Archive for September, 2008
Billions, Trillions and a House in Santa Cruz
September 30, 2008
These sure are interesting times. Washington Mutual (my bank) – gone. Wachovia (which just bought up World Savings a while go) is now part of Citibank. The much-touted $700 billion bailout plan gets shot down in the house of representatives, and Wall Street falls 777 points to erase $1.2 trillion dollars in market value. Glad I sold all my stocks 2-3 weeks ago.
I know, I’m part of the problem. I should have just sat there and watched as my hard-earned dollars evaporated, sucked it up, been a man, and lost all that cash, the price to pay for participating in our capitalist system.
Except that I, like many of you, can’t help but feel that the system is, perhaps, a bit rigged in favor of the big guys. Like Washington Mutual, for example – my understanding is, the Feds took it over, wiped out the shares of everyone who owned it, and sold it to JP Morgan Chase for a couple of billion dollars. And the WAMU shareholders got nothing.
So what does all this have to do with Santa Cruz Real Estate? Pffft. Wish I could tell you. One thing that’s very interesting to me is this claim that the credit markets are “frozen” and that’s why we need this $700 billion bailout. From where I sit, the credit markets do not appear frozen. At worst, they appear congealed.
I’ve actually been selling a lot of real estate this year, and almost everyone who is buying is getting a loan. It is true that in order to get a loan these days, you must meet a much stricter standard. Last I checked, though – that’s a good thing. Easy credit, liar loans, all that – isn’t that how we got in this mess to begin with?
So let me assure you – if you want to buy a house in Santa Cruz, and you have decent credit (at least a 580 FICO Score to qualify for an FHA loan, I believe) and you have the debt-to-income ratios required by the guidelines. But if you have that, a pulse, and a paltry 3.5% down payment – you’re in.
Let’s say you want to buy a starter house or condo for $500,000. Mind you, the median price these days in the county is $585,000 (as of August), so it’s getting to the point where you can actually buy a habitable structure in a somewhat central location for that kind of bread. You’re looking at a down payment of $17,500. That would leave you with a whopping loan of $482,500 and payments (all-in, including principal, interest, property tax, and insurance) of about $3,500 a month (roughly, approximately – and that’s before your considerable mortgage interest tax deduction).
What’s that, you say? $3,500 is a lot to pay every month? Yeah, it is. So perhaps you would want to – gasp – have a bigger down payment, like 10 or 20%. Or buy a smaller house, or live somewhere less central. Or, wait another six months or a year before buying. Because prices are going down further. Except in Watsonville and north Monterey county, I think they can’t possibly go down much further there.
Let’s say, though, that you have $20K for a down payment, and you’re fine with a $3,500 monthly payment. You might be wondering about your closing costs – those can be considerable, especially if you are in fact going with FHA financing.
No worries, mate! Put a shrimp on the barbie and let the seller pay your closing costs. Most sellers, if you write them a high-enough offer, will be happy to pay your closing costs. Even in a short sale, and especially if you’re buying a bank-owned REO property. You might even be able to lower your rate by paying a point or two, which is not a bad idea if you’re planning to stay in the home longer than 3-4 years.
It hardly needs to be said, of course – but if you’re planning to buy a house, you’d better plan on being there at least 3-4 years. At least. Real estate is a long-term investment. Not like that crazy silly stock market. 
Posted by SantaCruzBroker at 8:29am
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Walking Home in Santa Cruz
September 28, 2008
If there’s one thing that makes living in an urban center great, it’s that you can usually walk to lots of great places. LIke my brother, he lives in San Jose, and he lives within walking distance of any number of restaurants, shops, cafes, bars – you name it, you can probably walk to most anything within about 15 minutes or so.
On the other hand, Santa Cruz county is more rural in nature. It’s pretty tough to find housing – especially affordable housing – that is within walking distance of anything other than a grove of redwood trees. Many out-of-town buyers really only have the haziest of notions of the various neighborhoods in the county, and which are within walking-distance of urban amenities that so enrich our 21st Century existence (ahem).
Many times when you are shopping for real estate on-line, the real estate listing has remarks like “Close to shopping, restaurants” – but what is close? A 10 minute drive? Maybe that’s close for some people – but as fuel prices skyrocket and as people become increasingly environmentally conscious, “close” would more often be considered a ten minute walk rather than a 10 minute drive.
I’ve got some good news for all of you out-of-towners looking for your slice of paradise, and are concerned with the “walkability” of property you are interested in. Let me first say – you are right to be concerned! People place a big premium on proximity to amenities – which is why centrally-located properties are usually so much more expensive than properties out in the boons.
Enter walkscore.com – a web site that gives you a “walkability score” for “any address.” I am not sure how they’d do in Waziristan, but I think you’ll be OK for most addresses in the United States. Walkscore has a page that describes their algorithm – any amenity that is further than 1 mile away from an address is not considered “waking distance.” All you Realtors who say your listings are within walking distance of Gayle’s Bakery, take note.
I am doing an open house today for a new listing I have that I think is extremely walkable. I would think since it is so close to the Brown Ranch Shopping Center (where I work at Thunderbird Real Estate), it would have like a perfect walkability score. After all, the Brown Ranch center has lots of great shops and restaurants, as its almost-always-packed parking lot will attest.
The property address is 3526 Deanes Lane – if you look on a Google map, you will see that it is practically adjacent to the Brown Ranch shopping center. Yet, the walkability score for this address is only a 75 – “very walkable.”
I plugged in some addresses of a few other listings I have – like 213 Coronado Drive in Aptos. This address gets a walkability score of 62 – somewhat walkable. However, in order to walk to, say, the Lucky Dragon restaurant, you’d either need to ford a creek and hack your way through heavy foliage, or walk all through the subdivision, back down to Trout Gulch Road, along Trout Gulch with all the fast moving traffic, down to Soquel, and then walk down Soquel, with much much more faster moving traffic (and no sidewalks, mind you) to arrive at the Lucky Dragon.
So there you have it. Another well-intentioned but somewhat-useless “Web 2.0″ website – kind of like Zillow in that respect. Still, though, if you’re at work and you’re reading this blog entry and you have some down time before the boss walks by again, give it walkscore.com a look!
Posted by SantaCruzBroker at 8:39am
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Multiple Offers on Santa Cruz Real Estate
September 13, 2008
Multiple offers? On Santa Cruz Real Estate? In today’s beleaguered market? Moooo…!
It happens. It happens a lot more often than you’d think. I guess a lot of people think it doesn’t happen very often, what with the fact that we’re in a terrible housing crisis and property values are falling down all around us, kind of like federal tax dollars raining down in Alaska.
Here’s the thing, though. It’s not really that slack of a market. There is a fundamental demand for Santa Cruz Real Estate. Look, we’re living in paradise. There isn’t that much housing stock available. We are located adjacent to a growing area of fabulous wealth – the Silicon Valley – that is a huge bulwark of the economy not only in California, not only in the United States, but basically the whole friggin’ world.
So there’s a fundamental strength here. This is not Detroit, or Toledo, OH.
But yes, there is a housing crisis. It’s real. There’s a lot of pain to go around. And there’s also a lot of opportunity. There’s still a lot of money left chasing around real estate. Most houses on the market – and I mean like 85% of them – are over-priced and will not sell at the prices they are asking.
Some houses, on the other hand, are under-priced. They are under-priced because the owners are serious about selling them. And when I say under-priced, I mean, they are under-priced in today’s market. Tomorrow, I can’t say, but there are some houses which represent a clear value in today’s market. Houses that are, truly, a bargain.
Let’s say you see a house for sale. Wow, that’s cheap! you are saying. Next question: what’s wrong with it? If the answer turns out to be “nothing, really” or “nothing much” – the next question you need to ask is, “How many offers are in on it?”
Zoinks! Egads, do I mean to say that a house might have multiple offers on it? Indubitably, my dear Watson. There’s a demand here. There’s money here. If a house is offered that presents a clear value – a bargain – in this market, it will attract offers, and more than one.
If you are interested in putting in an offer on a house, and you find that the seller of that house has attracted several offers in a short number of days, what should your offer strategy be? Should you:
- a) put in a below-asking-price offer
- b) offer full price
- c) offer over asking price
I’ll give you a minute to think about that.
Time’s up, pencils down! There answer is clearly not A. If a house has received multiple offers in a very short period of time, the market has spoken: at the asking price, the home is offering a good value. It is likely under-market price. So why waste time with a less-than-full price offer?
To those of you who think making a low-ball offer (choice A) is appropriate in this situation, I say, you need to have your head examined. Or at least, you need to re-think your offer using a little logic. The fact that a home has garnered multiple offers in a short period of time is a strong – very strong – indication that the asking price is already low, and will almost surely sell for at least asking price. You’re not going to get the house for your low-ball price, so why bother trying? It’s virtually guaranteed you will lose out on the house.
As for Choice B – make a full price-offer: a better choice than Option A, however if you really want the house, you should probably go with Choice C.
Choice C is definitely the way to go when making an offer on a house that has received multiple offers in a short period of time. The reason for this is that, if there are more than, say, 3-4 offers on the property, it is likely that it will go for over asking price. It may be that the seller will just choose the highest offer they receive. Or, they may choose to only counter the highest couple-few offers. Either way, making an offer of over-asking-price is going to get you a much better shot at the property.
I know, I know – you’re asking, geez, might I end up paying too much for a property by offering more than asking price? Sure, there’s always that risk. One thing you can do to mitigate that risk is ask your Realtor to provide a Comprehensive Market Analysis (or CMA – also called a Comparative Market Analysis) of the property before you write up your offer. Then you’ll have a good idea of what the home’s value really is – and don’t pay more for it than it’s worth.
Ideally, even though you’re paying more than asking price, you’re still getting the home you want at a below-market price. It happens all the time. Although the price you pay will not end up being the super-fab bargain it appeared it would be at first, it’s probably still a pretty good deal.
One more bit of advice – don’t freak out in a multiple-offer situation. You would be surprised how many people who submit offers choose Choice A, under-asking-price. These people are not really in the running. Many people choose B, and make only full-price offers; this is enough to be in the game, but usually not enough to be seriously competitive.
If a house has 5-6 offers on it, only 2-3 of these will be seriously competitive, so if you’re in a situation where there are many offers, relax. Get your Realtor to do a bit of work, go over the comps with him or her, and put together a winning offer that gets you the house you want at a good price.
Posted by SantaCruzBroker at 9:52am
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Santa Cruz August Median Home Price – $585,000
September 10, 2008
The numbers for August are in! If you’re like me, you’re wondering – are we there yet? Have we hit bottom? Probably not, but we’re getting there. In the latest edition of my newsletter (if you don’t already get it, I invite you to subscribe to my Santa Cruz Market Trends newsletter), I provide lots of juicy data about how real estate values are continuing to drop in Santa Cruz.
As of August 2008, the median home price in Santa Cruz county is now down to $585,000 – and in July of this year (just a month ago!), the median price was $619,000 according to my calculations, and that’s a decline of about 5.5% in just one month. Also, there were 152 sales in July, and 153 in August – so there’s a broad selection of houses being sold.
Interestingly, the median sale price in August 2007 was $790,000 with 137 units sold. The Real Estate industry is doing somewhat better in terms of volume. In other words, it’s easier to sell your house this year than it was last year, so long as you are willing to sell it for 25.9% less than it would have sold for a year ago. Zoinks!
How are we doing with condos? The median price for a condo in Santa Cruz county in August 2008 was $420,000 – that’s down 17.2% from a year ago, but up 3.4% from last month. There were 31 condo sales in August, the same number as last month.
It looks like prices are still sliding. When you look at the MLS, it is very interesting to see where the “pending” listings (that is, houses that are in contract, pending sale) are in the spectrum – about 90% of them are below the median price of “active” listings. This is going to continue to drag down the “sold” prices.
I know, I know – you are saying, “yeah, well it’s only the cheaper houses that are selling. The bigger, nicer houses in the better parts of the county, where I live, aren’t really falling that much.”
If only that were the case. What’s happening is that the bigger, nicer homes in the better parts of the county are still asking top-dollar – but few are getting it. Instead, what’s happening bit by bit, is that someone in these nicer areas feels a bit more pressure to sell. And so, they take that low offer. That then brings down the prices in the neighborhood. Then, someone else a few streets over takes a low offer. Slowly, slowly, one by one, the prices fall.
It may take longer to happen in your neighborhood – but it’s happening. I think prices will continue to drop throughout the year, and probably a bit into 2009 before we find a firm footing on the bottom.
I’d also like to invite you to check out the page on my web site that has home sales data for Santa Cruz county. It’s a very useful page, and it allows you to break out the data by MLS areas (e.g. East Side of the city of Santa Cruz, West Side, Felton, etc.). Under the “property analysis” tab, it also has a a very cool feature that allows you to see active, pending, and recently sold properties plotted on a Google map.
Check back in a month or so to see how we did in September!
Posted by SantaCruzBroker at 10:01am
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Interest Rates Plunge for Homes in Santa Cruz
September 08, 2008
In case you haven’t heard, over the weekend the free-marketeers over at the Treasury Department have taken over Fannie Mae and Freddie Mac. I’m all for it, of course. The hypocrisy kind of makes me sick – they’re all for government intervention to help out the banks and whatnot, but when it comes to helping out the middle and lower classes with, I don’t know, a tax cut or a single-payer health care system – forget it.
But I digress – I’m totally for the bailout. We just can’t afford a collapse of the whole mortgage lending system. That would just be catastrophic, and would end up hurting many more people than simple inaction and the possible collapse of Fannie and Freddie.
The good news out there for you, Mr. Middle Class Home Buyer, is that interest rates have plunged. Apparently, a confirming 30 year fixed loan is down to about 5.75%. That’s pretty good. Rates had been about 6.5% on Friday, so this is a huge drop.
Now, for those of you who are using FHA Financing (typically first-time and low-income buyers) – you’re out of luck. It seems that FHA rates will remain about 6.5% for the time being.
Of course, as you can imagine, an event of this magnitude is likely to cause quite a bit of perturbation. Rates could be this low only for a short time – they could go right up again before we know it. Or, of course, they could drop even further. Who knows?
Interest rates vary all the time, and they vary from borrower to borrower and lender to lender. But let’s assume that on Friday, your rate would have been 6.5%, and today, it’s 6% – in other words, a 1/2% drop. Let’s also assume you’re buying a median house in Santa Cruz, and you’re putting down, say, 15%. The median price these days is around $610,000 – so your loan would be $518,500 (yes, I’m assuming you have $91,500 handy for a down payment!).
At 6.5%, your principal and interest payment, for a 30 year fixed loan, would be $3,277.27.
At 6%, your principal and interest payment for a 30 year fixed loan, would be $3,108.66. That’s a difference of $168.61 a month.
Hey, calm down! Don’t get so excited! It may not seem like much – but it is a bit more than a 5% savings in monthly payments. Until you figure in tax and insurance, of course. Your tax would stay the same – about $559 per month, and insurance would be, oh, $75 a month. So your true payment with a 6.5% rate would be around $3,911.27 a month, which puts your actual savings of $168.61 at somewhere around 4.3% per month.
Still, $168.61 ought to pay for at least a few refills of the ol’ Prius, eh?
Posted by SantaCruzBroker at 2:54pm
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