Every once in a while, we run across a house where the list price just doesn’t make sense. When 5692 Cabot Dr. in Montclair popped up on our radar screen, it screamed DEAL without question. So, naturally, we immediately tried to figure out what was wrong with the house. (click images to enlarge)

Good location? Check.
Walking distance to downtown Montclair, an upscale enclave in the Oakland Hills.

Nice interior? Check.
Tasteful updates, high ceilings.

Yard? Check.
Many homes in the Oakland hills are wedged into cliffs and don’t have yards. This one has one– albeit it a small one — but plenty of room for a table and BBQ on the patio, plus some flat ground for a garden.

Quirky? A bit.
The downstairs bedroom has no bathroom and is sort of
long and skinny, but certainly not a deal killer.

We scratched our heads — what gives? This place should sell in a nanosecond above list.

Then we found it: No parking.

Not only does the home have no a driveway or garage, the part of the street immediately in front of it is a No Parking zone! There is street parking nearby, but this should be viewed as a definite negative. That being said, this home still offers a relatively inexpensive to move into a popular neighborhood with excellent public schools.

So, does all that add up to a DEAL OR NO DEAL?

Address: 5692 Cabot St., Oakland, CA 94611 (MLS Listing)
Status: ACTIVE
Bedrooms: 3; Bathrooms: 2
Living Space: 1,687 sq ft
Lot Size: 7,242
List Date: 7/30/2009
Original List Price: $649,000
Current List Price: $649,000
MLS no.:40422306

Real Estate Agent Comment: Heart of Montclair, move-in ready w/a Walk Score of 80. HWF’s, FP, deck in front, patio/yard in back. Upgraded kit & baths. Plus room. New paint inside and out. A must see..

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

Positive data continues to emerge from the housing market, as buyers take advantage of home prices that have fallen dramatically from their peak, along with low interest rates, tax credits and a stock market that can’t seem to be kept down.

Pending Home Sales in June, which measure signed purchase contracts and are often examined as a forward looking measure of closed sales, rose 3.6% from the previous month, outpacing economists’ expectations. The index chalked up its fifth consecutive increase, according to Bloomberg.

Analysts were cautiously optimistic, citing a moderate uptick in sales against a backdrop of a weak employment outlook and very constrained consumer credit market. According to senior economist at New York-based 4Cast Inc.,

“It’s a modest recovery, however these numbers are exceeding peoples’ expectations. While there are genuine signs of recovery in housing and manufacturing, the consumer is still the big sort of worry,”

As talk of a rebound in housing continues to gain steam, it’s important to understand the distinction between “stabilization” and “recovery.” The former does not necessarily imply the latter. For more on this topic as it relates to the broader economy, check out this excellent article from Minyanville, by finance expert Satyajit Das.

Ask a sample of Bay Area residents to point to San Ramon on a map, and you’ll likely get as many people looking in Marin for San Rafael as you get people who can actually locate it in the East Bay just north of Dublin and south of Danville.

New developments sprouted up all over San Ramon during the housing boom, and prices screamed upwards. Values have since fallen back to earth, and attractive homes can be financed with low cost government loans. We don’t expect prices to stabilize
in the near term, as mid-markets are being pinched from trouble in the high-end, but we do believe that the steepest of price declines in San Ramon are now behind us.

This week’s Deal or No Deal is located in a cul-de-sac, which is always desirable, and has a nicely landscaped yard, updates throughout and a decent amount of square footage. The only question, of course,
is whether it’s a DEAL OR NO DEAL?

Address: 470 San Diego Pl., San Ramon, CA 94583 (MLS Listing)
Status: ACTIVE
Bedrooms: 3; Bathrooms: 2
Living Space: 1,665 sq ft
Lot Size: 8,000
List Date: 7/27/2009
Original List Price: $649,000
Current List Price: $649,000
MLS no.:40421615

Real Estate Agent Comment: This beautifully remodeled home is located at the end of a quiet cul-de-sac in the desirable neighborhood of Cape Cod-style homes near Montevideo Road in San Ramon. The open floor plan of ~1700 square feet has 3 bedrooms, 2 full baths, 2-car garage, family room with fireplace, and formal dining.

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

This post first appeared on Minyanville.

It only took 18 months, but the fact that the US luxury real estate market is falling apart at the seams is finally starting to sink in.

Yesterday’s Wall Street Journal chronicled the plight of high-end housing markets, as formerly wealthy homeowners are falling behind on their mortgages at an astounding rate. Defaults and foreclosures are increasing in the Jumbo Prime mortgage space — big loans made to borrowers who were supposed to be good credits — at a faster clip than in any other segment of the market. This is causing distressed or otherwise forced sales, resulting in the type of Price Discovery that can send vulnerable markets reeling.

Meanwhile, cheaper markets have, by and large, experienced the worst of this vicious whoosh down and are now groping for a bottom. Some of these distressed areas — the fortunate few that were allowed to experience a legitimate correction before government-sponsored foreclosure moratorium set a true stabilization back months, if not years — have laid the groundwork for a long, arduous recovery. Others, prevented from finding a bottom on their own, will be suffering from a years-long slow bleed of inventory, crushing the hopes of local real estate investors and first-time buyers and sending capital elsewhere.

As Wells Fargo (WFC), Bank of America (BAC), Citigroup (C), and JPMorgan (JPM) — the biggest holders of property in the country — continue to bow to White House demands to keep housing inventory off the market, a legitimate sustainable recovery in housing will remain elusive. This matters little for high-end markets, however, as prices are screaming downward whether the government likes it or not.

What few media outlets are covering is how the upwards spreading of the housing infection will affect widely reported home-price data, and thus the psyche of the American home buyer. This is a subject I mentioned back in April, but now that the trend is becoming reality — as the Case Shiller Home Price Index registered its first monthly increase since 2006 — it warrants revisiting.

As defaults and foreclosures bleed into the high end of the market, buyers gain the upper hand in price negotiations as sellers become desperate. These forced sales will turn illiquid markets liquid as buyers that have been locked out of these expensive markets begin to scour the landscape for opportunities. As sale volumes pick up, so too will the average price of the homes eventually sold, since this will shift the distribution of transactions included in the broad averages towards more expensive homes.

This isn’t just some statistical anomaly: As broad measures of housing data show recovery, behind the curtain, individual submarkets will be telling a vastly different story. To be sure, the Jumbo market makes up less than 3% of the total housing market, but if it’s your market, that makes it 100% of the housing market that matters.

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

This month’s spotlight shines on a centrally located, reasonably priced, and easily overlooked section of the Peninsula, San Bruno.

While San Bruno’s proximity to San Francisco International Airport and temperamental weather are often viewed as major negatives, its central location and relative affordability compared to many nearby higher priced markets make it worth a second look for anyone looking to buy a home on the Peninsula for less than $800,000.

Currently listed homes in the 94066 zip code range from a small 2 bedroom near the train tracks listed at $325,000 to a million dollar plus 6-bedroom mansion. The majority of homes — 78% of all active listings — are priced below $800,000. Bay views are common and easy access to public transportation to San Francisco make this area particularly desirable for those looking to live on the peninsula for well under a million dollars. Downtown San Bruno is a quaint, main street style area with several small shops and restaurants.

As can be seen in the graph below, home prices in 94066 have come down significantly since their peak in 2007. 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 correlate strongly with precipitous declines in prices.

On the flip side, as supply pressures ease, values tend to stabilize. Inventory in this area has come down of late, although it seems to have stabilized at a level slightly higher than the historic norm. Prices are likely to come down further in the near future, so a six-month wait may be in order. Savvy prospective homebuyers should probably hold out until inventory approaches lower levels to step into the market.

The public school system in San Bruno is well above average, and several local schools are standouts. Careful selection of location to assure inclusion in the right district could garner an excellent public education for your children.

In terms of commuting to San Francisco, there are several, easy options for commuting, either by car or by train.

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

A common question for all first-time home buyers is – “Does it make sense for me to buy or rent?”

It’s likely that you’ll receive as many different answers to this question as people you ask it to. The majority of Realtors are going to tell you it’s a great time to buy because interest rates are low and numerous media outlets are reporting that the US is at the tail end of the recession. At the other end of the spectrum, there are people who feel like it never makes sense to buy and that you will always come out ahead financially if you continue to rent. The reality is that determining if it’s a good time to buy requires a full review of the buyer, from their finances to their life goals.

Most first-time home buyers want an easy, non-intrusive way to figure out if it’s the right time for them to buy. Cirios has searched the Web for the best rent vs. buy calculator that combines ease of use with a valuable output.

The one we recommend can be found on The New York Times’ website. The basic form of the calculator only requires 5 inputs (Monthly rent, Home price, Down payment, Mortgage rate and Annual property taxes) to give you a reading on when (if ever) buying is better than renting.

Here are our tips and precautions regarding this calculator which will allow you to get the most out of this web-based tool:

Use a rental rate for a home similar to the home you are looking to purchase. If you input the rent of your one-bedroom apartment and want to see if it makes sense to buy a 3-bedroom home, the calculator will tell you it’s never a good time to buy.

Do not use an annual home price appreciation of more than 3%. At this point, its unreasonable to expect more than 3% annual appreciation.

Use a higher than a 1% increase in annual rent increase/decrease. If you are thinking about buying a home, it is likely that you are looking to upgrade your current living situation. If you don’t buy a home now, over the next 10 years you are very likely to be renting a larger home. As a result, you’ll probably be paying more than just your standard 1% rent increase.

(NOTE: There are advanced settings on the right side of the calculator which allow you to make the calculator more reflective of your personal situation.)

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

If there is a single trend we have been focused on here at Cirios throughout 2009, it’s the divergence between high-end real estate markets and broad measures of home prices. That is, even as recent housing market data shows encouraging signs of stabilization, most well-to-do areas continue to see material home price declines.

This divergence has persisted all year, and is now being covered widely in the financial press (See The Wall Street Journal’s recent article entitled “High-End Homes Miss Out in the Rebound”).

Behind this trend is a deterioration in the fundamentals in the Jumbo Prime mortgage market, as well as the impact from job losses among even high wage earners. According to the Field Check Group, a mortgage data analysis firm, Jumbo Prime mortgages are now entering foreclosure at a faster clip than any other segment of the market.

In other words, just like subprime mortgages saw a spike in defaults that predated swift home price declines, mortgages held by formerly low-risk borrowers are now going delinquent at an alarming rate. This does not bode well for expensive real estate markets.

And here is where it gets interesting.

The Chart of the Month in the top right corner of this page shows the Case-Shiller Home Price Index, a widely quoted measure of property values, which registered its first monthly increase in 3-years. So that’s it, we’ve bottomed, right?

Not exactly.

The Case Shiller Index is a value-weighted metric, meaning more expensive homes are given more weight than cheaper ones. And as higher end markets become increasingly distressed and sales activity picks up, these more expensive sales will start to drag up broad measures of home prices, like the Case Shiller. This is a dynamic we discussed back in April, which is now becoming reality.

So even as pundits and real estate professionals everywhere scramble to call yet another bottom in the housing market, savvy buyers should be wary of such proclamations. Sure, while certain lower end markets are seeing signs of stabilization (against the backdrop of artificially low supply due to government intervention into the housing market), this is not so for high-end markets.

Real estate will remain, as it always has been and always will be, local. As such, any recovery will be extremely market-specific. In other words, saying the “housing market” has bottomed, or is bottoming, is meaningless.

You don’t buy a house that’s in the “California” market, or even the “San Mateo” market — homes are in neighborhoods and on streets. No amount of number crunching can tell you the direction of the value of a single house. Keep this in mind next time a real estate professional tells you “It’s a great time to buy.” It may be — but how do they know?

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

The expression “Real Estate is about location, location, location,” is well known. However, there is always a point where people will sacrifice a desirable location for an amazing home. This House of the Month tests the theory that real estate is all about location.

Neighborhood Overview: Morgan Hill became a popular southern suburb of San Jose during the housing boom because it offered buyers large new homes with a significant amount of neighborhood amenities (new parks, golf courses, grocery stores, etc). The housing downturn has been very hard on these newer developments as many of the buyers purchased homes with little or no money down. Prices have fallen by at least 50% and up to 65% in some cases. We see home values continuing to decline in the near term as credit markets remain tight and foreclosure activity seems to be increasing in well-to-do areas, like Morgan Hill.

Address: 19261 Saffron Dr., Morgan Hill, CA 95037
Original List Price: $1,290,000
List Date: 8/6/2007
Current List Price: $675,000
Previous Sale: $1,026,000
Previous Sale Date: 11/23/2005
Estimated Down Payment: $23,625
Estimated Monthly Payment: $4,704.51*
Bedrooms: 4; Bathrooms: 4.5
Liv. Area: 4,182 sqft; Lot Size: 9,147 sqft

Positives:
+ Updated throughout
+ Huge house with 4 bedrooms
+ Well-maintained, including exterior

Negatives:
- Location: Train tracks directly across the street
- Location: Home looks at 4-lane street and mobile home park
- Location: Long commute time to most job centers

Value Approach:

Step #1 – Location
As mentioned above, the subject’s location is very undesirable. This community, however, is not as distressed as other developments in the area, but the subject’s particular location has a significant number of negatives — which we have factored into this analysis.

Step #2 – Data Analysis
% of Zip Distressed: 3.05% (High)
% of Zip For Sale: 0.95% (Low)
% of Zip Sold over last 3 months (year-over-year): -17.6%
Elementary School API: 801
AHA (Affordable Home Amount): $725,062

We are suspect of the income data for this area. Even though it supports relatively high home prices, recent layoffs and a generally weak employment outlook will continue to negatively affect property values in this area. Comparing the distressed level and homes currently for sale suggests that there is a significant amount of shadow inventory in this part of Morgan Hill (for more on Shadow Inventory, please see: Keepin’ It Real Estate: Beware The False Bottom in Housing). In other words, with foreclosure activity that high, there should be more homes on the market than there are, suggesting banks are not listing all the properties they

currently own.

Step #3 – Comparable Properties

Click here or on the image to the right to see a CLEAR valuation for this property

Step #4 – Value Analysis
The reoccurring theme in Morgan Hill is that buyers looking for large homes are buying in more established neighborhoods than the subject’s. S1 is the only sale from the last three months in the subject’s development and it is on a cul-de-sac with a significantly larger lot. However, the subject is one of the lowest listed homes of it’s size in Morgan Hill so it will at least catch the attention of potential buyers. It’s simply unrealistic to think that there are no buyers out there willing to overlook a poor location to have what is in effect a brand new mansion.

Cirios Value: $625,000
Over Listed Amount: 7.4%