Things to Know

To help undecided Buyers formulate their purchasing plans, the following October 10, 2007 article from the National Association of Realtors® Research Department is presented in its entirety.

The Forecast

Waiting Room
by Lawrence Yun, Vice President, NAR Research

Several positive developments in the credit market will pave the way for improving housing market conditions going into 2008. The worst of the credit crunch concerns we saw in August are clearly over. A bold move by the Federal Reserve in cutting the federal funds rate by 50 basis points helped liquidity. Even more importantly, the Fed’s action bolstered the confidence of financial investors that the Fed will not permit a freezing of credit in the marketplace. Consequently, markets have settled down and mortgage rates are now more favorable compared to those in August.

But it’s interesting to note that credit in the conforming loan market (those loans under $417,000 and those that meet the guidelines of Government Sponsored Enterprises like Freddie Mac and Fannie Mae) has been widely available throughout the recent crisis. It was the jumbo loan market that was particularly hard hit, with the spread over conforming loans rising to over 150 basis points, rather than the historic average of 20 to 30 basis points. The spread as of early October (as this is being written) was down to 70 basis points – still not back to normal, but at least it is moving in the right direction. Many home buyers in the high-cost regions who have been frozen out of jumbo loans will now be able to return to the market.

And the subprime market? Well, we certainly don’t expect the level of subprime lending to return to where it had been a year ago. That is a good thing. While some subprime loans make sense, the vast majority of subprime borrowers likely did not know what they were getting into. Low-and-moderate income families will (and should) now look to safer FHA loans. These loans carry much more favorable interest rates and they have the infrastructure already setup for counseling and loss mitigation.

Taking Inventory

Though the credit problems appear to be over, there is an overhang that looms large that could hamper the recovery of the housing market. Inventory is high – very high. There were a record 4.58 million homes on the market at the end of August. That’s a 10 month supply. But the number of total listings appear to be topping out. A significant portion of the existing supply of homes is old inventory that has been sitting for several months due to lower sales activity. If one looks only at the fresh listings, a total of 596,000 existing homes came on to the market in August. That is the lowest number of fresh listings for the month of August in eight years. The typical number of new listings reaching market over each of those eight years had been 720,000. Also keep in mind that many people still live in the homes that are listed for sale. These people are home sellers as well as home buyers – except for those probably few who want to move into renting. From a supply and demand point of view, it is a wash.

The bigger concern over inventory is with newly constructed homes because they are vacant. For builders, carrying a vacant home is an expensive proposition and, hence, they will be forced to provide more incentives and price cutting to attract buyers. Interestingly, the inventory of newly constructed homes has been falling for the past five months thanks to major cut backs in construction by homebuilders. Inventory looks to be further shaved based on trends from single-family housing starts (down 43% in August from two years ago) and single-family housing permits (down 46%).

If in fact the inventory has maxed-out, then the downward pressure on home prices may not be as severe. After all, while we currently have high inventory, home price declines have actually been in the modest single-digits for the country as a whole. And some areas report price increases. In the latest NAR survey of metropolitan area home prices (through the second quarter of this year), more than half of the metro areas in the nation posted price gains - despite the high inventory.

Brighter Days Ahead

One principal reason underlying those price gains or minimal price losses is our fundamentally sound economy. The unemployment rate is low at under 5%. Job gains continue with 110,000 additions in September on top of 89,000 job gain in August. (The initial read of August job creation showed a net loss before being revised to that 89,000 positive figure.) Over four million net new jobs have been created in the past 24 months — the time period since home sales began to decline. Recall, the last cycle when inventory rose to comparably similar heights was back in the early 1980s and early 1990s, both corresponding to years of job cuts. The current high-inventory condition is unique in that respect and untested in history.

Based on record stock market valuation and strongly rising exports, and the fact that most of the negatives of housing have already occurred, the economy will grow a bit faster next year. More active economic activity will not necessarily mean a higher inflation. In fact, inflation is projected to decelerate – from 2.8% this year to 2.4% in 2008. That is good news because inflation will be the key in holding down rates on 30-year mortgages. The Fed interest rate cut helped with adjustable rates, home equity loans, and in lessening the burden on re-setting rates. But the Fed does not have direct control over 30-year rates. Rather it is the expectations for inflation that truly impact those rates. With inflation coming under better control, mortgage rates will remain low.

Housing figures for September and October look to be weak (we’ll see those numbers well into late November), and they will reflect the lingering impact of the August credit crunch. However, the recovery is underway. 2008 will be better than 2007.

Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission.

How much will title insurance cost on the purchase or sale of my property? - is a question clients often ask when planning for their closing costs or reserves.

To help consumers with that very question and to overcome confusion about title insurance, the California Land Title Association has just launched the CLTA TitleWizard web site.

On this web site you may enter the zip code and selling price of the property in question. You also enter whether you are the seller or buyer and if the property has sold within the previous five years.

After entering all information, the web site lists the cost of title insurance available from the CLTA Member insurance companies.

Keep in mind, however, that your Realtor may have a relationship with a particular title insurance company or representative who can provide a rate that is lower than those published on the CLTA TitleWizard web site. The best procedure would be to review the TitleWizard results and then ask your agent to get a quote for the cost of title insurance through their contacts.

Keep also in mind that not all title insurance policies are identical. Some which are more expensive may provide more coverage than the others. You should review the coverage of policies you are considering to determine if the coverage is all that you desire or more than you need.

What is the quality of the schools that my children will attend? - is another question continually asked by potential property Buyers.

One way to help determine the quality of the education your children will receive is to review the results of the annual testing required by the State of California Department of Education.

This link to the 2007 CST Results will direct your web browser to an interactive page on the California Department of Education web site. This page has a form which allows you to enter the county, school district and school of interest. After you have entered the appropriate information, click on the “View Report” button to display the complete test results for your selection. If you would like to see a report for the entire state, county, or school district, just leave out the information in the fields following your desired grouping.

The table below has been compiled from the 2007 CST Results to show the average test scores for the school districts and schools that might be of interest to residents considering the purchase of a home in Corona del Mar, Laguna Beach, Newport Beach or Newport Coast. The various districts and schools are listed, in descending order, by the average of their test scores.

What schools will my children attend? - is another question among the those frequently asked by many potential property Buyers.

This article demonstrates how to locate the schools serving a particular address located within the cities of Corona del Mar, Laguna Beach, Newport Beach or Newport Coast.

While following through this example, the reader may perform a mouse click on any of the accompanying illustrations to open the particular Laguna Beach Unified School District
or Newport Mesa Unified School District web page from which that illustration was taken.

In the case of the Laguna Beach schools, the school district has provided an Acrobat PDF file showing all street names in their district. Each street name is followed by an abbreviation for the school that services that address. An example of the address page is shown in the following illustration:

In the case of the Corona del Mar, Newport Beach and Newport Coast schools, the school district has provided an interactive web search page. To locate the schools that service any particular address one just needs to enter that address into the appropriate areas of the search form and press the “go” button. The page will then display a map of the school locations and the written names of the schools below the map along with buttons for further school information. An example of the web search page is shown in the following illustration:

Most other school districts located in the Orange County Coastal areas have similar methods available for determining which schools service a particular address within their district.

What will be the amount of the annual property tax? - is among the first questions frequently asked by many potential property Buyers.

This article discusses the technique for gathering information regarding tax rates and the method of calculating the property tax that will be assessed the buyer of a property.

It is assumed that the property is located in California and that the transaction does not involve a Proposition 60 or Proposition 90 transfer of assessed tax base. Although the following example is for a property located in Orange County, the same techniques would apply for any California county. Each county has its own way of making the information discussed in this article available to the pubic and the reader may need to perform a little research to collect the necessary data.

While following through this example, the reader may perform a mouse click on any of the accompanying illustrations to open the particular Orange County Tax Collector web page from which that illustration was taken.

The property for this example was recently listed and sold through the SoCalMLS system. The address is 1723 Miramar Drive in Newport Beach and the listing price of $3,595,000 will be used as an assumed sales price. All information used in this example is easily obtainable from the combination of public records and advertising publications.

Property tax charged to the owner is comprised of two parts.

The first part is called the ad valorem portion and is computed by multiplying the property base tax assessment value by the ad valorem tax rate. Base tax assessment is the purchase price of the property. Under current California law, the base property tax assessment may increase each year a maximum of 2%.

The second part is called the special assessments portion. This is the total of the property’s portion of special assessment bond and improvement bond payments. This amount is determined by the applicable bonds and is independent of the property base tax assessment.

To collect the data for this example direct your web browser to The Orange County Tax Collector property search page, enter either the Assessor Parcel Number or the property address and city as shown in the following illustration.

Then click on the appropriate “FIND” button. A page will open displaying the parcel number of the property as shown in the following illustration.

Click on the parcel number link. The page which opens may display several lines with parcel numbers. Click on the parcel number in the line which has the most recent year and does not contain the word “Supplemental”. An example of the page is shown in the following illustration.

The page which opens will show information relating to the current tax bill. Look near the bottom right hand corner of the page to locate the words “Click Here for Details” as shown in the following illustration and click on that link.

A page will open which displays a “Tax Rate” column and “SPECIAL ASSESSMENT USER FEES”. For this example that table is shown in the following illustration.

The ad valorem tax rate is the sum of all tax rates listed in the “Tax Rate” column and is equal to 1.03956%.

Therefore the ad valorem tax is then 1.03956 x $3,595,000 / 100 which is equal to $37,372.18.

The special assessments portion of the tax bill is the sum of the amounts shown in the “Amount” column below the “Special Assessment User Fees” title and excluding the amount in the “Total” line.

The special assessments portion for this example is equal to $184.56.

The resultant total property tax for this example is equal to $37,372.18 + $184.56 or $37,556.74.

Home Owner’s Exemption.

If the home owner has filed for a Home Owner’s Exemption, then the property base tax assessment may be reduced by subtracting from it the amount of the Home Owner’s Exemption prior to performing the above calculations. At the time of this writing the Home Owner’s Exemption is $7,000.

The property tax question has now been answered for ANY property being considered.