James Makishima

Palos Verdes, Torrance, Beach Cities, and South Bay Area Real Estate 310.291.7367
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June 01

California Crime Statistics
As a Real Estate Agents, it seems that the two most frequent question I receive are about the quality of the school system and the safety of area. This blog is about safety.
 
Discussing safety is a difficult task. When asked "which area is the safest" it's easy to list up Irvine, Palos Verdes, Manhattan/Hermosa/Redondo Beach, and Torrance as safe area to live. When asked which are the more dangerous areas the answer is "Compton and South Central LA" and if you want to buy in that area, please go find another agent as I value my life and don't want it on my conscience that I sold a property in areas where I myself consider dangerous.
 
When the "safe areas" listed above are too expensive and the buyer cannot get in those area, then it becomes a murky area of which area is safe enough.
 
As one indicator, the table below is an excerpt of the FBI Uniform Crime Statistics for 2009. It is the collection of data from US cities with over 100,000 population. There are 272 cities listed on this statistics so any city better than 135th can be considered "safer than average?" The table below is only for California cities. Cities in greater Los Angeles and Orange Counties are listed in green. The table shows the Violent Crime Safety Rating (crimes against persons), Property Crimes (crimes against objects), and the Total Crime. Total Crime ranking is skewed with the Property Crimes as there are easily over 10 times Property Crimes than Violent Crimes.
 
Looking at the City of Berkeley which ranks 242th nationwide, I didn't feel that the city was dangerous when I attended collage there (yes, that was decades ago...). In comparison, Oakland felt more dangerous but ranks 230th which is better than Berkeley. But you need to look at the Violent Crime column where Oakland is 267th which will qualify it as the 5th most dangerous city in the US versus 152nd for Berkeley which makes a bit worse than average. There are nice areas in Oakland in the hills and it doesn't mean Oakland is uniformly dangerous. The same goes to City of Los Angeles which also includes areas such as Bel Aire, Westwood, and Brentwood.
 
So, looking at this table, Irvine is unquestionably safe ranking 1st in Safety for Violent and Property crimes. Then follows Thousand Oaks, City of Orange, Torrance, Garden Grove, Huntington Beach, Anaheim, Burbank, Pasadena, Fullerton, and Costa Mesa. I skipped Santa Ana, Norwalk, and Los Angeles as they ranked pretty low on the Violent Crime ranking.
 
 


12:19 PM GMT  |  Read comments(0)

California First Time Buyer Tax Credit
In my previous blog, I referenced that the California Association of Realtors (CAR) forecasted that the Franchise Tax Board (FTB) credit of $10,000 will expire in 10 to 20 days. Well, as of the 25th day of May, it has not run out. This is because FTB is calculating that only 57% of the applicants will qualify for the credit. Unlike the Federal Program that'll give you back $8,000 regardless of the amount of tax you pay to the IRS, the FTB credit is only an off-set against the amount you pay to the FTB. So, unless you pay atleast $3,333 to the FTB annually, you will not fully benefit from the maximum amount of the tax credit. Also, FTB is thinking some people will not qualify for the program for one reason or another.
 
The total tax credit is $100 million and assuming everybody who applies can get the $10,000 total--that means the first 10,000 applicants will get the credit. But with the reduction to 57%, that means a total of 17,543 should be the cut-off point--with no saying how much each of the 17,543 can get or can't get. The order of entry is determined by the order the fax was received. I heard rumours about fax number always being busy, but I got through on the fifth try on a Tuesday morning so it doesn't seem too bad.
 
At the current rate, the tax credit should be valid until end of June 2010. The application status is updated every Thursday for the status to Tuesday at the FTB website which you can access by clicking here.
 
This is what you need to look at. It looks like when the number to the right that says $38,357,000 hits $100,000,000 they are going to shut-off the program.
 

Applications for First-Time Buyer Credit received as of 05/25/10

As of Estimated Total First-Time Buyer Applications Received 57% of Estimated Requested Credit
05/04/10 430 $ 2,351,000
05/11/10 2,470 $ 13,283,000
05/18/10 4,830 $ 25,473,000
05/25/10 7,330 $ 38,357,000
 
 
 
 


12:01 PM GMT  |  Read comments(0)

April 27

California Home Buyer Tax Credit
With the Federal $8,000 first time home buyer tax credit coming to an end on April 30, 2010, the new California home buyer $10,000 tax credit comes into play from May 1, 2010. However, based on latest California Association of Realtor forecast, the California tax credit which is capped at $100 million is expected to be exhausted between May 10 and May 20, 2010--just 10 to 20 days from the initiation of the program. Assuming a typical minimum of 30 days for escrow, that means you won't get the California tax credit unless you are already in escrow before April 30, 2010--which means the lucky 10,000 or so will get both the Federal $8,000 tax credit and the California $10,000 tax credit for a total of $18,000!
 
So, how is this California tax credit supposed to be a stimulus? It sounds like just a gift to a lucky few who were already rushing to get the Federal tax credit.
 
There were some discussions that the California Tax Credit can be reserved but that has been clarified to apply only to New Never-Occupied Homes and does not apply to existing homes.
 


1:36 PM GMT  |  Read comments(0)

November 05

(First Time) Home Buyer Tax Credit Extended and Expanded
Following the Senate’s favorable vote yesterday, the U.S. House of Representatives just voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. As you may know, C.A.R. and our partners at NAR have worked for months urging Congress and the Senate to extend and expand this crucial piece of legislation. We expect President Obama to sign the legislation in short order.

As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.

Nationwide, more than 1.4 million first-time home buyers were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers.  We expect that number to increase dramatically in the months ahead with this new legislation in place. Thank you to our members who called, wrote, and e-mailed their congressional representatives and voiced their support for the home buyer tax credit. Your voices were heard – today’s vote is a direct result of your actions and involvement.
 


2:40 PM GMT  |  Read comments(0)

October 05

IRS YouTube Video on $8,000 First Time Home Buyer Tax Credit
IRS posted a video on YouTube about the Federal First Time Home Buyer Credit.
 
   
 
If you can't see the embedded YouTube video above, click here for direct linking.
  
They posted it on September 16, 2009 but the credit is expiring on November 30, so it is kind of late....
 
 


12:18 PM GMT  |  Read comments(0)

September 23

Torrance Home Price Trend
Today I'll be blogging about the home trend in the City of Torrance which is about 10 miles south of Los Angeles International Airport. It is the biggest city in the South Bay area and about the only city large enough to have adequate sample size to do any charting. You can probably say that looking at Torrance's trend will give you an idea of the surrounding cities of Palos Verdes (RPV/RHE/RH/PVE/PVP) and Beach Cities (Redondo/Hermosa/Manhattan).
 
For those of you who don't know Torrance, it is a nice neighborhood with good safety and good school systems. The surrounding cities to the south and west tend to have slightly better school system, slightly better safety, and higher priced homes. Torrance is a good middle class neighborhood. There are areas with "Torrance Address" which are actually part of Los Angeles City Strip and thus the children who live there go to the Los Angeles Unified School Systems (and much lower house price) instead of the better Torrance Unified School District (TUSD), but we'll focus today on Torrance within TUSD system. Single family homes in this TUSD part of Torrance runs from around $500,000 to about a $1,000,000.
 
Let's first look at Single Family Home price trend (excludes Condominiums and Townhouses):
 
There are a few spikes in the data, but you can see that median home prices seemed to bottom out during December 2008 and April 2009 and start increasing in May 2009. We use "median price" in the real estate industry to talk about the price of the region. Median price means the price of the home that is in the middle--so if nine homes were sold in a particular month, it would be the price of the house that was the fifth one from the bottom and the fifth one from the top.
 
Now, median price doesn't just get influenced by the general home price change, but also the mix of the prices of the homes that are sold. So, you need to understand that the median home price is just one data point to analyze which way the house price is moving. In any case, the house price of Torrance seems to have bottomed out from around Dec 2008 to May 2009 and may be showing a rising trend.
 
Next we look at the charts of Sold Homes and Homes in Escrow (Under contract):
 
Typically, more real estate change hands over the summer, so the increase during the summer months are typical. However, you can see that the Closed Sale during the summer of 2009 is much more active than summer of 2008 and summer of 2007 (which was the price peak). But wait, what is that dip in the Closed Sale in Aug 09? You need to look at Under Contract (which preceeds the Closed Sale roughly by a month) and you can see that July 09 dip but came right back up in Aug--so you'd expect Closed Sales to make a strong showing in September 2009.
 
Another indicator to look at is inventory:
 
At the inventory peak in Dec 07, there was almost nine months worth of home inventory on the market--houses just weren't selling back then. But if you look at Aug 09, you can see that there are less than two months of inventories which is 1/4 of the peak. There are many reasons inventory goes down but it generally means more people are buying a house than the number of people trying to sell a house.
 
Looking at houses currently for sale, you can see that the number of houses on sale has shrunk considerably from the previous year (by about -50 to -40%):
And the average days a house is on sale in the market has fallen to the level last seen in Aug 07:
When you take all of this data together, it does look like the housing market--at least in Torrance--has made it's bottom and has started a gradual price accent.
 
So, how does the Condominiums and Townhouses price look like in Torrance? The data for those is not clear. Compared to Single Family Homes, there are a lot less Condo and Townhouse sales in Torrance so the data is not too reliable. However, looking at data that is available, it looks like Condos and Townhouses sale are still continuing their long creep sideways and haven't really broken out upwards like Single Family Homes.
 
As the saying goes Single Family Home prices start rising first, then Townhouses and finally Condos (and fall from Condos first, then Townhouse, and Single Family Homes) so it may not be much longer for the Condos and Townhouse price to start rising in Torrance.
 
 


2:53 PM GMT  |  Read comments(0)

August 24

First Time Home Buyer Credit to be extended?
So, the current $8,000 First Time Home Buyer Credit is coming to an end on November 30, 2009. To quickly review the program, those people who has not lived in a house they own for the last three years and have a combined income of $150,000 (or $75,000 for individuals) or less and will live in the house for a three year period will get a $8,000 gift from the federal government in the form of a tax credit if they buy a house/townhouse/condo. You MUST close escrow on or before November 30, 2009. If you pay less than $8,000 in taxes, it doesn't matter as the government will give you back the whole $8,000 as a refund. DISCLAIMER: I am not a tax professional and cannot give tax advise, so refer to your tax professional for the details of the program or click here to go to the IRS site.
 
In my last blog, I mentioned that the $8,000 was a "nice to have" and it is nice to have money as your cash flow tend to be tight after you buy a house. You need to buy blinds, curtains, refrigerator, stove, washer/dryer, re-sod the lawn, replace the fence, paint.... There are currently bills pending in both the Senate and the House of Representatives to extend the credit through 2010. There are components of the bill which may increase the tax credit to $15,000 or to apply it to any home buyers (not just First Time Home Buyers). But the current odds are that the bill will simply be extended through 2010 with no expansion in the amount or the buyer--just like it was in 2009. You can read about it here in the Chicago Tribune website.
 
By the way, I am periodically running "First Time Home Buyer Seminar" about once a month now, so come learn about the housing market and how to buy a house--it's free and there are no obligations! Click the link below to find out more about it.
 


2:20 PM GMT  |  Read comments(0)

Los Angeles County June Median Price Spikes Up
It's been a while since my last blog, but as things have been pretty uneventful, there hasn't been much to blog about. I didn't want to blog for the sake of blogging.
 
Looking at June 2009 Los Angeles County median housing price, we saw a spike to $325,000 where the median price has been crawling sideways at around $300,000 from January 2009 to May 2009. The data is a bit confusing as different analysis has different numbers, but my data set is consistent with the data coming from Data Quick courtesy of California Association of Realtors.
 
 
The chart above shows the median housing price from April 2003 which was chosen as a starting point since it matched the recent lows from Jan 09 to May 09 as the median price crawled sideways. You can see the spike in June 2009 which is a 9% increase from the previous month and makes it look like the housing market has bottomed out in price and has maybe started an increasing trend.
 
Working with my customers and submitting offers, this impact of the price spike can be felt. Many houses are being listed below value resulting in a bidding frenzy and houses getting sold above listing price in a matter of days if the house is nice and is in "move-in conditions." On the other hand, I have offers in on short-sale houses that are awaiting bank approval forever...
 
There are some speculation that the price spike is the result of people trying to take advantage of the $8,000 First Time Home Buyer Tax Credit which will be coming to an end on November 30, 2009 and that prices will collapse once again when the tax credit is over. Yes, it is nice to get $8,000 back, but when you are buying a house at a real low price and with 5.5% interest rate, would getting back $8,000 really make a difference in your purchase decision? If you are buying a $400,000 house (which may rise to $500,000 by the end of 2010), I would think that the $8,000 is a "nice to have" but not a real deal breaker.... For my thinking, I would say that the low house price and the low interest rate is the bigger contributor to home purchase and the tax credit going away will have minimal effect on house price...but more on the Tax Credit on my next blog.
 


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July 17

Home Price Bottomed Out? and misc.
There's been quite a bit of news the last few days that affect the housing market.
 
The first bit of information is "Southern California median home sales price surges in June" which is an LA Times article. If you look at the chart "Some counties fare better than others" mid-way down on the LAT article, you see that most counties have seen an uptick in the median home sale price. Looking at LA County, basically the median price has been crawling sideways since January until May with an uptick in June. Now, there's a lot of things that can affect median price and LA County is a big county spanning from the high desert of Palmdale-Lancaster, to the rich coastal areas of Malibu, Beach Cities, and Palos Verdes so it is quite a diverse area. The median prices may yet go up, but the feeling I get being in the market is that the houses on the low-end favored by First Time Home Buyers have most likely hit bottom. The higher-end of the market is expected to continue it's struggle in the months to come though.
 
If you are looking to take advantage of the $8,000 First Time Home Buyer Credit, you'll need to start acting NOW! The credit applies to all First Time Buyer Home (no home ownership in the last 3-years and must be owner occupied) will run out on December 1, 2009. Which means, you need to close escrow and have possession of the property on December 1, 2009. Let's say closing escrow will take 60 days which means you need to have an offer accepted on or around October 1, 2009. A typical home buyer will look for a house on the average for two months, so you'll need to start looking for a house to buy around August 1, 2009 to beat the deadline--which is only two weeks away. Am I sure that the home prices have hit bottom? No, but I do know that if you don't act soon, you won't benefit from the tax credit.
 
Let's also look at some economic data to see how we standard. "California june unemployment rate rises to 11.6% From 11.5%" is the headline for this LAT article. The general consensus is that unemployment will continue to get worse, so you'll see more people losing their jobs and unfortunately, possibly their homes. So, this may lead to further decline in the home prices--but I'm guessing it's not going to impact the low end of the housing market much as the mid/high-end. This week also kicked-off the quarterly earnings releases from companies. The week started with very strong and positive news from Goldman Sachs and JP Morgan Chase, but fizzled towards the end with negative news from Bank of America, Google, and Mattel that is not showing strong revenue growth. It seems like the worst may be over with this recession, but we're certainly not out of the woods yet.
 
Finally, here is a Yahoo! News article titled "Why do home foreclosure keep rising? 6 things you need to know" that explain the why's of foreclosure. This article talks about foreclosures continuing to get worse.
 
 


11:52 AM GMT  |  Read comments(0)

July 13

FHA Loan
What exactly is an FHA Loan? FHA stands for the Federal Housing Administration and was established in 1934 to make home ownership easier. Back then, you essentially had to have the full purchase price in cash to buy a home, or 50% down and get a 1-5 year loan term. But, establishment of FHA changed all that. Despite the name, FHA does not make loans but rather insures loans made by FHA authorized lenders. There are many requirements and technical aspects about FHA Loans, but let's cut through the chase and get to the bottom line.
 
The advantages of an FHA Loan are: 1.) you can have a down payment as low as 3.5%, 2.) you can have a lower credit score than conventional loan (FHA does not have a minimum credit score limit, but the lender may require 630, 580, or whatever as the minimum credit score for application, 3.) there are additional ways to address loss mitigation such as "silent second" to help you during a setback, 4.) you should be able to use the $8,000 First Time Buyer Tax credit for your down payment--although you MUST have a minimum of 3.5% down payment before the $8,000 tax credit--as a "bridge loan" from the lender, and 5.) the terms of a Adjustable Mortgage Rate (ARM) FHA Loans are better and allows lower adjustment caps than conventional loans. A bit of a drawback is that with 3.5% down, you're going to have a fairly large monthly payment and with a low credit score, you will have higher interest rate (probably won't get the 5% rate available lately).
 
The drawbacks of an FHA Loan are: 1.) you need to buy two insurance--Upfront Mortgage Insurance Premium (UFMIP) which is 1.75% of the loan amount and Monthly Mortgage Insurance Premium (MIP--0.50%-0.55% per annum of loan amount), 2.) lending requirements are more likely to be stringent ("FULL DOCS" only), and 3.) it can take longer to get the loan and the seller may not want to deal with a buyer with an FHA Loan. The MIP is essentially the same as Private Mortgage Insurance (PMI) that you typically need to get a home loan with less than 20% down. But with PMI, you can typically get rid of it if you reach the threshold of 20% equity but with MIP, you will need to keep paying much longer. Oh, also, you can only get an FHA Loan for your primary residence.
 
During the housing boom from 2001-2007, FHA Loans were only about 3% of all loans made. Who needed an FHA Loan when you can get a "Stated Income Loan" with no verification with a conventional lender? Lately, FHA Loans is as high as 30-40% of all loans as 1.) it has gotten quite a bit difficult to get any kind of conventional loan and 2.) houses that are selling are in the lower price range within maximum FHA Loan limits.
 
It is difficult to compare a conventional loan (a non-FHA loan) versus an FHA Loans as two loan products are almost never directly comparable, but because of the UFMIP and MIP requirements of FHA Loans, I believe it is typically more advantageous financially to get a conventional loan if you can. However, if you cannot qualify for a conventional loan, FHA may be the way to go for you.
 
Here are some resources for FHA Loans so you can get the facts yourselves:
 
 


4:59 PM GMT  |  Read comments(0)

July 09

Signs of life at the lower end of the housing market
Geez, I let two months lapse since my last blog... Sorry about that. Just after I wrote my last blog, I fell and broke my left forearm and severely bruised/sprained both forearms and wrist. My inner lower lip was lacerated by my teeth and my nose was swollen to about twice the normal size (blood everywhere). I first went face down into concrete with nothing breaking my fall, but since both my arms are damaged, they must have broken the fall. Luckily, my teeth are intact and there is no head injury. This is a lesson on home safety (I fell in my garage). There was a loop of rope on the garage floor which I knew somebody was going to trip on. I've been trying to remove it for several days, but the car's tire was always on the loop so I was saying "I'll remove it next time, I'll remove it next time, I'll remove it next time...." And guess who finally tripped on the loop? They say most injury occurs near your home, and here is the case. If you find a safety hazard, take care of it immediately! The bone is healing nicely, but the ligaments/muscles in both forearm/wrist are still damaged, so I'm still a bit physically limited.
 
I've also been quite busy with some of the projects I've been working on. I'll be able to talk about one of them pretty soon. One project I was working on was for a Japanese Investors group looking to buy the St. Regis Hotel Monarch Beach near Dana Point, CA at the foreclosure sale on 7/7/09. After all the analysis, it didn't turn out to be as good a deal as first thought as the foreclosure sale price was probably going to be around $300 million so the group passed on the deal.
 
There really hasn't been any new information to blog about. The economy seems to have approached a bottom and is pretty much crawling sideways. Stock market's been going sideways since May. There hasn't been much change in housing price. Interest rate perked up a bit in early June but seemed to have settled around 5 1/2%--if you were looking to refinance your existing home loan, now may be the time as it looks doubtful that the interest rate will go down significantly lower.
 
As the title of this blog says, there has been signs of increasing activities at the lower-end of the real estate market in the South Bay. Some houses are being listed below market value and sells within a day or two with multiple offers and above the asking price and near it's real market value. So, when a new listing comes on the market and I start talking with my clients about setting an appointment to view the property a few days later, somebody else's offer has already been accepted with multiple offers by the time I call the listing agent to get an appointment. These properties are selling within 3 days of being listed! It looks like a lot of the buyers are feeling that the house price is at the bottom of sufficiently near the bottom, the interest rates are at or near the bottom, and they need to hurry to get the $8,000 Federal First Time Buyer Credit (ends 12/1/09).
 
However, the lending criteria seems to be stiffening and Conforming Loans (loans below $417,000 or $729,750 depending on how you look at it) are becoming more difficult to get. Which probably explains the boom in Federal Housing Administration loans (FHA Loans) where the lending criteria is more lenient. I'm not a mortgage broker, but I'll talk about FHA loans in my next blogs.
 
On the higher-end of the market, there doesn't seem to be much activity for "step-up buyers" who are looking to move into a larger home and/or better neighborhoods. Yes, the price of the house they'd want to buy is really low and the interest rate is also low (although Jumbo Loans are typically a point of two higher than a Conforming Loan). The problem is that many of these high-end buyers may be upside down on their mortgage (own the bank more than their house is worth) which means they'd have to pay the bank to get out of the loan as their equity may be gone. Which means they don't have the down payment to move up to a better/bigger house. They're probably worried about taking on a larger monthly payment with the threat of a loss of job. I also hear that Jumbo Loans are much much more difficult to get than Conforming Loans.
 
As I continue to state, it continues to look like a real good time to for "renters" to buy a house and become "owners."
 
James
 


8:30 AM GMT  |  Read comments(0)

May 13

Foreclosure Activity Remains at Record Levels in April
I let my blog lapse a little bit in the past week, but let's recap what has happened over the past few days.
 
Unemployment rate for April came in right at the expected 8.9% on Friday May 8. So, no new news there. Well, a news maybe that the economist were able to guess right for a change!
 
 
There's been a bit of a lackluster report from retailers which sent the stock market down today, and there is a bit of a sense that the stock market is going to contract a bit more when you look at the S&P 500 chart.
 
But the interesting tid bit today is the Foreclosure Rate. RealtyTrac--a company that tracks foreclosures reported that "Foreclosure Activity Remains at Record Levels In April." Yes, there are 342,038 houses in the US at the end of April that is in some sort of default, but that's less than a 1% increase from March. RealtyTrac counts "default notices, auction sale notices and bank repossessions" from public records, but they sometimes double and triple count as a single house can have all three (and count as three foreclosures) or even more if there is some inaccuracy in title report. As I understand it, they just count the number of records but don't filter out based on address or APN to make the records unique per a home. You shouldn't take RealtyTrac number as an absolute, but take it as a measure of the direction of foreclosure (i.e. increasing or decreasing) and given the way they count, I'd say 1% would probably be within their margin of error so a more realistic way to view this is to say "foreclosure rate unchanged from March to April." Yes, yes, there are many foreclosure prevention activity in place and there was a moratorium so the numbers may be skewed.
 
I am a Realtor for the South Bay Area of Los Angeles (where I've been saying "strong markets are near price bottom") so let's focus a little bit closer to home. Nevada, Florida, and California remain the top three states for foreclosure rates. Nevada has 1 in 68 homes in foreclosure proceedings compared to 1 in 138 in California. Nevada's (#1 state) foreclosure rate is nearly double that of #3 state California! Things must be really really bad in Nevada....
 
Foreclosure activity in California DECREASED 10% from March to April. So, foreclosure rates have actually gone down in California--quite a significant amount at that. But, California has five of the top 10 metro area foreclosure rates with: Modesto at #4, Riverside-San Bernardino #5, Bakersfield #6, Vallejo-Fairfield #7, and Stockton #8. Naturally, none of the high foreclosure rate metro areas are in the South Bay....
 


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May 19

Foreclosure Alternatives Program
On May 18, Obama Administration announced a new plan to supplement the Making Homes Affordable (MHA) Program that was announced earlier.
 
Foreclosure Alternatives Program (FAP) adds to the loan modification program offered by the MHA, but adds components to address those that do not qualify for MHA or the are way too underwater to benefit from MHA.
 
FAP basically facilitates and streamlines the Short-sale and Deed-in-lieu process as an alternative to foreclosure. So, instead of a short-sale taking 2-3 months to get a response from the bank, short-sale may be approved more quickly by the bank. There are incentives to the bank to the tune of $1,000-$1,500 for facilitating FAP--which probably means the banks can afford to hire additional staff to move the process along.
 
I don't know if anybody is sure how this thing is really going to work (nobody's seen the details yet), but buying and selling short-sale property may become quicker and easier in the next few months. However, I do not think this will affect existing properties that are already being short-sale'd...
 
 


6:22 PM GMT  |  Read comments(0)

April 25

South Bay Home Price Change Trend
As promised in the previous blog, I'll be blogging about price changes in the Los Angeles County South Bay area. But before going there, let's look at the entire US market to understand what's happening. According to the California Association of Realtors, US Median price fell -9.8% from 2007=>2008. I found this to be quite incredible that the US Median price only fell -10% with all the talk on the news about collapsing home price. In the forty years they have been keeping record, it was only the second year where price fell--the first time was 2006=>2007 where price fell -1.8%.
 
Looking at California, the median price dropped -38.2% from 2007=>2008!! The previous largest year-to-year drop was only -4.5% experienced in 1992=>1993. The biggest price move was +28.1% increase between 1976=>1977. So, this -38.2% change in price is a truly unprecedented event for California.
 
Focusing onto Los Angeles County, the median home price for February 2009 was $298,000 which is roughly the same as the price in April 2003 which was $299,000. Of course when you figure in inflation, today's price would be much lower than April 2003 but let's keep inflation out of the equation to keep things simple. If you were to chart Los County median price which is around $300,000 to Redondo Beach which is $630,000 or to Lancaster at $116,000 it becomes quite difficult to chart and make sense. So, I've taken April 2003 as the "0" price point and plotted the price change as a percent from that point. The data used to plot these charts come from the California Association of Realtors.
 
 
 
In the chart above, Los Angeles County median price is plotted with the heavy red line. I'll use that as the reference point. So, In April 2003, the price change starts at 0% and it reaches a price peak of $550,000 (+85%) achieved between May-August 2007. Next, I've taken select Southern California areas for comparision. First take a look at the plots with the dashed lines. These are areas that experienced significant boom-bust cycles. I'm using Lancaster, Desert Hot Springs, and San Bernadino for this example. Lancaster went from $152,500 in 2003 to $338,000 (+123%) at the peak and collapsed down to $116,000 in Feb 2009. I pity those people who bought at the peak and have homes that are less than 1/2 of what they paid for... Desert Hot Springs went from $123,000=>$320,250 (+160%)=>$84,000 (ouch!) and San Bernadino that went from $120,500=>$328,250 (+172%)=>$83,000. Looking at the price range of these areas and the signifcant boom-bust cycle, you can tell that subprime problems had a major impact in these areas.
 
Compare that to the solid line areas like Cerritos, West LA, and Beach Cities. These areas did not have the boom-bust cycle of the areas mentioned before and the price is still quite a bit higher than it was back in 2003. Cerritos was $377,500=>$749,000 (+98%)=>$525,000. West LA was $492,250=>$799,000 (+62%)=>$646,500.  Beach Cities (Manhattan/Hermosa/Redondo Beach) was $630,000=>$1,180,500 (+87%)=>$850,000. Don't get too hung up on the numbers--just understand that just because the "News" says prices in Los Angeles County has fallen -45% from the peak, it doesn't mean prices in all markets fell by that amount. These "stronger" markets have higher home prices and have very limited open land for new home construction. As a result, they did not get the full price boom caused by the subprime boom, but it also did not suffer the major bust caused by the subprime bust. So, don't expect to see similar price changes in Redondo Beach and Lancaster.
 
 
Finally, let's talk about the South Bay area where I am a Realtor®. There are only few cities that are large enough to have sufficent home sales to make meaning of the data. All the zig-zag you see in the plot above is because the data size is small and you can't get a smooth plot like with Los Angeles County median price where there is significant amount of data. So, for the South Bay price trend, first look at the heavy red dashed arrow. This is the general trend of Los Angeles County price. Next look at the channel bounded by the two green lines. This is the general price move for South Bay homes. In the first leg of price increase, you can see LA County and South Bay rise at around the same rate. In the second leg of LA County price increase (the shallower rising slope), South Bay prices top out and is pretty much going sideways. In the third leg which is the decline, you can see that the price of South Bay homes are declining much slower than LA County. Compared to the price trend above for Lancaster/Desert Hot Springs/San Bernadino which looks like it'll keep falling for quite a bit more, the South Bay areas look like they are seeing some kind of price bottom. Prices are still expected to fall until the end of 2009 to the beginning of 2010, but it doesn't look like South Bay areas have too much more to fall.
 
Before wrapping up, let's talk about reasons why median price fall. First, there is a general price decline. This is an across-the-board price decline that happens in recessive market. Second, there is a median price fall caused by a high number of low-priced distressed properties flooding the market. Even if the non-distressed properties stay at the same price, the large number of distressed homes will bring the median price down. Third, there is the mix change of type of homes being sold. Today, it's difficult to get a Jumbo Loan for homes above $700,000. This means the number of higher-priced homes (single family residential) being sold declines and lower-priced homes (condos) rise and will cause the median price to fall. The lower home prices are also driven by the higher number of first time buyers buying homes now. Today, all of these phenomenas are happening in every market to an extent. The different extent is what causes the difference in price change. Also, don't forget that the zig-zag on the plots are caused by small sample size--look at the larger trend.
 
James
 
 


9:51 PM GMT  |  Read comments(0)

April 04

Is now a good time to buy?
Hello and welcome to James' blog site. I'll try to keep this on-topic--although I digress frequently--and just talk about Real Estate in a timely matter.
 
"Is now a good time buy? How close are we to the market bottom?"
 
This is a question I get frequently. I cannot predict the future--other wise I'd be at the horse tracks or a casino to make my living. However, I do know that things are aligned pretty good to call now a "GOOD TIME TO BUY."
 
National Association of Realtor's First Time Home Buyer Index for Los Angeles County in Q4-2008 was at 46% which is a recent-high as well as the index being similar to 2003 levels. This means 46% of families in Los Angeles County can own an entry-level home compared to 27% in Q4-2007 which is a 74% increase. Housing prices peaked in LA County in the summer of 2007 but compared to that, median home prices has come down -45% by January 2009. Interest rates are hovering around "historical lows" at below 5.0%. Also, if you haven't owned a home in the last three years, you may qualify for the Federal First Time Buyer's Credit and receive an $8,000 tax credit if you buy your home by December 1, 2009.
 
Also, with all of President Obama's Stimulus Packaging going into action, the general forecast is that the US will exit the recession in the second half of 2009 to early 2010. There is some expectation that house prices will bottom out and start increasing around the same time.  Interest rates can't go much lower, so the expectation would be that it will start rising in the near future when the Federal Reserve Bank becomes concered with inflation.
 
Can you buy a house at the bottom of the market? Yes, if you are lucky. But you need to know that you can only know a bottom was made after the price has risen quite a bit. I think it's easier to negotiate a good price on a house when the median price is still falling rather than when the price is already rising.
 
Monthly payments associated with owning your own home may look much higher than the rent you are paying now, but when you take tax consequences and equity build-up, the two payment tend to look really competitive. Of course, if you own a home and pay it off after thirty years, you will no longer have to pay rent and may be sitting on a pile of cash called equity which appreciated over the 30 years. If you continue to rent, you'd still be paying rent after 30 years and won't have the equity or the appreciation possibilities.
 
All of the content of this blog is convered in my "First Time Home Buyer Seminar" so please register on-line to attend one of my presentation. This is a FREE seminar with NO OBLIGATION--but hopefully, you'll like me and select me as you Real Estate Agent.
 
James
 
 


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April 22

Interest Rate Stays Low
Based on Primary Mortgage Market Survey released by Freddie Mac last week, the average interest rate for a 30-year fixed rate mortgage remained below 5.0% for the fifth week in a row. The average interest rate for the week of April 16, 2009 was 4.82% with 0.6 points for "fees and points" and is the second lowest weekly rate ever; following 4.78% during the week of April 2, 2009.
 
California Association of Realtors® "Housing Affordability Index - First Time Buyer" reached a recent high of 46 for the Los Angeles region for the 4th quarter (Oct-Nov-Dec) of 2008. That means 46% of house holds can afford to buy an entry level home in the Los Angeles region. This is at an affordability level last seen in 2nd quarter (Apr-May-June) of 2003. Affordability index largely takes in median housing price and prevailing interest rate to arrive at the index number. The high affordability index shows that it is as good time to buy right now as it was back in 2003.
 
People tend to be focused on house price, but interest rate is just as, if not more, important. Let's take an example of a $400,000 house you buy with 20% down payment ($80,000) and a 5% 30-year fixed rate loan (loan amount is $320,000), your monthly mortgage payment will be $1,717. If the mortage rate increases just 1 percentage point to 6%, the payment will increase by about $200 to $1,918. So, think $200 change for every 1 percentage point change in interest rate.
 
On the other hand let's say you put $80,000 down payment on a house and get a 5% 30-year fixed rate loan. For a house priced at $400,000, your monthly payment will again be $1,717. If the house price falls to $380,000 (still with $80,000 down payment) your monthly payment will go down around $100 to $1,610. If the house price falls to $360,000 (still with $80,000 down payment) your monthly payment will go down around another $100 to $1,503. So, think roughly $100 for every $20,000 change in price. You can do your own calculation from the Mortgage Calculator here to check my math.
 
So, in this example, if the house price falls another 10% to $360,000, you will save around $200 monthly. But, if the interest rate increases 1 percentage point to 6%, your monthly payment will increase around $200. In a strong housing market like in the Los Angeles County South Bay area where there are already signs of housing price bottoming out in this price range, which do you think is more likely to happen? Prices falling another 10% or interest rate increasing by 1 percentage point before December 1, 2009 (end of $8,000 Federal Tax Credit Benefit)? I'm not a gambling man, but I'd say the safe bet is to bet on the interest rate rising.
 
Price direction has a psychological impact on sellers. If the general trend is falling price, sellers are generally willing to negotiate a discount--since if they don't sell today, they may have to sell at an even lower price at a later date. If the general trend is increasing price, the seller will wait for the buyer to come up to their price. Given that the current price direction is still falling, the circumstances are better for negotiating a discount right now.
 
Price direction also has a psychological impact on buyers. Buyers tend to make low-ball offer that is significantly discounted from the asking price with an attitude of "if I can get it at a real low price, that's great. If I can't, I'll just move on to the next opportunity." Sellers, unless they are desperate for one reason or another, won't be willing to accept an offer that is significantly lower than the market value. This creates a big gap between the seller and the buyer and typically results in a failed transaction....
 
Considering the already good opportunity to buy a house now with the declining price trend, there is an opportunity to buy a house at an unprecedented value today.
 
James
  
 


1:31 PM GMT  |  Read comments(0)

May 04

Pending Home Sales Up, End of Recession in View?
Pending Home Sales--a leading housing indicator--rose 3.2% in March 2009 compared to the previous month. Pending home sales is the number of contracts executed between the buyer and seller--so think "more buyers' offer being accepted by sellers." These contracts are expected to close in a month or two, at which time the indicator becomes "existing home sales" which counts closed sales. In the West region where California dominates, the increase was 3.9%. Lawrence Yun--NAR's Chief Economist--cautiously said "We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.”
 
Federal Open Market Committee (gathering of Federal Reserve Bank Board Members) said on April 29, 2009 that: "Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower." This is basically saying that there are signs of recovery from recession in sight--of course, we won't know we are out of a recession until we emerge out of it, but this is showing another sign of economic recovery.
 
Marin Crutsinger--AP's Economic Writer--wrote: "...the economy might be able to mount a recovery in the second half of 2009." This comment was also echoed by Economic Cycle Research Institute which said: "The end of this recession – the most severe downturn since World War II – is finally in sight."
 
Of course, nobody can accurately predict the future, but signs abound that the end of recession may be close. The GM and Chrysler saga seems to be coming to a close with Chrysler entering a "government backed" bankruptcy (well, sort of) and GM expected to go down the road to separate "Good GM" and "Bad GM" where the "Good GM" will be allowed to live on. The 19 banks passed the "stress test" by the Federal Reserve in "reasonably good shape." In my previous blog, I talked about the recovery of the stock market so I won't re-hash that.
 
There is still the issue of continued job loss and unemployment which is expected to rise to 8.9% for April 2009 (from 8.5% previous month) when it is announced on Friday May 8. So, we'll have to see if Obama's Stimulus Plan will have a positive impact on jobs (which should really take effect several months down the road). Finally, there are talks of the "next wave of foreclosure" but with signs of housing market showing price stabilization, I'd guess that the housing market will weather the next wave of foreclosures in strides.
 
What does all this mean? This indicates that the housing price bottom may be nearing and that price may start rising soon. For those of you seeking to buy a house near the bottom of the market, you need to start moving pretty soon...
 
James
 


6:36 PM GMT  |  Read comments(0)

April 23

Existing-Home Sales Slip but First-Time Buyers Rise
Nation-wide existing home sales slipped 3.0% in March 2009 compared to February 2009. So, why is this blogger (James Makishima—me!) keep saying “Buy! Buy! Buy!”?
 
Well, home price rose 4.2% nation-wide between February 2009 and March 2009. This is despite the First-Time Home Buyer percentage increasing to 53% in March. Typical First-Time Home Buyer percentage is around 40% so we are talking about a 32% increase in First-Time Home Buyer in March 2009 compared to a typical month. Also, First-Time Home Buyers typically buy lower-than-average priced home, so increase in First-Time Home Buyers should lower the median price—not increase like it did between February and March. Finally, the National Association of Realtors—according to CNBC’s Diana Olick—said 50% of the homes being sold are foreclosed homes or short sale. With the distressed home—which sells at a 20% discount on the national average--percentage increasing as well as the number of First-Time Home Buyers, prices should decline. So, why isn’t the price going down?
 
“Lawrence Yun, NAR chief economist, said the market appears to be stabilizing with modest monthly ups and downs, and that first-time buyers are driving the market. “The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey,” he said. “Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans.”
 
Why are there more First-Time Home Buyers buying houses now? The First-Time Home Buyer Affordability index is at a near-term high, interest rate is at a historical low, house prices are back down around 2003 level and they may qualify for an $8,000 tax credit. Even if today is not the bottom of the market in terms of price, home purchase is a very good value right now. If you do the math, a renter may find that it is actually more economical to buy than to rent a home. Another reason the First-Time Buyer percentage is increasing is because current home owners just aren’t selling their homes and buying another unless a job change requires relocation. If you bought a house anytime after 2006, the odds are you have lost equity with the house price drop. Yes, it is difficult to get a loan if you don’t have 20% down payment. But if you can qualify for a loan, it is a great time to buy a home now.
 
In my next blog, I’ll talk about the home price change in the South Bay area to give you a better picture of local real estate market.
 
James
 
 


6:33 PM GMT  |  Read comments(0)

April 30

GDP Falls, Stock Rallies
Why am I saying that the median home prices in the stronger markets (i.e. the South Bay region of Los Angeles) is near a bottom? It is because the stock market is telling me so. The stock market charts allow you to see the investor sentiment. Investors speculate about the future and go "long"--which means buying shares of stock--if they think the share price is going up. They will go "short"--which means selling shares of stock--if they think the share price is going down. The investor sentiment can be seeing by looking at the trend in stock market price to see if investors are long (or "bullish") or short (or "bearish"). It is generally said that the stock market will bottom out and start improving six to nine months before the general economy, so this is a way to fortell the future--but this is not an exact science.
 
Before looking at the stock market, let's look at the overall picture of the economy. A general measure of the economy is the GDP--Gross Domestic Product--which is "the output of goods and services produced by labor and property located in the United States." The GDP is reported quarterly and is in comparison to the previous quarter. If the GDP number is positive, it means that economy expanded compared to the previous quarter. If the GDP number is negative, it means that economy contracted compared to the previous quarter. The chart below plots the GDP report from 1947 when they started to track it.
 
 
 
It's just a squiggly line! Well, the key to reading the chart is to see when the GDP is above zero (expanding) or below zero (contracting). You can see that the magnitude of the squiggles since around 1985 is much more orderly compared to the previous time period indicating that the government is paying attention and controlling it so it won't get too far out of control--preventing sky rocketing growth and bone crushing contractions. You will notice that the GDP stays above zero for most of the time--when times are prosperous. It is only occasionally that the GDP falls below zero which signals a contracting market and possibly a recession like we are in now. The GDP for Q4-2008 was -6.3% and for Q1-2009 was -6.1%. The current contraction is near equal to that in 1982 and only beat by the contraction in 1980 and 1958. In other words, the current recession is a pretty bad one considering all the history we had.
 
 
 
The chart above just shows the GDP for the last six years. You can see that Q4-2008 and Q1-2009 was a significant drop. In Q4-2008, the GDP contracted -6.3% compared to Q3-2008, and then again -6.1% contraction between Q4-2008 and Q1-2009. So, the economy bottomed out in Q1-2009 right? Not exactly.... If you compare Q3-2008 versus Q1-2009, you can say that the economy contracted a total of -12.4% (this is not exact as there is a compounding affect). In order for the economy to have bottomed out, the GDP number will have to reach above zero and go into positive territory. The US recession started in December 2007 and that was announced a year later in December 2008--it took the economist a year to figure out that things were already bad!
 
The GDP for Q1-2009 was released yesterday, April 29, 2009. The concensus was -5.0%--which means everybody expected the GDP report to come in at -5.0%. But, the GDP number came in at -6.1% which is significantly worse (22% worse!) than people expected. This is considered very bad news and usually causes the stock market to fall dramatically. But, the stock market rallied instead...
 
 
 
The chart above is a chart of the S&P 500 which is generally considered as the representation of the overall stock market. The green arrow in the chart above points to April 29, 2009 when the Q1-2009 GDP number was reported. Since it was a very bad news, I expected the stock market to fall but the market all but ignored the bad news and rose and even broke a significant resistance level at 874 that it has been trying to break for nine days. You can see that the stock market hit a near-term bottom on March 6 and has been rising since. The S&P index is over 30% higher than the March 6 bottom, so you can say we are already in a "bull market" which has a technical definition of 20% rise from a near-term bottom. Note the number the S&P 500 hit at the bottom--"666." From the calling card, you all can tell who was causing all this problem! But, there are still many investors who expect the stock market to fall even further than the March 6 bottom before really going up.... But when the stock market shrugs off such news as a very bad GDP and keeps rising, you gotta know that the stock market sentiment is "looking up" and that the end to the current recession is near.
 
James
 
 
 


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