EG Green Real Estate Blog

The numbers look bleak as we pay attention to local and national media, right? July saw the number of home sales decrease in San Diego and across the country. Inventory of homes on the market are up. The number of Buyers sitting on the sidelines waiting for the bottom are increasing. Jobless numbers are astronomical. We’re on the brink of hell – maybe.

Forget about what you know or do not know about economics. Forget about what you know about how media makes money. Let’s just sit back, release our fears, and think about this for a second. What happened? The Fed gave incentive to people to buy a house. OK – what did that do? That made a lot of people say “free money!” and they went for it. The statistics support that because we had a serious increase in activity during that time. Then what? Then more Sellers put their homes on the market to take advantage of the frenzy. Right. Then the incentive went away. OK, now what? Now, we have a ton of homes on the market that did not sell in that time frame that are still on the market and now Buyers are back to where they started: sitting on the fence, afraid to buy because although there was incentive to buy, nothing else really changed all that much, except that we borrowed Buyers from tomorrow for today for the entire first half of the year.

All that makes logical sense, right? Right. So what does that mean for Buyers now? That means that if you are qualified to buy something, have some money for a down payment, and have some life event that’s really motivating you to buy a house this is the time. Why? Because as a result of the previous quarter you have waning competition,  unbelievable  interest rates, and a soft marketplace where Sellers are giving up their own incentives for you to buy (i.e. paying for your closing costs… and apparently throwing in bottles of Coke, too).

I’ll leave you with this thought from our fearless investor guru, Warren Buffett: “If you insist on timing the market be careful when others are greedy, and greedy when others are careful.”

I’ve gotten a lot of questions recently about what a Buyer should do in this market. Mostly, “should I buy right now? This double-dip recession is beginning to scare me. What if prices continue to drop after I buy something? Maybe I should just wait for a few months or a year…”If you have an unavoidable reason for buying a home, like a job relocation, serious rent-hike from your landlord, divorce, etc. then buy your home. Nobody, not even Warren Buffett, can “time the market”. If you plan to stay in your home for more than a couple years you will eventually accrue equity. When looked at over a long enough timeline the housing market is much like the equities market: values increase over time with fluctuations along the way. Of course there are fluctuations and when we’re in the midst of a downturn everything can look pretty bleak. After all there are some pretty dismal numbers in our county.San Diego’s unemployment rate increased this past July from the previous year 10.3% to 10.8%. There’s an economic argument here that because more people are optimistic and chose to look for jobs during the month of July, the number of reported unemployed increased as a result. That remains to be seen. According to San Diego Association of Realtors inventories of unsold homes on the market also increased 23.3% from July of ’09 while the number of days on the market it took to sell attached homes rose from 72 to 87 and from 69 to 71 for single-family, detached homes.Consider this: San Diego fares better than the rest of the country right now with regard to pricing & foreclosure stats. Our county is also typically the first to take a hit and the first to rebound, according to history. For July, sales were down in San Diego 15.2% and prices up 4.6%, while the country as a whole saw sales drop 25.5% and prices up 0.7% from the previous year. Foreclosure filings are a good statistic for a leading indicator of economic health. In San Diego, the number of foreclosure filings, including notices of default, public auctions and bank repossessions, dropped 37%, whereas the rest of the country only saw a 10% decline from July ’09. These are all good indicators for the county.So the news is mixed here in San Diego, right? True. And it’s hard to tell where we are along the cycle of fluctuations. But we know that we’re in a cycle and when it becomes obvious that prices are heading up, more Buyers will enter the market to snatch up the increased inventory, and it’s likely that interest rates will start to rise, which will cause an even stronger push from Buyers to enter the market. So you may as well get in while it’s somewhere near the bottom.

Below is a copy of a quick article from the National Association of Realtors with their top three reasons to Buy real estate now:Three Reasons to Buy a Home Now  Stocks are up 50 percent from the March 2009 bottom. Some commodities have risen dramatically. The only asset class left in the cellar is real estate, says Michael Murphy, editor of the New World Investor stock newsletter.As a result, Murphy is advising investors to buy now for these three reasons:¢  Desperate sellers: Both home owners and lenders are eager to unload a flood of foreclosed and underwater properties. Buyers with the patience to push through these complex deals can save a bundle.¢  Little competition. Because most people don™t have what it takes to negotiate their way through short sales and REOs, patient investors are winners.¢  Low rates. Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now.

      So the average mortgage interest rates are reaching a 38-year low, according to Freddie Mac. Each week, Freddie Mac surveys the nation’s mortgage rates  and posts the average rate online – this practice dates back to the early ’70s, a historical study that I use in my Home Buying Seminar.

Mortgage rates are determined by two main functions of the greater economy: Housing Demand & the sale of Treasury Notes  (or, T-notes). Right now, demand for housing across the country is waning and the number of foreclosures is still on the rise. The net effect of these two issues is a rise in interest rates. The reason: mortgage providers attempting to ‘meet’ demand in order to stay in business. What makes it tough for providers to meet demand now is that they’re still afraid to lend to the not-so-credit-worthy, which is now defined as anyone who has below a 720 credit score. What’s more, mortgage rates are linked to the rates on T-notes. Banks sell the mortgages they underwrite on the secondary market  and like to keep rates a few points higher than T-notes. T-notes have no risk because they’re issued by the government with the full faith & credit of the government, while mortgages have risk that the person paying that mortgage off may default (the beginning of the foreclosure proceeding). That’s why mortgage rates are higher than the rates on T-notes. So, right now, the T-note rates are low because investors and financial institutions are shying away from riskier investments, which raises prices on T-notes. This, in turn, lowers rates.

What’s the point of all this? If you own your own home or are looking to buy a home or invest in real estate, this is the time to refinance or buy. Call me if you need to get hooked up with some excellent lenders! Also, come to our Home Buying Seminar this week, December 9th, at 3965 Fifth Ave., Suite 300, San Diego, CA 92103 in Hillcrest. It starts at 5:30 & is FREE to attend. Simply write us an email or call 619-955-2411 to reserve your seats!

            Today, the $75 billion foreclosure-prevention plan offered by the Obama administration detailed guidelines on how the plan will ease the process for short selling real estate. A short sale  is when a homeowner owes more than the house is worth yet they try/need to sell it anyway — in order to sell your house for less than the amount you owe you have to get your lender’s approval first. Generally, a short sale is a rough road and a difficult transaction to close. This can be a painstaking process in many cases; however, worth every effort.

The government’s plan is to encourage homeowners who are ‘under water’ to sell short by offering a $1,500 incentive to sell their homes. The mortgage companies are also encouraged to approve the sale with a $1,000 incentive from the government for every short sale that closes.

Homeowners eligible for this program are those who are eligible for the government’s loan modification program but do not qualify, delinquent on their loan modification, or those who request a short sale or a deed-in-lieu transaction. I was going to link you to a definition of a ‘deed-in-lieu’ but every webpage I found was in legalese. Basically a deed-in-lieu is a document that allows the transfer of ownership of a property from a person in danger of being foreclosed on to  someone else. The long title is ‘deed-in-lieu of foreclosure’. Check out these definitions if you’re curious.

In many cases people have two loans on their home. Under the plan there is further incentive  for the primary mortgage company (typically the one that holds the higher loan amount) to offer $3,000 to the secondary mortgage company (the one that typically holds the lesser loan amount). The money comes from the proceeds of the sale. If the primary mortgage company offers such proceeds they can receive a further $1,000 from the government.

The government is also making it mandatory for borrowers who use this program to be “fully released” from future liability for the debt. This is good, especially in states where it is legally possible for someone who gets foreclosed on or sells short may remain responsible for the debt even after the sale occurs.

Part of the reason the government would offer these incentives is because it is common for short sales to fetch a higher price. Homes sold short are often occupied until the sale closes and not subject to vandalism, as is the case when the bank forecloses on a property and the owners are forced to move out. This obviously creates more cost to the new buyer who’s job it will be to fix the place up. It’s also WAY cheaper for a bank to allow a short sale rather than go through the lengthy and costly process of foreclosing. Remember, banks are not in the business of buying & selling real estate. Lastly, and most importantly to the homeowner, it is generally much better for your credit to sell short rather than get foreclosed on.

If you have any questions or you know someone who may be having trouble with their current mortgage, please give us a call or send us an email. Your inquiry is held in complete confidentiality as we have fiduciary responsibility for all of our clients and customers.

      So you’ve heard about the new government programs for Home Buyers, but what does it mean? How can I take advantage of the credit? Who’s eligible? And what kind of time do I have? These questions can be answered at the website I linked you to above. I’m here to tell you today how to strategize in this market using the credits.

If you’re a First Time Homebuyer  you can receive a credit of up to $8,000  and if you’re a current home owner you can receive a credit of up $6,500 (at or before filing your tax returns). You qualify for one or the other and you want to take advantage of it but how? There are two main scenarios that you should look at:

1. 2009 Tax Return

2. 2010 Tax Return

For 2009, you want to close THIS MONTH. So: Cash is King. If you’re planning to buy & you want to get your credit on this year’s return then you need to get into escrow, like, today. The only way you can close comfortably at this point is if you have or can get your hands on some cash. If you don’t have the $$ Beg, Borrow from family, but get the cash needed. You can always refinance immediately after the sale has gone through to pay back your benefactor.

For 2010 the main thing to remember is this: You MUST get into escrow (an agreement/contract between you & the Seller) by the end of April 2010 in order to qualify. So if you’ve even given it a thought, start looking now!

Note: You are not the only one planning to take advantage of this credit, but I can tell you this – typically, Sellers do not want to have their homes on the market during the Holiday Season so if they do market them this time of year it’s because they have to. In other words, they’re motivated to sell! This is a good thing for you. There is always a slight spike in the # of sales at the end of the year because Buyers & Sellers in the market are serious. You will have less competition as a buyer this time of year for the same reason that Sellers who are not motivated to sell will wait until the Holidays are over.

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The above graph depicts the current market activity in San Diego County. What does it say? Look closely at the first two sets of bars – $450k & below. You’ll notice that there are more Pending Sales than Active Sales (Red & Blue respectively). What this means is that there are more homes under contract for sale than there are homes available on the market. That’s the definition of a Seller’s Market. Sellers are enjoying multiple offers on their properties & terms favorable to them (i.e. All cash offers, short escrow periods, no concessions to pay [like paying for Buyers' closing costs]) – So what we have here is something the media outlets have yet to report. Where are you hearing that we’re in a Seller’s Market? What’s more, many homes in these markets are selling for at or above asking price. In some neighborhoods, homes are selling for as much as 110% of asking price.

What about the homes selling for $450k & above, you ask? Well, that’s a different story. In this sector of the market there are more homes listed for sale than there are buyers to pick them up. This, on the other hand, is the definition of a Buyer’s Market. Buyers are enjoying more homes to view, fewer Buyers with whom to compete for a bid, and Seller concessions. Buyers have their pick of the litter & homes have a greater tendency to sit on the market for a longer period of time (see the short Purple bars for time on the market).

However, if you look closely, you’ll see that time on the market does not begin to increase, relative to the price, until the market reaches $650k & above. So if you’re a seller & you’re listing your home in the $450 – $650k range you’re enjoying a shorter time on the market relative to homes listed at higher price. This is despite the fact that, compared to homes listed below $450k, you have fewer Buyers looking for a home in your price range. It’s the “Sandwich Scenario” (I just made that up) – properties are priced well & listed for less fewer than 60 days on the market but not a lot of Buyers. It’s a middle-way-market where Buyers & Sellers are agreeing to price & other terms & conditions of the agreement.

What does all that mean? The market is still Shifting – & it’s looking like three different types of markets in one. If you’re shopping for a home as a Buyer or Investor below $450k (which includes most First-time Buyers and Investors) then you’ve got a ton of competition & you should expect to submit many offers before you win a bid. On the other hand, if you’re a Buyer shopping for a home above $450k then the market will bend in your favor & you’re likely able to agree to terms that are good for you.

If you want to know how to navigate this market as a Seller or a Buyer or you know someone who does contact us for more information.

      Yesterday, the Senate voted in favor of extending the [First-time] Home Buyer Tax Credit. Today, the House of Representatives agreed with the Senate with an overwhelming vote for the Extension of the Tax Credit (403 to 12 – who were the 12?!). The big news: Existing Home Owners are eligible, not just First-time Home Buyers, as the original legislation decreed. It is expected that President Obama will sign the legislation without hesitation.

The Federal Tax Credit will be extended to home buyers through April 30, 2010, with a 60-day extension if you are in escrow prior to the deadline.  First-time Home Buyers are still eligible for an $8,000 credit, while Existing Homeowners are eligible for up to $6,500 in tax credits. In order to qualify for the $6,500, Existing Homeowners must have lived in their homes for at least five years. What’s more, the bill increases the income limits on the tax credit from $75,000 for singles & $150,000 for married couples to $125,000 & $225,000 respectively. There is also a cap on the home price, too: $800,000.

If you live in the home for 3 years after you buy it you don’t have to pay back the credit. If you’re on active duty in any arm of the military & you’re relocated by military order after you purchase then you don’t have to pay it back.

Economists at the National Association of Realtors  estimate that the current credit contributed $22 billion to the economy. NAR President, Charles McMillan commented on the extension by saying, “This important incentive is helping to stabilize the housing market, stimulate the economy and create new jobs in communities all across our great nation”.

Naysayers of such legislation argue that the credit only serves to keep home prices artificially high.

According to National Association of Realtors data, home buyers and sellers are agreeing on prices at an increasing rate over the last six months. That means more homes entered a contractual agreement to sell between buyers and sellers in July than in June, in June than in May, and so forth, dating back to the first two months of this year. This is a good sign that we are at or near the bottom of this down-cycle.

More people are interested in buying homes and more people are agreeing to a price at which they will exchange property over the last 6 months.

We still have a way to go to get out of the recession we’re in, surely; however, the real estate market is seeing a significant shift. Some are concerned that we’ve got another wave of foreclosures coming – this is particularly evident now because banks are not releasing homes they’ve foreclosed on into the market right away; they are sitting on them to create an artificial, pent-up demand for real estate so when they do release them they’ll sell faster & maybe even at a higher price.

There is one major difference this time: home prices have dropped significantly since the last wave of foreclosures. If there is, indeed, a wave of foreclosures to hit the market in the near future  we have a lot more buyers in the marketplace, confident that they are buying homes at an acceptable price than there were during the last wave of foreclosures.