Is the housing market shifting, an opportunity for some?

Is the housing market going to start shifting in the direction of price reductions at the higher end of the spectrum? According to Zillow Senior Economist Aaron Terrazas, it could happen. Approximately 14 percent of homes for sale underwent price reductions back in June, and most of them happened at the more expensive levels.

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Over the last two years, the housing market has tilted sharply in favor of sellers. But this might be an early warning sign that the tide is turning a little bit. Although it’s too soon to officially call this a buyer’s market, this data does indicate that the trends in the housing industry may be normalizing. In speaking to my title rep, Jason Webb at Fidelity, I asked what he is seeing in the industry. His response was that there are currently more contingent offers, homes taking longer to close, and more demands to close escrow. I am personally experiencing all that in one escrow and it is not fun!

In my situation, the sellers have already moved and the buyer (who did not have a contingency on selling their condo) is delayed on it closing by three weeks. It was originally supposed to close by tomorrow. The agent representing the seller of the condo and the buyer on my listing is a rookie agent who has not been great at communicating the status. My sellers are frustrated and gave a demand to close escrow, but it was really to get them to push on the buyers of the condo, as I had no control and no authorization to speak to them.

We will now most likely close in another week on my my clients’ home because the buyer decided to go out and buy a new car. That caused his debt-to-income percentage to be too high, and now the car has to be paid off with proceeds from the sale of his condo. That causes further delays in our closing because the lender needs to see it get paid off. Another interesting component to this was that my clients Google’d the buyer and the results were…surprising. We knew it could be a challenging process, but we didn’t think it would be this much of a wild ride!

I believe we will see more of these types of issues as the market softens and reverts to a better balance. We can’t keep increasing, and it is time for the market to come down off this upward trajectory. There are some positive outcomes to a correction, but it is change and change is hard for most people; especially sellers when they still expect a higher price than their neighbor.

What is the most expensive zip code in CA?

If you had to guess which California city has the most expensive real estate, what would you say? San Francisco, maybe? Certain parts of Los Angeles – remember the show 90210?
Watkins-Cartan House, 98 Alejandra Ave., Atherton, CA
Nope, the honor goes to the 94027 zip code – Atherton, CA. For those not familiar, Atherton is right above Palo Alto and the average cost of a home there is…wait for it…$6.17 million. According to Zillow, home values in Atherton reached a low point in summer 2009, dipping below $3 million.
I asked my friend Jay Vorhees of JVM Lending what kind of average income would be necessary to afford a home in Atherton at 25 percent and 50 percent down.
Given that the average income in Atherton is about $250,000, I was wondering how exactly a median home price of $6.17 million was affordable there! Here’s his assessment:
Assuming no consumer debt, a 4.0% rate and a 42% debt ratio, with 25% down, PITI would be about $29,000 per month (rounded). This would require $69,000 of monthly income or $828,000 annually.
With 50% down, PITI would be about $22,000 per month (rounded). This would require about $52,500 of monthly income or $630,000 annually.
So how does the average income earner in that area afford Atherton? Most likely people have had these homes for years, thus the lower income. For new purchases, stock options from IPOs are not usually included in your annual income, thus allowing the the nouveau riche of Silicon Valley to buy with cash or put 50% or more down.

Will the Presidential race affect our mortgage rates?

I thought this might be interesting to share. Traditionally, there is very little on the market as we enter the holiday season. The last couple years, sellers listing in December and the beginning of January tended to have multiple offers because there isn’t much inventory (meaning, people don’t like to have Open Houses or showings during the holiday season as they are usually entertaining family or friends).

With the Presidential election around the corner, many agents are getting the feel the market has softened. It will be interesting to see how this year’s election will affect our market. Here are some insights from my friend Jay Vorhees at JVM Lending:

trump-clinton

Trump = Lower Rates; Clinton = Same or Higher Rates

We have blogged several times about how rates are not held artificially low prior to major elections. It is a myth that they are. Presidents, in fact, like to see proof that the economy is getting stronger, and these signs usually push rates higher. Presidents hope for positive signs like GDP growth, job growth, lower unemployment, etc. These signs usually push investors into stocks and out of bonds, causing rates to go up.

(Quick reminder: When investors demand more stocks, rates go up; when investors demand more bonds, rates go down.)

With respect to Donald Trump and Hillary Clinton, it is all about “stability.” Stock market investors like “stability” as much as they like growth. Worries about instability or shakeups send investors away from stocks and into the safety of bonds (pushing rates down).

Investors believe that Clinton will follow President Obama’s course, and this is perceived as “stability.” So, signs that Clinton might win will probably keep investors in stocks, which will ultimately keep rates largely the same.

Investors are not sure what Trump might do, so signs that Trump might win will probably push investors to the safety of bonds, pushing rates lower.

This is very similar to the uncertainty the Brexit vote created and its influence in pushing rates lower.