MoneyNews
Wednesday, Aug. 23, 2006

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 percent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

“The housing sector is fragile,” said David Lereah, the association’s chief economist.

The median price of a home sold last month was $230,000. That was up just 0.9 percent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less.

To read the whole article click here.

- MoneyNews

Avram Goldman, President and COO of Coldwell Banker, San Francisco Bay Area said in his latest weekly report:

“It’s that same old song—-buyers are slow to write and sellers are still looking for reality. As our Sebastopol manager put it, buyers have glue in their pockets and sellers have sugar plums on their minds. A bit emphatic, but probably not too far from the truth in Sonoma county. For the most part open house activity is still decent and in some cases still quite active as evidenced by the 100 groups that came through a new Millbrae listing. It is still amazing given the current market that a third of our offices had 20% or more multiple offers. Interesting to note is we are seeing a few marketplaces that are experiencing both decreasing listings and sales. This could primarily be due to fewer listings coming on the market at the same time more listings expiring, while sales could be impacted by prime vacation season before children go back to school.

“Nevertheless when buyers see value they move. In Half Moon Bay where the market is beginning to pick up now that Hwy. 1 is open had a $1.4 mil new construction listing that had several offers going over by $400,000. Not the rule, but certainly shows that there are still a number of serious buyers out there. Overall we have seen a slowing this month, although in the past week momentum seems to be building toward the Fall market.

“Price reductions do motivate buyers as seen by several listings that have been on for some time receiving multiple offers, however sales prices still went below the new list price. Merchandising is still the name of the game. Houses still need to be presented in their best light, this includes “reality pricing”, staging and dealing with any deferred maintenance.

“A recent report in the newspaper said that this July was the slowest July in 10 years. That would put it at the 1996 market. As I recall 1996 was a nicely balanced market. Both consumers and the real estate industry have been indulged by a very active market and accelerating appreciation over the last 10 years. Now we are back to a regular real estate market.

“The numbers for the week of August 7th-13th are as follows: 4 offices showed increasing listing inventories, 14 steady and 10 decreasing—-6 offices reported increasing sales, 15 steady and 9 declining.”

- Avram Goldman

* For an e-mail alert when this report is updated, send a note to info@SFResidence.com with “weekly market report” in the subject line.

Are you as confused as I am? In this editorial I would like to point out a few things I have seen in the media the last couple of weeks or so. Not being a Realtor gives me the freedom to voice my opinion on market changes a little easier than a licensed real estate agent.

First we have been hearing how the housing market is in for a correction, and that there will be wailing and gnashing of teeth as we have seen reporting recently from NewsMax (see the articles from July 29, July 30, August 12 and August 19 which were posted previously on our Blog) as well as other sources. And almost once a week on the evening news is a story about how the housing market is falling on hard times. The press seems to love bad news. In San Francisco we have seen a slow down in the number of deals being made. But prices seem to be holding relatively steady. There are some price reductions, but mostly from people who have become “velocitized” by the frenzied market of a year ago and priced their homes too high to begin with.

However, let me share the gist of an article in the August 2006 publication of Realtor Magazine. On page 22 in an article titled “Harvard: slowdown is merely a breather” the writer stated, “Cooling home sales nationwide won’t last long because continuing strong household growth will fuel more housing demand.” and cites a study done by Harvard University’s Joint Center for Housing Studies as the basis for its conclusion. The article summarized, “Markets are seeing neither big employment drops nor overbuilding in housing supply – two conditions that precipitated price falls in the past.”

Then on Sunday, August 20 in the San Francisco Chronicle there was a related article that supported the theory of a strong market entitled, “High home prices hamper fed recruiters” reprinted from the Washington Post which said, “A steady climb of housing prices and other living costs in San Francisco and Los Angeles is making it difficult for federal agencies to recruit and retain employees in those areas…”

So if you can read between the lines, doesn’t this indicate that the San Francisco real estate market is still alive and well? Remember there are several factors that put San Francisco in a unique category. One is the amount of wealth that is found in the City. Two, it is a beautiful place where many people want to own a second or vacation homes. Three, the city of San Francisco area is a finite area of only 7 miles by 7 miles with very little construction of new homes or condominiums (most of the construction you see are remodels). And four, those who do venture into the arena of building new homes and condos find that the San Francisco City government is heavy on bureaucracy so it takes a long time to get plans approved and permits issued. All together these reasons cause a short supply ahd high demand.

Last but not least, another factor that will surely affect what happens in the market is interest rates. As you probably know by now, the Fed has decided to postpone raising interest rates for the time being as a slowing economy has eased their concerns about inflation. As a result, mortgage rates have dropped for the 4th consecutive week according to the Associated Press in an article which appeared in the same Sunday, August 20 San Francisco Chronicle issue quoted above.

So what does this all mean? Who has the crystal ball? As we have said before, real estate investing is a long term strategy. Given the information above, it’s quite possible that the slowdown is only temporary and the strong economy could fuel another housing boom in the near future.

We’d love to hear your opinions on this topic! Send e-mails to info@sfresidence.com.

- Mick Orton

Below is the final part 3 – glossary of real estate terms

(Part 1 may be seen here.)
(Part 2 may be seen here.)

PMI:

Private Mortgage Insurance. If the first mortgage loan-to-value ratio is higher than 80 percent, a special insurance is required and typically paid monthly or annually to protect the lender should the loan go into default.

Prepaids:

Distinct from Closing Costs, these include recurring expenses a buyer would normally pay over time, but pays in advance at closing to set up an escrow or impound account to pay monthly for taxes and insurance. Prepaids will also include any interest due on the loan from the day of closing until the end of that month.

Quitclaim Deed:

A document that releases an owner from any interest in a property.

Sales-Leaseback or Sale-Rentback:

The buyer rents back the property they are purchasing to the seller for a specific period of time.

Sales Concession:

A cost that is typically paid by the buyer at closing is instead paid by the seller.

Table Funding:

The ability of a lender to provide loan funds on the same day the transaction is signed by all parties.

Title Insurance:

Insurance that protects your home purchase should a title problem that existed prior to the purchase be discovered after your transaction closes. There are two types of title insurance: a fee title policy insures you, the owner; a mortgage title policy protects the lender.

Walk-Through:

A buyer does a final inspection of the home prior to closing to confirm that all conditions in the purchase agreement have been satisfied.

*reprinted courtesy of California Real Estate magazine, September 2005 issue

(Part 1 may be seen here.)
(Part 2 may be seen here.)

A reader asks:

How do I decide whether to use a mortgage broker versus a loan officer from my bank? What’s the difference?

Our reply:

Wikipedia defines a mortgage broker as follows. “A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.” In other words, they can determine what loan packages you are qualified to participate in from a variety of lending institutions.

A loan officer from a bank only has the products and services offered by that bank.

- Christine Serventi

A reader asks:

As a first time buyer I will be purchasing a condominium. As I go through these units what are the main items I should be concerned with? Some of the things that concern me are HOA dues, pet restrictions, storage and parking.

Our reply:

Concerning your expenses, you need to calculate the monthly (or quarterly or annual) HOA dues into your budget. They are not usually tax deductible and are in addition to your mortgage and tax payments.

Additionally, each condominium complex has its own Home Owner’s Association. Each association has its own Covenants, Conditions and Restrictions (CC&Rs) which set forth the rules for the association. To match your lifestyle, knowing if a condominium allows pets, has storage and parking gives you the freedom to have it all!

- Kathleen Macdonald

Below is part 2 – glossary of real estate terms

(Part 1 may be seen here.)

Closing Statement (also know as the Settlement Statement or HUD):

A document that provides an item-by-item breakdown of all costs as well as the source of funds associated with every real estate transaction. Also called a HUD-1, the name of the standard form created by the Department of Housing and Urban Development, it is required for the completion of every real estate transaction.

Contingency Clauses:

These are terms in a contract that give a party to the contract a legal excuse for not performing (i.e. a buyer does not have to buy the property if the buyer does not approve of an inspection of the property or the buyer is not able to obtain a loan.) Contingency clauses typically have a set number of days by which the contingency must be removed from the contract or the decision made not to proceed with the sale.

Conventional Mortgage:

A home loan that is not insured or guaranteed by an agency of the federal government.

Covenants, Conditions and Restrictions (CC&Rs):

This document establishes the rights and responsibilities of owners typically within a subdivision, often enforced by an association of owners organized to maintain common areas owned by all owners within the subdivision.

Days on Market:

The number of days that a property is listed as available for sale before being sold or removed from the marketplace.

Earnest Money:

Money a buyer provides as a deposit when an offer is made to purchase a property.

Easement:

Access given to a third party to use a portion of one’s property for a specific purpose, such as for utilities or a driveway.

Encroachment:

Any structure, such as a fence, that extends into a property owned by someone else.

Encumbrance:

A claim or a lien that appears on the title that, unless resolved, can interfere with the transfer of property.

Escrow Agent or Closing Agent:

A person who is impartially responsible to both the buyer and seller (or borrower and lender) to make certain that all of the terms and conditions of the real estate transaction (or loan) are completed. Also known as a Settlement Agent.

Fee Simple:

A type of ownership of property, it entitles the owner to use their property as they see fit, in accordance with state and local laws.

Insurance Binder:

Proof of coverage required by a lender to show that a sufficient hazard insurance policy exists on a property. This document must be provided to a lender by an insurance agent before the lender will agree to loan money for the purchase of the property.

Liquidated Damages:

The buyer and the seller determine in advance a set amount of money to be paid should one of the parties fail to meet the terms of their Purchase and Sales Agreement.

Mediation:

When a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to the principal balance, causing the loan balance to increase instead of decrease.

Negative Amortization:

When a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to the principal balance, causing the loan balance to increase instead of decrease.

Non-Conforming Loan (known as a Jumbo Loan):

Any loan that is too large to be purchased by the secondary marketing firms, Fannie Mae or Freddie Mac. (In most markets the single family dwelling limit is $359,650, with higher amounts for higher cost areas.)

PITI:

Principal, Interest, Taxes and Insurance. The total monthly payment for a property with an amortizing loan that includes the principal, interest, taxes and insurance.

*reprinted courtesy of California Real Estate magazine, September 2005 issue

Part 1 may be seen here.

This article was posted today from NewsMax.com. Again with the negativity in forecasting gloom and doom about a coming housing crash. Remember that all markets are not created equal.

What we want to do on our website is point to what is actually happening in the San Francisco real estate market by giving you an accurate weekly appraisal by Avram Goldman, President and COO of Coldwell Banker, San Francisco Bay Area .

Here’s what Newsmax is reporting.

- Mick Orton
===================================
A key gauge of future economic activity fell unexpectedly for the fourth time this year amid signs of a slowing housing market, according to a report released by a private research group Thursday.

The so-called U.S. index of Leading Indicators declined 0.1 percent in July to 138.1 after inching up 0.1 percent a month earlier, according to the New York-based Conference Board. Wall Street economists in a Reuters survey were expecting the index to advance by a modest 0.1 percent.

“The economy is cooling but it isn’t likely to stall out,” said the firm’s labor economist Ken Goldstein. “The cooling off in the housing market has been more pronounced, however, and is one factor in the softer domestic pace of economic activity.”

Meanwhile, the coincident index – a measure of current economic activity -rose 0.2 percent last month, building on a 0.2 percent gain a month earlier. So far this year, this index has logged monthly gains.

The leading index measures a basket of economic indicators ranging from unemployment benefit claims to building permits and is intended to forecast economic trends up to six months ahead.
According to the Conference Board, half of the ten indicators that make up the leading index increased in July, but it was mainly a decline in building permits and a steady number of weekly claims for jobless benefits that drove down the index.

© 2006 Reuters.

Editor’s Note:

Housing prices nationwide could fall by as much as 40% over the next few years. Here are the five easy ways to protect yourself and profit from the coming real estate crisis. Go here now.

- NewsMax.com

A reader asks:

What is the difference between being “pre-qualified” and “pre-approved”? What should I get from my lender when I want to make an offer on a house?

Our reply:

Depending on the vocabulary of your mortgage broker or loan officer, “pre-qualified” can be a general terms to describe that your situation has been reviewed by a loan professional and deemed to be acceptable. “Pre-approved” can be a more specific term to describe that your application for a loan has been approved and they are ready to process your purchase contract to fund a loan.

It is recommended that you have a “pre-approval” letter prepared to go along with each individual offer you make on a property. The letter should include the address of the property and the price you are offering to pay for it.

- Kathleen Macdonald

* related reading – About.com has a nice article called “You’re Only 11 Steps Away From Buying a Home” by Janet Wickell which lists 11 things to consider before setting out to buy your first home.

This article was posted from the California Association of Realtors. They, in turn, quote First Republic Bank’s “Prestige Home Index” report. Here’s what they have to say:
===================================
Luxury home prices in Los Angeles, San Diego, and San Francisco continued to increase during the second quarter of 2006 but at a slower pace, according to the First Republic Prestige Home Index™, which tracks homes valued at more than $1 million in key California markets. In Southern California, sales of homes valued $10 million or higher have remained strong, while sales in the lower- to mid-tiers of the luxury home market have slowed. In San Francisco, the entire market for high-end homes has cooled.

According to the report, the value of luxury homes in Los Angeles edged up 3 percent from first quarter and 12.8 percent compared with the second quarter of 2005. The average value of a high-end home in Los Angeles now stands at a record $2.36 million. The prices of luxury homes in San Diego and San Francisco also recorded gains during second quarter, rising 6.4 percent and 4.8 percent, respectively, from a year ago. The average luxury home in San Diego is $2.14 million, while the average luxury home in San Francisco is valued at $2.93 million.

- C.A.R. Newsline

Here is the link to the latest “Prestige Home Index” report from First Republic Bank which changes periodically. Read the August 16th report below:
===================================
Luxury Home Values Rise in Second Quarter of 2006 Modest Gains in Los Angeles, San Diego and San Francisco

August 16, 2006

SAN FRANCISCO — Luxury home values posted small gains in Los Angeles, San Diego and San Francisco in the second quarter of 2006, according to the First Republic Prestige Home Index™ by First Republic Bank (NYSE: FRC), a leading provider of wealth management and private banking services.The Index, which has tracked luxury homes since 1985, found:

• San Francisco Bay Area values increased 0.3% from the first quarter of 2006 to the second quarter of 2006 and gained 4.8% from a year ago. The average luxury home in San Francisco is now a record $2.93 million, up $134,978 from a year ago.

“Over the past year, the luxury home market in California has transitioned to a more normal, stable market in which properties sell at a more measured and less frenetic pace,” said Katherine August-deWilde, Chief Operating Officer of First Republic Bank. “Luxury home values continue to increase, but at a much slower rate due to rising inventory and interest rates. Homes are being priced more aggressively to sell because buyers have more options.”

First Republic Bank produces the Prestige Home Index each quarter with Fiserv CSW Inc., a leading provider of automated property valuation services and home price metrics to U.S. financial institutions. Historical results of the Index are accessible at www.firstrepublic.com.

In San Francisco, values were up 0.3% compared to the first quarter—the slowest rate of appreciation since the third quarter of 2004. Over the past two years, quarterly increases in the San Francisco Bay Area have been no greater than 6%.

Agents in the San Francisco Bay Area said that well-priced homes in great locations are selling very well, but the market overall has weakened over the past year.

“The market between $2 million and $6 million is really strong because of continuing demand,” said Caroline Kahn Werboff of Hill & Co. in San Francisco. “If the house is priced fairly, you’re seeing multiple offers at or a little over the asking price. Interest rates would have to get up to double digits to make a significant difference.” In the high end of the market, Kahn Werboff said there have been some price reductions. She said some buyers are reluctant because they believe prices will decline.

David Gowan of TRI Coldwell Banker said the market is more balanced, although slower than it has been in recent years. “Instead of selling in two weeks, properties are selling in two months, just like they would in a normal market. What we’ve seen the past six years is unusual.” Gowan said buyers are generally making offers slightly under the asking price.

In San Francisco’s East Bay, the market is slowing. “Over $2 million, our inventory is up and buyers aren’t in a terrible hurry,” said Tara Rochlin of Village Associates in Orinda. “We’re seeing more sellers willing to negotiate and lower their prices. We’re headed toward a more balanced market, which is better for everyone over the long term.”

- First Republic Bank’s “Prestige Home Index” Report