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.
Tags: Consumer, For buyers, For sellers, Industry, Mortgage, Palo Alto, palo-alto-real-estate, Real estate, Real estate blogging, real-estate-market
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.
Tags: Buyers, Consumer, For buyers, Home buying, Industry, Menlo Park, Mortgage, Mortgages, Mountain View, Palo Alto, palo-alto-real-estate, Real estate, Real estate blogging
Is now a good time to buy a home?
February 10, 2008
The Superbowl traditionally marks the beginning of the Spring real estate market here in Silicon Valley. True to form, we are seeing inventories climb from seasonal lows, and a lot more people visiting open houses on the weekends. As the media continues to run stories on increasing foreclosures, and an economic stimulus package that includes an increase in the limits for conforming loans wends its way through Congress, more and more people are asking me if this is a good time to buy a home.
In our area (Palo Alto, Los Altos, Los Altos Hills, Menlo Park, Mountain View), prices have been stable in 2007 (except Palo Alto which is up significantly), and we aren’t seeing the big jumps in foreclosure activity that are widely reported in the media in other areas. As the Federal Reserve has cut interest rates to stave off a national recession, loans have become more affordable nationwide, with rates near historic lows.
The majority of short sales and foreclosures in the area have been in homes in the $600,000 price range, having the effect of making many of these homes more affordable as lenders want to get rid of them. In contrast to most economic downturns, the higher - end market is doing better than the lower end.
Fellow contributor and mortgage banker Eric Trailer at Absolute Mortgage Bank in Palo Alto had these thoughts on the local housing market for the next few months:
“The coil on the Spring market is winding tighter every day this year already. Applications are up 100+% this month over December and January’s production is more than double December’s. In addition, we continue to be flooded with refinance inquiries this month. Many of the buyers that we had on the fence have been jumping off in an attempt to get into contract on a home prior to February 9. Why Feb 9? That’s the weekend following The Superbowl, and those fence-jumpers feel as though they can avoid the threat of multiple offers by securing their home now. With many of the top agents that we do business with stating that they have multiple listings coming on the market the week of February 9, combined with the flurry of activity on the buyer’s side, combined further with the strength of our local economy, it’s looks like this Spring will produce transactions well beyond expectation.”
Well Eric, it’s February 10th, my open house for today sold without contingencies 3 days after going on the market, and the number of new listings in Palo Alto this week was double that of any week for about 3 months. It looks like we are off to a good start to 2008, and the local economic indicators are still favorable.
Homes are not liquid investments like stocks, so make sure you actually like the house you are buying, and plan to be there for 5 years or more. With those caveats, in this area, it’s almost always a good time to buy a home.
Thanks for reading.
Tags: 2008 real estate market, absolute mortgage bank, Home buying, Mortgage, mortgage rates, palo-alto-real-estate, silicon valley real estate
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.
Tags: bay-area-real-estate, Home buying, home prices, home values, mortgage mania, palo-alto-real-estate, real estate downturn
Why Lemmings Die - How “Conventional Wisdom” can cost you
December 18, 2007
With all of the media coverage about the implosion of the real estate market and the rising rate of foreclosures, every time I turn around someone is asking me about the health of the local real estate market in and around Palo Alto. They seem to expect me to echo what they are seeing on TV and reading in the newspaper. Nothing could be further from the truth, especially in Palo Alto, which is still enjoying a Seller’s Market with prices maintaining their stratospheric levels as hordes of well-qualified buyers patrol the city in hopes of seeing something new to look at. Last week there were a whopping three (that’s 3) new homes coming on the market in Palo Alto.
When hearing this unexpected good news on the health of the largest investment and asset that most non-Google employees have, a few folks have asked me if I think this market will continue (I do - subject of another posting), and that they are considering selling their homes in the Spring.
Spring, like April 2008? I ask
Well, that is when all the houses seem to come on the market, so that must be the best time to sell . . .
I have gotten better at controlling my reaction (giggling is a great way to start off on the wrong foot). But I then usually explain things in economic terms of Supply and Demand.
If you are a lemming seller and put your home on the market when everyone else does, how do you make it stand out from the competition? You can spend more on preparation (fresh remodel, landscaping, staging, etc.), more on marketing (more advertising, open houses, etc), or you can price it below the competition, or a combination of all three.
These approaches all result in less of a return for the homeowner at the end of the day, much like the price of oil usually drops in May because demand for heating oil has dropped off and the summer driving season hasn’t started yet. Alternatively, when oil is scarce like during a particularly cold winter, or if oil producers reduce production, prices go up.
What if you could make a house scarce? Would that increase the relative interest level and selling price?
Generally, we see the number of homes in Palo Alto for sale increase in mid-February and be high until around Memorial Day, then there is another seasonal increase after Labor Day until late October. Seasonal lows in inventory run from mid-November to mid-February, and then there is another drought in late Summer. Selling prices tend to run inverse of these seasonal inventory fluctuations, as greater scarcity creates greater perceived value for Buyers.
In Summary, an easy way to get your property to stand out is to put it on the market during one of the low inventory times. Serious buyers are always looking, and who would you rather have trooping through your home, serious, qualified Buyers, or people who like to look at houses on a pleasant weekend afternoon?
If you are considering selling, don’t be a lemming and wait until Spring, contact your real estate professional and have him or her show you market data and discuss how to get your home on the market during one of the “off-times”.
Skeptical? Don’t believe me? You can see objective market data for your area, courtesy of Altos Research here, or sign up for a customized report on the market in your area here.
Thanks for reading.
Tags: , 94301, 94303, 94306, Altos Research, Area-information, Buyer and seller tips, Home selling, market timing, Palo Alto, palo alto market, palo alto real estate market, palo alto realtor, palo-alto-real-estate, when to sell my home?
Mortgage Mania Part 16 - The Hits Just Keep On Coming
December 11, 2007
Ben And The Boys (aka the FOMC) cut short-term interests rates by .25% earlier today in an attempt to:
1) Soften the mortgage industry landing from a smoking hole in the ground, to more of a smoldering skid mark. Don’t tell Washington Mutual who announced 3000 employees were getting pink slips in their stockings, and the bank is setting aside up to $1.6 Billion for losses in the 4th quarter.
2) Generate some consumer confidence this Holiday Shopping Season, since 2/3 of our economy is driven by consumer spending. Uncle Sam wants you to buy a Ford and / or Chevy.
3) Address concerns that “information suggests that economic growth is slowing,”
4) Give me somethnig to rant about (Thanks, guys!)
Interestingly, Wall Street, which has been on the rise over the last two weeks, had apparently priced in a bigger cut, so it responded by pummeling the Dow, lwhich lost 294 points on the day. Ouch! Maybe some retail therapy is in order . . .
Mortgage rates weren’t significantly affected by the rate cut. The Fed Funds rate is a short-term rate, and mortgage rates are long term. Mortgage rates are still at two-year lows, and it’s a Neutral or Buyer’s Market everywhere but Palo Alto.
Apparently, Palo Altans stayed awake in Econ 101 during the lecture on how relative Supply and Demand affects Prices. Although Demand in Palo Alto has dropped in recent months, Supply has dropped equally or more, maintaining or increasing Prices. Adam Smith would be proud.
Bueller, Bueller . . .
For an actual news article on today’s rate cut by an actual journalist, as opposed to a caffeineated Realtor, click here.
Thanks for reading.
Tags: 4---mortgage-mania, 94301, 94303, 94306, buyer's market, Consumer, For buyers, Home buying, interest rate cut, interest rates, Mortgages, Palo Alto, palo alto market, palo alto realtor, palo-alto-real-estate, seller's market, washington mutual
Mortgage Mania - Part 9 The Capital Markets Strike Back
July 31, 2007
This whole subprime / mortgage industry meltdown hullaballoo is getting a little surreal, so forgive the Star Wars reference. This article in today’s New York Times reports that trading in shares of American Home Mortgage never opened yesterday, after the company announced following the market close on Friday that “it would suspend its dividend and was facing “significant margin calls” from its banks. “. I’ll bet that made for a fun-filled weekend for AHM execs . . .
This comes hot on the heels of last week’s announcement by the nation’s largest mortgage lender, Countrywide Financial, that it was seeing rising incidences of default on second mortgages to prime borrowers. Second mortgages to prime borrowers?!? Hey, isn’t that how we buy houses here in Silicon Valley if we didn’t get a job as a janitor at Google a few years ago? Uh oh . . .
So I rang up Andy Block at OPES Advisors, and asked him for some thoughts on all this, specifically how it is going to affect the purchasing power of my client Patrick. I mention Patrick because he is a “typical buyer” these days. He and his wife both have six-figure income jobs, and will net around $250K from the sale of their current home. They want to move from their current home in San Jose to Los Altos or Mountain View to get their kids into better schools, while getting a bit larger house. Andy had reviewed their income, credit, investment and retirement plans, debt, etc. etc. and came up with a range of $1.3M to $1.5M as a purchase price for their next house. They did the analysis about 3 months ago, because they are planners. Does this sound familiar?
It looks like the current changes in lending guidelines and interest rates are going to cost these folks about $100K or so in buying power, all other things being equal. Bummer.
I also chatted with Eric Trailer at Absolute Mortgage, and he agreed that we are seeing a period of adjustment, and that things should stabilize in 6 months or so once the regulatory reaction and new lending guidelines have had a chance to “work their way through the system”.
Both of these resources reminded me that mortgage interest rates are still 7% or less for borrowers with good credit, which are historically low, so don’t panic if you are in the market, and stay in touch with your lender if you have a pre-approval that is more than 30 days old.
Thanks for reading.
Tags: 4---mortgage-mania, Financing-Process, Loan Application, palo-alto-real-estate, Preapproval, Prequalification, Real estate
How Palo Alto ranks schools - We don’t!
May 22, 2007
Palo Alto high schools refuse to join Newsweek survey of best schools - SJ Mercury News, May 21, 2007
When I saw the above article in yesterday’s Mercury News, I nearly spit a perfectly good latte all over the paper.
The schools in Palo Alto are a major driver of real estate values in the city and are consistently marketed and believed to be the best public schools in the area.
The local real estate community feels so strongly about this that they have an annual drive for donations to Partners in Education, to solicit donations for Palo Alto schools. In return for their generosity, local real estate agents who donate get their picture in the paper as a thank you for being donors and supporting Palo Alto schools. In recent years there has been quite a competition between the various real estate companies in Palo Alto for who donates the most money, which is kind of losing sight of the point of things, but I digress . . .
Interestingly, in Newsweek’s 2006 rankings, we saw a disparity in the rankings between Palo Alto High School and Gunn High School, with Paly coming in below Los Altos High and Cupertino’s Monta Vista.
Last year, Gunn High School in Palo Alto ranked 79, and Palo Alto High School ranked 361. But this year, prompted by concern at both high schools, the Palo Alto district refused to send in Newsweek’s required forms.
“We don’t want to be a part of it,” said Gunn Assistant Principal Tom Jacoubowsky.
Said Marilyn Cook, associate superintendent of the district: “It’s a very simplistic premise that the quality of a school can be measured by the number of AP tests students take.”
Gunn neither ranks students nor chooses valedictorians.
“We’re trying to do things to avoid and alleviate student stress,” such as reducing pressure to take advanced placement classes, Jacoubowsky said
This also lends fuel to my personal fire that as increasingly affluent and educated people are moving into cities like Mountain View, they are injecting more money into the schools, while also demanding more of the administration. I prognosticate that we will begin to see increasing parity between Palo Alto public schools and those of the surrounding communities. If this happens, the upward price pressure resulting from a demand for homes in Palo Alto in excess of Supply could be lessened, leading to a stagnation of home prices or even sales.
Heresy! You say.
We will see. In the meantime I welcome your comments and tirades. I don’t pretend to be an expert on education or even to play one on TV.
You can see the rankings for local schools on the SJ Mercury website here.
Thanks for reading.
Tags: 94301, 94303, 94306, Home selling, Mountain View, Palo Alto, palo-alto-real-estate, Real estate, real-estate-prices, San Jose Mercury
Subprime loans - Should Palo Altans care?
March 29, 2007
If you are a reader of The San Jose Mercury News, or any other paper or media outlet, you know that there is a growing issue associated with home buyers who purchased their homes using subprime loans and are now facing foreclosure as they are unable to keep up with their payments when their rates adjust.
On Sunday, March 17, the San Jose Mercury News ran an article describing how an agent and lender with Century 21 Su Casa Realty violated a number of lending laws and ethical guidelines to get people to purchase homes which are now in foreclosure, in some case because the buyers couldn’t even afford the first payment.
While it is a stain on the already tarnished image of Realtors, it is easy for us in Palo Alto to say ‘what a shame, it won’t happen here’, or words to that effect. But, what is the effect of this issue on homebuyers in Palo Alto and the surrounding communities?
Rachel Van Emon with OPES Advisors, a financial services firm with offices in Palo Alto and San Mateo, recently sent me an article that discusses the effects of impending legislation and revised lending guidelines that will affect the ability of buyers to qualify for products like the interest only loans that so many of us use to buy our million dollar teardowns in Palo Alto and surrounding communities.
The highlights are:
- The Department of the Treasury has issued a Guidance on Guidance on “Nontraditional Mortgage Product Risks.”
- The Guidance specifies “nontraditional” as those loans allowing the deferment of principal and/or interest payments – not just sub-prime loans.
- The Guidance states that borrowers for these products are to be qualified at the “fully amortizing and fully indexed payments.” This means that qualifying payments will be bigger, and it will take more income to qualify.
- The new guidelines are to be in effect by 9/07. Some lenders have already adopted them, and many more will do so in the coming months.
- Virtually all lenders have cancelled their programs allowing 100% financing on a Stated Income basis.
- Guidelines have tightened around lending when other “risk factors” are present such as 100% financing, low reserves, high debt-to-income ratios and condo properties.
In short, it’s going to be harder to pay for that million dollar teardown in Palo Alto starting now, and especially in September.
The big question is whether these changes in lending laws will cool the red hot housing market we are currently enjoying, or if the Valley’s amazing ability to generate disposable incomes and wealth will overcome another hurdle to home ownership. Stay tuned . . .
The entire article is posted for your reading pleasure. Click here to view it.
Tags: Bad-Realtors, Century 21, Crooked-realtors, Deceptive-realtors, Dirty agent tricks, Financing-Process, Loan Application, Loan-Application, Mortgages, Negative Amortization, No Documentation (ND), No Income No Assets (NINA), No Ratio (NR), Option ARMs, Palo Alto, palo-alto-real-estate, Preapproval, Prequalification, Real estate, Realtors who give the business a bad name, Stated Income Stated Assets (SISA), Stated Income Verified Assets (SIVA)
Real estate predictions
August 31, 2006
Every expert has their views on where real estate prices are headed. The various realtor associations regularly issue market forecasts, each real estate professional has his or her own prediction for a particular area, and of course there are also numerous housing economists who opine regularly on the market. But what does the general public think about housing prices? Our friends at www.inklingmarkets.com have come up with an innovative way of finding out, using “prediction markets” or “knowledge markets.” The notion is that if you create a market where people can buy or sell “shares” in certain future events (such as what median home prices will be in a month), the aggregate buying and selling activities of those people will lead to a general consensus. Think of it as being sort of the real estate equivalent of fantasy football. To test out the idea, I’ve created a sample market at Inklingmarkets.com called “Bay Area Real Estate Market in Sep ‘06.” Trading volumes are still a bit thin, but the current market prediction (as of 9:45pm on 8/31/06) for Palo Alto median home sales prices in Sep ‘06 is $1,280,000. Think that number is too high or too low? Go to www.inklingmarkets.com and voice your opinion by buying or selling “shares” in Palo Alto.
Tags: bay-area-real-estate, For buyers, For sellers, Knowledge markets, Palo Alto, palo-alto-real-estate, Prediction markets, Real estate, Real estate data, real-estate-market, real-estate-prices