Long-time Mortgage Mania readers, (aka Mortgage Maniacs) know that I’m an avid reader of the New York Times, so it should come as no surprise that I would have some comments on this article in the Friday June 6 edition regarding the continuing foreclosure crisis affecting consumers across the country.

Authors Bajaj and Grynbaum review some recent statistics on foreclosures, and then go on to predict another wave of foreclosures as the economy continues to slow and more consumers fall victim to layoffs and job cuts.

It’s easy to ignore these rumblings here in wealthy Silicon Valley where the local economy is still vibrant, even with nearly $5 a gallon gas, as it is still a minor impact on a budget with a $5,000 a month mortgage. It’s easy for us living in The Bubble of Unstoppable Real Estate (which I define as: Palo Alto, Menlo Park, and Los Altos, your mileage may vary) to say “it can’t happen here”.

Not so fast there pardner. A Short Sale in Atherton you say? It’s almost enough to make you drop your Grey Poupon.

This little number at 199 Selby Lane in Atherton recently listed by Lanny Dannenberg of Keller Williams is a short sale at $1,795,000. It has been on the market with a couple of different brokers for over two years, starting at $2,495,000 in March of 2006.

The good news is that the local market continues to be pretty strong, especially at the upper levels, above $3 million. Don’t take my word for it, check out this market data for the latest facts and figures on Palo Alto and surrounding communities.

Thanks for reading . . .

[Read more →]

A few days ago I spoke about the effect a mythical local insect, Vendus Encourigitis, has on housing inventory patterns here in Silicon Valley. It quite dependably comes out in the early part of each year, spraying homeowners with pheromones that make the notion of selling their home completely irresistible, thus putting an end to the seasonal problem we have here of low inventory. A close cousin of said insect, Achetus Encourigitis, tends to come out shortly thereafter, encouraging buyers to compete with eachother to buy the new inventory and drive prices up.

To continue the allegory, we look at another creature, this time a real one, but again with an allegorical function in this tale. I speak of the lowly plankton, a tiny oceanic life form: in size, seemingly insubstantial, but in importance, great. The plankton, you see, is at the bottom of many aquatic food chains, and if it were for some reason to disappear, the effect would be disastrous for the creatures that depend on it for food, and for predators of the creatures that depend on the plankton, and so forth: a ripple effect ultimately reaching most aquatic life.

The plankton of local real estate is the humble first-time homebuyer in the lower priced areas such as Redwood City, East Palo Alto, Menlo Park east of 101, parts of Mountain View and San Jose, and so forth. These folks purchased their homes in the last few years, assuming (as we all did) that prices would continue to rise, and they could then “move up” into a ritzier neighborhood with the equity they had built up. A higher than normal percentage (for this area) of such purchases were made with sub-prime loans.

Fast forward to 2008…these markets are hurting, some of them quite badly.

East Palo Alto’s inventory, for instance, has been marching steadily and worryingly upwards since early 2007…

…and prices have been going in the opposite — and expected — direction:

When inventory is over three times what it was a year ago, and prices have dropped by over 15%, the market basically freezes. Deflation does what it always does: makes the bargain-hunters decide to continue salivating just a bit more, because surely those prices are going to continue going down! Homes sell more slowly, prices continue downwards…it’s a vicious spiral.

And the plankton who own these homes? Well, if they can’t sell, that means they can’t buy the $850K starter home in Flood Park…and that homeowner can’t buy the $1.1M home in Palo Alto…who in turn can’t upgrade to the $1.6M property in Los Altos he’s been salivating over…who in turn can’t move to a respectable venture-capitalist-ridden neighborhood in Atherton.

The sub-prime woes affecting the lower-end markets are bound to eventually impact Palo Alto and its kin — though probably not as much as this analogy makes it sound. Why? In this market, there are plankton at almost every price point, so homeowners looking to sell don’t necessarily need to wait for a $500K homeowner to be able to sell his home. For every East Menlo Park’ian who was planning to — but no longer can — move across the 101 to buy an $850K home, there’s a dual-income tech couple who’s looking for the same $850K as their first home. Higher up the food chain, newly minted Googlers represent the plankton of the Atherton market.

But make no mistake about it: the lower end markets here are hurting, and will continue to do so for a while.

For instance, Redwood City’s inventory, much like East Palo Alto’s, is more than triple where it was a year ago…

…and prices in the two lowest quartiles are not looking pretty:

[Read more →]

Tipped off by this Michael Arrington post over at Techmeme, I thought I’d give Sketchcast a try. It’s essentially a podcast-and-whiteboard technology. The current version reminds me of those etch-a-sketch’s from long ago, and having a Tablet PC definitely helps. Unfortunately, it doesn’t yet have the capability of integrating with screen shots, so you’ll have to bear with my rough sketches of Bay Area housing graphs.

[Read more →]

Deluged by a flood of business and personal obligations, I alas had to delay judging of the Carnival of Real Estate, Consumer Edition, until today. Apologies…

Many of the entrants this week had mortgage-related topics.

The clear, unapologetic winner this week is from … Phoenix (who would have thunk it?) It’s Jay Thompson waxing loquacious about the problems that can arise with people who try to be both loan agents and real estate agents. While there are some “Renaissance” types who manage to pull it off — think Benjamin Franklin as a Realtor/mortgage broker — for the most part, there’s simply too much that you have to know in either field for the average person to be good at both.

Coming in second was Dan Melson at Searchlight Crusade in an article explaining the dirty little tricks mortgage brokers play to avoid competing on the one thing that really matters for most consumers: price.  By doing sleights-of-hand around pre-payment penalties, claiming ignorance about prices up front, avoiding discussions of negative amortization, lenders can make a loan look more attractive — in some cases much more attractive — than if they were transparent.  Caveat emptor.

Grad Money Matters comes in third with a post dispelling some myths about mortgages and home ownership. Among the myths talked about: getting a 40 or 50-year mortgage instead of a 30-year will definitely save you money; the only way to get the benefits of the old twice-a-month mortgage payment trick is to sign up in the bank’s (not free) program.

Honorable mention goes to Digerati Life with a discussion about handling eyesore properties in your neighborhood. The writer found something pretty rare to start off the article: a run-down, possibly abandoned property in Atherton, one of America’s toniest towns.

Without naming names, there were, unfortunately, some entries that were sadly lacking. One of them looked like a runner-up in a fourth-grade 10-minute speed-writing contest, and in fact the only reason I could see for the article was the chance to annoy me with ads liberally sprinkled throughout the article, including some of the links themselves. Well, I probably enriched the author’s bank account to the tune of about one Zimbabwe dollar — at the black market rate, not the official bank rate — simply by reading it.

The next carnival takes place on August 7th, with judging to be done by that wacky blogging Realtor in the town-of-two-states: Delaware, Ohio: Toby Boyce.

[Read more →]

Take a guess what I’ve spent the last few minutes thinking about a) Altos Research brand spanking new and oh-so-cool market stats features or b) an amusing anti-globalization rally I witnessed a few years ago in downtown Palo Alto or c) both.

Correct answer:  c!  My mind just works that way — kind of wacky, kind of random.

I figured I had to create a connection between the two, so I thought I’d modify the protestors’ slogan “Tell me what a police state looks like!  This is what a police state looks like!” into something real estate related — hence the title.

(As a side note, there’s a long list of reasons the rally was quite amusing, including:  a) there were more police, news folks, and gawkers than protesters; b) not a single one of the protesters looked like they had ever actually set foot in a 3rd world country, on whose workers’ behalf they were ostensibly agitating.  But we digress.)

Now, since I work in one of the few markets in the country that’s holding its value quite well, I had to look afield for some good examples of sustained, generalized price drops, and I found one:  Gilroy!  Observe:

The yellow line represents the median — ie. the 50th percentile.  The other lines represent the median of the 4 quartiles — ie. the 12.5th, 37.5th, 62.5th, and 87.5th percentiles if my math is right.

What does this graph tell us?  It’s pretty grim:  the prices in every quartile have been dropping.  No argument there!

Now let’s look at Palo Alto housing prices.  Who’s telling the truth:  us ever-ebullient Realtors, or the ever-gloomy doomsayers?  Turns out there’s a bit of truth in both sides.

The overall median — the yellow line again — shows that in general, the market is continuing its seemingly relentless upward march.
The second and third quartiles are generally rising as well.  The bottom quartile, however, is showing signs of weakness, with prices dropping.  Similarly, the upper quartile is also dropping.

What does all this mean?

First, note that we would expect more volatility when tracking the median of the top and bottom quartiles for the simple reason that only a few changes in the properties at the top or lower end need to happen in order to move those figures; the second and third quartile, however, have much more of a cushion from that kind of movement.

Secondly, the movement at the bottom may be an impact of the sub-prime market.  Getting into the Palo Alto market without a significant down payment is just plain tough these days, especially if you’ve got less than stellar credit.
Thirdly, does this mean that anybody considering a purchase around the $1M mark should hold off for a while, or that recent Google stock-vestees should restrain themselves from buying that tasty little $4M Atherton treat?  Possibly.  If you’re naturally a housing bear and skittish about the market, you probably shouldn’t be buying a home anyways — regardless of what any particular data set tells you — if for no other reason than that sleeping at night is a pleasant sensation.  If you’re an inveterate market-timer you may decide to wait a bit longer too — but when will you know that it is the right time to buy?
Time to spruce up the sidebar of my blog with these new charts!

[Read more →]

An interesting question came in yesterday through my Meebo chat box…is there any way to keep the public (and Zillow, for that matter) from finding out price for which a home sold? What about keeping the name of the new owner confidential?

I chatted with some of my friends in the escrow business and here’s what they told me…

Keeping the price confidential: Fill out a certain form with the escrow company specifying that you want the price to remain confidential. When they record the document at the county, they’ll arrange for the transfer duty stamp to be stamped on the back instead of the front of the relevant page. When that document subsequently gets scanned for the public record, only the front — not the back — is processed. Voila! The price doesn’t appear on the county’s web site records, and thus (presumably, at least) the prying eyes of Zillow and the general public won’t see it.

Apparently it may still be possible for a determined individual to find out, however, by going to the county and insisting on seeing the original document.

Keeping the new owner confidential: Arrange to consummate the purchase in the name of an LLC, Trust, or other entity, and put the address of said entity as a post office box.

So there you have it! The future owner of this little Atherton delight (listed by perennial Atherton mega-lister Mary Gullixson) can rest easy at night…snooping neighbors won’t know exactly what deal he got!

Disclaimer: I am neither an escrow expert, nor an attorney. The methods described above may or may not in fact be correct, and if they are correct in any one particular county, they are not necessarily correct in your county. Before embarking on your anonymous home-buying adventure, please consult with an escrow expert and an attorney.

‘Nuff said.

Photo from mlslistings.com

[Read more →]

Lying across the San Francisquito Creek and just to the north and west of its bigger, brasher neighbor Palo Alto, Menlo Park is the epitome of upscale suburban Silicon Valley living. Bounded roughly by Highways 101 and 280 and the cities of Palo Alto, Atherton, and Redwood City, Menlo Park is as well-manicured as it is wooded.

Apart from its natural beauty, Menlo Park’s denizens are proud, and rightly so, of its school system, which include the eponymous Menlo Park Elementary School District and the Las Lomitas School District (both of which it generously shares with Atherton) and the Sequoia Union High School District for the older students.

The shopping district centers around Santa Cruz Ave from El Camino Real to University Drive and boasts furniture stores, upscale salons, a toy store, numerous high-end restaurants (including The Left Bank), a wonderful 70’s vintage breakfast hangout named Anne’s Coffee shop (where one devotee has taken the time to upload a Youtube video), and Drager’s, which performs the amazing feat of making Whole Foods look like an inexpensive Safeway clone. Santa Cruz Ave is pretty quiet after 8:00pm, a sure sign that Stanford students prefer the glitz and glamor of Palo Alto’s University Ave.

While Palo Alto boasts the world-class university Stanford, Menlo Park’s contribution to Silicon Valley’s unique entrepreneur-laden business ecosystem is the venture capitalist heaven Sand Hill Road, an otherwise nondescript stretch of road running from El Camino Real to Highway 280.

The neighborhoods to the north and west of Menlo Park — Fair Oaks, Flood Park, and the Willows — are where you’ll find the city’s starter homes adjacent to Highway 101, with prices for a 1400 sq ft, 3 bedroom, 2 bathroom home starting in the mid-$700,000’s. Prices rise rapidly each block south and east of the highway, with the nicer and larger homes deep in the Willows running a tidy $1.6 million.

The Menlo Oaks neighborhood, bounded roughly by Bay, Willow, Middlefield, and Ringwood, boasts some of the largest homes and lots in this area of meandering streets and wonderfully old and large Oak trees. Crossing Middlefield, you come to the Allied Arts/Downtown neighborhood which includes the Allied Arts Guild. Further west brings you to the West Menlo and Alameda neighborhoods.

[Read more →]

One of the hidden treasures of Menlo Park is the Fair Oaks neighborhood, nestled between Middlefield Rd, Marsh Rd, and a seldom-used industrial rail track. Squashed between the three neighboring towns of Atherton, Menlo Park, and Redwood City, it nonetheless manages to have a character all its own.