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Home sales fall -- prices are flat
February survey done before subprime lending crisis, which is expected to make situation worse
The Bay Area housing market continued to sputter last month as home prices remained flat and sales fell, continuing a slide of more than two years.
The median in the Bay Area's nine counties rose just 0.3 percent in February to $620,000 from $618,000, according to a DataQuick Information Systems analysis that included single-family houses and condos. The number of homes sold slipped 7.9 percent to 6,305, the lowest volume for any February in 11 years.
The report comes at a critical point as concerns have begun to mount about how rising delinquencies and defaults on mortgages could hurt the residential real estate industry just as the market is poised for its spring boost as more buyers start hunting for houses.
"I think we'll see a pickup in demand, the conditions are ripe for that," said Scott Anderson, a senior economist at Wells Fargo. "But I wouldn't get too optimistic."
Real estate agents say that sales are down in part because there simply aren't enough homes for sale, and the usual increase in listings that comes with spring has yet to start.
The lack of inventory is evident in a weekly printout the San Francisco Association of Realtors puts together of all the homes for sale in the city that are open for agents to tour. By the middle of this month the packet typically starts to grow, as new homes hit the market, said Rick Turley, president of Coldwell Banker's San Francisco-Peninsula division.
"There were 28 pages of property tours in San Francisco when we would have expected 40 pages," Turley said. "Pages are shrinking at a time in which they should be going in the other direction."
DataQuick, a real estate information research firm in La Jolla (San Diego County), doesn't keep track of inventory. The California Association of Realtors, though, notes the extent of the backlog in the Bay Area is such that it would take 3.9 months to sell every home listed on the market at the current pace of sales as of the end of January, compared with 2.9 months in January 2006. The group's inventory data for February is not available.
In Walnut Creek, agents said that the low inventory is leading to quick deals. It took just a week to sell a $895,000 home that she listed March 5, said Joan Pancoast, an agent for Coldwell Banker.
"I was surprised," said Pancoast, who said that an agreement was reached to sell the home at the asking price this week. "I really think it's picking up."
Just when the turnaround is going to occur is difficult to predict. Economists say that DataQuick's latest report doesn't address the possible impact on the market from the turmoil in the mortgage industry.
In the past two weeks a series of events -- including a report from the Mortgage Bankers Association that showed a surge in late payments among high-risk, or subprime, borrowers and the implosion of the subprime lender New Century Financial Corp. -- have cast doubts on the possibility of a quick rebound in the housing market.
"The problems with the subprime loans have nothing to do with today's sales numbers," said David Shulman, a senior economist with the UCLA Anderson Forecast. "The subprime meltdown is two weeks old. In all likelihood, what's going on in the subprime market will make things much worse in terms of both volume and prices."
Across the Bay Area, home prices jumped the most in Marin County, climbing 3.8 percent to $829,000 for a home or condo, according to DataQuick. The greatest price erosion occurred in Contra Costa County, where the median home price dropped 5.5 percent to $537,000.
Prices fell most steeply region-wide for new homes, as builders continued to slash prices to clear inventory. The median price for a new single-family house fell 13 percent from a year earlier to $595,000, according to DataQuick.
California February 2007 Home Sales
March 16, 2007
A total of 31,228 new and resale houses and condos were sold statewide last month. That's down 3.7 percent from 32,425 in January, and down 21.3 percent from 39,676 in February 2006. A sales decline between January and February is not unusual. The year-over-year sales decline peaked last September at 34.5 percent.
Last month's sales made for the slowest February since 1997, when 28,710 homes sold. February sales from 1988 to 2007 range from 22,262 in 1995 to 48,409 in 2004. The average is 33,282.
The median price paid for a home last month was $472,000. That was up 2.2 percent from $462,000 in January and up 3.4 percent from $456,500 for February a year ago. The median peaked at $480,000 last June.
The typical mortgage payment that home buyers committed themselves to paying last month was $2,196. That was down from $2,155 in January, and up from $2,141 for February a year ago. The peak was $2,362 last June. Adjusted for inflation, mortgage payments are 7.2 percent above the spring 1989 peak of the prior real estate cycle.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. The numbers cover all sales, new and resale, houses and condos.
Market stress indicators are moderate: Down payments are stable, speculation buying is declining and there are no significant shifts in market mix. Default rates are rising, but still in the normal range. Non owner-occupied purchase activity and flipping activity have declined. The use of adjustable-rate mortgages has declined.
Which is better: Keeping mortgage or paying it off?
Financial advisers disagree on benefits of wiping out debt
As many homeowners dip into their equity, a small but growing number are doing the opposite -- paying off their mortgages quicker than lenders require.
But is ending a mortgage sooner than necessary a wise move? There's no simple answer. Financial advisers disagree sharply about whether, and when, such an approach makes sense.
"I talk with clients about this every day, probably five, six times a day," said Jonathan Satovsky, an investment adviser in Manhattan with Ameriprise Financial, a financial management company based in Minneapolis. Satovsky generally warns his clients against prepaying.
First, he said, assuming that the homeowner has a 6.25 percent fixed-rate mortgage and is in the 20 percent income-tax bracket, the net interest rate -- after mortgage interest is deducted on tax returns -- is about 4 percent. Although homeowners would save that 4 percent by paying off their mortgages, he said, they would earn more than 4 percent interest if they invested the money instead.
"There might be periods where the markets go backward, and you think it's a mistake," he said. "But over 10, 15 years, they'll earn a lot more by not prepaying."
In addition, he said, because mortgage interest is front-loaded, the interest deduction drops sharply in the later years of the mortgage.
Andrew Schweitzer, the chief executive of the Gulfstream Financial Corp., an advisory service in Sunrise, Fla., disagrees. "The goal should be to free up earned income so you can accumulate it for retirement," he said. "If I'm paying $24,000 a year on a mortgage, I may have saved $8,000 a year in taxes. But if I didn't have a mortgage, I would have saved $24,000 in overall expenses. It's not rocket science."
By clearing the debt earlier, you pay much less overall in interest over the life of the loan, and free that money for investment.
Schweitzer's company sells a service that essentially uses clients' money to pay bills on their behalf, choosing debts with the highest interest rates first. Typical clients, he said, have about $120,000 in annual household income and carry about $120,000 in debt, from cars, mortgages, home-equity credit lines and credit cards.
With the service, Schweitzer said, assuming the clients spend the same amount but stop using credit cards, their total debt, including mortgages, is typically paid off within eight years. The average client, he said, saves about $200,000 in interest by paying off the debt in less than the full period allowed and pays Gulfstream $1,500 for the service.
Clients can save and invest their money for retirement, he said, and achieve financial independence more quickly than they would have while carrying debt.
(There is an important caveat -- some mortgages carry prepayment penalties, which can total thousands of dollars, so borrowers should check with their lenders for details.)
Other services offering guidance, like PlasticEconomy.com's Track Cards, help homeowners choose which debts to pay off first but do not manage the clients' money directly and typically do not include mortgage payments.
Should homeowners choose to prepay their mortgages, Satovsky of Ameriprise suggests they take out a home-equity line of credit before they begin. "Prepaying is dangerous," he said, if the homeowners' equity is completely locked into the value of the house and they are not disciplined savers.
"You could have $2 million in equity in the home and say you're ready to retire," he said. "I say: 'Great! What will you live on? Social Security? You spend $20,000 a month.' "
If the homeowners then become disabled or unemployed, they may not qualify for home-equity loans when they need money, Satovsky said.
This article appeared on page K - 10 of the San Francisco Chronicle
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