Mortgage Mania 17 - Foreclosures Inside The Bubble

June 7, 2008

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 . . .

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Zillow Tells Tales Of Housing Woe … Meanwhile, Back At The Ranch, Multiple Offers Are Back In Vogue…An Object Lesson In “All Real Estate Is Local”

February 11, 2008

Embargoed for release until 9:00pm (hence the 9:01pm time stamp!) is the news that Zillow has just released their Q4 2007 analysis. It ain’t pretty.

Giant swathes of the country are bathed in the bright red color of price decreases and upside-down homeowners…here, for instance, is the national map of homes with negative equity. The bubblistas are gonna love this one!


Here’s how to interpret that map: 50% or more of the homes bought in 2007 in, say, Modesto are now worth less than what the owner still owes on the property. Sounds pretty grim, and it certainly is if you’re one of those homeowners…especially since we Californians have taken it as our God-given right to have property appreciate steadily year on year.

Here’s a map I’d like to see: the percent of homes bought in 2005, 2004, 2003…pretty much any year going back which are now “under water.” Instead of bloody red color so much loved by the bubblistas, we’d see a map bathed from sea to shining sea — including even the fabled fruited plains themselves — would be painted a joyful bright green, the color signifying “0% to 10%.” In fact, the map would have to be modified to show the precise number 0%.

Moral of that story: I feel your pain, trust me. If you bought a home in 2007 in Modesto, and life circumstances force you to sell it in 2008…your life sucks. Absolutely. But what about those who can stick it out for 2, 3, perhaps 5 years that this market will remain sucky for much of the country? Life for them won’t suck. Absolutely.

Let’s examine San Mateo County. Zillow’s “Z-index” for the whole county shows a 5.5% drop — that’s right, a drop — quarter on quarter. Translation: If in 2007 Q3 you bought a hypothethical home that covered the entire county, that home’s value dropped by 5.5% by Q4 of 2007.

Sounds grim, right? Again, let’s look at the whole story…

Here’s a city-by-city heat map of price appreciation from Q4 2006 to Q4 2007 … and in this map, red is good (at least for homeowners; for perma-renters and bubblistas it gives heartburn.)



Huge swathes of San Jose, the East Bay and further inland, plus some pockets of the Peninsula — like East Palo Alto and South San Francisco and Redwood City — are down, in some cases dramatically. Most of the Peninsula, however, saw price increases from 2006 to 2007; in particular, the marquee towns of Palo Alto, Menlo Park, Atherton, Cupertino, Los Gatos, and Saratoga saw prices go up 10% or more.

Folks, it’s a mixed message out there: a lot of the country is in pain. But just remember this, as always: Real estate is local, local, local. Just because prices in Vegas haven’t fallen doesn’t mean you should sell your particular home and live in a tent. You need to look at the price trends in your neighborhood.

Oh, and the “multiple offers” mentioned in the title? Here’s a small sampling of what the rumor mill says has happened in the last week…

  • Saratoga — $1.8M - ish –> 15-20 offers (two incidents)
  • San Carlos — $850K - ish –> Two properties sold with a combined 13 offers. (Hat tip to Arn Cenedella, a Menlo Park Realtor, for providing that particular juicy piece of gossip.)

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Plankton, Vendus Encourigitis, and the Stratification of Market Activity in Silicon Valley

January 7, 2008

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

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

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

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

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

East Palo Alto inventory in Silicon Valley in California

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

East Palo Alto home prices in Silicon Valley in California

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

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

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

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

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

Real estate inventory in Redwood City CA

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

Real estate price patterns in Redwood City CAReal estate price patterns in Redwood City CA

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Now THIS Is Cool! Etch-A-Sketch Market Updates

September 24, 2007

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

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Step Right Up…Carnival of Real Estate, Consumer Edition: Ben Franklin, 50-Year Mortgages, And How To Earn One Zimbabwe Dollar

July 26, 2007

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

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

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

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

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

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

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

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

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Tell Me What A Housing Crash Looks Like! This Is What A Housing Crash Looks Like!

July 3, 2007

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

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

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

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

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

Home prices in Gilroy, CA are dropping across the board The yellow line represents the median — ie. the 50th percentile.  The other lines represent the median of the 4 quartiles — ie. the 12.5th, 37.5th, 62.5th, and 87.5th percentiles if my math is right.

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

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

Palo Alto housing prices continue appreciating in the 2nd and 3rd quartiles, but are showing signs of weakness in the top and bottom quartiles. The overall median — the yellow line again — shows that in general, the market is continuing its seemingly relentless upward march.
The second and third quartiles are generally rising as well.  The bottom quartile, however, is showing signs of weakness, with prices dropping.  Similarly, the upper quartile is also dropping.

What does all this mean?

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

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

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Just Bought A $26M Atherton Mansion? Here’s How to Keep Zillow From Finding Out

June 20, 2007

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

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

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

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

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

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

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

‘Nuff said.

Photo from

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Menlo Park: Laid back suburban living

December 26, 2006

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

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

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

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

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

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

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Menlo Park’s Fair Oaks neighborhood: A touch of the rustic in the middle of suburbia

December 20, 2006

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


A stranger walking the streets of Fair Oaks wouldn’t help but notice a lack of sidewalks and proper drainage, and an abundance of little British-style roundabouts. Both help create the unique sense of neighborhood for which Fair Oaks residents are justly proud — a uniqueness that comes from a peculiar combination of benign neglect (as part of unincorporated San Mateo County instead of Menlo Park proper) and a strong neighborhood association (which installed the roundabouts to slow down commuters who use the neighborhood as a way to avoid the traffic on Marsh and Middlefield).

The neighborhood association also oversees Fair Oaks Park, a little gem maintained without a cent of public money and situated on a Hetch Hetchy right of way; residents keep their fingers crossed that the massive water system’s pipes will never need to be dug up.

Being part of unincorporated San Mateo County — “Menlo Park” in this neighborhood being technically only a mailing address — is a mixed blessing. On the one hand, Fair Oaks residents don’t have the luxury of access to Menlo Park’s phenomenal elementary school system; on the other hand, property values are a good 20% to 30% lower than nearby Menlo Park proper, most of the difference being accounted for by…the poorer schools. What you would pay just under a million dollars for in nearby Flood Park would set you back a mere $800,000 or so in Fair Oaks.

Many of the homes are small — 1200 sq ft or less — and sit on small lots of 4500 sq ft or less, a testament to Fair Oak’s origins as weekend country homes for rich San Franciscans and San Jose-ans in the 1920’s. There are a smattering of larger lots left, mostly a relic of spillover estates from nearby Atherton, which technically the southeast corner of Fair Oaks is still part of.

Conveniently located only minutes from the bustling downtown of Palo Alto, as well as Menlo Park’s more bucolic downtown, Fair Oaks is also only a vigorous stone’s throw from highway 101, making it a convenient location for commuting to many of Silicon Valley’s top high-tech employers.

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Strange sights #1 — Fair Oaks road construction

September 5, 2006

If you’ve driven in Fair Oaks lately (the Menlo Park neighborhood near Marsh and Middlefield, not the Sunnyvale street), you’ll know the county has been giving the streets, especially 9th Avenue and Oak Drive, a much-needed makeover.The construction crews and vehicles have gone, but their handiwork on Oak Drive between San Benito and Encina looks a little suspect.
Notice anything odd about the picture below of Oak Drive, facing northwest from the intersection of Oak Drive and Placitas? It looks like they’ve only done one half of the street!

Oak Drive near Placitas — only one half paved?

As you go further northwest on Oak Drive, you get to Encina, and from there on, both sides are paved.

Oak Drive near Encina — both halves paved

Why would the county arbitrarily pave half of Oak Drive on one part of the street, but the whole street elsewhere? Union strike? Ran out of money? Bad engineering?

Turns out the answer is pretty innocent — and quite informative about city boundaries. Though much of Fair Oaks is in unincorporated San Mateo county (with a Menlo Park mailing address), a sliver of it actually belongs to Atherton. The boundary, as it turns out, runs literally halfway through Oak Drive itself between San Benito and Encina, then runs left on Encina until it meets up with Middlefield and the rest Atherton proper.

So, the county’s responsibility is only for the northeastern half of Oak Drive between San Benito and Encina, and then all of Oak Drive northwest of Encina.

Confused? Maybe this map will help; the dark green shading is Atherton’s bit of Fair Oaks; the lighter green is the Menlo Park section.

Boundary between Atherton (dark green) and Menlo Park

We’ll have to wait for the Town of Atherton to pave the other half.

Strange indeed.

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