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.

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.

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.

I was sent this You Tube video from a friend. I found it interesting in the context of top 1% performance. It is especially interesting if you couple it with Curt Van Emon’s recent post Interesting Commentary on the Top 1%. This Thomas Sowell article stated, “At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.”

In 1985, the owners and agents of Red Oak Realty formed a non-profit charitable foundation in order to give back a portion of their earnings to the local community. Since the beginning, the Red Oak Opportunity Foundation (ROOF) has given over $550,000 to East Bay non-profit organizations. This year ROOF raised and distributed $83,000.

R.O.O.F has no administrative costs. Red Oak Realty pays all administrative costs for ROOF. This means that 100% of all donations go directly to the grant recipients. Proudly, whenever someone uses my services to buy or sell a house, I contribute part of my earnings to ROOF. I also sit on ROOF’s advisory and grant recipient board.

On January, 23 we held our 2007 grant recipients award ceremony. As always it was a heart warming experience. The Cantare Con Vivo Children’s Choirs started off the evening with song. Next, the mayor of Berkeley Tom Bates gave ROOF his blessing as well as spoke on Berkeley’s solar financing program. We then announced ROOF’s new web site where others can learn more about the history of ROOF and receive grant applications. At the end of the evening, the grant checks (this year they ranged from $500 to $5,000) were given to the attending grant recipients. The ROOF awards night is always a great way to start the New Year!

Boomer 411 has just posted part 2 of my interview with them.

The Wall Street Journal today reports on what is happening in the home equity line market that may affect you.  If you have an equity line and you have questions about accessing the balance on the line, call your mortgage advisor asap.

See the full Wall Street Journal article here.

We are pleased to announce a new writer on Financial Ambition.

Jeffrey Smith is the Marin County branch manager for Opes Advisors. He has his MBA from the Haas School of Business at UC Berkeley and over 20 years of real estate, business and finance experience. Jeff is a Series 65 licensed Investment Advisory Representative and a Personal Finance Advisor®. He writes a monthly column for the Pacific Sun titled Focus On Finance and was appointed by the Marin County Board of Supervisors to the Strawberry Design Review Board in Mill Valley.

We welcome Jeff and his uncommon commentary on business, tax, finance, real estate, and mortgage.

We sighted Boomer 411 a new baby boomer web portal in a previous posting. They really have a unique approach to aggragating relevent content for the baby boomers. Their goal that is posted on thier home page is, “…to help people access Trusted and Relevant content related to baby boomers quickly.”

There are 2 new major events surroundiung Boomer 411. First, they have launched the portal. Financial Ambition has been assisting Boomer 411 to tag stories that are relevant real estate and finance information for baby boomers. You can check out many of our tags under the real estate and financial portions of the portal.

Second, I was interviewed for Boomer 411. The interview is being released in 2 parts. This is the first part of the interview. More to come as they post it.

Why do we talk about earning in the top 5%, knowing how much you need to have for your loooooooooong unemployment (often called retirement) and saving as much as you can while you are young and using compound interest to your benefit?  Read the disturbing article below for some grounding for our position.

The Change No One Will Talk About

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.

200 is the number of financial institutions that have gone out of business since the “credit crunch” of early August. Many, many more have gone out of business but they are too small to make this list. Losses at the major financial institutions are expected to top $100B. Although this seems like a lot of money, it’s a drop in the bucket compared to the US GDP of over $13 trillion in 2007. See Source.

The problem as I see it is the real cost in financial losses and suffering for American families who will lose their homes to foreclosure. No government program or loan alteration plan is going to save most of these people, they will have to suffer the consequences of the loans they took. Yes, I believe many were steered into loans they could not afford and who is responsible for this is a hotly debated topic. The reality is that the borrower is going to suffer the negative consequences in the vast majority of these situations. The plans I am hearing about will delay the inevitable for many and may save a few from losing their homes but the consequences will eventually come to most. They took on loans they did not understand and could not ultimately afford.

The lesson is that you need to understand what you are signing when dealing with financial institutions. Get yourself educated and find good, competent, trustworthy help. One axiom I have heard is that the more complicated the program is, the more dangerous it is to your financial health. This certainly turned out to be true for Option ARM’s.

Dear Readers,

I didn’t comment on this when it came out in August as I was on vacation when it was published and I just never circled back to it.  The author of this article is a journalist.  Remember this.  He’s writing to sell newspapers, not educate you.  His job is to entertain you.

There is an assumption here that those that already have a few million are working to keep up with their neighbors but this is not how I see it.  For example, if Celeste were to retire today with $5M capital at work, current accepted financial thinking is that she could safely withdraw 4% of her money to live on.  This is a $200,000 gross income annually to support her current lifestyle.  I am very sure that this is not enough.  So Celeste is probably not hustling to work to keep up with her neighbors, she and her husband need more capital at work to produce a higher income so she can sustain her standard of living through a long period of unemployment (commonly called retirement).  It isn’t politically correct to say that $5M isn’t enough but that doesn’t make me wrong.

http://www.nytimes.com/2007/08/05/technology/05rich.html

The fees you pay matter over the long run so you may want to take a look at what is happening with your 401(k).  If the fees are too high, send an email to your human resources department and make a complaint.  It may help if they hear from enough employees.

Better Savings Plans

 November 27, 2007

That ‘Top One Percent’

By Thomas Sowell
People who are in the top one percent in income receive far more than one percent of the attention in the media. Even aside from miscellaneous celebrity bimbos, the top one percent attract all sorts of hand-wringing and finger-pointing.

A recent column by Anna Quindlen in Newsweek (or is that Newsweak?) laments that “the share of the nation’s income going to the top 1 percent is at its highest level since 1928.”

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

But that’s only good for one year, you may say. What if they don’t have another house to sell next year?

Well, they won’t be in the top one percent again next year, will they? But that’s not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring “class” — especially by those who have overdosed on the magic formula of “race, class and gender,” which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.

Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.

These are not permanent classes but mostly people at current income levels reached by spikes in income that don’t last.

These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas.

Some people’s income in a particular year may be several times what it has ever been before or will ever be again.

Among corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. This lets critics quote inflated incomes of the top-paid CEOs for that year. Some of these incomes are almost as large as those of big-time entertainers — who are never accused of “greed,” by the way.

Just as there may be spikes in income in a given year, so there are troughs in income, which can be just as misleading in the hands of those who are ready to grab a statistic and run with it.

Many people who are genuinely affluent, or even rich, can have business losses or an off year in their profession, so that their income in a given year may be very low, or even negative, without their being poor in any meaningful sense.

This may help explain such things as hundreds of thousands of people with incomes below $20,000 a year living in homes that cost $300,000 and up. Many low-income people also have swimming pools or other luxuries that they could not afford if their incomes were permanently at their current level.

There is no reason for people to give up such luxuries because of a bad year, when they have been making a lot more money in previous years and can expect to be making a lot more money in future years.

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

Most income statistics do not follow given individuals from year to year, the way Internal Revenue statistics do. But those other statistics can create the misleading illusion that they do by comparing income brackets from year to year, even though people are moving in and out of those brackets all the time.

That especially includes the top one percent, who have become the focus of so much angst and so much rhetoric.

In the real estate industry, there has been much talk and interest in the Baby Boomers that are now coming to retirement age. The Baby Boomers are approximately 78 million people that were born from 1946 to 1964. To put the Baby Boomers in perspective one only needs to look at the basic statistics that illustrate the immense size and power of this demographic. For instance, approximately 7,918 people in the US turned 60 each day in 2006.

The Bureau of the Census estimates that there will be twice as many persons age 65 or older in 2030 as there are today: 69 million (20 percent of the population) versus 34 million (13 percent of the population). Likewise, the Bureau’s population projection, from its middle series, shows 18 million persons age 85 or older in 2050 (4 1/2 percent of the U.S. population); now, there are less than 4 million persons in that age group (1 1/2 percent of the U.S. population).
- “Retirement Prospects of Baby Boomers - Statistical Data Included“. Family Economics and Nutrition Review. Wntr 1999. FindArticles.com. 26 Nov. 2007.

This is an introduction to an exciting new offer for Baby Boomers and those of us interested in the Baby Boomers. Boomer 411 is coming soon! It is a new search portal that is dedicated to the best thinking, reflections, discovery, solutions, innovation and pioneers in fields related to Baby Boomers. Financial Ambition is a trustee of the new search site (we are providing and tagging financial and real estate related content for Boomer 411). Currently, you can go the Boomer 411 blog and learn more. Enjoy the blog and much more to come as the search site will be live soon!

Thanks CraftyGoat for this photo.

We recently introduced you to Realius the fantasy real estate game. Because, Red Oak Realty is beta testing this new game, we were able to make an offering of the free beta in our previous posting. Now, Realius is offering prizes to play! 

Play and win! Price homes between November 21 and November 30 and you will be entered into Realius’s first Sweepstakes to win a $250 gift certificate to amazon.com. For every 25,000 points you score, you’ll earn one chance to win (up to 5 entries). The more you play, the better your chances to win - and bragging rights within the Realius community! The winner will be announced in December.

Click the link below for a free trial of the Beta version of the game. Click the Sign Up tab in the top right corner of the screen and register to enter yourself in the sweepstakes.

http://redoakrealty.realius.com/invite/ngz9g

NO PURCHASE IS NECESSARY TO ENTER OR WIN. Must be 18 or older and a U.S. resident. Begins November 21, 2007 at 12:00 P.M. (PT) and ends November 30, 2007 at 11:59 PM (PT). Void where prohibited. To enter, log on to www.realius.com, register, play the PRICE ME NOW game and follow the instructions to enter the Sweepstakes or, hand-print your name, address, city, state, zip code, daytime phone number, and email address on a 3”x5” piece of paper, mail in stamped envelope to: Realius, Inc., Attn: PRICE ME NOW Sweepstakes, 1625 Shattuck Avenue Suite 210, Berkeley CA 94709. Maximum five (5) entries per natural person per email address. Mailed-in entries must be postmarked by November 30, 2007, and received by Sponsor no later than December 7, 2007. Odds of winning depend on the total number of entries received. Sponsored by Realius, Inc. 1625 Shattuck Avenue, Berkeley CA 94709. See www.realius.com starting November 21, 2007 for complete rules and details.

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.