market update   August 26, 2008
Fed minutes from the August 5th FOMC meeting were
released today revealing continued concerns over inflation.
At the center of concern is the question of whether
inflation will moderate in 2009. It may be this concern that
also has the DOW selling off mildly today, perhaps due
to fears that the Fed may tighten credit sooner than Wall
Street would like. But for now, Fed rates are unchanged
and the benchmark rate is a mere 2%. Don’t count on this
rate lasting into 2009 however, because the minutes also
reveal consensus that a rate hike will be the next move.
The big question left is “when?” Also of note were comments
about mortgage rate’s relationship to the housing
market and broader economy, which was termed “fragile”
by several participants. There is concern that care should
be taken to keep mortgage rates low or run the risk of potentially
higher payments further stressing home values by
making affordable mortgages even harder to come by.
An increasing number of analysts are indicating they believe
the bottom of the housing market is being seen right
now in several areas of the US, including the Bay Area.
Fresh monthly home sales (volume) numbers are up 2.5%
in July over June, but the numbers still show a dramatic
dip in sales volume when compared to last year. The Case-
Schiller index shows home prices down 2.6% nationally
in the second quarter. There is little doubt that the average
worker is feeling pinched, and discretionary spending
numbers signal declines in sales across multiple sectors.
Home buying incentives can help buyers when tax time
rolls around since newly signed legislation offers a $7500
tax credit to folks who buy by June 30, 2009. Check out
http://www.federalhousingtaxcredit.com/ for more information.
HUD has received a permanent raise to it’s loan
limits beginning in 2009 and FHA loans are, in some cases,
helping sub-prime borrowers avoid foreclosure with its
FHA Secure program. I’ll be giving you more information
about this next month after a seminar I’ll attend in mid-
September. More options may be opening up for jumbo
loan borrowers also. There are some new loan programs
available recently that again allow stated income jumbo
loans to $2 million with rates potentially below 7%. Sure
money is tight right now, but there are also some fantastic
opportunities to buy with a lot of upside potential. Smart
investors are buying right now. Are you among them?

Short sales, REOs and foreclosures. We sure have been hearing those words more often lately than we did for the last 10 years or more. Unfortunately, we’ll continue to hear them for many months to come. Some experts predict another 18 months of these types of real estate sales before we see them, for the most part, come to an end. Well, at least not here in Marin, right? Wrong. Unfortunately, Marin is not exempt from the real estate downturn. We are more protected than the majority of California and the rest of the country, but we are seeing plenty of short sales, REO, and foreclosures.

As of August 20 there were 1120 active listings of single family homes and condominiums/townhomes throughout Marin County. Of those listings, 203 were either a short sale, REO or foreclosed property ranging in value from $171,900 to $1,398,000. Those 203 listings account for 18% of Marin’s current inventory. That means that almost 1 out of every 5 listings is a financially distressed property.

Of the 776 sales since May 1st, 107 of them were either short sales, REOs or foreclosed properties. Those sales ranged in price from $144,500 to $1,162,500.

The overwhelming majority of these listings and sales have been properties in San Rafael and Novato. Those towns (at least parts of those towns) have seen and will continue to see declining property values. Whenever distressed properties are being sold in large numbers in any given neighborhood they set the value for future sales. The appraisers then use these lower sales prices to determine the value of upcoming sales. Hence, the declining values.

However, it may be a costly mistake for buyers to think that by staying on the sidelines and waiting to purchase until prices go down. The other part of the equation that must be factored in are mortgage interest rates. Even if a potential buyer might see a 4% drop in asking prices, they may also see a .25 or .5 point increase in mortgage rates, thereby negating the slight drop in home prices.

Whether you’re a potential home buyer or home seller it is important for you to know how your real estate market is performing before making a decision. As you can see, each area of Marin and even areas of the same town are performing differently. Your decision should be based on real estate information pertinent to your property, not information based on the overall market or the nationally reported real estate news.

market update August 19, 2008
Fannie Mae and Freddie Mac are the focus of increased
investor concern over the mortgage GSEs capital reserves.
The recent Fed takeover of IndyMac caused jitters throughout
the market when investors made a run on the faltering
California giant, the second largest wholesale lender in
the US. We’re currently still experiencing credit tightening
as write downs on existing mortgages continue. This
has investors concerned about the prospects of a lingering
recession.
Ben Bernanke continues to insist that he believes that the
economy will stabilize later this year, that housing prices
may also stabilize in late 2008 and early 2009, and that the
economy should increase its growth in 2009. Inflation is
the biggest concern so there is also focus on how to get
fuel costs in line and how to stop job losses that have been
climbing in recent months. But recent housing reports are
not as gloomy. In fact a lot of us (including myself!) have
been extremely busy this summer with sales in the Bay
Area. Yikes! I’ve been so busy that I haven’t been able to
find the time to write these updates for a month!
To help yourself and your clients important new developments
to remember include the following… Most loan
types are still available, and although qualifying involves
stricter guidelines, they can be met with success for most
borrowers. August has brought new restrictions by mortgage
insurers and lenders, restricting jumbo loan size
mortgage insurance to loans at 90% LTV or less, so plan
on clients needing at least 10% down to buy in most cases.
If the clients want a jumbo interest only loan then they will
probably need to plan on 20% down. Some conforming
loans (up to $419,000) can still be used for purchases in
lower price ranges with as little as 3% down… but remember
that lenders often reduce the LTV further (requiring
more money down) during underwriting if the property
is in a declining market area. The higher conforming loan
amounts available as a result of changes earlier this year
will likely be made permanent. The Treasury discount
window is now open to Fannie and Freddie… which means
they can borrow as needed to stay solvent. How fast can
things turn around? As fast as it takes to say, “election
year”.

The most challenging aspect of the slowed-down real estate market is dealing with people’s perceptions. Sellers still refuse to believe their homes are not worth quite as much as they were a  few years ago and buyers believe there  are free-falling prices. Both have a kernal of truth to them but both are blurred by their perception of reality. The SF Chroncle published a very good article regarding real estate perceptions. Check it out.