Peninsula Real Estate Guru

David Shafer of Uncommon Financial Wisdon  wrote an excellent guest post on Jeff Brown aka the BawldGuy’s Blog  about how the current squeeze on middle income families occuring in our country should effect one’s investment decisions. Jeff is a San Diego real estate broker who specializes in finding good investment properties outside California.

I can certainly say we see this trend in the San Francisco Bay Area market. The upper income desirable communities in San Francisco and the Peninsula are doing just fine during our current economic slowdown where the less costly more affordable lower income areas are facing numerous foreclosures and dropping property values.

I generally advise my clients to purchase in the best area they can.

One can always change the house but one can not change the location.

After 30 years selling real estate on the San Francisco Peninsula, I know the neighborhoods inside and out; I can help point you in the right direction and help you evaluate what neighborhood will be best for you.

2007 data is in blue and 2008 data is in red.

These numbers reflect closed sales through June 30 of each year.

As reflected in the number of sales my office has completed this year, the number of closed sales in all communities is down from 2007.

Mountan View down 3%

Los Altos down 21%

Palo Alto down 27%

Menlo Park down 28%

East Menlo Park down 72%

Redwood City down 16%

San Carlos down 20%

2007 data is in blue and 2008 data is in red.

As you can see inventory has increased in all communities from 2007 to 2008.

Mountain View up 91%

Los Altos up 45%

Palo Alto up 42%

Menlo Park up 47%

East Menlo Park up 58%

Redwood City up 61%

San Carlos up 54%

Even on the San Francisco Peninsula, short sales do occur.

A short sale occurs when the existing loan balance on the property is greater than the value of the home.

The property is placed on the market and an offer is obtained which is accepted by the owner subject to the lender’s approval. The lender’s approval must be obtained before the sale can proceed and close. The lender needs to agree to accept less payment of an amount of money less than the current loan balance.

For example, there is a property with a $600,000 loan on it that is currently worth $500,000. An offer is obtained at $500,000 and then the offer is sent to lender for their approval. The lender does their own appraisal of the property. If you can convince lender property is only worth $500,000 in the current market then they may agree to take $500,000 now as full payoff of the loan instead of taking 6 months to foreclose on the property and then put property on the market and then sell for only $500,000 anyway and maybe less if the property or the market continues to deteriorate.

James Wexler, a real estate in the Scottsdale/Phoenix area has written an excellent post where he goes into detail how to make the short sale process easier and less time-consuming.

Here is the average sales price data for Mountain View, Los Altos, and Palo Alto.

Los Altos average sales price is up about 7% from last year and average sales price for Mountain View and Palo Alto remains basically unchanged.

Please review average sales prices in the chart above.

The blue column is 2007 and the red column is 2008.

I have broken out Menlo Park into the areas west of Highway 101 and the areas east of Highway 101 to indicate how different the current market can be based on price range and location.

In west Menlo Park, the 2008 average sales price of $1,841,515 is an increase of 15% from last year.

In east Menlo Park, the 2008 average sales price of $414,612 is a decrease of 34% from last year.

Redwood City has experienced a slight decrease and San Carlos a slight increase.

My Coldwell Banker El Camino office had our Half Year State of the Office and Marketplace meeting earlier today. My office is the number 1 Coldwell Banker office in the San Francisco/Peninsula region in terms of listings and closed sales per agent year to agent.

Here is what our office has experienced in the first half of the year to date.

Average sales price is up 5.5% but the number of sales is down 38%.

So in our market area, prices have held up fairly well and in some cases increased while sales volume is down significantly.

 I will supply actual market data for each community in my market area in subsequent posts.

Much has been written about how the new loan underwriting standards make it more difficult for buyers to qualify for mortgages.

I have two different buyer clients who are currently being impacted by these new standards.

Both are single professional woman who are looking to buy their first homes.

The first has a sales position where her compensation is both salary and commission based on sales. She has been at her current company for about one and a half years. The lender wants a 2 year history of her commission income before it will count any of it. So this buyer can only use her salary income to qualify. Her commission income is about 50% of her salary income. Clearly the lender’s decision to NOT count her commission income limits her current purchasing power. A year ago, stated income loans were available. This buyer could have just stated her income (salary plus commission) accurately based on a 2 year average and the lender would have used that income amount to qualify.

The second client recently changed companies and the lender will not count the bonus income obtained at the prior company eventhough this buyer will get bonuses at her new company. Her bonuses usually amounted to 10% of her base salary. Again the lender’s decision to NOT count this income limits this buyers purchasing power. A stated income loan would have allowed this buyer to qualify for more.

Understand neither of these buyers were going to lie about their income. They were going to accurately state what their income was for the past 2 years and use that figure on their loan application. No deception would have been contemplated. Both were secure in their ability to earn commission and bonus income as they had in the past in determining what they could afford to pay.

This is a case where fraud and deception on the part of OTHER borrowers and mortgage brokers is limiting these two buyers purchasing power.

Linda Lunsman of Princeton Capital writes:

“I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION.” ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed’s lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed’s decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro…which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

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CNN reports that the Federal Reserve Board leaves its key short-term interest rate unchanged. By a vote of 9-1, the Fed decided to leave the rate at 2%. The sole dissenting vote was from the Dallas Federal Reserve Bank President, Richard Fischer, who voted for an increase.

It is unclear what this decision means for real estate mortgage rates but my sense is that it may signal mortgage rates are as low as they are going to be in the near future. I believe at this point in time there is a far greater chance mortgage rates will go up rather than down.