Santa Cruz Real Estate Experts Team Sedenquist

One of my favorite games is watching economists collect and analyze mountains of data, then come out with completely obvious pronouncements stating what we all already know. . .

U.S. IN RECESSION AS OF DEC. 2007
The National Bureau of Economic Research on Monday determined that a peak in economic activity occurred in the U.S. in December 2007, and declared the U.S. economy officially in recession since that time. The December 2007 peak marked the end of the expansion that began in November 2001 and lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession, as defined by the National Bureau of Economic Research, is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion. Because a recession is a broad contraction of the economy, not confined to one sector, the National Bureau of Economic Research emphasizes economy-wide measures of economic activity when determining a recession.

"It's more accurate to say that a recession -- the way we use the word -- is a period of diminishing activity rather than diminished activity," the National Bureau of Economic Research said in a prepared statement.

Although NBER does not predict how long a recession will last, some analysts believe the current recession may not end until 2010.  The last official recession began in March 2001 and lasted eight months before ending in November 2001.

Whoa.  This real estate market price slide is painful.  But despite all the fear there is ongoing market activity.  And the expensive areas are holding value nicely, and the more affordable areas are becoming even more affordable.  Whoa., it ain’t over yet. . .

C.A.R. REPORTS SALES UP 117.1 PERCENT; MEDIAN PRICE FELL 39.9 PERCENT
Home sales increased 117.1 percent in October in California compared with the same period a year ago, while the median price of an existing home fell 39.9 percent, C.A.R. reported yesterday. "Statewide sales increased significantly in October to 552,750 homes on an annualized basis, the highest sales level since late 2005," said C.A.R. President James Liptak. "The record gain stemmed primarily from extremely large increases in regions with a high concentration of distressed sales.

"Most October sales likely opened escrow prior to the beginning of the ongoing freeze in the financial markets. We won't have a clear picture of the full impact of the fallout until November and December sales are reported," Liptak added.

"The year-to-year decline in the statewide median home price was smaller in October than the previous month for the first time in 11 months," said C.A.R Vice President and Chief Economist Leslie Appleton-Young. "However, there is still no conclusive indication that prices have begun to stabilize.

Statewide, the 10 cities with the highest median home prices in California during October 2008 were: Newport Beach, $1,150,000; Danville $883,250; Mountain View, $860,000; Santa Barbara, $835,000; Los Gatos, $810,000; Cupertino, $804,500; Santa Monica, $744,500; San Mateo, $740,000; Redondo Beach, $727,500; and San Ramon, $710,500.

Statewide, the cities with the greatest median home price increases in October 2008 compared with the same period a year ago were: Mountain View, 18.6 percent; Alhambra 13.4 percent; Ridgecrest 6.2 percent; and Berkeley, 5.9 percent.

I’ve been mining the recent sales figures here in Santa Cruz County looking for interesting tidbits and market wisdom.  Our MLS reported that there were 116 closed sales of single family homes for the month of October 2008.  I found this interesting in a few areas.  Number one, 50% of these sales were under $500,000 and an amazing 29% of the sales were under $400,000!!  The second thing I found interesting is that 82% of these purchases were financed by conventional loans, i.e. our existing banking system, 11% of these homes were bought with all cash, and the rest were either FHA loans or seller financing.

Yes, home financing has changed dramatically.  It has not stopped dead, however, as the media tends to portray.  Funds are still flowing for those who have decent credit and verifiable income.  We’re going back to basics in the lending field, which may be exactly what we need.  Time will correct this slow market, but there is light at the end of the tunnel.  There are real values out there right now, buying opportunities like we haven’t seen in years.  If you’ve been on the fence, it may be time to jump off and start looking seriously!

Call us if you’re thinking about buying or selling a home, we’d love to hear from you or your friends anytime.

Dan & Lyn
Dec 2008

For the latest in real estate news, trends, and advice, see our monthly client newsletter.

The real estate market in our area appears to be stabilizing a bit. Market activity in south county is definitely increasing.  But this isn’t true in all areas of the country. . .

Home Prices Still Too High in Some Areas
There are more and more homes on the market and fewer and fewer people willing and able to buy them. This simple equation leads some economists to conclude that home prices all over the country are likely to continue to fall through late 2009, at least.

Even with banks aggressively marketing foreclosed properties, the number of vacant, previously owned properties is about 2.8 percent, and nearly 10 percent of all rentals are vacant, according to data from the U.S. Census Bureau.

An analysis by Moody’s Economy.com shows home prices are still high in many areas compared to historic averages. In Miami, for example, average sale prices are still about 22 times annual rents, while the average figure over the last 20 years is 15 times. This suggests that a Miami-area home valued at $500,000 today is possibly only worth $341,000 based on long-term averages and more declines are likely.

Edward E. Leamer, an economist at the University of California, Los Angeles, believes that a quick decline might be better in the long run for both homeowners and financial institutions because in previous booms once properties hit bottom they began to climb again.

But ultimately, this is all guesswork because previous boom-bust cycles haven’t been as widespread as this one, so economists can only guess what will happen next. “We are in uncharted waters,” says Brian A. Bethune, an economist at Global Insight, a research firm.

Source: The Wall Street Journal, Vikas Bajaj (10/15/2008) via REALTOR® Magazine Online

Beach property has always been expensive and Santa Cruzans have always been comfortable with smaller homes.  Now comes more creative ways to shrink the cost of housing in other markets.

Home Sizes Shrink to Lure Buyers
Home builders are reducing the size and options available to appeal to buyers with less money to spend and who are facing a harder time getting financing.

Los Angeles-based KB Homes had shrunk its homes from 3,400 square feet, selling for $450,000, to 2,400 square feet selling for $300,000 to appeal to buyers. Now, it's shrinking its homes yet again--1,230 square feet priced at about $200,000

Other builders, including Warmington Homes and John Laing Homes, have taken similar approaches.

“We're getting back to more the way things were historically, kind of undoing the excesses, not just from a price perspective but home size and (fewer amenities)," says Nishu Sood, a Deutsche Bank analyst.

The new KB Homes aren’t just smaller, they are more efficiently designed, says Steve Ruffner, president of KB Home's Southern California Coastal Division.

"You could have a three-bedroom, 2,500 square-foot single-story home and all you had was wide hallways and bigger rooms. It wasn't really giving [buyers] the utility," Ruffner says.

Source: The Associated Press, Alex Veiga (10/10/08) via REALTOR® Magazine Online

We’re starting to see more creative ways to generate the newly required larger down payments in this brave new post-subprime lending world. 

Co-Ownership Gets Popular as Lending Tightens
Real estate co-ownership arrangements are becoming increasingly popular, especially in cities where prices—even after the real estate meltdown—remain out of reach for many buyers.

"Lending guidelines have become twice as hard to meet because of the housing market," says Joe Schiller, an associate with Rubloff Real Estate in Chicago. "People just don't qualify like they used to. But if they get some friends and put money together, they can afford that 20 percent down that you now need to purchase."

Schiller says that while financing is easier, these arrangements have the capacity to fail. He recommends that people who are considering a joint purchase hire a lawyer to draw up a co-ownership agreement, including a plan to get out of the arrangement.

Here are some other tips for co-buyers:

• Before you begin looking for property, decide the geographic and financial ranges for the search.
• Understand potential co-buyers’ finances; lenders will look hard at the finances of all partners in the deal.
• If the property is a condo, understand the rules regarding rentals, just in case one partner needs to move out.
• Put everything in writing, particularly the escape plan.

The market continues to move slowly along now completely dominated by short sales and foreclosures.  We look forward to better days ahead for all of us, so, all we can say is…

Assert your Rights!  Please go out and vote November 4th!

Call us if you’re thinking about buying or selling a home, we’d love to hear from you or your friends anytime.

Dan & Lyn
Nov 2008

For the latest in real estate news, trends, and advice, see our monthly client newsletter.

Are you all ready to vote in the upcoming election?  Have you made your mind up as to which candidate you’ll choose for President?  Have you decided that our economy can’t survive another four years of the same disastrous deregulation doctrine?  Are you frightened to learn your retirement accounts are worth half of what they once were?  Are you tired of having our foreign policy being the laughing stock of the world?  Then get out there and vote.  Call your friends and encourage them to vote.  Call your Congressman or woman and tell them enough is enough.  Let’s take back control of our country and of our future.

With all this intense focus on the upcoming election and the ongoing, unfathomable economic troubles in our country, sometimes it is good to step back and take a breath.  Find something funny to focus on . . . like our obsession with technology and our computers. . .

Here are a couple of cartoons that caught my eye. . .