Well . . .(BIG sigh). . .the National Housing picture continues to paint a very bleak outlook. The two best quarterly housing reports came out yesterday, The Standard & Poor's/Case-Shiller housing index and the National Association of Realtors (NAR) report on median home price, and (another BIG sigh and an Ugh) the numbers are just down right scary.
I always wait for the Standard & Poor's/Case-Shiller 20-city housing index each quarter but report revealed that home prices continue the free fall. Home owners saw prices decline by a record 18.2 percent from November 2007. This is the largest decline in home value since the inception of the Case-Shillar report began in 2000. The 10-city index dropped 19.1 percent, tied with October for the biggest drop in its 21-year history.
Of course Alameda has seen it share of decline in the market, but not the type of numbers in the cities that had the biggest housing bubbles. Phoenix, Las Vegas and San Francisco all reported annual price declines of more than 30 percent in November, according to Case-Shiller. If the Island does see this type of decline you will see homeowners in shock and walking the streets asking what happened. An example of the impact of this decline: $600,000 home in 2007 (multiplied by 18% decline) is now $492,000.
If you use the National Association of Realtors median home numbers it is not much better. NAR reported the national median home price fell a record 15 percent last month to $175,400, down from $207,000 a year ago. In Alameda we saw a 7.6% decline in median home price.
The light at the end of the tunnel, the good news, the thing to hang you hat on is interest rates are low and with a significant down payment, anyone who buys now will save money in the long term. The trouble in Alameda is most homes fall into the Jumbo Loan category and trying to find financing will be difficult.
Yesterday was a real bad for real estate reports. First the National Association of Realtors (NAR) released Pending Home sales and they announced a record low, then later in the day a survey from the Corcoran Group, a New York brokerage firm, reported their little island Manhattan saw real estate sales plunged more than 40% in the fourth quarter to 2,500 units. The Manhattanites are used to over 6,000 sales in the last three months of the year.
So we look 2,907 miles to the west to our little island and see our sales are roughly flat. In the fourth quarter of 2007 we had 118 sales compared to 2008 with 105 closed transactions. This is an 11% change, but in the scope of total sales it is a small change. I wish I had the 2006 and 2005 data, I am sure it would be way down, to compare the sales totals.
Back to the NAR report: According to the National Association of Realtors, the Pending Home Sales Index fell to 82.3 for the month of November, to its lowest level since the series began in 2001, That's a drop from a downwardly revised reading of 85.7 in the month of October. The November index is 5.3% below the same month a year ago, when the Index stood at 86.9.
Lawrence Yun, NAR chief economist, said a weakening was inevitable. “Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November,” he said. “December’s housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed.”
This is very bad news and it will only get worse in December. Here in Alameda you can see that Real Estate inventory continues to decline and sales have drop. The Island recorded 451 sales in 2007, down 103 units from the prior year. It is hard to believe that it will continue to fall much lower. This is the number that we real need to focus in on. Sales impact local jobs (realtors, mortagage brokers), transfer tax, property tax and several other areas that if we do see the resale market rebound it can be a very tough year for the community as a whole.
To try and get housing to rebound, NAR is continuing to push for a housing bailout.
“There can’t be an economic recovery without a focus on housing. “It’s crucial for Congress and the new administration to move quickly to remove impediments and offer home buyers the incentives they need to tap into today’s historic low mortgage interest rates,” said NAR President Charles McMillan, a broker in Dallas-Fort Worth."
For the Island, our insulated world, we will continue to see pressure from the outside. As homes decline in other areas the become more affordable this creates pressure to push price down in Alameda. So many variables are connected to rebounding housing market (financial credit market, jobs, inventory, bank owned properties, ect.) that it is hard to see the light at the end of this train tunnel.
The news does not get any better with housing, even on the second to last day of the year. After the holiday I will take a closer look at how today's report is reflected in the Alameda Residential Housing market. But the synopsis is: The Standard & Poor's/Case-Shiller 10-City Composite Index was released today and it showed a plunged 19.1 percent from a year ago, the steepest declines in 20 years of available data. The 20-city index declined 18 percent.
Okay lots to write about today. So much has happen in the Real Estate world in the last 24 Hours, so here are some of the headlines.
Interest Rates
The biggest story is the Fed lowering interest rates (related SF Gate Story). The central bank on Tuesday, reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October.
This is great news for anyone looking to buy now. Freddie Mac reported Thursday that average rates on 30-year fixed-rate mortgages dropped to 5.47 percent from 5.53 the previous week. The rate is the lowest since March 25, 2004, when it averaged 5.4 percent. The Fed announcement sent the average rate down to 4.99% for a 30-year fixed loan on conventional new loans.
This is a good reason for people to start looking at homes again, It is also an opportunity for people to refinance. All this is dependant on if the banks start handing out loans, but some economist think that banks will still hold back and give loans to only those with perfect credit and big downpayments. So it is a good time to begin watching rates.
NAR Pushes for 4.5% Interest Rate
A federal mortgage interest buy-down program would help spark the housing market, the National Association of Realtors® said in a letter sent today to James B. Lockhart, chairman of the Oversight Board of the Federal Housing Finance Agency. NAR seeks a 4.5 percent mortgage interest rate buy-down program financed through the U.S. Treasury Department’s Troubled Asset Relief Program.
In the letter to FHFA, NAR shared three potential implementation procedures for a federal buy-down plan:
TARP would fund the payment of points at the individual level.
The Federal Home Loan Banks would raise funds by selling below-market-rate bonds to the Treasury Department for them to make the 4.5 percent interest rates available to lenders.
Fannie Mae and Freddie Mac would purchase mortgages at the 4.5 percent interest rate but pay lenders the market rate.
NAR has calculated that a 1 percentage-point decrease in mortgage rates would result in an additional 500,000 home sales.
In addition to suggesting that TARP assets be used to buy-down mortgage interest rates, NAR has recommended other principles that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation:
The higher loan limits passed in the economic stimulus bill earlier this year should be made permanent.
The federal government should ensure sufficient capital to support mortgage lending in every type of market.
The temporary $7,500 tax credit for first-time home buyers should be extended to all home buyers and the repayment requirement eliminated.
Two Trillion Dollars
Zillow.com reported more bad news as they calculated the loss that homeowners will suffer in 2008. Zillow states that American homeowners will collectively lose more than $2 trillion in home value by the end of 2008
"Underwater" was the real estate buzzword of the year. U.S. home values(2) lost $1.9 trillion from the first of the year through the end of the third quarter, and were likely to fall further in the fourth quarter, leaving approximately 11.7 million American households owing more on their mortgage than their homes are worth. One in seven of all homeowners (14.3 percent) were underwater by the end of the third quarter.
For Alameda: Zillow reported in the third quarter Zindex of $ 600,000, a one year change: -7.8%. Nationally, Zillow calculated that home values have dropped 8.4% year-over-year during the first three quarters of 2008, compared with the same period of 2007.
The Commerce Department report found new ways to lump onto the poor housing market. New housing starts and permits reported a huge decline to record lows in November. Housing starts fell 18.9 percent to a seasonally adjusted annual rate of 625,000 units from 771,000 units in October.
Wall Street analysts expected 740,000 starts for November. New building permits, which give a sense of future home construction, plummeted 15.6 percent to 616,000 units from 730,000 units in October not meeting Wall Street expectations.
Another government report showed the cost of living in the U.S. fell in November by the most since record-keeping began in 1947. Consumer prices dropped 1.7 percent last month as the price of gasoline and other energy costs plunged, the Labor Department said.
A study commissioned by Trulia and RealtyTrack shows a shows decreased enthusiasm in buying foreclosed properties. Buyers are concerned about the hassle involved in the process, hidden costs and falling home values.
"What's significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them," said Pete Flint, co-founder and chief executive of Trulia.com, a real-estate search engine that released the study with foreclosure tracker RealtyTrac.
"The results of this study are eye-opening and highlight the need for consumer education about foreclosures," added RealtyTrac senior vice president Rick Sharga. He noted increased hesitancy to buy foreclosed homes in the current climate "is somewhat counterintuitive, although not totally unexpected."
The survey shows a decline in November with 47% of adults saying they would consider purchasing a foreclosed home, down from 54% in April.
On Monday, Fannie Mae announced that it will let renters stay. This should come as a welcome relief to about 4,000 renters who live in properties foreclosed on by Fannie Mae. The government-controlled mortgage giant announced it would not evict tenants of foreclosed properties who were current on their rent. It not a set in stone policy, but Freddie Mac is considering the idea.
Last week, the California Association of Realtors released report on Thursday that stated housing affordability has more than doubled in California during the past year.
CAR said the percentage of households that could afford to buy an entry-level home in the state rose to 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago. Those looking to buy in Alameda will find prices have declined by 19% from September of last year, so more buyers now qualify for home loans with lower prices, but it looks like that homes still remain out of reach for many.
CAR's First Time Buyer Housing Affordability Index measures the percentage of households that can afford to purchase an entry-level home. The lower the index number is, the fewer people who can afford to buy a home.
According to the report the statewide minimum household income needed to purchase an entry-level home priced at $287,760 in the third quarter of 2008 was $56,100. The minimum qualifying income was 44 percent lower than a year ago when households needed $100,500 to qualify for a loan on an entry-level home.
This Index is based on an adjustable interest rate of 5.91 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. That would peg the monthly payment including taxes and insurance at $1,870 for the third quarter of 2008.
The San FranciscoBay region was the least affordable in the state, but the index there also rose from 18 percent last year to 35 percent this year. In San FranciscoCounty the index went from 15 percent last year to 26 percent. In AlamedaCounty the index rose from 23 percent last year to 39 percent this year, and in CostaCostaCounty it rose from 16 percent to 30 percent.
So taking a looking at median home prices from DataQuick Information Systems, derived from all types of home sales -- new and existing, condos and single-family, Alameda has seen a 19% decline in prices so an increase.
County/City/Area
Sept 2008
Sept 2007
Y-T-Y % Change
AlamedaCounty
$385,000.00
$560,000.00
-31.3%
Alameda
$564,750.00
$696,500.00
-18.9%
Based on CAR’s formula for the Index, Alameda comes in at about a 25 using their rating System. I used an online calculator to come up with an Alameda example: A person buying a home at the average $564,750, after a 10% down payment you would have a payment of $3,872.49 with taxes, Insurance and PMI. The annual income needed would be $154,896.
According to Census 2000, Alameda’s average household income is $68,376. Although the data is dated, it shows that most of Alameda would have a hard time meeting the requirements. I think that the index shows that Alameda continues to hold value, because affordability has a direct relationship to what consumers desire. Supply and demand in its basic form controls much of of the affordability for home buyers.
If look around the Island, there are several properties that are bargains based on Alameda’s historical value and pricing. Based on the run-up in home value from 2000-2008 many properties are closer to 2000 prices than 2006, so if you now fall into the those who they say can afford the market gets better for you everyday.
Another School House Rock Video "Dollars and Sense": I forgot how educational they were.
