The Rest of The Story…

This is the continuation of an article on understanding median home values…Belmont_1_year_median

This graph illustrates what the median size home sold for in Belmont during the preceding 12 month period. Note this does not take into consideration individual characteristics of the home such as updating or level yards which greatly affect the home’s value.

Applying a trend line to the same graph shows us that the median price is approximately representative of current market conditions—prices are not rising at the same rate as they were a year ago and may in fact be on a decline.

Belmont_median_trnedline

Looking at all of San Mateo County, a much larger market sample, the median price is clearly rising despite fewer sales.

While data supporting the theory that larger homes are selling is unavailable for this period, which likely is the case. Fewer first time buyers qualify to purchase a home and are more susceptible to media reports of declining home values. Trade-up buyers, who already own a home and typically have a more positive experience of home ownership, are trading up for larger homes which in turns skews the median home price reported.

Smc_median

Data can certainly be confusing; especially when it is delivered by the media without analysis. Without proper industry knowledge, these statistics would conclude that Belmont home prices are skyrocketing. By the way, how come that hasn’t made the news?

Understanding Belmont’s Median Price Data

Data from the country tax records indicate that the median home is a three bedroom, two bath 1820 square foot home on a 6,600 square foot lot. If the median size of sold homes during a given period were greater than that it would account for the median price also being more.

Quickly surveying the sales from September to October (closed homes) we indeed see that more large home sold in October—6 0% of the homes sold were over 1820 square feet as opposed to only 46% in September.

Belmont_median_homes_percent

Since there was a shift in the median size home sold (up 14%), it stands to reason that the median home price would reflect that change—as it did. Yet applying the median price per square foot for the homes which sold, to the true median size home in Belmont (1820 Sq. Ft.), we return the following theoretical media price—still an increase over the prior month. Belmont_thoreticla_median

Larger homes sell for less per square foot. Much of this has to do with not accounting for land in the formula, but needless to say with more large homes selling the price per square foot should drop—it didn’t.

The median size home sold in September (1700 Sq. Ft) was more representative of the median sized Belmont home while in October the median size home (2,100) sold was 400 square feet larger. Using the established median price in September of $529.00 per square foot, that accounts for $211,765 of the higher median value in October or better put, adding that to Septembers’ median raises it to $1,191,765 and yield no median price growth.

Applying the square footage of the median size Belmont home to the median price per square foot would yield a more accurate depiction of what the true cost of a median price home in Belmont is today–$900,000. This data is a more true representation of the market as it includes only median size homes and what they have sold for in the preceding 12 month period.

Click here for the rest of the story…

Belmont Median Home Price Soars 19.39% In One Month!

Or did it really? What do you do when you know the numbers must be wrong? Graph_trends

Numbers are of course just data and need to be interpreted well in order to be of any use.

Clearly there’s more inventory, there are fewer buyers and homes are sitting on the market longer. All this should equate to homes selling for less. Yet last month Belmont’s median home price shot up from $980,000 to $1,170,000. Are you thinking more expensive homes must have sold? Read on…

Granted, Belmont is a small market sample and is subject to dramatic swings in data on a month-to-month basis. Yet examining the last several years, though there are wild fluctuations, overall the trend appears rather clear and recent history reveals this to be an anomaly.

Belmont_median_trend

Often times the median home price will spike in a given period due to more expensive homes selling; that argument is made on a regular basis. The problem is how does one know if more expensive home are selling—perhaps homes are simply more expensive?

A more accurate statement to justify a momentary up-tick in values would be more large homes sold in a given period—larger home sell for more right?

If this is the case, we must first understand the profile of the median home in Belmont.

Click here to read more analysis on why the median price data is misleading!

Did the DOJ Get It Right?

One DOJ web page provides this insightful comment in a subtitle:

"B. The Internet’s Effect on the Real Estate Industry"

"With individuals assuming more of the responsibility to gather and assess information, less time and effort is required by real estate agents in assessing market conditions (for sellers) and in identifying and showing houses [(for buyers)]. The cost of an agent’s service, therefore, should go down reflecting this shift in burden."124

First this implies that everyone is assuming more responsibility gathering their own information. Some are and some are not.

The second part of the sentence: "…less time and effort is required by real estate agents in assessing market conditions (for sellers)…"

Nothing has changed in regard to the amount of time we spend to understand our local market. We still tour all the homes for sale whether we have a specific buyer for a property or not-we need to know the inventory. Agents cannot accurately asses the value of a home if they have not personally seen the comparables prior to the close of escrow. Isn’t that why appraisers call agents for the details on homes after they have closed escrow?

Third part:

"…less time and effort is required…in identifying and showing houses [(for buyers)".

Buyers may see a home on the internet and may exclude it from the search which in theory should cut down on the amount of time an agent will spend showing homes. This is an oversimplified version of how agents really find their buyer a suitable property. As stated before, we still see all of the homes for sale in order to be a specialist in our area. Buyers often want to see a home in person despite their initial on-line impression and often choose homes which they never would have entertained if it were not for their agent insisting on them taking a personal look. In fact the buyer’s access to instantaneous information has meant that agents must react even faster to the market and in many cases less efficiently. Prior to the email alerts systems which buyers now often subscribe to, agents previewed new listings for their clients on a specified "tour day" often in a caravan style with one or more agents riding in one car. With the Internet being updated every 15 minutes, agents are relegated to seeing all of the homes which meet their buyers needs every day in anticipation of an inquiry from their client.

Next Sentence:

"The cost of an agent’s service, therefore, should go down reflecting this shift in burden."

Burden, what burden are they referring to? A buyer’s voluntary perusal of available homes for sale which is provided solely because agents now create virtual tours, videos and upload all of the information is not a burden, it’s a marketing tool; but it doesn’t take the place of seeing a home first hand. Who pays for all of this new technology? What about the extra time and money spent in production?-perhaps that is why fees haven’t gone down as they anticipated.

On another page they continue by saying;"As a result, [of commissions staying at the same rate] the actual median commission paid by consumers rose sharply along with the run-up in home prices."

On this page the DOJ offers up a seemingly perplexing chart illustrating an apparent incongruity and implying that real estate compensation should be going down despite rising home prices due to healthy competition. What they apparently failed to take into consideration is that markets do not react perfectly and instantaneously to the adoption of new technologies simply because they exist. The technology learning curve which consumers and agents are enduring creates a lag in the effect competition will have on fees. Additionally, the influx of new agents, though dramatic, could not keep pace with the run-up in the median home prices; Licensees could not get licensed and effectively start practicing real estate at the same pace of home appreciation to provide ample competition and offset the higher commissions (in real dollars not as a percentage).

Don’t get me wrong, we’re all for competitive practices, but if the Department of Justice is going to be analyzing this data they need some better advisors helping them understand the industry.

When’s The Best Time to Sell a Home? (Part one of a five part series)

Drew & Christine Morgan-Belmont Real Estate

"Helping People Make Good Decisions"sm

Introduction:

Welcome to the introduction of our five part series on when is the best time to sell a home. We’ll examine issues that affect home values and selling opportunties on a macro level, and then provide detailed information for our market sector. We hope you enjoy the series.

When’s The Best Time to Sell a Home? That simple question is one of the most frequently asked when we meet a seller. Unfortunately, the answer is not as easy.

There are many factors which may influence your local market and having the data certainly helps one examine when may be the best time to sell a home

Everyone knows real estate highs and lows-like in business-are cyclical. The recent 10 year run up in home values nationwide appears at its end (for now); though some parts of the country remain more effected than others.

In this five part series we’ll examine some of the indicators you can watch when trying to determine where your local market may be headed.

On a macro scale, the overall housing outlook can be affected by a multitude of factors and indicators can be seen along the way. In this five part series we’ll look at the following:

And on a more local level:

We are entering uncharted waters with the recent defaults of high risk loans, Wall Street’s pull back on mortgage investments and the demise of several prominent lending institutions. Money will be harder to get and more expensive. Those who were counting on refinancing their variable rate mortgage at the end of its fixed period, have no equity left and cannot afford their current payment will be forced back into the rental market. This will cause home inventory levels to increase and home values to decrease. Fewer buyers with more choices will equate to lower selling prices. To the extent that jobs remain steady (or increase) interest rates level off, fallout from the mortgage industry dust settles and buyers perceive new opportunities to purchase their first home, this storm too shall pass. How much and how quickly it will be mitigated by these factors is anyone’s guess.

Thanks for reading this introduction and check back for the continuation of this five part series.

You can see detailed San Mateo County market reports on our web page at MorganHomes.com

Drew & Christine Morgan-Belmont Real Estate

"Helping People Make Good Decisions"sm

What’s in a Status Symbol?

Ever wondered why you might see a home with sign in the yard and not be able to find it on the internet? Read on. Status symbols and what they really mean.

This can be a bit confusing if you aren’t part of the local multiple listing service so allow me to clarify these terms.

When we list a home for sale is becomes "active" in the MLS system. That’s the first status and it’s referred to as status "1", aptly named. This is when people who have subscribed to automated email alerts generally receive an email announcement that the home has been listed for sale-often times indicated with an [A].

If you see a "Pending Release" or "Pending Sale Release" it typically means an offer was accepted which contains a contingency (usually on the sale of the buyer’s home). This means that the seller has accepted the offer but can release the buyer from the contract if they get another (usually better) offer. This is typically reported as "SALE PENDING RELEASE" or status "2" in the MLS system-also denoted as [PR].

A release clause may be employed in any contract but it’s typically relegated to sales wherein the buyer must sell a home to complete the transaction. Not wanting to be tied up for a protracted period of time, the seller may add a "release clause" to have an option to cancel the contract. Release clauses are typically upon 72 hour notice but they could be whatever the buyer and seller agree upon; and they are typically reserved for when the buyer has a home to sell but again they could be used in any scenario where the buyer and seller agree.

The way a release works is simple. Say you’ve accepted an offer on the home you are selling for $1,000,000, but the buyer must first sell their home to complete the transaction. The seller might agree to your offer but add a release clause stating that upon notification (some point in the escrow period) you have 72 hours to remove the contingency or the seller can then elect to cancel your contract and accept another offer or move a back-up offer into first position-it’s sort of a warning shot across the buyer’s bow if you will. Now let’s say another buyer brings you an offer for $20,000 more after you’re in contract with buyer #1. The first buyer must after written notice either remove their contingency within 72 hours or risk losing the property. So why would a buyer agree to this? Usually because they have no choice. Most sellers insist on this, but secondly the buyer may have sufficient funds in which to close the transaction either in stock or equity but for whatever reason would rather sell their home first. Faced with the 72 release notice, the buyer can then elect to let the home go to another buyer or cash in stocks or their equity and remove the contingency. This way the buyer is not forced into liquidating stocks or paying interest on an equity line of credit until and if necessary.

Status 3 is Pending Sale continue to show. [PS]

This simply means that the seller wants to continue and have their home shown to prospective buyers, and agents. Typically this means there are contingencies in the accepted offer and until they are removed it usually stays in this pending continue to show state. This status is typically reserved during financing and inspection contingencies.

Status 4 is Pending DO NOT SHOW. [PN]

This typically is used when all contingencies have been removed by the buyer but it too can be employed earlier at the seller’s election. This is usually where a property will drop off of the radar by most internet search engines. That’s why you may see a home with a sign in the yard but not be able to find it any longer in the MLS system via the internet.

Status 5 is SOLD and used for when the home has transferred title to the new owners.[S]

Disclaimer: This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this response in tended to be specific to your situation-consult a specialist for your specific situation.

Ever wondered why you might see a home with sign in the yard and not be able to find it on the internet? Read on. Status symbols and what they really mean.

This can be a bit confusing if you aren’t part of the local multiple listing service so allow me to clarify these terms.

When we list a home for sale is becomes "active" in the MLS system. That’s the first status and it’s referred to as status "1", aptly named. This is when people who have subscribed to automated email alerts generally receive an email announcement that the home has been listed for sale-often times indicated with an [A].

If you see a "Pending Release" or "Pending Sale Release" it typically means an offer was accepted which contains a contingency (usually on the sale of the buyer’s home). This means that the seller has accepted the offer but can release the buyer from the contract if they get another (usually better) offer. This is typically reported as "SALE PENDING RELEASE" or status "2" in the MLS system-also denoted as [PR].

A release clause may be employed in any contract but it’s typically relegated to sales wherein the buyer must sell a home to complete the transaction. Not wanting to be tied up for a protracted period of time, the seller may add a "release clause" to have an option to cancel the contract. Release clauses are typically upon 72 hour notice but they could be whatever the buyer and seller agree upon; and they are typically reserved for when the buyer has a home to sell but again they could be used in any scenario where the buyer and seller agree.

The way a release works is simple. Say you’ve accepted an offer on the home you are selling for $1,000,000, but the buyer must first sell their home to complete the transaction. The seller might agree to your offer but add a release clause stating that upon notification (some point in the escrow period) you have 72 hours to remove the contingency or the seller can then elect to cancel your contract and accept another offer or move a back-up offer into first position-it’s sort of a warning shot across the buyer’s bow if you will. Now let’s say another buyer brings you an offer for $20,000 more after you’re in contract with buyer #1. The first buyer must after written notice either remove their contingency within 72 hours or risk losing the property. So why would a buyer agree to this? Usually because they have no choice. Most sellers insist on this, but secondly the buyer may have sufficient funds in which to close the transaction either in stock or equity but for whatever reason would rather sell their home first. Faced with the 72 release notice, the buyer can then elect to let the home go to another buyer or cash in stocks or their equity and remove the contingency. This way the buyer is not forced into liquidating stocks or paying interest on an equity line of credit until and if necessary.

Status 3 is Pending Sale continue to show. [PS]

This simply means that the seller wants to continue and have their home shown to prospective buyers, and agents. Typically this means there are contingencies in the accepted offer and until they are removed it usually stays in this pending continue to show state. This status is typically reserved during financing and inspection contingencies.

Status 4 is Pending DO NOT SHOW. [PN]

This typically is used when all contingencies have been removed by the buyer but it too can be employed earlier at the seller’s election. This is usually where a property will drop off of the radar by most internet search engines. That’s why you may see a home with a sign in the yard but not be able to find it any longer in the MLS system via the internet.

Status 5 is SOLD and used for when the home has transferred title to the new owners.[S]

Disclaimer: This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this response in tended to be specific to your situation-consult a specialist for your specific situation.

Bay Area Market Watch

Many of the real estate stories you may be hearing are dealing with national or statewide issues and do not reflect our local market. That doesn’t mean that the overall housing picture doesn’t affect our market-it does. The perception of a declining market is all it takes to create one. As optimistic as homeowners are about the value of their homes, we believe that somewhere in the back of their minds there’s a nagging uncertainty of future valuation and a realization that at some point the run up in real estate values will come to an end. And of course it will. The question remains is this it? Are we there now?

In the Bay Area, conditions are not the same as many parts of the country where cities are reporting a rapid decline in home values. These are some of the factors which may enable the Bay Area to weather the current real estate storm better than other parts of the county:

  • The Bay Area is currently adding high paying jobs to the workforce,"… Jobs in the San Jose area increased 1.6 percent during the year."-increasing the demand for housing with high paying jobs that can support the Bay Area home prices. Though the overall employment picture is not as rosy as construction and other jobs related to the housing industry are waning.
  • The Bay Area rental market is tapped out at near 100% occupancy rates adding to the pressure to buy a home.
  • New construction is limited due to land constraints and fewer new homes starts as developer try and keep inventories low to buoy prices. This is keeping the supply of homes (inventory) at reasonable levels.
  • The last major downturn in real estate for the Bay Area was in 1990-1994 "…The country’s last recession begin in July 1990 and lasted until March 1991. But NBER did not officially declare the downturn over until December 1992." The actual decline in real estate values lasted about three years and then remained flat for another several years depending on what city you lived in). The difference between the last major decline in home values and the precipice we are on now is that we are not in a recession as we were in 1990.  Absent the need for homeowners to sell due to a job loss or relocation, sellers may choose to wait out the market. This would continue to keep inventory levels from skyrocketing as they did in 1990. Less motivated sellers equates to fewer "fire sales", helping keep values from plummeting.

This isn’t to say we aren’t in for a bumpy ride. The issues facing the sub-prime lending have led to increasing mortgage defaults around the country and have even the most enthusiastic real estate investors on edge. The Bay Area real estate market weathered the recession of 2001 fairly well and may do so again but any protracted or significant recession will have a huge impact on the Bay Area housing market due to the current low affordability index.

The optimism and expectations for Bay Area real estate are very high–too high to be sustainable. A pull-back will happen. When it will happen and how deep it will go is yet to be seen.

What should you do?

First time buyers who can afford a home, feel their jobs are secure and are not planning a move in the next several years should seriously consider buying a home while there’s more to choose from and less competiton. Chances are you’ll get a better deal than what the median prices reflect. In the early 1990’s the buyers who purchased a home despite flat (or declining) appreciation levels were in the best position when the market rebounded as pent-up demand for housing meant multiple offers and a rapid increase in home values (*the recession had been over for nearly two years before the Bay Area housing market had a significant rebound).

Trade-up sellers: This group really has nothing to lose by trading up in this market. Falling values means a more expensive trade-up home is less in real dollars. More inventory means more to choose from and seller’s are even considering a contingency on the sale of your residence-something we have not seen in years.

Disclaimer: This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this response in tended to be specific to your situation-consult a specialist for your specific situation.

Drew & Christine Morgan Morganhomes.com

Visit our Blog at BeautifulMountainBlog.org

Disclaimer: This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this response in tended to be specific to your situation-consult a specialist for your specific situation.

Belmont Median Price Trend & Inventory Levels 2004-2007

This graph shows sales for the last the last four years for Belmont, California. It’s interesting to note that even with higher inventory levels, the median price is till holding along the trend-line where it would be calculated to be based upon past trends, The third quarter ending period in September should add more valuable data to help understand if in deed the market forces are beginning to impact not just sales and inventory, put selling priced as well.

You can read more abou these grahs for Belnt and other openineuals cities on our web page at morganhomes.com

Also, visit our Belmont Blog at BeautifulMountainBlog.org

Full Service vs. Limited Service or Virtual Agents—Is There Room for Everyone?

The short answer is of course yes. Different sellers have different needs and abilities and some may choose a full service model and others limited or no service at all-the choices have been there all along. Yet the arrival of virtual Internet brokers has spawned a new ideology of it’s either "us or them".

The very survival of limited service or virtual Internet brokers relies on two things: The first is they are able to convince everyone that paying a 6% compensation is the only alternative to their "discount" model, and the second is that they must convince their prospects that the minimum service they provide is all that is needed to sell a home; and everything else which a full service agent does is a waste of their time and your money.

These assertions that they need you to believe are false. Frankly; it’s a bit surprising that the Department of Justice has not sought sanctions against this type of misinformation when the average real estate commission across the country closer to 5.1%. One of the most misleading impressions that limited or virtual companies imply is that full service agents and discount agents are mutually exclusive-they aren’t.

The second scenario is one which needs more discussion. The premise that a limited service or on-line virtual broker can sell your home is not as questionable as the issue of for how much? Any homeowner wishing to "sell" their home could market it considerably below market value and so long as they were able to communicate to the public that their home was for sale, they would most certainly be able to sell it. How much money they may leave on the bargaining table and the repercussions during and after the close of escrow may linger long after the check has cashed.

Hiring a real estate agent is akin to a homeowner deciding how to do a remodel. As a homeowner you have the right to be your own general contractor; what you have to ask yourself is a) do you want to take that on (do you have the time and ability) and b) are you qualified-as in knowledgeable. You also have the right to hire the cheapest general contractor you can find. But why complain about more expensive ones when cheaper ones are available. Hire who you want–there are options.

See Part Two–Examining the Real Estate Models

Drew & Christine Morgan Morganhomes.com

Visit our Blog at BeautifulMountainBlog.org

Disclaimer: This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this response in tended to be specific to your situation-consult a specialist for your specific situation.

Sub-Prime Lending Mess

What is a sub-prime loan and why are the folks in trouble? Simply put a sub-prime loan was a loan which offered people to purchase homes for which they were not qualified to purchase. For example, a lender might have offered a new buyer the opportunity to own their own home with no money down. Many of these loans offered various payment options. The traditional payment of principle and Interest fully amortized over 15 or more commonly 30 year periods. At the end of 30 years, you owned the home. One variation was to offer an interest only payment. In this scenario the buyer would pay the interest portion of the monthly payment only—deferring the principle payment until the time of sale. In this scenario, a borrower never actually paid off the principle, but it helped many would-be homeowners become a "homeowner".

Here are three payment options many of these loans provided: principle and interest, interest only or negative amortization. A negatively amortized loan payment is less than a fully amortized payment or an interest only payment since the borrower is only paying a portion of the full inertest due and nothing towards the principle. In the following example we see what these three payment options would do to a homeowner’s payment.

Loan amount            $300,000    Rate 6.5%

Principle & Interest payment    $1,896.20

Interest only            $1,625.00

Negatively Amortized        $1,125.00 (4.5%)

As is evident, it was very tempting to opt for the negatively amortized loan since it dropped the out of pocket monthly mortgage payment $771.00. Of course this meant that the loan actually grew rather than diminished which is why it is called negatively amortized as opposed to fully amortized. The $500.00 difference between the interest only payment at 6.4% of $1,625.00 and the lower effective payment at 4.5% of $1,125.00 was added to the loan balance each month—though the payment stayed the same.

Why would anyone take out a negatively amortized loan? Simple; it made housing more affordable or in some cases more housing affordable. For investors, it freed up much needed monthly cash flow (money used to purchase other investment properties) and made owning investment properties where otherwise rents would not cover their expenses, affordable.

Why in many cases it didn’t work.

Banks made a huge error by aggressively qualifying the borrower at the artificially lower negatively amortized rate. In the above example, a borrower would only have to quality for the 4.5% payment instead of the 6.5% actually charged. Many of these loans were only capped at these lower rates for five years. When these began adjusting to higher interest rates—the actual market rate— homeowners and investors alike found themselves in trouble.

For investors, owning a property where the rents no longer cover their expenses, no longer made sense and they began selling their properties as fast as possible. Since many of these investors took out the similar loans, many began adjusting at about the same time—flooding the market which speculative property sales.

Many homeowners faced with the same interest rate adjustment dilemma found they could no longer afford the monthly payment. In cases where they had put no money down, and opted for the negative payment, they soon found themselves with no equity either—further tempting them into loan default status. Since they had nothing to lose, many simply walked away from their homes.

As one can imagine, with this many homes coming available at the same time, compounded by the overabundance of new construction, inventories rose at a time when buyers wanted out of the market. Fewer buyers, and more inventory equals lower prices, mortgage defaults and short sales where the lender agrees to settle for lees than what is owed.

Back to "Grieving"