Archive for August, 2008
Santa Cruz Fixer Uppers and the FHA 203K/Energy Efficient Mortgage
August 22, 2008
I sat down for a meeting today with Rick Williams - he’s a mortgage broker with Pacific Inland Home Mortgage. I sit down with mortgage brokers with some regularity - Realtors are probably the mortgage broker’s #1 source of leads. If only Mortgage Brokers were a Realtor’s #1 source of leads, my life would be easier. But I digress. 
Rick had come to my office so we could discuss the FHA Energy Efficient Mortgage program, and how it can be combined with the FHA 203K program to do some renovation work on older, fixer-upper type properties (there’s also, apparently a streamlined FHA 203K which may be easier to deal with). There are lots and lots of older properties for sale these days at really cheap prices (especially in Watsonville, but also in the San Lorenzo Valley, and increasingly in the mid-county areas like Live Oak, Soquel, Capitola, etc.). With the FHA 203K program, you can actually borrow more than the cost of the real estate itself.
Here’s how it works. You find a property you want to buy. It’s maybe a little rough - needs some paint, some new flooring, double pane glass windows, etc. Maybe the condo you’re renting right now has all that, and you don’t fancy taking a step down in terms of your living comfort when you buy your next (or first!) home. FHA 203K to the rescue!
Here’s how it works. The appraiser comes up with an as-is value for the property. The appraiser also puts together an as-repaired value, listing specific repairs and improvements and how much they would add to the value of the property. Of course, the cost of the repairs must at least equal the amount of value they would add. It should be noted that there’s a list of things that are allowed, and not allowed. The total cost of repairs and improvements cannot exceed $35,000.
That is, unless you’re also going for an Energy Efficient Mortgage. This is an additional amount, up to $8,000, and of course, there are a bunch of strings attached on what’s an energy-efficiency improvement. However, if you are wiling to jump through the hoops, this will get you a house with improved energy efficiency, and the borrower will get an additional 2.0% less debt ratio with the energy savings - in other words, it will in theory allow you to qualify to buy a more expensive home. The idea here is that the energy savings will help you afford the higher payment.
When you get a real estate loan, it is known as a purchase money loan. You never see the cash, it goes straight from your lender to the seller. So with one of these 203K or Energy Efficient Mortgage loans, how do the contractors get paid? The answer to this is that the seller gets paid the agreed-upon purchase price, and funds are held back in escrow to pay the contractors. Contractors can get paid up to 50% of the budgeted amount before they begin work, and they submit their invoices to escrow to receive the balance when work is completed.
As you’d expect with any type of government program, there’s lots of caveats - for example, this is for owner-occupant buyers only (no investors). The loan cannot exceed $729,750 - and after January 1, 2009 this will drop down to $625,000.
Sounds good? If you’re looking to buy an affordable house in Santa Cruz county, but don’t want to feel like you are living in a shack, these programs are definitely worth checking into. Not all lenders offer these kinds of loans, though. Rick Williams tells me he’s researched it pretty thoroughly and has found a few lenders who actually have FHA 203K and FHA Energy Efficient Mortgages. You can reach Rick at 831-247-5573 and you can view his profile on Pacific Inland Home Mortgage’s web site.
Posted by SantaCruzBroker at 12:03am
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Santa Cruz Housing Entry-Level Affordabilty - Up 67%
August 19, 2008
Hey, feeling like maybe now you might possibly be able to consider buying a house in Santa Cruz? You are not alone! According to our good friends at the California Association of Realtors (C.A.R.), housing affordability has increased 50% in the second quarter of 2008 as compared to the second quarter of 2007. Slammin’!
You may not have known this (I sure didn’t!), but C.A.R. has a First Time Buyer Housing Affordability Index (FTB-HAI). The C.A.R. report breaks it down county-by-county, and reports this as the Santa Cruz county:
Q2 2007: 18
Q1 2008: 28
Q2 2008: 30
So since Q2 2007, Santa Cruz county has soared 12 points - that’s 67%! I don’t know why so many Realtors are quittin’ the business with numbers like this. New buyers are, quite literally, streaming into the market. Oh, wait - maybe it has to do with the reduced pay packet. C.A.R. also goes on to report that the median entry-level priced home is going for $531,250 - and that’s a steep drop from what homes used to be going for ($750K+). I guess it’s hard to keep gas in the Mercedes with home prices like that.
In case you’re curious, C.A.R. also figures that a home costing $531,250 is going to cost a buyer $3,380 per month including principal, interest, tax, and insurance (PITI) - assuming a 10% down payment (check under your mattress for that $53,000 you have lying around). They also figure you need to make $101,490 to qualify for such a loan.
Actually, that doesn’t sound too bad - especially when you consider that there’s lots of homes going for a fair sight less than $531,250 in Santa Cruz these days. And the good news is, these prices are still dropping in many areas - it’ll be interesting to see where Santa Cruz county sits in next quarter’s affordability index.
Posted by SantaCruzBroker at 8:34pm
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Santa Cruz July 2008 median home price: $607,500
August 17, 2008
It must be the middle of a month, because another batch of home price statistics is in. Jondi Gumz has written up another good piece of home prices in Santa Cruz county:
[From July's median home price: $607,500 - Santa Cruz Sentinel]
Nearly four out of 10 single-family homes sold for less than $500,000 in Santa Cruz County in July, as buyers took advantage of falling prices.
The median price was $607,5000, a tiny uptick from $600,000 in June and dramatically down from $775,000 a year ago. The median is the mid-spending point for what sold.
Just to clarify that: say that you had 21 homes that sold in an area in a given period. You sort them from low price to high price, then you find the house in the middle - the 11th house. If there are 21 homes sold, the 11th house’s sale price is the median sale price. 10 houses sold for less money, 10 houses sold for more money. If there is an even number of homes sold, you take the two in the middle, you find the difference in prices, divide it in two, and add that amount (half the difference) to the lower-priced house (or subtract it from the higher priced house) to get the median home price.
Of course, there is a pretty raging debate about whether the median home price means anything at all. The VP of Data and Analytics at Zillow.com had a good blog entry about the median home price. It’s interesting to note that the Zillow blog entry talks about the OFHEO Housing Price Index - because the OFHEO housing price index is probably going away now, since the OFHEO (Office of Federal Housing Enterprise Oversight) itself is slated to be merged into a new entity, the Federal Housing Financing Agency. Look for a new index from them soon, I suppose.
There seems to be a lot of consensus that the Case-Schiller Index is a pretty good metric. The Case-Schiller index looks at the resale values of the very same home to see what’s going on with home prices. Unfortunately, the Case-Schiller Index takes a while to put together - they released the Case-Schiller index for May of 2008 in late July. If you’re very interested in how they put the numbers, together, they do publish a nice PDF detailing the methodology of the Case-Schiller Index.
Unfortunately, the Case-Schiller index does not include Santa Cruz county, sorry. It tabulates numbers for large metro areas. So looks like we po’ folk out here in Santa Cruz are just going to have to stick with the trusty, rusty median home price as a rough measure of what’s going on. I think it’s pretty clear by now that all housing types, in every location throughout the county, are off their peaks, some of them (south county, north county) by huge margins. Some areas are holding values much better than others (Capitola, West Cliff, etc.) but that I suspect even these shall fall as these next several months roll by. Stay tuned!
Posted by SantaCruzBroker at 9:02am
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Kickin’ It At Home in Santa Cruz
August 14, 2008
Something funny happened today as I was out showing property to some clients of mine. We go to this house - I had actually shown it a day or two before to some other clients. The owner is an enthusiast of machines - like cars, motorcycles, motors - I think he is a mechanic or something.
So we are in the back yard, looking at this small aluminum boat of some kind, that’s up on wooden sawhorses. And we are chatting about the property and what could be done with it and all, and we’re looking at the ground down kind of in front of the aluminum boat. There’s something wrapped up in black cloth lying almost underneath the boat.
“What’s that?” someone says. “I think it’s like an outboard motor covered in cloth,” I said - kinda looked like it might be one, there were one or two other outboards lying around. “What if it’s a body?” another of my client asks. We kind of laugh about that, and talk a few moments more…
…and then my client kind of kicks it lightly - more like taps it - with his foot. “Dude,” he says, “I think it is a body!” and we all laugh and say, “Ha ha, that’s not funny.” And he goes, “No, I’m serious!” and nudges it again with his foot.
Then, all of a sudden, the black cloth springs to life - “Hey, what’s going on?!” says some guy who had been sleeping there underneath the black cloth, wrapped up kind of like a mummy, or an outboard motor. There were a few shrieks from the ladies, and a lot of laughter. It turns out, the guy actually lived at the house, but had come home late from a night of partying or something and didn’t want to wake up anyone in the house, so he just crashed out in the back yard.
How can you not love this town?
Posted by SantaCruzBroker at 9:49pm
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Santa Cruz Real Estate just got a little more expensive
August 11, 2008
I love Twitter. No, not really. It’s OK. I think it may be a fad. Or not. But it does have some cool benefits. Like some guy posted a tweet when the iPhone 2.01 firmware was released. I got right on the case and updated my iPhone (glad I did). The Santa Cruz Sentinel also has a twitter feed, and some news just came across:
The Land Trust of Santa Cruz County has purchased 189 acres of sandhills between Scotts Valley and Felton.
The sale, announced today, completes a years-long effort to buy and protect a rare sandy-bottom forest and scrub habitat. At one point, plans to develop homes on the property off Mount Hermon Road, between the old Hanson Quarry and Geyer Road, were drawn up.
Awesome! I love it. That’s one thing that makes Santa Cruz really special, is the amount of natural open space we have here, and it’s definitely worth protecting. That’s good news if you already have a house here - your property values have just gone up.
Why? Scarcity, my friend - scarcity. Scarcity is one of the four elements that drives real estate values. There’s only so much of it - and now, there’s a little less in Santa Cruz. As you can read in the quote above, this land had once been slated for development. Not now, not ever. The supply has now shrunk, forever - and demand? Well, you want to buy a house here, don’t you? You see my point.
I just wasted a good 20 minutes scouring my hard drive for this awesome pie chart I got after attending a presentation at the Santa Cruz Association of Realtors a year or two ago. It showed how much land in Santa Cruz county is actually available for development as housing. About 50% of Santa Cruz is parkland - it will never be developed. The next biggest chunk is agricultural land - unlikely to be developed. And it goes down and down, until you get to residential land - and it’s about 2% of the county.
My next question is, how many acres are in Santa Cruz county? Thanks to the Wikipedia entry for Santa Cruz county, I see that there are 607 square miles in the county - not too big, second smallest only to the city and county of San Francisco. As any Realtor should be able to tell you, there are 640 acres in a square mile (Townships and Ranges, anyone?). That means there’s 388,480 acres in Santa Cruz, and if 2% of those can be used for residential purposes, that means there’s just 7,769.6 acres available for housing.
And I hate to bore you with the math, because I sure ain’t no math whiz like my brother, but if 700 acres of land that could have been used for residential purposes just got preserved as open space forever, why, that’s almost 10% of the available land in Santa Cruz county! Ye gods!
So clearly, my numbers must be off here somehow. Probably not all of those 700 acres could have been developed (too steep, or soil was inadequate, something). Or I’m mis-remembering, and it’s more than 2% of the land is available for residential purposes. Or, Wikipedia has it wrong and Santa Cruz county is larger than 607 square miles. Though I’d be willing to bet, dollars for donuts, that there really are 640 acres in a square mile.
But one thing is clear - there’s less land that might be used for housing available today than there was yesterday, and what do you want to bet that the population of California has grown just a tad since yesterday? Exactly. So if you want my advice: buy now while the buyin’ is good. We’re in this rare period where actually, it is getting cheaper to buy here. But it can’t last, and today we’ve had another reminder why.
Posted by SantaCruzBroker at 12:04pm
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