Will the impending financial meltdown in Europe affect our local real estate market psychology?
It’s not certain if they will let the disaster unfold – they might just employ more can-kicking devices. But if you see European countries going into full financial-crisis mode, and people rioting in the streets, will it change how you feel about buying or selling a house?
Some will say that mortgage lending will be impacted, but we’ve seen how the government has supported banks, and housing in particular, so there should be money available – at cheap rates!
If you look back at two crisis that were closer to home, 9/11 and the U.S. financial crisis of 2008, you’ll see we survived both fairly well.
A month after 9/11, the local housing market was right back on its tracks, though it was the initial stages of the boom years. The financial crisis during the last half of 2008 didn’t bring mass hysteria to the San Diego market – it’s been a general unwinding since.
Here are the detached and attached sales for the January through October periods of each year:
Year
SD Co. Sales
SD Co. Avg. $/sf
NSDCC Sales
NSDCC Avg. $/sf
2009
29,293
$221/sf
2,937
$368/sf
2010
28,139
$238/sf
3,298
$361/sf
2011
27,416
$228/sf
3,349
$355/sf
In North SD County’s Coastal region, with a 5% dip in pricing, sales are 14% higher than they were immediately following the last financial crisis – which was closer to home. If anything, a world-wide financial crisis or resulting recession will probably cause more paralysis.
For there to be drastic movement in our local real estate market, sellers would need to panic. But because the government and banks insist on moderating the free market, there is at least a psychological cushion. It looks like we’ll just muddle through instead.
After you pay repair/improvement costs, a 2.5% commission, holding costs, and income taxes – not to mention the risk involved – is this flip worth the trouble? The agent had in his remarks that the last sale of this model was $848,000, wouldn’t you think he’d try for similar?:
After a year characterized by grumpy partisan gridlock, Congress came up with a Thanksgiving compromise that could change the mortgage choices of buyers and refinancers in more than 660 markets across the country: It raised maximum loan limits for the Federal Housing Administration while leaving loan ceilings untouched for Fannie Mae and Freddie Mac.
In effect, this may make FHA the go-to financing option for borrowers needing loans up to $729,750 with down payments as low as 3.5% in high-cost areas of California, the District of Columbia, New York, New Jersey and scattered counties in other states including Massachusetts, Florida and North Carolina. Fannie Mae- and Freddie Mac-eligible loans in those areas, meanwhile, stay capped at $625,500.
Equally important, the new plan raises the FHA ceilings for purchasers in hundreds of more moderate-priced markets. Seattle-area buyers’ maximum FHA loan amount jumped to $567,500, while the Fannie Mae-Freddie Mac ceiling remains at $506,000. In Hartford, Conn., the limit for FHA is now $440,000, up from $320,850; Fannie and Freddie remain capped at $417,000.
The new loan ceilings in hundreds of markets are at the core of the compromise: They raise the maximum FHA loan amount in all areas of the country to 125% of the local median home-sale price, while leaving Fannie Mae’s and Freddie Mac’s limit at 115% of the median.
What will this mean for buyers from now through the end of 2013, when the compromise expires?
“There’s no doubt this will drive more business to FHA,” said David H. Stevens, former FHA commissioner and current president and chief executive of the Mortgage Bankers Assn. “FHA is going to become the darling of the industry again,” said Annie Austin, a loan officer with Cobalt Mortgage in Bellevue, Wash.
Bob Walters, chief economist of national lender Quicken Loans, said he thinks the increased loan limits will benefit many consumers, “especially those looking to borrow larger amounts,” he said, but who “are in a credit situation where Fannie Mae and Freddie Mac loans are not available or optimal.”
The switch to the FHA could entail some pain, however. Tim Kepler, a loan officer with Land Home Financial in Danville, Calif., noted that the agency raised its upfront mortgage insurance premiums from 0.5% of the loan amount to 1.15% earlier this year. This will increase applicants’ closing costs over a Fannie or Freddie loan, he said.
The premium can be financed, but can add substantially to the costs of high-balance mortgages. Bruce Calabrese, president of Equitable Mortgage in Columbus, Ohio, said the hefty new premiums make “FHA too restrictive and unattractive” for most refinancers in his area, even with slightly higher loan ceilings.
Bottom line for house shoppers: Take a hard, close look at FHA with a local loan officer, in light of the rule changes. Pencil out the costs, down-payment requirements and more generous standards on credit. FHA may be your best option. But then again, the higher fees just might change your mind.
MANY of the world’s financial and economic woes since 2008 began with the bursting of the biggest bubble in history. Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom.
Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark. But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued.
Since American homes now look cheap, are prices set to rebound? Average house prices are 8% undervalued relative to rents, and 22% undervalued relative to income (see chart). Prices may have reached a floor, but this is no guarantee of an imminent bounce. In Britain and Sweden in the mid-1990s, prices undershot fair value by around 35%. Prices in Britain did not really start to rise for almost four years after they bottomed. Some 4m foreclosed homes could come onto America’s market, which may hold down prices.
The second question is whether home prices in markets that are still overvalued are likely to fall. Some economists reject our measures of overvaluation, arguing that lower interest rates justify higher prices because buyers can take out bigger mortgages. There is some truth in this, but interest rates will not always be so low. The recent jump in bond yields in some euro-area countries has raised mortgage rates for new borrowers. And low rates need to be balanced against the fact that tighter credit conditions make it harder for homebuyers to get mortgages.
Another popular argument used to justify sky-high prices in countries such as Australia and Canada is that a rising population pushes up demand. But this should raise both prices and rents, leaving their ratios unchanged.
Prices do not necessarily need to drop sharply to return to fair value. Adjustment could come through higher rents and wages. With low inflation, however, it could take a decade or more before price ratios return to their long-run average in some countries.
American prices fell sharply, even though homes were less overvalued than they were in many other countries, because high-risk mortgages and a surge in unemployment caused distressed sales. In most other countries, lenders avoided the worst excesses of subprime lending, and unemployment rose by less, so there were fewer forced sales dragging prices down. America is also unusual in having non-recourse mortgages that let borrowers walk away with no liability.
An optimist could therefore argue that our gauges overstate the extent to which house prices are overvalued, and that if markets are only a bit too expensive they can adjust gradually without a sharp fall. It is important to remember, however, that lower interest rates and rising populations were used to justify higher prices in America and Ireland before their bubbles burst so spectacularly.
Another concern is that Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble. Overvalued prices and large debts leave households vulnerable to a rise in unemployment or higher mortgage rates. A credit crunch or recession could cause house prices to tumble in many more countries.
Mish’s take on this article (he likes it, but thinks that it has some holes):
Hat tip to JD for sending this in from thelatimes.com:
For a clue to why California is losing its allure as a place to settle down, just ask Jennifer McCluer, who moved out of California in 2007 after she obtained her license in skin care.
Unable to afford Orange County’s sky-high rents, she opted for Portland, Ore. “A big motivator was that I lived with roommate after roommate after roommate,” said McCluer, 30. “Friends said you could probably live on your own up here. The rent was a huge deal for me.”
McCluer would like to move back, but it’s still too expensive. “It’s really difficult,” McCluer said. “I’ve given myself 11/2 to two years to save money.”
Recent census figures show the state is losing more Californians like McCluer than it is attracting from other parts of the U.S. And the trend toward out-migration is looking less like a blip than a long-term condition.
The proportion of Californians who had moved here from out of state reached a 100-year low of about 20% in 2010, and the decade measured by the most recent census was the first in a century in which the majority of Californians were native-born.
The demographics of California today more closely resemble those of 1900 than of 1950: It is a mostly home-grown population, whose future depends on the children of immigrants and their children, said William Frey, a demographer and senior fellow at Brookings Institution.
“We used to say California, here we come,” said Frey. “That now has flipped.”
Experts point to various causes of the turnaround, most of them rooted in a flagging economy. But exorbitant housing prices — too high for many struggling Californians despite a burst housing bubble — still play a role.
“There’s a lot of concern about driving out working-class families,” said Hans Johnson of the Public Policy Institute of California.
Being close to the beach with some ocean view was considered a real positive at the peak, but in today’s environment, will buyers overlook the negatives?
Hat tip to ProfHoff for sending in this update fromsfgate.com:
Many California homeowners may be surprised to learn that some charges on their property tax bills are not deductible on their income tax return.
The Franchise Tax Board is on a mission to get California homeowners to follow the law and stop deducting the entire amount of their property tax payment. Increasing compliance would raise money for the state and federal government.
(Reminder: California homeowners must pay the first half of their 2011-12 property tax payment by Dec. 10 to avoid penalties.)
Tax pros say the vast majority of homeowners deduct their entire property tax payment as an itemized deduction on their federal tax return, even though federal law prohibits deducting certain taxes and fees. Taking the full deduction reduces state as well as federal taxes.
To be deductible, a property tax must be a percentage of the home’s assessed value (known as an ad valorem tax). It also must be imposed uniformly throughout the community and benefit the general community or government.
Any tax that is a flat fee per household or an itemized charge for services assessed against specific property or certain people is not deductible. Nondeductible charges might be identified as Mello-Roos or Community Facilities Districts, 1915 assessment district bonds, lighting and landscape, parcel taxes, school or college measures and bonds, water, sewer, flood, police, fire and libraries, the tax board says on its website.
Property tax bills do not break out which charges are and are not deductible. In many cases, it’s hard to even decipher what the charges are.
Nevertheless, the tax board told tax preparers in September that it was going to add three lines to 2011 California income tax returns asking homeowners for their parcel number, the amount of property taxes paid and the nondeductible amount.
After getting many complaints from the tax community, the board decided in mid-November to postpone these changes until 2012 tax returns and in the meantime try to educate homeowners about the issue.
Just like the cliff-front homeowners of La Jolla Shores/Farms have to get used to the hang-gliders, those looking for a home around Fairbanks Ranch or the north side of Carmel Valley should know before they purchase that they will have visitors from above:
Thanks to the reader who sent this in, from thetampabay.com:
Tampa condo owner Alejandro Salazar was surprised to learn that Clearwater lawyer Bruce Harlan was representing him in a foreclosure case.
Surprised because Salazar never met Harlan, didn’t hire him and didn’t even want the condo. But someone else did — Lori Polin, a real estate agent with a checkered past who paid Harlan $1,500 to delay the foreclosure because she hoped to buy Salazar’s condo in a short sale.
Because of Harlan’s actions in the case, the Florida Supreme Court this month suspended him from practicing law for 90 days starting in mid December.
“Even if Mr. Harlan had good intentions, his clients, Mr. Salazar and Ms. Polin, had adverse interests and Mr. Harlan was representing both of them at the same time,” the Florida Bar said in finding Harlan guilty of a conflict of interest.
The bizarre chain of events started in 2007 when Salazar’s architectural design business foundered and he and his wife moved to her native Spain, defaulting on their mortgage and condo maintenance fees. The Westchase Community Association took title to the condo and deeded the unit to Polin after she paid the back fees.
At the time, Polin was about to go into foreclosure on her own Westchase condo. She moved into the Salazars’ unit and rented out hers, collecting more than $14,000 in rent, but not making payments on either property. Instead, Polin hired Harlan to delay the foreclosure on the Salazars’ condo while she negotiated with the bank to buy it for far less than the $137,000 the couple then owed.
