From the category archives:

Market

And Now For Some Good News

by Brandon on August 20, 2008

With all the doom and gloom in the reporting on the current real estate market, don’t you think it is time for some good news? Well, I do.

And, oddly enough, it is the same as all that bad news we have been hearing. You know, about real estate prices tumbling in California. For people who have not been able to enter the real estate market for close to a decade, there is now a remarkable opportunity. In just one year, according to the San Francisco Chronicle, the number of Californians who can afford to buy a home has doubled:

 

The percentage of households able to buy an entry-level residence in the state reached 48 percent during the second quarter, double the level from a year ago, according to the California Association of Realtors.

The trade group defines a starter home as one priced at 85 percent of an area’s median, which works out to $329,120 for the state. The minimum income needed to purchase such a property is $62,870, down from $101,440 a year ago (assuming an adjustable-rate mortgage starting at 5.69 percent and a 10 percent down payment).

Well, it may not be the news you were looking for. But if you are one of those who has been frustrated in the past half a dozen years or so about being priced out of the market, your time may have come.

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The State of the Current Real Estate Market in Sacramento: July Sales Statistics, REOs, and Stuff

by Brandon on August 16, 2008

The current real estate market in Sacramento can be very confusing.  Sales continue to rise, but prices continue to fall.  The figures for July are in and seem to just add to the confusion.  But there is one very obvious reason that the market continues to confound: bank-owned foreclosure properties.

First, the good news.  According to the Sacramento Association of Realtors, the number of homes sold in July exceeded June’s sales by 5.1% and surpassed last July’s sales by 128%.  Even better, as each month’s sales continue to outpace the prior, inventories continue to fall.  At the end of July, there were 7880 homes on the market, down from 8414 just one month ago.  Prices, however, have continued to fall.  The Sacramento median sales price in July dropped to $216,500 from $220,000 in June.


So why are prices continuing to fall in the face of increased sales and decreased inventories?  One answer can be discovered by taking a closer look at July’s figures: Roughly 70% of all home sold this past month were foreclosed, or bank-owned, properties (REOs).  

An REO is a property that is “Real Estate Owned”.  Unlike traditional sellers, banks insist on selling their properties “as-is”.  This means that they are unwilling to make any repairs (much less do the simple cosmetic things) that can greatly increase the amount offered on the property.  By doing this, they rule out a majority of the buyers that are looking for a home in “move in condition”.  They also rule out many buyers who must make the purchase using special lending procedures (such as VA and FHA - It is important to note that FHA loans are quickly becoming the standard in the Sacramento region).  

There are naturally fewer buyers competing for such properties.  This, combined with the pressure for banks to unload properties, means that many of these properties are selling for as little as 50% of market value. Which, in turn, deflates the overall market when such a great majority of the properties are bank-owned.  

Homes, then, that are not bank owned should be selling for much more, right?  Well, one would think so. But imagine that your house (which might normally sell for $400,000) is sitting next door to a distressed house that the bank just unloaded for $230,000.  Any buyer’s agent worth their salt will inform the buyers of the sale, which would understandably make the buyer more nervous to make an offer and would most certainly affect the amount offered.

While there might not be a lot of good news here for people that are in a position in which they must sell, there is quite a bit of good news for home buyers.  There continues to be good signs of a market turn around, interest rates are still near historic lows, and there are great deals to be had (especially if you are willing to purchase REOs).

It is also important to note that though we are constantly inundated with news of a market in peril here in Sacramento (region prices have fallen nearly 30%), the story in and near the city’s urban core is substantially different.  You have heard that all real estate is local.  I would argue that in Sacramento, all real estate is “hyper-local”.  I will be following up this post with an in depth look at the figures for the neighborhoods in and around the central city, which have been considerably less affected by the current mortgage meltdown (and consequent foreclosures).  You just may be surprised by what you learn.

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In Sacramento, The Number of Homes Sold Increases Nearly 100% Over 6 mos. ago

by Brandon on July 26, 2008

 

June '08 Sacramento Home Sales Statistics

June '08 Sacramento Home Sales Statistics

That’s right.  In January of this year, we saw barely 800 homes sell in the Sacramento region.  In June, we saw over 1600.  

Number of Homes Sold in Sacramento Region

Number of Homes Sold in Sacramento Region

What does this mean?  It means that as we sell through housing inventory, the market can begin to stabilize.

Average Sales Price in Sacramento

Average Sales Price in Sacramento

Over all prices are still low because so many of the homes that are selling are distressed, REO, and short-sales.  It is also why average prices are so low in specific communities but stay relatively stable in the urban core:  there are fewer foreclosures in the urban center.

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CNN’s 5 New Rules For Real Estate

by Brandon on May 14, 2008

CNN notes that the market has changed and that there are 5 new rules that all prospective home-buyers should know:

(Money Magazine) — There’s no telling how long the housing crisis will drag on. Here’s what you need to know before you start shopping in a rocky market.

Rule 1: You can’t time the bottom

Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It’s harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.

Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller’s asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you’re trading up, your home could sit. So sell before you buy.

Rule 2: One reason to buy now - mortgage rates

Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don’t directly follow the Fed. They reflect the bond market’s expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody’s Economy.com.

That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.

Rule 3: Another reason to buy - rates on big mortgages

Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.

Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far “jumbo conforming” loans average 6.6%. The program has gotten off to a slow start; you’ll need to shop around. And unless Congress acts, this bargain will disappear at year-end.

Rule 4: Don’t buy cheap; buy good schools

By now you’ve heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you’re also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn’t afford. That’s not a recipe for stability. Prices and quality of life could both decline further.

Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.

Rule 5: Make sure your agent has your interest at heart

The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer’s agents.

So make sure you’re not being steered to a house that’s better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer’s agent trade group.

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