Docstoc

CIRIOS TRENDS

Document Sample
CIRIOS TRENDS Powered By Docstoc
					           C i r i o s R ea l E s t a t e                                                             Volume 1, Issue 6
                                                                                                      July 1, 2009

           CIRIOS TRENDS
           GETTING TO THE BOTTOM OF THE HOUSING MARKET


                                                                                          Chart of the Month:
The State of the Markets                                                         Price per sqft San Leandro vs. Albany
As the infamous summer buying season heats up, hopeful housing mar-
ket participants are looking for a respite from nearly four years of woe.
Reality, however, is throwing a wrench in their plans.
Two trends have recently emerged that are derailing what many hoped
would be the strongest summer in real estate since the downturn
began.
First, fears about government’s massive debt load and the specter of
looming inflation are pushing up interest rates. Despite
trillions of dollars dumped into the secondary market for mortgages,
rates have risen nearly a full percentage point in the past month. For
more on this topic, please read Higher Rates Strangle Mortgage Market.
Second, in response to a lawsuit filed in New York against Washington                                   Source: Cirios Real Estate, MLS Data
Mutual, new appraisal guidelines went into effect May 1. The rules,
which try to limit collusion between banks and appraisers, are wreaking                            Housing Data Going From
havoc in the market for new loans. For more on this topic, please read                              Worse to Just Plain Bad
Keepin’ It Real Estate: Just How Bad Are the New Appraisal Guidelines?
                                                                                                  APRIL CASE-SHILLER HOME PRICE
Meanwhile, foreclosure moratoria which expired April 1st were expected                            INDEX: -18.1% Y/Y
to unleash a flood of supply of bank owned homes onto the market. This
                                                                                                  MAY EXISTING HOME SALES:
mountain of new inventory has yet to materialize, as ―soft moratoria‖ are                         +2.4% M/M
being employed by banks, at the behest of Washington, keeping homes
off the market.                                                                                   MAY NEW HOME SALES:
                                                                                                  -0.6% M/M
In short, its crazy out there. But, amidst the chaos, normalcy is begin-
                                                                                                  JUNE HOMEBUILDER SENTIMENT INDEX:
ning to emerge from the housing market’s charred remains. That is, of                             15 (DOWN FROM 16)
course, if you know where to look.
                                                                             “Amidst the
In an environment where prices are careening over a cliff, selling is in-
discriminate, fundamentals are thrown out the window and prices move
                                                                             chaos,
seemingly without regard to logic and all in the same direction: down.       normalcy is
                                                                                                       Inside This Issue
The stock market is a great example of this, as during the panics of last    beginning to
fall and this spring, investors sold stocks with both hands; banks, oil
                                                                             emerge.”          BY THE NUMBERS:                     2
refiners, retailers and technology companies alike were thrown out with
                                                                                               THE BOTTOM
the proverbial bathwater.
As the chaos recedes, careful market observers look for signs of                               ZIP CODE SPOTLIGHT:                 2
                                                                                               94577 - SAN LEANDRO
differentiation. Firms with the best outlook begin to outperform the
broader market as investors identify those companies best positioned to
                                                                                               HOUSE OF THE MONTH:                 4
emerge on stronger footing. In other words, legitimate recoveries are                          POSHING LIVING IN THE CASTRO
wrought from opportunistic investors looking for, and finding, value.
                                                                                               DOING YOUR REAL ESTATE              5
Look at the graph at the top of this page, which compares price per                            HOMEWORK:
square foot of homes sold in San Leandro vs. Albany. No one familiar                           MORTGAGE CALCULATORS
with the Bay Area would argue the two cities are comparable in anything
but BART commute times to San Francisco, but for almost two years,
the premium paid to live in Albany shrank to a barely perceptible
amount. This isn’t logical, and certainly wasn’t sustainable.
As the housing market heals, fundamentals will once again drive prices.
Picking a bottom is a fool’s errand, but looking for relative value is ex-
actly what Cirios Real Estate is here to do for our clients.



“I always felt very secure and very safe with real estate. Real estate always appreciates.” - Ivana Trump
Cirios Trends
G et t in g t o th e B o tt o m of t h e Ho us in g Mark et

                                  By The Numbers - The Bottom
                                  It’s everywhere these days: In the news, on the        plex that their ability to tell us the future through
                                  streets. The ―bottom‖ is coming. We have toiled        a simple calculation is nil.
                                  long and hard through the dark days of this ―Great
                                                                                         So what’s the solution? Why does Cirios keep
                                  Recession‖ and are now coming to the bottom of
                                                                                         coming out with all these data and articles about
                                  the housing slump. Well, we’ve got bad news.
                                                                                         learning housing by the numbers if the numbers
                                  Not only are we not yet to the bottom, there is no     can’t give you the answer you’re looking for? The
       “There is no               such thing as the bottom. But, as it turns out, the    response to that is simple: While we can’t predict
       such thing as the          ―bottom‖ doesn’t actually matter, at least not to      the future by using some magical formula — no
                                  today’s savvy home buyer.                              matter how hard we try — today’s information
       bottom.”                                                                          age allows us to get an accurate picture of what
                                  In mathematical terms, a bottom would represent
                                                                                         is happening RIGHT NOW, not to mention make
                                  the lowest value that some function worked out to
                                                                                         a sensible stab at what will happen in the very
                                  as it moved its way along one axis or another. In
                                                                                         near term.
                                  our world, really the only axis that means anything
                                  is the axis of time. Everything moves inexorably       While there’s no mathematical function for a
                                  towards the future, sometimes plodding, some-          home’s future value (despite attempts by myriad
                                  times sprinting, but always forward. So why can’t      websites, the latest of which is called
                                  we find a bottom to the function of the housing        smartzip.com, which tries to assign a 10-year
                                  market?                                                future value to each house in California), there is
                                                                                         a light at the end of this algebraic tunnel. The
                                  Isn’t there a given point in time where the market
                                                                                         calculations for each of us PERSONALLY are
                                  reaches the lowest level it can reach and only
                                                                                         straightforward.
                                  heads up from there? Nope.
                                                                                         The most important equation is the one that
                                  The problem — as we try to hammer home over
                                                                                         looks at your individual finances and decides
                                  and over again here at Cirios Real Estate — is
                                                                                         whether its right for YOU to buy a home. And
                                  that there is no single ―function‖ that can describe
                                                                                         fortunately, Cirios can help with it all. We can
                                  a real estate market. As the old axiom goes, all
                                                                                         help you decide whether buying a home is right
                                  real estate is local. And indeed it is.
                                                                                         for you, what kind of home you should buy and
                                  Therefore, the function that describes what home       when the right time will be.
                                  values are going to do over a given time period in
                                                                                         And while there are no magic formulas that pre-
                                  one area can be completely different than the
                                                                                         dict the home market’s future, Cirios has the
                                  function describing home values just a few miles
                                                                                         tools and skills that can clear the confusion
                                  away. The real kicker is that even these simple,
                                                                                         around today’s confusing market conditions.
                                  very localized functions are so unimaginably com-



                                  Zip Code Spotlight - San Leandro - 94577
                                  This month’s spotlight shines on
                                  an oft-forgotten portion of the
                                  East Bay, San Leandro.
                                  While San Leandro lacks the
                                  famous name of an Oakland and
                                  the semi-swankitude of a Castro
                                  Valley, its central location and
                                  amazing affordability make it
                                  worth a second look for anyone
                                  looking to buy a home for less
                                  than $600,000.
                                  Currently listed homes in the zip
                                  code range from a small



                                                                   Page 2
Cirios Trends
G et t in g t o th e B o tt o m of t h e Ho us in g Mark et

Zip Code Spotlight - San Leandro - 94577 (continued)
                              2 bedroom fixer upper listed at $200,000 to a $1.3      On the flip side, as supply pressures ease, values
                              million dollar home with a pool and views of San        tend to stabilize. Clearly, the supply trend for this area
                              Francisco. The large majority of homes (77%) are        is returning to more traditional levels. Simultaneously,
                              priced $600,000, large lots are common and Chabot       there seems to be some support at current price lev-
                              Regional Park is a stone’s throw away. Downtown         els, meaning that the decline in prices could be
                              San Leandro is a vibrant commercial area with many      leveling out.
  “As supply                  common outdoor events.
                                                                                      The public school system in San Leandro isn’t any-
  pressures ease,             As can be seen in the graph below, home prices in       thing to write home about, but the attractive afforda-
  values tend to              94577 have come down significantly since their peak     bility levels mean private schools could be an option.
                              in 2005. Another noteworthy aspect of the sales
  stabilize.”                                                                         And in terms of commuting to San Francisco, the 24
                              graph is the enormous spike in supply that occurred
                                                                                      minute ride from the San Leandro BART is identical to
                              in late 2007. As we have explained in the past, these
                                                                                      the commute from the Downtown Berkeley station.
                              supply spikes always correlate with precipitous de-
                              clines in prices.




           Source: Cirios Real Estate, MLS data

                                                                    Page 3
Cirios Trends
G et t in g t o th e B o tt o m of t h e Ho us in g Mark et

House of the Month: Posh Living in the Castro
As jumbo mortgages continue to be extremely difficult to get, we at Cirios keep asking ourselves: Is it a buyer’s market for borrowers who
manage to qualify for a jumbo loan? To answer that question, we took a look at a home which seems to have everything: location, updates
and parking (which in San Francisco is like gold).
Neighborhood Overview: The Castro district in San Francisco is one of the most desirable areas in the city. It has all the key amenities
(shopping, restaurants, grocery stores and numerous public transportation options). Recent price declines can be blamed on the fact that its
nigh impossible to get the big loans needed to buy these pricey homes, along with the general downturn in the economy. However, the Cas-
tro remains a very desirable place to live and price declines should be moderate, as qualified buyers look to take advantage of lower prices.

                                                  25 Hartford St., San Francisco, CA 94114
Original List Price: $1,495,000                                                   Step #3 – Comparable Properties
List Date: 5/27/2009
Current List Price: $1,495,000                                                    Go to www.ciriosre.com to see a CLEAR valuation for this property
Previous Sale: $1,575,000
Previous Sale Date: 11/2/2007                                                     Step #4 – Value Analysis
Estimated Down Payment: $373,750
Estimated Monthly Payment: $8,535.96*                                             The subject is one of the lowest listed properties in its immediate
Bedrooms: 3; Bathrooms: 2.5                                                       vicinity, which will likely result in a lot of interest from potential buy-
Liv. Area: 1,915 sqft; Lot Size: 8,000 sqft
                                                                                  ers. S1 sold for $1,425,000 and is located across the street from
Positives:                                                                        the property, which is evidence of demand in the area. Although S1
+ Large back yard, parking                                                        is a superior home to the subject, it backs up against the Castro
+ Centrally located                                                               Theatre, which should be considered a material negative, due to
+ Wine room, office and sun room                                                  the noise which is likely to emanate from the bars and restaurants
                                                                                  close by.
Negatives:
- Common bathroom (upstairs) does not have a shower                               Cirios Value: $1,375,000
- Kitchen is a bit small
- Third bedroom doesn’t have a closet (how is it a bedroom with-                  Over Listed Amount: 8.0%
out a closet?)
Value Approach:
Step #1 – Location
As mentioned above, the subject is located within walking dis-
tance of bars, restaurants, shopping and all major public transpor-
tation lines, and is in an area of well-maintained homes. The prop-
erty itself is unique in that it has a large flat lot with a well land-
scaped yard, which is a rarity in San Francisco.
Step #2 – Data Analysis
% of Zip Distressed: 0.27% (Low)
% of Zip For Sale: 0.27% (Low)
% of Zip Sold over last 3 months (year-over-year): -42.7
Elementary School API: N/A**
AHA (Affordable Home Amount): $656,817
The drop in sales activity in the past year is further evidence that
high end markets are getting hurt by the lack of jumbo mortgages
and the continued economic contraction. We expect sales activity
to remain low in the near term, as there are few signs that the
jumbo loan market is improving.




* Mortgage payments are based on the house being bought at the list price with 25% down and a 6.50% 30yr fixed rate loan, monthly tax cost included.
** Children living in this area would be assigned an Elementary school through the San Francisco school lottery system, so we are unable to post an API score,
which could be considered relevant for young families.



                                                                     Page 4
Cirios Trends
G et t in g t o th e B o tt o m of t h e Ho us in g Mark et

                                Doing Your Real Estate Homework: Mortgage Calculators
                                One of the first steps in any home buying search is      When using a mortgage calculator, however, you
                                figuring out how much you can afford. This means         need to understand that the calculator only provides
                                determining what your monthly income can support         you with an estimate of your monthly mortgage pay-
                                in terms of mortgage expenses, taxes, insurance          ment, not the entire monthly cost of owning a home.
    “The mortgage               and upkeep, in addition to what you need to have         New owners are often surprised at how much
                                saved for a down payment.                                money is required to own a house beyond this rela-
    calculator is a
                                                                                         tively straightforward expense. Taxes, homeowner’s
    great tool, but it          One easy way to figure this out is to go online and
                                                                                         insurance, HOA fees (for condos and develop-
                                find a website that provides a mortgage calculator
    is important to             like this one at Bankrate.com. The vast majority of
                                                                                         ments), and upkeep can be materially expensive
    understand its                                                                       and need to be accounted for when evaluating your
                                mortgage calculators are very easy to use and pro-
                                                                                         home purchase decision.
    limitations.”               vide instant results which are pretty reliable when it
                                comes to how much your monthly mortgage pay-             The vast majority of mortgage calculators fail to
                                ment will be.                                            provide these key figures, so its important to talk
                                                                                         with a real estate professional to get a better under-
                                For people who are just starting to explore home
                                                                                         standing of how much you should expect to pay
                                ownership, a mortgage calculator can be a simple
                                                                                         each month, in addition to your mortgage payment.
                                resource which doesn’t require you to speak with
                                                                                         Cirios has more detailed calculators which include
                                anyone or force you to gather all your financial in-
                                                                                         all salient home ownership costs, enabling our cli-
                                formation to get pre-approved for a loan. The reality
                                                                                         ents to make well informed home buying decisions.
                                is that your mortgage payment will be the largest
                                portion of your monthly housing expense, and a           The mortgage calculator is a great tool to get
                                mortgage calculator is a pain free way to figure how     started in the exploratory phase of the home buying
                                much you can afford to borrow and how much you           process, but its important to be aware of its
                                need to save to buy your dream home.                     limitations.


                                                                            Did You Know?
                                                                            Home sales in Berkeley this year are on target to be the lowest
                                                                            since the housing slump began?
                                                                              2005: 680
                                                                              2006: 599
                                                                              2007: 493
                                                                              2008: 468
                                                                              So far in 2009: 196




                 Cirios Real Estate, Inc.                               Phone: 415.217.0012
                 760 Market Street Suite 1008                           Fax: 888.617.2417
                 San Francisco, CA 94102                                E-mail: info@ciriosre.com
                 www.ciriosre.com

                                                                  Page 5

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:7
posted:2/2/2010
language:English
pages:5