Real Estate Market Update – Q4 2014 Real Estate Market Update – Q4 2014

Overview for Silicon ValleyOverview for Silicon Valley

The Silicon Valley Real Estate Market continues to be driven by high demand due to continued job growth and population growth.

As affordability decreases, prices are beginning to flatten out. Multiple offers are still being seen in communities with <30 minute commute to tech jobs and neighborhoods with high scoring schools.

Lenders are beginning to loosen borrower requirements via the acceptance of lower credit scores. However, underwriting of loans continue to demand tons of documentation from borrowers about debt, credit history, and reserves.

Low interest rates continues to drive consumers to keep looking and predictions of higher interest rates in 2015 will continue to drive consumer demand to buy now instead of later.

Sellers with equity are recognizing 2015 as the year to sell and either upgrade their home/neighborhood or move out of the area.

(Number of consumers viewing homes for sale.)

Some seasonal stats butmostly interest rate driven.

Banks make money when they lend money. Look for increased availability of loans to continue into 2015.

EllieMae

Scores are just one component. Lenders evaluate total risk. As the economy improves, lenders relax requirements.

EllieMae

FHA and Fannie Mae loans require as low as 3-5% down payment. For buyers with good monthly income, low debt, but do not have 20% down, these loans are key to buying a home.

Freddie Mac 10/2014

Freddie Mac Actual Rates

January 2013 – October 2014

30 Year Fixed Rate MortgagesFed stopped buying bonds and we expected rates to go up. However, EBOLA, and the European markets actually pushed rates down to 3.98% in early November.

Analyst Projected Rate 2015 4Q

Fannie Mae 4.7%

Freddie Mac 5.1%

Mortgage Bankers Assoc 5.1%

National Assoc of Realtors 5.4%

Mortgage Rate ProjectionsEveryone continues to watch employment numbers, Europe, consumer confidence, and inflation.

1/2013 10/2014

Freddie MacProjected Rates

June 2014 – 2015 4Q

Freddie Mac 10/2014

30 Year Fixed Rate Mortgages

Freddie Mac Rates January 2013 – October 2014

Affordability for SV will be impacted more by projected rate increase than actual price increase for 2015.

Date Mortgage Interest Rate* P&I**

Today $500,000 3.98% $2,381.31

2015 4Q $520,000 5.1% $2,714.75

*Average Commitment Rate per Freddie Mac **Principal and Interest Payment

$333.44Difference in Monthly Payment

Monthly Annually Over 30 Years

$333.44 $4,001.28 $120,038.40

Date Mortgage Interest Rate* P&I**

Today $1,000,000 3.98% $4,762.63

2015 4Q $1,040,000 5.1% $5,429.50

*Average Commitment Rate per Freddie Mac **Principal and Interest Payment

$666.87Difference in Monthly Payment

Monthly Annually Over 30 Years

$666.87 $8,002.44 $240,073.20

5.25 $ 2,761 $ 2,692 $ 2,623 $ 2,554 $ 2,485

5.00 $ 2,684 $ 2,617 $ 2,550 $ 2,483 $ 2,415

4.75 $ 2,608 $ 2,543 $ 2,478 $ 2,412 $ 2,347

4.50 $ 2,533 $ 2,470 $ 2,407 $ 2,343 $ 2,280

4.25 $ 2,460 $ 2,398 $ 2,337 $ 2,275 $ 2,214

4.00 $ 2,387 $ 2,327 $ 2,268 $ 2,208 $ 2,148

3.75 $ 2,316 $ 2,258 $ 2,200 $ 2,142 $ 2,084

$ 500,000 $ 487,500 $ 475,000 $ 462,500 $ 450,000

-2.5% -5% -7.5% -10%

RA

TE

Principal and Interest Payments rounded to the nearest dollar amount.

Buyer’s Purchasing Power

5.25 $ 5,522 $ 5,384 $ 5,246 $ 5,108 $ 4,970

5.00 $ 5,368 $ 5,234 $ 5,100 $ 4,966 $ 4,831

4.75 $ 5,216 $ 5,086 $ 4,956 $ 4,825 $ 4,695

4.50 $ 5,067 $ 4,940 $ 4,814 $ 4,687 $ 4,560

4.25 $ 4,919 $ 4,796 $ 4,673 $ 4,550 $ 4,427

4.00 $ 4,774 $ 4,654 $ 4,535 $ 4,416 $ 4,297

3.75 $ 4,631 $ 4,515 $ 4,400 $ 4,284 $ 4,168

$1,000,000 $ 975,000 $ 950,000 $ 925,000 $ 900,000

-2.5% -5% -7.5% -10%

RA

TE

Principal and Interest Payments rounded to the nearest dollar amount.

Buyer’s Purchasing Power

Multiple offers not nearly as scary as higher interest rates!

Decade Average Rate

1970s 8.86%

1980s 12.7%

1990s 8.12%

2000s 6.29%Freddie Mac

Historic Mortgage Rates by Decade

My first home in California 1992 – 8.25%!!

S&P Case Shiller 10/2014

Year-Over-Year PRICE CHANGES

Case ShillerPrices will flatten over the remaining of 2014 and into early 2015. Now is the time for buyers to seriously consider making an offer on a home.

S&P Case-Shiller Home Price Indices

S&P Case Shiller 10/2014

Not a bubble.Not speculative.

Not yet meeting demand of a growing population.

% Change in Sales from last year

by Price Range

NAR 10/2014

For Silicon Valley about 10%

Renting will not improve your financial wealth.

NAR 10/2014

Year-over-Year Inventory Levels

As homeowners regain equity, more and more homes will come onto the market in 2015. More inventory will help control prices but buyers must be aware of rising interest rates on loans.

As the 5th most populated county in California, Santa Clara County is projected to increase population at a rate of 1.2% or about 25,000 people each year over the next 20 years. For more demographic information visit this link.

2015 PREDICTIONS

2015 PREDICTIONS

1. Housing prices will continue to increase but at a slower rate than 2014. Projection: 5%-8% for 2014 in Santa Clara County.

2. Rents will continue to increase 5-10% in Santa Clara County with higher rents driven by city, schools, and commute.

3. Morgan Hill, Gilroy, and North San Jose will heat up as new construction is greatest in these localities. Expect jumps in rents for North San Jose (commute) and price increases for Morgan Hill/Gilroy as they close the gap back to 2007 peak.

4. Expect Willow Glen and Campbell to flatten out as availability of homes and schools will keep average sales price gain =/<5% for 2015. Look for builders to continue to grab older/rehab homes with all cash.

5. Watch Saratoga/Cupertino/Mountain View/Los Altos, and Palo Alto to continue push average sale price up with a projected gain of 10% in 2015.

6. Expect commute time to increase for South Bay residents as mass transit is far behind job growth.

7. Expect 2% increase on updated assessed value for property taxes. 8. Ability to obtain a loan become easier due to improved economy and lower volume of

applications.9. Expect interest rates to increase to 4.75% by summer 2015.10. Expect El Dorado County to become one of the fastest growing counties in California due to

Prop 60/90 property tax transfer. (Silicon Valley retirees can buy a larger home and still be close to family and all the Bay Area/Tahoe offers.)

In SummaryIn Summary

Silicon Valley continues to be a unique real estate market, unlike any other in the country. Our market is driven by job generation, climate, and cultural diversity.

2015 is projected to see continued growth for jobs, rents, home prices, population, and an overall better economy.

We all need a home and at Veridian Realty Group, we have the professionals to help you not only determine how to afford buying a home in Silicon Valley, but also the neighborhood knowledge and negotiation skills to work on your behalf in a high integrity manner.

Call us today to set up time to discuss your goals. 888.858.2386Or visit us on the web at VeridianRealtyGroup.com

Resources

KEEPINGCURRENTMATTERS.COM

Slide Slide Title Link

5, 6, 8Existing Home Sales, Pending Home Sales, http://www.realtor.org

7, 9 Foot Traffic https://magic.piktochart.com/output/3039836-foot-traffic-september-2014?sf5159951=1

10 Mortgage Credit Availability http://www.mba.org/ResearchandForecasts/MCAI.htm

11, 12Average FICO Score Conv, Average FICO Score FHA https://www.elliemae.com/resources/origination-insight-reports

13 Mel Watt Quote http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Melvin-L-Watt,-Director,-Federal-Housing-Finance-Agency-at-the-MBA-Annual-Convention.aspx

14 30 Year Fixed Rate http://www.freddiemac.com/pmms

15 Mortgage Rate Projections

http://www.freddiemac.com/finance/pdf/October_2014_public_outlook.pdfhttp://www.fanniemae.com/resources/file/research/emma/pdf/Economic_Forecast_102314.pdfhttp://www.mortgagebankers.org/files/Bulletin/InternalResource/89713_.pdfhttp://www.realtor.org/sites/default/files/reports/2014/embargoes/phs-09-29/forecast-10-2014-us-economic-outlook-09-29-2014.pdf

16-17 Edelman Berland Survey http://finance.yahoo.com/news/prudential-real-estate-q3-consumer-164800563.html

18 30 Year Fixed Rate Projection http://www.freddiemac.com/finance/ehforecast.html

19-22 Cost of Waiting Slides http://www.freddiemac.com/finance/ehforecast.html

23-32 Buyer’s Purchasing Power http://www.keepingcurrentmatters.com/infographics/purchasingpower

33 Historic Mortgage Rates http://www.freddiemac.com/blog/research_and_analysis/20140324_dirt_cheap_to_cheap.html

Resources

KEEPINGCURRENTMATTERS.COM

Slide Slide Title Link

35, 36Existing Home Sales, Pending Home Sales, http://www.realtor.org

37-39 Case Shiller http://us.spindices.com/index-family/real-estate/sp-case-shiller

40, 41-43 % Change in Sales by Price Range, Months Inventory,

http://www.realtor.org

44 Year-over-Year Inventory http://www.realtor.org

45 %of Distressed Property Sales http://www.realtor.org

49 Joe Pulizzi Quote http://contentmarketinginstitute.com/author/joepulizzi/