Thursday, April 9, 2009

April Real Estate Market Highlights

Here are my observations of the most recent market action in Santa Clara, Santa Cruz, San Mateo and Monterey counties. You are encouraged to leave your comments and questions or even update us on what you are witnessing in your neighborhood.

> Market turnaround? Remember I've said recently that the market activity is turning around? Well, March's activity has shown me more evidence that we could have seen the bottom! How can this be?
  • Buyers are willing to make offers as initiated sales (accepted offers) are up in Santa Clara, Santa Cruz, San Mateo and Monterey counties.
  • This isn't Thanksgiving but even the "turkeys" are selling. I've been caught using the term "turkeys" to denote an overpriced home. Some of these homes have been on the market for more than a year and may be located on an extremely busy street. Also, the median days on market, DOM, for those homes available for sale has dropped from 100 in January to 70 in March. Tells me that Thanksgiving is getting closer!
  • The number of initiated AND completed sales or closings are trending upwards in each county. Part of that is seasonal but part has to be market improvement. Levels are not quite breaking records, except in Monterey.
  • The Days of Unsold Inventory (DUI) has improved (decreased) substantially. The DUI for single family residences in Santa Clara County for under $450,000 is 42 which means freezing inventory, ALL homes would sell in 42 days. Anything less than 45 represents a Buyer's market! Characteristics of a buyers market is multiple offers, substantial percentage selling above list price AND, get this, price APPRECIATION.
> Myth Buster! "Lenders are not lending" -- Pure and simple, this is a myth cooked up to make bankers look even worse. Now, I don't have stock in any bank but these are the facts. After paring staff, lenders are flooded with applications for refinances now with mortgage rates in the mid-4% range. In addition, purchasers need loans, too. This huge sea change in demand for loans has caused lenders to push out the time necessary to complete refinances from 30 days to a range of 60-90 days. Purchase loans have an impending event tied to a close of escrow so these loans are given preferential treatment because of that. Those refinancing will have to be patient to begin to see savings.

> Mortgage Refinance Tips -- Some of you may know that I used to "do" mortgage loans and advised my clients on a couple of handy "rule-of-thumbs" as quick indicators to see if refinancing would be a financial benefit to the borrowers, not the loan officer!
  • First, the rate should be more than 10% difference, obviously lower, than your current rate. That means if your currently at 5.50%, the new rate should have a rate at least 10% under this or 4.95%. (For the math wizzes, you'd subtract 10% of 5.50 or 0.55 from 5.50 to equal 4.95%.) A rate lower than this level should benefit you and amortize the costs of the loan so you can more quickly start accruing the savings AFTER the cost of doing the loan, AND
  • Second, it matters most how long you plan on keeping the LOAN. If you plan a sale in a year or so, it probably does NOT make financial sense to refinance.
Finally, just about everyone knows that rates bounce all over the place so that a quote you receive one day is probably gone the next. The only way you can guarantee a rate is to "lock" it in and that takes an application and commitment to a loan officer not 50 inquiries over the internet. Need a referral to a trusted loan professional? Please contact me.

> Use If you check out for estimates of market value in an area, there are couple of potential pitfalls you should be aware of. First, be careful that the size of the home you're looking at compared to the average size in that area. If the home you are curious about is similar to the average sized home, the market estimate may be a reasonable start. If it is much larger or smaller, I've noticed a much larger departure from market value. Not every home sells each month, right? Second, believe it or not, zillow doesn't "see" into homes. They don't have a clue if you have hardwood floors, sloping floors, no floors, granite countertops or whatever. Their proprietary formula (only known by them) is in use and they apply it across all the homes in the area.

Some who used to trade stocks now think that real esate can be "quoted" in the same fashion. Hardly. Who can discern differences? Your friendly Realtor who stays on top of market changing conditions!

> Condos catching up with single family residences -- A couple of months ago, we witnessed the increase in sales of single family homes far exceeding the increase in sales of condos. Remember, I mentioned that there were better deals in condos and townhouses due to the improved affordability (read -- lower prices) of single family residences? Well, this is beginning to turn. Condo and townhouse closings were up 27% from March 2008 to March 2009, while the increase in closings of single family homes was 24%.

> Median prices. Stuck at $450,000 for Santa Clara County these past few months, median prices (middle transaction) for an entire county are worthless. "Warm to the touch" you might say when touching someone in the middle who is freezing on one side and boiling on the other. Each area, down even to the neighborhood, has differing dynamics of supply and demand so needs to be looked at accordingly. We've observed that market mix has helped bring down median prices due to more low-priced homes closing as a percentage of total closings. We have also seen the opposite occur in 2007 when higher-priced homes sold and the lower-priced homes were starting with the sub-prime loan issues and didn't sell as frequently.

> $5,000,000+ home buyers waking up? Sales of these higher-priced homes were virtually non-existent recently but that has changed. In the past month, four homes in Santa Clara County and three homes in San Mateo County have sold and are in escrow! Any interest? If so, you have plenty to choose from as the number of available homes for sale in this price range is 37 in Santa Clara County and 48 in San Mateo County.

> Want to sell with multiple offers? The percent of completed sales or closings with a sold price greater than list price stands at 31.0%. This level, down a bit, means that about one out of three sellers received more than their asking price. Oh, and 11.3% of sellers received their list price!

Want to hear a little secret? Some of those sellers receiving either their list price or something higher had to reduce their list prices to generate one or more offers. These figures don't calculate what the sale price to original list price ratio is but only what the current list price was at the time of sale.

> Traffic Jam! With the lowest mortgage rates since the '60's, the demand by borrowers trying to refinance have created an avalanche of work for the lenders. Yes, this is after they laid-off staff! First, rates for refinance loans average about 1/4 point higher than similar program purchase loans. Second, the process can take as much as 60-90 days! Third, there's no cash-out refi's as that option dissapeared.

> Investor's Corner - We've mentioned that investors have not been doing much lately with multi-unit residential properties. A couple of reasons are more stringent loan application and increased down payment requirements lenders have imposed. The other reason is, quite frankly, a less than optimistic outlook that many investors have. Closings have been enemic: 23 in Santa Clara County; and, 11 in San Mateo County. Most, about 80%, of the activity is in the less than $600,000 price range.

> Go, Monterey, go! Still setting records, Monterey County has seen record-breaking numbers of initiated sales (accepted contracts) and closings and even continues to out sell San Mateo County which is a larger market historically. As you might have guessed, most of the transactions in Monterey County are bank-owned or REO's after a flurry of affordable home building in the county a few years ago caused a tremendous over-supply of homes, especially along the 101 corridor. This has not occurred in Santa Clara, Santa Cruz or San Mateo counties. Still, this means that there are buyers, buyers with money and buyers with money who can get loans and lenders who are lending!

Thanks for reading -- what are your thoughts?