Thanks Criggchef for this flickr image.

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

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

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

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

 
Thanks Kristie Wells for the use of this Flickr Photo.

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

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

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

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

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

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

Thanks woodlywonderworks for this Flickr Photo

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

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

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

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

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

Fannie Mae and Freddie Mac were taken over by the US government on September 7th, 2008. This is result of the unprecedented changes that are occurring in the US financial and real estate markets. And there is no doubt at this point that the effects of our liquidity crisis will be felt worldwide. Yet, what does it mean for top 1% income earners that are also consumers of US mortgages? (If you’re wondering, you are in the 90th percentile of income earners if your annual household income is over $150,000; top 1% is above $250,000.) It has been almost two decades since the recession and real estate downturn of the early 1990s brought on by, among other things, the Savings & Loan crises. As we learned back then, top 1% income earners are not immune. I’d like to offer my speculation about the risks and opportunities available in the current volatile marketplace.

In the short term, I believe we will see falling interest rates as the US government touts increased liquidity and the international markets cheer the savior of their large investments in the US mortgage markets. This drop has already occurred as rates fell more than 1/2% in the last couple of days in treasury yields and certain conforming and so-called conforming-jumbo mortgages. This could be positive for a large group people currently holding US properties encumbered with interim fixed period ARM loans that are due to reset in 2009. I believe we are going to see a massive refinancing movement while these rates are low and this may act to lessen the blow of the second wave of foreclosures due to hit the US next year. Rates on many 30 year mortgage products are now at or below 6% which is extremely low in terms of historical averages at 9%. Note that many property owners will still not be able to refinance due to the drop in property values and the lack of their ability to get a satisfactory appraisal, as well as stricter underwriting guidelines. Yet, I think it is safe to say that this second wave of foreclosures is going to be less dramatic than the first wave that was primarily attributed to defaults of sub-prime mortgages. The first crippling wave of foreclosures during 2007 and 2008 was a product of highly risky sub-prime loans done in mass and then abruptly stopped as the markets collapsed.

Yet, it is my belief that unabashed glee is short sided. The takeover will shift Fannie Mae and Freddie Mac’s losses to US tax payers. If you are a taxpaying US citizen who does not own real property, then you are exposed to the financial burden without any of the benefits of owning real estate. Someone will eventually have to pay the piper for these losses and it now appears that this burden will be heaped on top of the US’s national debt that is already staggeringly high. Just like individuals cannot expect to heavily leverage themselves without consequence, neither can governments. Thus I speculate that in order for our government to strengthen its position in the global economy we will need to drastically cut debt and this translates into increased taxes and slashed government programs. We are already experiencing this issue of increasing taxes and reducing government programs at the state level as California once again struggles to pass a balanced budget. An increase in taxes means additional financial pressure that will have to be levied on US citizens at some point in time. This will be a destructive consequence to the US economy.

Now more than ever top 1% income earners who endeavor to capitalize on their existing assets and/or enter the real property markets need superior help. Questions such as whether or not to refinance existing debt, if to sell and/or buy now, trade up, what financial structures are most tax efficient, and so forth, are vital to answer in order to preserve and increase their wealth. The answers to these questions will significantly impact the profitability or loss in your real property transactions, whether for investment or for your personal residence. It is critical that your financial, real estate and tax advisors are able to make powerful interpretations of your current and future situation. When there is a disruption in the marketplace, such as our current economic situation, there is heightened risk and also amplified opportunity. Make sure that your advisors are capable of handling all of your concerns during this turbulent time. If you are looking for financial, mortgage or real estate assistance feel free to contact us for a free initial consultation so we can adequately assess your needs.

Thanks JPhilipson for this flicker photo.
I have many times said on this blog that this is the best residential real estate buying environment I have seen in my career. I have also said, that rising rates would be devastating to buyers in this market. I just read a convincing article on the Behind the Mortgage blog that alludes to the negative effect rising rates can have for buyers.

First, this market is currently suffering from a lack of liquidity and the restrictive guidelines that mortgage banks are imposing on buyers. Buyers must now have higher credit scores, more down and the property they buy is under much more restrictive scrutiny from appraisers. This has led to many buyers being cut out of the housing markets, which in turn has dropped demand and thus lowered housing values.

Second, rates have until now remained relatively low. This means that qualified buyers are cleaning up in this market. I speak from experience in this market, while I am seeing buyers get some great deals on property, and also get great 30 fixed rates.

We all know that markets are constantly changing and drifting. The current market chatter alludes to rising rates as the economy rebounds and the Federal Reserve puts as much upward pressure as they can on rates to quell the potential inflation fears. As I wrote in my post, Buyers Could Get Caught Waiting For The Sky to Fall, the deals in the market may begin to vanish as the cost of capital increases. A risk for buyer’s now becomes that real estate prices have already been squeezed so rising rates will not necessarily drop property values in conjunction with increased cost of capital and the rising difficulties of getting approved.

Thanks to Todd Derick for this flicker photo.

I just read an article on the Blown Mortgage blog. It had a graph showing new and existing home sales. Of course in this market both are down. In fact, the Blown Mortgage blog is claiming that the volume of existing home sales is down 15% from last year.

First, it is important to note that just because the volume of sales are down, it does not mean that values of homes are dropping. In fact this can be quite the contrary in certain areas. This is the case certain segments of the Berkeley California market where many listings are still transacting with multiple offers. Just a month ago I saw a home get 15 offers and sell at a price way above the average median price for a home of this size and location.

Second, I found it interesting that the existing home sales have begun to diverge from new home sales. In this graph since January of 1994 existing and new home sales tracked each other fairly steadily. Yet, we can see in January of 2008 that the curves are fairly far apart with the number of existing home sales beginning to level off while new home sales volume is still plummeting.

I speculate this is because many developers have stopped projects that were in the pipeline if they could. We have seen this effect in the drop in new home permits as well. We are seeing that the average homeowner in an existing home is still transacting while the investor/speculator is not. This makes sense for many home owners must sell and buy in any market. For instance, life ensues in any market and homeowners are relocated to new jobs all the time.

Does this indicate the bottom of the market? I am not sure, but it does indicate what we can expect from our market without a large volume of speculated dollars being spent to drive up prices. The air was let out of the real estate bubble for more then one reason. The constriction of financial liquidity in the mortgage markets started the deflation. Once the mood was set, the exit of speculators and investors, drove the market down further. Now we are seeing buyers who were over leveraged get caught in the falling values and go into foreclosure. I suspect that when we see the developers begin to return to the market and banks begin to loosen their guidelines, we will see a more robust market again. I also speculate that we should see a return in existing home sales before we see it in new home sales, for the mechanics of the entitlement and permitting processes means that it takes time for developers to ramp back up into production.

Interesting news on he mortgage front in California is that FHA is now offering 3% down on loans up to $729,750. FHA also allows for a 3% credit towards buyers non-reoccurring closing costs. This means that buyers can be 0% down once again. I view this as a drastic loosening of the mortgage guidelines. One blockade down… So, where are those speculators?

Thanks mj*laflaca for this photo

Big ups and big downs create interim situations that can favor the bulls and the bears. I always liked the Warren Buffet’s quote, “When the tide goes out we get to see who is not wearing a bathing suit!” I can just visualize Warren selling a surprised naked swimmer a pair of shorts for 10 times the value Nordstrom’s would charge. Yes, abrupt changes in the market do show us weaknesses, but they also expose opportunities.

We all know that the markets will inevitably go up and down. Yet, people often get caught up in the change and miss the opportunity that is created. I know this is true for residential real estate. I have seen many people sit and watch the market move around them. These folks tend to be purveyors of disaster. They might say, “I can’t believe the stock market dropped 200 points today. Yikes!” Others are realizing opportunity in this market and buying homes whose sales prices look more like 2005 ’s median price than 2008’s. I am also watching some listings receive multiple bids and sell for over the asking price. I even had a buyer who recently purchased a luxury home for less than it would cost to construct the home in todays market. Opportunity exists in both bull and bare markets.

I have also recently been looking at the big changes ahead in commercial and residential income real estate. I find it interesting that Shorenstein (one of the largest private real estate investment funds) has just raised its largest fund ever ($2.06 billion). It is interesting to see how the current market volatility has made for some amazing opportunities to raise real estate investment capital.

It has been interesting for me to note that powerful investors make moves when the future seems the most unclear to the masses. This is because value in real estate often occurs when the market is most inefficient. Currently the liquidity crisis has made our financial markets very inefficient. This has also translated in to inefficiency in residential real estate sales. The efficient days of placing a sign in the front yard and having 10 bidders at your doorstep have been replaced by an ebbing and flowing market. When everyone is running away from investing in the market, and the tide goes out, the professional investors begin to pick away at the deals that are left behind.

Most surprising in this market are the individual emotions and moods that tend to amplify the tides. I have often heard people say, “My friend said the real estate values are falling everywhere.” Often I have seen that the friend does not own a home. Yet, the ripple they create with their hysterical mood will affect the actions of a few. Savvy buyers and seller ground their moods with data and facts. They can then take powerful confident action in the market. They learn the characteristics of their market and then act when opportunity arises.

There are plenty of great opportunities in this market, as its ebb and flow opens and closes opportunities for selling and buying.

The Federal Reserve Bank of New York has put together a great National interactive heat map that overlays the residential loan data of sub-prime mortgage holders. I am bringing this to the attention of our readers as I just witnessed a home in inner Berkeley that received 14 offers. I also just read a post on 3 Oceans Real Estate that concurred that homes on the peninsula are also receiving multiple offers and counter intuitive to what is going on Nationally, selling for over the asking price.

Since the beginning of the liquidity crisis I have been posting that many Bay Area cities were not experiencing as severe a decline as the national news media had indicated. I also stated that if we were to see a rise in interest rates coupled with a stagnation or rise in median home prices (instead of falling median home values as the media had speculated), then many home buyers would get caught waiting for the sky to fall. Having watched the Bay Area real estate markets closely over the past year I have begun to see interest rates rise due to the lack of liquidity in the banking industry. Yet, in many popular Bay Area markets the median home values have not fallen significantly as many have projected. Of course this is not true for all cities, zip codes and houses. Thus, getting the advice of a local competent real estate adviser is of the utmost importance when considering purchasing a home. Through transacting in this market I have seen for both my buyers and sellers that in volatile times there is great opportunity for both.

The interesting thing about these heat maps is that they show the strength of the Bay Area’s home owners to wait out a real estate storm. Thus, the most desirable Bay Area houses have been very resilient to the housing down turn, while in the less desirable areas I have seen sharper drops in values. In Berkeley we are seeing a lack of desirable housing inventory. This has meant the desirable housing stock is receiving lots of buyer activity and often receiving multiple offers. I believe that this is because as these heat maps illustrate the East Bay and Most of the Bay Area is not inundated by as many short sales and foreclosures as many other parts of the Nation. The maps also indicate that the East Bay has home owners who have steady jobs, strong FICO scores and lower loan to values then say California’s Central Valley.

I just read an interesting perspective on the currently most asked question of 2008. So, Is now a good time to buy? We have written many different posts stating why it’s an excellent time to buy in the Bay Area. The main reason is that we are seeing negotiating opportunities for our buyer clients while currently we are still seeing historically low rates.

Yet, Dan Green of the Mortgage Reports has an interesting mortgage brokers perspective on why now is a good time to buy. His main reason is that there are drastic changes still taking place in the mortgage markets. Banks are still introducing new guidelines and tightening credit. That from Dan’s perspective the known is always better then the future unknowns.

I also found it interesting that Dan has an article on how the feds drops in interest rates are actually pushing long term interest rates upward. This brings me back to one of my old posts, where I discussed that rates can rise while property values can stagnate. This can squeeze buyers into paying more even though prices have fallen. A Bay Area buyer only has to look at Berkeley to see that many areas values have not fallen through the proverbial floor.

So, as I have stated before… Now is a great time to buy for those that are long term (3-5 year) buyers that are well qualified with good credit and down payments.

Susan McHan, CEO & President of Opes Advisors, a Bay Area wealth management company specializing in mortgage banking and investment advising, was recently interviewed on ABC7’s The View From The Bay on the current mortgage & real estate environment.

This is a great take on where we are in the real estate and mortgage markets (locally, state and nation), where it may go from here and what actions to consider. You can watch the approximate 5 minute interview here. Be informed by someone with an historical and personal experience perspective (bio).

Recently, past clients have asked me if this is a good market to sell their homes and move into better homes in better neighborhoods. This is an uncommon thought as compared to the typical national market sentiment that sellers should stay put in the current market turmoil. In working with these clients I have found that this market is a great opportunity for some move up buyers. The general discussion goes like this…

You will be taking less profit on the sale of your home, but you also will be buying for less on the other end. Usually, I am finding that this opportunity is open to clients whose income has risen since they bought their homes, thus they can afford to buy into nicer neighborhoods. Anti-intuitive to the current market mentality, I have found that it may make better sense to make the move now, then it did in the hot market.

2 years ago move up buyers were selling their homes and getting more money then they ever thought possible. Yet, they would also be competing against many others and buying homes at higher prices. This market fed itself with sellers cheering the competition when selling and dreading it when buying. It also usually meant increased capital gains taxes on the sale and increased property taxes on the purchase.

Now, as the market has changed, home owners have been watching as median home prices have fallen off of their record highs. Yet, buying at a cheaper price means that you save on annual reoccurring taxes. As a buyer you now have the ability to negotiate with sellers who are lacking multiple bidders. We are also still seeing historically low interest rates that are still making loans very attractive to buying. Not to mention the Federal Government that is creating incentives for buyers, by lowering prime interest rates and raising conforming rates nation wide.

Here is a recent example. I recently completed 2 transactions for a client who sold their 1.5 million dollar plus home and traded for a more expensive home. On the sale I estimate that they took about $200,000 less then the top of the market price. Yet, on the purchase they bought a home which cost less then the current cost to construct the home (the price per square foot was less then current cost to construct the home). I estimate the savings to be approximately $200,000 on the purchase. They bought into a situation where their new home has a better potential for future appreciation. They bought a home that is 1,000 square feet larger than their previous home, in a better neighborhood for them. Their taxes ended up being approximately $3,000 less per year then if they had purchased at the height of the market. They got a great interest rate on the portion of the home they leveraged. They got less profit on their sale, but gained even more on their purchase.

Just as in the hot market, the trick to moving up now is a financial and real estate team devoted to developing an uncommon strategy to better your situation. I have found that this market is a great opportunity for many move up clients.

Thanks Kerrythis for the car image above.

I know, alphabet soup… Welcome to the world of government acronyms and abbreviation. In lay terms, the 2008 Economic Stimulus Bill has cleared the way for three channels of mortgages (FHA, Fannie Mae & Freddie Mac) to increase their loan limits. Good news for most of California because these three types of loans generally have lower interest rates and/or easier qualifying criteria and/or higher loan-to-value limitations (the amount of a mortgage relative to the value of the home).

Earlier this week, HUD (Housing and Urban Development) released the new FHA (Federal Housing Administration) loan limits for California, with the remainder of the country soon to follow. (You can read more about the FHA limits at this link.) And today, the OFHEO (Office of Federal Housing Enterprise Oversight) that oversees Fannie Mae and Freddie Mac announced the loan limits for those counties and Metropolitan Statistical Areas (MSAs) that are affected by the new loan limits. Data for all areas are available on the HUD Web site at this link.

Ten counties in the greater Bay Area will have their limits raised to the new maximum loan limit of $729,750 for all three types of loans (FHA, Fannie Mae, Freddie Mac). Those 10 counties are: Alameda, Contra Costa, Marin, San Francisco, San Mateo, San Benito, Santa Clara, Santa Cruz, Napa and Monterey.It will still take time before anyone can act on the new, higher, loan limits. How long? We don’t know yet, but our speculation is in the next 4-8 weeks. And we still don’t know how these loans will be priced (i.e. interest rate you can get). Although most lenders can do conventional (Fannie Mae & Freddie Mac) loans, not all lenders can do FHA loans. So don’t assume your friendly mortgage broker necessarily can. This is good news for the CA real estate and mortgage markets. It won’t solve all California issues, but it certainly will help.

Click Photo to Enlarge

I recently reviewed some new Bay Area supply and demand graphs we are now following. They are generated from a data mining and graphing software we are now utilizing. One of the interesting graphs it produces gives us a nice look at the supply and demand trends of the many different Bay Area markets. It does a nice job of zooming in on what is happening in localized micro-climates.

At first glance I found it interesting to note the supply and demand trends in Kensington (above). I found it interesting to see that Kensington’s supply of homes (homes on the market) has gone down (year over year), while its demand (or homes sold and under contract) has been keeping pace with the market nicely. It is interesting to see that not all areas are seeing rapidly rising inventory as the media has made it seem. Don’t get me wrong there are buying opportunities in many markets, but as this graph allows me to illustrate, we have also been observing some nice selling opportunities as well.

Currently, the best advice for sellers, is to make sure your real estate professional has a good grip on your markets micro-economic conditions. What are your markets supply and demand trends? What is the data suggesting? You should have the information necessary to make an informed decision on the timing and pricing of your next transaction.

The San Francisco Chronicle ran a real estate article today showing the ups and downs of the real estate market. The story ran along with a Zillow heat map that showed average appreciating and depreciating ZIP codes in the Bay Area. I can’t say that the data behind the heat map is all correct. Especially, considering Zillow’s past record on predicting the value of Bay Area homes.

Yet, it is interesting to see that Berkeley, El Cerrito, parts of Oakland, Marin, San Rafael, San Mateo, Redwood City, Palo Alto, Cupertino and Santa Clara all seemed to buck the National downward trend. Historically the Bay Area housing market is the last area into a down market and first out. This report appears to show that we are weathering the National storm fairly well.

Dan Green, a mortgage broker in Illinois, recently posted this interesting video about how changing mortgage guidelines are affecting the real estate markets. I found it to be a nice simple explanation.

As interest rates move lower, on the heels of yesterdays global stock market sell off, many are wondering if the real estate markets will begin to bounce upward. This video shows that more than just interest rates are affecting the US real estate markets. The liquidity of money is an important mechanic of our market.

This video also illustrates why our current market is such a tremendous buying opportunity for qualified long term Bay Area buyers. With the contraction of the mortgage guidelines we have seen less qualified buyers in the market. As we are seeing in the Bay Area this has led to less competition for homes. This is an unusual shift in the moods of Bay Area home owners. The Bay Area typically has a robust history and a diverse stable economic base. Thus, those who can meet the guidelines have an entrance into an exclusive group of buyers that are seeing real purchasing power. Now, if you are also a buyer who is looking to stay in your next home for, lets say 5-10 years, then you have a solid base for riding out future fluctuations in the real estate markets. It is my assessment, that we are currently experiencing a rare buying opportunity in the Bay Area real estate markets, where rates are low and the competition for homes has slimmed.

Thanks Stuart100 for this photo.

As I have been preparing for 2008, I have taken some time to be an observer of others around me. For instance, I recently observed those in my office who were complaining about the lack of good housing inventory currently on the market. This is perhaps a seasonal observation, but I began to ask them, “working with some buyers?” I got replies, “Yes, and I have nothing to sell them.”

I also have been observing the new news in the last couple of days and I began to pick up on the speculation of the interest rate markets. It appears the recent bad jobs data has sent the stock market into a serious dive. It has also begun to send interest rates and bond rates lower. Behind the Mortgage blog had a nice illustration of this trend and even went as far as to say rates would continue a choppy downward trend for the rest of the week.

So, where is the inventory? In past years, inventory started to hit the market in the end of January and early February as we all get back from holiday vacations. Will a flood of inventory hit the market this year? Will the seeming pent up buyer aggression cause a rise in median prices? Will more buyers hit the markets as interest rates drop?

It is my speculation that just like our current volatile stock market, our local real estate market will see volatility in 2008. This means we will experience spurts of buying and times of stagnation. We will experience tremendous selling opportunities in specific micro climates and we will experience great buying opportunities in others.

Having your finger on the pulse of the market will be paramount for a successful transaction in 2008. I also believe that buyers and sellers will continue to benefit from this volatility as many of my clients did in 2007. It will be interesting to see how the Bay Area market ebbs and flows. How the global economy, the stock markets, bond markets, the US Federal Reserve, political elections and other changing environments will affect the Bay Area for buyers and sellers.

Any interesting changes you are seeing? Let us know!

First, I must say sorry for the lack of my writing as we get closer to the end of December. It has been a busy season for us, which is counter intuitive to what the media is saying about the marketplace. Don’t believe all of the hype. There are many areas in the East Bay that are still transacting fairly smoothly. As the year closes, I would say that pricing is the name of the game. This implies that buyers are still in the Bay Area marketplace. They are just looking for reduced prices. This is in correlation with the mood that the media has instilled in this market. Don’t get me wrong, there are many California cities that are currently at a standstill. One only has to drive through places like Antioch or Stockton to see the rows of for sale signs.

Well it appears that just in the nick of time for the Holidays, the US government has issued a tax reprieve for those that will be trying to endure short sales in 2008. The California Association of Realtors stated it best.

Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

One thing I think we can count on is for the government and the Federal Reserve to do all they can to try and lessen the blow of our slowing real estate market. I find it interesting that this market change has brought so much political concern. The changes have been dramatic, but I speculate that much of the media coverage and political interest is generated, because this market deteriorated from the bottom up. The entry level buyer seeking out the American Dream was devastated by the changing mortgage guidelines coupled with dropping real estate values. All the while the top 1% income earners are still able to get loans at fantastic rates under the current mortgage structure. Thus, we are now seeing the political bail out of the bottom of the market. It seems to be the current politically correct bandwagon that Capitol Hill is riding into an election year. How far will this go?  Should we be using interest rates and tax cuts to stabilize our markets or should we let this market wash out and recover on its own? I see much debate erupting in the blogosphere over this very topic. What do you think?   

Thanks kaneda99 for the photo of Uncle Sam.

Thanks Pete Southwood for this flag photo.
Lately, I have been hearing many realtor’s and other industry insiders speak about how the 2008 United States presidential elections are affecting the real estate markets. So, how will our pending presidential elections affect our struggling markets in the coming year? Will politics shift the tides in the real estate markets?

It is obvious that real estate will be a topic of conversation in the 2008 political elections. Just take a look at the Boston Globes article entitled, Democrats Offer Fixes to Foreclosure Crisis.

The more the crisis ripples through the economy, the more it will help Democrats make the case that Republican economic policies have spurned middle- and lower-income families, some campaign watchers said. - Marcella  Bombardieri at the Boston Globe

Why so much attention you may ask? Because our real estate markets have slowed from the bottom up. This leaves some areas like the Bay Area’s high end real estate market still appreciating while the middle and low end markets are suffering. The little guy has been most hampered by the liquidity crisis and kicking the little guy is never politically correct. Thus we are already seeing many new legislative bills that are aimed at creating a better buying and selling environment. Some of these bills are trying to get rid the IRS’s short sale phantom tax collections. Others are aimed at making the mortgage and banking industry’s actions more transparent to the consumer. The topic of real estate has even found its way into the discussion of the falling dollar value verses other world wide currencies.

The Matrix Blog has a great posting entitled, Housing Market Depreciates the Politics of Future Expectations. This article illustrates those political figures that are pushing housing concerns to the top of the political mountain. Personally, I am neither for or against any particular political reform to address our current housing cycle. Using my little voice, I am encouraging all politicians to focus on legislation spurring US economic growth as a whole and discouraging them from endorsing legislation that they believe will garner more votes.

One bet is for sure… Real estate and finance will be at the forefront of the 2008 elections, which illustrates how important real estate is for wealth generation and personal prosperity.

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.

 
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.