Winter is upon Us

As the winter months bring colder temperatures, make sure your home is properly insulated. Caulking windows and doors will help you save energy and money. If you have exposed pipes, be sure to insulate those to prevent them from bursting as temperatures drop below freezing.

Winter is also the prime time for illnesses such as colds and flu, so decrease indoor pollutants by cleaning and vacuuming dust from your vents. Maintaining your thermostat is another important step to efficiency. Keep it set at the lowest possible temperature that will keep everyone comfortable (usually in the 68 to 72 degree range). You may want to consider purchasing a programmable thermostat that will adjust your temps automatically.

Visit our The Best Homes San Diego if you would like to know what properties are selling for in your area.

Make Home Maintenance a Priority

As you consider buying and/or selling your home, look to this blog for tips on how to best prepare your house to sell or how to accurately appraise a property you are interested in. Your house will likely be the largest purchase of your life. Make sure you keep your investment in good shape. Below is a helpful article on home maintenance:

From The National Association of Realtors Newsletter

Home repairs are an issue that many of us tend to dodge. We understand the necessity of the repairs; however when it comes down to it many of us do not have the time or money to fix everything. The following list of minor home repairs could end up costing you big money if you continue to procrastinate.

Rodent incursions - Rats, mice and other vermin love to chew through insulation and wiring and are suspects in many house fires.

Soaring fuel bills - This is more than a pocketbook issue, since poorly functioning systems can cause deadly carbon monoxide buildup in your home.

Peeling paint - Paint is like a home's skin. It's the first line of defense against incursions by water and pests. Water that seeps into wood can lead to rot.

Flickering lights - It might be that the wiring in your house is dysfunctional or you have too many appliances hooked up to a single circuit. Either one can cause a fire.

A water leak - Left unchecked, leaks can lead to rot, dry rot, mold and termite infestations. Water can cause roofs to collapse, foundations to buckle and all manner of expensive repairs. Water-related problems can also get your home blackballed by insurance companies worried about mold-related claims.

The Final Quarter for 2009

The outlook for San Diego's real estate and housing industry remains flat for the end of 2009. A marked difference from last year's forecast is that the mid-priced housing units ($500,000-$1,000,000) should experience steep declines whereas the low-priced housing stock led the way in 2008.

The most important component to the housing recovery for San Diego remains in the ability for a home buyer to get financing. The US Treasury stepped in to provide financing for properties under $625,000, by:

(a) increasing the loan limits for FHA, conforming and VA loans to 115% of median price (expected Jan, 2009)
(b) nationalizing Fannie Mae and Freddie Mac (guaranteeing the loan from default)

The luxury home market ($1,000,000 and above) is generally a cash market. As such, credit availability affects those housing units far less than the "rank and file" developments inhabited by those of us in the "working class." Expect SOME softness in the luxury home market, but if the buyer likes the home, they will either pay cash or have access to highly specialized financing available only to the asset-rich.

In 2008, many predicted that the median price would decline some 20-25% in San Diego County. While some realtors didn't expect the mid-range housing stock to be affected by foreclosures, most did expect the lower-priced units to be the first to crumble.

Communities like Oceanside, Vista, San Marcos, and Escondido in the North County declined as much as 55%, peak to trough. The entire South Bay experienced severe declines. Lower income areas of the City of San Diego and the East County experienced steep declines. Some areas declined so much that their prices have retreated to point where investment makes complete sense. The fundamental value of those properties, as measured by the price to rent ratio, is such that it's less expensive to own rather than to rent; we haven't seen that phenomenon in San Diego County since 1999.

The cautious San Diego home buyer will avoid the mid-range priced homes ($500,000-$1,000,000) in San Diego throughout the rest of 2009. As more folks in mid-priced homes lose jobs, foreclosure activity will rise. The problem with that price range is that there will be little or no financing available for buyers due to the loan limit of $625,000. This means that if the mortgage payment on your Carmel Valley home, worth $1.1 million, is causing you financial discomfort, you'll be selling that home into a market where a willing (and well-heeled) home buyer can't get mortgage financing unless he puts a minimum of a half a million bucks down.

How many people do you know that have a half a million dollars liquid?

Communities like Poway, Scripps Ranch, 4-S Ranch, Rancho Bernardo, Rancho Penasquitos, La Mesa, Pacific Beach, Ocean Beach, Solana Beach, Carlsbad, Encinitas, and Cardiff will continue to experience declines of 20-25% this year. The argument has always been that the homes near the Coast have special value and are somewhat impervious to a decline. The financing vacuum will prove that theory wrong next year. When financing for that $625,000 to $1,000,000 becomes available, expect those communities to rebound quickly.

Fortunes are made in periods of chaos and unrest. Don't wait to scoop up bargains under $400,000; those properties are about as cheap as they're going to be. Stand ready to pounce on that $900,000 Cardiff home with the ocean view; you'll probably pick it up for $650,000 for the rest of this year.

San Diego Housing Market is turning around!

According to economists, things are getting better in the near future for the housing market in San Diego!

Lawrence Yun, chief economist for the National Association of Realtors, said "the local market is buoyed by a tight housing inventory and enticing federal tax incentives."

Yun was speaking at a lunch event hosted by the San Diego Association of Realtors on Tuesday. Some 700 people attended the event held at the DoubleTree Hotel in Mission Valley. San Diego Mayor Jerry Sanders, as well as representatives of various politicians in town, also attended the event. Helen Kaiao Chang of SDNN goes on to discuss rising San Diego sales, the federal tax incentive, decline in inventory and more in her blog below.

“The worst in housing is probably already past in the San Diego market,” said Yun. “Home values have fallen so much that many of the potential buyers who have been sidelined are understanding this is a great opportunity.”

Erik Weichelt, president of the San Diego Association of Realtors, who opened the event, agreed. “There’s a lot of homes to be sold, but quite frankly, there’s a lot more buyers,” he said.

Yun and other speakers also pointed out challenges the industry faces and the actions members of the National Association of Realtors is taking to overcome these obstacles. “Realtor” is a trademarked term used by members of the group.

Rising San Diego sales

During his presentation, Yun gave a far-ranging analysis of the market, from national to local statistics. His powerpoint slides painted a picture of rising sales in San Diego in the last year.

The number of San Diego home sales were up 11 percent in June this year, over June last year. At the same time, prices were down 13 percent in the same period, reaching a median price of $362,000 in June.

Federal tax incentive

One key reason for the sales demand is the federal tax incentive for first-time home buyers. The Housing and Economic Recovery Act of 2008 offers an $8,000 tax rebate to first-time home buyers, many of whom have been waiting for prices to come down to affordable levels.

Many of these first-time buyers could not afford housing prices during the boom years. But with lower prices and tax incentives, they are now biting, Yun said. The pent-up demand is now soaking up inventory.

“The stimulus program is working,” said Yun.

Decline in inventory

Another reason for the boost is a decline in housing inventory, said Yun. With lower prices, many low-end properties are now receiving multiple bids.

But part of the reason is that lenders such as Fannie Mae and Freddie Mac are holding back inventory, so as to not flood the market, said Yun. This “shadow inventory” could soften the market, but is not showing up on current data. In San Diego, demand still is currently outstripping supply, he said.

Yun noted that foreclosures would continue to rise nationally, as the “toxic combination” of job losses and underwater homeowners continued to grow. But the government’s program of foreclosure moratoriums - forcing lenders to hold off on foreclosure action against homeowners who have missed payments — has stymied the flood.

This has contributed to a shortage of houses on the market, particularly in San Diego, where demand is still high.

“Last year, foreclosures lingered on the market,” he said. “Now, foreclosed properties… have ready buyers.”

Tipping point

Consumers may also be reaching a “tipping point” for purchase, said Yun.

Many potential home buyers have been afraid to enter the market, wondering when prices would hit bottom. They have also been affected by negative media reports, showing widespread foreclosures.

But after four years of price declines since market highs of 2005, housing prices are now much more affordable. In some places in California, prices are down 20 percent to 40 percent from the previous year.

This has made prices much more affordable for home buyers who stood on the sidelines during the boom years.

“We are back to justifiable levels,” Yun said.

As more people enter the market, others start to follow. Some California cities are now seeing 50 percent to 100 percent rebounds, he said. This is creating a “tipping point” for more consumers to buy, he said.

Lobbying Washington

Despite this rosy outlook, the real estate industry is pushing aggressively for more. Goals include an extension of the home buyers’ tax credit program, as well as a change in bank appraisal requirements.

At the event, a lobbyist for NAR encouraged agents to make their voices heard in Washington.

Carol Horn and Ed Lawler, directors of the NAR Broker Involvement Program whose jobs entail lobbying Congress people and Senators, encouraged agents to log on to the NAR Web site to send automated email messages.

San Diego statistics

These messages support proposals that benefit the real estate industry. For one, the group is pushing for the first-time home buyers’ tax incentive program to be extended beyond the November 30 expiration date. For another, NAR wants to expand the program to cover all home buyers.

This year so far, about 6.5 percent of its members have participated in this “Call to Action” program. The group hopes to expand this number to 15 percent. “We’re going to have to have strong involvement” to make things happen, said Horn.

Appraisal obstacles

The NAR is also pushing to clear obstacles in the appraisal process.

In an effort to cut down on the practice of appraisers rubber-stamping artificially high prices during the boom years, the federal law now requires banks to use approved appraisers. These supposedly more objective appraisers typically come from outside the area.

This has resulted in longer closing times, higher appraisal costs for would-be home buyers, and sometimes inaccurate results, due to the appraisers’ lack of knowledge of local markets.

“It was a good-intentioned policy with unintended consequences,” said Yun. “Buyers are coming back, but a hurdle is placed.”

The NAR is also lobbying for changes to these rules.

Market stabilizing

Despite these obstacles, Yun noted that the signs of recovery are strong. With the current uptick, San Diego’s real estate market may be leading a national recovery.

As inventory continues to decline, the real estate market should start to see a more stable, 5 percent annual growth, he said.

San Diego Homes - When it pays to let them Foreclose

Bob Schwartz of San Diego Real Estate Blog wrote an interesting post earlier this week about how sometimes foreclosing your home is really the better option. If the value of your home is falling at an alarming rate, it makes much more sense to let them foreclose rather than continuing to pay your mortgage. It's an alternative worth considering in today's economy. Bob goes on to discuss this option further in his blow below.

A recent research report from the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management reports that of the large number of mortgage defaults across the country, 26% were what they call strategic. This report defines strategic as one in which the mortgage default was a calculated, done by homeowners who have the money to make the payments. The owners decided that the homes negative equity position indicates to them it would be economically wiser to let the property go back to the lender.

According to another nationwide study, 22% of all homeowners had negative equity positions during the first quarter of 2009. This means the homeowners owed more on their mortgage, than the current resale value of their homes. In some parts of Southern California, Nevada and Florida, it’s speculated that more than half of all homeowners now have negative equity.

Currently, we are just beginning of prime adjustable-rate loan activity called mortgage resets. The number of these mortgage resets far exceeds the number of subprime loans. The findings from Northwestern University’s study seem to indicate that the U.S. housing market is on the brink of another substantial rise in home foreclosures.

Keep in mind, that these are prime loans made to the middle and upper end of the housing market. The people can afford to make the reset payments on their mortgages. A main reason that these people can afford the new reset payments is because of today’s low interest rates hovering at around just 5%. In a post, dated 1-20-09, titled San Diego Negative Home Equity’ on my San Diego real estate market blog, I speculated about this exact situation. The post was well in advance of this study’s findings and all the more prophetic today.

I believe the importance of the mortgage reset will wake up homeowners to the harsh reality, and extent, of their negative equity position. Will they want to keep making mortgage payments? Would you, if the current value of your home was $50,000 less than the balance of your mortgage? What if your home value was $100,00, $200,000 or even $300,000 less than the balance on your mortgage? Would you continue to make payments or let the bank take it over? No, nobody would. Not unless you could increase the value of your home.

I recently sold only in La Jolla. That was purchased new in 2005 for approximately $1.6 million. My buyer, was able to buy this home for just $1.1 million. So, in just about three years, from the time this home was purchased, the original seller’s home value had declined by $500,000, or just over 31%. Now just imagine if this home was originally purchased with a 10% down payment. The original owner would have had $160,000 invested in the property at the start. Plus would have made three years of substantial monthly mortgage payments, plus upgrades and then found out that his original $160,000 equity position had deteriorated into a -500,000 position. Now, should the original purchaser, with the loan balance of $1,440,000 continue to make mortgage payments or let the bank take the property back?

In the Northwestern University study, among those without moral reservations, 63% of those homeowners with a negative equity of $300,000 or more would let the property go into foreclosure. For the other group in the study who had moral issues with letting their home go into foreclosure, if they could make the payments, 38% would let their properties foreclose if their negative equity position reached $300,000.

Another finding in the study showed that the higher number of foreclosures in the zip code, the higher the homeowners’ willingness to walk away from their properties. Plus, 82% of homeowners in the study were likely to have a strategic default when they were aware of others who had defaulted.

The bottom line from this study seems to show that the traditional assumptions that homeowners default on their mortgages because they can’t afford their monthly payments, needs to be re-examined. Even with the new Fannie Mae and Freddie Mac 125% refinance mortgages, will these deep in negative equity homeowners really be enticed to refinance their homes, when financially, it looks like a foolish decision?

Banks are creating buying frenzy's in San Diego

According to Bob Schwartz, who blogs for San Diego Real Estate Market Blog, in the San Diego housing market the undisputed hottest selling properties are bank-owned, foreclosed homes and condos. Bob says that many San Diego home buyers are exhibiting characteristics of the famous Alan Greenspan term, “irrational exuberance.” Any time a realtor uses any terms like “bank owned,” “bank foreclosure,” “lender reposition,” or “foreclosure sale,” they are sure to draw a crowd to at least take a look at the property. If the property showing goes well, there will definitely be offers, and sometimes even multiple offers. Bob goes on to talk about this tactic that banks are using to create a buying frenzy in San Diego today in his blog below.


Adding my observation to the above facts, a number of lenders have hit on a marketing ploy to create a buying frenzy which guarantees an almost instant sale. In the majority of cases the offer(s) exceed what may have been realistically expected if the property was marketed the traditional way. This tactic can work really well for first time home buyers, and that's what banks are counting on.

Here are some actual examples of this technique for San Diego home sales.

On 4-8-09, a bank owned home in east Carlsbad was listed at $499,900. Based on the location, age and size of the home, I estimated the current value at $575,000 to just over $600,000. Within one day of the listing, the listing agent had multiple offers. According to the agent, the lender required it to be on the market one week before they would look at any offers. The agent speculated that based on the number of inquires, she would have 40 to 50 offers in the one week period. This home sold for $597,000. The sales price was almost 20% over the listed price. Doesn’t a sale of $97,100 over the listed price suggest that it was listed way under the market?

A bank-owned Little Italy one bedroom condominium was listed in March for $234,900. The estimated fair current value for this condo was approximately $275,000 to $280,000. The listing agent stated that within 3 hours of the MLS listing being submitted, he had an offer. Again, the lender would not look at any offer until the condo was on the market one week. This San Diego property generated 21 offers within the 1st. week, of these, 11 were at or above the $234,900, listed price. This Little Italy condo sold at $295,600, or $60,700, approximately 26% above the listed price! I was told the accepted price was $15,000 above the next highest offer.

A San Carlos planned-unit-development, bank-owned 4 bedroom was listed at $344,900. The estimated fair value for this condo was approximately $410,000 to $425,000. Inside of one week, this San Carlos property had an accepted offer at $410,000. This was approximately 19%, or $65,100, above the listed price!

Banks are purposely under listing property with the strategy of creating a buying frenzy to result not only in a very quick sale, but, a sale at or above the fair market value. Is this practice fair or even legal? It is on both counts. If the bank does not list it properly, they could end up with a sale way below the current fair market value. On the other hand, it isn’t fair to neophyte buyers/agents. Buyers and/or their agent who do not recognize the ploy, may be wasting quite a bit of time writing offers that in some cases, will not even be considered or countered. Also, what about shattered expectations? A number of buyers/agents may honestly believe that their full price offer has a chance of being accepted. In reality, they not only have zero chance of getting their offer accepted, but in the majority of cases, they will not even get a counter-offer.

So what is a potential buyer looking for a bank owned property bargain to do? If they are smart, the best advice would be to seek out an experienced agent and implicitly follow that agent’s advice.

First-Time Home Buyer Tax Credit: 6 Things to Know

While this is old news from US News and World Report, the proposed $15,000 home-buyer tax credit died in negotiations between the House and the Senate in February of this year. The $787 billion stimulus bill that President Barack Obama signed into law includes a similar--albeit smaller--measure designed to help revive the real estate market. Here are six things you need to know about the $8,000 first-time home buyer tax credit.

1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)