There are instances of profitable home sales, purchased through foreclosure properties and short sale, projected by Wall Street Journal, quoting the real estate website Zillow.com, to show how the home prices compare with the peak period of Bay Area real estate markets from 2005 to 2007.

It is reported that the differences in home prices are visible in San Francisco, San Jose and Berkeley cities, compared to the peak quarter of 2006, during the latest quarter ended May 2010. Overall in the SF Bay Area, excepting Napa and Solano counties, the market-rebound can be observed.

Compared to the peak in home prices during the year 2006, there was a fall in prices overall, on an average to $493,625 during May this year. However, it is said that the prices are picking up from the 28 percent fall noted between the two periods.

In a typical home purchase reported from San Jose housing market – a house of four bedrooms; with a swimming pool and two-car garage  – was purchased in April this year, in the middle of a sliding down home prices observed in San Jose home market by 26 percent. The buyer bought the property through short sale, paying $375,000 – a 44% down price when compared to the 2007 peak price of $675,000 for such a property.

The owner is content that he made a worthwhile investment while commenting upon his purchase.

The change in price trend is not even – while it shows huge differences between the peak period and now – as per the above instance, the prices are holding up firm with not much of difference in high-end markets.

To prove this point, another short sale example is quoted from Berkeley Hills Tilden Regional Park area. A two-bedroom house was purchased in March at $650,000 – less by just 13% from the July 2005 peak period price of $750,000, in 5 years.

But the point proved beyond doubt is a short sale can offer you attractive discounts in home buying.

The latest foreclosure activity report, pertaining to the first half year of 2010, released by Realtytrac says there will be near about 1 million foreclosures hitting the U.S. housing markets this year. This is based on the anticipation that the ARM mortgages of 2006 will be resetting towards the year end, paving way for more number of delinquencies.

California continues to be in the top 10 list of States worst-hit by foreclosure epidemic –  in the 4^th rank, consistently for the last few months. 2.54 percent of California homes went into foreclosure during the half year – numbering 340,740 properties. This is the highest total of all the States of U.S. country. However, in comparison, the foreclosure filings have dropped by 15 percent from that of the second half year of 2009, and by 13 percent from the first half of last year.

As far as SF Bay Area is concerned, new foreclosure filings are down by 41 percent in the first six months of this year, compared to the same period last year. This trend is also visible in Alameda County, where the number is down by 51 percent and in Contra Costa County by 44 percent.

Market analysts differ in their opinion – while some of them say it indicates that the SF Bay Area housing market is on the path of recovery, some others are not ready to accept this, since lending banks are holding back another bundle of foreclosed properties, with a view to stop the home prices falling again.

Another point of interest to support this theory is – there is growing number of re-defaults by home owners, even after loan modification and adjustment of repayment installments.

On the other hand, lending banks are adopting a strategy of wait and see – instead of rushing to expensive foreclosure route – they are giving more time for the home owners with the hope of retrieving their capital, by extending trial modifications to the distressed borrower-home owners.

By taking the year-over-year sales figure, one can assume that the end of the tax-break incentive program on 30^th April (only extended for closing till 30^th September) has its impact in dousing up the spirit of home buyers and investors. But this presumption is belied, by the fact home shoppers are active in their hunt and thus there is a rise in home sales compared to May.

Inventory of homes available for sale rose during the month of June in the SF Bay Area unusually, since the month of June every year will see fewer listings of homes for sale. Figuratively there are 22,403 residential properties waiting for buyers at the end of June, an increase of 8.7% from that of May.

Market watchers are of the view that there will be higher influx of homes into the market by the end of 2010. The reason being – Bank repo properties are steadily on the increase month after month of late and more ARM mortgages resetting will increase the delinquency rates nationally, as well as in Bay Area. It is reported that more than 7 million home owners are behind their mortgages, and will fall into the foreclosure trap during the second half of 2010.

However there is encouraging news though for home sellers. The median price of a Bay Area home, recorded in June at $410,000 is up by 16.5 percent – than what it was in June 2009.

Other statistics worth noting are – Jumbo loans – that is amount of loan over $417, 00 involved in home sales for June is 33 percent; adjustable rate mortgages accounted for 11.9 percent of total home sales in June, where 16 percent of buyers are supposed to be investors, buying properties for business purposes and not for their own living, in SF Bay Area.

News reports appearing in San Francisco Chronicle, about Contra Costa County are somewhat encouraging in that although the property values in cities of this county still facing south (dropping down) they are not dramatic, as they were in 2009. Across the Contra Costa County, on an average, the assessed property values decreased by only 3.4 percent, but the decline in tax revenue because of reduced property tax collection continues.

Here is the list of cities and the percentage decrease as reported:

Richmond    12.82%

San Pablo       5.90%

Hercules       5.28%

Antioch       4.88%

Brentwood        4.10%

Oakley        2.83%

Danville        2.10%

Rest of the cities of Concord; Moraga; Pinole; Pleasant Hill; Pittsburg; Martinez; San Ramon – in that order have dropped assessed values of properties in percentage ranging from 1.91 to 1.45 respectively. In the case of cities like Clayton; Walnut Creek and Orinda – the drop in value of properties is going down from 0.96 to 0.35 percent.

Contra Costa County consists an array of cities ranging in their economy – from somewhat Industrial city of Richmond to affluent Danville. It is pointed out that the largest drops in values have taken place in cities of working class communities, where already the home values lingered in the lower end.

Another point of interest is the two cities – El Cerrito and Lafayette – have shed assessed value of properties by 1.09 percent and 0.97 percent only. The County officials were a relieved lot, as they expected the property value drops should be higher, as experienced during the last two years, when more than 10 percent decrease was recorded.

The County has been experiencing budget cuts arising out of lesser revenue collection through property tax levies.  Overall the sad-state-of-affairs are not over yet and they can smile if only the market values are going up.

It is reported that San Francisco has been enjoying a healthy market as far as condominiums are concerned during the past few years. The median prices of condos went up to $800,000 earlier. Consequent to the housing bubble in the whole country including San Francisco, inevitably there was slump in condo sales, with the result the median price of condos were down below $700,000. The inventory of unsold condos was huge and it took nearly 50 to 70 days at times to sell them off.

The report points out that during the first 3 months of this year, condo sales have picked up, thereby giving an indication to market analysts to see it as a sign of market recovery. The report quotes The Frontsteps real estate blog, wherein the SF Association of Realtors report was re-published and an excerpt quoted as:

“In a welcomed development…..The condominium market also gained ground during March with the median sales price rising to $670,000, a 4.9 percent increase from the March 2009. Stimulated by the availability of FHA financing, tax credits, and attractive pricing/concessions in comparison to recent periods, completed condominium sales reached 206 units in March, a 76 percent increase from the previous year.”

The Condo Report criticizes that people “look at information interpreted by a Realtor Association with some skepticism” but says the data alone are easy enough to confirm. It refers to the Mark Company’s real estate report pertaining to quarter-1 of 2010 which shows –

"A total of 183 new construction condominiums closed in San Francisco during the first quarter, an 11% increase compared to one year ago. This leaves 800 new construction condos on the market, a 43% decrease from last year. The average price per square foot was $793, compared to $680 one year ago."

After a thorough analysis, the Condo Report concludes with a positive note that "sellers have become more realistic in their price expectations."

To refresh memory – federal government announced tax incentives to make way for speedy recovery of economy and enthuse home buyers to engage in buying activity. To become eligible for the tax break – $8,000 for first-time home buyers and $6,500 for those already own a home and buying another to move in – the stipulation was purchasers must have entered into a binding contract with the sellers latest by April 30. The deadline for closing the deal was June 30, but Congress extended it to Sept.30 last week.

Experts say the extension gives buyers time to finish up their paperwork only. It does not create new tax breaks for people, who were not in escrow before May 1, and the housing industry does not plan to press for another credit either.

The tax incentives boosted home sales in all the housing markets, including the 9-county SF Bay Area – no denying. It is reported that after the eligibility for tax credit expired at the end of April, new home sales plunged 33 percent in May. Existing home sales fell a more modest 2.2 percent, but that was worse than expected.

Brad Kemp, director of regional research for Beacon Economics, puts it nicely thus -“A lot of demand was pulled forward by the program”. He compares it to putting a tablecloth on a table and pulling it towards you. It will bunch up in the front, leaving an empty space behind.  He says “That’s where we are now, in the trough behind the incentive program”.

Lucien Salvant, a spokesman for the National Association of Realtors says “It’s time for the housing market to stand on its own two feet.”

Now Freddie Mac reported that the average rate on a 30-year fixed rate conforming loan was 4.58 percent last week, the lowest since it started keeping track in 1971. That was down from 4.69 percent the previous week and 5.32 percent this time last year.

But market analysts say they won’t fill the void in the housing market left by the expired home-buyer tax credit, which is not likely to be revived.

Trulia.com is reportedly tracking the impact of the oil-spill disaster on property values in SF Bay area. Although the extent of damage is yet to be assessed from the Gulf real estate markets – some of them are non-disclosure states where no public record of sale prices are available – it is projected that trouble is brewing in the housing markets. Basically the damage is already caused, by the apprehension over the desirability of location – which is predominant factor for real estate business.

So far the impact is much visible on the rental properties, in areas consisting second homes and vacation rentals by the cancelation of plans by many vacation renters booked for this summer. It is ironical that cleanup crews of the spilled oil are renting these units now.

As regards homes for sale –  although there is no actual damage reported to the homes from anywhere – the psychological fear works fast. Industry experts compare the present situation to the 1989 Loma Prieta earthquake. At that time, the actual property damage was nearly $6 billion, but the lingering perception in the minds of people as a less-desirable location, caused more damage by the reduced home values, running into millions of dollars.

But the trouble as of now is –  no one is able to predict the damage that the present disaster could instill, by way of oily beaches and allied troubles making the seashores as places to keep away from. Already a number of real estate brokers and agents in the Gulf area are reported to have complained about cancellation of many purchase contracts. For example, one of the agents says she went from closing 25 business transactions per month to zero.

The damage to property values; cancellation of rental and buying contracts apart there is one more likely damage to the local economy though. Because of the devastation of oil spill, fishing and other local industries connected with the sea might suffer, affecting the financial ability of local home owners in meeting their mortgage commitments.

Although the exact contents of the proposed legislation are yet to be revealed officially, discussion has already started among Industry circles, about the repercussions of the law, if promulgated in California.

What are the repercussions? Going back in the history, during times of Great Depression, the State Legislature enforced laws so to allow homeowners, who have lost their homes due to mortgage foreclosure, from being pursued by lenders for the “deficiency” that is difference between their former home’s market value and the dues on mortgage.

These protective laws were made at a time, when people were not using refinancing that frequently as now. So they did not include mortgage loans that were refinanced by the home owners – even for obtaining a lower interest rate – into this protection.

Today’s position is once a foreclosure is complete, lenders may use the way of obtaining a deficiency judgment through the Court and pursue the borrowers for the balance amount, even after their forfeiting their home. Although it is a cumbersome procedure to obtain a deficiency judgment, some lending banks use it as leverage for negotiation for loan modifications of the distressed home owners.

There is a growing tendency of people just walking away from their mortgaged homes, without caring for foreclosure and they don’t even care about the damage to their credit record. They can save their future earnings.  Also there is another tendency of so-called strategic defaults – people who can afford but refrain from paying mortgage installments. The proposed legislation will save them all, from the lending bank’s persuasion for deficiency.

The California Association of Realtors has sponsored the proposed legislation and the State Bankers’  groups are trying to alter the bill, saying the existing mortgages should not be altered, and if need be, this can be extended to future mortgages.

More info will be available once the bill becomes a law.

During this week, in Contra Costa County the city council and school board meetings were engaged in this and approved budgets with deep cuts, with impacts concerning services, jobs and welfare programs, affecting tens of thousands of area residents.

The economic down turn and the steep decline in Property Tax revenues have been causing reductions – somewhat deeper into public treasuries, making them shrink rapidly for the past few years. Apart from some cities like Richmond and Brentwood, which had foreseen the deficit and prepared for tougher times, other cities and school districts with multi-million dollar budgets had to swallow the bitter pill of big reductions in staffing and services.

Budget trimming effected in Concord is about $5.5 million and it expects to spend from its reserves nearly $5 millions. The members of the city council took a first step towards putting a tax measure on the November ballot.

The effect of lesser revenue in Antioch is resulting in a shortfall of $2.9 million, which is being managed by ordering layoff of 20 city workers; cut back its recreation department and animal shelter services. According to City Manager Jim Jakel – the city will be left with about 50 city workers, not counting the Police Department.

In Dublin the cut of $1.5 million from its $72.4 million operating and capital improvement budget is going to cost the city – one police officer; fewer hours of work for library patrons and the cancellation in full of the annual Day on the Glen celebration.

In the West Contra Costa school district, where the deficit will be to the tune of $3.2 million next year, the funding looks even tighter for the next two school years. Although the school board’s approved budget this week preserved programs such as class-size reduction in elementary schools and adult education, the district will need to trim $3 million from its 2011-12 budget and another $3 million from the 2012-13 budget.