The Gory Details...of Real Estate

The Return of the Gory Details Podcast -- Carole Rodoni Speaks!

Yes, it’s FINALLY back – the first and longest running real estate podcast in the SF Bay Area – the Gory Details, is back again for its first monthly installment of 2010.

In this episode, I interview the always entertaining, highly regarded speaker Carole Rodoni, to discuss the current state of affairs in today's real estate market.

Shadow inventory… 3/5/7 year cycles … the budget crisis' effect on real estate... Carole covers it all.

For those of you who don't know her, Carole Rodoni is a highly regarded speaker, author and advisor in Bay Area real estate. Formerly president of Fox and Carskadon Realtors, COO of Cornish & Carey Real Estate, President & COO of Alain Pinel Realtors, she is now president of her own consulting firm, Bamboo Consulting

Click away below, because the March 2010 edition of "The Gory Details Podcast" is now available!

(1) iTunes users, get it right here

(2) Or get it at http://edgory.podshow.com

(3) And, always available at http://www.edgory.com

Happy listening!

The Party Might Just Be Ending for Low Interest Rates

It’s safe to say that mortgage interest rates have been at historic lows since the summer of ’09, mostly around and sometimes even under 5%.  Currently, they’ve been floating around the 5 & 1/8% range.

Part of the reason for these low rates has been because the Fed has been on a buying binge of Mortgage Backed Securities (MBS).  The Fed has been buying $1.25 trillion in mortgage-backed securities in its effort to prop up the economy but has said it will end those purchases March 31.

 

As I speak fairly regularly with seasoned, well-informed, and intelligent mortgage lenders and brokers, one thing they all seem to agree on is that the expectation is that, after March 31^st,  rates will head upwards, and will likely be in the 6% range.

 

Still pretty low, historically – but, a significant impact to the buying power of home buyers out there. 

 

Just think about it, if you’re looking at a loan amount of say $700,000, this means that a 1% increase in interest rate translates to paying $450 MORE per month on the same loan.  Or looked at another way, a 1% increase in rate just reduced the sale price you can afford by about $80,000.

 

Quoting some highlights from a recent WSJ article:

 

What happens when it (the Fed) stops buying hundreds of billions of dollars in financial assets?

In its monetary-policy statement, the Fed said it would "gradually slow the pace of these purchases in order to promote a smooth transition in markets." Suddenly cutting to zero, presumably, could prove too much of a jolt.

But even a gradual pullback could have big repercussions. Zero interest rates and Fed purchases -- financed by printing money -- have played a massive role in reviving stocks and bonds and rekindling the economy.

Mortgage rates will likely move up, as private-market buyers will charge more than the Fed for bearing the risks of holding government-backed mortgage securities.   Now, the Federal Reserve has said they would consider reopening its program to support the mortgage market if interest rates spiked or the economy showed new weakness

 

In its best corporate-speak, the Fed said they will "evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets."  That is, if markets play along. Investors are already balking at the heavy use of printing presses. Just look at the sliding dollar.

Nostradamus Predicts Real Estate Market Trends for 2010?

 

Ok, so obviously there’s nothing in Les Propheties that I can think of that predicts any real estate market.  But if I was Nostradamus, here’s what I’d predict:

 

“ Your local housing market will be one of the following; up, down or the same.”

 

Whoah, Ed….prolific yet prescient. How can you be so sure? 

 

Ok, so obviously I cast a little doubt on “experts” predicting the market. But I think primarily it’s because the information the general public receives on a daily basis seems to manifest more personalities than Sybil.

I mean, one look at the articles in today’s media, and surely (bolding for sarcasm) one can get a great sense of what’s going on.

 

Example numero uno. Here’s two recent articles…tell me which one you believe:

 

“Pending Home Sales Down 16%”  

vs.

“Home Resales at Highest Level in Nearly 3 Years”

 

Headlines aside, let’s look at the two main themes of these articles:

 

“The number of people preparing to buy a home in November fell sharply in the latest sign that the housing market, which had been rebounding strongly, may be headed for a "double-dip" downturn over the winter.”

vs.

“Sales of previously occupied homes surged in November to the highest level in nearly three years, spurred by federal subsidies for starter homes and a massive Federal Reserve push to drive down mortgage rates.”

 

Example numero dos.

Construction of New Homes rebounds in November

vs. 

Construction Spending falls more than expected

Huh? What? And both of these articles came from the same news outlet (MSNBC, whose coverage I humbly admit I usually tend to like).

 

And though while the title of this final article is quite vague:

 

“Home prices rise for 5^th straight month”

..one of its key points was this: “Prices have climbed for at least six months in a row in Denver, Washington, Minneapolis and San Francisco. But in Chicago and Tampa, Florida, prices are down by more than a percent from September.”

 

Its premise points to one clear truism: all real estate is local. 

Thus, NostraGoryus was right...Your local housing market will be one of the following; up, down or the same.

 

 

 

Urban Legend Hits the Real Estate World

Be forewarned -- no, this is not about kidney harvesting, Nigerian Lottery winnings, or Bill Gates giving everyone lots of money for forwarding an email -- there is an email making the rounds titled "HR 2454: CAP AND TRADE ENERGY BILL", which purports that new legislation will require all homes to retroactively pass new energy standards before they are sold.

Some even say that all homes will now be required to get a "label" for your house every year, proving that your home meets new energy standards.

This is all patently and unequivocally FALSE. (and you can even check Snopes.com here to doublecheck)

Firstly, whoever started this email has a serious conspiracy theory complex. They also probably fall into the category of "birther", "teabagger party member", or "Glenn Beck-lover".

Bottom line, our gub'mint is not going to do anything - ANYTHING - that will adversely affect the real estate market, which is absolutely one of the key elements in our ongoing, slow economic recovery. Why do you think they recently overwhelmingly voted to extend the first time buyer $8K tax credit bill, as well as extend the $729K conforming loan limit? They want to encourage people to have more confidence in home ownership.

Anyway, I also consulted our National Association of Realtors (NAR) position on this, and below is what it said. The most revealing statement, which contradicts this email is that this bill  "Does not create a federal energy audit requirement for real property"

"The U.S. House of Representatives approved H.R. 2454, the American Clean Energy and Security Act by Reps. Waxman (D‐CA) and Markey (D‐MA). Following NAR’s long‐standing policy to only take a position on legislation, or provisions within legislation that have a direct affect on real estate, NAR worked with our Congressional allies to strip the Energy Bill of provisions that would have adversely affected our industry.

After multiple consultations with the NAR Climate Presidential Advisory Group, the NAR Land Use, Property Rights and Environment Committee, and state associations who had dealt with energy audit legislation at the state level, the Land Use, Property Rights and Environment Committee directed NAR staff to concentrate on the real estate provisions in the bill.  As a result, NAR issued calls for action and made this a talking point for Capitol Hill visits during its recent Midyear meeting.

Overall, REALTORS® succeeded in making a number of positive changes affecting the real estate provisions of the bill. The House‐approved bill:

·    Does not create a federal energy audit requirement for real property;

·    Exempts existing homes and buildings from any federal guidelines for new construction energy efficiency information labels.

·    Prohibits the implementation of any labeling during a sales transaction.

·    Leaves the decision to states as to whether to require energy audits, disclosures, etc.

·    Provides property owners with significant financial incentives, matching grants and tools to make property improvements and reduce their energy bills;

·    Prohibits the Environmental Protection Agency from regulating residential and commercial buildings under the Clean Air Act;

·    Eliminated an early proposal to allow citizens to sue over minor climate risks under the Clean Air Act; and Establishes green building incentives for HUD housing, including a loan program for renewable energy, block grants and credit for upgrades in mortgage underwriting."

Federal Tax Credit For Home Buyers Gets Extended - Well, Happy Early Christmas!

  An early Christmas present for many home buyers came in the form of the extension of the federal tax credit for home buyers, and was signed into law by President Obama Friday, Nov. 6.  The tax credit, which was set to expire Nov. 30, has been extended through April 30, 2010 with a 60-day extension if a binding contract is in place prior to deadline.  It also was expanded to include existing homeowners who have lived in their primary residences for five consecutive years out of the last eight years.

For all kinds of FAQs (aka, "Everything You Wanted to Know About the Tax Credit....But Were Afraid to Ask), see the official website here.

First-time home buyers still may be eligible for a tax credit of up to $8,000, while existing homeowners may receive a credit of up to $6,500.  The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers, to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

Under additional provisions in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The bill maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order. 

Interesting Market Share Data -- Who Sold What Mortgages So Far

Ever want to know how many mortgages your lender does, in your area, and what kinds?

Well, with much kudos to my preferred B of A mortage loan officer Shaveta Sareen (who can also be reached at 650-358-4874), take a look at this market share data for San Mateo County, from January to June of this year (H1 '09).

I'll paste the quick snapshot below, but for an even more detailed chart, including # of fixed vs. # of ARM mortgages, and more, see the full PDF here: Download San Mateo - Purchase Mid 2009.

Taking a Close Look at the Homebuyer Tax Credit

( Reposting this from our Intero corporate blog, and authored by our illustrious Gino Blefari).

The much talked about American Recovery and Reinvestment Act of 2009 – otherwise known as the “Home buyer tax credit” – expires on December 1, 2009.

That’s just a little over three months from now - not much time when you consider that the average buyer takes six to eight weeks just browsing online for homes before even contacting a Realtor.

What’s more, we are seeing increasing signs of a market bottom. According to Altos Research, a firm based in the Silicon Valley that tracks real estate data, median sales prices for San Jose, Saratoga, Los Gatos and Cupertino all increased in the first week of August.

At Intero, we sold more than 900 homes in July – a one-month record for our company.

My point: If you are thinking at all about buying, now’s the time to take a good look at the tax credit program to see if it makes sense for you.

The National Association of Realtors offers a comprehensive guide to the tax credit on their website, but here’s a quick overview:

• The credit is equal to 10% of the purchase price of the home, up to $8,000.
• First-time homebuyers who purchase homes between January 1, 2009 and December 1, 2009 are eligible. To be a “first-time home buyer” you or your spouse may not have owned a residence during the three years prior to your purchase.
• Single buyers with incomes up to $75,000 and married couples with incomes up to $150,000 may receive the maximum tax credit.
• The credit does not need to be repaid if you occupy the home you buy for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.
  
  

Do your homework. Get advice from a legal or tax professional if you need it. But don’t let this landmark program expire without taking a closer look. 

Remembering My Dad Today...

A quick respite from all the Real Estate talk for a moment....

On this day two years ago, my dad passed away at the age of 85, after battling the devastating effects of Alzheimers and dementia.

Two years ago, I wrote a post about it, "Farewell to a Great Salesman".

On the one year anniversary of his passing, I ran the New York Marathon. I carried his memory with me the whole 26.2 miles, not in record time for me, but in my usual 4 1/2 hours time (this was my 9th marathon).  I love the NY marathon, it's an amazing spectacle of a race..Highlights of my day can be found in this post, "Five Boroughs, 5 Bridges...in 276 Minutes".

As my dad was a WWII veteran, in my mind he was part of that generation of Americans that truly did save this country from evil, and preserve democracy like no other nation in the world.

My dad voted Democrat, as do I. And today, I honor him by voting for what I hope is a president that will bring our country back to the greatness we achieved after 1940.

Next year...hopefully it's the NY Marathon again!

My Email from Senator DiFi

Oh, ok, so it wasn't PERSONALLY to me -- more of an automated email sent to constituents expressing concern over the government's bailout package..it's a pretty interesting read, actually.

Whether you like her or not, the facts she lays out on the gravity of all the financial failures is pretty astounding...read on:

Dear Mr. Gory:

Thank you for your letter expressing support for recent legislation to stabilize our Nation's financial markets.    

This is a difficult situation for which there are no perfect solutions, and I would like to share my thoughts and concerns with you. Please find attached two statements that I have given on the Senate floor detailing my reasons for supporting the Emergency Economic Stabilization Act of 2008 (Public Law 110-343), which the President signed into law on October 3, 2008.

Once again, thank you for writing.  If you have any additional questions or concerns, please do not hesitate to contact my

Washington

,

D.C.

office at (202) 224-3841. Best regards.

 

Statement of U.S. Senator Dianne Feinstein

In Support of the Economic Rescue Package

October 1, 2008

 

           "Mr. President, I rise today to support the bipartisan economic rescue legislation.

It has been said that Senators have six-year terms for a reason. And that reason is to be able to take tough votes because it's right for the nation, and take tough votes when at times they may be adverse to the beliefs of your constituency.

This today is indeed a tough vote.

I want to thank the Banking Committee, particularly its chairman, Chris Dodd, and members on both sides of the aisle for their work on this.

So let me quickly begin.

This bill is not the bill that was put forward by Secretary Paulson on September 20th. His bill was essentially a non-starter - startling in its unbridled allocation of power to one man: the Secretary of Treasury whom we know now, and to a Secretary of Treasury after January whom we do not know.

It placed this man above the law, above administrative oversight and above Congressional action and essentially gave him $700 billion to do with what he thought best.

This bill didn't fly with virtually anyone who looked at it, particularly constituents, who have called in the tens of thousands all across this land.

My office has received over 91,000 calls and emails with over 86,000 opposed. The bill before us is not Paulson's three-page proposal. Rather, it is a bipartisan effort that adds oversight, accountability, assistance to homeowners, executive compensation limits and other measures to protect taxpayers.

But there still is a lot of misinformation on this bill.

This is not a $700 billion gift for Wall Street.

Rather, the federal government will buy equity in certain assets - both good and bad - to pump liquidity into the marketplace and unfreeze credit which is increasingly freezing and unavailable.

Over time, these assets will be sold and the federal government will be the first paid back on the investment.

The belief is that by doing this the federal government will clear much of the bad debt on the books of certain strategic financial institutions, restoring stability, adding liquidity and unfreezing credit.

Recently, we have seen major

U.S.

institutions fail:

 

Bear Stearns

Fannie Mae and Freddie Mac

Lehman Brothers

Merrill Lynch

AIG

And, two retail banks - not investment banks:

Washington

Mutual, and Wachovia

If we do nothing, more institutions will fail.

Now, you may say: what does this mean to me? I work hard, I pay my bills, I pay cash.

Here's what it will mean to you: it will be harder for most Americans to get any credit. Therefore, jobs will be lost.

And we may well face a deep recession.

California

has 3.75 million small businesses with an average of 5.6 employees. That adds up to over 20 million jobs.

Some of these businesses are funded with cash, but most are funded with credit. When credit freezes, payrolls cannot be met. And when payrolls cannot be met, pink slips are sent out.

And this will happen to retailers, grocery stores, restaurants, electrical and plumbing contractors, apparel manufacturers, computer and electronics stores, and auto dealerships.

Sales at auto dealerships have fallen dramatically in the past year.

 

Ford sales are down 34 percent,

Chrysler sales are down 33 percent,

Toyota

sales are down 29 percent, and

GM sales are down 16 percent.

 

The list will go on and on.

Importantly, there have now been several improvements to this bill. First, The FDIC insurance rate covering bank deposits has been increased from $100,000 to $250,000. Americans will know that their deposits are secure up to $250,000.

The legislation will provide tax relief to working families.

One example: the Alternative Minimum tax is a real problem. It was meant to apply only to 200 wealthy people, but it was never adjusted for inflation and it has crept down the income scale to the point where more than 25 million taxpayers today may well have to pay an Alternative Minimum Tax.

In

California

, 700,000 people paid this tax last year. But 4 million Californians will pay that tax this year unless we take action.

This bill takes that action. For one year it will prevent this tax increase.

The Congressional Budget Office has reviewed this bill and concluded that the net cost to taxpayers is "likely to be substantially less than $700 billion."

Again, these investments are first in line to be paid back.

It must be remembered that there was a great deal of criticism when the

U.S.

government bailed out

Mexico

in 1996 with $20 billion. The fact is, the money was paid back ahead of time and $600 million in profit was made.

Let me give you the following points.

This bill mandates that the government provide loan modifications for the subprime mortgages it acquires. This will help keep families in homes rather than foreclosing and putting the house on a deteriorating housing market where property values drop and homes are looted.

The bill limits executive compensation.

It provides strong oversight and accountability, including a financial stability oversight board, a five-member Congressional oversight panel, an Inspector General, and a constant presence at Treasury by the Government Accountability Office.

This is the only choice Congress can make.

One can rail against it and vote no on it, but that's not going to solve the problem. We have one chance, and one chance only, to solve the problem, and it is this bill.

I wish I could write it differently. Others wish they could write it differently, but the fact is that we are faced with this. Again, there is no question this is a tough vote.

But there's no question that this is a vote that I believe has to be made."