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What You Need to Know to Buy a Home in San Diego CA Now – August 2009

If you are an entry-level or first-time home buyer, it is both a terrific time and a difficult time to purchase a home in San Diego.

Here are some tips to help you land a home in the current heated San Diego real estate market:

• You will need to partner with a good San Diego Realtor to find a home.  This needs to be a real partnership; not a guarded, semi-professional relationship.  The best properties are receiving multiple offers from qualified buyers, and selling within just a few days after the homes come up for sale.  Both the home buyer and the buyer’s agent need to be available and accessible in order to prevail with a successful purchase.  If there are multiple buyers, such as a husband and wife, all parties who are decision makers in the purchase need to be available to see the property as soon as it goes on the market.

• There are a lot of resources for real estate information. Do your homework.

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• Expect competition when you submit your offer, and offer accordingly.  The homes that are the best values, especially the heavily discounted San Diego foreclosure properties and short sales, are all receiving multiple bids.  Prospective home buyers need to be prepared to make offers attractive as possible to the property sellers, who are often financial institutions.  In the best-case scenario with a foreclosure bid, the bank will come back one time to ask for the buyer’s “highest and best” offer.  Often the banks just take the highest and best offer, and their is no opportunity for the buyers to change their original bids.  Therefore, the best advice is for the buyer to present their highest and best offer at the outset with regard to all terms, including price, down payment amount, seller concessions, contingency period, and duration of escrow.

• The federal income tax credit of $8000 to first-time home buyers will expire as of December 1, 2009. This means that escrow must close no later than November 30, 2009 to be eligible for the credit.  Since most escrows are 30 to 45 days, home buyers wishing to take advantage of this historic incentive program must be in escrow with an accepted offer by the end of October.  That leaves less than three months from today for the buyer to identify a home and have an offer accepted.  And note that most buyers are not successful in purchasing the first home with their first offer.  Many recent buyers have submitted a dozen or more offers on San Diego homes before finally having an offer accepted.  And with foreclosure properties, there is often a delay up to two weeks before the banks return signed offer paperwork to the buyer.  So, realistically, anyone wishing to receive the $8,000 first-time home buyer tax credit must get started right now.

• Inventory /supply is very low in many San Diego neighborhoods,  especially in the price range below $400k.  Demand from prospective buyers far exceeds the current supply of entry-level homes for sale in San Diego.  This could change quickly if many new foreclosure listings are released in the market in the coming months.  But, for now, finding the right home requires constant monitoring of San Diego MLS listings.  Both you and your buyer’s agent should be keeping a close eye out for new listings as homes come up for sale.  The best way to do this is to sign up to receive email alerts whenever homes meeting your criteria become available.  Use the link in this paragraph to sign up right now for these VIP Buyer Alerts.

• Financing for condos and townhomes has become more difficult.    The FHA and VA loan programs are particularly strict, and not all condo developments are FHA approved.  But FHA is still the best way to buy a home using the smallest down payment (as little as 3.5% down for qualified buyers).  Buyers need to make down payments of at least 20% for conventional loans.

• Start saving for a down payment.  The best plan is to begin saving every month at least an amount equal to the difference between your rental payment and the amount of your future mortgage payment (plus taxes and insurance).  Usually the future home payment is higher than the current rent payment, so saving the difference will help you save and adjust your budget at the same time.  Ideally you can save up for a 20% down payment because, although FHA loans are available with as little as 3.5% down payment, conventional loans are preferred by property sellers.  A larger down payment will give you a better chance when competing with other buyers, and lower your loan amount and mortgage payments in the future.  Alternatively, you may decide to use the savings to help you buy a larger or more attractive home.

Direction of the San Diego Real Estate Market

After reading the tips above, you may be asking yourself…  Isn’t this a buyer’s market?  Is the market still falling, is it stabilizing, or are prices starting to go up?

The short answer really is: it depends on the price range and neighborhood. Remember that real estate is local; very local.  Right now, it is unclear whether prices are falling, stabilizing or maybe even starting to go up in certain neighborhoods and price ranges. Hindsight is always 20/20.  Newspaper reports and statistics concerning the real estate market are usually several months behind the times.  Offers made on San Diego homes for sale today generally won’t close escrow for a month or two, and then the news reports will come out another month later.

As discussed above, we are seeing multiple offers on most single-family homes priced under $400,000 and up to around $500,000 in many parts of San Diego County.  Many offers are over the asking price and are paid with all cash.

For example, in July 2009, here is a sampling of San Diego neighborhoods and the average sale price to list price:
92115 College Area:  18 homes sold that were listed under $400k.  Average SP/LP 105%
92117 Clairemont: 11 homes sold that were listed under $400k.  Average SP/LP 104%
92104 North Park: 10 homes sold that were listed under $400k. Average SP/LP 107%
92126 Mira Mesa: 33 homes sold that were listed under $400k. Average SP/LP 100%
92129 Rancho Penasquitos: 15 homes sold that were listed under $600k.  Average SP/LP 100%
92131 Scripps Ranch: 15 homes sold that were listed under $700k. Average SP/LP 99%

As you can plainly see, it is hardly a buyer’s market in the entry level price ranges for these zip codes. Most homes are being purchased at or above list price in these neighborhoods, including homes priced up to $700,000.  Demand has been sustained at these levels for all of 2009, and there is no indication of demand waning.  If anything, demand is picking up as buyers hustle to meet the November 30 deadline for the $8,000 first-time home buyer tax credit.

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