Real Estate News

Conforming Loan Limits Dropping October 1, 2011

Eric Nelson of Silicon Valley Funding writes:

In 2008, as a response to the collapse of the mortgage market, federal regulators created a new category of mortgage, the high-balance conforming loan.  Since that time, loans have been available up to $729,750 in high-cost areas at rates lower than those for full “Jumbo” mortgages.

Conforming loans are those that have a loan balance under $417,000 which can be re-sold by an originating lender on the Fannie Mae and Freddie Mac federally sponsored mortgage markets. This allows the lender to re-lend the same funds over and over again and is important to the liquidity of the lending market.  The high balance conforming limits applies to mortgages between $417,001 and $729,750.  This program was created to support the economy by assisting high-balance borrowers during the financial crisis and was temporary.

Starting October 1, 2011, the high balance conforming loan limit will drop to $625,500.  This in turn means that interest rates on these loan amounts between $625,500 and $729,750 will be HIGHER starting October 1, since they will no longer be backed by the government. After October 1, any mortgage over $625,500 will officially be a “Jumbo.”

 Interest rates this week are among the lowest we’ve seen in 2011 and it is not expected that the federal government will extend the high balance conforming loans up to the $729,750 level again in the near future.  Fixed rate loans have seen the largest drop and are currently the lowest interest rates we have had in the past 40 years.

 If you are planning a purchase or refinance and you will need a loan amount between $625,500 and $729,750 you should get the process started immediately.

 Eric can be reached at eric@svcfunding.com  and 408-268-2442, and has been helping people finance their homes since 1987.

Is a Short Sale Right for You?

If you want to sell your house, and the amount you owe plus the costs of sale are more than it’s worth, then you will be faced with the choice of attempting a short sale or bringing in the cash to close.  Despite the fact that San Francisco home values have held up much better than in other areas, this was the case for about 30% of my business in 2010.  So if you find yourself considering either of these scenarios, you are not alone.

If you are in the position to upgrade your home or investment property, it can be a great choice to sell a lower value property at a loss and obtain a more valuable property.  This is called trading up in a down market and it makes sense because x% off a lower price is less than x% off a bigger price.  But for those who are faced with the need to simply exit the market entirely due to job change, job loss, divorce, a mortgage they can’t pay or neighbors they can’t live with, the market being down does not have the same silver lining.

If you have the cash to bring in, the process is the same as a straight-forward, normal sale, albeit more painful.  In some cases, you can even write the loss off your taxes.  If you don’t have the cash, though, you will need lender approval and a good explanation of hardship to get the short payoff approved by the lender.  The forgiven debt is considered potentially taxable income by the state and federal governments.  The good news is that under the Mortgage Debt Relief Act of 2007, the Feds are not collecting taxes on mortgage debt forgiven in 2007 through 2012 up to $2 million for a couple filing jointly and that under the Conformity Act of 2010, California is doing the same for debt forgiven up to $500,000, with partial tax relief up to $800,000 of debt forgiven.  Especially with San Francisco’s fairly low value declines, these exclusions will protect most people needing to sell their homes short in our market. Continue Reading…

The New Real Estate Terminology

In the news, we’ve all be hearing a lot about the “Foreclosure Crisis,” “Distressed Properties,” and homes that are “underwater.”  Many of us even have family and friends who are suffering as a result of the sharp decline in real estate values that began about two years ago.

Even though it’s been reported that in San Francisco specifically and the bay area in general that prices are leveling off, the disposition of so called “toxic assets,” will go on for some time to come.  I’m not going to attempt in a 600 word article to tell you how to buy a distressed property, but I think that starting with some terminology would probably help most of us to do what many like to do best – talk about real estate.

Let’s start with a “foreclosure.”  I hear people talking about buying a “foreclosure,” all the time.  There are three ways to do this:  Trustee’s sale, public auction and buying an “REO” through the regular sales process. Continue Reading…

It might sell papers, but …

Last Sunday, the the San Francisco Chronicle, had another alarmist article on the SF home market, with, of course, the usual cascade of reader comments from those who want the world economy and property owners in particular to “get what they deserve.” 

The main point of the article is that foreclosure sales are surging in even the better neighborhoods of the city, and bad times are coming but the figures and examples cited just don’t add up.

Here’s a sample quote from the article:

“Still, more people are falling behind on their mortgage payments. Some 1,885 San Francisco households received notices of default, the first step in the foreclosure process, in 2010, DataQuick said. That was down from 2009′s record number, but still more than double the historic average.”

How exactly does a reduction from 2009 = “more people falling behind”? Also, one should note that a notice of default does not necessarily imply a forthcoming foreclosure. It means someone was late paying their mortgage.

Another article quote:

“In San Francisco, the 709 foreclosures represented just 0.052 percent of all households, DataQuick said, while in Contra Costa the foreclosure rate was 2.3 percent. In the nine-county Bay Area, 1.78 percent of all households went through bank repossession in 2010.”

Here’s a salient point of the whole article: the SF foreclosure rate is 70% below the 9-county Bay Area rate. And if you broke off the northern part of the city, it would probably be 88-90 % below the Bay Area rate.

The article makes a lot of comparisons of 2010 with 2007, but we all know the market went through a wrenching change in autumn 2008. The issue isn’t where the market went from its peak, but where it is now, and 2010 unit sales were above those of 2009, and median prices have now been stable for 7 quarters (21 months). Market activity since September 2010 has been quite strong and it appears that national economic conditions are improving.

Here are some statistics from MLS pulled this week:

Continue Reading…

Taking Stock – Lucky to be in San Francisco

At the end of the year it’s time to take stock and consider that we have a lot to be thankful for here in San Francisco.

For starters, Trulia has designated SF the #1 of best American cities to invest in real estate in 2011.  That means that if you’re holding property here, or planning to buy, you are on the right track for the long term.  Being on this list means that our overall outlook is good for us on jobs and other things – not just that values haven’t fallen as much as in some other places.  To see the article click here.  If you want to check in on how you’re doing, please call me any time for a market analysis update on your properties.  It’s possible that your specific situation would be improved by trading up, acquiring another property or even selling right now.  I’m happy to weigh in and provide the information that will help you make good decisions when you’re wondering.

For those who can’t resist a little schadenfreude, the list of the worst places to invest in 2011, can be found here.  (WARNING:  if you are on vacation and real estate seems too cheap to be true in one of these worst places (or anywhere else), be careful!  The fundamentals of the community will ultimately drive real estate prices in to the future and what it means to be on this list is that the fundamentals are not strong.)

As far as my own business, I have much to be thankful for as well.  2010 was another challenging but successful year solving real estate problems brought to be in large part by YOU – my wonderful Clients In the Know!  I can never thank those of you enough who consistently remember that I’m here to help you and yours with real estate and related issues.  I really appreciate your faith and trust and I look forward to the next set of challenges I’m sure you’ll be bringing me in 2011!

This Just In – High-Balance Conforming Loan Limits to Stay in Place

Just received breaking news from Mortgage Banker Susan Reber at Mission Hills!

High balance through September 2011.  This is wonderful news as it will allow refinances of loans in San Francisco County up to $729k to be federally backed through that date.  It also allows buyers to use FHA loans with as little as 3.5% down up to that amount – even for refinances.

To see the press release from the Federal Housing Finance Agency, please click here.

Susan is an expert on all loans government backed (and lots else besides).  If you want to reach Susan, click here.

The Sky Remains in Place in the SF Luxury Market

Due to the significant differences between the market for homes over 1.5 Million and homes under that price point I though that comparing it with the statistics in my Lowest Sales Volume in 15 Years? Not so fast . . . article, would be useful.

Below is a chart that shows closed sales.  The highest number of closed home sales for 2010 so far was in March.  This is unusual, but will make sense as we analyze other sales data, below.

Closed Home Sales Over 1.5 MM in SF over the past 25 Months:

Unlike the market for all home sales in San Francisco, for which ratifications peaked early in April in 2010, the luxury home market peaked at a more traditional time, in May.  The chart below shows the luxury home market that was perhaps affected INVERSELY by the government tax credits – it’s possible attention was focused on properties for which the tax credits were available.  We also see that ratifications in June and July remained relatively strong.

Accepted Offers on SF Homes over $1.5MM over the past 25 Months:

Our final measure is the months supply of inventory which is generally used to show whether it is a buyers’ market or a sellers’ market.  The market earlier in the year was a definite buyers’ market, but with the glut of ratifications in February that ate up the sitting inventory from Fall 2009, the late spring and summer market turned an advantage towards sellers.  Looking at luxury home sales over the past six months, the main factor seems to be pricing.  There were 196 homes sold in San Francisco over $1.5MM in the last six months and 144 homes either expired or were withdrawn.  Of those that sold, 80 sold over their original asking price at an average of 105.33% in an average of 24.35 days on the market.  The remaining 116 sold homes were reduced on average about 10% before receiving an offer and sold for 92.04% of their original asking price after an average of 78 days on the market.

As always in San Francisco, pricing is king and these numbers prove again s to go you that just because a seller “wants” or “needs” a price, buyers won’t move until they are perceived as a value – and then they rush to outbid each other.

The large number of listings withdrawn or expired without selling combined with low short and REO sales volume tells us that a large percentage of sellers over $1.5MM are attempting to delay until the market brings them the price they want.  After 2 years of waiting, I wonder if luxury sellers will finally be ready to sell at the prices the market will bear … It will be interesting to see what the fall brings.

Months Supply of Inventory:  SF Homes over $1.5MM over the past 25 Months:

Lowest Sales Volume in 15 Years? Not so fast . . .

There have been hundreds of the-sky-is-falling articles everywhere, in every major newspaper, about how sales drastically slumped in July when compared with May, or when compared to July of last year, both nationally and in the bay area.  Today it was on the front page of the New York Times and it has been a frequent topic in the SF Chronicle …

But with statistics, context is everything, and these articles show a fundamental lack of understanding of current context and are misleading regarding what’s going on in San Francisco (which is, after all, the best place on earth).

The first chart below is of the last 2 years’ home sales in SF. July 2010 is indeed well below May 2010, as well as well below July 09 and July 08. However, this is almost completely a function of the fact that deals that would have naturally and typically accepted offers (ratified) in May 2010 were rushed into April so as to meet the Federal Tax Credit deadline. Because of that crush of April ratifications, closed sales in May and June soared way over the sales rate of past years, AND May ratifications this year were much lower than normal. Typically May is one of the highest ratification months of the year; low May ratifications translated to lower July closings. Typically, July is one of the highest closed sales months because of the high May ratifications. With the unusual events this year, the numbers were thrown off – which created the dramatic percentage declines everyone is chattering on about.

Remember: closed sales are 30 – 60 days behind the market (the time of offers being accepted). To get a sense of current market activity, one looks at ratifications, as in the second chart below.

In the third chart below, the Months’ Supply of Inventory for SF  houses and condos is shown over the past 2 years. MSI, at a moderately low 3.8 months of inventory, hasn’t budged in three months – again one can see the effect of the April tax credit rush on the chart — and it is almost exactly the same as in July 08 and July 09.  (The lower the MSI, the hotter the market.)

Closed Home Sales in SF over the past 25 Months:

Below, we see the huge surge of ratifications in April which (stealing normal early May ratifications) led to the large decline in May. Thus May’s number of accepted offers is below past years. But June 2010 ratifications are above last year’s. And July’s ratifications are above July 2009 and July 2008. That is not an indication of a collapsing market. Yes, the market surged in April due to the expiring tax credit, but except for the initial effect on May ratifications (and the resulting effect on July closings), the expiring tax credit hasn’t affected June and July ratifications at all.

Accepted Offers on SF Homes over the past 25 Months:

Since the SF home market started recovering in spring 2009 from the “crash” of autumn 2008, Months’ Supply of Inventory has been very stable, delineating a relatively stable market, running typically between 3 to 4 months of inventory. This is generally considered a moderately low MSI, signifying a relatively strong and consistent buyer demand. Again, it is unchanged for three months, and almost identical to the MSI recorded one year ago and two years ago.

Months’ Supply of Inventory: San Francisco Houses & Condos

None of this is to say that the market might not change tomorrow. It is to say that the most recent statistics don’t currently indicate any dramatic change in market conditions in San Francisco.



The San Francisco Home Market – August 2010 Update

Despite the constant news of dramatic changes in the real estate market – Values soar! Values crashing! Market up or down ___% from last month! Double dip recession! – the home market in San Francisco has exhibited a remarkable stability over the past year. As shown in the charts below, median prices for both houses and condos are virtually unchanged from one year ago; buyer demand remains steady; months’ supply of inventory remains steady; foreclosure sales are stable; low interest rates continue. Statistics jump around within a relatively narrow percentage band: there has certainly been no definitive trend up or down. It is neither a crazy buyers’ market nor a crazy sellers’ market: it’s a relatively healthy, balanced market, where the basic rules of real estate generally apply: well-priced, well-prepared, well-marketed homes typically sell quickly and homes without those characteristics don’t.

click for larger image	Homes Accepting Offers The number of SF homes – houses, condos and TICs – accepting offers is remaining stable, though running a little higher than this time last year. (April was an abnormally busy month due to the expiring Federal tax credit.)
click for larger image	SF House Median Sales Price The Median Sales Price is that price at which half the properties sold for more and half for less. Though it has gone up and down a bit over the past year, the median sales price for SF houses in July 2010 was virtually unchanged from that in July 2009: no definite trend up or down has manifested itself. The average median for the past 13 months is $756,000.
click for larger image	SF Condo Median Sales Price The median sales price for SF condos has remained remarkably stable for the past 12 months, with the average median sales price for the past 13 months being $675,000. Certainly no definitive trend in value up or down is apparent from the median price.
click for larger image	Distressed Home Median Sales Price Distressed properties are those that are being sold by banks pursuant to foreclosure, and short sales, which require banks to reduce the outstanding loan amount for the transaction to close. The median price for such sales has generally fluctuated between $450,000 and $525,000, which, looking at the earlier charts, one can see is a substantial discount from overall median house and condo prices in San Francisco. However, the majority of such sales are located in the less affluent neighborhoods of the city.
click for larger image	Luxury Homes: For Sale vs. Under Contract The red bars show the number of active luxury home listings in any given month (in this case, defined as houses and condos with list prices of $1,500,000 and above), and the blue line shows the number of listings which accepted offers. In July, the percentage of higher-end listings which accepted offers was about 15%
click for larger image	Inventory of Homes for Sale The dark red bars show the total number of homes that were for sale during the given month, with the lighter bars showing how many were actively for sale on the last day of the month – the difference being those listings that accepted offers, expired or were withdrawn. As we get deeper into summer, both numbers have declined slightly.
click for larger image	Average Days on Market (DOM) This chart measures the average number of days between going on market and accepting an offer. The average in July was 55 days, the lowest in 13 months but basically unchanged since March. In July, houses had the lowest average DOM with 48 days; condos were at 59 days; and TICs were at 75 days: this reflects the respective heat of each market segment. The average days-on-market for “For Sale” homes is 79 days, since it tracks those listings that have not received an acceptable offer.
click for larger image	Months’ Supply of Inventory (MSI) MSI is defined as the number of months it would take to sell the current inventory of homes for sale, at the current rate of sale: the lower the MSI, the greater the demand. MSI for all SF homes has stayed generally stable at 3-4 months, which is considered moderately low. However MSI varies widely by property type: for houses, the MSI is a low 2.9 months; for condos, 4.4 months; for TICs, 5.4 months; and for 2-4 unit buildings, a relatively high 7.4 months of inventory.
click for larger image	Distressed Homes as % of Sales The hash-marked sections delineate the number of distressed property sales (bank-owned and known short sales) against total home sales. The percentage of such sales is noted at the top of each bar: generally jogging up and down between 14% and 17%. Since 2010 began, within any given month, there are usually 400 – 450 distressed properties for sale; 110 – 130 distressed-home new listings; 80 – 100 accept offers; 55 – 75 close escrow; and 30 – 40 expire without selling.
click for larger image	Percentage of Listings Under Contract This chart shows the percentage of home listings which accepted offers within the given month. Except for the surge in April and the doldrums of the holidays, that percentage has typically remained between 16% and 20%. In July, houses had the highest percentage under contract (22.5%), followed by condos (15.4%), TICs (13.5%), and 2-4 unit buildings (10.7%): the higher the percentage under contract, the hotter the market segment.
click for larger image	Sales Price to Original List Price The darker blue bars show the percentage of original list price , typically about 100%, achieved by SF home sales that occurred without a price reduction, i.e. they sold quickly. The lighter bars show the percentage of original list price achieved by those listings that went through one or more price reductions before selling. The difference is typically 10 – 13% of the original list price amount. (January’s numbers are almost certainly caused by faulty reporting.) A well-priced, well-prepared and comprehensively marketed home (of general appeal) will usually sell quickly for the highest price.
click for larger image	New Listings The number of new listings in the city are up a little over July of last year, but down from the peaks of the spring selling season. Usually, the market will see a surge of new listings after Labor Day.
click for larger image	Homes Sold vs. Listings Expired & Withdrawn The green bars denote sold homes and the purple bars denote expired and withdrawn listings. In July, when many of the spring listings that did not sell expired, the number of expired/ withdrawn listings was almost equal to the number that sold. Listings expire or are withdrawn typically due to being perceived as overpriced.

Clients In the Know In the News

My recent post on changes to the San Francisco Association of Realtors Map was picked up by the Mission Local blog on the SF Gate.

It’s nice to be noticed! My thanks to Mission Local editor Lydia Chavez and which ever Client In The Know passed my newsletter on to her!