Proposition 98 versus 99 Feature and Housing More Affordable in California (May 25)

Ahead of the curve… CBS Radio News (KNX-AM) Monday morning featured economists who emphasized the same thing we stated in last week’s blog: we’re at a turning point in our market downturn was carried heavily on. Rest assured, this blog keeps you on top of the market!

Existing-Home Sales Dip 1% in April: Existing-home sales slowed in April, partly because tight lending guidelines hampered home buyers. But there are some things to be happy about: A greater number of market areas are showing sales gains from a year ago, and a recent reversal in mortgage policy means the market is better positioned for a turnaround, according to the NATIONAL ASSOCIATION OF REALTORS®. (5/23)

C.A.R. REPORTS ENTRY-LEVEL HOUSING AFFORDABILITY RISES 18 PERCENTAGE POINTS IN FIRST QUARTER: The percentage of households that could afford to buy an entry-level home in California stood at 44 percent in the first quarter of 2008, compared with 26 percent for the same period a year ago, according to a report released Tuesday by C.A.R. (5/21)

U.S. LEADING INDEX UP 0.1 PERCENT IN APRIL: The U.S. leading index in April grew 0.1 percent, fueled largely by positive contributions from stock prices, favorable interest rates, and housing permits, according to new data from The Conference Board. The six-month rate of decline in the leading index for April slowed to 1.2 percent, down from 2.4 percent for the six-month period between July 2007 and January 2008. (CAR, 5/21)

NEW HOME SALES DOWN 49 PERCENT IN MARCH, BUT PACE OF DECLINE SPARKS OPTIMISM: Total sales for new homes in March were 49 percent below March 2007 levels, however, monthly year-over-year declines are beginning to narrow, according to the latest report from the California Building Industry Association (CBIA). (CAR, 5/21)

Summer Events: LAFD Air Operations Grand Opening (Van Nuys)

Now that summer has unofficially started, you know there are things to do in our Tri-Valley area every week! I expect to feature one or two events in my blog every week. Most of you know I’m an avid supporter of our Emergency Services, volunteering with L.A. City Fire Department, City of Santa Clarita, and L.A. County Sheriff. Come join me this weekend with the grand opening of the new LAFD Air Operations Building at Van Nuys Airport. Shuttles will be provided from 8050 Balboa at the NW corner of VNY airport; it’s just south of the Home Depot.

June 3 Election: Proposition 98 versus 99

With the June 3 election just over a week away, I promised last week to compare the Eminent Domain Propositions 98 and 99.

Generally, Proposition 98 bars state and local governments from condemning or damaging private property for private uses and prohibits rent controls. The fiscal effect on most governments probably would not be significant. Proposition 98 is supported or endorsed by Ventura Daily Press (April 22), California Farm Bureau Federation, California Republican Party, California Libertarian Party, and the California Taxpayer Protection Committee, among others.

Proposition 99 also bars state and local governments from using eminent domain to acquire an owner-occupied residence. The measure also would likely not have a significant fiscal impact on state or local governments. The following organizations support/endorse Proposition 99 (or oppose 98): Gov. Arnold Schwarzenegger, AARP, League of California Cities, San Francisco Chronicle (May 4), and Los Angeles Times (May 12), among others.

The differences are in the details. Prop 98 supporters say Proposition 99 is limited only to owner-occupied residences, while Proposition 98 protects all private property, including small businesses and rental property. The Prop 99 supporters, on the other hand, say that rent control will disappear if Proposition 98 passes once current tenants leave.

An interesting note: If both measures get over 50% of the vote, Proposition 99 invalidates 98. So Proposition 99 goes into law.

Los Angeles Daily News: First-time buyers find silver lining in foreclosure cloud

More than a third of Los Angeles County families had the income needed to purchase a starter home in the first quarter, a 66 percent increase over a year ago, the CALIFORNIA ASSOCIATION OF REALTORS® reported Tuesday. The affordability figure is the highest since 2003 and was heralded as a hopeful sign for the troubled Southern California real estate market.

• Dramatically lower home prices and a .56 percent drop in interest rates are behind the improvement in the Association’s First-time Housing Affordability Index. A year ago, LA County households needed an income of $100,000 to qualify to buy a home costing $496,120, which is 85 percent of the area’s median home price, assuming a 10 percent downpayment at an interest rate of 5.65 percent. In the first quarter of 2008, entry-level buyers in the county could qualify to buy a home costing $390,450 with an income of $74,320.
• First-time buyers and those seeking homes under $500,000 are behind a 22 percent increase in home sales in the six-county Southern California region between March and April, according to a report issued Monday by DataQuick Information Systems. The report said two-thirds of homes sold were priced at less than $500,000.
• C.A.R. VP and Chief Economist Leslie Appleton-Young said she expects to see the affordability index continue to improve as additional foreclosures coming on the market keep prices at a level where more families can afford to buy.

The Associated Press: SoCal home sales jump in April but still lag year-ago period

Southern California homebuyers stepped off the sidelines in April, snatching up foreclosures and homes priced under $500,000 at a rate that was 22 percent higher than in March but down 19 percent from April 2007 and the lowest level since 1995, according to DataQuick Information Services.

· The median home price for the six-county region was $385,000, unchanged from March but down 24 percent from an April 2007 peak of $505,000. April marked the first time in eight months that the median price did not decline.

· Sales were strongest in areas hit hardest by foreclosures: Riverside County (where sales increased month to month for the first time in two years), Lancaster, Chula Vista, Anaheim, Lake Forest and Victorville experienced the strongest rebounds. Two-thirds of homes sold during the month in Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties were priced under $500,000. About 38 percent of the homes sold were in foreclosure at some point during the previous year, up only 2 percent from March but sharply higher than the 5 percent reported a year ago. In Riverside County, 53 percent of sales involved troubled properties.

• The credit crunch, potential for a recession, and uncertainty over when foreclosures will peak caused DataQuick analysts to remain cautious. Lack of financing for high-value homes continues to be an issue and could forestall a recovery if the trend persists. In April, only 15 percent of Southern California home loans were above $417,000, down sharply from the same period a year ago.

The Associated Press: Forecasters see weak economy even if housing, credit improve

The worst of the housing downturn and credit crunch may end this year but unemployment will rise and the economy will continue to weaken and fall into a short-lived and shallow recession, according to a survey released by the National Association for Business Economics (NABE).

• 56 percent of economists surveyed believe the U.S. already is in a recession or will enter one this year, up from 45 percent in February. Economic growth also will slow from a projected 1.8 percent in February to 1.4 percent in the current survey – well below last year’s 2.2 percent growth figure and next years projection of 2.3 percent growth. If correct, the new prediction for 2007 will mark the slowest growth since the 2001 recession. Weakness in the housing sector was cited as the most significant factor in the slowing economy.
• The group remains hopeful that the housing downturn will hit bottom in 2008 but predict that prices will continue to fall into 2009. Economists were equally divided in their opinion of which quarter of 2008 would see a bottom for home sales.
• The group said it expects the credit crunch to soften later this year, opening the door to some improvement in the housing sector. They expect the Fed to maintain interest rates through the rest of 2008 but believe it could increase key rates from 2 percent to 3 percent by the end of 2009.

Fast Facts

· * Calif. median home price - March 08: $413,980(Source: C.A.R.)

· * Calif. highest median home price by C.A.R. region February 08: Santa Barbara So. Coast $1,140,000 (Source: C.A.R.)

· * Calif. lowest median home price by C.A.R. region February 08: High Desert $210,66-(Source: C.A.R.)

· * Calif. First-time Buyer Affordability Index - First Quarter 08: 44 percent (Source: C.A.R.)

· * Mortgage rates - week ending 05/15/08 30-yr. fixed: 6.01% Fees/points: 0.6% 15-yr. fixed: 5.60% Fees/points: 0.5% 1-yr. adjustable: 5.18 % Fees/points: 0.7% (Source: Freddie Mac)

Sources: California Secretary of State, California Republican Party, California Democratic Party, Ballotpedia.org, California Association of REALTORS, National Association of REALTORS, LA Daily News, Associated Press, KNX-AM.

May 12-18, 2008 – Housing Stats Show Turning Point

After a 1½-month leave, Weekly Digest is back. A BIG Thank You for all your support and referrals!

This blog has been invited to join VerveEarth by its Founder and CEO, who writes, “Your blog Wayne's Real Estate World caught our attention. We are searching the internet for the world's blogs by geography, and we found yours for California. I would like to invite you to our site which plots the content of the internet on an interactive map of the world. VerveEarth is an entirely new way to surf the net. It shows spatial and geographic connections that a blog search engine could never reveal.” Check out the blog at http://www.verveearth.com/dest/user/11094.

Positive News First:
· 32 percent of homeowners nationwide owning a debt-free home (NAR, 5/14)

· As noted in this month’s newsletter, Santa Clarita and San Fernando Valleys are seeing an upswing in prices and/or sales numbers.

Home Sales, Prices Seen Rising in Late '08 - NAR Chief Economist Lawrence Yun predicts more notable improvements in 2009, when sales should climb to 5.71 million units. (NAR, 5/16)

Fannie Mae Scraps Declining Markets Policy - In a change spurred by NAR's concerns, borrowers will no longer need to put up an extra 5 percent down payment in markets where prices have fallen. (NAR, 5/16)

Today real estate is less about “location” and more about “duration,” according to a recent San Francisco Chronicle analysis based on the Standard & Poor’s Case-Shiller home price index. Californians who bought their house two years ago face the reality that it may be worth less than they paid, but those who bought four years ago probably are not “under water.” Those who bought eight years ago, in 2000, on paper have made a tidy profit assuming they haven’t spent all the equity in the meantime. For those who have forgotten that real estate is an asset that matures in value over time, consider this: The recent nationwide decline in home prices was preceded by a decade of year-over-year increases. Nationwide, home prices in February 2008 were 75 percent higher than they were in February 2000 and 15 percent above where they were in February 2004. In the San Francisco Bay Area, prices are down except in San Francisco year over year but up in all metro counties and down slightly in outlaying counties compared with 2004. However, the eight-year change skyrockets to a home price that is 94 percent higher today in San Francisco than it was in 2000. Of the nine Bay Area counties, the lowest eight-year gain was 48.8 percent in Santa Clara County.

Sacramento-based ForeclosureS.com reports a 5 percent drop in foreclosures and a 7.52 percent drop in preforeclosures nationwide between March and April. California recorded the highest number of filings year-to-date with 6.2 per 1,000 households but ranked fourth behind Nevada, Arizona and Florida in the number of preforeclosures (13.9 per 1,000 households) and was down 17.58 percent from March to April. Seventeen states recorded a drop in foreclosure filings between the last quarter of 2007 and the end of the first quarter of 2008. Nationally, 3.8 per 1,000 households have lost their homes to foreclosure so far this year.

NAR: Prices Up in 1 of 3 Metro Areas - During the first quarter, the median single-family home price increased in 48 of 149 U.S. metropolitan statistical areas. (NAR, 5/16)

· The slowdown is most pronounced in high-cost markets. In the West, which includes California, the median price was down 12.3 percent to $296,300 compared with a year ago. That’s due, in part, to the limited availability of mortgage financing in response to the subprime mortgage crisis. NAR believes recent increases in Fannie Mae/Freddie Mac loan limits to encompass jumbo loans will improve the situation somewhat in the months to come, although qualifying criteria will remain stringent.
· Home price and sales declines vary dramatically by neighborhood and are largely based on the extent of a neighborhood’s exposure to subprime mortgages. Neighborhoods with a high percentage of subprime loans are experiencing a higher rate of foreclosures, which typically drives prices down.
· NAR emphasized that the average buyer today intends to stay in the home they purchase for 10 years, which should position them to receive long-term benefits from home ownership. Homes purchased six years ago, for example, would have increased in value by 23.8 percent over that period, based on the difference in national median price between the first quarter of 2002 and first quarter 2008. (CAR, 5/15)

In mortgage market, “walkaway” homeowners may be urban myth - True or false: More and more homeowners who owe more than their house is worth are giving their house keys back to the bank? While anecdotal evidence suggests that mailing the keys back to the bank is occurring, there doesn’t appear to be any evidence that the practice has become widespread. (LA Times, 5/11)
· Data on the number of “walkaway” homeowners is lacking. The Mortgage Bankers Association and major banks believe the practice is increasing but don’t have any numbers to back up this supposition.
· Lenders suggest the practice is more prevalent among investors and “flippers” than among homeowners who live in their home. Bankers confirm that most borrowers are interested in working out a solution when they fall behind in their payments or when their home value is “under water” or their interest rate is about to reset.
· There is no sign that walking away from a mortgage obligation is becoming more “socially acceptable,” observers say. Homeowners historically have been known to do whatever it takes to avoid losing their home to foreclosure. (CAR, 5/15)

Jumbo mortgage rates becoming affordable - In the past week, jumbo conforming loans have become almost as affordable as standard conforming loans thanks to higher loan limits and a drop in bank interest rates. That’s good news for high-cost markets and homeowners with equity in their homes who may be able to refinance to a lower-cost standard conforming rate. However, borrowers still face tightened lending requirements. (San Francisco Chronicle, 5/13)

· Last week, a 30-year fixed-rate jumbo conforming loan with no points averaged 6.125 percent, compared with 5.875 percent for a standard conforming and 6.75 percent for a regular jumbo loan. Jumbo conforming loans are used for home purchases between $417,000 and $729,750, while standard conforming loans apply to homes with a purchase price below $417,000. Conforming loans are those that meet certain underwriting criteria and can be guaranteed by Fannie Mae and Freddie Mac. A lower rate could save borrowers several hundred dollars a month in mortgage costs.
· Both Fannie Mae and Freddie Mac require jumbo loan borrowers to make a higher downpayment (in the 10 percent to 15 percent range); require higher credit scores; provide income documentation; and typically have lower debt-to-income ratios than standard conforming loans.
· Congress recently increased the maximum loan amount to 125 percent of an area’s median home price up to $729,750. The new higher rates were intended to more accurately reflect home prices in high-cost markets and to stimulate housing market activity by allowing lenders to package more loans for sale to Fannie Mae and Freddie Mac.

Conusmer Price Index up 0.2% in April - The Consumer Price Index for All Urban Consumers(CPI-U) increased by an unexpectedly lower margin of 0.2 percent in April according to today's report from Bureau of Labor Statistics of the U.S. Dept. of Labor. The index for petroleum-based energy fell 1.6 percent, offsetting the 2.5 percent increase in the index for energy services. But food prices remain a chief concern: the food index rose 0.9 percent in April; and the food at home index increased 1.5 percent. (CAR, 5/15)

Fast Facts (CAR, 5/14)
· Calif. median home price - March 08: $413,980(Source: C.A.R.)
· Calif. highest median home price by C.A.R. region February 08: Santa Barbara So. Coast $1,140,000 (Source: C.A.R.)
· Calif. lowest median home price by C.A.R. region February 08: High Desert $210,66-(Source: C.A.R.)
· Calif. First-time Buyer Affordability Index - Third Quarter 07: 33 percent (Source: C.A.R.)

Next Week: A run-down of Proposition 98 vs Proposition 99: The Imminent Domain Propositions on the June 3 California Ballot.

Sources: Los Angeles Times, San Francisco Chronicle, California Association of Realtors, National Association of Realtors, ForeclosureS.com, VerveEarth.com

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