Take a look at this recent article by University of Chicago economics professor, Austan Goolsbee. It originally ran in the New York Times. Mr. Goolsbee highlights an obvious but often ignored fact of residential real estate sales: a house is only worth what someone will pay you for it. Home values are governed by supply and demand just like any other product or commodity. But unlike wheat, widgets, and washing machines, homes are repositories of personal memory and emotion, neither of which have much if anything to do with market value. When farmers grow too much wheat, they lower their prices to stay competitive. Yet somehow, when there are too many homes for sale, sellers often prefer to price their homes for what they wish they were worth, not what the market will bear. This creates a glut of inventory in the marketplace, as buyers and sellers stare at one another across an ever-widening gap, each unwilling to accept the other's assessment of value. It is this gap that accounts for the gloomy sales statistics you've been reading in the newspapers lately. When buyers and sellers are so far apart, there's no room for negotiation and the market becomes stagnant.
So what's the lesson? If you're not ready to accept your home's true market value, then you're not really ready to sell. And that's okay, assuming you don't really need to. But if selling your house is a priority, take a tip from the farmers. Be realistic about what the market will bear and price accordingly.
Monday, October 29, 2007
Friday, October 19, 2007
August Mortgage Woes Come Home To Roost
The newspapers finally confirmed what we all already knew. Real Estate sales are way down, even in Marin and San Francisco. In the Bay Area, September '07 sales were down nearly 45% from September '06. San Francisco and Marin fared slightly better with drops of 30% and 24% respectively.
Why was September such a nightmare of a month? Because August was when the mortgage crisis hit its peak and most real estate transactions take 30 days or more to close. Thus, every buyer who couldn't get a loan in August became a house that didn't sell in September.
Take a look at these articles in the SF Chronicle and Marin IJ for more details on the slowdown.
The upshot? The next several months are shaping up as a spectacular time to buy real estate. For the first time in years, there are real bargains available. At Next Generation Real Estate, we are looking at Sonoma County (especially south of Santa Rosa) as a particularly intriguing market. Sales and prices are well off their over-valued highs from 2005-2006. But our hunch is that this market will recover more quickly than some other hard hit counties. We're always happy to discuss our thoughts on where opportunities lie. Call us any time.
Why was September such a nightmare of a month? Because August was when the mortgage crisis hit its peak and most real estate transactions take 30 days or more to close. Thus, every buyer who couldn't get a loan in August became a house that didn't sell in September.
Take a look at these articles in the SF Chronicle and Marin IJ for more details on the slowdown.
The upshot? The next several months are shaping up as a spectacular time to buy real estate. For the first time in years, there are real bargains available. At Next Generation Real Estate, we are looking at Sonoma County (especially south of Santa Rosa) as a particularly intriguing market. Sales and prices are well off their over-valued highs from 2005-2006. But our hunch is that this market will recover more quickly than some other hard hit counties. We're always happy to discuss our thoughts on where opportunities lie. Call us any time.
Wednesday, October 17, 2007
Prop 60 & Prop 90
If you're over 55 (or getting close) and you own real estate in California, Proposition 60 and Proposition 90 are possibly the two most important pieces of legislation you may have never heard of.
In 1978, with the passage of Proposition 13, California placed limitations on property taxes. Ever since, property taxes have been based on purchase price with increases capped at 2% per year, regardless of how much a property's value actually increases. As a result, many longtime Bay Area residents own homes that are now worth $1,000,000 or more, but are taxed at a substantially lower assessed value.
This reduced tax burden, for so many years a boon to homeowners, can act as "golden handcuffs" as homeowners reach retirement age. Why? Because when longtime homeowners downsize they find that their property taxes do exactly the opposite. Here's a common scenario:
Paul & Judy buy a house in Mill Valley in 1980 for $200,000.
In 2007, their house is worth $1,200,000 but they are still paying only $3000 a year in property taxes.
Paul & Judy's kids are grown, they've retired, and they want to sell their house and buy a waterfront condo for $900,000.
By downsizing, they hope to minimize housing costs as part of their retirement plan.
Unfortunately, the property taxes on their new condo will be $11,250 a year.
Paul & Judy say goodbye to their retirement plan.
It is to address just such a scenario that Proposition 60 was passed in 1986. Prop 60 allows Paul & Judy to transfer their property tax basis to their new condo. Of course, there are restrictions. They must move within the same county. They must be over 55. They must buy down in price (with some exceptions). They can only do it once. And more...
What if Paul & Judy want to leave Marin County? Enter Prop 90. This is a county-by-county "opt in" law that allows the same people who meet Prop 60 criteria to transfer their tax basis across county lines. Currently the following counties participate in Prop 90: Ventura, Los Angeles, San Diego, Santa Clara, Alameda, Orange, and San Mateo.
In 1978, with the passage of Proposition 13, California placed limitations on property taxes. Ever since, property taxes have been based on purchase price with increases capped at 2% per year, regardless of how much a property's value actually increases. As a result, many longtime Bay Area residents own homes that are now worth $1,000,000 or more, but are taxed at a substantially lower assessed value.
This reduced tax burden, for so many years a boon to homeowners, can act as "golden handcuffs" as homeowners reach retirement age. Why? Because when longtime homeowners downsize they find that their property taxes do exactly the opposite. Here's a common scenario:
Paul & Judy buy a house in Mill Valley in 1980 for $200,000.
In 2007, their house is worth $1,200,000 but they are still paying only $3000 a year in property taxes.
Paul & Judy's kids are grown, they've retired, and they want to sell their house and buy a waterfront condo for $900,000.
By downsizing, they hope to minimize housing costs as part of their retirement plan.
Unfortunately, the property taxes on their new condo will be $11,250 a year.
Paul & Judy say goodbye to their retirement plan.
It is to address just such a scenario that Proposition 60 was passed in 1986. Prop 60 allows Paul & Judy to transfer their property tax basis to their new condo. Of course, there are restrictions. They must move within the same county. They must be over 55. They must buy down in price (with some exceptions). They can only do it once. And more...
What if Paul & Judy want to leave Marin County? Enter Prop 90. This is a county-by-county "opt in" law that allows the same people who meet Prop 60 criteria to transfer their tax basis across county lines. Currently the following counties participate in Prop 90: Ventura, Los Angeles, San Diego, Santa Clara, Alameda, Orange, and San Mateo.
If you or anyone you know is 55 or older and considering selling their home, please look at this very helpful Q&A. (We've also added a permanent link to the link list on the right side of the page.) Then give Next Generation Real Estate a call. We're always here to answer your questions.
Monday, October 15, 2007
Property Tax Reduction (seriously)
As you might know, property taxes are "ad valorem" taxes. Ad valorem is Latin for "according to the value." As you also know, thanks to the golden handcuffs of Prop 13, many longtime owners of California real estate are paying property taxes that have little or nothing to do with the current valorem of their property. Thanks to a 2% cap on annual property tax increases, many Californians have watched the market value of their homes rise much faster and higher than the assessed value. Until now...
For the first time in a long time, some recent home buyers are seeing the assessed value of their homes outpace the market value. In fact, in some areas, they're going in opposite directions. Fortunately, there is a provision, called Prop 8, which allows these recent home buyers to appeal the assessed value of their home if they believe that it is inaccurate. Check out this article in Sunday's Chronicle for more details. Even if it doesn't affect you, you may know someone who could benefit from this information. Pass it on.
For the first time in a long time, some recent home buyers are seeing the assessed value of their homes outpace the market value. In fact, in some areas, they're going in opposite directions. Fortunately, there is a provision, called Prop 8, which allows these recent home buyers to appeal the assessed value of their home if they believe that it is inaccurate. Check out this article in Sunday's Chronicle for more details. Even if it doesn't affect you, you may know someone who could benefit from this information. Pass it on.
Friday, October 12, 2007
Front Page. Back Loaded.
We're sure many of you caught the front page headline in the Chronicle on October 11th. "State's Housing Market Agony Predicted to Deepen Next Year," it read. At Next Generation Real Estate, we agree. Statewide, the picture isn't pretty (unless you're a buyer with good credit, cash on hand, and a long term investment strategy, that is). And it doesn't look likely to improve right away. (Of course, headlines that include the word "agony" don't exactly soothe shattered confidence.)
But as we're always saying, do yourself a favor and read the entire article. Note the passage that says, "The median price for the state is expected to edge up 3.5 percent for this year." What?!? Huh?!? Why would prices go up when sales go down? Indeed, as the article points out, it's the lower end of the market that's really struggling. In fact, properties at higher price points are actually selling reasonably well and accounting for the uptick in median price. And guess where many of those high-end properties are located. Right here in San Francisco and Marin. Maybe you even own one.
As we're also always saying, you can't draw conclusions about a local market based on broader regional or national trends. Ask a Realtor (we know a couple good ones) how your local market is doing before you decide it's in the tank.
Of course, even Marin and San Francisco have come back to earth from their dizzying heights. "What goes up..." and all that. But looked at under a clearer lens, both local markets offer a prettier picture than you might expect.
If you'd like an in depth market analysis of your home or neighborhood, don't hesitate to get in touch.
But as we're always saying, do yourself a favor and read the entire article. Note the passage that says, "The median price for the state is expected to edge up 3.5 percent for this year." What?!? Huh?!? Why would prices go up when sales go down? Indeed, as the article points out, it's the lower end of the market that's really struggling. In fact, properties at higher price points are actually selling reasonably well and accounting for the uptick in median price. And guess where many of those high-end properties are located. Right here in San Francisco and Marin. Maybe you even own one.
As we're also always saying, you can't draw conclusions about a local market based on broader regional or national trends. Ask a Realtor (we know a couple good ones) how your local market is doing before you decide it's in the tank.
Of course, even Marin and San Francisco have come back to earth from their dizzying heights. "What goes up..." and all that. But looked at under a clearer lens, both local markets offer a prettier picture than you might expect.
If you'd like an in depth market analysis of your home or neighborhood, don't hesitate to get in touch.
Tuesday, October 2, 2007
TICs and Condo Conversion
Another quick one for our City readers. Many people want to know about the rules governing Tenancy In Common (TIC) and condo conversions in San Francisco. Despite the risks associated with them, TICs have become a surprisingly common way for first-time buyers to crack the high-priced SF market. Their increase in popularity has, naturally, resulted in a decrease in the gap between TIC and Condo prices. If you'd like to learn a little about the history of TICs or the implications converting TICs into condominiums, please contact Next Generation Real Estate at 415.717.0766 or NextGeneration@pacunion.com.
In the meantime, two websites offer invaluable information on this subject. In our opinion, no one should purchase a TIC unit without first reading every word of the condo conversion information page at sfgov.org. Perhaps even more important is a thorough reading of Andy Sirkin's website. Mr. Sirkin is a San Francisco attorney and the preeminent authority on TICs. Links to these websites will have a permanent home in the link list on the right side of this page.
In the meantime, two websites offer invaluable information on this subject. In our opinion, no one should purchase a TIC unit without first reading every word of the condo conversion information page at sfgov.org. Perhaps even more important is a thorough reading of Andy Sirkin's website. Mr. Sirkin is a San Francisco attorney and the preeminent authority on TICs. Links to these websites will have a permanent home in the link list on the right side of this page.
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