Homescopes

Here is what I have heard.  In Orange County, CA in about 1990 an investment banker, William Komperda, came up with an idea for raising money by floating bonds backed by mortgages.   The idea was not really new since it had always been done by hard money lenders.  The difference was Mr. Komperda’s efforts got these sub-prime loans securitized by Wall Street.   What’s important is he pursuaded insurers and bond rating firms to accept and whole heartedly approve this new Wall Street bound  security vehicle with a much needed AAA rating.   It became a funding bonanza in 1990 when Wall Street adopted and promoted this new investment security.   All based on loans to risky borrowers ill equipped to borrow…hence the new term “Sub-Prime”.   Reference my previous article “Collective Intelligence vs Bush’s rescue plan”.

Mr. Kamperda’s client at the time [circa 1990], Long Beach Savings, was pursuaded and agreed to float a $70m bond issue backed by home loans.  This new security helped Long Beach Savings raise lots and lots of cash and eventually allowed them to  help start Ameriquest Mortgage Corp.  Ameriquest Mortgage grew and became the largest supplier of sub-prime loans in the U.S.  In 1999 Ameriquest Mortgage was purchased by Washington Mutual for $350m and became WAMU’s sub-prime lending division.  Ameriquest Mortgage was in the news  often after the acquisition by MAMU when in 2006 Ameriquest  agreed to pay a $325m fine without admitting guilt for “predatory lending practices” in 49 states.  In 2005, the peak of the sub-prime loans, Wall Street sold $508B dollars worth of loans…in 2007 the bubble burst.

In 2007 financial firms have taken over $80B dollars in write downs.  This past Thursday, Goldman Sachs Group Inc.analyst doubled its forecast for fourth-quarter writedowns at Citigroup Inc., Merrill Lynch & Co. and J.P. Morgan Chase & Co.to $33.6 billion.   Forecasters say there is more to come in 08. 

Joe Parsons

I have an ocean view when I drive to the grocery store in Half Moon Bay. You may think - “so what?” Well, I agree… I certainly didn’t think it was important to me either. We all know the phenomenon of not appreciating what is right under our noses until it is no longer there. That’s my point - how do you put a price tag or a value on something like glancing at the waves or the mountains on a boring milk run? It’s a lifestyle that once you experience is hard to go back.

It wasn’t until I moved away from here and into real suburbia that I realized how unusual that was. At first the kids loved the idea of a movie theater five minutes away and a myriad of fast food stops within a one minute drive. Fortunately, we moved back and we were limited from being constantly drawn in by the ever-present consumerism.

If I want to stop at the beach on my way to an appointment, I can do that. If I find the time to catch up with a friend, we will sometimes take a short walk on the beach or a nearby trail. It’s amazing how refreshing this can be.

When the kids want to go to the beach it’s five minutes away. And we have taken short outings to the beach for years because it doesn’t have to be an all day affair when you live here. Grab a hat, blanket, book (or iPod these days) and you’re good to go.

What about going to an elementary school where one side of the playground is direct ocean views, another side is beautiful mountains, and the third view (across the street) is alpacas, yes alpacas? No wonder many local kids grow up happy, healthy and ready to take on the world - mine are right there along with the rest of their friends finding their way outside of the Half Moon Bay nest.

On the especially warm days when it would be 100+ degrees over the hill and 72-75 here, the well known beaches can sometimes be packed. It is always fun to know the back-road shortcuts thus avoiding Highway 1 heading into town. Especially when you need milk.

I don’t always have to go into Half Moon Bay to get milk. There are a couple of small markets close by within a mile for those emergency trips. The views for that short trip are spectacular as well.

Here is a look at the “Median Price” of a home in Redwood City during all of 2007.  I am sure you can draw lots of conclusions from this graph below.  But, let’s be sure we are on the same page regarding “median”…..as a refresher this is the point at which half of all prices are below and half above the price indicated at any given time or point on this graph.  So we have ended the year with a median price in Redwood City of  $839,000 after seeing this median mark hit $920,000 at its high point back in February.  Early in 2007 we were  hearing more and more about a subject called “sub-prime loans” but most of us didn’t clearly understand what that meant?  We were hearing more and more negative news about the housing market and about how some 2 million loans were getting ready to reset in 2007….we weren’t sure what “reset” meant?  As the year progressed we all became very well educated and now most of us can clearly explain what sub-prime means as well as “resetting” adjustable home loans. 

If you are a seller you are challenged by what’s happening.  If you are a buyer there is reason for jubilation and opportunity.  Every real estate market is good for someone.  What’s happened to the “Law of Supply & Demand”?  It’s alive and well and lurking in our midst.  A [strong] case could be made for looming “pent-up demand” and a boom just around the corner.  That is to say, there are lots of buyers that have been patiently waiting to make their move and buy the house of their dreams.  They have been on the sidelines waiting for the market to crash.  Come early 2008 I think these very same buyers will begin to see the light and understand that prices are not going to crash and understand they had better get going and buy now before prices actually begin going back up. Ludicrous?  Not necessarily since interest rates are at all time lows….hovering around 5%…..wow!  Historically, more homes enter the market in early January and February.  Just what’s needed to feed this pent-up demand.

The mortgage folks are not going to fold their tents and go away….to return when things get better.  Just the opposite!  In 2008 they will aggressively be finding ways to help people borrow and buy.  Mark my words!  So, if you are on the fence about buying or selling…take a long hard look at what well may be happening early in the new year and re-think your home buying or selling goals. 

If history is important and drives your ultimate strategy making decisions know that for the last 39 years in California homes across the board have increased on average more that 8% every year.  Do you really think in the “land of plenty” that this appreciation factor is really going to change in the longer term?   With the exception of the recent past and no other time during those 39 years have interest rates been as low as they are right now. 

Joe Parsons

Nevada leads the way in foreclosure filings per household, but in sheer numbers California unfortunately has accumulated more foreclosures than anywhere else in the nation.   Because our population here in California is so large we can’t compete with Nevada for the most foreclosure filings per household.  In either case this is an extremely bothersome situation for our nation.  I applaud the efforts being made by President Bush and others to help solve this problem but it may be too little to late.  Those individuals considering short sales or actual foreclosure options are naturally traumatized beyond belief.  Families are being pulled apart with stress levels well beyond what is humanly manageable.  While we can say it’s their problem not ours… the truth is it is our problem and will likely impact all of us in many ways over the course of the next 18-24 months.  We all know when the government gets involved in any major crisis, problems generally don’t get better any time soon. 

Some of you may remember the “gas crisis” of the 70’s where we believed [told] the world was running out of petroleum and lines began to form around city blocks while frustrated drivers waited in very long lines to fill up.  Then when that didn’t work well someone came up with the idea of allowing people to fill up on “odd” and “even” days depending upon their license plate number.  The culprit wasn’t that we were running out of gas in this country it was because the supply of gas was distributed based on a year earlier arbitrary index.  Many, many suppliers of gas [gas stations] could not get enough gas to supply to you and me through the government imposed ”allocation plan”  so the individual operators of those gas stations  had to themselves wait in long lines at the Federal Energy Department making application to change their year earlier allocation to current day requirements.  What seemed like an eternity waiting in unbelievably long lines only lasted 6 weeks….just enough time to process each of those individual gas station operator requests for an allocation increase to meet demand. 

Let’s hope that this time the government works swiftly and solves our credit & liquidity crisis quickly.  Unlike the “gas crisis” the financial liquidity crisis time line has already exceeded the gas crisis of the 70’s.  I remain hopefull this too shall pass and we will begin to see signs of normalcy in early 2008.  It’s very allarming when you examine the number of foreclosures this year with many more to come without a little help from our leaders:

Total foreclosures reported in November 2007:  201,950  

Top 10 States in November 07:  California  39,992, Florida 29, 238, Ohio 16,308, Texas 11,599, Michigan 11,464, Georgia 8,968, Nevada 6,694, Colorado 6,425, New York 5,794, Arizona 5,767

The foreclosure statistics above don’t account for all the “short sales” that often are the chosen method for banks to recoup their “under water” loans by taking back properties in lieu of foreclosure.   Banks put their hopes on the “short sale” method by eventually selling the property and recapturing some of their investment.  Short sales are typically a more economical solution for banks when the true cost of foreclosure is considered. 

Joe Parsons

President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. 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 [...]

 

This is a photograph of a parking meter in front of Coldwell Banker in Walnut Creek.  It seems this parking meter broke the other day and a very resourceful person, obviously with baby in tow, used a diaper to show the world that it is out of order.  How many of you think it was the design of a Man?  How many of you think it was the design of a Woman?

 If 100 people answered this question, I would estimate that one person out of 100 thought it was the doings of a Man.  My solution would be, pay the parking ticket and forget to notify Walnut Creek that this meter is out of order.  The shape of a parking meter and the shape of a diaper never seemed to be comfortable to me.  Besides that, I do not carry diapers in my car! 

I want to thank the female of our species for having the design sense and confidence to use a diaper to show the rest of the world that this parking meter is out or order.  If this sounds Chauvinistic to you, please accept my apologies, as I happen to think this is a genius solution to a urban problem.

The moral of the story.  Keep a clean diaper in your car.

The Zillovians have been busy lately…first, singing a Zillow-fied Christmas carol…then, more substantively, releasing their new Smart Search technology, which, if I understand correctly, presents different information intelligently, based on where and at what zoom level you’re searching. At the San Mateo county level, for instance, I get this: At the city level, this is what I [...]

Marian Bennett* is a Realtor specializing in the San Mateo Coast, especially Half Moon Bay.  Inspired by her recent Christmas wish list, here is what we at 3 Oceans would love for Christmas. Yeah, yeah, world peace, elimination of poverty, global warming, hunger, and bad acne.  But here’s what we really want. 10. An iPhone. 9. An MLS [...]

With all of the media coverage about the implosion of the real estate market and the rising rate of foreclosures, every time I turn around someone is asking me about the health of the local real estate market in and around Palo Alto. They seem to expect me to echo what they are seeing on [...]

I heard a great story from one of my wonderful colleagues, Delia Nieto at Coldwell Banker yesterday.   I spotted her meeting with clients in the office so that they could remove all contingencies on the purchase of their first home, priced well under $500,000 in Santa Rosa.   They have rented the same tiny apartment for 6 years and are bursting at the seams with 3 children.  Two years ago at the peak of the frenzied Sonoma County real estate market, the median home was priced around $600,000.  Although this family worked closely two years ago with Burbank Housing , a Sonoma County non-profit that works with low-income residents to get them into affordable housing, their jobs as a special needs teacher and landscaper did not quite qualify them to buy at the peak prices.    But the downward spiral of entry level prices and their diligence over the last two years, as well as the Acorn Housing Loan program offered in this case in conjunction with Bank of America  are enabling them to buy their first home.  Through the Acorn program they each took numerous classes in home ownership and responsible credit management.   Meanwhile, the house they would have paid $540,000 for two years ago, will now cost them $460,000!    Astonishingly, Bank of America’s appraisal for this same house for their CURRENT loan, came in at a hefty $530,000.  Delia and I are both puzzled but this occurence, but her very happy clients will take it.   Meanwhile, yesterday’s Press Democrat newspaper’s front page story, confirmed my little anecdote as a trend.  

Buyers’ market

People priced out in recent years jump in as costs fall, supply rises

 Nice to see the press making some lemonade (along with smart first time buyers) of the current market.