San Jose metro area
2011- down 2.5%
2012 forecast – up 1.6 %

San Francisco metro area
2011 – down 4.7%
2012 forecast – up 0.1%

 Below is the complete article: 

Bay Area home prices expected to stabilize in 2012

After years of decline, housing prices are expected to stabilize or even increase in some parts of the Bay Area this year, according to a new forecast.

Stabilizing prices are a sign of a healthier market, even though homebuyers still face challenges — tight credit, not many homes for sale and competition from investors paying cash.

In a report to be released Monday, Clear Capital, a real estate valuations company in Truckee, predicts that prices will remain almost flat this year — compared with a 4.7 percent drop in 2011 — in the San Francisco-Oakland-Fremont metropolitan area, including Contra Costa County. Silicon Valley should see a 1.6 percent increase in home prices, compared with a 2.5 percent drop last year, the company said.

“This region overall is doing pretty well,” said Clear Capital research director Alex Villacorta.

In three of the past four years, Bay Area home prices have declined from the previous year, including a dramatic 35 percent drop for the San Francisco metro area in 2008 and a 28 percent drop in Silicon Valley that year. Only in 2010 were there slight increases, followed by last year’s drop.

“We haven’t seen any stretches of normal activity for the last 20 years or so” in the Bay Area, he said, noting that prices had rocketed upward in the years before the decline. “It’s really been a roller coaster, with exception of now, when things are settling and leveling off.”

Nationally, the company sees a 0.2 percent gain in home prices in 2012, compared to a 2.1 percent drop in 2011. The San Jose area’s expected performance was in the top third and San Francisco was in the top half of 50 major metropolitan areas analyzed.

Across the country, housing could help repair the economy, said economist Sung Won Sohn at Cal State Channel Islands. Sohn, who recently released his own economic forecast, is predicting a housing-led recovery for the U.S. this year based partly on low interest rates and renewed multifamily home construction, which usually brings gains in the overall housing market. And prices, he said, are about as low as they can go.

“No one is expecting a dramatic fall in house prices,” Sohn said. “That gets people buying houses.”

The Bay Area, especially Silicon Valley, is already doing better, he said, “because the underlying economy seems to be doing better. I think we will see a somewhat faster recovery in the Bay Area.”

In the past two years, home prices bobbed up and down in response to government programs to encourage sales, as well as fluctuations in the number of foreclosures and short sales, in which homes are sold for less than is owed on them.

But agents say too few homes are on the market, and buyers still face tight credit.

“People are in escrow forever, and they finally give up,” said Richard Calhoun of Creekside Realty. “That is what I see as the biggest hindrance on the market.”

Investors paying cash for lower-priced houses remain a big obstacle for people like Nicole Collison, 25, a San Jose schoolteacher trying to buy her first home.

Motivated by the high rent she’s paying and the market’s current low interest rates and prices, Collison has looked at nearly 50 houses since October and bid on half a dozen of them, only to lose out every time to cash buyers.

“We’re always outbid,” she said. “It has been quite a challenge.”

But she hasn’t given up.

“We’re going to keep at it. We’re hopeful after the beginning of the year more things will come on to the market.”

In the East Bay, about 20 percent of the homes are selling rapidly, said Unhei Kang with Grubb Co. in Berkeley. A nicely presented home in a desirable area will draw multiple bids, she said.

“I don’t know what the future will hold, but to me it seems like it is stable. There are definitely buyers out there. Maybe it has to do with the low interest rates. A lot of buyers are feeling it’s not going to get any better than this,” Kang said.

The housing market is “spotty” in Contra Costa County, with some areas doing well and others not, said Barbara Safran, president of the Contra Costa Association of Realtors. “I think we’ve dropped about as low as it can get, unless some crazy thing happens in the economy and the world.”

The median price for single-family homes dropped about 4 percent last year, Safran said, with condos dropping about 4.6 percent.

“We’re predicting that it’s probably going to stay the way it is for a while. I think we’re going to continue to see a lot of short sales. The foreclosure market is still iffy. It’s a question of how quickly banks are going to put out those foreclosures.”

Bay Area home prices

San Jose metro area
2011- down 2.5%
2012 forecast – up 1.6 %
San Francisco metro area
2011 – down 4.7%
2012 forecast – up 0.1%
source: Clear Capital.

Lender started to implement the price increase on rate lock for 45 days and 60 days already. 30 day pricing will be impacted starting from late January and 15 day pricing will be impacted starting from mid-Febuary. The impact will be around 50 to 80 BPS. 50 BPS for a 400,000 loan is $2000, which means you could see your rate worsen by about 0.125%.

So hurry up and call me asap if you are planning to refinance and have not locked your rate yet.  As of today, I still have 3.875% for 30 year fixed loan if lock for 30 days.

The increase of the guarantee fee is used to bankroll the payroll tax cut extension signed by President Obama late in December last year. (Click here for the complete story).

On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises. The law also requires FHFA to determine a schedule for guarantee fee increases over a two-year period that must satisfy other requirements of the law.

It’s important that you work with a loan agent who knows well each bank’s processing time and requirements so that he or she can give you instructions on how to prepare for that and advise you which lender to use based on comprehensive evaluation of your parcicular case and each lender’s way of work and their program strength.

Here are a few things you can do to speed up your refinance process:

1. Have all the documents ready according to the check list I provde you.

2. For bank statements, avoid giving lender the statements with large deposit. (Any deposit $1000 or more counts as a large deposit). If you cannot avoid it, provide paper trail for any deposit $1000 or more because lender will ask you for that.

3. If you have rental property, provide lease agreement, property tax bill, insurance evidence for each rental property you owns. Review your tax return you filed over the past two years and make sure that they are matching what’s reported on your Schedule E

4. When appraiser calls you to set up inspection time, get on the earliest one available. If appraiser can not come to your home for inspetion within a couple days,  call me (or whoever is your loan agent) to request another appraiser who can be available earlier.

We are at year 2000 level. Check here for the chart of price-to-rent ratio from 1983 to now: http://www.crgraphs.com/2011/10/house-price-graphs.html This gives you good persective of where we are in terms of housing price.  For price-to-income ratio, the most personal and relevant way is to calculator your own price-to-income ratio. The price should the price of houses in the area you are interested in buying and the income is your own income change over the past 10 year or whatever the period you are evaluating.

I have written about rent increases a lot in Silicon Valley.  With rent expected to rise further,  it makes more sense to buy a house.  A two-bed room condo in north valley San Jose  could cost you $2000/month for the rent. A single family house with three-bed room, two and half baths with only ten years new in the same are in north valley is priced around 530K.  With 20% down payment, the current low interst rate of only 3.875% for 30 year fixed rate, your monthly mortgage payment is ony $1994 which also include over $600 principle payment. This means you acutal expense is only $1400.

You may ask, what about the property tax and insurance? These are ususally offset by the tax credit you get as a home owner.

Needless to say, if you are paying over $1400 rent now, you should explore the option of buying.

For those who may not have saved 20% for the down payment, there are plenty of loans out there for a down payment as alow as 3.5%.

Appraisal is appraiser’s opinion of your home value.  The regulation prevents loan agent from talking to appraiser. All the communication needs to go through appraisal management company. However, there are still a few things home owner can do which could contribute positively to the appraisal value.  Here are the list:

1. Prepare comparables. Find out prices of  houses sold within six months which are comparable to your house in terms of size, condition, school and nearby your house. Compile them into one list and give it to appraiser the day your house is inspected. Nobody knows your neighborhood more than you are. Appraiser may not know those subtile difference in the neighbors that could impact the price. By doing so, you help appraiser to draw a more accurate opinion of your home value.

2. Give appraiser a list of upgrades you did and how much you paid for those upgrades.

3. Make the home clean and organized on the day of inspection. First impression is important.  This helps to put your home in a better condition status.

4. If there is any visible issue, get it fixed first. Leaking roof, visible water stain, broken window, these not only hurt your value, they could also slow down your loan approval as lenders will ask you to get them fixed first and have appraiser to come back to inspect it again. Appraiser’s second trip could cost you more appraisal fee.  If you are buying short sale or REOs, you want to make it clear with sellers who will take care of the repair before your loan gets approved in the offer negotiation phase.

Silicon Valley housing market has been going through lower inventory for a while. Cupertino, Santa Clara and Sunnyvale only have three months inventory for Single Family Residences and the investory for common interest development (such as condos, town houses) are even below three months.

Rent in Sunnyvale was up 17.6% from last year to $1731. Rent in Cupertino went up 14% to $2168 and up in Palo Alto by 14% to $2450. Average rent increased 13.2% in Mountain View to $1812.

With the surge of rent, it makes more sense to buy now. A very important ratio, the purchase price to annual rent ratio, is a good indiator to help buyer make the decision. A price-to-rent ratio of 1 to 15 means that it’s much cheaper to buy than rent in a particular city. A ratio between 16 and 20 means that it’s more expensive to rent than to buy but buying may be better than renting “depending on personal circumstances, such as one’s tax bracket” Any ratio above 20 indicates that owning is much more costly than renting in a city.

The price to rent ratio for San Jose is 15 in January 2011, dropped to 12 in April and inched up to 16 in July. The ratio is higher in areas with better school as evidenced by the followings:

Sunnyvale: 23, Mountain View: 24, Cupertino: 27, Palo Alto: 31.

If you have kids at school age, the above ratio will need to be adjusted to factor into the tuition and it could explain why it still makes sense to buy in those areas.

If you are looking to buy investment property and seek good cash flow for your investment property, or if you are first home buyer who does not want to pay much more than your current rent,  San Jose’s ratio looks much better.

Santa Clara county’s median housing price is around 600K. Using that as purchase price, with 20% down payment and a 30 year fixed loan program, I did the following scenario analysis:

At 4% rate, monthly mortgage payment including principle and interest is $2292

At 4.875% rate, monthly mortgage payment is $2538 without pricing change.

To achieve the same monthly payment of $2292, at 4.875% rate, the housing price has to drop by about 9%.

As you see from the above example, mortgage rate change has quite a weight on your monthly payment. Interest did climb up to over 5% for 30 year fixed a few month ago before it came back down to the new low of 4%. On the other hand, housing prices in many cities in Silicon Valley are not just stablized but actually had some increase.

Do you think the housing price is likely to drop antoher 10% in the near future? Or do you think the interest rate is likely to incrase from 4% to 4.875%in the near future? If you think the probability of a 10% drop in price is higher than a mortgage rate increase from 4% to 4.875%, then you wait. Otherwise, seize the moment to buy low and sell high.

Here are insights from Tara-Nicholle Nelson who is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com on why they do not work: 

What’s involved is a computer taking the description of your home from the public records (which usually reside at the county recorder’s office and in their databases) or from a recent listing (if your home has been sold in the past few years), in terms of the number of bedrooms, bathrooms and square feet, primarily, and pulling out the closest homes to yours that have sold recently that have similar data on record.

However, the computer can’t necessarily distinguish nuances in a property’s condition or aesthetics, nor does it always correct for whether the house two blocks over was a short sale or a foreclosure.

Depending on where you live, how similar homes are to each other in your area, the level of sales activity near your home and the level of accuracy found in the public records for your house and nearby homes, these sites can offer very comparable “comps” — or comparables that aren’t really comparable at all.

If you live in a fairly cookie-cutter subdivision where several homes just like yours have sold very recently, you’re likely to get a good set of comparables, and a value estimate that’s at least in the ballpark. But in many areas, lots of fairly common scenarios can come between you and a good set of automated comps:
• if your home is older and has had a lot of improvements and even additions that are not in the county records, you’re likely to get bad comps;
• if homes in your area are very different from each other, you might get bad comps;
• if you live in a neighborhood very nearby another neighborhood where homes have a much higher or lower value than your area’s (say, because they belong in a better school district or even on the other side of the city limits), you’re prone to getting bad comps;
• if your home is in an area where homes are dense, the algorithm might jump over many very nearby properties to get to a relatively dissimilar one even a half-mile away, and that can give you bad comps.

The listings provided by the sites can be very useful for homeowners trying to stay on top of what homes around theirs are selling for — not listed for, but actually selling for. They are less useful, in my opinion, at placing values on properties; the sites that do this usually have their accuracy rates listed somewhere on the site, and I haven’t yet seen one that’s impressive.

But when it’s time to actually list your home, or figure out what it is worth, no computer — no algorithm — is as accurate as a living, breathing local real estate professional who sees and sells all the different specimens of homes in your neighborhood and sees firsthand what ready, willing, qualified buyers actually pay for them, day in and day out.

I think it’s important for sellers interviewing listing agents to discuss the online comparables with prospective listing agents, but not as a counterargument to what the listing agents recommend you list your home at.
Rather, it’s a smart way to see what the agents know — and what you can learn — about the other properties in your area.