After a modest spring, the local housing market has been heating up this summer with strong sales in June and even into July in many areas. Sales activity has been especially robust in the higher end of our markets – over $1 million in much of the Bay Area and $2 million and up in San Francisco.  But even the mid-level market was surprisingly active

As I was combing through last month’s sales figures, I noticed an interesting trend: In most of our Bay Area markets in June we had the highest level of million-dollar home sales since the summer of 2008. You might recall that was just weeks before the collapse of Lehman Brothers sent the financial markets into a tailspin and pushed our economy into the “Great Recession.” Now, three full years later, we’re seeing a much brighter picture for the local housing market.

The high-end of the market is not the only segment doing well. The entry level and mid-level markets have shown solid signs of improvement as summer rolls along. Bay Area home sales overall rose sharply last month to the highest level for any month since June 2010, when expiring tax credits gave housing a final boost, according to DataQuick, the La Jolla-based research firm.

The only thing holding back the lower end of the Bay Area market in many cases has been a lack of inventory.  Because of the shortage of good, well-priced homes, multiple offers are picking up in many communities. In nearly every one of our regional markets, you can almost be assured of multiple offers for a well-priced, well-located, and nicely staged home in the entry price level for that market. 

Clearly, the Bay Area’s relatively strong economy – especially the robust tech sector ­– is playing a key role in our housing market. As Inman News put it in a Friday article, “Tech is back -- and tiptoeing along behind it, at least by some measures, is the San Francisco-area real estate market.”

The Inman story recounted what a lot of the local media have discovered in recent weeks: That the tech sector is giving new life to housing in many parts of the Bay Area. "Tech jobs are on the rise, and with the increase in high-paying jobs, we are seeing more and more younger, first-time homebuyers.  

“Indeed, technology-based industry -- which drove Bay Area home prices to fabled levels during the headiest days of the housing boom -- seems to have found its legs,” Inman reported. At the end of 2010, San Francisco had an estimated 30,700 tech jobs, compared with the 32,800 at the peak of its tech boom in 2001, according to an analysis by real estate firm Jones Lang LaSalle.

This all is not to suggest the housing market is completely out of the woods. Real estate is very much a local business. And while many of our markets are on the mend, others are still softer than they were a few years ago. And there still is an overhang of distressed properties that will continue to come on the market as bank owned REO sales in the months ahead.

While we take quite serious the nation’s fragile economy, and most recently the stalled talks to come to terms with our national debt limit, we can be thankful for the Bay Area real estate activity that continues to move forward.  We are fortunate to live and work where we do.  The limited housing stock, diverse job base, incredible universities, and great weather are all factors that help homebuyers focus on these terrific home values and low mortgage rates.

The leaders of a White House commission charged with reducing the federal budget deficit this week laid out a sweeping proposal that would, among other things, scrap tax deductions on mortgages over $500,000, according to the Wall Street Journal and other news media outlets.  Opponents of the mortgage deduction argue that ending the tax break would not only create a deep source of money for reducing the U.S. budget deficit, but in the aftermath of the mortgage crisis, the country needs to rethink its favored tax treatment of homeownership.

 owever, Lawrence Yun, the chief economist for the National Association of Realtors, says this argument downplays two critical facts. First, homeowners already pay 80 to 90 percent of the income tax in our country, and among those who claim the mortgage interest deduction, almost two-thirds are middle-income earners. 

"When we talk about the beneficiaries of this tax benefit, we're talking about households who are the pillars of federal income tax revenue," Yun said in a recent column. "We would now be asking them to shoulder an additional tax burden, and also to brace for a 15 percent drop in home values-that's how much we can expect values to fall as buyers discount the value of the deduction in their purchase offers."

Secondly, those who blame the mortgage meltdown on our nation's support of homeownership are ignoring the origins of the crisis, Yun argues. The real culprit was unprecedented laxity in underwriting and faulty ratings by credit rating agencies of the securities backed by those mortgages.

Critics of the mortgage deduction fail to understand the tremendous benefits to our country, including higher student achievement among children of homeowners, improved stability of neighborhoods, and a better quality of life for residents and communities.

"Whatever deficit reduction might be realized by taking a carving knife to the mortgage interest deduction would come at an intolerably steep price: trillions of dollars in wealth destruction and a new uncertainty in what has long been recognized as a bedrock of our economy," Yun writes.

Nowhere in the country would the issue have more of an impact than here in the Bay Area, where high housing prices mean mortgages routinely run in excess of $500,000.  While the highest priced markets in San Francisco, the Peninsula, Silicon Valley and Marin would be hit hardest, all of our cities would be affected should home valuations drop and housing markets become further destabilized.

Talk of scrapping the deduction could not come at a worse time, just as the housing market is starting to recover.  Mortgage interest rates just hit a new record low this week with 30-year fixed mortgages at 4.17 percent, according to Freddie Mac. This is a unique time in all of our lifetimes where interest rates, affordability, and available inventory have never been so attractive.  Hopefully, these elements will combine to ensure our nascent housing recovery gains momentum.  We can't afford to have federal policies that send the market in reverse again.

With the Labor Day weekend upon us, summer is finally drawing to a close. And as consumers return home from the last of their summer vacations, market watchers are anxious to see if fall brings renewed interest in the housing market.

Most of our offices around the Bay report a fairly quiet market in the last two weeks of August, which isn't unusual. Buyers seem to be waiting to see what new inventory comes on the market after the holiday weekend, while sellers are busy preparing their homes to go on the market in hopes that buyers will come.

 With mixed news on the economic front, buyers continue to be understandably cautious. It's been a roller coaster of emotions for anyone who's been following the economic news lately.  One day we're encouraged by a promising new government report on economic growth, the next day discouraged when another study says the economy is slowing.

 This week at least brought some positive news on the economic front. First, manufacturing activity here in the U.S. and elsewhere in the world accelerated faster than expected last month, according to the Institute of Supply Management, which surveys purchasing managers.  The news was seen as an encouraging indicator that the global economy is not stalling out.

 A day later, the National Association of Realtors reported that the number buyers who signed contracts to purchase homes rose 5.2 percent in July after hitting a record low in June. Sales nationally had fallen sharply in the months following the expiration of the government's home buyer tax credit in April, and economists were expecting that trend to continue for a third straight month.

 Finally, we received good news on the job front. The Labor Department said first-time claims for unemployment benefits fell slightly last week, declining for the second straight week. And on Friday, we learned from the Labor Department that private employers hired more workers over the past three months than first thought, lifting hopes for the weak economy ahead of the Labor Day weekend. 

 As we've said before, job growth will be critical to the housing market's continued recovery. Consumers who land new jobs or become more confident they will hold onto the one they have are much more likely to move forward with home purchases in the months ahead.  But with unemployment still hovering at 9.6 percent, we have a long way to go before consumers regain their confidence in the job market.

 While the economic recovery has been sluggish, it's important to keep the news in perspective: all signs indicate that the economy is indeed improving, albeit slower than we'd like. Sometimes we lose sight of that fact with the constant, 24-hour-a-day business news coverage on CNBC or CNN and the talking heads giving us minute-by-minute commentary on the economy.

 The Bay Area market continues to face economic headwinds as do markets across the country. But we are faring better than most regions in the country. Additionally, our market is considerably stronger today than it was during the depths of the recession. We've come a long way over the past two or three years.

With the expiration of the federal tax credit, the housing market is facing a key inflexion point as we head into the summer vacation season. The government stimulus has certainly helped spur a rebound in the real estate market, but the recovery is fragile and observers are watching closely to see if the market can grow without the support of government aid.

Several key economic announcements out this week could bolster the nascent recovery. On Thursday, mortgage finance giant Freddie Mac announced that U.S. mortgage rates have fallen to a record low. Rates for 30-year fixed loans declined this week to 4.69 percent from 4.75 percent. The previous record was 4.71 percent, set in the week that ended Dec. 3. The average 15-year rate was 4.13 percent.

While the overall level of real estate activity has eased in recent weeks with the expiration of the tax credit deadline, many economists believe that low mortgage rates will spur growth in the market by reducing borrowing costs for home buyers.  Mortgage interest rates have tumbled in the past two months as concern that a debt crisis in Europe may spread boosted demand for the safety of bonds, including mortgage-backed securities.

Meanwhile, Reuters reported on Friday that consumer sentiment rose in June to its highest level since January 2008 while reports of job losses were down sharply from a year ago.

The Thomson Reuters/University of Michigan's survey of consumers, a key gauge of consumer sentiment, rose to 76 from 73.6 in May. The figure was above the median forecast of 75.5 among economists polled by Reuters.  At the same time, reports of job losses fell by half since last June, from 65 percent of respondents to 29 percent, the survey showed.

"The June 2010 survey recorded the most favorable news heard by consumers about jobs in five years," Richard Curtin, director of the surveys, said in a statement.  But he cautioned that consumers "do not anticipate significant declines in unemployment during the year ahead."

Consumer sentiment is seen as a proxy for consumer spending, which fuels around 70 percent of the U.S. economy.  Positive consumer sentiment is particularly critical to the housing market. If buyers are more optimistic about their future, they're more likely to take out a mortgage and buy a home.

So where does this all leave us as we look at the Bay Area housing picture? As reports from our local offices indicate, the market continues to be steady in most communities. But the recovery from last year's recessionary lows will likely be a gradual one with its share of fits and starts along the way. Unemployment levels will play a key role in the recovery, as will the health of the stock market and the overall national economy.

While there are certainly economic challenges right now, for buyers with a long-term view the current market provides an attractive opportunity to invest in real estate while mortgage rates are at historic lows and homes are priced very competitively.  To put this in perspective, took a look at conditions in the mid-June 2001 market.  In many of our Bay Area communities today, we are seeing mid-level homes near 2001 prices.  The average June 2001 mortgage interest rate for a 30 yr fixed conforming loan was 7.2% - and today's record low is 4.7%.   That's over a $1,000 monthly savings on a $650,000 loan - from $4,412 to $3,371.   Savvy buyers are taking advantage of this great combination of home prices and interest rates.

The CALIFORNIA ASSOCIATION OF REALTORS® praised California Governor Arnold Schwarzenegger for his leadership in signing the Homebuyer Tax Credit legislation into law.

"We are pleased that Governor Schwarzenegger recognized the positive impact the tax credit will have for families hoping to buy their first home," said C.A.R. President Steve Goddard. "Successful passage of this legislation was the result of our efforts in Sacramento over the last several weeks as REALTORS® and our team in the capital worked for the bill's passage before it landed on the governor's desk earlier this week."

California's previous homebuyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner. Unlike last year's legislation, the Homebuyer Tax Credit signed into law today adds a tax credit for the purchase of an existing home by a first-time homebuyer.

"The positive impact of the home buyer tax credit at the federal level is clear," Goddard said. "Nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to C.A.R. research conducted last year. We expect the state tax credit for home buyers to have the same impact."

AB 183 will provide $200 million for homebuyer tax credits, allocating $100 million for qualified first-time homebuyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit. The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

"AB 183 also will significantly contribute to efforts to stimulate jobs creation within California's housing market by helping to incentivize first-time home buyers to purchase homes that have been abandoned, foreclosed upon, and returned to the lender; or have been sitting on the market for extended periods of time," Goddard said. "It is these homes that will require substantial rehabilitation by the new owners, which will in turn generate a tremendous increase in jobs and accessory purchases connected to home improvement activities."

Tax Credit for Homebuyers Extended!

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Tax Credit versus Tax Deduction

It is important to remember that the tax credit is just that... a tax credit. The benefit of a tax credit is that it is a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. Therefore, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

Higher Income Caps

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to  $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

Opportunities for foreign real estate investors have increased over the last few years due to the strength of foreign currencies against the U.S. dollar and no shortage of deals in the market. California still has one of the strongest economies in the world. The quality of life and the warm weather make this state a popular place to buy a vacation home that would previously have been considered out of reach; or an investment property that will translate into savvy investment down the read.

If you're a foreigner, there are many reasons why you should invest in the U.S. real estate market now:

I have been hearing this question almost every day for the last couple of months. Let's be honest, there are a lot of people out there who have to make a daily decision whether to buy groceries for their family or put gas in their car. For majority of people a decision to purchase a real estate in these turbulent times is way out of their reach. However, if you believe in the philosophy of Warren Buffet who once said, "Be fearful when others are greedy, and be greedy when others are fearful", NOW is a good time to buy real estate, because:

Inventory is high:

     A. you can get a house you have dreamed about in location of your choice

     B. you can negotiate better price and terms (homes that have been on the market for an extended period, canceled, expired, and/or foreclosure listings)

     C. sellers need to liquidate in order to make ends meet

If you are ready to take advantage of the current situation, have cash reserves, good credit, and money for down-payment, contact me today for your complimentary consultation.

First-time buyers (people that have not owned in the past three years), you may get qualified for low down-payment and low interest rate loan with State and Federal Plans.

Looking forward to hearing from you.

Greg

Second time was certainly a charm!  With a vote of 263 to 171, the House passed the $700 billion Emergency Economic Stabilization Act of 2008.  The Senate had approved the same bill Wednesday night by a vote of 74-25.  Soon after, the President signed the bill, officially passing the far-reaching legislation.

I know the question we are all asking ourselves right now is how is this going to affect all of us.  How will it affect our retirements?  How will it affect the mortgage crisis?  How will it affect our portfolios?  The answers to these and other questions will only be answered over time but what I can tell you is that the legislation is a critical step toward stabilizing our markets.  The main goals of the act are to:

•-         Shine a new light of scrutiny and accountability on Wall Street including a curb on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it's later proven that earnings or profit statements were inaccurate.  The bill also underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue.  Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.

•-         Let financial institutions sell to the government their troubled assets, mostly mortgage related which would allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.

•-         Provisions that support taxpayers including one that would direct the President to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.

•-         The bill would set up two oversight committees.  A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.  A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties.

•-         The bill calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.

•-         Provide tax breaks for the middle class including three key tax elements.  It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.  The legislation would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.  In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

So how long will we take for this to be seen on the proverbial Main Street?  According to some analysts, it will take several weeks for us to see credit unfreeze but we should see some almost immediate benefits on Wall Street.

I agree with NAR's stance that we are gratified that the government recognized the importance of passing the Emergency Economic Stabilization Act of 2008.  The health of the nation's housing market is critical to the financial well being of every household in the country and that, of course, is front and center here in California.  I believe the legislation will help restore the liquidity in the mortgage market, which will stabilize the housing market and protect home owners.  People have been, and will be debating for a very long time, the specific causes, who's to blame, who should be paying the price - but ultimately we needed quick action in the credit markets in what was quickly becoming a severe global financial crisis.

Northern California regions have experienced a price decline, but overall there is limited inventory. In a recent survey conducted by RealTrends, of the leading Broker/owners of the real estate industry, 69% of respondents said that, as of end of May, they strongly or somewhat agree that their market is showing signs of improvement.

Unfortunately too many buyers right now are relying on data reported by the media that has a three or even four month lag.  Their perception may be that nothing is selling, when in fact; the sales rate may be brisk for well-priced property. 

Our market continues to be challenged by some buyers who are waiting to see what the market is going to do.  As a Realtor, the best thing to do for our client is educate them on why waiting could cost them plenty in terms of higher prices, lower inventory and higher interest rates.  It's just a matter of time before we swiftly move from a buyer's market to a more normalized exchange between buyers and sellers and we need to educate our buyers now that if they don't act, they will reduce their purchasing power and may lose out on a bigger and better home!