September 12, 2006

SAN DIEGO ? No longer sizzling, the San Diego real estate market continued to cool down last month, as overall residential prices declined 2.2percent from August 2005.

It was the third straight month of year-over-year price declines, the DataQuick Information Systems research firm reported Tuesday. It also was the slowest August in terms of sales since 1997.
The median price for all homes in August was $482,000 for 3,666 sales. That compared to a median price of $493,000 and 5,379 sales in August 2005. August sales totals rose 8.8 percent from July of this year, compared with a 12.9 percent gain from July to August in 2005.
San Diego?s real estate median price for all types of housing peaked in November 2005 at $518,000.
Despite the slowing pace of the San Diego real estate market, DataQuick analyst Andrew LePage said the region doesn't appear to be headed for a steep drop in home prices in the near future.
You are not in free fall, he said. There was a big decline in sales between June and July that begged the question. The answer for now is no.
San Diego?s real estate sales picked up a bit in August, but it was the slowest August in almost a decade.
The year-over-year decline in total sales was the largest for any month in 11 years, since April 1995, when total sales fell 32.5 percent from the prior year, LePage said. Ryan Ratcliff, economist for the UCLA Anderson Forecast, said San Diego County's economy remains strong, making a plunge in home prices unlikely.
We have had three months of year-over year price declines, but I don't think that is the bottom falling out of the San Diego real estate market, Ratcliff said. The resale market only sees significant drops in recession periods.
He expects prices to continue to slowly drop and flatten as the pace of sales slows. Without a recession, he said, the San Diego real estate market should see more of the same.

September 14, 2006

September 13, 2006

San Diego County's real estate market continued to cool last month, with overall prices down 2.2 percent from August 2005. It was the third straight month of year-over-year price declines, the research firm DataQuick Information Systems reported yesterday. It also was the slowest August in terms of sales volume since 1997.

Skip Wilkinson said that although the three-bedroom Clairemont home near Balboa and Genesee avenues is in good condition, few potential buyers have shown an interest since it went on the market in April. The initial asking price was $599,000. The median price for all homes in August was $482,000 for 3,666 sales, compared with a median price of $493,000 and 5,379 sales in August 2005. August was also the 26th consecutive month in which the total number of homes sold fell on a year-over-year basis. The year-over-year decline in total sales last month was 31.8 percent, the biggest for any month in 11 years.

The county's median price for all types of housing peaked in November 2005 at $518,000. Although the San Diego real estate market has been edging downward, DataQuick analyst Andrew LePage said the region's home prices don't appear to be headed for a steep drop in the near future. You are not in free fall, he said.

G.U. Krueger, an Irvine-based economist who specializes in housing issues, said buyers seem unwilling to pay asking prices, while sellers are reluctant to lower their expectations. We are in this tug of war between sellers and buyers, which is keeping home prices relatively stable, even though they are declining, he said.

Skip Wilkinson, a 53-year-old firefighter who lives in Temecula, knows all about the stalemate. He says the decision not to sell his retired father's home in Clairemont a year ago, when the San Diego real estate market was soaring, is costing him dearly. At the time, his father, now 80 and living in Florida, wasn't ready to move. If I was to sell this a year ago it probably would have sold in a few days, he said. The rising interest rates have slowed the San Diego real estate market way down. I reduced it to $550,000 about two months ago. Still, there is no one looking at it. I have had maybe seven people in six months. I expected it to keep going up, he said of the housing market. It didn't. On Monday, Wilkinson slashed the price to $499,000.

For homeowners who saw their property values double between 2000 and 2005, a key issue is how much equity they will be able to keep in the months ahead. Ryan Ratcliff, an economist for the UCLA Anderson Forecast, said San Diego County's economy remains strong, making a plunge in home prices unlikely. He expects prices to continue to slowly drop and flatten as the pace of sales slows. Without a recession, the home market should see more of the same, he said.

DataQuick reported that resale condominium sales volumes were down almost 39 percent countywide from August 2005. Economists say downtown San Diego's condominiums are vulnerable to price drops because of the high number of speculators in the market. LePage said the median price of resale condos in the 92101 ZIP code last month was $585,000, a decline of 1.5 percent from August of last year. The median represents the midpoint of all sales, with half above and half below that figure.

Drops in resale condo prices may be attributable, in part, to the conversion of apartments to modestly priced condos. The number of resale condo sales downtown dropped from 83 in August 2005 to 42 last month. New downtown housing, which consists of condos, dropped from a median of $654,000 to $495,000 during the same period. There were only 31 units sold in August of this year compared with 160 a year earlier.

Along with falling prices, sellers must cope with longer times on the market. The San Diego Association of Realtors reported an average time on the market for attached homes in August of 74 days, a 42 percent increase over last year and a 10.4 percent rise over the previous month. For detached homes, the average time on the market was 66 days, a 38 percent increase over August 2005 and a 5 percent increase over last month. The association reported a home inventory of 22,785 active listings for residential properties last week, compared with 14,273 listings a year earlier. Charles Jolly, president of the local Realtors' group, described the changing market as a return to normalcy after five years of a superheated market.

Kathy Butler, a longtime real estate agent, recently began marketing Skip Wilkinson's home. She says many sellers are having a hard time accepting declining prices. Like Wilkinson, they are chasing the market down. By the time they realize their price is too high, the market has fallen further. David Berson, chief economist for mortgage giant Fannie Mae, said he is having the same problem. He has had to adjust his national projections downward.

The actual numbers keep coming in weaker than we expected, Berson said. The leading indicators of housing activity continue to point downward. Purchase applications from the weekly Mortgage Bankers Association survey continue to edge down. The National Association of Home Builders' confidence index is at the lowest level since early 1991, when we were going into a recession. That doesn't mean prices in San Diego County will continue to slide, he said. The job market remains strong and mortgage rates are still well below historical averages, he added.

Less optimistic, Butler said real estate agents and sellers should brace themselves for the possibility of a long downward trend. California's home market tends to run in cycles, she said. The cycles last for years, not for months. Butler said. We need to realistically figure this will go on for a while. Gary Kent, an agent who works with Butler, said he tells home buyers that the days of buying and selling properties quickly for fast profits are over for the near future. I am advising my clients not to buy now if you are planning to resell in a year or two, because you probably won't make any money.


September 18, 2006

Thursday, Sept. 14, 2006

Dennis Balagtas doesn't flip over get-rich-quick schemes. A land surveyor by day, real estate investor on the side, Balagtas has a long-haul attitude about the four properties he's purchased in San Diego and South Carolina since 2001, and the two in Colorado currently in escrow. Balagtas's long-term perspective hasn't typically defined San Diego real estate investors, at least not in the recent boom.

Periods of rapid appreciation in the San Diego real estate market a few years ago spurred a wave of investors looking to flip houses or condos -- to buy pieces of real estate, fix them up, sell them soon after for a profit and then move on to the next piece of property. Now, in a depreciating market -- home prices year-over-year have begun to drop -- investors know they'll lose if they don't learn to hold on. As prices have declined, sales have slowed, and inventory levels have risen in recent months, the get-rich-quick, house-flipping days seem to be over for a while. But that doesn't mean all forms of investing are dead in San Diego real estate -- they've just changed.

A little more than a year ago, when Money magazine wanted to investigate the booming culture of real estate investing, reporter Stephen Gandel looked to San Diego real estate as the poster child for the phenomenon. Designated America's scariest housing market on the June 2005 cover, San Diego was touted as a place where real estate makes everybody rich due to annual property value appreciation of 15, 20, 25 percent in some places -- a trend that proved too good to continue. Gandel spoke with six San Diego real estate investors, all of whom had stumbled into real estate investing and found it to be the best bet of their lives.

Ted Donovan, and his wife, Angie, were one of the couples featured in the Money piece. When the story was written, they'd just bought a 1,900-square-foot home in La Mesa, with intentions of fixing it up -- the front door didn't even open -- and selling it at a profit.

It wasn't their first investment property. Angie had been investing in San Diego real estate and turning profits before she and Ted met. They sold two condos downtown right before the market started slipping. We got real lucky, Donovan said this week about the timing of those sales.

More than a year after the article ran, Donovan said the right combination of luck and observation skills helped them make the well-timed decision to sell when they did. And, he said, their realistic attitude about the investments helped, too. I'm an Internet consultant, and my wife's an occupational therapist, he said. We're not the flippers -- we're not buying 20 houses a year. We look at one, two, maybe three a year. Donovan said he has friends who didn't do so well. I know of other people who've had their homes on the market for 120, 160 days, he said. In that case, buyers are usually going to lowball.

The Donovans didn't count on falling in love with the La Mesa fixer-upper, but once they landscaped the half-acre property, they decided to make it their home for awhile. Now they're going to stay in that house, continue to rent out the condo they have in Mission Valley, and watch the market to go down a little bit before finding another project. We're going to make sure we do our homework and pay a fair price, he said. The San Diego real estate market is eventually going to come up.

It's that long-term perspective that Peter Dennehy, vice president of Sullivan Group Real Estate Advisors, says separates the successful San Diego real estate investors from those who got burned. The flippers are the type of investors that skewed the San Diego real estate market during the red-hot days, Dennehy said. The flipping fever drove people to buy, buy, buy -- regardless of location -- and to bid each other up so that eventually, prices spun into a realm almost completely detached from the home's actual value. They were very prevalent, he said, referring to flippers in the boom of a few years ago. They're the ones who are gone.

Dennehy thinks people should buy the house that they live in and not much more, so as not to disturb the supply-and-demand cycle that keeps the economy stable. You do not need to get on a bus and go to Phoenix with 40 people to buy condos, he said. That skews markets. It's not real demand. When everybody does it, it's over, he added. They had a good time until 2005 or so. Dennehy purchased a home himself earlier this year, and trusts its potential for long-term appreciation, despite any short-term fluctuations its value may sustain. He said historical data show that values for San Diego real estate, when viewed in 10-year chunks, have always increased, even though they may have seen some ups and downs. I'm confident that my house will go up in 10 years, he said. I'm not so confident that in 12 months, my house is going to go up.

The warning from Money magazine that San Diego real estate is America's scariest housing market didn't faze another of the article's featured homeowners, Kelly Pearson. A then-24-year-old, Pearson had purchased a four-bedroom, 1,450-square-foot rancher near the airport for $580,000 in 2004, and had seen a smaller home across the street sell for $740,000 in 2005. Her plan, at the time the article was written, was to borrow more money and invest in a condo. In that article, she marveled, Where else can you turn a huge profit on a house in eight months? and added, The possibilities are unreal.

Pearson was out of the country and couldn't be reached for an update on her current attitude on the San Diego real estate market, but a roommate confirmed that Pearson had bought a condo -- a three-bedroom unit in Solana Beach, west of Pacific Coast Highway.

Leslie Howard, Pearson's roommate in the Solana Beach home, said Pearson still owns her downtown home and rents it out. A mortgage broker, Howard arranged Pearson's financing for the condo and said as far as they know, both homes are still appreciating.

Financing for these investment properties has caused some to worry about investors' ability to hold on should their homes lose value. Many homeowners tapped the soaring equity of their primary homes during the San Diego real estate boom in order to finance their purchase of another property -- as a second home or an investment. That is, they refinanced their first mortgage, taking some cash out of that home to make a down payment on a second property. So the worry that comes now, in San Diego's cooling real estate market, is that some people may be caught with two or more mortgages due to reset in the coming months who didn't expect to have to deal with the substantial payment increases.

These cash-out refinancing options were often adjustable-rate mortgages that gave borrowers the option of paying only the interest or a smaller portion of the interest accrued each month -- the latter is called negative amortization because the debt actually grows during the beginning stages of the loan. These mortgages would allow more people to shoulder two (or more) mortgages with lower payments for a stated period. And because home values were going up so dramatically, many people counted on being able to use the mounting equity (again) to refinance both of their mortgages before they reset, or bumped up to substantially larger, principal-included payments.

Balagtas has used adjustable-rate mortgages on all of his properties, a decision he said he researched extensively before making. He said the payment options allow him some breathing room if another of his mortgages adjusts. You have to ask, 'Do you have enough cash reserve to make the payments?' he said. The reason I?m not as worried about it is because I have expanded to other markets.

That advice came to Balagtas from Lisa Vander, president of Pacific Blue Investments in Solana Beach. She said the slowdown in the San Diego real estate market of late hasn't dampened her estimated 3,000 clients' enthusiasm for investing in real estate. I have been touting conservative investing -- get out there but make sure you know what you're doing, she said. Take the money (home equity) out safely and strategically.

Vander said much of that strategy she teaches focuses on weathering the San Diego real estate market -- in good times and bad. She attended some wealth-through-real-estate workshops in 1989, got fired up about investing, and then found herself struggling when the market dropped the next year. I was sitting there as a good student, upside-down, she said. That's not how wealth is generated. It's not to sell and get out.

Dennehy said he thinks the dramatic boom left many people counting on the fact that they'd always be able to sell their homes for more than they paid -- no matter how quickly they sold again. There's a gradual realization now that they can't sell their home, he said. That train has left the station.

September 18, 2006

9/15/2006

San Diego?s once overheated real estate market is cooling down ? a perfect time for consumers to take advantage of this new buyer?s market. That?s the word from the Building Industry Association of San Diego and the San Diego Association of Realtors. On Sept. 15, they announced the launch of a print and radio ad campaign, running through 2006, to educate consumers on the power of homeownership and why they should buy now.

I am encouraged that we have a buyer?s market for the first time in five years, said Charles Jolly, SDAR president. Buyers can finally negotiate a better price and get a historically low mortgage rate. Also on Sept. 15, representatives from the SDAR and the BIA are joining Mayor Jerry Sanders, the San Diego Housing Federation, the San Diego Organizing Project and the California BIA at the Promenade at Spectrum in San Diego to discuss local housing needs and possible solutions.

According to data released before the event:

? While 70 percent of families are homeowners nationwide, only 55 percent of San Diegans have achieved the American Dream.
? San Diego real estate is among the least affordable housing market in the nation, and its homeownership rate has declined since 1994.
? According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, San Diego real estate is the sixth least affordable metro area in the United States.

The organizations attending the Sept. 15 event are calling for a collaborative approach at the local level, combined with state reforms, to help reverse this trend. Getting California to the national average and delivering increased homeownership opportunities has the potential to generate billions of dollars each year in state and local property tax revenues, which could fund transportation, education and public safety improvements, said Steve Doyle, past president of the CBIA.

The Sept. 15 event is part of the CBIA?s 2006 Campaign for California Homeownership. This statewide initiative is designed to advocate for public policy reforms that would help 1.6 million families become homeowners ? the number needed to bring California up to the national average, according to the CBIA.

September 18, 2006

September 16, 2006

Traditionally, homebuyers could look to two forms of mortgages ? fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage.

What is an ARM Loan?

An adjustable rate mortgage ARM is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current San Diego real estate market, potential rate increases are a troubling issue. In areas where the real estate market is dramatically appreciating, homebuyers are using ARM loans to get into homes. Put another way, they are using ARM loans to get a mortgage payment they can afford without giving real consideration to rate increases in the future. Mortgage interest rates have been at historic lows for the last few years. What is going to happen to all of these people when rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.

September 18, 2006

September 18, 2006

The political landscape this year has been nothing but ugly. It promises to come to full boil with the proposed tax reform eliminating or reducing the mortgage interest deduction. There is an old saying about the two political parties. Democrats raise taxes while Republicans reform taxes. In both instances, we end up paying more money. In a very brave move, a bipartisan committee is recommending tax reform that goes after the beloved mortgage interest deduction.

The committee looking into tax reform was given a directive by President Bush to simplify a tax code that is universally agreed to be a disaster area. You may not realize it, but two additional sections are added to code every day on average. One of the particular problems is the Alternative Minimum Tax, which was originally designed to keep super wealthy people from avoiding taxes. Because it was written poorly, the AMT now affects a large percentage of people. The problem, however, is how do you get a make up for a tax that produces millions of dollars in revenue for the government?

The committee?s answer is to go after the mortgage interest deduction. The committee has offered two plans and we?ll look at the first one here. In the first plan, the mortgage interest deduction would be reduced to a figure related to the loan amount the FHA will back. The FHA was set up to help low income individuals get homes, which means the effective cap on the deduction would be very low. In San Diego real estate, the average single-family home costs in excess of $600,00. The FHA cap for the city is around $315,000, which means homeowners would lose approximately half of their deduction.

In expensive real estate areas, this will mean many people will lose the ability to make their mortgage payments, which means defaults. With borrower defaults will come the end of the housing market boom. The loss of equity will, of course, cause many people to go upside down on their loan, which will be another disaster. If Congress pursues a cap on the mortgage interest deduction, chaos will reign. It is hard to imagine this option being adopted by the politicians.

September 18, 2006

9/25/2006

With the San Diego real estate market slowing due to decreased demand and increased supply of listings, the once-robust sellers? market is transitioning to a buyers? market, say experts. It was just a few months ago that record home sales had frenzied buyers bidding over the asking price all over San Diego. Now buyers are negotiating the price and weeding through the large number of incentives from sellers that vie to close the sale.

The National Association of Realtors forecasts a nationwide drop in home sales of 8 percent in 2006, followed by a 2 percent decline in 2007. In addition, the NAR reported that 2006 might be the first year since 1968 that home prices fall below the inflation rate for the year.

A Return To Normal

The NAR projects this year to boast the third highest sales on record nationwide. San Diego real estate is coming off of five consecutive years of record sales. The turn is just from an unprecedented market to a more normal market. A normal market means going back to basics that include paying closer attention to the look of a property, healthy negotiations between buyer and seller and sometimes offering financial incentives to increase the number of buyers who can afford properties.

California has faced chronic housing shortages and housing affordability issues for decades, said the San Diego Association of Realtors. The SDAR estimates that just 30 percent of Californians can afford the median-priced home in the state compared with 55 percent nationwide. The median price of an existing, single-family detached home in the state during July was $567,360, according to the California Association of Realtors.

Let The Seller Beware

In San Diego real estate, the number of households that can afford the median is even lower ? only one in 10 households can afford to buy the median-priced, single-family resale home with a 30-year, fixed rate loan. The median price for all homes in San Diego County in August was $482,000, according to figures released Sept. 13 by DataQuick Information Systems.

SDAR President Charles Jolly confirmed that the market is slowing locally. San Diego real estate is a buyers? market with more listings for buyers to choose from. The industry is adapting to the slowdown. Builders are slowing housing starts and offering incentives on completed models; agents and brokers are working harder and retraining; and asking prices are dropping. Prices are not going to fall into the basement here in San Diego real estate, not with the demand, but he does see sales reverting back to the norm of five years ago. We got a little spoiled here in the past few years with houses selling in two days with multiple bidders, said Jolly, who added that listings on average sell in three to four months now.

September 26, 2006

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