SanDiegoRealProperty.com

So, I’ve just been perusing the foreclosure comparison figures released by the County Assessor’s office and it’s pretty stunning. It covers the number of Notices of Default filed for 2008 compared to 2007 (just January through June). So far, 2008 has seen 20,248 NODs filed compared to 9,125 during those same months last year. That’s a 122% increase.

Yikes.

Of the 20,248 NODs filed, 9,275 have actually gone to foreclosure so far. This means the ones that didn’t foreclose ended up either as short sales or they just haven’t been foreclosed upon yet.

When will it end? I don’t know. We’ve definitely seen the first major wave of ARMS adjusting up to higher interest rates. But there are many people out there whose loans haven’t adjusted yet, so another wave is probably going to hit.

Tough times for some, for sure. Others are seeing a tremendous buyer’s market and I’m telling you, foreclosure properties are going like hotcakes. Banks are now pricing the home low, knowing that they’ll get multiple offers and the price will be bid up. If you look at the sales prices, they are usually higher than the asking price. For instance, there was a foreclosure home close to a listing I have in Jamul. It was listed at $1,079,000 and went into escrow within 7 days (they had to sort out the many offers they had). It just closed and I saw that it actually sold for $1,300,000, well above the asking price.

Suffice it to say that most agents now won’t even take the time to write a lowball offer for a buyer to a bank.  It’s just not realistic because the home is already priced below market value.

As much as we are all trying to avoid them, short sales are just everywhere here in San Diego.  Yes, you can get a property for below-market value, but you will need to be patient.

For short sales, the seller owes more money than he will get for his home.  Usually, he’s received a Notice of Default on the home and is on the verge of foreclosure.  So, he gets permission from his lender(s)to sell the home.  The home goes on the market and the seller gets offers.  Once the seller receives and accepts an offer, that offer then goes to his lender for approval.   During that time, the property will usually still be marketed on the MLS and back-up offers will be taken.

And everyone sits and waits.  This approval process will probably take at least 45-60 days.  Yep, you read right.   And it could take months.

If the lender approves the offer, the Buyer can then enter escrow….if they’re still around.  Often, the Buyer has moved on to a different home.  Then, another back-up Buyer can get the property or the Seller waits for another offer (now knowing the amount the bank has approved).

Keep in mind that you can limit the time you (as a Buyer) are willing to be held by a contract waiting to be approved by the Seller’s lender.  Using CAR’s Short Sale Addendum form, you can indicate that your offer is contingent upon the lender approving your price within a certain time frame.  Let’s say you only want to wait 30 days or 45 days….you can put that timeframe in and submit that Addendum with your offer.  That way, you won’t run the risk of the lender coming back 4 months later, accepting your offer, and everyone thinks you’re opening escrow!

Keep in mind that short sales are NOT the same as bank-owned properties.  Bank-owned homes have already been foreclosed upon so your offer will go directly to the bank’s listing agent (who is communicating with the bank who is the Seller).  This process is much faster and, oftentimes, you can have a regular 30-day escrow period.

Either way, you can stand to get a home for below market value…but, again, patience is the key.  You must also be ready to make an offer right away.  A client of mine just made an offer on a home the very first day it was on the market….and we weren’t the only ones!

Lawrence Yun, chief economist for the National Association of Realtors, commented at the mid-year legislative meetings that home sales and prices throughout most of the country are poised for improvement in the second half of 2008.  The caviat was that the recovery will vary by market (of course!).

And, I’m sure that everyone has heard last month posted an increase of 22% in home sales compared to March for Southern California.  And that building permits have also shown an increase.  And that the median price did not fall from the month before.

You know, just something to think about.

There has been an overwhelming theme in the real estate market the last few months and it seems to be getting even more prevalent. What is that theme you ask? What is the statement that Kimberly hears over and over again from clients? Here it is folks:

” We want to get a deal!”

This statement is then sometimes followed up by “We’d like a 3 bedroom, detached home in San Diego for less than $200,000,” at which point I usually take a deep breath so I can begin the lengthy explanation as to why that’s NOT going to happen, at least not a home my clients are interested in buying.

You all want to buy foreclosures. You all want to get a deal. Is it possible? Sure….. in the sense that you’re not going to be buying at the top of the market and you’re willing to do some work and jump through some hoops. Will it be the “deal” that you have imagined in your head? Probably not. Here’s the scoop:

We live in San Diego, everyone. We live on the ocean. We have an amazing climate. We have an amazing city with world-class amenities. Has the real estate market dropped? Sure, it has almost everywhere in the U.S.. But that doesn’t mean we’re going back to 1990s pricing, folks. Statistics have shown that San Diego County prices are down roughly 16 percent from the peak. The median home value is still well above $500,000. When this market turns around, it’s gonna be quick and I’ll bet you that San Diego leads that turnaround. Are you going to be able to get a nice detached home for less than $200,000…..nope. And that’s a good thing. Because if you could, it would take us years and years to get those values back up.

Still convinced that you’re in the market for a deal? Alright, let’s talk about the foreclosures. Here’s what you need to know if you want to buy one:

1) You can sometimes pay below-market prices for a foreclosure. Almost always, the home will NOT be in move-in condition. Keep in mind that the previous owner could not afford the payments. That usually means they could not afford to maintain the home either. Or finish remodeling projects. I have hardly ever walked into a bank-owned property and found it in move-in condition.

2)People who lose their houses are usually pissed. Very pissed. So pissed that they delieberately damage the home that was once theirs but is no longer. They will remove wiring so they can sell it. They will bash in the walls. They will remove trim and finishes and appliances to sell them. They will write in crayon on the walls just to mess with the bank and show how angry they are. They will leave the home filled with garbage. You get the idea.

3)The places that ARE in good shape and are priced well sell VERY quickly. If you want to buy a foreclosure home, you need to be prepared to make an offer IMMEDIATELY. It’s not uncommon for a GOOD home to have upwards of 10 offers in its first few days on the market. Then, where is the deal? Remember, if there are multiple offers, you will be in a highest and best scenario….essentially a bidding war. You can still get the place for a good price, but you need to be prepared to act.  And you should be prepared to not necessarily get the first place you want if there are many offers in on it already.

4)Be prepared to get pre-qualified with a specified lender for each property you make an offer on. The bank who owns the property will want a pre-qual letter from a certain lender. You don’t have to use that lender to get your loan; it’s just to give the seller some idea that you’ll actually be able to perform and get financing.

5)Pay very close attention to your inspections. Because a lender has never occupied the property, they are exempt from providing you (the buyer) with a Transfer Disclosure Statement. This means that they are selling the property AS-IS, are not prepared to make ANY repairs, and there may be major things wrong with the house that they don’t know about so they can’t tell you about them. This is not a situation where you can go back to the bank and ask them to fix the damage the previous owner caused during his/her temper tantrum. It is what it is and if you don’t want it, the next buyer will take it.  If you’re looking for a PERFECT home, the foreclosure market will be a very challenging one for you.

6) Your escrow period could be 30 days or it could be a bit longer. It all depends on your loan and the bank. Usually 30 days isn’t a problem (unlike the dreaded short sale where it could take you months just to hear if you offer has been accepted!)

Hopefully this will give you some insight into the foreclosure market. It takes patience, preparedness, and quick decision making to buy one of these homes. It’s totally possible to buy a home for below-market value….but it really helps if you have realistic expectations of what you can get.

Call me if you’re ready to make a purchase. But, please, don’t give me a price limit of $200,000 for a detached home. The last couple who did decided to stay in Rochester, NY….and I didn’t blame them.

It makes a big difference, everyone.

I honestly think that people underestimate the importance of interest rates.  Raising the conforming loan limits means that loans above $417,000 should now be accompanied by lower interest rates.  Jumbo loan rates (above $417,000 - the old limit) have been running almost a full interest point more expensive than conforming loans recently.

Let’s say that you’re borrowing $600,000 at 30-years fixed interest of  7.00%.  Your payment will be about $3,992.  If you pay only 6.00% interest, your payment is only $3,597 per month.  That’s a savings of $395 a month.  Every month for 30 years.  Do the math.

See what I mean?

I’m still surprised when I hear that people are sitting on the fence, waiting to buy.  Mortgage rates actually creeped up a little while ago but everyone just thinks  “the Fed is lowering rates. ” What they don’t realize is that that does not directly affect mortgage interest rates!  I’ll write more about that later.  What people should really be watching (instead of trying to find the bottom of the market) is interest rates.  Because having your rate jump up even half a percent is going to cost you WAY more than paying an extra $15,000 for that condo over the long term.

Just some food for thought.

Woohoo!! Per the Union Tribune this morning, HUD has officially raised the FHA loan limit in San Diego County from $362,790 to $697,500 and this is effective TODAY!! Yes! That’s 125 percent of our median home value ($558,000) here in San Diego. I was worried they were going to raise the limits to a measly $500,000 or something and it wouldn’t have that big of an effect. This, my friends, is a significant increase.

Run, now, to your nearest lender and get yourself an FHA loan! Then call me so I can find you a house!

Everyone give three cheers for this past week’s signing of Congress’ $168 billion stimulus package. We’ve all been eagerly awaiting the increase in conforming loan limits, even if they are only temporary at this point (good for loans originating between July 1, 2007 and December 31, 2008). This package will allow the Federal Housing Administration, as well as Fannie Mae and Freddie Mac to offer mortgages above the current conforming loan limit of $417,000 to as much as $729,750 in high-cost areas. Ahem…. areas like San Diego.  The limits for each area are supposed to be released within 30 days.

Rumor has it that HUD also has 30 days to roll out the package but I’m a bit nervous that it’s not going to happen by then. And, more specifically, I’m even more nervous about deals going into escrow based on these new limits. Some clients of mine are dealing with that issue right now:  what do you do when the person who wants to buy your house has a loan program that essentially doesn’t exist yet? Uhhh……hmmm…..we’re trying to figure that one out.

The super cool thing is that hundreds of thousands of homeowners are getting offers to refinance their ridiculously expensive adjustable rate mortgages through FHA, etc. and perhaps that’s where we’re going to see the biggest effect. Approximately 280,000 letters were sent out last week, with over 500,000 more in the works. Just think of all those people who may be in danger of losing their homes being thrown a lifeline.

This may be the only thing George Bush has done that I actually agree with (uh oh….political opinion….run!!)

I’m sure many of you saw Sherman Harmer Jr.’s op-ed piece in last week’s Tribune. He raised so many valid points about the real estate market here in San Diego that I feel they warrant re-capping. Basically, he advocated for purchasing a home now. Personally, I’ve seen several clients who are “on the fence” about buying. They’ve got plenty of money, they’re totally qualified, but they just need to wait until the market “bottoms out.” Here is what I always tell them: Sure there are plenty of homes on the market now. But you’re only going to purchase ONE home, so if you find the one that’s just right for you, it’s well-priced, and you plan on staying in it for at least a few years, why would you risk letting someone else buy YOUR dream home? Meanwhile, they continue to pay someone else’s mortgage because they are RENTING!!! What?

Harmer’s article pointed out the risk analysis of purchasing now: prices are low (compared to what they were) and interest rates are good. No one knows when that is going to turn around and those who wait for the bottom almost always end up missing it. For those who have been nervous about selling, he notes that whatever property they will turn around and then purchase has seen a price reduction that will offset their home’s value shift. So, essentially, it evens out: you’ll get less but then you’ll turn around and pay less. He outlines that, over the long term, real estate has consistently appreciated and that, at an appreciation of 5 to 6 percent annually, your home will double in value every 13 years! Another key point is that builders in San Diego have stopped building, choosing instead to unload current inventory. That will, naturally, catch up to us and inventory is going to start decreasing.

Next topic: new FHA limits! Yippee!

One of my New Year’s resolutions is to blog here more consistently. What can I say? I’ve been busy!! Suffice it to say that people in San Diego are still buying and selling houses, folks!

What great news, folks!  H.R. 1852 was overwhelmingly passed on September 18th, marking the first of several necessary steps to make home ownership more accessible and affordable for Americans (especially those of us who live in California and other high-median home value states!).  This Act will enable the Federal Housing Administration (FHA) to serve more subprime borrowers and provide first-time home buyers with a safer alternative to confusing and/or predatory lending. 

 The main provisions of the Act are:  *Note, these have been abridged for ease of reading. 

 - Lower down payments:  authorizes zero and lower down payment loans

-  Housing counsel:  authorizes more than double the current funding level for housing counseling

 -  Subprime borrowers:  allows FHA to provide loans to more subprime borrowers without authorizing unnecessary fee hikes for those borrowers

- Reverse Mortgages:  enhances the FHA reverse mortgage program by removing the loan cap, raising loan limits, and reducing the maximum fee lenders can charge for these loans

- Multi-family Loans:  Raises FHA multi-family loan limits

- Affordable Housing Fund:  Authorizes up to $300 million a years from the bill’s profits for affordable housing

- Higher Loan Limits: **This is the big one for those of us in CA**  Raises the FHA loan limit to the lower of a) 125% of the local area median home price or b)175% of the national GSE conforming loan limit.

- Refinancing:  Make available refinancing loans to existing qualified homeowners who are in default or at risk of default due to rate resets or mortgage market conditions, and to authorize lower down payments for such purpose.