Wall Street Journal

East Bay Real Estate: Banks Forced To Settle With Feds To Provide Fair Foreclosure Practices!

The Wall Street Journal has reported that fourteen financial institutions were informed last week from the Feds that severe penalties are to be imposed for improper foreclosure practices. Just as an example, you may remember the stunning 60 Minutes report that exposed the “signature factories” that several of the major banks were using to sign loan documents with fraudulent named bank vice presidents at a rate of 3,000 signatures a day from each person in the “signature factory”.

The regulators issued the orders to the nation’s four largest banks: Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc.  Ally Financial Inc., HSBC Holdings PLC, MetLife Inc., PNC Financial Services Group Inc., SunTrust Banks Inc., U.S. Bancorp, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank were also notified of the penalties and the requirements to change their practices immediately. Read more

Wall Street Journal

East Bay Real Estate: 2011 – End Of The Housing Crash!

The house prices are recovering in ALL but one of the micro markets in the East Bay! In past articles Jim Walberg has addressed the hundreds of real estate micro markets in the East Bay. It appears ALL will begin their price recovery in 2011 except the $1.5 million market. That market will continue to have price corrections downward the rest of 2011.  Let’s look at some of the reasons why Jim Walberg is making the prediction so confidently that the housing recovery has finally arrived for East Bay real estate.

East Bay housing is the most affordable in decades! Look at the cost of a house today, which is about 19 months of pay for the average family in S&P/Case-Shiller’s top 20 cities report. This is the lowest it has been in 35 years!  Affordability is what drives people to buy homes.  Listen to what Simon Constable explains to Kelsey Hubbard of the Wall Street Journal. (Video) Read more

Wall Street Journal

East Bay Real Estate – Months Of Foreclosure Inventory – 107!

Mark Whitehouse of the Wall Street Journal writes a blog each week titled: NUMBER OF THE WEEK.  Last week’s number was 107.  It relates to the number of months to clear the banking industries current and shadow inventory of foreclosed homes.

Last April Mark’s number was 103.  That number was again what the estimates were then regarding how many months it would take to clear the foreclosed homes and shadow inventory sitting in the banking industries inventory.  So, that number has climbed four months just over the last six months.  Two months ago the banks owned 994,000 of foreclosed homes and a shadow inventory of 5.2 million homes!  Given the monthly sales volume of foreclosed homes, the number of months to absorb them is 107.

The increase in the housing defaults appears to be from the failed government loan modifications.  Another factor is home sales slowed dramatically after the government stimulus ended in March.  There was some hope that the foreclosures would slow down by the end of this year, however there were 15% more homes foreclosed upon in October than in September.  Mr. Whitehouse’s last comment regarding the number 107 in his blog was,  “The mountain of foreclosed homes casts a long shadow.”   What are your comments about Mark’s article?

Wall Street Journal

East Bay Real Estate: Bank of American Halts Foreclosures!

In the midst of the confusing and distressing foreclosures facing homeowners today, Bank of America has now put a halt to their inventory which also includes the inventory from the Countrywide, the failed mortgage company B of A purchased that used to be the largest on in the country before the crash three years ago. With this news, the Wall Street Journal said, “…In essence, fast-paced modern finance is colliding with the much slower machinery of the U.S. legal system. While finance aims for efficiency and maximized profits, the courts demand due process. And that’s becoming a growing issue as lenders come under attack …for taking short cuts to oust homeowners who haven’t mailed in a mortgage check for months.” Short Sales are still a large part of the market and this will significantly slow down the ability for Buyers to complete their purchases of foreclosed properties. Read more

Wall Street Journal

East Bay Real Estate Crisis Is Over!

The Wall Street Journal article from May 6 is the most well thoughout explanation on the status of the current housing market.

By CYRIL MOULLE-BERTEAUX –
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to sub-trend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now. I realize that many of you may have opinions about how the real estate markets are impacting you personally and I welcome your comments. Until next time…

Wall Street Journal

East Bay Real Estate Market Watch

One of the key challenges in current market conditions is short term memory!

I am about to get on my soapbox and address one of the key issues that is happening in the East Bay real estate markets – SHORT TERM MEMORY!  There are only a handfull of Realtors who are serving the East Bay who were also here in 1989 – 1994.  Because of that, there is a large population of Realtors who have no memory of largest recession in California history that was taking place in the early 90s.  The defense industry generally left the State.  California’s economy at that time was based on the revenue from the defense industry.  So, when it left, there was a huge income void with California. 

The economic factors impacting East Bay real estate are much different today, but the effects are similar in many of our markets – declining prices, tightening of credit for home loans, businesses downsizing, loss of jobs, increased divorce rates, and so on.  So, we are having a similar experience as the early 90s, but for different economic reasons.

Here is a prediction for you to consider…“We will have a similar experience with our real estate in about ten years.”  The reason I predict this is because of short term memories.  Our current economic conditions are complicated, but let’s pretend they are because consumers were hooked into the banks providing a “FREE LUNCH” with mortgage money.  Remember, there are no free lunches!  The mortgage industry was giving money away without any checking to see if the borrower could pay back the money.  One of the aspects of our real estaet market that they were betting upon was the non-stop increase in values that had accellerated to galactic speed in the early 2000s.  There is no way that appreciation spike was sustainable and a house of cards began to crumble with many people standing in amazement as the debris started falling on top of them.  Still the median home price in California has jumped from $450,990 in 2004 to $588,970 in 2007!

Now we have banks and lending institutions that don’t know what to do with the mountain of foreclosures and bank reposed homes.  One of the reasons why there is so much chaos within the banks is because there are very few bank employees, if any, that were at the banks.  So, there is no LONG TERM MEMORY at the banks as to how to serve this current economic consequence of them lending money without any basis of customers paying the loans back.  It took almost two years in the early 90s for the banks to get their act together and figure out how to efficiently and effectively manage the sale of the real estate they were taking back.  Hopefully, it won’t take them that long this time around.

Last week the Wall Stret Journal posted an interview with Mr. Mervyn King, the head of the Bank of England.  He shares a similar opinion I have regarding the short term memory issue and why he is convinced we will have a similar experience in the next ten years.  Regarding this topic, he said, “Optimism takes over.  It’s a natural human instinct to interpret success as a sign of one’s own ability, rather than good luck.”

Here is the GREAT NEWS on May 4th…Interest rates are GREAT!  Inventory is shrinking so Buyers are understanding the urgency to make decisions instead of wondering around hoping they prices will decline further, and the East Bay real estate markets, espcially in the San Ramon Valley are doing very well this year regarding pricing and a lowering of days on the market.  It is time for Sellers to become Buyers as fast as possible.  And it is time for Buyers, to jump in with both feet and buy a home!  As always I welcome your comments.  Until next time…

Wall Street Journal

“Do Not Be Fearful” – The Mantra Of A Realtor & Caribbean Sailor

At the start of any new adventure fear and uncertainly always impacts important decisions.  FEAR = False Evidence Appearing Real!  We are in the midst of a BIG real estate adventure in the East Bay - the Economy!

This phrase, “Do not be fearful,” is one that I have not only used as a Realtor, but also as a life long sailor.  It is the phrase that is used by those “staying behind” to those who are about to embark on their next adventure. My experience with this mantra is based on the fact that no one actually knows what will happen during the adventure. Those who are “staying behind” actually don’t care, even though they may be highly impacted by the events of the adventure.  Are you getting the drift of my analogy with this scene I am outlining? The one constant is that there many times the majority becomes paralyzed from participating in the next “adventure”, and there are very few who can’t wait for the next “adventure”.  I am one of those who embrace any adventure that shows up.  And…the realities of what is happening economically in our corridor is a daunting moment regarding real estate.  I am still convinced that one of the BIG issues in today’s real estate market is FEAR that is still causing Buyers to hesitate.  Wake up, interest rates are going to rise this year. How long are Buyers going to be in denial about this?

Here are some of the National realities regarding the impact of FEAR today on East Bay real estate Buyers and Sellers.  When property prices fall homeowners feel poorer, which then causes them to spend less, and sometimes save more.  GDP – gross domestic product, falls and unemployment increases.  A decline of 25% in home prices nationally, would strip out $5 trillion in household wealth.  In addition, this is a similar amount that was lost by consumers when the high-tech stocks collapsed in 2000 to 2001.  In some parts of the country there will be home prices that fall even further than where they are today! ( My personal opinion about our micro-economy is that we are in Disneyland regarding our real estate values compared to most every other market in the U.S.  Sales are up the first two months of 2008 and the inventory has shrunk by almost 20% since January 1, 2008!)

The realities are, even though the East Bay real estate markets are in much better shape than anywhere else in the country, people in the East Bay still read the Wall Street Journal and the New York Times - neither of which have any information that is relevant to the East Bay real estate markets.  FEAR is the real deal in our real estate markets. The reason why people are willing to plow through their fears and participate in their next adventures is because they have the information and experience to understand the realities of the “adventure” they are about to embark upon, and they step on board the sailboat and set sail.

Those who clearly understand the East Bay real estate markets –  factors that are impacting interest rates, plus reviewing the home sales during the last three months, will discover that this is the BEST moment to purchase real estate – whether as their next home, or as an investor.  All of the factors that are impacting gas prices, mortgage rates, the falling U.S. dollar, and many more issues, are not events to cause paralysis.  They are events to study, clearly understand, and then act – not stand on the shore wishing they could visit distant lands.  I have lived in the East Bay since 1970 and have seen many ups and downs in real estate prices and several recessions.  It is in my self-interest to make great financial decisions.  Today my advice to those who will listen is BUY!  I welcome your opinions about my thoughts of the current condition of East Bay real estate.  Again, my point is that you can never explore new shores by standing on the dock wishing you could get their – “Do not be fearful!”  Until next time…

Wall Street Journal

East Bay Real Estate – A Great Time To Buy – NOW!

If a Buyer has the money, they are crazy not to buy NOW!

 So, my earlier blog posting about Sellers need to become Buyers as soon as possible is even more credible today than ever! This is a Buyers Market in East Bay Real Estate! It doesn’t matter if the Buyer is an investor looking at the bargains in East Contra and Alameda Counties, or if they are looking for a price appropriate home in the Pleasanton to Orinda corridor, NOW is the time to act. However, today’s Buyers need to have the money for a 20% downpayment. If you have the money you are going to get a great deal! “Lenders aren’t cutting everone off. They’re reverting to sanity after yers of making bad loans,” says Dick Lepre, senior loan officer at Residential Pacific Mortgage, in San Francisco.

Today’s Wall Street Journal stated, “If you are about to get into the housing market, this is all good news.  But before you begin visiting open houses, recognize that the old home-buying rules no longer apply in March 2008. You want to approach buying your first house with a financially realistice point of view.” Buyers need to remember that they are buying a home to live in, not speculating in the stock market or even putting money into a savings account. So, keep it simple stupid is the place to start. Buy smart. Get the best price and terms possible.

There are five steps that today’s Buyer needs to take;

1. Determine what you can afford!  Lenders have tightened their standards and are requiring more of a downpayment. The lender guidelines are that they do not want a borrower to spend more than 28% of their gross monthly income on a mortgage payment, property taxes and insurance. Also, be sure you have cash for closing costs – somewhere around 2% TO 3% of the purchase price. In addition, factor in moving costs and the home’s maintenance.
2. Know your local market! Location, location, location is still a key to purchasing your home. Don’t forget great schools, the expansion of new home developments, public works projects, etc. Remember, 80+% of home prices are what is happening in the local economies – job growth, neighborhood conditions, and quality of life.
3. Look for values, but don’t pass on a home to meets your needs! As you consult with your local real estate professional she/he will provide you the local information regarding what the typical price correction has been in the community you are considering. You may find in the East Bay real estate markets that prices vary from what they were in 2004 to 2006.  Make every dollar count in your purchse.
4. Don’t be afraid to negotiate – take your time! We have found while representing our Buyers, that many of the homes for sale are represented by Realtors that are still not dealing with reality regarding comparable sales. During the negotiating process, you may want to check out how much it would cost you to rent a home after totalling up monthly mortgage payments, property taxes and insurance. If you can rent the same home for virtually the same price it would cost you on a monthly basis to purchase a similar home, the Seller may be asking too much for the home.
5. Always buy for the long term! Your home is not meant to be purchased on speculation of rising prices! In a downward market, people should purchase a home only if they intend to live there for five to ten years. If you are not planning on staying in your home for awhile, then you may want to watch from a rental. From past history, housing bubbles take a couple of years to deflate. You may have a different opinion, but I truly believe that we are close the bottom of the price corrections in the Pleasanton to Orinda house markets. There still may be more price corrections in East Counties where the majority of the 100% financing occured.

So, you have now read my opinion about why Buyers need to act now!  One other factor to throw into the mix is that mortgage rates are still at 20 year lows, and the adjustments that Congress just passed for Jumbo loans allows for East Bay real estate Buyers to benefit from the increase to $729,000 for Jumbo rates! This is a much BIGGER deal than the “economic stimulas package” that President Bush is trying to sell as the solution for solving the issues of the U.S. economy. Don’t hold your breath that printing more money will be the solution.  Until next time….