Made official on Friday, the tax credit for home purchases was extended through July 1, 2010 and the important details are exactly as they were in my post on Friday the 30th of October, which was summarized as follows:

· Effective on binding real estate contracts from December 1, 2009 through April 30, 2010, The tax credit would be $8,000 for first time home buyers and $6,500 for move-up buyers who have owned their current home for at least five years

· The tax credit expires on April 30, 2010; however, if a binding contract is reached by April 30, 2010, buyers have an additional 60 days to close the deal and still be eligible for the tax credit

· For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return

· The income limits for both first time home buyers and move-up buyers would be $125,000 for single return and $225,000 joint return.

· Cost of the home may not exceed $800,000 to be eligible.

Remember that a tax credit has about THREE TIMES the impact of a tax deduction, which allows someone earning $125,000 per year to be taxed on about $102,000*. And since other items like interest and property taxes are also deductible*, that same individual may be looking at less than half of their earnings being fully taxable..!*

Add the above news to the fact HUD also extended the conforming loan limit of $729,750 in the Bay Area to December 31, 2010, and you have a “perfect storm” for every qualified first-time buyer in the Bay Area.

S&P Case-Shiller Confirming Further Improvement of Housing Prices

Released last week, the S&P Case-Shiller index confirms that housing prices continue to improve, especially in areas like San Francisco where the index moved another 2.8% in August to 132.47. This marks the seventh straight month of improvement.

Zillow also reported that their index reflected further stabilization for the third quarter, with over 26% of the metropolitan statistical areas showing signs of improvement.

Real Estate as an Ideal Hedge to Both the “W” Concern and Inflation

You may recall from my last post that we are seeing far more application activity for purchases in the $1mm+ range, especially the $1.5mm to $4mm range. These applications have been coming from our more financially-minded clients, as they not only see tremendous opportunity to obtain a more valuable home, but they are very concerned about a “W”-shaped economic recovery and subsequent inflation. As such, obtaining an upgraded home for less, cheap financing and hedging against inflation make buying a larger home an ideal move. All things being relative, the reality is that the S&P 500 currently has a rather high price-to-earnings ratio at about 19.52 versus the historical average of 15.7. As such, if we were in average economic circumstances, it’s arguable that the stock market is overvalued by about 25%. Given the fact that our current economy is FAR from being in average condition, it’s anyone’s guess just how overvalued the stock market is. All I know is that my savviest, financially-minded clients think that the stock market is due a correction and that real estate is a great asset to have as a hedge against both a market correction and inevitable inflation.

Fannie’s New Program: Deed for Lease

Announced on November 5, Fannie Mae is helping those qualified applicants to essentially sell and lease back their current home. This program is also applicable to investment-property owners who are facing foreclosure and wish to deed the property over to the lender and allow the renters to continue renting at market levels.

Rates and Activity

• Rates continue to run as low as 3.75%, depending on a number of different factors, with the conforming 30-year at just under 5% and the jumbo 30-year at about 4.75%
• 71% of our transactions last month were purchases, and the average loan was in the $500k range.
• As mentioned above, we’re seeing a heavy trend in purchase applications for the move-up market, but inventory is turning off a majority of those buyers
• We closed a deal in TWO weeks, but we still recommend a 30-day closing period
• If you or someone you know prefers to pay cash for a purchase, then finance that purchase within 90 days to protect valuable tax advantages, we can help, as we have programs that DO NOT require 6 months seasoning and pricing is based on purchase money, NOT a cash-out refinance

* Does not constitute tax advice.  Please seek any qualified tax professional for proper guidance.

Basically, there is an effect, and we are seeing market striations here locally at the $1.5M and $2M price points as well, where most lenders require 20% and 25% down payments respectively.

Get the scoop, analysis and commentary with cool charts HERE

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.

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.

• As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery
  • 40% of first-time buyers for 2009 bought because of the tax credit
  • The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed
  • The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah!
  • Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later
• The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans
  • Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market
  • With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same
• Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010
  • As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly
  • And if you missed the headline on September 24th about the Fed easing their policy of keeping mortgage rates low, you’ll want to know that they are almost cutting in HALF the  the effort– $14B versus $25B
• The overall number of homes/units sold next year will be down, but that’s only because we had a record number of units sell already this year—foreclosures will be DOWN relatively significantly
  • Activity will still be high and it’s likely the $1mm+ segment that will provide buyers with the best value
  • The “second wave” of foreclosures due to rate adjustments is a farce—many people, like myself, are looking forward to loans adjusting at lower rates, which is precisely what the majority of those loans will do
• 2010 will be a growth year with GDP expected at about 1.9%
  • Great news for the economy, but growth causes higher prices and higher rates—
• The population of CA will grow another 1.1%, so that’s about $370,000
  • We’ve added about 600k people per year since 2000, and about 500k babies are born in CA each year, so I guess that means there will be more demand on housing, which is also good news
• Unemployment may be 12% in CA, but that number is tied mostly to construction-related industries. 
  • With High Tech, Finance, Exports and Travel all on the rise for the Bay Area, our property values and local economy should benefit significantly

The Latest on Rates and Activity

Even with the incredible rates that continue to drive the refinance market, over 50% of the transactions that we closed in September were purchase transactions.  Also of importance is the fact that of those purchase transactions, 35% were financed using “JUMBO” loans!   Jumbo 30-year fixed loans are running about 5.75% and that jumbo 5/1’s are around 4.50%.  And if you have a $417k conforming loan, 5/1’s are available at 3.75%!!

According to the MBAA, last week’s applications were down, but the four week moving average is up, along with interest rates (albeit slightly).  We’re seeing the opposite effect locally, but it’s likely due to the many move-up buyers looking to take advantage of the $1mm+ market through Winter.

Is it just me, or does it genuinely feel like the golden window of opportunity for buyers right now..?

A great success story for us lately included funding a loan for a borrower who had a 63% debt-to-income ratio.  We have also bridged three separate transactions that allowed buyers to move up without having to sell their current home first.  And finally, we improved a client’s credit score by 100 points and saved them over $8,000 by having an erroneous collection removed from their credit record.  So even with all the news headlining the challenges in the mortgage world, at least some great success stories continue to be made.

S&P/Case-Shiller Home Price Index Shows Broad Improvement

Just released this morning, the S&P/Case-Shiller Home Price Index for July continues to show price improvement across the board, with San Francisco showing an index of 128 (that means the appreciation rate since January of 2000 is 28%) and pricing improvement on a consistent basis since early this year.

As we all know, many homeowners and homebuyers view this index as the authority on real estate values; as such, the latest results show continued evidence that the “bottom” was reached much earlier this year.

Combine this with some recent anecdotes:

1. There were 95 offers on a property in San Jose that went for 30% over asking at approximately $550,000.
2. Inventory continues to be way below average at about 4 months
3. New construction on the Peninsula wasn’t overbuilt to the degree of San Francisco and San Jose,

Combine this with continuing low interest rates, and you have a recipe for a very active Fall market here on the Peninsula.

Conforming Rates Set to Go Higher—Are You Prepared?

My hope is that it’s now common knowledge now that it’s highly likely that conforming mortgages between $625,500 and $729,750 will see rates moving higher by the end of October, leaving those who are looking to purchase or refinance a home only about a month before the cost of borrowing begins to make a significant move higher.

While we all know that the Fed added another $400b ($1.2T now, that’s $1,200,000,000,000.00 WOW!) towards the effort to keep conforming and treasury rates lower through the first quarter of 2010, the concerns include:

1. there is no confirmation that the conforming limit of $729,750 will be extended, especially since median prices are much lower than in 2008
2. There is no confirmation that the tax credit will be extended beyond November 30, 2009; and if it is, who knows what modifications may be enacted
3. If Bernanke and the consensus among economic experts is correct about the recession being over, combined with the confidence gained in the stock market (and as such companies), how much inflationary pressure will exist to push rates higher?

“Jumbo” Market Improving?

As we all know, non-conforming loans like “jumbo” mortgages (locally, mortgage loan amounts in excess of $729,750) have primarily been tied to savings rates, which has kept the rates down.  Further good news on this front is the fact that some of these mortgages are being sold in the secondary market and consumers are continuing to save about 4% of their income.  The real concern I have here is that rates may be pushed higher by the need for regional banks like Sunwest to shift their focus and money to commercial loans to protect themselves from commercial foreclosures.  Effective October 1, 2009, Sunwest will no longer engage in the wholesale mortgage lending business.  That written, with home prices stabilizing, the non-conforming market will only improve, and right now there are very attractive 5/1 programs in the low-4% range…

Highlights From Our Monthly Mortgage Market Presentation in September

Every third Wednesday of the month, we do a presentation on the latest in the mortgage market, and here are some highlights:

1. Mortgage Loan Disclosure Act simplified; no transaction can close sooner than 7 business days and final documents may be signed provided three business days have passed since disclosure of final terms
2. Fannie and Freddie cut debt-to-income allowances by 15.4% to 55% DTI%– rate buydowns more important than ever for buyers
3. Housing numbers continue to show strength overall, and the $1.5-$4mm will rebound as clients’ qualifications improve and non-conforming money continues to flow
4. Mortgage purchase applications continue their weekly rise, placing more pressure on rates
5. Thank goodness the foreclosure moratorium was lifted this month, as the market is in dire need of inventory
6. Insight on the “W” theory (no, I’m not talking about Bush)—will there be a second bottom?

Food for Thought: Spending $123B is better than $1.4T

Have you thought about whether throwing $1,400,000,000,000 to keep rates low is the most cost-effective method of stimulating the economy?

I have always been a proponent of tax credits versus manipulating rates mainly because the goal of stabilizing the housing sector to stimulate the economy starts with incenting people to buy homes.  Manipulating markets can be a fool’s game.  Let’s think about this concept for a minute.

If we gave every homebuyer $15,000 to buy every home on the market for the next year, it would STILL be cheaper than throwing $1,400,000,000,000 at rates.  No, really.   About 8.2 million homes are sold per year (new and used) in high-inventory markets.  If we gave every homebuyer $15,000 to buy the interest rate down and cover closing costs, that’s still only $123B, which would cover an entire year of real estate sales.

As such, it would take over 10 years to equal the $1.4T that we’re throwing at rates.  Plus, the average loan in the US is less than $200,000; so if interest rates are about 1% below market today, meaning that the conforming 30-year fixed should be 6%, and someone buys 6 points on the loan to get a rate of 4.5%, that means that it’s actually 10X MORE EFFICIENT by giving homebuyers $15k per purchase versus artificially manipulating rates.

I am oversimplifying a bit, as money is being used to buy treasuries, which is good for institutional borrowing rates, which is good economic stimulator, but I thought you may be interested in the quick math.

Thanks for reading

Exercising my blogger’s prerogative to quote myself, here is what I said some two years ago, applying Harvard professor Clayton Christensen’s thinking on “The Innovator’s Dilemma:”

His theory, put forth in his books The Innovator’s Dilemma and The Innovator’s Solution posits that new entrants into an industry often take advantage of a disruptive technology to enter the marketplace at the lower end, catering to the low-margin customers that the established players aren’t that interested in serving.

…

If the new entrant succeeds, it starts to take market share from the incumbents, who finally wake up — often too late — and discover that the “cheap, undesirable” part of the market is both larger and more lucrative than they previously thought.

…

Even more interesting is that as the new entrant grows, its clients’ needs often change over time — to the point where the new entrant now also provides more of a “traditional” experience. Think back to Charles Schwab: its early customers were drawn in by the prospect of significantly less expensive stock brokerage services. The Charles Schwab of today still provides that, but also provides a higher-touch, higher-cost service, akin to that of the Merrill Lynches.

Exercising another of my blogger’s prerogatives — that of making wild generalizations — many of Redfin’s clients are tech-savvy, data-hungry, 30-ish first-time home buyers for whom Redfin’s data-rich site is like crack cocaine … and for whom the company’s 50% buy-side rebate is like, well, crack cocaine on steroids. These folks are do-it-yourselfers who think — rightly so — that much a traditional Realtor’s tasks (educating clients about neighborhoods, taxes, the transaction process, etc.) can be done on their own, in their pajamas, in the comfort of their home office, on their favorite Macbook.

Think about these same folks five to ten years hence … they’ll be wealthy(ier) tech-savvy, data-hungry customers, perhaps with a kid or two in tow … looking to sell their existing home and buy a newer, larger one.  They’ll probably be more pressed for time, perhaps less concerned about getting a rebate … and voila! Redfin will be there to hold their hand again, perhaps operating like a traditional brokerage, charging more.

Prediction:  Within 2 years, Redfin will launch a “Redfin Deluxe” service which will look and feel an awful lot like a traditional full-service real estate experience, with no or little rebate.  If they can make a profit giving back half the commission, imagine their bottom line when they apply those efficiencies to the full-service market!

Other commentary on this event:

• Techcrunch, predictably, painted the event as causing “shudders” in the real estate industry.  Even more predictably, the post attracted the usual scrum of Realtor-hating consumers, with Reba Haas pretty much single-handedly keeping them at bay.
• Nearly-the-same-last-name-as-mine Brian Boero of 1000 Watt Consulting notes that Redfin works by concentrating on three things that many traditional brokers ignore:  talent, transparency, and technology.

Interest-rate buydowns are one of the most effective methods for both buyers and seller to obtain what they want, which of course is value.  For the sellers, buying down an interest rate can have up to 8X the power over a price reduction, depending on the cost to buy the rate down.  For buyers, a lower rate means higher qualification and bragging rights of having the lowest mortgage rate on the planet.  In the example above:

• If the buyer was qualified up to $1.8mm at 5.5%, they are now qualified at $2mm at 4.25%
• The seller only needs to invest four points or $56,000 to move the buyer $200,000; thus a $56,000 investment saves the seller about $144,000, which is therefore about FOUR TIMES more effective than reducing price

I use the example above since I have been receiving a tremendous amount of inquiries about what’s happening at the higher end, which are those homes selling at $1.5mm+, and whether creative financing has been more common than not.  What we’re seeing is that creative financing, like interest rate buydowns and seller financing, are definitely more common at all price points.   But what’s been rather fascinating to watch is that many sellers are becoming less inclined to reduce price, despite the fact that prices are off by between 7% to 17%, depending on which city the property i located.  Yet, sellers have been very open to concessions that help them keep their price, despite the net proceeds being reduced.  One of the reasons for this, in my opinion, is the fact that buying activity has skyrocketed on the last few weeks, which is obviously encoraging to sellers.

So what’s drivng the buying activity?  Well, for starters,  it seems like many buyers properly sensed that we’ve hit the proverbial “bottom” of the real estate market, which was recently confirmed ed by the exisitng home sales figures that came out last week.  That’s right, not only are sales of both exisiting and new homes up significantly (4.7% and 5.1% respectively), the US median price and average price were both up in February over January.   Add this data to the fact that interest rates have set a new low record, plus further validation from one of most respected economic forecasting sources avalable, the UCLA forecast, that 2010 will be a year of recovery, and it becomes clearer and clearer that there couldn’t be a greater opprtunity to buy real estate.

 Would you like a tax credit of $7,500 for buying a home?  And I mean a REAL credit, not the 0.00% loan that the 2008 stimulus package was enactingfor firs time home buyers?  Well, that’s the latest possible modification going forward as part of the 2009 Stimulus Package, and it’s NOT limited to first time home buyers.  There’s discussion that ANYONE wanting to buy residential real estate will be entitled to this $7,500credit.   As you know, a tax credit directly offsets the amount of federal tax that you may owe the federal government—it’s not a reduction in taxable income—which makes this a very compelling reason for would be home seekers and investors to make a purchase this year.   

Want another compelling reason why the smart, savvy buyers are acting sooner than later?  Because they know that average appreciation rates in California are 8.8% over the last 40 years (yes we all know that the Peninsula is much greater), and today provide an opportunity for both tremendous value and cheap financing.  Let’s think about real value for a moment.  The last year we had average appreciation in California, it was the year 2001 (8.7%).  If we strip out the overbuilt areas of California.., and concentrate specifically on areas where housing expansion is extremely limited, like the Peninsula, one can simply take the median price of comparable homes in 2001, add 8.8% appreciation per year, depreciate appropriate improvements to the property and a value may be derived.  Thus, if a would-be buyer can obtain a home at that value or better, and combine the cheap cost financing, that’s an ideal move on a fundamental basis, whether the purchase is for shelter or for investment.

Want more?  OK.  How about the fact that, since 1968, there have only been four real periods of decline:  1984 (0.1%, so not really), 1990 (only 1.2%, despite the Loma Prieta earthquake in October 1989), 1992-1996 (Average of 2.44% despite a major recession following a major earthquake) and today (yes, believe it or not, there was NO decline for CA as a whole in 2001 when the stock market crashed; in fact, it was up 8.7% in 2001 and up over 20% in 2002. All the more reason why 2001 is a good basis to use.  

Want even more? “Thank you, Sir, may I have another?”  Sure.  How about the fact that I have personally bought at a low point (1994), sold and bought at a high point (2000), sold and bought at a mid point (2004) and came out ahead EVERY time.  In fact, that stepping-stone approach toward buying a home in Palo Alto without a trust fund was a goal realized solely because of real-estate appreciation.  On that note, let’s review again the fundamentals of buying real estate for both the person seeking shelter and the person seeking an investment. 

For those seeking shelter, it does not matter which price point one is buying at today, as there is good value on property and cheap money available now.   It also matters very little at this point whether we’re at the bottom of the current cycle.  The reality is that interest rates across the board, combined with attractive pricing, have made it far more financially advantageous to buy versus rent.  And with a 5-year holding period, equity is protected and an increase to net worth is likely.  For those looking to buy their primary residence, and who are also trying to time the market, they will likely be settling for less desirable property at a higher cost…    

For those seeking investment, there are properties everywhere that are positively cash flowing, thanks again to a strong combination of value and very cheap financing.   A recent example I looked at was a 4-plex here on the Peninsula going for about $900k, and it POSITIVELY cash flowed with only 10% down!  To boot, if the client had 30% to place, it would yield a capitalization rate of almost 3%– that’s HUGE for residential property investment on the Peninsula!   

What about financing?   Mortgage banks offer the greatest breadth and depth of available programs, but large institutions with reputable loan professionals are a good alternative .  As you may have heard this week, Chase is the latest major player to cease brokerage operations (yet they are still buying paper from mortgage banks) making it tougher for brokers to source money.  Rates on conforming programs have risen in recent weeks, but rates are still very attractive around 5%.  Further, rates on non-conforming/jumbo programs have also been very attractive at rates BELOW 5%.

Please keep in mind that seller financing is an ideal way for buyers to buy more valuable property while protecting their liquidity and sellers to obtain a great investment while selling their property at a reasonable price.   Many are waking up to this option, which will undoubtedly move greater inventory.

Alerted by several folks, including those at NAR Wisdom, about NAR’s new “Social Media Manager” position, I find myself puzzled.  NAR and its state and local brethren are, at heart, finely tuned political action machines — that’s what they’re built for, it’s what they do best, and it’s what you would expect from a trade union.  I remember a year or so ago a small local town — Atherton, I believe — thought a good new revenue source would be to tax Realtor (r) commissions at the point of sale.  Dozens and dozens of Realtors showed up for the town hall meeting — practically more Realtors than the town had citizens!  These Realtors came from far and wide, and very few of them had anything to do with Atherton.  They came to show their extreme displeasure at this move, afraid that if it passed, the idea would spread like a cancer to neighboring towns.  Needless to say, the measure got voted down.

NAR is also great at getting out its message — very consistently — that it’s a great time to buy to sell to buy and sell to buy, sell, skip, and jump!

What exactly would a social media manager do at NAR?  Send out Twitters about NAR’s latest rosy forecast?  Alert everybody that Lawrence Yun is about to send another update?  There is simply too much of a disconnect between NAR’s stifling corporate culture and the social media world.  I imagine all blog posts would need to be cleared by a hundred-person NAR subcommittee.

I know they’re well-intentioned, and I give them credit for trying, but give it a rest, guys!

If somebody does get this job, I’ve got $50 that says they don’t last any longer than Mr. Luther did at move.com  Any takers?

Joanne Fraser, who sells real estate in Los Altos CA, informs me that a local police department (Mountain View) is now on Twitter.  (See here.)  They don’t have a lot of followers or updates yet, but kudos to them for embracing social media as a way of staying better connected to the community.

Turns out the Scottsdale police department is also in on this.

Neither Scottsdale nor Mountain View, however, are still quite “there.”  They’re using Twitter right now only as a way of disseminating information:

14 year old takes seizure medication. It is unknown when she took it last. She has long brown hair and is wearing green shirt, blue jeans.

SPD in area of 28000 N. 59th Place in reference to a missing juvenile female. It is beleived she is on foot in the desert area to the east.

Here’s where they’re missing out:  they could also be using Twitter to receive information from the public about law enforcement issues.  The Scottsdale PD is only following some 18 Tweeters (mostly local news stations), and Mountain View isn’t following anybody.  Think of the increased power of the medium if they both followed all Tweeters in their area!

Twitter could become a supplemental 911 system:

Help!  My house at 123 Main is being broken into!

I’m in the parking lot on Main & 1st.  Lights are out.  Suspicious looking guys are walking around, flashing lights into the cars.

Twitter could also act as a neighborhood “early warning system”:

What’s with all the boarded-up houses over on the West side?

Traffic is backed up on Marsh all the way to 101!  Accident?

Of course, if a local police department were to follow 500 local residents, it’d be difficult for them to keep on top of all that content, especially with looming cutbacks in government services.  Solution?  Create searches in search.twitter.com for key words like:  Help … Accident … Break-in … Robbery … Broken window …

Twitter is rapidly growing up.  It’s no longer just an interesting way to spend time:  it’s now becoming a credible and powerful way for organizations to disseminate and receive valuable information.

During one of the questions about the economy and the financial crisis, McCain dropped a bombshell!

When Tom Brokaw asked about what needs to be done to help the housing market, McCain suggested that Government should buy back all these defaulted loans and then give these people new loans at the current market value of the home. Hmmmm. Will this work? I think not. Why?

Well, let’s see how this would work…

1. Joe Homeowner has a house that he bought for $500,000 with a loan from Fly-By-Night Subprime Lending, Inc.
2. The house is now worth $400,000
3. Joe, like everyone else, has lost a lot of equity in his home
4. Unlike other Americans who are responsible and ARE paying their mortgage, Joe qualifies for the Government to buy back his subprime mortgage, because he’s NOT paying his mortgage.
5. The Feds buy his mortgage for $500,000 and immediately give him a new mortgage at $400,000, which he may or may not be able to afford
6. So now Joe is happy, but only until he can’t make his payments again…
7. Good ole’ taxpayers absorb a $100,000 loss
8. Multiply by millions of upside-down loans.

So let me ask one simple question – Does this make sense to you??  I suspect there will be a lot of responsible homeowners who are diligently paying their mortgage who will be awfully pissed off that they won’t be getting THEIR mortgage bought by Uncle Sam and reset to current market value.

Don’t get me wrong – I am not against McCain, and this isn’t about one presidential candidate or another.  I’m simply saying that this plan does not make sense.  However, I haven’t heard either candidate or anyone in congress or the treasury or the federal reserve or the private sector suggest something that might actually work to solve this mortgage mess.  Although today, Barack Obama rejected McCain’s plan, and his economic adviser said that McCain’s plan would cause the U.S. Government “to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don’t recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”

Let’s hope that someone is smart enough to figure out how to use that $700,000,000,000 to get the housing market back on track.

In the meantime, I’m proceeding under the assumption that for the forseeable future, people will need to do a short sale and get their lender to take the loss.  So if you know of someone who is underwater and stuggling to keep up with their higher payments as their loan resets to a higher interest rate, tell them you know a foreclosure consultant who can help.  I’d be delighted to talk to them.

Don’t miss this opportunity to learn the latest advances in technology such as text messaging, picture messaging, camera phones, PDAs and many other technologies…

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	You must register separately to attend the C.A.R. REALTOR® EXPO Oct. 14-16, 2008

And that’s where my modest proposal comes in.

Fundamentally, this crisis is about housing values, or more specifically about uncertainty around housing values.  Behind most of the bankrupties, the bailouts, the CDO-thing-a-majiggies … lies a portfolio of mortgage loans whose value is … 3 cents on the dollar? A dime?  A quarter?  47 cents?  Nobody knows, and therein lies the problems.

Our fearless leaders have proposed spending the $700BN largely on buying these “non-performing assets.”  By some financial wizardry, the exact same folks who could not determine the value of these assets in the private market, are about to get hired by Uncle Sam to determine these assets’ values on the taxpayer’s dime.

So here’s what we do instead:  Let’s spend that $700BN buying not the mortgages, but the underlying homes themselves.  Let’s say homes in the US have an average value of $200K.  [Pause for my west and east coast readers to chuckle.]  $700BN divided by $200K is … 3,500,000 (three million five hundred thousand.)

That’s right.  With $700BN we could buy a couple of million homes.  We’d start by buying, say, 75% of the inventory on the market right now.  That should restore confidence in the market pretty quickly.

Presto!  Problem solved.

The New York Times reports that JP Morgan Chase has taken over troubled lender Wamu.

What next?

On the day that the Fannie and Freddie s$#@ hit the fan, Sherry Chris of Better Homes and Gardens Real Estate quoted Realogy CEO Alex Perriello, “I feel like I am in Imelda Marcos’ closet – the shoes just keep dropping.”  Indeed.

Fast forward a few days and we get the Bawld Guy, America’s foremost maxim-generating machine, reassures us that we ain’t all gonna die.  He’s seen this movie three times before, and the asteroid doesn’t hit earth.

Finally, Nikcolai Kolding, also of Better Homes and Gardens, brings out an interesting diagram explaining the phases of the real estate market:

["Sides", for the uninitiated, refers to each of the two "sides" of a transaction.]

The diagram suggests that transaction volume, not price, is the best leading indicator of a change in the market.  In a future article I’ll see how well our local data fit into this model.

I know this has nothing to do with staging But many of you who read my blogs know I am passionate about technology and its application to small businesses. My business certainly has benefited from technology tremendously and I would not have found the success that I have without using technology to streamline processes and lower my overheads.

With that said, I am one of the co-organizers for BizTechDay and I just found out we have booked Tim Ferriss of 4-hour Work Week for our keynote!

Here are the details:
BizTechDay – Technology Bootcamp for Entrepreneurs and Business Owners Saturday October 25 All Day Event
BiztechDay is the only conference that puts your business first before technology. Come meet Timothy Ferriss, best selling author of 4-Hour Work Week and George Wright (Marketing Genius behind the YouTube WillitBlend Campaign) and learn hands-on steps and ideas to take your business to the next level.

When: Saturday, October 25th, all day event
Where: Hilton San Francisco
333 O’Farrell Street,
San Francisco, CA 94102

You can use this link to Sign up for BIZTECHDAY here. After 9/15 the price goes up $100. Use discount code BIZSCY148 ($129 instead of $149)

Who are Speaking?

* Timothy Ferriss – New York Time Best Seller and Author of Four Hour Work Week
* George Wright – VP of Marketing from Blendtec (WillitBlend – one of the most successful Business YouTube Campaigns – 700% increase in Revenue)
* Megan Casey – Editor in Chief from Squidoo.com (Top 500 websites in the World!)
* Yaniv Bensadon – CEO from Fixya.com (one of the most popular Tech Support website in the world)
* And many more!

Why Attend BiztechDay?

* Learn from business and technology who speak your language
* Get ideas and hands on steps so you can also put the internet to work for your business right away
* In-depth workshops and panel discussion to get you up to speed on essential tools you must have for your business
* Network and meet like-minded entrepreneurs and business owners (like you and me!)

What You Will Learn:

* How to Use Linkedin/Facebook/Yelp to Promote Your Business (+ 20 more websites)
* How to Collect Money Online Using Paypal, Google Checkout & Amazon Payment
* How to Develop Your Own YouTube Video & Podcast to Market Your Business
* How to Setup a High Traffic Business Website & Basics to Search Engine Optimization
* How to Setup a Successful Email Marketing Campaign
* How to Create Your Own Social Network and Build Your Customer Base
* How to Promote Your Event & Get Hundreds of People
* And many more!

Most of the topics are very applicable for real estate professionals. A lot of us have used social networks to promote our businesses. SEO certainly doesn’t hurt

TO YOUR SUCCESS!

Cheers,
Cindy

The GSEs hold or have securitized nearly half — roughly $5 trillion — of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

 This bailout (oops, did I say bailout?) removes much of the risk to lenders of writing mortgages for under $729,000 locally, decreasing to $649,000 next year, because they can resell these loans to the government backed and now managed GSE’s.

But what about loans over $729,000? Well, Wall Street and the secondary market will still be willing to buy those that are considered low risk (excellent credit score, low loan-to-value ratio, verifiable income), but they will demand a risk premium for those loans, meaning that rates are likely to go up, taking us back to the bifurcated market for rates that we have seen in previous years.

 On his way to the SILVAR Golf Tournament yesterday, co-contributor and local mortgage banking hotshot Eric Trailer of Absolute Mortgage Bank in Palo Alto gave this quick analysis of where he sees rates going (paraphrased here):

If you know you can sell off a loan to a government backed agency, you have very low risk, so you demand a low interest rate. However, as risk increases you will demand a greater “risk premium” to hedge against not being able to sell that loan, or the buyer defaulting on that loan. Right now we are seeing investors who are willing to lend the 20% to take a buyer from a 20% down, 80% loan to a 100% loan, but at 15% with 5 or 6 points. That’s expensive money, which is why it is dubbed “hard money”, but it offsets the risk to the lender.

 Eric thinks we could see Jumbo rates heading to the 8 – 9% region, which is still lower than in the 80’s, but the difference between a 6% loan and a 9% loan on $1,000,000 is $2500 a month just in interest.

 Let’s do some math. If you have an 80% mortgage on a median priced home in Palo Alto ($1,921,214, source Altos Research). That is a mortgage of $1,536,971, and payments increasing from $7685 @ 6% to $11,527 @ 9%. That’s a lot of $4.25 a gallon gas!

 So, if you are planning on buying a new home and you need to borrow more than $729,000 you may want to get out there looking sooner rather than later.

 To learn more about the takeover of Fannie Mae and Freddie Mac and what it means to your home purchase, check out a new video featuring California Association of Realtors Executive Vice President Joel Singer at http://www.car.org/newsstand/video-js-gse. In “Fannie and Freddie: Why They Matter to You,” Joel explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market in clear and concise terms.

Thanks for reading . . .

What The Government Seizure of Fannie Mae and Freddie Mac Means To You

Unless you have been hiding under a rock the past couple of days, you couldn’t miss the announcement that the U.S. Department of the Treasury has placed government backed mortgage companies Fannie Mae and Freddie Mac into a conservatorship. Under the terms of the deal, the federal government is authorized to take up to an 80 percent stake in the companies, and, as part of its duties under the conservatorship, will review both Fannie’s and Freddie’s financial condition quarterly, as well as inject money into the operations as needed. 
Tommy Fehrenbach of Stern Mortgage in Palo Alto had this to say about the Treasury Department’s move.

“To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009. However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at about $250 billion.”

 As part of this weekend’s action, both CEOs were relieved of their duties and Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S. Bancorp CFO, were selected to lead Fannie Mae and Freddie Mac, respectively.

The markets cheered the move with the NYSE and NASDAQ rallying on the news, and mortgages rates for conforming loans (under $650,000 in 2009) fell almost half a point.

 All great news, mortgage rates fall, and the housing slump is averted, right? Not so fast there partner . . .

In a statement released today by the California Association of Realtors (C.A.R.), concern over the long-term impact of the move was expressed with the following cautionary forecast:

“Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.”

C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.”

I added the underlining for emphasis because what nobody is talking about is JUMBO loans. Those mortgages above $729,000 (over $650,000 in 2009) that are part and parcel of almost ALL sales of single family homes here in Silicon Valley (the median home price in Palo Alto this week is: $1,921,214, courtesy of Altos Research).

In summary, while this is a good move for conforming loans, and the majority of potential homebuyers across the country, high-cost areas like Silicon Valley may once again be left out in the cold.

Stay tuned for our next edition of Mortgage Mania – The Jumbo Strikes Back

Thanks for reading . . .

For a long time, MLS searches have been available via email. Recently, some real estate search providers — like our friends at Trulia and at Diverse Solutions — have enabled MLS searches via RSS feeds. (That’s actually the technology I use on the sidebar to provide the link searches.)

As the latest new big online thing, Twitter has attracted a massive cult following, and as a permission-based communication tool, it’s ideal for sending out news snippets such as new listings.

Here’s how it works:

1. Sign up for an account at Twitter if you haven’t done so already.
2. Head thither and “follow” my Twitter “Menlo Park MLS” account. Other towns in the Bay Area will follow shortly.
3. Sit back and enjoy the “tweets” that will come your way by cell phone, email, Twhirl, online (depending on how you configure Twitter). These “tweets” will be little news snippets about new homes to hit the market. Want more details? Click on the link in the tweet and you’ll see pictures, details, and much much more.

If you’re more of a FriendFeed type, I have the same offering available in FriendFeed room format. Find your way yonder, select your favorite city, and click “Join This Room.” And, as our British cousins would say, “Bob’s your uncle!”

FriendFeed room example for Burlingame:

Twitter example for Menlo Park:

As video becomes more mainstream and more accessible via technologies like Qik, Mogolus, and ustream, this sort of event will probably become more common.

Pam Buda gets my vote for this year’s real estate Oscars!

In a former life, I was a middle school math teacher. In the Peace Corps. In Botswana. I distinctly remember spending a number of days teaching about the importance of place value in numbers — you know, the concept that decimal points and zeros aren’t just decorations. .32 and 3.2 and 32 and 320 are distinctly different.

As far as I know, none of my former students are Realtors in Palo Alto. Which might explain this juicy little chart from our friends at Altos Research:

Note the drop in per-sq-ft prices a few years ago, from $75,000 per sq ft down to perhaps only a thousand bucks a sq ft. Then, a massive run-up back to over $20,000. Then back down again. Kind of like a scary roller-coaster ride.

Even during the incredible run-up in real estate prices, trust me, we were never at $75,000 per sq ft! The explanation for that chart? Simple: Every now and then a listing makes it onto the MLS with a misplaced decimal or zero. A $2,000,000 home gets listed for $200,000 (these mistakes are typically corrected quite quickly when the listing agent gets 100 phone calls in the first hour from agents wanting to make offers.) Then a $700,000 home gets listed for $7,000,000. (These mistakes take longer to correct. The agent wonders why nobody comes for the open house, then figures it out.)

Then there’s the square foot mistake, where a $1,600,000 home (price entered correctly) gets its floor space shrunk from 2000 sq ft (correct) to 2 sq ft (incorrect.) Voila! This home now costs $800,000 per sq ft! A few of these in the same week, and poof! Up goes that average!

Athol Kay has proved that, as a species, we Realtors aren’t that good at taking pictures. But for the love of God, people, can we please please please remember the importance of correctly-placed decimal points and zeros!

</rant>

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.

Another despicable splogger is stealing content from various places on the Internet, including this blog.  Sadly, the side gives no contact information, so I’m not able to send my usual polite “cease and desist” notice.

Hopefully this post and picture — which will soon appear on the Nationwide Home Mortgage Loan Corporate blog — will embarrass the owners into stopping this nonsense.

Symantec

Tipped off by an anonymous Active Rain’er who had come across this discussion thread, which in turn had been prompted by good investigative sniffing [sniff one, sniff two, sniff three] by the pack at Bloodhound, Symantec’s elite Taskforce Realty Internet Permission Experts (TRIPE) worked through the night to come up with a patch. The head of TRIPE, Dr. Francois Viande-Fichu, released the following press statement:

With thanks to the ever-vigilant Active Rain-droppers for tipping us off, we were stunned to find some pretty damning evidence of foul play in Trulia’s widget, which unsuspecting Realtors have been deploying on their web sites in droves. Trojan Horses are one thing, but what they’ve come up with is something far more nefarious: a Peloponnesian Unicorn.

The Trulia widget does the following:

• Sucks out the hosting web site’s Google Juice, especially the Raspberry flavor.
• Decreases the hosting web site’s Google Page Rank to negative 5.
• Installs a little Trulia MarkerMan on the desktop whose eyes follow you around as you surf, and they roll sarcastically whenever you visit Zillow’s site.
• Automatically and instantaneously rises Trulia to the top of the Google rankings for all searches related to the host site.
• Makes the web site owner/blogger start chanting Gregorian hymns in the original Latin.
• Refers all incoming traffic to the hosting site’s owner’s fiercest competitor, in exchange for a 25% referral fee.

When challenged to provide evidence of the above, Dr. Viande-Fichu displayed the following code embedded into each Trulia Widget.

<;?Php Embed Java Script<Trulia Evil Widget.class.nefarious>;
While {5>1 DO:
Trulia.PageRank = Site.PageRank*2 / Slurp.Giant.SuckingSound;
Site.PageRank=-5;
Install.Icon = http:/trulia.com/images/trulia_markermen_icon.gif; option bug eyes=”true”;
If Site.Visit=”Zillow” Do {Icon.Roll.Eyes And Sigh.Loudly};
Google.LocalSearchRankings.Site.City = “Truliawful”;
Trulia.LocalSearchRankings.Site.City = “TopOfFirstPage”;
Launch Latin.hymns.InstanceGregorian;
End Do}
?end Php>

Agents who’ve installed this widget are advised to uninstall it immediately, then put the following badge on their web site to protect them in the future:

To install this widget, do the following:

1. Download this file to your computer.
2. Open the file in Notepad or some other text editor.
3. Copy and paste the contents of the file into a sidebar Text widget.
4. Rinse and repeat.

Full disclosure:

1. I did a consulting project for Trulia last year.
2. Trulia out-ranks my site for many Google searches.
3. My site outranks Trulia for many other searches, including, most significantly, peace corps volunteer botswana real estate palo alto.
4. Trulia’s no-follow policy applies, as far as I know, consistently across all broker’s listings, including mine.
5. No animals, Realtors, or SERPS were harmed in the production of this post.
6. Void where prohibited.
7. Do not ingest.
8. This blog is not a toy. Keep out of reach of children.

No, what really fascinates me about this debate is how it accentuates co-opetition in the real estate industry.  Co-opetition is simply the notion that companies compete and co-operate simultaneously.  Arch-rivals Northrup Grumman and Boeing go mano-a-mano to get a lucrative government contract … and the winner often subcontracts part of the project to its rival.  Microsoft and Oracle have competing database platforms but often sell eachother’s products.

In our industry, co-opetition reaches nearly incestuous levels.  For instance:

• Brokers John and Betty compete for the listing at 123 Main Street.  Betty wins and puts the property on the MLS.  The very next week John brings potential buyer clients to the property.  Sure, he would rather have won the listing, but that’s in the past.  Now he’s working with Betty to consummate the transaction.  No hard feelings.
• Realtor Bob hangs his license with ABC Realty.  He puts an ABC Realty sign on the front lawn of all his listings, and the ABC Realty logo is prominent in all his media ads.  He’s co-operating with his real estate brokerage to promote their brand, and he in turn benefits from that brand awareness.  Co-operation.  A phone call from a prospective buyer of one of Bob’s listings, however, may well go through to the agent on “floor duty.”  That agent turns this phone call into a client, who goes on to buy a different listing, not Bob’s.  That’s competition — Bob would have loved to get that phone call and turn it into another client, but his competitor — the other agent, and to some extent his own broker — snagged that client.  Co-operation plus competition = co-opetition.
• A thousand local brokers — each fierce competitors — co-operate to run a local MLS.  They put their competing listings up on the MLS, and they compete to bring buyers to each of the listings.  At the close of each transaction, we again have co-opetition — competing parties co-operating for the sake of the deal.
• Broker Tom snags a listing and puts it on the MLS.  Via the wonders of IDX, that listing spreads its tentacles onto a thousand other sites, including that of arch-rival Broker Sarah.  As long as Broker Sarah indicates that Tom is the broker of record, it’s all good.  Her site is much better than Tom’s, so she gets more traffic and hence more clients online.  The fodder that draws in those visitors?  Listings … not only her own, but also Tom’s.
• Broker Rachel gets the listing at 789 Elm Street and puts it on the MLS.  She also puts it on Trulia, which, like the MLS itself, exposes the listing to a much broader audience than she could reach on her own.  She benefits from the increased exposure, and Trulia gets more inventory to display.  It’s a win-win — co-operation at its finest.  The next day, a prospective homebuyer passes 789 Elm Street and Googles the address to find out more.  Who’s on the top page?  Trulia and Broker Rachel’s listing site.  Now they’re competing — for web traffic.

There really is nothing new under the sun.   This business has always been a co-opetitive one, and we’ve always simultaneously co-operated with and competed against not only every other broker, but many of the third-party advertisers, aggregators, and media companies.

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.

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.

In case you’ve been wondering why high-end real estate markets continue to perform relatively well:  One out of every 10,000 American families has an annual income greater than $10.7 million, according to two university professors who study the super-rich.  By their tally, there are some 15,000 Americans who fit into that category.  These individuals also are getting an increasing share of the economic bounty:  In 2006, the super-rich possessed 3.89 percent of total income, up from .87 percent in 1980 and the highest level since 1916.

Strong employment and wage growth are two factors that have helped the San Francisco Bay Area stave off the kind of home sales and price declines experienced in the inland regions of California.  For example, Santa Clara County residents earn nearly double the nation’s average weekly wage and surpassed Manhattan as the county whose residents take home the largest paycheck, according to the U.S. Bureau of Labor Statistics.  Santa Clarans take home an average of $1,585 per week, slightly more than Manhattanites, who earn an average of $1,544 a week.  San Mateo County ranks fifth in the nation at $1,322, while San Francisco is eighth at $1,286.  Nationally, the average is $818.  San Francisco ranked tenth in new-job generation, adding 18,000 jobs for the twelve months ending Sept. 30, 2007.

Despite the above, some worry that California’s technology sector may be in for another “dot bomb.”  But experts say technology and Internet companies are better prepared to weather the storm this time around.  Their reasoning?  Many Web 2.0 companies learned a lesson from their free-spending predecessors and have discovered ways to operate with fewer employees and at lower costs.  That appeals to venture capitalists, who have tightened their criteria but continue to seek companies with strong revenue models.

Lately, I have been describing the market as “upside down”, where I am seeing unusually strong sales activity in the over $3 million market, while under $1 million is about the same as last year, or a little off depending on the neighborhood. What is interesting, is the $1 million to $3 million market, what I call “tweeners”, because these homes are in-between the entry-level and high-end.

Gross simplification warning: Buyers of “tweener” homes have significant amounts of cash or equity to put down, but still need a mortgage, and often a significant one. As banks and other mortgage providers have tightened their lending guidelines from recent years, it has become harder to get a $1.5 – $2 million mortgage, and those have become more expensive. As a result, more people aren’t upgrading, or they are getting priced down from say, $2.5 million to $2 million. Thus reducing demand relative to supply and creating a soft spot in the market.

In my experience, in the $3 million and over market, Buyers have more cash, Euros, Rubles, Yuan, Dinars, stock, gold, trust money, etc. to use to purchase their new “executive home”, so they are less concerned or affected by interest rates and loan qualification hurdles.

Let’s hope that VC money mentioned in the article above keeps flowing so we can keep paying for our million dollar tract homes and $5 a gallon (you know it’s coming!) gas.

I know you will have an opinion or comment, share it here.

Thanks for reading.

This case had lawyers salivating, and brokers trembling, as it potentially could provide precedent and open the door to lawsuits by home buyers who purchased homes during the recent run-up in housing prices, and are now seeing their local markets stagnate or fall.

According to the following article released by the California Association of Realtors, the jury on the case found in favor of the real estate agent.

There was no mention of the issues that I flagged in my earlier post, namely that the agent didn’t share the appraisal or list of comparable properties with the client, or that he encouraged them to get their home loan through him and use his appraiser.

I’m sure that there are many real estate agents out there who also are great mortgage brokers. I’m not one of them. Frankly, I’m not smart enough to keep up with all the issues in real estate law and the local market, plus all the ongoing changes in the lending market.

Thanks for reading . . .

REALTOR® WINS HIGH PROFILE JURY TRIAL
After only two hours of deliberation yesterday, the jury unanimously vindicated a buyer’s agent accused by his clients of failing to disclose that two other homes in the neighborhood sold for less than what they paid. As a trial court case, this decision in Ummel v. Little is binding on the parties to the case, but has no binding authority for other cases. Moreover, the buyers may file an appeal.

This case involved a couple who bought a home in a coastal Carlsbad community in 2005 for $1.2 million. They regretted their purchase when they discovered that two other homes sold for about $150,000 less than theirs. They sued their real estate agent for negligent misrepresentation and breach of fiduciary duty. Their lawsuit grabbed national attention, given the recent downturn in the real estate market.

At the trial, the agent’s attorney argued that there were valid reasons these two other properties sold for less. One home, for example, had a lap pool which was unappealing to many buyers, and the sellers wanted to rent back the home for two years.

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:

• The Bloodhound notes that the rules around home showing seem strict and, well, a bit school-marm-ish.
• Greg Tracy suggests Redfin is becoming what they hate: a traditional brokerage.
• Jon Washburn notes the progression leading to this model and wonders if Redfin may end up becoming simply a lean-and-mean traditional brokerage.

There is a cost to this:

Two weeks ago in North Lauderdale, Fla., funeral services were held for Russell Shaw, a prolific blogger on technology subjects who died at 60 of a heart attack. In December, another tech blogger, Marc Orchant, died at 50 of a massive coronary. A third, Om Malik, 41, survived a heart attack in December.

The article admits, of course, that “the premature demise of two people obviously does not qualify as an epidemic.”

My thoughts?  There’s more than enough stress in my life already, thank you very much, so I try to make sure blogging doesn’t add to this.  I’ve gone several weeks without posting when things just get too busy.  I find blogging in modest doses — say, 30 minutes per day — to be therapeutic.  I like writing, I like reading, I like the camaraderies and interaction.

So here then is my modest blogger manifesto, part serious, part humorous.  Tell me what you think!  Any more we should add to the list?

1. From Saturday at 6pm until Monday morning, no blogging.  [Present post excluded.]  There’s really nothing so important that it can’t wait till then.  [Again, excepting this article.]
2. No vendor pre-briefs less than 48 hours before the news embargo lifts.  I need time to digest the information and come up with a cogent response.
3. Once a month, I will prune my feed reader.  If I haven’t read a blog in a month, off it goes.
4. Many of us in real estate tend to be perfectionists, and our motto traditionally is, “Only perfect is good enough.”  Let’s turn that on its head and say:  “Good enough is perfect.”
5. If it’s starting to be a drag, then it’s time for a break.  A one week moratorium.
6. I will not take it personally when somebody in real estate says they’ve never read my blog, or they don’t know what a blog is.
7. I will not nickname any of my kids “Zillow” or “Trulia” or “Redfin.”
8. I will not obsessively update Wordpress to the latest platform.  Two upgrades per year are enough.
9. I will not tatoo my subscriber stats on my forehead.
10. Above all, I promise not to take myself, my blogging, or my blog more seriously that I need to.

Add your suggestions below…

So, if you’re a buyer competing with other buyers, what should you do?  Our advice:  Pull out all the stops.  Here are some time-tested suggestions*:

1. Bring a large manila envelope stuffed with 100 dollar bills to the offer presentation.  Discreetly slip it to the listing agent.
2. Rename your first born after the owner of the property.  Bring said child to offer presentation, clearly labeled “I named him/her after you!”
3. Offer a 15-year free rent-back to the sellers.
4. Bring along your dream therapist.  Have him/her describe your last session in which you clearly saw yourself buying, owning, and living in the home.
5. Lobby congress to make it illegal to not accept your offer.
6. Stalk the seller for a few days ahead of the offer presentation.  Hold up signs saying, “Sell me your home!  Please!”
7. Add an extra zero to the price you’re offering.
8. Do a “presumptive close.”  The day of the offer presentation, show up with moving trucks, decorators, painters, and other assorted workmen.  Tell the current home owners you’re about to move in — didn’t they get the memo?
9. Bring along your burly cousin to the offering.  Have him sit menacingly in the corner, swinging a baseball bat.  Make oblique comments about “keeping him happy” and “how disappointed he’ll be if I don’t win the house.”
10. Put up a sign outside the offer presentation office saying, “The home has already sold!  Nah nah nah nah nah nah!”

* These suggestions are intended to be humorous.  Pleasure consult with your attorney and/or Realtor before following them.

I respectfully call social networking and Web 2.0 great hype with great future promise. I just don’t think they help sell houses today in any proportion to the emphasis they are receiving.

[Sidenote:  What's Michael doing writing an article about social media in a Realtor magazine?  Shouldn't he be protecting diplomats in Iraq?  Oh, wait a minute -- that's the other Blackwater.]

Michael raises some very interesting points, definitely worth addressing in a future post.

Sherry Chris, CEO of Better Homes and Gardens Real Estate*, however, begs to differ.

Friend and business colleague Pat “Transparent Real Estate” Kitano and I had the privilege of meeting Sherry and Camilla — BHG’s new head of marketing — over breakfast recently.  Sherry’s team has the exciting task of building a brand new nationwide real estate franchise from scratch, but with the incredible advantage of using a name with incredible brand equity.  They’re pulling out all the stops in their pre-launch efforts, including some very interesting online social media initiatives, with participation from the whole executive team.

Taking a page from Rudy and Joe, Sherry always has a video camera with her, and she made the mistake of interviewing Pat and me.  Whether it was the content or the participants that caused this, I’m not sure — but the hotel did give her grief about filming without permission.

[youtube CaYw3yh6wZ4 Sherry Chris of Better Homes and Gardens Real Estate interviews Kevin Boer and Pat Kitano]

* Better Homes and Gardens Real Estate is a client of Domus Consulting, a sister company of 3 Oceans Real Estate.

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:

• Todd Carpenter likes it.
• Tribute Media reviews the product.
• Further explanation from Rich Barton, Zillow CEO.
• Drew Meyers weighs in.
• Greg Swann notes that this product reduces the information asymmetry in the mortgage lending business, and sheds further light on how Zillow manages the wealth of personal information they’re able to gather about consumers.
• Joel Burslem has some questions, but is submitting a loan request as we speak.

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:

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.”

This just in via the grapevine…despite an earlier, uh, tiff, Dustin Luther and Greg Swann, formerly best friends, most recently not so tight…have made up.  Dustin’s highly acclaimed 4Realz seminar series and Greg Swann’s Bloodhound Unchained conference will soon be merging.

Surprising news for those of us inclined to follow such events.  Still, it makes good sense.

In Dustin’s words:  “You know what?  We’re targeting the same group of clients.  We’re both trying to help the real estate industry better understand how to use online and offline marketing effectively.  It just didn’t make sense for us to stay separate.”

Greg Swann concurred (I think):  “Luceat lux vestra!  Luctor et emergo,  silentium est aureum.  sic semper tyrannis.  Quid pro quo — quo vadis?  Ipsom lorem.  Sine quo non. In dentibus anticis frustrum magnum spiniciae habes!”

A potential sticking point — where to hold their joint conference — was easily resolved with the help of a slide rule and Google maps.  Palm Springs, CA is more-or-less in between the two previous venues, so attendees of both upcoming conferences will be meeting in the middle.

The truce was apparently brokered by none other than Joe Ferrara, broker, attorney, and blogger extraordinaire.

Other surprising related revelations:

• The combined entity, to be known as “Bloodhound 4Realz Unchained,” is engaging the dynamic duo at 1000 Watt Consulting to market the event.  At Greg Swann’s insistence, all market collateral will be in Latin haiku.  Said Marc Davidson of 1000 Watt:  “The haiku bit is no problem.  My Latin’s a little rusty.  But it should be no problem.”
• The combined entity is said to be in talks with Inman.  Joel Burslem:  “People were getting sick of the whole San Francisco and New York thing and indicated a different venue would be quite popular.  We figured we should just combine all three of us.  Details haven’t been finalized, but we’ll let you know as soon as we can.”
• The official exchange rate will start at 44 Realz to 3.7 Bloodhound Bucks, and 88 Realz will get you on the short list of the weekly Odysseus Medal.
• The official uniform of the conference will be day-glo-hued spandex tights with huge cod-pieces.
• Kevin Tomlinson, self proclaimed Google backlink whore, will provide refreshments, primarily Diet Coke and popcorn.

What does this mean?  Quite simple — if you’ve been thinking of starting a blog, you may have noticed that every single possible domain name has already been taken.  Seriously.  Trust me on this.  Say you’re in Wapatachee, WI.  WapatacheeBlog.com, the obvious choice, is already gone, as is its plural form.  WapatacheeHomeBlog and its plural twin — taken.  Same with WapatacheeRealEstateBlog[s].com, WapatacheeHomesForSaleBlog[s].com and so forth…you’d have to content yourself with something like WapatacheeRealEstateAndMortgageServicesInformationForYouFromMeYourTrustedRealtor[s].com

With the new .Blog domains available, you’ll now be able to settle for something much simpler and much more memorable.  Wapatachee.Blog, for instance, would be a good choice.

At just a few minutes after midnight, just after the domains had become available, I thought I’d reserve a few obvious choices for myself — 3Oceans.blog and 3OceansRealEstate.blog.  Guess what — taken!  I did some sleuthing and found both domains had been registered just minutes earlier by a company named DotBlog.Blog, headquartered in Cincinnati OH at 10979 Reed Hartman, Suite 118B.  Some more investigation proved my suspicion:  DotBlog.Blog’s head office is in the broom closet of Dan Green’s mortgage business.

You see, Dan Green is not, in fact, a mortgage broker.  He’s actually a domain cyber-squatter.  He got wind of the new .Blog domains a few days ago and took the time to write an automated blog that reserved every single conceivable re.net domain name within minutes of them becoming available.  Greg Swann — want Bloodhound.blog?  Sorry, Dan’s got it.  Joe — looking for Sellsius.blog?  Same news.

It turns out that through another of his nefarious shell Cayman Island-based shell companies, Dan has started another venture called BringTheMoolahForYourDomain.Blog.com  If you want to ransom your hijacked domain name, send $50 in crisp $3 notes to Dan Green’s West Coast office in Menlo Park.  Email me for the address.

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.

Her inaugural post gives us an Elliot Spitzer object lesson…

Take it away Cindy!

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.

Let’s start with whether it’s the right thing to do. Probably one of the better arguments against raising the conforming loan limit is the fact that doing so seems to reward those institutions and individuals that/who put us into this mess. If estimates by the National Association of Realtors is correct, 500,000 refinance transactions will be generated, 300,000 additional homes will be purchased and 210,000 foreclosures will be avoided. So if we conservatively estimate the revenue generated and the losses avoided using industry standards, the total is over 40 billion dollars! $40 billion certainly helps answer the question of how such an effort helps the economy; but again, why help those who caused billions of dollars of losses and a turned the market upside down? Shouldn’t we be punishing those bad, bad people and institutions? Well, the truth is that many of those institutions and individuals have gone away or moved on. So let’s take a moment to see what’s being created here.

Raising the conforming loan limit has the following benefits:

1. It does in fact greatly stimulate the economy
2. Many consumers who got in over their head will now be able to afford their mortgage
3. Greater affordability for housing is created
4. It will influence a portion of the jumbo market that has been lost and create some investor confidence, and finally
5. California has been long overdue to have a raise to the conforming limit given that over 50% of the nation’s jumbo mortgages were originated in California.

Okay, let’s say that raising the conforming loan limit is good for a moment. What’s next and what are the details? There’s still some speculation, but here goes:

1. The conforming loan amount will be determined based on 125% of the median price of a given county…
2. This allowance will NOT go into effect for purchase or refinance transactions until July 1, 2008 (that’s the earliest date that the loan application may be signed) since the market needs from now to June 30, 2008 to liquidate current qualifying mortgages available for sale from institutions
3. The types of programs allowed will be fixed-rate programs on a full-doc basis, which means that the hybrid, interest-only programs using “stated” income will not be allowed
4. The property must be single-family and owner occupied, which means that 2nd homes, investment properties and multi-unit properties are ineligible
5. Credit scores must be “reasonable” with a combined loan-to-value not to exceed 90%
6. No cash-out, which means that a refinance may not allow the borrower to receive any greater than $2,000 at closing
7. Loans must be funded and closed prior to December 31, 2008

The last question really has to do with what pricing of conforming loans will look like come July 1, 2008. My prediction is that, all things being equal today, that conforming loan rates will increase and that jumbo loan rates will decrease, leaving a much smaller margin between conforming and jumbo loans in the future. Since all things won’t be equal due to decreased short-term rates by the Fed and the overall stimulus package helping the economy, conforming loan rates will increase greater than jumbo loan rates will decrease. So, if you’re buying closer to the conforming level today, you’re better off getting a mortgage for the long term; if you’re at the jumbo level today, you’re likely better off going more for a short-term solution. Of course always consult closely with your mortgage, tax and legal professional for the best advice as it relates to your individual situation.

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.)

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.)

‘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.

Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008.  The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package.  The House just passed the Senate version of the bill  and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15^th.   The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform,  making these increases permanent.

Interpretation:  it’s an election year and the national debt already has more digits than a centipede, so what’s another couple of gazillion bucks?

As soon as this bill passes, expect a wave of re-financing for folks in California and other high-priced states who weren’t able to qualify for conforming loans at the old limit of $417K, but will now qualify with the higher limit of some $700K.  Given that the delta between interest rates on conforming and Jumbo loans is a full percent or more, that could spell big relief for some.

Problem is:  Will the typical homeowner who benefits from this actually squirrel away the extra couple of hundred bucks, or instead blow it on more toys?

Other commentary:

• theFrontSteps modestly shuns credit for the bill’s passage.
• SocketSite hosts a lively comment debate on the topic.

Given that a good chunk of the U.S. will be glued to the screen tomorrow, there’s an obvious question to us in the real estate business:  is this a good weekend to be buying or selling a house?

The general consensus is that it’s probably not a good use of your time to be hosting an open house tomorrow.  You’re not likely to have a lot of interested home buyers dropping by.

By the same logic, if you’re a home buyer, and you’re not really into the whole Superbowl thing, there may well not be a lot of open houses to see…but there will probably also not be much competition for the inventory that’s out there.  (Latter point will only make sense for those in the parts of the country — like here in Palo Alto — where it remains a seller’s market.)

Now it’s time to dust off a post of mine from last year:  The Top 10 Differences Between The Superbowl And My Real Estate Business.

10. It doesn’t cost $2M for a 30-second ad on my site.

9. I don’t need shoulder pads and a helmet to protect me from rough play in real estate.

8. I don’t have a 100 million people watching my every move.

7. There aren’t 10,000 web sites predicting the imminent demise of football.

6. I don’t get to call a timeout to figure out what to do next.

5. In football, there’s never any doubt about who’s on whose side.

4. Bad weather doesn’t bring the SuperBowl to a halt.

3. Prince doesn’t perform at my closings.

2. Not many of my competitors weigh 325 pounds.

…and the number 1 difference between the SuperBowl and my real estate business…

1. Real estate makes sense to me.

Today we hear that Rudy of Sellsius has joined Trulia.

Other (still unconfirmed) transitions we hear are in the works:

• Redfin buys Bloodhound Realty and its associated blog, and Greg Swann becomes Redfin’s Arizona broker-of-record.  Redfin CEO Kelman, distressed at Swann’s self-proclaimed disinterest in national parks, sends him off to Yosemite to distribute Redfin stickers, with strict instructions to send back Latin-only postcards.   Russell Shaw, sick of the traditional broker model, is seen handing out the Book of Kelman on street corners in Phoenix.
• Overwhelmed by her increased workload, Redfin media maven Cynthia Pang brings aboard uber-consultant Marc Davison — at Greg Swann’s recommendation.  Marc and Greg are spotted writing press releases in Haiku.
• Rudy’s long-time business partner Joe Ferrara joins Zillow as its “Chief Zestimate Accuracy And Opt-Out Evangelist.”
• Brad Inman, founder of Inman News, having successfully convinced the real estate industry to adopt electronic signatures, heads to the Middle East to replace Tony Blair as peace envoy.
• Athol Kay gets hired by Kodak.  His new job?  Do nothing, absolutely nothing.  In particular, PLEASE DON’T POST ALL THOSE BAD PICTURES!!! It makes our industry look bad.

• Marlow Harris, burnt out with real estate, moves to Memphis, TN, and becomes a Graceland docent.
  
  
• Daniel Rothamel moves to Masai Mara, Kenya and becomes a safari guide.  On weekends, he heads into Nairobi to coach and ref basketball games.
• Dustin Luther, missing the corporate life, moves back to Move.com.
• Brian Brady gets an emergency call from Washington.  “Bernanke quits.  We need you.  P.S. Leave the suspenders in San Diego.”

One of the earliest articles in the 3 oceans blog was on precisely that topic.

I look at resetting the DOM figure as akin to a grocer scratching out the sell-by date on a can of tuna and replacing it with a later date: it smells funny.

Our local MLS has a very clear policy on DOM resets: if an agent takes the property off the market, it has to stay off the market for a full month and the seller needs to sign a new listing contract. Then, and only then, will the clock reset.

Seems like a reasonable policy to me. Back to the tuna example — if the grocer were to take the tuna to a lab, open up the can, test it for all the bad stuff, and, if it cleared muster, re-package it with a new sell-by date — fine!

As the commenters in Alex’s article note, a with-it buyer’s agent will know what the real DOM number is. “8 days on market for 123 Main Street? You’ve got to be kidding me! Joe Smith had that overpriced dog on the market for nearly 9 months. Now he’s changed the carpeting, increased the price, redone the brochures…and voila — he calls it a new listing!”

On January 21st, the Fed dropped the rate to 3.5%.

Today, January 30th, the Fed dropped the rate to 3.0%.

So, in 10 days (January 20th to January 30th) the rate dropped by 1.25%, which means [click click click on my calculator] we’re seeing a 0.125% per day drop.

At that rate, we’ll be at [click click click] 0% by February 23rd!

Recession averted…

Hey, there, you ex-engineer, what do you think of my extrapolation skills?

And sho’ ’nuff…I see nary a leaf on a tree outside my window, but statistical and anecdotal signs of market activity picking up are legion.

Statistical evidence:

Charts from our friends the statistical geniuses at Altos research show the traditional early year inventory bounce happening in Palo Alto — Swiss-clock-like in regularity:

Anecdotal evidence:

• An escrow rep friend of mine says her order book is fuller than it’s been in six months.
• The manager of a mid-size local brokerage says his agents have been going on listing appointments, getting new listings, and writing offers at a much faster clip than in the last few months.
• At least one transaction in Palo Alto last week sold with multiple offers and sold for a substantial amount more than the list price.

Quotes:

Friend, fellow 3 oceans contributor, and Realtor Chris Iverson of The Ventoux Group says:

Listings are starting to increase, but slowly in Palo Alto. Mountain View and Los Altos seem to be off to a slower start this year than last as well.

I am seeing more activity from Buyer prospects since the beginning of the year, but a lot of them have gone back to a “wait and see” attitude following news of the potential increase in the conforming loan limit. That will have a significant effect for first-time buyers in areas like Mountain View and Sunnyvale, where $729,000 gets you a decent townhouse, or a house in Sunnyvale.

Jeff Klein at Absolute thinks it will take about 6 months from the conforming limit change for the resulting loans to be available to buyers, and for the impact on the market to be felt.

Colleen Foraker, of Alain Pinel Realtors in Palo Alto, says:

“We in the industry need to do a better job of educating sellers that this is actually a great time to sell.  Inventory is at a 10-year low, and we’d love more listings.  Problem is, sellers are reading the media, hearing that the market is up to no good, and deciding to wait it out.”

Steve TenBroeck, also of Alain Pinel, notes on his blog:

This past week was brutal!   Last Saturday & Sunday we had the most traffic ever to come through our open houses.  However, on Monday (MLK Day) foreign stock markets crashed.  On Tuesday the Fed dropped the Prime Rate by ¾ of a point.  And by Wednesday, according to several agents, local buyers were retracting their offers to purchase homes.  Then, at the end of the week, Congress came up with a plan to restore confidence and stability in the market.

…

We continue to get calls from prospective home buyers who believe that it has become a “buyer’s market” in our area … The bottom line: demand for homes exceeds supply in this market place.  It was reported this week in the SF Chronicle that in 2007 the Bay Area added 54, 000 jobs.  It’s expected, they said, that at least 15,000 jobs will be added in 2008.  While the housing market nationally and in the wider region of the Bay Area may be the slowest since the Great Depression, the housing market from Menlo Park through Los Altos is very strong; homes sell quickly, often with multiple offers.