US new home sales plunge in May, recover in June

Builders suffered some major whiplash earlier this summer when the first-time homebuyer tax credit ended.  We all knew that sales would fall off from the scurrying to buy last fall and earlier this spring, but no one expected new home sales to fall off a cliff.   Luckily for builders, sales were able to recover quickly in June.

First, let’s look at how ugly May was.  Shobana Chandra and Timothy R. Homan of Bloomberg News gave us some amazing numbers.   New home sales dropped 33%, to an annual pace of 300,000, “the fewest in data going back to 1963, figures from the Commerce Department showed…”  As reported in the article, the Fed has been doing everything they can to keep rates down, otherwise things would have been worse (if that was possible).

But what goes down, must come up and the news in June was brighter.  Courtney Schlisserman also of Bloomberg wrote that new home purchases rose 24 percent in June as the annual pace of sales rose to 330,000.   All areas in the US saw a sharp increase in new home sales, except the West.  It actually experienced a drop of 6.6 percent from May.

Defaults still hitting million dollar homes in US

Another sign that the current distress in the housing market doesn’t discriminate, defaults continue to rise in the million dollar market.

Andrew Keatts of The Daily Transcript reported over the summer a study conducted by The New York Times, “…found that more than one in seven homeowners with loans in excess of $1 million are seriously delinquent…compared with one in 12 homeowners with loans below the million-dollar mark.”   Keatts reported that data was not released on the state or county level “because of concerns over sample size.”

La Jolla based MDA Dataquick was able to provide more local numbers.  “Dataquick found that in California ZIP codes with median home prices exceeding  $500,000, notices of default (NOD’s) rose 1.5 percent from the last quarter of 2009, and declined 19 percent year-over-year.  Conversely, ZIP codes in the state with median home prices below $500,000 saw NOD’s fall 5.8 percent from the last quarter of 2009, and 43 percent year-over-year.”

Keatts went on to report that although the part of the SD market that is above $500k is faring better than similar markets in CA,  it is still recovering slower than the below $500k market.  THE toniest ZIP code in SD County, 92067 (Rancho Santa Fe) had its NOD’s increase quarter-by-quarter 44.4 percent and 3o percent year-to-year. 

Although no one knows for sure, many of the experts are speculating that a good number of these are strategic defaults, that the more well off are looking at these homes as a bad investment and just walk away since they have other substantial assets.  Quoting Alan Gin, associate professor at USD “…it’s possible that those on the upper end of the market are more likely to view  an underwater home as a bad investment, and thus view strategic default as an option.”

Better news for the downtown San Diego condo market?

Recently, Thor Kamban Biberman of The Daily Transcript reported that the downtown condo market maybe turning a corner saying, “A total of 500 condominium units are being  marketed downtown, 34 escrows closed in April and 4,469 units have been approved for development.”  He did point out that there are no units currently under construction.

Biberman provided some valuable information on some high-profiled buildings downtown.  He said the San Francisco based residential research company, The Mark Co., said the average size of a downtown condo unit was 1,272 square feet and the average price was $$684,000 in April. 

One well known project, Smart Corner located at 1080 Park Blvd., was completed in September of 2007 just as the recession was just starting.  Biberman said that 41 units went up for auction in October 2009.  The Mark Co. reported that Smart Corner had 96 closed transactions through April, while five units were reported under contract on April 30.   Sherm Harmer, president of Urban Housing Partners said that 135 units total have been sold.

(Sidebar:  I have to give the developer of Smart Corner credit.  To stimulate sales, they applied with HUD to put the building on the FHA approved list for condos.  I’m not sure when they got approval, I think it was Feb. of this year, but SMART thinking by Smart Corner making FHA financing possible for these units)

Another complex that has done well, according to Biberman, is The Mark, a 244 unit building located at 800 The Mark Lane near Petco.  79 units sold in less than a year.  A quote about the numbers, “A total of 106 escrows were closed at The Mark as of April, according to The Mark Company.  The Mark also had another 98 in contract and 40 units available at the time of the survey.” 

The Mark Company is not affiliated with the developer.

Last but not least, there is the Bosa Development’s Electra project.  It was built over the SDG&E Station B site.  It has sold 241 of its 248 units.

Putting your home on the market and making it SHINE

Back when the the market was hot (pre-2007), all sellers would have do is list their home, and if wasn’t about to fall down, more than likely they would get a flood of offers.

Oh, have times changed!  Sellers today have much more competition.  Although pricing a house right is extremely important, so are first impressions.  Whether a house is going on broker caravan, regular open house or is being shown by a buyer’s agent, that first impression of the outside AND the inside is very important.

As far as the outside goes, cleaning up the yard and painting the house can go a long way.  The same goes for the inside.  Cleaning carpets (or replacing them), painting, replacing an appliance or two can go a long way in getting you top dollar (for maximum net proceeds) for your home.  And before you scoff at the foreclosure down the street remember this, many banks are allowing their listing agents to go in and paint,put in new carpet, and many times install new appliances, fixtures, etc., because banks want to get back as much money as they can while getting the property off their books.

Earlier this summer, Jennifer Davies of the Union-Tribune provided common sense tips on how to bring you home up to the next level, allowing the seller to the best chance of bringing in reasonable offers quickly.

Staging is discussed, which is a topic brought up by prospective sellers.  Staging is always an excellent selling tool for the seller and listing agent.  Another route is to hire a consultant to come in and work with the seller on doing some reasonable upgrades. 

I recently referred a consultant to a client of mine to prepare the home to go on the market.  The consultant asked questions regarding budget and goals.  The seller decided to do some modest upgrades of the home along with doing a little decluttering and rearranging of some existing furniture. 

Sellers who take this initiative will in the end get their homes sold faster and probably end up netting more money.

Changes in FHA premiums not good news for borrowers

I’ve always considered FHA loans great for people who are responsible with their money and who want to make the jump from renting to a modest home they can afford.  Unfortunately, FHA loans were almost entirely abandoned in the early and mid-2000’s when the subprime bubble was occuring. 

Recently, Matt Carter of Inman News reported on another not-so-consumer-friendly change to FHA loans.  Last April, FHA raised the upfront mortgage insurance premium from 1.75% (of the total amount of the loan) to 2.25%.  Monies collected from this premium are pooled into a fund to pay lenders in case the borrower defaults on the loan. 

Along with the up front premium, the borrower must pay a monthly mortgage insurance at a .55% yearly rate.  

Good news/bad news.   The good news is that Congress recently passed a law rolling back the up front premium (which usually gets rolled into the loan) to 1%.  The bad news is that the yearly rate for the monthly MI is going up to 1.55%.  What was supposed to be a break for borrowers at closing will now be a heavier burden on a monthly basis.  

Here’s an example……you purchase a property for $300,000.  If you put 3.5% down, your initial loan amount would be $289,500.  Roll in your up front MI premium at 2.25% and your new loan total would be $296,014.  If you had an interest rate of 4.75% on the 30-year fixed, with your current rate of monthly MI, your payment would be $1680 (minus taxes and insurance).  Under the new rates, your loan amount would be $292,395 (based on a 1% up front MI premium being rolled into your loan).  Your total payment with the monthly MI at a yearly rate of 1.55% would be $1,903, a $223 difference in the monthly payment. 

Now, come again on how this is going to help the borrower??

Originally this was supposed to take effect on September 7, but has been rolled back to October 4.  Stay tuned.

California’s median price continues to rise

Good news for prices in California for the month of May, as prices rose 20.9 percent from May 2009, as reported recently from Jacob Adelman of the Associated Press.  The median price for California in May stood at $278,000. 

Adelman reported that as inventories shrink on the lower end of the market, “…transactions in mid-range and high-end neighborhoods claimed a greater share of sales…”  Month-over-month, the median price increased 9 percent from April, and the median price is now at its highest level since October 2008.

John Walsh, president of MDA Dataquick said both the tax credit and low interest rates helped to bring higher priced homes into the market.  Higher end homes were 21.2 percent of the market in May, as opposed to only 16.5 percent during the previous May. 

Home sales for the state totaled 40,965 in May, up 4.9 percent from May 2009 and 9.3 percent from the previous month.

San Diego County foreclosures filings drop again

Foreclosure filings in San Diego County continued their drop in May, this time by a whopping 21% (year over year), according to Jen Lebron Kuhney of The Daily Transcript.  Kuhney points out that “Foreclosures had been on the rise for three months straight before May.”

1,148 trustee’s deeds were filed, a 16% drop from April, while 1,798 notices of default were also filed, a 24% decline from March, according to Kuhney.  Quoting Alan Gin, professor of economics at USD, “It’s a result more of the same of what we’ve been seeing over the past few months: The housing market is improving.  The economy is improving.  There is less job loss.”

Gin produces the USD’s Index of Leading Economic Indicators, and said he is cautious about making future predictions on foreclosures.  Although there have been warnings of a recession double dip, “…Gin said it is possible that wave may not form.”

Concluding, Gin said, “‘We’re seeing a general rebound in terms of the economy…In San Diego we added jobs in hospitality, construction and temporary jobs.  These are the first steps in business picking up again.'”