This post first appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

One of the first steps in any home buying search is figuring out how much you can afford. This means determining what your monthly income can support in terms of mortgage expenses, taxes, insurance and upkeep, in addition to what you need to have saved for a down payment.

One easy way to figure this out is to go online and find a website that provides a mortgage calculator like this one at Bankrate.com. The vast majority of mortgage calculators are very easy to use and provide instant results which are pretty reliable when it comes to how much your monthly mortgage payment will be.

For people who are just starting to explore home ownership, a mortgage calculator can be a simple resource which doesn’t require you to speak with anyone or force you to gather all your financial information to get pre-approved for a loan. The reality is that your mortgage payment will be the largest portion of your monthly housing expense, and a mortgage calculator is a pain free way to figure how much you can afford to borrow and how much you need to save to buy your dream home.

When using a mortgage calculator, however, you need to understand that the calculator only provides you with an estimate of your monthly mortgage payment, not the entire monthly cost of owning a home. New owners are often surprised at how much money is required to own a house beyond this relatively straightforward expense. Taxes, homeowner’s insurance, HOA fees (for condos and developments), and upkeep can be materially expensive and need to be accounted for when evaluating your home purchase decision.

The vast majority of mortgage calculators fail to provide these key figures, so its important to talk with a real estate professional to get a better understanding of how much you should expect to pay each month, in addition to your mortgage payment. Cirios has more detailed calculators which include all salient home ownership costs, enabling our clients to make well informed home buying decisions.

The mortgage calculator is a great tool to get started in the exploratory phase of the home buying process, but its important to be aware of its limitations.

This post first appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

As jumbo mortgages continue to be extremely difficult to get, we at Cirios keep asking ourselves: Is it a buyer’s market for borrowers who manage to qualify for a jumbo loan? To answer that question, we took a look at a home which seems to have everything: location, updates and parking (which in San Francisco is like gold).

Neighborhood Overview: The Castro district in San Francisco is one of the most desirable areas in the city. It has all the key amenities (shopping, restaurants, grocery stores and numerous public transportation options). Recent price declines can be blamed on the fact that its nigh impossible to get the big loans needed to buy these pricey homes, along with the general downturn in the economy. However, the Castro remains a very desirable place to live and price declines should be moderate, as qualified buyers look to take advantage of lower prices.

Original List Price: $1,495,000
List Date: 5/27/2009
Current List Price: $1,495,000
Previous Sale: $1,575,000
Previous Sale Date: 11/2/2007
Estimated Down Payment: $373,750
Estimated Monthly Payment: $8,535.96*
Bedrooms: 3; Bathrooms: 2.5
Liv. Area: 1,915 sqft; Lot Size: 8,000 sqft

Positives:
+ Large back yard, parking
+ Centrally located
+ Wine room, office and sun room

Negatives:
- Common bathroom (upstairs) does not have a shower
- Kitchen is a bit small
- Third bedroom doesn’t have a closet (how is it a bedroom without a closet?)

Value Approach:

Step #1 – Location
As mentioned above, the subject is located within walking distance of bars, restaurants, shopping and all major public transportation lines, and is in an area of well-maintained homes. The property itself is unique in that it has a large flat lot with a well landscaped yard, which is a rarity in San Francisco.

Step #2 – Data Analysis
% of Zip Distressed: 0.27% (Low)
% of Zip For Sale: 0.27% (Low)
% of Zip Sold over last 3 months (year-over-year): -42.7
Elementary School API: N/A**
AHA (Affordable Home Amount): $656,817

The drop in sales activity in the past year is further evidence that high end markets are getting hurt by the lack of jumbo mortgages and the continued economic contraction. We expect sales activity to remain low in the near term, as there are few signs that the jumbo loan market is improving.

Step #3 – Comparable Properties
Click here for our CLEAR Valuation, or on the image to the right.

Step #4 – Value Analysis
The subject is one of the lowest listed properties in its immediate vicinity, which will likely result in a lot of interest from potential buyers. S1 sold for $1,425,000 and is located across the street from the property, which is evidence of demand in the area. Although S1 is a superior home to the subject, it backs up against the Castro Theatre, which should be considered a material negative, due to the noise which is likely to emanate from the bars and restaurants close by.

Cirios Value: $1,375,000
Over Listed Amount: 8.0%

This post first appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

This month’s spotlight shines on an oft-forgotten portion of the East Bay, San Leandro.

While San Leandro lacks the famous name of an Oakland and the semi-swankitude of a Castro Valley, its central location and amazing affordability make it worth a second look for anyone looking to buy a home for less than $600,000.

Currently listed homes in the zip code range from a small 2 bedroom fixer upper listed at $200,000 to a $1.3 million dollar home with a pool and views of San Francisco. The large majority of homes (77%) are priced $600,000, large lots are common and Chabot Regional Park is a stone’s throw away. Downtown San Leandro is a vibrant commercial area with many common outdoor events.

As can be seen in the graph below, home prices in 94577 have come down significantly since their peak in 2005. Another noteworthy aspect of the sales graph is the enormous spike in supply that occurred in late 2007. As we have explained in the past, these supply spikes always correlate with precipitous declines in prices.

On the flip side, as supply pressures ease, values tend to stabilize. Clearly, the supply trend for this area is returning to more traditional levels. Simultaneously, there seems to be some support at current price levels, meaning that the decline in prices could be leveling out.

The public school system in San Leandro isn’t anything to write home about, but the attractive affordability levels mean private schools could be an option.

And in terms of commuting to San Francisco, the 24 minute ride from the San Leandro BART is identical to the commute from the Downtown Berkeley station.

This post first appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

It’s everywhere these days: In the news, on the streets. The “bottom” is coming. We have toiled long and hard through the dark days of this “Great Recession” and are now coming to the bottom of the housing slump. Well, we’ve got bad news.

Not only are we not yet to the bottom, there is no such thing as the bottom. But, as it turns out, the “bottom” doesn’t actually matter, at least not to today’s savvy home buyer.

In mathematical terms, a bottom would represent the lowest value that some function worked out to as it moved its way along one axis or another. In our world, really the only axis that means anything is the axis of time. Everything moves inexorably towards the future, sometimes plodding, sometimes sprinting, but always forward. So why can’t we find a bottom to the function of the housing market?

Isn’t there a given point in time where the market reaches the lowest level it can reach and only heads up from there? Nope.

The problem — as we try to hammer home over and over again here at Cirios Real Estate — is that there is no single “function” that can describe a real estate market. As the old axiom goes, all real estate is local. And indeed it is.

Therefore, the function that describes what home values are going to do over a given time period in one area can be completely different than the function describing home values just a few miles away. The real kicker is that even these simple, very localized functions are so unimaginably complex that their ability to tell us the future through a simple calculation is nil.

So what’s the solution? Why does Cirios keep coming out with all these data and articles about learning housing by the numbers if the numbers can’t give you the answer you’re looking for? The response to that is simple: While we can’t predict the future by using some magical formula — no matter how hard we try — today’s information age allows us to get an accurate picture of what is happening RIGHT NOW, not to mention make a sensible stab at what will happen in the very near term.

While there’s no mathematical function for a home’s future value (despite attempts by myriad websites, the latest of which is called smartzip.com, which tries to assign a 10-year future value to each house in California), there is a light at the end of this algebraic tunnel. The calculations for each of us PERSONALLY are straightforward.

The most important equation is the one that looks at your individual finances and decides whether its right for YOU to buy a home. And fortunately, Cirios can help with it all. We can help you decide whether buying a home is right for you, what kind of home you should buy and when the right time will be.

And while there are no magic formulas that predict the home market’s future, Cirios has the tools and skills that can clear the confusion around today’s confusing market conditions.

This post first Appeared in the July edition of Cirios Trends: Getting to the Bottom of the Housing Market

As the infamous summer buying season heats up, hopeful housing market participants are looking for a respite from nearly four years of woe. Reality, however, is throwing a wrench in their plans.

Two trends have recently emerged that are derailing what many hoped would be the strongest summer in real estate since the downturn began.

First, fears about government’s massive debt load and the specter of looming inflation are pushing up interest rates. Despite trillions of dollars dumped into the secondary market for mortgages, rates have risen nearly a full percentage point in the past month. For more on this topic, please read Higher Rates Strangle Mortgage Market.

Second, in response to a lawsuit filed in New York against Washington Mutual, new appraisal guidelines went into effect May 1. The rules, which try to limit collusion between banks and appraisers, are wreaking havoc in the market for new loans. For more on this topic, please read Keepin’ It Real Estate: Just How Bad Are the New Appraisal Guidelines?.

Meanwhile, foreclosure moratoria which expired April 1st were expected to unleash a flood of supply of bank owned homes onto the market. This mountain of new inventory has yet to materialize, as “soft moratoria” are being employed by banks, at the behest of Washington, keeping homes off the market.

In short, its crazy out there. But, amidst the chaos, normalcy is beginning to emerge from the housing market’s charred remains. That is, of course, if you know where to look.

In an environment where prices are careening over a cliff, selling is indiscriminate, fundamentals are thrown out the window and prices move seemingly without regard to logic and all in the same direction: down. The stock market is a great example of this, as during the panics of last fall and this spring, investors sold stocks with both hands; banks, oil refiners, retailers and technology companies alike were thrown out with the proverbial bathwater.

As the chaos recedes, careful market observers look for signs of differentiation. Firms with the best outlook begin to outperform the broader market as investors identify those companies best positioned to emerge on stronger footing. In other words, legitimate recoveries are wrought from opportunistic investors looking for, and finding, value.

Look at the graph at the top of this page, which compares price per square foot of homes sold in San Leandro vs. Albany. No one familiar with the Bay Area would argue the two cities are comparable in anything but BART commute times to San Francisco, but for almost two years, the premium paid to live in Albany shrank to a barely perceptible amount. This isn’t logical, and certainly wasn’t sustainable.

As the housing market heals, fundamentals will once again drive prices. Picking a bottom is a fool’s errand, but looking for relative value is exactly what Cirios Real Estate is here to do for our clients.

This morning, the S&P Case/Shiller Home Price Index, which measures prices in 20 US metropolitan regions, registered an 18.1% decline in prices. And for as bad as this sounds, its actually the best reading in 6 months. According to Bloomberg, one of the index’s designers, Yale economist Robert Shiller said he saw “striking improvement in the rate of decline” in April.

No metro area experienced year-over-year gains, but declines from the previous month eased for the 3rd month in a row. Las Vegas is still in horrible shape, tallying a 32% year-over-year tumble, along with Phoenix where prices have fallen more than 35% from last year. Phoenix is down more than 50% since the peak in June 2006.

As high end markets continue to tumble while low end markets grope for a bottom, it will be interesting to see if the Case/Shiller Index — which is a value-weighted measurement, ie, it weighs higher value homes more than low value ones — diverges from median home price data reported by the National Association of Realtors.

For more on how to dissect average price data, please read Straight Up Statistics - Deconstructing the Average.

One of themes we harp on here at Cirios is how home price trends are becoming increasingly localized as individual real estate markets grope for a bottom.

Some areas, particularly the hardest hit by foreclosures, have seen fantastic price declines. Others, mainly the high end, are only recently feeling the ill-effects of job losses and our slumping economy. And while this dynamic makes for a tricky housing market, it also breeds opportunity for those savvy enough to identify which markets will be the first to stabilize and eventually rebound.

Take a look at the 2 graphs below showing price per square foot in Redwood City, CA.

The first shows all residential sales in Redwood City. The steep declines in 94601 and 94602 not only show price declines, but help illustrate how areas with high foreclosure rates — like these 2 zip codes — are seeing steeper price declines than areas that are holding up better. (For more on this subject, read about foreclosure sales effect price data.)

The second graph shows 1 segment of the market,
homes with living areas of 1,200 - 2,500 square feet.
While a somewhat arbitrary cutoff, the idea is to pick
like homes within each area to try and compare apples
to apples.

What we see is that in the second graph, is that the “spread” between each zip code, that is, the premium you pay to live in 94063 vs. 94601 or 94602 remained essentially the same throughout the boom and into the bust. Meanwhile, the first graph shows that price per square foot in 94063 (the least desirable part of town) almost touched 94061 (the most desirable part) right around the peak of the bubble.

So what does all this mean? 2 takeaways: First, be skeptical when you look at housing market data, since very small changes in data collection can lead to quite different results. Second, real estate always has been, is, and always will be local. No national, statewide or even citywide trends can capture what’s going on at the street level.

Want to see this analysis for your town? Contact Cirios Real Estate today!

Living in the Bay Area suburbs can be an expensive proposition. If you’re looking for good schools, proximity to restaurants a big yards, even after historic price declines there aren’t a lot of cheap options. (click to enlarge photos)

Lafayette, about 20 miles east of San Francisco, isn’t exactly the first town that comes to mind when thinking of affordable suburban communities. Because it isn’t. But the housing slump hasn’t skipped this East Bay community, as prices are coming
down and deals are cropping up.

This home is newly listed and a short sale, meaning the bank has given the owner the tentative OK to list and sell the property for less than the mortgage amount. These types of transactions can be tricky to pull, but for the persistent, patient buyer, there are opportunities to be had. Close to downtown Lafayette, this represents one of the most affordable homes in the area that’s move in ready, with a yard and conveniently located near freeway and downtown access.

The only question is whether it’s a: DEAL or NO DEAL?

Address: 926 Moon Ct., Lafayette, CA 94549 (MLS Listing)
Status: ACTIVE
Bedrooms: 3; Bathrooms: 2
Living Space: 1,330 sq ft
Lot Size: 7,068 sq ft
List Date: 6/16/2009
Original List Price: $550,000
Current List Price: $550,000
MLS no.: 40415207

Real Estate Agent Comment: This beautiful home is located in the heart of Lafayette. The home has been thoroughly upgraded and extensive remodeled. Close to BART and EZ Acess to major commute routes. Please Don’t Let the Cats Out!

DEAL or NO DEAL?
Comment below and tell us what you think!