2008-The Year in Review

How many homes are on the market? As of 01/20/2009, there were 199 single family homes available for sale in Pleasanton.  There were 180 homes available for sale as of 12/31/2008 as compared to 136 as of 12/31/2007.

How many homes sold in Pleasanton in 2008?

What do these numbers mean? Although the number of sales is down 28% from a year ago the median price has only dropped 4%. This is significant compared to other nearby markets such as Livermore where sales actually increased by 4% yet the median price dropped 24% in 2008.

How are distress sales impacting the median price?

Distress sales are properties that have been sold as REO’s or Short Sales.  REO’s stands for “real estate owned”-these are properties that have been taken back by the bank in a foreclosure process.  Short Sales are properties where the current owner is attempting to sell the house for less than the amount owed by working with the bank to avoid a foreclosure.

As you can see from the table below, the higher the percentage of distress sales, the greater the drop in the median price in the various communities of the Tri-Valley as well as Brentwood:

Pleasanton, for example, had the least amount of distress sales - 60 out of 456 or 13%.  In 2008, the median price dropped from $829,000 to $800,000 - a 4% decline from 2007.  On the other end of the spectrum, Brentwood had the highest percentage of distress sales 876 out of 1047 or 84%.  In 2008, the median price for Brentwood dropped from $500,000 at the end of 2007 to $360,000 at the end of 2008 or 28%.

When will we be done with distress sales?

As you can see the number of distress sales on the market has a very adverse effect on the median price for that city.  There is general agreement among all the experts in the industry that until all of the distress sales are done, prices will not bottom out.  There is a serious effort to assist homeowners in distress with loan modification assistance that will restructure mortgage payments and allow families to remain in their homes.  If this effort is successful, it will most certainly help to expedite the completion of distress sales.

There is also the school of thought that there is yet another wave of “ALT-A” loans that are due to convert from fixed to adjustable in 2009 and 2010.  Many of these borrowers will not be able to manage their mortgage payments when these loans convert.  These types of loans may be more prevalent in cities such as Pleasanton.

Which city has seen the greatest drop in median price since the peak of the market?

According to the statistics published in the local multiple listing service, it appears the city with the greatest drop in median price is Brentwood with 40%,  while the city with the smallest drop has been Pleasanton with 4%. 

Do these statistics hold true for my home?

It is important to bear in mind that these are statistical averages based on the total number of sales for the individual cities.  Within each city these figures will not necessarily apply across the board.  Certain neighborhoods and price ranges are more impacted than others.  For example, there is some clear evidence that prices have dropped substantially more than the 5% citywide average in certain price ranges in Pleasanton.  The table below shows the number of sales and the median prices for the following group of homes: All Pleasanton homes sold between 2004 and 2008 that included at least 4500-6000 square feet of living space and were built from 1990 through 2008.

It would seem that that the higher end of the market has seen a greater drop in the median price than other price brackets. You can see from the sales activity below that the higher end of the market has seen a much slower pace of sales in the last 90 days:

Where are sales and prices headed in 2008?

Of course only time will tell.  One indicator of value would be the percentage of distress sales in the number of homes that are currently “PENDING” or under contract waiting to close escrow. 

Right now Pleasanton has 40 properties that are currently “PENDING”- 17 of the 40 are distress sales.  That represents 43% of current pendings or a 29% increase over the percentage of distress sales for all closed sales in 2008.  This could be an indicator that we will see more distress sales.  Another indicator would be the percentage of distress sales for those homes currently on the market:

Since the current percentage of distress sales in Pleasanton for homes that are currently on the market is 19%, it would seem to indicate that at least for now the percentage of distress sales will increase slightly from last year’s levels but not dramatically as has occurred in some of the other areas.  Again the big unknown is how many homeowners in distress have yet to come on the market. 

Of the 54 homes that are categorized as distress sales, the breakdown in prices looks like this:

Recent data out from the National Association of Realtors (NAR) shows that its home affordability index (HAI) is at the best levels in more than three decades. The HAI compares median family incomes to median home prices on a national basis. A value of 100 signifies that a family earning the median income has enough income to qualify for a mortgage on a median-priced home. (The monthly mortgage payment is conservatively figured to not exceed 25 percent of the median monthly family income).

The current HAI value of 141.8 means that a family earning the median family income has 141.8 percent of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. This represents a substantial improvement in home affordability from the level of 119.4 just one year earlier. The current reading of 141.8 is the best since the early 1970s and the best ever since the NAR began determining this ratio monthly in 1981. HAI data from the 1970s was calculated annually, and in 1973 the HAI averaged 147.8. (It’s highest annual average was 154.8 in 1972.)

Financing is more challenging today for some prospective homebuyers to get than it was a few years back. Those with weak credit reports or low down payments are finding fewer and more costly mortgage options. From a historic perspective, however, the current lending standards are more the norm with borrowers expected to have sound credit credentials and down payments amounting to at least 10 to 20 percent of the value of a purchased home. What was unusual were the loose lending standards of the past decade or so.

With home affordability at attractive levels not seen in more than a generation, the question remains whether homes offer good value. A new report from IHS Global Insight suggests that nationally housing prices are now undervalued by about 3.8 percent, which is quite a change from the peak of being 24.5 percent overvalued in the second quarter of 2006.

IHS examines trends and valuations in home prices in 330 metropolitan areas across the United States. For each metro area, home prices are analyzed in relation to population densities, mortgage rates, local incomes, and historic norms within given metro areas.

IHS’ latest report looked at home prices as of 2008’s third quarter and found that prices declined in 73 percent of the tracked metro areas in the third quarter. The weakest markets were generally found in the Southwest and Southeast.

Only three metro areas now have “extreme overvaluation” given the market’s fundamentals. Fifty-two metro areas held this same distinction back in 2005. The three most overvalued areas and the percentage above expected fair value are as follows: Bend, Ore., 43 percent; Atlantic City, N.J., 43 percent; and St. George, Utah, 39.7 percent. Most of the other overvalued areas are concentrated in the Pacific Northwest and portions of Utah.

Home prices are now back in line with market fundamentals thanks largely to price declines. While most areas of the country experienced moderate declines, 29 metro areas, all of which are in California, Florida and Nevada, have experienced price drops of 30-plus percent since the market peak of the mid-2000s. Other areas suffering significant declines include Michigan; northeastern Ohio; southern metros from Charlotte, N.C., to Atlanta, Ga.; and portions of New England.

Metro areas now generally considered undervalued include: Southern metros from Mississippi through Texas; and now many metros in California and Florida due to significant price declines of the past two years. The vast majority of the 330 metro areas are now considered fairly valued or undervalued.

Even though by historic measures prices are fairly valued or even undervalued already, as the study’s authors point out, markets tend to overshoot so of course it’s possible that in some areas prices may fall further. That said, history has proven time and time again that if you buy sound real estate at a fair price and hold it for the long term, you will make solid returns.

(Source: Inman News/Eric Tyson, best-selling co-author of “Home Buying for Dummies” and “Real Estate Investing for Dummies.”)

Buyers want bargains-and there’s nothing wrong with that.  Some buyers even limit their search to REOs and short-sale listings, although these properties may or may not be the best bargains on the market.

REO, or real estate-owned, refers to a property that a mortgage lender acquired through a foreclosure. It’s owned by the bank. A short sale refers to a situation where the sellers still owns the property but they can’t sell for enough to pay off the mortgage(s) and costs of sale.

There are pros and cons to buying distressed sale properties. They often sell below market price-and that often makes them a great buy.

However with REOs, there is usually very little information about the property and no seller disclosures. The seller-the bank-usually sells the property in “as is” condition and will not agree to any repairs or corrections that may turn up on inspection reports. Speaking of inspections, it is crucial for buyers to conduct thorough inspections of all aspects of the property. This will eliminate potential costly repairs down the road by allowing the buyer to walk away from a property that they will need to significantly improve (if this is not part of their buying strategy).

The decision makers for both REO and Short Sale properties are the banks and lenders. In the case of short sales, the lender must approve the sale of the property and agree to accept less than the full amount owed on the property. Some lenders take months to approve sales after a contract has been signed by the homeowners and prospective buyers. Buyers interested in purchasing a short sale need to be aware that the process can take months. If you are a buyer who wants to be in a home within a certain time frame, a short sale purchase may not be the best strategy.

What is most important in any market is getting you the best home at the best possible price. Whether that is an REO, Short Sale, or traditional sale, we can help you achieve that goal. Contact us today to set up a consultation to discuss your personal needs and goals.

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We live in Pleasanton and know all about the wonderful aspects of our community. That’s why we were so pleased to see Pleasanton featured on the front page of this Sunday’s Real Estate section in the San Francisco Chronicle. This article reached thousands of readers both in nearby communities and all around the globe via the internet.

If you have been considering a move to Pleasanton, this article provides a good overview, as well as a brief history.

The article touches on all the things we love about the city: the abundance of families, our great schools, multiple parks, variety of housing, and historic Main Street.

Click here to read the entire article.