Joe Wilson's Silicon Valley Real Estate Blog

"Every industry in the South Bay is growing except for construction and retail," said Jon Haveman. "The East Bay is very much hurting, and it may continue to do so for a while."

Haveman gave his divergent outlooks at a downtown Oakland conference sponsored by Torrey Pines Bank.

One big reason for the differing paces of recovery is that the East Bay tumbled into a much deeper economic abyss, an analysis of state Employment Development Department figures shows.

Since payroll employment peaked in the East Bay in August 2007, it has lost about 105,000 jobs. In contrast, the South Bay's employment peak came in March 2008, and it has since lost about 38,000 jobs. The San Francisco-San Mateo-Marin region peaked in July 2008, and since then has shed 47,000 jobs.

The East Bay remains 10.2 percent below its peak employment levels, while the San Francisco area is down 5.5 percent and the South Bay is down 4.5 percent. California overall is down 6.7 percent.

"The South Bay will come through this like a champ and get back to the peak pretty quick," said Brad Kemp, an economist with Beacon Economics. "The San Francisco area is close behind. The East Bay has had almost no recovery whatsoever."

The South Bay's tech sector offers an array of products and services in high demand among consumers and companies alike. But Haveman noted that the East Bay "doesn't have that sector to drive a recovery."

Last month, the average sale price of a single family home stood at $727,875, a 5.42 percent rise as compared with the $690,471 of December 2010. The average sale price of a condo or townhouse was $349,737, a 5.74 percent decrease as compared with the $371,024 of December 2010.

Today's market conditions are good for both buyers and sellers, Santa Clara County Association of REALTORS® President Barbara Lymberis said. Savvy buyers are taking advantage of today's incredibly low interest rates and affordable prices, and sellers can hope for a speedy sale if the home is priced right.

"Rents have been rising steadily, making home ownership more attractive again," Lymberis said. "Demand for homes is exceeding inventory. Any home coming onto the market, if priced fairly, should spark a good amount of interest very quickly. Both buyers and sellers will win in this market, which is the way it should be."

Less than two months after lowering the maximum loan amount that could be backed by the Federal Housing Administration, lawmakers in Washington reversed course just before the Thanksgiving holiday and once again raised that limit, offering home buyers more financing options in a tight credit market.       

Under the new guidelines, the F.H.A. would be able to back loans up to $729,750 for the next two years in the nation’s most expensive real estate markets, including San Jose and the surrounding metropolitan area.

Before the change, according to rules that went into effect on Oct. 1, the maximum loan the F.H.A., Fannie Mae and Freddie Mac could back was $625,500. Congress decided to leave the lower loan ceilings for the mortgage giants Fannie Mae and Freddie Mac untouched.       

FHFA revises HARP to help more borrowers
The Federal Housing Finance Agency, along with Fannie Mae and Freddie Mac, on Monday announced changes to the Home Affordable Refinance Program (HARP) to help more borrowers.

The program will continue to be available to borrowers with loans sold to Fannie Mae and Freddie Mac on or before May 31, 2009, with current loan-to-value (LTV) ratios above 80 percent.

The new program enhancements address several other key aspects of HARP including:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
• Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
• Extending the end date for HARP until Dec. 31, 2013, for loans originally sold to the Enterprises on or before May 31, 2009.

Despite record low mortgage interest rates, many homeowners are trapped and unable to re-fi to take advantage of these rates to reduce their mortgage payments. Often this is because the market value of their home is less than they owe on their mortgage (they’re “underwater”). If they’re also financially unable to keep up with their mortgage payments then a short sale could be the best option to avoid a foreclosure. With a short sale, their lender agrees to take a short payoff and release the lien on the property so the homeowner can sell. While a short sale will temporarily damage the seller’s credit, it’s less damaging than allowing a foreclosure to take place. However, just because a homeowner may be “underwater” doesn’t mean the owner is eligible for a short sale. Most lenders require the homeowner to be in default on their mortgage and to document a financial hardship to qualify for a short sale.

If you know of someone who’d like to know more about the possibility of doing a short sale, let me know. I’d be happy to answer their questions, explain the process and assess their eligibility.

On Tuesday, the Senate introduced SB 1508, a bill to extend the current loan limits for one year. Originally sponsored by California Senator Dianne Feinstein, the bipartisan bill would increase the cost of loans for Fannie Mae and Freddie Mac between $625,500 and $729,750, to offset the perceived cost of increasing the loan limits another year.

Without Congressional action, the current loan limits will expire on Sept. 30, 2011; the VA limits will expire December 31st.

Housing markets remain fragile, and this bill will ensure the market is not further disrupted, causing more declines in home values and making it even more difficult for American families to purchase a home.

Low interest rates are driving high-end home buyers to supersized mortgages at a pace unseen since the housing boom. But the deals may have a limited shelf-life. So-called jumbo loans—generally those bigger than $417,000—are a better bargain now than they have been in years. The average rate on a 30-year jumbo mortgage is 5.15%, down from 6.41% two years ago, according to mortgage data firm HSH Associates. That means the monthly payment on a 30-year $600,000 home loan is now about $3,280, some $480 less than the cost of the same loan two years ago, for an annual savings of nearly $5,800.

Not only are jumbo loans cheap relative to historical rates, they are cheap relative to smaller "conforming" loans, which are backed by Fannie Mae, Freddie Mac and federal agencies. The difference between the rates on a jumbo mortgage and a conforming loan is just 0.43 percentage point, the narrowest spread since 2007.

That makes borrowing bigger amounts more attractive than it has been in recent years, and also presents opportunities for buyers who might have been previously locked out of pricey markets due to higher rates, says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

The number of jumbo loans issued in 2011 could be the highest in five years, when the housing market was near its peak. That is in part because people are trying to lock in a government-backed jumbo loan now ahead of a planned limit reduction this fall.

People buying homes in the country's most expensive housing markets likely will face pricier mortgages starting in the fall.

That's when the current conforming mortgage limits are scheduled to expire, with limits for the most expensive markets (Like the Silicon Valley) falling to $625,500 from $729,750. On Friday, however, two lawmakers introduced a bill in the House that would retain the higher limits for two years.

Mortgages over the conforming limit are considered jumbo loans, and can't be purchased and securitized by Fannie Mae or Freddie Mac. As such, they carry higher rates. The limits apply to both first mortgages and refinancings.

Limits vary by market, and the lower limits are equal to 115% of the median single-family home price, ranging from $417,000 to as much as $625,500.

"The fact that the limits are changing is going to raise the cost of home ownership for homes priced in that range between the old and the new limit," says Greg McBride, senior financial analyst for Bankrate.com. While the change is expected to officially take effect Oct. 1, it may be reflected in loan quotes as early as the end of July, he says.