SubscribeMortgage Mania 25 – What’s Next?
November 3, 2009
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.
Palo Alto $1M - $1.25M, Oct. 2009 vs. Oct. 2008
- $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.
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Palo Alto $1.25M - $2M, Oct. 2009 vs. Oct. 2008
- $1,500,000 – $2,000,000 has had an uptick in sales activity in the last month relative to Summer, as buyers in this price range have come back out and absorbed much of the available inventory.
$2M - $3M Oct. 2009 vs. Oct. 2008
Over $3M, Oct. 2009 vs. Oct. 2008
- Over $2,000,000 we are seeing fewer sales and some homes selling at large discounts from listed prices as those owners are overextended and are under financial pressure to sell. Recently, there was a $3.3M short sale in Los Altos, and a $1.8M foreclosure sale in Palo Alto.
Armed with this information, if you are considering selling, early 2010 is the time to take advantage of the current consumer optimism and positive economic news and sell in a relative high (Relative compared a year ago that is, not compared to 2006). As mentioned above, inventory is low relative to demand, especially for updated, attractive homes, and those priced under $2 million are selling. The market above $2 million is moving, but more slowly.
Tales From The Front – The Market on July 12, 2009
July 13, 2009
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, priced at $2,348,000. That is at the top of the Cupertino market, but upper-mid range for south Los Altos, which the neighborhood borders. I had plenty of company, as there were a lot of visitors, most of whom are in the market to buy a home, not looking for decorating ideas. The majority had seen the house online, so they knew the size and price before driving over.
Forecasts for the fall market are varying, at best. So don’t believe what you read in the papers, check with your local Realtor. Hopefully, rates will stay low, and we will see inventory continue to be absorbed.
Stay tuned, and thanks for reading . . .
Mortgage Mania 26 – …And Henry Giveth Again
November 25, 2008
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, let’s all be sure to thank the lobbyists working for NAR, and remember them on our Christmas lists.
The Fed goes the original plan one better by setting aside $200 Billion to buy securities backed by auto loan and credit card debt. Hmmm, let me see if I get this straight . . .
The idea behind mortgage backed securities was that they were safe because they were backed by the houses those mortgages were written against, and the logic was that those were APPRECIATING assets. This worked great until housing prices started falling, and the underlying assets were worth LESS than the loans on them.
A car drops 20% in value the minute you drive it off the lot, so you are already upside down on the loan if you put down less than 20%. The car ads are all touting $0 down, so let’s assume that most buyers today are putting down less than 20%. So . . . is this Groundhog Day?
Don’t get me started on buying credit card debt . . .
This is another reason I don’t work in the Treasury Department. That, and that pesky question about blog articles that would embarrass the President.
You can read the full text of the article HERE.
Thanks for reading . . .
A Housing Rebound? – Looking for the bounce
July 23, 2008
CNN Money is a favorite consumer source for news and sensationalism about issues affecting us financially. A friend uses it as his homepage, and sent me this article on indications that the housing market is pulling out of its downward spiral. Judging by the commentary on the Yahoo news service that picked it up, most people think it is another self-serving article written by real estate agents who want to further dupe consumers into buying homes and further leveraging them selves with unnecessary debt. There, I said it, so you can save your comments.
Here in Sillycon Valley, we are continuing to see variations on the Tale of Two Cities theme, with markets like Palo Alto and Menlo Park holding up strongly (click the links to see current market data), while prices in parts of Sunnyvale and San Jose have fallen off a cliff this year. We won’t mention Sacramento, because it’s not nice to kick ‘em when they’re down.
So, the key leading indicators for monitoring the health of your local housing market are:
- Is the housing stock shrinking?
- Are home prices falling at a slower pace?
- Is it cheaper to rent than own?
- Are houses becoming more affordable (relative to local incomes)?
Locally, we are still kind of bumping along. The current housing stock in Palo Alto is up slightly, but that isn’t unusually during the late Summer. If the trend continues through Fall, it may signal a trend.
Home prices have been stable here, so that is tough to measure, though the multiple-offer / overbid madness is definitely a rarity these days.
Depending on how you measure it, it’s still cheaper to rent than own, but tell that to my clients who were tossed into the housing market when the rental property was sold and they received a 60 day notice from the new owner.
Houses here are still unaffordable, but take a look at the chart at the bottom of the page and compare San Jose and San Francisco. It may be a good time to get into San Jose, especially if you understand foreclosures and short sales. If not, contact 3Oceans contributor Bart Marchioni, aka Mr. Short Sale.
Remember, real estate is local, and be careful what you read on the internet.
Thanks for reading . . .
What Does The Change in Conforming Loans Mean To ME?
February 19, 2008
. . . Said my friend Amy to me the other day. Since she is sort of a typical first time buyer, (actually not), I decided to make an example of her and contribute to her 15 mins of fame.
Amy is your somewhat typical Sillycon Valley MBA tech-marketing type. She works in marketing for a large company, so her income is derived from her salary, as opposed to commissions or stock options that may or may not vest. The company is stable, so her bonuses tend to be consistent and her income fairly predictable. She recently moved from one giant tech company to a large one, so she has a number of years of experience in her industry and job classification, excellent credit, and some equity from a condo that she sold.
Being an MBA, and financially conservative (politically liberal), she can comfortably afford something in the $650K price range, even in the current lending environment. The previous idea was for her to take out two mortgages, a conforming loan of $417,000, and then a second or equity line to cover the rest.
Now that Mr. W. has signed off on the stimulus package that included a short-term increase in the conforming loan limit for 2008, Amy’s interest in buying a house has gone up. The tax rebate will let her buy her kids a happy meal and some new jeans, so her interest is much more in the mortgage changes.
At the time of our conversation, the difference in rates between a conforming (under $417,000) and jumbo ($417,001+) loan was about .75%, depending on a million things, which I will leave to co-contributor Eric Trailer to explain. Jsut plugging in some numbers, on a loan of $585,000 (10% down on our $650K house), her payments would drop about $4300 a year excluding taxes if that loan was at the lower rate. Now we are talking interesting.
Admittedly, this is very simplified, because it doesn’t take into account the cost of a conforming first and then a second, or whether lenders will have tiered pricing based on the loan amount, or credit scores, documented vs. non-documented income, etc., etc., etc.
My intent is to show the effect of this new law on “normal” Silicon Valley home buyers who have “normal” jobs, and are trying to put a roof over their heads. While the tax rebates of a few hundred dollars will only have minor impacts on most of us (I get $300, I think), the effect on home buying capability will be potentially significant.
Let the comments fly, and thanks for reading.
Economic Forecast – Finally, you can believe what you read in the newspaper
January 21, 2008
I have long been a proponent of Bay Area real estate, and especially that rare piece of level ground on the Peninsula where the laws of Supply and Demand exert the greatest influence.
Amid tales of worldwide stock market tumbles (US markets were closed today in observance of Dr. King’s birthday), this little tidbit of sanity was embedded in an article in today’s online San Jose Mercury News:
Stock slides: Stocks sank around the world today, as U.S. markets remained closed for the Martin Luther King Jr. holiday.
The most dramatic decline was in India. The bellwether Bombay Sensitive Index plunged 1408.35 points, or 7.4 percent – its largest ever single-day drop in points. The pan-European Dow Jones Stoxx 600 index continued its six week slide, falling 5.7 percent to 308.77 percent.
Yet among the spreading gloom, Silicon Valley is shining.
“Silicon Valley is in better shape than the overall U.S. economy,” said John B. Sloven, director of the Stanford Institute for Economic Policy Research. “My overall assessment is the Silicon Valley economy is going to come through this pretty well unscathed.”
Some facts to consider: Prices in Silicon Valley’s wealthiest areas are holding up. Meanwhile, prices are dropping on low-end homes, increasing affordability. The region added jobs in December for the third consecutive month. Finally, the San Jose region is supposed to lead the state in personal income growth over the next few years.
The interesting point is that the falling prices for lower end housing makes things more affordable for first-time homes buyers. My personal experience is currently supporting this, as I have a couple of clients shopping for their first homes in the $600,000 – $650,000 range, and are seeing personal benefit as homes that were recently listed tantilizingly close to their range, but just out of reach, at $700,000, are now being reduced to under $650,000.
The amazing thing about this area is that the economy continues to reinvent itself, the economic engine continues to churn through economic expansion and recession, and housing remains a scarce commodity because we have very little land to build new housing on.
Not to sound self-serving, but it is a great time to buy real estate here in Silicon Valley, especially if you can scrounge together a 20% down payment and have a history of actually paying your bills. Prices in some areas are down, flat in others, and interest rates continue to be near historic lows.
Donald Trump recently announced that he is seeking investors for a fund that will invest $100 million in California real estate in the next couple of years.
If California real estate is good enough for The Donald, isn’t it good enough for the rest of us?
Thanks for reading.
