Real Estate re-cap–2008

Before we wrote this year’s forecast, we went back and re-read our assessment of where the market might be headed in 2008. Graphs

 

Of course very few people could have predicted that the dire real estate woes would drag the entire economy to the brink of collapse and we were no better than most.

 

However, for your enjoyment we’ve clipped a segment out of our 2008 market forecast made on January 4th 2008—and highlighted some of our more interesting comments:

 

“This is precisely why the Peninsula should fare better than other areas [in 2008]”.

 â€œHowever, it’s entirely possible we are on a precipice which could collapse at any time. What is [currently] impacting the Peninsula is the rising cost of energy—especially gasoline.”

“What could have an incalculable impact would be a prolonged recession and loss of local jobs; either of these would undoubtedly bring a decrease in home values to the Peninsula”.

In 2008, Investors eventually began to snap up undervalued properties in the central valley and a few of the nine bay area counties which were hard hit by foreclosures. This had the desired effect of liquidating the tidal wave of inventory but the undesirable effect of sinking the reported median price by skewing the sales mix to smaller homes (since smaller homes and distressed properties sell for less). The media meanwhile continued its relentless reporting of the falling median home price without appreciable application of responsible journalism. Bombarded by the media’s lack of analysis, invariably many buyers were frightened by the reports of falling home values and quite reasonably and expectedly took a “wait and see” attitude. That’s not to say the media’s information was wrong, but they do choose what to report and what to leave out and in many cases they reported numbers without the necessary perspective leading many to believe the housing situation to be far worse than it was in some areas, and far better than it was in others.

Although clearly there were several other factors which inhibited the ability of people to purchase homes—not the least of which was tighter lending standards and higher interest rates—our intrinsic evidence suggests that most credit worthy buyers on the Peninsula withheld from purchasing a home based on the fear of values spiraling down, not because they wanted to wait and “time the absolute market bottom” or couldn't get a loan.

 

Welcome to our 2009 Market Conjecture

Those of you who have been following us for some time know that at the beginning of each year we re-cap the previous year and take a stab at where the market might be headed in the upcoming year.2008-2009

Of course you expect to read the median price has dropped and in fact it has, just not as much as you may have been anticipating. While the Bay Area nine counties reported a median price drop of over 40%* from 2007, Belmont had only a 5.4% decline and that’s after we factored into our calculations slightly larger homes sold in 2008. The raw numbers, which tend to be the only ones reported, suggest a decline in median price of only 2.6% for the year.

SALES ARE KEY

Sales are key to the survival of Realtors®, but unless you are selling your home you could probably care less how many homes sell in a given year. However, it gives us a good indication of overall market activity—with the caveat that sometimes sales are down simply because there are fewer homes to sell.

Sales of single family homes (our benchmark for all comparisons) were down from last years’ 219 to a paltry 170 for the entire year in 2008—a decrease of over 22%! Contrasted to a year of more normal market activity, (as recent as 2003 when 343 homes sold), sales are down up to 50%. Clearly we are in a period of slower than normal home sales.

 

HOMES LISTED FOR SALE

But were there fewer homes to sell in 2008? It’s hard to believe but for the entire year, at 309, there were only two fewer listings than in 2007.

What’s in store for 2009?

With the perfunctory disclaimer that past performance does not predict future results, we fear in 2009 it may however be quite true. We wouldn’t be surprised at all to see a continuation of the stagnant real estate market which has had a choke-hold on home sales in 2008. Interestingly, the last major downturn in real estate which began in 1989 was caused by an overall weak economy and most importantly the loss of jobs. In contrast, the current housing downturn has in effect created the recession—a reversal of past cycles.

 

That’s a long way of saying that housing cannot recover until the economy does and the economy won’t recover until housing stabilizes. Sound like a Catch-22? Well it is. And while it appeared in the second quarter of 2008 that the real estate recovery might begin in 2009, we now believe that will be pushed out at least another year. That said, any sign of a recovery will manifest with a leveling off of inventory and declining home values. A period of stagnant home values will invariably last for another year or two following a price plateau as buyers still wary of a volatile market will only reluctantly reenter the market. Most will wait too long and catch prices on the way back up but there’s no telling when that will happen. We’re not telling you to run out and buy a home as part of a fear based campaign, “Hurry or you may miss the bottom”, but in every market there are opportunities which should be examined. We learned long ago to resist trying to explain to people why they should buy a home and rather help those who are already motivated. Like the old saying, “You can lead a horse to water…” but he has to be thirsty. This year’s wild cards? Interest rates, consumer confidence the recessions and jobs, jobs, jobs!.

 

Cheers,

Drew

Real Estate Bidding–Are you a Bidder’s Fool?

As part of our Real Estate REVEALED series we answer another Frequently Unasked Question Unasked3 in our latest Podcast—how do you know when a home is priced right? In addition to this latest Podcast, we’ve added a web page that makes finding the entire series of archive issues in one place.

 

Podcasts

Drew & Christine Morgan

"Helping People Make Good Decisions"sm

(650) 508-1441

Click the mic for the web version of this page.
Thanks for visiting our Podcasts. Each week we offer a housing market update podcast on our blog at BeautifulMountainBlog.org as well as our series titled "Frequently Unasked Questions" where we tackle questions buyers and sellers should be asking but frequently aren't, and "Real Estate Revealed" where we discuss industry insider information. Enjoy and don't forget you can subscribe to our podcast stream to be automatically updated with any new releases by clicking on the orange RSS icon.

Pitfalls of Dual Agency

The Big Broker Myth

Staging your home for sale

(opens in a Media Player)

Note: For detailed market discussion visit our blog at:

BeautifulMountainBlog.org

Drew and Christine Morgan

(650) 508-1441

dmorgan@morganhomes.com

"Helping People Make Good Decisions"sm

Download Overbid

Unveiling our NEW Fusion charts!

Graphs We’re very excited to bring you a new animated version of our graphs depicting the various housing market trends in San Mateo County and the cities which lie within.


Each month we download data from our Multiple Listing Service and analyze the market indicators. We provide this in-depth analysis for several of the many cities we serve on the Peninsula.


We’ve also added short audio tags to describe what we are depicting and help put the information in perspective (Click on the play button to hear a brief introduction).




Another feature will be our “Weekly Graph”. We’re not saying it will change each week but when an interesting trend develops you’ll find it under that tab.


We hope you’ll take a moment to check out our new graphical interface on our “How’s the Market?” link and give us some feedback.

August 2008 Housing in Review–San Mateo County

The big news in August was the Government take-over of Freddie Mac and Fannie Mae which has had the desired effect of bolstering mortgage backed securities and lowering interest rates. What it ends up costing us all is yet to be determined but suffice to say it’ll probably be worse than if we suffered through a protracted catastrophic collapse of the United States’ financial markets.

Listen here to the audio version.

Looking at San Mateo County’s housing activity for August you get a glimpse at the impact the housing downturn has had and where it may be headed.

This graph shows the correlation between the number of homes for sale and the median price:

  • Median Price is down a statistically insignificant amount–$5K from July to $795,000. Down 16.3% from August 2007
  • Belmont and San Carlos down around 4% year over year
  • Menlo Park posts a ½ percent increase in the median price.
  • Closed sales down from July’s 428 to 376 in August–last August there were 366 sales
  • Inventory declines again–third month in a row from 1886 in July to 1773 in August. Up 14% over August 2007 at 15544
  • Month’s supply of home rises only slightly to 4.7 from 4.4

Download August.mp3

Making Your Home “Market Ready” For Sale

You’ve no doubt heard the term “staging” a home but there’s a lot more to getting your home ready for sale than just bringing in plants and re-arranging furniture.

The terms “staging” typically implies a professional designer has been retained to make a house look like a model home, yet there’s a lot more that goes in to staging a home. Often times, a home will need a complete facelift, as is often the case with trustee sales. Vacant homes always show better professionally staged, and even homes with modern amenities can use some detailing.

We break down staging into two categories. 1) Vacant homes for whole house staging and 2) Occupied homes for staging augmentation. Professional designers are akin to artists and often prefer a vacant home to an occupied one since they are beginning with a blank canvas, or palate if you will.

But getting a home ready for the final touches of furniture, plants and pictures often requires weeks of renovation. We coordinate with our design consultant to first identify our market segment–the buyer who will likely purchase the home. Then we take instructions as to what color scheme to employ and begin the process of renovation or upgrades. Some of the typical enhancements include:

·         Fresh Paint

·         Refinished hardwood flooring

·         New carpeting

·         New bathroom or kitchen tile, granite or other contemporary materials

·         Kitchen cabinet re-facing or replacement

·         Bathroom fixture replacement

·         Hall and entry lighting enhancement

·         Landscaping and fresh lawns

There’s no need to be anxious about the renovation process. As your “project manager”, we coordinate all enhancements with our professional team of property enhancement experts; from tile people to painters, handyman, hardwood floor experts and carpet installers.

The video you are about to see highlights several homes we’ve staged for sale and shows before and after images. If ever the saying “A picture is worth a thousand words” rings true it’s in this short video, enjoy.

 

When Not to sell Your Home

PODCAST SERIES

Podcast_mic

Real estate markets are cyclical and can last ten years as we’ve recently seen, but even within a cycle there are better times during each year in which to sell.

The short answer is the worst time is in the winter, with the best times being in the spring and fall but here’s why. Psychologically, it appears buyers are more motivated to get a home early on in the year. Writing a huge check to Uncle Sam in April could be one incentive, and fulfilling one’s New Year’s resolutions could be another—both are frequently mentioned. Whatever the reason more buyers come out in the spring and tend to pay more for a home (as a percent of asking) than any other time.

The year’s spring market started off rather unremarkable due to the uncertainty of real estate as a holding while many buyers took (and continue to take) a wait and see attitude.

This graph illustrates the favorable fall selling conditions with the seller receiving a high percentage of their asking price. Notice that in October the amount a seller receives typically bounces back up? We call this phenomenon the “fall bounce” as October sales are consummated in September/October.

That could make this fall a prime time to sell in this year’s cycle. Fall is typically another window of opportunity to sell and obtain the most money for your home and this one appears to be shaping up quite nicely. The market has been rebounding steadily since the beginning of the year, and appears it may crescendo this fall, at least for the year.

We wrote a series on our blog at BeautifulMountainBlog.org about when’s the best time to sell where we analyze the important market indicators to determine favorable selling conditions. Some of which are::

·         The month’s supply of homes for sale

·         The amount a seller received of asking

·         The days it takes to sell a home, or DOM

If you are considering moving this fall we’d be glad to answer any questions you may have about the process.

Download when_not_to_sell_a_home.mp3

First Time Homebuyer Credit Set to Expire

Well the housing reform bills’ $7,500 credit for first time home buyers is going to be a let-down for most Bay Area buyers. Here’s the real kicker—it phases out for individuals whose income is needed to purchase the median price home on the Peninsula.

Also, contrary to any hope of getting a credit at the close of escrow, this is merely taken as a deduction on you tax filing so leveraging it to buy down points at the close of escrow and lower your interest rate is a no go.

Still, it will help take the sting out of the first year of property taxes for people who are able to qualify for this interest free loan.

We received an update from our accountant, who gave us the following information:

First-Time Homebuyer Credit 

·         A first-time homebuyer is allowed a refundable credit up to 10% of the purchase price of a home, not to exceed $7,500 per family. A first-time homebuyer is a homebuyer (including the spouse) who has not held an interest in a residence during the past 3 years.

·         The credit applies for home purchases after April 8, 2008, and before July 1, 2009. You can treat a residence purchased after December, 2008 as purchased on December 31, 2008 so that you can claim the credit on your 2008 return. The credit phases out for individuals with modified adjusted gross incomes between $75,000 and $95,000 ($150,000 – $170,000 for joint filers) in the year of purchase.

·         The credit amounts to an interest free loan. The credit is paid back at $500 per year beginning in the second year after the taxable year in which the home is purchased. For example, if you purchase a home in 2008, the credit is allowed on the 2008 tax return, and the repayments begin with the 2010 return. If you sell the home or stop using it as your principal residence, any unpaid credit is due on the tax return for the year of the sale or when the property stops being used as your principal residence.

·         You cannot claim the credit if your financing is from tax-exempt mortgage revenue bonds, if you are a nonresident alien, if you dispose of the residence before the close of the taxable year in which you purchased the home, or if you are eligible for the District of Columbia first-time home buyer credit.”

By the way, if you need a good accountant his name is Frederick Thompson and he’s in San Mateo. We’ve used him for the last several years and he’s very informative and helpful.

 

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

Part III Housing Reform Bill Ramifications

In part 1&2 of our three part series on the hosing bill HR 3221 we discuss some of the ramifications and limitations contained in the new law. You can subscribe to our Podcast by clicking in the above left column and click here to start at part I.

Part III-Housing Refrom Bill HR3221

This could be the best part of the housing reform Bill for new homebuyers!

Due to the high cost of homes in th Bay Area, the housing reform bills $7,500 (max) tax credit for first-time home buyers on the surface my seem to do little to spur home buying in California, let alone on the Peninsula. The details have yet to be ironed out as far as how the buyer can actually receive the credit. In other words, will the buyer be able to use it as part of their down payment, or for closing costs and if so will it be eligible for recurring closing costs such as property taxes as well as non-recurring costs such as escrow fees? It’s important to remember that this is actually a loan, not a gift, and must be repaid in 15 years in equal installments. However it is interest free and anytime someone is loaning you money at no interest it’s a done deal as far as whether you should accept it or not.

 

Sure you could pay all or most of your closing costs but what about buying down your loan? On a conforming loan of $729,750 using this free government loan of $7,500 you could buy down the loan rate with $7,290 in points (1 point) and save over $37,000 in 15 years in interest payments! Not bad for investing someone else’s money.

This has been updated with new information.

*The information contained in this blog is educational and intended for informational purposes only. It does not constitute real estate tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.

MorganHomes.com

Part II Housing Reform Bill Ramifications

In part I we discuss an overview of the housing reform bill’s impact on your decision to buy, sell or even refinance a home.

Housing_bill

Part II

Changes to the tax code that effect rental properties:

Prior to the new Housing Reform bill of 2009, an owner of two homes could live in one and rent the other out and in order to maximize the profits from the sale of the two properties, the owner could sell their principle residence and receive a tax free gain of up to $250,000– $500,000 for married couples. They could then occupy the second home for two years, and sell it enjoying the same tax free advantage. However, the new formula is not so kind to investors–or second home owners. Here’s how it now works: If you purchased a second home after December 31, 2008 there will be “qualified” and “unqualified” usage. Any rental period of a second home prior to January 1, 2009 will be grandfathered in as qualified occupancy, but from January 1st on it’s a new ball game. Essentially the amount of tax free gain will be calculated as a percentage of the time your second home was a rental. If you owned said home for four years, and rented it out for two, then moved in, made it your principle residence and sold it, you’d be able to apply the $250,000/$500,000 tax free exclusion to the percentage you lived in the property–50%. Let’s say you bought the home for $500,000 and sold it four years later for $800,000. Prior to this new rule if you lived in the home two of the last five years you could claim it as your principle residence and enjoy a $250,000/$500,000 and so you’d pay no gain on the $300,000 profit. Under the new rules, you’re only be able to offset 50% of the $300,000 or $150,000 and the remaining $150,000 you’ll be taxed on.

Many people used loophole this to their advantage when cashing out of multiple properties. They’d move into each home–reside there for two years then sell and move into the next. It was a great way to liquidate investments or rental property from one’s portfolio while enjoying huge tax benefits. Doing away with this practice began in 2009 and this lonely bit of tax code finally managed to find a home.

“Housing bill” picture–cute huh?

*The information contained in this blog is educational and intended for informational purposes only. It does not constitute real estate tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.