US Homeownership Continues to Decline

UC Berkeley/s Terner Center for Housing Innovation analysis of the Census Bureau’s 2014 American Community Survey shows that the national homeownership rate has dropped for the eighth straight year – declining to 63.1% last year. This analysis shows that the housing market is still a work in progress.

In the San Francisco-East Bay metro area, homeownership rates are approximately 53.2%, placing it within the top five US areas for lowest ownership levels.  Silicon Valley and the Peninsula were only marginally better at 56.3% of individuals owning a home.

Perhaps the most staggering number is that over 50% of renters were cost-burdened in 2014. This means that over 50% of the individuals who are renting spend 30% or more of their income on housing. Nationally, 34.6% of all household were cost-burdened in 2014 which is the lowest rate in the past decade.

in San Francisco, 48.8% renters are cost-burdened and 48.7% are cost-burdened in San Jose.  Creating an even greater burden on renters is the ridiculously low vacancy rate. San Jose was only at 3.8$ (the lowest in the country) and San Francisco-East Bay area had a 4.7% vacancy rate.  Vacancy rates in the Napa-Solano region are consistently low, particularly in south county

American Canyon Q3 Update

The median sales price for homes rose in the third quarter to $438,500, up 19% year-over-year. However, the number of units sold decreased 29%, from 49 to 35. Both signs, actually, are positive for the market. The drop in units sold reflects a dramatic drop in distressed sales, down approximately 67% year-over-year. Average Days on Market also dropped from 88 days (from listing to close of escrow) to 52 days on the market.

Both show signs of continued normalcy in the American Canyon real estate market. Much has been made over the past couple of weeks about the first time home buyers making up only 33% of the market. However, investors no longer make up a statistically significant number of buyers in the American Canyon market place; this is positive because it allows first time home and returning buyers to compete on relative equal footing.

There is additional good news for buyers and sellers: Even with the end of quantitative easing, it appears as though mortgage rates will remain low. As of 11/5 they were at 4.14% for a 30-year fixed rate and 4.14% for a 30-year jumbo.

Those sellers looking for a complete rebound in their home prices will likely be disappointed, however. As mentioned earlier in the blog, the AmCan market is beginning normalize with relatively static median sold price increases. However, the market is close to returning to where it was pre-housing boom in October 2004. Recent 3Q median sold price is only down 6.6% from ten years ago (2004 3Q). Even more exciting, the median sold price is up almost 50% since the trough (Q1 in 2012).

At the time of writing, there are 27 homes on the market in the city with a median list price of $499,725, only two of which are distressed. Average days on market for these homes is 61.  Additionally, there is a nice cross section of available homes for sale. One of my favorites is 417 Knightsbridge Way (MLS# 21422574). It’s exclusively listed by Henny Gho with Eagle Vines Realty and is being offered at $449,000.

This 4 bedroom, 3 bath home is approximately 2003 square feet and is a flip from this spring. The investors did a magnificent job, including renovating the kitchen adding a subway backsplash and granite countertops. Thee home is 2 stories and has hardwood floors downstairs in the main living area, a fireplace and a master/guest suite downstairs.

What makes this home so great, though, isn’t the refinished interior; rather, it is the nearly 2/5 acre backyard. It definitely needs some landscaping but the home backs up to open space. There are partial wetlands views which can add to the beauty. This backyard is large enough for a pool and a sport court with some room to spare. The pictures just do not do this property justice! Contact me to view this property (707.853.0797 or richard.peterson@pacunion.com).

With low mortgage rates and plenty of inventory, now is a great time to get into your dream home just before the Holidays!

Jumbo Borrowers get a “Jumbo” Break

Buried in the news cycle last week was a piece on CNNMoney titled, “For rich people, mortgages are getting cheaper and easier.” Our very own Pacific Union blog picked it up today and I thought that I’d add my own 2 cents (give or take a half pence). According to the article, many individuals who qualify for a jumbo loan are now getting a better rate on their mortgage than the average person. According to the PU blog, in fact, interest rates on jumbo loans have been lower all summer long. For example, last week the average rate on a jumbo loan was 4.30% compared to 4.39% for a 30 year, conventional mortgage. While .09% doesn’t sound like much, when talking about a $625,000 loan, the money ads up quickly.

In addition to this, it appears as though jumbo borrowers are also getting a break on credit scores as well as the amount of money required to put down. Many of these jumbo borrowers are now only required to put 10% down and some aren’t even required to buy private mortgage insurance (or PMI). PMI is put in place to protect banks from loss on high-risk loans. Apparently, if you have enough money, you aren’t high risk. Add to this that the minimum qualifying credit score has dropped from 700 to 650 on these jumbo loans and you have a perfect storm for the more affluent borrowers.

Unfortunately, this has little to no trickle down effect on first time home buyers. Although the minimum credit scores to obtain a loan have eased over the summer, for many people who are saddled with student loan debt, their own home is still out of range.  In addition, many people who have defaulted on or had to short sell their homes during the financial crisis are still forced to sit on the sidelines, waiting for these blemishes to be erased on their credit report. However, with the glut of distressed homes run through the market over the past couple of years, many of these people may now be in a position to come back to the home buying arena.  Perhaps this is why Freddie Mac’s Chief Economist (Frank Nothaft) put out an advisory notice today saying that he expected 2015 to be the best year for home sales since 2007.

Are Millennials Ready to Buy?

According to the latest infograph from CAR, the answer is a resounding…YES!

But I think that it’s fair to say it’s a qualified yes. At a broader level, the graphic shows that 31% of Gen Y think that a home is a good investment. Dig a little bit deeper, and there are some big deterrents that may be keeping so-called Millenials on the side-line: tight lending restrictions, massive student debt, unaffordable homes…Note, however, that lack of inventory is not on of the reasons to sit on the sidelines.  Nor is an increase in the mortgage rate since those are still historically low (remember the 80’s when they were in the teens??!).

The biggest issue for the Gen Y crowd will be lending restrictions as they relate to student loan debt.  Generally, to receive an FHA loan, the debt-to-income (DTI) ration must be at or below 43%.  Assume that it takes 5 years to graduate (not unheard of these days) and the student has to borrow money for tuition (not including room & board, etc.); by the time the student graduates s/he will owe $27,360 before interest (Based on the 2013-14 tuition for a CSU school).  That’s already 37% of the $73,600 median income.  Throw in a couple of credit cards and everything else, it’s pretty easy to get to 43% DTI.  There are still more than a few kinks in the system to be worked out.

 

 

 

 

May 2014 Real Estate Update

Pacific Union released its May 2014 Real Estate Update this morning. As expected, median prices rose over May 2013. In Napa County, inventory dropped while median sales price rose 21% year over year to $575,000. Average days on market was 71 which is down by almost a month year-over-year.

In American Canyon, there were 16 recorded sales for the month down 1 from last year. Median sales price rose approximately 19% year-over-year with average days on market also decreasing by about 1 month, year-over-year. The market in South County appears to be heating up again which is good for buyers and sellers alike.

Sales above list price

How often have houses been selling above the list price over the last few years? Take a look at this infograph from CAR.

 

Tight inventory is continuing to encourage multiple offers on properties, creating biding wars.

Freddie Mac Releases new Housing Tool

Freddie Mac released a new tool to measure the strength of the housing market in the top 50 metro areas 2 weeks ago (http://www.freddiemac.com/mimi/). The tool uses a variety of data sets to determine housing stability; according to Freddie Mac’s website,”The index draws from multiple data sources, including our daily business with more than 2,000 mortgage lenders across the country. The index also incorporates the most recent local market data for each market and is benchmarked to its own individual long-term average.” The purpose of MiMi (as Freddie Mac dubs it) is to help identify the “sweet spot” in the housing market.

The score for the San Francisco metro market (San Mateo, Marin and San Francisco Counties) is a -2.74, or semi-weak market, but not so far outside what is deemed a stable housing market (-2 to 2). Unfortunately, Napa and the rest of the North Bay is not included in the top 50 metro markets so it is difficult to assess exactly how stable our own region’s housing market is. However, Napa did see a 29% increase in the median price for homes in January; one that likely continued in February and most recently March. It is fair to say that most people would say that the Napa County housing market continues to remain strong. In fact, according to the Pacific Union blog last week, the Standard & Poor foresees continued rises in home prices in 2014, “Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains.”

All of which is to say, there are a number of different ways to look at the numbers presented to us, both as realtors and consumers. Having one more tool at our disposal is always a good thing. Inventory seems to be coming back which means that housing prices have stabilized to some degree. It appears that, for now anyway, that the Napa County housing market remains strong.

Over-the-weekend RE roundup

Yes, it looks like interest rates will rise by the end of the year. However, despite the latest projections (they will end the year anywhere between 5-6%), the Pacific Union blog noted that even this increase leaves them at historic lows.

• In the 1970’s, the average 30-year fixed interest rate was 8.6% (on a $200,000 mortgage);
• In the 1980’s, the average 30-year fixed interest rate was 12.7%;
• In the 1990’s, the average 30-year fixed interest rate was 8.12%;
• In the early 2000’s, the average 30-year fixed interest rate was 6.29%;
• Last week, the average 30-year fixed interest rate was 4.4%.

The Fed’s commitment to keeping interest rates low while the economy continues to improve appears strong. In remarks made in Chicago today, Fed Chair Janet Yellen reaffirmed that commitment.

Also, last week CAR released the pending and distressed home sales report showing that pending home sales rose 14.2% from January. This is the second straight month where the rate increased. This good news was balanced by a bit of alarming news by Trulia, which released a report showing the the Coastal California Market might be in danger of a bubble. Happily, Napa County appears to be left out of the danger zone, but it does point to the San Jose, San Francisco and Oakland markets as all being 4-8% above “market value.” The Bay Area is not alone in this distinction as 5 Southern California Counties are also considered over-valued, including Los Angeles, Orange, San Diego, Riverside and Ventura Counties.

Quick Napa County Real Estate Update

There were a couple of interesting links on Pacific Union’s blog yesterday, detailing the increasingly difficult time – and in some cases choices – that younger buyers are facing in the real estate market.  Pac Union linked back to a Redfin blog showing how young couples are making the choice to buy a home rather than get married.  According to statistics cited in the Redfin blog, the average wedding (including band and honeymoon) will cost about $35,000. If that money were used to put 20% down on a $175,000 home, the couple could potentially “make” $47,000 after 5 years (assuming 3% growth per year).  Here’s the rub: there are 275 homes currently “on the market” (i.e. on MLS) in Napa County with the median home price at $799,000…

Breaking it down by area:

Napa     121 Active Listings @ $784,000 Median Price

Calistoga     25 Active Listings @ $960,000 Median Price

St. Helena     56 Active Listings @ $995,000 Median Price

American Canyon    10 Active Listings @ $424,750 Median price

Even in American Canyon where the median list price is almost 50% lower than in Napa, a $35,000 deposit is less than 10% down. What does this mean? Hard to say. Likely these statistics only reinforce what many have been saying over the last 6 months: that younger couples (and presumably first time home buyers) are being priced out of the market. It’s unlikely that any potential effects on the housing market won’t be readily apparent for some time, but, in my view, these are all indicators worth watching.

Fannie & Freddie to delay Fee Changes

On Monday, I wrote that both Fannie Mae and Freddie Mac were possibly changing their fee arrangement with lenders, the end result being an increase in interest rates that could affect first time home buyers.  Yesterday, the Federal Housing Finance Agency (FHFA) announced that it is directing the two agencies to delay implementation of these fees.

New FHFA Director (and former Rep) Mel Watt was quoted as saying, “The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant,” said Watt. “I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.”

This appears to be good really good news for a housing market that is still returning.  It’s potentially even better news for first time home buyers.