April 1, 2008

Today’s Real Estate

Housing doom and gloom, compared to what?

By Donna Nardi
Special to the Times

News stories spell doom and gloom daily for the housing market. The media regularly reports short sales, foreclosures, plummeting home sales and the bottom falling out of the market in general. “For Sale” signs are flapping in the wind in every neigh-borhood. While much of it is certainly true, but true compared to what?

Housing booms don’t last forever. The current market correction was necessary to slow the market to a more normal pace. The booming market of the early 2000s couldn’t sustain it-self forever. Even if the banks corrected their problems, who could afford the price while securing the necessary loan?

Chet Ford, a senior loan officer with Princeton Capital in Los Gatos, shared his past experiences with real estate, loans, and even the “R” word (recession). He was selling new homes in the 70s, 80s, and early 90s.

“In the late 70s when interest rates were inching above 12 percent, prices began to drop just as in today’s market. But, it presented an opportunity for buyers to buy homes at bargain prices. Although the interest rates remained high, buyers were confident they would be able to refinance once interest rates dropped. Moreover, loans at that time required full documentation – no stated income loans were available at that time. Those of us living in Willow Glen experienced property value declines up to 20 percent over a two-year period. However, within a few years, we began to see the values rise, and sales began again at a pretty good clip.

“What we see today is another bank bailout that is having a negative affect on the housing market,” Ford says, “which has affected many of us. Yet, as a loan officer, I’m happy to return to the basics where loans are determined upon credit worthiness and excellent lending principles, which helps to eliminate the high risks we’ve seen recently.”

Statistics
National Realty News’ statistics show nationally that homeowners who purchased homes in the past two years and put a median of 10 percent down have gained a median of 13 percent equity. Those who purchased in the last five years and put 11 percent down have gained a median of 41 percent equity.

Today’s interest rates look great from an historical aspect. While 30-year fixed interest rates are currently hovering just above 6 percent, the average interest rate 10 years ago was 6.94 percent for a 30-year fixed rate; 20 years ago it was 10.34 percent; and 30 years ago it was 9.64 percent.

Housing markets vary considerably by location. Not all markets are experiencing a decline. Here in Santa Clara County, you can see vast differences from one area and neighborhood to another. In general, San Jose’s housing market has shown strong nationally. It has consistently been in the top 5 percent of the nation. Neighborhoods with highly desirable attributes will withstand market slumps better than others.

Opportunity
While it’s a wonderful window of opportunity for buyers, it’s an especially great time for first-time buyers. Due to strict guidelines in place before the crisis, first-time loan programs through the state haven’t been affected by the crisis we see today.

The CalHFA program offers several loan programs to choose from, and all are fixed rates. These programs help with down payments, closing costs, below-market interest rates and often have monetary incentives to purchase in certain cities and areas. Because of current high inventory, buyers can choose carefully without pressure of being outbid, can ask for more concessions from the seller and can make wise, thoughtful decisions for their future.

Buyers can also net great deals from short sales. Banks don’t want to foreclose on a property – the cost is astronomical. It’s very possible to purchase a home from 5-20 percent below market value. In our area, that can mean huge savings.

A short sale is also more preferable to the seller, as it will impact their credit score less negatively than a foreclosure. The sellers will be more willing to work with buyers to help them make a favorable decision to purchase their home. Although short sales indicate a loss to at least one party, this is the least harmful way for a homeowner in trouble to get out without losing everything. This will enable them to get back on their feet more quickly, as well.

While every homebuyer must understand the risks with any investment, one must understand that when purchasing a home, it is just that – a home. We all must live somewhere.

If a buyer purchases a home with an expectation of a quick return on their money, they may be disappointed. But the savvy buyer will understand the true meaning of home and respect and treat it as such. Yes, it’s an investment, but it is so much more. Most of us have had a number of memorable events that are tied to our home - marriage, birth of children, grandchildren, holidays, family dinners, rearing children…the list goes on and on. So while living in a home, why not have a home that doubles as a great investment?

Donna Nardi is a Realtor, Accredited Staging Professional, and Senior Real Estate Specialist with Prudential California Realty in Willow Glen. You may reach her at (408) 918-4410, or donna.nardi@prurealty.com, or www.HappyWayHome.com.