Berkeley, CA

Since August there's been a tangible sense that the market was getting stronger, and not just in the immediate Berkeley area. Buyers who had the financial means to buy decided, finally, to get off the fence. Properties that had been sitting for some time went into contract as a result. We also began to see significantly more all-cash sales, and in higher price ranges. Two of the properties for which I had buyers recently had competition from all-cash buyers at the $1.0 - 1.4M range.

So far this year only one of my buyers has been fortunate enough to get their desired property without competition. For most buyers we're still writing three or four offers before getting into contract, and those are also the number of offers we usually face as competition. Whereas before three offers could take a property more than $100K over list, within the past month we saw cash offers being accepted at or just over list, trumping offers at substantially higher prices, but with greater risk.

Other key features of our East Bay market: inventory has been low all year, about half of "normal." This year in Berkeley, the number of properties sold per month went from a low of 15 in January, to a high of 53 in April. Each sale represents an opportunity for two agents to be involved in a transaction. Through October, there have been a total of 345 sales this year, representing 690 sides, providing roughly one transaction per member of the Berkeley Association of REALTORS®!

We've seen few distressed properties so far, but expect to see more by the middle of next year. Properties stay on the market about a month on average, significantly less time than in other markets.

Here are the numbers for BERKELEY for the month of October, 2009:

Median Sales Price: $695K

Median List Price : $715K

#homes for sale: 157 #homes sold: 36 Avg.Days on market: 24

That's my snapshot of our current diverse market behavior in Berkeley, CA. I'm going to ask Santa for some more houses to list!

Berkeley real estate market is nearly unchanged when compared with the frenetic activity in the surrounding cities.

For the statisticians and other folks who prefer graphs to see what's going on a specific market, here's a snapshot of what it looks like in Berkeley CA, comparing the market the past two years, starting in October 2007 - October 2009.

People will see different things and interpret this information in different ways --- I guess it depends on what you want to see or what you hope will happen.

in the meantime, here's what the data is SHOWING us.

MONTHS SUPPLY OF INVENTORY I like starting with the months supply of inventory. When there are more buyers than there are sellers, it means that it's a seller's market. The higher the months inventory, the more it becomes a seller's market. Traditonally, if the the months inventory is more than six months, it's a buyer's market, and vice versa.

In Berkeley the months' inventory was 2.6 in October 2007, and 1.6 in October 2009. This difference is almost insignificant --- but it is an amazing picture to show the movement in the Berkeley market. The inventory levels mirrors the activity in other cities in the East Bay.

UNDER CONTRACT Homes under contract peaked in

• • June 2008 (68 in contract),
  • April 2009 (66)
  • October 2009 (65)

Fewest contracts were recorded in January 2008.That would have been a time when a buyer would have had more negotiating power.

MEDIAN PRICE The median price was the lowest in March 2009 and bounced back in April. Prices increased again. Although not at the peak recorded in June 2008 when median price was a $640K, October 2009's median price is close enough at $696K

SUPPLY AND DEMAND Here's a good way to correlate number of properties sold (demand) with number of properties for sale (supply). This chart shows almost no change. Demand is nearly flat.

DAYS ON MARKET So, how long do the Berkeley properties stay on the market before they have accepted offers? With the exception of December 2008 where the average daays on market peaked to over 90 days, the average days on market is steady at between 30-40 days.

Good for the sellers and their agents! While buyers and their agents are on notice that they should be fleet of foot when searching for property and when strategizing on their offers.


So...what are these graphs telling you?

Given the terrible state of the economy and the real estate markets – and given the large number of subprime residential loans made during past years – many borrowers are looking for loan modifications as an alternative to foreclosure. Unfortunately, at least at this point there is not much that can be done for many homeowners, although this area is in flux and additional government and lender programs may become available.

Obviously there is no point paying for loan modification work unless there is a good chance to modify the loan. (Where there isn't a good chance of modification, unfortunately there are limited options, such as bankruptcy, giving the lender a deed in lieu of foreclosure, possibly finding someone to arrange a short sale of the property or walking away from the property, although all of these have drawbacks.) This article discusses what we believe makes a homeowner a good candidate for loan modification. Other attorneys may have different opinions. Our opinion also is that, because of the cost, litigation with the lender is not an option for most homeowners. Finally, this article is directed at California borrowers; each state has its own real-estate laws.

For an owner to be a good candidate for loan modification, the property must be the owner's principal residence – and not a vacation home or second home. While there are exceptions, in general most lenders are not modifying loans on vacation homes or second homes.

Also, while Notices of Default alone are OK, no foreclosure sale should be set yet. Many lenders write off the loans when they set a foreclosure sale and therefore become very hard to work with respect to loan modifications.

If the loan has been modified previously, it probably cannot be modified again (although there are some exceptions if there is no waiver of rights in the prior loan modification and other conditions are met).

Neither spouse may be out of work or expected to lose their job in the near term (unless the unemployed spouse's income was not used to get the loan, which is unlikely).

Often no decrease in the interest rate is possible if the loan is already at a fixed rate of 6% or less, although a longer loan-term (an increase in the amortization term) may be possible.

In addition, for an owner to be a good candidate at least one of the following must be present:

• The current value of the home must be less than the loan against it.
• There must be an upcoming or relatively recent interest-rate increase or a recalculation (recasting) of the loan causing higher monthly payments.
• There is past hardship (death of spouse, loss of job, sickness, etc.) that has been resolved.
• There is a substantial lending violation, for example, a violation of the Truth-In-Lending law or RESPA. (This is usually not something an owner can determine.)

Further, after modification, the borrower must have no more than an 80% debt to income ratio (for example, $100,000 annual income and $80,000 in annual debt payments). It's possible to run trial figures using a fixed 6% rate for 30 years and an online mortgage calculator. One place that mortgage calculators are available are at http://www.mortgage-net.com/calculators/.

If a loan modification occurs it usually is in the form of a decrease in the interest rate. At times, it may be possible to also extend the term of the loan from 30 to 40 years, but this depends on the lender. Owners should realize that reductions in the principal of the loan are very rare. Certainly if there is any equity in the property a principal reduction is not possible. Sometimes a principal reduction is possible if a spouse has died or there is a major (far beyond the usual) lending violation. Even then, often the value of the property must so much less than the balance owed that there is no reason for the owner not to walk away.

An owner who seems to be a good candidate for loan modification should try to find an attorney or loan modification company who will make a more thorough review of the loan documents, etc. and give an opinion about the chances for loan modification (although there will usually be a charge for that) before committing to a full agreement for loan modification services.

I recently was on the listing side of two wonderful, "very Berkeley" Arts & Crafts homes in North Berkeley. Neither of them had classic floor plans, but both had tremendous amounts of original wood and exceptional period details, multiple fireplaces, updated kitchens and larger than normal lot sizes. In both cases I was successful in getting our local paper to feature these homes in the Real Estate sections during their marketing period. That special marketing, an individual website for each property with lots of photos, plus my marketing to a specialized group of Arts & Crafts and period home enthusiasts, resulted in huge attendance at my open houses.

One was priced well IMHO, based on the comments I received from agents (though numerous buyers thought it was priced too high). The sellers had followed my advice on price, as well as on presentation. The property was vacant and staged in a manner that fit the home. This home also had spectacular views, both of Mt. Tam and Marin as well as a direct view of SF. We received four offers, and it closed $150K above list price.

The second home was priced a wee bit high, again IMHO. That price was driven by the financial situation of the sellers. They also continued to live in the home, but did pack away many of their possessions. Though I welcomed more than 300 people during two Sunday open homes, that property received two offers, and went just $25K above list. Interestingly, that property closed yesterday at $1.425M, in an ALL CASH sale. Until quite recently it would have been rare indeed to see cash sales at such a high amount. But as jumbo loans become more difficult to acquire, especially in a timely fashion, we've seen more cash sales in Berkeley in the high end.

One obviously cannot determine a trend from just these two examples. But from my experience of living and working in North Berkeley for many years I know that the differences in behavior were somewhat predictable. Now more than ever, buyers are very sensitive to prices that they perceive to be too high, even if by only a small percentage. They also are intolerant now of deferred maintenance or even a lack of updating that they feel is necessary. Two or three years ago buyers were much more forgiving of these aspects. Buyers have read so many stories about it's being a buyers' market, and they want it to be so. In North Berkeley right now, the special properties are still very much in demand, and the inventory of such properties is low. As I write this, there is one new listing at just over $2M, and five listings at $1.2M or higher that have been on the market for at least three weeks. What a great opportunity for brave sellers who are willing to trust their agents and the data, rather than listening to the prevaling news of doom and gloom!

Ask my high-end buyers -- those who plan to spend more than $1.2M on their home purchase -- and they will undoubtedly comment about two problems, both of which have gotten only worse as the year has progressed.

1. Limited inventory. Berkeley's residential inventory has been roughly half of what existed in 2008. In properties listed at $1.2M and above, inventory during the past 12 months is down 12% from the previous 12 months. Interestingly though, median price has changed very little. Median price for the $1.2M and above sector in Berkeley in June 2007 was $1.389M. In June 2008 median price for this sector was $1.35M, with 75 sales in that range during the past 12 months. Median price this June was actually up slightly to $1.4075M, but with only 45 sales in that range during the past year.

Just looking at the numbers however does not fully capture the sense of the market. As a Past President of my Association of Realtors, and an active member of several committees, I have the opportunity to speak with numerous agents each week from different brokerages. Repeatedly I hear agents mention the "really good properties." Those are the ones priced appropriately, marketed actively and presented attractively. If they're also well-located they have the golden combination of factors that is very likely to result in multiple offers. Even now, even with the difficulties we are all facing in this tough economy, the "really good" properties may close significantly over list price.

A listing I had a few months ago received four offers and closed $150K over list. That was lovely for my sellers, but it was not really newsworthy in Berkeley. Yesterday another listing closed just a bit above list, having received two offers. Again, no big deal here, except that it was an all-cash sale. At a selling price of $1.425M, that's a great deal of cash! Which leads to the second problem we're experiencing at the high end. . .

2. Difficulties in securing true jumbo loans. There's no question that qualifying for a loan over $729,750 is more difficult than it was a year ago. Rates on jumbo mortgages historically have been higher than rates on conforming loans. While jumbo loans still are available, they often come with stricker, if not absurd, underwriting requirements. Prior to the credit freeze, borrowers of jumbo mortgages could qualify for loans with a 5 percent down payment, credit scores of 620 and enough money in the bank to cover two months of payments. Now, borrowers typically must have six months' reserves, a 700+ credit score, and a down payment of at least 20 percent. More and more we hear of lenders requiring 25% or even 30%. Any irregularities in a borrower's credit or employment history can lead to delays, and sometimes denial of a loan. And communication with lenders has become frustrating in the extreme as banks become increasingly skittish about their own futures. The situation is a bit better now than it was a few months ago, when it seemed no one wanted to lend the money at all. Now they will, but the hurdles are higher.

Given the difficulties of not just getting loan approval in the jumbo range, but actually funding those loans, an unprecedented number of buyers have chosen to avoid the loan process all together and pay cash.

But there's money out there to be lent. So sellers, if you have one of those "really good" houses, this is actually a great time to sell in Berkeley. There is little competition. I myself have three sets of buyers just waiting for the gracious, spacious homes that would accommodate a family, and perhaps a visiting grand parent. Four bedroom, three bath homes are especially in demand. If any sellers are listening, I'd love to speak with you! Your home will be given a very welcome reception in this market!