Stability Returning to East Bay Housing Market

We’re approaching the Spring selling season in the East Bay – it’s time to tackle the question of where we think the local housing markets are heading.

The downward pressures on the housing and lending markets have taken their toll on the resilient East Bay housing market. The I-680 corridor remains one of the healthiest housing markets in the country, but that doesn’t mean we escaped the impact.

Will recent actions taken by the Federal Reserve, the Federal Government, and the major lending institutions have any real effect on housing? Most pundits agree that these programs will only benefit a very small percentage of home owners in trouble.

The most significant factor in the mix for East Bay homeowners is the change in the conforming loan rates. This change is something that has been long sought by the real estate industry in California.

But don’t expect this change to send the housing market skyrocketing back to new heights. The market is still in transition. The long-term effect of bad financing, foreclosures, tighter lending standards will (hopefully) be a more solid and sane foundation of lending standards to promote and support long-term home ownership.

Housing affordability is the big issue that needs to be addressed. Even with the downturn in housing prices, the cost of home ownership is out pacing income growth for most Americans.

The number one factor that will influence home prices this spring will not be foreclosures or financing availability – it will be seller motivation. Sellers that need to sell to get on with their lives will be influenced by market forces and they will price their houses accordingly. It is the sales of these houses that will set the new comps for your neighborhood.

We can expect to see more price reduction throughout this year which should flatten in the second half. I would expect this to be in the 2% to 5% range. Which means that buyers hoping for another significant drop in prices will probably miss out on the better deal because increased interest rates will negate any price reduction.

Housing prices are going to flatten for the most part. The bottom half of the market has seen about all of the reduction it can take. The upper half has done its job of stabilizing the median home price, but here is where we will see some significant impact because price reductions in the upper end will result in the median home price dropping – and this will give the media more cannon fodder to bombard us with – The Sky is Falling, The Sky is Falling!

All of the mess we read about in the papers or hear on TV, in general, relates to less than 10% of the housing market. You’ve heard of the 80/20 rule? Well, in journalism, it seems to be the 10/90 rule – take 10% of something and turn it into a major catastrophe.

The psychology of the market is returning to the pragmatic – gone is the hyper-drive of easy money and doom & gloom will also pass. Practical people that need to buy or sell real estate, will be the force that returns the market to sanity and stabiity.

Congress passed the economic stimulus package which temporarily raises the conforming loan limit to $729,750 from $417,000. This should loosen up credit and give a boost to the real estate market, especially in high-priced areas like the East Bay Area.

DQNews reported that Bay Area home sales ended 2007 at a more-than 20 year low (units sold). This includes most East Bay communities like Danville, San Ramon and Alamo.

"Things aren't strong by any means," said Mark Vitner, economist with Wachovia Securities in Charlotte. "It's possible that we will see some improvement in the housing sector and we think that the first quarter will mark the bottom in home sales."

Mortgage rates remain favorable, and refinancing activity is solid. With underlying short-term interest rates on the downtrend, the ARM rate reset problem is lessened. Rate freeze and loan modification proposals for some subprime borrowers should be making headway, and an economic stimulus package is in the works. Lower short-term interest rates should spark some additional growth not far down the road. When housing finally comes to a stabilization point, hopefully in the near future, the stage may be set for a pretty good economic rebound.

Danville - San Ramon - Alamo - Dublin - Pleasanton - Walnut Creek 

Savvy sellers should have their homes priced right and on the market by March 21. Talk to your agent or lender about the change in conforming rates and how that can help your situation. Creative financing is returning to the industry.

Motivated buyers should check with their agent or lender to ascertain how the recent changes may improve their bargaining power.

A significant change that has occurred over the last 15 years in the real estate industry is that the down payment is now of less importance than the monthly payment. This reflects an ongoing trend in our society. Given this, what we are seeing more and more is buying down the rate rather than reducing the price. Talk to your Realtor or mortgage broker about this. 

Important Update-  New Conforming Loan Limits Pending – Big Impact on California Housing Expected

Part of our commitment to our clients is to keep them informed of changing conditions and information regarding real estate trends and developments.

Congress could be passing legislation that will actually help you.  And that legislation could come into effect soon.  An article written a couple of days ago suggests that the debate right now is whether a high cost area (California) bump of 150% would be temporary for 1 year, 2 years, or whether it would be permanent.  That seems like they are no longer questioning whether or not to increase the $625,500 conforming limit in California, but for how long.  The final decision will probably not come down until March. 

Who could benefit the most?   Anyone who owes between $417,000 and $625,500, and those looking to purchase properties in California.  What you will see is the housing market heat up, the stock market improve, and home owners with Jumbo Loans (those over the conforming limit) refinancing at lower conforming rates.   This could save you between .500%  to .750% on your interest rate. 

This could definitely cause a log jam for the mortgage industry, especially since a lot of lenders are running lean.  Here’s our suggestion.  BE PREPARED and PLAN AHEAD!!!  Turn times from application to close could be somewhere between 30 and 45 days.

Raising the conforming loan limit up to $729,750 will have the following positive impacts on our local real estate markets:
 

• First Time Home Buyer Programs available with just 5% down to purchase prices up to $768,000.
• Move up buyers can obtain the lowest rates to buy a new home up to $912,000 with only 20% down.
• Using a conforming 1st mortgage and a 2nd mortgage, one can buy a home with as little as 10% down with no mortgage insurance for purchase prices over $1,000,000.
• Homeowners with mortgages today between $417,000 and $729,750 will have access to conforming refinance rates which are currently 0.5% to 1.25% better than corresponding jumbo rates.  This will improve homeowners’ financial positions by creating more disposable income which helps the economy in general.
• Investors will probably seize this opportunity to combine lower rates, lower home prices, and higher rents to buy properties…thus helping to reduce inventory.

Now is the time for move-up buyers to get their homes on the market to take advantage of this significant change of events coming.