The Broker's Record

Craig’s List Rental Scams

January 25, 2009

I love Craig’s List. I love it for many reasons – I won’t count all the ways I love it, suffice it to say that it’s a great public service as well as a prime way to drive traffic to one’s real-estate related web site. 🙂

However, Craig’s List is seen by some predators as a way to defraud, scam, and bamboozle. There’s a rental scam going around on Craig’s List, where someone tries to rent out a house they do not own, one which they saw for sale on Craig’s List. They use the picture from the ad on Craig’s List, and fashion a new, fraudulent ad of their own.

I have a sweet property listed for sale on Monterey Avenue in Soquel, and a couple of people contacted me yesterday about this scam – they had been given the property address by the scammer, and they went and drove by the property, whereupon they saw my “for sale” sign and contacted me, asking if it was for rent or not.

One of these people was kind enough to forward the e-mail correspondence she’d had with the scammer. The scammer had provided her with “proof” that he was indeed the lawful owner of the property. Here’s the proof:

and

Those are pretty nifty Photoshop jobs, but they are not anything that would prove ownership of a piece of property. Ownership is is established by the use of deeds in California, not Certificates of Ownership.

Please don’t fall victim to any such scams! The scammer asks the victims to proceed to a Western Union and send in the deposit money, and upon receipt of which he will make arrangements for you to get the keys. Except that since he’s not the real owner, you won’t get any keys, you’ll just end up a lot lighter in the wallet.

Posted by Administrator at 9:26am
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Is 2009 The Year to Buy Santa Cruz Real Estate?

January 17, 2009

This is a question that I get asked, and find myself asking, quite a bit these past couple of weeks. I am working with a number of buyers who are skittish and waiting for prices to hit just the right point. After all, what’s the sense in buying a depreciating asset? Who wants to buy something that they know is going to lose them money – maybe a lot of money – within a few months after buying it?

One of my clients sent me a link to a great web site – Housing Crash Continues, Bubble Pops. It lists 14 great reasons why this is a terrible time to buy real estate. It’s pretty strong stuff, with lots of inflammatory statements like, “Realtors just lie outright about…”. Well, I always say, never attribute to malice what can be explained by stupidity. I don’t think that Realtors are habitual liars, but it’s true that many of us are not as perhaps informed as we might be.

I won’t address all 14 points that the The Housing Crash guy brings up, but I would like to make a few comments. The Housing Crash guy says:

A landlords’ rule of thumb is that a house price should be a maximum of 15 times the annual rent for that place, yet in coastal areas, houses are still selling for 30 times annual rent

I think he’s got a good point there – which goes to underscore my belief that prices in Watsonville are actually very reasonable at the moment. Looking at Craig’s List rentals for Watsonville, I see you can rent a 3-bedroom condo in Apple HIll for $1,875 a month. Those condos are now selling for around $190,000. So at $1,875 a month, that’s $22,500 a year, or $337,500 over 15 years. Hmm…so does that mean according to the Crash Guy, we should all be moving to Watsonville?

Put another way, how much does it cost to own that same condo which rents for $1,875 a month? Let’s say you put down the minimum 3.5% as required for an FHA loan, and that you are paying 5.75% interest per month, which includes the allowance for the FHA insurance. You’d need a down payment, then, of just $6,650, and you’d have a loan of $183,350. Your fully-ammortized 30-year loan payment would be about $1,070 per month. Then you’d have property tax of about $175/month, and then of course your HOA fee for that unit of about $290/month. That comes to $1,535 per month. Hmm. It costs less to buy in Watsonville than to rent.

I know, I know – you don’t want to live in Watsonville. You’d rather pay a premium and live near the beach, or closer to your job in Silicon Valley, or closer to your friends who all live near downtown, or maybe you don’t want to live in Watsonville because you’re spooked by los pandilleros, or you want your kids in a better-performing school district. Whatever your reason, I can accept that you might be interested in buying somewhere other than Watsonville (even though I think real estate there is a an exceptionally good value at the moment).

We all know that prices in Santa Cruz are a lot higher than in Watsonville, but let’s see some examples. Let’s start by looking at Craig’s List rentals in Santa Cruz. Wow, they’re a lot higher than in Watsonville! Thank Goodness for UC Santa Cruz, drivin’ that rental market right through the roof, eh landlords? Looking over the ads on Craig’s List, it’s safe to say that a 3 bedroom, 2 bathroom house would rent for about $2,400 a month in Santa Cruz, assuming it was in a not-so-great location. That’s a pretty conservative assessment, having looked at what’s available.

At $2,400 a month, that’s $28,800 a year – times 15, that’s $432,000, which is the maximum that The Crash Guy says you should pay for a house if it rents for $2,400 a month. Are there any 3/2 houses in Santa Cruz for $432,000? No, of course not! Don’t be silly. But there are presently six 3-bedroom, 2-bathroom houses in the city of Santa Cruz under $500,000.

Does that mean that housing prices are still too high in Santa Cruz? According to the Crash Guy – yes. According to me – yes. I do think that prices in Santa Cruz (and Capitola, and Soquel, and Aptos, etc.) are higher than they will be towards the end of the year. Does that mean you shouldn’t buy a house in Santa Cruz in 2009?

Good question. Let’s look at the payment for a $500,000 house – but let’s assume you’re putting down a reasonable 10% instead of the FHA minimum of 3.5% – so you’d have a $450,000 loan, again at about 5.75% because with only 10% down, you’d still need to pay mortgage insurance. A 30 year fixed loan at 5.75% would run you $2,626 a month – plus $458/month in property tax, plus about $75/month for insurance, leaving you with a monthly payment of about $3,159.

However, you mustn’t forget about your mortgage interest tax deduction – of that $2,626 per month, about $2,100 is interest (gulp) – plus the $458 in property tax (which is also deductible), means you have a monthly tax deduction of $2,558. Let’s say you’re in a tax bracket of 25%, and you can figure you’d save about $640/month in federal and state taxes, bringing your effective monthly after-tax payment to about $2,519 per month, or just about $120 more than renting.

Is $120/month too high a price to pay for the benefits of ownership vs. renting? You tell me.

Here’s what I will tell you: it seems clear to me that there are many properties in Santa Cruz county which now make economic sense to buy, and that number is increasing, and will continue to increase throughout the year. There is no shortage of blogs to read (try here, and here, for example) suggesting prices will continue dropping beyond 2009. I admit – quite possibly, this is true.

However, I would argue that if you want to live in Santa Cruz, and you have the option of either renting or buying, that for many people, the numbers will soon pencil out to where buying may, in fact, be the right choice for you in 2009. There. I’ve said it. But I won’t be offended if you want to take that with some salt on the side.

Posted by Administrator at 11:47am
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Last Market Stats from 2008

January 10, 2009

A few days ago, I released the latest edition of my monthly newsletter, and as always, the headline story is the previous month’s sales data. So how did the Santa Cruz Real estate market do in the home stretch of 2008?

Fasten your seatbelts, because it’s going to be a gut-wrenching drop. The median price in Santa Cruz county for homes sold in December 2007 was $732,000. In December 2008, the median price crashed down to $452,500 – that is a year-over-year drop of a bit more than 38%. When you look at the entire year (2008 vs. 2007), you see that the median price drop was only 22% – however the fact that it was down 38% in December indicates that prices sank much faster in December than the year as a whole. From this, we can infer that the market is still clearly headed down.

The news isn’t all bad, though. In terms of sales volume, the number of homes sold was only 2% lower in 2008 compared to 2007. Of course, 2007 was not exactly a banner year for home sales, so that’s not saying much. However, in December particularly, sales surged compared to the figure from a year ago, up 47.4% – that is, 76 units were sold in December ’07 and a whopping 112 in December ’08.

And remember, my web site has a page just for Santa Cruz Real Estate Market Data – you can check it out any time.

Posted by Administrator at 10:11am
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Santa Cruz Real Estate in 2009

January 02, 2009

Happy New Year! I hope everyone had a safe and sane New Year’s Eve, and I hope that as I type this on January 2nd, most of you are taking the day off to spend on vacation, or with friends and family. We’ll all get back to the grindstone soon enough, but I think that after all the chaos and tumult of 2008, everyone deserves a four-day weekend to start off the new year.

Can you feel it? I’m feelin’ it. I am, of course, referring to the angst surrounding the real estate market. There are a lot of people out there who would like to buy a home in Santa Cruz in 2009. There’s also a lot of people who would like to sell a home in Santa Cruz this year, too, but feel they cannot or should not because they now owe more than their homes are worth.

Thanks to the likes of Google, many of you can easily find the predictions for the 2009 real estate market. I’ll give you a summary of what they’re saying: prices are expected to continue dropping through much of 2009 (probably all of it, if you ask me) but not by much. Interest rates should remain low at least for the first half of the year. We may start to see a rebound in prices in 2010, but it will be moderate.

The much-loved California Association of Realtors has put out a report titled State of the California Housing Market 2008-2009. Unfortunately, they want you to pay $29.95 to download the PDF, but the press release for the report’s availability does give some juicy nuggets:

• Approximately 1 in 5 home sales is due to foreclosure, short sale, or default
• Home sales will increase 12.5% in 2009 compared to 2008
• California Median Home Price to decline by 6% in 2009 to $358,000

From where I’m sitting, 2009 is looking like it is going to be the year to buy a house in Santa Cruz. I have been telling people all throughout 2008 that it’s OK to buy a house in 2008, but if you can wait, 2009 will be better. The question then arises – is it good to buy in January 2009, or would it be better to wait until, say, December?

Given that home prices are likely to keep dropping throughout the year, in many cases it will make sense to wait as long as you can before you buy a house. However, one thing that’s known for sure is that right now, interest rates are very low, and you might want to buy now to lock in a really low interest rate.

One thing that we don’t know right now is what effect the recession will have on the job market locally. Rising unemployment will add fuel to the foreclosure fire, and that will certainly increase downward pressure on prices. If the job market gets really bad and stays bad, prices could decrease by a lot more than the 6% the California Association of Realtors predicts.

Even if the recession is longer and more protracted that most fear, I still feel you’ll probably do OK buying property in Santa Cruz in 2009 – provided you are making a long-term investment.

Posted by Administrator at 6:00am
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