California may be broke, but that isn’t stopping legislators from trying to give away more money to try and save our swooning housing market.

Qualified buyers of new homes in California can currently receive a $10,000 tax credit for purchasing a newly constructed home. The program, originally capped at $100 million and set to tun through March of next year, according to the Wall Street Journal, is running dangerously low on funds. Never fear, the spend-happy politicians in Sacramento are looking to allocate another $100 million to the efforts — $21 billion budget deficit be damned.

According to Senator Bob Dutton, a Republican who sponsored the expansion bill,

“We didn’t realize how successful [the tax credit program] would be.”

Is it odd that a program can be called a success for the mere fact that it ran out of money almost a year too early? And if the chart above of new home sales in California is any indication, we should be very worried if the continuation of this bill is as “successful” as it was the first time around.

This post first appeared on Minyanville.

Appraisers just can’t get it right.

During the housing boom, mortgage brokers, real-estate agents, and even borrowers sought out appraisals supporting the highest possible home price. Appraisers, fearful of losing business, inflated their valuation findings, which exacerbated the run-up in home prices.

Now, after nearly 4 years of home-price declines, appraisers are getting it wrong again — but in the other direction.

On May 1 — while the financial media focused on construing a blip up in housing data as signs of an imminent bottom — little was made of new appraisal guidelines that went live and immediately began to eat away at the core of the nascent housing “recovery.” To be sure, trade groups like the Mortgage Bankers Association and the National Association of Realtors (NAR) fought the revised rules, but to no avail.

Stemming from a lawsuit filed by New York Attorney General Andrew Cuomo alleging Washington Mutual (JPM) and First American Corp illegally conferred on the results of home appraisals with the goal of inflating prices, the new rules put up a Chinese wall between banks like Citigroup (C), Wells Fargo (WFC), Bank of America (BAC), and appraisers. The goal was to create an environment where appraisals would reflect an expert’s unbiased assessment of a home’s true value, rather than evaluations tailored to a lender’s desire to make a loan.

The new rules affect loans guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE), but since the 2 government-run mortgage giants effectively control the secondary mortgage market, they’ve become the defacto guidelines for the entire industry.

In order to separate lenders and appraisers, appraisal-management companies (AMCs), cropped up, offering banks access to a network of appraisers around the country. This makes the appraiser selection process random, preventing collusion. And while AMCs claim appraisers are selected using proprietary scoring algorithms that evaluate performance, the reality is that jobs are handed out on the basis of fastest turnaround time and lowest cost.

In short, we’ve traded bias for incompetence.

Readers of this column know that I have little, if anything good to say about the NAR — which is not only the Realtors’ trade organization, but a powerful Washington lobby. Nevertheless, earlier this week, when the NAR released data on existing home sales, their statement about appraisers’ role in killing purchase transactions was dead on the mark:

“The increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan. Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales.”

Currently embroiled in this very scenario, my firm, Cirios Real Estate, is witnessing first-hand just how bad the new appraisal rules are.

Assessing a property’s value in’t rocket science, despite appraisers’ claim that their extensive training and years of experience make them the only people qualified to determine home prices. All it takes is access to the right information, an understanding of what drives desirability, and a little pride in one’s work.

That last criterion is perhaps the most difficult to find. Appraisers earn a flat fee for their services, giving them little incentive to provide the best analysis possible. Knowing they can now earn repeat business by turning around jobs in 48 hours and charging less than their competitors, there’s little reason to go the extra mile to ensure appraisals take into consideration only the best information to come up with the best possible results.

Sure — there are good appraisers out there with integrity that offer up great analysis. But as lower priced, lower quality work becomes the norm (thanks to the new appraisal guidelines), the best appraisers will seek greener pastures – as well they should.

Lawrence Yun, the NAR Chief Economist, finally got it right when he said, “Sometimes policy can lead to unintended consequences.”

Sales of new homes dropped in May, surprising analysis who had expected a continued strengthening in US housing market data. According to Bloomberg, transactions fell 0.6% from April, but median prices decreased by just 3.4% from last year. This compares to a much bigger 17% year-over-year decline in existing home prices, as reported yesterday.

Data indicate that prices in the new home market are stabilizing, even as sales remain anemic. This is partly due to the fact that builders, having won reprieves from their lenders and extensions of credit agreements, have been unwilling to further discount prices and offer incentives to buyers. Uncle Sam took care of that, thank you very much, with generous tax rebates to first time buyers of newly constructed homes.

Indeed, upping that figure to $15,000 from $8,000 and doing away with income restrictions is now on the table.

As the government encourages more and more families to jump back into the housing market, it will increasingly seem like a great time to buy. And while some area are showing signs of returning to more healthy market behavior, the vast majority of markets are still trending downward. Opportunities are emerging, to be sure, but only to the savvy and well-informed buyer.

Interested in becoming one of those savvy and well-informed buyers? We are here to help.

Home sales in May rose from April, the second straightly monthly increase. According to the National Association of Realtors, or NAR, purchases crept up 2.4% from the prior month, which was less than 3.0% analysis were expecting.

Prices continued their decline, falling 17% from a year ago, dragged down by distressed sales.

As readers of this site know, we rarely have much good to say about the NAR. They are a lobbyist group, plain and simple, and typically put the interests of their constituents (Realtors) above that of buyers and sellers. But this month, the NAR hit the nail on the head with respect to the current home buying environment:

“The increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan,” and “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales.”

Bingo. The new appraisal rules are wreaking havoc in the mortgage market, with loans disastrously hard to get thanks to inept appraisers and appraisal management companies. Coupled with rising interest rates, this does not bode well for the nascent housing “recovery.”

The Mortgage Bankers Association, an industry trade group, dramatically cut its forecast for 2009 mortgage originations in the US to just over $2 trillion. The new estimate, down a whopping 27% from the March figure, is said to reflect an environment of rising mortgage rates and an increasing share of purchases going to all-cash buyers.

According to the MBA’s chief economist, Jay Brinkman (courtesy of the Wall Street Journal):

“We have now lowered this [forecast] for several reasons. First, while home sales have been higher than expected, home prices have fallen more than expected leading to smaller loans. Second, the large share of distressed sales or homes purchased by investors has resulted in the share of all cash home purchases being higher than normal.”

Toss in new appraisal laws which make getting a loan on anything but a pristine home downright impossible, and the housing outlook remains murky, at best.

A mere 60 minutes outside the bustle of the Bay Area, nestled in redwood groves and winding mountain byways lies the hamlet of Boulder Creek. The town boasts a casual, yet lively downtown where tourists and locals alike check out local coffee shops, restaurants and art galleries.

Just outside of town the golfing inclined can visit the
Boulder Creek Golf and Country Club, one of the few locales where errant tee shots can collide with redwoods that have stood since before the California gold rush.

Oh, and there are also contemporary short sale properties available for sale, a block from the fairway. And with a waterfall to boot. Looking for that golf retreat where cell phone service doesn’t reach? Here it is …

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

Address: 270 Lake Dr., Boulder Creek, CA 95006 (MLS Listing)
Status: ACTIVE
Bedrooms: 2; Bathrooms: 2
Living Space: 1,700 sq ft
Lot Size: 15,246 sq ft
List Date: 5/28/2009
Original List Price: $485,000
Current List Price: $461,000
MLS number: 80926178

Real Estate Agent Comment: This contemporary home is situated on Hare Creek with a private water fall. Well cared for home with many custom features like travertine tile, tile floors, exotic wood decks, loft, open beamed ceilings, spacious rooms and much more.

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

This post first appeared on Minyanville.

Banks like Washington Mutual (JPM), Wachovia (WFC), and Countrywide (BAC) — along with Fannie Mae (FNM) and Freddie Mac (FRE) — once used mortgage underwriting guidelines that were thin at best, nonexistent at worst.

Congress, in turn, pushed for leniency for low-income borrowers and for those with spotty credit, assuring their constituencies that the American dream of home ownership would be available to all.

As a result, the housing bubble expanded — and then it burst.

But it would appear that our elected officials have yet to learn their lesson: According to the Wall Street Journal, representatives Barney Frank of Massachusetts and Anthony Weiner of New York are urging Fannie and Freddie to loosen up qualification requirements even more.

You see, Fannie and Freddie recently limited their exposure to condominiums where a high percentage of the owners were past due on their mortgages, or where many units remained unsold. Frank and Weiner claim the tighter rules are limiting condo sales, even though prices have come down to generate material buyer interest.

To wit, condos just off the Las Vegas strip can be snatched up for less than $50,000 apiece, and downtown San Diego remains surfeited with inventory, even though prices have fallen more than 50% since the market’s peak, according to MDA Dataquick.

The law of supply and demand is a beautiful thing.

A quick tour of VRBO, a vacation rental website, illustrates why snapping up Vegas condos on the cheap may not be such a great idea. The monthly loan payments may be just a few hundred dollars, but surplus supply means rents have tumbled and vacancies have soared. In coastal cities like Miami and San Diego, massive overbuilding of condo complexes will depress local real estate markets for years to come. Metrostudy, a market research firm, estimates that Miami has a more than 40-month supply of condos.

Falling prices, which can provide opportunities for savvy investors, are part of a healthy correction process. To the extent the government continues to prop up prices by transferring risk to the taxpayer, these opportunistic investors will stay on the sidelines, thereby forestalling any eventual recovery.

It appears the desire to churn houses off an assembly line isn’t just reserved for home builders carving up hillsides.

According to the San Francisco Chronicle, Zeta Communities, a prefab real estate developer, is working on an experimental home in Oakland to display its unique building technology. Zeta, or Zero Energy Technology and Architecture, offers architects and builders a chance to build extremely energy efficient homes in the factory, reducing costs and increasing efficiency. In Zeta’s words:

“The building produces an energy load that’s only 60% of what a standard similarly sized home would use. It’s cheaper and twice as fast to build the multi-family house in a factory than to build it on-site. A factory-built Zeta home also generates half the waste of an on-site home.”

Two thoughts come to mind:
1) Take a look around Oakland and Emeryville and tell me how well prefab-esque condos are selling, and
2) If they can really deliver energy efficiency for less money,
we say bring it on – put Pulte Home and its eyesores out of
its misery!

Looking for great schools, rolling hills, big lots and a quick BART ride to the city?

Orinda and Lafayette, two of the most desirable towns in the East Bay, have all this and much more. Home prices remain in a downward trend, to be sure, but inherent desirability and established neighborhoods should keep these two from falling off a cliff, even as their high-end brethren around the Bay Area feel the pain of an tight jumbo loan market.

The graph below shows price per square foot for homes with 1200-2500 square feet, pretty middle of the road for these areas. Once you get above 2500 sqft, you start losing your marginal price per square foot and comparisons with smaller homes start to lose meaning.

What did that mean? Read more about Price per Square foot here.

Want to find out more about these two towns? Contact Cirios Real Estate today!

(click to enlarge image)