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...