The good news is the Housing and Recovery Act of 2008, signed into law by President Bush last week. This bill permanently increases FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas (that's us) to $625,500. There is another provision that offers a first-time buyer tax credit of up to $7,500 that is actually an interest-free loan with a 15-year repayment plan. This is available to a person who has not owned a home in the three previous years. This credit is only in effect for buyers who purchase between April 9, 2008, and June 30, 2009. The purchase has to be for your primary residence, and there are a few more qualifying rules. For detailed information, you can go to the Federal Housing Tax Credit site.

The bad news is that Freddie Mac, the big mortgage finance company, posted a large quarterly loss. This resulted in opinions from various sectors predicting further home price declines and the possibility of mortgage interest rates rising.

So how does this affect the current market in OUR neck of the woods, Northeast Los Angeles and the San Gabriel Valley? Those of you who are in the under $500,000 price range know that outside of short sales (which aren't sales) and foreclosures (largely junk with the occasional deal that you better be able to pay cash or put 50% down and move really really fast on), there isn't much that is any good and those few are going in multiple offers. This price range was largely non-existent for the years 2004-2006 and is really the buying opportunity of the day.

I know you think "oh, she's just a Realtor trying to make us feel like we have to buy now and everyone else says prices are still going to come down."  Go ahead, take the chance that something you like that is out there now at a price you can afford will be cheaper in a few months or next year. It might happen, but how much are you willing to bet that mortgage rates will stay the same as today? They have already crept up to 6.5% for most 30-year fixed loans and experts are predicting a rise to 7%. What will that do to your falling prices? Make it a wash, that's what. Your buying power drops dramatically when interest rates rise. For every $100,000 mortgage, the cost goes up $67 for a 1% rise in interest rate from 6.5% to 7.5%, meaning your buying power is actually almost $10,000 less. To put it simply, for every 1% increase in mortgage rate, you have a 10% decrease in buying power.

I know some people predict the market will go down another 10-20%, but once the foreclosures and shortsales work themselves out thanks to the Fed, what seller will put their house on the market? Only the few who really must. There you have the supply and demand dynamic, with fewer homes on the market, the demand goes up and so can prices.

Out in Pasadena's West, that is, west of the Arroyo and south of the 210 Freeway, is a lovely area that includes the San Rafael Hills. Most of the homes were built in the 50s, they've been well maintained, have great views, and it's a convenient location to both Pasadena's Old Town and downtown Los Angeles. I noticed some odd real estate happening over there last year when I had a listing that never sold that had appraised at $850,000, thanks to a couple of sales that seemed unusually high for the time. So here's my investigative report:

As of today, August 3, 2008, of the under $1 million market, if you look at the gross numbers it looks like there are 19 homes currently on the market, 19 have sold so far this year and 3 are in escrow. At this rate there are over 7 months of inventory. Since over 4 or 5 months' supply qualifies as a buyer's market, it looks like it's slow in the San Rafael Hills. It is truly slow, since we only have 3 properties in escrow.

Of the 19 homes currently on the market listed for $1,000,000 or less, 8 are short sales and 3 are REOs. Of the 19 properties that have sold so far this year, 2 were REOs, 3 were probate or trust sales and none were short sales. Of the 3 properties currently in escrow, 1 is a shortsale and 1 is an REO. Of the 11 expired or withdrawn properties, 4 were short sales and 1 is now on the market as an REO.

The current real estate commentary you read in the paper says that there is a lot of inventory on the market which is bringing the prices and the demand down. But if you remove the short sales from the equation, we now have 11 active listings or an inventory of about 4 months, which is closer to a normal or even a seller's market.

In my educated opinion which is verified by bankruptcy attorneys and many Realtors who specialize in short sales, most short sales will not be approved. Why? There are many reasons, mostly stemming from the fact that most people don't understand how they work and they advertise their property as a short sale with no idea whether they qualify for one. And Realtors take them on with the same ignorance. Of the 8 short sales now on the market, I'll bet you not one sells until they go through the foreclosure process and come back into the market as an REO, or bank-owned sale. What does this mean to you?

If you own a house in the San Rafael Hills and want to sell it, you are competing with some "fantasy" listings as well as some really bargain priced REOs. The 2 cheapest properties on the market are REOs. Unfortunately for you, you can't disregard them because the buyers and the appraisers are looking at them, and believe me, these properties will sell and sell quickly. So if you don't have to sell, you probably won't.

If you're a buyer, how can you take advantage of some of the really great deals that do appear, like those 2 REOs? First, can you pay cash? Or do you have such a large down payment that your loan can be under $417,000? You are in good shape. If you already own a home that you have to sell in order to buy another, you need to put it on the market and sell it for whatever you can and be willing to rent until you find the deal you want. It's not that difficult, there are lots of rentals out there right now. And when you're ready, don't be confused by the short sales you see on the market. Just ignore them and look at the homes that you have some chance of actually purchasing.

Well, I'll tell you one thing that's not real is a short sale. Those are properties where the sales price won't be enough to cover the loan and closing costs, so the bank has to agree to take less than they are owed to make the deal work. Guess what? They almost never agree to take less! They don't care that they may make less eventually when they have to sell it as a foreclosure. They want to make an example of these irresponsible sellers and make them suffer for getting themselves into such a financial pickle. If you are such a seller and need to sell, you had better be in real financial trouble or your short sale will not be approved. That means you can't have any other assets, or if you do, you have to give them to the bank. They'll transfer what you owe to another property, or they'll take a promissory note if you don't own any other real estate. And you almost always have to already be in default on your loan, so your credit is trashed regardless

So, you the prospective buyer say, what's the harm in looking at short sales? Here's the problem: you are wasting your time. Not just by looking at unlikely properties, but what if you fall in love and make an offer? What if it's actually accepted, pending lender approval, of course? Then you waste even more time waiting weeks, even months to find, 95% of the time, that the lender turned the deal down and foreclosed on the property yesterday. Not only is that really frustrating, but you have a huge loss in missed opportunities. That cute little foreclosure on the next street that sold in a day. That regular sale that sold in multiple offers last week. Oh, yes, and even though the paper says that the prices are dropping, now that you're back in the market it seems like anything that's any good is $20,000 higher than you thought you were going to pay with the short sale.

Pasadena, CA:

 

Constant readers know I am the King of Eagle Rock, but my real estate license is good in the state of California, and I have sold a lot of real estate all over Northeast Los Angeles and the western end of the San Gabriel Valley including Altadena and Pasadena in my 18 years as a Realtor.

Last week, I co-listed a terrific property at 3150 San Pasqual Street, Pasadena, for $1,875,000. We priced this to sell, not to market. We had 121 Realtors attend the Broker's Caravan last Thursday and 112 people attended the public open house last Sunday. We were given an excellent offer and after a bit of negotiation came to a mutually acceptable agreement by the end of the open house.

Wow, this sounds like the activity of the good old days, doesn't it? Here's the deal: we had sellers who wanted to sell, buyers who wanted to buy, and everyone eventually was satisfied with the price. A number of people whined about how quickly it sold although they admitted that they knew it was a good deal. They had been lulled by the current expectation that all houses take a while to sell and didn't act quickly enough.

The Eagle Rock Farmer's Market has been around for almost 9 years, can you believe it? It's had its ups and downs that included pony rides, Elvis impersonators, fresh pressed apple juice, inexpensive clothing, incense, and the balloon clown. Today's market includes a fast food row with Latino, Filipino, and American style foods like hot dogs, horchata, chicken and pork skewers. There is always the Farmer's Market Table run by John and Sueann Miller on behalf of Michael Noguiera and the Chamber of Commerce. And there is good, fresh produce in season. Right now you can enjoy strawberries, plums, peaches, grapes, all kinds of greens, mushrooms, eggplant, tomatoes, zucchini, herbs, and lettuce. The orchid lady is there with several varieties of orchids at slightly higher than Trader Joe's prices. Every week brings a slightly different cast of vendors, so this week there was another garden booth selling small pots of other plants.