What’s Happening in Today’s Market?

14 Nov

 

Prices have continued to rise with good demand for properties, although we’re not seeing the depth of interest or multiple offers as we did earlier in the year.  The median time on the market for available homes in Walnut Creek has increased to 33 days, up from just 10 days earlier this year.  Many properties are still selling rather quickly, although the number of properties with price reductions and those coming back on the market after a sale falling through have increased in the past couple of months.  I expect those trends to continue as we get deeper into the Fall months.  Interest rates are still near historic lows and rents have continued to rise, which is helping to drive some current tenants into the purchase market.  While lender guidelines have continued to loosen up overall, many more home buyers are struggling to qualify with the price increases we’ve seen over the past few years.  As such, we’re starting to see lenders offer mortgages with lower down payments.  Hopefully, we’re not headed for a repeat of where that led previously, with buyers getting in too far over their heads.   The rental market has begun to slow a bit as rents appear to be flattening out as well for the time being.

3rd Quarter 2016 Median Asking Price vs Sale Price

 

Zillow “Zestimates™” Can Be Far Off Actual Value in Many Cases

14 Nov

zillow-5-star-agentAs Zillow.com has increased it’s presence in online real estate, so has the perception that the “Zestimates™” or home price estimates they present on properties are reasonably accurate.  In many cases, they aren’t even close.

More and more, I hear home sellers or potential buyers reference the Zestimate™  shown on Zillow’s web site as if it should be a reliable guide to the actual value of properties.  Zillow lists some statistics on their website that should serve as a warning.  According to their Zestimate™ Accuracy Table updated on May 31, 2016, in the San Francisco area, their Zestimates™ were only within 10% of the actual sales price 60.6% of the time.  Being within 10% of the sales should not be a difficult feat.  On a $700,000 property, 10% off is a range of $630,000—$770,000, not exactly a useful guide when looking to buy or sell a home.  Almost 40% of the time, the Zestimate™ wasn’t even within 10% of the actual sales price.

The amount that the Zestimate™ can differ from true market value is not consistent either, and it can be considerably higher or lower than the true market value.  A couple of recent sales of mine illustrate this point quite clearly.  A home I recently listed and sold in Clayton had a Zestimate™ of $880K when we put it on the market.  The market value based on the recent sales was clearly not that high, and we listed the property at $750K.  It sold after a couple of weeks at $740K.  Even after the sale, the Zestimate™ still stated it’s value at $852K.  In contrast to that, I recently listed and sold a townhouse in Walnut Creek where the Zestimate™  at the time we listed it was $580K.  We listed the property at $668K and sold it just under the asking price.  Despite our sale and that of two similar properties in the same complex that were just slightly less, the Zestimate™  after the sale had increased only to $612K a month after the sale.

Another telling instance of the questionable accuracy of Zestimates™ can be seen by looking at townhouse complexes where many of the homes have similar locations and floor plans.  At one complex in Walnut Creek I do a lot of work in, the Zesimate™ for the same model in different parts of the complex ranges all the way from $489 to $570K.  There’s no apparent rhyme or reason for the difference.

In one humorous instance illustrating the inaccuracy of Zestimates™ , Zillow CEO Spencer Rascoff recently sold his home at 3808 E Madison St. in Seattle for $1,050,000.  At the time of the sale, the Zestimate™ shown for his home on the Zillow website was $1,750,000.  Even after the sale, the Zestimate™ still showed a value of $1,556,417.

While the “Zestimates™” that Zillow provides can prepare potential buyers moving to an area with a good sense of property prices in a general area, they can also do more harm than good if a home seller or potential buyer cling to them as being an accurate reflection on the value of a particular property.

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Have you ever considered flood insurance?

3 Nov

 

Flooded HouseWith the expected onslaught of rain predicted for this year with El Nino on the way, many insurance agents are touting the benefits of flood insurance. A typical homeowner’s insurance policy generally doesn’t cover flood damage. Houses that are in designated flood zones which have a mortgage on them have been required to have flood insurance by the lender, but most homes outside of those designated areas are not required to, and therefore are usually not covered.   Floods can be caused by any number of factors including overflowing drainage basins, canals or other flood control measures. According to the National Flood insurance Program, the average flood claim amounts to $39,000. Flood insurance for homes in moderate to lower risk areas should be around $400 a year or so. Flood insurance can be purchased through your insurance agent, so if you have a concern, it would be beneficial to discuss with your agent.

 

Increased Demand for Rentals Continues to Drive Up Rents

3 Nov

Rents across the area have contFor Rent Signinued to increase dramatically over the past few years. We have had an influx of new people looking to rent in the area due to the strong job market as well as people getting pushed out of higher priced areas like San Francisco or the Peninsula. There has been high demand in our area for rentals in all price ranges. Privately owned 2 bedroom condos and townhouses in Walnut Creek have been averaging between $2200—$2700, but could be considerably higher if they’re newer or have nicer amenities. Apartment complex rents may be higher as well, as they can typically offer more flexible lease terms and lower security deposits to tenants than private owners. We are starting to see a slacking off in demand in the market though, as properties are staying on the market longer and we are starting to see some price reductions in the market. I would not expect to see rent amounts drop much in the near future however, absent a big change in the economy.

 

What’s Happening in Today’s Market?

3 Nov

graphThe real estate market continues to be a moderately strong seller’s market, although we’re not seeing the depth of demand and price increases that we saw earlier in the year. That’s fairly typical for the time of year as we head deeper into the Fall. While some properties are still getting multiple offers, many are staying on the market for a short time before selling. The number of sales is up in most areas this year, as the number of people willing to sell has increased inventory somewhat. It’s been 4 years since the market bottomed out in 2011. You can see in the chart to the right how different areas have rebounded since. Concord and Martinez saw the steepest drops in values during the recession, but have also seen the strongest rebound. Interest rates continue to hover right around 4%, historically very low and are making homeownership look increasingly attractive to those trying to rent in the crazed rental market. Investors, who had largely abandoned the market as prices rose over the past couple of years, have trickled back in due to the overwhelming tenant demand and increasing rents. There does seem to be a lingering concern among potential buyers that prices have escalated a bit too quickly. Even in cases where there is substantial demand for a particular property, the offers today tend not to be dramatically over asking price in most situations. I expect we’ll see that trend continue and we get into the Holiday season. Graph2

New Loan Disclosure Criteria Set to Launch

3 Nov

BBellevue - Office Tower wit Craneeginning October 3 of this year, the Consumer Finance Protection Bureau began requiring that lenders use a new form and different closing procedures for their loans. The new requirements include a 3 day waiting period between the time the lender delivers copies of the final loan documents to the buyers and the buyers actually signing those documents. No significant changes to the terms of the loan can be made after the initial copies of the documents are sent to the buyers, or a new 3 day waiting period will be triggered. The goal of these new rules is to prevent any surprises when buyers reach the closing table to sign their loan documents. In the past, it has been common for loan documents to arrive at the title company just prior to the buyers coming into sign them, so in the short term, I think we can expect some delays in the closing process while lenders and title companies adjust to the new rules.

What Does It Mean To Be Pre-Approved For A Loan?

3 Nov

House on CalculatorMany home sellers are confused when a purchase offer comes in that includes a loan contingency for the buyers, but also comes with a pre-approval letter from a lender. “Why is the sale contingent upon loan approval if the buyer is already pre-approved for the loan?”, they wonder. In most cases, a pre-approval from a lender doesn’t mean that much. Generally, mortgage brokers will have reviewed an application, credit report and proof of income and down payment funds , which are the most important factors in obtaining loan approval. Based on that, they will issue the pre-approval letter. Final loan approval, however, involves a much more detailed view of the buyer’s finances, as well as differing criteria involving the type of property being purchased, through the lens of an underwriter. There can be any number of situations that arise during that process that can derail the loan approval. The underwriter could look at some income the buyer counted on differently, have issues with some of the buyer’s immigration documents or the buyer’s employment situation could have changed. In some cases, buyers can actually be truly pre-approved through the underwriting process, but that is rare, as most lenders don’t have the time to commit underwriters to that extensive process before the buyer has a property under contract. Home sellers should be aware that a pre-approval letter only means that the buyer has taken the first steps in the loan process and that based on that information, the likelihood of them obtaining the loan in question is good. It is not a formal commitment by the lender.

Converting Your Home To A Rental Property Can Have Expensive Tax Consequences

20 May

House and Dollar Sign See SawI talk to many homeowners who are enticed by the idea of keeping their current home as an investment property once they move to a new area or buy a new house. Initially, the idea of having some income from the rental while having the investment potentially appreciate is enticing. However, I’ve found that many people don’t understand the tax consequences of converting a principal residence to an investment property. The capital gains exemption for a homeowner’s principal residence is one of the largest and most generous tax benefits available. Homeowners who have owned and occupied their residence for 2 out of the last 5 years are eligible to take all gains from the sale of the home up to $250,000 for single taxpayers and $500,000 for married taxpayers tax free. California generally follows the same guidelines for state taxes. So, once you move out of a principal residence you have lived in for over two years, the clock starts ticking. If you sell that home more than 3 years after you move out, you have converted the property to an investment property and are now subject to capital gains tax when you sell. For example, if my wife and I purchased a home as a principal residence in 1995 for $250,000 and lived there until this year when we decided to sell it for $600,000, the gain from the sale of the home would be about $320,000 after expenses. That would be tax free under current law. If we converted it into a rental property this year instead and decided to sell it in 2020 for the same $600,000, our gain would be taxable at federal capital gains tax rate of either 15% or 20% depending on other income, plus perhaps the additional 3.9% Medicare surplus tax. In addition, the state of California has no capital gains rate, so that income would be taxed at ordinary income rates of at least 10.3% by today’s rates!   That could lead to a whopping tax bill of over $140,000! It is highly recommend to talk to a tax professional or CPA about this possible scenario before you consider converting a principal residence to an investment property.

 

What’s Happening in Today’s Market?

20 May

Picture2During the first quarter of this year, we’ve seen consistent multiple offers on most properties with prices being driven up due to higher demand. I’ve heard many people say that there is “no inventory” and people just aren’t selling, but if you look at the numbers on the graph on the opposite page, you’ll see that the number of homes sales in the quarter this year is not drastically different in most areas than what we’ve seen the past few years. The difference this year is that most new properties that have come on the market have been snapped up immediately, making it feel like there is very little on the market. While the number of properties available is increasing as we get further into Spring, the market is still very competitive for home buyers. Another change we’re seeing is considerably fewer cash offers, and more low down payment offers with FHA financing or other types of less than 20% down payment scenarios. With the rental market still very competitive and easier financing available, that could lead to more people looking to buy in the short term.

1st Quarter Sales