My take on the latest market trends

Happy New Year Everybody,

I haven’t written in a while and now I am back. I always try to show an optimistic view of the real estate market. Last year was not a good year for real estate, in general. We however had a great year, focusing primarily on condos working for buyers and sellers. We also recently helped a buyer on the purchase of a large house in San Carlos.

The one bright spot, locally, was the high end of the market–$5m and above. In fact, there are even spec. builders in that market. It is good to be in the top 1%. This year things seem better. Unemployment is going down, the stock market survived intact after a lot of volatility, it is an election year–often a bullish sign. Rents are up 13% in SF and SJ, interest rates are at all time lows, and most houses in the Bay Area are priced below replacement costs–all bullish signs for rising home values.

There has never been a better time to buy. If you buy below comparable rents and below replacement costs the risks of buying are very low in many parts of the Bay Area. The fence sitters and permanent renters are still pessimistic. They worry about losing their job, having to move, earthquakes, loss of flexibility, home maintenance, loss of tax deductions and a million other ‘what ifs’?

For future buyers the old rules still apply. This is a good article to read: WSJ Online Buy when it works best for your own personal situation. Don’t buy something you can’t afford. Buy planning to stay for a minimum of 5 years. If you have to move, make sure the house will rent at a positive cash flow (or an affordable negative out flow), you’ll will feel safer if you do lose your job or have to relocate. Get a 30 year fixed loan for piece of mind. Buy a property that could have a potential in-law rental or guest cottage to rent out for extra income. Buy something new or remodeled if you are worried about maintenance.

I think the Real Estate bright spot in the coming year will be condos (including townhouses). There is shortage of SFH’s. In fact if they are in good shape and priced right, they get multiple offers. The cost difference between condos and SFH’s has reached an all time high. Low interest rates and high HOA fees have artificially driven down condo prices. Plus apartment rents are skyrocketing. In many cases condos are cheaper to buy than rent. Most first time buyers just can’t afford houses in the RBA (RealBayArea — the peninsula cities with schools that have API scores of over 900). Condos are the only choice for young families that want to be in the RBA. Condos are also going to attractive to the sellers that are downsizing and want to stay in the area. Remember the condo boom of the 1970’s?–many of the buyers were older. That trend will be echoed by the Baby Boomer generation. After all many can pay cash for a condo and not have to worry about rent increases.

There is talk, nationally, of selling many more REO’s in bulk to investors. This has been going on locally for 3 years. It will help us in the Bay Area by taking the low end properties off market and stabilizing the low end. There will be more rental housing available, but since there is so much rent demand, rents will still go up. In fact rents are so high that the big developers are now building rental units instead of condos. 4500 units will be built in San Mateo and Santa Clara counties(mostly in San Jose) in the next 3 years. They cost close to $400/sf and will rent for over $3/sf/month for these luxury apartments. The shortage of affordable housing will continue to drive up low end rents.

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Homebuyer Workshop at College of San Mateo

November 17 / 2 to 5 p.m.
Home Buying in Your Financial Future
Location: College Center, Bldg. 10 – Rm. 193, College of San Mateo, 1700 W. Hillsdale Blvd., San Mateo
Understanding the basics of how to buy a home – even if you’re not at that place in life yet – is a key to achieving the American Dream. Professionals in banking, title, credit, law and real estate will provide both rudimentary knowledge and interact with students, faculty and the public on the basics in planning for homeownership. Open to CSM students, faculty and the public on a first come, first served basis. No pre-registration required.

More info at: http://www.samcar.org/index.cfm/Homebuyer-Workshop.htm

Economic Update – November 7, 2011

Retail sales rose 0.7% for the week ending October 29, according to the ICSC-Goldman Sachs index. On a year-over-year basis, retailers saw sales increase 3%.

The Institute for Supply Management reported that the monthly composite index of manufacturing activity fell to 50.8 in October after a reading of 51.6 in September. A reading above 50 signals expansion. It was the 27th straight month of expansion.

Total construction spending rose 0.2% to $787.2 billion in September, following an upwardly revised 1.6% increase in August. Economists had anticipated an increase of 0.3% in September.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending October 28 rose 0.2%. Refinancing applications decreased 0.2%. Purchase volume rose 1.8%.

Factory orders rose 0.3% in September to a seasonally adjusted $453.5 billion, following a revised 0.1% increase in August. Excluding the volatile transportation sector, orders rose 1.3% in September.

The Institute for Supply Management reported that the monthly composite index of non-manufacturing activity fell slightly to 52.9 in October from 53 in September. A reading above 50 signals expansion. It was the 23rd straight month of expansion in the services sector.

Initial claims for unemployment benefits fell by 9,000 to 397,000 for the week ending October 29. Continuing claims for the week ending October 22 fell by 15,000 to 3.68 million. The monthly unemployment rate fell to 9% in October from 9.1% in September. The Labor Department said the economy added 158,000 jobs in September and revised figures in August to a gain of 104,000 from 57,000.

Economic Update – October 24, 2011

The combined construction of new single-family homes and apartments in September jumped 15% to a seasonally adjusted annual rate of 658,000 units. Single-family starts increased 1.7%. Multifamily starts rose 53%. Applications for new building permits, seen as an indicator of future activity, fell 5% to an annual rate of 594,000 units.

Industrial production at the nation’s factories, mines and utilities rose 0.2% in September. Compared to a year ago, industrial production is up 3.2%. Capacity utilization rose to 77.4% in September from a revised 77.3% in August.

The producer price index, which tracks wholesale price inflation, rose 0.8% in September after a flat reading in August. For the year, seasonally adjusted wholesale prices are up 6.9%. Core prices — excluding food and fuel — rose 0.2% in September.

The National Association of Home Builders/Wells Fargo monthly housing market index rose four points in October to 18. The reading was the highest level since April 2010. An index reading below 50 indicates negative sentiment about the housing market.

Existing home sales fell 3% in September to a seasonally adjusted annual rate of 4.91 million units from an upwardly revised 5.06 million units in August. The inventory of unsold homes on the market decreased to 3.48 million, an 8.5-month supply at the current sales pace, up from an 8.4-month supply in August.

Initial claims for unemployment benefits fell by 6,000 to 403,000 for the week ending October 15. Continuing claims for the week ending October 8 rose by 25,000 to 3.7 million.

Last week in the News

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending September 9 rose 6.3%. Refinancing applications increased 6%. Purchase volume rose 7%.

The producer price index, which tracks wholesale price inflation, was unchanged in August after a 0.2% increase in July. For the year, seasonally adjusted wholesale prices are up 6.5%. Core prices — excluding food and fuel — rose 0.1% in August.

Retail sales were unchanged in August after a downwardly revised 0.3% increase in July. On a year-over-year basis, retail sales rose 7.2%.

Total business inventories rose 0.4% in July to $1.526 trillion, up 10.6% from a year ago. Total business sales increased 0.7% to $1.197 trillion in July, up 12% from a year ago. The total business inventories/sales ratio in July was 1.27.

Consumer prices rose a seasonally adjusted 0.4% in August, following a 0.5% increase in July. For the year, seasonally adjusted consumer prices are up 3.8%.

Industrial production at the nation’s factories, mines and utilities rose 0.2% in August. Compared to a year ago, industrial production is up 3.4%. Capacity utilization rose to 77.4% in August from a revised 77.3% in July.

The Reuters/University of Michigan consumer sentiment index for September’s preliminary reading rose to 57.8 from 55.7 in August. The August reading had been the lowest level since 55.3 set in November 2008.

Initial claims for unemployment benefits rose by 11,000 to 428,000 for the week ending September 10. Continuing claims for the week ending September 3 fell by 12,000 to 3.7 million.

Economic Update – September 12, 2011

Retail sales fell 0.7% for the week ending September 3, according to the ICSC-Goldman Sachs index. On a year-over-year basis, retailers saw sales increase 2.7%.

The Institute for Supply Management reported that the monthly composite index of non-manufacturing activity rose to 53.3 in August from 52.7 in July. A reading above 50 signals expansion. It was the 21st straight month of expansion in the services sector.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending September 2 fell 4.9%. Refinancing applications decreased 6.3%. Purchase volume rose 0.2%.

The trade deficit decreased to $44.8 billion in July from a revised $51.6 billion in June. Exports rose 3.6% to $178 billion. Imports decreased 0.2% to $222.8 billion.

According to the Federal Reserve, consumer credit debt rose in July by $12 billion for a total credit level of $2.45 trillion. Revolving debt, which includes credit cards, fell by $3.4 billion. Non-revolving debt, including loans for cars, rose by $15.4 billion.

Wholesalers increased their inventories 0.8% to $462.4 billion in July. This followed a revised 0.6% rise in June. Sales at the wholesale level were little changed in July at $396.01 billion. On a year-over-year basis, sales were 15.1% higher since July 2010.

Initial claims for unemployment benefits rose by 2,000 to 414,000 for the week ending September 3. Continuing claims for the week ending August 27 fell by 30,000 to 3.7 million.

International homebuyers —

— those with permanent residences outside the U.S., recent immigrants and temporary visa holders — are snapping up homes and condos in the U.S. According to the National Association of Realtors (NAR), they increased their purchase of U.S. residential property from $66 billion in 2010 to $82 billion in 2011, a 24% increase in just one year.

Fueling international investors is their sense that U.S. home prices are a bargain. A favorable currency rate is also working to their advantage. The value of the dollar has fallen against most foreign currencies, making U.S. residential property even cheaper.

In 2011, international buyers came from a total of 70 countries. The top five — Canada, Mexico, China, U.K., and India — accounted for 53% of all transactions. International transactions occurred across the U.S., but four states accounted for 58% of all transactions: Florida had 31%, California had 12%, Texas had 9% and Arizona had 6%.

The average price paid by international buyers was $315,000, compared to the overall U.S. average of $218,000. This year’s report showed that 45% of purchases were below $200,000.

Many real estate purchases were also at the high end. The New York Times recently reported a big increase in Chinese businessmen purchasing luxury property in New York City, where $1,500 per square foot is considered cheap compared to $2,000 in Hong Kong, $3,600 in London and $4,300 in Monaco.

Economic Update – September 5, 2011

Pending home sales, a forward-looking indicator based on signed contracts, fell 1.3% in July after a 2.4% increase in June. On a year-over-year basis, pending sales are up 14.4%.

The Standard & Poor’s/Case-Shiller 20-city housing price index — on a non-seasonally adjusted basis — rose 1.1% in June after a 1% increase in May. On a year-over-year basis, prices fell 4.5% compared with June 2010.

The consumer confidence index fell to 44.5 in August from 59.5 in July. The index was benchmarked at 100 in 1985, a year chosen because it was neither a peak nor a trough in consumer confidence.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending August 26 fell 9.6%. Refinancing applications decreased 12.2%. Purchase volume rose 0.9%.

Factory orders rose 2.4% in July to a seasonally adjusted $453.2 billion, following a revised 0.4% decrease in June. Excluding the volatile transportation sector, orders rose 0.9% in July.

The Institute for Supply Management reported that the monthly composite index of manufacturing activity fell to 50.6 in August after a reading of 50.9 in July. A reading above 50 signals expansion. It was the 25th straight month of expansion.

Total construction spending fell 1.3% to $789.5 billion in July, following an upwardly revised 1.6% gain in June. Economists had anticipated an increase of 0.1% in July.

Initial claims for unemployment benefits fell by 12,000 to 409,000 for the week ending August 27. Continuing claims for the week ending August 20 fell by 18,000 to 3.7 million. The monthly unemployment rate remained unchanged at 9.1% in August.

Election Poll – September 2011

Online Surveys – Zoomerang.com

Economic Update – August 29, 2011

Retail sales fell 1% for the week ending August 20, according to the ICSC-Goldman Sachs index. On a year-over-year basis, retailers saw sales increase 3%.

New home sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000 units from a downwardly revised rate of 300,000 units in June.

Orders for durable goods — items expected to last three or more years — rose 4% in July after a revised 1.9% increase in June. Excluding volatile transportation-related goods, orders posted a monthly increase of 0.7%.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending August 19 fell 2.4%. Refinancing applications decreased 1.7%. Purchase volume fell 5.7%.

The Commerce Department announced that gross domestic product — the total output of goods and services produced in the U.S. — increased at a revised annual rate of 1% in the second quarter of 2011, compared to the initial estimate of 1.3%. This follows a 0.4% pace of growth in the first quarter of 2011.

The Reuters/University of Michigan consumer sentiment index for August’s final reading rose to 55.7 from a preliminary reading of 54.9, which was the lowest level since May 1980.

Initial claims for unemployment benefits rose by 5,000 to 417,000 for the week ending August 20. Continuing claims for the week ending August 13 fell by 80,000 to 3.64 million, the lowest level since September 2008.