Homeownership in America: will it remain an attainable part of the American dream or will it become ridiculously prohibitive and a rare occurrence.
The political leadership in the nation's capital is talking about ending the mortgage interest tax deduction (MID) and they are also actively exploring how to reduce the government's involvement in the mortgage market. If either one of these changes is implemented there will be consequences that will change real estate drastically. If both are implemented, it will be like tossing everything into the proverbial fan.
Financing real estate for purchase or using real estate as a security for a debt has been in existence almost a thousand years. The evolution to our current situation only goes back to the end of the Great Depression. Prior to the 1930's a borrower typically needed 50% down payment to qualify for a mortgage. The mortgage was to be repaid in 5 to 10 years while the interest on the loan was paid monthly.
Franklin Roosevelt started the Federal Housing Authority (FHA), which insured mortgages thereby removing much of the risk from the private sector. Roosevelt also created the Federal National Mortgage Association (FNMA or Fannie Mae) to buy mortgages from the local savings and loan. This created the secondary mortgage market; by buying the loan the money is replaced and the savings and loan can lend to another borrower. Fannie Mae would in turn sell the mortgage as a security in the financial market. The 30 year amortized loan, so common now, was started at this time. After the last world war the demand for homes skyrocketed because of the GI Bill and the development of the interstate highways. For many years this worked well. The S&L made money from fees and servicing the loan, the government made money selling the bonds to Wall Street and the investors made money while people bought more homes.
By the end of the 1980's the S&L's were reeling from inflation and high interest rates. The national leadership of the time decided that deregulation of the S&L industry was the method needed to stabilize the mortgage market and the S&L's. As it turned out then the lack of regulation coupled with the depositor insurance allowed the S&L owners to make even riskier loans bringing the crisis to a head and forcing the seizure of over 1,000 S&L's and a loss of $160 Billion dollars.
From then till now the mortgage market has been based on competitive loan offerings by banks and private equity funders. Most of the loans were sold to either Fannie Mae or other government sponsored enterprises (GSE) such as Freddie Mac or Ginnie Mae or to investors in the form of securitized bonds.
Believing in removal of the GSEs which currently are buying 95% of all mortgages on the secondary market is akin to believing that the stock market is a good place for your retirement funds; it all looks good on paper as long as you don't have much memory or need your funds when the market has dived. Believing that private markets will make affordable, fair mortgages available is turning a blind eye to the recent abuses that have occurred. It wasn't the GSEs that decided to offer 120% loan to value mortgages, or no down payment loans. It wasn't the GSEs that decided it wasn't necessary to check credit ratings or verify income. Actually it was the private money market that saw an opportunity to make a profit and its excesses were natural. Money seeks more money, it doesn't seek regulation, it doesn't have morals and it just seeks profit till those profits dry up then it moves to another market. Doing it now, with the market as it is, would be a disaster.
The mortgage interest deduction (MID) has been part of the tax code since the beginning. All interest was deductable, but then most interest was part of business expenses since few homeowners had mortgages. Remember that till the 1940's most property was bought with 50% down and a short term mortgage. With homeownership rates of 67% in America now, many can deduct the interest they pay banks for their home loans.
Most arguments for ending the MID center on either the lack of real effect it will have on homeownership rates, because of the value of the standard deduction versus the mortgage interest deduction, or that it allows people to buy more home than they need. Not in San Francisco! The median price in the Westside for 2010 was $825,000 while the median for the US is still below $300,000. The difference between the tax savings from the interest deduction for our price and the national price is $7,000 dollars when using a 28% tax bracket, 6% interest, 30 year amortization and 20% down payments on each property. The median American saves $4,429/year while the median San Franciscan saves $11,446 in taxes paid.
While the MID is one of the last middle-class income tax deductions it seems to benefit the lenders more than the homeowner. When interest rates are much higher than now lenders can still make loans because the interest isn't taxed, and why should it be taxed when paid? Shouldn't it be taxed when received by the banks as income or profit?
To the market report - Westside values are slightly above where they were in 2004, $825,000 now versus $805,000 in '04. The volume of sales is down by more than half from 2004 when it hit its peak of 617 units sold in our area. Sales volume has grown 7% from the sales volume in 2009.
If you want or need to sell now, you need to prepare well and be realistic. If you want to buy in any of our lovely areas, this is a great time regardless of all the brouhaha. You will love living on the Westside of the City.
Jed Lane is a Realtor & Real Estate Broker associated with Coldwell Banker's Lakeside office. He is a Westside native and resident. If you have questions or comments contact him at
When a sign is placed in the front yard, is the home for sale? That’s what everyone would assume but it depends.
If an agent has their name on a yard sign and it remains there for months and months, what’s going on? Is the property really for sale or is it marketing for the agent and the brokerage?
In the area covered by this newspaper there are eighty-nine properties actively for sale. Sixty-eight of those have already been on the market for over a month, forty-five of the eighty-nine have been for sale for more than two months and eighteen of the total for more than three months.
In previous articles we’ve examined the sale value relationship to median price when the days-on-market (DOM) is factored. We’ve seen that 45% of houses sold in the City sell for over the original asking price in a shorter time than the 49% percent of sales where the original price was reduced to sell the property. We’ve seen that the houses that are comparable to the median size sell for nearly 10% more than the median price if they sell fast. Yet for various reasons houses are sitting on the market and losing value by the day.
Why would a seller place a property on the market for more than a ready and willing buyer would pay? Looking at the data it seems that many fall into a few categories. One is the “flip” house. The flip home is overpriced because the seller is pricing it according to what they paid for it and what they put into it, plus selling costs and profit. Right now there are quite a few homes like this on the market. Many have reduced the asking price considerably and are still not sold. Another category is the home with some defect. These homes are in good neighborhoods but might have a location flaw or a functionality flaw. The price is based on homes in the area without taking into consideration the flaw. An example is a house on Broadway at Hyde, great neighborhood but this house looked over one of the Broadway tunnel vents. It was marketed at $1,998,000 and sold finally for $1,150,000 after chasing the market down $948,000 and being marketed for 532 days. There are also homes that are in pre-foreclosure or the seller is trying to sell and get their deposit back out. These homes are priced at what they were bought for but the market’s declined.
The category that is the most troublesome happens when a seller doesn’t listen to advice and demands a high market price be placed on the property. Some folks still believe that all buyers will offer below the asking price. Some just believe that they know more than the professional that is advising them. There are the agents that will give a high estimate of the value to “buy the listing.” It’s the view of many agents that we should never place an overpriced listing on the market; that it’s not in the seller’s interest and therefore is a breach of our fiduciary duty. Others rationalize it that if they don’t “take the listing” at the sellers inflated price, “some other agent will” and it’s more important to have the listings in your name than your competitors’.
With so few sales occurring at the list/offer price, what’s a seller to do? Who actually knows what the value of the property is? The answer is really very simple; the buyers know what the value is. If you want to sell the home, market it to attract the highest number of buyers to come see it, create buzz about the property. Clearly that is the case with the homes that are selling in less than 40 days comprising 51% that sell at or above the asking price. The remaining 49% are taking more than 90 days, on average, to sell. Added to that is the fact that the faster selling homes sell for 10% more than the slower selling homes, it is clear that the market is telling sellers and agents what to do. Few markets are ever static. An agent’s job is to sell the house for the highest possible price and in San Francisco that means selling it in the shortest amount of time, also.
The Westside market has 89 homes on the market at the time of this writing. 26 homes sold in October and there are 53 properties in contract. The median price in October was $792,000 with the median DOM of 55. There was $27,279,500 in total volume sales in the month of October and the sales prices ran from a high of $2,353,200 to a low of $575,000.
Jed Lane is a Realtor & Real Estate Broker associated with Coldwell Banker’s Lakeside office. He is a West Side native and resident. If you have questions or comments contact him at email@example.com
We sold our house last month. Sixteen days on the market and we received multiple offers. We negotiated with the best buyers and ratified the contract. I set the market plan and worked with an associate as my agent.
Now we are being called by other agents and asked how did we do it? In the current market where homes are being shown for months and there are either no offers or eventually only opportunistic offers, we had four offers of which two were acceptable and very close in price.
What was the marketing plan? How were we able to attract four qualified buyers in a short marketing period? Most importantly how did we make this home appear as the most attractive and therefore the first one to go of the available inventory?
First the Westside market update. As of this writing there are 107 homes on the market in the area covered by this paper. In the month of September there were 34 homes sold at a median price of $796,500. At September’s sales rate there is a 3.15 month supply of homes leaving us in a seller’s market. The median size is a 3 bed 2 bath home with 1,475 square feet. It took 48 days on the market to sell the property. Lastly there are 44 properties in escrow at this time.
As I wrote the absorption rate the fact occurred to me that this market isn’t at all like a true seller’s market. Historically the definition of a seller’s market is prices are rising, buyers are motivated to pay whatever the seller’s demand for the properties. We’re not actually experiencing that! The median price is down 5.5% from the same month of the previous year and 4% from the previous month’s median price. With lenders placing “normal” country-wide restrictions on buyers who are trying to live in one of the most expensive cities in the country there aren’t many qualified buyers in the market.
The city-wide market inventory is increasing. On October 1st the number of single-family homes was up 26% over September’s. The inventory of condominiums is also up by 32%. That means that at the volume of September’s sales there is a 7.5 month supply of condos and a 4.3 month supply of single-family homes. As a whole the inventory of single-family and condominiums is up 25% over October 1, 2009.
Sales continue in our unique “who knows what the value is” style. As previous articles have shown almost half of the sales in San Francisco are over the asking or list price, a small percentage sell equal to or at the list price and the remainder are sold below the original list price. Those include properties where the asking price has been reduced, houses that get offers below the asking price and houses that have been reduced and still get offers below the new asking price.
In September, for instance, the city-wide sales of single-family homes, only six properties sold at asking (31 DOM), sixty-two sold above the asking price (35 DOM), thirty-six sold at a lower price than the asking price with no reductions, the offer and eventual sale price was lower than the list price (51 DOM), and fifty-six properties that eventually sold below the original price after posted reductions to the list price (96 DOM). One has to ask why anyone would price a property too high. Why would you want to live for months not knowing what you were going to do?
How did I sell our house in 16 days? Knowing that the value of the property is only what a ready and willing buyer will pay for it. Knowing that if I asked what I wanted to get, I’d be waiting for an offer for months with the disruptions to normal life of living in a staged, show clean property and chasing a price that might attract a buyer to make an offer. Selling a house is not about what we wanted or what we think the house is worth, it’s about preparation of the property, it’s about getting prospective buyers inside to see how desirable and functional the house is and what a great home it can be, simply doing everything necessary and possible to motivate buyers to make an offer. The prime objective it to get the offer and then work with each and every buyer that shows interest.
Why are there so many homes on the market that are over-priced? It can only be a combination of bad advice or not listening to good advice. Having a goal of moving and then not being able to because your house doesn’t sell must be really hard. I never want to suffer through that and I don’t want my clients to ever experience that either. Just last month ninety-two sellers finally sold after having to reduce and chase the market for months. That is not the way it has to be!
Jed Lane is a Real Estate Broker associated with Coldwell Banker Lakeside West Side native and resident. Questions or comments contact at firstname.lastname@example.org
The market in our area has entered the busy period before the end of the year. While it might sound too early to be talking about the end of the year, selling real estate requires a time frame that stretches for a minimum of a month once the buyer and seller enter into a contract. Between preparation, marketing and escrow selling a home can take three months.
I remember when we bought, thinking that this is one of the longest deferred gratification processes in America. Buying a car or just about anything else in America, you can go in, put down no money, sign some documents and enjoy the new purchase. With a house you put up lots of money and then you wait and wait and wait till you finally get the keys and can start to move in.
Selling a home now means spending time and money getting it ready for showing, being realistic about your expectations, being realistic about what you have and what it will get on the market. One pitfall is all the homes that have additions that don’t tie in to the original part of the house or were carved out of spaces that don’t have full height or enough windows to conform to code. Many have staircases that are just tarted-up utility stairs and actually detract from the additional space.
The market has changed enough so that bad additional space is seen as a detriment and holds no value. It has become imperative that when selling the home it is marketed as it appears on the tax records. The federal secondary mortgage buyers are not recognizing “bonus rooms” or “unwarranted space” as having any value; therefore appraisers can’t use it to justify the price of the property.
We all must recognize that this shift in lending practice will have more of a detrimental effect on homes modified without permit than other economic factors. You might have a four bedroom two bath house but if two of those bedrooms and the second bath were added within a standard two bed one bath you really only have a two bed one bath home as far as the buyersand lender is concerned. Frankly, if the lender will only lend on the value of the property as a two bedroom, one bath home then the buyers are not going to put up the extra cash for the space. A new reality!
What is a seller to do? Well that depends on the equity situation. Obviously if you’ve been in the house since it cost $100,000 you’re fine. If on the other hand you bought it and paid for the additional space comparatively then you really should get it inspected and see if you can bring it into conformity with code. It will cost you fees for permits, maybe
some work and additional taxes but you can sell the space for more money.
The market statistics for our area show an increase in supply from seventy-three last month to one hundred seven. Sales increased a bit from twenty-five to twenty-eight which now gives us a 3.8 month supply of homes to sell at the current rate of sales. Homes in contract went down from forty-three to thirty-five.
The median price for the sales in the past month is $790,000. The median house for the period was a three bedroom, one and three-quarter bath with 1,516 square feet. The median days-on-market was forty-three.
Citywide the median price is $700,000 which is down less than 1% from August of 2009. Sales are down 5.6% from the previous year and inventory has risen by 14.2%. Even with sales slowing and inventory rising SF is still holding is the “sellers market” range with a 3.4 month supply for single-family homes and a 4.7 month supply of condos.
One last bit of news from California county assessors’ offices, San Francisco is the only county that saw a rise in assessed value over the past year. Four percent up while every other California County shrank.
Jed Lane is a Real Estate Broker associated with Coldwell Banker Lakeside, West Side native and current resident of Miraloma Park.
The elected “leaders” of our fair City have placed a choice before us on the November ballot. We are being asked to determine which police process will cut back or better control the deterioration of civility on the public streets and sidewalks, on the surface at least. What we are really being asked is should the will of the community or the will of the Board of Supervisors be primary.
Proposition M was placed on the ballot by Supervisor’s Ross Mirkarimi, David Chiu, Chris Daly, Eric Mar, John Avalos and David Campos. The remainder of the eleven opposed the measure. Prop M the “Foot Patrol Ordinance” directs the Police Commission to do some wonderful things that they are already doing, like establish a “Community Policing policy and Foot Beat Patrol program within the Police Department”. This has been done starting in October last year when former Chief Fong started the implementation of the recommendations of the Police Executives Research Forum (PERF). Prop M continues to demand that the Police Commission (PC) create a policy document that needs to go before the Board of Supervisors prior to implementation! The new Community Policing policy must include among other things a “description of long-term preventative problem-solving strategies and tools that are available to police officers (2) plans for encouraging full and open communication and collaboration among Police personnel and community members, including in developing and implementing neighborhood-specific policing priorities and strategies, goals for allocating police resources between the key tasks of call response and engaging in proactive efforts to identify and solve community problems that contribute to crime.
All of this is already going on and has been for almost a year. Ingleside district started it’s Community Advisory Board last October and every other district station started theirs right after Chief Gascón was brought on. Most important to this issue is the fact that the community and the police have asked for a long term problem-solving tool to made available and it is shot down by rhetoric in the Supervisors committee. Instead of taking the communities hard work under thoughtful consideration we have a Board of Supervisors placing proposal on the ballot to force the Police Commission to make the department do what is already under way. Not only that but this proposition contains a “poison pill” clause that says if it gets more votes than Proposition L on the same ballot then it wins and Prop L can’t be implemented!
Proposition L is the Sit/Lie or Civil Sidewalks Ordinance. This measure was placed on the ballot by the Mayor after it had on hearing in committee at the Board of Supervisors. This ordinance came out of the process that the Supervisors want the PC to create. It was done by the PD and the community in an effort to “solve community problems that contribute to crime”. The Haight Ashbury community and the Park district command staff are dealing with a unique set of problematic travelers that have been descending on the Haight area for the past few years. (see the June 2010 issue). These young adults have anarchistic tendencies for the most part except when it inconveniences them, then they are all about the legal protection they should be accorded.
Most often the question emerges in this “debate” that the PD already has laws that allow action. The difference is that of many traffic infractions. As it is with traffic, if an officer sees you break a traffic law the officer can cite you. The officer doesn’t need a civilian or citizen to swear a complaint that you ran the stop sign. All of the laws that can be employed against these gypsies require a third party to swear out a complaint before the officer can take action.
The community has decided that they want the police to be able to take action if they encounter people sitting on lying on the sidewalks. Whether the office is walking a foot patrol or not the community wants civility restored. This solution is what the people that live, work and shop in the area want to have happen. The community people want the police, who are likely to be on foot patrols to be able to first ask troublesome folks that are blocking the right of way for no legitimate purpose, to get up and not block the sidewalk. Yes, folks that’s it – just stand up and don’t sit or lie on the sidewalk. If the person or persons refuse then the officer can cite them.
There are really a few layers to this action by the Board of Supervisors. On the face of it is a “feel good” proposal. Everyone loves the idea of foot patrols. Foot patrols are usually the most visible of the proactive elements of a community policing model. The federal Department of Justice recommends that the most effective implementation of community policing is to have most officers “cross-trained” and “generalists”. To implement the changes in our police department we don’t need the Board of Supervisors injecting itself demanding action that is already underway, structures that will actually hinder the community’s efforts and negate the will of the people. This is also a classic power grab by the Board of Supervisors. Writing law that demands that another commission deliver proposals to them for review is nothing less than a power grab. Most important is the effort to confuse the voting public by placing a feel-good band-aid ordinance on the ballot that masks the real effort to defeat the community’s will with the poison pill and do a power grab in the process. Don’t be fooled – vote to defeat Prop M and support the communities’ desire for civility on our sidewalks by voting for Prop L.
In the Ingleside District, where I am an advisor, we have implemented beat officer foot patrols on the streets where it seemed beneficial. We have also taken other actions with the radio cars, MUNI and traffic enforcement. I know that if any member of our community came to us or the Captain and asked for foot patrols and was able to show the merit it would be tried.
If you are interested in working on the implementation of the Community Policing model go to your district police station and ask about the Community Advisory Board meetings or contact SF SAFE at (415) 553-1984 for more information.
The campaign slogan against Prop L is “Sidewalks are for People”. Exactly true. They are for people to walk along the side of businesses and homes. Parks and benches are for people too, for people to sit and lie and picnic. Do we need to protect the rights of panhandlers and traveling anarchists? Vote YES on Prop L. Do we want the Board of Supervisors to have review of police manpower allocations? Vote NO on Prop M.
Jed Lane is a Real Estate Broker associated with Coldwell Banker, West Side native and current resident of Miraloma Park. He serves as the President of the Board of SF SAFE and is a member of the Ingleside District Community Advisory Board.
If you have questions contact him at email@example.com
How many of sales over the past year were distressed? Has the banking crisis hit here forcing people to sell for less than they owe and what percentage of all sales are distressed?
First quick market checks of the Westside real estate. There are seventy-three properties on the market in the distribution area of this paper. Twenty-five properties sold in July which gives very close to three months supply of homes keeping the market leaning towards sellers over buyers. A balanced market is four to five months of supply. The median price for July’s sales was $815,000; the median size was three bedrooms, 2 baths and 1,350 square feet. There were forty-three homes in contract as of August 1, 2010. The median time on the market was thirty-six days. That doesn’t sound bad at all!
City wide condo and single-family inventory is up over 11%, from 1,527 units on August 1, 2009 to 1,722 on August 1, 2010. The median price is up a bit from $702,000 for sales in July 2009 to $714,740 in July 2010, and the number of homes in contract on August 1st is equal to the July 1st 2009 number.
Much has been written of falling sales nationwide. Some reports state that July 2010 was the largest drop in history. As we know, San Francisco isn’t the rest of the country in many ways including real estate! Sales in July 2010 are down only 6.5% from July 2009, 390 units to 366. We had a sharper drop from June’s sales of 423 units to July’s and there were sharper drops in July’s of 2000 and 2006. Nationwide drops of 27%, as reported by Bloomberg for previously sold homes can cause the stock market to drop, but we continue to be OK. Now, if we could get the national banks to lend based on our local reality and not the national scene...
Recently, clients have been asking for investment “deals” in the City. The bank owned properties, known as REOs, are available and so are “short” sale properties, where a seller sells for less than they owe the bank. Whether or not the properties are “deals” is like beauty, in the eye of the beholder. Of the REO properties, an example sold recently in the Sunset; it was tenant occupied and the rent was $500./mo. and it sold for $480,000. Is that a deal? Many properties in the Bayview and Visitacion Valley areas sold in the $200,000 price range; that sounds good with rents still high. And a Pacific Heights mansion finally sold for $11M after being reduced from $16M; a $5 Million dollar reduction! Now that’s a “deal”!
While the California Association of Realtors reports that almost 50% of sales are either REO or Short Sales and the National Association of Realtors reports 29% of sales nationwide were distressed, San Francisco had only 15% of combined condo and single-family homes volume sold in the past year as either an REO or a Short Sale.
In conclusion this is a great time to buy. I have a new client that is getting a 30 year fixed rate mortgage at 4.5% —that is almost free money. If you have good credit and have a down payment it is time to buy. If you are selling, price your home correctly! As we discussed last month our market will absorb your home much, much faster if it’s priced either below or at market than if it’s overpriced.
Take good care.
Jed Lane is a Real Estate Broker associated with Coldwell Banker, West Side native and current resident of Miraloma Park.
If you have questions contact him at firstname.lastname@example.org
What sales strategy sells homes fast and for the highest amount? We will answer that question after a market update.
The median price for homes within the distribution area of the Observer was $949,943 in the past month. There were forty-four homes sold with eighty-eight active on the market at this writing. With a two month supply of homes the area is solidly in a seller’s market right now. Currently there are thirty-eight properties under contract and proceeding through the sale process. Citywide the median price for single family homes is $750,500, down 4% with sales volume increasing over the prior month by 32% and 41% over the same month of the prior year.
If you are contemplating selling your property, how important is the price that you list it at? More importantly, how does the list price affect the sale and the proceeds? A discussion in my office about homes selling over the asking price prompted this research and what was found is rather startling!
When a Realtor sits with a selling client and reviews the recent comparable sales to set a list price for the property, the agent has been taught that setting the price is the owner’s responsibility, “agents advise but the client decides” is the saying. Knowing that and acknowledging that owners sometimes hope, believe, or wish that “their” home is worth the top dollar, this research will inform if not shock you.
A few details first. “Original asking or list price” is the price the property is set at when it is first entered in the MLS. If there are price reductions before the property is sold the last listing price will differ from the original price. It is possible for a home to sell for “more than the asking price” after reductions have taken place and there are cases where the property sells for the original list price after reductions. The purpose of this research is to find out how properties are priced when they are brought on the market and if the market price is reached consistently. Remember that the sale price is a negotiated price that reflects an agreement on the part of the buyer and the seller. It is what the buyer is willing to pay and the seller willing to accept.
The first question was how often do homes in our area, or San Francisco entirely for that matter, sell for the original list price? When I ask that question of agents and non-agents the answers vary around 50%. Interestingly the answer is much lower. In our area, over the past year, only 8% sold for the original asking price. Just 34 of the 420 homes sold equal to the original asking price. 42% sold for more than the asking price, which is a marketing technique that is favored in San Francisco. The remaining 50% of properties sold for less than the original asking price. Further in this sample the homes that sold for less than the original asking sold for 30% less than the original price. Homes that sold for more than original asking fetched 3% more on average.
Realizing that this past year was an unusual market, a survey of the citywide market was done for the same May to May time periods in 1994/1995, 2004/2005 and 2009/2010. The results show a consistently low percentage of properties sell at the original list price.
While most people would expect that the largest percentage of sales would be in the category of properties that sell for less than asking the opposite is true in our market. While this is a function of low supply it also became the normal marketing technique for properties during the run up of value since 1993. The interesting data emerging here is that the current technique to get the best price for the property is to set the price correctly and sell at the original asking price.
When the values were escalating it was assumed that the market (buyers) would pay the relatively same market value for properties. So if you had a 3 bedroom 2 bath home the market value would be the same no matter how you arrived at the eventual sale. This data proves that to be a false assumption. Using the average size of sold properties, which is a 3/2, data shows that depending on overall market conditions, the eventual selling price does relate to the original list price. Currently the best price is reached when a sale happens at the asking price. Whereas in 1999 and 2005 the best price would be arrived at by setting the original price low.
The data does bear out the fact that the fastest sale, shortest days on market (DOM) is reached by pricing low but while the property might sell three days faster, you will lose 9% of the sale price!
In conclusion a small percentage of sellers are pricing correctly and reaping the benefits. A large number are still pricing below market, under the assumption that San Francisco buyers know where the correct value should be and they are doing OK with that strategy. Unfortunately the majority of sellers are pricing above the market, reducing and reducing for two months before selling for a bit less than the median value.
What is the correct value for your property? Talk with your Realtor and see if they know this information. Any underpriced property will sell above asking. Now you know that isn’t where the best price is.
Jed Lane is a Real Estate Broker associated with Coldwell Banker, West Side native and current resident of Miraloma Park. Questions? Contact him at email@example.com
San Francisco’s real estate market is again acting in an untypical way. Normally as spring builds so do sales. Right through August there is a month over month increase in activity. April 2010 sales volume decreased 17% from March’s sales. For comparison, April 2010 was better than April 2009, ironically by 17%.
The inventory of residential property, condos and single-family homes is up 7.6% over March 2010, but there was a decline of 8% from April of 2009. With sales down and inventory up the time to absorb the current inventory has increased to 3.4 months for single family homes and 5.7 months for condos. This should be good news for buyers allowing them to get what they want, if they can get financing.
With so many factors pointing to this being a great time to buy a home or condo, why aren’t sales higher? Is it the lending situation? Is it consumer confidence? Is it the jobs forecast? Actually it is all of them. At the time of this writing , current lenders conditions for a thirty year fixed loan of 5.75% dictate that a borrower’s maximum debt-to-income ratio be 40% or less, they must have a 740 FICO score (maximum FICO is 850) and more than 20% down to borrow between $729,500 and $1,000,000. Hundreds, if not thousands of buyers are removed from San Francisco’s market. In fact no one can purchase a condo with that loan, just another condition and another problem with our market. When folks are aware that lenders are being very conservative on who can qualify for a loan, news of layoffs at the largest employers in the City confidence is likely in short supply.
Prognosticators are telling us that the storm is passing, The signs they point at are the closing of interest rates between the government sponsored lenders and the private equity lenders, the return of the stability of the stock market and the low inflation rate. If that is true it will be good news for Westside property owners. With homes typically above the median price, we should see more sales and a return to appreciation.
In the interim selling a home will require aggressive market pricing and aggressive negotiation to reach the highest possible price that the market will bear. Multiple offers and quick sales are happening for those sellers that work with knowledgeable agents and understand this fact. Homes that are languishing on the market present a great opportunity for buyers. A phenomenon that we are seeing is a house that attracts an offer shortly after it hits the market and for some reason the offer doesn’t go through. It would seem that the price was right and the home desirable, but then for weeks and weeks nothing happens. The open houses are sparsely attended and there are no showings. These homes have gone begging for buyers but no one comes forward.
San Francisco’s agents and buyers have historically been reluctant to offer less than asking prices for property. This is one reason why agents priced below market. It has been clear that if the property is priced above comparables nothing will happen. Now it seems that if a property sits on the market buyers are acting like – no one else wants it; there must be something wrong with it.
Some buyers tell us that they are waiting for a price reduction. Good agents advise that to wait is useless. Make the offer and see where it takes you. When you can negotiate a price below asking there is no one else in the market place that knows the price the seller has countered with. You have no competition and the decision to buy is in your hands, unlike every transaction where there are multiple offers and the decision is in the seller’s hands.
The selling price for any property is determined by a ready, willing and capable buyer. To determine that number takes communication, sensitivity and good to great negotiation skill. The market price is a means to the hopeful successful sale.
This is a great time for move up buyers and a good time for sellers with lots of equity to sell and move to a larger or smaller home.
Jed Lane is a Realtor, West Side native and current resident of Miraloma Park.
If you have questions contact me at firstname.lastname@example.org
Last month my article was on the lack of lenders for our market and the obstacles the Federal secondary mortgage markets are inserting into transactions. I think they read my article and mended their ways, hah! Whatever happened, the situation’s improving. The sales figures for the month of March show a City-wide increase in volume and a rise in the median price.
On the Westside the median price is $832,000, 4% higher than the SF median. There were 39 sales closed in March. 67 properties are in contract and 91 properties are actively for sale. With 39 sold and 91 active there’s a 2.3 month supply of homes on the market now. Ostensibly that’s a seller’s market, but it’s still a screwy market. March 1st there were 62 active properties and only 18 sales in February. The absorption rate decreased from 3.4 months to 2.3 months even with an increase in inventory. This is all good news for the start of the typical selling season.
One caveat for everyone to remember is when a seller gets an offer from a buyer who has a lender lined up, that buyer is worth more than a higher offer price. I always tell my clients that a seller wants two things: the most money possible and a buyer that will complete the transaction. The second part is still the hurdle these days.
In our neighborhoods, there was one sale for less than $500,000 and two sales over $2,000,000, while in the City as a whole there were 45 sales under $500,000 and a huge jump in higher end sales, leading to an increase in the distribution and therefore an increase in median price. As the chart shows, the percentage of the sales in March on properties priced over one million had strong increases over sales in all of 2009.
This increase in sales in the higher end is probably the best news San Francisco sellers have received since our prices didn’t fall through the basement floor over the past three years. These numbers show that jumbo loans, loans of more than the maximum $729,500 federal conforming limit, have become more affordable. On March 13th RISMedia reported the interest rate at 5.88%, a new low for “true jumbo” loans and a very attractive rate for a 30 year fixed loan.
If you are preparing to sell this season be sure to price the property correctly and don’t be swayed by a high offer price. In these times it is very important to know who the buyer is and the “real” degree of approval before you stop marketing the property.
When homes are taken off the market for any period of time, momentum is lost. When a property is brought back onto the market, regardless of the reason, it’s somehow tainted and removed from agents’ and buyers’ radar. Having to explain that the reason a buyer pulled out wasn’t because of an inspection or other issue of the property always seems to put a damper on buyer enthusiasm. It’s much better for the seller to have their agent investigate the buyer, talk to the buyer’s lender before ratifying the contract and, in some cases, require the buyer to apply with a lender of the seller’s choice as back-up.
This really is a good time to sell the house that you’ve outgrown and buy the large move-up home. But let me reiterate: be careful to price the house correctly, market it with lots of open homes and check out the buyer’s money situation before you enter into a contract.
Jed Lane is a Realtor, West Side native and current resident of Miraloma Park. If you have questions contact him at email@example.com
Remember just a short time ago when lenders would do anything for business? They were competing to sign you up and give you any amount of money you wanted to make your plans happen. Well, as we know, it went overboard and money was given to everyone that asked nicely. Remember even longer ago when there were local lenders that knew what the community needed, could address those needs and kept the profits local to be re-invested locally?
Shown Forest Hill Extension, $895,000 | Sold 2 bed, 2 bath
Well now that loose, giving, enabling lender has found the error of its ways! No longer will it lend to anyone that doesn’t DESERVE IT. Fire and brimstone, whips, chairs and jumping through hoops, denial - denial –denial it’s all you hear now.
Suppose you have a growing family, both parents work and bring in good salaries. You have a home but you find one that suits your needs better. Maybe it’s an additional bedroom or a master suite. Maybe it’s just a better configuration of a bit closer to your job. Anyway you want to buy the new house and sell the old one. You approach your faithful lender, the one that has been charging you interest on your home loan. You ask them nicely to lend you the money to buy the new home. “No problem” is the answer from the nice person at the branch, “we love your business and will do whatever we can to keep you a happy customer”.
You make the offer on the new house and it’s accepted. You go back to the wonderful lender and submit your paperwork. A couple of weeks later after you’ve had you inspections and are busy making plans to move the “underwriter” tells the nice person at the wonderful lender to call you and inform you that NO they’ve decided they won’t give you the money after all, you just don’t meet their new criteria.
You ask of course is there any leeway and are told no, there isn’t. Everyone has to meet the new criteria or the loan can’t be sold to the Federal government. Unfortunately no one else is lending money right now. If the loan can’t be sold to Freddie Mac or Fannie Mae the loan will not be made. Shown Forest Hill Extension, $979,000 | Active, 3 bed, 3 bath.
Many will say that this is just good business and it never should have been the way it was. Fine, but it’s necessary to look at the facts of the situation in San Francisco.
The conforming loan limit which can be sold automatically to the Government Sponsored Enterprises (GSE) like Fannie and Freddie is $417,000. There are higher limits available in high cost areas like The City, which are called Jumbo Conforming Loans. They have more stringent lending criteria and higher interest rates. These jumbo loans are set by zip code and range up to $729, 750 maximum.
In our scenario above where the family wants to move up to get more space. They have equity from their current home so they can stay within the jumbo conforming loan limit. According to the current lending criteria they have to qualify with a debt to income ratios of no more than 45%. Sound fair after all we don’t want them to be too extended. Even if they have the funds to carry the second mortgage for a few months they’ve just been disqualified because the second mortgage puts them over the ratio limit. They can make the purchase contingent on selling the first house but the seller will only do that if a premium is paid, at least until we are completely in a buyer’s market.
Shown Miraloma Park, $995,000 | Active 4 bed, 2 bath
Another transaction I was involved in the buyer was putting down 45% of the purchase price. The lender declined to fund because the MLS information didn’t match the tax record information. One more recent transaction then I’ll get to my point. A client is buying a condo as an investment to rent out. There are six units in the building and the one he is buying is bank owned. The HOA fees haven’t been paid for a few months by the bank. This is typical in these situations but his lender won’t fund because there is one other unit behind in the dues. That exceeds the 15% criteria which is the Federal guideline. These are both well qualified individual borrowers that should be lent the money and eventually were but the hoops of fire, the whips and chairs, yes, the circus of it, is ridiculous, delaying and costly.
There is no competition in the private lending market. Borrowers are left with only the banks that were too big to fail and the Federal government. The GSE rules are set and deviation is not possible. The banks are borrowing money from the Federal government lending it to a few selected people and selling the loan back to the government. Although interest rates are very low right now, the borrower has to fit the cookie-cutter mold or the spigot is turned off. This can’t work in our area for long. We’re seeing a market where homes that are priced within the loan limits sell. This is reflected in the lower median prices in the area. Shown Mr. Davidson Manor, $950,000 | Sold 3 bed, 3 bath
The above chart shows the bulk of the homes sold are between $500, 000 and $1,000,000. The median gets changed by the fluctuation between the category above and category below. This is a function of the availability of funds. It isn’t demand or supply for the product, it’s the willingness of lenders to lend that allows or shuts off sales in the higher end.
This chart shows the number of sales in each price category. It shows the almost 3,000 unit sales drop between 2004 and 2009. Half of those were in the median price category and this shows the effect of tightening credit.
The Monthly Snapshot of the Westside Market: There are 73 homes for sale in March with 61 in contract and there were 20 homes sold in February. At that rate of sales we have 3.65 months of supply so we are in a balanced market.
Jed Lane is a Realtor, West Side native and current resident of Miraloma Park.
If you have questions contact me at firstname.lastname@example.org
January 2010 showed an increase in median price for the area of just over one-half of one percent, but with more than twice as many sales as in January 2009. Generally the market is still favoring first-time buyers because of the extension of the tax credit to first-time buyers. The move-up market is active because sellers can sell and trade equity into a large down payment on larger homes. The trophy homes market is a bit slow. The trophy sales that are happening are either all cash or like the move up buyer, have large down payments. Much of this is due to the loss of value of other investments and a generally conservative investment environment.
(Shown St. Francis Wood 2 bedroom, 3.5 baths sold for $1,500,000.)
Even with tax incentives for resale buyers the volume isn’t as high as with the first time buyers and this affects the median price. Americans have not taken advantage of the Worker, Homeownership, and Business Assistance Act of 2009, which Congress passed to allow homeowners a tax credit of $6,500 when they sell one home and buy a different home. While it would seem to be a perfect time, especially for those of us who have been in our homes and have accumulated huge equity growth, to take advantage of California Proposition 60 and 90 along with the tax credit, there hasn’t been much of an impact. (Prop 60 allows for the sale of a primary residence and the purchase of a smaller, less expensive property, in the same county, keeping the same property tax base that is on the property that was sold. Prop 90 allows that tax base to be transferred to some, but not all, counties within California).
(Shown 4 bedroom home in West Portal sold for $930,000)
Many buyers in the market now find themselves in multiple offer situations. Even with all the talk of housing melt-downs, foreclosure inventory, shadow inventory etc., San Francisco and especially the Westside have a shortage of homes available. Currently there are sixty-eight homes on the market. With twenty-four sales last month the absorption rate is just 2.8 months which is a clear indication of a seller’s market. Current activity shows a continuation of market strength with fifty-two Westside homes currently in contract.
As we approach the spring selling season most prognosticators are talking positively about SF as a whole. There are some concerns about rising interest rates and stricter lending guidelines acting as downward pressures. Some cite the greater unknowns in the employment picture both in the private and public sectors. Furloughs and lay-offs, if they continue for a long time, could wreak havoc generally. Our neighborhoods should be able to weather any influx of additional properties without downward pressure on prices as long as demand stays high. An increase in interest rates and tighter lending guidelines would have far greater impact on us.
(Shown Parkside 6 bedroom home for sale for $999,000)
We are quickly returning to the days of yore when a buyer was limited to between thirty and forty percent of income to service debt and mortgage. If the criteria of those days solidifies and income to debt ratios return as they were along with 20% down payment requirements a family would need to earn $188,000/year to buy a $1,000,000 property with a 5.5% loan. They would need to earn $231,000/year if the interest rate went up 2%. Another way to look at this would to assume the earlier example of $188,000/year income, the buyer can buy the $1,000,000 home at 5.5% interest but if there is an increase in interest to 7.5% with no increase in income, the buyer could only buy an $800,000 home. As you can see, for us to attract buyers for our homes lower interest rates need to be kept low or we need to have some local lenders that understand the situation (that’s another article though).
(Shown 8 bedroom, 9.5 bath St. Francis Wood for sale for $4595,000.)
Jed Lane is a civically engaged Realtor, Westside native and current resident of Miraloma Park. Feedback: email@example.com.
How is San Francisco real estate holding up? This question is asked at gatherings everywhere, especially after news stories reporting 25 and 30 percent monthly reductions in “San Francisco” property valuations. Does that mean that every house in San Francisco has lost up to a third of its value? No, it doesn’t.
In these conversations, the median price is usually used. Median price represents the mid-point of all the sales in a given period. Tracking the median price over time is a perfectly valid tool, in order to see past trends. However, it doesn’t reflect the value of any particular piece of real estate, except the one property that happened to be in the middle of the pack during that period.
If you’ve spent any time in sales, you’ve heard the adage that value or price is arrived at when a ready and willing buyer makes the purchase. My first training in the strength of this adage was as a teenager working part time at Kermani’s Persian Rugs on West Portal. A Persian rug’s value is completely dependent on the perceived desirability of the piece by the buyer. Kermani knew that value is a moving target, and he was a master at building the desirability and adjusting his own valuation to complete the sale. Building perceived value and using excellent negotiation skills are the keys to maximizing the sale price or minimizing the purchase price.
The homes on the Westside continue to be very desirable. First, San Francisco is a world-class city, and we enjoy a central location, comfortable neighborhoods and well-built houses. Over time, our homes will continue to appreciate in value, primarily because of the location but also because of the strength of our neighborhoods. The house my parents bought in Forest Hill Extension in 1960 for $30,000 was sold in 1987 for $89,000. The family that bought it lived there until 2005 and sold it for $1,300,000. We are very fortunate to have good homes in well-maintained neighborhoods that attract buyers who are ready and willing to buy.
So how is the market right now? Among the numbers I track on a monthly basis is the absorption rate of single-family home (SFH) sales. The absorption rate is the number of homes for sale divided by the number sold last month. The result indicates how many months it would take to absorb the existing inventory. If the number exceeds 4 or 5 months, then the buyers have negotiation position. As long as it’s lower than 3 months, the sellers are perceived to have the stronger position. In February 2009 the rate peaked at 7 months. Since then it has dropped back to 1.8 months as of January 1, 2010 for the area of the distribution of this paper. Currently the market forces are back to favoring sellers. As of January 1st there are 60 homes for sale and there were 34 sold in December. There are 42 homes in contract at the time of this article.
The Westside has neighborhoods that vary from Midtown Terrace and Miraloma Park to St Francis Wood, West Portal and Forest Hills. The prices range from multi-million to low seven hundred thousand. Our homes have appreciated very well over the past 15 years. (See chart above). From 1995 till 2009 the median went from $298,000 to $822,000 which is a rate of change of almost 64%.
We are fortunate to live in these neighborhoods, as with the home I grew up in, the people change from time to time but the neighborhoods remain elementally the same. Good solid housing for creating homes.
Jed Lane is a civically engaged Realtor, Westside native and current resident of Miraloma Park. He can be reached at Jed@JedLane.com