http://3oceansrealestate.com/blog Commentary on the real estate market of the San Francisco Bay Area Mon, 08 Feb 2010 20:21:48 +0000 http://backend.userland.com/rss092 en So far 2010 is off to a roaring start, with multiple offers again becoming commonplace, and highly qualified buyers lining up in some cases to present strong offers for well-priced, desirable properties. As a couple of data points, our listing for a three bedroom home at 842 Sycamore Drive in Palo Alto, an entry-level home priced at $949,000, received 14 offers and sold for over $1,100,000. A similar property nearby on Greer received 12 offers the same week and sold for just under $1,100,000 vs. a list price of $979,000. [caption id="attachment_1884" align="alignright" width="300" caption="842 Sycamore Drive, Palo Alto"][/caption] This market imbalance of large demand chasing limited supply isn’t limited to the entry level, homes in Los Altos and Palo Alto listed between $1.5M and $2M are receiving multiple offers as well, and even our office listing at 75 Coronado in Los Altos priced at $3,995,000 has been getting more interest lately. As we begin to see more homes coming on the market as we move through the spring, I expect to see the market cool as the supply of homes for sale catches up with demand, and buyers have more choices. In the meantime, the Sellers seem to have the advantage if they have homes that are attractive to mainstream buyers. That $45,000,000 estate on Stonebrook Drive in Los Altos Hills is a great example, as it is now an $28,000,000 estate. Do I hear $15,000,000? In summary our current market continues to be driven by the following conditions: Low inventory of desirable homes for sale that are well priced Buyers motivated & feeling like they will miss out with limited selection Fears of rising interest rates are driving motivation to ... http://3oceansrealestate.com/blog/the-silicon-valley-market-report-for-february-2010.html I have been patting myself on the back over the results of my contrarian marketing of 842 Sycamore Drive in Palo Alto. It sold in a week with 14 offers, when the average Days on Market for a home in that area and price range is about 100. Part of my contrarian marketing was to put it on the market during January, before the "traditional" beginning of the spring market, which is the week after SuperBowl Sunday. With the recent sales activity, I'm expecting a number of homes to come on the market starting in mid-February, as most agent "hold" listings until then. I have confirmed this with a number of my colleagues who are big "listing agents" meaning they hang signs in front of a lot of houses. (Most of my work is with Buyers). Another house on Greer in the same neighborhood on and price range (listed at $979,000), received 12 offers and sold for very near what Sycamore did. Both homes had over 100 visitors to the open houses and the offers landed in the same ranges. One question that came up immediately was "These are so similar, I wonder how many buyers are writing offers on both homes?" I haven't been able to confirm anything, but I have a sneaking suspicion that the same 12 - 15 people were writing offers on both of these homes. If this is the case, then the entry level market in Palo Alto is like a game of musical chairs. The same 12 - 15 people are going around writing offers on homes, and with every sale one drops out. After 12 rounds or so, they all have homes and the market stops. So, when the conventional wisdom listings hit the market in February, there will be a flood of inventory, and choices, so the number ... http://3oceansrealestate.com/blog/tales-from-the-front-1312010-the-return-of-the-tulips.html Free mortgage payment insurance, really?  Yes!  While hosting one of my monthly mortgage market updates, which generally occur every third Wednesday of the month, I learned that CAR actually offers complimentary mortgage protection through their Housing Affordability Program (special thanks to Pam Page and Julia Keady for this information).   To be eligible, the following are a few highlights: First-time buyers only Dwelling must be single-family residential Must close escrow by December 31, 2009 Must be represented by a CA Realtor Buyer(s) have not received benefits from HAF in the past The maximum monthly benefit is $2,250 per month for a total duration of six months, after an initial four-month seasoning period.  As such, it may be worth looking in to additional providers to augment the CAR program, should additional peace of mind be desired. So what else was good information discussed at the update on Wednesday?  Bridge financing is available for qualified move-up buyers looking to leverage their current home and buy before they sell "Jumbo" money is more available today than it has been over the last year, which is primarily due to price stabilization-- there are now programs offering rates below 4%, leverage as high as 90% (80% to $2mm loan amount!) and financing for investment properties with the elevated conforming loan limits staying in tact, rates below 5% and a total of $18,000 in tax credits available to eligible buyers, first-time buyers are likely much better off owning versus renting provided that the holding period is five years Move-up buyers appear to be the most motivated lately, as we are seeing twice the number of applications on "jumbo" mortgages versus conforming mortgages coming in at present with qualifications tightening, sellers are wise to consider offering up to 2% of the sales price  as a credit toward a buyer's non-recurring closing costs to yield a lower rate and therefore payment  Multiple offers are back, so it's good to ... http://3oceansrealestate.com/blog/free-mortgage-payment-protection-fha-standards-easing-and-loan-mods-at-absolute-mortgage-banking.html Tax Credit and Conforming/FHA Loan Limit Extended Made official on Friday, the tax credit for home purchases was extended through July 1, 2010 and the important details are exactly as they were in my post on Friday the 30th of October, which was summarized as follows: · Effective on binding real estate contracts from December 1, 2009 through April 30, 2010, The tax credit would be $8,000 for first time home buyers and $6,500 for move-up buyers who have owned their current home for at least five years · The tax credit expires on April 30, 2010; however, if a binding contract is reached by April 30, 2010, buyers have an additional 60 days to close the deal and still be eligible for the tax credit · For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return · The income limits for both first time home buyers and move-up buyers would be $125,000 for single return and $225,000 joint return. · Cost of the home may not exceed $800,000 to be eligible. Remember that a tax credit has about THREE TIMES the impact of a tax deduction, which allows someone earning $125,000 per year to be taxed on about $102,000*. And since other items like interest and property taxes are also deductible*, that same individual may be looking at less than half of their earnings being fully taxable..!* Add the above news to the fact HUD also extended the conforming loan limit of $729,750 in the Bay Area to December 31, 2010, and you have a “perfect storm” for every qualified first-time buyer in the Bay Area. S&P Case-Shiller Confirming Further Improvement of Housing Prices Released last week, the S&P Case-Shiller index confirms that housing prices continue to improve, especially in areas like San Francisco where the index moved another 2.8% ... http://3oceansrealestate.com/blog/tax-credit-extended-markets-further-stabilizing-and-real-estate-ideal-hedge.html On November 6, Scott Sambucci of Altos Research did some analysis of housing prices around the $730,00 sales price to see if conforming loans requiring as little as 5% down were having an impact on selling prices, vs. the 20% minimum down payment for loans over $729,000. Basically, there is an effect, and we are seeing market striations here locally at the $1.5M and $2M price points as well, where most lenders require 20% and 25% down payments respectively. Get the scoop, analysis and commentary with cool charts HERE http://3oceansrealestate.com/blog/high-cost-conforming-loans-and-housing-prices.html [caption id="attachment_1848" align="aligncenter" width="320" caption="75 Coronado Avenue, Los Altos $,188,000"][/caption] I had the pleasure of hanging out here again this Sunday. It's a 6 bedroom, 4.5 bathroom home in Los Altos, brand new construction, for the low, low price of $4,188,000. Currently, there are only 11 homes in Los Altos for sale priced over $3,000,000, so this isn't exactly your run of the mill property. As you can see from the Virtual Tour, it has everything you need, including two laundry rooms, media room, office, nice master suite and an outdoor kitchen, all nicely packaged in about 6700 square feet. If you have an extra $4 million that you would like to put into real estate and you would like to see it, let me know. What continues to surprise me is the number of people looking for a home in this price range. The couple today who work at Google (him) and Facebook (her) are obviously planning a big stock sale, now that the market has picked back up. If we look at the top quartile of the Los Altos market, it definitely falls into the Buyer's Market category,as the median price of the top quartile has dropped from a high of $3.5M a year ago to about $3.2M today. [caption id="attachment_1842" align="alignleft" width="240" caption="Los Altos Top Quartile Price"][/caption] Looking at North Los Altos (94022) we see that the drop in the median price of the top quartile has dropped more significantly from almost $4.75M a year ago to a bit over $3.5M today. [caption id="attachment_1844" align="alignleft" width="240" caption="94022 Median Price of Top Quartile"][/caption] Meanwhile the inventory of these high-end homes has dropped over the last few months from a high of 34 in July to 25 today. [caption id="attachment_1845" align="alignleft" width="240" caption="Inventory of Top Quartile Homes in Los Altos"][/caption] In North Los Altos, only two of these high end ... http://3oceansrealestate.com/blog/tales-from-the-front-my-world-of-real-estate-november-8-2009.html Last week I attended a lecture given by economist Chris Thornberg of Beacon Economics on the economic forecast for 2010. The event was sponsored by accounting firm Petrinovich ,Pugh and Co., and Bridge Bank. You can view Dr. Thornberg’s recent presentations on the Beacon Economics website, and his talk from last week HERE. The digest version is that we will continue to see positive economic news and growth through 2010, but much of that will be driven by the various government funded stimulus packages, which will be ending next year. Since these programs can’t go on forever, Dr. Thornberg predicts that we will see stagnation in 2011 due to the double whammy of unemployment and defaults in the commercial real estate market. Yes, the hits just keep on coming! We continue to see the following strata in the single-family home market across our area. Here is how the Palo Alto market is currently behaving: Under $800,000 we continue to see some multiple offers and some homes selling briskly for over the list price as buyers are enticed into the market by low down payment (3.5% down), FHA backed loans up to $729,750. New home builders are adding pricing and rate incentives, with some offering 3% rates, if you use their lender, their contract, their terms. [caption id="attachment_1830" align="alignnone" width="240" caption="Palo Alto $1M - $1.25M, Oct. 2009 vs. Oct. 2008"][/caption] $800,000 - $1,500,000 homes are selling more slowly as buyers need 20% - 25% down payments and substantial cash flow to qualify for mortgages in this price range versus the FHA backed loans mentioned above. [caption id="attachment_1836" align="alignnone" width="240" caption="Palo Alto $1.25M - $2M, Oct. 2009 vs. Oct. 2008"][/caption] $1,500,000 - $2,000,000 has had ... http://3oceansrealestate.com/blog/mortgage-mania-25-whats-next.html As a Certified Foreclosure Specialist, I've been talking about the "next foreclosure wave" for quite some time now. As the subprime crisis winds down, the next crisis emerges - Option ARMs and Alt-A loans (3/1 ARM, 5/1 ARM, and 7/1 ARMs) are all resetting over the next 18 months.  See this chart for a visual of what I am talking about. These are the loans that middle-class Americans all got during the 2004-2007 timeframe.  As a Realtor selling homes during this time, all the mortgage brokers and banks I worked with was selling these loans to almost every buyer.  It's scary how many ordinary middle-class folks have these loans.  These are not your sub-prime category of people, these are people who probably can afford a jump in their payment if it increases when the loan resets.  But the wildcard here is unemployment...  With 12.5% of Bay Area residents out of work, this spells trouble for people who are currently struggling to make ends meet.  A payment increase is insult to injury when someone is living off savings while trying to find a new job.  I talk to people all the time who have drained their savings, 401(k)s, and are hanging on by a thread. We are not out of the woods yet - there are a lot more foreclosures coming, especially in the mid-priced range of the market.  RealtyTrac just released their Q3 2009 Foreclosure Report and it indicates that we are starting to see huge increases in foreclosure rates in cities that were not previously foreclosure hotspots. What does this all mean?  There may be opportunities for buyers to scoop up great deals on properties in the mid-range of the market.  For example, we are starting to see properties that sold for as much as $850,000 here in San Jose now selling as ... http://3oceansrealestate.com/blog/next-foreclosure-wave.html On October 12, I attended a SILVAR sponsored economic update and forecasting presentation by CAR EVP Joel Singer, and I thought you might find the following summary and comments beneficial: As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery 40% of first-time buyers for 2009 bought because of the tax credit The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah! Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010 As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly And if you missed the headline on September 24th about the Fed easing their policy of ... http://3oceansrealestate.com/blog/economic-forecast-extending-the-tax-credit-and-the-golden-window-for-buyers.html Today was re-tour day in Palo Alto. When the price of a home is reduced, or the listing agent is trying to generate some interest in a stale listing, they "re-tour" it, or have it on broker's tour again. Today we visited three great properties that are looking for new owners and are on tour following price reductions. First up was a Crescent Park contemporary at 1012 Forest Avenue, listed by Alan Dunckel and Derk Brill of Alain Pinel Realtors in Palo Alto. Since there isn't an actual Alain Pinel at that office, if you ask for him, you will be connected to Alan Dunckel, who is a nice guy and a good agent and his name is close enough. They have just reduced the price on this home from $2,395,000 to $2,195,000. Not bad for a 4 year old home in that neighborhood. It will have an open house on Saturday and Sunday from 1:30 to 4:30. Next we moved a little South to 2145 Emerson Street in equally shi-shi Old Palo Alto. This newer traditional home is listed by Lisa Liu of Alain Pinel Realtors for $2,095,000, down from $2,295,000. At 2248sf on a 5000sf lot, it's a cozy home, with great details, and great natural lighting. Open Sunday from 1:30 to 4:30. Saving the best for last is my Intero colleague David Troyer's listing at 75 Coronado Avenue in Los Altos. This new home is 6721 square feet on two levels on a 14233sf lot. Using modern Craftsman architecture and high ceilings, even the basement feels open and spacious, and it has great finishes and details throughout. Normally shown by appointment only, I'll be there this Sunday from 1:30 to 4:30. Please stop by! If you would like more information on any of these or other homes for sale in the ... http://3oceansrealestate.com/blog/tales-from-the-front-the-world-of-palo-alto-area-real-estate-101609.html The Dow Closed Above the magic 10,000 mark for the first time in over a year, meaning that our 401(k)'s should be back from being 201(k)'s, and that it is time to test my response to the question "What will it take for the housing market to come back?" I have been saying "Dow over 10,000", with the logic that a great deal of our local wealth was held in stock on various mutual and hedge funds, and so stocks rebounding to near 2007/2008 levels would return that wealth to our stock accounts, with a little consumer optimism coming along for the ride. While I never claimed to be Carnac the Magnificent, let's see how the market has been responding to the rise of the Dow over the last month or so. Strike 1: The median price of a home for sale in Palo Alto is about $200K lower than a year ago. Strike 2: My theory that homes in the top 25% of the market are more sensitive to swings in wealth, IPO activity and stock values seems to have sprung a leak as well. The top of the market was on an upswing a year ago, and prices have dropped a bit over the last couple of weeks. I'm going to quit while I'm ahead, but will defend my prognostication with the observation that the mix of homes can cause the median to bounce around a bit as well. If you are a data junkie too, you can receive free weekly reports on the cities and ZIP Codes of your choice via email by subscribing at www.REMarketReports.com. No Spam, and opt out at any time. Thanks for reading, and I hope you are well diversified. http://3oceansrealestate.com/blog/dow-above-10000-for-the-first-time-in-a-year-housing-prediction-to-come-true.html With the number of mortgage applications on purchases surging another 13% last week, combined with conforming-level rates remaining at sub-5% levels and pending home sales rising for the seventh straight month, who in the real-estate world doesn’t need an extra shot of espresso in the am!  But not all is rosy with tighter guidelines and the Fed ready to raise rates as necessary to control inflation. Applications and Rates With total mortgage applications up 16% last week (13% for purchase applications), how is it that rates are lower if demand for loans is up?  The answer is that rates are affected when loans are locked.  So if applications are submitted, but processing times are extended and applicants are holding off locking their loan, rates will be lower until real demand (locking the loan) kicks in. The current trend seems to indicate that rates are moving higher, but not significantly.  As such, if you are looking for that conforming 30-year fixed under 5%.., it’s still available.   Non-conforming rates are also cooperating as they are tied more closely with savings rates than market fluctuations, and we all know how low those CD rates are right now. What is important to note is that the Fed is concerned about the level of “slack” left as it relates to loose monetary policy, which suggests that tightening monetary policy (raising rates is one way to tighten the screws, but not the only way) has become the focus for the Fed. Pending Home Sales Up 22.3% Over Last Year August is typically a slower month for real estate sales, but August 2009 sure bucked the trend with the West reporting a 16% increase over ... http://3oceansrealestate.com/blog/activity-off-the-charts-tighter-guides-tax-credit-extension-weekly-comments-for-october-9-2009.html I'm going back to some of our original content here on 3Oceans and providing some commentary on selected homes I saw today on Broker's Tour that are worthy of mention to me. Thanks to JT for driving today, and Steve for navigational assistance. I dragged my Los Altos compatriots to Palo Alto today to see a couple of fine homes from the 1930's. Being an old house nut, 320 Kellogg Avenue, listed by Tim Trailer of Coldwell Banker in Palo Alto really captured my attention with its period details, classy kitchen remodel and the big soaking tub in the master suite. Set on nearly half an acre of Old Palo Alto, this fine property will only set you back $9,750,000. Moving downmarket to 2050 Waverly Avenue, listed by Bonnie Bjorn of Coldwell Banker in Menlo Park is this beautifully restored Dutch Colonial, offered with the reduced price of $4,995,000. It's less house and less land than Kellogg, but you don't have the train noise, and I actually like the neighborhood better. Plus the almost $5million in change will get you a nice little place overlooking the fairway at Pebble Beach, or a small winery in Sonoma . . . The highlight for me today was this newer Palo Alto Hills estate, listed by Grace Wu of Alain Pinel for $4,299,000. Almost two acres of land, sweeping views of the Hills, and a 3 car garage (must have!) make this a winner. No open houses, but I can set up a showing if you are interested. Finally, a big shout out to David Chung of Alain Pinel for rocking his new Audi R8 on broker's tour today! I think he is the new winner in the sexy Palo Alto Realtor Car competition. Eat your heart out Ken! If you would like to see any of the ... http://3oceansrealestate.com/blog/tales-from-the-front-my-world-in-real-estate-october-9-2009.html After a bit of a hiatus, we’re back with our weekly proprietary comments on new developments in the mortgage world, and how they affect you. S&P/Case-Shiller Home Price Index Shows Broad Improvement Just released this morning, the S&P/Case-Shiller Home Price Index for July continues to show price improvement across the board, with San Francisco showing an index of 128 (that means the appreciation rate since January of 2000 is 28%) and pricing improvement on a consistent basis since early this year. As we all know, many homeowners and homebuyers view this index as the authority on real estate values; as such, the latest results show continued evidence that the “bottom” was reached much earlier this year. Combine this with some recent anecdotes: There were 95 offers on a property in San Jose that went for 30% over asking at approximately $550,000. Inventory continues to be way below average at about 4 months New construction on the Peninsula wasn’t overbuilt to the degree of San Francisco and San Jose, Combine this with continuing low interest rates, and you have a recipe for a very active Fall market here on the Peninsula. Conforming Rates Set to Go Higher—Are You Prepared? My hope is that it’s now common knowledge now that it’s highly likely that conforming mortgages between $625,500 and $729,750 will see rates moving higher by the end of October, leaving those who are looking to purchase or refinance a home only about a month before the cost of borrowing begins to make a significant move higher. While we all know that the Fed added another $400b ($1.2T now, that’s $1,200,000,000,000.00 WOW!) towards the effort to keep ... http://3oceansrealestate.com/blog/mortgage-mania-31-october-2009.html I was chatting with a friend of mine from India the other day and, as is my habit, the conversation turned to real estate.  He mentioned to me that his father is a big proponent of Indian "Feng Shui" -- how the home should be laid out, its orientation, its colors, and so forth.  Over the last few years I have become modestly familiar with the Chinese version, which is, of course, completely different.  (Given how large and diverse both China and India are, I have to assume that there probably isn't one single Chinese Feng Shui or a single Indian one either.  I also assume that in India, this concept is not called Feng Shui.   Work with me here!) In Chinese Feng Shui, there are many things to watch out for.  You don't want a home to be at the top of a T-junction.  You don't want the front and back door to be in a straight line, lest fortune and good luck come in the front and slink out the back.  You want certain colors and lighting in certain rooms. The Indian version is equally complex.  The kitchen window needs to be facing east.  There is a different orientation required for the master bedroom, and there are certain considerations for the layout of the other bedrooms and for the locations of the bathrooms.  My friend said that before considering buying a home, he'll email his father a map of the home's layout, along with its orientation, and get his father's verdict before deciding whether to continue or not. That got me thinking -- wouldn't it be cool if there were an iPhone app for that?  Kitchen.  Windows facing East.  Check!  Bedroom.  Check!  You could advertise your listing as being Feng Shui friendly. Well, it turns out -- surprise!  -- there is one. ... http://3oceansrealestate.com/blog/feng-shui-for-homes-yep-theres-an-app-for-that-too.html In Redfin CEO's Glenn Kelman's inimitable "Aw Shucks" writing style, he announced recently that the discount online hybrid brokerage has turned its first monthly profit.  While one month certainly a trend does not make, it is an important milestone in the company's development.  If Redfin can make money while a) charging a lot less than its competitors and b) serving a market segment that the traditional industry is wary of ... then Redfin's prospects going forward just got a whole lot brighter. Exercising my blogger's prerogative to quote myself, here is what I said some two years ago, applying Harvard professor Clayton Christensen's thinking on "The Innovator's Dilemma:" His theory, put forth in his books The Innovator’s Dilemma and The Innovator’s Solution posits that new entrants into an industry often take advantage of a disruptive technology to enter the marketplace at the lower end, catering to the low-margin customers that the established players aren’t that interested in serving. ... If the new entrant succeeds, it starts to take market share from the incumbents, who finally wake up — often too late — and discover that the “cheap, undesirable” part of the market is both larger and more lucrative than they previously thought. ... Even more interesting is that as the new entrant grows, its clients’ needs often change over time — to the point where the new entrant now also provides more of a “traditional” experience. Think back to Charles Schwab: its early customers were drawn in by the prospect of significantly less expensive stock brokerage services. The Charles Schwab of today still provides that, but also provides a higher-touch, higher-cost service, akin to that of the Merrill Lynches. Exercising another of my blogger's prerogatives -- that of making wild generalizations -- many of Redfin's clients are tech-savvy, data-hungry, 30-ish first-time home buyers for whom Redfin's data-rich site is like crack cocaine ... http://3oceansrealestate.com/blog/the-innovators-dilemma-in-real-estate-redux-redfin-proves-you-can-turn-a-profit-even-with-lower-commissions.html Since so much of what we read about the real estate market is looking at it nationally, or statewide, it is easy to forget that real estate is local. In fact, it is probably the only product that still is local. Here in Los Altos, the market has really picked up starting in early May. Consumer confidence came back as the stock market rallied, the sun came out, flowers bloomed and sellers got more realistic about pricing. Buyers responded by buying up homes faster than they are coming on the market, mopping up inventory. In June, there were more homes in contract in Santa Clara County than were for sale. The majority are under $500K, but the buying frenzy has moved into the mid-priced homes up to $1.5M. Buyers are finding themselves in multiple offer situations in some cases, with a homes in Los Altos and Palo Alto occassionally receiving over ten offers. . . . What year is it again?!? Even this new market activity is being regulated by loan availability. I wish I could remember the name of the banker who said that "the lending pendulum has swung to stupid" last week. He is in Nebraska and was saying he can't do loans now that his father would have happily done in the 1950's. Home buyers in the dreaded jumbo market are having to provide tremendous documentation and larger down payments, which are softening the market with inflection points at $1.5M (20% down), and $2M (25% down). Over $2M, you need to bring $600,000 in cash, which is a decent chunk of change, especially if you are in the tech industry these days. Yesterday, I had the pleasure of spending the afternoon at this lovely home in Oak Valley in Cupertino. It is a beautiful home with views and a sparkling pool, ... http://3oceansrealestate.com/blog/tales-from-the-front-the-market-on-july-12-2009.html With the warming weather, June saw the market continue to heat up, as Buyers jumped back into the market aggressively, resulting in strong sales across the area, especially for single-family homes under $1.5 million. Homes that are attractive to the bulk of the market, with updates, attractive floorplans, and four bedrooms are commanding multiple offers again, with a few homes in Los Altos and Palo Alto recently receiving over ten offers and selling for cash. A combination of continuing low interest rates, rising consumer confidence ( we are getting used to bad economic news), and the closing window for tax incentives, is fueling the current buyer activity, so we will see how long this will continue. The state is running out of funds for it’s tax rebate, but the US government has the printing presses running to fund its programs. The Anderson School of Business at UCLA released its latest report for the California economy last week, and senior economist Jerry Nickelsburg writes “there is nothing happening in California that will help pull the state out of recession in advance of the nation.” “The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report. Yet that the real risk for California, Nickelsburg writes, is the possibility that there will be no budget agreement at all and that the chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year. Overall, the forecast for California is for a very weak first two quarters of 2009, to be followed by very little growth in the ... http://3oceansrealestate.com/blog/what-happened-to-the-market-a-retrospective-on-june-2009.html I saw this on a blog on the Wall Street Journal, but a recently released paper by the Federal Reserve Bank of Atlanta looked at loan defaults on loans with a high mortgage payment to income ratio, and found that rising interest rates DID NOT significantly correlate to default rates. The two main indicators of a borrower's likelihood of defaulting were (drumroll please . . . ): Unemployment Declining future home prices Uh, oh, that sounds familiar here in Silicon Valley where unemplyment is 10.9%, and home prices in even the most resilient neighborhoods are off 10%. The article goes further to quote some numbers from the study: "The Fed paper estimates that a 1-percentage-point increase in the unemployment rate boosts the chance of a 90-day delinquency by 10%-20%, and a 10-percentage point fall in house prices raises the probability of a default by more than half. A 10-percentage-point jump in the debt-to-income ratio, meanwhile, increases the chance of a 90-day delinquency by 7%-11%." So, the 5% increase in unemployment over the last 18 months translates to a 50% increase in the likelihood of default. The 10-20% drop in local housing prices translates to a 14% - 22% increase in the likehood of default. Wow . . . Thursday's announcement that delinquencies and foreclosures have hit all time highs underscores the relevance of this study. The authors of the Fed paper recommend programs to assist borrowers who have lost their jobs get through their temporary economic challenge. The WSJ authors have an alternative solution; boosting short sales to get borrowers out of their homes. Which do I think will come to pass? Well, I have been getting training on short sales the last couple of months, and I have already seen two short sale listings in Los Altos this month. Read it at the source. Here is the WSJ blog article, ... http://3oceansrealestate.com/blog/why-borrowers-default-interesting-reading.html I send my clients a monthly market update and thought I'd share it with the blogosphere. If you agree and think that I'm a genius, please comment below. If you disagree and think I'm an idiot, keep your thougths to yourself. You can send me an email to subscribe to your city of  interest (Atherton, Los Altos, Los Altos Hills, Menlo Park, Mountain View, or Palo Alto), and I'll add you to my monthly update list. The commentary is as of June 1, 2009, that data is real-time.   May brought a ray of light into the local real estate market, as consumers, boosted by the rising stock market and low interest rates, began buying up homes on the market. Both Pending Sales and Pending Prices are up (see attached chart for a historical comparison), absorption numbers have outpaced new inventory both statewide and locally, and multiple offers on homes in Los Altos and Palo Alto have come back into play. At the low end, investors are superheating the Santa Clara and San Jose markets for single-family homes under $500,000, with many bank owned properties getting 20 – 30 mostly cash or all cash offers. In general, prices are at about 2004 levels, and interest rates continue to hover near historic lows, with conforming loans under 5% for 30 years, and Jumbo loans staying around 6%. The big question on everyone’s’ mind is, “How long will this last?” This past week we saw rates on the 10 year bond jump 0.5%, putting upward pressure on mortgage rates, which responded by rising for the different conforming loans. To get some additional input on whether this is short-term volatility or a longer term trend, I called my favorite mortgage bankers, who all had the same opinion, and all disagree ... http://3oceansrealestate.com/blog/the-market-report-june-2009.html Fellow contributor sent this to me, and I thought is was worth sharing. I'll have Administrator Kevin re-post this under his authorship when he has a minute.... We are finally seeing seeing a little sunlight through the economic gloom, both nationally and locally. Take a look at these new statistics, and some anecdotal data from here in Palo Alto. Pending Home Sales On a seasonally-adjusted basis, pending home sales in the US were up 3.2% last month (3.9% in the West) and 1.1% over last year (1.7% for the West) On a non-seasonally-adjusted basis, pendings were up 28.2% last month (23.9% in the West) and 3.2% over last year (4.3% in the West)-- wow What’s significant about this is not only the fact that we continue to see more homes selling, but the index itself is running at volumes similar to what we saw in 2001!  Further, this activity helps to stabilize the market, which leads to: more available lending, especially for the non-conforming (jumbo’s equity lines, construction financing) market helps the conforming market by enabling the MI companies to insure up to 95% again, as opposed to the 85% that they’re at now appraisal report concerns reduce reduces the emotional aspect of the sale that has created a tremendous amount of tension in the marketplace, as both buyer and seller feel more comfortable about moving forward A factor that could be contributing to this increased volume is REO’s since Fannie and Freddie had a moratorium on foreclosures from December through March.  As such, we may see a slight decrease in the median home price for the month of April.  That written, it’s been the first-time homebuyers who have been ... http://3oceansrealestate.com/blog/pendings-applications-and-multiple-offers-all-up.html If you were in the market to buy a $2,000,000 home home in the Bay Area, would it make a differnce to you if the monthly investment was less than $5,000 with a 30% down payment?   And I’m not just talking about the mortgage payment, I am talking about complete, tax adjusted cash flow including a 4.25% 30-year mortgage fixed for 10 years, property taxes and homeowners insurance.  Sound too good to be true?  It’s not.  And yes it beats market rental rates by thousands. Interest-rate buydowns are one of the most effective methods for both buyers and seller to obtain what they want, which of course is value.  For the sellers, buying down an interest rate can have up to 8X the power over a price reduction, depending on the cost to buy the rate down.  For buyers, a lower rate means higher qualification and bragging rights of having the lowest mortgage rate on the planet.  In the example above: If the buyer was qualified up to $1.8mm at 5.5%, they are now qualified at $2mm at 4.25% The seller only needs to invest four points or $56,000 to move the buyer $200,000; thus a $56,000 investment saves the seller about $144,000, which is therefore about FOUR TIMES more effective than reducing price I use the example above since I have been receiving a tremendous amount of inquiries about what’s happening at the higher end, which are those homes selling at $1.5mm+, and whether creative financing has been more common than not.  What we’re seeing is that creative financing, like interest rate buydowns and seller financing, are definitely more common at all price points.   But what’s been rather fascinating to watch is that many sellers are becoming less inclined to reduce price, despite the fact that prices are off by between 7% to 17%, depending on which city the ... http://3oceansrealestate.com/blog/buydowns-and-the-bottom.html January is a month typically filled with many things inspirational, and I must say that January 2009 appears exceptional.  In listening to Obama’s inaugural speech on Tuesday, my own interpretation was, “The power of change begins with me.  With you.  The sooner we all believe that we can change things for the better, the sooner we ACT to make things better.”  Would you like a tax credit of $7,500 for buying a home?  And I mean a REAL credit, not the 0.00% loan that the 2008 stimulus package was enactingfor firs time home buyers?  Well, that’s the latest possible modification going forward as part of the 2009 Stimulus Package, and it’s NOT limited to first time home buyers.  There’s discussion that ANYONE wanting to buy residential real estate will be entitled to this $7,500credit.   As you know, a tax credit directly offsets the amount of federal tax that you may owe the federal government—it’s not a reduction in taxable income—which makes this a very compelling reason for would be home seekers and investors to make a purchase this year.    Want another compelling reason why the smart, savvy buyers are acting sooner than later?  Because they know that average appreciation rates in California are 8.8% over the last 40 years (yes we all know that the Peninsula is much greater), and today provide an opportunity for both tremendous value and cheap financing.  Let’s think about real value for a moment.  The last year we had average appreciation in California, it was the year 2001 (8.7%).  If we strip out the overbuilt areas of California.., and concentrate specifically on areas where housing expansion is extremely limited, like the Peninsula, one can simply take the median price of comparable homes in 2001, add 8.8% appreciation per year, depreciate appropriate improvements to the property and a ... http://3oceansrealestate.com/blog/change-logic-and-money.html When I meet with homeowners who are struggling with their mortgage are maybe behind on payments and have no equity in their home, we always discuss their options when it comes to avoiding foreclosure. We usually get through my report and if it appears that their only option is to sell their house in a short sale, I always get this question - "Will a short sale hurt my credit score? And if so, by how much?" I have been doing a lot of research on this topic recently, and what I have found is there is a lot of mis-information out there. It's tough to find any definitive information about the impact of a short sale or foreclosure on one's credit report. I recently came across some great information provided by a mortgage broker and former underwriter in Southern California, Catherine Coy, on the www.BiggerPockets.com forums, where she explains that in terms of the Fair Issac scoring model, there is no difference between a foreclosure, a short sale, and a 120 day late (Notice of Default). Here is an excerpt from her post:  It's a total myth that somehow a short sale is less damaging to one's credit. Why? Because the following events are all the same; that is, the definition of a " foreclosure" by Fannie Mae and Freddie Mac is: Foreclosure None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.   Definition of Foreclosure: Any 120 day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements. The above is straight out of the Fannie Mae Selling Guide, so it's not speculation or conjecture. All underwriters know the facts: foreclosure/short sale = same/same. The hit to one's FICO score ... http://3oceansrealestate.com/blog/will-a-short-sale-hurt-my-credit-score.html You would have to be living under a rock to have missed this today, so here is a newsflash for all you subterranian dwellers. Henry Paulson's latest bailout plan now consists of borrowing $800 Billion from The Fed to buy up mortgage assets, consumer credit card debt and car loans. In his article, "Fed bets $800 billion on consumers" on CNNMoney today, writer Chris Isidore shares Uncle Henry's latest plans: "The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses. The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans. One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans. The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer. In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms." Hmmm, buying mortgage backed securities . . . wasn't that how TARP was sold to Congress in the first place? The idea of the US Government buying up toxic mortgage assets in an attempt to get the three remaining solvent banks to start underwriting mortgages is enough to get any red-blooded Realtor's blood pumping again. If this restarts the housing market, ... http://3oceansrealestate.com/blog/mortgage-mania-26-and-henry-giveth-again.html Henry giveth, and Henry taketh away . . . When Treasury Secretary, Henry Paulson asked Congress for $750 Billion (yes, that's with a B) financial bailout package, the justification was to buy up distressed mortgage assets so that banks would start lending again, and hopefully the epidemic of foreclosures sweeping the nation would be stalled. The new plan doesn't include that, of course, which has led to everyone asking, now what? Lately, I have been holding open houses in Palo Alto pretty regularly, and almost everyone coming in asks me the same question: How is the Market? We discuss the market trends of homes taking longer to sell, increasing numbers of price reductions, the importance of pricing and preparation, etc. The big shift we are seeing now is the effect of the stock market crash last month. Much of the wealth in Silicon Valley is tied to the stock market (options, grants, etc.). It's how we pay our executives and employees, reward performance (bonuses), and fuel the venture capital engine. When the market drops over 30%, suddenly, potential home buyers are faced with the prospect of selling stock that is devalued by 30% to pull together the down payment on a home that is priced 5 - 10% off its high (typical Palo Alto home, your results may vary). That is pretty tough to justify, and in many cases potential buyers don't have enough in their portfolios any more to cover the 20 - 30% down needed for that typical Palo Alto home. So, we are seeing a bunch of Buyers exiting the market, while the inventory of homes for sale in Palo Alto is about double what it was at this time last year. The result is a Buyer's Market. Good news if you are a Buyer, bad news if you are a Seller. Many people in Palo ... http://3oceansrealestate.com/blog/mortgage-mania-25-now-what.html I'd say it's a toss-up.  At least at the nudist colony there might be some, uh, ancillary job benefits, while the NAR position would require moving to Chicago.  And that's just a start. Alerted by several folks, including those at NAR Wisdom, about NAR's new "Social Media Manager" position, I find myself puzzled.  NAR and its state and local brethren are, at heart, finely tuned political action machines -- that's what they're built for, it's what they do best, and it's what you would expect from a trade union.  I remember a year or so ago a small local town -- Atherton, I believe -- thought a good new revenue source would be to tax Realtor (r) commissions at the point of sale.  Dozens and dozens of Realtors showed up for the town hall meeting -- practically more Realtors than the town had citizens!  These Realtors came from far and wide, and very few of them had anything to do with Atherton.  They came to show their extreme displeasure at this move, afraid that if it passed, the idea would spread like a cancer to neighboring towns.  Needless to say, the measure got voted down. NAR is also great at getting out its message -- very consistently -- that it's a great time to buy to sell to buy and sell to buy, sell, skip, and jump! What exactly would a social media manager do at NAR?  Send out Twitters about NAR's latest rosy forecast?  Alert everybody that Lawrence Yun is about to send another update?  There is simply too much of a disconnect between NAR's stifling corporate culture and the social media world.  I imagine all blog posts would need to be cleared by a hundred-person NAR subcommittee. I know they're well-intentioned, and I give them credit for trying, but give it a ... http://3oceansrealestate.com/blog/which-job-would-be-more-frustrating-social-media-manager-at-nar-or-clothing-manager-at-a-nudist-colony.html Despite being a late adopter of technology generally, the real estate industry has embraced social media better than most industries have, and arguably behind only politics and technology.  Here's an interesting use of social media from a completely different industry:  law enforcement. Joanne Fraser, who sells real estate in Los Altos CA, informs me that a local police department (Mountain View) is now on Twitter.  (See here.)  They don't have a lot of followers or updates yet, but kudos to them for embracing social media as a way of staying better connected to the community. Turns out the Scottsdale police department is also in on this. Neither Scottsdale nor Mountain View, however, are still quite "there."  They're using Twitter right now only as a way of disseminating information: 14 year old takes seizure medication. It is unknown when she took it last. She has long brown hair and is wearing green shirt, blue jeans. SPD in area of 28000 N. 59th Place in reference to a missing juvenile female. It is beleived she is on foot in the desert area to the east. Here's where they're missing out:  they could also be using Twitter to receive information from the public about law enforcement issues.  The Scottsdale PD is only following some 18 Tweeters (mostly local news stations), and Mountain View isn't following anybody.  Think of the increased power of the medium if they both followed all Tweeters in their area! Twitter could become a supplemental 911 system: Help!  My house at 123 Main is being broken into! I'm in the parking lot on Main & 1st.  Lights are out.  Suspicious looking guys are walking around, flashing lights into the cars. Twitter could also act as a neighborhood "early warning system": What's with all the boarded-up houses over on the West side? Traffic is backed up on Marsh all the way to 101!  ... http://3oceansrealestate.com/blog/the-tweet-cops-law-enforcements-use-of-social-media.html Did you see the debate last night? During one of the questions about the economy and the financial crisis, McCain dropped a bombshell! When Tom Brokaw asked about what needs to be done to help the housing market, McCain suggested that Government should buy back all these defaulted loans and then give these people new loans at the current market value of the home. Hmmmm. Will this work? I think not. Why? Well, let's see how this would work... Joe Homeowner has a house that he bought for $500,000 with a loan from Fly-By-Night Subprime Lending, Inc. The house is now worth $400,000 Joe, like everyone else, has lost a lot of equity in his home Unlike other Americans who are responsible and ARE paying their mortgage, Joe qualifies for the Government to buy back his subprime mortgage, because he's NOT paying his mortgage. The Feds buy his mortgage for $500,000 and immediately give him a new mortgage at $400,000, which he may or may not be able to afford So now Joe is happy, but only until he can't make his payments again... Good ole' taxpayers absorb a $100,000 loss Multiply by millions of upside-down loans. So let me ask one simple question - Does this make sense to you??  I suspect there will be a lot of responsible homeowners who are diligently paying their mortgage who will be awfully pissed off that they won't be getting THEIR mortgage bought by Uncle Sam and reset to current market value. Don't get me wrong - I am not against McCain, and this isn't about one presidential candidate or another.  I'm simply saying that this plan does not make sense.  However, I haven't heard either candidate or anyone in congress or the treasury or the federal reserve or the private sector suggest something that might actually work to solve this mortgage mess.  Although today, Barack Obama rejected McCain's plan, and his economic adviser said that McCain's plan would cause the ... http://3oceansrealestate.com/blog/mccains-debate-night-bombshell.html From the "What decade are we in?" department, comes this choice gem of a promotional email from our good friends at the California Association of Realtors.  They're running an Expo next week, and a promotional email just arrived in my inbox, from which I quote: Don’t miss this opportunity to learn the latest advances in technology such as text messaging, picture messaging, camera phones, PDAs and many other technologies... And in the next room, we'll be talking about fax machines, rotary phones, and photocopiers! The full promo: Take home MAX'S TOP TIPS A Technology Survival Guide for PDA-Smartphones and Digital Cameras Technology is evolving, and it is affecting our lives and our profession. Don’t miss this opportunity to learn the latest advances in technology such as text messaging, picture messaging, camera phones, PDAs and many other technologies that agents are using to maximize their marketing and communication. Sign up to attend the REALTOR.com® Workshop October 15 You must register separately to attend the C.A.R. REALTOR® EXPO Oct. 14-16, 2008 http://3oceansrealestate.com/blog/are-digital-cameras-and-pdas-really-the-latest-in-advanced-technology-thats-what-car-thinks.html Even us "glass half-full" types have to admit the news these days is bad.  Any day Congress passes a $700BN and has to tag on only another couple billion or so of Christmas ornaments to get it passed, well, on that day, you know things were urgent, and they had to act fast.  Wooden arrow manufacturers, Caribbean distillers, and certain other recipients of congressional largesse pork may be quite happy now, but hopefully the remaining $700BN will be spend actually trying to solve the problem. And that's where my modest proposal comes in. Fundamentally, this crisis is about housing values, or more specifically about uncertainty around housing values.  Behind most of the bankrupties, the bailouts, the CDO-thing-a-majiggies ... lies a portfolio of mortgage loans whose value is ... 3 cents on the dollar? A dime?  A quarter?  47 cents?  Nobody knows, and therein lies the problems. Our fearless leaders have proposed spending the $700BN largely on buying these "non-performing assets."  By some financial wizardry, the exact same folks who could not determine the value of these assets in the private market, are about to get hired by Uncle Sam to determine these assets' values on the taxpayer's dime. So here's what we do instead:  Let's spend that $700BN buying not the mortgages, but the underlying homes themselves.  Let's say homes in the US have an average value of $200K.  [Pause for my west and east coast readers to chuckle.]  $700BN divided by $200K is ... 3,500,000 (three million five hundred thousand.) That's right.  With $700BN we could buy a couple of million homes.  We'd start by buying, say, 75% of the inventory on the market right now.  That should restore confidence in the market pretty quickly. Presto!  Problem solved. http://3oceansrealestate.com/blog/lets-end-the-housing-crisis-here-and-now-a-modest-proposal-for-how-to-spend-the-700bn.html Apparently at least a handful of government financial regulatory employees were doing something today other than figuring out how much money Wall Street needs to keep from further imploding... The New York Times reports that JP Morgan Chase has taken over troubled lender Wamu. What next? http://3oceansrealestate.com/blog/jp-morgan-chase-takes-over-washington-mutual.html Movies.  Shoes.  Phases.  What do they have in common?  All have been recently used as metaphors describing the economy or predictions of where the economy is going. On the day that the Fannie and Freddie s$#@ hit the fan, Sherry Chris of Better Homes and Gardens Real Estate quoted Realogy CEO Alex Perriello, “I feel like I am in Imelda Marcos’ closet - the shoes just keep dropping."  Indeed. Fast forward a few days and we get the Bawld Guy, America's foremost maxim-generating machine, reassures us that we ain't all gonna die.  He's seen this movie three times before, and the asteroid doesn't hit earth. Finally, Nikcolai Kolding, also of Better Homes and Gardens, brings out an interesting diagram explaining the phases of the real estate market: ["Sides", for the uninitiated, refers to each of the two "sides" of a transaction.] The diagram suggests that transaction volume, not price, is the best leading indicator of a change in the market.  In a future article I'll see how well our local data fit into this model. http://3oceansrealestate.com/blog/whats-happening-in-this-market-a-liberal-dose-of-mixed-metaphors-to-help-us-understand-it.html Hello ladies & gents I know this has nothing to do with staging ;) But many of you who read my blogs know I am passionate about technology and its application to small businesses. My business certainly has benefited from technology tremendously and I would not have found the success that I have without using technology to streamline processes and lower my overheads. With that said, I am one of the co-organizers for BizTechDay and I just found out we have booked Tim Ferriss of 4-hour Work Week for our keynote! Here are the details: BizTechDay – Technology Bootcamp for Entrepreneurs and Business Owners Saturday October 25 All Day Event BiztechDay is the only conference that puts your business first before technology. Come meet Timothy Ferriss, best selling author of 4-Hour Work Week and George Wright (Marketing Genius behind the YouTube WillitBlend Campaign) and learn hands-on steps and ideas to take your business to the next level. When: Saturday, October 25th, all day event Where: Hilton San Francisco 333 O’Farrell Street, San Francisco, CA 94102 You can use this link to Sign up for BIZTECHDAY here. After 9/15 the price goes up $100. Use discount code BIZSCY148 ($129 instead of $149) Who are Speaking? * Timothy Ferriss - New York Time Best Seller and Author of Four Hour Work Week * George Wright – VP of Marketing from Blendtec (WillitBlend – one of the most successful Business YouTube Campaigns – 700% increase in Revenue) * Megan Casey - Editor in Chief from Squidoo.com (Top 500 websites in the World!) * Yaniv Bensadon - CEO from Fixya.com (one of the most popular Tech Support website in the world) * And many more! Why Attend BiztechDay? * Learn from business and technology who speak your language * Get ideas and hands on steps so you can also put the internet to work for your business right away * In-depth workshops and panel ... http://3oceansrealestate.com/blog/see-tim-ferriss-speak-in-san-francisco-discount-code-bizscy148.html 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. 'Nuff said. http://3oceansrealestate.com/blog/attention-all-you-crazy-drivers-in-the-fair-oaks-neighborhood-those-traffic-circles-are-there-to-slow-you-down.html 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 Eric Trailer 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 ... http://3oceansrealestate.com/blog/mortgage-mania-19-the-jumbo-strikes-back.html 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.  Tommy Fehrenbach 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 ... http://3oceansrealestate.com/blog/mortgage-mania-18-can-you-say-taxpayer-bailout.html 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 ... http://3oceansrealestate.com/blog/good-news-about-real-estate-in-the-mercury-well-sort-of.html 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 ... http://3oceansrealestate.com/blog/timing-the-market-a-bankers-viewpoint.html Image via Wikipedia Ms. Condoleezza Rice Secretary of State Kevin Boer, 3 Oceans Real Estate Chris Iverson, Ventoux Real Estate Dear Madam Secretary, We understand based on recent news events (include Mr. Obama's pre-emptive European victory lap), and on the harsh constitutional reality that your present employer will soon no longer be needing your services, that you may soon be looking for a new residence, perhaps near to your past employer Stanford University. It seems, in fact, that Mr. Bush has already begun his own search, so there may be some urgency to this matter. Allow us to suggest a residence suitable for a person of your experience and discerning taste: the Squire House at 900 University Ave in Palo Alto. This property is currently on the market, listed by the local Alain Pinel triumvirate Carol, Rosemary, and Nicole, for only $12.5M. First of all, this home is a leisurely 20 minute walk down University Ave straight into the heart of the Stanford Campus: Secondly, the facade of the home may well remind you of a similar grand mansion on the East Coast, one in which you have spent a considerable amount of time in the last 8 years: (Image courtesy of 900UniversityAvenue.com) Thirdly, the home is over 6000 square feet, and has a lot size of nearly one acre. This will provide ample room for all your entertainment, parking, and security needs. Should you wish to view this property, have your people call our people, and we'll make it happen. Best regards, Mssrs. Boer & Iverson P.S. Some of your colleagues may be in a similar situation. We are happy to provide them with good references for real estate professionals in their home towns. Mr. Paulson, for instance, may return to Manhattan to work for Goldman Sachs. May I recommend Mr. Noah Rosenblatt as the ideal discrete broker to assist him. Should ... http://3oceansrealestate.com/blog/900-university-avenue-palo-alto-ca.html Having a little too much post-Inman fun and excitement... http://3oceansrealestate.com/blog/hate-speling-misstakes-and-bad-pictures-in-the-mls-support-my-campaign-for-nar-president-and-put-an-end-to-this-nonsense-once-and-for-all.html 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 ... http://3oceansrealestate.com/blog/a-housing-rebound-looking-for-the-bounce.html 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: http://3oceansrealestate.com/blog/geeks-of-the-world-rejoice-behold-the-first-ever-twitter-mls.html Sorry I'm Twittering http://3oceansrealestate.com/blog/im-twittering.html 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! http://3oceansrealestate.com/blog/wine-country-agent-one-ups-us.html <rant> 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, ... http://3oceansrealestate.com/blog/from-the-i-missed-that-class-where-we-talked-about-place-value-department-palo-alto-per-sq-ft-prices-drop-precipitously-down-from-75000.html 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 . . . http://3oceansrealestate.com/blog/mortgage-mania-17-foreclosures-inside-the-bubble.html Yes, for those of you gents who still may be holding on to the rather relaxed "grunge" look from the 1990's, I've got a newsflash for you: grunge, along with the current housing crisis, is over.   Articles about the housing crisis ending have been few and buried in their respective periodical, my favorite of which was in TIME magazine back in February titled, "Ignore the Headlines".  But now we have the Wall Street Journal. claiming that the trough was reached in April with an article from May 6, "The Housing Crisis is Over". I agreed with Peter Lynch back in February.., and it's becoming more an more apparent that the longer prospective home-buyers sit on the fence, the more expensive that home purchase will become.  And this is not just because I believe that home prices will rise, it's also because I believe that both long and short term interest rates will rise.  The 10-year Treasury Note, for example, is up over 1/2% since the middle of March, and the 10-year Treasury Note is a decent barometer to use when you want to know what the trend in long term mortgage rates have been. That written, if you really want to continue with the grunge look, might I suggest saving it for your next camping trip? As always, kindly consult with your trusted real estate, tax and mortgage professional before seriously considering any home purchase. http://3oceansrealestate.com/blog/right-along-with-the-grunge-look-the-housing-crisis-is-over.html Memorial Day weekend -- expect little open house traffic, and not many open houses to check out. Most Realtors take a break this weekend. # Powered by Twitter Tools. http://3oceansrealestate.com/blog/todays-market-updates-via-twitter-3.html http://twitpic.com/1dat - Testing from email with attachment # 2 new Palo Alto listings in last 24 hours: 2916 Ramona ($2.5M; 5/3) from Lynn Chou; 890 N Cal. ($1.6M 5/2.5) from Tim McKeegan # Eye candy alert: 5070 Alpine Road, Portola Valley. Only $8.4M! 7800 sq ft home. Listing agent Pat Looney # Palo Alto median home price now just under $2M # http://twitpic.com/1e76 - Bummed I couldn't make broker tour today. Wanted to see 12335 Stonebrook in Los Altos Hills -- $45M mansion, l ... # Powered by Twitter Tools. http://3oceansrealestate.com/blog/todays-market-updates-via-twitter-2.html