Median Home Price Statistics in Berkeley

This is a year's worth of tracking the median home price in the Berkeley market of single family homes. The data is from February 2008 through February 2009. Click on the graph to expand the image.

Sweet Treats for Home Buyers - The Stimulus Bill

Last night, the U.S. Senate passed the American Recovery and Reinvestment Act of 2009 by a 60 to 38 vote. Earlier today, the stimulus package passed the U.S. House of Representatives in a 246 to 183 vote. Yesterday's votes followed several days of negotiations by the House, Senate, and White House, with the final tab for the stimulus bill coming in at $787.2 billion.

The good news is that the legislation resets the conforming loan limit cap at $729,750, up from $625,500. Numerous counties in California experienced a marked decrease in their conforming loan and FHA limits on Jan. 1, and the stimulus bill reinstates 2008 loan limits through Dec. 31, 2009.

The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years. It also extends the expiration date for the credit from July 1 to Dec. 1, 2009. Home buyers must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009, to be eligible for the $8,000 credit.

The stimulus package also contains $308.3 billion in appropriations spending, including $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects. It also allocated an additional $267 billion for direct spending, including increased unemployment benefits and food stamps; and provides $212 billion in tax breaks for individuals and businesses.

*source: James Liptak, 2009 President, CALIFORNIA ASSOCIATION OF REALTORS

Bigger Down Payments Create Challenges for Larger Homes

Some fast facts that make smaller homes easier to purchase in today's precarious lending market:

The current conforming loan limit is set at $729,000, but expected to reset as of January 1st, 2009 down to $625,000. Traditional financing is available for conforming loans with only 10% down. Down payments as low as 5% will still be possible under $625,000 with the help of FHA. The last day to qualify for the $729,000 loan is December 1st, 2008. If you act now, a qualified FHA buyer with 5% down ($38,250) can buy a $765,000 home and receive a reasonable conforming loan rate. After December 1st, qualified buyers with a 5% down ($32,500) can only buy a $650,000 and still receive a reasonable conforming loan rate.

Jumbo loans up to $1,000,o0o currently require a minimum of 25% down payment. Loan amounts from $1-1.5 million will require a minimum of 30% down. This means a jump today from a conforming $729,00o home to a $730,000 loan will require 20% more in down payment.

Today's buyer with $38,250, looks to buy the $765,000 house under the conforming loan guidelines. Say the buyer can not find a home that suits him in the price range. December first comes and goes. Time for a visit to the lender in the hopes of increasing the price range to $835,000 to meet his needs. Under the new Jumbo requirements the buyer will need 25% down ($208,750) to qualify. This buyer's wish to increase his search parameters by $70,000 is going to require digging deep. He will have to come up with an additional $170,500 down payment in the new year to accomplish his new search. Add volatility of the interest rates and the monthly payment may also increase dramatically even if the loan amount has not increased due to the larger down payment. Enter Mom and Pop: See the NYT article, Mixing Money and Family.

Jumbo rates are more expensive when buyers do qualify for them. Creative financing used to bridge the gap with second mortgages. Today, second mortgages are available up to $350,000, but only at a total loan to value ratio of 70%. This means a minimum of 30% down. These are equity line second mortgages with current rates from 4.75-5.5%.

Many clients looking to purchase larger homes do have assets. Often they already own a home with existing equity. This equity had been tapped in the past during a home purchase, based on an assumed rental value of the property. Now, in order to qualify without carrying the debt of both residences; Borrowers must retain 30% equity in the current house. They must have a signed rental agreement as proof of the rental value. They must have rental deposit verification. And they must show six months of PITI in reserves required on the current residence. Given these new restrictions, we may see more sale of house contingencies in our future. More likely, home buyers may be forced into an already bloated rental market as they seek to liquidate the equity from one property (selling first) as they strive to purchase their next home in a still competitive market. Beyond the financial stresses this often adds the stress of a second move.

Thanks to Ted and Tom from MPR Financial for helping sort out the details.

News of Government Takeovers: Freddie Mac & Fannie Mae

The Jury is out on whether long term government involvement of these formerly private institutions will benefit our home buyers. So far the market has reacted possitively.

Our hope is that the resulting lower interest rates (at least in the short term) may make this an exceptionally good time to invest again in real estate. Could we be facing a unique market where the bottom (assuming we are near the bottom) could actually coexist with reasonable interest rates?

From AP:
Investors, Industry Pleased With Govt. Takeover




Here is the California Association of Realtor's official (cautiously optimistic) stance:

In light of the U.S. Dept. of the Treasury's action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.

While the short-term impact of the Treasury's actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.

Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.

C.A.R. is concerned that the Treasury, and Fannie Mae's and Freddie Mac's new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.

The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California's and the nation's housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.

Get an Interest Free Home Loan from Uncle Sam

SFGate 8/3/08, How Home Purchase Federal Tax Credit Works:

(08-03) 04:00 PDT Washington -- Anybody who's been sitting on the sidelines hesitant to jump into real estate until conditions settle down should know these dates: April 9, 2008, through June 30, 2009.

They mark the eligibility time to qualify for the home purchase tax credit created by the massive housing bill approved by Congress. If you have not owned a house during the past three years - or are considering buying your first home - and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).

In order to stimulate the national housing market, Congress is offering this incentive to encourage buyers to buy before the June 2009 deadline. It is money you will need to pay back. Still, time is money and since you can use it now and pay it back in the future without any interest or fees; there is real value to the credit.

At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay the principal back in increments over time, but there's no interest charge to you.

Rob Dietz, an economist for the National Association of Home Builders, says the new credit not only will pull first-time buyers into the market, but also have a powerful multiplier effect, as thousands of sellers of these credit-assisted houses go out and purchase replacement homes for themselves - extending the impact of the credit into the move-up segment.

How do you claim the credit? If you pass the eligibility tests and buy before June 30, you simply request the credit on your tax return for either 2008 or 2009, which will be modified for that purpose. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return.

For an overview of the credit see the SFGate article (click here), or go to www.federalhousingtaxcredit.com.

Bargain Hunting For Homes Can Be Misleading

Many buyers looking for foreclosure deals are finding Internet research tools misleading.

From an Inman News article posted on July 7, titled When Prices are Too Good to be True, by Matt Carter:

"A constant stream of headlines about rising foreclosures and falling home prices in many U.S. markets might lead bargain hunters to believe that there are some incredible deals to be had out there....

Is the housing downturn so bad that you can now swoop in and buy a house in Hermosa Beach, Calif., for less than $100,000? A search for foreclosure properties on Trulia -- which puts the average sale price of a home in the coastal city at $1.67 million -- might lead you to believe that the answer is yes.

The problem is that most, if not all, of these properties aren't officially on the market. They are "pre-foreclosures," meaning that their owners have defaulted on a loan, prompting a lender to begin the foreclosure process."

"Pre-forclosure" lilstings do not only artificially inflate the numbers of available listings for a particular area...

"The reality is that the majority of homes that start the foreclosure process never complete it. The borrowers refinance, catch up on their payments, or do something else to avoid foreclosure." - Brad Geisen, the founder and chief executive officer of Foreclosure.com

...they also grossly misrepresent the prices.

"They may represent the amount outstanding on the loan that's in default -- sometimes a relatively small second loan -- or the amount that the borrower is in arrears. Real estate agents, investors and sophisticated buyers will know that it's impossible to buy a house in Hermosa Beach for $4,712. But first-time home buyers may miss the fine print on sites like Yahoo and Trulia that explains that this is not the home's listing price -- and that the property may not even be for sale." - Matt Carter, Inman News

"If you are looking for the best deal... contact a Realtor!"

Doug Birnbaum, a Realtor with Veranda Homes in Costa Mesa, Calif., said he recently fielded a call from a client who saw what she believed was a listing for a four-bedroom house for $100,000.

"In Costa Mesa, there's not going to be a four-bedroom for less than $350,000," he said. The $100,000 figure "could have been the second mortgage in default, "Birnbaum said, but "the Web site was so misleading I never actually figured out where the property was -- there was no address, just an intersection."

That experience led Birnbaum to post a warning on Trulia Voices, titled: "RealtyTrac, are the prices too good to be true?"

"It appears that ReatlyTrac is posting homes on Trulia for shockingly low prices, "Birnbaum wrote. "Now what these prices actually reflect is the dollar amount of one of the liens on the home. This in no way reflects ... the true value of the home. If you are looking for the best deals in this red hot market, contact a Realtor!"

Appraising the Current Market Situation

by Arlene Baxter

Today our Berkeley Association of Realtors auditorium was packed to capacity with Realtors wanting to get the latest information on the status of loan availability and appraisal conditions in this changing market. Our speakers, one representative each from the mortgage and appraisal industries, confirmed what we’d been hearing anecdotally from our colleagues. Loans were super abundant a year ago, with everyone knowing someone moonlighting as a loan broker who could get you “such a deal!” Last summer came the implosion of sub-prime lending and the virtual disappearance of jumbo loan products, those loans larger than $417K. Fast forward to our current state. The pendulum has swung so far that now folks with a fully documented loan application may have great difficulty getting financing if they have less than 20% down, gorgeous credit scores, and substantial assets. Buyers who can stay within the limit of a $417K loan can still get very attractive rates, today at the 5.5% level. But buyers who need to borrow amounts up to the new “super-conforming” limit of $729,750 need to be prepared for much stiffer requirements (see FHA and Freddie Mac Daddy from March 6th, below).

One of the elements of loan approval that has been mostly in the background up until now is the appraisal process. In our area we have for more than a decade been able to assume that homes would appraise for their contract value, except in the rarest of circumstances. If a property had multiple offers, as so many did, that was a strong argument in determining that market forces were setting value, and that we were in an area of increasing values. Lenders allowed appraisers to use closed sales back as far as six months, and there was reasonable flexibility to use properties that shared a similar characteristic to the subject property, even if they weren’t in the same neighborhood.

The job of the appraiser has changed dramatically over the past few months. Marian Huntoon, the owner of Real Valuation in Berkeley, spoke to our Association today about the intensity of scrutiny that appraisers must now face. Lenders want to see properties used as comparables that sold within three months or less, and they insist on having both an active and a pending sale in the same neighborhood. Appraisers are now routinely making significant adjustments to value in order to use “comparable” properties that are really not very comparable at all. Marian estimated that it takes appraisers anywhere from twice as long to four times as long as a year ago to complete an appraisal report that is acceptable to the lender. Appraisal reports are now routinely sent back to appraisers with the request that additional adjustments be made to reflect declining market conditions. That is really a loaded phrase. Lenders are now reviewing market conditions with an extremely broad brush, defining the direction of the market by county, not by city, nor by neighborhood. Those of us who are actively representing clients in this area know that we are still seeing multiple offers on many properties in the most desirable neighborhoods. We are back to seeing pre-emptive offers both in the modest and in the most expensive price ranges. So to have both Alameda and Contra Costa Counties defined as a whole as “declining market conditions” makes us all a bit crazy. Explain that to my buyer who lost out in fairly modest competition of only four offers. He still didn’t get the house he loved! And then there was the James house, receiving 17 offers last week after only one Sunday open house (see our March 14th entry below).


But it is also true that there are properties sitting for a few weeks before they sell, as opposed to selling according to a pre-established seven or ten-day schedule. And then, even in some of our most desirable neighborhoods, there are the short sales, trust sales and foreclosures. Those are topics for another day!


Tip for Home Sellers: Review carefully with your listing agent what the recent sales have been, closest to your home both in location and style. Try to step back and look at the data the way both buyers and appraisers will now be forced to look: at currently active homes, those recently pending, and the sales back only a very few months. Even if some buyers might be willing to offer a very high price, unless they have unusually high cash reserves to make up the difference, most buyers will need to have your home appraise very close to their offer, in order for the contract to close. Sellers should come to expect to see both financing and appraisal contingencies in the majority of offers, rather than assuming that buyers will waive those contingencies in order to have their offer accepted. The goal is not receiving and accepting a very high offer. The goal is, and really always has been, to close the escrow, and at an acceptable price.

Buyers in Flocks and Local Peacocks

The Bay Area never ceases to amaze. This picture was taken (with a cell phone) during last week's Brokers' Tour on the 1700 block of Arlington Avenue (its a busy street) in El Cerrito. Apparently this gorgeous fellow lives in the nearby trees. Look closely and you can see a car through the feathers in the upper right corner.

And now for the real estate market jaw-dropper:

5333 James Avenue in Rockridge*
2bedroom/1bath, listed for $799,000
3/13/08 - received 17 offers

How is this possible?

1. Great Urban Location
2. Fabulous Condition
3. Original Charm

Tip for Home Buyers: If you are considering buying a home in the near future, continue to follow the market today. If there is a property you find compelling, have your agent track it until it closes escrow and tuck that information under your hat. The more informed you are about home values the better you will be prepared when you enter the market. A sense of value is important and it is something that is best gained through experience. We can give you lots of market statistics to justify prices, but until you have your own experience of the market, this information is just anecdotal. For instance, 5333 James Avenue will likely sell over $900K. Those chasing statistics may feel this is nearly impossible for a two bedroom home. Those more directly familiar with local inventory would understand the features and dynamics that made this home exceptional. Our website www.berkhills.com features links and feeds to current real estate market news and this blog is rich with anecdotes. Stay tuned.

* The property referenced was not a listing represented by Berkeley Hills Realty

FHA and Freddie Mac Daddy

The new FHA and Fannie Mae- Freddie Mac conforming loan limits have been released by the U.S. Department of Housing and Urban Development. Alameda and Contra Costa Counties qualify for the maximum calculation of $729,750. (to see the National list of HUD-Determined Single Family Loan Limits click here.)

"We expect the impact of these loan limit increases on the housing market to be significant because of the infusion of capital into the mortgage market, which should result in lower interest rates across the board. In addition, there will be a direct impact on high-cost areas that previously required borrowers to take out costlier jumbo mortgages."-- Dick Gaylord, National Association of Realtors 2008 President

The true impact of these "temporary" increases mandated by the Economic Stimulus Act remains to be seen. In the meantime, I spoke with Ted Maniatis at MPR Financial for the tips on what it takes to get a home loan. Having a qualified mortgage broker look at your individual situation remains vitally important. There are lots of shades of gray as lenders look for new ways to scrutinize what you provide in black and white.

To paint a broad stroke, based on my conversation with Ted: Buyers seeking a conforming loan with at least 20% down (verified with two months of bank statements), a good job (with full documentation including one month of pay stubs, 2 years W2s; self-employed individuals need the last two years of tax returns) and good credit (at least 680) still have lots of options. Even so, a home buyer's budget should take into consideration fluctuations in interest rates.

There are noteworthy exceptions to the rules. For instance, a self-employed buyer may harbor tax returns that show unnatural downturns in income levels (true for me during my baby making years.) If said buyer has 30% down and a 700 or better credit score he/she may only need a statement letter of income to qualify for a loan (instead of submitting the full tax returns.) Sizable down payment and good credit scores can offset the need for full documentation. Down payment money may include a gift from family, provided they are willing to sign off that they do not expect repayment. (Mom, dad, are you listening?) If you are at all unsure, talk to a lender. Often there are creative solutions to the restrictive guidelines.

Beyond the loan application, there is the purchase contract. When negotiating to purchase a home from a seller, make certain to include adequate time lines. Allow for at least thirty days to close escrow. In the recent past, lenders had been performing within twenty-one days. Now, increased scrutiny often means more eyes on the loan package and a longer process. Appraisals also take more time and a contract should allow for at least ten to fourteen day loan/appraisal contingencies. Some lenders are using an Automated Valuation Model (AVM) , a bit like Zillow, to help satisfy their investors. In the past, if a reputable appraiser gave a property the thumbs up, you could be reasonably assured that the bank would approve of the loan amount. Now banks may routinely order an AVM. This automated valuation may conflict with the home appraiser's valuation. Such a conflict may necessitate a bank ordered appraisal review, and/or the bank may request one or two additional comparable recent home sales. An appraisal contingency can help protect a buyer through this process.

Maintaining adequate time lines and including appropriate contingencies can also buffer against the volatility of interest rates. Fluctuating rates can affect a buyer's ability to qualify for the requested loan amount. Contingencies can allow buyers the time to confirm and lock rates.

Tip for home sellers: Contingencies and contractual terms are negotiable. Your Realtor should be able to walk you through the contract from a risk versus benefit standpoint. Verifying down payment and the credit-worthiness of your buyer is an important part of this analysis. A strong financial possition may be worth considering, possibly even over a competing buyer's higher offering price. Many negotiating points in an offer clarify who will take on a given risk. In some competitive situations, strong buyers may be willing to forgo financing contingencies (therefore absorbing the risks) for the benefit of being favorably considered for the purchase. It is worthwhile to examine the buyer's credentials, regardless of contractual contingencies, in order to assess the buyer's ability to perform and thus complete the transaction.

Rainy Days, Thursdays and a Trip Back in Time

Thursday is Brokers' Tour in El Cerrito, Kensington, Berkeley and North Oakland (Rockridge, Temescal and Montclair.) Realtors tour newly listed homes on Thursdays for a number of different reasons. For some, it is a way to keep in touch with the market. For others, it's an opportunity to socialize with colleagues. Most importantly, it is also a way for agents to preview homes that match the search criteria of their current buyers.

This Thursday it rained-- a lot. Rain is often good enough reason for self-employed Realtors who fit the socialite\market watchers category to stay home. No use getting wet for a casual outing. Therefore, rainy tour days often mean reduced agent traffic. This Thursday was an exception. Thursday's tour was popular. Some streets were so crowded with Realtors they became difficult to negotiate (Keith at Euclid in Berkeley for example.) I casually remarked to a an agent with whom I rubbed shoulders, "Boy there must be a lot of buyers in the market." "Thousands," she said, "and they all have at least 20% down." For those that thought the loss of the sub prime market would deplete the buyer pool (eliminating those with less than 20% down), apparently the void has been filled. Then, I started paying more attention to the social quality of the conversations. The grapevine was flooded with new multiple offer stories. The home on 60th street in Temescal that had eight offers was just one example.

Then I saw a house which I knew would appeal to one of my buyers. No one had access to the house before Brokers' Tour, so this was my first chance to see it. I enthusiastically told my buyers about the home when I returned to the office after tour. We made an appointment to see it first thing Friday morning. By Friday afternoon, one preemptive offer had already been submitted and the sellers were inclined to take it. Upon hearing from five other interested parties, the sellers decided to delay their acceptance of the offer in hand and give the other buyers until 7:30 p.m. to submit their offers. All I could think was welcome to 2005.

UPDATE: This home received four offers before 7:30 and is in contract. The chosen buyer was not the same buyer that instigated the preemptive hustle.

For anyone who wasn't in the market in 2005, or for those with selective amnesia:
Click here for an SFGate article on Bidding Wars from Friday, April 15, 2005.

Conforming Loan Limit to be Raised

From Inman Real Estate News:

Bush administration officials renewed their calls for Congress to pass legislation tightening oversight of Fannie Mae and Freddie Mac Thursday, as Congress signed off on a plan to allow the companies to guarantee or purchase loans that exceed the $417,000 loan limit.

Senate Democrats on Thursday abandoned an attempt at a broad expansion of a $150 billion economic stimulus bill backed by the Bush administration and approved by the House last month.

In an 81-16 vote, the Senate sent a slightly modified version of the bill back to the House, which promptly voted 380-34 to put the bill on the president's desk.

The White House issued a statement saying President Bush could support the Senate's more limited amendments, which expand the pool of those eligible for tax rebate checks to include $300 payments to Social Security recipients and disabled veterans.

Bush said the bill "would quickly put money into the hands of the American people and provide our economy the boost it needs" and that he will sign it into law.

The economic stimulus package includes a provision that will temporarily raise the conforming loan limit to allow Fannie and Freddie to purchase or guarantee many jumbo mortgages originated between July 1, 2007, and Dec. 31, 2008.

The increase, to as much as $729,750 in high-cost areas, will also apply to Federal Housing Administration loan guarantee programs. Because the increase will be capped at 125 percent of the median home price for an area, the conforming loan limit will remain at $417,000 in markets where the median home price is $333,600 or less.

Although the increase will expire at the end of the year, industry groups like the National Association of Realtors have urged Congress to mandate a permanent increase in the conforming loan limit in passing legislation to increase oversight of Fannie and Freddie.

Permanent changes to FHA loan limits are being addressed in bills that would also lower minimum down-payment requirements and expand the pool of eligible borrowers by using risk-based pricing. Both the House and Senate have passed FHA modernization bills, but differences between them are being ironed out (see Inman News story).

This is wonderful news for our area, where the $417,000 loan limit didn't reflect our median home price. This will improve Bay Area housing affordability because conforming loans carry less risk to lenders and result in lower interest rates to consumers.

Survey of Bay Area Counties - Median Prices - Fourth Quarter 2007

     County    Single-Family Detached Homes  Single-Family Attached Homes
                 Q407       Q406     % Change    Q407     Q406   % Change

 Alameda          $638,569    $635,101    +1     $376,901  $415,572     -9
 Contra Costa     $597,736    $639,396    -7     $305,779  $347,796    -12
 Marin          $1,045,331    $967,286    +8     $663,934  $546,475    +22
 Napa             $604,500    $610,000    -1     $399,999  $425,000     -6
 San Francisco  $1,080,335    $970,548   +11     $799,559  $744,420     +7
 San Mateo      $1,133,184    $998,199   +14     $499,408  $496,812     +1
 Santa Clara      $942,782    $853,559   +11     $487,846  $438,207    +11
 Solano           $384,626    $457,415   -16     $234,778  $293,420    -20
 Sonoma           $521,441    $563,023    -7     $320,242  $349,248     -8
 Bay Area         $785,058    $735,295    +7     $527,859  $490,554     +8
source: Reuters

The Fed Works to Motivate Buyers off the Fence

Fed slashes key rate to 3.5%
Citing weakening economic outlook, Federal Reserve makes biggest cut in nearly 24 years - three quarters of a point.

I have notice that my phone has really been ringing a lot, particularly considering it is the first month of a new year. According to CNNMoney, Morgage applications have also been on the rise.

WASHINGTON (AP) -- Mortgage application volume rose 8.3 percent during the week ending Jan. 18, according to the trade group Mortgage Bankers Association's weekly application survey.

The rise in mortgage applications is largely due to refinancing. The favorable rates which have been enticing current homeowners will likely be spurred even lower by the latest action of the Fed. This is likely to lure more borrowers into the home buying market.

In conversations I have had recently with buyers, the benefits of home-ownership often out-weigh concerns of a recession. From the perspective of well-positioned buyers-- as they consider the importance of all of their monetary decisions-- home ownership still tops their financial goals. For buyers who plan to stay in their new house at least five to seven years; the combination of good mortgage rates and optimism regarding the future value of Bay Area property makes owning a home a reasonable investment. "Either way we need a roof over our head. Lower interest rates make the monthly payments on a home more affordable," states one home buyer. There are also the intangible benefits of owning your own spot on the planet. You can change anything you want and (if you make your loan payments) no one will ask you to leave. If the recession continues, more may chose beans and rice over caviar; yet, many will also make the leap toward home ownership.

East Bay 2008 Market Forecast

The Berkeley Area is one of the most stable markets in California.
--Leslie Appleton-Young, Chief Economist, California Association of Realtors 10/31/07

As is true for the national real estate market, many areas in California have experienced great problems from the sub prime loan crisis. Berkeley, however, has one of the best and most stable real estate markets in the state. Although our sale's volume is down, median home prices are up.

"(The East Bay) median price climbed almost 9 percent from a year ago, to $810,490. The median home price gained 3.3 percent in October over September's." --Mark Calvey, San Francisco Business Times.

We are predicting a continuation of this trend and modest gains for our stable neighborhoods in 2008. Our confidence for the New Year comes from embracing the three "L"s of real estate, (and we don't mean location, location, location.) Our revised list includes; Local expertise, Leveling of the playing field, and Lifestyle choices.

1.) We believe local expertise is mandatory in navigating the emerging marketplace. In this case, we mean local to the nth degree. Even in the East Bay, neighborhoods within an individual city can perform differently. Homes in the flats of Oakland are performing much differently than in the Hills. North Berkeley responds differently than West Berkeley.

In addition to physical location, the health of our local economies will influence the real estate market. California's unemployment rate continues to be lower than the national average and our diverse businesses and industries add further stability to our marketplace.

"If the economy's okay, your market will be too... You needn't worry about house prices collapsing if local industries are doing well. By merely reading the business section of the local paper, you get a sense of the economic climate." Joe Light, Money Magazine.

Local expertise is crucial. The current loan climate is unprecedented and has rendered some national economists mute on future predictions. In reference to the down market experienced in much of the state, Leslie Appleton-Young cautioned that it was tough to predict how long the current decline would continue because it differed from previous real estate downturns. The 1990s slump, she said, was exacerbated by the national economic downturn. "In the past, the market dipped because of a recession," she said. "Now we're independent of a recession, there's still moderate growth." Absent an historical model, she declined to predict an outcome. History can't tell us what to expect in the New Year. We believe that the best information will come instead from the real estate professionals who are present to monitor the events as they unfold, and astute enough to perceive emerging patterns.

2.) We see the leveling of the playing field as another benefit to the new market place. It was unhealthy for homes to sell for substantial gains month over month. Many buyers paid a premium (beyond justifiable property values) in order to buy themselves out of the market. Now buyers can enjoy more reasonable negotiations. "Buyer friendly" contingencies are back, which allow for more time to conduct inspections and a more thoughtful process. In addition, it is now possible to buy the home of your dreams without necessarily being out-bid by a competitor.

3.) Finally, we see individual Lifestyle choices as playing a big role in the New Year. 2007 was the year for sitting on the fence as reflected in the reduction in the volume of sales. We believe more sellers and buyers will see 2008 as the year to move on with their lives. Area sellers may have to get more realistic about how long it may take to sell their home. Prices are not plummeting, but time on the market has increased. Hoping and waiting for the return of the frenzy circa 2003 will just add more days to your time line. Life involves change and if those changes include the sale of your home, we are here to tell you that sales are still strong in much of Berkeley, Oakland, Albany, Kensington and El Cerrito.

"If you've owned a house for a while, you don't have to worry. The gains you've enjoyed in recent years are huge compared with recent price downturns." --Joe Light, Money Magazine.

As for Bay Area buyers: Our area continues to be a desirable landing spot. We predict that buyers in 2008 will be interested in putting down roots in their new personal residence. 2008 buyers will value all of the wonderful intangibles that come with the bundle of rights associated with home ownership. For those buyers the market is ripe. View our post titled, It's a Great Time to Buy Your Dream House.

Refinance or New Purchase: What You Need Today to Get a Good Loan

Mortgage applications rise as rates tumble.

Mortgage rates have fallen with the expectation that the Federal Reserve will lower the federal funds rate when they meet on September 18th. This has increased the number of applicants looking to refinance and apply for new purchase loans. Rates are good, but qualifying for the best rate is more difficult during the current mortgage crunch. Banks are understandably a bit shell shocked from the recent melt-down in the sub-prime market. This will result in a pendulum effect and a conservative approach to evaluating borrowers. Proceeding with caution is a good thing. Let's learn from past mistakes and move forward. For those looking to take advantage of the good rates, here is what it takes to impress a lender:

• A Good FICO Score. Improve yours today with simple tips from our past post: Fix Your Credit...


• A Sizable Down Payment. Most loans now require at least 10 percent down, and lenders prefer 20 percent down.


• A Reputable Mortgage Broker. A good lender can increase your odds. Walking into your local bank branch may seem like an obvious approach to securing a home loan. However, your bank will have limited products available at any given time. Conversely, a good mortgage broker can shop your assets through multiple sources and help find the best program available for your situation. Reputation is important because you don't want to be disappointed if promises are not kept. Call your real estate agent for a reliable recommendation.


• Verifiable Income. Lenders would like to see at least two years of documented income. Self-employed individuals can still get financing, but rates may be higher.
  


• Patience. As banks take a more critical look at their borrowers, it may take longer for approval. Gather all the paperwork, and then realize that you may have to wait.

• A Backup Plan. Some well-qualified buyers were disappointed recently when their lender unexpectedly pulled the plug.
  

• A Dependable Real Estate Agent. A good real estate agent can help coordinate the pieces and keep your escrow on track.

Research source for this article: Dow Jones Business News (09/03/07)

Keeping an Ear to the Ground: Update on the Real Estate Market

It appears lenders are facing the increase in jumbo loan rates with new yet, prudent flexibility. Instead of recommending jumbo loans at 8% for clients who qualify, many are turning to loan combinations: Specifically, a buyer looking to purchase a single family home in this area for $750,000 with 20% down ($150,000) might consider a conforming first mortgage for $417,000 and a second mortgage at a reasonable rate for the remainder ($183,000.) In many cases the average interest on the two loans is more favorable then a jumbo loan of equal value. This flexibility is accompanied by more stringent qualifying criteria, as lenders pendulum away from the looser standards which contributed to the sub-prime fallout and resulting nationwide foreclosures.

There are oportunities for Buyers in this market. More stringent requirements have resulting in a smaller pool of buyers, and less competition. There are oportunities, but not a lot of bank owned property available for any reasonable discount. We do not have the frequency of foreclosures that some out-lying areas, such as Sacramento, are experiencing. There are two reasons for this. First with a high median price for Bay Area houses, many buyers enter with strong dual incomes and often bring equity from a previously owned property. This means fewer buyers sought 100% financing. Also, because our market has still had reasonable gains over the last two years, those who found themselves in trouble had more of an opportunity to sell and limit their losses. For Sellers, time on the market has increased and multiple offer winfalls are less likely, but buyers are still out there.

Help is on the Way: Central Banks Rally to Stabalize the Credit Market

Aug. 10 (Bloomberg) -- Central banks in the U.S., Europe, Japan and Australia added at least $131.3 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets

More than just a housing crisis, the sub-prime fallout threatened worldwide economies as confidence faltered and stock market funds plummeted. Monday mortgage lenders seemed to be over-reacting as many companies stopped taking new applications and others failed to honor existing commitments. Major lending sources recoiled in fear of uncertain futures. Now the central banks are uniting to inject money back into the banking system. This major act is designed to help stabilize the market and soften the risk for mortgage-backed debt.

In the U.S., the federal funds rate opened at 6 percent, the highest in six years. The rate fell to 5.25 percent after the New York Fed bought $19 billion of mortgage-backed securities and then followed up with $16 billion of funds in a second operation.

'Unlimited' Ability

"The Fed has almost unlimited ability to supply liquidity if they feel that is appropriate,'' Rivlin said. She noted that it was "symbolic'' that the New York Fed's first operation today involved mortgage-backed debt -- the type of securities that investors are unloading.

"Suddenly It's Not So Easy to Borrow"

As is often the case the New York Times says it best. Click on the link below for an easy to follow explanation of how we got into trouble:

Housing Busts and Hedge Fund Meltdowns: A Spectator's Guide

As new money loans dry up, sellers may have to consider creative financing to help buyers get in the front door, including; seller financing, land contracts and lease options. These concepts are not new, but feel more difficult to approach as sellers grapple with "the house that sold down the street two months ago for over asking price and closed in two weeks." As part of our service to sellers, we hope to expose your home to the largest pool of buyers, sell your home for the most money possible, and do our best to ensure that you never have to look back. Creative financing might help accomplish the first two tasks, but may keep your purse strings tied to the picket fence.

Lending Freezes, Rates on Hold, Clinton seeks Remedies

Here is an article listing some of the companies that have put a hold on writing new loans, or in some cases have declared an inability to fund existing obligations:

Mortgage mess spreads, creates bargains (Reuters)

The Federal Reserve met on Tuesday and left interest rates unchanged at 5.25%

Fed keeps US rates on hold; acknowledges market turmoil (AFP)

Hillary recommends action:

Clinton seeks aid for at-risk homeowners (AP)

The Sub-prime Fallout and Housing Affordability in the Bay Area

All of my usual optimism aside: For many months the sub-prime fallout did not seem to affect East Bay real estate, but now we are getting direct evidence that it is in fact taking some buyers out of the marketplace. A local lender, MPR Financial just sent a bulletin stating, "The secondary mortgage market has become extremely bearish on buying any new mortgages evidently due to the sub-prime fallout. If you have clients who are approaching the purchase of a home or new pre-approvals, please let them know that rates have risen dramatically and that lending guidelines have changed considerably." Although conforming loans are still available at reasonable rates, interest rates for jumbo loans are now exceeding 8%, and qualifying criteria has become more stringent. Self-employed and first-time buyers are often hardest hit as no-doc or low-doc loans and low-down payment loans become the first casualties of tightened lender restrictions.

Lenders are quickly closing the door to borrowers with low credit scores, small down payments for a new home or little equity in their current homes. Homeowners and buyers in high-cost areas such as California, Florida and the Northeast are also reeling as lenders chop "jumbo loan" programs.

"The market for virtually any loans with the slightest element of risk has effectively disappeared," John Bollman, an executive vice president at Cleveland-based National City Mortgage, wrote to his employees.

This will increase financing costs, mandate larger initial down payments for some buyers, and make monthly payments on some loans more expensive. Subsequently, the cost of home ownership has increased in our area. The full extent or length of this trend is unknown. Our housing inventory is still limited by our geographical boundaries, so how this will effect home prices remains to be seen.

Tip for Home Sellers: Make certain your real estate agent is equipped with the latest information on lending requirements and is assertive in asking the right questions of your perspective Buyer. Dated pre-approval letters may not meet the latest lender standards and no-doc, or low-doc loans may no longer be possible. A sizable down payment is now an even more valuable consideration in evaluating a purchase contract.

Tip for Home Buyers: Now more than ever, an experienced loan broker can help match your strengths to the best available loan program. Be wary of online lenders, especially if you do not have a local broker available to answer questions. A reliable real estate agent is also a must in the current climate. In a changing market reputable advisers are the best protection for your investment. See our post on fixing your credit score.

First Time Home Buyers Struggle to Enter the Market

This is a follow up to my last post. As previously mentioned, the meltdown in the subprime market has not pulled the doormat out from under Bay Area home owners. Still this economic phenomenon has not left the real estate market entirely unscathed. We had hoped that a leveling of the market would turn a greater percentage of housing dreams into realities. Unfortunately for some first-time home buyers, the carrot remains just out of reach. USA Today reports:

Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices in most areas. On top of that, lenders are now demanding that customers produce larger down payments, more cash reserves in the bank, higher credit scores and less debt — all of which many first-time buyers lack, especially in high-cost states such as California, New York and Florida.

As we look into our crystal ball, we can't help but be concerned for our infrastructure. If the trend continues, how will our teachers, police officers, and firefighters afford to live here? The Bay Area housing market has held strong due to a strong and diverse economy, the area's intrinsic desirability, and limited sprawl. But, what will happen if the people who service the needs of our community can no longer afford to live here?

Given increased housing costs and gentrification, how do you see our East Bay culture changing? (Click on text to leave your comment.)