Hello 2008!

We’re busy compiling the numbers from 2007 to see where the housing market ended compared to 2006. Of course the peninsula market fared relatively well compared to many California cities and that of other states.

Why did certain areas do better? We look at understanding the issues which caused the current market conditions to predict which areas will be impacted more than others.

The jolt that knocked over the housing house of cards was interest rates and adjustable teaser rates indexing to higher levels. In the past five years many investment properties were purchased with adjustable loans. This enabled an investor to break-even on their mortgage payment vs. the rent they could charge. With properties appreciating at levels from 20-50% per year, it’s easy to see why so many investors jumped at the chance to buy in a new development. A new home often means great financing (available through the developer); purchase incentives, literally no maintenance issues; in fact many speculators purchased unfinished homes and re-sold them six months later at completion for a tidy profit.

The first shoe to drop:

When interest rates began rising many speculative investments became less lucrative. As investors began selling off properties in droves, inventory grew and home values dropped.

The second shoe to drop:
Owner occupied homeowners also found themselves in difficult situations. Many had qualified for their loans based on a teaser start rate. Once the rates fully adjusted, they could no longer afford their home (the practice of qualifying people for a loan at the teaser start rates has been discontinued by every lending institution we know). Faced with lower values, many could not sell their home for what they owed. The result was an increase in foreclosures and short sales.

Both of these groups faced similar dilemma, as they could either no longer afford to own their home, or it no longer made financial sense. Forced with foreclosure, the need to sell, or the desire to liquidate, the market was flooded with the mortgage carnage crisis as evidenced by the staggering inventory levels.

Areas that were hit hard and will continue to see a downturn in values in 2008 have the following in common:

·         Rampant growth spawned by increased demand

·         Speculative ownership

·         Over development of new housing projects

·         Room for expansion into new developments and housing units

·         An abundance of sub-prime loans

This is precisely why the Peninsula should fare better than other areas.

·         There is little room for expansion

·         Few new development has occurred in the past five years as compared to areas with growth potential

·         High paying jobs are plentiful

·         Low rate of speculative ownership

·         Few sub-prime loans

Of course not to be overlooked or under appreciated is the desire to live in the technologically and culturally rich Bay Area.

However, it’s entirely possible we are on a precipice which could collapse at any time. What is 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. So much of the values in the Bay Area rely on the perception that it’s a great place to live. A natural disaster (such as a large earthquake) or terrorist attack would also have a detrimental economic effect on housing. Buyers who are sitting on the sideline and not availing themselves of the current conditions are essentially betting on any one of the former conditions manifesting in the near future.

Who’s buying a home right now? With appreciation levels essentially stalled for the time being, savvy investors will take advantage of other’s misfortunes and home buyers previously priced out of the market will seek opportunities in the less competitive market conditions.

Help Us Go Green!

Help Us Go Green!

Greenworld

Help us continue to decrease the need for environmentally demanding postal mail while enriching our schools—all while keeping abreast of Belmont’s housing market and local issues.

For a limited time, for every verified email address we receive on our Newsletter Form we’ll donate $1.00 to Belmont’s School Force.*

As Real Estate agents and homeowners in Belmont, we are directly involved with fielding questions about the local schools. The importance of quality education, beside the obvious responsibility of providing education as a social benefit, has a direct bearing on a city’s quality of life which translates indirectly into higher home values. Whether a homeowner has children benefitting from the great education Belmont’s schools provide or not, supporting the local schools is one of the least expensive and best investments a homeowner can make to increase property values.

The Belmont/Redwood Shores school district continues to excel and part of their success is attributable to Belmont’s School Force™, a non-profit organization founded in 2001 which concentrates their efforts on improving the quality of education in our schools through fundraising for programs which would otherwise be discontinued.

Our commitment to minimizing the impact we have on the environment is accomplished through available communication technologies such as our e-market updates and newsletters; our local Belmont blog, BeautifulMounatinBlog.org and our market reports web site MorganHomes.com.

We’re running a business and part of our advertising campaign is to remind people of our services. We currently mail our Belmont Market Report, and the Morgan Report real estate update, to thousands of Belmont residents. With the prevalent adoption of high speed Internet access and quality HTML e-mail delivery options, our goal is to replace our postal mailing with e-mail and significantly reduce paper consumption and our costs so we may continue to offer aggressively discounted fees to our clients—it’s a win-win situation for everyone including Belmont’s schools!

* Certain reasonable restrictions apply such as being limited to one email address per household, the email must be a verifiable, working email address and the request must come from a current Belmont resident so we can remove them from our mailing list—that’s it!

Sign-up now!

Lies,Damned Lies, and then there are Statistics…

The article titled "California’s October home sales slide 40%" reported by Inman News today evokes thoughts of Mark Twain’s famous saying there are "Lies, damned lies, and statistics".

Though the number of homes which sold is easily tracked, calculating the true median home price is a little more elusive. The size of homes which sell in a particular period can greatly influence this statistic. The median price has been used quite often as a benchmark for home values since all things being equal, roughly the same size homes sell each month. However, current lending conditions affecting first-time home buyers have skewed these numbers and in fact a disproportionate number of larger homes are selling; and since larger homes sell for more, this has created the appearance of an increase in the median sale price in certain areas.

For example, one of the cities sited in the article as one of the 10 cities and communities with the greatest median-home-price increases in October 2007 compared to October 2006 was Redwood City at 20.6 percent. But if one examines just the single family homes which sold in those two periods, it reveals that in October 2006 the median home price was $810,000 and a year later $1,100,500-a whopping $290,000 more! Pretty exciting news for sellers until you look further at the data and realize that the median size home sold in these two periods also grew; from 1330 sq. ft. to 1760 sq. ft. Calculating the price per square foot which homes sold for in October 2007 ($600.00) and applying that to the difference in the size of homes sold (400 Sq. Ft.) for these periods reveals that $240,000 of the $290,000 increase was simply due to larger homes selling-still an increase, but hardly worthy of making the news. And of course if this scenario is played out across California as a whole, one wonders if the 9.9% median home price dip isn’t actually much steeper than reported?

*Data retrieved from the REIL MLS system for San Mateo County.

Belmont Market Update-November 2007

November’s numbers are in and there are no real surprises. Last month’s momentary increase in the median price in several cities like Belmont and Redwood City (as previously discussed) was due to an inordinate number of larger homes selling in October. This month, the opposite was true as the median size home sold was smaller than the median home in Belmont so it gives the appearance that the median home value dropped.

As seen in this graph, the price per square foot that the average Belmont home sold for was up—again due to smaller size homes selling (smaller homes sell for more per square foot than larger ones).

Bel_per_sq_ft_11_2Belmontnovember_2007_7

Several key market indicators you might want to watch…

↑The number homes sold in Belmont was up from last month and closer to the typical winter selling pattern, though still less than past markets. We’ll give this one thumbs up for performance.

↘The percentage the seller received of the asking price was down from last month’s 100.28% to 97.78 and down from last year’s 101.07%. In fact, one has to go back to December of 2003 to see this low a number. One thing that contributed to this swing was several homes sold which had been on the market for quite some time. Seller’s nearly always get less for their home if it has sat on the market for awhile so this skewed the number s a bit—we give it a down arrow just the same as a sign of a weakened housing market.

Bel_med_sq_sp_112007_2

↔The average home sold in 44 days—again up from last month’s 29 and up from last year’s 32. However, two homes sold for significantly over the asking price (one for over $100,000)—a clear sign the market is still alive on the Peninsula. While 13 homes sold under asking they were on the market for on average 50 days! Another five sold for the asking price and even they averaged 40.6 days on the market—an anomaly. Given the fact that so many homes which were “stale” on the market still sold for so much, we opt to put this market indicator in the “no change” category as it could go either way.

All Belmont Sales as reported in the Multiple Listing Service for November 2007. (Click on the picture for a larger version).

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?

Ruggia0014c_2

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.”

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.

Uscabay_area_median

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.

Smc_graph_3

↓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)

Belmont_october_sales_2007

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!