Ever wonder what all those satellites are doing meandering across the sky at night? Some are for weather and others, such as this one, catalog our landscape. Scroll down and watch as satellite Lansat 7 takes a distant view of America.
The Dual Income Trap
Elizabeth Warren, A Harvard Financial Law Professor writes in a very revealing article titled “The Middle Class on the Precipice†wherein she examines the dilemma now facing dual income families as spouses no longer have the added ability to enter the work force if even to temporarily buoy a family’s income. 
Ms. Warren’s assertions can be seen as they apply to this year’s increase in foreclosures. In the 1970’s many households were single breadwinner families who purchased their home based upon a single income. This of course meant that if the sole money earner lost their job the other could fill the income void with temporary employment. Now that families are reliant on dual incomes, and qualify for their home loan based on two incomes, a loss of either income can be catastrophic if sufficient reserves do not exists.
Where will the next infusion of income growth come from? It seems highly unlikely that another source of income as significant as when dual incomes materialized will could arise in the future; leading one to speculate that the rapid increase in home values as experienced in the last 30 years is unlikely to continue at the same pace.
- Housing is a necessity yet also very much a part of one’s financial portfolio—especially in the Bay Area. Own a home and let your equity develop.
- Over the long term home ownership continues to be a sound investment. Buyers who are looking to purchase their first home should consider their job security.
- There are better opportunities than in recent years but the days of 7-15% appreciation are over for now and flipping a home in a year almost impossible.
- Qualifying on a dual income bases means you’re also reliant on two incomes and should also be considered.
- Having to move due to job relocation or layoffs could put a financial hardship on a new homeowner if values have declined or not risen enough to cover selling costs.
Buyers—Should I Stay or Let it Go?
Much of the current real estate media attention has been focused on foreclosures and sub-prime lending practices. The media’s relentless impending doom stories have certainly rattled the nerves of the many would-be buyers. The question is should a buyer stay in the housing market hunt or let it go?
Buyers tend to fall into at least one of three groups; buyers who believe the market will go down and are waiting on the sidelines, ones who can no longer qualify for a loan due to tighter lending guidelines, and buyers who see the new opportunities to own a home.
The Buyers who can no longer qualify for a home loan are probably better off not trying to get in over their head anyway. Stretching the ability to repay a loan is a recipe for disaster and many of the people who find themselves in foreclosure are probably wishing they had never bought in the first place.
The buyers who are aggressively looking for a home and seeking the market’s opportunities will most likely fare the best in years to come; buyers who wait until the media gives them the “all-clear†sign, will find they waited too long. Warren Buffet of Berkshire Hathaway, arguably the best investor of all time, states very succinctly in his business model that investors “…will understand that volatility provides investment opportunities and will use market drops to make good purchases." Mr. Buffet has also been quoted as saying “A good investor learns to insulate himself from market emotions and to make a distinction between market price and intrinsic value.â€
Therein lays the dilemma. Is there any intrinsic value in Bay Area homes or are the prices overinflated?
Much has been made of possible housing bubble and many would claim it has burst while others feel the air is slowly being let out. Looking at historic trends in real estate we see that indeed the California and the Bay Area in particular outperform the country as a whole in housing appreciation.
This graph illustrates the median home price in the United States since 1968 as compared to California’s—the Bay Area was included as of 1982.
As one can see California has outpaced the country and the Bay Area outpaced California. It’s interesting to note that California and the Bay Area are more-or-less in step with each other while both clearly have grown faster than the country as a whole. But is this value real? Why does the Bay Area command these high home costs and can it continue? This is the very sort of data which leads many to conclude that California as a whole, and particularly the Bay Area, cannot sustain the price discrepancies with the rest of the country.
The Dual Income Infusion:
Twenty years ago, more and more California families became dual income families which increased their incomes by 75% and the ability to pay more for a home; and since a larger percentage of California families earned two incomes at higher pay, California began to outpace the rest of the county. Additionally, the advent of technology rich companies in the Silicon Valley infused a great deal of wealth to the Bay Area perhaps forever altering the discrepancy in home values. This added ability to spend more on housing is easily seen in the above chart discrepancy between the cost of a home in California vs. the country as a whole.
Where will the next infusion of income growth come from? It seems highly unlikely that another source of income, as significant as when dual incomes materialized, will develop–leading one to speculate that the rapid increase in home values experienced in the last 30 years is unlikely to continue at the same pace.
Buyers who are looking to home ownership should consider their job security. There are better opportunities than in recent years but the days of 7-15% appreciation are over and flipping a home in a year is currently all but impossible. Qualifying on a dual income bases means you are also reliant on two incomes and should also be considered. Having to move due to job relocation or layoffs could put a financial hardship on a new homeowner if values have declined or not increased enough to cover selling costs.
Locally, there has already been a slight decline in home values but we feel if economic conditions remain the same—or improve—this will be a short-lived adjustment. The market rebound will likely be slow to moderate with less aggressive growth and a healthier more sustainable market.
Housing is clearly a necessity. If you feel your job is secure and you have the wherewithal to afford housing now is an excellent time to entertain the possibility.
Read tomorrow’s article on The Dual Income Dilemma
San Mateo County Posts Higher October Median Price
We’ve updated the housing data through October of 2007 and there were a few surprises in the month of October.
↑The median single family home price home price rose 7% in San Mateo County, up $75,000 to $1,075,000 over September’s $1,000,000 median price and up 13,7% over October a year ago when the median home price was $945,500.
↓Fewer sales mean homes are staying on the market longer. Last October a home sold in 39 days—this year 41.
↑The average home sold for 98% of what a seller asked, up 2% from last October.
↓Total available homes for buyer’s to pick from was 1,738 as compared to last year’s 1,441
↔What is not available is what size homes sold. Clearly all indicators are that larger homes must be selling (surprisingly that data is not tracked by any group) since it’s clear the market has slowed some.
It’s not the bloodletting the media has portrayed it to be but nevertheless some buyers continue to wait on the sideline hoping for lower prices and others are taking advantage of the softer market with more choices and less competition.
You can read more about what accounts for the seemingly incongruent market data on our blog. BeautifulMountainBlog.org
· Source-Multiple Listing Service for San Mateo County
Belmont Market Report-October 2007
While the media is quick to jump on any story which appears sensational, one wonders why the sharp increase in Belmont’s median price of over 19% last month wouldn’t have raised any eyebrows.
Don’t miss this month’s article explaining how this data needs to be interpreted.
We publish these graphs each month in order to keep Belmont homeowners apprised of the market. Of course you are always welcome to visit our web site MorganHomes.com for more detailed graphs and of course our blog for insightful analysis.
And if you are a Belmont resident, help us go green and sign-up for monthly reports. We’ll take you off of our snal mail list and dobate a dollar to school force!
(Click on the picture for a full zized view)
The Rest of The Story…
This is the continuation of an article on understanding median home values…
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.
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.
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.
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. 
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.
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? 
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.
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:
- Interest rates and the availability of mortgage money
- Consumer confidence
- Job creation and stability
- New home starts
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