Bernard’s Danville Real Estate Blog

What a year! Maybe not quite so bad as 2008 for some, but many home owners will remember 2009 as the worst year of the decade.
 I think relatively few people will look back on 2009 with a good feeling. The recession continued to bite and the repercussions of the  “creative” home financing products that came about because of a lack of banking industry regulation forced many people out of their homes as a result of foreclosure or bankruptcy. Some home owners avoided this by selling as a “Short Sale” but they still lost their homes. Hopefully the worst is now over. This therefore looks like an appropriate time to take a look at what has happened to home values over the past couple of years in our area.
Analyzing The Value Of The “Typical” Home
 I am very wary of just looking at average or median sales prices of homes unless it is obvious that the comparison is of like with like. It always makes more sense to take a specific type of home and see what has happened to it’s value over a period of time.
 So let’s consider a 4 bedroom detached single family  home with between 1800 and 2500 square feet of living space (as depicted in the chart below).

Surprising Results
 The figures are interesting to say the least. Although prices continued to fall into the second quarter of the year, the third and fourth quarters increased in this popular segment of the market.
 These price increases are most likely due to a combination of factors. Interest rates fell to the point where homes became more affordable, the government incentive plans began to have an effect and buyers gained confidence that prices had bottomed out. And then inventory levels started to fall. Supply and demand kicked in. Note that as interest rates increase, home prices will probably settle down though.
 Now look at the second chart, this time for 3 bedroom homes, and we can see exactly the same pattern. Many of the buyers in this segment are first time buyers and there are still a lot of these about. Expect to see this trend continue until interest rates increase also.

 Finally, let’s take a look at the higher end - the luxury home market. Even here, as can be seen in the bottom chart, prices seemed to enter a recovery period in the third quarter, yet now it looks like this may not be quite so sustainable as in the other market segments. Prices here are certainly lower than at the start of last year.

Not Such A Bad Year
 There seems little doubt that most home owners in our area will have seen a small increase in value through 2009. This is not what you will read in the newspapers but you can’t argue with the facts. This data is actual sales figures from the Multiple Listing Service. So at least some of us may be on the track to real estate recovery. Only time will tell for sure.

Latest Full Months Statistics for Danville Homes
(including Blackhawk and Diablo)

Previous months figures shown in parentheses	Detached Single Family Homes	Condomiums, Townhomes, others
New Listings	80(92)	22(19)
New Sales Agreed	38(32)	9(10)
Closed Sales	30(14)	8(7)
Median Price - Closed Sales	$791,250 ($961,250)	$504,337 ($515,000)
Average Days on Market - Closed Sales	117(90)	91(54)

At the beginning of April, 2009, there were 286 detached single family homes for sale in Danville (up from 271 in March, 2009) and 64 condos and townhomes etc. against 65 a month ago. So there is around 9 months supply of single family homes in Danville and 6 months supply of condos etc. The supply of condos is still being taken up faster than single family homes, but still, 9 months supply is a lot less than in many parts of Contra Costa County.
     What is of particular note is that the median price of closed sales has fallen significantly for the third straight month. Danville home prices are not as resilient as many thought. The increasing time on the market suggests that sellers may have been trying to sell their homes for unrealistic prices but they eventually given up waiting for higher offers and accepted the reality of the situation.
     So what happens now in Danville? Certainly there are plenty of buyers about but they will still be cautious when they see these figures. Home sellers will need to price their properties very aggressively if they really want to achieve a sale.
     I still think it is a good time to buy in Danville. Interest rates are low and there is a lot of choice. If I was thinking about buying here now, I would make a very careful assessment of real value and base any offers on that, rather than just on the asking price. And there are still bank owned foreclosures that offer particularly good opportunities in many cases.

As of November 1st, 2008, there were 281 detached single family homes for sale (just a few more than 1 month ago) and 59 condos and townhomes etc. (again, little change). This is becoming an established pattern now. Prices in Danville also appear to have stabilized and although the average time on market is higher than we have become accustomed to in recent years, it is really just a little higher than in a true “normal” market. Homes that are priced correctly should sell within four or five weeks. The indications are that we have now passed the bottom of the market in Danville although this is certainly not the case in all parts of the East Bay.

Many parts of the Bay Area, and in particular, the San Ramon Valley and Lamorinda, historically do much better than much of the country when real estate appreciation is considered.

Unfortunately, because prices increased so much and so quickly, they had further to fall and the resulting impact was devastating for many. Recently, however, the rate of decrease has slowed significantly in our area, and this is despite the negative effect on home values caused by many short sales and bank owned foreclosures that have been dumped on the market.

Evidence of Improvement

The economists tend to look at real estate on a national level and one figure they give a lot of credence to as a meaningful indicator is the “Pending Home Sales Index”. Last month this rose 5.3% nationwide, which is a significant amount. More importantly, it rose in every region of the country.

Now note that this is an index that considers numbers of transactions, not total value of transactions.

You Can’t Expect To Buy At The Bottom

What can be inferred from these numbers is that buyers now believe that home prices are not likely to fall much further, so they have the confidence to write offers and buy homes. Of course there will always be some buyers who are planning to “buy at the bottom” but the only problem with that strategy is that you can only identify “The Bottom” after you have passed it and prices are on the increase.

Possible Improvements In The Market

It will surely soon be apparent to most buyers and sellers that prices are really so close to the bottom that it makes no difference and as buyers become more active, this will encourage more potential sellers to list their homes for sale. The likely effect is that there will continue to be a wide choice of homes to buy for the next few months but as we approach the Holiday season, many of the sellers who have not been successful in agreeing a sale will take their homes off the market. From Thanksgiving onward, it is quite possible that there will be a shortage of homes to buy. The wild card in this reasoning is that we don’t know how many people will be forced to sell their homes or have them foreclosed. These are not discretionary activities and a sudden increase of numbers of homes for sale will certainly keep prices down.

What Will The New Year Bring?

As we enter 2009, I foresee that there will be many buyers who are poised to take action. If the majority of those sellers who took their homes off the market in late 2008 decide to re-list them for sale in January, the balance between buyers and sellers should be at a reasonable equilibrium and we can expect to see stable home prices throughout the year. If, on the other hand, sellers do not take such immediate action, and there are more buyers than homes available (a situation I have seen on numerous occasions at the start of a year), home prices are likely to rise. This is simply the economics of supply and demand.

Note that my thoughts only relate directly to the affluent San Ramon Valley and Lamorinda here. In other areas, not too far distant, there will continue to be a glut of homes on the market for some time to come because the numbers are already so astronomical. In these areas prices will stay low and may even decline further with more foreclosures etc.

If you are having problems meeting your current mortgage payments or if you know anybody in such a situation, this new legislation may offer a solution.

At the end of July, a $300 billion housing rescue bill was signed into law aimed at helping homeowners avoid foreclosure. Now, thousands of borrowers who are unable to meet their mortgage payments will be able to refinance their existing loans into new low-cost fixed-rate ones insured by the Federal Housing Administration (FHA).

It is estimated that 400,000 borrowers with $68 billion in loans could benefit from this program - but the bill allows for up to 2 million borrowers to participate.

Who will be eligible?

In order to qualify, you must be an owner-occupier and your loan must have been taken out between January 2005 and June 2007. You must also be able to show that you are spending at least 40% of your gross monthly income on all household debt.

You may be up to date on your existing mortgage or you may be in default, but either way you have to show that you can’t afford to keep paying your mortgage and that you are not intentionally defaulting just to get lower payments.

Before you can get an FHA-backed mortgage, you must first clear any other debts on the home, such as a home equity loan or a line of credit.
You will need approval from the FHA, and total debt cannot exceed 95% of the home’s appraised value at the time.

How do you apply?

You should initially contact your current mortgage servicer or alternatively, you can go directly to an FHA-approved lender for help. There is a list of lenders on the Department of Housing and Urban Development web site (http://www.hud.gov/ll/code/llslcrit.cfm).

How does the refinancing process work?

Note that this is a voluntary program and the lender holding the original mortgage has to agree to rework a given loan before things can get started. They will have to agree to make substantial concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by as much as 20%, that will mean  the lender writing off a significant amount.

So it is likely that lenders won’t sign off on such a workout unless they think that they’ll lose less money that way, than they would by foreclosing.

Each loan will be underwritten by an FHA lender on a case-by-case basis, so the banks will have a new appraisal to determine the home’s current value, as well as verifying up to date income statements, bank accounts etc. in the same way as a normal mortgage application.
The new lender then buys the old loan and takes over the reworked mortgage.

The old lender has to write off any fees and penalties on the original mortgage, and accept the proceeds from the new loan on a paid-in-full basis. It also pays the FHA an up-front premium equal to 3% of the mortgage principal.

Your new FHA loan will have an interest rate that is fixed for the life of the loan, as opposed to an adjustable-rate mortgage that can be have rates that are totally unpredictable.

What does it cost you?

There should be little up-front cost for you. Loan origination fees, for example, could probably be paid back over the life of the loan. There are some other costs to take into consideration though. This is not a simple bail-out deal.

You will not be allowed to take out another home equity loan for at least five years, unless it’s to pay for needed repairs or maintenance on the home.

You will also have to pay an insurance premium to the FHA which is equal to 1.5% of the principal, every year. This is a mortgage guarantee policy.

Shared Equity Increases

The FHA also gets to share in any profits you make.  The way that works is that when you resell your home, or refinance it, you pay back 3% of the mortgage principal to the FHA.

And that’s not all! In the event that you sell or refinance within a year, you have to pay the FHA 100% of any profits you make as a result of an increased home price. Of course if the home does not increase in value, that won’t be an issue.

After a year though, you still have to share any profits with the FHA but the amount reduces on a sliding scale - 90% in year two, 80% in year 3 etc. until it reaches 50% where it will remain until whenever you sell or refinance.

Will it work for you?

It really depends on your individual circumstances and you are strongly advised to consult with your CPA or other financial advisor. For many, savings will be substantial, although you do need to remember that the FHA will be sharing any profit you make on the home down the line. Nevertheless, this is a much better scenario than losing your home through foreclosure.

If you are having financial difficulty in meeting your loan payments but you don’t feel that this will work for you, if you have no, or little, equity in your home, you may want to consider a short sale. In this case, the lender forgives the outstanding loan and you get to walk away from your home without any further financial liability to them. In this case, you need to list your home for sale before a foreclosure becomes inevitable and here, I may be able to help you. For more information, please contact me, Bernard Gibbons, at any time, on (925) 997-1585.

2007 and 2008 have been stressful years for many homeowners, particularly those who bought their homes within the last couple of years. The vast majority of these are doing fine, even though they have seen the equity in their homes decreasing but the people who bought homes with little or no down payment and those who borrowed money on the basis of “stated income” just because they could not otherwise qualify are those that got into trouble.

Many of these people have been forced into “short sales” and others have been foreclosed on. The reaction of lenders, who many believe are largely responsible for this mess any way, was to suddenly decide that they didn’t really want to lend to anybody with less than 30% down so loans became hard to get.

The Good News

Now there are signs that things are getting better. From June 1st, Fanny Mae scrapped its “Declining Markets” policy which effectively meant that the largest available loans to most people was 90%. Now with 95% loans available again, first-time buyers can qualify for a loan, thus stimulating the market from the bottom.

The increase in conforming loan limits in March is also just starting to have an effect. $417,000 was the previous limit for lower cost conforming loans but now, with the limit at $729,750, buyers can get a first loan up to that figure at a low interest rate, topping it up with a second loan for the balance of financing needed, rather than take out a large, expensive, jumbo loan.

Higher limits for FHA loans are also starting to have an impact. With just 3% down a home buyer, even with less than stellar credit, can qualify to buy with a loan up to $729,750.

The Market Will Recover

All of this is helping to move the real estate market towards recovery. And it will recover. Fully. A new study from the Joint Center For Housing Studies of Harvard University finds the country poised to see an increase in housing demand over the next decade. The reason? Our population is growing.

From 2010 to 2020 the population will grow by an average of more than 1.4 million people per year. That is a lot of growth.

And note that this is a nationwide study. If you look at Danville or San Ramon for example, you will see that we almost always have a buoyant housing market.

Our Market Is Resilient

Even now, with all the talk of doom and gloom, there is less than a 6 month supply of homes for sale based on the latest figures. 3-6 months supply is generally considered a neutral market. Less than 3 months is a sellers’ market and over 6 months is a buyers’ market. You can find a buyers market in Brentwood or Pittsburg or Antioch or even Concord but you won’t find it here. That’s why our prices have stopped plummeting. Sure there are some low priced homes to be found but they are mostly bank owned foreclosures, many of which are in pretty bad shape. An increasing number of the rest are selling above list price and with multiple offers.
All of the above has to be good news for the real estate market and home owners as a whole.

Soon, things will get back to normal with moderate 2-4% annual increases in value backed by sensible lending policies.

Why You Shouldn’t Believe Everything You Read In The Newspapers

The press continue to spread doom and gloom regarding the housing market, and there is little doubt that in many parts of the country, even many parts of the Bay Area, there is much cause for concern. The problem is that these reports always focus on large areas. It is not very relevant to tell a home owner in San Ramon or Danville how much home prices have eroded in Northern California. Your home is not located in Northern California. It is in a San Ramon or Danville. Even which part of the city can sometimes make a difference.

Real Estate Is Local

This is a phrase that is often quoted by real estate professionals and for very good reason. Take a look at the chart at the foot of the page. This has been generated from accurate data and it clearly shows how sale prices of a typical 4 bedroom 1800 to 2500 square foot home have been affected over the past year. By taking just the typical family home into account we get a much more realistic picture than when we consider overall averages. To make it even more meaningful, rather than just look at the whole of the East Bay, or even the San Ramon Valley, I have broken it down by location. This is the true picture and it could certainly affect your decision to buy or sell sooner, rather than waiting until later.

You will see that I have not covered everywhere here. In Alamo and Pleasant Hill, for example, there is insufficient data to show meaningful results. Other areas have been excluded because they are not in my main service areas. It is immediately apparent that some of our local markets are very resilient compared to others. Certainly some locations have suffered more than others. Average prices have fallen by 16% in east San Ramon for example. Most of the volume here is in Windemere and many of the sales are distress sales - homes that have been foreclosed and then sold by the banks at bargain prices. Banks don’t want to own homes!

In complete contrast to this are areas like Danville, Pleasanton and the west of San Ramon, where, although prices have fallen, the decrease over the past 12 months is only 4-5%. And look at Lamorinda. I have grouped together the towns of Orinda, Moraga and Lafayette because the demographics are similar and in order to have sufficient numbers of sales to provide meaningful results. Over the 12 month period under consideration, Lamorinda values have actually risen slightly. Of course there are fewer distress sales here.

Does This Mean Its A Good Time To Buy Or Sell Now?

So what can we say about these figures? We still don’t have enough data to say that we have “passed the bottom”, although it seems likely that we have done so in some locations, most obviously Lamorinda.

Danville, Pleasanton and the west side of San Ramon also look to be in good shape, particularly taking the relatively small decline in prices there into consideration. Walnut Creek also looks like it may be stabilizing although it would be nice to have a little more data here.
But just consider the actual price reductions again. With such relatively small losses in Pleasanton, Danville and western San Ramon, any further losses are likely to be minimal, so if you want to buy in these areas, why would you wait?

If you are moving within the immediate area, and you are both buying and selling in the same town, with so much choice and low interest rates, now is a great time to do so. I would advise finding a buyer for your home first if possible, as then you know exactly how much you can budget for your next home. Even with no home to sell, if I had been sitting on the fence for the past few months, I would make my move now. Even if prices fall further, any saving in price will most likely be taken up with higher monthly payments as the Fed has indicated that rate cuts are now at an end. There is only one way for rates to go from here.  Also remember that while there is plenty of inventory, sellers are more motivated to accept a lower price for their home. When the supply of homes starts to reduce, you can certainly expect to pay more for your home.

Why You Shouldn’t Believe Everything You Read In The Newspapers

The press continue to spread doom and gloom regarding the housing market, and there is little doubt that in many parts of the country, even many parts of the Bay Area, there is much cause for concern. The problem is that these reports always focus on large areas. It is not very relevant to tell a home owner in San Ramon or Danville how much home prices have eroded in Northern California. Your home is not located in Northern California. It is in a specific city. Sometimes even which part of the city makes a difference.

Real Estate Is Local
This is a phrase that is often quoted by real estate professionals and for very good reason. Take a look at the chart at the foot of the page. This has been generated from accurate data that clearly shows how sale prices of a typical 4 bedroom 1800 to 2500 square foot home have been affected over the past year. By taking just the typical family home into account we get a much more realistic picture than when we consider overall averages. To make it even more meaningful, rather than just look at the whole of the East Bay, or even the San Ramon Valley, I have broken it down by city. The figures make interesting reading. They may even affect your decision to buy or sell now, rather than waiting until later.It is immediately apparent that many of our local markets are very resilient compared to many others.
Certainly parts of our area have suffered more than others. Average prices have fallen by 16% in east San Ramon for example. Most of the volume here is in Windemere and many of the sales are distress sales - homes that have been foreclosed and then sold by the banks at bargain prices. Banks don’t want to own homes!In complete contrast to this are areas like Danville, Pleasanton and the rest of San Ramon, where, although prices have fallen, the decrease over the past 12 months is only 4-5%.
And look at Lamorinda. I have grouped together the towns of Orinda, Moraga and Lafayette because the demographics are similar and in order to have sufficient numbers of sales to provide meaningful results. Over the 12 month period under consideration, Lamorinda values have actually risen. Of course there are far fewer distress sales in this area.
So what can we predict from these figures? We still don’t have enough data to say that we have “passed the bottom”, although it seems likely that we have done so in some locations, most obviously Lamorinda.Danville, Pleasanton and the west side of San Ramon also look to be in good shape, particularly taking the relatively small decline in prices there into consideration. Walnut Creek also looks like it may be stabilizing although it would be nice to have a little more data here.Is It A Good Time To Buy Or Sell Now?
If you are moving within the immediate area, and you are both buying and selling, now is a great time to do so. I would advise finding a buyer for your home first if possible, as then you know exactly how much you can budget for your next home, but there is plenty of choice out there and interest rates are low. If you don’t have a home to sell, it is also a great time to buy. The likelihood of home prices falling further is slim, and even if they do, any gains you make will most likely be taken up with higher interest rates. The Fed has indicated that rate cuts are at an end and there is only one way for rates to go from here.  Also remember that while there is plenty of inventory, sellers are more motivated to accept a lower price for their home. When the supply starts to reduce, you can expect to pay more for your home.

Why Moving Up In A Down Market Makes Sense

This is traditionally the start of the busiest period in the year in real estate sales activity, driven to a large extent by the need for families with children to get them enrolled in new schools  in time for the new school year. For those who are buying or selling due to a job change, or any other case of necessity, the question does not arise but for discretionary buyers or sellers, it is an important consideration. My response may give you some food for thought.The answer to the above question depends on your personal  circumstances. If you are buying up, this is probably the best time imaginable to move house. Here’s why:

Let’s suppose you have a home that was worth $800,000 2 years ago. A move up then to a $1.2m home would have cost you an additional $400,000.

If we assume that home prices have fallen 20% in the last 2 years, your $800,000 home is now only worth $640,000. Fortunately for you, that $1.2m home has also dropped in value - to $960,000. So moving up to that same home would cost you only $320,000, saving you $80,000 in extra mortgage costs. Yes it’s true that you have to sell your home for 20% less than you could possibly have sold it for 2 years ago but so what? Those times are gone. You can still move up to the same home you could have then, only now it will cost you less money. Moving up in a down market is a great thing to do.

If you are currently renting, or perhaps a first-time buyer, it could also make a lot of sense to buy now, rather than wait until later.

There is no doubt that there are many potential buyers who are currently sitting on the fence and “waiting for the market to bottom out” in the belief that this is what serves their best interests, but in reality, this is probably not such a great idea.

First of all, how do you know when the market has bottomed out? The answer is, only after we have passed it and prices are on the rise. Most of the economists feel that we either at, or very near to, the bottom any way.

Also bear in mind that interest rates are now amazingly low. The only way they are going from here is up. And let’s face it, the most important number you should be looking at is your monthly mortgage payment. That is a lot more relevant than the price you pay for your home.
If you buy in today’s market, you have the benefit that there are a large number of homes from which to choose, including some bargain priced bank-owned ones. And sellers, in general are very motivated. If you buy after the bottom, when house prices are on the rise, you face increased competition and the possibility of multiple offers.

There is a further tangible benefit you may want to consider regardless of your circumstances. Suppose you wait until prices are rising again, maybe another 4-6 months. Moving house is not generally just an investment like buying stocks and shares. By buying now, you actually get to live in your new home faster and enjoy it. Life is not just about saving every dollar you can. Time is the one commodity you can never have more of!