Archive for February, 2009

Buyer's Market' Defined

Generally speaking, 4-5 months supply of inventory is considered a balanced market between buyers and sellers; less than 4 months is considered a sellers’ market; and more than 5 months is considered a buyers’ market.

By these definitions (as well as others), the home market in many of San Francisco’s neighborhoods is now a strong buyers’ market-which means more choice, less competitive bidding, increased price reductions, and more price negotiation. This doesn’t mean that the best-value homes aren’t still often selling quickly, and with multiple offers – because they are.

The incredibly low interest rates currently prevailing- for those who can qualify under today’s more rigorous financing guidelines – add to the buyer advantage, although all the mortgage brokers I’m speaking with tell me the interest rates are fluctuating widely (aka a half a point in a week).

The higher-end market in districts 5 (Noe/Castro/Haight) and 7 (Pacific Heights/ Marina), and the middle range house market in district 9 (Potrero/Bernal) have slowed way down since September’s Wall Street meltdown. Inventory is very high and the average days on market figures for available homes have soared.

The lower-end house market is now playing a dominant role in SF homes sales, especially in areas such as district 2 (Sunset/Parkside) and 10 (Bayview/Excelsior), which have the lowest months-supply-of-inventory in San Francisco and the highest number of accepted offers in Jan. 09′. District 10 has been the district with the highest numbers of foreclosures in the city and the lowest median sales prices.

Condo inventories have grown substantially in districts 9 (SOMA/South Beach), 6 (Hayes Valley/NOPA/Alamo Square) and 1 (Richmond), but are moderate in district 5 (Noe/ Castro/Haight). TIC’s sales across the city have decreased to very low levels over the past year.

For a list of individual Median days on the market per neighborhood go here.


$10,000 New Reasons to Buy a New Development This Year

Included in the recently passed California 2009 Budget is a $10,000 tax credit for purchasers of new or previously unoccupied homes. The credit is sound fiscal policy since a new home purchase generates an estimated $8000 more in taxes than the credit costs the state.

Details of the how to get the tax credit are still being ironed out, but at the moment it looks as though the developer will need to issue a certificate to both the Buyer and the Franchise Tax Board (California’s State Income Tax).

To qualify for the credit the home has to be purchased between March 1, 2009 and March 1, 2010.

There is a caveat (isn’t there always) the bill set aside $100 million for these tax credits or the first 10,000 new homes sold, which will be issued on a first come first serve basis. Once that money is gone, so is the credit. No word on how long that credit will last but based on figures from last months new development sales – an estimated 29,458 statewide, the fund could be exhausted as quickly as June of this year.

Details that are known are as follows:

1. The tax credit is for new homes only purchased March 1 2009 – March 1, 2010. You will not qualify for the state tax credit if you buy an existing re-sale home or condo.

2. The tax credit is good for 5% of the home’s price or $10,000, whichever is less. So, if you purchase a home worth $200,000 or more, you qualify for the full, $10,000 tax credit.

3. If your tax credit is $10,000, you will receive a tax credit of $3,333.33 each year for three years.

4. Unlike the $8,000 federal tax credit, the California state tax credit is not limited to first-time home buyers.

5. There are no maximum income limitations so any buyer purchasing a previously unoccupied home can qualify for the tax credit.

6. The tax credit only applies if the purchased home is your primary residence.

7. The $10,000 state tax credit can be used along with the $8,000 federal tax credit for home buyers. If you’re a first-time home buyer, and you purchase a new home in California that costs more than $200,000, you’ll get $18,000 in tax credits.

8. The tax credit is limited to the first 10,000 new home purchases.

Click here to take a look at the Senate Bill on the home purchase tax credit.

From all accounts the bill was passed in large part due to a Republican State Senator Roy Ashburn and a lot of work from Signature Properties who have more than one new development in California that stand to benefit…


Voluntary Refinance Best Bet for Bay Area Mortgage Relief

As reported on CBS news, and most recently in the SF Chronicle, the Housing Rescue Plan is expected to widely bypass most Bay Area homeowners. What’s the primary reason?

“Only a small percentage of Bay Area mortgage holders meet the criteria for the low-cost refinances being offered to help stabilize the housing market. To qualify, loans must have been for less than $417,000 if issued more than a year ago, and homes cannot be underwater by more than 5 percent…But that initiative is only available to people who took out so-called conforming loans of less than $417,000 and whose homes are not more than 5 percent underwater – meaning what they owe is not more than 5 percent greater than their home’s value. For instance, someone with a home now worth $300,000 who owes $315,000 could qualify for the refinance – but would be barred if the home’s value dropped further.” Read the full story here.

It’s not all bad news. The new Housing Rescue plan is reportedly dedicating $75 billion to help encourage lenders to cooperate with voluntary refinancing of existing loans that are not eligible for traditional refinancing. The most common reason I’m seeing for that is appraisals that are not penciling out for a new lender. Additionally, a reported $200 billion is dedicated towards helping Fannie Mae and Freddie Mac keep new loans flowing and mortgage rates low.

Bottom line – if you are looking to take advantage of the current interest rates and cannot refinance traditionally – be prepared to spend some time on the phone. There are companies that have sprung up all over the state offering to negotiate with your bank on your behalf, for a fee, but there are just as many people who are falling victim to fraud by such companies. I personally cannot recommend trying that route.

My best advice is to be patient, stay persistent, and if you get a jerk on the line, stay calm and call back to talk to someone else who is either better at their job, or just a more helpful person. I never cease to be amazed how well that works…


The Stimulus Plan – How it impacts the Housing Market

Courtesy of Julian Hebron, a local mortgage banker (aka direct lender, which are handy guys to have on-call in this lending climate) and all around guy-in-the-know, here is an update on rates, and the direct impacts to the housing market from the newly signed ‘Stimulus Plan’.
President Obama signed the $787 billion American Recovery & Reinvestment Act into law Tuesday, February 17. Funds will be allocated as follows, and consumers can track spending and time lines at The site is a pretty clever re-branding of the package that was branded as wasteful by a unified Republican minority in Congress. These categories aren’t fully defined on the site yet, and this doesn’t include a roughly $1 trillion bank rescue plan that’s forthcoming from Treasury. I cover the housing highlights in a separate section below.
Tax Relief: $288b. State and Local Fiscal Relief: $144b. Infrastructure and science: $111b. Protecting the Vulnerable: $81b. Health Care: $59b. Education and Training: $53b. Energy: $43b. Other: $8b.


Below are summaries of key housing provisions of the American Recovery & Reinvestment Act. Housing help that’s not in the Recovery Act explicitly but seems likely to fall in the “Protecting The Vulnerable” category** (unless it is part of the Treasury plan) is a $50b investment plan for borrowers who haven’t yet been late on mortgage payments but are struggling. This is great for individual homeowners and critical for housing overall to stop the foreclosure spiral and stabilize home prices—foreclosures are estimated to top two million this year.
$729,750 Loan Limit Returns: FHA and Conforming loan limits we saw last year for high-cost areas have been restored. But please note that this change will take a few weeks for lenders to implement and price. Remember: the spreads between $417k-cap and $729k-cap loans were a lot wider than the current $417k vs $625k spreads. Note also that reverse mortgage limits have been increased from $417,000 to $625,500.
First-time Home Buyer Tax Credit: The tax credit for first time home buyers was increased from $7500 to $8000 for homes purchased between January 1, 2009 and December 1, 2009. A tax credit is equivalent to money in your hand, whereas a tax deduction just reduces taxable income. The credit no longer needs to be paid back as long as you live in the home without selling it for 3 years. The $7500 version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame. If you bought the home in 2008, the credit remains $7500, and it still needs to be paid back over a 15 year time frame beginning in 2011 when you file your 2010 returns.  The credit phases out for couples making over $150k or singles making over $75k. The credit remains refundable. This means that first-time home buyers who owe less than $8000 in taxes for the year are still eligible for the full $8000 credit when they file their tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill. The credit can be claimed on your 2008 tax returns that you file by April 15, 2009, even if you buy the home in 2009.
Home Improvement Tax Credit: The tax credit for making energy efficient home improvements is now 30% of the cost of the improvements up to a maximum of $1500. Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. Generally, your home improvement contractor and/or the manufacturer selling the improvements issues a certification that clarifies whether the improvements meet the necessary standards for energy efficiency. Most modern windows, furnaces, and air conditioners meet these requirements.
Zero-points rates on conforming loans up to $417k and super-conforming loans up to $625,500 have improved to start this week as stocks have sold off and mortgage bonds have rallied—when bond prices rise in a rally, yields (or rates) drop. With the government participating in mortgage bond markets, lenders are pricing more conservatively than market levels might suggest because it’s harder than ever to predict which way markets will move. So we continue to see favorable terms on points: one point gets .625% to .875% lower in rate, so borrowers break even on a one-point buy down in 12-18 months. Jumbos 30yr fixed loans for SFR loans from $729k to $5m are looking good at 6.625%.
Julian Hebron works for RPM Mortgage and can be reached directly at
**Editors note –  Washington Mutual/Chase has just set up a brand new department dedicated to recasting loans solely for borrowers who have not defaulted on their loans.   I am told it is so new, many of the bank employees do not yet know of it. Being as I have many clients with Wamu loans, myself included, I’ll let you know if it works.

Peak Values Vs Current SF Values

How Much Have San Francisco Home Values Declined Since their Peak?

Below is an analysis of San Francisco neighborhoods comparing dollar per square foot ($/sq.ft.) at what is estimated to be the most recent peak value, to what the $/sq.ft. was for sales occurring Oct 15th, 2008 – January 30th 2009. (Sales occurring after 10/15/08 reflect the impact of the 9/15/08 financial meltdown on the SF market.) Only neighborhoods with enough sales to generate what appear to be reliable statistical results were analyzed as many areas of the city did not have sufficient sales.

Also important to note is the fact that different areas reached peak values at different times – in 2006, 2007 or 2008 – and the asterisked notes denote the estimated peak value period that pertains. The price ranges of the sales were chosen because we felt them to be in a standard range of value for the area and property type specified – thus attempting to eliminate both the ultra high and the ultra low end, which often distort averages.

Key to Estimated Peak-Value Period for the Chart Below:
* Peak values estimated to have been reached 1/1/06 – 6/30/06
** Peak values estimated to have been reached 1/1/07 – 6/30/07
*** Peak values estimated to have been reached 1/1/08 – 6/30/08

In the SFH (single family homes) analysis, only homes with parking were included. Also Price per square foot ($/sq.ft) was chosen because it is more trustworthy than median prices. Median prices have dropped significantly more than $/sq.ft. because less expensive homes now make up a much larger proportion of sales than they did previously for a variety of reasons (most of them obvious in today’s current economic and financing climate).

Final but important note: the changes delineated probably understate the actual decline in values for 3 reasons:

1. In a declining market, sales data – which typically shows up 30 to 45 days after acceptance of offers – will always be a step behind current activity, i.e. offers being accepted right now.
2. The market has definitely shifted to smaller, less expensive homes (less expensive as to total sales price). All things being equal, a smaller home will have a higher dollar per square foot value than a larger one, therefore skewing current values higher than they ought to be in an apples-to-apples comparison.
3. In a sellers’ market, virtually everything sells, but in a buyers’ market, typically just the best homes sell – best appearing, best condition and/or best value. So the $/sq.ft. for the recent period applies to the “best homes” while the $/sq.ft. for the peak period applies to homes of a much wider range of quality.