I just read the new East Bay Economic Development Aliance report. If you have not read it I suggest you give it a look (here). In the latest report Jerry Nickelsburg a Senior Economist for UCLA’s Anderson Forecast discusses what California’s turn around may look like.

One thing I found funny is that the report is titled July 2009 Update with Overview by UCLA. Are we not in September? Well as it occurs all data is provided on past events, thus a reader should keep this in mind when reading the report and speculating about what is going on now in the market.

I do agree with the report that a Bay Area residential real estate turnaround is underway. Being that we are transacting frequently in this market, we are observers of the current market climate. Today we are seeing really low inventory with lots of buyers to gobble it up. In fact, most properties are now receiving multiple bids and selling for over their asking prices. Of course, this is reflected in the above report as an increase in median prices in the Bay Area. It is simple supply and demand.

So, What about all the foreclosures that we are supposed to be seeing? Well I believe the banks have gotten smart and are happy with the competition and multiple offers they are now receiving.  They also have the staying power to trickle listings on the market and produce a greater and greater return as the market continues to improve. For example, there is an agent in my office that is in the REO business and said the number of deals given out by the banks has dropped to a trickle. Even a prominent purveyor of Foreclosure information, Foreclosure Radar is saying the wave of foreclosures some are expecting may never crash on the East Bay’s shores. You can read there article (here).

So, what does this mean for buyers? Well, we now have some very low interest rates with some moderate pressure upward on rates. Many economists believe that we are in for an inflationary period sometime in the future due to all the money the US government has pumped into our economy. Thus there is a real risk for buyers that a contracting supply coupled with rising rates may make housing less affordable. Not to mention that in inflationary times your home should increase in value while your payment stays the same. That means that net worth will be built for those that can buy property and hold on to it through the ups and downs of the market.

So, how should you move in this market? We have just had the worst real estate crisis in California’s history. Prices are back at 2003 levels and well below Bay Area’s median housing inflation trends. Knowing that values tend to return to the mean this is an opportunity for buyers who can buy and hold. Will the road be bumpy along the way? Of course, but taking action to minimize your mortgage risk while maximizing your opportunity is the name of the game. Those that get into the market and hold their homes through the rough patches are in for handsome returns.

Robert A. Heinlein

Thanks Criggchef for this flickr image.

We are currently seeing some amazingly low interest rates. Rates on loans less than $729,000 fell to the lowest level on record for the second consecutive week after the Federal Reserve launched a new effort to assist the staggering U.S. housing market. Yet, also interesting is that rates on loans larger than $729,000 are abnormally low as well.

With a loan amount of $1,000,000 and 75% Loan-to-Value:

We are big believers that it is impossible to time the bottom of the real estate markets. Yet, what we can assess is the current opportunity in the market relative to other times in history. Currently, rates are reaching historical all time lows while at the same time buying conditions and available residential housing inventory are creating abnormal Bay Area buying opportunities. This market is a prime residential buying opportunity for individuals and families that are endeavoring to purchase and live in their homes for the next 7-10 years.

One only has to look at the evening news to see that the National residential housing inventory has been seriously devalued over the last 2 years. Yet, the story that is not being told is that much of this Bay Area housing stock is now being sold with multiple offers. We know for we have been watching these offers begin to pool as rates have fallen. So, with this recent shift in financing over $729,000, we are also now beginning to witness a huge opportunity in the $700,000-$2,000,000 market. Many opportunities are beginning to present themselves to those that are looking for long term ownership (7-10 years) and can afford to ride out the many ups and downs we will inevitably see over the next couple of years.

We have been transacting some amazing deals in this market! Prices have fallen and interest rates have remained very low for the time being. Qualified home buyers looking to enter this market are getting the best of both worlds. 

There has also been much discussion about the stimulus package circulating in our office lately. Out of the entire package we have found the $8,000 first time home buyers tax credit to be the most important to Bay Area buyers.

Below is more information about what you need to qualify for this credit…

- You must either be a first time buyer or have not owned a home in 3 years

- The property you purchase must be your principle residence

- You must make the purchase between January 1 through December 1 of 2009

- Your yearly modified adjusted gross income must not exceed $75,000 for singles and $150,000 for married couples

- There is no cash exchange or payout for closing costs or down payment – you must file your tax return to get the $8,000 credit

- If the house you buy costs less than $80,000 you will receive only 10% of the purchase price in credit

- You must live in the property for a minimum of 3 years, or you will have to pay the credit back

- There is STILL time to use the credit on your 2008 tax return! Alternatively you can claim the credit on 2009 taxes.

The above information is provided for informational purposes only, and believed to be accurate. For legal or tax advice, please consult an attorney or tax adviser.

I just had a heating specialist look at a heater replacement for one of my clients. It appears that the new stimulus bill is going to create an opportune time for home owners to replace old appliances. Specifically speaking, ABC heating and cooling just broke it down for me on an average 2000 square foot home. They showed me how an 80% low efficiency furnace is still the cheapest product. Yet, the $1500 credit will make the highest efficiency furnace (95% efficient) so that it is only $20 more than the mid-range model (90% efficient).

Below is a summary of the changes to the energy efficiency tax credits.

On February 17, 2009 President Obama signed a stimulus bill that made some significant changes to the energy efficiency tax credits.  The highlights of the American Recovery and Reinvestment Act of 2009 are the following:

- The tax credit has been raised from 10% to 30% for 2009 and extended through 2010.
- The tax credits for a specific dollar amount have been converted to 30% of the cost.
- The maximum credit has been raised from $500 to $1,500.

Note, there do seem to be income limits to these tax credtis and it is worth checking with your tax advisor before making purchases. For a more complete explanation of the tax bill and  the products that it covers go to the Energy Star website.

Looking for a great heating and cooling specialist in the Bay Area, contact Jeff Cecchin with ABC Cooling and Heating at (925) 250-0202.

…Charles Ellis, who helps oversee the $15-billion endowment fund at Yale University, said:

Watch a pro football game, and it’s obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, ‘I don’t want to play against those guys!’

Well, 90% of stock market volume is done by institutions, and half of that is done by the world’s 50 largest investment firms, deeply committed, vastly well prepared — the smartest sons of bitches in the world working their tails off all day long. You know what? I don’t want to play against those guys either.”

I began to ponder about this in regard to the real estate markets. I was able to establish that this statement works for the real estate market. In every market marginal value is constantly being ground out as competitors compete with one another. This is why free markets are so efficient and why competition reduces the cost to transact. Now in real estate the complexities of financing, insurance, construction and other specific knowledge, make transacting less efficient than say using e-trade to exchange stocks and bonds (this means you can find value in the inefficiency if you have the right adviser). Yet, real estate too must adhere to the indifference principal.

OK… so, work with me here. If you are a buyer or seller in the real estate markets (or any other markets for that matter)… And you are looking for value in your next transaction… And you yourself are not a big player in these markets (most home owners only transact several homes in their life times and often there is many years between transactions)… And you want to compete with others in the market…

Find the best help you can. Don’t just look for the agent that says, “I have lived and worked in the neighborhood for many years”. Although, specific market knowledge is important, the internet has now made it so any agent can search the local multiple listing service and see the limited inventory that is available. Look for the advisors that demonstrate the largest capacity to create marginal value in your next transaction. For example, in the Bay Area we have found that our strategies for buyers allow them to win competitive offers even when they are not the highest offer. We accomplish this by preparing our clients financially. Working with a competent financial planner/mortgage broker we developed a strategy for our clients that allows them to close their leveraged transaction in 7 days verses the typical 30 days. We do this with no additional transactional risk. This is based on the market mechanic that sellers are willing to take a lesser price if it means they get their money faster. This is just one example of the marginal utility that we create for our Bay Area buyers. This strategy has become even more valuable in the current liquidity crisis where sellers are highly concerned with whether a buyer can complete a transaction or not.

The real estate markets are tough. So, seek the best help possible.

One of our premier home inspectors just started a new blog. It is called Jay Marlette’s: The House Explained. We have used Jay for our home inspections for over 7 years now and because he is so technologically savvy it did not surprise me that he would start a blog. In fact, his current home inspection site (houseman.org) is one of the best home inspector sites in our area. It has online scheduling, which is great for both customers and agents.

I spoke with Jay about this new venture and I knew it could be a valuable resource, but I never expected such in depth articles. His posts really explain how different aspects of your home work. We are always saying that house construction and home improvement projects are not rocket science, but Jay’s writing and understanding of a home’s fundamentals is fantastic. I highly recommend Jay’s services as a home inspector, and his new blog. 

We all are concerned with the current financial situation. Yet, how has it affected our retirement and our savings. We can easily calculate what we have lost, but how much must we save to make up the difference. Even more important we all must know what we need to save every year so that we can live what we deem to be a good life. Do you really know what you need to retire? If you do have you been tracking how you will get there?

I just saw this interesting New York Times tool that can help you see what you are on track to produce. It’s free and is a great illustration of how many years our current recession may have put you back. It also could be an interesting tool to help you start thinking about how much is enough and what you need to save to get there.
 

Yesterday this was posted on MSN.com’s Market Dispatch… 

Freddie Mac this morning said that the benchmark 30-year fixed mortgage rate fell to an average of 5.01%, with an average of 0.6 point for the week that ends today. That’s the lowest rate since Freddie Mac started tracking the numbers in 1971.”Interest rates for 30-year fixed-rate mortgages fell for the tenth week to a fourth consecutive record low due in part to the Federal Reserve’s recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae,” Frank Nothaft, Freddie Mac chief economist, said in a statement. “On Nov. 25, 2008, the Federal Reserve announced that it planned to purchase up to $500 billion of these securities by the end of June of this year. For the sake of comparison, there were roughly $4.7 trillion of such securities backed by home mortgages available as of Sept. 30, 2008.”  

As we enter 2009 I was struck by the amount of activity in the real estate markets. If this is any indication of what 2009 will look like then I expect refinances and purchases to boom in the first quarter of this year. In December we wrote 5 offers on different properties and all of them had multiple bidders. This is a big difference compared to December of 2008 when most agents had zero offers in contract. We are not seeing the over bidding that we witnessed at the height of the market, but Bay Area properties which are listed at market prices are selling quickly a bit over their asking prices. This December we witnessed homes in North and East Richmond, which were hammered by the liquidity crisis, snatched up in less than 3 days!

We are seeing cheep financing coupled with low prices that is driving buyers into the real estate markets. This is healthy for it is beginning to clear out the foreclosure and short sale inventory that has plagued pricing for the last year and a half. In turn we believe this shrinking inventory will stabilize prices and subdue the skewed deep discounting that is caused by the banks fire selling as a means to getting real property off of their books.

This is a fantastic buyers market, and thus we are seeing the frozen gears of the market begin grind into motion.It is anybody’s guess as to when supply and demand will stabilize and a more normal market will arise. Yet, the signs of buyers returning to the markets are a definite plus and the longer rates remain low, the better off our markets will be. For the foreseeable future this will be a terrific market for buyers to get great values.

Then he made a point I never expected to hear from a CNN analyst embedded in a media centric culture. He first asked the question, so why are we all so scared? He then answered it by saying the news media now has channels dedicated to 24 hour coverage. He stated how they have the responsibility to fill all of the hours with content. Thus, we are constantly being bombarded with narratives that are not grounded in our personal realities. He used the weather channel as an example and joked about how you turn it on and they start talking about a storm in some faraway place that has no influence on your current situation. Yet, we sympathize with it and it affects our mood or the story we are living in.

Financial Ambition has long spoken about the false realities that the modern news media perpetuates and how it negatively effects our everyday actions. We have made these statements so that our readers and clients will not let the media influence their actions and decisions. We have witnessed that those led by the media’s narratives drift without strategic relevance for their own situations. When people accept the media’s narratives as their background thinking, it often causes action when observation or assessment would be more appropriate, or stagnation when action is imperative.

It was inspiring to hear a news media veteran illustrate and validate the media’s real purpose. Many people expect the media to tell the truth, when actually the media’s purpose is to draw in advertising dollars. So the next time you watch the news or read one of the many periodicals think about where the story is coming from. Are you listening to truth and reality or are you witnessing a story that has been manifested to trigger you to continue watching?

On a side note, I found that the Oakland Speaker Series is one of the best values in the Bay Area. For a small fee (on their web site the Oakland speaker series can be seen for $304 for 8 different events) you get access to some of the most influential speakers of our time. Some of the past speakers have been: Carly Fiorina, Robert Redford, Colin Powell, Tom Brokaw, Neil Armstrong and Alice Walker. I highly recommend it.