Real Estate Report July/August 2010

Sales of both single-family, re-sale homes and condos fell in July with the expiration of the Federal tax credit.

Home sales were off 15.6% compared to last July, while condo sales were down 18.8%.

The new state tax credit has pumped a little life into the high-end market. With more sales in that segment of the market, the average price for homes in July went over $800,000 for the first time since August 2008.

The high-end market has been helped by increasing access to jumbo and super-jumbo loans. Historically, and until July 2007, the spread or difference between conforming mortgage rates and jumbo rates moved within a narrow range of about 0.20%. At the trough of the market, the spread was 1.9%. Now, the spread is down to 0.5%, and the secondary market for jumbo loans is awakening.

The median price for homes was off 1.1% from June, but it was up 7.2% year-over-year. The average price was up 2.4% from June and up 12.3% compared to last July. This is the tenth month in a row prices have been higher than the year before.

The sales price to list price ratio for homes stayed over 100% for the thirteenth month in a row: 100.2%.

The median and average prices for condos were up 3.3% and 9.5% respectively year-over-year.

Pending sales were down from June, but were still higher than the year before. Pending home sales were up 44.2%, while pending condo sales rose 44.7%.

Inventory for homes rose 9.6% year-over-year. This is the first month since November 2008 inventory has been higher than the year before.
Speaking of inventory, Leslie Appleton-Young, chief economist for the California Association of REALTORS® (C.A.R.), said, at a recent Silicon Valley Association of REALTORS® (SILVAR) meeting in Palo Alto last month, in five to ten years California will experience a housing shortage.

She said household growth for the state is expected to be 200,000 a year. The CBIA reports only 13,000 permits pulled in the first six months of the year.

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Real Estate Report June/July 2010

Many Silicon Valley homes in the mid range (which I consider $850K – $1.1M) are selling with multiple offers and often going over asking. Three bedroom homes are flying off the shelves, as long as they are in good condition and in the right location.

In cities with the best schools, such as Cupertino, Mountain View, Palo Alto, and Sunnyvale, properly-priced and well-maintained homes are still receiving multiple offers and the sales price to list price ratio in all those cities is over 100%.

Investors are buying in the low-end of the market, hoping to buy and flip. That has been somewhat problematic as, when they go to flip, their original purchase price is probably part of the appraisal, which lowers the market value of the property.

It is better for investors to buy and rent it out for a year rather than trying to flip immediately.

The problem with prices in this segment of the market is the poor condition of REO properties that have been stripped by the former owners, and short sales with sellers who are no longer doing any maintenance. These sales are skewing the prices on similar properties.

First-time buyers continue to be edged out by investors for REO properties because the investors are coming in with all cash offers.

First-time buyers should concentrate on well-kept homes in good neighborhoods rather than trying to get a steal. Doing that will lower your frustration level.

The high-end market, above $1.2 million, is probably the weakest segment. Homes here are languishing on the market.

With interest rates at 50-year lows, now is an excellent time to buy a home, particularly if you plan on staying there for a while.

Inflation is coming, make no mistake about that. It’s not a matter of if, but when. In the future, you will look back on this period as a golden time to buy real estate and lock-in a 30-year fixed rate mortgage. Whether or not you look back and smile will depend upon whether you buy or not.