but that the effect on prices won’t be as severe because values already have plunged and there’s a lot of demand for REO properties. Still, it could keep prices low and slow down the general recovery.
The LA Times recently reported that 467,000 jobs were lost in June, which is 117,000 more than analysts had expected, and this raised our unemployment rate to a 26-yr high of 9.5%. Not only was the size of the payroll loss unexpected, but it reversed a trend in which the monthly losses had been steadily shrinking from the January peak of 741,000 jobs eliminated. Those declines (since January) had raised hopes that an actual turnaround might be approaching. This is the only recession since the great depression to wipe out all the job growth from the previous business cycle.
Looking at the most recent Bay Area statistics, the low end of the market (750K and under) continues to surge despite the negative unemployment figures and the next wave of foreclosures looming.
San Mateo County Home prices rose for the 5th straight month in June, hitting an average Sale Price of $945,717, a 28% total rise from its low of $683,900 in January. (Class 1&2) Residential property inventory also dropped for the 2nd straight month (to 2,065 total active listings), but is still 9% above January’s inventory level of 1,884.
Santa Clara County Home prices rose for the 4th straight month in June, reaching a $688,484 Avg Sales Price, up a total of 18.5% from its low of $561,329 in February. SC County residential inventory also dropped for the 4th straight month, sinking to 5,584 total active listings compared to 6,806 in February.
The East Bay (Alameda/Contra Costa county) region has seen Sales outpace Listings over the past month (2,919 Sold to 2,435 New Listings), although so far in July New Listings are slightly outpacing Sales.
San Francisco residential inventory also dropped for the 3rd straight month in June. Monthly listings are still outpacing sales, but at a decreasing rate. San Francisco Residential inventory now sits at 2,076 Active listings, 964 Class 1 (Single Family Homes) and 1,112 Class 2 (Condos/TH’s), down 8% from a total of 2,261 in March.
I expect the next few months to be more of the same (as recent trends) with high end homes continuing to struggle and the low end homes and condo market (in many parts of the Bay Area) continuing to move quickly with plenty of demand in place. More foreclosures and short sales will hit the market, but there seems to be more than enough qualified buyers (including investors) to snatch them up and it shouldn’t cause values/prices to go back down, just probably slow the progress that we have seen over the past 5 months.

George Sudol is the Broker for Bay Area Realty Services (with offices in San Mateo and Palo Alto).
He writes these monthly state of the market newsletters to keep his clients constantly informed of the Bay Area Real Estate market conditions. Please call George at 650-242-4079 or Email him at george@ba-realtyservices.com if you have any Bay Area Real Estate questions or needs.
You can also visit him and his Brokerage on the web at www.ba-realtyservices.com

Holiday Home Prices Wilt In Euro Drought

Spain and Portugal have suffered one of their worst droughts on record this summer, with consequences from empty swimming pools for the tourist to economic disaster for farmers losing their
crops and livestock.

Roger Munns, Managing Director of Tribune Properties, predicts that property prices in the two European countries could drop as much as fifteen per cent in some areas as more owners decide to put their villas and apartments on the market.

‘For many owners of second homes the original motivation to buy was to have somewhere they could spend time in a relaxing environment. Coupled with the thought of a good investment for the future, the market for overseas homes from buyers in the UK, Germany and Scandanavia has really taken off in the last twenty five years.

But soaring temperatures and a strain on the water supply could have consequences for their rental returns next year, which many owners rely on to meet their overseas mortgage.

Many holidaymakers want to rent a villa with a pool – but the attraction soon goes if the pool is empty. Some golf courses are having to cut down on watering their greens too, and it won’t take a big fall in tourism to mean the difference between breaking even and not being able to meet the mortgage commitments for some overseas property owners.

This autumn could see more properties than usual being put on the market, with a consequential fall in prices’.

Early warning signs of a potential fall in property prices have already been seen on the Spanish Mediterranean island of Menorca, which has enjoyed better rainfall this year than the Spanish mainland and no water restrictions, but some villas being cut in price by over ten per cent.

Water restrictions on the mainland are having an impact on potential villa buyers, with many questioning the value of a swimming pool when they might not be able to use it.

Portugal has recently asked Spain for 6 million Euros in compensation, as water levels in the River Douro which runs through both countries fell below limits established in a bilateral agreement,with Portugal coming close to accusing her neighbour of stealing her water.

Good Time to Buy
‘For anyone considering buying a property in Portugal or Spain, this September and October could be the ideal time to buy’, say Tribune Properties. ‘Unusually many properties were being reduced in price in August, traditionally a good month for sales.

We normally see villa and apartment prices being dropped mid September onwards when the tourists and potential buyers are thinner on the ground as some owners are keen to sell and don’t want to wait until the following Easter before having a real chance of selling again.’

The drought isn’t the sole cause of property prices falling add Tribune Properties, saying it has accelerated price falls and come on top of an already poor year for many estate agents in Europe.

‘A good barometer for European property are the tax havens of Monaco and Andorra which don’t rely on ‘tourist’ buyers, but usually have a steady supply of buyers interested in taking advantage of the zero income tax rate. Andorra is in the Pyrenees and has no water supply problem – but estate agents were twiddling their thumbs this summer waiting for buyers to show – and they didn’t.

Monaco similarly has had no water supply problems, but has also seen a lack of buyers. The tourists are still visiting the Principality and hotels in Monaco and Monte Carlo have been as busy as ever, but again there is a lack of serious property buyers, and negative property inflation is quite possible in Monaco this year for the first time in a decade.

With more property available on the market we would suggest buyers draw up a list of three or four villas they have viewed and liked, and then suggesting to the owners that they would consider buying at fifteen per cent below the advertised asking price to see which ones are prepared to consider it.’

Sea Water
One possible answer to secure the long term tourist trade and consequential property market is to follow Malta’s example of building desaliniation plants, converting sea water to drinking water, sometimes known as ‘reverse osmosis’.

The Mediterranean island competes with Portugal and Spain for the attention of second home buyers, and has a healthy tourist industry – despite having no rivers and low rainfall, allowing the island to function normally even in drought conditions.

The water from this source can be used for agriculture and ensuring adequate reserves to fight forest fires for example – it might just be the answer too for the swimming pools and golf courses – and would allow a plentiful supply of high quality for domestic use.

About The Author: For details of hotels in Monaco, Monaco’s
weather, a map of Monaco, the Grand Prix and direct contact
details for the Hotel de Paris, Columbus Hotel and others visit
http://www.yourmonaco.com For property and real estate in Malta
http://www.maltaproperty.info and for property in Andorra
http://www.propertyandorra.com

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