Archive for the 'Mortgage News' Category
A recent New York Times story, “The Biggest Defaulters on Mortgages Are the Rich“ prominently featured Los Altos. The subtitle, Walking Away from Million Dollar Mortgages, says it all.
Often, we find that the national press tends to over generalize about real estate trends and doesn’t understand our local market conditions. So, we set out to find out the real number of distressed property transactions in Los Altos, Palo Alto and Los Altos Hills. As it turns out, Times writer David Streitfeld is correct.
Until recently, distressed sales were rare in Los Altos, Palo Alto and surrounding areas. Not any more. Currently in Los Altos, 6 of the 48 homes under contract are bank owned or short sales. In Los Altos Hills 2 of the 10 homes under contract are “distressed”. In Palo Alto only 1 of 57 pending sales is bank owned or a short sale.
Typically during the early part of an economic downturn owners of higher value homes usually have more equity or other assets which allow them to ride out the storm without selling. As the downturn continues, we will be watching and commenting on this trend closely because many of the sales appear to be at attractive prices.
The government reported Thursday that the economy shrunk at a revised 1% during the second quarter and estimated that government stimulus spending added 1% to economic growth. In other words, without stimulus the economy is currently shrinking at a rate of 2%. Normally such a rate would be considered terrible.
Our belief remains that the uptick in economic activity and the real estate market will be short lived. Near term home sellers in the Palo Alto/Los Altos market area should sell now; buyers should buy quality, lock in low loan rates, and plan to hold long term.
Jeff and Steve
What a mess!
The Fed has established, via Fannie Mae, appraisal guidelines that are currently creating havoc for buyers and sellers of homes. It is delaying the process, costing the consumer more, driving the good appraisers out of the business. It’s also making a mockery of accuracy in areas like ours where there simply are not enough sales to satisfy the minimum number of “comparable sales” required which forces appraisers to use sales that can often be in lower-priced neighborhoods.
A good article explaining some of the issues can be found in today’s SF Chronicle, by Kenneth Harney.
Jeff and Steve
Low interest rates and low home prices, coupled with reduced retirement accounts, are causing many to consider a real estate investment plan. Throw in the mistrust caused by numerous financial scandals, plus the easy-to-understand basics of rental real estate, and it looks even more attractive.
It is pretty difficult for a property manager to “cook the books” when an owner reviews rents and loan expenses each month. Additionally, the advantages of leverage in increasing one’s net worth can’t be ignored.
Invest $100k in the stock market and when it doubles in value you’ll have $200k equity (timeframe? your guess is as good as mine). Invest $100k in a $300k investment property and when it doubles you’ll have $400k of equity (600k-200k loan). The key is to have a “break-even” or a “positive” cash flow. You’ll then have the staying power to wait for the value to double.
Over the last few decades, you had to go to Texas and other similar areas to achieve a good rental cash flow. Now you can find those opportunities in Northern California and even here in the Bay Area!
This is a great time to start buying investment property, perhaps one every year or two, thereby dollar cost averaging into the eventual real estate recovery.
The Conference Board announced the lowest level of consumer confidence on record for the month of December and now once again for January. Little wonder- if all of your assets are falling, job security is non-existent, and Washington seems broken what is there to be confident about? Let’s hope the new administration and Congress can begin putting the pieces together for a recovery to begin later this year. Continued low mortgage interest rates will motivate entry level home shoppers and investors to buy, thereby absorbing the last round of foreclosures before a broader housing recovery begins to takes hold, hopefully by 2010.
Jeff Stricker & Steve TenBroeck