Why Now May Be a Good Time to Move up to a Larger Home

You’re beginning to feel a little cramped in that starter home that looked so perfect several years ago. There just aren’t enough bedrooms anymore, or adequate storage space, or a big enough back yard for the kids and the dog to play. Or maybe there is another one on the way – a baby, not a dog!

Many residents are facing a similar dilemma these days. While that tiny bungalow made perfect sense back when you bought it, you are quickly realizing that you have long since outgrown your home. The logical answer would be to move up to a larger property,
but many homeowners fear that the soft housing market would make buying that dream home difficult if not impossible.

Surprisingly this may actually be a great time to move up – precisely because of the housing slowdown. Yes, home sales and prices have been sluggish for the past couple of years. And chances are that your home isn’t worth what it was at the peak of the market two or three years ago. But savvy homeowners are beginning to discover that the math actually works in their favor when they move up to a more expensive property.

It’s true that you probably won’t get every dollar you would like when you sell your existing home. Depending on the price range and location there may be a larger than normal inventory of properties on the market and fewer qualified buyers. So, of course, prices need to be competitive in order to sell. Valuations have dipped in many communities, in some cases back to levels of six or seven years ago.

Now for the good news: That larger, more expensive home that you’ve had your eye on has probably dropped even more – in some cases, much more – than your current home. So the difference between your existing home and the next one is probably much less of a step up than you might have imagined. And if you’ve been in your home for more than just the past few years, there’s the possibility that you’ve built up equity that could be used to buy a larger home.

Plus those individuals who are in starter homes are finding that thanks to the $8,000 first time home buyer credit there is increasing demand for homes like yours. As such, homes at this price point are selling more quickly, sometimes with multiple offers.

Walter Maloney with the National Association of Realtors said it’s important for homeowners to do the math. “Obviously, if you’re selling for less than you could have gotten two years ago, you’re disappointed, but you really need to look at your bottom line,” he said. “If you’re trying to trade up, whatever you’re going to trade up to is going to sell at a discount, too. You need to look at your net.”

Let’s look at the example used in an April 23, 2009 MSNBC article entitled Math smiles on move-up buyers. The article reported, “Chris and Lori Kristen got $20,000 less than they might have in 2007 when they sold their Seattle condo earlier this year, but they purchased this suburban home for $425,000--$86,000 less than the home’s peak value.”

The article went on to report, “Their mood brightened when they began shopping in the spacious neighborhoods of this suburb northeast of Seattle and found a 3,000-square-foot, four-bedroom split-level on a half-acre of towering fir trees that they wound up buying for $425,000. That’s $86,000 less than the $511,000 peak value placed on the home by real estate Web site Zillow.com, $64,000 below the original asking price of $489,000 and even well below the final asking price of $438,000.”

Getting into a larger home isn’t the only reason consumers typically think about moving up. Others consider “trading spaces” because of job relocations or a desire to get into a certain neighborhood or simply because they’ve been pining after that dream home. While the savings on the purchase price of a larger home is a benefit, there are a number of other reasons why the soft housing market may work in your favor right now:

• Strong buyer’s market at upper-end. There just is not as much competition for more expensive homes as there is in the entry level market. Much of the home sales this year have been low-priced and distressed properties. “This year’s peak home buying season is suffering from the absence of move-up buyers,” said Jim Gillespie, chief executive officer of Coldwell Banker Real Estate Corporation. Less competition can mean lower prices and greater bargaining power for those individuals who can afford to make the jump.

• Mortgage rates are still near historic lows. Traditionally, low interest rates make homes more affordable. While it is easy to lament the recent decline in your existing home’s value, interest
rates may play an even greater role in how much home you may be able to afford when it comes time to moving up. According
to Brendon Riordan of Princeton Capital, a one-percent hike in interest rates can increase monthly mortgage payments just as much as a 10 percent increase in price. He went on to note: “With 30-year fixed rate mortgage hovering in the low 5 percent range, buyers may be able to stretch their housing dollars further than they think.”

• Record affordability. According to the National Association of Home Builders August 19, 2009 article entitled Housing Affordability
Continues to Hover Near Highest Level in 18 Years, “Bolstered by affordable interest rates and low prices, nationwide housing affordability during the second quarter of 2009 continued to hover near its highest level since the series began 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.” The article went on to report, “The HOI showed that 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, down only slightly from the record-high 72.5 percent during the previous quarter and up from 55.0 percent during the second quarter of 2009.”

• Entry level homes are in greater demand. The hottest segment of the housing market this year has been the low-end. In some cases, there are multiple offers for the best properties. Adding to the demand is the $8,000 federal tax credit for first-time buyers that’s due to expire before the end of the year. So while you may have outgrown that little bungalow, there are lots of potential buyers who would be interested in moving in when you’re ready to trade up.

• Housing market showing signs of improvement. While no one can say for sure whether we’ve bottomed out, there have been many encouraging signs in recent months that the housing market is stabilizing and perhaps turning the corner. In its August 21, 2009 report entitled Strong Gains in Existing-Home Sales Maintain Uptrend, the National Association of Realtors reported, “For the first time in five years, existing home-sales have increased for four months in a row, according to the National Association of Realtors®.” The article went on to report “Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004 and the last time sales were higher than a year earlier was November 2005.” It may be a good idea to think about trading up while it’s still a buyer’s market.

Making the decision to move up to a larger home is just the beginning, of course. There are a myriad of issues that go into selling your existing home and getting into that larger move-up property. That’s where a professional Realtor can help. Working with a seasoned agent who knows your market may be the best move you’ve ever made!

"ENERGY AND PERSISTENCE CONQUER ALL THINGS." Benjamin Franklin.

And indeed, Bonds and home loan rates definitely showed some serious energy and persistence this week, despite some serious headwinds, including additional supply flooding the market from this week's big Treasury auctions.

The Treasury unloaded an enormous supply of paper onto the markets this week...and remember, anytime there is more supply than demand, it means prices will naturally decline. And when Bonds are concerned, when prices decline, home loan rates go up. The heavy supply hitting the market caused some wild volatility for rates midweek, but overall home loan rates managed to find some improvement by the end of the week. However, it won't be long before another enormous supply of Treasuries comes on the market. In just two weeks, we'll be looking at a fresh round of auctions...and the size of those auctions will be announced on August 5th. This announcement date of August 5th, and the following week's auction dates of the 11th, 12th and 13th will probably have high volatility and provide a headwind for Bonds. It used to be that the dates of economic news would be circled on the calendar as the ones to watch for greater movement in Bond prices...but right now, the supply issue has become so important that it now may be the most dominant current factor in Bond pricing and home loan rates.

In other news, Advanced Gross Domestic Product (GDP) for the 2nd Quarter came in better than expected, while the 1st Quarter GDP was revised lower. GDP measures the total market value of all final goods and services produced in a country in a given year. Overall, GDP has fallen four quarters in a row for the first time since government records started in 1947. The report also showed consumer spending is down, as consumer savings increased to the highest level since 1998.

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Chart: Gross Domestic Product

However, there are continuing signs that the economy is stabilizing. First, the widely looked at Case/Shiller Home Price Index for May showed that home price declines in the 20 largest US cities appear to be moderating. This most recent report was the best reading in nearly twelve months, and the first month-over-month improvement in three years. Combining this report with the last few months improved Existing and New Home Sales Reports gives us reason to be more optimistic on housing, and a reason to feel that home prices are nearing a bottom for most of the country.

THIS MAY PRESENT A GREAT TIME TO PURCHASE A HOME, BUT BE AWARE THAT INFLATION WILL DEFINITELY PLAY A BIG ROLE IN THE DIRECTION OF HOME LOAN RATES...TO LEARN MORE, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW.

Look who's getting fancy with the graphs.....

IT'S THE THOUGHT THAT COUNTS...OR IS IT? As we look back at last week, think about this for starters - the housing industry received some welcome good news, as Existing Home Sales came in better than anticipated, and marking the third straight month that Existing Home Sales have increased. And perhaps even better, the supply of unsold homes on the market dropped from the prior reading of 9.8 months down to 9.4 months - which is the best level seen in over a year. With home loan rates still at low levels and homes priced to sell - this is a great time for potential homebuyers to stop thinking, and go ahead and take some action.

Despite that bright spot of news, last week's Consumer Sentiment report - which measures consumers' attitudes and expectations concerning both present and future economic conditions - showed that consumers still think the economy has a ways to go, as the report did come in a bit weaker than anticipated. According to the report last week, Consumer Sentiment came in at 66 for the month of July, down from June's reading of 70.8. Take a look at the chart below for an interesting historical perspective on this report.

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Chart: Consumer Sentiment (University of Michigan)

And one of the major reasons for the decline in Consumer Sentiment was ongoing concern over unemployment - and last week, Initial Jobless Claims reportedly rose by 554,000. While this number was high, it was essentially in-line with expectations of 557,000.

The big news that many headlines featured was the number of Continuing Claims, which fell from 6.31 million the prior week to 6.22 million. And although this drop was reported as positive news, we need to remember that a large number of people are still unable to find jobs, but are no longer being counted in Continuing Claims because their unemployment benefits have expired. The bottom line is that it will be hard for the economy to really turn higher with momentum until the labor market starts to turn around.

Stocks had a good week, with the Dow closing above 9,000 on Thursday for the first time since January 6th, as well as finishing the week with its strongest two-week span for blue chips since 2000. Since Stocks moving higher can drain money away from Bonds, the rally in Stocks - combined with the announcement of next week's Treasury's auction of $115 Billion in Notes - put selling pressure on Bonds toward the end of the week. Despite some volatile mid-week action, home loan rates closed out the week near the level where they had begun the week.

After a heavy dose of corporate earnings reports for the past few weeks, the week ahead will hold quite a few economic reports for traders to chew on. This week starts off with a report on New Home Sales, which is expected to rise modestly from June's reading of 342,000 to 355,000. Particularly following last week's decent Existing Home Sales Report - this will be one to watch closely. Production and manufacturing will also be big headlines in the news this week. Durable Goods Orders, which is considered a leading indicator of manufacturing activity, could move the market mid-week - while Gross Domestic Product (GDP), which measures the total production and consumption of goods and services in the US, is due at the end of the week. The GDP read is expected to come in at -1.5% for the second quarter, which would mark an improvement over the previous quarter's reading of -5.5%. The Chicago Purchasing Managers Index is also due out at the end of the week, and although this report only surveys 200 purchasing managers in the Chicago area, it's used by traders to help predict the more important national Institute of Supply Managers Report, which is a leading indicator of economic health. The Employment Cost Index rounds out the week, which gives an indication of total labor costs - and it has the potential to move the markets if it doesn't come in close to last quarter's reading of 0.3%. What industry experts are really looking for in this report are wage trends that indicate wage inflation and price pressures...and given the continued weakness in the labor market combined with fears of future inflation, you can bet Traders will be keyed in on this report. Finally, the markets may be impacted by the Treasury Department's auction of $115 Billion in Notes this week. This auction was just announced last week and will be held in addition to the $90 Billion worth of T-Bills that are usually auctioned on a weekly basis. Just the announcement of the auction weighed on the entire Bond market last week, and could continue to be a factor this week depending on how well the additional supply hitting the market is received. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bonds traded higher early last week, but were pushed lower last Thursday after the Treasury announced a record $115 Billion in auctions. Chart: Fannie Mae 4.5% Mortgage Bond (Friday Jul 24, 2009)

INFLATION, ALL WE NEVER WANTED...!

Or so the Go-Go's song "Vacation - All I Ever Wanted" could have been re-written this week, as whispers and glimmers of future inflation as well as some positive economic news roiled the Bond market. Overall, home loan rates worsened by about .25% across the board.

Inflation at both the wholesale and consumer level came in hotter than expected via the Producer Price Index (PPI) and Consumer Price Index (CPI) reports, the latter shown in the chart below. The Consumer Price Index (CPI) rose by more than expected, and was the biggest increase in a year, mostly due to higher gasoline prices.

However, a look back over the past year shows a drop in overall CPI of 1.4%...why is this? It was a year ago that a barrel of oil was $147, and today that barrel stands at $60, up from the $30 range seen earlier this year. But even when stripping out food and energy, the most recent Core CPI rose 0.2%, higher than the 0.1% anticipated - and year-over-year, Core CPI prices were up 1.7% after rising 1.8% in the 12 months ended in May. On the wholesale side, even excluding volatile food and fuel prices, Core PPI rose quite a bit more than anticipated as well. And remember, inflation is bad for Bonds and home loan rates. If this trend continues, it could have a big impact on rates later this year.

Bay Area Home Sales Rise Again

The number of homes sold in the Bay Area in April was higher than a year ago for the eighth month in a row while the median price fell 41.3 percent to $304,000 as bargainpriced foreclosures continue to dominate the market.

While the median prices is down significantly from a year ago, it edged up slightly on a month-to-month basis for the first time in almost two years, said the report released Thursday by MDA DataQuick Information Systems.

In April, a total of 7,139 new and resale houses and condominiums closed escrow in the Bay Area, a 12.9 percent increase from March and a 13.1 percent gain from March 2008. The 13.1 percent year-to-year gain for home sales is significantly smaller than the 29.1 percent year-toyear gain reported for March home sales.

Last month's median price was 4.8 percent higher than in March, the first time there was a month-to-month gain since October 2007, when the median price increased 1
percent from September 2007.

From March to February and from March to April, the median sales price reflected a 1.7 percent drop, compared to an average month-to-month decline of almost 5 percent in the 12 months ending in January 2009.

"When you see units up and prices going up it points toward stabilization and it's very encouraging," said Rick Turley, president of Coldwell Banker Residential Brokerage in the Bay Area.

A lower concentration of discounted foreclosure resales helps explain why the median sales price has begun to stabilize, the DataQuick report said.

That said, Turley and other real estate observers expect more foreclosures to come onto the market in the coming months now that temporary foreclosure moratoriums have ended. More foreclosures could drag down median prices, which is the point at which half of homes sell for more and half sell for less.

In April, 47.4 percent of existing home sales in the Bay Area involved properties that had been foreclosed upon at some point in the last 12 months, compared to 50.2 percent in March and 52 percent in February.

Turley pointed out that the recent slowdown in foreclosure sales is likely the result of foreclosure moratoriums that were in place until the end of March. Now that the moratoriums have been lifted, expect to see more foreclosed properties to be put on the market, he said.

"We will see more. They are being released more. There was a buildup," he said.

As far as April home sales that closed, Turley said the low-end market is the strongest in the Bay Area.

"We are seeing that the lower-end market is really on fire," he said. "Multiple offers are being made on the low-end of the market due to lots of well-priced distressed properties and historically low interest rates."

As far as higher-priced properties go, Turley said he is seeing pending sales activity for homes in wealthy areas of the Peninsula such as Portola Valley, Atherton and Hillsborough. In the East Bay, Orinda, Danville and Montclair are also seeing pending sales activity for high end properties.

"For the past few months we've seen faint but growing signs that would normally suggest many markets are nearing price stabilization. But we'll need to see those vital signs continue to strengthen into the fall. Job losses and historically high foreclosures levels continue to pose serious threats to housing stability," DataQuick President John Walsh said in a statement.

Inventory levels are tightening up in markets such as Brentwood, Livermore, Walnut Creek and Pleasant Hill, where the median sales price is in the range of $400,000 to $500,000, said Jeff Sposito, president of J.Rockcliff Realtors, an East Bay real estate brokerage. Inventory levels are a measure of the time it would take for homes to be sold in a particular area.

Back in November, inventory levels in those cities ranged from 12 to 14 months whereas now they are in the four to five-month range, Sposito said.

Steve Dhillon, a Realtor with the Fremont office of RE Realty Experts, said inventory levels are down compared to few months ago. Lower inventory helps explains recent price stabilization, he said.

In January, there were 130 foreclosed homes for sale in the Tri-City area of Fremont, Union City, Newark. In April, that number was 85.

"Inventory is low and what I'm also finding is more buyers are entering the market" to take advantage of lower interest rates, low home prices and tax credits for buying homes, he said. "In a year or so, people will look back and think that was a great time to buy," Dhillon said.

By Eve Mitchell Staff Writer Bay Area News Group
Source: Contra Costa Times, May 21, 2009