real estate market conditions

Economics 101 – A Non-Economist’s View Of Real Estate Today!

Jim Walberg’s viewpoints regarding key factors impacting today’s real estate market results!

There are non-stop changes happening in residential real estate – locally and nationally.  Also, there are a multitude of factors that are involved in the current condition of residential real estate.  If one does not understand these factors then they will be stuck in the mental state of a “victim of the market”, or they will decide to be “paralyzed from taking action”.  Neither of these conditions will have a positive outcome.  Here are some of the pieces of the puzzle that need to be examined.  The observations are being done by a non-economist – me.

Mortgage Industry:  In the past 18 months over 250 mortgage lenders have closed their doors.  The result for the consumer is that there are VERY FEW choices left for securing a home mortgage.  In fact, the two emerging key players are Freddie Mac and Fanny Mae.  The remaining few banks and mortgage lenders have been badly damaged financially from the poor decisions they made in making the wrong bet on lending products and the belief that future appreciation would support some of the “creative” interest only and/or negative amortization loans. 

The result of the condition of today’s mortgage markets is an atmosphere of fear and over reactions as to who can be granted a home loan.  It is as if they want your first born child pledged as collateral before a home loan will be granted.  You had better have a GREAT credit rating and real money for a down payment if you want to purchase a home.

The good news within the remaining lenders is interest rates are still relatively low, even though they are contrary to what is happening with inflation rates – the highest in 20+ years!  What this means to me is that interest rates will adjust higher before the year is over, maybe right after the election.  The Feds may want to defer any more bad news regarding interest rates until a new president is elected.  They will let him deal with the realities of rising inflation rates.

Consumer Fear:  Remember my definition of FEAR?  False Evidence Appearing Real.  It has been a long time since home prices and interest rates have been so favorable.  If this novice economist is correct, a real Buyer needs to lock their loan today and purchase a home.  If a Seller does not need to sell their house they need to wait until a clearer picture of the future economy unfolds.  If a Seller needs to sell their home today then do it NOW!

World Issues:  What is happening in our local and National economy is not happening in a vacuum.  We are in a World neighborhood where what happens in oil markets of the Middle East impacts the Bay Area.  What is happening in Georgia, with the Russians in charge of their country because they want control of the oil pipeline running through Georgia, is impacting the economy of the rest of the world.  What is unfolding in China and India as major consumer of oil within the next few years will determine the price of our oil no matter how much the U.S. can come up with conservations numbers.     

So, are you getting a BIGGER picture that is causing your brain to take a moment to consider the issues that are impacting real estate and all other factors of our economic lives?  I hope so.  I welcome any of your thoughts about the experience you are currently having, and maybe even expressing what some of your fears are for the future.  Until then…I promise to not stop keeping an eye on real estate and sharing my thoughts.

real estate market conditions

East Bay New Home Developers Bringing Prices DOWN, too!

East Bay real estate prices are NOT being helped by new home developers “dumping” their unsold homes!

The East Bay real estate markets continue to feel the impact of the price corrections, and the credit meltdown that have occurred. However, there is another BIG factor effecting real esate prices, too – new home developers “dumping” their unsold inventory.  We just assisted a family in the sale of their San Ramon home that was only two years old - 3-bedroom, 2-bath, 1,600 square feet, 2-car garage, and on a 3,500 square foot lot.  They needed a larger home because of their growing family and they wanted to stay in the community because of the great school district.  They sold the home for a fair price and came out with some profit from when they purchased it. It was in a great location in San Ramon and in walking distance from two great schools.  We began their home search two weeks before the close of escrow on thier San Ramon home.  As part of the home search process we suggested they check out several of the new home develops as options. What an education we all received! (Remember, in order to get the benefit from us regarding negotiating with a New Home builder, you need us to go with you to the new home develop and register you in during your FIRST visit. If that does not occur you will be on your own, and the commission paid to us by the new home developer is not refunded to you.  That increases their net profit and they love it when a Realtor is not representing you!)

The home they sold was built by Linnar Homes.  They learned if they purchased their next home from Linar’s new home division they might qualify for some incentives. That was an understatement. They just completed their purchase contract on a new home built by Linnar Homes in San Ramon.  Here is the summary of what we were able to negotiate.

• Price: only $140,000 higher than the sale of their present home – $785,000!  Two months ago this same home was listed for over $1,000,000 with Linar!!!
• 3,300 square feet, 4-bedrooms plus a den, 3-baths on a 9,000 square foot lot, plus a 3-car garage!
• Located in an upscale community in Danville!

This transaction just changed all the comparable sales within that neighborhood – dropping home values of those that purchased at the original price by over 20%!  This is now the new comparable price that appraisers will be using when confirming sales prices of homes for the mortgage company.  So, are you starting to understand the impact of new home developers “dumping” their unsold inventory on the price of your home?

Another example is happening in Dublin right now.  Greenbrier Homes has a small new home development that they have been selling new homes in for several years.  We have a listing in this small little subdivision built along an open space trail system along a creek.  It is beautiful.  Our clients bought their new home one year ago.  It is the best floor plan, they purchased the upgrades that were offered in order to make it even more sellable, and it is a corner lot facing the creek.  The home is listed for $749,000 and it is beautiful.  Greenbrier Homes has one last new home to sell.  It is the same floor plan as our listing, and it has all of the comparable upgrades.  Last week Greenbrier announced they were selling it for $649,000!  Our clients just took their home off the market and have concluded that they will not be able to sell it for a year or more because of the new comparable sale this event will create.  Business is business.  Any developer can sell their new homes for any price they want to.  My comments are meant to have you understand an additional factor that is having an effect on the prices of some of the communities in the East Bay.  Do you have any similar experiences you want to share?  Let me know…leave a comment below!