California Real Estate & Mortgage News

REALTOR.com Launches Mobile Search Product

2008-01-14T21:17:00.000-08:00

The NAR launched a new website called Housingmarketfacts.com to combat negative press about the housing market and encourage buyers to get into the market.

Frankly, I think the site is poorly designed as it has one of those talking ladies and the print is so tiny you can’t even see most of it with Firefox and a high resolution. There is an equity estimator but it does not seem real useful compared to this home equity growth calculator launched last year.

It also does not have very much information but what was interesting was the link to the new mobile search product.

I first heard about this at the Inman Real Estate Connect last year and this is the first live launch of the product that I’m aware of.

It's a program for consumers (and professionals) to download to their Windows enabled smartphones. If your phone has GPS it will automatically pull in listings within a 10 miles radius. If you don’t have GPS then you can enter zip code and search that way.

The idea is to give consumers access to listing information as they are standing in front of the home. This is really exciting but will only be useful if enough consumers use it.

Here is the link to download: http://m.realtor.com/ and here is the official site for more information.

I’ll download it tomorrow and play with it and give you a review but I’m sure the real estate blog-father Dustin will beat me to it.

In my opinion this is the first exciting product launched by REALTOR.com in a long time. It will be interesting to see how much use the product gets over time.

As for the housingmarketfacts.com site… you be the judge.

Payment Option ARM Mortgages Ready to Explode

2006-10-09T09:49:00.000-07:00

Today, CNN covered the payment option arm situation that may be setting up people for diaster. According to the article they quote Christopher Cagan the director of research and analytics, First American Real Estate Solutions.

There may be a trigger ceiling, meaning when the balance reaches a certain level -- say 120 percent of the original balance -- the introductory terms will end and the rate will reset upward,

This is called the recast function of the payment option adjustable rate mortgages. Must people who have these loans are not even aware of this clause contained in the terms. We have developed a payment option arm mortgage calculator that calculates this recast amount and what to expect from the new mortgage payment.

What makes this particularly worrisome is the finding from Mr. Cagan's research:

homeowners took out 1.3 million ARMs with teaser rates below 2 percent... Of those, 21.5 percent have negative equity, where the market value of the home is less than the amount owed

If this situation creates many to go into foreclosure, these same foreclosure properties can further push down property values in those area's further compounding the affect of the real estate slow-down.

Additionally, what many home owners are not aware of is that the current "fully indexed mortgage rate" of these pick-a-payment or payment option arms is currently well north of 7.00% while a 30 year fixed mortgage is near 6%. Here is why...

Index + Margin = Fully Indexed Mortgage Rate
COFI Index = 4.277% + 3.5% = 7.777% Fully Index Rate

If borrower is making the minimum payment of 2% but the mortgage is collecting interest at 7.777%, there is an extra 5.777% of interest being added onto the loan every month.

If you currently have a negative amortized mortgage be sure to use our payment option arm mortgage calculator to fully understand what is in store and feel free to contact me with any questions you may have.

Will California Real Estate Escapes Median Home Price Drop?

2006-09-25T15:22:00.000-07:00

Today the NAR released it's existing home sales data and nationally prices actually dropped 1.7% from the same month last year. Surprisingly California real estate actually was up a minor 1.6%. The biggest drop happened in the Northeast.

For August, California home sales have actually plunged 30.1% according the the California Assn. of REALTORS, which was the biggest year-over-year drop since August 1982.

As everyone already knows, California has lots of adjustable rate mortgages, many of which will be adjusting in the upcoming year. Will this have a significant effect and possibly cause an uptick in foreclosures which will drag down home prices?

Can the California continue to escape an actual down turn in actual prices or are we just setting up for a serious accident?

Continued Slowing In Southern California Real Estate Markets

2006-09-15T11:47:00.000-07:00

Los Angeles ABC7.com reported that the southern California real estate markets are still slowing down. Here are some key highlights:

San Diego County Real Estate
- Home prices declined 2.2 percent

- 32 percent decline in sales compared to a year ago.

Los Angeles County Real Estate

- home prices rose in August at the lowest annual rate in six years (4%)

- 21 percent drop in total homes sold

According to the article, a San Diego professor thinks it may bottom out by 2007 and start to recover by 2008. What do you think?

160% Increase in California Real Estate Foreclosures

2006-09-13T09:53:00.000-07:00

According to an article in CNN, foreclosures are spiking everywhere. Nationally they are up 53% over last year but for us in California, the article states that there was a 160% increase in July 2006 vs. July 2005.

Can this be an indicator of a famous "bubble" or just a hiccup?

Remember, the NAR's July Existing Home Sales Report had this to say about the West...

Existing-home sales in the West dropped 6.4 percent to an annual pace of 1.32 million in July, and were 18.0 percent lower than a year earlier. The median price in the West was $348,000, down 0.3 percent from July 2005.

Will the California real estate market weather the impending storm or will this be a repeat of 89-91?

Sign of the Times... Mass Foreclosed-Home Auction

2006-09-12T11:14:00.000-07:00

Hudson & Marshall a real estate auction company is doing a large scale auction of 250 foreclosure homes in Michigan, which had a 25% spike in foreclosure rates.

Do you think this will happen in California?

Has the Real Estate Bubble Bell been Tolled?

2006-08-09T13:40:00.000-07:00

Today, CNN had an article from one of the largest home builders Toll Brothers which did not point to good news on the real estate front. In fact this maybe the real signal that the real estate bubble has actually popped.

An interesting quote from the article worth noting:

is the first downturn in the forty years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors

I give their point of view alot of weight considering the amount of experience they have (40 years), country wide view of markets and their apparent non "spin" which is so common with quotes coming from other real estate professionals.

Lastly, since Toll Brothers builds high-end luxury homes and is seeing this kind of downturn we may see a much broader impact in the future as studies have been made that indicate that high-end real estate is often the leading indicator or real estate price direction.

This comment appears to support what many real estate bubblers have been warning of. What do you think? Has the real estate bubble bell been tolled?

California Falling Out of Love with Adjustable Rate Mortgages

2006-03-28T12:46:00.000-08:00

California real estate has exploded over the last 5 years causing a wealth effect to spread to other parts of the country like Las Vegas, Phoenix and now San Antonio.

Part of this dramatic increase in property prices may be tied to increasing use creative mortgage loans such as interest only mortgages, pay-option ARMS and hybrid ARMS.

Facts:

- 2002 only 2% of mortgages where interest only... in Feb 2005 it was 61%.

- Adjustable loans represented only 28.9% of the market in 2002 and jumped to as high as 73.7% in May of 2005.

This increase use in these types of loans increases the amount of a home someone can afford to purchase, which pushes up home prices... or is it just luck that the biggest jump in prices coincides with the dramatic increase of adjustable rate mortgages?

Now, Californians are falling out of love with these mortgages according the Dataquick press release.

What's interesting when you read this press release...

Peak usage during the prior real estate cycle was in September 1988 when ARMs accounted for 66.1 percent of all home purchase loans

What happened next... Southern California real estate prices dropped 20 or more and took 5 years to recover.

Will this cause home prices to start decreasing? Share your thoughts as to the impact of the decreased use of ARMS on the California real estate market.

*Data & Chart provided by: Dataquick

California Real Estate Overvalued?

2006-03-13T13:54:00.000-08:00

Today, CNN Money released it report on over-valued real estate. Unfortunately many parts of California ended up on the list.

What do you think? Are we over-valued and will prices come down?

Mortgage Rates Highest in 2 1/2 Years... What Happens to California Real Estate Now?

2006-03-10T10:45:00.000-08:00

Mortgage rates have been creeping up slowly and are now at the highest leveles since the summer of 2003. Here is some mortgage rate data from Freddie Mac to review. Part of the increases in mortgage rates is the fear of inflation and the rising yields on the 10yr and 30yr treasury bonds to which mortgage rates have a loose relationship with.

As I have mentioned and charted on a previous post, there is an inverted relationship between mortgage rates and real estate prices.

If mortgage rates continue to increase, real estate prices will come down. Here is a very simplistic overview of the impact of mortgage rates and home prices:

$500,000 loan interest only at 5.5% = $2520.83
Income needed to qualify based on 28% income to debt ratio*: $9,002

$500,000 loan, 30 yr fully amortized 5.5% = $2,838.95
Income needed to qualify based on 28% income to debt ratio*: $10,135

$500,000 loan, 30 yr fully amortized 6.5% = $3,160.34
Income needed to qualify based on 28% income to debt ratio*: $11,285

So assuming someone was looking at real estate and their income is $9,002 and they were originally looking at a $500,000 loan to buy a home, now mortgage rates are up and using the same income to debt ratio this person now only qualifies for a 30 year fully amortized mortgage at 6.5% for the amount of: $398,734.

That is over a 20% difference less in loan amount that this same buyer now qualifies for.

What do you feel a home buyer facing this situation will do? Stop looking? Get creative financing? Stretch themselves?

Give us your feedback as to what the impact will most likely be.

Existing Homes Sales Volume in West Continue Decline, Will Home Prices Hold?

2006-02-28T12:12:00.000-08:00

Today, the NAR released it’s existing home sales data and again the West is down in sales volume… in fact, we are down 14.4% off last year. That’s a pretty big number as indicated by the chart. To the delight of many (homeowners) home prices have remind fairly stable.

According to the charted data it would appear that the sharp volume decrease may be over and we may possibly see an increase as the peak sales months approach.

Will home prices continue to hold or will they also follow the existing home sales trend. If inventory continues to build and mortgage rates stay the same or increase, I suspect that home prices will also begin to flatten and eventually maybe even fall.

One thing that is concerning is the tightening of mortgage lending guidelines from lenders and Wall Street on the ever popular “pay option arms” as these creative mortgages have fueled the jump in prices.

What do you think will happen?

Data: NAR Existing Home Sales

California Luxury Real Estate Values UP in 2005

2006-02-23T11:41:00.000-08:00

Yesterday, Inman news reported a story based on First Republic Prestige Home Index. According to the report, Luxury real estate values rose to an all-time high in Los Angeles, San Diego and San Francisco in 2005 but slowed significantly in the 4th quarter.

Here are some highlights regarding average prices:

San Diego: $2.09 million
San Francisco Bay area: 2.88 million
Los Angeles: 2.3 million

It will be important to keep on eye on the high end market as often times it is a leading indicator of the rest of the real estate market.

Zillow Offers Free Property Estimates... How Accurate are They?

2006-02-09T14:25:00.000-08:00

I have posted some interesting information regarding the new Zillow website that offers free property value estimates. Although AVM(Automated Valuation Models) have been around for some time, this is the first time that they have been made available to the public. Many people have viewed their property estimate and are not sure how accurate the results are... so I did a test and charted the results.

Real Estate... Cooling or Bubble... I'll look in the rearview mirror.

2006-02-07T16:10:00.000-08:00

Today in the U.S.News & World Report there was an article regarding Robert Toll. You may have heard the name if you following real estate... Toll Brothers one of the leading new home builders in the country.

There is alot of debate regarding the real estate markets and each as their merits but I try to stick the facts when interpreting information. Here is something that is sure.. for the second time in recent months, Toll Brothers as cut it forecast for new-home construction in 2006.

Another fact..."Toll reported that the dollar value of its newly signed contracts in the first quarter fell by 21 percent versus the same period last year." according to USNews.

That looks like a pretty solid cooling trend... does it mean there is a bubble or just cooling... only time will tell. What I do know for sure is that the rear view mirror is always clearer than the windshield.

Pending Home Sales Index.... Charted for Your Viewing Pleasure

2006-02-02T11:21:00.000-08:00

Yesterday, I posted a chart of the relationship between the Pending Home Sales Index and Mortgage rates. I thought you would be interested to see the how the West is doing vs. other areas of the country. Bucking the cooling trend is the South, which may be due to the high demand, low supply real estate market conditions created by hurricane Katrina. The Northeast has a small bump up for which I have no explanations but welcome any theories. From this point on, I will be updating this chart as the NAR releases it's new PHSI figures. Get it directly by subscribing to my RSS feed or add this blog to your del.icio.us

West Coast Pending Home Sales Index Down 11.8 %... Maybe Due to Increasing Mortgage Rates?

2006-02-01T15:23:00.000-08:00

Today the National Association of REALTORS released their Pending Home Sales Index data. The data indicated a very visible cooling trend as the index was down 8.1% from the month before and down 11.8% from the year before. Having watched mortgage rates climb over the last 6 months of the year, I thought it would be interesting to show you the inverse relationship between mortgage rates and the real estate market.

This relationship is quite simple to understand: The lower the mortgage rates, the more money can be borrowed therefore pushing up home prices... as mortgage rates increase borrowers can borrower less, therefore pushing prices down.

Here is a chart I quickly prepared graphing this relationship. The Pending Home Sales Index data covers the "West" which includes California and the average 30 year mortgage rate information is directly from Freddie Mac.

Many analyst think that we need a substantial jump in mortgage rates to approximately 7.5% before there is an impact on housing prices but frankly, I always thought it was less from my 14 year experience in real estate. Especially now as the average home price is north of $500,000.

A .5% mortgage increase on a $400,000 loan increases payments by $166.00 a month... which decreases the loan amount qualified by about $28,000 assuming approximately a 6% mortgage rate.

So in the real world... a homebuyer is qualified by his mortgage lender for $500,000. This home buyer then goes out to look at homes with his REALTOR and they BEGIN their house hunting at $500,000 (although this is the maximum they are qualified for) instead of a lower amount and working their way up.

A month or two later they fall in love with a property that is $525,000 vs. the $500,000 that they were qualified for. In this time, mortgage rates went up .5%, so now the maximum they qualify for is $475,000. There is a $50,000 difference that needs to be made up, so the mortgage lender must use "creative" financing. Options like an interest only loan, stated income, or the ever popular pic-a-payment option to make up the difference (this is an entire different topic that I will touch on another time) home buyer still gets their home but they may be stretching it.

Now assume that they are unable to get this "creative" financing and now they need to look at homes in the $475,000 price range. Not fun. As now, they never find anything they like because they already looked at homes in the $525-$550 range and they must either down size (look at a smaller home or condo) or look in less expensive / desirable area. This is very frustrating for most homebuyers. So what's the usual solution... they wait to buy.

This is what I believe maybe the reason why the pending home sales are decreasing fairly dramatically and I'm sure you will soon see home prices follow suite and also start decreasing, especially if mortgage rates stay at current levels or higher and mortgage banks begin tightening mortgage underwriting guidelines.

If you have any thoughts or questions, please do not hesitate to post as your "real world" input is greatly appreciated by both other readers and me.

Data Sources: NAR & Freddie Mac.
Chart by: Jessie Beaudoin, California Real Estate Center

Are New Home Builders Going to Cause the Housing Bubble?

2006-01-30T12:20:00.000-08:00

Today, BusinessWeek wrote an good article regarding new home builders and the current supply of homes for sale. It indicates that the amount of existing homes for sale is up 20.6% nationally over this time last year... while "...the second half of 2005, the supply of new single-family houses available for sale has been growing at the fastest pace since the mid-1980s"

For those of you who remember Southern California during those times, think Chino Hills... and what happened back them... mid-late 1980's then in 1989 pop.

What is important is that those buying a home buy for the primary reason of owning a "home" not as an investment, as that's were people can get in trouble.

December Home Sales in Southern California Lowest in 4 Years

2006-01-18T16:13:00.000-08:00

Today, Dataquick, released information regarding home sales in Southern California. Prices are easing back and the sales volume is the lowest in 4 years. Here are some area highlights:

These were all down:
Los Angles was down 13.6% from Dec. 04
Orange County was down 9.2% from Dec. 04
San Diego was down 11.3% from Dec. 04
Ventura was down 13.3% from Dec. 04

Bucking the trend was:
San Bernardino up 5.7%
Riverside up 16.5%

Overall Southern California was down 4.5%

New Real Estate Report Regarding Price Decreases

2006-01-17T11:36:00.000-08:00

PMI recently released a new report regarding the risk of housing prices depreciation around the country. What's striking about the report is that 11 metropolitan area's are at risk to drop 50% or more. This is an excellent read if you are into charts.

Download the real estate PDF

California Real Estate Mortgage Underwriting To Tighten

2006-01-17T10:41:00.000-08:00

According to Inman news today, California real estate lenders will be tightening their mortgage underwriting guidelines to compensate for higher default risks reported by homesmartreports.com. The article stated that there was a concern due to the market frenzy experienced from the coast that has now moved inland. I suspect part of the concern and where you will see tightening is on the interest-only and pay-option arm type loans.

California Housing Affordability Index Falls 5% From Same Time Last Year

2006-01-13T09:25:00.000-08:00

Yesterday, the CAR released it's monthly housing affordability index. Last year in November 19% of Californians could afford to purchase the average price home, this year it's only 14%.

I have always had a problem with the figure because of the assumptions used to calculate it which are: "based on an average effective mortgage interest rate of 6.26 percent and assuming a 20 percent downpayment"

The kicker is how many of the people whom have the income of $133,390 to pay the average priced home of $548,000 actually have $109,600 for the down payment not including the closing costs. Think about your friends and family for a moment whom have purchased homes and how much they put down.... gotta love those interest only, stated income, piggy back loans!

So, fact leads to three observations.

A) Most people buying a home are those who already own a home. This is supported by NAR figures. So the argument used by many that immigration will cause a continued strength in the housing market seems a little weak.

B)The is significantly less than 14% of Californians whom can afford to actually purchase a home.

C) Due to the strength of the real estate market and sales volume over the last two years, you must believe that the relaxed underwriting standards of interest only loans has allowed many people who can't really afford a home to actually buy one. You be the judge of whether this is good or bad.

In looking at the chart there are some interesting figures that one may want to notice.

A) Almost across the entire state the affordability index has flat lined. In a few places it decreased 1-2% over October but generally it stated the same. This seems to support that prices have also remained stable maybe indicating that the peak has finally arrived.

B) The markets are slowing changing as the average prices in 19 regions reported 8 regions experienced small price declines.

California Real Estate Foreclosures Jump 29% in December

2006-01-12T12:03:00.000-08:00

This news comes from a RealtyTrac press release regarding their data on national foreclosure rates. California had an increase of 29% in December but it is still lower than the national average. Worth taking a look at.

Will I/O Loans Lead to a D-Day in Real Estate?

2006-01-11T15:42:00.000-08:00

On 1/08/06, on Inside Bay Area, was a great article on interest only loans which are extremely popular currently. In fact, interest only loans represent about 35% of all loans on the west coast presently. The main point of the the article was that what happens when these loans adjust and overwhelmingly the answer is "refinance"

The brings up some interesting issues as to what people perceive will happen. Many of those who believe there is a real estate bubble like, Ben Jones Housing Bubble blog, think that a time bomb that may set it off is the adjustments of this interest only loans. Next year approximately $400 billion worth of hybrid ARMS nationwide... by 2007 it could be $1 trillion.

What is scary about reading the comments from Ben's post is the number of people who seem fairly disappointed from the possible reality pointed out in the article. This may cause some problems because of how refinancing of a I/O works, which I will elaborate on tomorrow.

2006 California Real Estate Forecast

2006-01-11T12:51:00.000-08:00

The newest issue of Fortune there is a real estate forecast for 100 of the largest metro real estate markets summarized on CNN Money. So area's are forecasted to continue the run-up in prices but these are typically in the Midwest with Texas appearing to be the next hot spot (investors read: San Antonio). Our focus is California real estate, so here is some of the figures from the report:

The first column is ranking, so you can see most of the California areas made up the bottom 10%, which may be in fact supported by recent decrease in the Pending Homes Sales index.

Whats important is to look at the last two numbers. These are the forecasted growth rates for 2006 & 2007.

94 Sacramento-Arden-Arcade-Roseville CA $372,900 -1.20% -5.10%
99 San Diego-Carlsbad-San Marcos CA $598,700 -3.40% -5.70%
92 Bakersfield CA $286,300 -0.80% -3.00%
97 Riverside-San Bernardino-Ontario CA $362,800 -2.60% -6.80%
87 Stockton CA $423,100 -0.30% -5.90%
83 San Francisco-San Mateo-Redwood City CA $766,000 0.10% -2.90%
90 Oakland-Fremont-Hayward CA $651,300 -0.70% -4.40%
98 Santa Ana-Anaheim-Irvine CA $682,300 -3.10% -6.10%
91 Fresno CA $340,800 -0.80% -2.80%
89 Oxnard-Thousand Oaks-Ventura CA $480,300 -0.70% -5.00%
95 Los Angeles-Long Beach-Glendale CA $412,900 -1.60% -6.30%
88 San Jose-Sunnyvale-Santa Clara CA $720,900 -0.40% -3.90%

So again, in all of this data it's hard to make sense of what is really happening but what I always tell my clients is simple: "Buy a home, not an investment" If you keep this in mind than the occasional dips in prices don't matter because you purchased a "home" not an "investment". It's proven that over time "real estate" is prudent investment but like any other investment the price can go down.

Real Estate Market to "Normalize" According to NAR 2006 Real Estate Forecast

2006-01-10T11:18:00.000-08:00

Today, the NAR commented on the 2006 real estate market. The heading reads "Normalize" which may be a careful choice of words as further down in the forecast... "A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year,".

Here are some highlighted of sales figures from the report:

"After setting a fifth consecutive annual record, projected to 7.10 million units for 2005, * existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0 percent to 1.21 million in 2006 – that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units – the highest since setting a record 1972 – with a 6.6 percent slowing to 1.94 million this year."

In the report is also shows that national home prices increased 12.9% in 2005 and are forecasted to go up 5.1% this year.

We will continue to watch the California real estate market and report numbers for local regions as we find them.