Saturday, March 31, 2007

What you want.

I was having a discussion with one of my clients the other day about the homes we have been looking at for her to purchase. I was telling her that every buyer, from the person looking for a studio condo to the family looking for the grand estate, always wants a little more than they can afford.
My client always seems to fall in love with that place that is just out of her price range. She said that it was just human nature, and that people, including herself, are greedy.
I told her that it was not being greedy, rather it is the natural desire of any buyer looking for property. It is the desire for value. You just want to know that what you are buying is in fact worth more than what you are paying for it, so you want the extra bedroom, or the bigger family room, or the better neighborhood.
It is always important to be a value buyer, because that is being a smart buyer, but it takes time and exposure to the inventory to really understand when you are seeing value, and when you are simply looking at something that is out of your price range.
In this market value often resides in future equity and equity growth often comes from improving conditions, whether it is an improving neighborhood, adding to the features of a property by fixing things or adding things, or simply taking advantage of a change in the market.
In any Real Estate Market, recognizing true value is the best approach to purchasing a property.
There is a lot to be said for the adage, "Buy the worst home in the best area you can afford."

Wednesday, March 28, 2007

Don't Panic

Yesterday I got the following message from a loan broker I have worked with in the past;

Many of you have heard that there is a contraction going on in the Mortgage business. This is accurate information and not being nearly as overstated as the incomes which were used to underwrite many of the problem loans leading to this so-called “meltdown”.

The following are areas of concern in our mortgage market and subsequently have brought about a violent reaction by the top lenders in our country and aimed directly at reducing their exposure to the riskier loans.

I read this sobering info this morning..

Loan To Value’s(LTV) of 98% or more combined with FICO scores of 680 or less accounted for 12% of home purchases in 2006 and 77% of delinquencies!

100% financing with Lower credit core borrowers(below 660 mid-score) using a stated income or reduced documentation loan structure. This is the single largest place where we have seen a constriction. It used to be pretty easy to get done but no longer.

100% financing below 620 mid-score, regardless of documentation. This is the 2nd largest sector we have seen constriction.

This is most likely the leading edge of a vast change in the mortgage market. This is not the end for all of you with FICO scores lower than 680, but it does mean that you have to do more work to qualify for a loan. You may have to put things of for a time to correct your credit score, and to save more money to buy a home.

For you sellers, when accepting offers, be very much aware of the type of loan the buyer is coming with. Really investigate the loan officer. You do not want things to fall apart at the last minute.

Friday, March 23, 2007

1521 Oregon, Berkeley

I helped my clients buy this home three years ago. Now they have a little boy, and they are feeling the need to stretch out, so their starter home in Berkeley is on the market.

This home is a charming 1922 Bungalow with two Bedrooms and one and a half baths. It is affordable and just right for someone who wants their first home in Berkeley. 1521 Oregon has a grand backyard, perfect for parties and BBQ's. Any gardener will relish all the space for planting flowers and landscaping. There is also a detached studio for extra space. It is currently being used as a recording studio.

View the virtual tour at here.

This charming home is on the market for $499,000. Just right for someone looking to start out in Berkeley.

Wednesday, March 21, 2007


Sorry I haven't posted in a few days. I have a new home coming on to the market this weekend, and 2 new clients. As I have stated before, one of my goals is to have the smartest buyers and sellers on the market.
It is important to have a good understanding of what is happening in the local Real Estate market both when you are looking to buy a home, and when you are selling. This is a first for both my new clients. Both are moving towards a good understanding of the inventory of the homes on the market, what the expected sales price of any given home should be, and the importance of the days on market for any given property and how that affects value.
My buyer is learning about valuating those features she wants in a home, and trying to figure out what she must have, and what she is okey with letting go. Since we live in a market of existing properties, it is hard to find that one with all the features she wants that is also within her price range. Some things she may have to wait for, or install herself.
My seller is learning the importance of pricing a home, and how all the marketing is built on this cornerstone. He is learning about staging a home, and how spending a dollar here may mean gaining $5 at the close of escrow.
Both of them are learning about market value, and how everything is a balancing act.
Education can be a long and tedious process, but you have to be smart about your personal goals, and about the prevailing trends to make the best decisions when it comes to buying or selling a property,

Sunday, March 18, 2007

A Link to an Excellent Article in the NYTimes

Sometimes someone else writes something that should just be required reading. In the New YorkTimes this week, Roger Lowenstein has written an excellent article on the preceived bubble bursting in the Real Estate market, and why leveraging your wealth by owning a home is better than renting. It is definitely worth your time.
Just click here to read it.

Wednesday, March 14, 2007

More Than A Realtor

Being a Realtor has put me in the unique position of being involved with my clients at both an emotional and financial crossroads.
This year it has become even more apparent to me that my career as a Realtor involves so much more than helping people buy and sell their homes.
As I stated in an earlier post the skill set that it takes to be a Realtor today also involves helping people manage their wealth, and leverage themselves towards the next step of their financial plan. This involves counseling them on what is and what is not a good investment, making sure they do indeed have a plan, and, almost more importantly, making sure they have an exit plan.
But, even beyond this, the role of the Realtor can become one of an even more intimate consultant. Buying or selling a home involves not only that next step in a financial plan. It can also be the next step in an emotional plan, and sometimes there is no plan at all.
Unexpected things happen in life; a child is born, a new job becomes available, a partnership ends, an old plan fails, and a new one takes hold.
I have been asked to be the resource for information way beyond Real Estate. I am honored that my clients have come to me to help them find the right person to advise them. Sometimes they just want someone to tell their new story too, and I am always available to listen and offer emotional support when it is needed, and be a resource for specialists when that is needed.
I treasure my relationship with my clients, and I feel like they are a part of my new family.

Saturday, March 10, 2007

Spring is Here! Well...Almost

Something strange is happening in the local Real Estate market. On Mondays and Thursdays when I tour, all the other agents I have talked to have been involved in multiple offer situations. I know of 2 homes in the Berkeley Hills that took offers last week, and both of them had more than a dozen buyers competing to buy them.
In a year when we were preparing for, at best, a level market, and more likely, a market retreating in values in the 3% to 5% range, this sudden activity is a bit of a surprise.
Now this could be a few things. Firstly it is Spring, and we almost always experience an up surge in activity in Spring. Though I don't remember this happening last year.
Secondly there is a very low inventory of homes on the market right now, so if you want to buy now, there are fewer choices, so there is more competition for what is on the market.
Thirdly, after a year of being pounded on by the press and the market, sellers are realizing that they are in a different market, so they are taking much more care in pricing their properties. It takes much more careful consideration to price a property to attract the most qualified buyers than it ever has.
So, is this just a Spring anomoly, or is the market shifting again? It's just too early to tell. We should all know in a month or so.

Thursday, March 8, 2007

What's in the Future? Part 3

One of the factors that lead to the over heated Real Estate Market of 2000 – 2005 was the easy availability of cheap money. While the Fed was driving down interest rates, the banks, with the permission of the government were putting together loan packages that made it extremely easy for the average American to buy a house.

With interest rates down to 4% on some loans, you could arrange to get a loan with no down payment and no documentation. You could get 5 or 7 year adjustable rate mortgages. You could even get a negatively amortized loan if you wanted to. Home ownership in the United States grew from 50% of the population to 70%.

This easy access to money only further fueled an already hot real estate market. Now all of these exotic loans have begun to backfire on the home buyers who used them. With home values at a stand still or even dropping, those who used zero down payment loans have very little room to maneuver. A zero down payment only works in a Market where values are growing. You can depend on the growing value of your home to make a zero investment into something of value, with the growth of the equity in your property.. In a downward trending market, you are going deeper and deeper into a whole, and rising interest rates are making it cost more each month..

By the 3rd quarter of 2005 fully half the home loans made were either sub-prime or adjustable rate mortgages. Now that the market has changed 21% of sub-prime lenders have gone out of business and that number will likely increase as more and more people default on their loans. Even the big institutions cannot absorb all the defaults.

By September of this year Freddie Mac is going to tighten up its requirements for loans, and they have already signaled that 50% of those sub-prime loans out there will not meet the tougher requirements. In this arena of lending, there is still quite a distance to fall.

The silver lining in this will be a more controlled lending market leading to a more stable Real Estate market. At least, that is the hope.

Saturday, March 3, 2007

How Did We Get Where We Are, And Whats in the Future? Part 2

During the local Real Estate boom of 2000 to the third quarter of 2005, the role of the Realtor changed from that of a facilitator for finding a home, and closing a sale, to a consultant who helped t property buyers leverage their wealth. It is a role change that reflected the change in the perception of Real Estate for the average buyer, and it is a role that is even more important today.
Starting in 2000 the ability to get a loan became easy and money was cheap. Real Estate values were growing by 20% every year, and more and more people began to amass second and third properties, not as homes, but as investments for the future.
Unfortunately these same factors that lead to the explosive growth of property values, were the same factors that have cooled the current market. Speculation drove prices for homes higher and higher furthering the vision of wealth through the purchase of Real Estate. The existence of no documentation loans, low interest rates, no down payments and negative amortization added fuel to the fire. It all had to end sometime.
When the Fed tightened the money supply in 2005 , I think it gave buyers time to really consider what was happening. After being beaten up for 7 years buyers simply were not going to take it anymore. It really took a couple of months for the Real Estate market to change course, but for we Realtors in the 3rd quarter of 2005, it felt like it all changed overnight.
All Real Estate is local. National trends are interesting to look at, but in the end, the most valuable information you can get is about the local market where you are interested in buying. While Real Estate prices fell in many areas in the United States, in the Bay Area prices actually rose. It was a mere 2%, as opposed to the double digits we were used to, but it was still a rise. For 2006 buyers, for the most part, sat back to see what the market was going to do. The volume of sales dropped by 20% in 2006, and buyers did not really come back to the market until the last quarter of 2006.

My next blog will bring us to the present day with the crises in sub-prime lending, and what the market has in store for the future.