by Anton Blewett on March 3, 2008
By Anton Blewett, Cell: (650) 996-2028
Recently a buying frenzy began for what many investors consider a good deal. Consider the housing auction that took place weeks ago at the San Mateo County Fairgrounds. Many investors bought properties at great discounts, such as $100,000 less than what similar properties fetched last year. Yet ask yourself, “Does great discount equate to good buy?” As you ponder the question, consider: the price dropped $100K in one year. Or perhaps I can phrase it another way: the price dropped $100K in one year.
Buying a home at a $100K discount: good buy or not? Hopefully you’re thinking no, it isn’t. If a property dropped $100K in only a few years or less, then the area obviously doesn’t hold values well. In fact the area is likely experiencing a market correction (as opposed to market cooling). When homes depreciate at double-digit rates, technically the market is correcting. In most correcting markets, economists predict continuing corrections throughout 2009 and possibly into 2010. So what is $100K discounted from last years prices may be bought at a $200K discount next year.
Over the last six to seven years, nearly all Northern California markets experienced high single and double digit growth. Areas traditionally considered slow growth markets exploded with high growth. Consequently the same markets implode with high depreciation. On the flip side, consider Burlingame, Menlo Park or Palo Alto. Were these good buys before 2000? If good buy means steady appreciation over time, then yes. The growth in these markets either flattened or cooled. Many still experience appreciation, only the numbers are much smaller.
Before buying in any area, ask yourself: was it a good buy before 2000? If yes, then expect steady appreciation over time. If the answer is no, then expect at least two years of depreciation or more.
See next week’s follow-up: When buying in a correcting market makes sense.
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by Anton Blewett on February 21, 2008
By Anton Blewett, Cell: (650) 996-2028
Since buying my home in 2006, I received over 100 solicitations for private mortgage insurance (PMI), a policy that promises to repay a percentage of my primary loan if I default (because of disability, unemployment or any reason). Besides luring borrowers into paying additional money, PMI is required by some lenders when a down payment is less than a certain percent. Recently the number of borrowers defaulting on their loans rose greatly. As a result, some mortgage insures reported huge fourth quarter losses. Consequently mortgage insurers r tightened underwriting standards in response.
The good news: the mortgage insurers are not going bust. Unfortunately the bad news is two-fold:
- Because mortgage insurers tightened underwriting standards, buyers with low down payments have a harder time qualifying for loans. Result: fewer buyers qualify.
- More claims means less insurance capital, and less money means less future policies. Result: fewer buyers qualify.
As fewer buyers qualify, the buyer pool shrinks. As the buyer pool shrinks, demand decreases and prices usually drop. And so the housing market takes another hit.
How is our local market impacted?
Because the cost of ownership is so high in our area, many local buyers purchase with lower down payments. Twenty percent down on a $900,000 home is $180,000 (which doesn’t include closing costs). That’s a lot of cash! So far none of my clients had problems qualifying for loans because of PMI. Still, I assume some local buyers are impacted. The good news: there is a wide array of mortgage loans. While one lender requires PMI on 10% down, another requires it on 5%. In my opinion, these changes ultimately impact the market 3-6 months from now. In the meantime, much of the Peninsula still records flat or positive appreciation.
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by Anton Blewett on February 20, 2008
By Anton Blewett, Cell: (650) 996-2028
Well…
- It doesn’t solve the massive financial losses, to the tune of billions, of financial firms that invested in mortgage securities that tanked
- It doesn’t solve the situation for home owners in or going into foreclosure
- It doesn’t loosen the tight lending standards making it hard if not impossible for many homeowners to purchase a new home
- It doesn’t solve the large inventory of unsold homes
The Fed rate cut doesn’t solve the damage done; it does, however, encourage borrowers who do qualify to get off the fence and buy. Rates may not drop this low for decades to come. Savvy homeowners understand this, so they are taking advantage of the long-term financial gains that low-rates provide.
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by Anton Blewett on February 19, 2008
By Anton Blewett, Cell: (650) 996-2028
Countrywide Financial started tagging ZIP codes and counties as “declining markets.” In recent weeks, the major lender sent mortgage brokers a list ranking the softness factor of hundreds of counties. The scale ranges from 1 to 5 with 5 being the softest. Soft translates into risky. So in areas rated 4 or 5, borrowers are now required to put down 5% more than the previous minimum required. If a program previously required 5%, then it requires 10% after the tagging. In areas rated 1 to 3, the 5% additional deposit is required only if the appraisal report indicates an oversupply of available houses.
Where do the Bay Area counties stand in the Countrywide Financial ratings?
Level 2: Marin, San Francisco, San Mateo, and Santa Clara
Level 3: Napa
Level 4: Alameda, Contra Costa, Sonoma, and Solano
Countrywide will likely penalize borrowers in the latter four counties and require larger down payments.
Level 4 Counties: What are the effects?
Tagging counties as “declining markets” and imposing down payment penalties may perpetuate the current situation. Large down payment requirements make it harder to purchase a home in these areas. As the buyer pool shrinks, prices continue to fall and the market declines further. On the flipside, lending to unqualified borrowers with no money or little money down created much of the mess today.
What are your thoughts? Fair or unfair? Is tagging ultimately good for our market, or will it create a self-fulfilling prophecy? Please comment. Next week, I will make the case for and against tagging counties as “declining markets.”
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by Anton Blewett on October 14, 2007
By Anton Blewett, Cell: (650) 996-2028
The front page of today’s Sunday Edition San Francisco Chronicle reads: “Mortgage Meltdown: Neighborhoods crumble in wave of foreclosures,” “One Street’s Nightmare: People bail out, those who remain suffer,” and “Local Trouble Zones: Epidemic repossessions hit several ZIP codes.” The three articles are largely based on the chart titled “How ZIPs become trouble zones,” which lists the zip codes with the highest rate of foreclosures.
- Is any zip from San Mateo County listed? No.
- Are any San Mateo County cities mentioned in the article? No.
- Will the article affect the value of San Mateo County homes? Big time.
The articles mislead the public, specifically potential buyers, into thinking that a major real estate downturn is occurring in all areas of the Bay Area when in reality, it is occurring in only specific neighborhoods. [click to continue...]
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by Anton Blewett on July 2, 2007
Mount Carmel, Redwood City, is a neighborhood I suggest to many move-up buyers because it provides charming architecture, similar to homes found in neighboring Menlo Park and San Carlos, at more affordable prices. The neighborhood boasts great weather, steadily improving schools (greatschools.net gives both North Star and Clifford top marks), tree-lined streets and ample green space through parks and nearby schools. Situated north of Jefferson and west of El Camino, the neighborhood meets many demands of the Peninsula lifestyle, including convenient commuting, easy access to shopping and the growing Redwood City downtown, and a strong sense of community.
The majority of my past buyers, who purchased real estate in Mount Carmel, did so because of the area’s charming architecture and lot sizes — 7500 square foot lots are common. Styles include Craftsmen homes from the early century, Spanish bungalows from the 20s and 30s, and ranchers from the 50s. The homes are well constructed; in fact most were built when a two-by-four was actually two by four inches. Overtime many of the original 2/1s and 3/1s were converted to 3/2s, which brings my only complaint: oddly configured home additions. In one house, the master bedroom was accessible only by way of the toilet.
Perfect for Move-Up Buyers
With the following considered, Mount Carmel is an ideal fit for buyers looking to upgrade aesthetics, home size or neighborhood.
Suggested Drive
To get a quick sense of Mount Carmel, take Whipple west from 101. The neighborhood streets begin just west of El Camino and ascend in alphabetical order, from Arch to Birch to Clinton and so on. Start paying close attention to the homes after Duane St. Turn left on King St. At the end of the first block, you see Stafford Park, a favorite picnic spot. From here I suggest either stopping to walk the streets or continuing on to the downtown (approximately Middlefield and Broadway). For those who make the drive, please comment with your thoughts.
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