October 1, 2009: Is there anything new to report?

As I reread my post for June I must say that things have changed less than I'd hoped. Normally we have a fairly robust Autumn market, which begins right after Labor Day. We can usually count on quite a bit of new inventory appearing then, and continuing until the first week of December. We're not really seeing that this year. A large number of homes on tour are ones we've seen before; some of them have been seen for months now, and at decreasing prices. So when that elusive animal, the "family home," appears in a desirable neighborhood, you can bet there will be multiple offers.

My clients were fortunate to snag such a home in the Thousand Oaks neighborhood. It had the right statistics: 4+ bedrooms, 2 baths, an updated kitchen, a garage, a pleasant garden and a bit of a view. It also had that element that is harder to define: it was welcoming. Hardwood floors and rich colors help, as did a slate entry patio and then a large entry way. An eat-in kitchen added to the charm, as did a garden with a delicious variety of fruit trees. My clients were one of four parties who were taken by the charms of this home, three of them represented by Berkeley Hills agents! My clients offered $100K over list and a 17-day escrow. Even with those lovely terms, we were countered to remove both our financing and appraisal contingencies. In this market?! you may ask. But yes, one of the characteristics of this hyper-local market is that there are still more buyers for homes such as this than there is inventory. And there is a surprising amount of cash in our area. We were competing against an all-cash offer, and in a market where loans, especially jumbo loans, continue to be dicey, we were competing against certainty. Normally I would have advised my clients against such a move, but they were in the fortunate situation of having a large down payment, and a loan provided by (and funded by) the University of California. With UC as bank, we had a very smooth transaction, and they now begin the much harder task of selecting contractors to add a bathroom upstairs, and customizing the home to suit their family. But they're starting with good bones in a great neighborhood!

June 1, 2009

So How's the Market?

Those of you who have known me for awhile know my mantra for how I define the housing market:  House by house, week by week.
Now more than ever that is true. While national averages and state statistics show a slight increase in activity in a market dominated by foreclosures, the Berkeley area continues to defie definition.   Inventory is even lower than last year, and demand is higher. As a result, multiple offers are again common on properties that are well-priced. Price reductions on properties that start out priced too high are still common.  We are seeing fewer inspection contingencies in offers than a few months ago, as more buyers, motivated by exceedingly low interest rates, enter the market.

Buyers continue to be discriminating, hoping that the national news might apply to them, and that the advantage is theirs. As always, it depends on the house.  But those who assume that more foreclosures are on the way are probably correct. Banks have been moderating the numbers released, and there is much anticipation of huge numbers of short sales and foreclosures for the summer months.
 
I personally am delighted, and yes, a wee bit surprised, that my perfect record remains intact. Each listing I've had in this area has sold, and with multiple offers. My recent Julia Morgan listing on Santa Barbara set a new high mark for attendance at open houses! That gorgeous home received four offers on the scheduled date, and a fifth while in contract. It closed $150K over list.    

I surprised many Alameda agents by generating 10 offers on a listing there of a duplex:  an Arts & Crafts bungalow paired with a War era cottage on a large lot. Very appropriate staging plus prominent marketing, both to buyers and to agents, succeeded in creating a buzz, and made for a very happy seller!

March 5, 2009 -- So, How's the Market in Berkeley?

While short sales and foreclosures are not a large part of the market in Berkeley and immediately surrounding areas, you don’t have to go far before you’re in towns where half or more of the inventory is bank-owned (REO). Richmond has many properties for sale at less than half their selling price just two to three years ago.
 
While many neighborhoods have been largely immune from the influence of foreclosures, we are beginning to see some in the toniest neighborhoods. Just today I saw signs out for an REO near the intersection of The Alameda and Marin, right in the heart of my village!

**American Recovery & Reinvestment Brings higher Conforming Limits

We are back to working with some old products to help our buyers, namely, FHA loans. We will need to adjust our advice for buyers and our sellers who wish to take advantage of historically low interest rates, especially as the Stimulus Package takes effect. Once of the important features of the 2009 American Recovery and Reinvestment Act, especially in our area, will be the reintroduction soon of the higher conforming loan limits. In talking with local loan brokers they indicate that it will be a couple more weeks at least before it is possible to price a loan at the new higher “super conforming” loan amounts, up to $729,750. For details on the other major component, the Tax Credit for first-time owner-occupant buyers, click HERE.

 

February 18, 2009 -- Homeowner Plan announced

President Obama announced his Homeowner Affordability and Stability Plan, designed to help up to 7-9 million families avoid foreclosure by restructuring or refinancing their mortgages. In doing so, the plan not only helps responsible homeowners behind on their payments or at risk of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs.

The key components of the plan are:

1. Government Sponsored Enterprises (GSEs) Refinancing for Up to 4 to 5 Million Responsible Homeowners with GSE loans to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The New York Time ran a graphic that I found helpful in describing the various conditions in which the new Plan will assist homeowners. Click here. More details will emerge over the next few weeks and I will attempt to provide summaries here.

 

February 2009

I said last year when our market was in need of more homes to sell that everyone was waiting for another shoe to drop before our housing market would see more activity. The first shoe was the election, and the entire exciting but fatiqueing process needed to be over. Then we all needed to see our new president inaugurated, and what an inaugural it was! It was the first time I felt deeply engaged in that ritual. I sat with several dozen others at the Hillside Club, with a feast of muffins and fruit and casseroles, an old-style community gathering with lots of food, as we watched images projected on a large screen of this amazing event in our nation's history. I felt sure the housing market, at least in our area, would begin a slow process of gaining more balance and overall more activity.

Male agents say that the housing market begins after the Superbowl. I've always told me clients that the market will begin once the daffodils bloom, and this week those two events coincided nicely. The week the first yellow narcissus opened in my garden was a week when some buyers called to say they wanted to start looking, and I took two listings that week. Of course our market is not the same as two years ago. But it is one of the pockets of strength mentioned in the few news articles that bother to mention that the entire real estate picture is not dominated by foreclosures. The question is how much of that strength can continue into 2009, or whether we are simply one of the last areas to be greatly impacted. I continue to be a booster of this part of the East Bay, and believe that the inherent assets and beauty of our region will persist in maintaining value, and will continue to distinguish us from other areas. But that is a relative strength. It is still very painful to tell clients that their homes have devalued 10% from when they purchased. Relative to other areas even within the greater Bay Area, that is a small number, but that's small consolation to the families who bought at the peak and can no longer sell for that amount. Those are conversations I had hoped never to have with clients, and it's a skill I pray I will not need to hone for long!

 

Thanksgiving Week 2008

At a time when "unprecedented" is being used to describe numerous economic events, an $800 Billion stimulus package was announced this week. The intent is clear enough: to encourage spending on new mortgages with interest rate reductions, and easing the terms by which Americans can incur more consumer debt. There is something curious to me about the premise. Interest rates were already quite attractive, hovering around 6% when historically the number to beat was 7%. In working with first-time buyers in particular, I see the dramatic differences between those who have been able to save money, and hence have had the 20% down payment required in this newly conservative lending environment, vs. those who have been unable to save.

Encouraging additional spending is clearly what economists feel is required at this juncture to reenergize an economy traumatized by huge swings in major indicators. We’ve grown eerily accustomed to the stock market being either up or down several hundred points each day, oil prices that were in "unprecedented" territory falling to half those amounts within a few months, foreclosures dominating sales in many areas and unemployment at levels not seen for decades. The intensity of the news and the volatility of major indicators are truly enough to have all of us on edge, uncertain, cautious.

I would love to assist buyers in purchasing homes in our wonderful East Bay area with its continued strength. So while I would normally welcome measures that would make it easier for buyers to enter our housing market, I can't help but feel that this latest measure, including $200 Billion set aside to make it easier for consumers to get further into debt with credit cards, is contrary to the best long-term interests of families as well as the over-all economy.

Some of those would-be buyers are convinced that our housing market will devalue further, and are unwilling to enter it until prices even in Berkeley, Rockridge and Albany are in bargain territory. It almost seems that some of these folks must be sure that the seller is experiencing pain before they are willing to buy. So far no precipitous drop in sales prices has occurred, and without that mythical crystal ball no one knows for sure if it will. My personal belief is that we may see a bit more softening, reflecting itself primarily in homes taking longer to sell. My guess is that we'll see much more optimism in our housing market after the inauguration. Bargain hunters might want to take advantage of these last months of a lame-duck administration and seasonal slowness mixed with the likely interest rate advantages from these latest stimulus attempts.

I'm currently in contract with buyers who wanted to establish a home together and were actively looking over the past few months. They know there is some risk that the value of their new home could go down soon after they purchase, but they are confident in the long-term stability of this area. They are looking forward to painting the walls something other than white, and planning a garage conversion to add space when they eventually have children. In this week of Thanksgiving I thank them for injecting some optimism in my daily experience. I thank them for being clear that buying a home is something quite different from buying stocks, and that while it is an important financial commitment, the emotional commitment is just as important, if not more. So much uncertainty, so much loss, so much news that is sad -- this year we Realtors have been in the eye of the storm. This is a good time to step back and truly count our blessings.

 

Early Autumn 2008

I write this at the end of one of the most dramatic weeks in the economic history of this country. With swings of several hundred points in one direction, and then the next, our financial sector is too volatile to discuss in generalizations. If you'd like my opinion about whether the current environment is a good one for you in terms of either buying or selling, call me. The discussion must be tailored to your needs, your home, your ability to deal with risk, etc.

I can make some broad-brush comments such as, it's now very difficult to get financing without 20% down. Most of the secondary loans are no longer available. Appraisals must be made within very narrow parameters, such as using comparable properties within the same zip code, and sales within 90 days of the subject property. That's about as much generalizing as I'm willing to do!

So please, call me! I love to talk about real estate, the market, and how you can make small energy-saving changes. I truly enjoy speaking with people about their homes, and will give you lots of advice and counsel. I do not charge you for this service, but I do appreciate a nice cuppa tea!

 

Late Summer 2008

House by House, Week by Week

That has become my mantra whenever I am asked how the market is in our area. Despite all the news to the contrary, in our part of the East Bay the real estate market is still strong. That's not to say that there has been no change at all.

The lending industry is a constantly moving target. The latest take over of Fannie Mae et. al. has resulted in a significant drop in rates, and buyers are responding! Even those who have been holding out the longest are back looking at homes, hoping to take advantage of these low rates.

While loans are now available for most buyers, the paper work requirements are intense. Borrowers for the most part now need to be able to document adequate income and employment history. To me, that's as it should be! Stated income loans still exist, but they are scarce. Essentially lending standards have returned to what they were about five years ago. There have been times recently when it really was tough to acquire funding with a decent rate on a jumbo loan, especially loans over $1M. That situation has improved, and is likely to be fairly stable for the balance of this year. Appraisals, which have rarely been an issue for my listings or my buyers, suddenly became a huge obstacle in July, following the triple whammy news that Fannie Mae, Freddie Mac and IndyMac Bank were all in trouble. Now, more than a year after the major news breaking about the sub-prime crisis, the lending industry  has adjusted to new, tougher rules about appraisals, with many appraisals being reviewed once they go to underwriting. Now we have adjusted to that being part of the current lending landscape.

So much of the dire news that dominates the media about California real estate  refers to the "glut of inventory" and enormous devaluation from the height of the market. In my area, Albany, El Cerrito, Kensington, Berkeley, Oakland, Piedmont and Alameda, we have roughly half the inventory this year as last, the opposite problem from what most areas are facing. We encounter the occasional short sale, and I've seen a few foreclosures. Mostly what I see is basic economic factors at work: an insufficient supply of homes in desirable areas to satisfy the fairly constant demand for them. As our new Fall Market emerges, it appears that both buyers and sellers have accepted the fact that our area is sufficiently robust to support continued strength, and I would cautiously predict an active, more balanced market through the remainder of 2008.

While other parts of our state, and even our county, have been all these months suffering from too much inventory, we still would love to have more homes to sell in the Berkeley area! It's been hard for sellers to read the major news sources all these m onth and not be at least a bit hesitant to sell now, and so many are waiting. In some cases they're simply waiting for a greater sense of optimism in our country, and are waiting until after the election. Stories abound of reduced values, and sellers who can't unload their house after months on the market and several price reductions. That's not exactly encouraging for sellers who might otherwise call me to put their home on the market. But ours is never a consistent market. Remember the example I began with, of clients who competed against four other strong offers and to acquire the home they wanted, with the most desirable features, required bidding more than $200K over list, and foregoing a financing contingency! We were told we were the only offer of the five to have written our offer to include one, and the sellers counter-offered to remove it, even in this financial climate!

Certainly we see "price reduced" signs in this area, usually for one of two reasons. The most common is because the seller has not yet accepted that the market really has changed over the past year or two, and wants to invest little or no effort or money preparing his home for sale, but still wants the price his neighbor got 18 months ago. An over-priced home will sit in any market! The new category for us this year is the seller who bought their home a few years ago and paid more than its current market value. That is a new and painful situation for us as agent to deal with, and our most sympathetic counseling skills are required!

There's also the seller who simply doesn't have a great house, or has a house with a significant flaw. At the peak of the market, that would not have mattered so much. Sellers must accept that the market is less tolerant than before, so more effort, not less, is required. That's where the skill, perseverance and connections of us as Realtors comes to play. We're spending more time with each client, whether buyer or seller. The good homes, well-priced and well-represented are still selling quickly. Many are still receiving multiple offers, and in the best neighborhoods, going well over list price! And so I repeat my mantra: house by house, week by week!

 

In order to reach a broader audience I am now posting to the Berkeley Hills Realty Blog:

Home Spun: A Bay Area Real Estate Yarn

There you'll find updates about our real estate market and behind the scenes looks at the perspectives of buyers and sellers alike. We also throw in pieces about what's in bloom, what's in season and what's on our minds!

From an earlier posting to Home Spun:

Appraising the Current Market Condition March, 2008

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, in the Berkeley Hills Realty Blog. )

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.

I cannot remember a time when the real estate market was more in the news, and being discussed by more people who have no interest in buying a home! Since mid-August mortgage mayhem has captured everyone’s attention, not just nationally but internationally. I recently returned from the convention of the Calif. Assoc. of Realtors and spoke with many other association Presidents about their markets. Merced is dead. Fresno is frustrated. In every session I would hear “now that the market has slowed,” and by the end of the week I wanted to scream!

So what am I seeing in our very local market? Yes, there’s been a change and it’s mostly about financing. Buyers who have less than 20% to put down are paying more for their loans than a year ago. Buyers who have a solid but not huge salary and good credit, would earlier have had many options for “stated income” loans. They could declare the amount of risk they felt comfortable assuming. But we all know that translated to some buyers taking outrageous risk, and the lenders allowing them to do so. Now lenders are generally more cautious, and have instituted tighter review guidelines. Overall it’s a good thing. In the short-term, some lenders are over-reacting and making buyers jump through some crazy hoops. I suspect that will settle down within the next few months. Yes there are a few foreclosures and short-sales here, but very few so far.

And what about prices? I know there are buyers, including some of my own, who are still hoping that prices will drop here as they have elsewhere. So imagine their frustration when they’re reading all this doom and gloom press, only to discover that the house they want, and they want to make a luke-warm offer for, already has four offers. Or the open house they were going to visit was cancelled because someone made a gorgeous offer the first day it came to the market. This is not happening in Stockton! But multiple offers are still common in Berkeley. Not as many as a couple years ago. Now two to four is considered a good response. And some lovely homes get only one offer. I continue to get many “price reduced” flyers, and some houses fail to sell. But this is not the “buyers’ market” of the news. This market cannot be claimed by either side, or described in just one word, unless the words are mixed, unsettled, surprising.

I took a look at my newsletter article from exactly a year ago. My summary points are all still true! The buyers aren’t very motivated: they think prices might drop sometime soon. They’re increasingly picky about condition and features. They want a loan with ideal terms. And renting appeals to many Gen Xers just fine. The houses that are fully updated, as well as staged, perform the best in this, or any market. Some sellers are offering incentives to agents — an extra point of commission, a vacation, even a new car, if their house sells quickly. But the basic problem is each side wants this market to be favorable to them, and until both sides accept a change, instead of a balanced market, we have a struggle.

 

From Arlene’s Newsletter, Spring 2007