Tracy’s LA Real Estate

Wow, short sales have gotten such a bad reputation that Redfin has put this notice on their website:
“This home is flagged as a short sale. We’re sorry, we don’t tour or write offers on short sales because of the slim chance that you’ll get the home.”

For those new to the real estate purchasing game, a short sale is one where the sales price isn’t enough to pay off the loan so the homeowner has to get the lender’s permission to pay less than what they are owed.  Click here to find out more about short sales. I have to say that one listing agent I know who specializes in doing short sales says he closes most of the ones he lists. So if you are a seller who might be short sale material, call me and I will refer you to him. He is one in a hundred, so it doesn’t change my theory.

So if even a Redfin (read discount) agent won’t show you a short sale listing, then these are not generally viable listings (which I’ve been saying for a long time). Therefore, if you look at the number of active listings on the market today in, say, Eagle Rock, and you subtract the number of short sales, you get a very low number, which helps explain why well-priced homes are selling with multiple offers. Today, of the 38 listings on the market including condos, single family homes and units, 8 are short sales and 9 are foreclosures. That means that 20% or 1/5 of all the listings are short sales. Another fifth are foreclosures, so 3/5 of the listings in Eagle Rock are normal sales, only 21 properties. That is not very many listings to choose from. Even if you add the foreclosures back in since it is actually possible to purchase a foreclosure if you are really determined, this buyers’ market is over. The sellers’ market is here. Now we have to convince lenders that they need to stop writing down values because of the fiction of a “declining market.” And again, go online and sign the petition regarding the Home Valuation Code of Conduct travesty (http://www.hvccpetition.com).

However, to sellers I say: don’t think that because we are in a fairly hot market right now that you can go back to your 2005 or 2006 fantasy price. That is not realistic. If prices have come down 20% since 2006 in, say, Eagle Rock, which is a rough but not unrealistic number for general purposes, that means that if your home was worth $500,000 in 2006, it’s worth $400,000 today. Yikes, that’s painful! Let’s give Eagle Rock a break and say that prices have only come down 10%. That is still $50,000 on a $500,000 property. Jumping back up to the $500,000 is not happening. However, if you price your home artfully and present it properly, you will get top dollar, whatever that is today. That, by the way, was a little shameless self-promotion, if you didn’t notice.

A boon for new homebuyers, scheduled to last through next March, will be out of money long before that.
By Les Christie, CNNMoney.com staff writer
Last Updated: June 12, 2009: 3:14 PM ET
NEW YORK (CNNMoney.com) — Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.
“We’re less than four months into it, and all the tax credits authorized are gone, or practically gone,” said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).
The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state’s Franchise Tax Board.
That leaves nearly $76 million in credit available – but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.
“The program is working better than intended,” said Coyle. “It’s really pushing people off the fence.”
How it works
The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it’s an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home — even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer’s income.
The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.
For example, if the buyer’s tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn’t claim the extra $1,333 back from the state.
First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.
More money coming?
Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it’s running a $24 billion budget deficit and has the lowest bond rating of any state.
But Coyle argues that the credit is a net win for state coffers and it puts people to work. “Every time you build a home in California, you’re generating $16,000 in taxes,” he said.
During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.
Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.
There has been little opposition, she said, but the program has to be “revenue neutral,” which could limit how much is made available as funds would have to be cut from other areas to pay for it.
There is also one big change from the original offering: People buying homes under construction – not just those already finished – will qualify, which should help put projects back on track.
“It creates a reservation system that was absent in the first bill,” said Caballero. “Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract.”
“Contractors in Southern California were reporting no housing starts last January,” she added. “Now, they have new crews out on the job. That’s significant for California.”

I just heard from an agent about a buyer I had referred to her last year. It turns out that since the lending rules about proving your income have changed, these people are no longer able to qualify for a loan, even though they have a 20% down payment.

This is sad, to me. Maybe they are fine with continuing to rent for a few more years, but they had been looking for a place to buy for 3 years, off and on. Nothing was ever quite good enough. Even though we had been in escrow, a sticking point was just not negotiable and the deal fell apart. As prices came down, they congratulated themselves on having waited. But now the prices are really down, and they can’t get a loan. Not to mention that no Realtor they have worked with has ever gotten paid.

I could tell you many more stories of people who just couldn’t complete the home purchasing process even though they were qualified, looked diligently, and even found several homes they liked. Today, we all hear stories about prospective buyers who have made as many as 15 or more offers and never gotten one accepted. Some of these people just need to go through the process so they understand how it all works.  Some are working with less knowledgable agents and eventually switch to someone who understands the market and actually gets them into escrow. Some really don’t want to buy but they think they should and they are kind of going through the motions without really doing what it takes to be successful.

Maybe the truth is if you are that afraid of doing something, you are just not ready. And we are all different, so our point of readiness to be a homeowner will be as different as our readiness for marriage or having children or for going to Europe or hiking up to Mt. McKinley.

Here’s the hard question: how many of us know ourselves well enough to know what we’re ready for? Some people are more risk takers than others. About everything. But some people pretend to be risk takers or pretend to want to buy a house or get married or have a child, because they think they ought to, for whatever reason. I’m here to say that not everyone is cut out to be a homeowner, or a spouse, or a parent, necessarily. The great gift would be to know how you really feel before you go mucking up someone else’s life in the false pursuit of something that you really don’t want. But then we’d probably wipe out the whole therapy and counselling industry.

I’m quite sure that there would be a lot fewer Realtors out there who spin their wheels trying to “get” their buyer into escrow when that is really not what that “buyer” wants.

I can’t say it better than this mortgage broker did, so check out Janet Guilbault’s blog here:
http://activerain.com/blogsview/1051983/3-2-1-LIFTOFF-Prevent-Failure-to-Launch-Help-Your-Kid-Buy-A-House-This-Year

It’s a great opportunity for us parents as well as the kid. How else could we take advantage of the 3.5% down payment possibility that FHA offers? To qualify for FHA, you have to intend to occupy the property as your primary property—that’s the kid part. Plus, you can have a non-occupant co-signer—that’s you. If you buy units, as long as your child lives in one, you can do that, too! The First Time Buyer Tax Credit is a bonus. If you do an equity-sharing partnership with your kid, you both can prosper. This is not coddling your kid so much as creating a dynamic investing machine.

Last year, when Congress passed the first tax credit for first-time buyers, raised the conforming loan limits and made FHA a viable loan option in our area for the first time in 12 years, we in the real estate industry hoped that the market could return to a more normal state. But then the worldwide economy crashed and more and more people started losing jobs, and predictions of further huge price drops in the housing industry kept the market at pretty much of a standstill in our little corner of the world. Anyone who didn’t really have to sell, didn’t. Then some of the people who hadn’t really had to sell earlier in the year could no longer hang in there or their circumstances changed, and they started to sell. There have been some gems come and go in the last few months. Case in point, 2525 Medlow, a midcentury ranch over 2000 sqft in Eagle Rock, sold last year for $575,000. 4848 Ray Court, Eagle Rock, in escrow for well over its $499,000 asking, 716 Moon in Mt. Washington, a 2-bed, 2-bath midcentury with an incredible view just sold for $567,000. All of these could have sold for more a couple of years ago, and will be worth more again in a few short years, just watch.

But right now buyers are having a hard time. The first-timers who are trying to take advantage of the $8,000 federal tax credit and everyone qualified for the new FHA loan limits are being outbid by investors and people with 20% or more down payment and regular loans. In the last few months, banks have been pricing their foreclosed inventory at fire sale prices, teasing these poor FHA buyers into believing that at last they can catch the dream, only to find their hopes ground under foot by all-cash investors and insider pals of someone who makes an offer before the property even comes on the market.
One really nasty result is that some neighborhoods have seen their price point dive because only the foreclosures at fire sale prices are selling there. Now with the market picking up, we have a new problem: obtaining a fair and realistic appraisal.
As of May 1, the Home Valuation Code of Conduct came into effect. Essentially, it makes the appraisal process for any Fannie Mae or Freddie Mac loan more expensive, cumbersome, and in the end less accurate than the former system. For a complete discussion of this, check out http://reesespiecesofrealestate.com/2009/05/02/new-rules-for-home-appraisals-went-into-effect-may-1/ . Even without this new code, appraisers have been erring on the side of being overcautious in their appraisals because of the bad press they’ve received. Also, in many neighborhoods, the sales of bank foreclosures and short sales grew to such numbers that appraisers have had to use them as comparables even though a nice home with a real human seller is generally worth more than a distress sale because of its condition. Appraisals are always difficult in an appreciating market and now they are going to be difficult no matter what market we’re in. What to do? The person who pays cash has an advantage here, but they usually want to buy the home at a significant discount. I’m in an escrow where there is no appraisal contingency, but I’m afraid we can’t insist on that every time, much as I’d like to.
One way you can help is to sign the petition on the website, http://www.hvccpetition.com. The loan and appraisal industries are overreacting to the scrutiny they’ve been under. Those in favor of stringent regulation are trying to reduce the fraud that has riddled the industry in the last few years, but the consequence to this “code of conduct” may be to grind to a halt the very loan programs that should be moving us forward. Even though FHA appraisers are not currently affected by the code, they are regulated by other restrictive rules that make it difficult for these entry-level buyers to actually buy the homes they can afford. For example, FHA appraisers are stricter with the condition of the property concerning both repairs and unpermitted space. And the topper is that the FHA loan process has been taking far too long. Every Realtor I talk to who has an FHA deal has a tale of escrow dragging on for weeks beyond the scheduled close date. The story is that the lenders are overwhelmed, but they are overwhelmed by overcautious rules more than understaffing.

My goodness, it’s hard to know where we are these days in the real estate market. There is much doom and gloom in the news with job losses, bankruptcies of giant corporations, the budget crisis in California, all of which make us feel like we’re in a declining spiral that will never end.

But in Northeast Los Angeles and the foothills of the San Gabriel Valley, we see the active listing inventory declining and lots of properties selling in multiple offers. What is this?

  In any market, the best way to sell a home quickly for the most money is to price it right. When prices were declining a year ago, the rare seller who could price a home below recent sales often ended up with multiple  

offers and a higher price than what one would expect. Case in point, my listing at 5426 Dahlia in Eagle Rock was priced at $599,000 and sold in multiple offers for $700,000. 

 In a flat or slightly appreciating market, the key is to price the home at or slightly below recent sales to stimulate the same multiple offer and higher price scenario. I have several examples of this, but the dramatic one is the fixer in La Crescenta that we priced at $299,000, received 80 offers and sold for $480,000, all cash. Most recently, 4848 Ray Court was priced at $499,000, received over 20 offers and is currently in escrow for over 10% over asking with no appraisal contingency. An interesting side note on both of these properties is that they each had had an estimate of value done a year previously. The La Crescenta home was judged to be

4848 Ray Court, Eagle Rock

worth about $500,000 in the spring of 2008, and the Ray Court home was appraised for a refinance at $595,000. So although both sold for more than asking and for a good price considering this year’s market, they still didn’t sell for as much as they might have a year ago. Sellers, don’t think you can stick 2008 or 2007 prices on your property and have a bidding war happen, you have to accept the current market reality. Those buyers each really got a deal. What’s a deal? When we look back five years from now, I believe we will say those homes were bought at or near the bottom of the market.

Stay tuned for Part 2… What effect does this have on an entry-level buyer?

June 6, 2009

5426 Dahlia Dr, Eagle Rock