Project Redfin has commenced

My virgin post at Redfin

Thanks for reading. And please comment, or heckle, if you so desire!

Increased conforming loan limits not much help for Bay Area homeowners and buyers

If Dubya ultimately signs the proposed economic stimulus package scheduled to be on his desk by mid-February, there could be a noticeable bump in local refinancing activity, but don't expect the changes to help the intended recipients like its authors think.

Basically, "conforming" loans are backed by quasi-government entities Freddie Mac and Fannie Mae and therefore carry lower interests than non-conforming "jumbo" loans due to assumed less risk.

Key highlights of the proposal are:

--Conforming loan limit would be raised from $417k currently to 125% of the local median home price (December Bay Area median is $587,500, therefore 125% of median = $734,375) or a maximum of $729,750. It will likely drop below the maximum by the time this is passed due to a decreasing median trend.

--If passed, the increase currently stands to be only temporary - expiring at the end of 2008. Of course, it could be extended depending on the state of the economy.

--On a typical $700k Bay Area home purchase (20% down) and based on current rates and a 30 year fixed rate mortgage, this change would lower monthly payments by approximately $460 per month. That is substantial.


Problem 1:
What they don't seem to understand is that the people in real trouble cannot qualify to refinance using these conforming loans due to much tighter qualifying restrictions and a maximum 80% loan-to-value ratio (i.e. 20% down payment for purchase or 20% equity for refi). The ones in trouble purchased in the last 12-18 months and put little to zero down to begin with. Even if they put 15-20% down, they defintely have less than that in equity now anyway, so there is no refinance option for them with conforming.

Problem 2:
Of the people who are looking to buy their first home or who have been waiting on the sidelines to get back in the game, most are not looking to, or are unable to, put 20% down. You could argue that point, but it's definitely the minority of the potential buyers out there. And don't forget conforming loans carry much tighter restrictions than non-conforming jumbo loans (i.e. 35% maximum debt-to-income ratio, full documentation of employment and verification of assets). How many of the buyers in recent years could then or can now legitimately meet these terms? Yep, you know the answer - not many!

Now, for people who bought 4 to 5+ years ago and are still in that home likely have 20%+ equity and are good candidates for refinancing if they have not already done so, which many have. I think this is the only significant positive effect that can play out if passed. But again, it doesn't help the troubled recent buyers and those who have already refinanced to the moon.

This thing will have a lot less effect than the geniuses who put it together think it will. And depending on how the markets react and adjust to this over the coming weeks and months, it might not even carry the nice low interest rate spread over jumbos as it does now. Some smart people are already predicting that.

Sad but true

America for sale

Bloody Street moving on.....

Yours truly has officially sold out and accepted a real (i.e. paying) blogger gig writing for Redfin Sweet Digs starting sometime in February. My "territory" will be San Francisco-North, consisting of SOMA/South Beach on up to Marina/North Beach. The main focus will be neighborhood data, new and interesting properties/developments, and hopefully some big picture stuff (which you readers know I like to write about) and how it might relate to San Francisco and the Bay Area.

My goal is to continue some coverage here of the east bay, and focus on SF with Redfin.

Stay tuned, and thanks for reading!

South Beach's newest conversion: One South Park

Though many followers over at socketsite have been claiming that prices are exorbitant for many of these no view, sardine can units with bums and addicts as neighbors, twelve of the 35 units at One South Park have officially closed escrow as of January 13. Contrary to the naysayers, they are getting pretty much what they are asking for at an average of $986/sq ft.

Not uncommon with developments such as this, their own figures of sales and pending sales do not match the public records. They are off by three "sales" (15 claimed vs 12 on record) but maybe we'll give them the benefit of the doubt on this for now. They also list two as "pending" with the remaining 18 available for sale.

While the closed sales have been right at or near original asking prices, the project is still less than half sold out and they began accepting reservations as far back as June of last year. They can't be excited with the 18+ units currently available at this time and after many have canceled their reservations. Yet there has been no sign of price reductions or incentives like many other developments have started to offer. Can this project compete with the Infinity and One Rincon Hill on a $/sq ft basis? These next couple months will be interesting to see how this project fares.

My conclusion: This is a tough call. I feel projects like these are unique enough and in a great location (for some) to sell, as it isn't a huge development with 100+ units for the market to absorb. But the trends are there (falling) and at these prices I think people are really starting to sit back and ask themselves if they should really be buying at or near the top of the market.

I predict slow sales here in Q1 and price reductions and/or incentives in March or April.

Although I have not toured this building personally, I have to agree with the socketsite reader's label of sardine can. I highly doubt I would be pleasantly surprised with the space by seeing it in person.


Vitals:
-Redfin listing
-Developer: Santa Fe Partners
-MLS listing
-Google Maps

Readers: What say you?


dg

Preview of upcoming Sunday East Bay home tour

I have offered some friends of mine a tour of some Oakland and Berkeley neighborhoods this Sunday, including some open houses, to show them what you can get right now for $500k up to $1M. I thought I would provide a preview of some of the homes on my list here with what my perceptions are before and after. Obviously, I am assuming all of these to be holding open houses on Sunday! Here's what I have on tap so far:




5059 Pierpoint Ave in the Montclair district of the Oakland hills, and not far from Montclair Village, is a contemporary home built in 2007. With 3 beds/3baths, 2800 sq ft, and dramatic loft-like ceilings and spaces, this is a home I am excited to tour.
-redfin
-broker's listing
-google maps






2 Cortez Ct, also in Montclair and set just above the Village about a mile up, is a newly remodeled 3 bed/2 bath 60's rancher set on a large lot of nearly 1/4 acre. With a new master suite addition and new systems, this appears to be a very new-like home with great upgrades.
-redfin
-broker's listing
-google maps






112 Fairmount Ave in the Lake Merritt area of Oakland is a 3 bed/2bath craftsman built in 1924. With some updating, but definitely needing more, this house has great curb appeal and is near the new Whole Foods and Lakeside Park. I am not familiar with this area of Oakland but look forward to seeing it and the house in person.
-redfin
-broker's listing
-google maps

Top economists meet and call for major housing correction and possible Japan-style recession

At this weekend's annual meeting of the American Economic Association (AEA) in New Orleans, a panel of top economists Robert Shiller, Paul Krugman, Larry White and Nouriel Roubini addressed the subprime meltdown. Their consensus calls for property prices to decline 20-30% over the next several years, with 30% most likely, and the odds of a recession at much greater than 50% now. Even the boys at Merrill Lynch, Morgan Stanley and Goldman Sachs are now on the 2008 recession train.

Shiller goes even further and says there is a real possibility of falling into a Japan-style recession where housing prices continue to slump for several years.


These guys are not like the chief monkey economists at the Nat'l Assoc of Realtors and Nat'l Assoc of Home Builders, where the obvious major conflict of interest exists between being a good economist and a good cheerleader. These are top economic prognosticators and professors at Yale, Harvard, etc. Shiller and Roubini were two of the most vocal calling for the subprime and housing fallout several years ago. It is scary to think some of their forecasts could even be conservative. If these guys are correct, 2009 might even be too early to get back into the real estate game, that is if you are fortunate enough to be out of it currently.

Stock prices are to Earnings as Home prices are to Rents

Wall Street analysts throw around P/E (price to earnings) ratios all the time when digging into a stock and discussing whether it is under/overvalued. Historically, stock prices and sectors basically trade within certain a range of these P/E ratios. Remember the dot-com implosion? Of course you do. Why did it happen? Basically, because there were little, zero, or even negative earnings to support the exorbitant stock prices. When the dust settled, the market eventually returned to a state of normalcy where actual earnings reflect the value of the stock.

This fundamental principle does apply to housing values as well. As rents have climbed historically, so have home prices. Their relationship can fluctuate a little to a lot over the short- and medium-terms, sure. But not like they have in recent years. Three Fed economists (1 former, 2 current) have released a study - summarized here in the Wall Street Journal - proclaiming home prices need to retract 15% over the next 5 years, coupled with annual rent growth of 4%, in order to return back to normal levels. If rent growth is less than 4% or the correction period happens sooner, the drop could greatly exceed 15%.


Don't think you are the only one who feels it's insane that a $900k condo or house that carries $5000 in monthly debt service can only rent for $3000. It absolutely IS insane.