Santa Cruz County Real Estate Report for May 2008

SOMETIMES ALL THE NEWS IS NOT BAD!

** Home values dropped 7.7% nationally in the first quarter and five California metropolitan areas were among the markets whose prices plunged by the highest percentage year over year and whose homeowners had high rates of negative equity, according to a report issued the first week in May by Zillow. Nationally, a little more than half of homeowners who purchased during the 2006 market peak today owe more on their home than its current value. Despite the year-over-year decline, the nation as a whole and the four California markets cited as having the greatest decline experienced gains when home prices are annualized over five years. Owing more than a home is worth may not be a problem for homeowners who can afford the monthly payment or who plan to stay in the home for an extended period.

** Fannie Mae’s regulators have taken steps to help free up additional sources of cash by reducing the mandatory reserves the company must maintain. The Office of Federal Housing Enterprise Oversight has said it will again reduce this surplus requirement by five points to 15 percent. That will be followed by another five-point cut in September if Fannie Mae’s position does not worsen. Seventy-five percent of mortgage-backed securities are issued by Fannie Mae and the smaller Freddie Mac. The federal government has positioned the two companies as key players in the effort to restore liquidity and stability to the nation’s real estate finance system.

** Worries that subprime mortgages originated during the peak real estate market would sideswipe borrowers with giant monthly payment increases have been reduced by Federal Reserve rate cuts and other steps to stimulate the nation’s credit markets. In fact, some borrowers with resets occurring today are finding their monthly payments staying much the same. Without the Fed’s rate cuts, more than $100 billion in subprime ARMs would have jumped at least two percentage points. Now, only about $60 billion in these mortgages will adjust up by more than two points.

LOCAL MONTHLY STATS for April show that the most activity in the Santa Cruz County market was in the over $1M price range with the listing ratio vs selling ratio at <9.73%>. Following in second were homes in the $400,000 price range followed by homes priced between $500-$700K. Of all those sold, the average days on market was only 55 as compared to the pending sales which are 112 days on market. This stat is particularly interesting when discovering that 36.4% of the pending are either REO or short sales.

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April Statistical Highlights for Single Family Homes:
* Inventory increased 8.8% from March 2008, and up 8.6% compared to April 2007
* Sales increased 43.8% from March 2008, but still down 19.2% compared to April 2007
* Days on the market decreased to 106, month prior 113, prior year 104
* Median home price increased from prior month to $759,750, and decreased only 2.1% from April 2007
* Sales price vs.listing price ratio increased to 96.91% from March 2008
* 10.9 months of inventory available at the end of April as compared to 10.3 in April 2007
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(These statistics are believed to be accurate but not guaranteed)

So what area of the market do you think is selling closer to listing price? Maybe you would be surprised to know it is the $800,000 price range. Were these sales once over a million? Could be as volume is down 23.7% annualized.

I hope you enjoy my monthly newsletter. Remember, this is truly a buyers market. It is an opportune time to buy with prices low and with reducing inventories. Too soon to indicate a change? Maybe........only time will tell.

U.S.home slump puts owners ‘under water,’ as reported by Zillow

Home values dropped 7.7 percent nationally in the first quarter and five California metropolitan areas were among the markets whose prices plunged by the highest percentage year over year and whose homeowners had high rates of negative equity, according to a report issued Tuesday by Zillow. Nationally, a little more than half of homeowners who purchased during the 2006 market peak today owe more on their home than its current value.

130 of 160 metro markets included in the survey now are priced lower than a year ago. Among the California markets suffering the greatest decline: Stockton (-33.5 percent), Riverside/San Bernardino/Ontario (-26 percent), Greater Sacramento (-20.5 percent) and Los Angeles/Long Beach/Orange County (-16.4 percent).

Despite the year-over-year decline, the nation as a whole and the four California markets cited as having the greatest decline experienced gains when home prices are annualized over five years. Home prices experienced a net gain of 4.7 percent nationally over five years, 6.2 percent in Los Angeles/Long Beach/Orange County, 5.8 percent in Riverside/San Bernardino/Ontario, 1.5 percent in Greater Sacramento, and 0.3 percent in Stockton.

Zillow calculated that 95.8 percent of Stockton-area homeowners who purchased in 2006 now owe more than their home is worth: In Riverside/San Bernardino/Ontario the number stands at 88.5 percent; in Los Angeles/Long Beach/Orange County the number is 71.6 percent; and 69.4 percent in Sacramento.

Owing more than a home is worth may not be a problem for homeowners who can afford the monthly payment or who plan to stay in the home for an extended period. Those most affected are people who have lost a job or obtained a mortgage they couldn’t afford, those seeking to refinance into a lower or fixed interest rate, or those whose circumstances require them to sell now.

Santa Cruz County Real Estate Report for April 2008

MAKING SENSE OF THE STORY FOR CONSUMERS:

The riskiest markets are those with high foreclosure rates, slow or no job growth, and a glut of homes on the market. Markets like Detroit, Cleveland, and Miami display all three characteristics.

By contrast, transactions are rising in San Diego, and that’s a good sign (assuming the increase is sustained). Rising transaction numbers may mean credit is becoming easier to come by and buyers are looking somewhat more favorably on the market. In fact, Forbes suggests prices also may begin to rise over the next six months. That’s because there usually is a lag between increases in transaction numbers and price increases.

The Forbes report also projects better times ahead for San Diego and Sacramento thanks to a 125 percent increase in Fannie Mae/Freddie Mac conforming loan limits. In San Diego, the report notes, 18 percent of the market will see improved lending conditions.

BUYERS WAITING FOR THE RECESSION to pass before getting into the market might not want to wait too long: Clive Granger, winner of the 2003 Nobel Prize in Economics and professor emeritus at UC San Diego, says the U.S. economy has been in a recession for about four months. He expects the current recession to last an additional 2-6 months, depending on what occurs in the housing and financial markets.

SINGLE FAMILY HOME STARTS will drop to their lowest level in 50 years this year, Freddie Mac Chief Economist Frank Nothaft told a lunch audience last week. That’s good news for resale housing, which has a lot of unsold inventory to work through before prices can begin to move up. He expects that life should begin to return to the housing sector late this year or early next but says prices may not recover significantly until 2010.

LOCAL MONTHLY STATS for March show that the most activity in the Santa Cruz County market was in the $600,000 price range with the listing ratio vs the selling ratio at <6.3%>. Following in second were homes in the $500,000 price range followed by homes priced over $1M. In addition, only 14% of those sold were short sales or bank owned and they were all under $500,000 and mistily in the Watsonville area.

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March Statistical Highlights for Single Family Homes:

* Inventory up 15.0% compared to March 2007, and increased7.6% from February 2008
* Sales down 46.3% compared to March 2007, but UP 2.8% from February 2008
* Days on the market increased to 113, month prior 107, prior year 86
* Median home price increased from prior month to $675,000, and decreased 9.9% from March 2007
* Sales price vs.listing price ratio increased to 95.57% from February 2008
* 14.6 months of inventory available at the end of March as compared to 6.8 in March 2007
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(These statistics are believed to be accurate but not guaranteed)

So what area of the market do you think is selling closer to listing price? Maybe you would be surprised to know it is the $900,000 price range, followed closely by $800,000 and the $700,000.

America's Riskiest Real Estate Markets

There's roulette and there's skydiving. Then there's investing in Detroit and Cleveland real estate. That's especially risky because those markets are in freefall. Lenders have fled, foreclosures are on the rise, homes aren't selling and local economies have stalled.

Given the state of the country's housing market, it wasn't hard to find others like them. To do so, Forbes.com looked at the country's 40 largest metros and combined data on foreclosures, from RealtyTrac, a foreclosure listing service; job growth from the Bureau of Labor Statistics; transaction volume data from Radar Logic, a New York real estate research firm; and vacancy and current inventory rates from the U.S. Census Bureau and ZipRealty, an aggregator of multiple listing service data.

The riskiest were those that had the highest foreclosure rates, slow job growth (or job loss) and a rash of listed homes. By these measures, Orlando has everything working against it. Other spots, Denver, for example, exhibit negative characteristics like foreclosures, lending problems and vacancies, but are adding jobs, a sign that the local economy can better handle these difficulties.

Risky Business
Before "write-down" entered the national lexicon, the biggest risk facing real estate markets was the prevalence of subprime loans and adjustable rate mortgages. Last year, before the shoe-drop of the credit crunch and the dropping value of banks' loans and debt, we identified ARM-heavy Miami, Fla., Orlando, Fla., and Sacramento, Calif., as the markets most at risk of further fall.

Subprime still matters, as do the concentration of adjustable rate mortgages. Transaction volume, however, especially over the next 12 months is becoming an increasingly important gauge of a market's health. This month the National Association of Realtors reported that sales volume of existing homes was up 2.9%, the first such month-to-month rise since July.

In cities like San Diego, one of five major metros where transactions rose, that's good news, assuming it's sustained. What makes transaction volume a good indicator is that it shows how easy it is for people to get loans and how much confidence there is in the market. If mortgages are available and buyers have some faith in the value of the home, they're more likely to buy.

San Diego's present conditions suggest that over the next half-year, prices may start to rise. That's because "there's usually a three- to six-month lag between when transactions go up and prices go up," says Jonathan Miller, president of Miller Samuel, a Manhattan real estate appraisal firm.

Another good sign for the coming year? Increased credit availability. We took into account increased Fannie Mae and Freddie Mac (GSE) loan limits. The new legislation will open up credit in markets such as Sacramento and San Diego by boosting the GSE loan limit by 125% of the median price. That's a huge deal for San Diego, where 18% of the market will see improved lending conditions, based on projections by Radar Logic, a New York-based real estate research firm.

Not as fortunate are hard-hit foreclosure markets such as Denver, which saw 50,000 foreclosure filings last year, according to RealtyTrac, which comes out to a 2.6% foreclosure rate, ninth in the nation behind the likes of Las Vegas and Detroit. Here, GSE loan limits won't change to boost liquidity, though at the beginning of this year the local economy had added jobs at a rate of 2%, which is triple the national average, according to the Bureau of Labor Statistics.

The availability of jobs gets at the critical question of how much money is available within a market. A market with money on the sidelines has better recovery prospects because it means potential buyers are out there. A market without economic activity to generate buyers is simply sinking.

"People aren't pulling the trigger right now," says Steve Cesinger, vice-chairman at Dewberry Holdings, an Atlanta-based real estate investment group. "But it's a big difference if they're not pulling the trigger because the prices haven't declined enough or because they're waiting to catch the bottom."

Matt Woolsey, Forbes Magazine, 03.31.08, 10:30 AM ET

How home prices faired in 20 markets in 2007

National home prices fell 8.9% in the full-year 2007, according to figures released recently by the Standard & Poor's/Case-Shiller Home Price Index.

"Wherever you look things look bleak," says Robert J. Shiller, chief economist at MacroMarkets LLC, which recently sold its rights in the indices.

Of the top 20 markets tracked by the index, 17 of the metro areas reported annual price declines and the remaining three reporting flat or moderate growth rates. Also 14 of the metro areas are reported record lows and eight are in double-digit decline.

Here's a look at these markets:

Santa Cruz County Real Estate Report for March 2008

NEW HOME CONSTRUCTION DOWN 62%
New home construction starts in California fell 62% in January as homebuilders continued to cope with slow sales and the ongoing credit crisis, according to the latest data from the California Building Industry Association (CBIA). CBIA Chief Economist Alan Nevin said the drop in new residential projects breaking ground coupled with the ongoing push to move existing inventories, carry the potential to produce a 'severe shortage' of new housing once the real estate market rebounds.

INTEREST RATES ON LONG-TERM, fixed, and adjustable mortgages are at historically low levels. The Fed st arted cutting interest rates to bolster the economy in September, and recently has turned much more aggressive. In eight days in January, the Fed slashed rates by 1.25 percentage points — the biggest single-month reduction in a quarter-century. Since September, the Fed has cut its federal funds rate - what banks charge each other on overnight loans - by 2.25 percentage points to 3 percent. It also cut its discount rate on direct loans it makes to banks by 1.75 points to 3.5 percent. Rates are expected to move lower at the Fed's next meeting on March 18.

RATES MAY SHRINK ON JUMBO MORTGAGES. Homeowners and homebuyers who live in expensive housing markets may be pleased to learn that the federal government recently increased the size of mortgages that Fannie Mae and Freddie Mac can purchase and the Federal Housing Administration, or FHA, can insure. The higher loan limits are expected to help people in high-cost housing markets buy homes and refinance existing mortgages, though the extent of such aid won't be assured until the new programs are put into place.

The law instructed HUD to publish the new conforming and FHA loan limits for each county within 30 days after President Bush signed the legislation, which would set a March 14 deadline. Until then, it's nearly impossible to pinpoint the limits for each county because the law is very technical and HUD hasn't yet said which data source it will use to set the median home prices.

LOCAL MONTHLY STATS are out and show a continued decrease in the number of sales. The good news is that sales were up from January and most agents in the know agree there has been an upturn in the activity. Personally, I am seeing those who have been looking for some time getting more serious. In all honesty, it is a great time to buy. No matter where you choose to invest, the market is exce ptional and presents an opportunity long overdue.

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February Statistical Highlights for Single Family Homes:

* Inventory up 20.9% compared to February 200 7, and increased 6.2% from January 2008
* Sales down 44.5% compared to February 2007, but UP 16.4% from January 2008
* Days on the market decreased to 107, month prior 145, prior year 129
* Median home price decreased from prior month to $664,000, and decreased 7.5% from February 2007
* Sales price vs.listing price ratio decreased to 94.83% from January 2008
* 13.9 months of inventory available at the end of February as compared to 6.4 in February 2007, but down from January 2008
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(These statistics are believed to be accurate but not guaranteed)

Here is an interesting stat: In February of 2007 only 7.3% of the sales were under $500,000 as compared to February 2008 at 17.5%. In addition, there were 79 active listings under $500,000 at the end of February 2007 and currently there are 295. The saga continues...........

FED CALLS FOR MORE AGGRESSIVE PLAN TO AID DISTRESSED HOMEOWNERS

Fed Chairman Ben S. Bernanke yesterday called for a more aggressive response to the nation's housing and foreclosure crisis, suggesting that lenders do more to help struggling homeowners avoid foreclosure and, in turn, help stave off further erosion of home prices in distressed areas and the broader economy.

"This situation calls for a vigorous response," Bernanke said. "Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy. At the level of the individual community, increases in foreclosed-upon and vacant properties tend to reduce house prices in the local area, affecting other homeowners and municipal tax bases."