First Time Buyers: Has the Moment Arrived?

There was a good article in the "Your Money" section of The New York Times yesterday, titled "Maybe It's Time to Buy That First House."

http://www.nytimes.com/2008/12/06/business/yourmoney/06money.html?_r=1&ei=5070&emc=eta1

A well-balanced piece, it has great references within the article to (1) where to check your credit rating and (2) a study about rents versus housing prices and bubble markets that may not see positive equity as far out as 2012.

It has been encouraging in this market to see prices coming into a range where it may be possible for people who have been priced out to buy into the Bainbridge market. As I write, there are about 50 single family homes under $500,000 on the island, and plenty of choices under $400,000. With a 20% down payment this translates to a conforming loan. Rates are now around 5% for a 30-year fixed mortgage. Condominiums and townhomes are plentiful. A buyer who is pre-approved with no house to sell is really in the driver's seat.

On the other side of things, the study that the Times links to titled "The Changing Prospects for Building Home Equity". The Seattle-Tacoma-Bellevue metropolitan area is one of the 100 areas analyzed in the study that the study authors predict will have continued equity decline through 2012.

Keeping in mind this is one study, is it a good time to buy? Depends on your perspective. First-time home buyers (and other renters) need to ask themselves a few questions: How long do I plan to own my home? How much tax benefit will I receive from owning versus renting? How will my housing asset perform compared to other assets? What non-economic benefits do I receive from owning instead of renting?

I am always happy to discuss these posts over the phone, by email, through blog comments or in person. I hope you find my posts informative!

Rates Update

Below is an update on mortgage interest rates, courtesy of Matt Culp of Bainbridge Lending Group. Looking pretty good, but as Matt notes, we don't know what the long term trend on rates will be. So, these rates may be just a flash in the pan, or we could see them go lower:

We had a big drop in rates today as the mortgage market reacts to the Fed’s announcement this morning that they implementing a program to help the mortgage-backed securities market. Not really sure what the particulars are but the lenders liked it.

We are at 5.25% at 1 point on the 30 year fixed and 5.5% at no points. On Friday we were at 5.625% at 1 point and 6.0% at no points. So in a matter of a couple of days, we have had almost a .5% drop in rates.

Not sure how long this will last (we’ve seen these one day wonders before) or if they will go lower.

Matt Culp, J.D.
Mortgage Broker/Owner
Bainbridge Lending Group, LLC
510-LO-27342
206-842-7176 Direct
206-842-1444 Main
206-842-3358 Fax
206-755-6636 Cell
877-755-6636 Toll Free

Friday Stats

Here are a few stats I regularly look at:

• 220 single family homes listed for sale on BI in the "active" category
• # houses sold to date down 46% from same time period last year
• Median sale price in 2008 is $603,750 (down 11% from last year)
• Median days on market (time from listing to pending sale) is 71, up 6% from last year
• 30-year fixed rate for a conforming loan (up to $417K) is 5.875%, same as this time in 2007

What does this mean? First, inventory is the lowest it has been since February 2008. That's not surprising, because we are entering the holiday season and this is a typical time for people to take homes off the market to give the listing, and maybe themselves, a rest.

There may be other factors at play, however. For months the sales volume has been hovering around 50% of sales volume last year. Now it is at 46%. Every bit counts.

New Construction - New construction homes deserve some special attention as to there effect on market statistics. While new houses represent 23% of active listings, they represented just 11% of sales in the second half of this year so far. And, new houses actively listed have, on average, been on the market 46% longer than re-sale active listings.

Of note for new construction is the discounting that has happened to reach a sale. Of the 9 new construction houses that have sold since July 1st, on average builders have discounted the price 20% from the original list price. Ouch. This is in a market where the average resale house (non-new construction) sold for just 6% less than listed price.

There are several reasons for the discounting... Builders with too much inventory need to move houses. The new construction price point is a good deal higher than the average re-sale property; with jumbo loans so much more expensive these days, people in the jumbo category need some real price incentive to make a purchase. A hosue that started as a presale was in an entirely different real estate market than when the final product sold.

Do I sound negative? Not my intention by any means. There are bright spots in the market: first time home buyers are getting in at prices we never expected to see again, buyers are negotiating hard and feel like they are getting value, and investors ears are perking up. At least things aren't down 40% like the stock market. 15-20% down in the housing market is starting to look good these days.

Have a great weekend.

Where Will Real Estate Rebound?

http://www.forbes.com/realestate/2008/10/29/foreclosure-recession-cities-forbeslife-cx_dp_1029realestate.html

Forbes Magazine (okay, admittedly a little conservative for me) had a recent article regarding US cities most likely and leats likely to see a real estate rebound. Seattle is #1 on the list in the positive column. While Bainbridge is decidely NOT Seattle, the fates of many Islanders are closely linked with the city. The ferries are packed at commute times with Islanders who rely on companies across the water for their livelihoods. Many of our new residents come from Seattle or move here due to a new job in Seattle. Any positive news for Seattle's real estate market is positive for Bainbridge.

What will it take to get YOU off the fence?

There is an article today in the Seattle Times about incentives that could be offered to home buyers over the next months to get people off the fence and inject some life into the national real estate market. http://seattletimes.nwsource.com/html/realestate/2008392490_harney16.html
The incentives proposed come in the form of interest rate buy-downs (subsidized by the federal government) and down-payment tax credits.

Some of the ideas being pushed by lobbying groups seem a little far-fetched (interest rate of 2.99% for people who make a purchase before July 1, 2009) but the basic ideas could be just what are needed to get things moving in the right direction.

How to put this in terms that translate to the Bainbridge real estate market? Follow my process below…

In the past 6 months, the median sale price of a home on Bainbridge Island was $576,000. Assuming a 20% down payment and a 6% interest rate for a 30-year fixed rate loan, the monthly principle and interest payment would be $2762.73. Over the life of the loan the interest paid to the lender would be $533,781.20. Now, if there was a federal subsidy to buy the rate down by 1%, as discussed in the article, the numbers would be: monthly principal and interest payment of $2,473.67 ($289.06 less per month) and the interest over the life of the loan would be $429,724.60, a difference of more than $104,000.

The $100,000 savings over the life of the loan is a pretty staggering number. And for many people, a difference of nearly $300 per month really does make a difference in their lives. Put that in terms that are real to your monthly budget: a car payment, a proportion of child care costs, home heating, etc. I don’t know many people who are in the market for a median-priced home that couldn’t use an extra $300 per month.

What about those of us (me included) who bought a house in the last 2 to 3 years and have seen our house values fall? I think we would all benefit from incentives that got the housing market moving again. Such incentives will help things move along and stop the freefall of housing prices, followed by an eventual appreciation of the asset. This will be good for our entire economy, not just the housing sector.

Something Uplifting

Be the change you want to see in the world. -Mahatma Gandhi

Now I just have to figure out how this quote is related to real estate... Any takers?

Home Pricing: Denial is not a River in Africa

A colleague emailed me this link and I think it's worth posting: http://www.msnbc.msn.com/id/27648884/from/ET/. Denial of the reality of depreciation in housing values is happening all over the US, and there is some of that on Bainbridge Island too. Any scan of housing inventory and you will note some prices that seem really out of whack.

What I don't like about this piece is the tone it sets of "us vs. them" between real estate professionals and home sellers, as if the real estate professionals have cornered the market on reality while homeowners are living in la-la land. I have more respect for my clients. While the reality is not pretty, I find that my clients really do get what's going on. Some are benefitting from the decline in home values: first time homebuyers, investors, and people who sold in a higher market and who have been in a holding pattern watching for the right time to act and make a pruchase. For those planning to make a move from one house to another, they are selling low, but buying low, too. It is the people who are selling who have watched their asset decline who are really hurting. Taking an "us vs. them" approach is just not my style, and you'll never hear it from me. I'm more of a "rip off the bandaid" type of person. If there's bad news, I'll just tell you. Better to be up front and figure out how best to deal with the bad news for the greatest benefit or conversely, for the least amount of pain.

I'll try to post something more uplifting later.

Bainbridge Market: Volume

For months, sales of single family homes on Bainbridge Island has been hovering at 50% of last year's sales volume. On the instinct that activity is up, I checked the numbers in the MLS and found 37 houses to be in contract between buyer and seller, 8 of which are contingent upon the sale of the buyer's home. Assuming all 37 sales close escrow by the end of this year and no other sales occur, sales volume will finish down only 41%. No reason to throw a "Real Estate Market Recovery" party, but heading in the right direction.

Recognizing a Deal

In round 2 of my car negotiating, I set out to find a replacement for my car that was totaled last month. Me being me, I had to learn a lesson in the process. More on that later…

My search was quickly narrowed to getting the same type of car (a Volvo V70 Cross Country station wagon). My guilt about the gas mileage was outweighed by my need for a super safe car. After getting hit from behind by someone going WAY too fast, I realize that I don’t always have control of what happened when I am driving so I need to put myself, family and clients in a car I feel will perform well in the worst of circumstances. Knowing I wanted to buy a used car, my next criteria was low mileage. Any candidate for purchase also had to have leather seats (easy to clean) and be in like-new condition inside and out.

It took a couple of weeks but I finally found something on Craig’s List that seemed perfect on paper. After emailing with the owner I decided to take it for a drive. It was as good in person as the ad and emails stated, and everything checked out beautifully with a mechanic.

Deciding what to offer was the hardest part. The car was already well-priced, compared to everything else I had looked at and Kelley Blue Book values (www.kbb.com); Kelly Blue Book is a great resource for retail, private party, and trade-in values for used cars. The car was already 28% below Blue Book retail value, and 10% below Blue Book value for private party transactions. However, I knew I would not be happy paying full asking price because I had cash. As with real estate transactions, I expected a discount for being able to write a check and close the deal fast. So, I offered what I felt would not be an insulting price, the seller made a counteroffer, and I told him I would be there the next day with a check half-way between his asking price and my original offer. We agreed and I now have a great car that was a third less than what a dealer price would have been, and 14% less than the Blue Book private party value.

What was my lesson? Recognizing a good deal and be willing to take it. When I found the car on line, it seemed like a great value. While I did expect a small price reduction in return for my cash, there was no point in beating up the seller. Ask for too much of a discount and I risked him not wanting to sell me the car at all. And, I needed a car.

I see the scenario I went through played out with real estate. As home values decline, buyers know they are holding most of the cards. Even when a house appears well-priced by al objective measures, buyers still want to negotiate. Realistic sellers will make deals, as long as they make sense and there is some fairness attached to the negotiation. And as always, cash is king. Finally, just as I needed a car to get around (I couldn’t rely on the good will of the friend who had loaned my family an extra car forever) people need to put rooves over their heads.

The Latest on Lending

Time to bring in an expert... Matt Culp, Broker/Owner of Bainbridge Lendging Group, agreed to provide a lendign update for me to post today. If you have any questions or comments, feel free to post them and I can ask Matt to field them. Here is Matt's post:

"The Fed cut their rate again today by .5%. This puts the Fed Funds Rate at 1.0%, the lowest we have seen since the June 2003-June 2004 period. This cut follows the .5% cut made by the Fed on October 2nd. So, if you have a line of credit tied to Prime, that rate likely just dropped by .5%. Prime will now be at 4.0%. Do check your LOC paperwork to determine if the loan has a floor rate.

Mortgage Rates and the Bond market are basically flat today in response as the cut made today was pretty much baked in already. No big suprises in the Fed comments after the cut. However, they did not mention anything about inflation risks or pressures. This is good as often the absence of comments means something. This means rates can and perhaps should stay low for the foreseeable future in order to help the struggling economy and that the inflation pressure created by such low Fed rates will be minimal or non-existent. The Bond market and 10 year yield are good barometers of the future inflation risk. The yield today is hovering right around 3.80%. This is down slightly from yesterday but it had been down as low as 3.50% the day before the last Fed cut earlier this month. So mortgage and Bond rates are up a bit over the last few weeks as I have pointed out in prior emails. We are at 6.25% at 1 point on the 30 year fixed. That is about .375% higher than earlier in the month.

So, rates are still good, just in the upper region of the range we have been in the last 3 years or so. And lenders are still lending! By the way, the Stimulus Act Jumbo loan ($475k in Kitsap) is slated to go away at the end of December. Some lenders have put the funding cutoffs at the 12/1 or 12/15. Just wanted you to know this in case you have clients looking to use that loan and are trying to determine a closing date—either for a refi or a purchase. There will be a new “conforming” number to replace the current $417k and $475k after the 1st of the year, but that number will also be County based and we don’t know what it is yet.

Behind the scenes, technical numbers are improving, including the LIBOR which has come off its highs. This is an important rate for inter-bank lending and is an indicator of whether the credit freeze is thawing or not. It appears to be improving, so this is good from a big picture stand point. Hope this helps."

Matt Culp, J.D.Mortgage
Broker/Owner
Bainbridge Lending Group
LLC510-LO-27342
matt@blgloans.com

Cool Graphic in NY Times

I love reading the New York Times and Washington Post online to get a national perspective of the real estate and lending markets. There is a great graphic I found today on the Times website. It show change in housing prices plotted over 8 years for 20 cities. There is a 20-city composite overlaid with single-city data. If you check it out, take a minute to click on the Seattle data, then compare it to Las Vegas, southern CA and FL. You see that the Seattle area, while experiencing phenomenal appreciation into 2006, had a much more moderate curve than the other cities in NV, CA and FL. Las Vegas is most pronounced with a steep rise and a corresponding steep fall. The graphic can be found at:

http://www.nytimes.com/interactive/2008/10/28/business/20080624_HOUSING_GRAPHIC.html

Negotiating - Oh the Joy!

Three weeks ago I was in a car accident (actually, the victim of a car accident because I was rear-ended by someone going 30-40 miles per hour while I was stopped!) and find myself in the position of doing a lot of negotiating, post-accident. First, I negotiated with the police officer about his written statement. It reflected only the causing drivers side, and it was not 100% truthful - not even 1% truthful, and the 1% was that she hit me. Next, I negotiated with my insurance company over whether or not my car was totaled. It WAS totaled - completely smooshed is the technical term I like to use. Next, I negotiated over the market value of the car for the settlement with the insurance company. That's where things got fun. Luckily, this process really hasn't been so bad, because it's what I do every day, but applied to real estate. Here's what I kept in mind during the process...

Be Nice. I am a true believer that you will get farther by keeping your cool and treating the person on the other end of the negotiation the same way you would want to be treated. My oldest daughter learned the Golden Rule in preschool when she was 3, and it is a life lesson that is a good idea to keep in mind whenever one feel's like blowing her top.

Be Fair. While I would have loved to get enough money from the insurance company so that I could run out and buy my coveted car of the moment (an Audi Allroad with low miles - have one to sell me?) but that's not realistic. I was driving a 1999 Volvo V70 XC with low miles, and that is what I needed to negotiate the value of. (No pain and suffering included, even though the hassle of this process could be categorized that way in bad moments).

Be Persistent. It took four rounds of negotiation to settle on a fair market value for my totaled car. The insurance adjuster would make an offer, show me comps, and I would refute the comps, provide better ones, and wait to hear back from him. That was how rounds 1 and 2 went. At the end of round 2, I moved on to the adjuster’s supervisor (who had more authority to negotiate upward). Round 3 was similar, but with a higher dollar amount, and for round 4 I made them an offer that was accepted. Turns out it was $1,000 more than I paid for the car 13 months ago (but they don’t need to know that). Persistence pays off. My husband told me he would have stopped at round 3. Good thing he was not part of the negotiation!

Be the “Smartest Person in the Room.” Each night during this process, once the kids were tucked into bed, I spent 1-2 hours researching comparable cars. I wrote emails as to why the comps the adjusters were using were not any good, and supported my argument for the (higher priced) comps I found. I knew more about their comps than they did. It worked.

All my tactics for negotiating for myself on a settlement with my insurance company were learned negotiating for my real estate clients. Negotiation is just one tool in the tool box, but it sure is an important one.

Next step: negotiating a price on a used car. Maybe you’ll see me driving around in that Audi Allroad after all….

Market Update 10.20.08

At heart I am a numbers junkie, but I don't believe in just throwing out statistics with no interpretation. Below are some statistics plus my take on the current real estate market on BI.

Year-To-Date

SINGLE FAMILY HOMES

• Median Sale Price: -10% compared to 2007
• # Sales: -50% compared to 2007

It's not surprising to see the median price down 10%, but activity down 50% compared to the same period last year is staggering, especially with our available housing inventory up by 25%. Where we do see more activity is in the under-600K market. This can be linked directly to the lending market. Conforming loans (up to $417,000) and Jumbo Conforming Loans (up to $475,000 in Kitsap County) have hovered around 6% for months. Jumbo loan rates, on the other hand, are considerable higher. And, the criteria for getting a loan has become much more stringent. While inventory is high, it has passed it's peak. I expect that prices will continue to drop for at least the next 6 months.

CONDOMINIUMS

• Median Sale Price: -16% compared to 2007
• # Sales: -66% compared to 2007

Condominium madness is over. The buying frenzy that started with the Harbor Square Development is long past. Harbor Square now has 20 re-sale condos on the market, ranging in price from $274,900 to $1,195,000. Ouch. More established condominium communities on the Island have done better with getting homes sold, such as Townhomes on Madison, Grow Village, and Vineyard Lane.

VACANT LAND

• Median Sale Price: -33% compared to 200
• # Sales: -64% compared to 2007

Not too many people out there buying land these days. With 44 new construction homes (18% of the available inventory) on the market, builders aren't running out there to buy land and build on spec.

Where does this leave you? If you are selling a home, you need to price aggressively and plan to be patient. If you are buying, get working on your financing before you start looking. If you are doing neither, enjoy your home. It is still a great asset, and real estate is a long-term proposition.

October 17 2008

It has been nearly a year since I have posted. A few weeks back, I responded to a post about the general health of the real estate market on a Yahoo! chat group, Islandmoms. After getting a lot of positive feedback regarding the information I posted, I decided to revisit this blog and get more serious about. Why? For so many people on this island (well, not just Bainbridge Island, but this is where I live and work), their home is their largest asset, not to mention a HOME. It's where we rest our heads at night, have dinner with family, celebrate holidays, play with our children, have coffee with our friends. The uncertainty in the economy and real estate market is worrisome. Information is power, and understanding what's happening can help bring some comfort and relief.

On this blog, I welcome questions and comments. I want to generate discussion and be a resource for answers and real estate information. Let's face it - we get our information online. While I welcome in-person appointments and phone calls, too, most of us go online to get our information these days.

I'll post later this weekend with a market update.