Sunnyvale Real Estate Blog

GREAT question; we’re glad you asked! The answer is relatively simple; you need to carefully differentiate between media reports about the national real estate market and the local real estate market.

It’s important to remember, real estate follows true principles of economic supply and demand. When supply is low, demand for each available home is increased, which pushes prices upward; when supply is high, demand for each available home is decreased, which results in lower prices.
Also remember, our local market seems to operate on a different planet than the national market.

Nationally, it’s pretty much gloom and doom in most areas. Inventory is rising close to all-time highs in many areas. Prices are declining in the vast majority of them. The number of homes heading into foreclosure, where the owners are falling behind in the mortgage payments, is increasing each month. And the number of homes being foreclosed on and auctioned off is on the rise.

Locally, however, it’s a different story. We do have rising inventory, and fewer transactions, but it’s not across the board. In Santa Clara County, areas which have high performing schools, such as Los Gatos, Saratoga, Cupertino, Sunnyvale, Los Altos, Mountain View, and Palo Alto, have not had huge increases in inventory. Those areas are (and may always be) in high demand, so the listings sell before they have the chance to pile up and increase in number. This demand has also kept the prices from slipping very much.

As you head south, the story follows the national headlines. In many areas of San Jose, and further south in Morgan Hill and Gilroy, the market is VERY slow. There are large numbers of foreclosed homes coming on the market, and numerous short sales. The prices have dropped and are continuing to drop. These areas were in the prime price range for the “no qualification, no verification” loans that were so popular with first time buyers. Most of those loans were at adjustable rates, and as the adjustments kicked in, many homeowners couldn’t handle the larger, adjusted payment, and went into foreclosure. As the foreclosed homes come back on the market, the inventory naturally rises.

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The government’s proposed economic stimulus plan could greatly effect prices for homes here in Sunnyvale, California.

Associated PressAll Associated Press news

WASHINGTON (AP) - A component of the government’s tentative economic stimulus package announced Thursday would give an immediate lift to buyers and sellers in higher-priced housing markets.

The package agreed upon by Democratic and Republican members of the House would allow government-sponsored Fannie Mae and Freddie Mac to buy mortgages up to 75 percent more expensive than the current $417,000 limit. The Senate and White House still must sign off on the proposed stimulus plan, which also includes tax rebates for Americans.

Raising the limit on so-called conforming loans will allow a larger pool of borrowers to find lower rates when buying a new home or refinancing an existing mortgage…Read entire article.

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Mortgage Forgiveness Debt Relief Act of 2007

President Bush recently signed into law a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

Click here for the full copy of the Mortgage Forgiveness Debt Relief Act of 2007 .

The preceding is for informational purposes, and is not to be considered tax advice. The SV Home Team, specializing in real estate sales in Santa Clara County, and specifically in Sunnyvale, California, is simply trying to disseminate information we hear that might be beneficial for the public at large. We are not accountants, and we always advise verifying this and any information which can have tax ramifications with your tax advisor.

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Would you recommend I buy investment property here in Sunnyvale, elsewhere in Santa Clara County, or out of the area?

We STRONGLY recommend purchasing investment property; we cannot think of a better or safer way to gain wealth, in the long run, than to own more real estate! Where you should buy is the better question.

OK, so where should I buy and how do I go about it?

The first thing to decide is whether you are more interested in positive cash flow or overall appreciation. This will help in determining where you should look to make your purchase.

Buying real estate in the Sunnyvale area, or really anywhere in Santa Clara County, would be a purchase based on overall appreciation. This is because a home’s value here in Sunnyvale is very high in relation to it’s rental value; but, it can provide excellent appreciation in the long run.

For example, let’s say you buy a four-plex in Sunnyvale for a purchase price of $1,000,000. With 25% down ($250,000), your monthly payment for principal, interest, taxes, and insurance will be in the range of $5900 per month. You’d also have to add another $400 per month for expenses like water, garbage, and landscape maintenance, bringing your total cost to $6,300 per month. Since it’s local, you could likely manage it yourself, saving the property management fee.

Current rents for the four units would probably total in the range of $5,300 per month, so you’d have a NEGATIVE cash flow of about $1000 per month. To make this purchase profitable in the long run, you’d need the property to appreciate enough to overcome this negative cash flow AND provide a decent return on your investment (the down payment).

For example, if your desired return is the equivalent of 8% on your money, you’d need the property to appreciate an average of $2666 per month; the $1,000 negative cash flow PLUS $1666 per month (the return on $250,000 at 8%).

Now, contrast that with a positive cash flow investment (not really possible in Sunnyvale), for which you’d have to look out of the area.

As an example, in Cincinnati, Ohio, today you can purchase an apartment complex of 34 one-bedroom units for a purchase price of $750,000. With a 25% down payment, the total cost for the loan, utilities, taxes, property management, etc. would be in the range of $11,000 per month.

Current rents for the units would be in the range of $13,000 per month, so you’d have a POSITIVE cash flow of about $2000 per month. While the investment is not likely to increase much in value (appreciation), the return is realized on a monthly basis, through the cash flow. A return of $2000 per month on an investment of $187,500 equals a 12.8% annual return on your down payment, even if the property doesn’t appreciate. You’d of course have to factor in a vacancy rate, so the return would likely be a little less.

We welcome you to post your comments and/or questions regarding these or any other real estate investments. If you’d like to discuss them in person, or get more information about anything real estate related, please give us a call at 861-4813! We have specialized in selling residential real estate in Santa Clara County, and specifically in Sunnyvale, since 1984. We’ve successfully sold over 1200 homes in Santa Clara County; you won’t find anyone more knowledgeable about the market here!

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It’s January 2, 2008, and you’re in the market to buy a house in Sunnyvale, California (or any of the surrounding cities in Santa Clara County). But you have concerns; is it the right time to buy a home? Will real estate prices or interest rates begin to go up again soon? What is the market going to do in Sunnyvale, over the next six months? If I wait to buy a home, will prices be lower in a few months? These are all legitimate questions, so we’ll share our opinions, and invite your feedback!

When the housing market slows down, buyers often choose to wait on the sidelines for a clear sign that the market has recovered. The problem with this strategy is that you can only know for sure that a market has turned through hindsight, AFTER there is proof that it has turned. In other words, you can’t time the market (sound familiar?).

A slow market is perceived as an opportunity by some buyers, as it takes longer for listings to sell. The inventory of unsold listings tends to grow, giving buyers more choice than is the case in a hot seller’s market, when listings sell quickly. In a high-inventory market, there are usually fewer multiple offers so buyers can cut a better deal with the seller.

OUR ADVICE: It’s a buyer’s market. Which means, it’s a great time to buy!

The major risk of buying in a slow market is that the value of what you buy might drop before it rises. Or, prices could stay flat for some time, which means that you won’t build equity unless you pay down principal on your mortgage. If you in turn need to sell at a time when prices are soft, you might not be able to sell for the amount you paid.

OUR ADVICE: To decrease this risk factor, don’t buy for the short term.

The least expensive home in an area may not be the best investment. Unless you are a contractor with years of experience fixing up properties, you should look carefully at the condition of a property before you buy. Many home buyers, particularly first-timers, don’t give enough attention to the cost of maintaining a home. Home maintenance is a necessary part of home ownership. It can be expensive, particularly if you need to hire others to do the work. Some homes require more maintenance than others.

OUR ADVICE: Always have the home professionally inspected before you’re committed to the purchase. A good inspector should be able to give you a good indication about how much work a home needs now and how much it will need on an ongoing basis. Buying a well-maintained home that will also have relatively low ongoing maintenance is one way to keep your overall housing costs down.

Inexperienced home buyers should resist buying a fixer-upper just because it’s offered at a cheap price for the neighborhood. It’s difficult to get a firm grasp on renovation costs during the inspection contingency period, particularly if it’s a big job.

And keep this in mind: remodeling projects usually run over budget because of unanticipated problems like faulty electrical or plumbing, or an old furnace that goes bad. Or the city inspector could require that you do additional work to correct non-code-complying improvements done by previous owners. These sorts of costs can mount up so that you end up with far more invested in the property than it’s worth on the market.

OUR ADVICE: try to avoid buying a home that has an incurable defect. This is something that you can’t change, like a location next to a freeway. In a good market, anything can sell. However, these homes don’t hold their value well when the housing market softens, and become much more difficult to sell.

Give careful consideration to how you finance your purchase. Stay away from mortgages that have short due dates and balloon payments. If the market in your area stays soft for longer than anticipated, you don’t want to be caught having to refinance at a time when your home might not appraise for the price you need to complete the transaction.

OUR ADVICE: use a reputable mortgage broker, with a good track record and years of experience. They’re worth their weight in gold.

Please share your thoughts on the above and any other real estate topics that you’d like to discuss; we invite your feedback!

Gary J. Shapiro and Robert A. Gosalvez
The SV Home Team at RE/MAX
Direct 408.861.4813 Office
Email Team@SunnyvaleRealEstate.com
Web www.SunnyvaleRealEstate.com

Portions of the above are excerpts from an article written by Diane Hymer in The Inman News, 2007.

The SV Home Team has specialized in helping buyers and sellers in the Sunnyvale, California real estate market since 1978. We have combined full-time experience of over 60 years, with over 1200 successful transactions; more than half being right here in Sunnyvale.

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Hey Gary! Hey Robert! Can you help me do a short sale?

Can you help me do a short sale in Sunnyvale? You bet we can; in fact, we’ve been certified as experts! A short sale occurs when the sale price of home will be insufficient to pay off the loans on the property (this is also known as being “upside down”). In a short sale, we negotiate with the lender, on the seller’s behalf, asking them to accept less than the full amount owed to them.

Why would a lender consider it? To save time and money.

Let’s say the seller has lost his job, and can no longer make the payments on his loan, or his adjustable rate loan has adjusted upward and he can’t afford the higher payment. For instance, we’ll ask the lender to accept $50,000 less than the amount owed in order to allow a sale to go through. If the alternative is for the lender to foreclose, and we can show them it will likely cost $100,000 or more to do it, many times they’ll consider it, and we can prevent a “foreclosure” from being stamped on the seller’s credit report. If you know of anyone who might need our help on this, please have them give us a call or send an email!

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