I have recently been certified by the National Association of Realtors, NAR, as a Short Sale and Foreclosure Resource.  The training I have received has prepared me to guide sellers and buyers down the tricky path of distressed sales.  Give me a call for more information.

Topics explored in this months electronic newsletter:

*How to sell in a down market.
*Mortgage news.
*Understanding your credit report.

Selling in a DOWN market (only if you have to)
Many people think there is a perfect time to sell and buy both real estate and stocks, but the reality is you can’t time the market perfectly without the benefit of hindsight. Having said that, I still think it would be beneficial to time your sale and purchase on the right trend line. Sellers selling when the market is moving up and buying on a downward trend. However, not every buyer or seller has the flexibility to time the market. Growing families, job changes, mortgage rates etc. all affect a person’s decision to buy or sell.
Even though we are experiencing a buyer’s market there are ways to strengthen your selling position and get your home to move.

* Prepare your home for sale by clearing it of all personal items and clutter. Rent a storage unit if you must, but empty the house out!
* Leave furniture in place that complements the space. (Or hire a stager)
* Price the home right. Let go of your personal attachment and see it as the buyer will. Go out and view other similar homes. See what a shopper could get for their dollar in todays environment.
* Consider renting your existing residence and buy another. What a great way to take advantage of buying in a lower priced market now and selling in a higher market later.

Call me to discuss the options or read more about whether you are a motivated seller.

What’s up in the Mortgage Market?
Rates are steadily creeping up. For the last 2.5 weeks rates have increased incrementally every day. Along with rate increases, lenders have been adjusting guidelines in ways that make it harder to qualify. In all fairness it is not driven by lenders, but rather by the investors buying the loans on the back end. One result for borrowers is a decrease in the allowable debt to income (DTI) ratio. This number represents a comparison between the total monthly income a borrower has and the total monthly debt load they are carrying. With the mortgage payment including taxes and insurance (PITI) and all other monthly debt this ratio needs to be below 45%. Stay tuned for more mortgage news in the new year. Click here for access to a mortgage calculator.

Understanding Your Credit Report

Credit scores, while important, are not the only thing to take notice of on your credit report. Lenders are particularly focused on ‘mortgage lates’ which is an indicator of how often you fail to pay your mortgage prior to the late date. Even one late payment in the last 12 months can make it impossible to get a loan. Borrowers seeking to cash in on the low mortgage rates can be surprised by the negative consequences of a late payment. As my mom told me growing up, if you are in the difficult situation of having to make a late payment it is better for your credit score to make it the electric bill, the water bill or some other non-reporting debtor. To read more about credit scores click here

Short Sales + Foreclosures
This is a statistic about Sonoma County listings was recently reported by the local sponsor of a seminar for agents about short sales that I attended. As alarming as this may sound, the similar measure in the Sacramento market was reported as being over 70%.

Foreclosures represent homes owned by lenders who have foreclosed on the previous, defaulting owners. These lenders, having no interest in owning the home are offering it for sale to recover whatever amount the market will generate. Short sales are sales in which the net proceeds the seller will receive are less than the amount necessary to pay the mortgage balance, and these sales require approval of the lender to accept a lesser amount. In many cases if a lender does not agree to the short sale, the next step is foreclosure.

At least part of the explanation for the higher number of properties currently on the market is that many of these “distressed” properties may not even be for sale if the owners had not come under stress that has resulted from mortgage rates and payments that have adjusted to a level beyond which the owner could afford.

While it’s little comfort to those who are experiencing pressures and dislocations by the present market conditions, on the whole the market mechanism is working to restore a balance that was lacking. Prices will adjust to clear the market of excess inventory, buyers previously priced out of the market will regain access to home ownership and lenders, chastened by losses, will return to more prudent lending practices. Each of these steps bring us closer to a better situation.

Market Snapshot
Market report Mar 08

The inventory of homes on the market is rebuilding from the winter slower season. A modest increase in the number of closed sales in March kept the absorption rate (i.e. number of months of inventory) at a slightly better level than it has been over the past half year. Prices, as evidenced by county-wide median sales price continues to reflect the imbalance between sellers and buyers.

20% – 30% Off
With median home prices off 20% to 30% from the high hit in August of 2005, there is a meaningful buying opportunity, especially for first time buyers and investors. It was only a couple of years ago when detached single family homes priced under $500,000 were becoming a thing of the past in many Sonoma County communities. The graph nearby illustrates the change in the Sonoma County median home price since the beginning of 2005 through February this year.

As of this writing there are currently 586 active listing of single family homes in Santa Rosa with asking prices below $500,000. Of those 387 are priced under $400,000, and 120 are priced below $300,000. This strikes me as a rare opportunity for those who want to buy their first home, and who previously felt they had been priced out of Sonoma County.

The story is different for trade up buyers since they have to sell into a lower market, but even for them there are benefits. What may have been lost on the sale side is gained on the buy side, so a trade up can still be accomplished for those wishing to make a change.

Mortgage Update
The turmoil in the mortgage markets continues and shows no sign of improving in the near future. My initial expectations were we would see noticeable signs of improvement once the initial shock of the mortgage crisis passed. I was wrong.

The extend of the problems associated with bad lending practices, when combined with a weak residential real estate sales market has had a greater impact on most lenders than I had anticipated. Lending practices are continuing to tightened, making financing less available to those marginally qualified. This is further exacerbated by declining real estate values which closes off refinancing opportunities for those without substantial equity in their homes.

Mortgage interest rates have not reflected reductions in Fed-controlled, short-term borrowing rates. In fact mortgage rates have actually gone up about 1/2% in the last month.

All this is still good news for the long term. When markets that are out of control correct themselves, the correction is rarely painless, but for the real estate and mortgage markets as a whole, restoring prudent lending practices is a good thing, and that’s where all this interim pain is leading.

Conforming Loan Limit Increases in Federal Stimulus Package
The news in recent days about the economic stimulus package that the President and Congressional leaders have been negotiating holds potentially favorable news for some home buyers and homeowners. Any real benefits are subject to the proposed legislation becoming law. Even if that happens it’s not certain when the proposed changes would become effective

Increase in Conforming Loan Limits

The benefit that would most directly affect the real estate markets is an increase in the maximum loan amount that can be purchased by Fannie Mae or Freddie Mac. Loans sold to Fannie or Freddie are called “conforming” loans, as opposed to non- conforming jumbo loans. The best mortgages rates are on loans that are sold to Fannie & Freddie, so an increase in the maximum amount of conforming loans will make better rates available for more borrowers. In this time of turmoil in the mortgage markets, that portion of the market served by Fannie and Freddie are the least effected, and the most “normal” parts of the market. Increasing that portion of the market will help bring an additional measure of stability that has been lacking. Fannie & Freddie are still able to provide 100% financing, when others have discontinued 100% financing

The final provisions in the proposed legislation are still unknown, and the time when the changes will be in effect is uncertain. It’s even uncertain the legislation will be passed, but, at the moment, it appears promising.

Neighborhood Report Fountain Grove – Santa Rosa
This is the first in a serious of reports on market conditions in specific neighborhoods or areas in Sonoma County. Fountain Grove is a significant neighborhood in Santa Rosa, and has become more so during the past decade with the opening of the Fountain Grove Parkway and the related building of homes along the newly opened corridor. This area is characterized primarily with newer, larger homes built by sub divider/developers and containing mainly of the design characteristics typical of the latest building trends. Many homes are on larger lots, with lots of ¼ to ½ acre fairly typical. Clearly Fountain Grove typifies the upper end of the Santa Rosa market.

The chart nearby contains key market statistics for the past 4 years. Several of the statistical measures are typical of what would be expected of a market that was rising rapidly, then peaked and went into decline. The one measure that appears atypical is the median sale price for homes sold in 2007, which actually increased from the 2006 median.

While the statistics suggest that prices in Fountain Grove are holding steady, my own observation of individual transactions is that prices have declined in Fountain Grove, just like the rest of our local market. It’s possible the statistical aberration reflects a higher mix of very high end homes that skews the median when the sample size is smaller. It’s also possible that because most Fountain Grove homes are quite different from one another that discriminating buyers in this price range will still pay for homes that fit their particular needs or desires. It is true throughout the current market decline that homes in better condition, design and well presented sell better than homes of average appeal.

In any event I would urge caution in adopting the conclusion that Fountain Grove homes have been immune from the market decline. The climbing number of days on the market, declining number of sales and the emergence of a significant number of expired and withdrawn listings supports the conclusion of a declining market for the neighborhood. In addition, I have observed directly a noticeable number of homes in this area that were purchased in the recent past with little or no down payment, that are now for sale, and for which the owners face a serious problem realizing the price they just recently paid.