Good News About Real Estate in the Mercury? Well Sort Of

September 2, 2008

Long-time readers know that I do my newspaper reading online via the New York Times. In a throwback to a quieter time, I do subscribe to the San Jose Mercury News on Sundays as we like to peruse the articles and share witty banter about the headlines over morning coffee. In an interesting twist, I also receive the paper on other random days of the week . . . but I digress.

When I picked up the paper on Labor Day (Second Sunday?), the headline “Home Sales Raising Hopes” bravely attempted to be seen over the front and center HURRICANE HITS GOP main headline. What’s this I thought, positive news about the housing market from the Merc? Really?

I have grown weary and wary of the Merc and its drumbeat of foreclosure of the week, gloom and doom, and reinforcing that real estate is local, and my market in Palo Alto varies just a bit from south San Jose. If you don’t believe me, visit Altos Research and compare the chart for median home price over the last couple of years in these two cities. The results may surprise you . . .

The Merc got my hopes up with an intro and a couple of quotes from brokers saying they were expecting an upturn in sales in the Fall after activity was so low in the summer, and there is usually an upturn in the fall. There is some back and forth, and the article pretty much shot down the “fall uptick” conventional wisdom. Again, Altos to the rescue showing inventory and sales actually DO pick up in Palo Alto fairly consistently every fall before slowing down over the holidays.

To see the article on its entirety, click here to visit the Mercury online. For charts and stats galore, visit the Market Reports page on my website, now in Single Family and Condo!

Thanks for reading . . .

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Written by Chris Iverson, Realtor · Filed Under Articles, Buyer and seller tips, Consumer | Leave a Comment 

Timing the Market, A Banker’s Viewpoint

September 1, 2008

Credit for this post really goes to 3 Oceans contributor Eric Trailer who sent me this content in a letter this week. My clients got it last week, and the blogoshpere can now benefit. We can assume that Eric has better things to do on Labor Day than blog. I’m guessing something involving his lovely wife and son . . .

To see current market data and price trends over the past year for local communities and confirm or refute Eric’s prognostications on the local market in Palo Alto and the surrounding communities,

CLICK HERE to see real-time market data, courtesy of our friends at Altos Research.

As you have likely been hearing, there continues to be more and more evidence that it will cost prospective home buyers more to purchase a home in select areas of the Bay Area as they allow time to go by.
Why? Let’s look at the basic reasons, then review an example:

1.        The median price across the board in Palo Alto and the surrounding communities has risen since the beginning of the year.

2.        On a national basis, the trough of the market was reached in April.

3.        The conforming loan limit will DECREASE over $100,000 in 2009 to $625,000.

4.        Rates have risen about .5% since the beginning of the year, despite the increase in the conforming loan limit to $729,750

5.        Loan qualifications are becoming more restrictive with each passing week.

6.        More restrictions on loans and a tighter supply of money forces rates to go up

7.        Because loans require more work to process them (requirements today are 4x what they were a year ago), rates will go up.

8.        Inflation is the number one concern of the Fed, and should be the number one concern for all of us.

Let’s say for a moment that you agree that rates are on the rise, but feel as though prices may come down on a $1mm property today; thus, you want to wait. Let’s further assume that you are right and the future price is $950,000, but rates have increased .5% at that future time. Using 20% down, waiting just cost you an ADDITIONAL $117 per month-over $1,400 per year.

But now let’s be more realistic given the appreciation rates of desirable areas of the Bay Area. If rates increase and the $1mm home appreciates to $1,050,000, you are looking at an ADDITIONAL $550 PER MONTH-OVER $6,000 PER YEAR!

What’s the take-away here?   Price matters much less than true cost… My motto has always been that it always pays off to buy sooner than later, provided your holding period is greater than four years. And to prove that I walk the walk, I am happy to share my personal situation written as an article titled, “How to Afford a Home in Palo Alto Without a Trust Fund.”

Kindest regards,

Eric

To call Eric on his walking the walk comment, and get a copy of his article, “How to Afford a Home in Palo Alto Without a Trust Fund.”, click on his pretty picture over there in the contributor column to send him an email.

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Written by Chris Iverson, Realtor · Filed Under * Type of Content, Altos Research, Articles, Buy vs. rent, Buyer and seller tips, Buyers, Companies and products, Consumer, Financing Process, For buyers, Home buying, Lenders, Market updates, Mortgage, Mortgages, Palo Alto, Personalities, Real estate, Strategy, Technology | Leave a Comment 

Why Lemmings Die - How “Conventional Wisdom” can cost you

December 18, 2007

With all of the media coverage about the implosion of the real estate market and the rising rate of foreclosures, every time I turn around someone is asking me about the health of the local real estate market in and around Palo Alto. They seem to expect me to echo what they are seeing on TV and reading in the newspaper. Nothing could be further from the truth, especially in Palo Alto, which is still enjoying a Seller’s Market with prices maintaining their stratospheric levels as hordes of well-qualified buyers patrol the city in hopes of seeing something new to look at. Last week there were a whopping three (that’s 3) new homes coming on the market in Palo Alto.

When hearing this unexpected good news on the health of the largest investment and asset that most non-Google employees have, a few folks have asked me if I think this market will continue (I do - subject of another posting), and that they are considering selling their homes in the Spring.

Spring, like April 2008? I ask

Yes.

Why then?

Well, that is when all the houses seem to come on the market, so that must be the best time to sell . . .

I have gotten better at controlling my reaction (giggling is a great way to start off on the wrong foot). But I then usually explain things in economic terms of Supply and Demand.

If you are a lemming seller and put your home on the market when everyone else does, how do you make it stand out from the competition? You can spend more on preparation (fresh remodel, landscaping, staging, etc.), more on marketing (more advertising, open houses, etc), or you can price it below the competition, or a combination of all three.

These approaches all result in less of a return for the homeowner at the end of the day, much like the price of oil usually drops in May because demand for heating oil has dropped off and the summer driving season hasn’t started yet. Alternatively, when oil is scarce like during a particularly cold winter, or if oil producers reduce production, prices go up.

What if you could make a house scarce? Would that increase the relative interest level and selling price?

Generally, we see the number of homes in Palo Alto for sale increase in mid-February and be high until around Memorial Day, then there is another seasonal increase after Labor Day until late October. Seasonal lows in inventory run from mid-November to mid-February, and then there is another drought in late Summer. Selling prices tend to run inverse of these seasonal inventory fluctuations, as greater scarcity creates greater perceived value for Buyers.

In Summary, an easy way to get your property to stand out is to put it on the market during one of the low inventory times. Serious buyers are always looking, and who would you rather have trooping through your home, serious, qualified Buyers, or people who like to look at houses on a pleasant weekend afternoon?

If you are considering selling, don’t be a lemming and wait until Spring, contact your real estate professional and have him or her show you market data and discuss how to get your home on the market during one of the “off-times”.

Skeptical? Don’t believe me? You can see objective market data for your area, courtesy of Altos Research here, or sign up for a customized report on the market in your area here.

Thanks for reading.

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Written by Chris Iverson, Realtor · Filed Under * Type of Content, Analysis, Business of real estate, Buyer and seller tips, Consumer, Real estate | 4 Comments 

Mortgage Mania Part 16 - The Hits Just Keep On Coming

December 11, 2007

Ben And The Boys (aka the FOMC) cut short-term interests rates by .25% earlier today in an attempt to:

1) Soften the mortgage industry landing from a smoking hole in the ground, to more of a smoldering skid mark. Don’t tell Washington Mutual who announced 3000 employees were getting pink slips in their stockings, and the bank is setting aside up to $1.6 Billion for losses in the 4th quarter.

2) Generate some consumer confidence this Holiday Shopping Season, since 2/3 of our economy is driven by consumer spending. Uncle Sam wants you to buy a Ford and / or Chevy.

3) Address concerns that “information suggests that economic growth is slowing,”

4) Give me somethnig to rant about (Thanks, guys!)

Interestingly, Wall Street, which has been on the rise over the last two weeks, had apparently priced in a bigger cut, so it responded by pummeling the Dow, lwhich lost 294 points on the day. Ouch! Maybe some retail therapy is in order . . .

Mortgage rates weren’t significantly affected by the rate cut. The Fed Funds rate is a short-term rate, and mortgage rates are long term. Mortgage rates are still at two-year lows, and it’s a Neutral or Buyer’s Market everywhere but Palo Alto.

Apparently, Palo Altans stayed awake in Econ 101 during the lecture on how relative Supply and Demand affects Prices. Although Demand in Palo Alto has dropped in recent months, Supply has dropped equally or more, maintaining or increasing Prices. Adam Smith would be proud.

Bueller, Bueller . . .

For an actual news article on today’s rate cut by an actual journalist, as opposed to a caffeineated Realtor, click here.

 Thanks for reading.

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Written by Chris Iverson, Realtor · Filed Under Analysis, Buyer and seller tips, For buyers, Real estate | 1 Comment