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State of the Housing Market:

Buyer side: in a normal market, a good economy is creating jobs and giving the currently employed confidence in future income. This in turn feeds the first time home buyers and the move-up market (those that own but want something larger, newer, nicer, etc.). The move-up market eventually feeds into the luxury market. Think of it as sunlight that feeds the plant, the deer eats the plant and the bear eats the dear- or whatever hierarchy works for you. Problem is the current housing market has very little sunlight. Low interest rates and a low point in housing prices are a great catalyst for the market, but the influx of new buyers that a normal economy creates is non-existent.

Seller side: still dominated by distress and post-distress sellers: short sales (pre-foreclosure), REO or bank owned homes and investor owned properties (purchased at auction, fixed up and flipped). This accounts for well over 50% of the homes being closed. There is a large segment of the seller market that is on “stand-by”. Their plans have been delayed, their equity lowered or lost, but they are still hanging in there. This is the interesting element to watch- when the distress is out of the marketplace (estimated at 2-5 years), what influence will this segment of the sellers have on inventory and prices. Something to keep an eye on…

In the meantime, the action still sits with investors who are pulling cash off the sidelines and snatching up great deals, great rates and solid rents. First time home buyers are still out there and these buyers will be the ones sitting pretty in a few years from now.

Current Real Estate News:

How far have how prices dropped?

-Nationwide, spring housing prices for 2011 are at the same levels as the summer of 2003!

Conforming Loan Limit Changes?

-Starting in October of 2011, San Diego County will be lowered from $697,500 to $546,200 (a decrease of 8.2%). This means anyone borrowing or refinancing with a loan balance higher than $546,200 will be subject to higher rates and fees.

How low are interest rates?

-In the middle of June, they were at the lowest point of the year and at a low point for the last 50 years! This continues to drive buyer activity.

Want to refinance your home but don’t think you can because you owe more than it is worth?

-Think again…The Home Affordable Refinance Program (HARP), will allow for refinances up to 125% of your home’s current value.

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Investor Alert! The Perfect Storm has arrived!

It you aren’t a real estate investor, you should consider becoming one. If you already own real estate as an investment, you might want to consider adding more.

Below are some of the factors that are creating the perfect storm for investors in the marketplace:

-Interest Rates at around 5%…that’s cheap money.

-Housing Prices are entering the 5th downward year.

-Strong rents, and a demand for rentals, since a large portion of former homeowners are now tenants.

-Distressed sales- short sales and foreclosures account for more than half the market- there are some real deals out there.

-Lending- many traditional buyers are having trouble getting financing but investors with good credit, savings, income and assets head to the front of the line.

-Better investment returns- how is your money market account treating you at a 1% return?

About 1/3 of my business last year were investors and I expect this year to be more around 50%. The agents, owners, and investors that I talk with, who have been around long enough to witness the last down-turn, all have the same regret: “I wish I had bought more”. Many of them are even saying the conditions right now are better than the last downturn- interest rates, rents and prices!

Just to stay un-biased, here is a LINK to a blog from Forbes Magazine about an author turned off by the housing market- he brings up some good points about the negatives of owning property. Homeownership isn’t for every one, but in my opinion, it is for most.

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We are three-fourths of the way through 2010 and heading into what is typically a slower period of the year for real estate sales. Luckily in San Diego, I don’t have 6 feet of snow to plow through in order to show a home but priorities do shift for clients as we get into the holiday season. With that said, it has been a year of distress and that trend will continue as the market is dominated by short sales and foreclosures. The silver lining is interest rates- still maintaining below the 4.5% mark with some clients refinancing at even lower levels (lowest rates in 50 years!!!). This has been a great catalyst with first time home buyers and investors but still isn’t enough to support a rebound in the move-up market and luxury price points.

Here is some news for buyers since the last newsletter- changes in the FHA loan. This is a very common loan with buyers because it allows for only a 3.5% downpayment. Because there isn’t a 20% downpayment (considered traditional and safe), borrowers have to pay an upfront fee and monthly fees to off-set the risk of low equity in the home. It is basically an insurance policy for the lender in case the borrower defaults on the loan. The upfront FHA fee charged/financed at closing was 2.25%. But that will now be lowered to 1%. Great news but on the flip side the monthly mortgage insurance fee is going to be increased from .55% to .90%. For a mortgage amount of $275,000, that is roughly $70 more cost to the buyer per month. Bad news.

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Median sales prices are up big over this same time last year but before you jump into the real estate market, let’s ask what caused the big upswing?

The Federal First Time Home Buyer Tax Credit had a contract deadline date of April 30th, 2010. So May saw the closings that resulted from a large number of homes being put under contract in March/April to meet this deadline. I wouldn’t expect such dramatic increases over last year to continue during the June statistics.

With that said, it is still a great buying climate:

1) Interest Rates are extremely low…many clients are locking 30 year fixed loans with interest rates in the mid to high 4% range…an awesome rate.

2) The California State Tax credit is still around but funds are running low. This applies to both first time home buyers purchasing re-sale and new homes, as well as move-up buyers, buying brand new homes only. Up to $10,000 will be paid out over 3 years. The funds for the first time home buyers ($100 million set aside by the CA government) are set to potentially be fully used up
by next month.

3) Check the graph below…there are signs that the worst point in the market might be behind us.

4) Inventory is strong, the sun is shining (as soon as June Gloom ends) and I am ready to help!