Friday, October 30, 2009

Interest rates up, market down - Happy Halloween!

Happy Halloween to everyone. Hopefully you won't get too much of sugar rush over the next two days :) I'll be enjoying the sights and sounds of the night trying not to get too scared, especially by the gyrations in the stock market...ahhhhh!

This has been a roller coaster week for the market with real estate statistics being the driving force for one major increase and one major decrease. Yesterday we were up over 200 points because the GDP was up 3.5% in the 3rd quarter and today we're down more than that after the consumer spending numbers came in soft. Why the gyrations? Well, most stock traders are sheep who follow the herd with little regard for what's really happening in the market. However, these gyrations are normal as we transition from a recession back to growth. People need to be confident that the environment is safe to invest - both in stocks and real estate.

Go to this link to read more about today's market moves: http://www.msnbc.msn.com/id/3683270/ns/business-stocks_and_economy/



The good news is that interest rates are exceptionally low and are likely to remain low until foreclosures dry up and inventories return to normal. This chart from MSNBC shows the history of interest rates in recent years. We're near the bottom and I expect it to stay that way for a long time. Why? Cheap money fuels home sales. That was part of why people bought homes before the crisis and it'll be part of why fuels the recovery. As long as the loans are made to suitable borrowers, we'll be fine. At 5.03% the cost to borrow for a mortgage is cheap. Rates adjust rapidly but check out Zillow.com and Bankrate.com to get examples of the latest averages.

Here's the MSNBC story: http://www.msnbc.msn.com/id/7148582/ns/business-real_estate/

Wednesday, October 28, 2009

New home sales down - what's up with real estate!?

For you news junkies out there it seems like you can't win. Yesterday the Case-Shiller index tells us that the major metro areas are doing well and today we hear that new home sales are down. When the good news comes the market goes up a little bit. Today's bad news arrives and the DOW drops over 1% and the NASDAQ drops 2.6%. Why?

Well, it's a classic case of "sell the news" from a stock market perspective combined with the fact that the market has pretty much been on a march to break the 10,000 point mark (DOW) for months. However, what it means for the local real estate market is...very little. New homes are a small portion of local inventory.

The Bay Area has very few new home projects and several projects were stopped due to funding and market issues. There is only one major new development in Los Altos (Peninsula Real) and that has sold over 50% of its units. In Mountain View there are several small and medium sized projects that have inventory still available. Why are buyers stepping away from new homes?

Simple, the $10K state new home tax credit has been used up for a while and the $8K federal tax credit is going away unless it gets extended. Those have been driving a lot of sales. Current legislation may extend the federal credit to March with a phase out past that. If that happens, local new home sales will recover.

If not, local demand is still strong and inventory is dropping. With as little new home inventory as we have around here I don't see this statistic changing much in the local market.

Here's a link to the story on Yahoo.com
New home sales fall 3.6%

Tuesday, October 27, 2009

S&P/Case-Shiller Index shows S.F. up 2.6% in Aug

The latest results of the S&P/Case-Shiller show two critical things; three months in a row of positive growth for San Francisco and the most recent month is stronger than the prior two.

The downside is that the market strength is coming from low and mid-priced properties. That means for now, the strength in markets such as Los Altos and Los Altos Hills will come from limited inventory and relatively good prices.

The number of properties available has been dropping which is normal this time of year. There are only 70 active properties on the market today. Most properties at the low-end of the Los Altos market (priced $1-1.5M) have been selling fast, regardless of condition. A 3/2 serious fixer-upper just came on the market at $1.088M and sold in 4 days.

Compare that to homes priced in the $2.5-5.0M range and the average days on market is much higher. One home offered for $3.7M has been on the market for 468 days.

Homes that sell fast in the low end are generally selling at or above asking price which is helping stabilize the local market. If inventory levels can remain low going into 2010, we should see prices rise very slightly next year. Just to be clear, I'm talking rising 1-3% depending on which end of the market you're in. The average annualized increase in Los Altos in past decades has been about 7% but since we're recovering from a double-bubble (dot com and 05-07) I believe we won't see similar gains for a long time.

Here's a link to the article for the latest Case-Shiller numbers:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aGshF0Pgo1Wc

Thursday, October 22, 2009

Double bubble? What do we have to fear now?

The media has grabbed hold of the meltdown in the commercial real estate market because bad news sells papers. However, what they fail to mention is that this is because of declines in business performance the last 2 years.

Here's an article from MSNBC that talks about it:
http://www.msnbc.msn.com/id/33404369/ns/business-personal_finance/

The bottom line is that commercial property owners are facing foreclosure just like residential customers. However, the difference is that recovery in values typically takes longer, mortgages are shorter, and the impact on banks is less severe (the commercial market is about 1/3 of the residential market).

What this means to our local economy is that while jobs may be plentiful and home sales improving, if banks are burdened with losses due to mortgage failures in the commercial real estate market the ability to lend will be compromised. Without money to lend to residential customers, the residential market will stall as well as the overall economic recovery.

What does this mean for local real estate prices? Not much for the time being but it does cast a level of doubt on the overall economic recovery. That may mean some buyers wait for more good news and some sellers will put off listings until spring when the economy is expected to be stronger and the local real estate market gets its normal seasonal "pop".

Wednesday, October 21, 2009

Los Altos Hills moves forward with annexation

Los Altos Hills is moving ahead with annexing two more areas, La Loma Drive and Hidden Villa. Both have been on the city's radar for annexation for a long time and this will mean residents enjoy all the benefits of citizenship without the stigma of being "county land".

I think this is a great move on the part of Los Altos Hills. One question I get from prospects and clients is "will this improve or reduce the value of my property?" In my opinion, it will have very little affect on the value of the homes in the area. If anything, there may be a small increase in valuation due to being "official" but it would be less than 1%.

Here's a link to the story from the SJ Mercury News:
http://www.mercurynews.com/peninsula/ci_13607591?nclick_check=1

Monday, October 19, 2009

New law bans advance fees for loan mods

For those of you who are dealing with the financial downturn by obtaining loan modifications, a new law effective October 11 bans the collection of any fee in advance of performing loan modification services.

This is designed to curtail fraud in the marketplace where homeowners were charged hundreds and potentially thousands of dollars to modify loans - something the homeowners could have done themselves. We'll see how well this new law works to prevent fleecing homeowners already struggling.

For more details, please view the article here:
http://www.inman.com/news/2009/10/19/state-bans-advance-fees-loan-mod-help

Thursday, October 15, 2009

Home sales up, prices slightly down

The latest from the SJ Mercury is that home sales were strong in September but that median prices edged down 2% month-over-month.

That doesn't surprise me since I've seen more investors at the low-end of the market out looking for bargains and paying cash. Inventory has been dropping especially in heavily depressed areas like East Palo Alto as investors step in to buy bargains. Here's the article with details.

http://www.mercurynews.com/top-stories/ci_13568975