April 2009

Current Market Trends Over the Next Month*

• 1400 active house & condo listings will be joined by 600 new listings
• 1 in 7 or 8 of those listings will accept an offer to purchase
• 1 in 8 will expire or be withdrawn from the market (didn't sell)
• 1 in 4 will reduce its asking price
• 75 active bank-owned (REO) homes will be joined by 45 new REO listings:              1 in 3 will accept offers
• Of the listings that do accept offers, 1 in 3 or 4 will come back on market because the purchase fell through--typically due to financing difficulties, property conditions issues or buyer remorse.

*All numbers are approximate; neither TIC sales nor non-MLS new-development sales are included.

Of the house and condo listings that SOLD in the first 2.5 months of 2009*

• 1 in 4 accepted offers within about 15 days of going on market, i.e. almost immediately. Of these, the houses averaged a sales price of about 1% over asking price, while condos averaged about 4% below asking price.
• Those accepting offers after 45 to 75 days on market sold at an average of 3% to 4% below last asking price and 7% to 10% below original list price.
• Those accepting offers after 105 days of market sold, on average, 4%-5% below last asking price and 14% to 18% below original price.

*For SF house and condo sales reported to MLS by 3/17/09. City districts with high foreclosure rates, as well as confidential sales and ultra high-end sales were excluded to avoid distorting general market statistics.

Regarding Statistics-There are Three Kinds of Lies

“Three kinds of lies: Lies, damned lies, and statistics”

One hears California home prices have dropped 40% or reads that SF “Metro Area” prices have declined 30%. One recent article insisted some SF districts had experienced double-digit appreciation in 2008. (Sorry, no.) The media loves dramatic (i.e. usually bad) news; some agents deliver only the rosiest view. These analyses might quote median or average prices, dollars per square foot, or values based upon secret algorithms -- each of which may generate different conclusions. They can encompass sales of houses, condos, TICs, resale homes or new construction -- each of which can be dissimilar markets. If the calculation is based on too short a time period, the number of sales is too small to be statistically reliable; if the period is too long, it may mix data from both before and after major market shifts, muddying the current reality.

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Fannie Revises Investment Property Guidelines

Last year Fannie Mae reduced the allowance for the number of properties financed from 10 properties to 4 properties. On February 6th they released Announcement 09-02 revising the allowance for the number of properties financed back to 10 properties. To see the full amendment to the Fannie Mae Selling Guide go to Announcement 09-02.

In Fannie Mae's words “Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery and Fannie Mae's continued support for investor borrowers is consistent with its mission to provide stability, liquidity, and affordability to the nation's housing system.”

When more than 4 properties are financed the borrower must have a minimum credit score of 720. For 1 Unit Second Home or Investment Properties the maximum Loan-to-Value (LTV) will be 75%. For 2-4 Unit Investment Properties the maximum LTV will be 70%.

Announcement 09-02 also includes new reserve requirements for second homes, investment properties and multiple financed properties.

When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:

- two months reserves on the subject property if it is a second home,
- six months s reserves on the subject property if it is an investment property, and
- two months reserves on each other financed second home or investment property.

When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:
- two months reserves on the subject property if it is a second home,
- six months reserves on the subject property if it is an investment property, and
- six months reserves on each other financed second home or investment property.

This change in the Fannie Mae Guidelines should have a positive effect on real estate sales. Although the restrictions on LTV and cash reserves are tighter than in the past, it allows investors to finance a larger number of properties. I look for Freddie Mac to make similar revisions to their guidelines.