This is worth a read.

Latest from Ben Stein

Thanks Manuel for a photo of this cow moving against the herd.

I just looked at the San Jose Mercury News’s real estate blog, Square Feet. It appears they, like many news outlets, are having an identity crisis with the current condition of the real estate economy. Below are 2 postings that were posted on the Square Feet blog, by the same writer. They were posted on consecutive days, the 18th and 19th of October 2007.

Take a look at this story they posted on October 18th entitled Bay Area Home Sales at a Two-Decade Low In September.

… And in Santa Clara County, again for all types of homes (new and resale, houses and condos), the rock-bottom month was Feb. 1991, when 997 homes sold. For sales of just resale houses, the lowest month was Feb. 95, with 684 houses changing hands. Let’s bear in mind, though, that there were a lot fewer homes to sell in the Bay Area back in the early 1990s, so it’s possible that last month’s numbers are in fact scraping near record-low territory.

They make it appear as if the Bay area real estate economy is tanking. Yet, before you make that assessment read the posting, Silicon Valley Luxury Market Soldiers On which was posted on the 19th of October.

A report out this week from Alain Pinel Realtors showed that 227 homes sold for $2.5 million or more in the third quarter in seven of the Bay Area counties, compared to 195 of those high-ticket homes that sold last year during the same period. That’s an increase of 16 percent. The counties in the survey were San Francisco, San Mateo, Santa Clara, Santa Cruz, Monterey, Alameda and Contra Costa.

Reading the October 18th article could cause arrhythmia, while reading the October 19th article may make you bullish beyond belief. So, how can these 2 articles be written just 2 days apart and paint such a different picture of our real estate economy? This answer is complicated. First, the media is often behind the real estate curve. Second, it is my opinion that the media is not a good place to get tips and tactics for you next real estate sale or purchase strategy.

So, my interpretation of the disjointed news above, is that our markets have been made more volatile by a lack of liquidity and the negative press this crisis has created. This means that we will see many ups and downs in the months to come. Don’t fret over the downs and jump for joy over the ups. There is much opportunity in change, if you are able to take advantage of the situation.

Get good representation from a successful Realtor in your area who can help asses your ability to act. Then look at the facts when deciding to make your next transaction. Rates are still low compared to historical averages. In general listed homes are having less buyer activity and are more willing to negotiate. This is a fantastic buyers market for those that are qualified buyers with good down payments. Get a qualified mortgage adviser that can help you navigate the complicated mortgage markets.

It is my interpretation that the robust high end real estate surge that the above October 19th article refers to, as smart action by top 1% income earners to enter a market where they get both a good rate and a great price. Having both these opportunities at once is rare and will not last for ever. These movers in the market are truly buying against the herd.

I watched this presentation for the first time several months ago. At first it put me in a mood of sadness. It is a powerful presentation that shows how our world is ever changing. In this sea of change we must navigate our family, lifestyle, and financial ambitions. In the last week I have spoken with several clients that have asked for assistance with finance, trusts, and real estate. I have found that life is a balancing act where we attempt to create harmony. When we act without considering our concerns we create future breakdowns. This presentation illustrates that none of us make desicions in isolation. The endless change that we encounter in the world is always knocking us off balance. We then act to balance ourselves once again. After watching this presentation for a second time, just 5 minutes ago, I felt a rush of happiness and exhilaration. There is great opportunity in constant change!

 
Thanks PBO31 for this photo of the Oakland Tribune at night.

It looks like the public still has real estate on their minds. A recent study done by Guidant Financial Group polled 1,000 self directed IRA holders and uncovered that 65% of them are considering real estate as a part of their retirement strategy. See more on this story at Business Journal.

Often in hot and cool markets I find that people tend to lose track of the fundamental reasons behind why real estate is a great investment. First, it gives you income through rents. Second, it appreciates in value over time. Third, it shelters income with tax benefits. Real estate is the only investment that gives you all three of these benefits.

Thus, it is not surprising that self directed investors look to real estate for their retirement returns. Just take a look at the Bay Area’s average residential real estate returns over the last 28 years. You can see that residential Bay Area real estate has a higher average appreciation return than the S&P 500. When you add in the cash flow and tax advantages of investment property it is obvious that this is a valuable investment instrument. What I do find surprising is that many of the real estate investors I meet have inadequate or weak strategies for acquiring, assessing and liquidating their investments in the Bay Area.

I often keep track of new tech innovations by reading Robert Scoble’s Scobleizer blog. Robert used to work for Microsoft’s channel 9 web site and he now works as the Vice President of Media Development at Podtech.net. He has written a fantastic book called Naked Conversations, which chronicles blogging as a transparent tool for companies to reach their customers. It is an interesting read for those of you that are interested in blogging.

In his current position Robert travels the world uncovering exciting new innovations. The video below is an interview Robert made with Arron Patzer who created a new financial web tool called mint.com that was unveiled at the TechCrunch 40 conference on September 17th in San Francisco. The video shows how this online application could rival Quicken. I always recommend that my clients keep track of their finances as a powerful way for them to keep tabs on their financial goals. This looks like a new low cost way to do it. The video makes it look interesting, but I have yet try it myself. Let me know if you have tried it and what you think!

The media’s job is to sell their product and they know that bad news sells.  If you listen to enough bad news, you will believe that everything is getting worse all around you.  But that’s just not true, things are getting better in almost every way.  

Clear-Eyed Optimists

I’m old enough to recall the days in the late 1960s when people wore those trendy buttons that read: “Stop the Planet I Want to Get Off.” And I will never forget that era’s “educational” films of what life would be like in the year 2000. Played on clanky 16-millimeter projectors, they showed images of people walking down the streets of Manhattan with masks on, so they could avoid breathing the poison gases our industrial society was spewing.

The future seemed mighty bleak back then, and you merely had to open the newspapers for the latest story confirming how the human species was speeding down a congested highway to extinction. A group of scientists calling themselves the Club of Rome issued a report called “Limits to Growth.” It explained that lifeboat Earth had become so weighed down with humans that we were running out of food, minerals, forests, water, energy and just about everything else that we need for survival. Paul Ehrlich’s best-selling book “The Population Bomb” (1968) gave England a 50-50 chance of surviving into the 21st century. In 1980, Jimmy Carter released the “Global 2000 Report,” which declared that life on Earth was getting worse in every measurable way.

So imagine how shocked I was to learn, officially, that we’re not doomed after all. A new United Nations report called “State of the Future” concludes: “People around the world are becoming healthier, wealthier, better educated, more peaceful, more connected, and they are living longer.”

Yes, of course, there was the obligatory bad news: Global warming is said to be getting worse and income disparities are widening. But the joyous trends in health and wealth documented in the report indicate a gigantic leap forward for humanity. This is probably the first time you’ve heard any of this because — while the grim “Global 2000″ and “Limits to Growth” reports were deemed worthy of headlines across the country — the media mostly ignored the good news and the upbeat predictions of “State of the Future.”

But here they are: World-wide illiteracy rates have fallen by half since 1970 and now stand at an all-time low of 18%. More people live in free countries than ever before. The average human being today will live 50% longer in 2025 than one born in 1955.

To what do we owe this improvement? Capitalism, according to the U.N. Free trade is rightly recognized as the engine of global prosperity in recent years. In 1981, 40% of the world’s population lived on less than $1 a day. Now that percentage is only 25%, adjusted for inflation. And at current rates of growth, “world poverty will be cut in half between 2000 and 2015″ — which is arguably one of the greatest triumphs in human history. Trade and technology are closing the global “digital divide,” and the report notes hopefully that soon laptop computers will cost $100 and almost every schoolchild will be a mouse click away from the Internet (and, regrettably, those interminable computer games).

It also turns out that the Malthusians (who worried that we would overpopulate the planet) got the story wrong. Human beings aren’t reproducing like Norwegian field mice. Demographers now say that in the second half of this century, the human population will stabilize and then fall. If we use the same absurd extrapolation techniques demographers used in the 1970s, Japan, with its current low birth rate, will have only a few thousand citizens left in 300 years.

I take special pleasure in reciting all of this global betterment because my first professional job was working with the “doom-slaying” economist Julian Simon. Starting 30 years ago, Simon (who died in 1998) told anyone who would listen — which wasn’t many people — that the faddish declinism of that era was bunk. He called the “Global 2000″ report “globaloney.” Armed with an arsenal of factual missiles, he showed that life on Earth was getting better, and that the combination of free markets and human ingenuity was the recipe for solving environmental and economic problems. Mr. Ehrlich, in response, said Simon proved that the one thing the world isn’t running out of “is lunatics.”

Mr. Ehrlich, whose every prediction turned out wrong, won a MacArthur Foundation “genius award”; Simon, who got the story right, never won so much as a McDonald’s hamburger. But now who looks like the lunatic? This latest survey of the planet is certainly sweet vindication of Simon and others, like Herman Kahn, who in the 1970s dared challenge the “settled science.” (Are you listening, global-warming alarmists?)

The media’s collective yawn over “State of the Future” is typical of the reaction to just about any good news. When 2006 was declared the hottest year on record, there were thousands of news stories. But last month’s revised data, indicating that 1934 was actually warmer, barely warranted a paragraph-long correction in most papers.

So I’m happy to report that the world’s six billion people are living longer, healthier and more comfortably than ever before. If only it were easy to fit that on a button.

Mr. Moore is a member of The Wall Street Journal Editorial Board.

Thanks Martapiqs for this areal photo.

I am often asked to speculate about the strength of the Bay Area real estate markets. My mantra is that in past down markets properties have transacted and the markets have continued to move inventory. A long term hold approach to real estate is always best assuming you believe in California real estate. There is no doubt that the credit crisis has slowed the markets, but where do we stand next to the rest of the nation?

I often find that the rest of the nation’s news of depreciation is counterintuitive common thinking that becomes false representations of our Bay Area markets.  For instance many buyers in our current market believe that the Bay Area’s home prices have fallen everywhere. This is false! It is my belief that this rhetoric enters the market through the national news, which often sets a tone for all of real estate even though we know that there are individual micro-climates in the Bay Area that have increased in value throughout the current national instability. Evaluating individual neighborhoods can be a block by block assessment in some Bay Area cities! This assessment is critical for buyers looking for value in our current market and trained experts who are transacting regularly in the market can make powerful assessments of these trends for home sellers and buyers.

I just read an interesting new study by Forbes Magazine that speculates about the strongest real estate markets in the nation. I was not surprised to see San Francisco as number 9 on the list with a city wide 2006 appreciation rate of 7.6% and a projected 2008 rate of 2.5%. The article speculates that our areas housing defaults will be a drag on our appreciation rates, but will not destroy our Bay Area real estate markets. It was interesting to note which other cities Forbes has ranked across the United States (Pittsburgh, Dallas, Seattle, San Antonio) as stable real estate markets in 2008.

As Curt has stated moving against the herd can be a powerful way to move. Take a look at average appreciation rates in the Bay Area. Historically when the real estate markets are slow and credit is only available to strong buyers, then for some the market may be ripe for the picking.

By Curt Van Emon

The opportunity to move against the herd is in front of us right now.

Common sense tells us to buy when rates are low.  Sounds reasonable, right?  But let’s take that thought further and see where it leads.

If we accept that common sense tells us to buy when rates are low, then:
Common sense tells us to buy when there are the most competitors because common sense by definition means that most everyone will arrive at the same conclusion.
Common sense tells us that if we are to get the house we want, then we must outbid every competitor who is bidding on that house.

Remembering the principles of supply and demand, we know that this will drive the price higher.   This must sound familiar to those who have been in the Bay Area real estate market over the past few years and who have routinely witnessed 10 to 15 offers on homes for sale. 

Now that rates are higher relative to the last five years, common sense is that maybe buying right now is not such a great idea.  If common sense is telling you to not buy now because rates are higher, then:  
Common sense is telling you not to buy when there are fewer competitors and less pressure for a house price to be bid up
Common sense tells you to sit on the sidelines when it is a “buyer’s” market

It seems that common sense leads one into taking actions that have them compete with the most bidders and to sit on the sidelines when there are fewer bidders.

Might it be better to buy when rates are high and there are fewer competitors?  We always hear that it is more effective to not follow the herd and we see an excellent example of this in today’s higher interest rate market.

The borrower always has the option to refinance if rates drop. This gives buyers the opportunity to buy a house where there are fewer competitors and then to lower the costs later if rates decline.

Some buyers cannot afford or qualify for loans at the higher rate.  This is good news for those buyers who can afford and can qualify.  This is what it means to have fewer competitors.  Some will choose to not buy because of higher rates and others will be forced out of the opportunity by the market mechanisms at work.

Talk with your Realtor® to get specific grounding about what is happening with properties in the area where you’d like to buy.  Are the days on market increasing?  Are there multiple offers or are properties selling to one offer? 

Come talk with us at Opes. We’ll work with your situation with our proprietary Future Value Tool™ which creates a personalized financial forecast for each of our clients.   With the results, we can help you assess what you can responsibly afford that still enables you to fund your retirement, college expenses and lifestyle expenses. 

Perhaps going against common sense will enrich you in ways you never expected.       
If there was ever an opportunity to move against the herd, it is in front of us right now.

 
Thank you Decaf for this photo of Oakland’s city lights.

Looking for information on Oakland’s development, art scene, politics, restaurants, neighborhoods, education, nightlife, retail shopping or crime reports? San Francisco magazine has a great feature article on Oakland in this month’s issue. But… thanks to the power of our computers, you do not have to buy the magazine to enjoy it! Check out the article online and enjoy all that Oakland California has to offer.