FHA loans are  loans insured by the Federal Housing Administration, a part of the Department of Housing and Urban Development. The FHA is anxious to help first time home buyers get into the market and those with ugly rate adjustments refinance into more affordable house payments.

FHA loans used to be out of the question for San Francisco home buyers. The loan limits were way too small (around $417,000) and required squeaky clean credit and healthy incomes.

Today, FHA loan limits in San Francisco have been boosted to $729,750. With 5% downpayments acceptable to the FHA, this makes a $750,000 purchase price much more doable.

The FHA has also substantially loosened their lending requirements. Excellent credit is no longer required and buyers can get into a single family home or condo below the $750,000 threshhold with as little as 3% down (no you did not misread that–).

The FHA’s target audience for their loans are: First-time homebuyers, borrowers with mediocre credit (or even no credit), those with limited resources for a downpayment, and homeowners who want to refinance.

It may sound like there’s a catch to all this– but there’s not. These are real loans are we are closing deals at Paragon with buyers who are obtaining them.

Other FHA loan perks:

Easier Qualification - With the FHA backing the loans, lenders are willing to loosen their lending requirements– and will often lend more money to you than they might through other kinds of loan programs.

Low Downpayment OK - Other loans require at least a 5% downpayment and it has to be your own money, so gifting a downpayment isn’t allowed. An FHA lender is fine with downpayments as little as 3% down and getting that 3% from a friend or family member is not a problem.

Cash Reserves Not Required - Most lenders insist that you to have 3-6 months carrying costs in the bank. FHA loans don’t require that kind of cushion.

These loans are not for everyone. FHA loans are fixed for thirty years and those with itty-bitty downpayments will be required to pay a 1.5% fee for mortgage protection insurance. If you have at least 10% down, good credit and a job with W-2s and pay-stubs, you would probably be better off going with a different loan product.

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Zillow is not my always my favorite website– at least when I have my agent hat on.  They have groovy maps that pinpoint homes for sale, homes that sold and foreclosures in different neighborhoods, but often their ”zestimates” miss the mark with under- or overevaluations.

They are good at getting the ‘pulse of the market’ when it comes consumer surveys. And an article today in the Chronicle about a Zillow survey tells us that most homeowners think they’re the exception to the rule and that their property hasn’t lost value.

 According to Zillow, 62% of the nation’s homeowners believe their property has climbed or at least held its value over the past year. This counterintuitive viewpoint hits a wall of market reality– that 77% of properties have dropped and only 24 percent have risen or held firm.

Western state residents are more realistic, but still way off the mark when considering the value of their personal piece of the American pie.   56% admit the market value of their home fell, while 44% believe it maintained or gained worth. 

This fits my own personal experience with the prospective Sellers I interview these days. About half are sanguine and realistic when I give them an estimated and value and half gasp in shock when they learn their home may be worth 10% less than what they could have gotten two years ago.

Even so, the gap between reality and perception is still staggering  as 88% of homes in the Western states have lost value, according to Dataquick.

You can visit SFGate to learn the median home price in your Zip code.

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Guarantee Mortgage’s Newsletter says that there may be some truth in Charles Dickens’ long-winded prologue from A Tale of Two Cities, which begins “It was the best of times, it was the worst of times. . .” We could look back and see that this was the best of times to be a home buyer. In some parts of the country, prices are off 35% to 50% from highs set three years ago. On the other hand, we may look back and see that this was the worst of times. At least it could be the worst of times for Freddie Mac and Fannie Mae: Both firms lost 60% of their value this past week on solvency concerns.

Why should those of us who are not Freddie or Fannie shareholders care? Because they provide stability and liquidity to the mortgage market by guaranteeing that investors who purchase mortgage securities will receive timely payments of principal and interest. The two companies currently own or guarantee about $5 trillion in mortgages, or nearly half of all outstanding U.S. home-mortgage debt. They are pretty much the only game in town for conforming mortgages.

Fannie and Freddie aren’t going anywhere, but a disruption in their operations could impact mortgage rates. Some of the doomsday pundits have stated that if their troubles persist, rates on mortgages could move higher – as much as 0.25% to 0.50%.

So far, mortgage markets remain sanguine over Fannie’s and Freddie’s fate. The prime 30-year fixed-rate mortgage fell five basis points to 6.48% last week, while the prime 15-year fixed-rate mortgage fell eight basis points to 6.01 and the prime 5/1 adjustable-rate mortgage fell four basis points to 6.05%, according to Bankrate.com’s latest survey.

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This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. Here are the details:

Lenders need to get pro-active about contacting owners before they foreclose. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default.

New owners of foreclosed properties have to clean up their act. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties.

Tenants get extra time. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. This still doesn’t save tenants who have a lease that extends beyond the foreclosure date, but it will give them extra time to move.

These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at www.leginfo.ca.gov.

Further elaboration is below:

- Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower’s financial situation and explore options for avoiding foreclosure.

A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency.

A subsequent notice of default must include the lender’s declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale.

This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.

- Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances.

 This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.

- 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate.

This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant’s right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address

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This past March, The Atlantic Monthly noted the decline of the suburbs. In Overbuilt communities like Elk Grove, south of Sacramento, scores of homeowner have either abandoned their homes or rented them out to sketchy tenants.  Other ’burbs nationwide are noted as communities with rising crime rates and places up to one in four homes stands empty.

This fleeing of the ‘burbs is usually attributed to the subprime-mortgage crisis with its wave of foreclosures– which certainly is speeding up the phenomenon . But there have also been long-term structural changes in the way many Americans want to live and work.

CEOs for Cities, a government-business coalition, said higher gasoline prices will push new housing developments closer to the urban core and cause further decline in outlying communities.  The U.S. Dept. of Transportation reported that American drivers reduced the number of miles they drove in March by 4.3 percent over the same month a year ago.  And Coldwell Banker says 81 percent of the agents it surveyed said their clients increasingly are looking to urban housing as a way to cut commuting costs. 

Deeper studies covering  long-term socio-economic trends also point to suburban decline. In 2006, using recent consumer research, housing supply data, and population growth rates, The Metropolitan Institute at Virginia Tech modeled future demand for various types of housing. The forecast is a likely surplus of 22 million large-lot homes (houses built on a sixth of an acre or more) by 2025—that’s roughly 40 percent of the large-lot homes in existence today.

In the meantime, over the last 20 years, the appeal of urban living has slowly taken hold in popular culture. Seinfeld—followed by Friends, then Sex and the City—began advertising the city’s renewed urban allure to Gen-Xers and Millennials. Conversely, when Hollywood wants to portray soullessness, despair, or moral decay, it often looks to the suburbs—as The Sopranos and Desperate Housewives attest—for inspiration.

Atlantic Monthly, March 2008 - The Next Slum?  

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I point you to this article first, because it’s dense but full of good information and thoughts about how to market and price a property in this market.  It comes from Avram Goldman, president and C.E.O. of Pacific Union. Avram penned it on May 26. He refers to markets both in San Francisco and the East Bay.

Like the weather this weekend, overcast with a little sun, typified the market. Open house traffic slowed from previous weeks, but could have been affected by the reporting period’s warm weather and graduations. The buyers that were out there are eager to find the right home.
 
Multiple offers also slowed, dropping to 15% of total transactions.  The majority taking place in San Francisco and the Berkeley/Montclair/Piedmont markets.  Ninety percent of the multiples sold for over full listing price. One SF Noe Valley 4bedr./3ba. property listed at $1.398 mil. received 10 offers and went well over asking.  Curiously, in our Montclair office, 4 homes with single offers all sold over asking.  Perhaps indicating that buyers wanted to secure the properties before more offers were submitted and saving dollars by not getting into a bidding war.
 
The homes that are receiving the most attention are those that have IEA and IVA.  IEA is “immediate emotional appeal” and IVA is “immediate value appeal”. A home that has both will end up in the 15% of the transactions I reviewed above. If a home has neither the chance of selling is zero.
 
What I mean by IEA is that when you enter a newly listed home you are overcome with the feeling that I could live here—just move in and set up for the house warming party. On Broker’s tour last week I saw two homes in the $1.1-1.6 mil price range. Both homes were attractive from the street, but once you entered they were profoundly different. The first one you entered and right away were hit with canine odors. The house had many traditional features, but all you could focus on is the smell. The rooms were ok, but felt ordinary as the beddings were rather sparse and unattractive. The upper deck had weathered paint and plants that looked as weathered as the deck.  Inviting backyard, but the landscaping unimpressive. Nice spacious home, but didn’t sparkle.
 
The second home you entered and you were greeted with that wonderful smell of fresh paint. It had that clean as whistle feeling. It was professionally staged. The landscaping in the backyard was impeccable. The listing agent asked me if I had seen the listing previously. I had not. She shared that the seller invested over $30,000 in creating what I call IEA. Oh by the way, the house had just received an offer. Before the investment no offer.  Sellers must make the investment. It will bring them a significant return and most importantly a sale.
 
In today’s market you need IEA or IVA, but preferably both. You need IVA which is as important, as buyers know the values.  They have done their homework.
 
Sales activity remained at the elevated levels of the last report. Meaning that they were at levels that we had not seen last July.  Instead of doom and gloom newspaper stories, we are beginning to see balanced stories, like the one found last week in the San Francisco Chronicle. I have attached it if you missed seeing the article.
 
The stock market drubbing this past week due to the escalation of oil prices could potentially have an effect on activity, as consumers may decide to hold off on purchases. Until oil prices stabilize or head downward, negative consumer confidence could spill over in slowing the recovery in the housing sector.
 
One part of the market that is less impacted by the machinations of the stock market is the high-end. Two high-end listings in Piedmont went into escrow. One listed at $7.8 mil. and another at $5.6 mil.  In San Francisco a home listed over $6 mil. was put into escrow this past week. Obviously, the wealthy feel real estate is a high quality asset during times of financial instability.
 
The next few weeks we may find a receding of activity due to the Memorial Day holiday, graduations and weddings. This is typical. Much will depend on what occurs in the financial markets.
 
One potential bright spot is we are hearing that a number of sellers will be bringing their homes to market.  The word is that these properties are in desirable areas and will be priced for current market conditions. The demand is there and these new listings could give a nice boost to the market to off set any negative influence of the stock market.

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Remember when we were little and the term “Million Dollar House” made us think of fancy mansions in Beverly Hills? Today, America’s million dollar mansions are more likely to be in a flat red states with a long cold winters.

In San Francisco we have to settle for more modest digs in the million dollar price range– like a  Mediterranean 3br/2ba house in the Mission or a big 5br/3ba home in the Outer Sunset.  If we want to boost up our price range to $1.5M our options widen to include big Noe Valley views  or a story book setting in Monterey Heights.

We’re told again and again that we’re one of the most expensive housing markets in the country, but we’re small potatoes when you compare our prices in the global real estate market. According to Business Week, properties in the world’s most expensive neighborhoods are still commanding ferocious premiums.

Some of the world’s most expensive cities are second home markets. Blame it on the new money — these newly minted millionaires from Russia, China, India, and the Gulf states don’t feel as pinch of current economic conditions and they love their sandy (or snowy!) playgrounds.  

With $1.5M as a budget Business Week explored what they might buy where in the world’s most expensive cities.  Here’s what they came up with:

1. London
Price: $6,191 per sq. ft.
What you get for $1.5 million: Small studio apartment
Annual price change: 29%*

A housing boom began in Central London in September, 2005, and continued through 2007, as wealthy buyers flowed in from around the world. The annualized growth for prime real estate is slowing this year and is expected to weaken further. But the super-luxury segment remains incredibly strong. Sales for £10 million-plus homes in Belgravia, Chelsea, Knightsbridge, and Mayfair increased by 190% in the six months ending January, 2008, compared with the same period a year earlier.

* The annual price change compares the fourth quarter of 2007 with the fourth quarter of 2006.

2. Monaco
Price: $5,888 per sq. ft.
What you get for $1.5 million: Studio apartment
Annual price change: 25%

It’s not just the casinos, beautiful people, and staggering views of the Mediterranean that have made Monaco a popular home for the world’s wealthiest buyers. The real appeal is that its residents don’t pay income tax.

3. St. Jean Cap Ferrat (France)
Price: $5,853 per sq. ft.
What you get for $1.5 million: Small studio apartment
Annual price change: 39%

St. Jean Cap Ferrat on the French Riviera continues to be popular with European aristocracy and the super-rich– such as billionaire Paul Allen, who enjoy the gorgeous beaches and warm weather.

4. Courchevel (France)
Price: $4,710 per sq. ft.
What you get for $1.5 million: Studio apartment
Annual price change: 5%

Like to ski and shop? This resort town high in the Savoie region of the French Alps is favored by the Russian elite and is known for expensive hostelries such as the Hotel Le Lana, fashion boutiques, and wild parties.

5. Hong Kong
Price: $4,507 per sq. ft.
What you get for $1.5 million: Studio apartment
Annual price change: 21%

Hong Kong’s real estate market has been driven by China’s strong economic growth. Despite limited space, real estate demand on the island has started to slow, and prices are softening as the effects of the U.S. credit squeeze spread.

6. Manhattan
Price: $4,320 per sq. ft.
What you get for $1.5 million: Studio apartment
Annual price change: 25%

At the high end, Manhattan continues to boom even as the credit crunch deepens. In fact, in the first quarter of 2008 average prices were up 19% and the price per square foot was up 16%, according to the Corcoran Group. There are several reasons: First, the city has been shielded from the subprime crisis, largely because its co-ops and condos are well out of reach of most buyers with poor credit and shaky finances. Second, it remains a popular destination for movers and shakers in the financial, entertainment, and media world. Last, because of the weak dollar it is more affordable than ever for wealthy foreigners looking for a Manhattan pied-à-terre.

7. Cortina d’Ampezzo (Italy)
Price: $3,028 per sq. ft.
What you get for $1.5 million: 1 bedroom
Annual price change: 22%

The Northern Italian resort town is a popular second-home destination for ski buffs and Milan’s business elite. Prices for prime European vacation homes have benefited from the growth of the world’s population of high-net-worth individuals.

8. Portofino (Italy)
Price: $2,692 per sq. ft.
What you get for $1.5 million: 1 bedroom
Annual price change: 14%

Although there’s no beach, the harbor of this resort village on the Italian Riviera is packed with yachts owned by the world’s rich and famous. The village is about 20 miles from the Genoa airport.

9. Singapore
Price: $2,423 per sq. ft.
What you get for $1.5 million: 1 bedroom
Annual price change: 31%

The city’s high-end real estate has benefited from an influx of foreign buyers –and has been particularly strong close to the Orchard Road shopping area and on the island resort of Sentosa.

10. Tokyo
Price: $2,334 per sq. ft.
What you get for $1.5 million: 1 bedroom
Annual price change: N/A

Despite traditionally astronomical prices and cramped living conditions for all but the very wealthiest, Tokyo’s market is beginning to slow — the  result of the credit crunch and a heavy supply of new condos that have recently come on the market.
 

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Here we see that lower priced homes, by far the largest segment of our real estate market by quantity of sales, have been the most negatively affected by market changes: year to year, house and condo sales under $1,000,000 declined by 28% and 40% respectively. Conversely, at the highest end, house and condo sales increased by 34% and 100%, though the actual number of sales is small. (Due to the small number of sales and the huge range in sales prices, changes in median price at the high end are not particularly meaningful.) The middle range declined by 12 – 16% in unit sales, with mixed results in median sales prices.

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Comparing 1st Qtr 08 to 1st Qtr 07, the number of home sold in San Francisco decreased about 27%, with properties below $1,000,000—condos in particular—showing the largest drop. The lower end of the SF housing market—to a large degree fueled by first-time buyers—has been the most affected by market upheaval and new financing conditions. The middle price range, $1,000,000 to $1,999,999, showed a much smaller decrease, while sales of $2,000,000 and above actually increased.

Median days-on-market for all houses and condos sold barely changed (37 days in 07 vs. 36 in 08), but for homes on the market that didn’t sell stayed on the market longer (60 - 69 days in 07 vs. 80 - 89 in 08)—i.e., the homes selling are generally selling relatively quickly, but those not selling are staying on the market for longer periods of time (and so price reductions are increasing too). The quicker a home sells, the higher the sales price as a percentage of list price: those selling within 30 days average 4 - 7% more than those which do not. The below graph does not adjust for price reductions—which would significantly increase the difference.

Sale Price to List Price (SP/LP) by Days-on-Market, First Quarter 2008

The number of homes for sale has gone up about 20%, and the months-supply-of-inventory has increased by 1 month (3.2 vs. 2.2 months). The median sales price of all homes sold increased by about 3%. Though down from its peak in May 07, San Francisco is the only Bay Area County still showing median price increases year over year. (Some counties have shown declines in excess of 40 %.)

City-wide averages and median numbers mask dramatic differences between different SF neighborhoods. Some areas still feature low inventory, high demand, multiple offers and quick sales; others—generally the less affluent—are on the opposite end of the spectrum.

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Home ownership in “the best place on earth” is a solid investment even in shaky economic times. The median price for single family homes and condos in San Francisco jumped from $780,000 to $810,000 between March 2006 and March 2008.  

Like any real estate market, we have month-to-month fluctuations. But compared to other markets across the country, we clearly have a continued historical strength and resilience in our local market.  And San Francisco continues to be one of the most coveted real estate markets in the country.

There’s lots to choose from, interest rates are low and San Francisco continues to be one of the best performing areas in the entire country. If you can afford it and are ready for the ‘five year hold rule’ it’s a great time to buy.
 

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