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San Diego County 2nd-worst in U.S. for affording to buy home
Bottom 11 spots are all in California, survey shows
January 7, 2005

San Diego County's high housing prices, coupled with its relatively low wages, make it the second-least-affordable area in the country, the National Association of Home Builders, or NAHB, reported yesterday.

In the Washington-based group's first "housing opportunity index" issued in nearly three years, the builders said San Diego County ranked 161st out of 162 markets surveyed, exceeded only by the Santa Barbara metropolitan area.

The index, which measured the percentage of households able to afford the median-priced single-family home in the third quarter of last year, stood at 5.4 percent for San Diego. It was the lowest level recorded for San Diego by the builders in 12 years of tracking such figures.

The figure was based on a median price of $470,000 for 23,006 new and existing home purchases analyzed for the July-September period, and a median household income of $63,400.

Put another way, there were only 1,242 homes sold in that period within reach of the typical household.

Robert Rivinius, chief executive of the California Building Industry Association, noted that the index found California was home to the 11 least-affordable housing markets in the nation. And of the bottom 25 markets, 19 were in the state.

"It used to be that California dominated the 'bottom 10' list of least-affordable metropolitan areas. Now we are the bottom 10 – and then some," Rivinius said in a statement. "What's worse is that even in California's most affordable market – Tulare County – less than half of the county's residents can afford a median-priced home."

In a look ahead, the NAHB's chief economist, David Seiders, and other economists in the housing field told reporters in a news briefing yesterday that 2005 prices nationally should rise between 5 and 10 percent and that interest rates should increase between one-half and one percentage point from today's levels.

Freddie Mac's primary market mortgage survey reported that the average 30-year, fixed-rate loan mortgage rate was 5.77 percent yesterday, down from last week's 5.81 percent.

Asked about San Diego's prospects for the new year, the economists noted that San Diego sees more than the usual number of investors and speculators buying real estate.

But they said the area's favorable employment prospects, healthy population growth and widespread land-use restrictions may keep it from experiencing a popping of the proverbial real estate bubble.

"A lot of things are helping support housing in San Diego," said David Berson, chief economist of Fannie Mae, which along with Freddie Mac buys mortgages from lenders and packages them for sale to investors.

"That is fundamentally driving the market upward. Should you buy tomorrow? None of us knows if prices will fall tomorrow. Over the longer run, places like San Diego, where people want to live, will see more population, and prices will go up."

In the history of the NAHB-Wells Fargo Housing Opportunity Index, San Diego's highest affordability level was 48.2 percent in the first quarter of 1994, at the depth of the area's biggest recession in decades.

Eleven years ago, the median income was $45,400 and the median price was $166,000. Unemployment was high, interest rates exceeded 7.8 percent and sales and construction were down.

Nationally, the builders set the most recent overall affordability level at 50.4 percent, based on a median price of $225,000 and $57,500 household income. For purposes of the index, the builders' economists assumed a 10 percent down payment, a 30-year fixed-rate loan at 5.83 percent, and 28 percent of gross household income spent on housing.

In California, including San Diego, as many as 80 percent of purchases last year involved lower-priced adjustable rate mortgages. Some loans had very low down payments and required interest-only payments for the first five years.

The report found that the most affordable area nationally was Lima, Ohio, where 90.5 percent of the sales were affordable to households earning the median $52,500 and paying the median price of $82,000.

The full results for the affordability survey are available at the association's Web site, www.nahb.org/hoi.

Santa Barbara's 4.9 percent index made it the least affordable, based on a median income of $64,700 and median sales price of $447,000. San Francisco had the nation's highest median price, $664,000, but its third-ranking income of $95,000 left it with an affordability rate of 12 percent.

San Jose had the highest income, $105,500, and third-highest price, $538,000, giving it a relatively comfortable affordability index of 26.5 percent.

San Diego's income ranked 55th, while its housing price was tied with Oakland at eighth. Oakland's much higher median income of $82,000 allowed it to weigh in with a 16.7 percent affordability index.

The California Association of Realtors figures its affordability index slightly differently, and issues its figures for state metro areas monthly. The most recent figures were for October and gave San Diego an affordability level of 12 percent, just above the all-time low of 10 percent reported earlier last year.

Housing squeeze hits area
Prices climb; ready-to-build land looks in short supply
By Andrew LePage -- Sacramento Bee Staff Writer
Friday, January 7, 2005

The sales pace for new homes in the capital region cooled in the second half of 2004 as prices climbed to new highs, apparently because builders couldn't get enough ready-to-build land to meet demand.

Neighboring Yuba and Sutter counties continued to be the low-price housing leaders in the greater Sacramento region. Last year new-home sales there jumped nearly 345 percent over 2003, to 2,015 sales, reported the Gregory Group, a new-home industry research firm.

"They are the affordable option for buyers today," said Greg Paquin, head of the Folsom-based company.

He noted that prices in West Sacramento, Lincoln, Antelope, Natomas and Laguna are all too high for most first-time buyers, although some individual subdivisions target them.

In Sacramento County, the median sale price - the point at which half of the homes sold for more and half for less - rose to $453,800 in the last quarter of 2004, up 31.2 percent from one year before, according to the Gregory Group.

In Placer County, the number of new homes sold in last year's final quarter dropped nearly 40 percent year over year, but the median price rose 29 percent to $538,990. Analysts said sales dropped because demand far outweighed supply.

In Yuba County, home to the burgeoning Plumas Lakes development south of Marysville, the median sale price of new homes shot up 35 percent to $319,015 - still more than $100,000 lower than the medians in adjoining Sacramento and Placer counties. Plumas Lakes' growth comes despite concerns state officials have expressed over the adequacy of levees in the flood-prone area.

The Yuba-Sutter area accounted for about 12 percent of all new homes sold last year in the greater six-county Sacramento region, up from 3 percent of sales in 2003. This year Yuba-Sutter is likely to produce 20 percent to 25 percent of the homes in the region if builders keep pace with demand, Paquin said.

Last year 15,140 new homes sold in the four-county capital region, down about 2 percent from a record 2003. If Yuba and Sutter counties are included, last year's sales for the six-county area were a record 17,155.

The year saw surprisingly robust sales of new homes in the first half, surpassing the first half of 2003 by 35 percent. Buyers rushed to lock in low mortgage rates last spring in the wake of a rate spike, and investor activity was reportedly running high.

Sales slowed in the second half of 2004, falling 17 percent below the second half of 2003.

"There's some evidence price points are getting so aggressive it may be slowing down the market somewhat and that (relates to) two-thirds of the market being priced above $350,000," Paquin said.

Most economists and housing experts anticipate slower price appreciation this year. They assume mortgage rates will rise at least a little, and more people will be priced out of the market.

"Prices have gone up a lot faster than incomes the last few years, and that's a trend that cannot continue indefinitely," said economist Matthew Newman at California State University, Sacramento.

The building industry blames much of the price run-up on the escalating cost of land and developer fees and the amount of time it takes for projects to get approved. The average amount of time it takes for a subdivision to go through the government approval process is 2.6 years in the four-county capital region -- longer than in most Western markets, according to Hanley Wood Market Intelligence in Sacramento.

"Everyone says there's not enough land, but there's plenty of land (in the capital region)," said Dave MacIntosh of Hanley Wood, a market research firm. "The reality is getting that land through the development process is a real challenge, and the longer it takes ... the more constraint it puts on the supply of buildable land, which translates into higher land and home prices."

A doubling of new home prices in the past four years leads some to conclude a correction is ahead.

"My view is there's a flat to a downward bias (for home prices)," said John Avrea, 47, as he toured a 3,177-square-foot model home in the La Cima subdivision within Serrano, an El Dorado Hills community.

Avrea, a financial planner and Southern California native, and his wife, Michele, 38, live in the Ventura area and were here to spend time with family in Placerville. They're considering a move to the El Dorado County foothills in the next two years.

John Avrea isn't in a rush because he figures many recent home buyers have taken on variable-rate and interest-only loans to buy houses they'll ultimately find they can't afford. Avrea thinks some will be forced to sell within a few years, putting more homes on the market and maybe even homes at lower prices.

Some Sacramento builders realize they might be stretching the limits of how many can afford $400,000-plus homes. This year builders will construct more condos and higher-density detached homes, known as cluster homes, to appeal to lower-end buyers.

Last year condos accounted for about 5 percent of all new-home sales in the capital region and cluster homes just under 8 percent, the Gregory Group reports. The firm predicts that this year condos will account for about 8 percent of all sales and cluster homes for 10 percent.

In northeast Roseville, John Laing Homes is constructing the 166-unit Campania condos next to the 242-unit Strada cluster homes. The condos range from about $270,000 to $328,000 and the cluster homes from about $310,000 to $336,000. The median sale price for new homes in south Placer County is $539,990.

Janie Spaulding, 43, just bought a condo for about $300,000 at Campania. She wants to travel more, and she's tired of keeping up her 25-year-old house in Rancho Cordova.

"I'm at a point in my life I don't want the yard anymore," said Spaulding. "I'm into the easy, streamlined life."

Given up hope in a hot market? There are deals
Good buys can be found, but don't expect the screaming bargains touted on late-night infomercials.
By Liz Pulliam Weston - The L.A. Times
January 9, 2005

When Justin Sloggatt started looking for a home in Los Angeles' Miracle Mile area, the typical place he toured was selling for a steep $500,000. A year later, similar homes there were selling for nearly $100,000 more.

The film producer began to despair that he would ever find a house he could afford in the neighborhood he liked.

Fortunately for Sloggatt, he nabbed a 2,800-square-foot home for $425,500 in probate court, using one of the techniques determined buyers can employ to get an edge in pricey markets.

Whether you're a first-time buyer or a homeowner trying to upgrade, purchasing a house in Southern California can be daunting.

Home prices are expected to continue to rise throughout 2005, but real estate experts say there are plenty of ways for committed buyers to get into even the hottest markets.

There are a few caveats, however:

Don't expect screaming deals. Hot markets mean there's competition for virtually every available home. You can reduce the rivalry by looking off the beaten path, but don't pass up a good deal because you're waiting for an impossibly great one to come along.

Buy the worst home in the best neighborhood you can afford. This old real estate saw still works. Desirable areas appreciate faster in good times and hold their value better in bad times.

Look for homes you can add value to. You're more likely to get a payoff — in terms of a higher selling price later — when you spend money bringing a home up to the average level of the rest of the neighborhood. If it's already the biggest or the best, you're going to pay a premium.

Don't bankrupt yourself. You need to set limits on how much debt you're comfortable carrying, because many lenders today will lend you far more money than makes sense. Allowing your housing and debt payments to eat more than about 36% of your gross income is asking for trouble.

Get pre-approved. Pre-approval is much better than mere pre-qualification. You want to be able to tell a seller that a lender has already committed to lend you money.

That said, here are some strategies that could help you get into a home:

• Look for motivated sellers. Death, divorce, relocation and foreclosure — all can induce a seller to part with a home for less than the going rate. You often can discover the seller's motivation by schmoozing his or her realty agent. Real estate professionals really aren't supposed to disclose why a home is on the market, but many do — fortunately for you. You often can negotiate a better deal when you know someone needs to sell and isn't just "testing" the market.

Other motivated sellers include banks and other lenders that own foreclosed homes. But don't expect the great bargains often touted on late-night infomercials.

Some lenders get a premium for homes they fix up before sale, and even neglected homes tend to get many bids from people who've bought those "get rich quick with foreclosed homes" tutorials.

You can find lists of foreclosed homes in a variety of places, including such commercial websites as Foreclosures.com and government agencies such as the Department of Housing and Urban Development.

Sometimes you don't have to do any detective work. Real estate listings, for example, will include the fact that a home is in probate, which is the court process that typically follows a death.

The rules of probate differ by area, but there's often a court proceeding involved. Offers are made public, and rivals may bid against each other for the home.

In Los Angeles County, for example, someone who makes an offer on a home that's in probate can easily be outbid by others willing to pay at least 5% more.

That's how Sloggatt got his house. Another buyer bid $400,000 on a house that was listed for $425,000. Sloggatt showed up at the court proceeding and bid $425,500. The original bidder had a chance to counter, but didn't.

• Tackle the unloved. Most people have little imagination. They can't see, for example, that a bungalow with its warren of tiny rooms could be transformed into an open and airy showplace with the removal of a couple of walls. Or that hiding behind overgrown shrubbery or a bad paint job might be an architectural gem that just needs some elbow grease.

If you can see the possibilities in a fixer-upper, you're ahead of the game. Just don't get in over your head.

Always get a professional, independent inspection, and steer clear of any house that has foundation or geological problems. Outdated wiring and plumbing can also be expensive to fix.

Stacy and David Grow thought they had found their dream home in Chicago before they had it inspected. The kitchen had been updated after a house fire, and the sellers assured them all was well. The Grows' inspector, however, found antiquated knob-and-tube wiring — a potential fire hazard, especially with the power demands of modern appliances.

The Grows would have had to pay thousands to update the home. They passed, and eventually they found a more updated house that better suited their needs.

Inspections cost "a pretty penny," Stacy Grow said, "but it saved us a lot of money."

• Don't shun the stigmatized house. A home needn't have been the scene of a double homicide to get a bad reputation. Sometimes a greedy seller is all it takes.

Overpriced houses often linger on the market, ignored by buyers and real estate agents who have moved on to the excitement of newer listings and sellers who seem more reasonable.

"In a market like this, there's a stigma if it doesn't sell within a month," said Anthony Marguleas, a buyers-only agent and owner of A.M. Realty in Los Angeles. "People think there's something wrong with it."

That's a warning for sellers — but an opportunity for buyers, Marguleas said. Realizing they've blown it, a seller may begin to get desperate and be willing to deal.

"Sometimes," he said, "it will go for 10% or more below the market if they overprice it to begin with."

So-called "FSBO" homes — those for sale by owner — often get neglected, as well. They're typically not included in multiple-listing services, and real estate agents may ignore them in favor of sellers who offer full commissions.

Be careful buying homes with more permanent stigmas. You may get a deal on a home near a school, on a busy street or fronting a cemetery.

But you may have trouble selling it in the future. The school will still be noisy, the street still dangerous (maybe even more so, because traffic almost inevitably gets worse), and the graveyard will still give people the willies.

Crystal ball: Rising rates could slow buying frenzy
By Sue McAllister - San Jose Mercury News
Sat, Jan. 08, 2005

If you watched Bay Area home prices soar in 2004, you've probably been thinking, ``It can't go on like that in 2005, can it?'

It's an excellent question. And as you might have guessed, there's no clear answer.

``Our market has for the last couple of years probably defied conventional wisdom,' said Colleen Badagliacco, co-owner of ReMax Valley Properties in San Jose.

Very few homes are for sale in Santa Clara County and surrounding areas, mortgage interest rates are low, and there are still many potential buyers interested in whatever homes do come on the market. Those factors would tend to keep prices high, and probably rising.

On the other hand, very few new jobs have been created in the Bay Area recently, and interest rates are forecast to rise this year, which should cool demand from buyers. Some speculate that rising rates will cause financial distress for many homeowners with adjustable-rate mortgages, which could result in more homes being put on the market and less upward pressure on prices.

Even industry experts are divided: In a recent poll of the leaders of the California Association of Mortgage Brokers, about half said they think home prices will rise in 2005, and half predicted prices will fall in response to rising rates.

Economist Richard Carlson, chairman of Spectrum Economics in Mountain View, said mortgage interest rates -- which are widely forecast to rise this year -- will be the most crucial factor to watch in gauging the direction of the real estate market.

`Magic number'

``The whole question there is, are we talking about a modest increase? I think the magic number is somewhere around 7 percent,' he said. If the average rate for 30-year fixed-rate mortgages stays at about 7 percent or lower, and the local economy keeps adding more jobs, he said, he would expect homes to appreciate at about the same rate as general inflation, say 2 percent to 4 percent.

But those figures, he concedes, are much lower than the real estate market has posted in the past two years, even when employment numbers were still falling. Prices have been driven up, he said, because ``the plus on the interest-rate side made up for the minus on the employment side.'

Also, high prices aren't driven purely by economics.

``This is a `panic' real estate market,' Carlson said. `` `If I don't get in now this is the last chance I'll ever have because it will just get worse' ' is the way people approach home buying, he said.

Even in the slow week between Christmas and New Year's, real estate agents reported that some properties received multiple purchase offers.

Supply low

Many realty professionals in Silicon Valley say the low number of homes for sale will assure prices stay high in the first months of 2005, and maybe longer.

As of Jan. 1, just under 1,000 houses and condominiums were for sale in Santa Clara County, the lowest level since January 2001, said Richard Calhoun of Creekside Realty in San Jose. That's nearly 50 percent fewer than at the same time in 2004.

``The real estate market is such a strong seller's market for anything under $1 million,' Calhoun said. ``Even the $1 million-to-$2.5 million market is strong.'

San Mateo and Santa Cruz counties have 47 percent and 30 percent fewer homes for sale, respectively, than at this time in 2004.

If normal patterns hold, more homes will come on the market each week for several months. But there's still so much buyer demand that inventory won't pile up, said Chris Trapani, president of Coldwell Banker Silicon Valley.

``It's starting from such a low point that it's going to be . . . into first or second quarter that there's any easing up in the pressure,' he predicted.

Prices higher

Data available this week from the Santa Clara County Association of Realtors show that the median price of the single-family houses sold in the county in December rose to $661,000, up 16 percent from December 2003. (Companies with different data-gathering methods typically cite lower numbers than the Realtors do, but the percentage increases are consistent.)

The California Association of Realtors' forecast for this year predicts the median price of houses sold statewide will rise by 15 percent, to about $523,000.

But many local real estate professionals say local prices won't climb that much.

``The only way we're going to see a 15 percent increase in Santa Clara County is if inventory continues to stay at record lows,' said Gino Blefari, president of Intero Real Estate Services. Rising rates should slow sales and allow for inventory to build, he said.

Badagliacco said some buyers this year will certainly balk at how high prices have gotten in the valley. But others will be determined to buy anyway.

``For first-time buyers, it's a white-knuckle decision,' she said. But the majority of buyers are homeowners whose rising equity can help them buy bigger houses -- if they can find any for sale.

`Move-up' buyers

Being a ``move-up' buyer this year could be hard for a couple of reasons, Badagliacco added. First, prices for the next bigger home might have risen beyond what a family can afford. Second, some potential sellers may have ``fallen in love with their mortgages' and be hesitant to take on a new loan at less favorable rates, which will constrict the supply of homes for sale.

Rebecca Gallardo-Serrano with Protello Group Realty in San Jose had words of caution for both sellers and buyers. Smart sellers, she said, should know what they legally have to disclose about their properties, even in an ``as-is' sale -- and nearly all sales recently have been ``as-is.' Failure to disclose known flaws can land sellers in legal trouble.

And buyers should watch interest rates closely and understand the terms of the loans they take on.

``Timing could be everything when it comes to keeping your payment down,' she said.

This Tidbit Falls Under the Not Necessarily CA Specific Category

Foreign investors reduce U.S. share
From L.A. Times wire reports
January 9, 2005

As the "degree of difficulty" in finding attractive real estate investment opportunities increases, foreign investors are losing their appetite for U.S. real estate, according to a survey of the members of the Assn. of Foreign Investors in Real Estate.

While overall spending will increase both globally and in the U.S., respondents said they would reduce the U.S. percentage of their total global real estate acquisitions from 71% in 2004 to 55% in 2005 and invest a greater percentage of their portfolios in an ever-widening global arena that includes Japan, Eastern Europe and Australia.

Almost 60% of respondents surveyed said it had become "very difficult" to find attractive real estate opportunities in the U.S., compared with 38% in 2003 and 32% in 2002.

The U.S. continued as the No. 1 country for stable and secure real estate investments.

For the third year, Washington, D.C., ranked as foreign investors' top global city and the best city for investment in the U.S.

**Happy Trading**

Your Economy #board- 1948
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