8/14/2019 The Real Estate Weather Report - Jul 09 - Ken Roberts

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I the real estate climate was reported likethe weather, it might sound somethinglike the ollowing:

Expect the stormront in the South Bayreal estate market to continue with cold tem-peratures, scattered showers, and occasionalgale orce winds in the middle class areas,gradually giving way to partial clearing and awarming trend or rst-time buyers with the

worst behind us or the high-end market.One o the barometers o the real estate climate is the number ooreclosures being led in a city. While this really doesnt paint thewhole picture since need to take into consideration the number oshort sales (where the sellers owe more than the home is worth andthe bank agrees to take the loss and allow the homeowner to walkaway) and other distressed sales, its a pretty good indicator. As theood o distressed properties subsides, a more normal market willemerge with real live people as sellers rather than institutional salesdictating market values.

Lets look at the number o properties in oreclosure where thenotice o deault has been led and the clock is ticking, along withproperties recently oreclosed on and sold at a trustee sale. Remem-

ber, i a property is in oreclosure, it doesnt mean it will go to sale.Homeowners may redeem their home by paying the amount in ar-rears and thus cancel the oreclosure. As o this writing, the num-ber o homes either in the process o or recently oreclosed upon inthe South Bay looks like this: Manhattan Beach 69, El Segundo 27, Hermosa Beach 56, South Redondo Beach 84, PalosVerdes, Rolling Hills 53, Rancho Palos Verdes 105, San Pedro 384, orrance 624, Hawthorne 513, Lawndale 222, NorthRedondo 112, Lomita 81, Harbor City 161 and Gardena 605. As you can see, sellers are still weathering the storm.

On the national real estate scene, the Mortgage Bankers Associa-tion reports that during the rst quarter o this year, 12 percent o

all homeowners with a mortgage are behind in their payments. Andhal o those, or six percent, are borrowers with good credit andxed rate mortgages! Tis tells us that job losses are wreaking havocwith the well qualied borrowers as well. Tis is in stark contrast toalmost 46 percent o all subprime mortgages currently in deault.

For buyers, however, and especially rst-time buyers, you couldnd yoursel in the eye o the storm with blue skies and warmweather. Te aordability index in the Western States has in-creased 40 percent rom a year ago and is at a 30-year high. Tis isdue to a combination o alling prices and historically low mortgagerates. I that doesnt lit the gloom, there is a ederal tax credit o up

A R E A L E S T A T E P R O S P E R S P E C T I V E

to $8,000 or rst-time buyers that earn $75,000 or less as singlelers, and $150,000 or less or those married ling jointly. (Withjoint income over $150K, there is a gradual phase-out o the creditgoing to zero at $170K combined). Tis is a tax credit that reducesthe amount o ederal income tax you pay dollar-or-dollar by upto $8,000, as calculated by taking 10 percent o the purchase price,not to exceed $8K. (For more inormation go to http://www.eder-alhousingtaxcredit.com/2009/home.html).

Another silver lining in the cloudy orecast is a $10,000 state tax

credit or new construction purchases by rst-time or existingho-meowners between 3/1/09 and 03/01/10, with no income restric-tions. Break out the sunglasses, sunscreen and swimsuits! Tere is$100,000,000 allocated by the state or this on a rst-come, rst-serve basis. (For more inormation, go to http://www.tb.ca.gov/in-dividuals/New_Home_Credit.shtml).

Many o us noticed that mortgage rates rose dramatically in therst week or so o June. Tis potential cold ront could develop intoanother major storm, causing the economy to stall and double dip.Te Fed knows the oundation o a sustained economic recovery isrooted in shoring up the real estate market. Te home value reeallneeds to cease, and jobs need to be created beore consumer con-

dence and spending can return.Te mortgage rate spike occurred or several reasons. First, towardthe end o May, Bill Gross, the Warren Buett o the bond worldwho manages the PIMCO otal Return Bond Fund, came out andstated the possibility exists that the United States could lose itsAAA rating as a creditor by the rating agencies. Next, we got a ewickers o positive economic news. Not good newsjust econom-ic data that disappointed less! But what really caused a mortgagebond sello and drove rates up is what some are calling the Fedsdilemma.

As we may recall, mortgage rates initially dropped at the end olast year. Te Fed made the announcement that it was going to buymortgage-backed securities rom Fannie Mae and Freddie Mac di-rectly, and committed $600 billion toward that end. Accordingly,rates dropped rom the 5.25-5.50 percent range to the 4.50-4.75percent range virtually overnight. Because the Fed became a buy-er, it decreased supply and increased investor demand, ultimatelypushing rates lower.

Now, however, the Fed is issuing record amounts o treasurybonds to nance the corresponding record amount o spending.Tat is creating a glut o supply, weakening demand rom investorsand pushing rates up. So the Fed is buying mortgage bonds, try-ing to push mortgage rates lower, with money borrowed rom sell-

The Real Estate Weather ReportKeep Umbrellas Handy and Make Hay When the Sun Shines

8/14/2019 The Real Estate Weather Report - Jul 09 - Ken Roberts

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ing treasuries causing rates to go up. Tisis kind o like that time the kitchen sinkwas stopped up and you took the plungerto the let side o the sink and pushed thewater down only to have it rise right backup on the right side! Te Fed needs to nda way to continue to pressure mortgagerates lower again until the economy trulynds a oothold and moves in earnest to-ward expanding again. Part o the trick willbe to convince oreign investors like Japanand China to continue to buy our trea-suries, which will help mop up the excesssupply that is hitting the market. I oreigndemand wanes, it causes bigger supply andless demand, orcing up rates to attract in-vestment dollars.

Te good news as o this writing is thatmortgage bonds are starting to rally again,causing mortgage rates to improve. Rateshad increased about one percent rom

the previous lows to the mid-ve percentrange currently. Many eel (and many morehope) that the bond market sell-o was anoverreaction and that it is just part o theincredible volatility we continue to experi-ence in the stock and bond markets on ourlong journey back to economic recovery.And participation at the treasury auctionshas been met with reasonably good partici-pation by oreign investment.

We dont know how low rates will go asa result o this rally. What we do know isthat the economy may be nding a bottomsoon. Some eel the so-called Great Reces-sion may ofcially be over this year. But itmay take ar longer or a new crop o jobsto be cultivated. Tats what the averageAmerican really needs to see in order to de-clare the recession is history.

Mortgage rates are good and improvingagain. Real estate prices have declined and

here in the South Bay, they may have bot-

tomed out as well. Te aordability index

is the best in decades. Generous tax credits

are available or home buyers. FHA nanc-

ing allows buyers to purchase with as little

as 3.5 percent down. Conventional nanc-

ing requires just 10 percent down with loan

amounts up to $729,750. With 20 percent

down, there is nancing available on loan

amounts up to $1 million; and rom 25percent down to $2 million.

So i youre a rst-time home buyer or

looking at making a move-up purchase,

your timing couldnt be more perect. You

may nd yoursel one happy camper who

made hay while the sun shines!n

Ken Roberts is a mortgage planner with

over 30 years experience in the South Bay real

estate market. Ken can be reached at (310)

534-6200.

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For buyers, however, and especially rst-time buyers, you could nd

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