Real Estate News

Check it out

2008-03-27T07:17:00.006-07:00

If you’re buying or selling real estate in El Dorado County, you should become acquainted with the property information resources available at the county offices. Whenever I am hired to sell a property or representing a buyer with their purchase, I start with a visit to the county offices. Every home has a hidden story and part of that story is filed away in the county’s archives.

The County Tax Assessors Information is usually the first piece of a property puzzle and easily collected on the county’s web site. In addition to the assessed value, I can quickly verify property information such as: size of the property, number of bedrooms, baths, zoning, the previous selling price, the original amount of the recorded mortgages and historical sales information. A last name or property address will produce a plethora of recorded information about any property in the county.

Not all property information can be found on the county’s web site. If the property is serviced by an individual well and septic system, a trip to the Department of Environmental Management is required. For a small fee, county staff will furnish copies of any information that they have on these two important systems.

The location of a well is easily identified when previewing a property but its most critical characteristics require additional scrutiny. Where is the well location in relationship to the septic tank and disposal field? What are the well depth and its production? Has there been a bacteria analysis of the water? The county, prior to 1990, did not always require well drilling permits but well drilling informational filings were a requirement by the state Water Resource Board located in Sacramento. The Board’s information is confidential and even with a property owner’s permission the filing information is difficult to locate.

Currently, the county does not require a well inspection or potable water sample upon the sale of a home but should and probably will in the future. Although regulations have not been implemented, our county’s General Plan requires safe drinking water for all county residents. A well inspection, production flow test and bacteria analysis insures that a property has an adequate water supply and is free from obnoxious microorganisms. Investigating only the past history of the well, however, is no guarantee of its current condition; subsequently, a well inspection should be on every homebuyer’s checklist.

Septic systems in various forms have been around for a few thousand years and 33,000 exist in our county. Like wells, the location of the system, including disposal fields, is important. Over the years, the septic tank location may be forgotten and disposal fields become gardens and pastures. As long as the system is functioning properly, they are mostly forgotten. Disposal areas should remain undisturbed but I frequently discover they are fenced for livestock, driveways cross over them and I have seen barns and other outbuildings built above them.

The county has information on some septic systems dating back to the 1960s. More detailed engineered systems and permits have been a requirement since 1990. Like wells, the county does not require periodic inspection of a septic system or certification upon a sale but every buyer should. The system must first be located, the tank risers or opening exposed and the septic tank pumped prior to a though inspection by a courageous qualified individual.

After collecting any available information on the well and septic, an interested party will want to preview the Department’s soils map. Serpentine is a common green rock common in 44 of 58 counties throughout the state including El Dorado. Our official state rock contains asbestos, a natural mineral fiber used in many commercial applications including insulation and fire protection. Although there are no known state or federal standards for quantifying the potential risk associated with prolonged exposure to naturally occurring asbestos, research has shown that breathing high levels of the fibers isn’t all that healthy. The California Air Resource Board found that most people living in the county are not exposed to significant risks of naturally occurring asbestos but areas located near dusty roads, old quarries or veins of asbestos may have a higher content of the noxious fibers in the air. A quick check of the soils map may help you breath a little easier.

The county has been requiring some type of building permits since 1961. Over the years the permitting process has become more complex, comprehensive and expensive resulting in many homeowners bypassing the permitting process entirely. I once came across an entire house that was built without any permits. Unpermitted barns, decks, workshops and even room additions are not uncommon. When selling a home, sellers need to disclose any unpermitted work but often sellers are not aware of a homes previous history. Fortunately, the County Building Service Department maintains the historical building and permitting records on most homes. In addition to reviewing permitting history, a check of the property file will reveal any outstanding issues such as a notice of non-compliance, expired permits or permits issued but not finalized.

If I am researching a rural property or one with questionable lot lines or easements, a stop at the County Surveyor’s office is in order. The Surveyor’s office reviews all parcel maps, corner records and lot line adjustments. The office also issues “Certificate of Compliance” certifying a parcel of land is in compliance with the Subdivision Map Act and local ordinances.
Performing a thorough property investigation will prevent costly mistakes when making a buying decision. It may be okay to buy a property that has defects and unresolved issues but buyers should know the full story before writing the check.

Adjustable rate tax payer bond

2008-03-27T07:17:00.005-07:00

Politicians have been quick to point the finger of distain at the lowly adjustable rate mortgage. How could mortgage brokers and lenders be so callused and greedy as to put borrowers into this financial calamity?

Borrowers were offered an initial low teaser interest rate allowing them to qualify for a home loan. Later the low interest rate would expire and ratchet up, increasing interest payments by hundreds of dollars a month. Adjustable loans were an oncoming train wreck for borrowers. Between 2005 and 2006 one-third of all mortgage loans were adjustable rate loans.

Hillary Clinton has proposed freezing the interest rates on all adjustable mortgages for five years. Many lenders have stopped offering adjustable rate mortgages and 80 different state, federal, and private agencies have been formed over the last year to assist borrowers who have these toxic loans.

But wait a minute. Our elected and appointed county officials also favored the adjustable interest rates over fixed rates and is now costing taxpayer hundreds of thousands of dollars in increased interest payment. Monday, the Sac Bee published a story in their Business Section about a monthly $500,000 increase in a single bond fund. The increase was the result of the interest rate jumping from 6.5 percent to 8.5 percent on a $346 million Sacramento County obligation bond.

The bond is (or was) a popular class of variable rate bonds (another nomenclature for adjustable rate) called auction-rate securities. The interest rate hike has resulted in the county’s monthly interest obligation to climb from $1.77 million to $2.29 million. Where is the outrage? When does the investigation begin? How could our smart elected officials and astute financial managers be so naïve as to finance long-term county obligations with adjustable rate securities? And how many other county bonds were financed with adjustable rate securities? Sacramento’s debt officer, Chris Marx, said of the $500,000 monthly increase in payment “it is within budget parameters.”

Easter New Beginnings

2008-03-27T07:17:00.004-07:00

Forty years ago today, I was in Daytona Beach with a few other school buddies. We had taken our quarterly exams at the University of Florida and left Gainesville early, headed for the beach. I owned a 1965 Opal station wagon that would seat six and carry our surfboards tied to the luggage rack.

Thirty years ago this week, I had signed the a contract with Century 21 Real Estate Corporation to acquire the first Century 21 real estate franchise for the state of Alaska. Century 21 pioneered the real estate franchise concept in Southern California. At the time there were no franchises in Alaska but I thought the concept of a national affiliation was worth the investment. Within 5 years Century 21 had 7,000 real estate offices in the US and Canada and between 1981 and 1985 our office was the top producing sales office in the country.

Twenty years ago I was in negotiations to sell my Independent real estate and financial services corporation. At the time we had six offices and 200 agents and employees. I was also involved in commercial and land development, served as Vice Chairman of the Alaska Real Estate Commission and Vice Chairman of the Alaska Housing Finance Commission.

In the spring of 1998, Vicki and I completed the sale of our interest in a small mortgage bank in Rancho Cordova and we decided to work from our home in Pilot Hill. Vicki is still making pottery that is featured in several galleries and gift shops in the foothills and I continue my small individual practice of real estate and mortgage loans. We have no idea where the path of life will take us but eagerly look forward to the many twists and turns along the way. Spring is an exciting time of the year and we wish you and your family a Happy Easter and wonderful new beginnings.

Employment up for January

2008-03-27T07:17:00.002-07:00

Last month I chastised the Sac Bee for sensationalizing the California jobs report for January. Their front-page (above the fold) weekday story had to do with the disappearance of 29,000 jobs for the month. The writer’s slant was: jobs would continue to disappear, unemployment would continue to rise, the sate was in a recession and our economy was on the verge of collapsing. It was all a little too much subjective hyperbole (should normally be located on the editorial page) for what should have been an objective reporting of the facts.

Jobs traditionally are off in January as they are traditionally up in December. Many seasonal temporary employees are hired in December and discharged in January. I further pointed out that the employment number would look better the next month and when they picked up, the favorable news would be reported some other place than a front page cover story.

I was not disappointed when the Bee in their Section D on Saturday (slowest readership day of the week) reported 25,600 jobs were created in February according to the Employment Development Department. The state’s unemployment rate fell to 5.7 percent. The Sacramento Region gained 3,000 jobs and unemployment also fell to 6.2 percent. Employment gains were reported in 8 of the 11 major economic sectors including construction. Our economy is certainly not as rosy as it was a year ago. We still have some tough times ahead in the financial, real estate and construction sectors. The economy passes through normal economic cycles and it is important to keep all things in proper perspective. If the loss of jobs in January merits front-page weekday headlines shouldn’t the addition of 25,000 jobs in the short month of February get the same attention.

National sales increase for month

2008-03-27T07:17:00.001-07:00

We don't want to overplay the significance of this, but we actually got some positive economic news this week: Sales of existing homes last month rose for the first time in half a year, adding fresh evidence that the housing cycle may finally be bottoming out after nearly three years of correction.

The national gains in resales announced on Monday were not huge 2.8 percent for single family homes and 3.7 percent for condominiums. Total sales hit 5.03 million units, though Wall Street economists had predicted another DECLINE to a consensus estimate of around 4.8 million units. So breaking the 5 million mark is pretty good, given where we are in the overall economy.
Now in fairness, the latest sales gains were accompanied by a decline in the national median price of homes sold down by 8.2 percent from year-earlier numbers. You might think an 8 percent drop in prices is terrible. But let's face it: The only way we're going to burn off that 10-month overhang of unsold houses on the market is through more affordable, more realistic prices pulling buyers off the sidelines.

There's another factor at work pulling down the national median number: Relatively more houses are selling in places like Texas, North Carolina and Utah, where prices are moderate and affordable, while there are relatively fewer sales in ultra-high-cost California. So the median price may be lower, but it's not just because home values across the country are crashing. The mix is different, so the median price is a lower number.

Low-cost mortgage money is also definitely helping to fire up sales. Average 30-year rates declined to 5.875 percent last week -- and any time mortgage money is under 6 percent, you're going to see more homebuying.

By the way, sales in California, which have been a leaden weight dragging down national market numbers for more than a year, are likely to improve in the coming months as the new "super-jumbo" FHA, Fannie Mae and Freddie Mac mortgages start hitting the street.
FHA's mortgages should be especially popular in California, where the median home price in some local areas like San Francisco exceeds $700,000. Thanks to FHA's low 3 percent minimum downpayment requirement, Californians should be able to buy a $700,000 house with just $21,000 down -- and walk away with a 6.5 percent 30-year fixed rate. Fannie Mae and Freddie Mac, by contrast, want a minimum 10 percent down for their new jumbos. So let's take our good news about sales and interest rates … and look to better days as the Spring buying season kicks off.

Californina sales drop in February

2008-03-27T07:17:00.000-07:00

Home sales decreased 28.5 percent in February in California compared with the same period a year ago, while the median price of an existing home fell 26.2 percent, C.A.R. reported Monday.The median price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007, C.A.R. reported. The February 2008 median price fell 4.8 percent compared with January's revised $429,790 median price."Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continue to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan," said C.A.R. President William E. Brown.

NAR Report

2008-03-01T12:03:00.001-08:00

The U.S. Census Bureau and Housing and Urban Development Department on Wednesday released new-home sales statistics, which reveal that the slowing in housing sales inflated the supply of for-sale housing in January to its highest level since 1981.
Sales of new single-family homes fell to the lowest adjusted annual rate in about 13 years in January. And new homes spent a median 6.7 months on the market in January, which was the lengthiest time on market since May 1992, when the agencies reported a median 7.1 months on market.

Meanwhile, the National Association of Realtors has reported that the median price of single-family resale homes dropped 5.1 percent in January compared to the same month last year, with total sales for all resale home types dropping 23.4 percent.
U.S. foreclosure activity in January, as measured by the volume of total foreclosure filings, rose about 57 percent compared to January 2007, real estate data company RealtyTrac reported. And NAHB reported earlier this month that median-priced homes in about half of the 220 U.S. metro areas included in a housing affordability index study were unaffordable to median-income households during fourth-quarter 2007.
The U.S. home-ownership rate fell during the fourth quarter to 67.7 percent, which continues a slide that started in third-quarter 2004, and the wave of mortgage foreclosures that is a contributor to that decline "are sure to extend through 2008 and into 2009," Seiders wrote in the report.
Rate cuts by the Federal Reserve should continue in upcoming meetings in March and April, according to the report, "and the Fed could deliver even more monetary stimulus if conditions warrant."
He states that the Economic Stimulus Act of 2008, signed by President Bush on Feb. 13, does offer some glimmers of hope, as its temporary increases in loan-size limits "are bound to help the housing market in high-priced areas (like California) to some degree," though "it remains to be seen how much additional home buying will be stimulated over the balance of the year."
The report adds, "Expiration of the higher limits at year-end figures to be a serious problem in the likely event that the private secondary market for jumbo loans still is not functioning properly by then."And Seiders suggests that tax incentives for home buying could offer a boost to the housing market, if "coupled with policy measures that enhance the availability of mortgage credit," via federal and state housing finance agencies.

Spring forward

2008-03-01T12:03:00.000-08:00

Real estate activity will start picking up this spring as first time homebuyers and investors begin making deals on bank owned homes. There are a number of reasons besides the longer daylight hours and hint of spring for my cautious optimism.

It has taken a year but lenders are finally getting organized. Banks deal in money, paper and credit pretty well. They buy and sell notes, service mortgages, extend lines of credit and pay and collect interest for the use of money. But they do a poor job of liquidating a large number of properties scattered around the country. Lenders were not prepared for the extent of the mortgage default crises and don't have the expertise or other resources necessary to manage a large number of foreclosures. A cautious beauacratic mentality is an asset when managing other people's money but a liability when attempting to make quick decisions and deals on real estate. They are learning.

Lenders have increased their staff of asset managers and are discovering what's required to sell homes in different regional markets. They are conditioning some properties, discounting the price of others and discovering which real estate brokers they can depend upon for honest advice and results. It has been an extended learning curve for lenders but starting to pay off with increased sales.

In addition to cutting their loses by selling foreclosed homes at discounted prices, lenders are doing what they can to prevent owning another one. Earlier this month Henry Paulson, the Treasury Secretary and Alphonso Jackson, Secretary of HUD, announced yet another new program to stem the tide of foreclosures. "Project Lifeline," is designed to keep seriously delinquent borrowers in their homes. Six of the country's largest financial institutions, representing over half of all home mortgages, have initiated measures that allow borrowers 90 days or more delinquent, the opportunity to put the foreclosure process on hold while lenders look for a way to make the loan more affordable. The program is an alternative to foreclosure for anyone serious about keeping their home.

The economic stimulus package will make it easier to buy or sell a home by increasing the conforming and FHA lending limits. Congress sets the maximum "conforming" loan limits for loans purchased by Fannie Mae and Freddie Mac and "government" insured loans for FHA. Currently, the maximum conventional loan limit is $417,000. Conforming loans receive the best interest rates while loan amounts above the Congressionally set maximum, considered "jumbo loans," carry substantially higher interest rates. The economic stimulus package will temporarily increase the maximum loan limits for conforming loans to $729,750.

The increase in the maximum loan limit will decrease the interest rate on home mortgages under $729,750. It will also help existing borrowers who currently have high interest jumbo loans and may want to refinance to a lower interest rate under the conforming loan program. Jo Perkins, president of the Home Building Association of Northern California, estimates an additional 350,000 homes nationally will be sold or about $44 billion in economic activity from this stimulus.

The new loan limits will not be much help for Sacramento County or the Central Valley where the average selling price of a home is under $350,000 but many other areas of the state have significantly higher average home prices including El Dorado County. Our county would also benefit if more Bay Area sellers could sell their home and become potential buyers for El Dorado County.

A sign of light at the end of the dark housing tunnel is the affordability factor. California housing is still the most expensive in the country but it is becoming more affordable. Our current housing situation was the result of many factors; one was the price of an average home became too expensive for entry-level homebuyers. The affordability factor dropped to the lowest level in 2006 when only 25 percent of California first-time families could afford to buy a home. This year the index has jumped to 33 percent. More potential homebuyers will translate into increased sales.

Another factor that got us into trouble was the excessive exuberance of the building industry, by publicly owned corporations based outside the Capital Region. The building industry over the last 25 years has transformed from small local builders who reside and work locally, to national corporations and their land development subsidiaries. These large national firms have capital commitments totaling millions of dollars, extending years into the future. Their stockholders and share price are driven by increased production, which lowers the cost of every home built by creating certain economies of scale and therefore increased profitability.

With evaporating profits from selling new homes below cost, builders are beginning to realize that less could be more (less building = more profit). Builders are reevaluating their expansion plans. They have put many projects on hold, downsized their existing commitments and are allowing options on land previously designated for development to expire. Large corporations have a tendency for inaction when adjusting to a changing market and usually over compensate when they do. Don't expect a shortage of new construction in the future but standing inventory is half what it was 1-year ago. In the immediate future, builders will be more cautious about out-producing sales. Fewer new homes will be less competition for existing ones.
If interest rates remain under 6 percent, home sales will start improving this spring. Savvy investors are already taking serious interest and many of my colleagues are reporting first time buyers are making great deals on well-priced bank-owned homes. It's going to be a long way back for real estate but should start this spring.

Economist for builders speaks out.

2008-03-01T11:50:00.000-08:00

The chief economist for the National Association of Home Builders, in his latest annual forecast, said he expects total housing starts to fall 25 percent this year, with single-family starts plummeting 31 percent. The decline will be steeper in the Capital Region. "We still expect starts to begin edging up in the final quarter of this year, but we've also trimmed the outlook for 2009," Seiders stated in a forecast report released last week.

Seiders acknowledged that there is "a nearly even chance" that the economy will slip "into the red zone during the first half of the year." He anticipates "further deterioration of labor market conditions in February, and the unemployment rate almost certainly will be moving up in coming months." He also expects gross domestic product growth of less than 1 percent in the first half of 2008, "and a mild recession certainly is possible during that period," the report states.

A record volume of vacant homes for sale "inevitably will put persistent downward pressure on home prices, further sapping the quality of outstanding mortgage credit and making it even more difficult to refinance or restructure adjustable-rate mortgages facing payment resets," the report states. Financial market turmoil is continuing, Seiders noted, as "the stock market is being battered and the markets for longer-term credit remain under considerable strain.
"The freezing-up of private securities markets, both here and abroad, has shifted credit demands to government-related securities markets and to depository institutions -- resulting in higher loan volume and pressures on capital positions at the depositories."The banking system will have to take up a good bit of the slack in the credit creation process." That has led the banking system to tighten lending standards, which has "afflicted all components of the conventional home mortgage market," he stated in the report.

No to refinancing option

2008-02-06T07:55:00.000-08:00

Last week I received a number of calls from past clients asking me about refinancing their existing home loans. I told each one the same. No, I wish I could help but the recent changes in loan underwriting guidelines and the decrease in your home’s value will not allow you to take advantage of the lower interest rates.

As I have written before in this column, the Federal Reserve Discount rate does not directly apply to residential mortgages. Unless you are a federally chartered bank or S&L the Federal Funds rate will not affect you immediately. The interest rates on 30-year home mortgages actually increased after the Feds lowered their rate. The rate that the Federal Reserve charges member banks will have an affect on home equity lines of credit and maybe long-term mortgages in the future but not immediately and not directly.

Here are three examples why I am saying no to clients who want to refinance.

I helped Gary purchased a home in Roseville several years ago for under $200,000. Three years ago Gary decided he needed a larger home but he decided to remodel and add a room addition rather than buy a different one. To finance the remodel and room addition, Gary took out a $125,000 home equity line of credit. Now, he was interested in paying off the line of credit with a total refinance of both mortgages. This would convert the adjustable interest rate home equity loan to an amortized fixed rate and he could take advantage of the 5.5 long-term interest rates.

A refinance didn’t work for Gary. Here’s why. Lenders treat paying off a Home Equity Line of Credit as a “cash out refinance.” Refinancing to obtain a lower mortgage rate “Rate & Term” is considered a prudent financial move and lenders offer their lowest interest rates. But refinancing to pay off consumer debt or when converting a home’s equity to cash for other uses, is considered a “cash out” refinance and lenders charge higher interest rates and demand a borrower have a higher equity in their property.

A year ago “cash out” refis were common regardless of a homeowners equity position. Today, lenders require a borrower have a 25 percent equity position in their home. With Gary’s $125,000 home equity loan he did not have sufficient equity to warrant a refinance even at a higher interest rate.

Joan called about refinancing. She had purchased her home in 2005 with a 5 percent down payment. Her low adjustable rate was still fixed for another two years but she wanted to convert the entire loan to a fixed-rate now before the interest rate increased in another two years. I did a search of recent neighborhood sales and informed Joan that her house was worth about what she had paid for it back in 2005. Since she did not have sufficient equity, she could not refinance.

Bill is an investor that I had helped find a rental in early 2006. At the time and against my advice, Bill wanted a 90 percent adjustable rate loan with an interest start rate of 1 percent. This would allow him to have initially low payments for a year or two until he sold the house at a profit. After Bill purchased the property he took out a home equity loan in order to pay off some credit card debt. Now that Bill’s adjustable rate had ratcheted up he was desperate to refinance to a lower rate. I don’t usually remind my clients about not heading my advice but could not resist the urge to remind Bill that we had discussed the potential for this situation when he was considering a mortgage. Few lenders like financing an investment that has a negative cash flow.

There are a number of variables with every loan. Property values and owner’s equity is prohibiting most refinancing. This is a short-term situation. Hopefully, borrowers who extracted cash from their home’s equity loan spent the money wisely. They may be paying the bill for a long time.

More bad news for January

2008-02-01T08:57:00.000-08:00

January’s weather isn’t the only thing that’s cold, dark and wet. First the retail sales numbers were reported down for the holiday shopping season. Economists said that Christmas shoppers were dismayed with higher gasoline prices. Spending $50 to fill up your tank of gas is enough to dampen any Christmas spirit. Then the new construction numbers were published by the building industry. It was no surprise that home builders were not building as many new homes. New construction dropped 30 percent from last year.

By mid-month the Realtors reported national and statewide resales lagged behind last year. The Labor Department reported that unemployment increased for December and that started everyone talking about a recession. The discussion of the “R” word caused the stock market to drop and then the new foreclosure numbers got reported by Data Quick.

The number of homes that were foreclosed upon by lenders holding a mortgage in Sacramento County increased 482 percent from 1,283 in 2006 to 7,472 during 2007. Placer County had 1,016 foreclosures in 2007 up from the 171 in 2006 and El Dorado County finished the year with 387 foreclosures up from 41 in 2006.

Across the state, foreclosures totaled 31,676 for the fourth quarter of this year and 84,375 for the entire year. In our 8-county region 1,686 homes were foreclosed upon during 2006 and 10,049 homes were lost in foreclosure during 2007.

In light of all the foreclosures, the median sales price for a home in Sacramento fell to $280,000 in December a 28 percent decline from its peak in 2005. Half of all home sales in Sacramento County are bank owned properties.

In addition to the number of foreclosures, the number of homeowners missing their scheduled monthly payments is increasing. Across the state 254,824 default notices were filed with county recorder’s offices during 2007, up from the 104,977 filed in 2006. In the eight-county region 10,101 notices of default were filed in 2006 and 24,787 for 2007. “We’re still climbing to a peak in foreclosure activity,” said Data Quick analyst Andrew LePage. “We don’t even have a sign of the peak.”
I think I will go back to bed, cover my head and wait for spring.

Weak December sales

2008-02-01T08:53:00.000-08:00

The Commerce Department reported that new home sales in December dropped to the lowest level in nearly 13 years. Instead of the million or two we're used to hearing reported at year's end, new home builders only sold about 774,000 new homes in 2007. That's 26.4 percent below 2006, and the biggest year-over-year drop since 1963, when new home sales were first tracked by the government.

Prices fell dramatically in December for both the average (-11.5 percent to $267,300) and the median (10.9 percent to $219,000) price fell 10.9 the biggest drop in prices since 1970. The median is the point at which half the sales are under and half the sales are over.
Completed homes were 40 percent of the inventory on hand, which is a 26-year-high in relation to the pace of sales. There is now a 9.6-month supply of homes for sale at the December sales pace.

The National Association of Realtors had recently reported the first year in decades that the median sales price fell.
New homes costing more than $400,000 fell 50 percent from a year earlier, illustrating that the credit crunch isn't over yet for jumbo loans. And sales financed by conventional loans fell 27 percent. Home sales with VA or FHA loans fell 16 percent. Homes purchased with cash fell 24 percent.

But as bad as all that sounds, things could turn around. Clearly buyers are waiting for prices to come down, but since December, mortgage interest rates have softened a full percentage point to near record lows. Consumers can save approximately $100 a month in payments, and qualify for homes that might have been out of reach a month ago. The government is feverishly working on solutions that will raise the conventional loan limit from $417,000 to $625,000, allowing more people to finance without resorting to jumbo loans. In addition, new home standing inventory has caused existing home sales to soften. If more inventory is absorbed in new homes, that improves the outlook for existing homes. Look for a much better spring. Home sale trends are identified over several months.

Borrowers stuck with existing loans

2008-02-01T08:51:00.000-08:00

The National Association of Realtors reports that both sales and prices were down in 2007, but there's another measure, which has also fallen -- and this one is good news.
Interest rates are down. Freddie Mac reports that toward the end of January rates for 30-year fixed-rate financing reached 5.48 percent with .4 points. This interest level is not only ridiculously good when seen in the context of the last five decades; it may also be the key to containing the foreclosure mess.

Figures from RealtyTrac.com show that foreclosures in November were 68 percent higher than a year earlier. No less important, foreclosure numbers are expected to rise because millions of additional toxic loans remain outstanding.

In such circumstances it certainly makes sense for borrowers with exploding ARMs to refinance into stable, fixed-rate mortgages. But many such borrowers have loans where mortgage balances have grown while home values have fallen. Such borrowers can only refinance if they bring cash to the table, cash they don't have. We also have borrowers who paid soaring mortgage costs but skipped other debts. Now with damaged credit, they no longer qualify for the best mortgage rates.

What can be done? Lenders had no trouble changing traditional underwriting standards when it meant big profits, now they're using ignored standards to lock borrowers into high-cost loans. Surely borrowers with significantly-lower monthly payments are a better risk than borrowers who are slowly drifting into bankruptcy. And certainly lenders are best served avoiding the big costs represented by foreclosures. But what if lenders are not responsive to new marketplace realities? Then one very-real possibility is that an inflamed political process will impact the financing arena in a way that will comfort no lender.

A little unreported good news

2008-02-01T08:48:00.000-08:00

If you stand back and only look at the negative economic and housing news this week, you might feel a bit numb -- and a little discouraged. But if you focus on the bigger economic picture, you might be surprised at some of the good news that's lurking out there -- especially the forward-looking factors.

On the negative side, you probably know the numbers: New homes sales down 4.7 percent in the latest month. Median home resale prices down 1.8 percent for the full year of 2007 -- the first times prices have dropped on a national basis since 1968. Foreclosure filings up 75 percent for the year, leaving dozens of major markets clogged with bank-owned real estate for sale at depressed markets.

What about the positives? Some of them are probably in the category of "news you never heard about because it never got reported." For example: The most comprehensive national index measuring home price movements, covering almost 7,500 Zip codes and 662 counties in all 50 states and the District of Columbia -- the First American-Corelogic Index -- found prices flat or positive in 31 of the 50 states.

The national numbers are being dragged down primarily by sizable declines in a couple of big states: California and Florida, along with Arizona, Nevada and -- here's a little surprise -- Rhode Island. Among the 60 percent of states with positive performance are the current top performers of the pack: Texas, Utah, New Mexico, the Carolinas and Montana.
Then there are what we call the forward-looking factors: Mortgage interest rates continue to hover just above 40-year lows and the Federal Reserve keeps pushing down short term rates -- twice this month alone.

The economic stimulus package coming from Washington by mid February should be another plus: It promises to raise loan limits for Fannie Mae, Freddie Mac, and FHA well above $600,000 -- maybe even higher than $700,000.
According to estimates from the National Association of Realtors, pushing the limits to just $625,000 could stimulate 350,000 more home sales this year alone -- and lead to $44 billion in new economic activity -- all with no expenditure of taxpayers' money. How about THAT for a cost-efficient stimulus plan for real estate?

Market turn-around

2008-02-01T08:47:00.000-08:00

Legend has it that if the Groundhog emerges from its borrow tomorrow (Groundhog Day, February 2nd) and fails to see his shadow, winter will soon end. But if he sees his shadow he will return to his burrow and winter will last another six weeks. Foreseeing the end of our chilly real estate market should be so easy as predicting the winter forecast in Punxsutawney, Pennsylvania. Despite all the negative publicity from the national press, most people are beginning to ask “when” and not “if” the real estate market will turn around. That’s actually a good first sign but there are other indicators of when the real estate market will find its floor.

This is my fourth market correction in 35 years of practice. They all have similarities but a specific predetermined termination date isn’t one of them. Nobody blows a whistle and yells “End of Slump… Time to buy”. Free markets are as unpredictable as the weather can be in the foothills and I have seen narcissus bud in a February’s frost, snowflakes during an Easter weekend and cherry blossoms in early March.

Attempting to buy a home at exactly the bottom of the market isn’t always possible. Life’s major decisions are made despite economic cycles. Families grow, incomes improve or decline, we move for environmental, health and economic reasons. Forrest Gump puts things into perspective in the 1994 Tom Hanks movie, when he said “Life is like a box of chocolates…you never know what you’re gonna get ”. Although we all understand the concept of buying low and selling high, most homebuyers cannot put their life on hold while waiting for the official end of the real estate slump.

There are a number of prospective homebuyers waiting for some significant event or official pronouncement before they commit to buying a home. Obsessed market-timers usually wait too long to buy and miss out on current opportunities under their noses. Making money in real estate is not all about when you buy or sell but often how long the investment was held. We have yet to see any signs that the real estate market is seeking equilibrium but here are a few traditional and non-traditional turnaround indicators that I will be looking for this year.

When the number of homes for sale starts declining, it’s a good sign that the market has ended its trip south. When housing inventory is leaving the market faster than it is being replaced, it indicates that the best listings have already been sold. It also may indicate that discressionary sellers have decided not to panic and move but to remain in their homes. The record number of listings that we have witnessed in the county throughout 2006 and 2007 is partly responsible for driving down selling prices. When inventory declines, prices will rise.
The average time it takes to sell a home is another gauge of the strength of the market. Currently, our multiple listing service has no accurate information on the actual time it takes to sell a listing. If one agent has a listing for six months and it fails to sell and then another agent lists the same property and it sells in 60 days, the time it took to sell that property is reported as 60 days. It should have been eight months. That inaccuracy of reporting market time will be corrected. When it does, we will be able to obtain an accurate average time that it takes to sell an average home. The fewer days required, the better the market.

One of the first signs of declining interest in a new home development appears when builders begin to offer incentives to their buyers. Many builders begin by crediting buyers for closing costs if they use the builder’s in-house lender for a mortgage. Then landscaping and builder interior upgrades become popular. Soon, builder incentives become a creative free-for-all with offerings ranging from new SUVs to swimming pools. When elaborate builder incentives begin to disappear, the market has turned.

Tracking the county’s average monthly selling price might appear to be a good idea in judging the market but averages can be deceiving. Just as individual stocks will decline while the composite indexes are rising, so will individual house values rise and fall despite statistical averages. Higher end home sales have held up the county’s average selling price. A better indication of market turn-around would be the relationship between the listed price of a home and its sold price. When homes begin to sell closer to their listed price, the market is on the mend.

In addition to traditional market trackers, here are some other indicators that the market has bottomed out. When your neighbor, who got into the real estate or mortgage business within the past four years, tells you that they are getting out of the business, the market will start improving. When you no longer get phone calls or e-mail from lenders soliciting your refinance or home equity loan, it’s a good sign.

When an entire month passes without the evening news featuring some poor soul loosing their home to foreclosure, you know things are improving. When home prices are not the favorite topic of water-cooler chatter, it’s getting better. When you hear first time buyers talking about saving for a downpayment or paying off their credit card debt in order to buy a home, the end of the correction is at hand.
A more stable real estate market is likely to occur within the next 18 months. The exact time is uncertain but its occurrence is as certain as spring in the foothills.

Still the best investment

2008-01-18T08:09:00.001-08:00

If more people thought of their home as a place to live, rather than a financial investment there would be a lot less turmoil in the real estate market. Despite what Wall Street wants you to believe, owning a home isn’t the same type of investment as owning stocks or bonds. A homes value can’t be totally calculated as a percentage point. Thinking of the family home as an investment opportunity is partly to blame for our current predicament. It’s confusing to view homeownership and high-risk investments as the same. Owning a home requires an investment of money but is more than a financial transaction. It’s a use asset. No other investment vehicle provides us as many tangible and inherent benefits.

We seem to be using the term “investment” more often and for more things that traditionally have been considered an expense. Purveyors of goods and services have discovered Americans prefer to use the term investing when parting with their hard earned dollars. It somehow justifies our purchase if we are investing rather than spending. So we no longer spend money on anything; we invest it. Today we invest in clothes, entertainment-technology, health care and beauty products. Is buying an expensive car really an investment or just an expense? What about my wine collection?

Owning a home is both an investment and an expense just as it is an asset and a liability. It’s a hybrid. Owning a home isn’t as risky as owning stock in a subprime mortgage company but having a mortgage is a greater responsibility than owning common stock. An investment in a home has more in common with an investment in a savings or retirement account than it does with day trading in stocks. It’s a long-term commitment. Tracking the monthly percentage increase or decrease of the national housing market and then relating it to an individual property is fruitless and frustrating. Every home is unique and a personalized use investment.

Some real estate purchases are indeed traditional financial investments. Buying vacant land, rental or commercial property for future resale value or income production should be strictly an objective financial decision. A true real estate investor will analyze income and expenses of a property to make a determination as to its value. Investors are objective when deciding where to invest their dollars while homebuyers make subjective decisions based on personal preferences.

My stock portfolio averaged a 6 percent return last year. I have had better years but worse also. My home value fell too but overall I think I did better in my home than in mutual funds, here’s why. I have never seen one of my stock certificates but I have seen some beautiful sunsets from our back deck. I have never visited the corporate offices of any of the companies where I own stock but I have walked peacefully through our pasture and oak woodlands. I don’t know any corporate executives of publicly held corporations but I know all my neighbors by their first name. I have never been to a shareholder’s meeting but I have never missed a neighborhood picnic. Experiencing life at home is worth more than a positive decimal point on a balance sheet. In addition to lifestyle, here are a few other differences to think about when comparing a traditional financial investment to owning a home.

Years ago I purchased a substantial number of shares in a high tech company that was on the verge of going public. Prior to their public offering and my “guaranteed earnings”, the CEO skipped the country with his self-proclaimed severance package and my money. The company declared bankruptcy, dropping my stock value to zero in an afternoon. Barring catastrophe, a homes value will never be as worthless as was my high-flying stock. Long-term value and the security of a real estate investment are well worth occasional fluctuations in home prices.

Controlling one’s investments is a comforting feeling. When buying stocks you put all your money into a company and have no influence or control of its direction. You’re paying some CEO 500 times the average worker’s salary for results that you would lose your job over. Homeowners have complete control of their investment making decisions. We determine when to buy, sell, improve and expand our home. The only board of directors we need to answer to is our family members.

Leverage is another investment advantage. With stocks, all of your investment ends up owning a small piece of the company. With real estate, a buyer is able to own 100 percent of the investment for often a small downpayment. There are still many loan programs available that offer 100 percent fixed rate loans. A few will even advance the closing costs.

Buying stocks provide no tax advantage, while buying a home has several. What other investment can you purchase by using none of your own funds, be provided a federally subsidized below market interest rate loan, reap all the appreciation, deduct all interest and taxes during ownership and when you sell, pay no capital gains. The federal government subsidizes homeownership and farmers. If you’re not one, you should be the other.

Chance of market declines

2008-01-18T08:06:00.000-08:00

Mortgage Insurance Companies make money by providing mortgage insurance to borrowers who have less than 20 percent for a downpayment on a home. They pay money out to a lender when a borrower defaults on a loan for a percentage of the lender’s loss. One of the largest mortgage insurance companies is PMI. They produce a quarterly report with their best guesstimate as to the direction of the real estate market.

PMI's Winter 2008 U.S. Market Risk Index showed a greater than 50 percent chance of price declines in 13 of the nation's 50 largest housing markets, up from 10 in the previous quarter.
PMI said some of the increase in house-price risk was due to changes to its model, which now includes data on foreclosure rates provided by the Mortgage Bankers Association. But in many cases, higher risk scores reflected "a significant deterioration of the housing market in the third quarter."

There is a "high likelihood that home prices will be lower in many of these MSAs two years from now," the report said. Although the number of MSAs with relatively low home-price risk continues to outnumber those with relatively high risk, that could change if the economy and financial markets worsen further, PMI warned.

All but two of the 13 highest-risk markets were in California and Florida. In California, the report noted, markets in the Central Valley and Southern California are weaker than those in the Northern California MSAs, where employment continues to be strong.
The metropolitan statistical areas (MSAs) with the highest risk scores were Riverside, Calif., where PMI forecasts a 94 percent chance of a two-year price decline; Las Vegas (89 percent); and Phoenix (83 percent).

Markets that saw significant price increases from 2002 to 2005 are "at much higher risk of price declines" than those where prices appreciated more modestly, said David Berson, chief economist for PMI's parent company, The PMI Group Inc., in a statement.
Although housing affordability improved in 161 of 381 MSAs studied, it declined in the remaining 220 markets. Nationwide, the affordability index was 95.53, compared with 95.96 in the second quarter of 2007.

The number of MSAs experiencing year-over-year price declines during third quarter -- 89 -- was also up from 67 in the previous quarter, the report said, citing numbers from the Office of Federal Housing Enterprise Oversight (OFHEO).
Among the top 50 MSAs, the 13 judged by PMI to be facing a greater than 50 percent chance of price declines in the next two years were:

Riverside-San Bernardino-Ontario, Calif. (94 percent)
Las Vegas-Paradise, Nev. (83 percent)
Phoenix-Mesa-Scottsdale, Ariz. (83 percent)
Santa Ana-Anaheim-Irvine, Calif. (81 percent)
Los Angeles-Long Beach-Glendale, Calif. (79 percent)
Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (78 percent)
Orlando-Kissimmee, Fla. (74 percent)
Sacramento-Arden-Arcade-Roseville, Calif. (73 percent)
Tampa-St. Petersburg-Clearwater, Fla. (72 percent)
West Palm Beach-Boca Raton-Boynton Beach, Fla. (71 percent)
San Diego-Carlsbad-San Marcos, Calif. (69 percent)
Oakland-Fremont-Hayward, Calif. (65 percent)
Miami-Miami Beach-Kendall, Fla. (58 percent)

The markets identified by PMI as the least risky, with a less than 1 percent chance of price decline during the next two years, were Charlotte-Gastonia-Concord, N.C.-S.C.; Kansas City, Mo.-Kan.; Austin-Round Rock, Texas; Columbus, Ohio; Cincinnati-Middletown, Ohio, Ky., Ind.; Indianapolis-Carmel, Ind.; San Antonio, Texas; Houston-Sugar Land-Baytown, Texas; Pittsburgh, Pa.; Dallas-Plano-Irving, Texas; and Fort Worth-Arlington, Texas.

Economic considerations

2008-01-18T08:03:00.000-08:00

The Commerce Department finally has those much-talked-about Christmas spending numbers. Consumers spend 0.4 percent less than a year ago, the worst consumer showing since June 2007, and that's accelerating fears of recession. We're not there yet, but many pundits believe we're about to be. Consumer spending accounts for approximately 71 percent of the gross national product. If the consumer doesn't spend, the country is headed for recession.

The question is: why are we surprised? Jobs are contracting; unemployment is up half a percent over a quarter ago. Housing is in a holding pattern with the first loss in home prices in decades, and gas prices at the pump have risen 10 cents a gallon in the last two weeks

Energy prices have finally impacted wholesale prices by a whopping 6.3 percent over 2007 -- the biggest gain in 26 years. And it's safe to say that consumers are already feeling it.
Tighter credit hasn't helped. Consumers are no longer able to turn their homes into ATMs unless they have lots of equity and good credit. What the impact will be for spring on the housing market is anyone's guess.

During the last mild recession following the technology stock meltdown and the horrors of 9/11, consumers surprised the economy by cocooning. They made buying a home a statement about needing to feel secure. If nothing else is secure, they want to be secure at home. Those homebuyers kicked off a six-year record-breaking run in housing.

However, unlike the previous recession, inflation is a greater threat this time. Mortgage interest rates aren't as likely to be as obliging as they were in 2002 when new record lows were reached. We're already close to those record lows now. Inflation risks are likely to cause the mortgage bond market to react, and mortgage interest rates will rise. Not by much, but they will rise.
That means homebuyers will need more convincing, particularly that they'll be financially safer in a different home. And that won't be easy to do in a rising interest rate environment. So, home sellers will have to step up to the plate with better prices, more improvements and other incentives. The other possibility is that people could stay put, afraid to make the wrong move. That also could impact housing negatively. Either way, housing is likely to be pivotal in determining whether the economy recedes or moves forward.

Rollercoaster Economy

2008-01-14T08:24:00.001-08:00

Rollercoaster aficionados had a field day last week, for up-and-down volatility was the norm, not the exception. Countrywide Financial, the country's largest mortgage servicer, spent most of the week pressuring capital markets with rumors of bankruptcy, but then Bank of America rallied the markets by stepping forward and announcing it was purchasing the beleaguered mortgage giant in a $4 billion stock-exchange transaction.

Earlier in the week, the National Association of Realtors reported that pending home sales decreased 2.6% in November following a larger-than-expected 3.7% gain in October. But the grim outlook was tempered by Lawrence Yun, the NAR's chief economist, who said that “although there could be some minor slippage in the first quarter, existing home sales should hold in a narrow range before trending up.”

The disappointing pending-sales report was further mitigated by good news in the mortgage markets, where application volume – both refinance and purchase – surged 32.2% during the holiday shortened week ending Jan. 4, according to the Mortgage Bankers Association's weekly application survey.

What's more, application activity could surge again in coming weeks, thanks to plunging mortgage rates. By week's end, the prime 30-year fixed-rate mortgage averaged 5.87%, the 15-year fixed-rate mortgage averaged 5.43%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.63%, according to Freddie Mac's weekly survey. Mortgage rates are now at levels unseen since Sept. 2005.

Bank of America's rescue of Countrywide was received positively last week, as it should have been; no one wants to see the country's largest mortgage servicer go under. But there was a disconcerting acknowledgment in the accompanying press release: “The combined company won't make subprime mortgages and will limit its purchases of large packages of loans from other lenders.”

That's too bad, because the current mortgage crisis has never been about subprime mortgages per say: It has been about the pricing of subprime mortgages, which didn't reflect the risks involved. Down payments, interest rates, and fees have to reflect borrower risk. This is the economic rationale for giving someone with an 800 FICO score a 6% loan with nothing down and giving someone with a 600 FICO score a 9% loan with 20% down. That paradigm broke down, and needs to be revisited. As homes become more affordable, the last thing we want is to exclude qualified people from the housing market, and that includes people who only qualify for subprime mortgages. The key to successful lending is to appropriately price the risk of lending. Hopefully more people will embrace that economic maxim once the credit crisis subsides.

Californians dreaming of someplace else to live

2008-01-10T08:27:00.000-08:00

My attraction to California began fifty years ago. The Rose Parade on New Years Day brought back old memories of deep snow and long pointed icicles hanging from our farmhouse roof in Northeastern Ohio. Watching the Rose Parade was a family tradition for us and millions of others living in the Snow Belt. After the cows had been fed, the porch and sidewalk shoveled of snow and grandma had her New Year’s goose in the oven, we would all gather around our old 12” black and white RCA TV to watch thousands of smiling Californians parading down the sunny streets of Pasadena. I remembered thinking how much fun it must be to live in such a wonderful land of sunshine, palm trees and parades.

The weather didn’t being me to California but our mild climate has been a historic attraction for millions of people from other states. In addition to our sunshine, greater economic opportunities exist here than any other place in the country. The California economy, as measured by the production goods and services, is one of the top ten economies in the world. The state has an abundance of natural resources, our per capita personal income at $39,358 and median family income of $62,000, ranks high among other states, we are the technology center of the world; we lead the nation in agriculture production and enjoy a diversified ethnicity. So why is it that more people are moving out of California than moving here?

Our state’s population is growing. Its growth, according to state demographer Linda Gage, with the Department of Finance, was the result of 200,000 foreign immigrants (that we can account for) and 565,000 new births. The state’s demographics also show that 238,000 souls permanently departed this life, leaving the state’s population just under 38 million. The annual study by the Department of Finance also showed that 89,000 more people moved out of California than moved here from all other states. What’s up with that?

As an example, Los Angeles County increased its population by 91,000 births and an influx of 70,000 new residents from foreign countries but L.A County experienced a net loss of 115,000 residents to other California counties and other states. Since 2000, a half million more Californians have left Los Angeles County than have moved there from other places. Orange County had 22,000 more people moving out then moving in. Despite our lower housing prices, less congestion and a high quality of life, El Dorado County’s yearly population increase of 2,427 was the lowest in recent history, mostly attributed to 2,022 new births. Last year, according to the U.S. Census, California had the nation’s second largest domestic population outflow. The exodus, according to Gage, is in some ways similar to the early 1990s, when a national recession and tumbling housing market prompted 1.2 million people to move to other states.

A record eight million people moved from one state to another last year. Why are they passing on California? Since our current housing market has taken the blame for every social and economic ill imaginable over the last two years, it’s not surprising that some want to blame falling real estate prices for the high number of Californians leaving for other places. But to say Californians are leaving because home prices are falling is over simplifying the underlying problem. Besides, weren’t the high home prices and lack of affordable housing between 2001 and 2005 preventing people from moving to our Golden State?

California is not the only state experiencing increased foreclosures, lower property values and fewer sales. Florida, Ohio, Michigan, Illinois, Nevada and Arizona all have similar housing markets, yet they all reported more people moving into their state than moving out. Has California lost its national attraction and, if so, what can be done about it?

Noted author, former presidential advisor and free-market economist, Author Laffer, recently wrote an article for the Wall Street Journal about the causes of out-migration. The article discusses, why some states continue to attract people while others continue to loose residents to other states. “Former citizens are generally the highest achievers and those with the most wealth, capital and entrepreneurial drive, leaving the state much less economically productive.” Laffer’s new research publication “Rich States/Poor States” is an in-depth analysis of policies, which foster economic growth and prosperity in one state and economic malaise in another. By using 16 variables including: property, personal and corporate taxes, right-to-work laws, education, government debt and tort litigation treatment, Laffer ranks all the states from 1 to 50, with 1 as the best for economic growth and 50 the worst. California ranked near the bottom at 41. Laffer’s findings support the theory that states which keep spending and taxes low, exhibit the best economic results, while states that follow the tax-and spend path, lag behind in attracting people and capital.

Slower growth has its advantages. It allows us to catch our breath between the next sprint. Since the Gold Rush, California has experienced many booms and their subsequent letdowns. It is troubling, however, that California has developed the reputation of exporting more residents to other states than we are attracting. State and local leaders should examine polices that attract wealth, capital and the people who are responsible for bringing them into our state and county.

Builders ger optomistic forecast

2008-01-10T08:24:00.000-08:00

If fence-sitting new homebuyers wait much longer for the bottom of the market, it could very well slip out from under them. California's new home market is due to begin its recovery this year, according to the California Building Industry Association.

Now, the housing market won't come back with boom, but the Golden State's new home sales in 2008 will outshine new home sales in 2007. Alan Nevin, chief economist for the state's new home building association, says you can count on a modest recovery in California's new home market this year. Nevin forecasts new, single-family home sales will increase enough in the last six months of 2008 to boost sales to more than 80,000 for the year. Buyers purchased 70,000 single-family homes in 2007.

Condo sales will edge up too. Buyers are expected to acquire 47,000 new condos in 2008, up from approximately 44,000 in 2007, according to Nevin. What's fueling the California comeback? Nevin says California's persistent population growth, shrinking new home inventories and a friendlier credit climate will give more consumers incentives to buy new.
However, before there's another real housing boom in the nation's largest western state, California has to tackle a host of issues. Dwindling land supplies, a gauntlet of environmental reviews before development, and what the association considers "capricious and arbitrary" impact fees all stand in the way of the kind of development necessary to keep prices affordable.
"Making more land available for new homes and controlling fees on homeownership will help stimulate the housing industry and ensure the projected gains in the market are realized and the dream of homeownership and economic prosperity are regained, said CBIA chairman Ray Becker.

For 2008, the projected total 128,000 new home sales pale by comparison to the peak level 213,000 new homes sold in 2004. The state needs to build 240,000 homes per year to develop the kind of affordable housing market that will meet the needs of its growing population, according to the CBIA.

I think the builders are a little too optimistic. Land use regulation will continue to increase and builders will need to pass along the cost of development. County impact fees regardless of their merit seldom decrease. Our current excess of existing inventory will discourage much new construction in the Capital Region.

Mortgage activity picks up.

2008-01-10T08:22:00.000-08:00

Here is another item you won’t see reported by the major media. Mortgage application volume during the first week of January posted the sharpest rise in four years as borrowers jumped at falling interest rates, the Mortgage Bankers Association reported yesterday.

The group's market composite index, a measure of home loan application volume, jumped 32.2 percent on a seasonally adjusted basis between Christmas week and the first week of 2008. The last time the index rose this sharply in a one-week period was in January 2004 with a 30.4 percent gain.

By category, the index that tracks refinancings posted the strongest growth, rising 53.9 percent last week. The index tracking purchase loans grew 14.7 percent during the period.
Inspiring borrowers to action was a large decline in interest rates. According to MBA, the average contract interest rate on 30-year fixed-rate mortgages fell to just below 6 percent and the average rate on 15-year fixed loans tumbled to 5.21 percent.

Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.1 on the 30-year loans, 1.18 on the 15-year, and 0.99 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the refinance share of applications increased to 57.7 percent last week from 50.9 percent the previous week, while the ARM share dipped to 9.3 percent from 9.8 percent.The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

A little good news

2008-01-06T16:36:00.000-08:00

The perennial optimism of the National Association of Realtors is finally being rewarded with a little good news for buyers and sellers. Existing home sales rose slightly in November after months of declines, says NAR's latest monthly tally.

Chief economist Lawrence Yun says the upturn was due to the stabilization of markets in the wake of mortgage disruptions earlier in the year, but there could be other reasons -- homebuyers may simply be tired of being scared out of their wits by the national press. How long can anyone remain in a state of panic before they start to ignore the bombs and go on with daily life -- including buying a house?

Existing home sales have stayed in a narrow range following a near-20 percent plunge in September. While Yun says that suggests stability, he credits "near historic low interest rates" and "decelerating price declines, along with a modest reduction in the number of homes on the market." Actually, sales are even better than the NAR reports. Here's why.

As of November, the seasonally adjusted annual sales rate was 5 million units, 20 percent below the 6.25 million units sold by November 2006. That sounds disastrous until you consider that In 2004 and 2005, over one-third of homes sold to second home buyers and investors. And about 10 percent of all buyers were subprime.

By November 2007, the speculators and poor credit risks were driven out of the market. Those were the buyers who wouldn't have bought anyway -- except for the incredible oversight of the banking regulators.

That means the 2007 numbers are comparing favorably to previous years when the market wasn't torqued by unusual numbers of buyers. Driving the markets today are the occupying homebuyers and in greater numbers than during the speculative boom of 2001 to 2005.
If greater numbers of occupying homebuyers are buying, the bottom is here, and there's an outside chance a new boom could explode. Why? Prices are down over three percent from November 2006. Homes to choose from are plentiful at a 10-month supply on hand. The median home price in America is back down to $210,200, only $15,000 higher than 2004. Buyers still believe that a home is a pretty good place to put their money, and even with stricter credit, most can still get in with as little as 5 percent down. First time homebuyers with okay credit and $5,000 in the bank can still get 100 percent financing through the California Housing Finance Agency. If you know of someone who needs a home or a loan have them call or e-mail me for the details.

Time to start promoting El Dorado County

2008-01-06T16:34:00.000-08:00

There are a number of theories as to why the real estate market has reversed itself so dramatically since the summer of 2005. One theory is home prices appreciated too high in a short period of time. Between 1999 and 2005 the typical home in El Dorado County doubled in value. Eventually buyers simply said no and quit paying what they considered outrageously high prices. Another theory is builders built too many new homes. The supply of available inventory eventually outpaced the demand, leaving more inventory than buyers. Builders reacted by lowering their new home prices, which subsequently affected the prices in the resale market. Speculators and flippers contributed to the problem, as did lenders with their creative loan programs. Our market correction could be the result of a normal economic cycle or a great conspiracy by foreign financial interest.

I suspect, as with most significant events, our current real estate market is the result of a combination of many factors. Regardless of what single or multiple issues is causing our real estate relapse, it may be prudent to initiate proactive measures to prevent the further erosion of property values, increasing foreclosures and a declining tax revenue.

Traditional market price corrections are usually bad for one party and good for another but they are normal and necessary in a free market. Broad government intervention in a market correction or short-term economic crises usually doesn’t help and in some cases actually exacerbates the problem. This market correction is different and a bit of public tweaking may be all that is necessary to jump-start the real estate market in El Dorado County.

Our local real estate market has already corrected itself from its past excesses. The median selling price for a county home is $100,000 less than two years ago. The selection of homes has never been better and most sellers will assist buyers with closing costs. The state and national economic climate is also favorable for homeownership. Interest rates are historically low, personal income continues to increase as does jobs (albeit at a slower pace) and the best economic measure of all, the gross national product, continues to reach unexpectedly high levels. Since we all understand the financially successful concept of buying low and selling high, why is it that buyers aren’t?

Consumers are suffering from a mental disorder called media-itice. The affliction resulting from four years of being propagandized by the major media and the economic press about the collapse of the real estate, mortgage and credit markets. Beginning in 2003, consumers have been told that the real estate market was: popping, sinking, bursting, plunging, free-falling, imploding, exploding, collapsing and in total meltdown. The mortgage industry has been portrayed as: opportunistic, greedy, corrupt, morally bankrupt and fraudulent. A national news network focuses an entire series on the “National Real Estate Crises.” Congress initiates investigations. Is it any wonder that potential homebuyers are put off from buying a home? Yes, there are some problems but isn’t all the hoopla over a small percentage of troubled homeowners a little too much?

Legislative changes in the mortgage, appraisal and credit industries, insuring market exuberance won’t happen again, will not change consumer immediate attitude toward real estate as a long-term investment and it will do nothing to perk up the county’s housing market. What our current local market needs is a stimulus that will attract homebuyers to El Dorado County.

According to the state Department of Finance, population growth in El Dorado County is the slowest in recent history. Between 2006 and 2007 the county had a net population increase of 1,720 for a total number of 178,689 people. Most of the increase resulted from new births while foreign immigration accounted for an additional 290 area residents and 699 new county residents were the result of domestic migration. At the current estimate of 2.5 people per household and the county’s current homeownership rate, we can assume that new residents purchased only 480 homes throughout the year. That isn’t enough. There are currently 1,450 homes for sale of which 550 are vacant. Having a third of all homes listed for sale, unoccupied isn’t a good sign. We can and should do better.

Anyone who lives in El Dorado County recognizes the benefits. Our quality of life is different in the foothills. Homeownership in the county isn’t a burden, it’s a privilege. We are surrounded with natural beauty and recreational opportunities. Perhaps it’s time for the public and or private sectors to join forces as an advocacy for homeownership in the county. Its charge would be educating potential homebuyers throughout the region as to the benefits of living and working in El Dorado County.

A public/private partnership, similar to an Economic Development Commission, could do much to off set the negative media about homeownership. At the same time it could promote the benefits of choosing El Dorado County as the right place to live. It isn’t only Realtors who have a steak in a healthy housing market. Local merchants, service providers and governmental agencies all should be interested in restoring confidence by promoting the American dream still available in the county.

Potential homebuyers have many choices when considering a place to move. Attracting area residents is now as important to the economic stability of a region as attracting and promoting business or tourism. A Housing Economic Counsel, promoting the benefits of owning a home in the county, is worthy of serious discussion.

Something to fall back on

2007-12-30T09:04:00.001-08:00

Multiple factors have contributed to the current slump in the housing market that has been proclaimed the worst in the past 16 years. One of the major causes of the current slump, however, can be attributed to the fact that more and more people have been using their homes as ATM machines. Whenever they want or need something that they cannot afford, instead of saving for it or denying themselves the luxury, they've simply borrowed against the equity in their homes either by refinancing or taking out a home equity loan or line of credit.

Some of the borrowing has come from necessity. If a major breadwinner of a family becomes seriously ill and does not have sufficient medical and disability insurance, they may have no choice but to cash out the equity in their home. However, much of this borrowing does not arise from necessity. Many homeowners borrow money to pay for non-essential items, including vacations, home renovations, new furniture, fancy new cars, and so on.

When the housing market is booming and prices for homes are soaring, equity seems like a never-ending river of gold. You can borrow and borrow and borrow, because a couple years down the road, your home will be worth tens of thousands of dollars more than it's worth now, and you will still have plenty of equity to protect you. At least that's what the booming market of the past lulled homeowners into believing.

Now that real estate prices are on the decline in many areas of the country, homeowners who have cashed out all of the equity in their homes are facing a harsh reality of negative equity. They owe more on their homes than their homes are worth.

If you are wondering why the housing market is slow right now, that is one of the reasons. Many homeowners simply cannot afford to move. As soon as they sell their homes, they need to come up with tens of thousands of dollars extra to pay off their loans, and they simply don't have the cash on hand to do that.

50 years ago, this problem was not as widespread as it is today for one simple reason: People tended to buy what they could afford; they worked hard to pay down their debts. For many homeowners, their goal was to have their home paid for by the time they retired, so they would not have a house payment in their golden years. In today's buy-now-pay-later society in which we use our homes as ATM machines, we have become much more vulnerable to slumps in the housing market. Now, when a slump hits, we cannot even rely on the equity in our homes to pad the fall. For many homeowners, this message probably comes too late, but for those who are just starting out, I highly recommend that you work toward building up equity in your home. Find the lowest-cost loan available, and then pay down the principal on or ahead of schedule. If hard times hit, you then have a cushion to fall back on.

Tough loans

2007-12-30T08:50:00.000-08:00

Spending a little less this holiday season may not be what local merchants want to hear but it could make the difference between owning a home and remaining a tenant. While homebuyers have many advantages in our current market, an easy time financing a home isn’t one of them. Lenders are becoming increasingly discriminating when lending money. Home ownership isn’t for everyone anymore. It’s only for those determined enough who can prove a history of saving, a steady secure income and prudent credit management.

Up until a few years ago, making the decision to buy a home was a major lifestyle commitment. It required advanced financial positioning to insure that a lender would make a favorable determination in granting a mortgage. Saving for a downpayment required financial sacrifice. Eliminating debt in order to qualify for a loan was a priority and paying monthly bills on time became an obsession. Buying a home was so important that it was considered an intragal part of the “American Dream.” It was a place of permanence, an opportunity to become a responsible part of the community and raise a family. There were milestones along the road of life worth the required sacrifice and homeownership was an important one.

Somehow that changed a bit. Buying a home became as easy as buying a car. Lenders became increasingly creative in their quest for profits and home financing became their vehicle of choice. Traditionally, lenders had considered a home mortgage as a secure but boringly long-term use of their money. The thirty-year conventional mortgage with fixed qualifying guidelines was routine with down payments averaging 10 to 20 percent. Government insured loans were popular with buyers who had less than a 10 percent down payment. That arrangement worked quite well for 40 years.

Lenders began tampering with traditional loan qualifying guidelines in 2000. They discovered that less was more. The less qualifying requirements imposed on borrowers, the more business in loans they could generate. Since the loans did not meet the set traditional qualifying guidelines, lenders sold these non-traditional but high yield loans to investors through Wall Street. This creative financing experiment became so successful that national lenders were rewarded with record growth and billions in profits. The competition in promoting the most creative loan program was fierce. It was a lending free for all. No credit?…no income?…no job? No problem!

The pendulum, as it always seems to do, has swung in the opposite direction. Lenders are over correcting for their past lending exuberance. Faced with an increasing number of mortgage defaults, Congressional investigation and unable to sell their non-conforming loans to investors, lenders are subjecting every loan applicant to greater scrutiny than ever before.

Financing a home isn’t going to be the slam-dunk that it was last year. It’s going to be more difficult and take longer. The California Association of Mortgage Brokers estimates that 25 percent of all loan applicants during September and October were turned down for a mortgage. The California Association of Realtors is also concerned. "Financing issues have dogged entry-level buyers since early 2007, but they spilled over into the middle and upper-tier markets in the last few months," said C.A.R. President William E. Brown. The decline in sales at the upper end of the market, resulting from mortgage turndowns, has contributed to a significant decline in the statewide median price. Today’s homebuyers have their best opportunity in years to own a home. The number of competing homes on the market is high, forcing sellers into deep discounts and concessions not seen in 10 years. Home prices in El Dorado County continue to decline making them more affordable than ever and interest rates are historically low. But with foreclosures rising and prices falling, prospective homebuyers will need to clearly demonstrate that they are financially mature enough to warrant the lender’s risk. Here are a few traditionally proven concepts necessary to convince a lender that a borrower is ready or homeownership.

Get some money in the bank. If Santa isn’t expected to bring a package full of cash to your house this year, it’s up to you to bank as much as possible. Being thrifty is a prerequisite to homeownership. Most of our expenditures are discretionary. We have choices. Spend money for what you need not for what you want. Demonstrate the ability to save. There are still loan programs that do not require a downpayment but they all have closing costs and they all require thousands of dollars in cash reserves. If buying a new high definition plasma is more important than a home, you are not ready.

Pay off as much debt as possible. I know this is a unique concept but when evaluating a loan applicant, debt is bad and saving is good. Having an established good credit history is necessary to demonstrate financial self-discipline. Credit card balances should be kept to a minimum. If you’re addicted to charge cards and minimum payments forget about buying a home.

Ask for help. It’s okay to ask for help and advise. Unsure how to get started? How much of a home you can afford? How does your credit report look? Seek out a trusted advisor, tell them you want to position yourself to buy a home and ask them to look at your situation. Local Realtors and mortgage originators are a good source of information. Ask lots of questions. Too many currently defaulting borrowers didn’t ask enough questions about their resetting adjustable rate mortgage. Don’t make the same mistake.

The truth about foreclosure filings

2007-12-30T08:47:00.002-08:00

Foreclosure filings are up form November of 2006 to November of 2007. That’s not a surprise to anyone since the major news media broadcasts daily how bad the real estate market is and appears anxiously waiting for it to get worse. Last month there were 200,000 foreclosure filings across the country and 40,000 filings in California reported by Realty Trac Inc.

Home foreclosures are getting more ink (press) than the war on terror. Congress has been obsessed with drafting new lending legislation, the Federal Reserve is adjusting the nterest rates, builders and lenders are closing their doors, filing bankruptcy and laying off thousands of employees. Potential homebuyers are so frightened by the current housing market that sales have dropped 40 percent and prices continue to fall. It’s a national crises or is it?

The Sacramento Bee’s headlines “Foreclosure filings up 68% over last year” are enough to stop anyone from considering buying a home but reading between the lines provides a different perspective.

When is a “Foreclosure filing” not a foreclosure? When Realty Trac reports it. Realty Trac’s numbers are exaggerated. In addition to actual foreclosure filings they include default filings, (most defaults never end in an actual foreclosure) auction sale notices and bank repositions. When Realty Trac includes auction sale notices and bank repositions the numbers have been counted more than once.

What most readers don’t understand is that many over financed troubled homes will have a first and second mortgage, requiring two notices of default. If the homeowner doesn’t bring the mortgage payments current, the lender will file an auction sale notice and then if the lender takes position of the property, a bank reposition is recorded. So up to four recorded documents could be filed on one defaulting property. More accurate number could be found on the number of actual foreclosures not on the “foreclosure filings.”

Any foreclosure or foreclosure filing is too many but there are signs that the worst may be over. November filings were actually 10 percent less than October. In California default filing fell by 21 percent from October. This is the second time filings have decreased since September when they fell 8 percent.

Don’t be too surprised if you don’t hear or read about monthly foreclosure filings down 10 percent and 21 percent in California. The real estate market has taken a beating over the past two years but it’s not as bad Realty Trac and the major news media makes it out to be.

November Sales for El Dorado County

2007-12-30T08:47:00.001-08:00

The El Dorado County Board of Realtors reported only 104 monthly home sales for November. It was the weakest month for county homes since March of 1997 when 102 sales were reported. The months of November and December are typically the slowest for sales but last month was the worst November since 1996. November of 2003 and 2004 had twice the number of sales than was reported last month. The historical 10 year November average is 190 residential units closing escrow. As poor as the sales numbers were for last month, December will probably be worse.

Along with the weak sales numbers, the average price of a county home closing escrow last month declined $25,000 from November of 2006 settling at $457,000. The county’s average selling price has remained above $500,000 for 9 months during 2005, 11 months during 2006 and 7 months for this year. Our average selling price has been propped up by million dollar deals but last month only four homes sold in excess of a million dollars. Three were located in El Dorado Hills and the most expensive sale was located in Greenstone and closed escrow for 1.6 million.

The median price rather than the average is considered a better gauge to judge the market’s temperature. The medium price is the midway price point between the highest priced home sold and the lowest. Last month the median dropped to $383,700. Last year during the same month, the median was $450,000. Twenty-five percent of all county sales were priced below $300,000 while another 25 percent were priced above $600,000.

A third of all county home sales were located in El Dorado Hills. The average selling price of $674,500 was nearly the same as November of 2006. The area currently has 383 listings so at the current rate of sales there is a 12-month supply of homes available.

Another 20 percent of all county home sales took place in Cameron Park where the average price of $342,000 on the 20 homes closing escrow was $117,000 less than the same month a year ago. The area has 173 homes for sale for an eight and a half month supply.

The Greater Placerville area currently has 147 homes for sale. Last month 12 sold for an average price of $332,000, a decline of $100,000 from the 12 sales that were reported in November of 2006.

Another 12 sales were reported between Camino and Pollock Pines. The 5 homes in Camino had an average price of $504,000 while the 7 sales in Pollock Pines/Sly Park averaged $383,000. The area has 169 properties listed.

The 12 monthly sales on the Georgetown Divide equaled the same as in November of 2006 but the average selling price declined significantly. The average selling price for a home in Georgetown, Greenwood and Garden Valley was $282,000, down from $356,600 in November of 2006 while the average price for a home in Cool and Pilot Hill closed at $399,000 down from $495,000 at this time last year.

The number of new “for sale” signs going up on county homes has eased a bit. The 253 new listings last month was an 18 percent decline from the new listings in October. There are currently 1,300 county homes for sale and this time last year there were 1,500. It’s a small improvement but still out of balance for the meager number of sales.

One of the attractions for buyers looking to relocate in El Dorado County is our rural countryside. Locating a home on acreage isn’t a problem since nearly half of all homes currently listed for sale are resting on an acre or larger. Currently 400 listed homes are considered horse properties and 335 homes for sale come with 5 or more acres.

The basic fundamentals of the real estate market in El Dorado County is better than the sales numbers reflected. Our county has a large percentage of high earning residents, most of who are homeowners with large amounts of equity. Our foreclosure rate is one of the lowest in the region and our average selling price of a county home is a hundred thousand less than the state’s average. Unlike Sacramento or Placer Counties we are not overbuilt with new track homes. The small amount of new home sales occurring in El Dorado Hills is not heavily discounted.

Our county’s real estate market is primarily suffering from a lack of buyer’s confidence. If a buyer is convinced that it isn’t a good time to buy, no amount of price discounts, incentives or the plethora of available inventory is going to change their mind. When consumers begin to feel better about the market, things will improve.

Tax break for surviving spouse

2007-12-30T08:39:00.000-08:00

Hardly anybody noticed it, but Congress tucked away a valuable bit of holiday cheer for real estate when it passed its final tax bill of the year. It was the first substantive change in years to the generous capital gains rules governing sales of principal homes.

Most homeowners and real estate professionals can recite these rules in their sleep: Married, joint-filing sellers of houses can exclude up to $500,000 of gain, and single-filing sellers can take up to $250,000 … provided they've used the property as a principal residence for a cumulative two of the previous five years.
But what happens when a married home owner dies? Does the surviving spouse still qualify for the full $500,000 -- or does she or he only get to exclude $250,000?

The answer from the IRS has been this: you only get the full $500,000 if you sell during the tax year in which you were married and filing a joint return. Otherwise, the tax code sees you as single, and then you're limited to $250,000.

In other words, if your wife or husband died in June of 2007, you can only claim the full $500,000 benefit if you sell before December 31, 2007. After that, as long as you remain unmarried, you're capped at the $250,000 limit for single taxpayers.
As a practical matter, most surviving spouses inherit their husband's or wife's share of the property at what's known as a "stepped up" tax basis, with no capital gains tax liability at the current market value.

But here's the problem: Some surviving spouses complain that they feel rushed into sales by the current tax rules. This is especially true for people who've lost their loved ones during the final few months of the year. With everything else going on, they don't want the additional pressure of having to make the decision to sell the family home quickly. They want more time. Fair enough.

Well, now they've got it. Legislation signed into law before the holiday recess gives surviving spouses two full years to qualify for the $500,000 exclusion -- even though technically they're single.
And who says Congress doesn't have a heart?

Tax deductions for moving

2007-12-18T07:42:00.000-08:00

As 2007 wraps up, many of us are getting our records in order in preparation for tax day, April 15, 2008. If you are one of those people, and you have made a move this year, you are probably wondering if there are any allowable tax deductions. So….here is the answer.

The IRS does allow tax deductions for moves which were made to accommodate a job in a new location. There are, however, two tests which must be met in order to qualify for deductions.

Test 1: Distance TestTo qualify for a deduction, your new principal workplace must be at least 50 miles farther from your previous home than your old workplace was from that same home. In other words, if the commute to your old workplace was 3 miles, your commute from your previous home to your new workplace must be at least 53 miles. If you did not have a job before moving, then your new job must be at least 50 miles from the previous home.

Test 2: Time TestIn addition, you must work full time in the general area of your new workplace for at least 39 weeks during the 12 months right after you move. There are exceptions to the time test and other rules apply if you are self-employed. Check with your tax advisor or check out Form 3903 on the IRS website for details. If you have passed both the distance and time tests you may be able to deduct:
Costs for packing, crating and movement of your household goods
Up to 30 days of storage and insurance for household goods

Transportation and lodging expenses (not meals)You may not deduct expenses that have already been reimbursed by your employer and you may not deduct sightseeing or house hunting trips.

Building Industry Report for October 2007

2007-12-17T09:07:00.000-08:00

New-home sales dropped 45.6 percent in California while median new-home prices fell 10.8 percent in October compared to October 2007, the California Building Industry Association and Hanley Wood Market Intelligence reported last week.

The groups reported 3,292 new-home sales statewide for all new-home types in October, down from 6,047 sales in October 2006, according to the report. The median price across all new-home types was $405,900, down from $455,000 in October 2006.
Single-family new-home sales fell 37 percent, from 4,075 in October 2006 to 2,568 in October 2007, while the median price of single-family new homes fell 12.9 percent, from $461,400 in October 2006 to $401,990 in October 2007.

Among those market areas with more than 100 sales in October, sales for all new-home types fell 75 percent in Sacramento compared to October 2006 and dropped 54.1 percent in Santa Ana-Anaheim-Irvine, 51 percent in San Diego-Carlsbad-San Marcos, 47.6 percent in Bakersfield, 41.4 percent in Los Angeles-Long Beach-Glendale, 34.5 percent in Oakland-Fremont-Hayward, 28.6 percent in Riverside-San Bernardino-Ontario and 10.7 percent in Fresno.

New condo sales dropped 70.6 percent in California year-over-year in October, falling from 1,481 in October 2006 to 436 in October 2007. And the median price of new condos in the state dropped 1 percent, from $415,000 in October 2006 to $411,000 in October 2007.
Jonathan Dienhart, director of published research for Manley Wood Market Intelligence, said in a statement, "There doesn't currently seem to be an end in sight in regards to the problems in the mortgage industry. The market must once again find equilibrium; that can only happen when more home buyers gain access to credit again, and home prices have relaxed to the point where they can still qualify for a mortgage under more strict lending guidelines."He added, "If potential home buyers are convinced it's a bad time to purchase a house, there is only so much that pricing and credit options are going to help. Consumers need to regain their confidence regarding housing before we will see widespread recovery."

2007-12-14T16:31:00.000-08:00

California's economy is expected to take a turn for the worse in 2008, as job growth slows due primarily to the softening housing market, according to two different university forecasts.
The quarterly UCLA Anderson Forecast calls for unemployment rates to hit 6.1 percent, largely due to the loss of jobs within the mortgage lending sector.

Meanwhile, the A. Gary Anderson Center for Economic Research at Chapman University in Orange County is projecting sharp increases in foreclosures despite a recent federal plan to assist subprime mortgage holders, and is predicting job growth across the state of only 0.1 percent next year."Our estimates suggest a loss in bond value holdings resulting from these foreclosures to be roughly $350 billion," the Chapman report states. "This loss in paper wealth is expected to lead to a significant decline in consumer spending, and to further credit tightening."Both reports say California's economic picture will trend with that of the rest of the nation, with UCLA predicting the state to narrowly avoid a recession."In California, the central theme of the forecast remains the same as it has been in the past few quarters, and mirrors that of the national forecast: Weakness in the vast real estate sector will be the central component of a sluggish economy, but there will not be enough job loss to trigger a state-wide recession," according to the UCLA forecast.

Remodeling cost and value

2007-12-14T16:24:00.000-08:00

The day after Thanksgiving I start hanging our outside Christmas lights. Exterior illumination technology has improved since the 1960’s but bulb replacement is still a frustration. Something mysterious happens to strings of light bulbs while resting peacefully in the garage all year. Between the time I take the working lights down after New Years and getting them out of their box again in November, a number of the bulbs and strands of lights decide not to participate in this year’s annual event. Every light manufacture has similar but slightly different bulbs. Since my collection of lights date back a few years, I am forced to buy another new strings of lights, which of course don’t match up with my previous collection.

Besides obsolete Christmas lights, there are a number of things around our house that could use some upgrading. Our new 50-inch TV will not fit into our 40-inch entertainment center. Our Formica bathroom counter tops are discolored and no longer fashionable. Our kitchen could use some tile work, our old heating and air conditioning systems are not as efficient as the newer models and we have a few windows with defective seals. Even with the money and time to tackle remodeling projects that will upgrade our outdated features, knowing which will add the greatest value upon resale is critical.

Remodeling Magazine, in participation with the National Association of Realtors, recently completed their 2007 “Remodeling Cost vs. Value Report.” The report provides valuable information to anyone considering a home remodeling project. The study reviews specs and costs on 29 upscale and midrange remodeling projects in 60 different markets. It then estimates the percentage of increased dollars returned upon resale. One of the markets sampled was the Sacramento Region, which includes El Dorado County. Market segmentation is important since desirable features in the foothills may not be the same for Southern Cal.

Generally, I am opposed to major remodeling projects when planning on selling a home within 18 months. Deferred maintenance and improved cosmetics are necessary but few sampled remodeling projects returned 100 percent or more of their costs upon resale. Major remodeling should be primarily for the benefit of the existing homeowners with reasonable consideration for a future homeowner. Over improving a home for its location will cost a seller major dollars while some modest expenditures will return big rewards.

According to the study, three of the four remodeling projects that returned the highest amount of money upon resale were on the exterior. First impressions of a home are apparently valuable. Exterior finishes make a conspicuous statement about a homes style and quality. More home shoppers are deciding which properties to view with an agent by previewing them first on the Internet. Many buyers will further narrow their search by first driving by the homes of interest. You may not be able to judge a book by its cover but exteriorly attractive homes are getting more showings and offers.

Since Californians spend a lot of time outdoors, it’s not surprising that wood decks ranked high as a “make sense” exterior improvement returning 98 percent of their cost. Decks and patios increase the living space of a home and smooth out a home’s sharp angles. In Northern California, decks should be constructed of treated and composite wood like substances and covered decks are preferable. Natural wood decks are a liability. They require yearly maintenance and are subject to wood eating bugs and dry rot.

Exterior siding and window replacement ranked pretty high on the suggested to do list. T-111 plywood siding and single pane windows are a turn-off for homebuyers. Landscaping wasn’t included in the survey but a modest investment in landscaping (less than $25,000) will pay for itself. Extravagant landscaping with exotic trees, shrubs and rock outcroppings is spectacular to view but buyers will rarely pay for the seller’s costs.

One of the best remodeling projects, returning 88 percent of the money invested, was a garage addition. Everyone can use a larger garage for which buyers will pay extra. In the country, barns will return a bonus. If a property could be considered horse property but doesn’t have any horse facilities, building, a small barn, stable and installing cross fencing will attract additional interest and a higher price from horse property buyers.

A minor kitchen remodel will have a better return than a major one. Before extending walls and plumbing, consider some cosmetic changes. New kitchen cabinets doors are less expensive than replacing the entire cabinet, granite tile is less expensive than slab counters and a new stainless steel sink and designer faucet will pay for itself upon resale.

Before considering a remodeling project, it’s best to get an opinion from your neighborhood professional Realtor. Since every home and neighborhood is different, every remodeling project will need to be considered within its unique environment. The cost recouped on any project will depend upon the overall condition of the rest of the home, similar properties and the general condition of the market. A good agent will know what’s the latest hot buttons for buyers. The complete “Remodeling Cost vs. Value Report” can be found at www.costvsvalue.com

Home technology and buyer’s preferences continue to change. In today’s real estate climate, smart remodeling may be preferable to the expense and inconvenience of selling and buying another home. All homes during their lifetime will require some remodeling upgrades. Knowing which ones are worth the effort and investment makes good sense.

New Home sales

2007-11-30T14:25:00.000-08:00

New-home sales dropped 45.4 percent year-over-year in September, the California Building Industry Association and Hanley Wood Market Intelligence reported Wednesday, while median prices dropped 9.7 percent.

The median price of all new homes -- including single-family, townhomes, multiplexes and condos -- was $402,900 in September, down from $445,990 in September 2006.
The median price for new single-family homes dropped 12.1 percent, from $452,990 in September 2006 to $398,060 in September 2007. Single-family new-home sales dropped 39.4 percent, from 4,225 in September 2006 to 2,561 in September 2007.

Jonathan Dienhart, director of published research for HWMI, said in a statement, "The problems relating to credit availability don't seem like they will be resolving themselves in the near future. Until we have stabilization in the broader market of real estate-backed securities, access to financing will remain restrictive for many potential home buyers."
He added, "Many would-be home buyers have taken themselves out of the market because they see it as too risky, and until this perception improves, we will continue to experience a degree of paralysis in the new- and existing-home markets."

Among the metro areas with more than 100 new-home sales in September, sales dropped 66.9 percent in the San Diego area, 65.1 percent in the Los Angeles area, 46.1 percent in the Oakland area, 44 percent in the Irvine area and 31.4 percent in the Riverside area, with the slightest decline at 2.3 percent for the Fresno area compared to September 2006.Also among the metro areas with more than 100 new-home sales in September, the Irvine area had the steepest price decline at 16.7 percent, while the Oakland area was the only area to experience a price gain, at 1.1 percent compared to September 2006.

The Zillow Report

2007-11-30T14:23:00.000-08:00

Home values nationwide declined for the fourth consecutive quarter, down 5.7 percent year-over-year - the largest year-over-year decline in more than a decade, according to Zillow's Q3 2007 Home Value Report. This brings the U.S. Zindex® home value indicator to $244,000, down 2.8 percent from the second quarter. The Zindex is the median Zestimate® valuation and measures all homes in an area, not just those that have sold during the quarter.

For many homeowners who bought during the last two years when most local markets reached their peak, subsequent declines in value have left them with negative home equity, owing more than the home is currently worth. As of September 30, nearly 16 percent (15.6%) of homeowners nationwide who bought in the last year and 17.5 percent of those who purchased two years ago have current home values that are less than the original mortgage amount. By comparison, less than 2 percent (1.8%) of those who purchased a home five years ago have seen their equity slide into the negative.

Not surprisingly, markets with the greatest proportion of homes with negative equity were those hit hardest by declining values. For example, people who purchased homes in California's Central Valley, parts of Florida and Las Vegas during the past year have seen double-digit depreciation and negative equity rates reach up to five times the national median.

Since homeownership is typically a long-term investment, it's important to keep in mind that short-term value declines mostly affect homeowners who either must sell or want to withdraw equity. The run-up in home values we saw over the last several years had many home buyers counting on continued housing appreciation to drive home equity growth, but the market has proven that this strategy is no longer a safe short-term bet.

Despite decreasing home values and increasing incidence of negative equity scenarios, most U.S. homeowners still have positive equity in their homes. In fact, many homeowners who purchased in the last two years have seen overall equity increase since they made their purchase. The variances and movements in owner equity depend on many factors such as when the home was purchased, how much was put down and net market appreciation.
Americans who bought a home in the last two years placed a median down payment of 10 percent and now have a median of 13 percent equity in their investment. Most homeowners who bought five years ago have the benefit of time and the market on their side. After placing a median down payment of 11 percent, these homeowners watched home values grow at an annualized rate of 9.4 percent over the past five years and now own a median of 41 percent of their home.

Housing prices down

2007-11-30T13:58:00.000-08:00

Housing prices have fallen five percent since their peak July 2006, according to the September Standard & Poor's Case/Shiller monthly index, but the damage isn't as bad as the financial press makes it out to be. While Robert Shiller, chief economist for MacroMarkets LLC notes that the 1.7 percent drop in 20 index markets is the biggest single slide ever, the aggregrate 4.5 percent year-over-year slide is nothing compared to the 10 percent bath stockholders took just this month.

Housing prices and stock prices are down for the same reason -- fears about the economy and the ability of borrowers to access credit. Home buyers are being told by the financial press that housing prices haven't dropped enough to qualify as a true correction, and that prices will drop further. Who's going to buy when lower prices are coming? And for many, lower prices is the only way home buyers can afford the homes they want.

Some buyers may get their wish. In a recent study for U.S. mayors by Global Insight on the impact of foreclosures, it was found that weak housing, construction, spending and income will impact the economy, with major cities such as New York, New York ($10.4 billion), Los Angeles ($8.3 billion), Dallas and Washington ($4 billion) and Chicago ($3.9 billion) losing billions of dollars in economic activity in 2008. The report also predicts property values will decline by $1.2 trillion with drops in home prices averaging 7 percent across the U.S.

Most banks have announced heavy losses due to the inability to sell their subprime loans to investors and get fresh cash to loan out to new borrowers. Homebuyers can still get loans, but the market is not as generous for non-conforming or subprime loans. That impacts over 50 percent of homebuyers considering how people bought homes during the boom when credit was easy. Subprime loans were 10 percent of the market and other non-conforming loans such as interest-only or no-doc loans were as much as 40 percent.

The only other thing that can lure buyers back to the market is interest rates so attractive that buyers can't resist. This week, mortgage interest rates for conforming loans dropped below 6 percent for the first time in over a year.

That should be an attractive level to get people to lock in, but that doesn't mean buyers will rise to the bait. Mortgage rates can be refinanced, but the price of a home can't be renegotiated after closing. And consumer confidence, according to the Conference Board, has sunk for the fourth month in a row. Despite an optimistic start to the holiday season, gas prices, home equity losses, and wobbly financial markets are impacting consumer spending.

As usual, the coastal markets are whipsawing the national picture. Home prices are down 11.1 in Tamp, Florida, and 10 percent in Miami. Yet, year-to-year prices are up in Charlotte, North Carolina and Seattle -- a 4.7 percent gain each. Yet the malaise is affecting healthy markets -- prices in Charlotte and Seattle fell by a fraction for the quarter. It remains to be seen if home buyers will take advantage of interest rates below six percent, but we should know more when the Mortgage Bankers Association releases its weekly application survey next Thursday.

Every house has a story

2007-11-30T13:56:00.000-08:00

After 30 years of previewing and showing homes, I look at them differently than my clients. My definition of important doesn’t include granite counter tops, walk-in closets or new paint and carpet. Buying a home may be an exciting emotional experience for buyers but their agents need to maintain a degree of objectively. While my clients are visualizing their family gathered together in the great room around the Christmas tree, I am sleuthing for breached window seals, fractured floor tiles and wet stains under the kitchen sink.

Every home has issues and a story to tell. When I know that my clients are seriously interested in a home, I consider it my duty to discover the home’s history. Knowing all I can about the property will aide in the negotiation process and help me protect my clients from regretting a major decision.

Each chapter of a home’s history is revealed in a different place. The county’s offices are a good place to begin. The county’s Tax Assessor’s office contains information about the year the home was built, its size and the outstanding mortgages against the property. The Department of Environmental Quality may have information on the well and septic systems. The Building Department should have the original building plans, survey and any permitted additions. Some of the reports are free, others have a nominal charge. Reviewing the reports will reveal helpful information and may raise other questions that will need to be answered.

The next chapter of a property’s history can be found in third-party inspection reports. Listing agents and their sellers should order all third party inspections early in the listing process. Pest reports, well flow tests and water potability, septic pumping and inspection, roof inspections and certification, and pre-listing whole house inspections, all help in revealing the character of a property. Buyers and their agents feel more comfortable entering into escrow already knowing the issues that existed with the property and their disposition. Obtaining third party inspection reports in advance is money well spent by the seller. Pre-inspected homes will sell easier, for a higher price and are less likely to fall out of escrow. .

The seller furnishes another chapter in the home’s storybook. State law requires sellers of residential properties to furnish buyers with a plethora of written disclosures regarding the current condition and history of the property. Most real estate agencies go even further with their own in-house questionnaires and disclosures. Good agents will obtain these questionnaires early at the time of the listing, reviewing for any red flags. There should be no surprises once escrow is opened.

In addition to the seller’s legally required written disclosures, some sellers will volunteer other information that isn’t found on a standardized disclosure form. Many agents prefer that the seller not be present when showing a home to an interested buyer. I have always thought it to be an advantage. Sellers can be a guarded first-hand source of information about the neighborhood, schools and neighbors. Serious buyers always have additional questions for sellers not found on any disclosure questionnaire.

After reviewing as much information as possible within a reasonable time, a call to the listing agent will usually answer any remaining questions prior to submitting an offer. When asking the seller questions during the showing process, my questions are restricted to polite conversation about the property or neighborhood. When talking with the seller’s agent, prior to writing an offer, I am not hesitant to ask tough intimidating questions such as: “Have you had any offers on the property? What were they? How motivated is your seller? Will they take less than the listed price? If I can close this deal in 30 days, will your sellers pay my clients closing costs? The listing agent should be very careful how they answer those questions but when representing a buyer, I am not prohibited by professional ethics from asking. I consider these preliminary discussions the beginning of the negotiation process. Gaining a competitive advantage early will assist in my client’s offer being accepted and succeeded again if needed during the escrow process.

Once escrow is open, the property investigation continues. The title company will furnish a preliminary title report showing the current legal status of the property. This will include the current owners, liens, assessments, easements, conditions and restrictions that affect the title. The title report will not furnish detailed documents of all “exceptions” unless requested to do so. Exceptions to the title report can be easily overlooked as ordinary. The title company will clear some prior to closing but the missed details of a “deed restriction” or a “special assessment” may prove irreversible.

There are other miscellaneous sources to gain information about a home’s history. Neighbors are a wealth of information. Once a home is in escrow is a good time to introduce myself to the neighbors and ask a few questions about what they like and dislike about the neighborhood. There is a wealth of information about communities on the Internet. Goggling “El Dorado Hills and asbestos” produces 58,000 results. Out of area buyers should always subscribe to the local newspaper or previous copies of the community newsletters.

Buyers today have a distinct advantage not afforded to homebuyers a few years ago. They and their agents have time to conduct a comprehensive investigation of the current condition of a home and discovering its past history.

Absent from NAR convention

2007-11-23T07:34:00.001-08:00

I skipped the National Association of Realtors (NAR) national convention held last week in Las Vegas. I had the time but not the inclination. After 30+ years in the real estate business, I have been to more conventions, seminars, work sessions, retreats, and out of town meeting than I care to repeat. I have been to at least five conventions in Vegas dating back to 1977. When there were $2 Black Jack tables, holding a convention in Vegas could be a distraction from attending all the meetings and work-sessions. I suspect that today’s $10 minimum tables are less distractive. Washington DC in the spring of 1984 was a nice place for a convention. Hawaii was a great place for a winter trip. Seattle is beautiful in the summer. The fall colors in the Napa Valley this weekend was pretty nice and less expensive.

NAR keeps me informed of the latest developments in the real estate market and here are some highlights from last week’s convention.

The NAR's newly appointed chief economist announced that while home prices are down almost two percent this year, many areas of the country including Salt Lake City and Austin, Texas, are seeing double-digit appreciation and other areas "from the Rocky Mountain states to Appalachia," have undervalued home prices.

NAR released the results of its 2007 Profile of Home Buyers and Sellers. Typically released in late summer, this year the annual report found that for-sale-by-owner transactions remain at record lows at 12 percent, the same percentage as in 2006.

NAR announced that the Pending Home Sales Index for September rose 0.2 percent to a reading of 85.7 from an index of 85.5 in August. It was 20.4 percent lower than the September 2006 level of 107.6. “Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006,” Yun said. Managing Director of Public Affairs Lucien Salvant pointed out to Realty Times that the Pending Home Index is forward-looking and becomes irrelevant as soon as sales are reported, which is one reason he among other NAR leadership is frustrated with media who overplay negative statistics and discount favorable numbers in order to scare consumers.

NAR leadership, including outgoing President Pat V. Combs performed a spoof on the hit TV show CSI, "dispatching her trusted advisors" to find out why homebuyers are "staying on the fence" despite "solid U.S. economic performance. Chief Economist Lawrence Yun, incoming President Dick Gaylord and others "reported" back that other national sales downturns were driven by broad economic problems, but not this year. Despite a "solid" economy, sales are slower but will still reach a fifth-year record, and home prices are remaining at near record highs. This suggests that the national media, misled "by a few vocal but misinformed analysts, have been painting the U.S. housing markets in the clutches of a meltdown, even though the facts paint a very different picture."

In addition, NAR launched a new campaign targeting buyers, urging them to get the facts. For example, markets are local, the small decline in home prices nationwide is "no big deal" after years of rapid appreciation, and that subprimes is only about 10 percent of loans but are 40 percent of current foreclosures. Gross Domestic product is expected to be 2.8 percent and job growth will be 1.1 percent in 2008 after 2 million job gains in 2006. Inflation should remain under 3 percent. These are all good conditions for home buying. Further, the Federal Housing Administration (FHA) has doubled its loan volume in the last 12 months, and is on track to reach some 240,000 borrowers in 2007, including 80,000 refinancings by borrowers with troubled subprime loans, said Fannie Mae at the Regulatory Issues Forum.

Places you don't want to live

2007-11-23T07:32:00.000-08:00

What has Detroit, St. Louis, Flint Michigan, Oakland, Camden, N.J., Birmingham, Ala.; North Charleston, S.C.; Memphis, Tenn., Richmond, Calif. Compton and Cleveland have in common? They are all ranked as places where you don’t want to live. The FBI says they are the most dangerous cities in the country.

The 14th annual "City Crime Rankings: Crime in Metropolitan America" was published by CQ Press, a unit of Congressional Quarterly Inc. It is based on the FBI's Sept. 24 crime statistics report. The report looked at 378 cities with at least 75,000 people based on per-capita rates for homicide, rape, robbery, aggravated assault, burglary and auto theft. Each crime category was considered separately and weighted based on its seriousness.The study ranked Mission Viejo, Calif., as the safest U.S. city, followed by Clarkstown, N.Y.; Brick Township, N.J.; Amherst, N.Y.; and Sugar Land, Texas.

The study assigns a crime score to each city, with zero representing the national average. Detroit got a score of 407, while St. Louis followed at 406. The score for Mission Viejo, in affluent Orange County, was minus 82. Detroit was pegged the nation's murder capital in the 1980s and has lost nearly 1 million people since 1950, according to the Census Bureau. Downtown sports stadiums and corporate headquarters along with the redevelopment of the riverfront of this city of 919,000 -- have slowed but not reversed the decline. Officials have said crime reports don't help. Doug Goldenberg-Hart, acquisitions editor at CQ Press, said that the rankings are imperfect, but that the numbers are straightforward. Cities at the top of the list would not be there unless they ranked poorly in all six crime categories, he said. The report "helps concerned Americans learn how their communities fare in the fight against crime," CQ Press said in a statement. "The first step in making our cities and states safer is to understand the true magnitude of their crime problems. This will only be achieved through straightforward data that all of us can use and understand."

Now, despite the current condition of our real estate market, aren’t you glad your real estate is located in one of the country’s safest places. It makes for long-term appreciation.

"Ask a question go to jail"

2007-11-23T07:30:00.000-08:00

Regardless of what their personal views about the immigration debate may be, California landlords need to know that, effective January 1, 2008, neither they nor their agents may, "Make any inquiry regarding or based on the immigration or citizenship status of a tenant, prospective tenant, occupant or prospective occupant," nor may they require that any of those persons, "make any statement, representation, or certification concerning his or her immigration or citizenship status."

This addition to the law is the result of the passage of AB 976 (Calderon) which was signed into law by the Governor on Oct. 10, 2007. The new law also prohibits any California city and/or county from requiring landlords to make such inquiries or to provide or report information about the immigration or citizenship status of their tenants.
This legislation was sparked in large part by the city of Escondido's October, 2006 adoption of an ordinance which would have barred landlords from renting to undocumented immigrants. Shortly after the adoption of the ordinance, a lawsuit was filed which resulted in a temporary restraining ordinance by a U.S. District Judge. Subsequently, the Escondido ordinance was rescinded.

A supporter of the bill, the Western Center on Law and Poverty, said "Too often, poor immigrants face bleak housing choices. They are forced to rent substandard dwellings at high prices from landlords who exploit their circumstances. They are constrained from reporting housing code violations and are unable to enforce the landlord's responsibilities required by law. This bill would serve to lessen these problems." Ah, the joys of being a landlord. No one said it would be easy.

El Dorado County sales drop off chart

2007-11-23T07:29:00.000-08:00

The median price for a county home closing escrow last month, slipped below $400,000 for the first time since April of 2004. October’s $389,500 median price was an 8 percent decrease from September and nearly a 15 percent drop from October of 2006. The monthly price decline can be attributed to a stepped up interest in homes priced under $350,000. Last month 35 percent of all homes sold were priced under $350,000 and 52 percent of all sales were below $400,000. While first-time homebuyers were rediscovering El Dorado County, the number of home sales above $750,000 accounted for only 8 percent of all sales. When comparing the first 10 months of this year to last year, our median price of $463,000 is 7 percent down.

The 124 total residential sales reported by the El Dorado County Association of Realtors, was a slight increase from September’s 115 but 14 percent below October of 2006. Historically October sales will average 200 sales. Last month was the worst October for the number of house sales since 1995. With the holidays and winter on the way, October may well be our most active month until spring.

The El Dorado Hills area has 453 homes currently listed for sale, 21 properties sold last month for an average price of $664,600. Of the five county homes that closed escrow last month in excess of a million dollars, four were in ED Hills. At the current sales rate, the area will have a 2-year supply of homes for sale by the end of the year. The area accounts for twenty-eight percent of all county sales and 30 percent of all homes currently listed.

Cameron Park has 182 homes for sale. The areas average selling priced nose-dived below $400,000 last month to $390,600. The 21 local sales were nearly the same as in October of 2006 but the average price fell $95,000. The area has 12 percent of all the homes listed for sale and 17 percent of all county home sales.

The third most active real estate area in the county was the Greater Placerville area, which reported 14 sales at an average price of $386,250. Sales gently settled from the 16 sales a year earlier but the average price fell like a rock, down $118,000. There are currently 165 homes listed for sale, which accounts for 11 percent of the county’s home inventory and 9 percent of the county’s sales.

All other zip codes in the county reported single digit sales numbers for the month including: Shingle Springs with 7 sales for an average closing price of $664,000, Diamond Springs/El Dorado reported 9 sales for an average price of $373,000, Pollock Pines/Sly Park had 7 sales for the month with an average escrow at $277,100, Georgetown/Garden Valley had 6 sales with an average price of $226,300 and Cool/Pilot Hill reported 5 sales with an average price of $426,400.

There are fewer homes getting listed but still too many for the measly number of sales. Last month’s 309 new residential listings were the lowest number of new listings since December of 2006 but with monthly sales hovering below 150, the county has 10 months of available inventory provided no other homes go up for sale.

Sellers should follow the lead of several regional builders who have decided to temporary close down their home building until the market improves. Pardee Homes recently halted its planned 660 home building project in Natomas. David Ragland, chief of operations for Pardee said, “We plan to re-emerge and reopen in a year or a year and a half in a market with less competition.” A good idea for anyone in the position to hold until the market improves.

There is little on the immediate horizon that favors area home sellers who are faced with the decision of waiting out our market malaise or dropping their price substantially to attract a buyer. Homebuyers who have been patiently waiting on the sidelines received a wakeup call from the Federal Reserve last week.

The Fed conducted a survey in October of a number of national lenders who supply approximately 75 percent of all residential mortgage loans. The survey found that 41 percent have tightened their lending requirements either “considerably” or “somewhat” for the best qualified borrowers while 60 percent had even more stringent lending requirements for non-traditional or Alt-A mortgages. Forty of the 49 banks surveyed are no longer offering subprime loans.
It doesn’t do much good to close the barn door after the horses have run for the pasture. Lenders are attempting to close the door on their excessive liberal lending policies of the past by making it more difficult for today’s homebuyers to qualify for a loan. In so doing, they are hurting recovery efforts. First time homebuyers will be the key to the real estate market’s recovery but they will need reasonable and not reactionary consideration for a loan.

Who is buying homes where

2007-11-13T08:15:00.000-08:00

Each year the California Association of Realtors looks at who are buying homes where. One study that is conducted is the surname report. By reviewing the county recording records the Association determines the most frequent surnames buying homes. It takes a year or so to complete the compilation, subsequently, the findings released last week were from 2005.

In Sacramento County the top homebuyer’s name came from India and was Singh. The second most common was Vietnamese, Nguyen. Third was Garcia and Smith was fourth. Other most frequent names were Lee, Tran, Johnson, Lopez, Martinez, Gonzalez and Hernandez.

Bum rap for mortgage brokers

2007-11-09T08:06:00.001-08:00

When things go wrong, its human nature to place accountability for the event somewhere else, preferably at a distance. Our organized compartmental minds are not comfortable with the simple rational that “stuff happens.” It’s an unnerving thought to think that we cannot control our environment. We are more comfortable by endlessly investigating the possibilities that caused the ill occurrence and then focusing our attention in the direction of a single source that we can hold accountable. This insures that the event or occurrence will never befall us again. It’s a comforting thought.

The meltdown in the real estate market is an example. We want to know who or what was responsible, discover how and pass laws to insure that it will never happen again. One industry group that has been receiving most of the attention for their part in deflating the housing balloon is the mortgage brokers. They have been attributed for declining property values, increasing foreclosures and the worst housing recession in 20 years. Is it fair that one group of industry professionals take the blame?

The federal government has been holding hearings and conducting investigations on the mortgage mess to discover who to pin the tail on (an old children’s game, “Pin The Tail On The Donkey”, now played by members of Congress). Many large national lenders have been testifying before Congress that mortgage brokers duped them into making home loans to unqualified borrowers.

In response to the poor duped lenders, Congress is considering the passage of the Mortgage Reform and Anti-Predatory Landing Act of 2007. Mortgage brokers call the bill the anti-broker bill and if passed in its current form will severely restrict mortgage brokers from originating mortgage loans. The first thing the bill does is to exempt all federal depositories (banks or their mortgage affiliates) from the new legislation. The bill would make all easy qualifying loans to borrowers, not so easy. The legislation creates “minimum standards” which includes a provision that no residential loans will be made without documented proof of credit worthiness. Goodbye “stated income” and “easy documented” loans popular among self-employed borrowers.

The bill also requires applicants for adjustable rate or interest only loans originated by mortgage brokers (remember lenders are exempt from the legislation) must be qualified at the fully indexed rate. This eliminates the attractiveness of adjustable rates loans. Brokers must also maintain a $100,000 net worth to originate loans, be registered in a national database and any indirect compensation from a lender in the form of rebates or yield spread premiums are prohibited.

The smack-down continues. Democratic presidential frontrunner, Hillary Clinton, in a speech in Derry, New Hampshire and reported by MSNBC, called for penalties against mortgage brokers who engage in predatory lending. She said she would introduce legislation targeting “fly-by-night mortgage lenders (not having a net worth of $100,000) who make really seductive offers.” Clinton also proposed mandatory impound accounts by banning contracts that “trap borrowers in unworkable mortgage scenarios in which nothing is budgeted for taxes and insurance.” Mortgage brokers are not without some responsibility for our current correction but a little perspective is in order.

Imagine for a minute, you are the head of a large national bank in 2002. Wall Street investors are seeking higher returns than available in the stock or bond market. Interest rates are at historical low levels. There is a high demand for housing. You want to increase your loan originations and come up with some creative loan programs that include no down payments and no or easy qualifying. To implement your creative loan programs, you increase your advertising, hire telemarketers and offer financial incentives to loan brokers if they will bring their borrowers to you. Through your bank, the loans are underwritten, funded and sold off to Wall Street investors. You receive a big fat bonus at Christmas for your marketing prowess. If and when the market changes and a few borrowers or investors get hurt, you can always blame the mortgage broker.

Mortgage brokers did not think up the slick, high-risk loan programs implemented over the last few years but they are now taking all the flack for the results. These programs were conceived, promoted, underwritten and funded by large national lenders and then sold to Wall Street investors. Now some big banks see an opportunity to eliminate their competition by having Congress regulate the mortgage broker out of existence. National banks have always had a love/hate relationship with mortgage brokers who have greater success at loan originations despite their smaller size, money and influence.

Mortgage brokers are already regulated by both state and federal agencies while most national lenders are exempt from any state licensing requirements. The National Association of Mortgage Brokers maintains that mortgage brokers and bank loan originators should be treated equally. I agree, lenders came up with these goofy loan programs. It’s unfair to now say that everything would be just fine if the brokers hadn’t messed it all up.

Is the worst over?

2007-11-09T08:03:00.000-08:00

The trauma of foreclosure or impending foreclosure has hit home for nearly 1.4 million homeowners so far this year, maintaining the nearly 91 percent year to date increase versus the last year. That’s according to the latest numbers from California-based ForeclosureS.com, which has been analyzing and publishing real estate and foreclosure data for more than 15 years.

For the month of October nationwide 54,418 REO (Real Estate Owned by lenders, newly foreclosed homes) filings were reported to ForeclosureS.com (up nearly 24 percent over the 43,941 September filings). A total of 128,019 pre-foreclosure filings were reported for October (up nearly 31 percent over 97,984 September’s filings).

These are grim numbers for the hundreds of thousands of homeowners trapped by rising mortgage payments, stagnant home prices, and tightened credit markets. “But all is not gloom,” says Alexis McGee, president of ForeclosureS.com.
“However, remember that in September nationwide both REO filings (43,941 versus 55,952) and pre-foreclosures filings (97,984 versus 117,694) were down over August (16.75 percent and 21.47 percent respectively). When you average September and October filings, you find that pre-foreclosure filings have actually leveled off (down 4 percent) since August (113,001 current versus 117,694 August) and REO’s have actually dropped significantly (down 12 percent) from the high August filings (49,179 current versus 55,952 August).”

“Although tens of thousands of other homeowners are `in foreclosure' most have not lost their home to foreclosure, as they have found solutions to their mortgage woes, ranging from workouts through lenders or other private and public organizations to rising home prices that make refinancing and home sales plausible, and growing local and national economies,” adds McGee.

Just last week, the U.S. Commerce Department reported the nation’s economy grew at a faster than expected 3.9 percent in the third quarter. Combine that with the 3.8 percent second-quarter GDP, and our economy is experiencing the strongest national growth rate in four years. And the Labor Department just reported that the economy turned out 166,000 new jobs in October vs. the 80,000 consensus forecasted. All that has happened under the cloud of the subprime mortgage industry meltdown!” No matter the hype you hear the pattern of foreclosure and pre-foreclosure filings that climb month in and month out in every state has been broken, says McGee. “Overall national foreclosure-related numbers may sound high, but the 91 percent year over year increase is in relation to historic base lows. In addition, every month there’s a bit of good news on the foreclosure front. Individual states and regions are reporting flat or dropping numbers of foreclosure and pre-foreclosure filings. That’s sometimes a tough-to-see reality amid what can be overwhelming numbers. For some areas the worst of the foreclosure crisis could be over.”

What about Larry?

2007-11-07T08:40:00.001-08:00

I have been ordering appraisals from Larry for the last ten years. Larry is a licensed appraiser and a member of the Appraisal Institute. Last week I called him to discuss a home’s value. A former client is refinancing an existing loan and was concerned that his property may not appraise high enough to allow the refinance.

“Hi Larry, have you had a chance to review the numbers on the Jenkins property? They really need $450,000 or they can’t do the loan.” “No problem Ken, it’s a stretch but I think I can hit their number.” “Thanks Larry, I own you one. I’ll buy lunch next Friday.” Did I break the new law against influencing appraisers?

Earlier this month, Governor Schwarzenegger signed into law SB 223 making it illegal to pressure appraisers to arrive at a predetermined property value that's been set by mortgage brokers or homeowners to ensure a sale or refinance goes through. The new law makes it illegal for a licensed appraiser to engage in "any appraisal activity in connection with the purchase, sale, transfer, financing, or development of real property if his or her compensation is dependent on or affected by the value conclusion generated by the appraisal."

Some housing experts believe that inflated appraisals have significantly contributed to the mortgage-meltdown crisis. The law is supposed to deter interested parties from putting pressure on the appraiser to reach a predetermined value on the property. The new law makes violators subject to punishment of license suspension or revocation with the potential of civil action.

The state isn’t alone in passing legislation designed to safeguard an appraiser’s independence. Congress is getting into the act. Under consideration is HR 3837, entitled the Escrow, Appraisal and Mortgage Servicing Improvements Act. If enacted, the bill would prohibit interference by loan originators in appraisals. The bill will ban all forms of “compensation, coercion, extortion, collusion, instruction, inducement, bribing or intimidation for the purpose of causing the appraisal value assigned to the property to be based on any fact other than the independent judgment of the appraiser.” The bill prohibits efforts to force appraisers “to hit a targeted value.”

The new appraisal protection law puts on the books what has always been understood between ethical professionals. Current standards of practice already prohibit an appraiser from accepting compensation based upon a predetermined value. The law’s enforcement will be difficult. Unethical behavior between two consenting adults is seldom made public. I don’t think you can regulate bad people. Bad people ignore the laws and bend the rules regardless of additional regulations. Who defines the degree of pressure put upon an appraiser? If before ordering an appraisal, I discuss my opinion of the property’s value with the appraiser using persuasive language, (please, please) have I committed a crime?

Lawmakers are over simplifying the problem if they believe the current market correction is the result of widespread collusion between lenders and appraisers on property values. Although there will always be unethical behavior, over-valued appraisals were a rare occurrence even at the peak of the market in 2005. The few that have been discovered are sensationalized. The high demand for homes drove inflated property values at such an accelerated pace it was difficult to know how high was too high. It all seems surreal two years later.

An appraisal is an art not a science. It’s one individual opinion of value and therefore subject to interpretation. The appraiser’s opinion of value is reflected in the appraisal report but it is always subject to further reviews and scrutiny. The lender’s underwriter always reviews the appraisal for accuracy and many jumbo or subprime loans are further reviewed by an in-house review appraiser or outside appraisal service. The buyer and the selling agent should always request a copy of the appraisal from the lender and have no hesitancy in asking questions about how the value was determined. Recently, I acted as an expert witness in a contested property settlement. The court reviewed four appraisals all completed within the past six months. Not only were they all different but the gap between the highest and lowest was over $100,000. In that case the judge had the final say on value.

As long as the financial success of an appraiser is directly linked to the mortgage broker’s success in closing loans, there will be the potential of influence and “hitting the number.” Despite the law’s intent, an appraiser who consistently appraises property values below the negotiated purchase price, therefore derailing the deal, need not be concerned about being overworked in the future.One way of preventing undo influence on an appraiser is to rework the appraisal ordering process. Currently, most appraisals are ordered by mortgage lenders, based upon a personal relationship. Removing the personal relationship may result in more objective opinions of value. Cal-Vet has a different approach to the appraisal ordering process. The mortgage broker does not order the appraisal. Cal-Vet orders the appraisal from an approved rotating list. I suspect that some large lenders may try the clearinghouse approach to ordering an appraisal thereby removing the mortgage professional from the entire process. But why stop there? Who’s next on the list for a listing? What bank is in line for the next loan? Good appraisers don’t need additional regulations to tell them how to do their job and bad ones won’t care.

Weekly economic news

2007-11-07T08:39:00.000-08:00

There was little to dislike about last week's tsunami of economic news. First, little of it was housing focused (which, unfortunately, is usually a good thing these days). Second, it was all generally positive.

Economic growth in the U.S. unexpectedly accelerated in the third quarter, powering ahead to an annual rate of 3.9%, the highest in a year. The rate baffled most experts, who were sure the economy was barreling toward a recession because of the tumult in the mortgage and housing markets and commercial-borrowing costs that jumped to six-year highs. I just love it when the economic experts are so wrong.

Just as important, the economic growth appears to be of the good inflation-friendly variety. Indeed, American employers added almost twice as many jobs as forecast in October. In addition hourly wages rose 0.2%, on average to $17.58 in October.
Recent good news on the inflation front allowed the Federal Reserve to lower its influential federal funds rate to 4.5% (which, to be candid, was universally expected).

Good news on inflation also translated to good news on mortgages. Prime rates are now trading at levels unseen in six months. According to Freddie Mac's weekly survey, the 30-year fixed rate loan averaged 6.26%, the 15-year fixed-rated loan averaged 5.91%, while the five-year Treasury-indexed hybrid adjustable-rate loan averaged 5.98% for the week. Points ranged between 0.4 and 0.6.

Naturally with all the good economic news, consumer confidence fell to its lowest level since October of 2005 along with a big sell-off of stocks last Thursday. Although the third quarter gain in real gross domestic product (GDP) of 3.9 percent was stronger than market forecasts, the housing market has subtracted from GDP growth over the past twenty-one months. In its most recent policy announcement, the Federal Open Market Committee noted that the rate of expansion in the economy will most likely slow in the near term, due in part to a reflection of the intensity of the housing correction.

Excess Inventory drives prices down

2007-11-07T08:37:00.000-08:00

You have probably noticed that there is a lot of homes with a “For Sale” sign in their front yard. Homebuyers have the largest selection of locations, styles and price ranges available in years but only a few are taking advantage of our “buyers market.” What’s up with that?

It seams that the more properties for sale, the fewer sales are taking place. Excess inventory of anything will drive down prices. Buyers have no sense of urgency, believing that if they hold off, home values will drop further. They could be right? Or not.

A 6-month supply of homes fro sale is considered a normal market by housing experts. Over a 6-month supply and it is a buyers market. Less than 6-moths a sellers. In 1995 Sacramento County had a 16-month supply of homes available for sale. Today Sac. has about a year’s supply of unsold homes. In 1996 the unsold index dropped quickly to just below 8-months and kept falling to its lowest point in 2003 at under 2-months. Each month that inventory fell prices climbed. It was a quick turnaround that surprised many. This is my fourth market correction in 35 years of practice. (I received my real estate license at age 12.) If history is any indicator of future performance, no one can predict when our excess housing inventory will decline but we can rest assured that it will.

That was then......

2007-11-07T08:33:00.000-08:00

With all of this bad news on the California real estate market, you would think that most sellers got the memo that things have changed. Apparently, there are still some sellers who think it is still 2005, and that none of these things effect them. So here are some examples about how things have changed since that 2005 market. Maybe some sellers will get a clue.

Then: Hoping for multiple offers on your home Now: Hoping for multiple showings (i.e., more than one) a month

Then: Buyers writing cute, heart wrenching letters about how badly they want the house Now: Sellers writing desperate, heart wrenching letters to potential buyers hoping they buy the house
Then: Listing agents putting a “Coming Soon” sign rider as soon as the sign goes up Now: Listing agents putting a “Price Reduced” sign rider on as soon as the sign goes up

Then: Sellers informing buyers that they will look at all offers a week from Tuesday at 4:00 PM Now: The lender informing the sellers that their home will be sold a week from Tuesday at 4:00 on the courthouse steps

Then: Smug Realtors telling someone who works at Starbucks that they don’t make enough to qualify to buy a home Now: Desperate Realtors working at Starbucks learning that they don’t make enough to refi out of their option ARM

Then: Sellers worried when their home is on the market for more than 5 days Now: Sellers relieved that their home was only on the market for 5 months

Then: 30 year old homes with green shag carpeting and harvest gold appliances are “retro cool” Now: 30 year old homes with green shag carpeting and harvest gold appliances are Expired Listings

Then: Sellers want to interview 3 top producing realtors to list their home Now: Sellers have a
hard time finding 3 top producing realtors

Then: Homeowners using their home like an ATM Now: Homeowners realizing their home is overdrawn

Then: Appraisers doing drive by appraisals, not even bothering to go inside the house since values are going up Now: Appraisers doing drive by appraisals and not going inside the house because they want to avoid getting beat up by angry, unhappy sellers

Then: Buyers buying houses “as is”, with minimal to no inspections Now: Buyers getting 27 inspections, including soil samples, air samples, written interviews with neighbors, deposition style interrogation of sellers over the disclosures, satellite images (from multiple angles at different times of day), and a comprehensive inspection from that hyper guy on Extreme Home Makeover

Then: Buyers having a minister or family priest bless the house after they close Now: Sellers having a minster or family priest perform an exorcism on the house after it has sat on the market for 8 months.

Rgional default rate

2007-11-01T07:17:00.000-07:00

During the last quarter, 6,638 homeowners in our six-county capital region, received official notices from their lenders that their mortgage was in default. A NOD (Notice of Default) is the first step in the foreclosure process. It’s going to be filed in the county’s recorder’s office when homeowners stop making payments. After a NOD is filed, the homeowner has 90 days to bring their payments current or they loose the property to a foreclosure. Most delinquent homeowners are able to cure the default if they take necessary action.

In our region during July, August and September there were 2,772 foreclosures. Sacramento County was hit pretty hard. Seventy-five percent of all defaults and foreclosures occur in Sac County. El Dorado County recorded only 4 percent of the regions defaults with 278 notices of default for the third quarter and 15 foreclosures. Placer County reported 10 percent of the defaults and foreclosures with 728 NODs and 294 foreclosures.

Most foreclosures occur in places where people don’t want to live. In Sacramento, the zip code 95832 (Meadowview in south Sacramento) ranked among the highest areas for foreclosures in the state. Lathrup’s 95330 in San Joaquin County was along side Meadowview as was the city of Parris in Riverside County.

According to DataQuick 24,200 homeowners lost their home during the third quarter and 75,000 received their notice of default. That was the highest number ever recorded. Most of the loans that went into default were purchased or refinanced in 2005 and 2006. Half of all foreclosures statewide are in the central valley or Riverside/San Bernardino counties.

It’s probably going to take some time to sell off all the foreclosures at our current sales pace. The six-county region recorded 7,791 new and resale closed home sales for the quarter along with the 6,638 notices of default.
Our real estate market is not going to improve until the number of default notices decrease. When that happens for two consecutive quarters we will be on the way to a stable market.

Halloween

2007-11-01T07:15:00.000-07:00

Now, some interesting information about Halloween. The observance of Halloween, which dates back to Celtic rituals thousands of years ago, has long been associated with images of witches, ghosts, devils and hobgoblins.

Over the centuries, the holiday changed from a deeply religious day of respect for people canonized as saints to a day of remembrance for all the dead and the end of the harvest and the onset of winter. Fairies and witches were said to herald the changing of seasons twice a year. People who chased the fairies used to carry turnips carved to hold candlelight, which changed to pumpkins because they are easier to carve. Witches would gather for parties, arriving on broomsticks with black cats at their sides who carried the spirits of the dead. Trick-or-treats began as far back as 370 A.D., according to The Holiday Spot, with gangs of boys good-naturedly calling upon farms for treats, and causing mischief if no treats were given.

In the U.S. the first official citywide Halloween celebration occurred in Anoka, Minn., in 1921. Today, Halloween is the most celebrated holiday next to Christmas, and Americans are spending more and more money for Halloween costumes, tricks and treats than ever before. According to the National Retail Federation, consumers are expected to spend $5.07 billion on Halloween this year, up slightly from $4.96 billion in 2006 and $3.29 billion in 2005. That's about $64.82 per person.

Halloween customs and rituals have changed, but parties, games, pranks and going door-to-door are as big as they were several hundred years ago when Washington Irving wrote, "The Legend of Sleepy Hollow." Though largely marketed as a evening of fun for children, adults are increasingly making the holiday their own. About one-third of adults will dress in costume, throw a party and/or take their children trick-or-treating. They will spend $1.57 billion on candy (about 94.7 percent of consumers), $1.39 billion on decorations, and about $1.82 billion on costumes, including those for pets. The adult age group most likely to celebrate are those aged 18 to 22.

The U.S. Census estimates that approximately 36.1 million children (the estimated number of potential trick-or-treaters in 2006) aged 5 to 13 were available for trick-or-treating in 2006. They have about 109.6 million doorbells to ring, the number of occupied housing units in 2006. Luckily, about 93 percent of those households consider their neighborhood safe, says a 2003 study. To get ready for the holiday, about one billion pounds of pumpkins were produced in 2006 and their value was about $101 million. About 1,198 U.S. manufacturers produced chocolate and cocoa products in 2005, employing 38,718 people and shipping $13.6 billion worth of goods. California led the nation in the number of chocolate and cocoa manufacturing establishments, with 128, followed by Pennsylvania, with 121. Out o 477 nonchocolate candy makers, 73 were in California. Americans ate about 26 pounds of candy in 2006, most of it around Halloween.

Just for fun

2007-11-01T07:14:00.000-07:00

Just for fun, you may want to look at my revised web site at www.kencalhoon.com. Searching for a home is easier and offers more options. You have always been able to search for all properties listed for sale in Sacramento, Placer and El Dorado Counties but I have added Yolo, San Joaquin, Stanislaus and Merced. Lets say you want to see what properties are listed for sale in Atwood. Just go to my web site and click on “Search for your next home.” That will take you to every property listed for sale in the seven counties including all foreclosures and bank repos.

My new site will also allow you to sign up and receive all the information on any new listings in any area.

Then if you have the nerve, click on my newly added Zillow feature and get a zestimate on your home’s value. Zillio will show you a graph of your neighborhood property values and show you what’s happened to your property’s value over the last year.

I have found Zillow’s zestimates to be more accurate in populated areas than in rural more remote parts of the region and some of their comparables are not accurate matches but it is interesting.

Fed cuts rate again

2007-11-01T07:11:00.002-07:00

The Federal Reserve yesterday lowered its target rate for the federal funds rate to 4.5 percent and slashed the discount rate to 5 percent.

The 25-basis-point reduction in both short-term rates was less drastic than similar action the Fed took last month as a response to financial market disruption stemming from losses in mortgage lending, but was in line with many analysts' expectations.

On Sept. 18, the Fed slashed 50 basis points off both the federal funds rate -- the rate banks charge each other for overnight loans -- and the discount rate, the rate the Fed charges for direct loans to banks. Mortgage Bankers Association Chief Economist Doug Duncan said earlier this month he anticipated a 25-basis-point reduction in the federal funds rate in October, and predicted it could be the last adjustment needed to reach a "neutral" position that allows for moderate growth while keeping inflation in check.
In a statement announcing today's decision, members of the Federal Reserve's Open Market Committee said much the same thing -- that "after this action, the upside risks to inflation roughly balance the downside risks to growth."

Economic growth was solid in the third quarter and strains in financial markets have eased somewhat on balance, but the Fed said it expects the housing downturn to intensify, slowing the pace of economic expansion in the near term.

Analysts who fear the housing downturn will lead to a recession were hoping for another 50-basis-point reduction in the federal funds rate, but the Fed has to weigh consequences such as further weakening of the dollar and inflation.

Where did all the people go?

2007-11-01T07:11:00.001-07:00

The U.S. Census Bureau reported growth in the share of vacant homes, from 16.6 million units in third-quarter 2006 to 17.9 million in third-quarter 2007. Vacant homes accounted for 13.1 percent of the nation's estimated 126.2 million housing units in third-quarter 2006, compared to a 14 percent share of the nation's 128.2 million housing units in third-quarter 2007.

Empty homes are of special concern to home builders, who have been laboring to unload their unsold inventory during this housing slump.

Easements

2007-10-29T08:45:00.001-07:00

Q: My neighbor recently extended a retaining wall for a driveway and encroached upon our property by a distance of 12 inches by 9 feet. We had our property surveyed three weeks after the construction and discovered this.

Our neighbor proposes that we settle the problem by providing him with an easement for this use. What would be the implications in this for us?

A: The issue you face is quite common. Frequently, neighbors do not know the exact location of their lot lines. Other times, contractors doing work for the homeowners fail to follow the property lines when making improvements to homes.

The most common problem between neighbors has to do with the installation of fences. Depending on the configuration of the lots, bushes, trees, other obstacles and the location of the home on each lot, neighbors frequently pick a line that usually ends up on one neighbor’s side of the property by a couple of inches to a couple of feet.

If your neighbor had come to you to ask whether he could install the retaining wall on part of your property, would you have agreed? If you would have been fine with his request, you have nothing to lose with giving him the easement. If you would have objected, you now have a decision to make.

The easement your neighbor requests will give them the right to keep the retaining wall on your property without your ability to have them remove it in the future. If you’re planning to sell your home, the easement would also make sure that your buyer couldn’t require your neighbor to remove the wall.

If you go the easement route, you need to make sure that there are provisions in the agreement that state that the neighbor is required to maintain the wall and pay all costs associated with the wall. You could have a provision in the document that would require your neighbor to remove the wall in the future if it needs replacement.

A real estate attorney can assist you in the drafting of the easement agreement. Your neighbor should pay all of the expenses having to do with preparing the easement agreement and having the document recorded.

One issue that you have to consider is the impact the wall has on your property. If the impact is not noticeable, there may have been no harm done by your neighbor. If your lot is narrow and the impact of the wall is large, and having the wall could alter the value of your property, you’ll need to decide how to proceed with your neighbor.

Now, let’s look at the other side. Assuming that you would not have allowed your neighbor to build the retaining wall on your property, even if your neighbor had good reasons to do it that way, you can now require the neighbor to remove the wall from your property or request that he pay you a lump sum for the privilege of having the wall on your property.

You can even structure the easement agreement to have your neighbor pay you an annual fee to keep the wall on your property. If he innocently built the wall on your property, you have him in a rough spot. It’s probably would not be very neighborly of you to demand payment from him or to have him remove the wall, particularly if it does not impact your home, but you might have the right to do it.

You have to decide what you want to do. If your neighbor made an innocent mistake, and you charge him for the easement or make him take down the retaining wall, he could be a less-than-friendly neighbor for many years to come.

On the other hand, if your neighbor just decided to build the wall and didn’t even consider whether he would be on your property, and you’re not all that neighborly to begin with, you may make a different decision.For more information on your legal rights or to draft the easement agreement, consult a real estate attorney.

Most and least expensive place to live

2007-10-29T08:44:00.000-07:00

Each year Coldwell Banker surveys the national housing market to discover the most and least expensive places to live. Their example is a 2,200 square foot home with four bedrooms two-and-a-half baths and a two-car garage. The survey of 317 housing markets found Beverly Hills was the most expensive. A home meeting their sample criteria would cost $2.21 million. In Killeen, Texas that same home would cost $136,725. In Sacramento that home would be $380,625.

Sacramento was the most affordable housing markets in the U.S. It ranked 121st. in the affordable housing survey where the average price for that sample home was $422,343.

Eight of the top ten most expensive housing markets are in California. Greenwich, Conn. and Boston were the only areas outside California to make the top ten. The sample home in Greenwich would be $2 million and in Boston $1.3.

The most expensive international market is Dublin, Ireland where the average price for the sample home would be $2.13 million and Milan, Italy at $1.19 million.
Bob Bronswick, president of Coldwell Banker Sacramento Region said about the survey, “Our area remains a very desirable housing market. We benefit from a good job market, excellent schools and universities and a quality of life that is hard to beat.” Bob is a little off there. Our housing market isn’t very desirable right now or we would be having more sales but he and the survey makes a good point, that the region offers good value in comparison to the national housing market. Once we all get through this market correction, Sacramento is in a position to return to a very attractive market for homebuyers.

Employment gains for Capital Region

2007-10-29T08:41:00.000-07:00

The housing market is blamed for the slight increase in unemployment for the month of September. There are a few less construction worker and mortgage lenders in the area and I suspect many real estate agents will start looking for a steady paycheck. Still, jobs in other sectors grew and the Sacramento region added 1,700 new payroll jobs for the month. The labor department does not account for us who are self-employed.

The state continued to add 9,300 new people to payrolls although the positions were not in construction, which lost 29,000 jobs since last year. Statewide unemployment increased a tenth of a percent, to 5.6 percent according to the Employment Development Department. A year ago the rate was 4.8 percent.

Besides another off year for real estate the rest of the economy is doing historically well. “For the most part, we’re not seeing the loses spreading to other industries at this point.” Said David Lyons, a labor consultant for EDD. That’s must be with the exception of real estate sales, lending, construction, hardware sales and anything else having to do with real estate.

If I were an unemployed construction worker, I think I would start thinking about the San Diego region. The devastating fire and loss of 1,700 homes will require skilled workers.

Frightening September sales for El Dorado County

2007-10-29T08:35:00.000-07:00

September was a frightening month for local agents and their sellers. Home prices and there numbers tumbled. The 111 monthly sales reported by the El Dorado County Association of Realtors, dropped 33 percent from August and 22 percent from September of last year. It was the slowest month for escrow closings since March of 1997. Three years ago, September’s sales were 168 percent higher than last month. The average selling price for county homes closing escrow at $491,000 was a 5 percent decline from August and a $67,000 drop from September of 2006.

El Dorado Hills is normally credited with holding up the county’s average home prices. Last month it didn’t happen. Usually one-third of all county home sales take place within EDH and the number of high-end and multi-million dollar sales prop-up the county’s average price. September sales in El Dorado Hills, fell 39 percent while the average priced dropped $143,700 from $781,348 in September of 2006 to $656,000 last month. The area reported 28 sales, 4 in excess of a million dollars. A year ago there was twice that many. With 475 current listings, the area has no shortage of homes available. The drop in monthly sales pushed the supply levels to a record high of 17 months.

Cameron Park didn’t fare much better than its neighbor down the hill. Currently, Cameron Park has 200 homes for sale. There were only 13 homes sold during the month. The average listing price for a home is $485,000 while the average selling price last month dropped $110,000 from a year earlier to $408,000.

The Shingle Springs, Rescue/Luneman area has 123 homes for sale. Seven sold last month with an average price of $650,000. The Diamond Springs/El Dorado area has 170 homes currently listed for sale. Fifteen sold last month with an average price of $351,000.

The greater Placerville area is usually the third most popular destination for county homebuyers following Cameron Park. That changed last month. Placerville not only had 60 percent more sales than Cameron Park but the average selling price at $432,138 was $24,000 higher. Last year during the same month the average selling price was $384,500.
The area has 176 homes for sale.

Pollock Pines/Sly Park was another area that reported higher selling prices than a year earlier. There are currently 220 residential listing in the Camino/Cedar Grove, and Pollock Pines/Sly Park area. Sixteen sold last month for an average price of $427,700, which was $77,000 higher than September of last year. The Georgetown Divide currently has 170 homes for sale and 7 closed escrow last month with an average price of $450,000.

At our current sales rate, the county has a 14-month supply of homes available provided no new listings come on the market. An unlikely event. Although the number of county residential listings has declined 11 percent from last year, the decreasing inventory isn’t enough to offset the declining rate of sales. A six-month supply of homes is considered balanced so we are definitely lopsided in favor of buyers.

Most the county’s new home sales occurred in El Dorado Hills. The Folsom based research firm Gregory Group, reported 49 new county home sales for the third quarter and 31 were located in El Dorado Hills. The average selling price of $725,500 was 10 percent below last year.

I expect even slower sales and weaker sales prices this fall and winter. The usual September buyer’s rush never happened. October isn’t showing any improvement. Many buyers are waiting on the sidelines for the next calamity to befall the housing market. Others who would like to move into the county are struggling to sell their existing home. Most housing economist are predicting more of the same through much of 2008. In light of the current and anticipated market, I am continually amazed to see many over priced listings and unrealistic sellers.

Last week a lady e-mailed me about what I thought she needed to do to sell her house. The house had been on the market for a year without any activity although she had consistently reduced the listing price several times over the past year. Should she change her agent? Let the listing expire and re-list the property after a rest? Drop the price another $10,000? Her situation is typical of many sellers who have initially listed their property too high and then have been gradually reducing their listed price. Their price reductions, however, never catch a receding tide. My suggestions included a major price reduction of 25 percent off the current listed price. If she was not prepared for a significant price reduction, she should not sell and rent the property or not sell and hold until the market improves. This is not a market for the faint hearted. Trick or treat.

Statewide sales report for September

2007-10-29T08:33:00.000-07:00

The sales rate of previously owned single-family homes fell 38.9 percent in September compared to the same month last year, while the median price declined 4.7 percent and the months' supply bloated to 16.6 months, the California Association of Realtors reported last week.

Colleen Badagliacco, association president, said in a statement that the year-over-year drop in median price -- the first in more than 10 years -- "was mainly the result of the credit or liquidity crunch, which also drove sales below the annualized 300,000 mark." A more normal yearly number would be 500,000-550,000. This rate is a projection of a monthly total over a 12-month period, adjusted to account for seasonal fluctuations in sales activity. Last year statewide sales were slow at 450,000 units.

She also stated that California relies more heavily on jumbo loans, which are loans above a federally established conforming loan limit of $417,000, than many other states because home prices in the state typically exceed that amount. "This speaks to the need to raise the conforming loan limit in higher-cost states like California to more accurately reflect the cost of housing," she stated. Conforming loan limits will be increased by the end of the year. The big question is how high?

The national sales rate of single-family resale homes hit its lowest level in about 10 years in September and fell 19.8 percent compared to September 2006. Also, the median U.S. single-family resale home price dropped 4.9 percent year-over-year in September.
Leslie Appleton-Young, chief economist for the California Association of Realtors, said in a statement, "While the entry-level portion of the market has been adversely affected by the subprime situation and tighter underwriting standards for much of this year, the high end of the market also saw a decline in sales, as even well-qualified buyers were affected by the lack of funds available for jumbo loans."

The median price of an existing, single-family detached home in California was $530,830 in September, compared with $557,150 for that month last year.
The Unsold Inventory Index, a measure of the months needed to deplete the supply of for-sale homes based on the sales rate for a given month, skyrocketed from 6.4 months in September 2006 to 16.6 months in September 2007. A supply of six months is generally considered to indicate a buyer's market.

Thirty-year fixed-mortgage interest rates averaged 6.38 percent in September, compared with 6.4 percent in September 2006, according to Freddie Mac, while adjustable mortgage interest rates averaged 5.66 percent in September compared with 5.56 percent for that month in 2006. The interest rates have continued to fall into October. We are not under 6 percent yet but getting closer.

The 10 California cities and communities tracked in the report with the lowest median home prices in September include: Barstow, $163,000; North Highlands, $178,500; Ridgecrest, $180,000; Joshua Tree, $182,500; Yucca Valley, $200,000; Porterville, $202,500; Tulare, $224,000; Madera, $236,250; Crestline, $240,000; and Tehachapi, $243,750.
The 10 cities and communities tracked in the report with the highest median home prices in September include: Newport Beach, $1.44 million; Los Gatos, $1.23 million; Cupertino, $1.05 million; Danville, $1 million; Redondo Beach, $847,500; San Clemente, $830,000; Yorba Linda, $825,000; Arcadia, $805,000; San Rafael, $797,500; and Santa Monica, $796,500.
The 10 cities and communities with the largest decline in median home prices from September 2006 to September 2007 include: North Highlands, down 33.9 percent; Oakdale, down 33.8 percent; Arroyo Grande, down 29.8 percent; Patterson, down 29 percent; Los Banos, down 28 percent; Merced, down 27.8 percent; Spring Valley, down 26.5 percent; Elk Grove, down 25.6 percent; Ceres, down 25 percent; and Santa Ana, down 24.7 percent.

The 10 cities and communities with the greatest median home price increases in September compared with the same period a year ago were: Tustin, up 19.7 percent; Los Angeles, 18.2 percent; Arcadia, 14.2 percent; Carlsbad, 11.1 percent; Laguna Niguel, 10.1 percent; Diamond Bar, 8.7 percent; Cupertino, 8.4 percent; Redondo Beach, 8 percent; Reedley, 7.1 percent; and Newport Beach, up 6.3 percent.Merced, Santa Barbara, Stanislaus, San Joaquin, El Dorado, Monterey and Santa Cruz counties had median-price declines above 15 percent in September compared to September 2006, according to the report. Santa Clara County had the highest year-over-year median-price gain in September, at 3.4 percent. Other counties tracked by the report with price gains include Marin, San Francisco, Los Angeles and Contra Costa counties

Converting home shoppers to buyers

2007-10-20T10:09:00.000-07:00

A number of studies have been made attempting to determine how buyers go about finding the right home. The print advertisers believe homebuyers will choose a local newspaper or home magazine and begin previewing written ads or pictures of properties. The Internet companies believe homebuyers will begin their search online. Many web sites download the listing information from the MLS and the information is available to their visitors. Some buyers, who know the specific area where they want to live, drive the neighborhood looking for “For Sale” signs and open houses. All the research confirms one thing. Homebuyers don’t start the home buying process by walking into a real estate office or calling an agent and saying “I want to buy a house.” Why not?

In an attempt to attract business, real estate companies spend thousands of dollars renting strategically visible locations. Yet, many homebuyers feel visiting a real estate office is akin to a visit to the dentist’s office. A stranger is going to be poking around sensitive areas. It’s going to hurt and it will costs money. “Hey, doc, that’s a long needle!” “Rest easy, you will only feel a little pressure.”

Nobody wants to feel pressure from a needle or a salesperson. We naturally avoid pressure situations which occur when we are about to make a major decision like which wine to order with dinner, paper or plastic and should we hit a soft sixteen when the dealer has a face-card showing. Since buying a home is the largest major decision most of us will make, it warrants serious consideration. If we don’t like its aroma we can’t ask the sommelier to take it back.

Buyers enjoy the anonymity, control and convenience they have when shopping on-line or at the kitchen table. Some buyers will take extronary precautions to avoid the stress of speaking with an agent and accelerating the home buying process. At some point, however, a buyer will reluctantly make that call to an agent in order to move the process forward. There are steps agents and buyers can do to remove much of the stress and pressure of buying a home.

Shopping for a home may not be as fun as visiting Disneyland but it should be at least an interesting and rewarding experience. Homebuyers have an opportunity to discover new homes and places while meeting friendly or at least interesting people. Many avoid the experience for fear of being pressured into a decision. The pressure of making a major home buying decision can be easily removed when homebuyers and agents agree in advance not to buy any home on their scheduled tour.

Once my clients get their seat belts adjusted, I have a routine explanation of the days showing process. We are going to have fun and get acquainted. I will answer all your real estate questions. We will not be measuring closet space for a home that you will not buy. We will pass up looking at a home if it’s in an area you do not like. We will not show excitement about a home you like, if the seller is there. I will not follow you around the house pointing out oblivious features. We will not buy a home today.
By not allowing buyers to sign a purchase agreement on a home on the same day they preview, removes all the pressure of making a buying decision. Buyers feel more relaxed and receptive to the experience. They have an opportunity to focus on their lifestyle preferences than having to make a decision on a specific property. It tweaks the sales agent image to one of counselor/advisor. The second showing on a home of interest is more important than the initial one. Every home has a story and between the first look and the second or more, allows an agent time to discover the “story.”

The standard California Association of Realtors (CAR) purchase agreement provides for many opportunities (contingences) for the buyer to pull out of the agreement and cancel escrow. Standards of practice should provide buyers an additional one. No buyer should be allowed to sign a purchase agreement until they have inspected a home at least twice and 24 hours have elapsed since their first viewing.
When an agent understands that a client will not be making an immediate buying decision, it relieves their guarded expectations. It allows them to focus more on the relationship with the client rather than nudging a client into a decision on a specific property. All parties are more comfortable with the process and more home shoppers would turn into homebuyers.

No easy quick sales?

2007-10-18T08:37:00.000-07:00

A reader writes: I have a friend that brought a JTS home in Wilton. He cannot afford the house payments, one is $400,000, the second is $20,00.00, both mortgages are through Countrywide.

He is now going to do a Quick Sale, where he states he stops paying on the mortgage and the real estate person takes care of everything. I read one place that the short sale is 60 to 90 days. He states they have 6 to 9 months and they don't have to make any payments on the house. Is this a better solution than foreclosure? Will this ruin his credit? What happens with IRS?

Thank you for your information. You can answer back in your daily letters. We really enjoy your articles. Mary Anne

Hi Mary Ann,

I haven't seen any "quick sales" since 2005. We have long-sales, no sales and short sales but no "quick sales." You’re probably referring to a short sale. As for the real estate person taking care of everything, your friend has misunderstood the agent's explanation of the situation or must believe there is a tooth fairy. No lender is allowing borrowers to skip 6 to 9 months of mortgage payments without consequences. Your friend needs to get a second opinion and/or get some understandings in writing. When homeowners can't make the house payment, it clouds their thinking. They sometimes get desperate and start believing in miracles.

Short-sales will commonly show up on future credit reports as a foreclosure, deed-in-lieu (of foreclosure) or charge-offs. They will all affect his credit for at least 3 to 5 years. No lender is going to be stupid about making another loan to a borrower who has recently defaulted on the last one. It will also drop his FICO credit score by 200 points. Missed house payment will also result in lowering your friend’s credit score and will remain on the credit report for a long time.

Many lenders will not allow short-sales. A short sale happens when the lender allows the home to be sold for less than the existing mortgage. The lender forgives the difference between the selling price and the existing debt. When there is a first and second loan on the property, short-sales are highly unlikely since two different investors must agree on the loan amounts to be forgiven.

Countrywide usually forecloses on homes rather than to wait around for a short sale. It’s usually faster than waiting for some potential buyer at some price to buy a $400,000 home in Wilton. What was your friend thinking? As with many lenders, Countrywide made the loan but sold it to an investment group. The investment group is now the holder of the note and will make the decision on whether to allow a short sale. I have seen lots of short sale listings but few short sales closing.

Congress is in the process of changing the law regarding the tax consequence of short sales. Your friend should check with his tax professional for advice on his specific situation. In the past, debt forgiveness was considered a taxable event and lenders issued a 1099 for the amount of the debt that was forgiven. There are no easy solutions without consequences to defaulting borrowers. Your friend should make sure he has looked at other possible solutions, like restructuring the existing debt, before looking for the tooth fairy.

I am not a crook!

2007-10-18T08:34:00.000-07:00

I have been ordering appraisals from Larry for the last ten years. Larry is a member of the Appraisal Institute and his valuations are accepted by all the lenders where I broker loans. Last week I called him to discuss a home’s value. I am refinancing a client’s loan and concerned if the property does not appraise high enough, my clients will not be able to refinance into a lower fixed rate mortgage.

“Hi Larry, have you had a chance to review the numbers on the property on Jenkins home? I really need $450,000 or I can’t do the loan.” “No problem Ken, it’s a stretch but I think I can hit your number.” “Thank Larry, I own you one. I will buy lunch next Friday.” Did I break the new law against influencing appraisers or was I helping my clients?

Earlier this month, California Governor Arnold Schwarzenegger signed into law, SB 223 -- making it illegal to pressure appraisers to arrive at a predetermined property value that's been set by mortgage brokers or homeowners to ensure a sale goes through. The new law also states that it makes it illegal for a licensed appraiser to engage in "any appraisal activity in connection with the purchase, sale, transfer, financing, or development of real property if his or her compensation is dependent on or affected by the value conclusion generated by the appraisal."
"This law helps deter some of the individuals from putting pressure on appraisers," says Michael H. Evans, real estate appraiser, Evans Appraisal Service and a Fellow with the American Society of Appraisers. But Evans is careful to add that it's only a start. "It'll help. It's not a cure all; I can guarantee you that."

The problem has been brewing for a long time and leaving appraisers and homeowners vulnerable. "Almost every order that would come through our fax machine would have some type of order on it saying, 'If it doesn't come in at this price, call me.' Or, 'If this doesn't make value, we don't want the appraisal.' We just send it back to them saying, 'Hey, we don't work that way. We're going to have to give you the value that it is; we can't change that and if you want us to work under those circumstances, we can't do the job for you.' And some of them go away, they'll try to find some who will," explains Evans.

But Evans says some appraisers fall victim to the pressure. "We have a lot of young appraisers … and they're hungry. You have some -- not all -- but just some unscrupulous lenders out there who are just hunting for a value. So the lenders go through the phone book looking for a young appraiser who maybe doesn't have the experience or the clientele and will do something that maybe he or she shouldn't do and lenders prey on them," says Evans.

The law now makes violators subject to punishment of license suspension or revocation with the potential of civil action. Evans says the new law will make will people think twice before they pressure an appraiser for a predetermined value on a property. It will also make appraisers who are tempted to accept the illegal offer recognize there are severe consequences.
As for homeowners, they too will stand to gain from this new law. "Homebuyers need to protect themselves by checking the credentials of everyone involved in the transaction and requesting that their assigned appraiser be state licensed and accredited by a national professional organization," says Evans.

He says that by selecting an accredited appraiser, homeowners will risk less because "accredited appraisers have got more experience and more to lose if they're succumbing to that type of pressure. They've invested more in their profession." Experts believe that inflated appraisals have significantly contributed to the mortgage-meltdown crisis. For that reason, numerous industry and consumer advocacy groups joined together to support the passage of the bill including: the Appraisal Institute, the American Society of Appraisers, the California Mortgage Bankers Association, the California Association of Mortgage Brokers, and the Fair Lending Alliance, and the Greenlining Institute.

The 2008 predictions begin

2007-10-18T08:24:00.000-07:00

It's not even Halloween and already industry experts are predicting the direction for the housing market next year.

The Mortgage Bankers Association says the housing slump will extend to the third quarter of next year and possibly into 2009. Maybe it's a good thing that any forecast includes a bottom. He says that existing home sales for 2007 will be about 5.72 million units for a 12 percent decline from 2006, and that existing home sales will slump 10 percent further before they pick up by five percent in 2009.

New home sales will be down 22 percent from 2006 to a total of 819,000 units and will soften 10 percent further in 2008. Things look brighter in 2009 with an expected rise in sales of six percent. For the first time national median home prices will decline two percent in successive years in 2007 and 2008 before going flat in 2009.

On the bright side, Duncan doesn't expect mortgage interest rates to go up much higher. A conforming 30-year loan today is about 6.4 percent and will climb to 6.6 percent by early 2008. It's a large "overhang" of inventory, coupled with tighter lending standards that are the cause of the continuing slump, he says.

To the rescue, the National Association of Home Builders Chief Economist David Seiders says that new home construction is at a 14-year low. "While there's no question that the housing down swing continues to be played out in markets across the country, today's numbers show that builders are pulling back on production until sales improve," says Seiders, "This is exactly what our latest builder surveys have told us. We do expect some additional downward movement in housing production going into next year, at which point starts should begin to stabilize as sales turn upward in the second quarter."

According to the U.S. Census housing starts in September were at a seasonally adjusted rate of 1,191,000 annually, over 10 percent below the revised August estimate of 1,327,000 and 30.8 percent below September 2006. New home completions are 31.1 percent below September 2006 at 1,391,000, including multi-family units.
Consequently, the builders' confidence index reached an all-time low of 18, meaning one in six builders feel conditions are favorable. The one in six must be on vacation in Hawaii.
While the National Association of Realtors forecasts similar slow rises in mortgage interest rates to the MBAA, the trade organization is more optimistic about home prices. Existing-home prices will probably slip 1.3 percent to a median of $219,000 in 2007 before rising 1.3 percent next year to $221,800, while the median new-home price should drop 2.1 percent to $241,400 this year, and then increase 1.0 percent in 2008 to $243,900.

Tax break for short-sale sellers

2007-10-12T08:04:00.000-07:00

A bill that would give homeowners facing foreclosure a tax break if their lender forgives part of their debt -- and make up for the lost revenue by raising taxes on sales of some second homes -- passed the House of Representatives.

HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would also extend the deduction for private mortgage insurance to 2014, helping home buyers avoid high-interest piggyback loans. Although the bill enjoyed bipartisan support in the House -- passing in a lopsided 386-27 vote -- some of its provisions are expected to be subject to further debate as the Senate weighs similar legislation.

The Bush administration supports amending the tax code so that debt that's forgiven as part of a foreclosure sale or loan modification isn't classified as income by the IRS. But the change should be temporary, the administration maintains, and Congress should not meddle with the rules for claiming a second home, vacation or rental property as a primary residence for tax purposes.

Giving borrowers a tax break on forgiven debt will cost an estimated $1.38 billion over the next 10 years if the change isn't temporary. Extending the deduction for private mortgage insurance is expected to reduce tax revenue by $570 million over 10 years. To make up for the loss, HR 3648 would reduce the size of the deduction some owners of second homes can claim on the gains from a sale if it was once their primary residence.

Under current law, married couples can claim a deduction of up to $500,000 on the sale of a second home if it was their primary residence for two of the five years before the sale. HR 3648 would tie the size of the exemption to the number of years a home is used as a primary residence -- raising an additional $2 billion in taxes in the next decade.
The administration says it will work to narrow the scope of the bill as the Senate considers similar legislation. Any differences between the two bills would have to be reconciled before they are sent to the president to be signed into law.
Mortgage Bankers Association Chairman John Robbins said extending the deduction for mortgage insurance premiums lowers the cost of a mortgage for low- and moderate-income borrowers, and urged the Senate to follow the House's lead.

Borrowers who engage in workouts with lenders "should not have to face a tax bill on the phantom income that results from debt forgiveness," Robbins said in a statement. "I hope the Senate recognizes the importance of this legislation and moves quickly to get it to the president's desk."

No hope for home prices in 2008

2007-10-12T08:02:00.000-07:00

Home prices throughout most of California will post modest declines next year while sales of existing homes will stabilize from the precipitous decrease experienced in 2007, according to C.A.R.'s "2008 California Housing Market Forecast" released yesterday.

The forecast was presented this afternoon during the CALIFORNIA REALTOR® EXPO 2007, running from Oct. 9-11 at the Anaheim Convention Center in Anaheim, Calif. The trade show attracts nearly 12,000 attendees and is the largest state real estate trade show in the nation.

The median home price in California will decline 4 percent to $553,000 in 2008 compared with a projected median of $576,000 this year, while sales for 2008 are projected to decrease 9 percent to 334,500 units, compared with 367,500 units (projected) in 2007."Tighter credit standards, affordability concerns, and a continued standoff between buyers and sellers will contribute to continued weakness in the market going into next year," said C.A.R. President Colleen Badagliacco. "Now is not the time for homeowners to test the waters, only serious sellers should put their homes on the market in what will continue to be a challenging sales environment."

Jobs Report

2007-10-12T08:01:00.000-07:00

Remember the old show "Get Smart", when bumbling secret agent Maxwell Smart would describe his latest major goof by holding up his fingers about a half-inch apart, and emphatically stating that famous line? In similar fashion...it appears the Department of Labor missed some recent job creation counts by quite a long shot.

Last Friday, the highly anticipated monthly Jobs Report arrived bright and early, showing 110,000 new jobs created during September, very close to what analysts had expected. But the real surprise was the upward revision to last month's shocking number, which had shown a LOSS of 4000 jobs in August. The revised number was a gain of 89,000 jobs, or a change of 93,000! That's right - the Department of Labor "missed it by that much."

The revised jobs report for August and the new jobs report for September, pretty much ended any speculation about a recession resulting from the housing market. Despite low sales and some construction industry layoff the overall job picture continues to do well.

I told you so. When the Commerce Department, mistakenly reported in early September the loss of 4,000 jobs in August, it was front-page material on the Sac Bee. The revised and new job numbers that came out last week was found on in a small article in the business section.

Title rates go on-line

2007-10-12T07:59:00.000-07:00

With California Insurance Commissioner Steve Poizner on hand to lend support, the California Land Title Association rolled out a new Web site Tuesday that the industry group said would help consumers shop for the best deal on title insurance.

At this time a year ago, groups representing title and escrow companies were doing battle with Poizner's predecessor, John Garamendi, and his proposal to roll back rates by $1 billion and impose rate caps based on the companies' expenses.
Like Garamendi, Poizner has said title insurers have marketed their product not to consumers, but primarily those who can refer business to them -- Realtors, lenders and builders. But Poizner has pushed back any implementation of rate caps to 2011, saying he wants to give the industry a chance to reform itself.

The Web site unveiled today, TitleWizard, is a centerpiece of the industry's efforts to increase competition by marketing to consumers, rather than real estate professionals. The site allows users to find local title companies and compare their rates and services.
TitleWizard's rate-generating software delivers comparisons that are specific to each transaction, and user data is not shared with any title company or third party, CLTA said in a press release. Information on rates is accurate and current because it is supplied by CLTA members, the group said. TitleWizard, developed by La Jolla, Calif.-based ClosingCorp Inc., is also intended to educate consumers about the closing process.

The site asks users for their ZIP code, purchase price, loan amount and property type. A TitleWizard query for a title insurance policy on a $600,000 property in Alameda County generated quotes from eight companies, ranging from $621 to $706.
CLTA President Margaret Foster said “the goal is to use creative technological solutions that empower consumers. TitleWizard will help Californians take advantage of comprehensive and accurate marketplace information." Yes, but will it deliver donuts to the office sales meetings?

Big bucks made in mortgage fraud

2007-10-12T07:58:00.000-07:00

One out of every 52 adult Californians has a real estate license. Most agents are honest and attempt to make a living selling homes or originating mortgage loans. The Department of Real Estate, DRE, has more licensed agents than at any time in its history. The recent market correction is now revealing another record for the DRE. The number of fraudulent sales and loan transactions committed by licensed agents over the past few years is keeping investigators working overtime.

Each quarter the DRE publishes hundreds of license violations, suspensions and revocations. Most are minor infractions and procedural errors, mistakes happen. An improperly filed form or earnest money deposit check handled incorrectly is grounds for a reprimand. With significant license violators, the DRE files a legal action to revoke or suspend a license. Last year was a record for DRE with 1,900 filings against licensed agents. Officials at the department expect even more formal filings this year.

What has been surprising to the department and industry officials is not the number of complaints against licensed agents but the astonishing dollar amount of the claims involved. There has always been the dishonest agent who pockets their trust account or the swindler who pressured some poor soul out of their savings. But the recent unveiling of organized fraud against lenders and sellers is reaching Enron proportions.

A federal grand jury in Sacramento returned an indictment last month, charging the primary owners of VFM Investment Group, Esnian Mortgage Realty and Freedom Capital Mortgage with bank fraud, conspiracy to launder money and making false statements on loan applications. The three defendants, James Martin, Mario Fellini, and Sal Gallo, are accused of a straw buyer mortgage fraud scheme involving 19 homes and more than $8 million in loans. If convicted, they could be sentenced for up to 30 years in prison. What were they thinking?

What they are accused of thinking works like this. The key requirement is finding a straw buyer with a good credit history in order to qualify for a loan. The buyer’s employment and income were not necessary since that can be falsified and neither was verified. The straw buyer is attracted by financial incentives on the purchase of the home. The buyer is assured they will never need to make a house payment, the deal will not cost them any money and after they sign the loan documents they will receive a portion of the broker’s commission or a flat fee. How’s that for a quick few thousands bucks?

If the straw buyers were concerned about their liability for the loan, they were assured that the house would be resold and the loan paid in full. What actually happens is after the loan closes the house is refinanced or additional cash extracted through a home equity loan, which may involve inflated appraisals. As long as property values keep climbing who cares, right?

Two former real estate agents of Prudential California Realty in Los Angeles used a different scam using bogus appraisals. Joe Babajian and Kyle Grasso were indicted by a federal grand jury claming that their actions contributed to $40 million in losses by federally insured banks. The indictment charges the defendants sent false documentation, including bogus purchase agreements and appraisals, to victim banks in order to deceive them into unwittingly funding loans for hundreds of thousands of dollars higher than the home was worth.

To work, this scheme requires the participation of the seller, a licensed appraiser and an in-house escrow company. According to the indictment, Grasso and co-conspirators Fitzgerald and Abrams, would enter into a purchase agreement with a seller for the market value of the property but with the condition the sellers and their agents would not reveal the purchase price. Then they would draft another purchase agreement on the same property for hundreds of thousands of dollars more than the real purchase price. Along with a dummy appraisal and other falsified documents, the bank would fund the loan for the higher amount. Guess who would pocket the difference between their real purchase price and the amount the lender financed? According to the indictment, Lehman Brothers Bank funded 80 such loans between 2000 and 2003 resulting in the loss of millions.

A Northern California broker has had a lot of explaining to do recently for his involvement in the sale of 21 homes in Elk Grove and Natomas raided this summer by the DEA for illegal gardening activities. Kevin Parker, an agent with Prudential California Realty acted as the buyer’s agent in all but five of the homes.

June Barlow, vice president and general counsel for the California Association of Realtors, said she was not familiar with the details of the case but said, “If you see something suspicious right in front of you, you might want to ask a few probing questions before you participate. One of the hardest decisions a professional faces is to walk away from a deal because it has too much risk or because there might be something inappropriate going on.” Good advice for all of us to remember.

Solving problems with problem properties

2007-10-05T07:48:00.000-07:00

The reason a home doesn’t sell is because it’s priced too high for its physical condition or location. The buyer’s reasons for not buying the home outweigh the positive reasons why they should. The challenge for a seller and their agent is to eliminate anything that could be considered a reason against buying while highlighting the positive features. Although a property’s location can’t be changed, its environment can be improved or modified. An objective evaluation of a property’s physical characteristics should be completed early, preferably before the property goes up for sale, in order to correct, improve or mitigate the issues by pricing the property accordingly.

There is an old saying among agents “Price cures all ills.” At some price, regardless of the extent of the property’s problem, someone will buy it, if it’s priced low enough.
Not every home for sale is in immaculate condition, sitting on a gorgeous large landscaped lot, located in a desirable neighborhood, beautifully decorated and priced ten of thousands of dollars less than similar listings. Specially challenged properties may require some additional creative thought and work to make them saleable in our current market.

Reducing the price of a home to compensate for whatever may be the problem is the easiest action for an agent and seller to take but may not always be the best. Some sellers are unwilling or unable to spend money or time on preparing their home for sale and some agents are not aware of the necessity. A significant price reduction can compensate for worn carpets or a dated design but I have found a buyer’s definition of “significant” is much different than sellers.

There are circumstances when a price reduction for a specially challenged property isn’t in the seller’s best interest. Most buyers will not consider specially challenged homes regardless of the price. If the reality of a home’s physical characteristics doesn’t match a homebuyer’s inner vision, they usually will not buy. Contractors, investors and flippers look at challenged properties differently but they are not players in our current market. I have watched physically challenged properties continue to languish on the market even after many price reductions because the listing agent or the seller refused to solve the existing problem.

Not every challenged property requires money to fix a problem. My clients liked the modular home on 10 acres in the Garden Valley area. The property had been vacant for nearly a year and currently priced $50,000 less than when it was first listed. My clients’ offer would be an easy sale. They had high FICO scores, a 20 percent down payment and had recently sold their home in Sacramento. There was only one problem…the modular was built prior to 1976 and no lender would finance it.

Financing a modular or manufactured home, even when attached to a permanent foundation, has never been easy. Modular homes are not a preferred property by most lenders. FHA and VA will finance them, IF (big if) they meet certain age and building requirements, which this one did not. After many turndowns, I called the listing agent to discuss the dilemma.

She was not surprised or sympathetic to know that there was no financing available for her listing. No, she had not checked for any alternative sources of financing. She told me, as the listing agent, it wasn’t her responsibility to find financing for “my” buyers. No, she had not discussed with the seller the possibility of “seller financing” and did not think he would be interested. She offered no suggestions on how she was going to sell a home that could not be financed but said she would probably reduce the price again next month.

The process of selling real estate is more than installing a “for sale” sign and showing properties. It is solving problems for buyers and sellers. This lady had been charged with the responsibility solving the problem of selling a property that could not be financed and had waited a year to address the situation.

Creative initiative is often required when marketing a specially challenged property. There are reasonable financial limits to mitigating the problem but a price reduction should not be the first and only response to marketing a difficult or non-conforming property.

The inspection period, after escrow has been opened, is not the time for suspected or non-disclosed issues to surface. Sellers and agents need to be proactive to eliminate any reason a buyer might have second thoughts about proceeding with the sale. Resolving issues early will not only help to sell the property but it will sell for a higher price.

Objectively is important when evaluating a property’s blemishes. Most homeowners cannot be objective about their family home and some agents will not for fear of offending a seller and loosing a listing. If “beauty is in the eye of the beholder” then it only makes sense to make a home as attractive as possible, which may include a little makeup.

"Democrates propose higher taxes on large homes"

2007-10-05T07:33:00.001-07:00

The Democrat chairman of a key congressional committee has provided new details on his controversial plans to deny mortgage interest deductions to people who own large homes.
Rep. John D. Dingell (D-Mich.), who as chairman of the Energy and Commerce committee is one of the most powerful leaders in the House, last Thursday unveiled a draft of his forthcoming "carbon tax" legislative reform package. As expected, the bill would "phase out the mortgage interest deduction on large homes."

Dingell defines large as 3,000 square feet or more of interior space. The draft language does not explain who will be responsible for measuring houses' square footage or how the federal government will audit compliance.

In a statement, Dingell said he is targeting big houses because they "have contributed to increased sprawl and longer commutes. Despite new houses in and of themselves being more energy efficient," he said, "the sheer size, sprawl and commutes lead to drastically more energy use-or to put it more simply, a larger carbon footprint."

In the draft released Thursday, Dingell offered a detailed phase-out schedule for the mortgage interest writeoff, beginning with houses of 3,000 square fee-which would lose 15 percent of their deductions-and ending with houses of 4,200 square feet and larger, which would receive no deductions at all.

Dingell defends his tax proposals as needed remedies to overconsumption and wasteful use of energy, which he argues are contributing to excessive greenhouse gas emissions and global warming. "In order to address the issues of climate change," he said, "we must address the issue of consumption-we do that by making consumption more expensive." Dingell's plans have drawn criticism from the National Association of Realtors and the National Association of Home Builders, both of whom questioned its practicality and its focus on square footage rather than energy efficiency and measured usage. The NAR estimated that roughly 10.4 million single family homes in the U.S. have more than 3,000 square feet, and represent 27 percent of the total valuation of single family units.

Tough loans for the self-employed

2007-10-05T07:30:00.000-07:00

Many of my clients are in business for themselves. Working at home reduces drive times and that cuts climate-changing greenhouse gas emissions, but the lifestyle, newly recognized as "green," is becoming the latest victim of mortgage market malaise. The other kind of "green" needed to keep a roof over a small home-based business is getting harder to find.

Home-based business owners, as self-employed workers, typically qualify for stated-income home loans (SILs) but SILs, so called "no-doc" (for no documentation) home loans, and other mortgages requiring little or less common documentation are in short supply.
Largely due to riskier "no-docs" that failed, lenders with portfolios heavy in the loans are struggling or have shuttered.That's putting the kibosh on SILs. What SILs are available come with stiffer underwriting rules and higher prices. To get the best home loans, home-based business homeowners need to heed these tips:

Put all your docs in a row. In addition to two or more years of tax returns, proof-of-licensing, business tax statements and other proof of self-employment, you should also get a professional accountant to sign off on a profit and loss or income statement. The document reveals home much money your business is making or losing over a specific period of time.

The documents can take time to gather. Begin well before you actually apply for a home loan, refinanced mortgage, equity loan or other financing that stakes your home as collateral
Watch those right offs. Home-based businesses are offered a plethora of tax write offs, from office supplies to special child care deductions and health insurance, but the deductions reduce the amount of income against which taxes are calculated. A smaller income makes it tougher to quality for a mortgage. Balance the reduced taxes advantage with the need for sufficient income to land a loan.

Use a savings strategy. The larger your down payment the better your eligibility requirements for the best, least expensive loan terms. If a lender offers a SIL it likely wants to reduce its risk.

Crank up your credit rating. Good credit has never been more crucial. Lenders have upped the credit score and credit report ante. Visit MyFico.com and learn what hurts and helps your credit score and credit standing. Keep tabs on your credit report, but only from AnnualCreditReport.com. Obtain one free report from each of the three major credit reporting agencies, spacing the reports so you get one report each trimester from a different agency. With the complex finances of a home based business -- startup costs, expenses, depreciation, investments -- it can take a lender time to sort through your application. Start early, be patient.

Placer County Tax Bills

2007-09-30T09:28:00.000-07:00

If your business is in the private sector and connected to real estate, sales are down and revenue is off from previous years. Federal, state and local governments, however are doing especially well with record tax receipts. Increased income and property taxes continue to grow our public sector. As an example:

Placer County residents will soon be receiving their annual property tax bill. The County Tax Collector, Jenine Windeshausen, mailed out 155,821 tax bills this week to owners of properties in Placer County. It was the largest mailing ever and an increase of 2.18 percent from the 152,821 bills mailed this time last year.

The county’s total tax bills including special assessments is $705.7 million dollars for the year which was an increase of 9.26 percent over last year.

The first installment of taxes is due for payment on November 1st. and considered delinquent if not paid by December 10. The second installment is due by February 1st. and considered delinquent if not paid by April.

Good report from Commerce Department

2007-09-30T09:27:00.000-07:00

Despite the current condition of housing market, the financial credit turmoil and a low consumer confidence survey last month, the Commerce Department had a good economic report released Friday. Consumer spending which drives two-thirds of the economy was up in August. It was the best showing in four months increasing 0.6 percent.

Not only was spending up, so was personal income increasing 0.3 percent. Then to top that, core inflation (after food and energy subtracted) was reported as only 1.8 percent for the year. That was the slowest year-over-year inflation increase since February of 2004. That should help to ease the long-term interest rates which have been increasing. The Fed’s comfort zone on inflation is between 1 to 2 percent. A big surprise was construction spending also increase 0.2 percent. What’s up with that?

Don’t look for the major news media to report on how well the economy is doing. It’s only when some poor soul has their home foreclosed upon, do you we see front page coverage.

Could we all just get along?

2007-09-30T09:04:00.000-07:00

Rules have been governing how we live within our neighborhoods since Adam and Eve frolicked at their Garden of Eden home. Their world abruptly changed when they didn’t comply with God’s rules on horticulture. God told them not to eat the forbidden fruit, which they did, for which he/she tossed them out of the garden for misbehaving.

About a half-million years later, Thomas Radcilff of Copper Cove Lake in Copperopolis, California, fell behind on his monthly homeowners associations dues. The Tulloch Home Owners Association filed a property lien in the amount of $207 and subsequently foreclosed upon his home tossing him out of the community. Radcliff’s home, valued at $289,000 was sold for $70,000. What’s wrong with this picture?

About 60 percent of all new homes and developments in California come under the influence of a Homeowners Association (HOA). The fastest growing segment of the housing market has been common-interest developments that include planned unit developments (PUD) of single-family homes and condominiums. California has 40,000 different HOA and according to the California Association of Homeowners, 23 million homes and 57 million people in our country live within a HOA.

An HOA is the legal entity with broad management and enforcement powers granted to them through property deed restrictions. Most HOA’s are initially set into place by the developer as non-profit corporations, subject to state statutes that govern corporations. Like a city, the HOA’s have the authority to provide services, levy assessments, regulate construction, set rules and enforce regulations. Unlike a municipal government, they are not subject to the Constitutional constraints of public governments.

Most of my clients moving into a new HOA development like the idea. The purpose of a HOA is to maintain, enhance and protect property values. This has allowed HOA’s to provide and maintain many common facilities such as pools, tennis courts and clubhouses which individual homeowners would never be able to build and maintain on their own. The HOA has the authority to make any assessment against individual property owners they feel necessary to pay for the maintenance of amenities or operational costs of the association and community. The powers of an HOA, however, extend beyond weekly landscaping of common grounds or cleaning the community pool. Some HOA have become fiefdoms of power hungry board members and a cash cow for management companies and litigation attorneys.

Although Zogby International reported general satisfaction by residents of a homeowners association, the over zealous enforcement of association rules or vindictive behavior of board members are noteworthy. “When you have a neighbor put in charge of you, it breeds resentment,” says David Feingold, a San Rafael attorney, who represents HOA’s. As an example, in Sea Ranch, a managed costal community, a widower had his home foreclosed upon when he didn’t pay the $600 in association fees. The house was appraised at $300,000 and sold for $2,000. Pamela McMahan, age 77 who walks with a cane, didn’t expect her cocker spaniel to be a problem but the HOA where she lived in Long Beach, fined her $25 for each time she walked her dog through the lobby. The HOA required all dogs to be carried through the lobby. McMahan’ s fines soon totaled thousands of dollars and she was forced to sell her condo or face foreclosure. In Marin County, the head of the HOA and a neighbor, got into a fistfight over a shared patio wall. During the scuffle the board president suffered a heart attack. He later sued the neighbor and the HOA. Jeffery DeMarco planted too many roses for his Rancho Santa Fe HOA. The board leveled a hefty fine and later placed a lien on his property. DeMarco took the board to court but lost on the grounds that he had violated the associations architectural design rules. To add to his disappointment was his $70,000 in legal bills.

The California Association of Homeowners Associations estimates that 75 percent of all associations are embroiled in some type of legal entanglement. Attorney Mark Pearistein, who represents associations, estimates that 60 percent of all condo boards and HOA are involved in a lawsuit. Evan McKenzie, a lawyer and author of Privatopia: Homeowners Associations and the Rise of Residential Private Government, found that associations were quick to litigate for even minor offenses. “It’s part of our litigious society, he said. “Association lawyers tell the board to enforce every rule. They say if you make one exception, the whole neighborhood falls into chaos.” So who bears all the cost for all this litigation?

When buying a home within an HOA, buyers need to have a full understanding of their obligations and consequences of ignoring the rules. George Staropoli, who lives in a HOA and founded a homeowners rights group says, “It’s a government outside the U.S. government.” His rational is that HOA’s can and do regulate practically everything as long as it is not in a violation of federal and state laws. “Basically you have people who own their own home, but are being treated like tenants,” says Janet Portman, a managing editor at Nolo Press in Berkeley.
Despite the problems, HOA’s are popular and will become more common in our county. As with other long-term commitments, they should not be entered into without careful consideration.

Ramdom Postings

2007-09-25T07:32:00.000-07:00

. OH REALLY - Former Fed Chairman Alan Greenspan predicted on Friday 9/14/07 that the Fed will have to raise rates to double-digit levels in the future to fight inflation. The last time the Fed funds rate was at least 10% was November 1984. The current rate is 4.75% after last Tuesday’s rate cut (source: USA Today, Federal Reserve).

WE OWE, THEY COLLECT - Fiscal year 2007 (i.e., 10/01/06 to 9/30/07) has just 1 month still to be reported. Through 11 months of the current fiscal year, the government has collected $2.3 trillion of revenue (i.e., tax receipts), an amount that is greater than the yearly revenue totals from every fiscal year in the history of the country except for 1 year (source: Treasury Department).

A LONG LIFE, BUT NOT THE LONGEST - The life expectancy of a new-born American baby is 77.9 years today, an increase of more than 8 years in the last 50 years. However, the USA ranks only 42nd in terms of life expectancy at birth among all countries (source: Center for Disease Control, AP).

AT THE END - 27% of Medicare expenses are paid during an individual’s final 1-year of life (source: USA Today).

A HELPING HAND - 5 out of every 6 employer-sponsored 401(k) plans has some form of employer match for the elective deferrals invested by participating employees (source: Vanguard).

ALL TALK, NO ACTION - More than 33 years ago, President Richard Nixon announced the following to American citizens in his January 1974 State of the Union address: “At the end of this decade, in the year 1980, the US will not be dependent on any other country for the energy we need to keep our transportation moving” (source: Association for the Study of Peak Oil and Gas – USA).

LESS OF OURS, MORE OF THEIRS - In the last 27 years (i.e., since 1980), the daily amount of oil produced in the USA has fallen 40% while foreign oil imports has climbed +92% (source: Department of Energy).

THE BILL HAS COME DUE - As adjustable rate mortgages are reset from the lower introductory rates paid in the early years of the loans, American borrowers are expected to spend $42 billion in higher mortgage payments in 2008 than they’ll spend in 2007 (source: Fortune).

GROSS AND NET - In the last 5 years, the gross value of real estate owned by Americans has gone up +62%. Over the same period, the outstanding debt from home mortgages has grown +79% (source: Federal Reserve).

FOR SALE - In March 2005, there were 2.3 million existing homes for sale. In July 2007, the number of existing homes for sale had risen to 4.6 million, or twice as many as the total from 28 months earlier (source: NAR).

THEN AND NOW - 52 economists surveyed in early September 2007 believe the chances of the USA falling into a recession within the next 12 months are slightly greater than 1 in 3 (36%). A different group of 56 economists surveyed in late January 2007 believed the chances of a recession occurring in 2007 were only 1 in 25 or just 4% (source: Wall Street Journal, USA Today).

Interest rates

2007-09-25T07:31:00.000-07:00

Last week’s announcement by the Federal Reserve to cur interest rates was a good sign for consumer loans and holders of adjustable rate mortgages. It was no help the 30-year fixed rate mortgage. Interest rates on fixed loans actually increased after the Fed announced its interest rate cut. What’s up with that?

Initially, both Stocks and Bonds rallied on the comforting words from the Fed - but as Bond Traders analyzed the potential future impact of the Fed cut over the following days, they started selling off Bonds with both hands, causing fixed home loan rates to rise by .125 to .25%, actually higher than where they stood before the Fed Rate Cut. What happened?

Traders realized that a Fed Funds Rate cut could encourage increased spending by consumers and businesses, as borrowing costs will now be cheaper for Home Equity Lines of Credit, consumer loans like car loans and credit cards, and business loans as well.

Increased spending can translate into increased inflation in the long run - and inflation is bad news for Bonds. Bonds deliver a fixed rate of return, and the value of that return is eroded by inflation. So Bond Traders sold, the price of Bonds moved lower, and home loan rates moved higher as a result. Counterintuitive to many...but its reality, and now you understand what many do not - including much of the mainstream media.

Long-term rates riase on Fed's rate cut

2007-09-24T09:19:00.000-07:00

Jobs gains and effects on housing

2007-09-24T09:18:00.000-07:00

While it’s true that the state is not adding jobs as quickly as it did during the building/housing boom years, job growth continues. The California Employment Development Department reported last week that 21,000 payroll jobs were added during the month of August. It was an unexpected gain from the job loss that occurred in July.

The construction, real estate and finance sectors are not adding any new jobs but gains are reported in technology, government, medical and service sectors.

Continued job growth is important to grow ourselves out of the current housing recession. During the last housing recession that began in 1992 and lasted until 1996, a million jobs were lost in California. Most of the jobs lost were high paying manufacturing and engineering jobs in the defense industry that began in 1991.

The end of the Cold War, presented an opportunity for a previous administration to cut defense spending thus reducing the number of troops, military installations and defense research. California, which had been the recipient of much defense industry growth, plunged into a jobs recession. The loss of jobs and high unemployment, created a housing bust with a higher rate of foreclosures and short sales than we have today.
This housing recession did not result from the lack of jobs or poor economic performance. California and most of the national economy has been doing quite well. It resulted from a lack of confidence. Buyers decided that housing prices had exceeded their affordability and stopped buying. As consumer confidence returns so will the housing market.

August Home Sales

2007-09-21T07:22:00.000-07:00

Since March, the number of monthly home sales in the county has been averaging between 160 and 175. Last month the total was 160, a drop of 10 percent from a year earlier. The number is half the monthly sales we enjoyed between 2003 and 2005. It’s about the same level of sales activity that we experienced in 1997 but the average price has significantly increased. In August of 1997 with 161 monthly sales, the selling price of a typical El Dorado County home would have been under $160,000. Last month the average selling price was $522,500, which was a $50,000 drop from a year ago and a $15,000 decline from July.

One reason the county’s average selling price has remained above $500,000 for the last two years, despite a drop in monthly sales, is the large number of million dollar home sales. Last month, 12 homes closed escrow in excess of one-million dollars and one in excess of two-million. The number of higher priced home sales continues to increase while the number of entry-level buyers continues to decline. Fifteen percent of all August sales were in excess of $750,000 while 11 percent was under $250,000.

Most of the county’s million dollar home sales occurred in El Dorado Hills where 48 monthly sales were reported, 9 of which exceeded a million bucks, contributing to an average selling price of $761,500. There are currently 500 properties for sale in our county’s most popular and expensive neighborhood, 120 of them are priced in excess of a million dollars.

Cameron Park has 200 homes currently for sale. Twenty-one closed escrow last month with an average selling price of $430,000 and $88,000 less than August of 2006. Up the hill in the Shingle Springs area, there are 71 homes on the market, 8-closed escrow last month with an average selling price of $683,000. Of the 71 residential listings in Shingle Springs, 63 are on parcels of at least an acre in size and 40 homes are on parcels of 5 acres or more.

Local communities that have been traditionally destinations for first time buyers are reporting proportionally slower sales and declining home prices. The greater Placerville area has 176 homes currently for sale. Ten sold last month, which were 12 less than the same month last year. The average price of the ones that did sell was $432,000. There were only 4 sales in the Diamond Springs/El Dorado area out of 106 listings. The average selling price declined from $418,000 in August of 2006 to $326,000 last month.

Camino/Cedar Grove with 65 homes for sale reported a few more sales this August than last year with 8 and the average selling price was a bit higher at $450,500. The less expensive Pollock Pines/Sly Park with 162 listings experienced the opposite with fewer sales and a drop in the average selling price from $368,000 a year earlier, to $292,000 last month.

The Georgetown Divide, including the communities of Georgetown, Garden Valley, Cool and Pilot Hill have 186 homes currently on the market. Twelve closed escrow last month with an average price of $355,000. Last year the typical price of a home on the Divide would have sold at $475,000.

The odds are better at blackjack than currently selling a county home. With 1,767 homes for sale, sellers currently have a one in ten chance of success. Sellers are still too optimistic about beating the odds. Last month, 400 new “for sale” signs went up in front yards. At our current 160 sales per month, we currently have an 11-month supply of homes, providing that no additional listings come on the market. Not a likely scenario. A balanced market is considered when there is a 6-month supply of homes. Year-to-date sales are down 12 percent from a year earlier and our lackluster market will likely continue for another year.

It’s not much of a consolation but our county’s foreclosure rate has remained one of the lowest in the region. Sacramento County currently has 10,500 homes for sale and reported 1,622 homes were foreclosed upon during the second quarter for a 15 percent rate. Placer County has 3,000 homes for sale with 220 foreclosures during the same time, a 07 percent rate while El Dorado reported 89 foreclosures between April through June for a 05 percent foreclosure rate.

The counties that are experiencing the most sever drop in property values and highest number of financially distressed homes are in areas that have experienced a greater number of new homes and developments. Excess inventory will drive property values down as quickly as the shortage increased them. If more sellers would hold off on trying to sell their homes, we would be well on our way to a more balanced market.

"Nothing wrong with the real estate market"

2007-09-21T07:20:00.000-07:00

There is nothing wrong with the real estate market as long as you don’t need to buy or sell a home. A recent survey by the online brokerage ShareBuilder found that a majority of Americans are much less concerned about the current state of the housing/mortgage market.

The survey found that 67 percent of the respondents were "just as confident" in their ability to make mortgage payments -- even in the current declining housing/mortgage market. Obvious, however, was the finding that 18 percent of those with a household income under $50,000 were less confident than those who make more than $50,000.

With credit getting tighter and many major lenders having to deal with loans that might have not been made in a less boisterous market, the same survey showed 28 percent of those homeowners surveyed planned to increase their spending on home improvements.
Those concerned about the housing market are instead cutting back on entertainment and discretionary spending. Nineteen percent of homeowners plan to decrease their spending on travel and vacations and another 19 percent say they are decreasing spending on dining out.

While this is not good new for DisneyWorld and McDonald's and those whose investment portfolios include them, it shows how complicated trying to gauge public opinion can be. Often, what the surveys say and what the respondents are really thinks bear no resemblance. Gopal Ahluwalia, the veteran vice president of research for the National Association of Home Builders, who periodically produces a study titled "What New Home Buyers Want," acknowledges that the wish list of the buyers the NAHB surveys gets much smaller once they have to write checks. Each one of these surveys that buyers want more and more -- more space and more amenities but want it for an unrealistically low price.

Disapearing Mortgage jobs

2007-09-14T13:21:00.001-07:00

After adding 100,000 new jobs in June, the July jobs report showed a loss of 4,000 jobs nationwide for the month. For the year job creation will be up over 500,000 but not in real estate and lending.

Countrywide Financial Corp., the largest U.S. mortgage lender, said last Friday it would cut up to 12,000 jobs, the biggest job reduction by a single company to date that stems from the deepening U.S. housing crisis.

According to the company, it expects to eliminate up to 20 percent of its work force over the next three months, for a loss of 10,000 to 12,000 jobs. It said the cuts were needed because mortgage volume may decline 25 percent in 2008 from this year's level.
"We are taking decisive action to ensure that Countrywide continues to be well-positioned for further success," said Angelo Mozilo, Chairman and Chief Executive Officer. The company’s decision to make the current job cuts were announced less than 20 days after it announced that it would cut an undisclosed amount of employees from its Full Spectrum (subprime) unit.

First Horizon National Corp. said today it will cut at least 1,500 mortgage origination jobs due to challenging conditions in its mortgage, national real estate and banking businesses. According to the company it now employs roughly 11,300 workers. The loss of up to 1,500 mortgage originators would be roughly 50% of its current sales force.

Ken Calhoon, President and chief executive officer of Golden West Real Estate, announced that the company does not anticipate any reductions in staff. In a recent press conference Calhoon said, “The focus of our company has never been on subprime lending, or hiring non-licensed telemarketing loan originators to push teaser rate loans or get rich investment. We have positioned our company to seek quality personal relationships with our clients.” Golden West Real Estate currently offers real estate and lending services to clients in the Capital Region.

Selecting the right agent for the job

2007-09-14T13:19:00.000-07:00

This past week I received e-mail from a lady who wanted some advice about choosing an agent to help her sell her house. She thought if she could find the one agent who sells the most homes in the county, her chances for success would increase. Although individual offices keep track of all their agent’s sales activity, the El Dorado County Association of Realtors do not publish a ranking of their members in order of listing or sales activity. Searching and then complying individual agent information on the current 1,800 property listings and 1,500 year-to-date individual sales would be cumbersome and probably meaningless. Here’s why.

The small number of sales in our large rural county is too fragmented for any one agent to have a high degree of market dominance. There are over 1,000 Realtors who belong to the El Dorado County Association of Realtors. In addition, there are thousands of other agents from the Capital Region who have the same lock-box key and access to identical information of the local multiple listing services. Recently, our regional multiple listing service, MetroList, signed reciprocal agreements with other northern and southern California listing services sharing all listing information. Licensed agents from nearly anywhere in the state can list and sell properties easily in El Dorado County. Licensed mortgage agents, who have had some additional free time recently, have also joined the hunt for buyers and sellers.

While selecting an agent based solely on their volume of business is one criteria, it should not be the only or even the most important. If we all produced identical widgets, selection of the top widget producer would be easier. Homes and their owners have individual personalities. Buyers have dreams and expectations and often obstacles that must be considered. Some clients require patients while others want “Action, Action, Action.” (A Schwarzeneggerism)

With over 500,000 California licensed salespersons and brokers, principals today have a large selection of agents to choose from. The Internet provides access to their personal information, abilities and accomplishments. When I first entered the real estate business, agents were expected to specialize and work within their individual neighborhood territory. We would frequently walk our assigned neighborhood streets, knocking on homeowner’s doors, introducing ourselves and our services. Family demographics, security/privacy concerns and the Internet have changed how agents promote themselves and buyers and sellers make selections.

Personal referrals rather than neighborhood territories now account for the majority of business for experienced agents. With easily available statistical data regarding listings and sales, digital photos and virtual tours, agents have access to equal amounts of knowledge about homes and neighborhoods anywhere within driving distance. While a referral is one of the best ways of selecting an agent to interview here are a few other considerations.

Our current real estate market requires more experience. Most agents who haven’t worked in this type of market will be at a disadvantage. According to the Department of Real Estate, 40 percent of all licensed agents received their license in the last 5 years and 25 percent in the last two. Many new agents have the enthusiasm but lack the experience. If brain surgery were required, I would prefer crusty experience to jubilant enthusiasm. A third of all agents leave the business after 5 years. Clients whom are an agent’s first or last are at a disadvantage. An inexperienced agent will not know what to expect or how to react to upcoming situations and an agent on their way out of the business will not care. Principals should also be skeptical of hiring part-time agents (who have other priorities) and relatives. Hiring a family member during a stressful time of buying or selling can strain a relationship. Uncle Charlie, if he is competent, may still not be able to provide the objective assessment and advice necessary.

Intense marketing is more important today for sellers who are hiring. There is a difference, however, between marketing and advertising. Advertising is only one step in the process. I am always surprised at how many agents still don’t use virtual tours and post large numbers of digital on-line photos promoting their listings. A few years ago, placing a “For Sale” sign in the front yard and entering the listing into the MLS may have been all that was necessary to promote interest in a property for sale. Times have changed and sellers and their agents need more specific actions that will attract interest.

After experience and marketing skills, principals should consider agents who are involved in their community. Shopping locally for goods and professional services is good for our community. When an agent is involved in their local chamber of commerce, church, civic or non-profit organizations it demonstrates a commitment and a willingness to give freely of their time for the enrichment of others.
Since every client and property is unique, an agent’s personality is important. A principal should feel comfortable with an agent during the selection process, never rushed or feel under pressure. There should be a mutual understanding of the principal’s goals and objectives and advanced agreement as to specific accomplishments. Good communications between the client and his chosen agent will be necessary during the arduous journey.

"Flips, Fall-outs and DFTs"

2007-09-07T06:39:00.000-07:00

They are called “flips”, “fall-outs”, “DFTs” (deal fell through) and cancellations but no matter what you call them when a real estate deal goes sideways it’s not a pretty sight. An escrow cancellation can be emotionally and financially devastating to all parties. Buyers could end up in a dispute over their earnest money deposit, sellers who may have already physically or mentally moved on must put plans on hold and agents are resigned to watching their hard work disintegrate. The accusations, second-guessing and finger pointing can leave a train wreck of hard feelings and disappointments.

Between 2000 and 2006 fall-outs didn’t happen. The demand for housing and plethora of lenders willing to make loans to anyone who could “fog a mirror” insured that any obstacles incurred during the escrow process could be overcome. More recently, circumstances have changed and escrow cancellations are becoming all too common.

Preventing an escrow from falling-out is important in any market but especially in a weak buyer’s market. All standard real estate contracts are written “subject to” many contingencies. Sellers and their agents should have as many inspections and reports together early in the listing process to prevent a leading cause of cancellations…the surprise! Every property will have at least one Big Surprise and sellers should discover it early and take preventive action to insure that the buyers are not surprised right out of the escrow. Buyers are demanding clear reports from: pest/termite, well/septic, roof and whole house inspectors. Problem areas need to be corrected before escrow is opened. The goal is to eliminate all surprises.

Buyers will need to line up financing early. Despite pre-qualification and pre-approval letters, about one-third of all escrow cancellations have to do with a buyers inability to obtain financing. Buyers who thought they could qualify for a loan didn’t or they qualified and the lender could not fund the loan. Many large Internet lenders have shut down their web sites, filed for bankruptcy and are defaulting on commitments to borrowers. I am not a fan of large impersonal lenders who use non-licensed telemarketers to pressure borrowers into making bad financial decisions. Local mortgage brokers have more alternative sources of financing when times get tough. There is a reason (“What’s in your wallet?”) Capital One Financial is no longer originating residential loans while your local lender is.

Another reason for a DFT is simply the buyer changes their mind. Standard purchase contracts allow buyers 17 or more days to conduct any inspections or review any reports about the property. During that period of time, if the buyer discovers anything they didn’t expect (surprise) they could cancel the contract and demand a refund of their deposit. Eliminating all contingencies and surprises on time will help the transaction to proceed along on schedule. Experienced agents know the longer a transaction takes to close the greater the risks are that it won’t.

The most frequent reason for an escrow cancellation occurs when an escrow sale is opened based upon the sale of another property. In our current market, buyers should never open an escrow based upon the sale of their home but should sell first and then start looking for a new home. Renting for a few months is preferable to making double payments and having the uncertainly of not knowing if, when and for how much an existing home will bring.

In life stuff happens. The important thing is how we react to the stuff. I recently represented a buyer on a purchase who soon after his offer had been accepted, discovered he needed major surgery and was unable to proceed. The same month an experienced buyer’s agent called to tell me his clients could not qualify for a loan that he assured me was “no problem” earlier that week. I once lost a sale in El Dorado Hills when the buyer’s discovered Serpentine rock in the back yard. Another agent’s buyer was terminated from his employment 5 days prior to closing and unable to close his loan. Years ago I had a client die during the escrow period.

Statistically, in a balanced market, ten percent of all escrows will cancel prior to closing. In a seller’s market less and in our current buyer’s market more often. Escrow cancellations is a primary reason experienced agents leave the business. Even the best agents encounter uncontrollable circumstances. Just as doctors will loose patients and attorneys lawsuits, escrow cancellations happen.

When there is no hope in salvaging a deal gone south, the home should be immediately placed back on the market and the listing information should be updated to reflect any new reports obtained during the escrow period and/or price adjustments. The parties should sign an escrow cancellation agreement detailing the disposition of the deposit and releasing each other from further obligations. If there were other interested parties in the home prior to opening the previous escrow, they should be contacted.

Cancellations happen. Not often, but when they do it is important to keep things in perspective and move forward with positive marketing efforts. If one buyer had liked it enough to open escrow, another will likely find the home attractive also.

What were they thinking

2007-09-06T07:48:00.000-07:00

ERA recently provided one with a survey of baby boomers showing that more of them would prefer having Oprah Winfrey as their "celebrity" real estate agent over Donald Trump.
The survey of 1,000 Americans 50 years and older found that one out of five survey respondents plan to move in the next five years and family emerged as one of the clearest priorities for respondents when considering real estate options. Three out of four say it is important to be near their family when considering their next move.

Further, when considering buying a new home, 43 percent would purchase a home to be closer to work or family -- up 10 percent from last year's survey results. For those considering an active adult community, family and friends should be nearby for 70 percent of those surveyed.
Respondents were clear in their visions for where they want to live – and single family homes won out over active adult communities. Of the one in five thinking about moving in the next five years, 65 percent would most consider a single family home. About one-quarter (24 percent) of survey respondents said the reason they would buy a new home would be to upsize compared with 15 percent last year.

Active adult communities are becoming more attractive -- only 2 percent were considering such a home last year, compared with 6 percent this year. The numbers still are much lower than the hopeful projections of a decade ago.
A designer kitchen or outdoor deck/entertainment area are the two most desired luxury enhancements respondents' dream homes would feature (76 and 75 percent, respectively). Other dream extras would include pristine landscape (71 percent), indoor sauna or hot tub (53 percent) or a home theater (46 percent). Not as dreamy is an Olympic-sized swimming pool (32 percent) and only 13 percent would desire to have a home on a golf course.

Since the last survey in 2004, oversize garages saw the biggest growth in terms of what recent buyers considered very important in a home, gaining 16 percentage points to 57 percent.
Other priorities for today's home buyers include air conditioning, with three out of every four respondents ranking this as "very important," and a walk-in closet in the master bedroom, which was very important to 53 percent of respondents. Hardwood floors and granite countertops each gained 7 percentage points from the 2004 survey, with 28 percent and 23 percent, respectively, of buyers viewing these features as "very important." Gaining 6 percentage points was cable/satellite TV-ready, at 46 percent.

The ERA survey asked what kinds of neighbors the 50-plus buyers wanted. Of the possible 2008 presidential candidates who could be neighbors, Hillary Clinton was in the lead. Champion golfer Tiger Woods is the celebrity that boomers and seniors think would make the best neighbor (24 percent).

"Too many houses"

2007-08-30T15:30:00.000-07:00

It’s no wonder we have too many houses on the market today. According to the building industry tracker, Hanley Wood Market Intelligence, between 2001 and June of this year 104,000 new homes were built in the capital region. The biggest sales year was 2004 when 17,500 new homes sales were recorded. This year the industry is expected to sell 8,000 new homes.

Do you think that builders have given up on the local market? Not a chance. According to San Diego based Sullivan Group Real Estate Advisors, builders already have another 100,000 houses in the planning stages. It takes years of planning and millions of dollars infested in infrastructure before a new foundation is poured. Many builders are getting a head start on the next boom.

July sales in El Dorado County

2007-08-30T15:28:00.000-07:00

It was disappointing that July’s monthly home sales were not better but it was a relief that they were not worse. Besides, most of us in real estate and lending are getting accustomed to the daily barrage of negativity from the mainstream media. Contrary to some popular beliefs homes are still selling, prices are not collapsing and the number of homes listed for sale is declining.

Total existing home sales for the month of July stood at 157, down 10 percent from July of 2006 and 14 fewer than we had in June. Our best July was back in 2004 when the Multiple Listing Service reported 337 monthly sales. In an off year, July’s numbers weren’t too bad. Over the last 12 months, 5 have been better and 7 have been worse. Our county’s median home price continues to hold up amid the subprime predicament. The $490,000 median selling price last month was $9,000 below July of 2006 but it has remained the same or higher for 9 of the proceeding 12 months.

Cameron Park, with 228 homes for sale reported a large adjustment in home prices. In July of 2006 the average selling price was $553,800 on 22 sales. Last month the average price of the 15 homes that closed escrow was $454,800.

More first time buyers are discovering the greater Placerville area. The average price of the 11 homes that sold last month was $361,000. The area has 187 residential listings.

Five of the 9 monthly sales reported in the Diamond Springs/El Dorado area were above $640,000, pushing the areas average to a record high of $596,000. Pollock Pines/Sly Park reported 20 monthly sales with an average price of $322,000. The area has 200 homes for sale.

The Georgetown Divide reported 14 sales on an inventory of 200 homes for sale. The average price remained about the same as last year, Georgetown and Garden Valley was $433,000 and in Cool and Pilot Hill, $477,000.

Fewer new listings are a good sign. I suspect many sellers have given up on the idea while waiting for the market to improve. The 379 new listings last month were 25 percent less than a year earlier, still too many for the 150 to 185 monthly sales that we have been averaging this year. Total residential inventory for sale is actually less than a year earlier. Hopefully that becomes a trend and not an anomaly.

Between appointments last week, I stopped in a grocery store to buy a few items and while standing in the checkout line picked up the latest copy of “Money” magazine. This month’s feature was about the 100 best places to live in country. I knew that El Dorado Hills was ranked in the top 100 so turned to the synopsis. Here are a few facts you may not know about our county’s most popular zip code.
The median family annual income is $116,406, job growth between 2000 and 2006 was 32 percent, air quality index shows 72 percent of the days ranked good, the average commute time is 29 minutes and within 15 miles the magazine found: 13 movie theaters, 1,572 restaurants, 71 public golf courses, 23 libraries, within 30 miles and 18 ski resorts within 100 miles.
The magazine found when comparing El Dorado Hills to the other 99 selected “best places to live” the residents have a higher income, are slightly older, have a higher level of education, a higher rate of marriage, a lower divorce rate and take more vacations than in the average 100 best places. They are also over taxed and housing is more expensive than the average.
The criteria that “Money” used in selecting the best places to live included: populations with less than 50,000, affordable housing, plentiful leisure activities, cultural options, sunny weather, short commute time and good health care access.
The number one best place to live picked by the Money editors was Middleton, Wisconsin. I turned the page to Middleton, population 17,000. There were some nice pictures of green lawns and cute houses but then I read that the average property tax on a $300,000 home was $5,000 a year and the average temperature during the winter was 10 degrees with six to eight feet of snow. Maybe the ranking of the 100 best places to live should be done in January rather than in August.

Potential homebuyers will find a greater selection of homes in El Dorado Hills than in Middleton. While Middleton has 50 currently for sale EDH has 500. The average price last month of $697,000 was about where it was a year ago. The 58 monthly sales were an increase from last year and the average temperature was well above Middleton’s.

Borrowers don't have a clue

2007-08-17T07:38:00.000-07:00

It would be an easy fix if we could assign the ultimate blame for the current subprime loan fiasco to a single event or party. Regulations could then be adopted that would correct the problem from happening again. But like other misfortunes, there is never a single event that is totally accountable but a series of happenings leading to the fateful conclusion. Here is a few which contributed to our current subprime fallout:

Investors and their money abandoned the stock market in 2000 seeking higher returns on less volatile and more secure real estate. The Federal Reserve lowered interest rates in an attempt to stimulate a sagging economy. Tax cuts boosted consumer spending which resulted in job growth and historically low unemployment. Builders had a historical low inventory of finished houses and buildable lots since recovering from the last market correction. California real estate and banking regulators adopted legislation that exempted lenders from the formality of having a real estate license. Housing demand drove home values to unaffordable levels.

Borrowers were not exempt from contributing to this perfect storm. Many made poor credit choices or based their housing decisions upon investment expectations rather than lifestyle considerations. Somewhere along this trail, the family home became a discretionary investment tool. Builders, lenders and real estate agents helped facilitated the whole process.

Now that we have time to reflect upon our current circumstances, the loan regulators are attempting to discern what changes need to be made in the lending process by the purveyors of credit. One change that would help future borrowers would be to revise or eliminate the plethora of loan documents into something understandable. Federally mandated mortgage disclosures, forced upon lenders and borrowers for the past 30 years, “are confusing and do not address the variety and complexity of today’s mortgage products,” said Federal Trade Commissioner (FTC) Deborah Platt Maqjoras after reviewing the recent FTC study which demonstrated that most borrowers don’t have a clue about the details of their mortgage.

The report released last month by the FTC, shows how unaware borrowers are regarding the details of a mortgage loan. In the study, 800 borrowers who had recently obtained a mortgage loan, were provided typical loan documents on a hypothetical fixed rate loan and then asked a series of questions. Half the borrowers could not identify the correct loan amount. Nine out of ten could not figure the total upfront cost of the loan. Two-thirds did not recognize a pre-payment penalty and 95 percent could not figure out the amount of the penalty. Eighty percent did not know why the interest rate and the Annual Percentage Rate (APR) of the loan were different. One in five could not identity the interest rate of the loan, monthly payment or the amount of cash due at closing. If a typical borrower can’t figure out the loan amount, how can they be expected to know anything about: indexes, margins, points and neg arms?

The FTC study confirmed what I have been telling readers for years, “More is less.” The more standardized loan papers are provided to borrowers, the more likely they are to become confused and chose the wrong, more expensive loan. Borrowers are buried in meaningless loan papers. Alex Pollock, former president of the Federal Home Loan Bank of Chicago put it this way. “Most of us had the experience of being overwhelmed and befuddled by the huge stack of documents full of confusing language in small print, presented to us for signature at a mortgage closing. The complexity results from legal and compliance requirements. Ironically, past regulatory attempts to insure full disclosure have made the problem worse.” Ah Ha! Finally the problem reveals itself, too much information.

Mr. Pollock, who is now in private practice, has proposed a simple, one-page disclosure document that states in simple English (or national language of choice) the “essential” of the loan. For example: If the loan was an Adjustable Rate Mortgage, the disclosure would say what the beginning interest is, how long it will stay in effect and what the maximum possible rate would be. The form would also show a “fully-indexed housing ratio,” which would show what percentage of a person’s income would go toward a mortgage payment. The greater expense ratio, the riskier the loan.

A simplified, easy to read mortgage loan disclosure will help future borrowers but more needs to be done. Predatory lenders need to be put out of business. Anyone originating a mortgage loan in California should have a state license with some educational requirements. Mandatory educational requirements with regards to financing and owning a home should be a requirement for first time buyers applying for a government insured loans. An unknowledgeable borrower who defaults on a mortgage has no affect on the economy or real estate values. A million defaulting borrowers is a wake-up call. Borrowers need more facts and less paper.

Best places to live

2007-08-16T06:16:00.000-07:00

Between appointments yesterday, I stopped in a grocery store to buy a few items and while standing in the checkout line picked up the latest copy of “Money” magazine. This month’s feature was about the 100 best places to live in country. I knew that El Dorado Hills was ranked in the top 100 so turned to the synopsis. Here are a few facts you may not know about El Dorado most popular zip code.

The median family annual income is $116,406. Job growth between 2000 and 2006 was 32 percent, air quality index shows 71.8 percent of the days ranked good, the average commute time is 29 minutes and within 15 miles the magazine found: 13 movie theaters, 1,572 restaurants, 71 public golf courses, 23 libraries, one museum within 30 miles and 18 ski resorts within 100 miles.

The magazine found that residents are slightly older, have completed more higher education and have a higher rate of marriage and a lower divorce rate and take more vacations than in the average 100 best places to live.

The criteria that “Money” used in selecting the best places to live included: populations with less than 50,000, affordable housing, plentiful leisure activities, cultural options, sunny weather, short commute time and good health care access.

The number one best place to live picked by the Money editors was Middleton Wisconsin. I looked at Middleton, population 17,000. There were some nice pictures of green lawns and cute house but then I read that the average property tax on a $300,000 home was $5,000 a year and the average temperature during the winter was 10 degrees with six to eight feet of snow. Maybe the ranking of the 100 best places to live should be done in January rather than in August.

All too familiar

2007-08-16T06:11:00.000-07:00

Realtors Bob and Nancy Hunt called to tell me what they heard at a recent Orange County Association of Realtors meeting. Local economist Gary Watts gave a talk where the main message was -- keep news about housing in perspective.

The popular press has called an end to housing for some time, says Watts:
"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." Business Week, 1969

"The median price of a home today is approaching $50,000 ... housing experts predict price rises in the future won't be that great." National Business, 1977

"The golden age of risk-free run-ups in home prices is gone." Money Magazine, 1985

"A home is where the bad investment is." San Francisco Examiner, 1996

"We want to share some of his other observations," said the Hunts. And they did so by sending me a memo filled with interesting facts and figures Watts gave during his talk.
Among the "gems," say the Hunts, were the following:

· Since the year 2000, Orange County homes have appreciated over 100 percent.
The average Orange County appreciation rate over the past 37 years has been 14.9 percent yearly.
2005 was the peak subprime lending year in Orange County, when subprime loans represented about 23 percent of all loans funded.
Nationally, the delinquency rate on sub-prime loans (13.77 percent) and conventional loans (2.57 percent) combined produces a delinquency rate of 4.84 percent. The record low is 4 percent.
The California delinquency rate is currently 3.25 percent.
In 2006, the California foreclosure rate was 1.17 percent.
Out of 5,680 properties that entered foreclosure in 2006, only 697 were foreclosed upon.
As of July, only 13 percent of properties listed in the MLS were bank-owned.
"Half-full? Half-empty? It depends on who is looking at the glass," say the Hunts. "Just remember, there is another perspective than the one we receive from the news media."

Lawsuits hapen

2007-08-13T08:21:00.000-07:00

Even in a good real estate market, housing receives a fair share of negative publicity. Featured newscasts in 2004 and 2005 showed cold, sleep-deprived homebuyers camping out overnight anxiously waiting for the opportunity to place a reservation on a new home. Affordable housing advocates lamented escalating home prices were contributing to an increase in the number of homeless. Economic soothsayers speculated upon when the housing bubble would pop, plunging the economy into recession. Flippers were making excessive fortunes and greedy landlords were gauging renters.

Now that the pendulum has swung, or the axe fallen, depending upon your perspective, real estate continues to get clobbered by the major media. Somehow the housing market is totally responsible for the recent correction in the stock market, tightening credit standards, a drop in consumer spending, job loses, foreclosures, higher house payments, decreasing tax revenues and global warming.

Not everyone is complaining about our market correction. The drop in home sales and property values has been a mini-economic boom to real estate attorneys who specialize in real estate deals gone bad. According to the insurance industry professionals, liability cases against real estate agents, builders and lenders have increased significantly over the past year. So much so that the National Association of Realtors recently completed a random survey of 650 court cases, jury verdicts and settlement reports to determine the most problematic legal challenges facing real estate professionals. The details of the 2007 “Legal Scan” are not released to the general public but a summery report was issued earlier this month.

The leading cause of lawsuits against real estate agents was alleged omissions or misrepresentations about a property’s condition. The most common property defects were: mold, structure defects, zoning, sewer/septic system, drainage, and insect or vermin infestation. Allegations of breach of an agent’s fiduciary responsibility were central to 100 of the 650 cases and agents who represented both the buyer and seller in a real estate transaction (dual agency) had more legal problems than those who only represented one party (single agency). There were also a number of cases alleging illegal kickbacks, undisclosed affiliated business arrangements and inadequate disclosure of settlement costs.

While consumers filed hundreds of lawsuits against their real estate agents, they didn’t win most of them. Most of the lawsuits were settled before trial. Of the 650 cases studied, 315 ended in a judgment either from a pretrial proceeding or a verdict. Of those, 66 percent were resolved in favor of the agent. Most of the cases that went against an agent were jury trials. The highest awards were for deceptive trade practices followed by breach of fiduciary duty and breach of contract. The highest award in the survey was for $4.2 million the lowest was $5,000.

Unfortunately, like with any other business, mistakes and misunderstandings happen. When something major goes wrong with the family home, however, you can’t mail it back for a refund. Buying a home is the single largest financial investment most of us make and that decision is usually based upon our positive emotional expectations. We expect to live happily ever after in our dream home. We visualize a sanctuary of peace and refuge, the nice quiet neighbors next door and appreciating property values. Problems often occur when life’s reality doesn’t meet expectations. The replacement of the central air conditioner, a leaky roof or a backed up septic wasn’t part of the dream of home ownership. When a homeowners dream turns into a nightmare they begin to carefully analyze how they ended up in their situation, occasionally with the help of an attorney.

The number of lawsuits against agents always increases during a downturn in the market. Property defects don’t seem as severe when property values are increasing. A little mold in the bathroom….no problem, planning on remodeling anyway. Overlooking a property defect or an agent’s misrepresentation when values are declining is more difficult.

Like any profession, there are a few unscrupulous and greedy agents who will say or do anything to get a client to the closing table. However, the majority of judgments against agents in the cases studied were not the result of fraud or intentional misrepresentation but negligence misrepresentation and breach of fiduciary duty. New agents who had been in the business less than 3 years and high volume agents who managed 40 plus clients a year were more likely to end up in court.

The California Association of Realtors have been concerned about the increasing number of consumer lawsuits against their membership. Last year they promoted new legislation requiring all licensed agent to complete a 3-hour, Department of Real Estate approved, Risk Management course before agents can renew their 4-year license. The DRE should also require agents as a condition of licensure, to maintain Professional Liability Insurance. Filing a lawsuit against an agent isn’t any guarantee that the plaintiff will be able to collect for damages. Homebuyers and their agents deserve some standard of minimum protection that would avoid cumbersome and costly lawsuits or bureaucratic DRE procedures. Perhaps the California Association of Realtors will make that a legislative priority in the future.

Tax question from reader

2007-08-08T07:38:00.000-07:00

Question: A year and a half ago, when the market was hot, we purchased a home in El Dorado Hills which we thought would be ours for a long period of time. However, I have just been transferred to the East Coast, and we are now facing a loss when we sell our home. Fortunately, we do not think we will have to come up with cash to sell it, because we put down a large down payment.

If we had made profit on the house, I understand that the IRS would allow us some partial exclusion of that gain, even if we had not owned it for a full two years. Can we deduct all or even a part of our loss?

Answer: Unfortunately, the answer is no. Let's take this example. Your paid $600,000 for your house, and now can only sell it for $550,000. By the time you pay a real estate commission of 5 percent ($27,500) and closing costs (approximately $2,500) your loss will be at least $80,000. The Internal Revenue Code does not allow losses on personal residences.
According to Julian Block, author of The Home Seller's Guide to Tax Savings, "When Congress and President Clinton agreed in 1997 on a profit exclusion of up to $250,000 for sellers who file single returns ... and up to $500,000 for sellers who are joint filers, they flirted with allowing sellers a limited deduction for losses, but dropped the idea. The 1997 legislation left unchanged the rule that generally bars a deduction for a loss on the sale of something that is considered a personal asset, such as a principal residence." There are, however, a couple of exceptions to this rule.

Did you use some of your house for business or rental purposes? If so, that portion can be deducted, since it is not a loss related to a personal asset. Another exception is for principal residences that are converted into rental property. Here is where you may be able to salvage -- or at least limit -- your loss.

Do you need to sell? While many people do not like to own rental property -- especially when they are not physically living nearby so they can monitor the property on a periodic basis -- you should talk with your tax advisors about this possibility.

How does this work? First, you have to remove all evidence that this is still your principal home. Change your drivers license and your voting registration. If you are getting some tax benefit as your main home -- such as the Homestead exemption, advise the County Tax Assessor’s office that you no longer are eligible for this tax reduction.

You now rent out your house. Since you will be living far away, you probably will have to hire a property manager to collect the rent and deal with the tenants. Obviously, this is an additional expense which must be included in your calculations. While you may be willing to have a reasonable yearly negative cash flow, you obviously want to make sure that your income will be able to support this loss.

I believe the market will rebound, but haven't a clue as to when this will happen. Hopefully, within two or three years, the market value of your house will have increased, in which case your overall loss will be less than if you sell it now. And whatever the loss, you may now as a rental be able to deduct it on your income tax return.

You do actually have to rent out the home before you can take a loss deduction. This limitation has been upheld by the courts. It is not sufficient if you just give a real estate agent a listing, or place a "for rent" advertisement in your local newspaper. If you cannot rent the house, you cannot take any deduction for your loss.

The IRS follows what is known as the two year "old and cold" rule. If you rent the house for just one year, the IRS may still consider the house to be your principal residence. However, if you rent for two or more years, your principal residence has now become "old and cold".
Nothing is easy when the IRS is involved. How do you determine the amount of your loss for tax purposes, once you have decided to rent it? According to the IRS, you calculate loss at of the date that you converted the house into rental property. Here is the formula:

· "1. Use the lesser of the property's adjusted basis or fair market value at the time of the change;
· 2. Add to (1) the cost of any improvements and other increases to basis since the change;
· 3. Subtract from (2) depreciation and any other decreases to basis since the change, and
· 4. Subtract the amount you realized on the sale from the result in (3). If the amount is more than the result in (3), treat this result as zero.
The result in (4) is the loss you can deduct."

Good Luck!

Feds hold line on interest rates

2007-08-08T07:36:00.000-07:00

While acknowledging that "credit conditions have become tighter for some households and businesses" as financial markets react to upheaval in the mortgage lending industry, Federal Reserve officials aren't ready to slash the federal funds rate.

The Federal Reserve's Open Market Committee voted unanimously Tuesday to leave the key short-term rate at 5.25 percent, saying worries about inflation continue to trump the potential impact of the downturn in the housing market. A statement issued by the committee gave no indication that problems in mortgage lending have shaken that conviction.

The Fed's "predominant policy concern" remains the risk that inflation will fail to moderate as expected, the statement said. "Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information."

Although readings on core inflation have improved "modestly" in recent months, there's no convincing evidence of a sustained moderation in inflationary pressures, the statement said. High levels of resource utilization have the potential to sustain inflationary pressures.

"Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing," the committee said. "Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy."Many housing industry leaders are hoping the Fed will cut the federal funds rate -- the rate banks charge each other to lend money overnight -- to encourage borrowing. The committee will meet three more times this year, with the next meeting scheduled for Sept. 18.

New Permits Fall

2007-08-03T07:43:00.000-07:00

Studies from around the state show the areas that are most overbuilt with new construction are the hardest hit areas for price declines and slow sales. Local builders have been adjusting by trimming their inventory, cutting prices and offering incentives. Housing prices will not firm up for builders or existing home sellers until the excess inventory of new homes has been reduced to sustainable levels.

Regional builders pulled 41 percent fewer new building permits for single-family homes during last month than they did in June of 2006. It is an attempt to get inventory levels down and wait for the market to improve. In June of 2005 builders were busy pulling 1,500 permits for the month. Builders in Sacramento, Placer and El Dorado County took out 611 permits during the month for single-family homes and 205 for new apartments or condominiums. Last year area builders built 12,000 new homes. This year the number will be under 10,000.

What's your number?

2007-08-03T07:41:00.000-07:00

Since Noah started counting animals 2 by 2, mankind has been assigning numerical rankings to everything. Is the world more orderly if we all have an assigned ranking? Do you know your number?

My number was yelled out each month while attending private high school. Our commandant would call the entire student body into Sherman Hall and read everyone’s report card ranking from top to bottom. Everyone knew where they and everyone else placed in academic achievement. From the podium Col. Jones would yell out ”NUMBER ONE WITH A 4.0 MONTHLY AVERAGE… EVERETT, NUMBER TWO WITH A 3.95 AVERAGE. JENKINS, ..NUMBER THREE WITH A 3.90 AVERAGE SCOTT” and on it went until every student’s name and academic rankings echoed from those hollowed walls.

Money magazine likes to publish lists and the rankings of things. The June addition released its annual ranking of the 100 “Best Places to Live.” The top three cities I have never visited like Middleton Wis., Hanover, N.H. and Louisville, Colo. But I have spent some time in the number 74, Granite Bay, and number 76, El Dorado Hills. The Sacramento Bee published the results with the headline “Capital cities rank near bottom.” While the Auburn Journal ran the headline “Granite Bay earns spot in Top 100 list” The Journal’s article goes on to read “Granite Bay is in the top three-quarters of the vaunted rankings. I can appreciate being in the top three quarters.

Consumer Confidence Up

2007-08-03T07:39:00.000-07:00

Lost in the plethora of bad news about the stock market, housing market and financial markets was a back page article in the major Sacramento newspaper on consumer confidence. Despite lower consumer spending and slower job growth people are feeling pretty good about the economy.

The Consumer Confidence Index reached a six-year high in July after falling off in June, a rebound economists view as a sign of gathering economic momentum focused away from the slowdown in the housing market and on job growth, according to The Conference Board.The Consumer Confidence Index climbed to a 112.6 in July, up from 105.3 in June. "An improvement in business conditions and the job market has lifted consumers' spirits in July," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months."Lets hope the more positive attitude continues. Help to get the word out.

The No Word

2007-08-03T07:38:00.000-07:00

I have been saying no to a lot of clients recently. No is a word that I have disliked since childhood and I don’t like saying the “no” word to friends and clients today. I believe no was the first word that I came to understand as a child. The word was always followed by “YOU CAN’T DO THAT!” and “I AM NOT GOING TO TELL YOU AGAIN!” Growing up, teachers and coaches reinforced my distaste for the “no” word. While pointing her ruler in my direction my fourth grade teacher, Mrs. Bishop, would say ”No, that is not correct Kenneth, “i” comes before “e” except after “c” and from Coach Gray…. “NOOOOOO… YOU IDIOT, YOU RUN TO YOUR LEFT NOT YOUR RIGHT!”

Yes is a word with unlimited possibilities. Yes is more fun and exciting. It moves us forward. In sales, life evolves around people saying yes. Yes is a word that you want to give and receive from customers. When clients say yes, things happen so why have I been saying no to so many clients recently?

Angela called to tell me the good news that she and Bob were getting married in the fall. Since Bob had a larger home than the small two-bedroom I helped Angie buy five years ago, she thought she should sell her place and move into his. After a quick check on property values in the neighborhood, I told Angie she would do better renting the property than selling at this time. Her low interest rate mortgage and property tax base would allow her a small positive cash flow and some tax breaks for the next two years until the market absorbs the excess inventory. Her profit from a sale two years hence would still be tax exempt. If Bob would have proposed two years ago my advice would have been different.

Darren called to tell me he was thinking about selling his house in Folsom and buying another in El Dorado Hills. His family was larger with the arrival of the twins and he wanted a 3-car garage. I was visualizing saying yes to a nice listing in Folsom and a sale in El Dorado Hills but the reality was different. Although Darren’s house had appreciated substantially over the last few years, so had everything else. Darren’s salary had increased 15 percent since 2003 while the price of homes in El Dorado Hills had increased 50 percent. Despite sufficient equity in Darren’s existing home for a downpayment, the family’s income wasn’t sufficient to qualify for a new loan at higher interest rates and property taxes. My advice was to stay-put until Kimberly went back to work.

Jerry called to get my advice about refinancing his existing mortgage. Jerry and Paige used to own their house free and clear but mortgaged it a year ago to help their kids in a jam. Despite their perfect credit, some lender had stuck them in a high interest subprime loan. I ran the numbers and although a new loan would save them $400 a month, it would take 5 years to recapture their refinancing and prepayment penalty fees. There was also an equity issue since the value on his home had declined since the last appraisal. Sorry Jerry, you and the misses are stuck until your equity increases or interest rates decline.

Jim wanted to buy a foreclosed home in Reno could I help? No, my license is only good for California. Beverly wanted to sell her home in Cameron Park. Sorry Bev, your home isn’t worth what you paid for it back in 2005. Charles called to say that he wanted to buy a bank repo as an investment using a 100 percent stated income loan. Sorry Charlie, lenders are now requiring down payments on investment properties. Tim called to say he wanted to refinance his interest only loan so it would amortize itself. Sorry Tim, it isn’t worth the cost, increasing your monthly payment to include the principal reduction will have the same effect.

Saying no to clients doesn’t open any escrows or pay the rent. A yes response is easier and financially rewarding. We all want folks to say yes when we ask for something. Saying no is tougher. Too many lenders in the past few years were saying yes to borrowers when they should have been saying no. If more of us in the real estate and lending business had done a better job of saying no to clients in the past, we might be saying yes more often today.

Click a mouse to buy a house

2007-07-30T09:35:00.000-07:00

Working from my home office in rural El Dorado County has a few advantages made possible by technology. My commuting time is about 10-seconds, starting from the breakfast table to my office desktop computer. There, I start each day writing a daily real estate and financial broadcast that’s mailed simultaneously to over 300 individual subscribers across northern California. By eight o’clock I have responded to all my mail, reviewed digital photos or taken virtual tours of all the new listings in areas of interest and downloaded and sorted the daily interest rates of a dozen different lenders. Last week within 45 minutes, I drafted a counter offer, had it signed by my clients in Roseville, delivered it to the listing agent in Cameron Park, whom had it signed by her clients in Texas who delivered it to the title company in Placerville who then completed the title/escrow information and delivered receipted copies to all parties.

Drafting a real estate contract has come a long way since I first started writing the one-page document back in the 1970’s. After getting the buyers signature I would drive the single page contract over to the listing agent’s office and then both of us would drive to the seller’s home to present the offer. Once signed, we hand-delivered the contract to the lender and the title company. If a client resided out of town, mailings could take longer.

Fax machines speeded up the document signing process in the 1980’s but by then, the one-page purchase agreement had expanded to four, then six (now 8+) and the additional documents and related disclosures made faxing cumbersome. Missing and unreadable pages were common and although every real estate office had a fax machine not every client did. The new generation of scanners and faxes became available in the late 1990’s improving the digital process but the resolution after multiple faxing was still poor.

E-mailing attachments is common. Agents have been using standardized real estate contract drafting software for years and more recently Internet based real estate forms and contract management. Internet based software allows an agent to e-mail a contract to a client, which they can print, sign and fax or mail back. The disadvantage has been in getting a legible and legally signed contract. Not any more.

Now agents and their clients have the availability and speed of the Internet while signing contracts and documents with a click of a mouse. Electronic signatures have been legally compliant since Congress authorized them for commerce seven years ago. It hasn’t been until the last two years that consumer friendly technology has evolved allowing real estate and loan documents to be prepared and signed electronically and then e-mailed any place in the world.

Electronic or E-signature products have gained legitimacy as they have withstood legal challenges. The service is secure and consumer friendly. Clients can sign or initial any contracts or disclosures easier than they can order an ink-jet cartridge on-line. I happen to use an Internet-based service called DocuSign but there are similar companies all quickly gaining in popularity. DocuSign allows agents to post documents on a secure Web site and then send their clients to the site to sign the documents electronically. Clients use a computer mouse to click on a signature line that has already been flagged with computerized yellow sticky notes. A cursive-style imprint of their name then appears on the line. Users can even select their favorite font and lettering.

If a client has some questions about the documents, they can call their agent and both can review the form on-line. Since the form is located on a secure Web site, an agent does not need to be at the office to receive or access the document.

Sometimes speed is important in a real estate transaction where “first in time is first in line” but e-signing has other advantages. Both the agent and client have a permanent digital file of the complete transaction including all disclosures, title reports, escrow instructions and loan documents available on their computer. After the transaction is complete, all the real estate and loan papers can be transferred and stored on a CD. Collecting an E-signature is more environmentally friendly than driving and less invasive for the clients who can review and sign an e-mailed document at their convenience without scheduling a face-to-face appointment.

A few lenders are now using E-signatures for their home equity loans. I have found clients more receptive to the electronic signature process than some agents but soon electronic signing will be as commonplace as e-mail.

Foreclosure rate

2007-07-26T07:32:00.000-07:00

California foreclosures soared to their highest level in more than a decade during the last quarter according to a recent report by DataQuick Information Systems.Lenders submitted 53,943 Notices of Default (NoDs) during the period from April to June, according to DataQuick, up 15.4 percent from 46,760 from the previous quarter, marking the highest level recorded since the fourth quarter of 1996 at 54,045 NoDs. Foreclosure notices topped out at 61,541 during the first quarter of 1996, but fell to 12,417 by the third quarter.

Banks foreclosed on 2,251 homes during April, May and June in the capital region. Most of the problem is in Sacramento where 1,662 owners lost their homes. Placer County recorded 220 foreclosures for the 3-month period and El Dorado County had the fewest with 89 for the quarter. I have seen it worse. During the first quarter of 1997 2,441 homes were foreclosed upon in Sacramento County. The worst quarter for El Dorado County was the second quarter of 1992 with 167 foreclosures and Placer County had 322 foreclosures during the first quarter of 1996.

While the number of foreclosures are significant and could get worst this market correction isn’t near as bad as the one we had in the 1990s. Considering the number of people and houses we had in our region between 1992 and 1996 and the increased population and number of homes we have today 15 years later. A better comparison would be the total number of foreclosures per number of homes or total number of defaults compared to the total number of loans.

How about a 2 percent loan?

2007-07-26T07:28:00.001-07:00

How about a loan with a 2 percent interest rate? Poor credit? No credit? No problem! Heard and seen it all before from Internet Lenders and don’t believe it? Well you’re not alone. Two out of three adults believe mortgage pitches are either only slightly credible or not credible at all.
More than one in five adults, 22 percent, are convinced mortgage advertising and marketing is not credible at all and that could be putting the industry's reputation at stake, according to a recent poll. Calling the results "no surprise" Harris Interactive conducted a poll that found many consumers have lost faith in the financing they need to purchase what's often the most expensive purchase they'll ever complete.

When the Harris Poll of 2,383 adults was conducted online between May 8 and 14, only about one in four had favorable perceptions about mortgage ads, with only 3 percent saying they had very favorable perceptions.

During the last housing boom, the mortgage industry experienced growing levels of predatory lending, fraud and financial crimes that spawned a swarm of complaints from civil and class action lawsuits to federal investigations of organized crime. Collusion, conspiracy and insider aiding and abetting among other sectors of the real estate industry share the blame for consumers who believe mortgage ads are empty lures.

Today's growing number of foreclosures is largely attributed to mishandled underwriting for subprime, nontraditional and other risky mortgages. Until recently, and for several years, millions of loans were approved, based not on a long-term ability to repay, but based on the ability to repay the loan at the starter or teaser mortgage interest rates. The ability to repay was also often misstated, not corroborated, ignored or otherwise simply not factored into the underwriting.

Since the boom waned, interest rates on many loans have risen, pushing monthly mortgage payments out of reach and more homes into foreclosure. The mortgage market morass is expected to cost 2 million people their homes before the market bottoms out. Worsening matters, the mortgage industry has since pulled to rug out from under hard-luck easy-money borrowers by making those same loans nearly impossible to obtain now. The move was certainly necessary to stop the bleeding, but it leaves homeowners at the mercy of a lender's workout, and the housing market swollen with inventory and falling prices.

Second Quarter New Home Sales

2007-07-14T08:24:00.000-07:00

The Gregory Group, has their corporate headquarters in Folsom. They are an information service company. They collect data from the building industry and then sell it back to the individual builders. Builders use the information to make decisions about the number of homes to build, how their competition is doing and even design features. Last Friday the Gregory Group reported home builders had sold 1,788 new homes in the Capital region during the second quarter of this year. The number was a 33 percent decline from the first quarter of this year and 1,336 fewer new unit sales than were sold during the same quarter in 2006.

The average selling price of a new home sale in the region during the third quarter was $444,233 or 11 percent below last year and about the same as it was for the second quarter of 2004.

El Dorado County reported only 29 new home sales for the period. The average price was $768,000 and 2 percent higher than a year earlier. Placer County had 515 for the three- month period with an average price tag of $512,000 declining 5% from last year. Sacramento County reported 868 new home sales averaging $414,000 and an 11% decline in price.

Greg Paquin, President of the Gregory Group said about the low sales and high inventory “I think the expectation or hope now is that 2009 or late 2008, is when we’re going to come out of this thing.”

One reason it is a little slow out there for builders is all the existing homes for sale. The region currently has 14,700 existing homes on the market. “I honestly think it’s more than 50 percent psychological,” said Dean Wehril a research executive with Sullivan Group Real Estate Advisors. “People are thinking, Why not see if I can get a better deal in six months. It’s almost a cliché, but it’s a lack of urgency. “

Opportunities in a down cycle market

2007-07-14T08:10:00.000-07:00

At the end of the day we will probably regret more things we didn’t do in life than the things we did. Recognizing opportunities is difficult when caught up in life’s immediate realities but history can provide us a window to the future, keeping events in perspective including real estate cycles.

This is my fourth real estate correction in my 34-year practice. Each was the result of different economic or political forces and each resulted in declining property values. Not surprisingly each downturn was followed by a strong rebound.

Oil and gasoline or the lack of suitable supplies fueled (forgive the pun) the real estate recession in the 1970’s. The 1973 oil embargo by OAPEC resulted in government gasoline rationing and price controls. The cost of a barrel of oil quadrupled within a year. The shock plunged the New York Stock Exchange 97 billion in six weeks and the country entered a period of high inflation and an economic recession. Real estate values declined, as did the migration to the developing suburbs. Realtors who could afford to pay the high cost of fuel couldn’t buy any because their license plate didn’t end in the correct number. I was previewing neighborhood properties on a bicycle.

In the early 1980’s, inflation resulted in mortgage interest rates soaring above 14 percent. The higher mortgage rates prevented most homebuyers from qualifying for a loan even if they were willing to pay the high interest. Sellers offered buyers the benefit of assuming their existing lower rate mortgage with the balance of the seller’s equity paid over a period of time or when financing became available. Creative seller financing included: seller carried second and third deeds of trusts, contracts of sale, wrap-around mortgages, balloon payments and lease-options. Then making matters worse, the courts stopped creative financing, preventing buyers from assuming a seller’s lower interest loans. The monetary/inflation crises of the early 1980’s prevented many from considering homeownership.

My third real estate recession beginning in 1991 was the result of job looses primarily due to defense industry cutbacks. California had been the beneficiary of the military industrial build-up during much of the 1980’s under President Regan. At the end of the Cold War, the Clinton administration and bi-partisan Base Realignment and Closure Commission closed military installations all over the state including three in Sacramento. Between 1991 and 1995 a million Californian workers were displaced by defense industry curtailments. Families who are unemployed don’t buy houses.

It’s probably too early to call the exact cause of our current real estate downturn. The flippers and investors have taken much of the blame but they have always been a factor in any market. Builders did what they do best. Overbuilding has led to declining property values but is overbuilding the direct cause of the market’s decline or were builders the recipient of other market factors? Subprime lenders will face increased federal and state regulations for their role in the problem. The reality is, subprime lending has helped far more families into their first home than it has harmed. More people own a home today and will tomorrow because a lender took a big risk making a loan to a credit-challenged borrower. The media, politicians and consumer advocates continue to look for easy high profile targets to blame for our current predicament. This market correction, unlike the other three, is occurring during an expanding economy, historically low interest rates and a plethora of financing options. What’s up with that?

One thing that all our past economic and real estate down cycles have in common is they all bounced back. The Arab oil embargo in 1973 led to increased domestic exploration and new emphasis on alternative energy sources and conservation. The out of control of mortgage interest rates of the 1980’s led to a tighter monetary policy by the Federal Reserve, which was ultimately responsible for ratcheting down the interest rates to historically low levels. Displaced defense industry workers in the early 1990’s found employment in the emerging technology sector and the more recent availability of easy financing and low interest rates has resulted in the highest percentage of homeowners ever. Despite affordability critics, more Californians own their own home today than ever before.

While there are many real problems with our current market such as: poor mortgage choices by some borrowers, over-building by some builders, predatory lending on the part of a few lenders and inflated home prices, I believe much of the malaise in the housing market is based upon a lack of confidence in its return to some normalcy. Although past performance is no guarantee of future results the odds are favorable that it will.