Weston Real Estate Market Update December 2009

In Weston December Property sales were 8, up 33.3% from 6 in December of 2008 and 14.3% higher than the 7 sales last month. December 2009 sales were at their highest level compared to December of 2008 and 2007. December YTD sales of 83 are running – 25.2% behind last year’s year-to-date sales of 111. The Median Sales Price in December was $860,000, down -40.1% from $1,435,000 in December of 2008 and up 1.2% from $850,000 last month. The Average Sales Price in December was $922,500, down -18.0% from $1,124,333 in December of 2008 and up 16.2% from $793,857 last month. December 2009 ASP was at the lowest level compared to December of 2008 and 2007.

The Total Inventory of Properties available for sale as of December was 110, down -20.9% from 139 last month and down -12.0% from 125 in December of last year. December 2009 Inventory was at its lowest level compared with December of 2008 and 2007. A comparatively lower Monthly Supply of Inventory (MSI) is more beneficial for sellers while a higher MSI is better for buyers. The December 2009 MSI of 13.8 months was at its lowest level compared with December of 2008 and 2007.

But has the market decline reached its bottom? After a steep run-up in home prices during the first half of the decade, home values dropped precipitously back 2003 levels. The recent spat of foreclosures has created some buying opportunities for savvy buyers. Helping the market is the government’s tax credit programs for first-time buyers and for some existing home buyers who can close by June. All of this portrays a positive outlook, albeit one that is certainly conditioned on the whims of the economy. The chief concern now is the job market. With unemployment hovering around 10%, any further significant increase in that number will be detrimental to the real estate sales while any improvement will certainly fuel the buying public. If you are considering the purchase of a new home, you might consider the following:

1. Prices stabilization: Real estate values have certainly shown signs of stabilization in recent months, especially in certain areas of the country, one being our local market. On a national level, home prices dropped nearly 9 percent between the third quarter of 2008 and the third quarter of 2009 according to the S&P/Case-Shiller home price report. That’s an improvement from previous quarter comparisons. Mark Zandi, the chief economist of Moody’s Economy.com, projects home prices will hit bottom (on a national basis) in the third quarter of 2010.

2. Mortgage delinquency problems: Problems in mortgage foreclosures fall into basically two categories. First, nearly one in four homeowners now owes more on their mortgage than the property is worth. Second, any additional increase in unemployment will increase the foreclosure rates. Property value stabilization and a decline in the unemployment rate should immediately convert into a more stable home selling environment. In the interim however, the delinquency and foreclosure rate will stay at these historic levels.

3. Foreclosures move to the upscale: While we typically feel that foreclosures occur with mostly moderate to low income borrowers, that is no longer the case. Due to the disproportionate drop in value of large homes, coupled with creative financing vehicles, foreclosure rates in the high end area are expected to remain abnormally high. “We are poised in 2010 to see a surge of foreclosures from prime borrowers. Hundreds of billions of dollars in option [adjustable rate] mortgages are set to be recast” next year, says Heather Fernandez, Vice President of marketing at Trulia, a real estate search engine. Option adjustable rate mortgages allow borrowers to make lower monthly payments for an initial period, after which the payments adjust higher. For some borrowers, the new payments can be more than twice their initial payments.

4. Mortgage rates to rise: Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November, down sharply from previous year’s levels. The drop in rate was due to the Fed keeping interest rates low, plus their announcement in November of 2008 that they would purchase debt and mortgage-backed securities from Fannie Mae and Freddie Mac. Unless that program is going to be extended by the end of the first quarter and/or private investors don’t reenter the market, fixed mortgage rates will most likely increase. This is true especially as the markets must recognize the deficits the US is incurring and will have to borrow to finance its programs. This may be the most attractive time to finance a home for the next decade.

5. It’s still a Buyer’s Market: With prices still falling in some area, and with foreclosures still mounting, many homes are being placed on the market, at prices designed to move them quickly. This, along with historically low mortgage rates, is favoring those buyers who have job stability and equity. Buyers are not running out impulsively to buy a house, but do recognize that this year may represent the greatest buying opportunity for years to come. Those sellers who are not under immense pressure to sell, recognize this and will wait until the inventory begins to drop later in the year before placing their homes on the market.

6. Loan Modification Plans Backfiring: Some reports say that nearly 700,000 borrowers have been placed into temporarily restructured mortgages, in order to avoid foreclosure. However, only around 31,000 have been placed into new permanent loans. There are several reasons for the lag in this program. First, the government simply does not seem to have a fluid and organized program in place for mortgage lenders to follow. Additionally, the programs don’t cover what to do in case of job loss, only that of delinquency. Lastly, the programs don’t seem to have a way to deal with homes with negative equity, that being more is owed on the property than it is worth. Two obvious solutions to these problems would be to write down the mortgages where there is no equity and where there is job loss, convert those homeowners into renters for their existing property. Neither is an easy answer and has significant tax ramifications for the borrowers.

7. FHA underwriting tightens: While most all lenders have tightened underwriting, FHA has only recently increased their underwriting standards. When banks exited the mortgage market, FHA, which requires only a minimum down payment of 3.5%, increased its market share of new home purchases to almost 30% of the market, up significantly from 2006 levels of only around 3.0%. But, FHA has also experienced an increase in their foreclosure rate and as a result, has had to change its underwriting. New requirements have been implemented such as increasing up front cash requirements, increasing minimum credit scores and most important, charging a higher insurance premium for guarantying the loan. The net result of this is that FHA may not remain the significant player it is today and if not, banks and other sources will have to re-enter the market to support the demand for housing from those borrowers who are unable to obtain financing from traditional sources.

8. Tax Credit Program Expiring: According to data from Zillow.com, an online real-estate database company, the volume of home sales has been highest in June, July or August every year since 2000. This year, however, an $8,000 tax credit for those buying their first home–that requires buyers to have closed on a home by April 30, 2010–will force buyers to speed up their decisions.

9. Markets vary by region: As we have always said, markets vary by region and to just look at national trends can be most misleading. You should consult with a local real estate agent expert to fully understand the real trends and values of your market. Also, look for yourself in trade journals to see the local inventory and pricing. Also, spend some time on weekends visiting open houses to get a personal feel for the market.

10. List early: Most sellers believe that late spring and the summer months are the best time to put a home on the market. This is generally true as families wait until school is out before moving their children. However, this year will be different and most savvy sellers are putting their homes on the market at the earliest possible time. If, for no other reason, the unknowns in the market are so prevalent, that seller’s don’t want to risk that some new political or economic event will occur that will further dampen real estate sales.

Weston Real Estate Sales Activity - December 2009

Properties Sold	12/31/07-12/31/08	12/31/08-12/31/09	Change	Price Range	Active	Offers	Pending
Total Homes	123	96	-22.0%	$0-999k	52	5	5
Avg. Sale Price	$1,139,811	$916,906	-19.6%	$1m-1,499m	28	3	3
Median Price	$900,000	$815,000	-9.4%	$1.5m-$1,999m	23	0	0
Highest Price	$5,200,000	$2,900,000	-44.2%	$2-$2,499m	5	0	0
Lowest Price	$290,000	$172,500	-40.5%	$2.5-$2,999m	8	0	0
				$3m+	8	0	0