Thursday, July 29, 2010

Mass media reporting is real estate's worst enemy

The Public Has Questions
I had an interesting conversation with a stranger yesterday who I met while running errands. I was wearing my Coldwell Banker polo shirt so the person wanted to ask questions. All the questions were aimed at getting a reality check about reports in the media about short sales, foreclosures, interest rates, etc.

News Stories Are Deceptive
The person had the impression, based on media reports, that short sales and foreclosures were a major issue in Silicon Valley. That's flat out wrong. Both short sales and foreclosures have been dropping, "shadow inventory" is not increasing, and sales remain strong throughout the area. After explaining the facts and citing real figures from the MLS, she was upset.

What's The Real Story?
Her anger was focused on why the media portray one image while reality is so different. What I told her was the media tends to:

- generalize their statements and include stats for an entire region or the country
- make notices of default equal foreclosures
- speculate with statements such as "...millions of homeowners could..."

This story today on MSNBC:
http://www.msnbc.msn.com/id/38457609/ns/business-real_estate/
is a prime example where the writer is using notices of default (NOD) to make it sound like foreclosures themselves are actually coming soon. In reality, earlier reports of actual foreclosures show they're dropping in most areas.

Truth Lay With Bloggers
In my opinion, the local real estate professionals blogging about their local area can give a much more accurate picture of short sales and foreclosures. I encourage all of us to write the truth and fight the mass media. The deception and lies in the mass media are hurting our markets and buyer/seller confidence.

Tuesday, July 27, 2010

Homeowner limbo is the new purgatory for our markets

According to Corelogic, a company that tracks mortgage performance, there are nearly 12,000 homeowners in default in the San Jose metro area. A number of them are in a new form of limbo where the bank tells them they're in default but hasn't moved forward with foreclosure or authorized a short sale. This creates a very dark market for our local market because we don't know if that inventory will become available or not.

The homeowners themselves are stuck in limbo because the stay in the homes without paying rent. Others are still negotiating with their banks but not making any progress. In the meantime, banks and HOAs don't get paid.

There are several major issues this could cause for our local markets. These include:

- A large surge in inventory, especially at the low end
- A possible increase in HOAs going bankrupt due to unpaid fees
- A decline in neighborhood quality as poor homeowners abandon maintenance

In the Los Altos area, this isn't a problem. It's also not an issue in Mountain View, Palo Alto, or Sunnyvale which all neighbor our town. However, as we saw during the downturn, what hurts one market will hurt us all - eventually.

Tuesday, July 20, 2010

Silicon Valley million-dollar homes sales keep getting better

SALES ARE UP
A total of 266 homes priced at $1 million or more were sold in Silicon Valley in June, up 24% from the same time last year. The top 3 cities were San Jose (54), Los Altos (44), and Palo Alto (38). Relative to available inventory, Los Altos is the best market for sales at $1 million or more. It is rare to find a home in Los Altos priced under $1 million and if you do, it's a shack (literally) on a tiny lot.

...AND INVENTORY DOWN

Available homes have been dropping steadily for the past two months as we go into the slow August period. We should see more inventory in September. However, most homes are selling in a couple of weeks with good offers.

...SO WHERE'S THE CRISIS?
In the minds of the media and buyers dreaming of getting a deal. There is no short-sale or foreclosure crisis in Los Altos or Los Altos Hills. I can count on two hands how many homes actually became REOs in the past YEAR! The market is too strong to let the homes go to the bank. There have been a small number of short sales.

While the real estate market may be waning in some areas of the country, Silicon Valley and Los Altos specifically is strong. As predicted in January, I expect demand to remain strong with prices balanced trending slightly up.

If you're considering buying at this point, your best strategy is to look for homes that were priced high and have been on the market awhile.

Thursday, July 15, 2010

High-end hit in foreclosure crisis...NOT!

It amazes me to no end that our mass media are allowed to write stories anymore. The SJ Mercury News (news?, really?) had the gall to publish a story entitled "Santa Clara County's high-end houses hit in foreclosure crisis". What's stunning is that near the end of the article the author says "Lee said that at this point, the default notices hitting expensive homes have not translated into actual sales of those homes." So this news isn't really news then?

Here's a little education for the media...

DEFAULT NOTICE DOES NOT EQUAL FORECLOSURE!

It never has and it never will. The media have made a business out of publishing scary "news" that is nothing of the sort. It's just conjecture and fear-mongering designed to sell papers. I tore apart the New York Times article that other day claiming that Los Altos is an example of a flashpoint for high-end foreclosures.

The reality is that sales of homes over $1 million in the SF Bay Area are up. A few areas where home prices crept over $1 million during the boom are having more difficulty now because they don't have a history of supporting that price point. However, Los Altos has been priced over $1M for a long time and will continue to do so. Inventory is dropping because homes are selling - fast.

In the Los Altos market, if someone got a notice of default they have a good chance of selling their home on the open market long before they go into foreclosure. Foreclosure crisis? I don't think so.

Read the original article for yourself:
http://www.mercurynews.com/top-stories/ci_15508205

Friday, July 9, 2010

Are the rich really the biggest mortgage defaulters?

Rich Defaulters? Hot off the New York Times presses this morning is a report that there are five homes in Los Altos - my primary market - are coming up for foreclosure. Furthermore, this town, one of the most expensive in the country, is an indicator that the wealthy are walking away from their loans.

Very Few Actually Do: The article states that Los Altos had 16 defaults for the first five months in 2010 versus the same period in 2009. However, those are NOT translating into foreclosures. Of the 141 homes sold in 2010 so far, the MLS data only shows 7 homes sold as short sales and 2 as REOs. The defaults may be happening but owners are mostly selling them as short sales, just like everybody else. The picture painted in the article is that one in seven high-end homeowners are defaulting on loans over $1 million but the numbers for Los Altos tell a different story.

Why Default? Because these "wealthy" folks are mostly dual-income families of people in middle or senior management, engineers, etc who lose their jobs just like everyone else. They may live in a $1.5 million house but they're also working 50 hours a week earning the $300-400K household income needed to cover the bills. If one person loses their job, they don't have millions in reserve to keep going. Again, the article has made our town look like we're all rich and a default is just another financial decision. I sold three homes in Los Altos and Los Altos Hills in June and none fit the bill of "rich" painted in the article.

Here's a link to the original article to compare my opinion.
http://www.msnbc.msn.com/id/38158763/ns/business-real_estate/

Wednesday, July 7, 2010

Kuish v. Smith - goodbye non-refundable deposits...

This was a recent case in California in which the buyer submitted an offer with a $620,000 non-refundable deposit. The buyer cancelled the agreement and the seller eventually sold the property for more than the original offer. The seller refused to return the deposit because the contract had said it was "non-refundable".

Ultimately, the buyer did get his deposit back after the appeals court ruled. The case reflects the idea that actual damages have to occur in order to keep such a deposit. The key was that the liquidated damages provision in the contract wasn't initialed.

Advise your clients are to the meaning and intent of the liquidated damages and arbitration clauses in your contracts. Why? Because they could stand to gain or lose substantial sums by the simple lack of an initial.

I'm not a lawyer and don't offer legal advise but I do explain the contract and disclosures. Keeping my clients informed saves them money. My advice to agents - do the same.