Danielle Lazier

Archive for the 'Economic News & Market Updates' Category

Mortgage Crunch & What it Means for San Francisco Buyers

Right now, there are a lot of headlines a lot regarding the mortgage meltdown. What’s hype, what’s not?

In general, I stick to my usual soap box of don’t believe everything you read and proceed with rational observance b/c “If it bleeds, it leads.” (In case you are wondering, I welcome you taking my opinions with a grain of salt too! I am educated, aware, and in the trenches though I certainly don’t know it all and am only one person with an opinion.)

What’s happened?

In summary, rates are volatile right now and the qualifying criteria for home buyers has gotten stricter, much stricter, in a very short period of time. This does not affect the majority of borrowers around the US, i.e. those looking to borrow within the “conforming” loan limits ($417,000 and under).

Obviously, with Bay Area home prices, it affects us locally b/c most home buyers are seeking “jumbo” loans.

Plus, all stated income loans have gotten much harder to get. This too affects the San Francisco housing market because so many of us use stated income loans to qualify, especially first-time home buyers.

What does it mean?

First of all, this tightening of credit has been swift and severe. Most of us anticipate loosening in the coming days, weeks, and definitely months as lenders see the opportunity to make deals and jump back in the game.

Second, it means that some of you will have a harder time making home ownership happen right now. And, I do mean right now. Things are changing daily so it’s best to stay calm and stay tuned.

Third, it means that those of you who are able to make home purchases will be able to secure great deals right now. And, again, I mean right now. Things change quickly.

If you have a down payment, can document your income, and have good credit, BUY, BUY, BUY. A large bulk of the local San Francisco competition is temporarily gone so you can get into a property for a relative steal at this moment.

I truly expect the situation to correct itself very soon. I also do NOT expect a run down in San Francisco home prices. Right now, there are deals to be had, for sure. This is especially true in the condo market.

BUT, sellers are not giving away their homes for pennies on the dollar. Yet, they may be willing to negotiate on price and even buy down your interest rate to get the deal done.

What to do?

Make sure your mortgage broker and Realtor are savvy and aware of what is going on now. This is not the time to go discount. It is the time to have a team of experts around you!

If you are pre-approved, go back to your mortgage broker and make sure you understand current pricing and whether or not your situation has changed.

If you are selling your home, look into a seller rate buy-down. The cost of the buy-down is soooo much less than any price reduction! Get the sales price you want with this savvy move.

Talk to your Realtor (me or whomever it is) and ask them how they can be creative to get you the property you want at a great deal. Do they know how to negotiate rate buy-downs for you? Do they read the financial papers? Do they know how to protect you while you are in escrow.

Get out there and look at homes. The timing is absolutely excellent for those of you who have the money, credit & income to buy.

Times have changed and we are going back to basics. San Francisco will always be amongst the MOST desirable places to live. A couple weeks or even months of lending distress doesn’t change this so go-ahead and be a “have” rather than a “have not.”

Got a question? Please let me know…

Resources:

Today’s Chronicle Article: Mortgage crunch hits Bay Area hard because of jumbo loans

Social Psychology and Real Estate Bubbles

Pop goes the weasel or does the weasel go pop? In our culture, so often it is headlines, water cooler gossip and cocktail party embellishments that cause economic markets to fluxuate. Take, for example, the housing market. If you read the Chronicle, you will think we are in a real estate slump. If you are out there looking for a home, you will think something very different. Key, is the NYTimes Real Estate Magazine. This past week, there is an interesting read on why real estate (at least residential housing) will never be like the stock market. I’ll provide a link to the entire article but in one word: LEVERAGE.

“The dirty little secret of home ownership is that it lets you play with other people’s money. Say you want to purchase the median home (in California the cost would be about $565,000, but let’s take the United States median, which would run you $220,000).

 

Typically, you would take perhaps $50,000 from savings as a down payment, borrow the balance and pay the monthly mortgage from your income. But wait! Just before you close, a friendly real estate bear points out that you could rent the same house, or a similar one.

 

Your monthly payment would go to the landlord, not the bank. And you could invest the $50,000 in stocks, which, with dividends, might appreciate at close to 10 percent a year, rather than the 5 percent or so you could expect from your house. That would be a very dumb move. Suppose the stock market did rise 10 percent; after a year you would be up $5,000. Whereas the gain on your home would be 5 percent over the entire purchase price or $11,000. Over 10 years the gap becomes huge — not to mention over 20 or 30 years. This is the little guy’s (and also Donald Trump’s) trick for accumulating equity: leverage.“

What Will the Fed Do on Wednesday? And How This Affects San Francisco Real Estate

Today’s New York Times has an interesting (and easy to read) article, entitled “Will the Fed Take Away the Chill?” on the current economy, affects of the subprime mortgage “situation” and possible reactions by the Federal Reserve on Wednesday. “SHARES of some subprime mortgage lenders have plummeted, while interest rates on low-quality debt have headed the opposite way. That suggests that investors are worried about economic conditions, and Federal Reserve policy makers may use their meeting this week to convey the same concern.” Here’s my layman’s interpretation: According to the article, it is unlikely that interest rates will go down. BUT, and this is the important part, they do feel that the Fed will soften its language about the state of our economy. They have made strong statements about inflation rising recently and are likely to tone it down a notch. There are worries that the economy is not as strong as previously thought. If inflation is not a concern, interest rates will stay low. Interest rates low keeps the housing market afloat or buzzing, depending on your local market. Here in San Francisco, we experienced the housing boom during the dot-com bust and major local unemployment. The boom continued on through the tech recovery and improving employment in San Francisco and the Bay Area. All the while, interest rates were historically low. Maybe not 50-year low but 40 and 30-year lows is nothing to frown at! In general, bad or slowing economy = interest rate cut = boost to housing market and consumer spending. Contrary to what the Chronicle reports, real statistics demonstrate San Francisco real estate market has recovered from last Fall’s slump and is, again, appreciating. Sellers are not selling in a buyer’s market and buyers are buying in the typical SF fashion. Of course, verify all info with your Econ 101 professor as that’s certainly not me! Read the brief article HERE.

Do You Believe The Newspaper?

Fact or Fiction: The owner of a local real estate company gets an interview with the local paper’s real estate reporter to address the current reporting of market conditions. “Over 2/3 of all our sales since mid-February are receiving multiple offers and selling for over the asking price,” the owner tells the reporter.

“You are lying. We don’t believe you.

Property values are flattening out, if not dropping. The market has changed. It’s a buyer’s market,” says the reporter.

Did this happen or not? Is the sky falling, Chicken Little?

Apparently, Chicken Little watches too much CNN.

News reporter’s bias shines through all kinds of news whether war reports or market forecasts. The buyers on the fence think it is a buyers market and if they only wait a little longer, the bottom will fall out and they’ll get the deal of a lifetime.

My friend with a condo in Eureka Valley whose asking price was less than $900,000 but received 8 offers and sold for over a $1 million knows what we have been trying to tell our clients, the media, our parents back in Texas…. There are more buyers than sellers right now.

This is not the twisted scheme of home sellers or real estate agents. It is a universal capitalist law of economics: the law of supply and demand. Please, reporter, take out your Econ 101 text book, read up, and then call an expert for your “insider” scoop.

As the saying goes, What happens in Vegas, stays in Vegas just as what happens in our micro real estate market, stays in our micro market.

Single Women Homebuyers, Your Time Has Come

This Sunday, the Chronicle ran a Sacramento Bee article from February that the NYTimes ran before them (get my point??) about how women home buyers are among the largest growing market of home buyers around the United States.

For those of us in the real estate world as a two time single woman purchaser, myself, this comes as no surprise. Some see the trend as a “Women like to nest more than men thing…” Well, maybe some do but I’m sure not all! Some see it as a “Folks are marrying later…” while others see it as an end of civilization. Well, I’m not here to espouse family values or the lack thereof.

It seems to me that single women home buyers are trying to create financial independence for themselves, whether or not they marry/partner with another person down the road. If a woman has a good job and decent savings, she should explore the option of becoming a homeowner, just like the rest of us! Wanna know something tres interesting….According to NAR statistics, single women were 22% of sales in 2006, which is up from 14% in 1995. What do you think it is for single men???? 9% last year AND in the mid-90s.

C’mon guys, do you want the ladies to beat you on this whole financial freedom thing? I’m not going to comment on the possible reasons for this disparity though I’d love to hear your opinions. Read the ARTICLE here.

Housing Boom!?! The Stock Market Thinks So

You’ve heard endlessly, no doubt, about the imminent Housing Bust or at least, Soft Landing. Money manager, Kenneth Fisher of Forbes Magazine says we are having a Housing Boom. He writes, “The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback.”

See the attached PDF for the complete column from 2/26/07 Forbes Magazine. After a slow fall, we are back to low inventory and high demand. Buyers are looking for property and there’s just not enough to go around. Follow the three P’s (Price, Position, and Presentation) and you’re sure to net the most money from a home sale. Attached PDF

Last Quarter Was The Bottom Of This Real Estate Cycle.

As we all know, statistics can be used to prove one’s point, whatever the point may be. The same statistics can be manipulated to prove both sides of an argument, even! So, as always, I take things with a grain of salt and so should you. Nevertheless, here I am with a link to some statistics! And so much more… The National Association of Realtors believes we’ve hit the bottom of the market. Read CNN Money article here. All politics and all real estate is local so who really knows what is going on in Boise? Right here in San Francisco, however, I feel serious signs of revival. For those of you who’ve been reading this emerging blog, you read my chronicles of homes with 51 offers and other atrocities. Last quarter was the bottom of this cycle. Only history will determine if I’m right. Timing the market (any market) perfectly is nearly impossible. Timing it “close-enough” should be the goal. We are still in a kind-of buyer’s market but the tide is turning. Over the long-term and even not-so-long-term, San Francisco is bubble-proof. We have very limited land and very strict zoning policies. If you’ve ever tried to remodel anything in your home with permits than you know what I’m talking about. This kind of tight market will appreciate over time and will also make your life more stable and affluent if you own your home. (For more info, see the New Rules of Real Estate from Business 2.0.) Even those new construction units lingering on the market will be absorbed and appreciate over time. Construction lags the economy and has done so in almost every real estate cycle. The folks at SocketSite are right to be nervous about all of the new construction but only if the buyer chooses a poorly-built condo, spends more than she or he can afford or wants a quick buy and flip profit.

Po-PoMo Home Buyers- Under 30 & Fabulous

A prescient friend of mine named Lauryn who has always been a trendsetter, or at least, one of those Malcolm Gladwell “influencer” types who can spot a trend and make it run recently purchased her first condo in Brooklyn. Yes, it’s Williamsburg but this is the outer limit, as in where W-burg is headed. She paid a ridiculously low price in exchange for taking 2 more stops on the subway. It’s a brand-new conversion of an older, architecturally interesting building. Obviously, I am SO proud of her. Check out this NYTimes article from 2/4/07 about buyers just like her. In fact, one of her neighbors is made “famous” in the read.

Is Bigger Better?

As I attempt to refrain from the usual innuendo jokes about size…very tough to do, by the way, I will let you know about some new research where size is at issue. The size of your home, that is. For those of us living in urban centers, like San Francisco, it’s unlikely we have too much space. Right?  As both a salesperson and a consumer, I know that what we say we want is not necessarily what we really want. We list things we want (i.e. number of bedrooms, square footage, etc)  based on rational thought but often make our decisions from the gut (do I feel at home here, etc). From a recent Inman News Article, the writer Katherine Salant, describes recent economic research about happiness as related to home buying. Will a bigger home make me happier? She writes, “In the past, economists assumed that an individual’s choices were always guided by rational self-interest. Today they recognize that human foibles, biases and our hunter-gatherer origins can often be the critical factors that affect an individual’s choices….University of Chicago economists Luis Rayo and Nobel laureate Gary Becker have carried this current approach one step further and used the contents of their “economic tool box” to predict which choices make people happy.” In a nutshell, they feel it much more than size that makes us happy. It is convenience, location, ease of ownership, pride in own’s home, etc that fulfill our American dreams. Instead of that killer view that will impress one’s friends, maybe what you really want is to be able to walk to the cafe or corner store without strapping on your hiking boots. It’s up to you to determine what is important to you. Just try to heed the instinct as much as the cerebral.