Archive for August 2010 | Monthly archive page

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The Sky is Not Falling in San Francisco

Late August 2010 Update

In the past week or two, there have been hundreds of sky-is-falling articles in every major media outlet about how home sales drastically slumped in July when compared with June and May, or as compared to July of last year, both nationally and in the Bay Area. And that this indicates that terrible times have returned to the real estate market.

But with statistics, context is everything, and these articles show a fundamental lack of understanding of current market context and, specifically, what’s going on in San Francisco.

The first chart below is of the last 2 years’ closed home sales in SF. July 2010 is indeed well below June and May 2010, as well as significantly below July 09 and July 08. However, this is almost completely a function of the fact that deals that would have naturally and typically accepted offers (gone “under contract”) in May 2010 were rushed into April so as to meet the Federal Tax Credit deadline. Because of that crush of accepted offers in April, closed sales in May and June soared way over the sales rate of past years, but the number of May accepted offers this year was much lower than normal. Typically, May is one of the highest months for accepted offers; the lowered number of accepted offers in May translated to a lowered number of July closings. Typically, July is one of the highest closed sales months because of the high number of accepted offers in May. With the unusual events this year, the numbers were thrown off – which created the dramatic percentage declines everyone is chattering on about.

Remember: closed sales are 30 – 60 days behind the market (the time of offers being negotiated and accepted). To get a sense of current market activity, one looks at accepted offers, as in the second chart below.

In the third chart, the Months’ Supply of Inventory (MSI) for SF houses and condos is shown over the past 2 years. MSI, at a moderately low 3.8 months of inventory, hasn’t budged in three months – again one can see the effect of the April tax credit rush on the chart — and it is almost exactly the same as in July 08 and July 09. (The lower the MSI, the hotter the market.)

The fourth chart shows average Days on Market (DOM) for SF houses and condos over the past 2 years. Again the Days-on-Market has been virtually unchanged for 6 months, also virtually unchanged from July of 2008 and July of 2009. (The lower the Days on Market, the hotter the market.)

The fifth chart, median sales prices for houses and condos in SF, shows virtually no change in median sales price from July of last year (though it has jogged up and down over the individual months).

None of this is to say that the market might not enter a new great depression tomorrow. It is to say that the most recent statistics don’t currently indicate any dramatic change in market conditions in San Francisco. The fact of the matter is that right now our market is relatively steady, balanced and healthy. We’ll have to wait to see what the future brings.

All information contained herein is derived from sources deemed reliable — primarily Broker Metrics — but may contain errors and omissions, and is not warranted. Sales not reported to MLS are not included in these analyses.

Paragon Real Estate Group

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Closed Home Sales – Past 25 Months
For the reasons explained above, closed home sales did decline significantly in July 2010 when compared to June and May, and when compared to July 08 & 09.
Paragon Real Estate Group

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Homes Accepting Offers
Here we see the huge surge of accepted offers in April which (stealing normal May sales activity) led to the large decline in May. Thus May’s number of accepted offers is below past years. But the number of accepted offers in June 2010 are above last year’s. And accepted offers in July are above both July 2009 and July 2008. That is not an indication of a collapsing market. Yes, the market surged in April due to the expiring tax credit, but except for the initial effect on May accepted offers(and the resulting effect on July closings), the expiring tax credit hasn’t affected the number of accepted offers in June and July at all.
Paragon Real Estate Group

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Months’ Supply of Inventory (MSI)
Since the SF home market started recovering in spring 2009 from the “crash” of autumn 2008, Months’ Supply of Inventory has been very stable, delineating a relatively stable market, running typically between 3 to 4 months of inventory. This is generally considered a moderately low MSI, signifying a relatively strong and consistent buyer demand. Again, it is unchanged for three months, and almost identical to the MSI recorded one year ago and two years ago.
Paragon Real Estate Group

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Days on Market (DOM)
Days on Market in July is virtually unchanged for the past 6 months. It is also virtually unchanged from July 08 & 09.
Paragon Real Estate Group

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Median Sales Price: House & Condo
Though median price has jogged up and down over the past 13 months, it has basically been stable. The median price in July 2010 is virtually the same as in July 2009.

Underwater? FHA Refinance Program


Effort designed to encourage principal write-downs for responsible borrowers

WASHINGTON – In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth – or ‘underwater’ – because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA’s refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner’s primary residence. And the borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower’s combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.

For more information on FHA Short Refinance option, read FHA’s mortgagee letter.


HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business. More information about HUD and its programs is available on the Internet at and

Fascinating Article on Investment Properties

Looking to invest in other markets? Let me help you find an agent.

Vulture investors: They’re back – and making a bundle
By Les Christie, staff writerAugust 5, 2010

NEW YORK ( — These are the glory days of the residential real estate investor. Low prices, rock-bottom interest rates and stable rental markets have created huge buying opportunities.

“It’s awesome right now. I don’t think we’ll ever see another time like this,” said Tanya Marchiol of Team Investments, which has operations in about 10 states but focuses mostly on the Phoenix market.

These investors are known to many as vultures because they swoop in and buy “distressed properties” — foreclosures and short sales — cheap. Places like Las Vegas, Phoenix and Miami are popular because home prices there have dropped as much as 70%.

But how they’re investing has changed. In the boom years, they would buy a property and flip it for a quick cash out. Today, they are holding and renting for hefty, steady incomes.

Once they analyzed their decisions based on home-price appreciation, which is very speculative. Now they consider potential rental profits, which is far more stable.

Back then, they flipped often and helped to bid up home prices into a froth. Now, the investors say, they can be a part of stabilizing neighborhoods.

Condos for less than the cost of a Corolla
“People are not in it to flip like back in the old economy,” said Matt Martinez, an investor and author whose new book, “How to Make Money in Real Estate in the New Economy” comes out next February. “The new economy dictates that you have to have a long time horizon.”

Marchiol, for example, does not even factor in home price appreciation for at least a year. After that, she calculates only a 3% annual increase — a return that won’t turn heads of investors who only want to buy low and sell high.

Marchiol just purchased four separate four-plexes in North Phoenix. Three years ago, each four-unit building sold for $310,000; she paid just $70,000 per building. She intends to spend about $64,000 rehabbing the properties, making her total investment $344,000.

Read more…

Mortgage rates drop to new low

National average for a 30-year fixed loan is at 4.49 percent
Associated Press

Mortgage rates dropped to the lowest level on record for the sixth time in seven weeks, offering the most attractive opportunity in decades for those who qualify to refinance or purchase a home.

Government-controlled mortgage buyer Freddie Mac said Thursday that the average rate for 30-year fixed loans this week was 4.49 percent, down from 4.54 percent last week. That’s the lowest since Freddie Mac began tracking rates in 1971.

The average rate on the 15-year fixed loan dropped to 3.95 percent, down from 4 percent last week and the lowest on record.

Rates have fallen since spring as investors seek the safety of U.S. Treasury bonds. That has lowered the yield on Treasurys. Mortgage rates tend to track those yields.
The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years.

Low rates have sparked some activity in the weak housing market, but not a massive boom in refinancing.

Applications to refinance loans increased 1.3 percent and those to purchase homes increased 1.5 percent, according to the Mortgage Bankers Association.

Read more…