Real Estate Values

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March 14, 2011

More Short Sales on the Horizon

Posted by martikilby under Home Ownership, loan modification, Real Estate Values, Short Sale | Tags: , , , , , |
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Research and analytics company CoreLogic reported last week that 23% of all homeowners owe more on their mortgage than their home is worth.  All together, the negative equity of our nation’s homes is around $750 billion. 

I don’t know about you, but I find it pretty scary that nearly one quarter of all homes have negative equity.  Even if those homeowners don’t default and continue to pay their mortgage, this is a huge deterrent to recovery for the housing market.  In a healthy market, many of these folks would be selling and buying, either trading up or downsizing, or simply moving to a different location.  Instead, 11.1 million homeowners are stuck in their homes, unable to sell because of negative equity.

As noted in previous posts, I don’t have a crystal ball and I’m certainly not an economist, but as I’ve mentioned, one possible solution seems pretty obvious:  Principal reduction.  Since the top of the market in April of 2006, home values have dipped by an average of 32.8%.  The majority of the people who are underwater today bought or refinanced at the height of the market…..what if their mortgages were reduced by 30%?  Do you think that would help reduce defaults and stimulate sales?  Of course it would!

Logically, this seems like a good idea.  If banks are going to lose the money anyway if a home is foreclosed or sold short, why not take the loss up front and bring some real stability back to the housing market?  Although a few banks have offered some principal reductions, it is rare, and I have yet to hear a really good answer as to why more don’t. If you understand what seems to be some twisted bank logic, please explain it to me.

In the meantime, I predict that we will see an increase in short sales. As banks are providing few meaningful loan modifications and with the economy still shaky, even those people intent on staying in their homes despite negative equity may be forced to sell because of loss of job, decreased income or relocation.  Fighting $750 billion in negative equity is a not a battle that will be quickly won.

 

February 3, 2011

Whew! Home Prices Stabilize in San Diego

Posted by martikilby under Home Ownership, Real Estate Values | Tags: , , , |
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Home prices across the country have taken a roller coaster ride over the past few years with far more hair-raising dips than inclines.  According to a Fiserv, Inc. report, the ups and down may not be totally over, but the financial services company predicts that by the end of 2011 75% of U.S. metro areas will see stable prices.

The good news for San Diego is that we are only one of three metro areas that had prices stabilize in recent months.  San Francisco and Washington, D.C. are the other two.  Still suffering are hard-hit areas including Miami, Phoenix and Las Vegas where prices are not expected to smooth out until late 2012.

This is not to say that we won’t see some price reductions in certain neighborhoods, but overall the downward slide in value is over for most San Diego homeowners.  Foreclosures, unemployment, and restricted access to credit will continue to be the three negative factors influencing our market, but increased demand based on low prices and low interest rates seems to be balancing our market favorably.

So is this a good time to buy?  As I’ve said before…..absolutely!  Prices are already increasing in many areas, but if you’re curious about where you can get the most bang for your buck in San Diego county, give me a call.

 

January 26, 2011

Still Cheaper to Buy than Rent in San Diego

Posted by martikilby under Buying versus Renting, Home Ownership, Real Estate Values | Tags: , , , , |
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In a survey of the 50 largest U.S. cities, Trulia found that it is still more affordable to buy than rent, even in San Diego.  But does this survey tell the whole story?

According to the guidelines the company used, a price-to-rent ratio of 1-15 means that it is more affordable to buy than rent, a ratio of 16 – 20 indicates it is more expensive, but still might make financial sense, and a ratio of 21+ means that it is definitely much more expensive to buy than rent.  San Diego scored a 15, and only 4 cities were over 21, including San Francisco, Seattle, New York, and a surprise, Kansas City, MO.

That all sounds well and good, but it should be pointed out that the survey compared the cost of buying versus renting 2 bedroom apartments, condos and townhomes, not single family residences.  The company arrived at the numbers by comparing the median list price of homes offered on their website for 2 bedroom units to the median rent for a comparable home.  Also, I’m not sure that looking at list price is an accurate indicator as most homes do not sell at list price.

The other problem I have with the survey is that it doesn’t take into account the level of demand for apartments or townhomes versus single family homes.  In New York or San Francisco, there is a much higher demand for condo living than there is here in San Diego.  I believe a more accurate survey for our market would be the comparison of buying versus renting a 3 bedroom 2 bath single family home analyzing sales price and actual rent paid.

The survey results did however indicate an interesting shift in the demographics of who is buying and renting.  According to Tara-Nicholle Nelson, consumer educator for Trulia, “Lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants – some by choice and others by necessity.”

In the end, I don’t really believe that renting or buying a home is just about the numbers, and who is under the roof with you is much more important than the cost.

 

December 29, 2010

Taking a Bet on Real Estate in 2011? Here’s My Predictions

Posted by martikilby under foreclosure, Home Ownership, Interest rates, loan modification, Real Estate Sales Statistics, Real Estate Values, REO, Short Sale | Tags: , , , , , , , , , , , |
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Once again, Santa forgot to bring me a crystal ball.  So this look into the future of the housing market is based on trends from the past year, projections from those that crunch the numbers, and my gut feelings based on life in the real estate trenches.

Foreclosures continued to be the top story in 2010 with robo-signing and questionable practices making headlines.  In 2011 so-called shadow inventory will be making news as it grows and clogs the pipeline.  This includes borrowers that are 90 days or more delinquent, homes in foreclosure, and bank-owned properties not yet on the market.  S & P estimates that it will take 41 months to clear the backlog, continuing to slow the recovery.

Short sales will increase as the government and lenders try to stem the deluge of foreclosures that add to the shadow inventory.   Right now about 35% of defaults end in a cure or short sale.  I see that number growing as banks and the government iron out the problems with HAFA (Home Affordable Foreclosure Alternatives), and the processing of short sales is streamlined.

Loan modifications will continue to be largely unsuccessful.   There is some hope for small improvement in the numbers if the FHA principal reduction program can be expanded.

Mortgage interest rates jumped this last month, but are gradually heading down.   Frank Nothaft, chief economist for Freddie Mac foresees rates staying below 5.00% throughout the year.  Let’s hope he’s right.

Home sales will increase, especially for first-time buyers, provided interest rates remain low and the economy continues to improve.  If unemployment continues to decrease and incomes increase we should see an increase in home sales over 2010 by the 2nd half of the New Year.

Home values throughout most of the country will reach the bottom by mid-year and many areas, such as San Diego County will see modest gains of 2.00 – 4.00%.  The exception continues to be the luxury home market where home prices in locations such as La Jolla and Rancho Santa Fe will continue to decline.

My advice?  If you own a home and are not terribly upside-down, hang tight.  Looking to buy?  Do it now!  This is a great time to purchase your first home or pick-up an investment property.  Struggling with your payments?  Let’s explore your options, before it’s too late.  Overall, I’m cautiously optimistic.

Best wishes for a happy, healthy and prosperous New Year!

 

December 10, 2010

Staggering Stats: Trillions in Equity Lost

Posted by martikilby under Home Ownership, Real Estate Sales Statistics, Real Estate Values | Tags: , , , , |
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This year alone U.S. homes are projected to lose $1.7 trillion in value.  Since the market peaked in 2006 there has been over $9 trillion in lost equity, according to Zillow.  But let’s put that in perspective.

Zillow cites a report by the Congressional Research Service, which says that from 2001 to the end of September of this year, the war in Iraq has cost the U.S. $750.8 billion.  This means that since 2006, the dollar value of home equity lost by U.S. homeowners is greater than the cost of 12 Iraq wars!

Now some might argue that home equity in 2006 wasn’t “real” money, and that inflated prices only created the illusion of equity.  Well, most of the country based many financial decisions on that illusion and by the end of the 3rd quarter 2010; more than 23.2% of homeowners owe more than their house is worth.

Looking forward into 2011, Dr. Stan Humphries, Zillow’s chief economist, doesn’t see the market settling into a natural equilibrium of supply and demand any time soon.  “Unfortunately, with foreclosures near an all time high in late 2010, and negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” he said.

One bright spot for San Diego emerged however.  Out of the 129 market areas tracked by Zillow, only one-quarter showed any increase in value in 2010, led by Boston with a spike in residential home values of $10.8 billion and San Diego metro with an increase of $10.2 billion.

The message for San Diego homeowners:  Hang-on if you can and you’re not too far underwater.  For would-be buyers:  Don’t wait!  Prices and interest rates are on the rise.

 

December 2, 2010

Reducing the MID is a Stupid Idea

Posted by martikilby under Home Ownership, mortgage, Real Estate Values, Tax Deduction | Tags: , , , , , |
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We all agree that reducing the national debt and annual deficit is important to the long-term stability and health of our nation’s economy.  But why, in a time when the housing market is so fragile, would anyone think that reducing one of the principal benefits of home ownership is a good idea?

Yesterday, the Deficit Reduction Commission issued its recommendations which included cuts to Social Security, Medicare, Defense spending, and the Mortgage Interest Deduction, among other programs.  The Mortgage Interest Deduction has been around for over 80 years and is one of the principal benefits of owning a home.  This provision allows homeowners to take the annual interest paid on their mortgage as an income tax deduction. Take away or significantly lower the deduction and the benefits of home ownership are reduced to choosing your own paint colors.   Values are not appreciating; no one is building equity, so why buy?

Coincidentally the Federal Reserve’s Beige Book was also released yesterday showing that the depressed housing market continues to be one of the biggest stumbling blocks to economic recovery.  So if I understand correctly, the Feds are saying that our economy won’t show significant improvement until the housing market recovers and at the same time the Deficit Commission is proposing that we make home ownership less appealing.   The logic eludes me.

I believe that the impact of this proposal will be a significant blow to the struggling housing market, whether or not it is ever enacted.   The public in general is still nervous that home values will continue to decline, so many would-be buyers are sitting on the sidelines waiting to buy.  The news reporting of this proposal, and even the remote possibility that the deduction will disappear gives them one more reason to stall, further delaying recovery.

Although I don’t always agree with their politics, the National Association of Realtors got this one right.  This is a stupid idea and I hope that you’ll join me in asking your Representative to defend the Mortgage Interest Deduction.

 

November 15, 2010

Home Improvements That Add Value: The Winners and Losers

Posted by martikilby under Home Improvement, Real Estate Values | Tags: , , |
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Considering a major home improvement?   Updating a kitchen, replacing windows or adding living space are just some of the expensive renovations that homeowners tackle to add functionality or enjoyment to the use of their home. But which projects are the big winners and losers when it comes to adding value?

Winners

Kitchens are at the top of the list in terms of adding value to your home.  Renovating an outdated kitchen can add thousands to your bottom line when reselling your home.  Because remodeling a kitchen is a big, disruptive project it is something most buyers want to avoid.  An updated kitchen requiring no work is definitely an added value.

Bathrooms are another winner.  Just like kitchens, an outdated bathroom represents a major project and expense to most buyers.

A master bedroom suite can also be a big plus.  An added walk-in closet and larger private bathroom are very appealing selling points to most buyers.

Popcorn ceiling removal is a relatively inexpensive project that definitely adds value.  Again, this is a messy, disruptive project that buyers want to avoid.

Replacing windows and or the roof are projects that are marginal winners.  Most buyers expect these items to be in good condition.  So while replacing them may not add tremendous value, not replacing them if old or worn could significantly detract from resale value.

Losers

Swimming pools lead the list of projects that don’t add significant value to your home.  Because they can be viewed as dangerous, and are expensive to maintain, swimming pools can actually be seen as a negative to many buyers.

Room additions that don’t conform to the original design or floor plan also detract from value.  While enclosing a back patio or converting a garage to living space, may add to usable square footage, most buyers don’t want a dining room that has a window into another room and probably do want a garage.

Overbuilding or high-end upgrades are big losers.  Improvements should be comparable to other homes in the neighborhood.  Increasing a home to 5000 square feet in a neighborhood of 2000 square foot homes is money that will never be recouped.  Likewise, using the most expensive fixtures, appliances or flooring will generally not add more value than using a slightly less expensive selection.

Extensive landscape and professional hardscape features may be very enjoyable and add to overall appeal of your home, but will most likely not significantly add to resale value.

Invisible improvements such as replacing plumbing, electrical or HVAC systems are not big winners.  Again, buyers expect these items to be in good condition and it is seldom that you’ll recoup your investment here.  Consider these a part of general home maintenance.

When planning a major home improvement project, keep in mind that even if your project is a winner, you’ll probably not recoup more than 75-80% of your investment when reselling your home.  Especially in today’s market with home values remaining flat, the primary reason for undertaking any home improvement project should be for your own enjoyment of the home, not adding to your bottom line at resale.

 

November 8, 2010

National Home Sales Drop in September – What about San Diego?

Posted by martikilby under foreclosure, real estate, Real Estate Sales Statistics, Real Estate Values | Tags: , , , |
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For the first time since June, pending home sales (number of contracts signed), dropped in September by 1.8% according to the National Association of Realtors. The report was unveiled on Friday as the Association began its annual convention in New Orleans.  This came as a surprise to many as a group of Reuter’s polled economists had recently anticipated an increase of 3%.  So why the drop?

Paul Dales, U.S. economist for Capital Economics surmised that the lower number was a result of the recent foreclosure mess; deals signed in September, might have fallen apart in October as banks pulled some foreclosures from the market and buyers got cold feet.  But that doesn’t really make sense as the September drop occurred before any of the problems with foreclosure affidavits came to light.

I think that one of the most obvious factors is the continued unemployment rate that has now been at 9.5% or higher for the past 15 months.  People who aren’t working, or fear that their employment is tenuous don’t buy houses.  Lawrence Yun, NAR’s chief economist also pointed out that “tight credit and appraisals coming in below the negotiated price continue to constrain the market.”

So as noted in my post on November 3, Capital Economics continues to predict a bit more of a gloomy future for the housing market.  Dales says that “existing sales may well fall back,” and described housing activity as “bouncing along the bottom.”  NAR on the other hand continues to be a bit more optimistic, forecasting an increase in existing home sales in 2011 to 5.1 million, up from 4.8 million this year.  I’ll keep you posted as soon as I have the San Diego numbers for September, but I’m siding with NAR and remain cautiously optimistic about sales in America’s Finest City, especially if lenders loosen their stranglehold on the market by approving more home loans.

 

November 3, 2010

Are We Headed for a Double-Dip in Home Prices?

Posted by martikilby under foreclosure, Interest rates, Real Estate Values, REO, Short Sale | Tags: , , , , |
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We all know that numbers and statistics can be interpreted in many different manners, depending on the desired outcome and the audience.  Case in point, within the last two weeks we have two separate reports on U.S. housing prices that range from cautiously optimistic to doom and gloom.   What’s real, and who do we believe?

Back on October 13, I happily reported in a post on this blog that according to an elite panel of economists surveyed by the National Association for Business Economics, home prices across the US saw their lowest point in the first part of the year and have been gradually trending upward.  In San Diego, the news was even more encouraging as our prices rose higher than the national average.

However, that trend over the past nine months might not hold true for the future.  On October 29th, Capital Economics, a leading international economics research firm, announced that a double-dip is already underway for both housing activity and residential prices.  Paul Dales, a U.S. economist for the firm, predicts that home prices will continue to decline over the next twelve months with a dip of over 5%.  Paul and his team add that if the economy continues to improve more quickly than analysts predict, home prices might hold steady.  On the other hand, if the economy worsens greater than predictions, prices could fall as much as 20%!

That’s huge!  Couple that with the firm’s forecast that housing demand for the next three years will remain “unusually weak”, while supply remains “unusually high”.  Right now the analysts say that there are about 1.5 million too many homes on the market given today’s demand, and that number will likely swell with additional foreclosures.  There are approximately 2.5 million homes in foreclosure and 2.4 million that are 90 days past due.  That is an addition of nearly 5 million homes that could flood the marketplace in the next year.

So what does all of this mean for San Diego real estate?  Well, I wish I had that crystal ball, but here’s my take.  To a certain degree, I believe that both reports are correct.  I certainly believe that we’ll see an increase in the supply of homes on the market due to foreclosures and short sales.  Banks can control the number of REO properties they bring to market, but I think that we’ll see a large increase in short sales as homeowners seek to avoid foreclosure. However, I don’t see a huge dip in home prices, at least here in San Diego.  I do believe that barring a total economic melt-down we’ll continue to see static prices with some modest increases in value, particularly in the $250,000 – $400,000 price range for single family homes.

Is this a good time to buy?  Absolutely!  With prices and interest rates at near record lows, what’s not to like?  Waiting to see if prices fall further is a gamble in my book as it is very likely that 6 or 9 months from now, interest rates could be as much as a full percentage point higher.

 

October 19, 2010

Finally…a Solution to the Housing Mess?

Posted by martikilby under foreclosure, lenders, Real Estate Values, REO, Short Sale | Tags: , , , , , , , , |
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Numbers were released today for the month of September that show that foreclosures and inventories of bank-owned properties are on the rise in Washington, Oregon, Nevada, Arizona, and California.  The report was issued by ForeclosureRadar, a company that tracks every foreclosure in the five western states and provides auction updates.  Although several bank and loan servicers have announced that they are suspending foreclosures while investigating internal procedures, ForeclosureRadar analysts have yet to see any impact of this suspension on the numbers.

So the report is reminding us that nothing is getting any better, and in fact it’s getting worse.  Last month in California, the number of foreclosed properties that sold declined by 15.6% while inventories of bank-owned homes increased by 5.3%. And according to ForeclosureRadar’s CEO, Sean O’Toole, “…the reality is that far more homeowners are behind on their mortgage payments than are even in foreclosure.”  To me, this spells a further increase in the number of short sales and foreclosures, with no end in sight.

However, in the middle of this disheartening news, Mr. O’Toole voiced the only logical response to the real estate crisis that I’ve heard all year. “The clear problem in the housing market today is not foreclosures, but negative equity; and as long as the focus remains on the symptom rather than the disease we will see little progress towards real solutions and this crisis will drag on for years to come.”

Finally!  Someone gets it!  Negative equity is the real problem that needs to be addressed.  As I mentioned in my earlier post about the FHA principal reduction program, reducing the principal owed to be more in line with current values is the best and quickest way to curtail the growing number of strategic defaults.  Most people who have bought a home, want to keep their home…..but it has to make financial sense, especially in today’s struggling economy.  Reducing the principal amount owed not only makes the mortgage payment more affordable, it provides an incentive to stay and pay.

So from my perspective, until the banks and investors decide that taking a loss through principal reduction is preferable to taking a loss through foreclosure, our housing market will continue to disintegrate.  How many more foreclosures and short sales will it take before the banks are ready to listen?

 

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