Attention All You Crazy Drivers In The Fair Oaks Neighborhood: Those Traffic Circles Are There To Slow You Down
September 10, 2008
Having spent much of my life in former British colonies, I am well versed in various British-isms: marmite (yuck), lifts (not elevators), sprinkling my words with extraneous u’s … and the correct use of roundabouts — or “traffic circles” as they’re commonly known on this side of the Atlantic. Sadly, many of the folks here in Silicon Valley seem to have missed that part of driver’s ed.
To reduce the tempatation of using the streets of Fair Oaks (in Menlo Park) as a convenient shortcut to avoid delays on Marsh Road and on Middlefield Road, the local neighborhood installed roundabouts traffic circles a while ago. Most drivers slow down as they navigate around these obstacles, but some of the more aggressive drivers see them as a handy and challenging obstacle course, careening around them at full tilt, seemingly on two wheels. Both the fast and the considerate drivers, however, still don’t seem to understand the most basic rule of traffic circles: if you’re in the circle, you have the right of way. If you’re not in the circle, you don’t have the right of way.
Simple, really — or it should be. Alas, nearly every day brings about a near collision as a rule-following driver makes a left turn around a circle, while a non-rule-following driver comes merrily towards him, with no obvious intention of yielding.
People! Slow down! Yield the right of way to cars in the traffic circle.
No tag for this post.
Mortgage Mania 19 - The Jumbo Strikes Back
September 9, 2008
Amid all the celebration and hullabaloo associated with the recent drop in conforming interest rates as a result of the Treasury Department taking over management of GSE’s Fannie May and Freddie Mac, there has been scant analysis of the elephant in the room, namely Jumbo (aka non-conforming) loans that are part and parcel of home purchasing here in Silicon Valley.
The GSEs hold or have securitized nearly half — roughly $5 trillion — of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.
This bailout (oops, did I say bailout?) removes much of the risk to lenders of writing mortgages for under $729,000 locally, decreasing to $649,000 next year, because they can resell these loans to the government backed and now managed GSE’s.
But what about loans over $729,000? Well, Wall Street and the secondary market will still be willing to buy those that are considered low risk (excellent credit score, low loan-to-value ratio, verifiable income), but they will demand a risk premium for those loans, meaning that rates are likely to go up, taking us back to the bifurcated market for rates that we have seen in previous years.
On his way to the SILVAR Golf Tournament yesterday, co-contributor and local mortgage banking hotshot of Absolute Mortgage Bank in Palo Alto gave this quick analysis of where he sees rates going (paraphrased here):
If you know you can sell off a loan to a government backed agency, you have very low risk, so you demand a low interest rate. However, as risk increases you will demand a greater “risk premium” to hedge against not being able to sell that loan, or the buyer defaulting on that loan. Right now we are seeing investors who are willing to lend the 20% to take a buyer from a 20% down, 80% loan to a 100% loan, but at 15% with 5 or 6 points. That’s expensive money, which is why it is dubbed “hard money”, but it offsets the risk to the lender.
Eric thinks we could see Jumbo rates heading to the 8 - 9% region, which is still lower than in the 80’s, but the difference between a 6% loan and a 9% loan on $1,000,000 is $2500 a month just in interest.
Let’s do some math. If you have an 80% mortgage on a median priced home in Palo Alto ($1,921,214, source Altos Research). That is a mortgage of $1,536,971, and payments increasing from $7685 @ 6% to $11,527 @ 9%. That’s a lot of $4.25 a gallon gas!
So, if you are planning on buying a new home and you need to borrow more than $729,000 you may want to get out there looking sooner rather than later.
To learn more about the takeover of Fannie Mae and Freddie Mac and what it means to your home purchase, check out a new video featuring California Association of Realtors Executive Vice President Joel Singer at http://www.car.org/newsstand/video-js-gse. In “Fannie and Freddie: Why They Matter to You,” Joel explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market in clear and concise terms.
Thanks for reading . . .
Tags: 2008 loan limits, 2009 interest rates, 4---mortgage-mania, bailout, Fannie Mae, Freddie Mac, interest rates, Jumbo Loans, mortgage bailout, treasury
Mortgage Mania 18 - Can You Say Taxpayer Bailout?
September 9, 2008
What The Government Seizure of Fannie Mae and Freddie Mac Means To You
Unless you have been hiding under a rock the past couple of days, you couldn’t miss the announcement that the U.S. Department of the Treasury has placed government backed mortgage companies Fannie Mae and Freddie Mac into a conservatorship. Under the terms of the deal, the federal government is authorized to take up to an 80 percent stake in the companies, and, as part of its duties under the conservatorship, will review both Fannie’s and Freddie’s financial condition quarterly, as well as inject money into the operations as needed.
of Stern Mortgage in Palo Alto had this to say about the Treasury Department’s move.
“To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009. However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at about $250 billion.”
As part of this weekend’s action, both CEOs were relieved of their duties and Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S. Bancorp CFO, were selected to lead Fannie Mae and Freddie Mac, respectively.
The markets cheered the move with the NYSE and NASDAQ rallying on the news, and mortgages rates for conforming loans (under $650,000 in 2009) fell almost half a point.
All great news, mortgage rates fall, and the housing slump is averted, right? Not so fast there partner . . .
In a statement released today by the California Association of Realtors (C.A.R.), concern over the long-term impact of the move was expressed with the following cautionary forecast:
“Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.”
C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.”
I added the underlining for emphasis because what nobody is talking about is JUMBO loans. Those mortgages above $729,000 (over $650,000 in 2009) that are part and parcel of almost ALL sales of single family homes here in Silicon Valley (the median home price in Palo Alto this week is: $1,921,214, courtesy of Altos Research).
In summary, while this is a good move for conforming loans, and the majority of potential homebuyers across the country, high-cost areas like Silicon Valley may once again be left out in the cold.
Stay tuned for our next edition of Mortgage Mania - The Jumbo Strikes Back
Thanks for reading . . .
Tags: bailout, California Association of Realtors, Fannie Mae, Freddie Mac, housing market, housing market turnaround, Mortgage, Palo alto housing market, silicon valley economy, silicon valley real estate
September 2, 2008
Long-time readers know that I do my newspaper reading online via the New York Times. In a throwback to a quieter time, I do subscribe to the San Jose Mercury News on Sundays as we like to peruse the articles and share witty banter about the headlines over morning coffee. In an interesting twist, I also receive the paper on other random days of the week . . . but I digress.
When I picked up the paper on Labor Day (Second Sunday?), the headline “Home Sales Raising Hopes” bravely attempted to be seen over the front and center HURRICANE HITS GOP main headline. What’s this I thought, positive news about the housing market from the Merc? Really?
I have grown weary and wary of the Merc and its drumbeat of foreclosure of the week, gloom and doom, and reinforcing that real estate is local, and my market in Palo Alto varies just a bit from south San Jose. If you don’t believe me, visit Altos Research and compare the chart for median home price over the last couple of years in these two cities. The results may surprise you . . .
The Merc got my hopes up with an intro and a couple of quotes from brokers saying they were expecting an upturn in sales in the Fall after activity was so low in the summer, and there is usually an upturn in the fall. There is some back and forth, and the article pretty much shot down the “fall uptick” conventional wisdom. Again, Altos to the rescue showing inventory and sales actually DO pick up in Palo Alto fairly consistently every fall before slowing down over the holidays.
To see the article on its entirety, click here to visit the Mercury online. For charts and stats galore, visit the Market Reports page on my website, now in Single Family and Condo!
Thanks for reading . . .
Tags: 2008 real estate market, home prices, Local information, palo alto home prices, palo alto market, San Jose Mercury
September 1, 2008
Credit for this post really goes to 3 Oceans contributor Eric Trailer who sent me this content in a letter this week. My clients got it last week, and the blogoshpere can now benefit. We can assume that Eric has better things to do on Labor Day than blog. I’m guessing something involving his lovely wife and son . . .
To see current market data and price trends over the past year for local communities and confirm or refute Eric’s prognostications on the local market in Palo Alto and the surrounding communities,
CLICK HERE to see real-time market data, courtesy of our friends at Altos Research.
As you have likely been hearing, there continues to be more and more evidence that it will cost prospective home buyers more to purchase a home in select areas of the Bay Area as they allow time to go by.
Why? Let’s look at the basic reasons, then review an example:
1. The median price across the board in Palo Alto and the surrounding communities has risen since the beginning of the year.
2. On a national basis, the trough of the market was reached in April.
3. The conforming loan limit will DECREASE over $100,000 in 2009 to $625,000.
4. Rates have risen about .5% since the beginning of the year, despite the increase in the conforming loan limit to $729,750
5. Loan qualifications are becoming more restrictive with each passing week.
6. More restrictions on loans and a tighter supply of money forces rates to go up
7. Because loans require more work to process them (requirements today are 4x what they were a year ago), rates will go up.
8. Inflation is the number one concern of the Fed, and should be the number one concern for all of us.
Let’s say for a moment that you agree that rates are on the rise, but feel as though prices may come down on a $1mm property today; thus, you want to wait. Let’s further assume that you are right and the future price is $950,000, but rates have increased .5% at that future time. Using 20% down, waiting just cost you an ADDITIONAL $117 per month-over $1,400 per year.
But now let’s be more realistic given the appreciation rates of desirable areas of the Bay Area. If rates increase and the $1mm home appreciates to $1,050,000, you are looking at an ADDITIONAL $550 PER MONTH-OVER $6,000 PER YEAR!
What’s the take-away here? Price matters much less than true cost… My motto has always been that it always pays off to buy sooner than later, provided your holding period is greater than four years. And to prove that I walk the walk, I am happy to share my personal situation written as an article titled, “How to Afford a Home in Palo Alto Without a Trust Fund.”
To call Eric on his walking the walk comment, and get a copy of his article, “How to Afford a Home in Palo Alto Without a Trust Fund.”, click on his pretty picture over there in the contributor column to send him an email.
Tags: 4---mortgage-mania, absolute mortgage bank, mortgage rates, Mortgages, palo alto home prices, Palo alto housing market, palo alto market, palo alto real estate market
July 23, 2008
CNN Money is a favorite consumer source for news and sensationalism about issues affecting us financially. A friend uses it as his homepage, and sent me this article on indications that the housing market is pulling out of its downward spiral. Judging by the commentary on the Yahoo news service that picked it up, most people think it is another self-serving article written by real estate agents who want to further dupe consumers into buying homes and further leveraging them selves with unnecessary debt. There, I said it, so you can save your comments.
Here in Sillycon Valley, we are continuing to see variations on the Tale of Two Cities theme, with markets like Palo Alto and Menlo Park holding up strongly (click the links to see current market data), while prices in parts of Sunnyvale and San Jose have fallen off a cliff this year. We won’t mention Sacramento, because it’s not nice to kick ‘em when they’re down.
So, the key leading indicators for monitoring the health of your local housing market are:
- Is the housing stock shrinking?
- Are home prices falling at a slower pace?
- Is it cheaper to rent than own?
- Are houses becoming more affordable (relative to local incomes)?
Locally, we are still kind of bumping along. The current housing stock in Palo Alto is up slightly, but that isn’t unusually during the late Summer. If the trend continues through Fall, it may signal a trend.
Home prices have been stable here, so that is tough to measure, though the multiple-offer / overbid madness is definitely a rarity these days.
Depending on how you measure it, it’s still cheaper to rent than own, but tell that to my clients who were tossed into the housing market when the rental property was sold and they received a 60 day notice from the new owner.
Houses here are still unaffordable, but take a look at the chart at the bottom of the page and compare San Jose and San Francisco. It may be a good time to get into San Jose, especially if you understand foreclosures and short sales. If not, contact 3Oceans contributor Bart Marchioni, aka Mr. Short Sale.
Remember, real estate is local, and be careful what you read on the internet.
Thanks for reading . . .
Tags: 2008 real estate market, housing market turnaround, mortgage crisis, mortgage mania, Palo alto housing market
Geeks Of The World Rejoice! Behold The First-Ever Twitter-MLS!
July 22, 2008
I’ve been accused — rightly, I might add — of being a geek. I also happen to be in real estate. You put the two together, plus a keen interest in using new social media tools like Twitter, and what do you get? The Twitter-MLS!
For a long time, MLS searches have been available via email. Recently, some real estate search providers — like our friends at Trulia and at Diverse Solutions — have enabled MLS searches via RSS feeds. (That’s actually the technology I use on the sidebar to provide the link searches.)
As the latest new big online thing, Twitter has attracted a massive cult following, and as a permission-based communication tool, it’s ideal for sending out news snippets such as new listings.
Here’s how it works:
- Sign up for an account at Twitter if you haven’t done so already.
- Head thither and “follow” my Twitter “Menlo Park MLS” account. Other towns in the Bay Area will follow shortly.
- Sit back and enjoy the “tweets” that will come your way by cell phone, email, Twhirl, online (depending on how you configure Twitter). These “tweets” will be little news snippets about new homes to hit the market. Want more details? Click on the link in the tweet and you’ll see pictures, details, and much much more.
If you’re more of a FriendFeed type, I have the same offering available in FriendFeed room format. Find your way yonder, select your favorite city, and click “Join This Room.” And, as our British cousins would say, “Bob’s your uncle!”
FriendFeed room example for Burlingame:
Twitter example for Menlo Park:
Tags: FriendFeed, Real estate, Real-estate-technology, Technology, twitter
July 21, 2008
July 20, 2008
About a year ago we did what may have been the world’s first virtual open house. Alas, we’ve been one-uped by Pam Buda, a Coldwell Banker agent in the wine country north of San Francisco. In conjunction with Trulia, she’s live-web-casting her open house in Healdsburg today.
As video becomes more mainstream and more accessible via technologies like Qik, Mogolus, and ustream, this sort of event will probably become more common.
Pam Buda gets my vote for this year’s real estate Oscars!
Tags: Healdsburg, Open houses, Trulia
From The “I Missed That Class Where We Talked About ‘Place Value’” Department: Palo Alto Per-sq-ft Prices Drop Precipitously Down From $75,000
July 15, 2008
In a former life, I was a middle school math teacher. In the Peace Corps. In Botswana. I distinctly remember spending a number of days teaching about the importance of place value in numbers — you know, the concept that decimal points and zeros aren’t just decorations. .32 and 3.2 and 32 and 320 are distinctly different.
As far as I know, none of my former students are Realtors in Palo Alto. Which might explain this juicy little chart from our friends at Altos Research:
Note the drop in per-sq-ft prices a few years ago, from $75,000 per sq ft down to perhaps only a thousand bucks a sq ft. Then, a massive run-up back to over $20,000. Then back down again. Kind of like a scary roller-coaster ride.
Even during the incredible run-up in real estate prices, trust me, we were never at $75,000 per sq ft! The explanation for that chart? Simple: Every now and then a listing makes it onto the MLS with a misplaced decimal or zero. A $2,000,000 home gets listed for $200,000 (these mistakes are typically corrected quite quickly when the listing agent gets 100 phone calls in the first hour from agents wanting to make offers.) Then a $700,000 home gets listed for $7,000,000. (These mistakes take longer to correct. The agent wonders why nobody comes for the open house, then figures it out.)
Then there’s the square foot mistake, where a $1,600,000 home (price entered correctly) gets its floor space shrunk from 2000 sq ft (correct) to 2 sq ft (incorrect.) Voila! This home now costs $800,000 per sq ft! A few of these in the same week, and poof! Up goes that average!
Athol Kay has proved that, as a species, we Realtors aren’t that good at taking pictures. But for the love of God, people, can we please please please remember the importance of correctly-placed decimal points and zeros!
Tags: Altos Research, Palo Alto, realtors
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