Right Along With the Grunge Look, the Housing Crisis is Over

May 28, 2008

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.

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Written by Eric Trailer, Mortgage Banker, Absolute Mortgage Banking · Filed Under Articles, Buyer and seller tips, Consumer, For buyers, Industry, Mortgages, Real estate | 8 Comments 

Lies, Damn Lies, And Statistics: What Mark Twain and Benjamin Disraeli Would Say About Menlo Park’s Median Price Numbers (Part 2)

May 4, 2008

Continuing my earlier rant about how real estate statistics don’t always tell an accurate story, let’s look at what Menlo Park’s numbers seem to indicate for our ongoing robust spring market.

First, a recap:  courtesy of our good friends the quant jocks over at Altos Research, we saw that the median price numbers for Menlo Park had dropped by some 30% — from $1.25M to $850K — over the 9 month period from April of 2007 to January 2008.

Menlo Park Real Estate Numbers

That drop in median price, however, by no means reflected the reality on the ground in Menlo Park — in other words, it is not true that a home in Menlo Park that was worth $1M in April 2007 was suddenly only worth $700K in January 2008.  The reason for that disconnect was simply the change in the mix of properties being offered:  in the last half of 2007, the inventory of lower priced homes east of 101 swelled, dramatically pulling down the overall median.

As if to emphasize that disconnect, we see what appears to be a dramatic price recovery from January of 2008 to now in May of 2008; in fact, it looks like the market has regained all 30% of what it ostensibly lost late last year!

Again, the reality on the ground is quite different; that is, a Menlo Park home that was worth $1M in January of 2008 is most emphatically not suddenly worth $1.3M today.

Moral of the story?  Simple:  real estate statistics are good at telling some stories, but not very good at telling others.  In particular, the median often simply reflects the mix of properties currently on the market and not necessarily any underlying ups or downs in the market.

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Written by Kevin · Filed Under Articles, Consumer, Industry, Menlo Park | 1 Comment 

Redfin Select: School-Marmish Innovator’s Dilemma? Becoming What They Hate?

April 8, 2008

With surprisingly little fanfare, Redfin, that pesky little Seattle brokerage the real estate industry loves to hate, announced yesterday their “Redfin Select” program, which looks suspiciously more and more like … a traditional brokerage offering.

Redfin’s initial business model, which made great sense in the VC’s conference rooms, was to outsource a big chunk of the buying process to its clients in exchange for a big chunk of the buy-side commissions.  For better or for worse, however, that model has continued to run dab-smack into the middle of the reality of real estate:  the listing agent, though representing the seller, is not usually responsible for showing the property to every interested buyer.  That service is usually provided by the agent representing the buyer.  The problem?  In order to make offers on a property, Redfin’s clients have to actually, well, see it.  If they don’t manage to hustle there during an open house, then they’re SOL — unless a Realtor-magic-key-toting Redfin agent comes by to open it.  And just like that, poof! goes half the business model.

Fast forward to today.  If you’re a Redfin client and you want a regular set of property showings, just give up a portion of the commission that was coming due to you and have Redfin show you around, just like a traditional broker would do.  Instead of getting 66% of the commission back, you get 50% back.

Possible explanations come from two different fronts:

First is my “Innovator’s Dilemma” proposition:   Redfin as a classic disruptive company, will first figure out how to be profitable serving the lower end of the market, the price-conscious clients that traditional brokers don’t mind losing.  Then it will move upmarket, charge more, and offer more service — ie. become more like a traditional brokerage, but with fatter margins.

At first glance, Redfin’s move seems to fit this pattern.  However. by Redfin’s own admission, they’re not growing as quickly as they would like, their business model is not as scalable as they had hoped, and they certainly are too young of a company to have taken significant market share yet.

So perhaps the better explanation comes from Mike Simonsen over at Altos Research.  Mike suggests it’s a simple pragmatic response to the harsh realities of the market place and their VC backers:  they need to become a $100M company as quickly as possible, and doing it at $10000 rather than $5000 per transaction will bring that about more quickly.

Other commentary:

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Written by Kevin · Filed Under Business models, Consumer, Industry, Innovators Dilemma, Redfin | 3 Comments 

Irony Of Ironies: The Mechanical Turk Behind The

April 2, 2008

Zillow, the perennial surprise-maker of online real estate, has just launched its long-anticipated foray into the mortgage world with a “Mortgage Marketplace.”  The company’s original online real estate product — the controversial “Zestimate” — is a computer algorithm estimating the value of homes.  The logical mechanism behind a “Mortgage Marketplace” would thus also be a computer algorithm — say, a mortgage pricing engine that spits out rates from lenders based on the borrower’s situation.

In a delicious twist of irony, however, the mechanical Turk behind this new product is … a person.  As in, homo sapien.  Specifically, a mortgage professional.

In a pre-launch briefing with “What would David Gibbons do” David Gibbons, he described the all-too-typical grief that a potential borrower goes through with many lenders, whether online or offline:  bait-and-switch salesmanship, hidden fees, inflated rates, and perhaps most egregiously, a complete lack of anonymity.

Zillow’s solution?  Let consumers ask for mortgage quotes without revealing their name.  Let mortgage brokers respond to these requests.  Let consumers sift through the responses and choose the broker they want to work with; then and only then does the buyer have to reveal his or her name.

What about the whole bait-and-switch thing?  Zillow deals with that in a very Web 2.0 way — consumer reviews of mortgage broker performance.  Plus, the participating mortgage brokers are vetted — at least minimally — to confirm that they are, in fact, licensed mortgage brokers.

And here’s something sure to make at least some mortgage brokers sweat a bit:  the competing mortgage offers are visible not just to the consumer who requested them…but also to the other mortgage brokers who submitted offers!

The cost to mortgage brokers?  Zero.  In David’s words, Zillow remains committed to being an advertising platform.  The data they can now gather about consumers — what their home is worth, other homes they’re interested in, and now their income and credit score — makes it possible to target-advertise with nearly pinpoint precision.  David assures us this is not being done in a “Big Brother” kind of way, but if I understand him correctly it may soon be possible, for instance, for Mercedes to target ads that will appear only in front of prospective buyers with an income of at least $100K and a credit score of at least 720.

Other commentary:

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Written by Kevin · Filed Under Consumer, Industry | 7 Comments 

Market Bottom Officially Reached At 2:34pm This Afternoon; Impasse Between Buyers And Sellers Finally Resolved

April 1, 2008

The news that all fence-sitters have been waiting for finally happened: at 2:34pm this afternoon, the bottom of the real estate market was officially reached when 356 Avocado Lane in Stockton finally sold — with multiple offers — after 30 months on the market.

Said listing agent Trevor Blackstone of Stockton Realty: “Phew! I’m glad that’s over. I’m the fifth Realtor for these folks! They went on the market at $750,000 and after 25 price reductions they finally reduced it $275,000 and it sold! In fact, we got two offers, both just above the list price.”

CAR chief economist Leslie Appleton-Young broke out the champaign at CAR headquarters in Los Angeles. “We’ve been keeping our eyes on that property for a long time. We knew that when it sold, the housing recession would officially be over.”

Mike Simonsen over at Altos Research had this to say: “Our charts predicted this a few months ago already. The 7-day rolling average of the ratio of the median days on market for the upper quartile in the worst area of Stockton has been steadily moving upwards. That’s the sign that’s accurately predicted the bottom of every single market since 1900!”

TJ Shanahan of Realty World in Sacramento was also not surprised. “Seven of my top 10 ways of predicting the market bottom came true literally in the last week!”

Astoundingly, every single market bottom has also happened on April 1st, and at the exact same time. Here’s the Altos Chart to prove it:

timing-the-bottom-of-the-market.gif

Bubblistas are already salivating over the next real estate recession, scheduled to start in late 2024. The domains IToldYouSo.blog and WorstHousingRecessionEverWillStartIn2024.com have already been reserved. “In the meantime,” said a prominent bubblista, “I’m gonna stay renting.”

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Written by Kevin · Filed Under Consumer, Industry | 5 Comments 

Eliot Spitzer and Making Sense of the New Conforming Loan Limits

March 18, 2008

If you’re Eliot Spitzer, probably three feelings come to mind: panic, disorientation and regret.  But if you’re a potential home buyer in the Peninsula region of California, you have good reason to feel excited, encouraged and confident!  Why?  If you read my last post last month, you know that the conforming loan limits for many California Counties are going up and that means cheaper mortgage rates on loan amounts between $417,001 and $729,750.  Now that HUD has made it official that ALL bay Area counties qualify for the revised maximum conforming loan limit, that means potentially big savings on mortgages for qualified applicants looking to purchase single-unit properties up to $810,000 with as little as 10% down!

We’ve all heard the cliche, “the devil’s in the details”, so what are the latest requirements to obtain a conforming loans between $417,001 and $729, 750?  Since I’ll provide you with a link to Fannie Mae website and announcement , I’ll provide you with some highlights that I think are most relevant and let you read further at your leisure:

1. Single-unit properties only

2. Purchase and “limited cash out” transactions only (i.e. no greater than $2,000 going into your pocket upon settlement)

3. If primary residence purchase, up to 90% loan-to-value (”LTV”) allowed if fixed-rate program is selected–700 minimum FICO(R) required; 80% LTV if an adjustable-rate loan is selected–660 minimum FICO(R) required; if refinance

4. If second home or investment property purchase, maximum 60% LTV allowed with minimum 660 FICO(R) regardless of eligible loan program selected

5. If refinance, regardless of type of eligible mortgage program, up to 75% LTV allowed, plus subordinate financing allowed in addition up to 20% LTV–660 minimum FICO(R) required

     a. SPECIAL NOTE, consolidating existing first mortgage and subordinate mortgage into one loan NOT eligible AND six  months of “seasoning” (six payments made on existing mortgage) required to refinance!

6. Loans are eligible for origination NOW 

7. Eligible programs include 30-year fixed, 15-year fixed, LIBOR-based 5/1 ARM (amortized and interest-only payments allowed for this program)– more programs may become available

8. Sufficient employment, income and assets must be verified and each file will require manual underwriting– automated underwriting engines not allowed at this time

Again, I do encourage you to read the Fannie Mae announcement from the 6th of March for all the details, but the above are the top highlights.

So what will pricing look like on these “new” conforming mortgages?  Well, pricing has just recently been released by only a few institutions, but it looks like the 30-year fixed is running at about 6.375% and the 15-year fixed is running at about 6.25%.  The 5/1 ARM pricing is expected to be released next month.  What I do think is that pricing may actually get a little better in the short term as more institutions post pricing and auctions are successful with Fannie Mae and Freddie Mac. 

What’s right for you as a would be home buyer on the Peninsula?  That depends of course on your specific situation, and I do encourage you to consult with your trusted mortgage and financial consultant before placing an offer on a home or refinancing your mortgage.  What I can say is that the majority of our clients who are buying or refinancing today are selecting a jumbo 5-year ARM in the mid-5% range due to its balance of savings, security and flexibility.

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Written by Eric Trailer, Mortgage Banker, Absolute Mortgage Banking · Filed Under * Type of Content, Buyer, Buyers, Consumer, Industry | 5 Comments 

Introducing … Cindy Lin…Stager Extraordinaire!

March 17, 2008

cindylin.jpgI’m delighted to announce that local stager Cindy Lin has graciously agreed to become a 3 Oceans contributor.  She runs Staged4More and its accompanying blog.  Talented, opinionated, humorous, a little sassy and irreverent  … what more could you want in a contributor — or a stager?

Her inaugural post gives us an Elliot Spitzer object lesson…

Take it away Cindy!

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Written by Kevin · Filed Under Consumer, Industry, Staging | Leave a Comment 

Jeff Brown Descends On The Bay Area … Barbers Everywhere On Alert!

February 24, 2008

This has been in the works for a while, but we’re thrilled that the Bawld Guy himself, Jeff Brown, plus his son Josh, will be gracing us with their presence next weekend.  No, he’s not coming up here for a haircut…he’ll be holding three real estate investing events.  We’re pleased to sponsor his trip up here, along with our friends at Equitas Capital.

Jeff Brown Hint:  Jeff’s the one on the right.  Josh is on the left.

We’ll kick things off on Friday night (February 29th) from 6pm to 8pm with a light dinner/reception for Jeff and Josh.  On Saturday (March 1st) from 10am to noon and 2pm to 4pm, he’ll be giving a talk on real estate investing in general, concentrating on his thoughts for the Bay Area.

If you’d like to attend, click here to register.
Jeff was kind of to provide some information in the form of a guest post.  Those who have been reading his blog will know that there are many reasons why he recommends folks with real estate equity in California should sell or refinance and invest in other areas.

Take it away, Jeff…

How Bay Area Investors Can Safely Improve Their Portfolio’s Performance

I’m asked this question everywhere. “How can I improve my annual returns, and/or capital growth rate?” This is invariably followed with the need for them to stay local, as if the ability to drive by their property makes their investments safer.

The answer is simple - you can improve your capital growth rate by stepping back and being objective. For example, I’m based in San Diego, an area often associated with Paradise. Yet I’ve been saying for years now - get outa Dodge. Real estate investors are a curious breed. They focus like laser beams when looking for an investment, yet shoot themselves in the foot time and again by insisting on investing in their own backyard. Allow my smart aleck self to emerge here - your capital doesn’t know where it’s been invested.

As bad a place for your investment dollar as San Diego is these days, the Bay Area is even worse. If the investor’s agenda is to take current capital and grow it through real estate investing, they will tend to avoid high priced areas offering horribly low rent to price ratios. Let’s say that more plainly. Are you as an investor more attracted to a million dollar property with $25-50,000 annual gross income OR would you prefer a properties worth a million bucks sporting gross annual incomes of around $95-100,000?

Your choice - take your time - no rush.

Here’s the point: Insisting upon local product in San Diego or the Bay Area will not only retard your capital growth within an inch of its life, but in chronological terms you’ll delay your retirement many, many years. In the 30 years ending in 2005, those who chose to invest in San Diego (not in most of those years absurdly valued) instead of the Bay Area were literally two commas ahead in terms of dollars. How is that possible? Weren’t there some years when the Bay Area out appreciated San Diego? Possibly, but so what?

In 1975 San Diego leverage was at least twice that of the Bay Area. By the mid-’80s it may have already been triple. When you as an investor can control more property safely your capital growth rate is turbo charged. This isn’t anything new or groundbreaking - just widely ignored. Real estate investors as a group have become infatuated with appreciation. Wrong wrong wrong.

Given the same $250,000 with the ability to make an informed decision regarding what region in which to invest, anywhere in California isn’t even on the C-List. Why? It’s a simple 8th grade math problem. Would you prefer 5% appreciation annually on $2 Million in property OR 10% appreciation on $500,000 in property? The former enjoyed capital growth of $100,000, or a capital growth rate of 40%. The latter accumulated capital growth of $50,000 or a capital growth rate of 20%.

Now bring in the concept of compounding and tax deferred exchanging to periodically recharge your growth rate, and those numbers grow further and further apart. After only 5-10 years the investor who chose to go where it made sense can’t even see the other guy in his rear view mirror any longer.

The lesson is clear: Keep your eye on the ball - and the ball is capital growth rate not appreciation rate. California properties simply can no longer compete with other growth regions.

If you’re a Bay Area investor wishing to safely improve your real estate portfolio’s performance, just keep your eye on the ball - the right ball. That ball cannot be found in the Bay Area.

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Written by Kevin · Filed Under Consumer, Industry | 1 Comment 

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!

national-negative-equity-map-v2.png

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.)

bay-area-z-index-changes-v2.png

Interpretation:

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.)

Tags: , , Cupertino, East Palo Alto, , Los Gatos, , , , San Carlos, Saratoga, South San Francisco,

Written by Kevin · Filed Under Consumer, Industry | 9 Comments 

If Less Than 1/2 Percent Of A Home Is Infested With Drywood Termites, Then Why Do We Poison 100% Of The Home With Fumigation?

February 11, 2008

First, an upfront disclaimer:  I am not a termite inspector, nor do I pretend to be one.  I neither give nor get referrals for getting termite work done on a client’s house.  I don’t own a termite company, nor do I have any stake, financial or otherwise, in the success or failure of any particular method of treating termites.  If your home has recently been treated with Orange Oil, or you are considering getting it treated by Orange Oil, you’ll need to do your own research about the product and its efficacy.  I can’t and won’t make a claim either way.

‘Nuff said.

A few weeks ago I wrote an article about the use of Orange Oil to kill termites.   Judging by the traffic to said article, many folks seem to have questions about it.  My content source — remember, I’m not a termite expert — was a newsletter from National Building Inspectors.  What they gave was, shall we say, a less than enthusiastic endorsement.  The precise words:

[NBI] would never certify a home as being ‘free and clear’ of a drywood infestation that was treated with orange oil.

A “Michael Folkins” — just dropped by and left a comment on said article and left his calling card:  a link to the XT2000 site, which appears to belong to the manufacturer/distributor of the Orange Oil product.  Michael’s comment raises an interesting question about traditional termite fumigation:

On average less then 1/2 percent of a home is infested with drywood termites, then WHY DO WE POISON 100% OF THE HOME WITH FUMIGATION?
With true optics we can find headen areas of infestation and kill the colonys and eggs of drywood termites. Sense orange oil

Fair question:  Why do we fumigate 100% of the home even though only 1/2 of one percent of it might be infested?  Michael would presumably have us use Orange Oil.

Here’s my understanding:  Yes, only 1/2 of one percent of the home might be infested, but how the heck are you going to find that 1/2 of one percent — which might be scattered in a dozen places — short of borrowing Superman’s power of vision?

As if one vendor dropping by wasn’t enough, Michael’s comment was followed up quickly by an Alex Del Toro — whose calling card points to TermiteGuy.com  Alex is not fond of  Orange Oil:

Mr Folkin is the producer and distribtutor of Orange Oil and needs to defend his worrthless product.

Alex also provides a link to an article he wrote for the — no joke — the Orange County Association of Realtors.

So the next time you hear the words “orange oil,” just remember that it only works on the termites that are accessible, detected and treated with the oil. Unfortunately, unless you live in a concrete slab home with 1920’s board and batten walls, then termite detection is the real issue.

Neither is Alex fond of termites:  he likens them to terrorists.

What say you?  Orange oil good?  Orange oil bad?

More of a perspective:

Marian Bennett, a Realtor in Half Moon Bay, educates us about termite remediation as she channels the words of Kevin Palmer of Premier Termite.

Articlemaniac weighs in on Orange Oil.

Tags: , Fumigation, , , Pest Inspection, , Termite remediation,

Written by Kevin · Filed Under Consumer, Industry | 9 Comments 

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