First-time buyers dominated the 2009 housing market.
First-time buyers bought 47% of the California homes sold in 2009, up from 35.9% in 2008, according to the California Association of Realtors (CAR) “State of the Housing Marketing in 2009” report. The increase can be attributed to low interest rates, discounted home prices and the nationally sponsored first-time home buyer tax credit. Bank owned foreclosures (REOs) and short sales accounted for nearly half of the home sales statewide in 2009. More than 70% of the properties purchased by investors last year were short sales or foreclosures.

One third of California home sellers sold at a net cash loss in 2009-the highest level on record since CAR started tracking net cash loss in 1989. The median cash loss was $100,000 in 2009, up from $50,000 the previous year.

Due to the predominance of distressed sales, the annual median price of California homes sold last year was $271,000. The median price hit bottom at $245,170 in February 2009. Subsequently, the monthly median price increased steadily in comparison to the previous month, but remained below the year-over-year level.

High-end market picks up.
Low-end sales drove the home sale market in 2008, peaking in January 2009 at 85% of homes sold statewide. Sales of homes priced over $500,000 moved up from 15% in January 2009 to 25% in July, and held steady at this rate for the rest of the year. This pickup was seen in the Bay Area housing market as increased demand, fewer foreclosure sales and low inventory in some coveted neighborhoods brought activity in higher price ranges. Currently there are more upper-end buyers than sellers in some areas of San Francisco, Los Altos, Orinda, Berkeley, Oakland, Piedmont, Palo Alto and Southern Marin.

Buyers are looking, but not all listings are selling. Price, location and condition are the critical variables that determine whether a listing sells relatively quickly or sits on the market unsold for months. San Francisco Bay Area home sales were down in January and February 2010 compared to 2009, according to MDA DataQuick, a La Jolla based research firm. However, the Bay Area median price increased in February approximately 20% from a year ago- the fifth month in a row that the median price has increased year-over-year. Still, the Bay Area median price is almost 47% below the $665,000 peak in summer 2007.

Jumbo financing is more readily available.
A lack of acceptable jumbo financing along with uncertainty about employment and the state of the economy has hindered the upper-end market. The jumbo financing market has improved since fall 2007 when large mortgages were virtually not available. By the end of 2008, some lenders tiptoed back into the jumbo market, offering big loans at significantly over 7%, attracting little enthusiasm from borrowers.

Recently there has been an easing in the jumbo mortgage market for loan amounts over $729,750. At the end of February, interest rates on 30-year fixed rate jumbos were under 6%. Some lenders that had previously required 25-30% cash down, or equity in the property, now will make jumbo loans with 20% cash down. However, qualifying is much stricter than it was a few years ago when a credit score in the low 600 range was acceptable. Most lenders now want borrowers to have a credit score of 700 for reasonably priced jumbo mortgages. Second mortgages are also becoming available for the first time in years. This enables some borrowers to use a conforming jumbo loan up to $729,750 with interest rates in the low 5% range in combination with a second mortgage (call “piggyback financing”). Lenders may require more than 25% cash down for piggyback financing.

Where is the housing market heading?
The improved housing market is a positive sign. However, whether or not the housing market moves into a period of sustainable growth is uncertain and will depend on several factors. The unemployment rate in California is currently 12.5%. The national rate at the end of the year was 9.6%. The recent UCLA Anderson Forecast expects the unemployment rate in California to fall slowly, averaging 11.8% for the year. Many analysts are concerned that a new crop of foreclosures and short sales will hit the market this year. The foreclosure rate dropped 2% nationally in February, but was still 6% above the February 2009 level. However, this was the smallest annual increase since January 2006, according to RealtyTrac, the leading online foreclosure marketplace. Additionally, the threat of higher interest rates that some analyst predict will be close to 6% for conforming loans by year end could slow home sales and put downward pressure on prices. Also, there is concern that the housing market may be negatively impacted when the home buyer tax credits expire this year. A buyer (first-time or repeat) needs to be in contract to buy a home with a maximum price of $800,000 by April 30, 2010 and close by June 30, 2010. The credits are not expected to be extended.

The widely respected oracle, Warren Buffet, indicated in his annual letter to Berkshire Hathaway shareholders that the residential housing recession will be behind us within a year. He foresees continued problems with the high end market and in areas that are overbuilt. Other analysts aren’t as optimistic. The Anderson Forecast predicts a long, slow recovery.

Should you buy or sell now, or wait for a better market?
With today’s low interest rates and low, post bubble home prices, buyers are able to buy bigger houses, or buy in more desirable neighborhoods, than was possible several years ago. For some buyers this is a good time to buy. However, you should only buy if you plan to stay in your home for at least 5 to 10 years. Although the housing market has improved, prices could still drop further before there is significant appreciation. Today’s home buyers should buy because they want to own their own home, they can comfortably afford it and they have job security, not because they’re counting on appreciation. Buying for the short term it today’s market is risky. It would be better to rent.

Many homeowners have put off selling for several years, waiting for a better time to sell. If there’s no urgency to sell, there’s no need to rush. However, you may have to wait for what could be a as long as several years for a better market; no one knows for sure. Some market niches will turn around faster than others. The recovery could be sporadic with spurts of activity followed by lulls. Sellers who are tired of waiting should properly prepare their home for sale and price it according to what the market indicates. Many local markets currently have a low supply of good homes for sale. This gives an advantage to sellers of good houses, in good locations that are priced right for the market. In these markets, now could be the time to capitalize on a supply-demand imbalance.

For help with all your real estate needs, call Dian Hymer, CRS, Associate Broker. 510-339-4777 (office); Email: dian@dianhymer.com.