Friday, September 30, 2016

Cal's Economy--Why It's a Good Thing!

Well, the news is out! California continues to have one of the nation's fastest growing economies!  Why is that important?  AS the info that follows will demonstrate, any time an economy is healthy, it benefits those who live and work there, not to mention their housing market.  Read on and enjoy the news!
Executive Summary:
  • The Federal Open Market Committee did not raise interest rates yesterday but not for the lack of confidence in the economy. The FOMC wants further confirmation that everyone is benefiting from the employment growth.
  • A separate report says that California leads the nation in economic output, with the San Jose metro area growing at the fastest pace in the nation in 2015, an impressive 8.9 percent. The Bay Area follows closely, with 5.8 percent annual growth.
  • Tech-heavy metro areas are seeing the fastest economic growth in the nation.
  • The Bay Area is one the most attractive places for businesses, due to talent, knowledge, and the spillover effects of the tech industry (not to mention the weather).
  • Three of the five largest U.S. companies by market valuation are located in the Bay Area.
  • California’s economy is poised for strong growth, though addressing the housing affordability conundrum is critical.
Getting a grasp on the U.S. economy has become increasingly more divisive. Some say the country is doing great, and some say we are doing awful. At the very least, FOMC Chairwoman Janet Yellen announced yesterday that it will not raise interest rates this month. The group came across feeling conflicted on the course of action, much like the rest of the economic experts who closely watch the Federal Reserve’s decisions. It seems that the U.S. is truly starting at the tale of two economies. On one hand, tech-heavy areas are bustling, while in others there are still people who are unemployed, underemployed, or otherwise not better off than they were a few years ago.
One thing we can say with certainty is that most of the California’s metropolitan areas are doing an outstanding job on the economic front. The Bureau of Economic Analysis released 2015 gross domestic product estimates this week for the U.S. metropolitan areas. The San Jose-Sunnyvale-Santa Clara metro area saw its GDP grow by 8.9 percent in 2015, the largest increase in the U.S. The San Francisco metro area grew its GDP by 4.1 percent, No. 6 in the country. Combined, the San Jose and San Francisco metro areas accounted for 8 percent of the national GDP growth from 2010 to 2015. According to Palo Alto-based Center for Continuing Study of the California Economy, the Bay Area’s GDP grew by 5.8 percent in 2015, outpacing both California (4.1 percent) and the U.S. (2.4 percent). In fact, all major California regions grew faster in 2015 that the nation in aggregate.
The Bay Area now ranks No. 18 in the world in terms of goods and services output, up from No. 21 in 2014. California improved its ranking too, climbing to the world’s sixth largest economy, with a 2015 GDP of $2.5 trillion.
A recent article in The New York Times sheds some light on what makes California special. In short, “California is the capital of American business.” One in five companies on the New York Stock Exchange and the Nasdaq are located in California. According to the author’s analysis: “From 1965 through 1979, 10.07 percent of public companies were based in California. The number has continued to grow, so that from 2000-13, 19.46 percent of public companies had their headquarters in California.” At the same time, California’s population increased from comprising 10 percent of the total U.S. population to 12 percent.
It helps that three of the five biggest companies in the U.S. are tech companies based in the Bay Area: Apple, Facebook, and Google. (Seattle-based and Microsoft round out the top five.)
The technology revolution has benefited other parts of the country as well. The fastest growing U.S. economies — including Raleigh, North Carolina; Austin, Texas; Portland, Oregon; and Denver — are also tech-heavy markets. The technology boom, however, seems to have benefited California relatively more than those other areas.
According to The New York Times, it appears that economies of agglomeration are driving the growth. In urban economics, economies of agglomeration are benefits obtained by firms locating close to each other and deriving economies of scale and network effects. In other words, interesting job opportunities draw people to a particular location where they interact with other interesting people and share and develop new ideas, and this transfer of knowledge benefits everyone.
And now with that accumulation of the talent, ideas, and entrepreneurship, California is poised to continue to lead the technology revolution and nurture a new crop of valuable companies. The challenge for the Golden State remains its prohibitive housing costs, as well as the share of residents who have not benefited from the economic activity and still live below the poverty level.

If you want to take advantage of this, all that's necessary is a call--to The Richmonds.  You know the number(s): Peter: (415) 279-6466; Jane: (415) 531-4091.  As always, we'd be happy to help!

Speaking of which, the 3d calendar quarter has ended and our quarterly statistical Newsletter will soon be available.  Want to receive it by email? Call us with your email address and it'll be there--EVERY QUARTER!

Friday, September 16, 2016

Delinquencies Low in Bay Area

One measure of the economic health of  any area is the number of homes in default or foreclosure in that locale.  A closely related measure is the average home value increases of an area with few defaulted mortgages.  The following analysis will examine this in more detail.

The substantial home price appreciation recorded over the past few years has been a windfall for Bay Area owners, with five local communities boasting the lowest percentage of underwater properties in the nation.underwater9616
That’s according to WalletHub’s list of 2016’s best real estate markets, which ranks 300 small, midsize, and large U.S. cities based on a scale of 100 and using 16 different metrics. Criteria include the quickest pace of sales, highest home price appreciation, the fewest mortgage delinquencies and underwater homes, and housing affordability.
Bay Area communities have the fewest amount of homeowners with negative equity, led by San Mateo (WalletHub doesn’t include exact numbers in its analysis). Berkeley has the second lowest rate of underwater homeowners, followed by Sunnyvale, Santa Clara, and San Francisco. The findings echo those of a report earlier this year, which said that the San Jose and San Francisco metro areas had the nation’s smallest percentages of underwater homeowners at the end of 2015.
Fremont, Sunnyvale, and Santa Clara tie Boulder, Colorado, for fewest number of homeowners who are delinquent on their mortgages. Sunnyvale also cracked the top five U.S. markets for a few other metrics:  highest median home price appreciation (No. 3), lowest foreclosure rates (No. 2), and lowest maintenance costs as percentage of income (No. 2). Homeowners in Santa Clara also did well on the latter metric, with the fifth smallest home-maintenance cost ratio in the country.
Additionally, Bay Area markets stand out for their speedy pace of sales, led by Berkeley, where houses sell in the fewest average days in the nation. San Mateo ranks No. 3 for fastest-moving U.S. markets, and Sunnyvale and Santa Clara tie Bellevue, Washington, for No. 4.
Only one California city, Irvine, ranks among WalletHub’s overall top 20 real estate markets for 2016 — including large, midsize, and small cities. This is likely due to the state’s well-documented affordability issues, which factor prominently in the study’s methodology. For instance, the analysis says that San Francisco and Berkeley tie with three other California markets for the highest home prices as percentage of incomes.
Here’s how Bay Area cities rank on the list when broken out by size:
Large Cities (more than 300,000 residents): San Jose (No. 18), San Francisco (No. 22), Oakland (No. 39).
Midsize Cities: (150,000 to 300,000 residents): Fremont (No. 15), Santa Rosa (No. 26).
Small Cities: (less than 150,000 residents): Sunnyvale (No. 18), Santa Clara (No. 25), San Mateo (No. 29), Vacaville (No. 40), Berkeley (No. 49), Concord (No. 50), Fairfield (No. 62), Hayward (No. 63), Daly City (No. 64), Richmond (No. 81), Antioch (No. 92), Vallejo (No. 106).

Monday, September 12, 2016

Jobs & What Will Fed Do

Well, everybody's ben expecting a rise in interest rates late this year, but so far nothing. The issue is still lurking, but no details are yet available in any meaningful way.  The subject of employment can have a major effect on this subject, but details in that market are difficult to fathom.  So how to plan--whether a buyer or seller you be.

Executive Summary:
  • Monthly job reports and anticipations over the Federal Reserve’s decision to raise interest rates have been moving in tandem in 2016. And as we approach the end of the year, anticipations are brewing over what the Fed will do about interest rates. For better or worse, today’s job report didn’t provide much insight.
  • According to the U.S. Department of Labor, there were 151,000 jobs added in August, which is a continuation of healthy growth and nothing to cause excitement or concern. But if previous years are any indication, August numbers may be revised up in subsequent months. August estimates are often challenging because of education-related summer employment, and this year’s seasonal adjustments are further challenged due to changes in the timing of school calendars.
  • So far this year, employment growth has averaged 190,000 new jobs per month, though not without a lot of monthly volatility.
  • The national unemployment rate has been below 5 percent since April.
  • As the U.S. has reached full employment, estimates suggest that only about 100,000 jobs need to be added per month to keep up with the growth in labor force.
  • What does this mean for the Fed’s interest-rate decision? It is honestly very hard to tell. Experts are split, but the majority expect at least one increase before the end of the year. However, any increase will be marginal and would not likely deter consumers from purchasing a home.
  • In fact, a survey of consumer confidence by The Conference Board also released this week, showed the sentiment nearing a cyclical high. Consumers are feeling optimistic about current and future expectations and are more positive about the job market. Increasingly, more consumers feel jobs are plentiful versus those who state that jobs are hard to get.
  • Additionally, and most importantly for real estate market expectations, the percentage of consumers planning to buy a home within next six months continues on a steady upward trajectory (see Figure 1 below).
Figure 1

Source: The Conference Board

So there you have it--a possible guide.  Whatever your intent, Buy or Sell, give us a call for help.  We're in the market on a daily basis.  Peter: (415) 279-6466; Jane: (415) 531-4091.

Friday, September 09, 2016

Credit Scores--VERY IMPORTANT!!

For better or worse, we've all been there.  Buy a car. What's your credit score, often referred to as your FICO score? New credit card? What's your score? Buy or refi a home?  Let's see your score! And on and on and on ad infinitum.  In some cases, ad nauseam.  The point is: anything you've ever done that's credit based is recorded somewhere.  So, if you're trying to buy a home, your lender will check your credit score, along with your credit report, whichever reporting agency they use.  You can be assured that if your history is good, and shows you honor your credit obligations regularly, things will bode well for you.  If you don't, however, woe be to you!  This doesn't mean that you're doomed if you've missed a payment on your Visa once or twice in the last twenty years.  But, rest assured--there are some amazing things from long ago that can blow a hole in your hopes for a mortgage.

For example, you paid for college by a student loan that was Federally guaranteed--and somehow never paid it all back. As we used to say back in my Boston home town, "Good luck to you and the Red Sox."  Loan denied.  Department store credit card charged off for $150--not good, but, if in context, it's the only thing negative, you may still get your loan.

This history is shown as a 3-digit numerical score.  Those three numbers, based on their history, may be as good as hitting the lottery or as bad as having to dial another three: 911.

However, the following may serve as a guide on the subject. 

Bay Area home shoppers hoping to take advantage of today’s historically low mortgage rates should ensure that their credit ratings are in fine shape, as lenders in our region require the highest scores in the country.
Using data from the Urban Institute, CNBC compared average FICO scores for borrowers in more than 30 U.S. metro areas. The article also examined average loan-to-value ratios, defined as the percentage of a home’s value that a lender is willing to approve on a loan it issues.
On one end of the spectrum is Detroit, where the average FICO score is 728, the lowest in the U.S. Homebuyers in the Motor City can expect lenders to approve a loan of up to 90 percent of a home’s value, tied for most in the nation. Urban Institute Researcher Bing Bai told CNBC that lower credit scores are common in distressed real estate markets with a higher percentage of lower-income buyers, who usually make smaller down payments. However, lenders will charge such buyers with riskier credit scores higher interest rates.
In healthy and thriving real estate markets like the Bay Area, getting a mortgage can be more difficult. Homebuyers in San Francisco require average FICO scores of 770, higher than anywhere else in the U.S. San Francisco also has the nation’s smallest loan-to-value ratio, at 72 percent.
Conditions are almost as tight in San Jose, with the average buyer needing a 766 FICO score and lenders approving loans that represent 74 percent of a property’s value. Oakland homebuyers need credit scores of 762 and typically receive loan-to-value ratios of 77 percent.
CNBC points out that credit is currently much tighter now than it was during the housing boom 10 years ago. And it doesn’t appear that lenders are going to loosen their purse strings in the near future, with 90 percent of respondents to a June Fannie Mae survey reporting plans to keep their credit standards the same.
Americans having been slowly and steadily improving their credit ratings over the past decade. FICO’s guide to understanding its credit scores puts the average national score at 695 as of April. In October 2005, the average American had a score of 688 according to a FICO blog post. Serious delinquencies — accounts that are more than 90 days past due — have been falling over the past few years, which FICO says has been almost entirely driven by the real estate sector.
Prospective homebuyers should check their credit scores well in advance of the purchase process and take steps to improve them if they might not pass muster with a lender; FICO’s website offer tips for managing and repairing credit scores.
And when you get your loan and start looking for a home, give us a call! We know the markets, and would be pleased to help you. Peter: (415) 279-6466; Jane: (415) 531-4091.