Housing Inventory Snapshot

Housing Inventory Snapshot December 31, 06 Average List Price Median List Price Average Days On Market Santa Clara County, CA Single Family under $1M $721,783 $699,000 69 Single Family over $1M $2,257,991 $1,599,000 101 Condo/Townhome under $600K $450,500 $440,000 72 Condo/Townhome over $600K $759,967 $679,000 69 San Mateo County, CA Single Family under $1M $762,286 $756,000 71 Single Family over $1M $2,747,889 $1,695,000 99 Condo/Townhome under $600K $454,885 $479,000 76 Condo/Townhome over $600K $987,557 $799,000 67 Santa Cruz County, CA Single Family under $1M $689,591 $695,000 102 Single Family over $1M $2,026,651 $1,499,000 116 Condo/Townhome under $600K $469,410 $485,000 105 Condo/Townhome over $600K $974,405 $784,000 111 Monterey County, CA Single Family under $1M $629,528 $599,995 97 Single Family over $1M $2,610,313 $1,810,000 128 Condo/Townhome under $600K $404,504 $385,000 115 Condo/Townhome over $600K $930,379 $800,000 113 San Benito County, CA Single Family under $1M $643,312 $599,999 95 Single Family over $1M $1,427,412 $1,397,500 124 Condo/Townhome under $300K N/A N/A N/A Condo/Townhome over $300K $463,987 $435,000 91 Alameda County, CA Single Family under $1M $608,993 $590,000 58 Single Family over $1M $1,715,385 $1,399,888 73 Condo/Townhome under $600K $431,658 $429,000 55 Condo/Townhome over $600K $689,821 $659,000 64 Contra Costa County, CA Single Family under $1M $578,153 $549,000 63 Single Family over $1M $1,755,934 $1,448,000 68 Condo/Townhome under $600K $369,448 $357,000 65 Condo/Townhome over $600K $717,450 $689,000 67

MORTGAGE. National Averages (December 31, 06)* 30-year fixed Rate - 5.73% APR - 5.92% 15-year fixed Rate - 5.5% APR - 5.79% 5/1 ARM Rate - 5.58% APR - 6.91%

Pardon me I just had a taxable event

Call me crazy, but I recently made an offer on a home in the San Francisco Bay Area. And yes I read the headlines and know there is a decline in the housing market. If you have read my earlier post you know that I am fond of the housing bubble logic presented at patrick.net. The house I made an offer on has been on the market for 6 months. The asking price has dropped $70K over those six months. While I think markets like Las Vegas and Reno will continue to drop in value, I am obviously less confident about bay area prices falling any further. So I made the leap of faith and sold some of my stocks to come up with the down payment. The selling of my stocks is a taxable event. I had to decided which stocks to sell. I basically broke my choices into two categories.
- Losers that I have held for less than a year
- Winners that I have held for more than a year.
Why?
If you've held a stock for at least one year, you're eligible for long-term capital-gains rates. Long-term capital gains are taxed at the 20% rate for most folks, while short-term gains--or gains made on stocks held for less than one year--are taxed at ordinary income tax rates, which range from 15% to 39.6%. In my case I am in the 33% tax bracket. So by selling the winners I have held for a year or more I am saving about 13% in taxes compared to selling winners I have held for less than a year. "begin sidebar" see the potential tax draw backs of day-trading? "end sidebar" I decided to sell the losers I have held for less than a year so that I can claim the losses on this years taxes to help offset some of the gains. If my offer is accepted on the home, I will not enjoy the mortgage interest deduction until I do my 2006 taxes.

San Mateo County: Renters beware!

Developers are not building new rental units in San Mateo county and many landlords are converting their apartment buildings to for-sale units. Why? The high cost of building in San Mateo county. When developers build condos they can sell them and see an immediate return on their investment. Rental properties can take years to break-even. Full story can be found at condo construction outpacing rentals. The end result will be an acute shortage of rental units. This means that rents will go up. According to the housing Leadership Council of San Mateo County the median price for a 2-BR apartment is $1,536 while the median mortgage on a condo is $3,239 ($550,00 & 30yr mortgage). I have been counting on the spread between owning[$3,239] and renting[$1,553] to remain the same or even increase. I belive in the housing bubble logic presented on Patrick.net. I want the spread to remain the same or increase because this means I get more value for my rental dollar and I get to stash money away for a down payment on a home. My stashed money gets invested in things like ETF and stocks. So we all know that housing cost are sky high and this article leads me to believe the median rent will increase beyond $1,553. According to The Housing Council of San Mateo County, 27 percent of households are living beyond their means (PDF) and renters need a salary of $61,440 to afford the average rent on a two bedroom aparment. We are all getting squeezed. Home owners living on the edge will fall off as ARMS ratchet upward and renters will be hard pressed to find a decent place for their families. Frankly it is too late for those who bought homes with the idea of flipping the home in a year or two. The slowing appreciation rate has singled the end of this game. However RENTERS now is your time to optimize your budgets, invest wisely and wait on the sidelines for the decline in Bay Area housing prices.

Buy real estate with your IRA

Does your IRA allow you to buy ANY mutual fund your want? How about ANY stock you want? Dare I ask does your IRA allow you to buy real estate? If you are like most holders of IRAs the answer to these questions is no. Why is this? Well the folks that hold your IRA are called custodians. They are usually banks and brokerage firms. These custodians make money from the type of transactions they allow your IRA to have. O.K. folks that hold my IRA have economics reasons why they do not let me buy whatever I want, what can I do about it? The answer: open a self-directed IRA

What is a self-directed IRA? It's simply an Individual Retirement Account established with a broker instead of a mutual fund or a bank. A self-directed IRA enables you to buy and sell individual stocks, mutual funds and real estate. As a result, you make the investment decisions instead of someone else, such as the manager of a mutual fund.

A great way to get started with a self-directed IRA is to roll over your 401K into a self-directed IRA. You can roll over your 401K when you terminate your employment. So if you are looking to change employers keep in mind this is a wonderful opportunity to roll your 401K into a self-directed IRA.

For me buying real estate is the most appealing aspect of a self-directed IRA. Remember banks, brokerage firms, and other companies that administer most IRAs are not interested in helping folks buy real estate because they want to sell their own products. About 10 years ago I changed jobs and decided to open a self-directed IRA. My motivation was to take care of my disabled brother. My goal was to purchase home for my brother. There are some restrictions about who can be the owner of property bought through a self-directed IRA. For instance the following would be excluded from owning real estate under and IRA.
- The IRA owner
- The IRA owner's spouse, descendant (e.g., son), or ascendant (e.g., mother)
- Spouse of a descendant of the IRA holder

I shopped around for an IRA custodian that offered self-directed IRA. Ten years ago the pickings were pretty slim. I decided to go with a Pensco because they were local (San Francisco) and I really like the way they answered my questions and their supporting documentation. I ended up rolling my 401K into a self-directed IRA help by Pensco. I bought my brother a home in North Carolina and can now sleep a little better at night knowing my brother will always have a roof over his head.

Conclusion: There is a reason your IRA has limited investment choices. There is an alternative and it is called a self-directed IRA. With a self-directed IRA you can buy real estate today with tax deferred dollars. I encourage you to read up on the self-directed IRAs.