The Intero Insider

Intero Insider: Need Directions? Ask a Realtor

By Gino Blefari | January 24th, 2012 0 Comments

I’m always amazed at the amount of local community knowledge a typical Realtor has. If you need to know about the local preschool situation, where to get the best cup of coffee within earshot of a specific address, where to get free Internet while you enjoy a hot beverage or quick lunch, and where the best morning bun in town is served, ask a Realtor. Seriously.

But many times you wouldn’t know this as a home buyer or seller while out shopping for a Realtor. It seems that many agents’ marketing materials don’t seem to get this point across – that not only is this agent a master at closing sales in a particular neighborhood or area, he’s also an expert at all things local. He knows the right plumbers, contractors, inspectors, landscapers, cleaning services, florists, and interior decorators. You name it.

I think it’s time agents get the recognition they deserve as neighborhood connoisseurs, specialists, experts. Sure, you want an agent with an impeccable track record of selling houses in your area or area of interest. You want a master negotiator, a well respected and well connected professional. But you also want someone who’s going to be able to either tell you exactly what it’s like to live somewhere, how close life’s essentials are, and so forth or connect you directly with the people who can answer those questions.

One of my hopes for 2012 is that our agents realize their local expertise as the true asset that it is, and that they can convey its value to consumers before meeting face to face.

I cringed a little upon reading a recent news item about a new app that plugs into your Facebook account and segments your Facebook friends based on a location you type in. For instance, if you’re interested in moving to Palo Alto, this app could pull info for you on people who have either indicated that they live there or tend to check in there a lot on Facebook (indicating that they spend a lot of time there).

It’s a good idea: being able to pinpoint whom to ask local questions. And friend and family input is meaningful to people. But my gut reaction was that our Realtors are already really good at providing this information. Maybe it’s just time we put more emphasis on this knowledge asset.

Buying or selling a home is still one of the largest transactions a person will take part in in their lifetime. Where you live is an essential part of your being – and can have serious consequences on your family’s future. Let’s not lose sight of this high-touch aspect to being an agent – that sometimes through all the complications of a jargon-filled transaction, what a consumer really needs is for someone to understand their more intangible needs that help them realize whether or not they can actually live in a particular home or neighborhood. This is one of our greatest strengths as real estate professionals.

Intero Insider: Why Low Interest Rates Are Still Vital to the Housing Economy

By Gino Blefari | January 17th, 2012 0 Comments

Interest rates. It’s a constant topic of conversation in real estate, and this year so far is no different than the last few: We’re kicking it off with some of the lowest interest rates on long-term mortgages that the market has ever seen. The average rate on a 30-year fixed-rate mortgage reached an all-time low of 3.89% this month, according to a survey tracked by Freddie Mac.

Two messages are important in this news for home buyers and sellers. They are:

1. Low interest rates are significant for home buyers, equating to big savings when locked in at the right time. This is a point that can actually motivate a lot of buyers to get off the fence.

For instance, let’s look at a .5% increase in a mortgage rate on a 30-year mortgage for $425,000. Say our buyers could get a 4.75% interest rate when they first start their real estate search. If they indeed buy a home and lock in a mortgage at this rate, they’ll end up paying $373,120.42 in total interest over the life of the loan.

But say these buyers get lost in their decision-making process and end up taking eight months to make a decision on a home. By the time they lock in their rate, they end up with a 5.25% interest rate on a 30-year mortgage for the same $425,000 loan. Now, they’ll end up paying $419,871.66 in interest over the life of the loan. That’s a $46,751.24 increase in the final interest bill – substantial to the average family buying a home.

Taking advantage of the lowest rates possible is a key message that will help to motivate a lot of buyers in 2012.

2. While no one can predict when interest rates will increase or by how much, we know they inevitably will increase, but can also feel comfortable that they’re not going to jump suddenly. Most analysts and industry observers expect rates to remain low as long as the economy is still in a slow recovery. That’s good news for buyers and sellers alike (more affordable borrowing means more buyers in the market, in most cases).

Low interest rates alone cannot save a housing slump, or single-handedly create a boom (remember that our last boom was also fueled by very loose loan underwriting standards that created a lot demand from market segments that would not be eligible for loans under today’s standards). But they’re still extremely important to the recovery story. They still have a vital role. Let’s not undermine that, or let that point get lost in the shuffle.

Fed Opens the Year with a Plea for Housing

By Gino Blefari | January 11th, 2012 0 Comments

2012 is going to be a big political year for housing – and not just due to the presidential elections. The Federal Reserve has already kicked off the year by stepping into delicate political territory with its letter and white paper outlining U.S. housing problems to the congressional committees in charge of banking and financial services.

The move was quite surprising, given that the Fed was not given a formal request. The actual letter begins with: “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.” The Fed’s opening argument is that the ongoing problems in the U.S. housing market continue to impede the nation’s economic recovery.

It’s clear the Fed wants to make housing the centerpiece of the national economic debate in 2012.

The white paper then goes on to outline a framework for possible policy changes that could help boost the housing economy and help struggling homeowners. Four of the possibilities outlined are:

Help more underwater homeowners refinance at lower rates. This policy is an old idea that was already poorly implemented under HARP in 2009. It was meant to help holders of the 8 million mortgages owned by Fannie Mae and Freddie Mac that carry an interest rate above 6%. It hopes to extend refinance possibilities to those who’ve not been able to take advantage due to inadequate or no equity, spotty credit or tightened lending rules.

New rules for HARP, however, could open it up to millions more households in need.

Large-scale principal reduction initiative. Lowering the amount of money that mortgage holders owe on their loan principal would drastically change the financial landscape for millions of families. The Fed notes in its paper that 12 million mortgages are underwater now, adding to about $700 billion in negative home equity.

Tackling this deficit would put many homeowners back in an ownership situation that makes financial sense given the current market condition and economy.

Convert vacant government-owned foreclosed homes into affordable rentals. This makes a ton of sense. The two housing finance agencies Fannie and Freddie own more than 230,000 foreclosed homes. Why not set up government programs that turn this unsold inventory into much-needed rental housing (a market that’s seen a rise in demand in the wake of the housing slowdown)?

Establish fair consumer protections for mortgage servicing. The Fed and others want to add a layer of consumer protection into the mortgage servicing market that previously was not there. Mortgage services currently have no fiduciary duty to protect consumers from errors and omissions in the servicing process. This initiative would add protections and potentially even change the compensation model to better protect consumers.

There’s a lot more detail in the Fed’s letter and white paper, which is available online. I suspect this is the first of many politically charged moves we’ll see this year. I just hope that some of these policies get it right and pull more families up from the depths of the housing collapse, helping to push economic recovery a bit harder and faster.

Intero Insider: Why a ‘$700 Billion Loss in Home Value’ Shouldn’t Alarm Us

By Gino Blefari | January 3rd, 2012 0 Comments

It’s the first week of a new year, a time to think about what’s in store, what will improve and what may decline in the housing economy. One figure we’ve seen gain a lot of attention over the last few years is a quantified total home value loss in the U.S. It occurred to me that this figure is actually pretty dangerous.

Just before the holidays, Zillow released a report estimating that U.S. homes were set to lose nearly $700 billion in value in 2011. That’s a mighty scary number when screaming at you in a headline. But the truth is that it’s hypothetical.

What does a $700 billion loss in home values really mean? Well, nothing to the average homeowner who’s not looking to sell. And to those who are looking to sell in 2012? It’s not great news, but it does deserve some context before we all freak out.

The positive spin in the Zillow report was that the total anticipated loss in home value in 2011 is actually 35% less than the $1.1 trillion Zillow found lost in 2010. And the total loss in value figure has shrunk each year over the last four years. So the rate of home value loss is slowing – a great sign.

The reality, though – and why I assert that this is a number that shouldn’t scare us – is that home values are much different than home sale prices. A home sale price, as reported regularly by the National Association of Realtors, reflects the value a buyer paid for a home that recently sold. But the home value loss reported by Zillow comes from some fancy math that averages the value lost in total on all U.S. homes if they were sold in current market conditions.

If you’re not looking to sell or refinance, then you don’t really need to fret much about the loss of your home’s value. Markets change over time and my advice to those owners who may be getting stomach ulcers thinking about the loss in value in their area over the last few years is to not worry about it right now. If you don’t have to sell, then don’t sell. By the time you do need to sell, you’re likely facing an entirely different market out there.

Buying conditions will continue to be good for many buyers in 2012: the amazingly low cost of borrowing, relatively large selection of inventory in many markets, and slowly improving U.S. economy will keep a stream of buyers interested.

I don’t expect a miraculous recovery in real estate on a national level this year, but I do think that a gloomy number like a $700 billion loss in total home value does a great disservice to describe what is really happening in the markets we serve. Things have improved in 2011, which is what we all expected. We’re not in a boom by any means and no one’s saying that. But we’re not coming off the worst year by far. Improvement is the name of the game. It is getting better, folks!

Intero Insider: Young Wait for Homeownership – It’s about Money, Not Values

By Gino Blefari | December 20th, 2011 0 Comments

Millennials – the generation generally defined as those born between 1980 and the mid-1990s – have no interest in buying homes. Or, at least, that’s the latest argument we’re seeing in Forbes, dubbed “Attitudes of Young Americans Bode Ill for Housing.” But, is this really the case? My sense is that it’s much more circumstantial than a foreboding ill will toward homeownership.

The argument hinges on a few key facts and observations: 1) Millennials, for the most part, have no money. The author states that 90% of U.S. born millennials (or “Echo Boomers”) has less than $1,500 in assets. 2) Millennials value education, people and leisure more than other American generations. And 3) Millennials question the importance of homeownership.

No money, no house

That’s the reality of today’s lending market, to be exact. Lenders no longer write no-money down mortgages so it makes sense that a group that generally is strapped for cash wouldn’t be interested in buying a home. Remember too that this generation also is saddled with the highest average amount of school debt than any other before it. They’re facing a tight job market that offers little opportunity for high wages. Putting yourself in these shoes for a moment makes it loud and clear why buying a home – the largest purchase of your life – is not going to be top of mind.

It’s all about the experience of life

Studies have shown that millennials are taking much longer to “settle down” in a career and lay roots in one place. They are taking longer to get married – if at all – and delaying children. These are all life circumstances that tend to spark a home purchase.

The housing boom and bust have left scars

Many millennials express skepticism about housing because they’ve witnessed an unprecedented crazy time in real estate. They may have witnessed their parents cash out tens of thousands of dollars in home equity only to see their home values plunge to depressing levels a few years later.

Any rational person would rightfully walk carefully into a real estate experience after this.

Are millennials really saying they don’t value homeownership or is what they’re really saying that they’d rather wait until they are ready? Who wants a mortgage payment when you’re still traveling the world, experiencing different jobs and career paths and haven’t yet taken the plunge with a lifelong mate? Can’t blame them for that, really.

These folks are still young. The economy is still not optimal for them. I don’t believe for one minute that a delay in home buying has anything to do with millennials’ true view of homeownership. This can be easily seen by the fact that young entrepreneurs who strike it rich almost immediately make a run for real estate. (The San Francisco Chronicle recently discussed this in an article looking at increasing home values in city neighborhoods that seem to be impacted directly by the success of young tech companies like Zynga and Yelp.)

Millennials will come around to homeownership eventually. Although that delay is what will most impact the recovering market, it’s got nothing to do with values.

Intero Insider: Higher Loan Limits Offer Real Help in High-Priced Markets

By Gino Blefari | December 14th, 2011 0 Comments

The housing market is rife with good news lately, if you know which stats and announcements to look for and how to interpret them. Sure, we’re not reveling in record-high home sales or value increases, but it’s not all bad in some markets, including our very own Bay Area. At Intero, we have seen record sales in 2010 and 2011.

Perhaps the best news I’ve heard in the last quarter that directly impacts us was that lawmakers in Washington reversed a recent lowering of the maximum loan limits that could be backed by the Federal Housing Administration. Just before Thanksgiving, lawmakers decided to once again raise these loan limits, opening up more financing options for buyers in higher priced markets.

The new guidelines mean that the FHA will be able to back loans up to $729,750 for the next two years in the nation’s most expensive real estate markets. The higher conforming loan limits had expired Oct. 1, reducing them down to $625,500.

This is good news for California buyers – especially those for whom an FHA-backed loan is the best option. FHA-insured loans enable buyers to put down as little as 3.5% on a mortgage loan, though they tend to carry higher closing costs. With an ever tightening credit market, FHA-backed loans have come back in vogue in many areas, enabling buyers to secure mortgages they weren’t able to get in the private market.

This is an example of a clear win and instance when the government’s involvement in the housing recovery indeed serves to help buyers and sellers. The move helps sellers as it opens up more financing options for buyers in expensive markets.

This is also a win because unlike some of the other programs lawmakers have passed in an attempt to help struggling homeowners, the FHA actually does have a significant hand in the market today. While the FHA insured only 5% of mortgages in the U.S. in 2006, it insured a third of all loans written in 2010.

So if I had a wish list for 2012 real estate, more measures like this would be on it. We need to continue to seek easy opportunities to make home buying easier for those buyers who are financially capable, yet meet too many loan restrictions or unattainable down payment requirements. To keep the housing recovery engine going, we need to find ways to fuel demand without weakening lending standards.

This news may not save the market, but it at least will accomplish that.

Intero Insider: The Good, the Bad, and the Ugly in Real Estate Data

By Gino Blefari | December 6th, 2011 0 Comments

As we inch closer to the end of 2011, we’re seeing a lot of positive activity in the housing market. However, it’s best not to be fooled by rose-colored glasses as we’re still looking at a slow recovery that’s taking much, much longer than anyone ever expected.

The Good

Existing home sales were up in October, and pending home sales grew by 10.4% that month, according to the National Association of Realtors – both great signs for the housing economy. Pending sales are watched closely by analysts and economists because they indicate the number of homes that are locked into purchase contracts, meaning they will, in most cases, become sales stats in the following months.

In another good bit of news, delinquencies on mortgages were down 28% in October from their highest point in January of 2010, according to research firm LPS. This means the rate at which homes are going into foreclosure has slowed down.

The Bad

Now for the bad news: LPS has also reported that 4.29% of all homes with mortgages were in some state of foreclosure in October, up from 4.18% the previous month.

The Ugly

In addition, homes that are in foreclosure are spending much more time in the process, on average. LPS found that the average loan in foreclosure has been delinquent for 631 days – nearly 21 months, a new record.

The stretched foreclosure process is the bad news here because it stands to prolong the recovery even further. The more the backlog of foreclosures sits, the longer it takes to move them off the books. So even though fewer homes are going into foreclosure, the homes that are there are taking much longer to get through the process, so the entire pool of foreclosure properties actually grows.

I’m betting that we’ll see more government interest in this data as we move into 2012. Much of the foreclosure process slow-down was created as a result of the “robo-signing” fiasco that forced lenders to slow down and be more meticulous with paperwork.

But, as we’ve seen with a lot of federal policy on lending and housing, it’s often the case that plugging up one hole springs a leak somewhere else. In other words, the government’s investigation of the foreclosure process – which had to be done – has contributed more to the problem.

I’m not letting the bad news get me down, though. With the somewhat positive results in unemployment numbers that came out last week, and the movement we’re seeing in home sales and pending sales, I think there’s enough evidence to forecast more slow growth in the market next year.

Intero Insider: Housing Is At Its Most Affordable in 20 Years – Except Here

By Gino Blefari | November 29th, 2011 0 Comments

As far as real estate statistics go, one of the most useful and interesting is the housing affordability index. What good are sales numbers and prices if not put into context? The affordability index provides that context, telling us the percentage of homes in a given location that a family earning an average income can afford – by traditional standards.

The Housing Opportunity Index released earlier this month by the National Association of Home Builders and Wells Fargo shows that housing affordability was near its highest level in 20 years in the third quarter. A near-record 72.9% of all new and existing homes sold during this time were affordable to families earning the national median income of $64,200.

What’s fueling this feel-good statistic are major price drops in markets across the country and record low interest rates: two factors that obviously bode well for home buyers (especially first-time home buyers who aren’t depending on the same market conditions to sell a house). Interest rates on a 30-year fixed mortgage are still hovering around 4.2%, which means borrowing is cheap by historic standards. And while prices have stabilized in some markets, they’re still much lower on average nationwide than they were five years ago.

What are the most and least affordable markets right now in the U.S.? Lakeland-Winter Haven, Fla., where 92.5% of all homes sold in the third quarter were affordable to families earning the median income of $53,800, was the most affordable major housing market. Other major metros that ranked as among the most affordable were Toledo, Ohio; Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; and Ogden-Clearfield, Utah.

The least affordable major market was in New York-White Plains-Wayne, N.Y.-N.J., where only 23.3% of homes sold in the third quarter were affordable to families earning the area’s median income of $67,400.

It’s not surprising that the New York metro division has owned the title of least affordable market for more than three years. Other major metro areas that share the bottom of the affordability index were San Francisco-San Mateo-Redwood City, Calif.; Honolulu; Santa Ana-Anaheim-Irvine, Calif.; and Los Angeles-Long Beach-Glendale, Calif.

Here we are in the Bay Area – where the nation’s least affordable housing markets still sit. Fortunately, in real estate, “least affordable” can also mean “most desirable,” which means that despite affordability issues, we still have demand from buyers who want in. With the tenacity of our tech economy and record low interest rates, I don’t believe that affordability problems will derail our markets here. Affordability may slow appreciation a bit over time, but that first rule of real estate wins every time: location. Clearly, buyers still like their coastal real estate.

Intero Insider: Home Sales Trending Up

By Gino Blefari | November 22nd, 2011 0 Comments

The housing market flashed some more good news this week as we learned existing home sales were up from the previous year’s levels for the fourth straight month in October. As we dig into the details here, I want to look at what it means and how it may impact buyers and sellers.

The latest report from the National Association of REALTORS® shows existing home sales up 13.5% to a seasonally adjusted annual rate of 4.97 million homes in October. Although national sales numbers are harder to get excited about (because real estate is local and our local markets can be vastly different from the national trend), this is generally good news because it shows a positive upward trend compared to the same fourth-month period a year ago.

In simpler terms: we’re looking at a pretty strong case here that the bottom of the market has been reached, and we’re well on our way to recovering. That doesn’t mean we’re on our way to the next boom, of course, but it’s good nonetheless.

Perhaps more interesting than the sales numbers, though, is the data about who’s buying:

29% of sales in October were from all-cash buyers
18% of sales were from investors
34% were from first-time buyers
28% were distressed sales

The data about who’s not buying is also interesting. The NAR says that the number of sales contracts that fell through in October jumped to 33% from 18% in September, and 8% a year ago. The group says contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems like home inspections and job loss.

What does this mean for buyers and sellers? The fact that contract failures almost doubled in a month’s time is a huge red flag that buyers need to have their finances and paperwork buttoned up tightly in order to get a mortgage. Buyers and sellers also need a good understanding of current appraised values before pricing homes and making offers.

I think patience is also in order when attempting a transaction in today’s market. Even though we’re seeing positive signs, there are still a lot of potential problems that can come up in the loan process. Expect that things will take longer than you think. Buyers may need to go to several lenders before you find the right loan. Sellers may end up going through several purchase contracts before the cards align and the buyer gets the loan, the appraisal comes in at the right value, and all is clear to move through escrow.

Is the worst over? No one really knows. One report out this week was commenting on the fact that the birth rate is the lowest in the country since 1999, saying that this lower rate of population growth is a bad sign for housing. However, the life expectancy in 1925 when my dad was born was 54 years old and today it is 79 years old, which means people are living in their homes longer.

We still have a lot of unsold inventory on the market, but it was down 2.2% in October – another good sign. We may not be walking on air, but the latest numbers show we do have something to be thankful for.

Intero Insider: Buying a Home in Earthquake Country

By Gino Blefari | November 15th, 2011 0 Comments

Over the last few weeks, we’ve experienced several moderate earthquakes in the Bay Area. No major damage, no deaths and no injuries. So no big deal, right? We must be used to this by now.

In reality, though, earthquakes are a major factor for home buyers. They can be a great source of fear and anxiety. Let’s explore how buyers can consider these natural occurrences in the smartest way before closing a deal.

Basic construction
Unless you’re buying a new home, chances are that the one you’re considering buying has been through dozens of small to moderate earthquakes. To get a sense for how the house has held up, be sure to closely inspect the foundation for major cracks. This is routine in home inspections under any circumstances, but especially significant if you’re buying in this area. Pay attention to the small details during your home inspection, and seek advice from your agent if you’re not sure of the impact.

When was the home constructed?
If it’s an older home, has it undergone any seismic upgrades or retrofitting in the last 10-20 years? While these upgrades are no guarantee that a home will outlast “the big one,” in many cases they will ease your mind and help prevent small problems from growing much worse over time through several small or moderate quakes.

Proximity to a major fault line
We’ve all seen and heard stories about homes on the Hayward fault that have walls and floors that are separating more and more each year. Just because your home is close to the fault line doesn’t mean this will be you in 10 years. But if it’s really close, you should consider having an engineer check whether there’s any current shifting going on with the house. (And you really should know how close your home is to the fault line to begin with.)

When to call a geo-technical engineer
Not all home purchases in the Bay Area will require a visit from a geo-technical engineer. However, a big red flag would be that the house is built on the side of a hill that is very close to a major fault line. Houses in these circumstances may actually be sliding down the hill by an inch – or fraction of an inch – each year. Again, this might be fine, but better to know before you buy the house. No surprises!

Do you need earthquake insurance?
Earthquake damage is usually not covered by typical homeowner policies, so don’t assume you don’t need it if you’ve already got property insurance. A good way to think about it is to consider how much of your investment in your home you are willing to put at risk. If an earthquake caused major damage to your home and its contents tomorrow, how quickly could you get back on your feet with your own savings? You’ll want to think about the amount of equity you have in your home and the approximate value of your belongings when considering how much earthquake insurance to buy.

In the Bay Area, earthquakes are to be expected and many of us aren’t surprised when the building starts to shake without warning. But when buying a home, these are the basics all buyers in earthquake-prone areas should think seriously about. These may seem routine, but it’s surprising how many buyers will overlook these things – especially when they’ve already fallen in love with a property.

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