The California Market Will Survive, Despite Stock Market Volatility

California had a sharp increase in sales year-over year after a slight pull-back in November. The jump in the statewide sales in December was attributed partly to the Consumer Financial Protection Bureau’s “Know Before You Owe” disclosure rule, as some sales that should have been closed in October or November were delayed due to the implementation of the new regulations, but were finalized in December. For the year 2015, California existing single-family home sales increased 6.4 percent from 2014 after declining for two years. The improvement in sales was also the largest since 2009, jumping 24.5 percent. 

Meanwhile, the annual statewide median price continued to rise from 2014 but the increase was mild when compared to previous years. In fact, it was the smallest annual price gain in the last four years. The California median home price for 2015 increased 6.2 percent from 2014 to $474,420. 

The statewide housing supply remains an issue as the demand for housing continued to outpace inventory. While it is a welcome sign to see steady improvement in housing demand, the lack of supply is definitely a concern. The imbalance between the two sides not only intensifies market competition and pushes home prices higher, but it also leads to housing affordability issues that ultimately lowers homeownership rate if the problem persists. 

These figures underlie an important fact about American households, a smaller proportion of people and households have been moving between states since 1970, and this continues to decline. California, especially is becoming more homegrown and less migratory.

The supply constraint in the Bay Area is more pronounced and had led to fewer homes being sold in the high-cost region. On the other hand, demand in regions with more affordable housing continues to improve and more home sales will likely take place in the coming year. As such, a further slow-down in home price appreciation at the state level is anticipated as the mix of sales changes in favor of lower-priced properties in 2016.

Looking forward, the California housing market is expected to have a decent performance in 2016. The Federal Reserve is expected to raise the federal funds rate two to three times. Modestly higher interest rates should not present that much of a direct challenge to the housing market. With the economy expected to grow, housing demand should continue its upward trend with sales of existing single-family homes projected to increase 6.3 percent in 2016 to 432,570. The statewide median price is predicted to increase modestly by 3.2 percent this year from 2015. 

While the recent volatility of the stock market has been drawing attention in the news, it is more of a distraction rather than a disruption to the continual improvement in the housing market. The drop in values of equity in January reduces the overall wealth and may have a small negative effect on the economy in general. Its impact to the housing market, however, should be minor, as solid employment conditions, anticipated increase in household formations, and record-low interest rates continue to provide support to the fundamentals of the housing market.

Source: California Association of Realtors Market Snapshot

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May's East Bay Real Estate Weather Report

This two and a half minute video will synopsize the east bay real estate climate as of May 2015.

Rents on the Rise (Again!)

According to this post on sfgate, rents in San Francisco have gone up yet again and now average $3,458/month for a one-bedroom unit.

Most people continue to rent because they don't think they have the money for the downpayment -- 20% of the rising sales prices. But you don't need 20% down to buy a house! Did you know that you can buy a home with as little a 3% down?

If you rent an apartment for $3,000/month, you could own a $417,000 condo for $2,700/month -- that leaves you with an extra $300/month for your utilities and other expenses.

As both rents home prices continue to rise, doesn't it make sense to spend the same amount per month on a property whose increasing value means money in your pocket -- not your landlord's?

Are you concerned you'll have trouble finding a property for under $450,000? Trust me, there's more out there than you think -- email me for a list. Still, if you find your tastes are a bit more expensive, you still have the ability to purchase with only 10% down (up to $1m purchase price!).

There are creative ways to put together your downpayment and closing costs; with a professional history in mortgage lending I can give you some ideas to get you started.

So, what's your excuse? 

How much did that house sell for?

Prices continue to cover a wide spread from hundreds of thousands over asking price to others selling for below asking price. What causes such differences in sales prices? Call me and I'll be happy to review the market with you so you understand what makes the difference in home values.

How much did that house sell for?

With continued low inventory (see how some zip codes didn't have any sales this week?), the market continues to support the prices homes are getting. What's your zip code? What is your neighborhood selling for? If you'd like a personalized estimate of value of your home, let me know.

Contingencies & Liquidated Damages

A contingency is something that protects a buyer (or seller) from having to proceed with a transaction beyond their capabilities. There are many forms of contingencies, but for now we'll start with the three most common, which are found in an offer a buyer makes to a seller of real property.

The San Francisco Bay Area is a highly competitive market where multiple offers are the norm. To give you a better shot at getting your offer accepted you want as few contingencies as possible so the seller sees your offer as close to a "done deal" as possible. Read on to learn when you can waive which contingencies, and when you need their protection.

Financing Contingency 

This contingency, which defaults in the purchase contract to 21 days, protects a buyer in the event that they cannot secure financing to purchase the property. 

When is it appropriate? When the buyer has not been pre-approved.

When can it be waived? 1) When the buyer has been fully pre-approved (not just prequalified!) by a reputable lender. This means the buyer has submitted all the necessary documentation to the lender and the lender has verified the buyer's downpayment funds, and analyzed the buyer's portfolio, and assured the buyer that a loan can be secured, 2) If the offer is all cash, 3) When the buyer is comfortable with, and willing to accept the associated risk.

What happens if you don't have this contingency & can't get financing? 1) You find another way to fund the purchase, or 2) You back out of the contract and lose your deposit.

What happens if you do have this contingency & can't get financing? You are able to cancel the contract and walk away, taking your deposit with you.

Appraisal Contingency

This contingency, which defaults in the purchase contract to 17 days, protects the buyer in the event that the appraisal comes in for less than the agreed upon purchase price.

When is it appropriate? 1) When the purchase price exceeds comparable sales in the area and isn't supported by the current market. 2) When the buyer's downpayment is less than 20%, 3) When the buyer doesn't have the funds to make up the difference in value out of their own pocket.

When can it be waived? 1) When multiple recent comparable sales clearly support the purchase price, 2) When the buyer has enough additional funds to pay the difference in value, should the property appraise for less than the purchase price, 3) When the buyer is comfortable with, and willing to accept the associated risks.

What happens if you don't have this contingency & the property appraises for less than the purchase price? 1) You must come up with additional money to make up the difference between the appraisal amount and purchase price, or 2) You back out of the contract and lose your deposit.

What happens if you do have this contingency & the property appraises for less than the purchase price? 1) You are able to cancel the contract and do not lose your deposit, or 2) You can try to renegotiate the purchase price with the sellers to the appraised value and proceed with your purchase.

Inspections & Investigation Contingency

This contingency, which defaults in the purchase contract to 17 days, allows the buyer a period of time to investigate the property to their satisfaction. This is the time period a buyer would have any and all inspections performed, bids/estimates provided, and gain as much knowledge about the property as they want/need to feel comfortable with the property's condition.

When is it appropriate? Whenever the buyer would like to have more information on the condition of the property than was provided by the seller. 

When can it be waived? 1) When the seller has provided recent inspection reports performed by qualified professionals, demonstrating the property is in a condition acceptable to the buyer, 2) When the buyer willing to accept any unknown conditions of the property, 3) When the buyer is comfortable with, and willing to accept the associated risks.

What happens if you don't have this contingency and you later discover defects to the property? You deal with the defects out of your pocket (there are caveats regarding defects which were known to the seller and not disclosed, but that's an other post entirely).

What happens if you do have this contingency and you discover defects to the property during your contingency period? You can negotiate with the seller for a credit, or a reduction in the purchase price for property defects (but you cannot renegotiate for "upgrades"), if the seller is unwilling to negotiate to a number that is agreeable to you, you can decide if you're willing to accept the property in its known condition ("as-is"), or you can cancel the contract and walk away with your deposit.

Liquidated Damages

There is a section of the purchase contract which both the buyer & seller initial to agree to specifically regarding liquidated damages. This paragraph states that if the buyer backs out of the contract for any non-contractual reason, the seller has the right to keep the buyer's deposit, up to 3% of the purchase price, as liquidated damages. It's important to note that this is actually a protection to the buyer, as this paragraph limits the amount the seller can claim in damages to 3% of the purchase price. This is not meant to be a punitive action toward a buyer; sellers must prove that they were damaged by the buyers backing out of a contract. This is accomplished through mediation, and subsequently binding arbitration, if necessary.

As I mentioned at the beginning, there are many other ways a buyer (or seller) can build in contingencies specific to their situation. If you have a question about anything in this post, or the best way to protect yourself (and get your offer accepted), post it in the comments, or email me directly.