A Piece of the Pie

Home buyers are having a rough time in the East Bay

Life is crazy for an Oakland Realtor these days. I barely have time to wash my hair and take calls from my parents and forget blogging.  I'm tired, my body hurts and I need a vacation but I cannot go to bed tonight before I write this update about the market in Oakland and the surrounding areas.

Forget what you're hearing on the news. I'm going to tell you what's REALLY going on for buyers in Oakland's (and partically in other places) real estate market.  It can be very difficult for the average buyer to successfully get an offer accepted and close escrow right now.  I try to have a meeting with every one of my clients (in person or by phone) during which I explain what the difficulties are and I make sure they don't expect a smooth, short ride. Oh, there are some exceptions and a few people slip through the cracks and have a relatively easy time. But it is difficult, long and stressful for most. And there are some people who, even though they are preapproved, will never be able to make a successful offer.   There are three key areas the buyers need to know about if they think they want to buy in the near East Bay right now:  Inventory, Lender and Loan Type.

Inventory.  With the $8000 tax credit for first time buyers expiring in December and interest rates still relatively low, buyers have flooded the market looking for deals. However, inventory has not kept up with this demand, in fact, it is declining (thanks for showing me this website Mei Ling!)  Homeowners are still defaulting on their loans but banks are voluntarily holding off on foreclosing.  This is great news for homeowners who are in danger of losing their homes. However, it means that buyers will have a harder time since there are fewer homes on the market and more intense competition.

The 90-day moratorium on foreclosing that was just passed by the State will probably only make things worse for buyers (better for homeowners).  However, it appears that many lenders may be able to take advantage of loop holes.  

What I'm seeing is a market that looks something like a room full of a hundred hungry dogs roaming around waiting for scraps and then five scraps are dropped in that are immediately pounced on the biggest and strongest dogs. In other words, there are a lot of buyers and their agents all looking for homes in the same neighborhoods and price ranges.  Good, and not so good, homes are securing multiple offers in a matter of hours (I heard of one home that had 50 offers after being on the market a short time.).  FHA buyers, buyers who are low balling (submitting offers well below asking or comps) and buyers who cannot or will not write offers with very attractive terms are losing out over and over again.  FHA buyers and other buyers who are using special assistance programs are unfortunately having a very rough time. Bank owners (and even some non-bank owners) are notorious for preferring non-FHA or cash offers in a multiple offer situation.  They'll even select cash or conventional offers that are tens of thousands of dollars (ie $40,000) lower than the FHA offers.

While I don't think it's impossible for my buyers (even the FHA buyers), it is very difficult. I've started employing strategies to find ways to eliminate the competition. (I am absolutely not giving away my secrets or the competition will follow thus making my efforts moot.)  They also need to make the strongest offer that they possibly can (not too high or else the house won't appraise).  Long contingency periods (you don't really need more than 10 days for inspections for most homes), credits, odd terms, and long escrow periods all make less attractive offers.

Lender.  It is absolutely critical for buyers right now to have a good loan officer.  Buyers rely on their preapproval to go forward and make an offer. If a loan officer preapproves a buyer for a loan that won't ultimately be approved by underwriting because the loan officer is not aware of the current lending standards, it could cost the buyer their deposit.  Additionally, escrows are rocky due to new underwriting and appraisal rules, the loan officer is the only point of contact that buyers and their agents have with the underwriting department. Since banks often require buyers to sign contracts where contingencies automatically expire, instead of allowing buyers to remove them, deposits become unrefundable when these deadlines pass. If the loan officer cannot push things through to get approval or at least get answers, a buyer is in serious jeapardy of losing the house, their deposit and/or possibly being charged $50 to $100 per day for failing to close on time. 

A good loan officer is one who works full time. They should be well versed in FHA (if you are going to need an FHA loan) - most lenders just started doing them in the last year since FHA became the main option for buyers who hadn't saved 10% or %20 for a down payment.  This person should have a sense of urgency bordering on manic, you should sense that they will pull an all nighter, throw a fit or maybe even call cousin Vinnie for that ...eh hem... favor if it means you'll close on time.  They should give you their cell number and call you back quickly (or at least text you or e-mail you to let you know they can't call you right now). Of course, it's a job and they need free time but it needs to be more of an air traffic controller kind of job to them, not an "I'm a retiree working as a greeter at Wal-Mart" kind of job. 

Loan Type.  FHA buyers are at a huge disadvantage right now.  Sellers are  overwhelmingly preferring cash buyers or byers with conventional loans.  FHA has strict requirements for the property's condition and many times deals fall apart because the property doesn't pass muster or the bank refuses to give the buyer credits or time to fix the problems.  Also, FHA buyers are considered less financially secure and more likely to not ultimately qualify for the loan.  Lenders often also need a long escrow period due to the time it takes to get an FHA approved appraiser out to the property, to get through underwriting and to address any conditions that the underwriter comes back with.  For those reasons, bank owners avoid them. 

To be competitive, FHA buyers need the best lender they can find.  Bubba from around the way who just took a class on doing FHA loans is not the person you want to be working with right now (although I'm sure Bubba is very nice).  The loan officer I use and refer my clients to, John Carnahan of Prospect Mortgage, has the ability (in most cases) to close FHA deals in 30 days or less.  He's been doing FHA loans for over 15 years, he knows all of the key people in the company and can get them on the phone in a matter of minutes if necessary. He's competitive and hard working and if you talk to him you'll really believe that he won't rest until your loan is approved and the deal is closed.  Not all loan officers can do what John can do but you need someone who's sharp,  motivated and a problem solver (there will be problems!)

Whether or not your loan is an FHA loan (of course you will be preapproved before you start looking in earnest), you or your Realtor needs to know how to eye ball a property.  I don't care if you have vision, vision isn't going to get your loan approved. FHA and even conventional loans now will not loan money on certain properties with condition issues (see the article I wrote a while back on this). If you don't have the funds to deal with those issues, it's a waste of time to make offers on them.  If a house is described as a "fixer," FHA folks and people without the means to address those issues, shouldn't waste their time looking at it.  Even homes that "need TLC" should be approached with caution. Have your Realtor call first if there might be an issue before you even go see the home.  Missing kitchen and bathroom elements, broken heaters, plumbing and electrical issues that are apparent all will not fly.  Even holes in the wall and rickety front or back stairs often won't pass muster.  If the house is missing windows or has broken windows or doors, at the very least, arrangements will have to be made for those things to be fixed.  Long story short, most first time buyers of modest means will need to avoid any home that doesn't appear to be suitable or safe for immediate move in and full use of all plumbing and electrical systems.  Of course, there's the 203k loan but good luck competing with the other 50 offers with that on your offer (yes, even fixers are hot right now when they are priced right).

To summarize, it is not easy to buy a house right now.  You should find a Realtor to help you navigate the market (it's free to you) and make sure that you prepare yourself. If you aren't fully committed to the process and/or you aren't financially or otherwise (get preapproved!) prepared, you will spin your wheels and get lost in a sea of hungry pitbulls fighting for scraps.

I would have written this article if I'd only had the time....

Seriously, once again, Tara Nicholle Nelson writes a perfectly spot on article about some aspect of buying real estate in this current market. This time, it's about how buyers need to have tough skin in this market. It perfectly captures the experiences of almost all of my clients.  Enjoy!

http://www.inman.com/buyers-sellers/columnists/tara-nicholle-nelson/todays-buyers-need-thick-skin

Disappointing news about the tax credit down payment loan...

When FHA announced that it would be allowing first time buyers to use the federal tax credit toard their down payment it seemed that buyers who hadn't saved the 3.5% required for FHA would now be able to use the credit to give them that boost.  FHA just announced that it would not allow the credit to be used in place of the 3.5% down payment. In otherwords, buyers will still have to come up with 3.5% down payment. 

The good thing about this program is that buyers will be able to use the credit for their closing costs or to buy down the interest rate on their loan.  Click here for the details.   

Oakland's real estate market may be healthier than you think

Try telling someone who hasn’t attempted to buy a home in Oakland in the last six months that there are bidding wars and that it’s fairly common for homes to sell for at least $50,000 more than the asking price and you’ll probably be met with shock or disbelief.  Don’t get me wrong, there are homes that are selling for less than asking price, and most bank owners are pricing their listings well below the market. However, the number of buyers has increased greatly since last year. To make the situation even tougher for buyers, instead of just releasing homes as soon as they foreclose on them, banks are trickling them onto the market (it seems that they are trying not to saturate the market and cause steep price declines) so buyers are milling around, waiting to pounce when a nice house hits the market.  Buyers descend in droves on homes in decent condition that are priced attractively.  After a while, buyers learn the ropes, make arrangements to immediately see homes that look nice and will write up an offer on the front steps of the home they like while other prospective buyers, with or without agents, climb over them to tour the house. 

 

My clients usually balk when I tell them that they’re going to have to offer $40,000 or more over asking just to be in the running on certain homes.  We look at the prices of recently sold homes in the same neighborhood, and I call the agent to find out if there are other offers in. Often there are at least a few already in that are all over the asking price.  At that point, my clients realize that they have two choices (especially if they are using FHA and are less able to make an attractive offer than cash buyers): make the highest, over asking price offer that they are comfortable with financially. Or, if they aren’t able to offer more than asking, pass on the home in favor of one with less competition or in a lower price range.

 

This all seems to contradict the news that we are hearing about vacant homes sitting on the market, would-be buyers not being able to get loans, increases in foreclosures and the terrible economy.  What we have to remember is that this is Oakland. It’s both amazing in its own right and it’s close to San Francisco for a fraction of the price.People buying their first home in Oakland love it because it’s relatively affordable (especially now), diverse and close to San Francisco and Berkeley. Investors love it because, in the less expensive areas, the rents are high in comparison to costs (such as mortgage, taxes and other expenses of owning the home). For these reasons, there is always more buying activity in Oakland than in many other East Bay cities.

I decided to figure out whether the numbers locally would support my experience and contradict the news and generally held assumptions about the market.  To do this, I calculated the Month’s Supply of Inventory (MSI) for each of Oakland’s zipcodes. The MSI of an area shows how long it will take for all listed homes to be sold based on the number of houses on the market and the rate that homes have been sold in the past.  Generally, an MSI greater than 7 means that the area is a “buyer’s market” and an MSI of less than 5 means it’s a “seller’s market.”  MSI between 5 and 7 indicate a balanced market.  What I found did not surprise me.

 

Although none of the zipcodes were seller’s markets, many were “balanced.”  One, 94619 (includes the lovely East Oakland neighborhood of Maxwell Park up to Skyline) was just a few percentage points away from being a seller’s market.  The other balanced markets were 94602 (includes Glen View), 94603 (the very south east section of Oakland and 94606 (includes San Antonio/New Chinatown).  These neighborhoods appeal to a mix of buyer-types - investors who are snapping up homes in the dirt-cheap 94603 zip code, and first time home buyers and families who adore 94619, 94602 and 94606.  In my experience, nicer homes listed in these neighborhoods are off the market in a matter of days.

 

Other zipcodes were moderately buyer’s markets: 94601 (includes Fruitvale and Allendale), 94605 (a very diverse zipcode including everything east of Mills from the North down to around, possibly a bit above E. 14^th), 94608 (parts of West Oakland), 94609 (Temescal and North Oakland), and 94621 (Southern East Oakland past Fruitvale before 94605 and 94603). These zip codes have a very steady stream of inventory, a bit more than there are buyers for. Of course, attractive homes at attractive prices in the more desirable neighborhoods (like Oak Knoll in 94605) of these zip codes sell as fast as they do in the more balanced neighborhoods, but there are a lot of fixers in these neighborhoods that tend to sit on the market, either because they are priced more than buyers are willing to pay or buyers are unable to find a lender willing, due to the homes’ condition, to loan them money to purchase them.

 

A few zipcodes had numbers that suggested that they were ridiculous buyer’s markets – 94612 (downtown Oakland), 94610 (Lake Merritt), 94611 (Piedmont area, Montclair) and 94607 (West Oakland closest to BART).  The reasons that the MSI for houses in these neighborhoods are so high varies based on the neighborhood. The more expensive zipcodes are likely to be suffering due to the very high interest rates on jumbo loans and the low number of buyers looking for luxury or high-end homes. West Oakland, Piedmont Ave, Downtown and Lake Merritt are likely to be struggling due to the over-production of condos (some of which are short sales) that are currently just sitting on the market because buyers are unwilling to pay what sellers or developers need or want to sell them for. Buyers may also prefer the two or three bedroom single family homes that they can purchase for less than a junior one bedroom condo. Those single family homes won’t require them to pay HOA fees upwards of $300 per month. 

 

Several other reasons are likely to be dragging down West Oakland’s housing market. The housing stock is so old that many of the houses there need a lot of work, and a good number of them have tenants (making them harder to sell and less attractive to buyers who are unwilling or unable to evict due to Oakland’s strong tenant’s rights laws).

 

So what does all of this mean?  First of all, real estate markets are very local, meaning they are influenced by factors that may cause a different situation than what might be happening in other areas in the state or in the nation.  Before starting to make offers, buyers should learn, not just about buying homes and the market generally, but about what is going on with the process of buying and prices in the specific neighborhood they are interested in.  It’ll save time and your nerves. Realtors who are assisting buyers in their neighborhood of interest are one of the best resources for this information.  While it’s terrible and devastating that people are losing their homes, Oakland’s real estate market isn’t significantly ailing in the way that many markets are. 

 

Click here to see the raw data.

Buyers will soon be able to use the first time home buyer tax credit for a down payment

I have great news for people who have the income to afford to buy right now but not enough savings for the down payment. The Secretary of Housing announced that the government will soon allow buyers to borrow against their first time home buyer tax credit (up to $8000) for their down payment.  Right now, the lowest down payment option for most buyers is 3.5% with an FHA loan. On a $200,000 home (there are many in the East Bay), $8000 is more than enough to cover the down payment.  Depending on how the regulations are written, this could amount to a return to 100% financing.  The Federal Housing Administration will publish a policy "soon."

New CA home buyers offered mortgage payment assistance in event of job loss

While low prices and low interest rates have recently inspired more and more people to buy homes, some would-be buyers are still spooked by uncertainty about their job security.  The California Association of Realtors is attempting to address those fears and encourage more people to buy homes by offering to pay up to $1500 per month for six months toward the mortgage payments of qualifying new home owners who lose their jobs.  More information can be found on CAR's website.

Oakland Councilman to host foreclosure bus tour May 16, 2009

Last year I wrote about REO bus tours that brokers in Stockton were hosting. Larry Reid, council member for Oakland's District 7, has taken a page from these brokers' playbook and has brought the REO bus tour to Oakland. 

On May 16th from 10am to 4pm, Mr. Reid plans to send 200 approved buyers on a tour of the foreclosed properties that are on the market in his District.  I'm not sure from the e-mail that I received where this bus tour is leaving from or whether new "riders" are still  being accepted. However, if you are interesting in going on the tour, you can get more information by sending an e-mail to this address:  vregencycr@comcast.net

District 7 is extremely diverse. This East Oakland area encompasses some of Oakland's least expensive neighborhoods, which might be most appealing to investors, and some very nice areas of the east Oakland hills, foothills and the San Leandro border.  My guess is that investors will get more out of this tour than people looking to buy a home to live in, because the most desireable homes come and go so fast in Oakland that few are available at any given time.  They are requesting that agents submit properties for the tour right now. The best homes available now will probably be off the market by the date of the tour. 

However, there are some VERY inexpensive homes in the flat parts of District 7. I'm talking less than $100,000, rock bottom cheap! If you feel comfortable enough living in or investing in that area, there are definitely deals to be found.

In case you are curious, here is a list of all of the active listings in District 7 - http://MAXEBRDI.fnismls.com/publink/default.aspx?GUID=053abf55-56d5-4416-b054-b0fc288ac9e5&Report=Yes

When to consider a short sale...

My blog readers and clients know that I generally advise against buying short sales. Short sales are often problematic for a number of reasons, the price is often deceptive and interested buyers may wait two to six months for the seller's lender to make a decision about their offer with no guarantee that it will not just go ahead and foreclose or accept another offer.

However, banks are approving more and more short sales and there are some instances where a buyer might want to consider a short sale.  Some sellers have situations where they will have fewer problems getting short sales approved and sometimes, a short sale home will be the best option for a buyer.  Below is a list that may help you decide whether you should pursue a short sale. If all or most of the criteria below exist, you might want to try your luck...

1.  You don't have to move or be in contract by any particular date.  This is absolutely essential since, no matter what the listing agent says, lenders often take months to make their decision and there is no guarantee that the lender will even allow the sale to happen.

2.  There is limited inventory or intense competition in the area or type of property that you are looking for.  Short sales are less desirable so there will be less competition. Also, short sales stay on the market longer so they disappear from the radar of many buyers.  Because you are still working with a human seller (as opposed to an institution) and at this stage the bank is more worried about getting as much money as possible than making sure the sale sticks, buyers who can make strong offers but who are using FHA or who are unable to compete with investors or buyers with stronger financial credentials may have better luck with short sales.  On the other hand, if there are tons of REOs on the market where you are looking, you should always favor the REOs.

3.  There is one loan, one lender or the sale/price has been approved by the seller's lender. In these situations, the seller's lender will probably take less time to decide whether to accept your offer because, either, they are a few steps closer to making a decision or there are fewer of the hurdles (i.e. a second lender that stands to lose out completely) that tend to trip up lenders.

4.  The listing agent is experienced with short sales, has a reputation of being hardworking or responsive or has hired a company that will negotiate the short sale with the seller's lender on behalf of the seller.  Short sales require daily contact with the seller's lender. Banks are often dealing with so many short sales that their staff often ignore the ones that they aren't being bugged about.  Someone on the seller's side, the agent or someone hired by the agent or seller, should be on top of getting the bank everything that they need to make a decision and then pestering the crap out of their contact at the bank to encourage the bank to respond quickly. 

There are some advantages to buying a short sale property. Once the seller's lender accepts the buyer's offer, the transaction proceeds as a normal deal between a buyer and a seller.  It's a lot less harsh than buying an REO where the lender will try to shorten contingency periods and will threaten to levy financial penalties if the buyer requests extra time to close.  Also, because there is less competition, buyers will have more time to view the home and decide whether to make an offer and they may even be able to get a better deal on a short sale.

I wrote this article to let buyers know that all short sales aren't evil and aren't created equal.  It's important that buyers learn about this market and the situation of sale and how it will work their their situation before they proceed. 

Great article on the long-term costs of homeownership

Tara-Nicholle Nelson of Inman News has written another great article for first time home buyers.  This time she tackles the questions: what are the long term costs of home ownership and how manageable are they.  Specifically, she discusses taxes, insurance and maintenance.  Enjoy!

New listing in Oakland's Sequoyah neighborhood...

Since I do a lot of free advertising for other agents, I figure I might as well plug my own listing...

9774 Burgos Ave. is a larger 4bd/2ba home in a great neighborhood in the east Oakland Hills above 580 that rarely has homes on the market.  It has been owned by the same family for years and, recently, the owners have upgraded the plumbing, electrical system, windows, kitchen, bathrooms and roof.  It has a larger (approx 8000 square foot) corner lot with both a back patio and a peaceful grassy area. It sits up from the street and there is a great view of San Francisco and the Bay from the dining area.  It is across the street from the Oakland Zoo so the setting is very park-like.   

This is a REGULAR sale! It is owned by a family (not a bank) and they are not underwater on their mortgage. The transaction will have sane and reasonable terms with responsive sellers and an adorable listing agent ;).

I'm having an open house this Sunday from 1-4pm.  Stop by for cookies!  (MLS# 40400247)

I'll post more pics soon!