Rate Cuts and Bold Predictions

We’ve tried to keep an even keel during the past three months of roller coaster (if roller coasters went almost exclusively downhill) news stories. In fact, dating back to the first hints of the lending crisis back in September of 2007 (check our archives), we’ve tried not to overreact to bad news or trumpet promising moves by the Fed. It’s just too easy (not to mention, false) to extrapolate a single economic event and assume some kind of global impact on the market. There are too many factors playing out for that to be the case.

However, this week’s rate cut may be the exception to all of this. We’re not saying that it’s going to save the real estate market, let alone the economy. But a few years from now, when we look back on when the turnaround began, we may recall December, 2008.

To be sure, the lower rates are not going to save the houses (or owners) currently in foreclosure. They are not going to jump start housing starts. But what they will do is save some real people real money. They may not spend it right away. There are too many other scary things on the economic horizon. (The rash of recent layoffs hasn’t even shown up in unemployment reports yet. Welcome to Washington, Mr. Obama. Would you like some double digit unemployment numbers with your new presidency?) But some homeowners will feel safer. They’ll feel like their houses are worth more simply because it’s costing them less to own them. They’ll have more money at the end of the month. And this time they’ll save it instead of buying a new SUV. And then they might even start see their bank balances rise.

Since it’s still tougher to qualify for mortgage, these rate cuts will primarily benefit people who can now refinance. Yes, there will be a few more buyers out there, too, which is always good. But just as importantly, the cut will allow people who might have needed to sell, to stay in their homes a little longer. Baby boomers might wait another couple years to cash-out, now that their house payments are lower. (And they can leave money in securities markets while they recover, partially stemming the tide of sell-offs.) People whose mortgage payments were making them house poor can now stay put. Instead of frowning over the declining value of their homes, people will smile at the lower number on their monthly mortgage statement. In short, homeownership will feel good again. It may sound trite, but that’s half the battle.

So the upshot will be that resale housing inventory will finally drop sometime later this year, especially as the speculators finish snapping up the foreclosures. And demand will tick up slightly among those who can qualify for loans. We’ll have lower supply and higher demand. Not much of either, but enough. Just watch. Come the third or fourth quarter of 2009, you’ll see headlines exactly the opposite of the ones you’ve been seeing. They’ll say things like, “Housing Sales Drop as Prices Stay Flat” and then, “Resales Continue Decline as Median Price Rises for First Time in 18 Months” and finally, in early 2010, “Median Price Rises for Second Month in a Row: Sales Stabilize.” And when you wonder what finally caused the market to start its long slow recovery, think back to December, 2008. These rate cuts won’t be the only reason, but they may be the first one.

Is this too rosy an outlook? Maybe. Are we trained economists who have real insight into market matters? No. But do we understand the psychology of buyers and sellers of residential real estate? Absolutely.

So we’ve made our bold prediction. Now we get to see who gets to say I told you so.

Inner Circle

It was hard to miss the article on the front page of today's Chron. Bad news for sellers of SF real estate (and good news for buyers, of course).
Those of you who read our snail mail newsletter may recall the piece I mused about the two models of a boom and bust market. We called the second model "The Pebble in the Pond." Here's what we wrote:
"This requires some visualization. Imagine tossing a stone into a pool of still water. The rings or ripples created by the stone get larger as they get farther away from the point of impact. In this model, the point where the stone meets the water represents San Francisco and Marin (or New York, Boston, Seattle, or any other market that’s performing better than average). The concentric rings are the outlying communities. The smaller rings are, perhaps, Albany, San Carlos, or Petaluma. Larger rings represent Tracy, Morgan Hill, or Santa Rosa. Do you have the picture in your mind? Okay, here’s where the real estate part comes in.

According to this theory, when the market starts booming, the first signs of strength will be in the regional center (i.e. San Francisco and Southern Marin). As buyers get priced out of these markets, they will look to the next concentric ring, or the next, or the next, and so on. In time, the boom market affects the whole region. Then the bust comes…

But the bust follows the reverse pattern. The outermost rings will feel it first. Just as we’ve seen now, outlying communities (especially those that thrived on new construction) see property values fall and foreclosures rise. Slowly, the chill moves to the smaller, inner rings and soon all but the markets in the middle are feeling the cold. And, brace yourself, those of us at the center are the last to experience the bust. But we will feel it. Possibly even as the outer rings are starting to stabilize. If this model is “correct”, we may be tricked into thinking that we’ve avoided the bust altogether, but it’s only a matter of time. And our time may be here soon."

Or it may be here now.

Get What You Pay For?

This morning's Chron features an article about Bay Area homes listed for under $100,000. Thankfully, the article points out that many of these homes will bring headaches to equal the money saved. In truth, buying a home in the greater Bay Area for around $100,000 is probably a pretty smart play, but please talk to us about the pitfalls before you start writing offers. And assuming you don't plan to live in the house, expect to pony up at least 30% down for any non-owner-occupied property these days.

Speaking of financing, our local rag also has a useful article about the current mortgage lending climate. This is a nice reality check. In short, lenders are lending. When you're hearing that it's hard to get a loan, that's primarily a reference to the past few years when nearly anyone could get a home loan. All that's really happened is that lenders have returned to responsible lending practices. What a concept!

Zip Code Red

An interesting SF Chron article on local market changes in the Bay Area, by zip code. Near the bottom, you'll find a link to a database of changes in median prices for specific neighborhoods.

A Higher Authority

A fairly grim article from the Wall Street Journal. Not a lot a new news here, assuming you've been reading our posts for the past few months, but we found it useful to see a national authority like the Journal essentially echoing what we've been saying about our region. Enjoy (if possible).

Ups and Downs

Remember back on August 19 when we tooted our own horn about predicting the next move in the broader real estate market? For months we'd been telling you that home sales would spike dramatically when prices got low enough and foreclosure rate rose high enough. It started back in August and it's only continuing as we near year end. Our belief is that this buying up of bargain property is the first necessary move toward the stabilization and slow recovery of the State's real estate market. The inventory is being appropriately reduced. When supply gets low enough, prices will flatten out. It will take time, but we believe we are sowing the seeds of recovery.

Moving On Up

Are you on the move? Good news. Next Generation is now a sponsor with One Simple Move™. Our clients can now register with this exceedingly helpful website and get valuable help, resources, and coupons to assist with their move. One Simple Move™ offers free move planning guides, checklists, and move coordination services. If you or anyone you know is planning a move, we urge you to take advantage of this service. It's free, courtesy of Next Generation Real Estate. There will be a permanent link in the link list on the right of this page. Register today and get immediate help with your next move.

ARM And (Not) A Leg

Adjustible rate mortgages have largely fallen out of favor these days. Blamed for the mortgage crisis and, by extension, the financial crisis, ARMs are suddenly viewed as risky propositions. This after years of popularity. Indeed, ARMs are the reason many people were able to be come homeowners in the first place.

These mortgages continue to make sense for a lot of people. If you're thinking about buying or refi-ing, don't rule them out automatically. This Times article (courtesy of SFGate.com) give a measured evaluation of the benefits of this loan propduct.

Have Basis, Will Travel

A client of ours recently took advantage of Prop 60 to carry his old property tax basis over to his new home. In brief, we listed his house in Mill Valley in 2006. It sold for over $1,000,000. His tax basis, however, was calculated from when he bought the house for $150,000 in 1985. He wanted to buy a new condo and bring his old tax basis forward. With some nifty and nimble work, we were able to close on his new home within three weeks, exactly two years to the day after we closed on his old one. Two years is exactly how long homeowners over 55 years of age have before losing their Prop 60 exemption. The result? Our client will save over $10,000 a year in property taxes for as long as he owns his new condo. That makes retirement far more realistic for many.

Want to know more about Prop 60 or its sister law, Prop 90? There are permanent links on the right side of this page. Or just click here.

Silver Lining?

Let's face it. It's been ugly. While regular readers know that we're hardly afriad to post bad news in this space, it's our feeling that anyone who thinks they know where or when the current troubles will end is kidding themselves (and us). All we know for sure is that, as we've always said, the longterm outlook is the only one worth looking at. Investment. Not speculation.

Of course, a little good news is always welcome, even if it's in the form of not-so-bad news about our local economy.

New Listing

Take a moment to check out a new listing. We have this property co-listed with another agent from Pacific Union to maximize exposure.

Call If You Need An Agent

The St. Regis is probably our favorite of the newer, luxury condo high rises. We think it compares favorably to the Ritz Carlton Residence and the Four Seasons, in aesthetic, amenities and location. The under-construction Millennium Tower will but nice as well, be it will also be next to the bus station. Not that we wouldn't be happy is someone offered us a unit in any one of them.

We've had clients look at several units in all three finished properties, so if you happen to have interest in the latest listing at the St. Regis, don't hesitate to get in touch. With some patience and our negotiating skills, we think we can get it for $10-$20 million under the asking price.

It's a Two-fer

Two interesting articles in the Chron today. The first reports plummeting Bay Area home prices and increased home sales. Regular visitors to this (cyber)space know what's going on here. Bottom feeding on short sales and REOs is pulling the median price lower, while the proliferation of those same types of sales accounts for an increase in total units sold. Some may remember that at the beginning of the market decline, the opposite conditions were present, as still-strong upper-end sales pulled the median price up, as a steep decline in sales at the lower end caused a drop in total units. It appears the lower end has finally gotten low enough to begin a reversal of the trend.

The second article, somewhat apropos of that last point, reports that the number of people who can afford a home in California is up dramatcally. They may not be buying yet, but this trend would seem to bode well for the market's overall recovery.

Twin Markets

There was a classic buried lead in an article in today’s Chronicle real estate section. The article is about challenges currently facing real estate appraisers. About half way down, you’ll see a brief bit about how short sales and foreclosures are affecting appraisals. It isn’t much, but we found this section particularly interesting.

An appraisal, after all, is really only one person’s opinion of value. Nevertheless, lenders rely heavily on appraisals to determine the “market value” of a particular property on which they may loan money. It comes as no surprise then, that in a declining market, the appraisal is the sticky wicket that causes many real estate transactions to fall apart.

A quick overview of this process: Mr. Buyer agrees to buy 123 Main Street from Mr. Seller for $1,000,000. Mr. Buyer plans to borrow 80% of the funds necessarily to buy the property. He goes to a lender and fills out a loan application. Based on his credit score and income verification, the lender agrees to lend Mr. Buyer 80% of the property’s value. The lender sends an appraiser out to the property to determine the market value. Said appraiser reports that the current market value of the property is $900,000. The lender may very well be willing, as promised, to lend Mr. Buyer $720,000, which is 80% of the property’s newly determined market value. The problem, of course, is that Mr. Buyer needs to borrow $800,000 to buy the property at the agreed upon purchase price. Now, if Mr. Buyer was working with us, we would have advised him to have an appraisal contingency, which would allow him to walk away from this transaction right here and now. If not, Mr. Buyer might well have to find $80,000 to make up the difference between what the lender will loan and what he agreed to pay. Without an appraisal contingency, Mr. Buyer could well be in default if he does not buy the property, thereby putting his deposit at risk.

But here’s the thing. The fact that appraisals are coming up short is not exactly shocking to anyone who has been following the real estate market for the past 18 months. Which brings us back to our buried lead.

Drive 45 minutes away from San Francisco in nearly any direction and you will find communities in which upwards of 50% of the homes for sale are either short sales or foreclosures. The other 50% of listings are, of course, owned by ordinary people who have equity in their homes and are selling for “normal” reasons (job transfers, kids moved away, retirement, moving up, downsizing, etc.).

Regular readers know that we often harp on the importance of looking at a specific market to determine what a property is worth or which way its value is moving. Real estate is a local business. Examining national, state, or even regional trends is often a waste of time. But what do we do when two distinct markets emerge within a single location? How do we determine value when, even within the smallest of communities, two marketplaces exist? We’re only just learning the answers.

To help find those answers, it’s worth looking at a textbook definition of market value. Literally. We went back and looked at an old real estate textbook to shed some light on the subject. We must allow for five key elements to determine if a property is selling for market value:
1. Neither buyer nor seller is acting under duress.
2. The real estate has been on the market for a reasonable length of time for a property of its type.
3. Both buyer and seller are acting with full knowledge of the property’s assets and defects.
4. No unusual circumstances exist, such as a sale involving related parties.
5. The price represents the normal consideration for the property sold, unaffected by creative financing or sales concessions granted by anyone associated with the sale.

In a short sale, 1, 4, and 5 are arguably not present. At a minimum, the seller is acting under duress (1) and the lien holder is granting concessions to facilitate the sale (5). In a foreclosure sale, the lender, who is also the seller, has probably never seen the property and has no knowledge of the property’s assets and defects (3).

Clearly, short sales and foreclosures sales do not meet the definition of “fair market value.” So what do you do if you want to sell your house and the house three doors down sold six months ago in a foreclosure sale? It is unlikely that the neighbor’s house sold for fair market value. Nevertheless, that sale will be used to determine the value of your house.

This is the challenge facing everyone in the residential real estate world right now: appraisers, lenders, buyers, sellers, and Realtors. And that’s why it’s essential to work with a Realtor who is aware of these factors and uses them in advising you on your decisions.

Interesting times, these.

Model Home

Pleeeeeeease read the excellent Times article examining various economic models for determining when the housing market will hit bottom. Fascinating stuff. One model, at least, says SF is still 1% undervalued. Perhaps most interestingly, each model the article discusses seems to make good sense, which, to us, means the best advice is, “Anybody who says they know when it’s going to end with confidence is delusional.” But we've got to close, right?

Marin Takes The Rest Of The Country To School

Ever wonder why people pay so much to live in Marin County? There are plenty of reasons. Too many to list here. One of the biggest is the public school system. But are you getting your money's worth? As it turns out, yes! And then some.

A recent article in Forbes examined "per-pupil spending in public schools and weighed it against student performance--college entrance exam scores (SAT or ACT, depending on which is more common in the state), exam participation rates and graduation rates." Guess which schools ranked highest. If you guessed Marin, you're right. (Maybe you went to school there, too, smartypants.)

What's Done Is (Not Quite) Done

Check out this update on the SF Planning Commission's approval the the rezoning of the City's eastern neighborhoods.

The City's Changing Landscape

Have you ever been to Dogpatch? Ever heard of it? It's the super hip neighborhood along San Francisco's Central Waterfront. Due to its relative isolation and not-always-glorious past, this gem of a district is unknown to even many longtime locals. That may be about to change.

The SF Planning Commission today is likely to approval a plan that may forever change the face of the City's eastern coridor. UCSF and Biotech development in the area has shined a spotlight on the area. (And of course yours truly was married there.) But this new plan stands to bring thousands of new residents to neighborhoods that have not always been thought of as residential. Read more about the proposed changes in this Chronicle article.

Welcome Home

We managed to take a brief summer respite at Stinson Beach. Then we came back to this. Welcome home, indeed!

REO Speedwagon

Everyone seems to be interested in forclosures these days. Real Estate Owned (REO) listings are everywhere and everyone wants to cash in. Not surprisingly, it's not as easy to get into this market as it might appear. This article in today's SF Chron spells out some of the pitfalls.

For Better or Worse

After a blogging sabbatical, we're back with an interesting article from today's SF Chron.

One of the reasons it's so difficult to tell where the market is going right now is that lenders don't seem certain what's in their best interest. Many are willing to work with struggling homeowners to keep them in their homes. Others "are really convinced that a repayment or modification is not in their best interest; that a foreclosure may be a better thing."

Stay tuned...

Golden Handcuffs

Today's Prop 13 article in the SF Chron is not to be missed. It's easy to forget the history of this proposition or to underestimate its signifcance. When you read the aritcle, you'll realize or remember that Prop 13 changed not only the way we pay property tax, but also the way Californian's view taxes and government in general. Moreover, ask any veteran educator in the state and they'll tell you that no single event in California history has had more impact on public (and by extension, private) education than the passage or Prop 13.

Upside down

Sales were up in April! The recovery is on! Be the first to buy in to a down market and make a fortune in real estate speculation! Uhm...not so fast.

Actually, we think this is a good time to buy, but don't make too much of the recent month-over-month increase in sales. The recovery may be starting, but it won't be measured month-by-month. We suggest tracking real estate investments year-over-year. Remember, the word is "investment," not "speculation."

If you decide to wade into these still-troubled waters, call us. There are bargains to be found out there, like no other time in the past seven years. We're tracking properties that we think have good investment potential. But you have to be selective. And patient.

"Off to the Principal's Office You Go"

Whether you're genuinely interested in school performance records or just looking for a way to waste time at work, you're bound to enjoy this handy tool. Wondering about your kid's school or maybe about the district you're thinking of moving to? Now you can find out the rate of school suspensions (and the reasons!) for every public school in California. Happy snooping.

Bottom Feeding?

We get asked almost daily whether the market has hit bottom. No one knows for sure, but we've been saying that, barring a major change in mortgage rates or an economic sea change (election year, anyone?), we think our feet will touch the bottom, so to speak, sometime between now and Q4, 2008. Well, one economist thinks we've hit the bottom already. Check out this WSJ article for a very interesting take on the market. Whether he's right, we cannot say for sure, but we definitely agree with his secondary point: the rebound will be slower (and hopefully more sustainable) than the boom.

Talkin' 'bout Mill Valley

A former client and friend sent this our way. We couldn't resist linking to it. For those clients who always look at us funny when we talk about how much things have changed in Marin, here's proof.

Duration, Duration, Duration

A belated post here. Some of you probably saw Kathleen Pender's piece in the Chron last week. We second just about everything she writes in there. Tons of good information. First time home buyers, in particular, would be wise to read and remember.

Getting Foreclosure

This article says it all about the state's real estate market. In short, we've never seen anything like this before. Silver lining? Marin and San Francisco have the lowest and third lowest rates of foreclosure of all California counties. Opportunity? As we've been saying for a while, Sonoma County seems like a market that went from overvalued to undervalued very quickly. What's next? Our best guess is another few quarters of scary statistics before a blessedly slow and and steady recovery. We suspect that those who have the moxie to buy in 2008 will eventually be very glad they did. Stay tuned...

Fireside Chat

As a Mill Valley native, I am often asked by clients, Marin newcomers, or visitors from SF about the rundown, old, white brick building at the doorstep of my hometown. Many people remember the Fireside Motel, which sat behind the white brick building and welcomed people exiting Highway 101, headed toward Stinson Beach or Muir Woods. Still others once enjoyed a cold beer at the decidedly funky El Rebozo, the last business to occupy the white brick building. (Both establishments had reputations for allowing a little more fun that the local laws allowed.) These establishments were part of the Southern Marin landscape for a long time. Old timers might also remember The Brothers Tavern, Varney's Hardware, La Veranda, Dowd's Bard, and the Unknown Museum in the same breath. But I learned something new about one of Mill Valley's landmarks in this SF Chron article. If you've ever driven into Mill Valley and wondered about that rundown old building on the side of the road, you might enjoy the read.

Varney's Hardware closed in 1988

The fire that destroyed Dowd's and La Veranda in 1984

An "exhibit" at the unknown museum

Feeling So Loan-ly

Remember the heralded economic stimulus package that was supposed to bring relief to the lending markets and increased conforming loan limits? Well, it hasn't quite worked as planned. Check out this article from the SF Chronicle. It spells out what borrowers are facing these days. Bottom line? Loans are still being made, but without high income, great credit, and a big down payment, many borrowers are finding the pickin's awfully slim.

Property Tax Reductions

Fortunately, most of our clients, or more accurately, their properties, in Marin and San Francisco have weathered the real estate downturn well. In other areas, however, people who bought in recent years may find that their property has declined in value. Sometimes significantly. Oddly enough, when these folks get their property tax bill, they usually find that the assessed value of their home has not been reduced in kind. Fortunately, there is a rememdy. This helpful SF Chronicle article explains how to get a temporary reduction in the assessed value of your property. Share this with anyone you know who ought to take advantage of this opportunity.

TIC-Talk

Another SF-centric post (sorry, Marinites). This time we focus on TICs; that mysterious property type that's not quite condo, not quite co-op, and completely confusing. (In truth TICs, or something like them, are popping up in other areas as well, but they are still primarily an esseff phenomenon.) This article does a good job of spelling out the facts, history, and controversy surrounding TICs.

One important corrective comment: very few newly forming TIC groups have a single loan any more. The vast majority now have fractional financing, a fact the article doesn't address until well "below the fold," and one that has, in our opinion, assured the long term viability of TIC ownership. In this sense, the New York co-op analogy isn't far off. In most places, buyers (and lenders) have understandable hesitation when it comes to co-ops. In New York, they exist right along side condos as a perfectly normal form of home ownership. We suspect that in another three to five years, TICs will have reached similar status in SF, if they haven't already. We also think we know what else needs to happen to speed this process, but that's a longer discussion. (Call for details!)

If you're considering TIC ownership, please call us. We like TICs . Heck, we own one! We just want our clients to have all the information before they buy.

For even more TIC talk, check out the link list at the right of the page. You'll find links to Andy Sirkin's (TIC guru and attorney) website, as well as to the SF.gov condo conversion page. Enjoy.

Now that's an article!

We've complained a few times in this space about newspaper articles that don't tell the whole story or try to tell the whole story based on half the information. We understand. They have to sell papers. And histrionics and hyperbole sell papers.
Since we've been critical in the past, we thought we ought to point out an article that deserves praise. James Temple's piece in the Sunday Chron did a terrific job of digging deep into a specific market; namely newer construction in South Beach/Soma/Rincon Hill. Temple is the new real estate writer at the Chronicle and, despite a couple of hiccups that we're choosing to blame on the editors, he does a consistently good job. This article acknowledges that the dynamics of this market are unique to the market itself; not determined by forces in Washington, Wall Street, or Sacramento. Moreover, Temple does a great job of informing interested readers about what's really going on in a part of the City that captured the interest of many local residents.
Give it a read. Whether you're curious to see who's moving into this area or what the future hold for their home values, we think you'll get a good look.

FH-What?

When you take classes to get or maintain your real estate license in California, the textbooks have a section on financing. There are many pages devoted to something called FHA (Federal Housing Administration) Loans. Until now, these loans were so rare in our state, that most of these classes glossed right over that section of the book. Why worry about something that's never going to come up? Here's why. FHA Loans are actually an exceptional way for less qualified borrowers to buy homes. (Better than, say, sub-prime lending practices, eh?) And in most of the country, they've long been a popular way to enter the real estate market. The problem was, the limits for FHA loans have remained low as California real estate values have skyrocketed. That's finally changing (though perhaps temporarily) and we at Next Generation Real Estate think that's a good thing.

Where Did It Go?

A few people have asked what happened to the piece I wrote about the passing of Charlie Deal. Still others missed the link to the SF Magazine article about private schools. Click the links above to see them both. In the future, you can always click "older posts" at the bottom of the blog page for a quick trip back in time.

More on Conforming vs. Jumbo Loans

This article from today's Chron spells out what is likely happen to mortgage rates as a result of the economic stimulus bill. In a nutshell? It may be a while before the new conforming loan limits result in more affordable loans. But it will happen.

However, the piece notes, "waiting is not without risk. Mortgage rates are pretty low right now. If they shoot up in the next month or two, you could lose whatever advantage you might get from holding out for a conforming loan. There's also a chance lenders will continue to tighten their credit requirements so much that you no longer qualify for a loan. And once the new loans come out, you will probably have to get in line with lots of other eager borrowers." There have been some rumblings that the Fed's recent lowering of the shorterm interest rates may actually drive long term rates (i.e. mortgage rates) up. If this happens, it's possible that the new comforming rate will be the same as the existing jumbo rates.

Stay tuned.

Economic Stimulus and Conforming Loan Limits

Everyone wants to know how the new economic stimulus bill will impact mortgage rates, specifically when we will see the results of the new conforming loan limits. Here what the loan brokers at Union Trust (a Pacific Union affiliate) have to say:

"The bill includes higher conforming loan limits through December 31, 2008. There are still many details to be worked out so it is doubtful if any lenders are going to jump right in until more guidance is issued by HUD. We are expecting that the earliest this will realistically affect loans funding will be in the May-June timeframe (and that is only an educated guess based on how slowly things in politics work). Keep in mind the the new limits will apply to 30 year and 15 year fixed rate, fully amortizing (sorry, no interest only), and owner-occupied. ARMs are being considered, but if allowed, the increase will likely apply to one ARM type (for example, 5/1's).

"Who will likely benefit?
Someone that has a loan amount up to $729,750 and wants a 30 Year Fixed mortgage. A note of caution is that we are uncertain what the final interest rate and closing costs will be since we can safely assume that FNMA and FHLMC will charge higher fees to compensate for the higher risk.
Today the best conforming interest rate, for someone with 720+ credit score and full documentation, is 6% with no points and 5.75% with 1 point. The market continues to be concerned about the inflationary results of the FED's lowering of their overnight rate and if the concerns continues, we will see the conforming interest rate increase.

"The "hot" loan program today is a 5/1 Interest Only Jumbo loan at 5.5-5.625% or a 10/1 Interest Only at 6%. AND these rates and loan programs are available now!"

Now you know what we know.

Median Prices Up. Here's Why.

Two things to know about this article from today's Chron...1) It tells you everything you need to know about why the median price of SF and Marin real estate continues to rise despite dropping unit sales, and 2) James Temple, the writer of this article, is the same guy who wrote Friday's doom and gloom piece that we we linked to in our previous post.

It's this second point that illuminates our running pleas not to read too much into what you see in the newspaper. On consecutive days, the Chron's lead real estate article informed readers, first, that the market is at a 20-year low, and second, that "people are willing to pay ever higher prices for luxury Bay Area real estate." While both things are technically true, we feel that this kind of reporting makes it very difficult for owners, buyers, and sellers of Bay Area real estate to form an accurate opinion of the strength of the market. As ever, we merely wish that the papers focused more on the bigger picture and the longterm view than on headline-grabbing or heartstring-tugging case studies.

Brentwood, Anyone?

If you read yesterday's Chron, you saw the article, but we'd be remiss if we didn't call it to your attention. Another in a series of very gloomy reports on the regional housing market. Once again, Marin and SF sales are down (along with every other county) and once again the median price for both areas is up. Haven't we read this before? Call us Pollyanna if you wish, but we still say that this all adds up to a rare opportunity for buyers willing to wade into the lower half of the market. The headline for this article in the print-version of the Chron was, How Low Will We Go? A fair question to be sure. What if you buy now only to find the market worsenes in the second half of '08? Also a resonable concern. But if your plan is to stay put for a while and the house you want is on the market now, we suggest you may risk more by waiting than by acting. In other words, whoever said "Buy up in a down market," probably knew what he was talking about.

Is Sub-Prime To Blame For Broader Economic Downturn?

We've written often in this space about what caused the now-famed "mortgage meltdown" and who or what bears the responsibility. Current concerns, however, are more focused on the health of the broader economy and why markets other than real estate and mortgages are on shaky ground or already failing. An interesting op-ed piece by Paul Krugman in today's Times posits an compelling argument. Krugman suggest that, "Troubles that began a little over a year ago in an obscure corner of the financial system, BBB-minus subprime-mortgage-backed securities, have spread to corporate bonds, auto loans, credit cards and now — the latest casualty — student loans." This perhaps is not a revolutionary concept, but his explanation of how the financial sickness spreads is worth a read.

When Is Your Home Not an Investment?

"Shelter. Memory Box. Labor of Love. Artform. Retirement account. Get rich quick scheme. Showcase for conspicuous consumption.

"The American home has always been a receptacle for our myriad needs and desires. Yet lately many experts have observed that the real estate boom has skewed the meaning of our homes. In the wake of stagnating incomes, regressive taxes and the expectation of Social Security collapse, middle class home owners increasingly looked to real estate as a source of financial redemption. When God, pensions, the stock market and the government failed, the humble house provided more than a modicum of security, and with any luck, several hundred thousand dollars in untaxable capital gains."

These words began Carol Lloyd's "Surreal Estate" column in this Sunday's Chron. Lloyd's column has not always been kind to Realtors, but this week we found her echoing a sentiment we've been sharing with many of our clients lately. Namely that the real estate boom of the last several years severly altered people's sense of what their home was meant to do. For far too many homeowners, their principal residence became the repository of all their financial dreams; a way to pay for early retirement, kids' college tuition, and a chance to drive that fancy car. Along the way, we forgot about a home's first and foremost purpose: a place to live.

This is not to suggest that we shouldn't view our homes as investments. Rather, we only suggest that, unike your I.R.A, 401K, C.D.s and stock options, a home is not purely a financial instrument. Seems so obvious, yet so easily forgotten.

Another Rate Cut

Here's a quick take on how the latest cut to the Fed Funds Rates affects mortgage rates, coutesy of Union Trust Mortgage Services, a loan brokerage affiliated with Pacific Union:

"Jumbo rates decreased 0.125% yesterday (1/22/08) and conforming rates (loan amount under 417K) decreased 0.25%. A Fed cut was already priced into the bond market and that is why we have seen interest rates go down in the last month. Wall Street was counting on a 0.5% cut and now it was 0.75% so that is why we saw just a little drop. If the Fed would have cut just 0.5%, the bond market would not have reacted and we would have seen interest rates stay the same. Remember that mortgage markets are "open" every day whereas the Fed meets just eight times annually. This gives the markets a ton of time to interpret news, listen to Fed speakers, and generally prepare for the next Federal Reserve meeting.

"The big winners yesterday were people with home equity lines of credit, and those that carry credit card balances. Effective January 22, 2008, your borrowing rates just fell 0.750%.

"The Prime Rate is now 6.500%.

"FORECAST for Long-Term Interest Rates: We believe conforming interest rates (loan amounts under $417K) will probably continue to go down another 0.25-0.5% over the next 6-12 months. Jumbo loans are a different story though and we believe those rates will decrease only about 0.125-0.25% since there are still very few lenders that are willing to lend on large loan amounts."

Note that predicting mortgage rates 6-12 months down the road is a little like walking around with something green in your teeth; no matter how confident you are, eventually someone's going to notice and you are going to look foolish. Consider yourself warned...

2007 Round-Up

A belated welcome to 2008 from your favorite intergenerational real estate team. We are rested, nourished, and energized after some fun holiday travel, yummy eats, and a sudden respite from the rain clouds.

A special "thank you" goes out to those of you who bought or sold homes with us in 2007, as well as the many friends and former clients who helped us build our business last year. Your referrals are the the lifeblood of our business. We can't express our appreciation enough. One way we try, however, is to make donations to Ritter Center in Marin County and Glide Memorial Family Services in SF for every opportunity you send our way. We were thrilled to make many donations to both organizations throughout the year. And if the number of calls we've received during the first two weeks of 2008 is any indication, this year will be even better.

While 2007 was a busy year for Next Generation Real Estate, it was not so busy out there in the broader market. The fourth quarter in particular was not kind to sellers. Check out these end-of-year stats for a complete picture. The first number shows the percentage change in the total units sold in 2007 vs. 2006. The second number reflects the Q4 year-over-year change:

San Francisco -9.69% -19.11%
Marin -12.0% -29.0%
Sonoma -23.26% -39.04%
Napa -25.13% -42.02%
Solano -40.02% -48.43%
Alameda -27.53% -42.91%
Contra Costa -29.30% -42.89%

This next set of stats shows the percentage change in the median price in 2007 vs. 2006:

San Francisco +3.25% +4.3%
Marin +4.15% +4.4%
Sonoma -5.91% -13%
Napa +.84% +1%
Solano -8.13% -17.2%
Alameda +1.0% -3.36%
Contra Costa -1.0% -14.35%

As we've noted before, the upper end of the market out-performed the lower end in 2007. This accounts, in part, for why Marin and SF had an increase in median price despite a roughly 10% drop in total units sold.

We think there's good information in the above charts, as well as hints as to where the market may be headed in 2008. Please get in touch if you or someone you know is considering a real estate transaction this year. We'd love to talk about it!

All the best in 2008.