Thursday, January 9, 2014

San Francisco Bay Area Housing Market 2014

by Rick Turley, President of Coldwell Banker Residential Brokerage, San Francisco Bay Area

Four Reasons 2014 Could Be A Very Strong Year for Local Housing Market

Happy New Year! As we kick off 2014, it's a good time to take a look at what might be in store for the local housing market in the coming year. While I don't claim to have a crystal ball, I feel very optimistic about the potential for a strong housing market in 2014.

The Wall Street Journal reported this week that home prices across the country ­ – but especially in Silicon Valley and other parts of the Bay Area – have zoomed back to near record territory. Valuations jumped 25% or more in some communities over the past year, nearing or even exceeding their pre-recession highs. Prices in Palo Alto are nearly 40% above their 2007 peak, one of the largest gains in a recent survey.

So what do we do for an encore in 2014? I see four major reasons why the Bay Area's housing market will continue to be strong in the coming year:

1. A robust local economy. The Bay Area economy is one of the strongest in the country. Silicon Valley, the Peninsula and San Francisco are the high-tech, Internet, VC and social media centers of the world. CNNMoney's tech job forecast for 2014 is "Hot and Getting Hotter." Tech job site Dice.com reports that 55% more employers — a record high — say they're ready to hire a large numbers of techies, up from 42% in the second half of 2013. These well-paid knowledge workers will provide an even stronger, better-capitalized pool of buyers for our housing market in the coming year.  Just noted in USA Today, the bay area’s fourth largest city, Fremont, has seen a  return to a strong housing market, and is regarded as one of the best run cities in the country.  http://usat.ly/1crnbWi   From the Wine Country in Sonoma, south to Carmel and Pebble Beach, and across to Livermore, we are fortunate to have healthy, diverse, and prosperous cities and towns in our nine Bay Area counties.

2. Supply and demand. While the demand side of the equation was extremely strong last year with buyers out in force, the supply continued to be historically low. This resulted in prices getting bid up in multiple-offer situations and many would-be buyers walking away empty-handed.  No one knows for sure what will happen to inventory in the coming year, but our agents are telling us more listings are expected in the coming weeks. I suspect homeowners are reading the same news stories we are and seeing that prices have been shooting higher, and they may finally be ready to cash in. Rising prices also change the dynamics for many homeowners who had been underwater in their mortgage as recently as six months or a year ago and weren't in a position to sell. With prices jumping, many of these homeowners now have positive equity once again and have the option of selling and walking away with cash for the first time in years.

3. Interest rates. Interest rates remain historically low, but make no mistake about it: They are moving higher once again. Some economists are forecasting mortgage rates could rise a full percentage point before the year is over. This is a clear wakeup call for those buyers who have been on the sidelines waiting for the perfect time to get into the market. The time is right now before mortgage rates move higher.  An increase of just one percentage point on a $500,000 mortgage adds $300 to a monthly payment or $3,600 a year. Buyers know that and will be rushing to beat the next rate hike.

4. Increasing costs of renting.  As the Bay Area economy comes roaring back from recession, available apartments are drawing long lines of potential tenants and rents are spiraling higher, according to a recent story in the San Francisco Chronicle. "Rents in San Francisco are escalating at breakneck clips this year, largely driven by an influx of tech workers. Oakland and San Jose likewise are seeing steep run-ups," the article notes. Median asking rents for San Francisco apartments listed on www.livelovely.com hit a record $3,398 in the third quarter, up 21 percent from 2012, according to the Chron. Such huge rent increases continue to make buying a home a better financial proposition. My sense is that buyer demand will only increase in the new year as renters see their personal economy improving with a better job market and higher salaries.


Three of the four above are particularly unique to our Bay Area.  Few cities around the US have this same alignment of economic conditions. NAR is predicting growth in the 5+% range across the nation in 2014 and I feel that number is conservative for us.  Every one of our offices expect a strong first quarter as some new inventory comes to the marketplace.  

WILL 2014 BE THE YEAR FOR MOVE-UP BUYERS?

The housing market has enjoyed a strong rebound over the past few years with sales and median prices steadily improving across the country and especially here in the Bay Area. For a variety of reasons, one segment of the market has not bounced back quite as fast: the “move-up” market. But that could change in 2014.

The recession took its toll on many homeowners, especially those who bought near the peak of the housing market. As property values dipped, many of these consumers found themselves “underwater” on their mortgage – that is, owing more than it is worth.

But as home prices continue to climb and home equity levels steadily improve, more homeowners are once again in a position to trade up. The National Association of REALTORS® expects the median sale price nationally to be up 11 percent in 2013 from the previous year. And some parts of the Bay Area have seen median prices jump 15-20 percent or more.

Move-up buyers are gradually coming back into the market due to improving equity, according to a new report from FNC, a real estate data and technology company.

If you have outgrown your existing home or simply want to buy another home in a more desirable neighborhood, now may be the time to make your move.

Interest rates may have ticked up a bit over the past year, but remain attractive. And your current home may be worth more than you think, giving you more money to put into a down payment on your next home.

Buying a home when you currently own one does have its challenges. If you sell first, you may be left scrambling to find a new place to live or forced to settle for a house that isn’t right for you. But if you buy first, you may not have the cash to put down on your next home – even if you do qualify for another mortgage. And you run the risk of having to make two house payments each month while you own both homes.

But some careful planning and the guidance of a professional REALTOR® can help you overcome these challenges and take advantage of the move-up market. Here are a few tips from the National Association of REALTORS® to get you started:

  • Assess the market. Compare your current and future neighborhoods and determine which area is a buyer’s market and which is a seller’s market. If your current neighborhood is a hot seller’s market, you may be better off buying elsewhere first and then selling yours since it might be easier to find a buyer.
  • Selling your home first. If you end up selling your home before buying another, you will need a place to live in the meantime. One option is to enter into an occupancy agreement with the buyers of your home to enable you to retain possession for a short period of time.
  • Other temporary options. If the buyers of your home need to move into your home immediately after escrow closes you may be able to stay with family or find a short-term lease on an apartment. Many “extended stay” hotels and apartments offer leases for a month or longer. You’ll have to put many of your possessions in storage, but they’ll be packed and ready to go when it is time to move into your new home.
  • Buying your next home first. If you end up buying your next home before selling your first one there are a couple of ways to come up with the new down payment. Check with your lender to see if you can secure a home equity line of credit. The interest rate may be tax deductible up to $100,000 and it could be paid off once you sell your home. Be sure to check with your lender before you make any decisions to determine what options may or may not be available.
With homeowner equity rising and interest rates still historically low, now may be the time to cash in on your existing property and make the move to the home of your dreams. I’m ready to help. Give me a call at (510) 314-6684 and we’ll get started today!  Visit me at www.RealtorLisaWu.com or email to RealtorLisaWu@yahoo.com

©2014 Coldwell Banker Real Estate LLC. All Rights Reserved. Coldwell Banker® is a registered trademark licensed to Coldwell Banker Real Estate LLC. An Equal Opportunity Company. Equal Housing Opportunity. Each Coldwell Banker Residential Brokerage Office Is Owned by a Subsidiary of NRT LLC. If your property is listed with a real estate broker, please disregard. It is not our intention to solicit the offerings of other real estate brokers. We are happy to work with them and cooperate fully. CalBRE License #01908304





Tuesday, December 24, 2013

How Important Is Down Payment in Determining Default?

Source: DSNews.com

The Federal Housing Finance Agency (FHFA) recently released a working paper on the impact of down payment amounts on loan performance at the GSEs and Federal Housing Administration (FHA). In light of new regulations and increased focus on underwriting standards, the agency issued the findings, and overall found a nonlinear relationship between loan-to-value (LTV) ratio and foreclosure rates.
Making sense of the story
  • For loans with FICO scores of 620 and debt-to-income (DTI) ratios of 31 percent, the foreclosure rate for GSE loans with 100 percent LTV is a little more than twice that of loans with 80 percent LTV.
  • When it comes to FHA loans with the same credit characteristics, the foreclosure rate is almost three times as much among loans with LTVs of 100 percent compared to loans with LTVs of 80 percent.
  • LTV ratios hold a stronger relationship with foreclosure rates among FHA loans than GSE loans.
  • The FHFA found that the LTV-foreclosure rate relationship is sensitive to FICO. This finding was evident when observing various LTV ratios among different classes of FICO scores.
  • According to the FHFA, once LTV rises above 95 percent, the foreclosure rate tends to correlate less with LTV ratio.
  • The relationship between LTV and foreclosure is most dramatic between LTVs of 90 and 95 percent when it comes to FHA loans.
Amid new regulations and increased focus on underwriting standards, the Federal Housing Finance Agency recently released a working paper on the impact of down payment amounts on loan performance at the GSEs and Federal Housing Administration (FHA).

Overall, the federal agency found a nonlinear relationship between loan-to-value (LTV) ratio and foreclosure rates.FHFA also determined that credit score plays an important role alongside LTV ratios in determining the likelihood of foreclosure.
LTV ratios hold a stronger relationship with foreclosure rates among FHA loans than GSE loans, according toFHFA. “The implication is that the same level of change in original LTV requirement would have a larger impact forFHA borrowers than for GSE borrowers,” the FHFA stated in its working paper.
Among loans with FICO scores of 620 and debt-to-income (DTI) ratios of 31 percent, the foreclosure rate for GSE loans with 100 percent LTV is a little more than twice that of loans with 80 percent LTV.
For FHA loans with the same credit characteristics, the foreclosure rate is almost three times as much among loans with LTVs of 100 percent compared to loans with LTVs of 80 percent.
When observing various LTV ratios among different classes of FICO scores, FHFA found, “the LTV-foreclosure rate relationship is sensitive to FICO.”
For example, raising LTV from 80 percent to 90 percent on a loan for a borrower with a FICO score of 620 increased the likelihood of foreclosure by 4.46 percentage points.
Making the same change in LTV to a loan for a borrower with a FICO score of 700 increased the likelihood of foreclosure by half that—2.23 percentage points.
For FHA loans, which are more sensitive to changes in LTVratio, the relationship between LTV and foreclosure is most dramatic between LTVs of 90 and 95 percent. This trend carries across all FICO scores observed.
Once LTV rises above 95 percent, the foreclosure rate tends to correlate less with LTV ratio, according to FHFA.
Meanwhile, DTI ratio correlated strongly with foreclosure rate. “As expected, across all LTV levels, borrowers with a higher DTI had a higher foreclosure rate,” FHFA stated.
However, the “LTV-foreclosure rate relationship has a relatively modest sensitivity to the DTI level,” FHFAfound.
When comparing LTV rates among delinquency rates,FHFA found similar relationships to what it found among LTVs and foreclosures.