• First-time buyers only
• Dwelling must be single-family residential
• Must close escrow by December 31, 2009
• Must be represented by a CA Realtor
• Buyer(s) have not received benefits from HAF in the past

The maximum monthly benefit is $2,250 per month for a total duration of six months, after an initial four-month seasoning period.  As such, it may be worth looking in to additional providers to augment the CAR program, should additional peace of mind be desired.

So what else was good information discussed at the update on Wednesday? 

• Bridge financing is available for qualified move-up buyers looking to leverage their current home and buy before they sell
• “Jumbo” money is more available today than it has been over the last year, which is primarily due to price stabilization– there are now programs offering rates below 4%, leverage as high as 90% (80% to $2mm loan amount!) and financing for investment properties
• with the elevated conforming loan limits staying in tact, rates below 5% and a total of $18,000 in tax credits available to eligible buyers, first-time buyers are likely much better off owning versus renting provided that the holding period is five years
• Move-up buyers appear to be the most motivated lately, as we are seeing twice the number of applications on “jumbo” mortgages versus conforming mortgages coming in at present
• with qualifications tightening, sellers are wise to consider offering up to 2% of the sales price  as a credit toward a buyer’s non-recurring closing costs to yield a lower rate and therefore payment
•  Multiple offers are back, so it’s good to know that the 21-day close is also available again

Next update presentation will be on January 20, 9:30 am and posted on the AMB website calendar– hope to see you there!

FHA Standards Easing

If you know of someone looking to puchase a condo in a new development,  HUD just made it easier to obtain an FHA loan.   HUD is easing up on the requirements that 50% of the units be sold (now down to 30%) and now allows up to 50% of the units to be FHA financed (up from 30%) before funding for FHA is allowed.  The rule that no more than 10% of the units can be owned by one owner and that 50% of the project must be owner occupied hasn’t changed, and the developers aren’t very happy about it, but the reality is that the deal is simply not insurable otherwise.

Loan Modifications Available Through AMB

Coming soon, Absolute Mortgage Banking will have an arrangement with a reputable company that can help individuals modify their loans per the HAMP requirements, and we’ll make the process very easy with a link through our website.  We are in the final due-diligence stage, and we will have a formal announcement likely before Thanksgiving. 

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

75 Coronado Avenue, Los Altos $,188,000

I had the pleasure of hanging out here again this Sunday. It’s a 6 bedroom, 4.5 bathroom home in Los Altos, brand new construction, for the low, low price of $4,188,000.

Currently, there are only 11 homes in Los Altos for sale priced over $3,000,000, so this isn’t exactly your run of the mill property. As you can see from the Virtual Tour, it has everything you need, including two laundry rooms, media room, office, nice master suite and an outdoor kitchen, all nicely packaged in about 6700 square feet. If you have an extra $4 million that you would like to put into real estate and you would like to see it, let me know.

What continues to surprise me is the number of people looking for a home in this price range. The couple today who work at Google (him) and Facebook (her) are obviously planning a big stock sale, now that the market has picked back up.

If we look at the top quartile of the Los Altos market, it definitely falls into the Buyer’s Market category,as the median price of the top quartile has dropped from a high of $3.5M a year ago to about $3.2M today.

Los Altos Top Quartile Price

Looking at North Los Altos (94022) we see that the drop in the median price of the top quartile has dropped more significantly from almost $4.75M a year ago to a bit over $3.5M today.

94022 Median Price of Top Quartile

Meanwhile the inventory of these high-end homes has dropped over the last

few months from a high of 34 in July to 25 today.

Inventory of Top Quartile Homes in Los Altos

In North Los Altos, only two of these high end homes have sold or come off the market, even though about a third of the inventory is in 94022.

Inventory of Top Quartile in 94022

What does it all mean? Well, like with everything for sale right now, cash is king, and if you have the means and are interested in purchasing something, especially something expensive, there are some great opportunities out there. Be it luxury goods, cars or houses, sellers are feeling the effects of the downturn and lack of big stock and bonus payouts.

If you want more specifics, let me know.

Thanks for reading….

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 the subprime crisis winds down, the next crisis emerges – Option ARMs and Alt-A loans (3/1 ARM, 5/1 ARM, and 7/1 ARMs) are all resetting over the next 18 months.  See this chart for a visual of what I am talking about.

These are the loans that middle-class Americans all got during the 2004-2007 timeframe.  As a Realtor selling homes during this time, all the mortgage brokers and banks I worked with was selling these loans to almost every buyer.  It’s scary how many ordinary middle-class folks have these loans.  These are not your sub-prime category of people, these are people who probably can afford a jump in their payment if it increases when the loan resets.  But the wildcard here is unemployment…  With 12.5% of Bay Area residents out of work, this spells trouble for people who are currently struggling to make ends meet.  A payment increase is insult to injury when someone is living off savings while trying to find a new job.  I talk to people all the time who have drained their savings, 401(k)s, and are hanging on by a thread.

We are not out of the woods yet – there are a lot more foreclosures coming, especially in the mid-priced range of the market.  RealtyTrac just released their Q3 2009 Foreclosure Report and it indicates that we are starting to see huge increases in foreclosure rates in cities that were not previously foreclosure hotspots.

What does this all mean?  There may be opportunities for buyers to scoop up great deals on properties in the mid-range of the market.  For example, we are starting to see properties that sold for as much as $850,000 here in San Jose now selling as bank-owned properties (REO) and short sales for as little as $420,000.  50% price decreases off the market highs is now becoming common among these expensive properties.  I expect this trend in the mid-range and luxury markets to continue as we head into 2010…

• 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.

First up was a Crescent Park contemporary at 1012 Forest Avenue, listed by Alan Dunckel and Derk Brill of Alain Pinel Realtors in Palo Alto. Since there isn’t an actual Alain Pinel at that office, if you ask for him, you will be connected to Alan Dunckel, who is a nice guy and a good agent and his name is close enough. They have just reduced the price on this home from $2,395,000 to $2,195,000. Not bad for a 4 year old home in that neighborhood. It will have an open house on Saturday and Sunday from 1:30 to 4:30.

Next we moved a little South to 2145 Emerson Street in equally shi-shi Old Palo Alto. This newer traditional home is listed by Lisa Liu of Alain Pinel Realtors for $2,095,000, down from $2,295,000. At 2248sf on a 5000sf lot, it’s a cozy home, with great details, and great natural lighting. Open Sunday from 1:30 to 4:30.

Saving the best for last is my Intero colleague David Troyer’s listing at 75 Coronado Avenue in Los Altos. This new home is 6721 square feet on two levels on a 14233sf lot. Using modern Craftsman architecture and high ceilings, even the basement feels open and spacious, and it has great finishes and details throughout. Normally shown by appointment only, I’ll be there this Sunday from 1:30 to 4:30. Please stop by!

If you would like more information on any of these or other homes for sale in the area, send me an email, or call me at 650-450-0450.

Have a great weekend!

I have been saying “Dow over 10,000″, with the logic that a great deal of our local wealth was held in stock on various mutual and hedge funds, and so stocks rebounding to near 2007/2008 levels would return that wealth to our stock accounts, with a little consumer optimism coming along for the ride.

While I never claimed to be Carnac the Magnificent, let’s see how the market has been responding to the rise of the Dow over the last month or so.

Strike 1: The median price of a home for sale in Palo Alto is about $200K lower than a year ago.

Strike 2: My theory that homes in the top 25% of the market are more sensitive to swings in wealth, IPO activity and stock values seems to have sprung a leak as well. The top of the market was on an upswing a year ago, and prices have dropped a bit over the last couple of weeks.

I’m going to quit while I’m ahead, but will defend my prognostication with the observation that the mix of homes can cause the median to bounce around a bit as well.

If you are a data junkie too, you can receive free weekly reports on the cities and ZIP Codes of your choice via email by subscribing at www.REMarketReports.com. No Spam, and opt out at any time.

Thanks for reading, and I hope you are well diversified.

Applications and Rates

With total mortgage applications up 16% last week (13% for purchase applications), how is it that rates are lower if demand for loans is up?  The answer is that rates are affected when loans are locked.  So if applications are submitted, but processing times are extended and applicants are holding off locking their loan, rates will be lower until real demand (locking the loan) kicks in. The current trend seems to indicate that rates are moving higher, but not significantly.  As such, if you are looking for that conforming 30-year fixed under 5%.., it’s still available.   Non-conforming rates are also cooperating as they are tied more closely with savings rates than market fluctuations, and we all know how low those CD rates are right now.

What is important to note is that the Fed is concerned about the level of “slack” left as it relates to loose monetary policy, which suggests that tightening monetary policy (raising rates is one way to tighten the screws, but not the only way) has become the focus for the Fed.

Pending Home Sales Up 22.3% Over Last Year

August is typically a slower month for real estate sales, but August 2009 sure bucked the trend with the West reporting a 16% increase over last month and a 22.3% increase over last year—the index now stands at 130.5 in the West.  For those still uncertain about whether low rates and tax credits are not doing their part to stabilize the housing market, this latest data is sure enlightening.

Even new construction purchases were up in August with new-construction inventory shrinking for the 28^th consecutive month.

Fannie and Freddie Cutting DTI Allowances to 45%?!

Last quarter, Fannie and Freddie cut debt-to-income (“DTI”) allowances for their loans by 16% to 55%.  Now, Fannie and Freddie have indicated that DTI allowances will be cut again to 45% DTI—an additional 18.2% cut!  What this means is that borrowers who could afford a $500k home today will have to settle for a $400k home in the future.  As if there aren’t enough motivating factors for first-time homebuyers already—low rates, low prices, tax credits– here’s another reason…

And speaking of the tax credit, let’s all keep our fingers’ crossed that it at least gets extended and hopefully improved!

Condodealz Update

If you know of anyone interested in purchasing a new condo in Palo Alto at sizeable discount, register yourself at condodealz.com as soon as practical, as a deal is currently in the works.

We’re working this weekend as we do every weekend, so please feel free to contact us at 650.543.8001 or 800.517.LOAN (5626).

Cheers,

Eric

I dragged my Los Altos compatriots to Palo Alto today to see a couple of fine homes from the 1930’s. Being an old house nut, 320 Kellogg Avenue, listed by Tim Trailer of Coldwell Banker in Palo Alto really captured my attention with its period details, classy kitchen remodel and the big soaking tub in the master suite. Set on nearly half an acre of Old Palo Alto, this fine property will only set you back $9,750,000.

Moving downmarket to 2050 Waverly Avenue, listed by Bonnie Bjorn of Coldwell Banker in Menlo Park is this beautifully restored Dutch Colonial, offered with the reduced price of $4,995,000. It’s less house and less land than Kellogg, but you don’t have the train noise, and I actually like the neighborhood better. Plus the almost $5million in change will get you a nice little place overlooking the fairway at Pebble Beach, or a small winery in Sonoma . . .

The highlight for me today was this newer Palo Alto Hills estate, listed by Grace Wu of Alain Pinel for $4,299,000. Almost two acres of land, sweeping views of the Hills, and a 3 car garage (must have!) make this a winner. No open houses, but I can set up a showing if you are interested.

Finally, a big shout out to David Chung of Alain Pinel for rocking his new Audi R8 on broker’s tour today! I think he is the new winner in the sexy Palo Alto Realtor Car competition. Eat your heart out Ken!

If you would like to see any of the homes I wrote about today, let me know.

Thanks for reading . . .

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

In Chinese Feng Shui, there are many things to watch out for.  You don’t want a home to be at the top of a T-junction.  You don’t want the front and back door to be in a straight line, lest fortune and good luck come in the front and slink out the back.  You want certain colors and lighting in certain rooms.

The Indian version is equally complex.  The kitchen window needs to be facing east.  There is a different orientation required for the master bedroom, and there are certain considerations for the layout of the other bedrooms and for the locations of the bathrooms.  My friend said that before considering buying a home, he’ll email his father a map of the home’s layout, along with its orientation, and get his father’s verdict before deciding whether to continue or not.

That got me thinking — wouldn’t it be cool if there were an iPhone app for that?  Kitchen.  Windows facing East.  Check!  Bedroom.  Check!  You could advertise your listing as being Feng Shui friendly.

Well, it turns out — surprise!  – there is one.  MobileTechAddicts recently reported on an iPhone app that apparently does pretty much that for the Chinese version of Feng Shui. No word on an Indian version.

(Photo courtesy of MobileTechAddicts)

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.

Here in Los Altos, the market has really picked up starting in early May. Consumer confidence came back as the stock market rallied, the sun came out, flowers bloomed and sellers got more realistic about pricing. Buyers responded by buying up homes faster than they are coming on the market, mopping up inventory.

In June, there were more homes in contract in Santa Clara County than were for sale. The majority are under $500K, but the buying frenzy has moved into the mid-priced homes up to $1.5M. Buyers are finding themselves in multiple offer situations in some cases, with a homes in Los Altos and Palo Alto occassionally receiving over ten offers. . . . What year is it again?!?

Even this new market activity is being regulated by loan availability. I wish I could remember the name of the banker who said that “the lending pendulum has swung to stupid” last week. He is in Nebraska and was saying he can’t do loans now that his father would have happily done in the 1950’s. Home buyers in the dreaded jumbo market are having to provide tremendous documentation and larger down payments, which are softening the market with inflection points at $1.5M (20% down), and $2M (25% down). Over $2M, you need to bring $600,000 in cash, which is a decent chunk of change, especially if you are in the tech industry these days.

Yesterday, I had the pleasure of spending the afternoon at this lovely home in Oak Valley in Cupertino. It is a beautiful home with views and a sparkling pool, priced at $2,348,000. That is at the top of the Cupertino market, but upper-mid range for south Los Altos, which the neighborhood borders. I had plenty of company, as there were a lot of visitors, most of whom are in the market to buy a home, not looking for decorating ideas. The majority had seen the house online, so they knew the size and price before driving over.

Forecasts for the fall market are varying, at best. So don’t believe what you read in the papers, check with your local Realtor. Hopefully, rates will stay low, and we will see inventory continue to be absorbed.

Stay tuned, and thanks for reading . . .

A combination of continuing low interest rates, rising consumer confidence ( we are getting used to bad economic news), and the closing window for tax incentives, is fueling the current buyer activity, so we will see how long this will continue. The state is running out of funds for it’s tax rebate, but the US government has the printing presses running to fund its programs.

The Anderson School of Business at UCLA released its latest report for the California economy last week, and senior economist Jerry Nickelsburg writes “there is nothing happening in California that will help pull the state out of recession in advance of the nation.”

“The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.

Yet that the real risk for California, Nickelsburg writes, is the possibility that there will be no budget agreement at all and that the chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year.

Overall, the forecast for California is for a very weak first two quarters of 2009, to be followed by very little growth in the last six months of the year. The economy will begin to pick up in 2010 and return to more normal levels of growth in 2011.

The expectation is that total employment will contract by 3.5 percent in 2009 and will not grow in 2010. Once growth returns in 2011, it will rise at 1.8 percent.”

The high-end, over $3 million continues to lag, as usual, but the lack of stock profits and the international economic downturn has really depressed the market for luxury homes over $5 million. Two noteworthy listings in Portola Valley and Woodside really symbolize the luxury market currently.

1990 Portola Road in Woodside has been on the market for two months, and just was reduced from $12,500,000 to $8,500,000. That isn’t a mis-print. So much for the benefit of Larry Ellison living next door. . . . This could be an excellent opportunity for the right buyer. If you are interested, I’d be happy to show it to you.

In Portola Valley, 5070 Alpine Road is Portola Valley’s first REO property. Priced at $7,895,000, the bank is willing to provide attractive financing terms on a $1.2 million down payment. Again, I’d be happy to show it to you if you are interested and a $6.6 million mortgage doesn’t frighten you.

On to the numbers:

Atherton:

Currently, the Median Price of a Single Family Home in Atherton is $4,095,000 with a range of $1,075,000 to 16,800,000. 36% (versus 48% last month) of the homes in Atherton have had price reductions, as Sellers are accepting that the market has shifted, and the average number of Days on Market is 132 days versus 133 last month.

Menlo Park:

The Median Price of a Single Family Home in Menlo Park is $1,297,000. 39% (versus 38% last month) of the homes in Menlo Park have had price reductions, as Sellers are resisting that the market has shifted, and the average number of Days on Market has risen to 135 days from 127 last month. If you look at individual homes, the ones that are well prepared and marketed are still selling quickly, some with multiple offers, while those that are overpriced, or are less desirable due to location, odd floor plans or deferred maintenance issues are being passed over.

Palo Alto:

The Median Price of a Single Family Home in Palo Alto is $1,595,000. 41% (versus 41% last month) of the homes in Palo Alto have had price reductions, as Sellers are resisting accepting that the market has shifted, and the average number of Days on Market has fallen slightly  to 96 days from 99 last month.

The two main indicators of a borrower’s likelihood of defaulting were (drumroll please . . . ):

1. Unemployment
2. Declining future home prices

Uh, oh, that sounds familiar here in Silicon Valley where unemplyment is 10.9%, and home prices in even the most resilient neighborhoods are off 10%. The article goes further to quote some numbers from the study:

“The Fed paper estimates that a 1-percentage-point increase in the unemployment rate boosts the chance of a 90-day delinquency by 10%-20%, and a 10-percentage point fall in house prices raises the probability of a default by more than half. A 10-percentage-point jump in the debt-to-income ratio, meanwhile, increases the chance of a 90-day delinquency by 7%-11%.”

So, the 5% increase in unemployment over the last 18 months translates to a 50% increase in the likelihood of default. The 10-20% drop in local housing prices translates to a 14% – 22% increase in the likehood of default. Wow . . .

Thursday’s announcement that delinquencies and foreclosures have hit all time highs underscores the relevance of this study. The authors of the Fed paper recommend programs to assist borrowers who have lost their jobs get through their temporary economic challenge. The WSJ authors have an alternative solution; boosting short sales to get borrowers out of their homes.

Which do I think will come to pass? Well, I have been getting training on short sales the last couple of months, and I have already seen two short sale listings in Los Altos this month.

Read it at the source. Here is the WSJ blog article, and HERE is the Fed paper. Read ‘em and weep.

Thanks for reading . . .

May brought a ray of light into the local real estate market, as consumers, boosted by the rising stock market and low interest rates, began buying up homes on the market. Both Pending Sales and Pending Prices are up (see attached chart for a historical comparison), absorption numbers have outpaced new inventory both statewide and locally, and multiple offers on homes in Los Altos and Palo Alto have come back into play. At the low end, investors are superheating the Santa Clara and San Jose markets for single-family homes under $500,000, with many bank owned properties getting 20 – 30 mostly cash or all cash offers.

In general, prices are at about 2004 levels, and interest rates continue to hover near historic lows, with conforming loans under 5% for 30 years, and Jumbo loans staying around 6%. The big question on everyone’s’ mind is, “How long will this last?”

This past week we saw rates on the 10 year bond jump 0.5%, putting upward pressure on mortgage rates, which responded by rising for the different conforming loans. To get some additional input on whether this is short-term volatility or a longer term trend, I called my favorite mortgage bankers, who all had the same opinion, and all disagree (with all due respect) with Fed Chairman Bernanke that we will be out of the woods by the end of 2009.

The abridged version is that the government is subsidizing rates on loans backed by Fannie Mae and Freddie Mac (who are backed by taxpayers), so long-term mortgage rates are unsustainably low. The funds being used to subsidize these loans are finite, and limited, so there is upward pressure on the various conforming rates to rise to the real market rate of 6% as we are seeing in the Jumbo market.

Unusually, BOTH Buyers and Sellers are facing threats from market forces, creating compelling arguments to act now:

Sellers:

• Rising interest rates cut the purchasing power of Buyers, reducing the pool of potential Buyers for a given property
• The threat of rising unemployment and continuing slowing of the economy reduces consumer confidence and spending, especially on big-ticket items like cars and houses
• The current tax incentives for buying homes are limited to 2009. Reduced government from taxes due to lower incomes and corporate earnings makes it less likely that these are extended in 2010.

Buyers:

• That unemployment thing
• Qualifying for mortgages is getting more difficult, and the regulation of the process has tightened, adding new hurdles to the underwriting and appraisal process as the market overcorrects for the Wild West of the last few years.
• Rising rates cut purchasing power

Wow, kind of heavy stuff for a Friday. The good news is that summer is less than 3 weeks away!

On to the numbers:

Atherton:

Currently, the Median Price of a Single Family Home in Atherton is $3,996,500 with a range of $899,000 to 16,800,000. 48% (versus 41% last month) of the homes in Atherton have had price reductions, as Sellers are accepting that the market has shifted, and the average number of Days on Market has risen to 133 days from 114 last month, meaning that we should see more price reductions as the market searches for equilibrium.

Los Altos:

Currently, the Median Price of a Single Family Home in Los Altos is $1,999,900. 36% (up from 32% last month) of the homes in Los Altos have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped slightly to 98 days versus 96 last month.

Los Altos Hills:

Currently, the Median Price of a Single Family Home in Los Altos Hills is $3,146,500. 36% (up from 23% last month) of the homes in Los Altos Hills have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped to 173 days versus 187 last month.

Menlo Park:

Currently, the Median Price of a Single Family Home in Menlo Park is $1,447,000. 38% (versus 37% last month) of the homes in Menlo Park have had price reductions, as Sellers are resisting that the market has shifted, and the average number of Days on Market has risen to 127 days from 116 last month.

Mountain View:

Currently, the Median Price of a Single Family Home in Mountain View is $899,000. 55% (versus 38% last month) of the homes in Mountain View have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has decreased to 121 days from 127 last month.

Palo Alto:

Currently, the Median Price of a Single Family Home in Palo Alto is $1,595,000. 41% (versus 43% last month) of the homes in Palo Alto have had price reductions, as Sellers are resisting accepting that the market has shifted, and the average number of Days on Market has risen to 99 days from 94 last month.

We are finally seeing seeing a little sunlight through the economic gloom, both nationally and locally. Take a look at these new statistics, and some anecdotal data from here in Palo Alto.

Pending Home Sales

On a seasonally-adjusted basis, pending home sales in the US were up 3.2% last month (3.9% in the West) and 1.1% over last year (1.7% for the West)

On a non-seasonally-adjusted basis, pendings were up 28.2% last month (23.9% in the West) and 3.2% over last year (4.3% in the West)– wow

What’s significant about this is not only the fact that we continue to see more homes selling, but the index itself is running at volumes similar to what we saw in 2001!  Further, this activity helps to stabilize the market, which leads to:

1. more available lending, especially for the non-conforming (jumbo’s equity lines, construction financing) market
2. helps the conforming market by enabling the MI companies to insure up to 95% again, as opposed to the 85% that they’re at now
3. appraisal report concerns reduce
4. reduces the emotional aspect of the sale that has created a tremendous amount of tension in the marketplace, as both buyer and seller feel more comfortable about moving forward

A factor that could be contributing to this increased volume is REO’s since Fannie and Freddie had a moratorium on foreclosures from December through March.  As such, we may see a slight decrease in the median home price for the month of April.  That written, it’s been the first-time homebuyers who have been driving this market, and first-timers don’t prefer to buy REO’s due to the headaches and lack of disclosure involved.

Purchase Applications Continue to Increase

Up 5% over last week on purchase applications, with no signs of slowing down.  Refi’s are naturally very volatile as rates fluctuate with supply and demand.  Overall, the conforming-level loans applications take the majority of overall applications but we have seen non-conforming application double this month over last.

Rates

On conforming loans ($ to $729,750) no matter how hard the government (taxpayers) works to throw money into the system, demand continues to outstrip supply driving rates higher.

On non-conforming loans, rates are driven by deposit rates, which have remained low this year.  The 30-year is running about 6% with the 10/1 about 5.5%, the 7/1 about 5.25%, the 5/1 about 5% and the 3-year at 4.75%

Any mortgage rate below 7% is beating the average over the last 40 years.

Multiple Offers Coming Back

Last night one of our clients was the successful bidder of FOURTEEN total contracts submitted- wow!  And, yes, this was on a $1.3mm home in Palo Alto.  The important thing to remember is that going the old strategy of  “as is” with “no contingencies” against multiple offers should be used with high caution when there’s a loan involved and the loan-to-value limits are applicable.  Why?   The due-diligence process on loans is 4X what it used to be, and appraisal reports are highly scrutinized; as such, it’s recommended that only the most qualified buyers consider proceeding as above.

Mortgage Process, Guidelines and Discretion

Did you know that a loan is actually NEVER officially committed until it funds?  In most of the US, the financing contingency runs all the way to funding.

For the first time in 10 years, underwriters are using discretion to determine an applicant’s ability to replay a loan; as such, guidelines are just that—guidelines—and transactions may be in jeopardy if the process is rushed.  A good example are those borrowers who have had a bankrupts in the past.  Individuals who file bankruptcy once are 80% likely to do so again in their lifetime.   An underwriter may see that a credit score requirement is met, but if the overall profile of the applicant’s repayment history is highly questionable, the request could be severely altered or declined.

The process is far more involved than it’s ever been, for both good and bad reasons.  As such, we all need to keep in mind that closing dates need to be flexible.  Additional due diligence is required on every transaction, and the verification process alone is one that can make the difference between a deal closing and a deal blowing up.  A solid, reliable lending source will always provide proper guidance and multiple solutions

Stress Test

In a nutshell, BofA and Morgan Stanley are ranked at the bottom with Citibank and Wells in the middle, JP Morgan and Goldman at the top…  The need to raise additional capital places stress on the system and essentially forces rates up since investors know that additional capital is required and will therefore demand a premium for it.  For a 4-page version of the results, check out RBC’s summary.

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.

I have been doing a lot of research on this topic recently, and what I have found is there is a lot of mis-information out there. It’s tough to find any definitive information about the impact of a short sale or foreclosure on one’s credit report.

I recently came across some great information provided by a mortgage broker and former underwriter in Southern California, Catherine Coy, on the www.BiggerPockets.com forums, where she explains that in terms of the Fair Issac scoring model, there is no difference between a foreclosure, a short sale, and a 120 day late (Notice of Default). Here is an excerpt from her post: 

It’s a total myth that somehow a short sale is less damaging to one’s credit. Why? Because the following events are all the same; that is, the definition of a ” foreclosure” by Fannie Mae and Freddie Mac is:

Foreclosure

None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.  

Definition of Foreclosure: Any 120 day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements.

The above is straight out of the Fannie Mae Selling Guide, so it’s not speculation or conjecture. All underwriters know the facts: foreclosure/short sale = same/same.

The hit to one’s FICO score is EXACTLY the same because each of the above events results in Score Factor Code #22–” serious delinquency, derogatory public record or collection.”

Now if you’re thinking, well, why would I do a short sale then? There are still other very compelling reasons to complete a short sale as opposed to letting your home go to foreclosure.  The biggest reason is that you will be able to get another mortgage and buy a home again in two years after a short sale, whereas you will have to wait 5 years after a foreclosure. There is also the social stigma of having gone through foreclosure as opposed to being in control of the process and selling your home. There’s something to be said for saving your dignity.

If you want to read more of Catherine’s analysis, you can follow the discussion thread here:
http://www.biggerpockets.com/topics/17598-do-short-sales-hurt-your-credit-score-?page=1

In his article, “Fed bets $800 billion on consumers“ on CNNMoney today, writer Chris Isidore shares Uncle Henry’s latest plans:

“The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.

The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.

One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.

The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.

In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.”

Hmmm, buying mortgage backed securities . . . wasn’t that how TARP was sold to Congress in the first place? The idea of the US Government buying up toxic mortgage assets in an attempt to get the three remaining solvent banks to start underwriting mortgages is enough to get any red-blooded Realtor’s blood pumping again. If this restarts the housing market, let’s all be sure to thank the lobbyists working for NAR, and remember them on our Christmas lists.

The Fed goes the original plan one better by setting aside $200 Billion to buy securities backed by auto loan and credit card debt. Hmmm, let me see if I get this straight . . .

The idea behind mortgage backed securities was that they were safe because they were backed by the houses those mortgages were written against, and the logic was that those were APPRECIATING assets. This worked great until housing prices started falling, and the underlying assets were worth LESS than the loans on them.

A car drops 20% in value the minute you drive it off the lot, so you are already upside down on the loan if you put down less than 20%. The car ads are all touting $0 down, so let’s assume that most buyers today are putting down less than 20%. So . . . is this Groundhog Day?

Don’t get me started on buying credit card debt . . .

This is another reason I don’t work in the Treasury Department. That, and that pesky question about blog articles that would embarrass the President.

You can read the full text of the article HERE.

Thanks for reading . . .

When Treasury Secretary, Henry Paulson asked Congress for $750 Billion (yes, that’s with a B) financial bailout package, the justification was to buy up distressed mortgage assets so that banks would start lending again, and hopefully the epidemic of foreclosures sweeping the nation would be stalled.

The new plan doesn’t include that, of course, which has led to everyone asking, now what?

Lately, I have been holding open houses in Palo Alto pretty regularly, and almost everyone coming in asks me the same question: How is the Market? We discuss the market trends of homes taking longer to sell, increasing numbers of price reductions, the importance of pricing and preparation, etc.

The big shift we are seeing now is the effect of the stock market crash last month. Much of the wealth in Silicon Valley is tied to the stock market (options, grants, etc.). It’s how we pay our executives and employees, reward performance (bonuses), and fuel the venture capital engine. When the market drops over 30%, suddenly, potential home buyers are faced with the prospect of selling stock that is devalued by 30% to pull together the down payment on a home that is priced 5 – 10% off its high (typical Palo Alto home, your results may vary). That is pretty tough to justify, and in many cases potential buyers don’t have enough in their portfolios any more to cover the 20 – 30% down needed for that typical Palo Alto home.

So, we are seeing a bunch of Buyers exiting the market, while the inventory of homes for sale in Palo Alto is about double what it was at this time last year. The result is a Buyer’s Market. Good news if you are a Buyer, bad news if you are a Seller.

Many people in Palo Alto don’t NEED to sell their homes. They may be retired and wanting to move to a smaller home or relocate, or they may be a growing family needing more space. With the exceptions of people relocating out of the area, moving into retirement homes, or those who are selling for financial reasons, many sellers can afford to wait for the market to turn in their favor.

In the short-term, I predict that we will see the inventory of homes for sale drop, even more than the usual seasonality, as potential sellers wait out the market. The big threat to sales and prices is interest rates rising. Remember, that if the rate on a loan goes from 6% to 7%, the payment goes up about 15%. That is a big hit when you are talking about $1M loans, and a economy falling into recession.

For the longer term outlook, I’ll defer to this article that was recently in Money magazine that discusses how the credit crisis nationally is affecting ALL real estate, even here in Palo Alto. We Realtors love to say “All Real Estate is Local”, which is great unless the money to buy that local real estate is affected but national events. This time around, the events are international.

Be sure to follow the links above to see the latest market data for Palo Alto and the surrounding communities, but you may want to fix a drink first. Or, you can register to receive updates on the market in local communities delivered to your email weekly at: www.REMarketReports.com

Thanks for reading . . .

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…

And in the next room, we’ll be talking about fax machines, rotary phones, and photocopiers!

The full promo:

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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

To reduce the tempatation of using the streets of Fair Oaks (in Menlo Park) as a convenient shortcut to avoid delays on Marsh Road and on Middlefield Road, the local neighborhood installed roundabouts traffic circles a while ago.  Most drivers slow down as they navigate around these obstacles, but some of the more aggressive drivers see them as a handy and challenging obstacle course, careening around them at full tilt, seemingly on two wheels.  Both the fast and the considerate drivers, however, still don’t seem to understand the most basic rule of traffic circles:  if you’re in the circle, you have the right of way.  If you’re not in the circle, you don’t have the right of way.

Simple, really — or it should be.  Alas, nearly every day brings about a near collision as a rule-following driver makes a left turn around a circle, while a non-rule-following driver comes merrily towards him, with no obvious intention of yielding.

People!  Slow down!  Yield the right of way to cars in the traffic circle.

‘Nuff said.

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 . . .

When I picked up the paper on Labor Day (Second Sunday?), the headline “Home Sales Raising Hopes” bravely attempted to be seen over the front and center HURRICANE HITS GOP main headline. What’s this I thought, positive news about the housing market from the Merc? Really?

I have grown weary and wary of the Merc and its drumbeat of foreclosure of the week, gloom and doom, and reinforcing that real estate is local, and my market in Palo Alto varies just a bit from south San Jose. If you don’t believe me, visit Altos Research and compare the chart for median home price over the last couple of years in these two cities. The results may surprise you . . .

The Merc got my hopes up with an intro and a couple of quotes from brokers saying they were expecting an upturn in sales in the Fall after activity was so low in the summer, and there is usually an upturn in the fall. There is some back and forth, and the article pretty much shot down the “fall uptick” conventional wisdom. Again, Altos to the rescue showing inventory and sales actually DO pick up in Palo Alto fairly consistently every fall before slowing down over the holidays.

To see the article on its entirety, click here to visit the Mercury online. For charts and stats galore, visit the Market Reports page on my website, now in Single Family and Condo!

Thanks for reading . . .

To see current market data and price trends over the past year for local communities and confirm or refute Eric’s prognostications on the local market in Palo Alto and the surrounding communities,

CLICK HERE to see real-time market data, courtesy of our friends at Altos Research.

As you have likely been hearing, there continues to be more and more evidence that it will cost prospective home buyers more to purchase a home in select areas of the Bay Area as they allow time to go by.
Why? Let’s look at the basic reasons, then review an example:

1.        The median price across the board in Palo Alto and the surrounding communities has risen since the beginning of the year.

2.        On a national basis, the trough of the market was reached in April.

3.        The conforming loan limit will DECREASE over $100,000 in 2009 to $625,000.

4.        Rates have risen about .5% since the beginning of the year, despite the increase in the conforming loan limit to $729,750

5.        Loan qualifications are becoming more restrictive with each passing week.

6.        More restrictions on loans and a tighter supply of money forces rates to go up

7.        Because loans require more work to process them (requirements today are 4x what they were a year ago), rates will go up.

8.        Inflation is the number one concern of the Fed, and should be the number one concern for all of us.

Let’s say for a moment that you agree that rates are on the rise, but feel as though prices may come down on a $1mm property today; thus, you want to wait. Let’s further assume that you are right and the future price is $950,000, but rates have increased .5% at that future time. Using 20% down, waiting just cost you an ADDITIONAL $117 per month-over $1,400 per year.

But now let’s be more realistic given the appreciation rates of desirable areas of the Bay Area. If rates increase and the $1mm home appreciates to $1,050,000, you are looking at an ADDITIONAL $550 PER MONTH-OVER $6,000 PER YEAR!

What’s the take-away here?   Price matters much less than true cost… My motto has always been that it always pays off to buy sooner than later, provided your holding period is greater than four years. And to prove that I walk the walk, I am happy to share my personal situation written as an article titled, “How to Afford a Home in Palo Alto Without a Trust Fund.”

Kindest regards,

Eric

To call Eric on his walking the walk comment, and get a copy of his article, “How to Afford a Home in Palo Alto Without a Trust Fund.”, click on his pretty picture over there in the contributor column to send him an email.

Ms. Condoleezza Rice
Secretary of State

Kevin Boer, 3 Oceans Real Estate
Chris Iverson, Ventoux Real Estate

Dear Madam Secretary,

We understand based on recent news events (include Mr. Obama’s pre-emptive European victory lap), and on the harsh constitutional reality that your present employer will soon no longer be needing your services, that you may soon be looking for a new residence, perhaps near to your past employer Stanford University.

It seems, in fact, that Mr. Bush has already begun his own search, so there may be some urgency to this matter.

Allow us to suggest a residence suitable for a person of your experience and discerning taste: the Squire House at 900 University Ave in Palo Alto. This property is currently on the market, listed by the local Alain Pinel triumvirate Carol, Rosemary, and Nicole, for only $12.5M.

First of all, this home is a leisurely 20 minute walk down University Ave straight into the heart of the Stanford Campus:

Secondly, the facade of the home may well remind you of a similar grand mansion on the East Coast, one in which you have spent a considerable amount of time in the last 8 years:

(Image courtesy of 900UniversityAvenue.com)

Thirdly, the home is over 6000 square feet, and has a lot size of nearly one acre. This will provide ample room for all your entertainment, parking, and security needs.

Should you wish to view this property, have your people call our people, and we’ll make it happen.

Best regards,

Mssrs. Boer & Iverson

P.S. Some of your colleagues may be in a similar situation. We are happy to provide them with good references for real estate professionals in their home towns.

Mr. Paulson, for instance, may return to Manhattan to work for Goldman Sachs. May I recommend Mr. Noah Rosenblatt as the ideal discrete broker to assist him.

Should Mr. Gates return to his former employer, I recommend he contact Ms. Lani Anglin, who, though based in Austin, not College Station, would be a stellar pick.

If Mr. Gutierrez finds the siren song of Miami irresistible, I highly recommend Mr. Kevin Tomlinson.

Perhaps you could also relay to Senator McCain that, should he decide to retire, the right person to contact is Mr. James Wexler, one of the best real estate brokers in the Phoenix area. We understand this move might happen this year, or in 2012 or even 2016; Mr. Wexler is patient and will be awaiting his call.

Update:

Curtis Van Carter, who sells real estate in Napa Valley, claims he’s trying to nab another high-profile soon-to-be-unemployed individual, none other than “W” himself. Apparently, said individual, while in Napa Valley on a fund-raising expedition, took a little side trip to see a certain castle. Alas, it’s not even for sale, and spouse Laura found it cold and uninviting.

At the other end of the spectrum, Los Altos Realtor Joanne Fraser suggests Condi may have to settle for a $1.6M Los Altos home because Stanford profs only make $175K per year. I completely disagree. First, she’d be the Provost, not a mere professor, which means her salary would easily be $250K. Secondly, I’ve heard she may be getting help for the down payment. Finally, there are rumors of a book deal in the works!

Here in Sillycon Valley, we are continuing to see variations on the Tale of Two Cities theme, with markets like Palo Alto and Menlo Park holding up strongly (click the links to see current market data), while prices in parts of Sunnyvale and San Jose have fallen off a cliff this year. We won’t mention Sacramento, because it’s not nice to kick ‘em when they’re down.

So, the key leading indicators for monitoring the health of your local housing market are:

1. Is the housing stock shrinking?
2. Are home prices falling at a slower pace?
3. Is it cheaper to rent than own?
4. Are houses becoming more affordable (relative to local incomes)?

Locally, we are still kind of bumping along. The current housing stock in Palo Alto is up slightly, but that isn’t unusually during the late Summer. If the trend continues through Fall, it may signal a trend.

Home prices have been stable here, so that is tough to measure, though the multiple-offer / overbid madness is definitely a rarity these days.

Depending on how you measure it, it’s still cheaper to rent than own, but tell that to my clients who were tossed into the housing market when the rental property was sold and they received a 60 day notice from the new owner.

Houses here are still unaffordable, but take a look at the chart at the bottom of the page and compare San Jose and San Francisco. It may be a good time to get into San Jose, especially if you understand foreclosures and short sales. If not, contact 3Oceans contributor Bart Marchioni, aka Mr. Short Sale.

Remember, real estate is local, and be careful what you read on the internet.

Thanks for reading . . .

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>

Authors Bajaj and Grynbaum review some recent statistics on foreclosures, and then go on to predict another wave of foreclosures as the economy continues to slow and more consumers fall victim to layoffs and job cuts.

It’s easy to ignore these rumblings here in wealthy Silicon Valley where the local economy is still vibrant, even with nearly $5 a gallon gas, as it is still a minor impact on a budget with a $5,000 a month mortgage. It’s easy for us living in The Bubble of Unstoppable Real Estate (which I define as: Palo Alto, Menlo Park, and Los Altos, your mileage may vary) to say “it can’t happen here”.

Not so fast there pardner. A Short Sale in Atherton you say? It’s almost enough to make you drop your Grey Poupon.

This little number at 199 Selby Lane in Atherton recently listed by Lanny Dannenberg of Keller Williams is a short sale at $1,795,000. It has been on the market with a couple of different brokers for over two years, starting at $2,495,000 in March of 2006.

The good news is that the local market continues to be pretty strong, especially at the upper levels, above $3 million. Don’t take my word for it, check out this market data for the latest facts and figures on Palo Alto and surrounding communities.

Thanks for reading . . .

Articles about the housing crisis ending have been few and buried in their respective periodical, my favorite of which was in TIME magazine back in February titled, “Ignore the Headlines“.  But now we have the Wall Street Journal. claiming that the trough was reached in April with an article from May 6, “The Housing Crisis is Over“.

I agreed with Peter Lynch back in February.., and it’s becoming more an more apparent that the longer prospective home-buyers sit on the fence, the more expensive that home purchase will become.  And this is not just because I believe that home prices will rise, it’s also because I believe that both long and short term interest rates will rise.  The 10-year Treasury Note, for example, is up over 1/2% since the middle of March, and the 10-year Treasury Note is a decent barometer to use when you want to know what the trend in long term mortgage rates have been.

That written, if you really want to continue with the grunge look, might I suggest saving it for your next camping trip?

As always, kindly consult with your trusted real estate, tax and mortgage professional before seriously considering any home purchase.

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In part 1 of this 3-part series, I talked about the options a homeowner has to keep their home. In this part, I’ll discuss the three options that allow them to get out of the house and out from underneath their loan.

The first option is a conventional sale. This obviously is only an option for homeowners who have equity in their homes. It’s not out of the question that someone may have an adjustable rate mortgage which is going to reset soon, or recently has, and is too much for them to afford. In this case, if the homeowner has enough equity to afford the costs of selling a home (which can commonly totals 7% of the sales price), including title insurance, escrow fees, brokerage commissions, county taxes, and other miscellaneous fees, then they can get out of the loan through a conventional sale.

The second option is a short sale.  If the homeowner is “underwater,” meaning that the total value of the loans against the property are more than the current market value, then they might be able to attempt a short sale. This involves putting the home up for sale at current market value, and getting the lender to take the loss on the difference. As I discussed in a previous post, “What is a Short Sale?“, this is accomplished by sending the lender a “Short Sale Package” which includes many documents supporting the fact that the borrower can no longer pay their mortgage and must sell the property at a loss to the lender, and the only other alternative is foreclosure. This whole process is best conducted by a Realtor who is experienced in short sales, because the process is long, tedious and complicated. Many agents, in a desperate attempt to get any business they can, are trying to do short sales and not getting very good results.

The third option for getting out from underneath the loan is to simply give the home back to the lender in what is known as a deed in lieu. When a lender foreclosing on a property agrees to allow you to deed the property back to the lender before the foreclosure is complete, it is called a “deed in lieu of foreclosure.” This can be advantageous to lenders because they get the property back sooner from cooperative homeowners which mitigates their losses. It can be advantageous for a homeowner because they may have less damage to their credit and they can move on with their lives without a stressful foreclosure hanging over your head. This option is usually not available if there is a 2nd mortgage on the property, because the 2nd mortgage would still be on the title after the deed-in-lieu-of-foreclosure is completed. The only way for the 1st mortgage holder to clear the 2nd mortgage from the title is to proceed with the foreclosure.

As you can see, the most viable option for homeowners tends to be a short sale. Since so many people bought homes over the past 5 years with either subprime loans or simply have adjustable rate mortgages which are resetting to a higher interest rate, it’s no wonder that fully 28% of the 8,592 homes for sale in Santa Clara County are short sales. But as I said, these are no easy feat. It takes an agent with patience, knowledge, skills and training to successfully negotiate a short sale with a homeowner’s lender. In the end, because most agents don’t have this training, a very small percentage of short sales actually close. If you are facing foreclosure, and would like to get out from underneath your loan, don’t let this happen to you – talk to an agent who has experience closing short sales. If you need a referral to someone in your area, let me know. If you live in Santa Clara County, and would like to discuss your situation, give me a shout – I’d be happy to help in any way I can.