Financial Market, Real Estate & You

We certainly live in interesting times!  We have experienced the good, the bad and the ugly recently in the real estate market. Who would have thought that large banks such as WaMu, Wachovia and IndyMac could fail or get bought out so quickly?!  Or large financial brokerages like Lehman Bros or Bear Stearns would be liquidated or file for bankruptcy?  Not to mention the government stepping in to shore up Fannie Mae and Freddie Mac as loan guarantors.  Whatever your view politically, it is a huge mess that requires government intervention on some level to prevent a catastrophic collapse of the credit markets.

 

With the level of foreclosures increasing, it has created somewhat of a dichotomy in our California real estate market. On the one side, there is an increasing inventory of bank owned homes on the market at greatly discounted prices which has taken a toll on most homeowners’ equity position.  Some areas are affected more than others in the Bay Area, but generally speaking, we have seen price declines resulting in homes selling at 2003 values.

 

The positive side of the same coin is that buying a home is now more affordable than it has been in years.  Some of our clients are taking advantage of the new FHA loan limits (Currently at $729,700) with a down payment of 3% to 10%, on a 30 year fixed rate period.  In many cases the Seller (the Bank, when it is bank owned) is willing to pay up to 3% of the Buyers’ closing costs in an effort to get these homes off of their books.  This has resulted in many properties receiving multiple offers and in some cases the purchase price gets driven up!  A down payment assistance program that enabled the Seller to help the Buyer with the down payment via a non profit entity has just been eliminated, although there is now talk of it being re-established in the near future.  There had been a fear that down payment assistant programs would serve to artificially drive up prices, but that has been somewhat unfounded in the current market. We will update you on that important change as soon as it becomes clearer.  When we were able to utilize the down payment assistance program in the past, it worked very well for first time buyers.  As with all FHA loans, the buyer must qualify for the loan, resulting in a much safer and more predictable loan

 

Where does that leave the rest of us?  Well, if you do not have to move anytime soon, and your mortgage is not about to adjust to astronomical levels, then it might be time to sit tight and wait it out.  Having said that, if you are contemplating moving soon, you will not realize such a windfall as we once had, but if you are considering buying as well, then you should make out quite well on your new home.  You could also consider keeping your current home and renting it out until the market stabilizes.  Interestingly enough, the rental market has become very strong, with well kept homes commanding premium rents. There are some loan restrictions going forward when employing this method, please call us for clarification on your individual situation.

 

(Another thought if you move: You may also want to think about utilizing the Prop 60 approach on maintaining your current property tax base when moving on, check with your local Tax Assessors office in the county of residence for details.)

 

In case you were not aware, we are members of many MLS boards including Contra Costa, San Francisco, Peninsula, Central Valley and San Diego.  So we can list and sell homes in any of these areas.  Please check out our web site for all of your Real Estate needs at www.dugganteam.com.

 

Let’s hope that Congress is able to stabilize the economy and prevent a severe downturn and get the housing market back on track soon!

 

By: Mike Duggan

Mike has been in Real Estate and Finance since 1979. He has experienced 2 previous financial downturns. This hands on expertise is especially important in helping our clients make the right buying or selling decision.