San Diego Real Estate Market Outlook

The area is showing traditional trends in declining sales, inventory and pending sales for the fall season. October sales decreased by 26 percent in October 2008 and 2009 and declined in the month of September 4 percent for both years. Pending sales stayed about the same around 2600 for the last few months with October sales declining 8 percent from the previous year in October. Double-digit sale declines were seen all across San Diego County but two coastal regions show the smallest declines, which were around thirteen percent.

After the tax rebate program came to an end in April, the real estate market is a bit softer, even though it was thought that since current interest rates are as low as they were in the 1950’s, the trend would be quite different with demand higher. The lack of demand increasing and the low interest rates should have been the ticket but other factors are at play here like the price of homes and economic uncertainty.

The growth that was seen in demand all began in 2008 with homes that were priced under $300,000. During 2007, this market was 18 percent of total sales, which increased to 48 percent of the sales in 2008.

Over the past year, home in this market have declined by thirty percent even with the low interest rates that are around and the low down payments. The trends seen in demand have changed dramatically over the past three years. Homes now under $400,000 were 65 percent of the total sales in 2008 to 2010 when in 2008 this area was only 37 percent of the total sales. The San Diego area is still having a few issues with affordability that is causing demand to be lower and there is only a 55 percent home ownership rate in the San Diego area at this time. Therefore, demand is here.

The housing inventory in San Diego decreased three percent in October, which follows historical trends except for the years of 2008, and 2008. The normal trend is to have reductions in inventory for the winter months. The month of October saw 15 percent fewer new listings that the average of all new listings during the last six months, which was the huge reason for seeing the drop in inventory for the month of October. All the declines in inventory were for homes listed at more than $400,000.

There is still not a connection in San Diego with the list price and the average selling price in inventory. The average sold list price is $426,000 while the average price in inventory is $779,000. Homes that are listed for more than $1 million represent more than 16 percent of the inventory however only around 5 percent of the sold homes. Another thing to look at when balancing inventory is the average days on the market, which for sold homes is 57 days whereas the average days on the market for home still in inventory, is 97 days.

The prices for homes in the San Diego area have been decreasing over the last six months. Peak prices for the 2009 – 2010 time period was May of 2010. October home prices are up dramatically from March of 2009. During 2009, inventory was low and demand was up which created a 2.5 month supply for San Diego County. Due to this, bidding wars and multiple offers caused prices to go up. During the 2010 time period, inventory started to increase but demand slowed down and the months supply increased to around five months supply. Once again, this brought prices downward a bit.

The San Diego real estate market is expected to stay in a declining demand with prices reaching a stable market in the early months of 2011.

What Are Discount Points?

If you want a lower interest rate, you can pay fees to a lender to buy a lower interest rate with the fees known as discount points and the process called a rate buydown. The result will be a lower mortgage payment each month for the life of the loan.

One point is equal to 1% of the amount of the loan, which will be paid at closing. This means if your loan is $150,000, the fee would be $1,500. In the majority of cases, one point will lower the interest rate somewhere between .25% to .375%, according to the type of loan you are getting.

If you are wondering if it is a good idea for your customers to purchase discount points, a few factors need to be considered. If your customer is only planning to be in the home for under four years, will refinance in a few years, or is applying for an adjustable rate mortgage it is best to stay away from discount points.

Discount points are normally a great idea if the family buying the home wants to live in the home for at least five years and does not have any plans to refinance for several years into the future.

When discussing discount points with the home buyer it is a good idea to show them a break even analysis. The way you do this is by calculating the mortgage payment they will pay each month without any points; next take away the mortgage payment they will pay monthly. The difference is the money they will save. Now, divide the cost of the discount points by the money they will save and the answer is the number of months it will take for them to break even.

Another great factor of discount points is that as long as they were used to purchase residential property they can be deducted from the taxes in the year the home buyer pays the fees. Discount points are also available during refinancing and are deductible over the life of the loan. Of course, the home buyer should speak to their tax advisor to learn more about the deductibles associated with discount points.

What is H. R. 4646

H.R 4646 is a bill introduced by Representative Peter DeFazio democrat in Oregon along with United States Senator Tom Harkin democrat in Iowa.

As this time, the bill is in committee and will be out sometime after the election.

To understand what this bill is all about is that it is a 1% transaction tax. The president’s finance team is recommending this transaction tax and it is being held secretly until after the election today.

What does this transaction tax have to do with you? The answer is that every transaction at any financial institution like credit unions, banks, and so on will be charged a 1% tax. Let’s break that down, so you fully understand the impact of this 1% tax.

When you make a deposit, you will be charged 1% tax.
When you move your money from one account to another account, you will be charged 1% tax.
When you transfer money from savings to checking or the other way around you will charged 1% tax.
When you receive a direct deposit of your social security check or your paycheck, you will be charged 1% tax.
When you deposit cash into your account, you will be charged 1% tax.

The Obama Administration promised that families that made less than $250,000 each year would not see any new tax tacked onto their income in any fashion.

You may think that 1% is not that much. However, consider those living on social security. You may not believe this figure but there are seniors that are only receiving $800 per month. As soon as their check hits the bank, they will charge $8 for depositing the money into the bank. She has to pay rent, which is $400, but now it will actually be $404. Utilities are usually around $80, which is now $80.80. They visit the doctor and must pay a co-pay, which is $20, but now that is S20.20 for each visit. They put $20 in the gas tank each week so for a month, it would be $80.00, but not it is $80.80. Buying groceries costs $180 per month, but now it will be $181.80. If you figure all this up and only include one doctor’s visit per month, the amount left before even one doctor visit is $44.60 after just one visit to the doctor in this scenario there will only be $24.40 left. If they have to visit the doctor twice in one month, the amount left will be $4.20. 

This will certainly not allow this person to do anything at all, hopefully during the winter months, the heating bills do not increase over the average or they do not have to visit the doctor more than once per month. What about any extras, if you can call shoes or clothing or toilet paper extras?

Now, start your own plan. Start with what you will be putting in the bank and subtract 1% of the deposit. Now, take everything out and do not forget to subtract that 1% tax on each transaction. Do you really want the government to get this 1% tax on each transaction you make each and every day?