How Did We Get to Where We Are, and What's in the Future? Part 1

On Wednesday some of my colleagues and I went to hear a speech given by Carol Rodoni. Carol Rodini was the President and CEO of Alain Pinel Realtors, and is now a Real Estate Consultant.
Part of understanding where we are in today's Real Estate Market is understanding where we have been.
In the year 2000 there was a great crash in the stock market when the tech sector blew up. Many saw reductions in stock values of up to 50%. Money fled the stock market, and found a new home in Real Estate. At the same time the government opened up the loan process and the Fed made it easier for the average American to leverage their way into home ownership. This was done by lowering interest rates, and allowing for more creative loan packages, i.e. adjustable rate mortgages, zero down payments, no documentation loans, etc.
Home ownership zoomed from 50% of the population to 70%. Renters became Buyers and the Real Estate Market started to heat up rapidly.
Buying Real Estate became not just a way to find a home, but rather a way for the average American to leverage wealth. With 20% yearly growth in Real Estate values from 2000 - 2005, speculative property buying began to take over the market, which lead into even more hyper growth in Real Estate values.
In my next post I will write about where this has lead us, and where we are going.

Can You Still Flip a House in Albany California

On last Thursday's tour I saw a home in Albany that was such a wreck the rain had come in through the roof and had flooded the kitchen. The listing agent was there sweeping the water out the kitchen door to the backyard. The house has 2 bedrooms, is about 1200 square feet, and is definitely a fixer.
It brought to mind, is it still possible, in todays Real Estate market, to buy a home in need of repair, fix it up, and sell it to make a profit? This fixer in Albany is priced at $479,000; about $400 a square foot. For the last 6 months, homes in Albany of this size have sold for around $560 a square foot.
That is a pretty tight margin. Add to that the fact the homes in Albany have always sold for a premium, because of the excellent reputation of the Albany schools all the way through high school. A home, even a fixer,that is priced around $475K will draw a lot of attention from other speculative buyers who will want to flip it.
Its time to delve deeper into the data. Those 2 bedroom, 1200 square foot homes that sold at the top of their class, $700K+ had an average per square foot sold price of $640.
That is still a pretty tight squeeze considering construction costs, and the fact that these homes that sold above $700K were in excellent shape with added amenities, kitchens, bathrooms, and aesthetic charm that buyers are looking for.
Speculative buying is still part of today's Real Estate market though not as much as it was pre-2006. The margin for profits are slimmer, but there will always be some speculation in the market as long as there is even some profit.
Just like everything in a tightening market, you have to be smart in your choices, and be focused on what the buyer's are looking for in a market that is now favoring them.

What's Happening Today

What I am about to tell you is purely anecdotal, just what I have seen and heard about the local Real Estate market in the past 2 or 3 weeks. I understand that it goes against the trends everyone else is writing about, but it is just my experience in the market.
It seems like things are tightening up a bit, especially over what was happening last year. I am hearing about, or participating in, many more multiple offer situations than I would expect in a slowing market. I think this can be chalked up to 2 main factors.
One is that sellers are getting wise. Through 2006, sellers still believed they were in a pre-2005 market. They believed that they could price their properties at any price, no matter how high, and get multiple offers. It has taken a year, and many newspaper and magazine articles, but they now know the realities of today's market and they are pricing their properties with more realistic expectations.
Secondly there are simply fewer properties on the market, so, even though there are fewer buyers, they are chasing far fewer homes.
Thus the phenomenon of multiple offers, less homes at lower prices and everyone, agents, buyers and sellers, getting smarter.

The Thursday Broker's Tour

On this Thursday's Brokers tour the one home that really stood out above all the others was a home at 59 Vicente in Berkeley. This home is in a very select price range at $3.4 million, and I know this is going to sound strange to most of you, but this is actually a very well priced home.
As a Realtor, I do get the opportunity to see many homes in the million dollar and over range, and many has been the time when I've muttered to my self, "A million dollars for this? Why?"
This is not the case for 59Vicente. This is a 3 bedroom 4 and a half bathroom home of 52oo square feet sitting on a 10,750 square foot lot just above the Claremont Hotel. It was built in 2006, and all the fixtures, from the heated floors, to the bathtubs, and 2 person showers, to the wall finishes have been well thought out and considered for their aesthetic appeal. It is a somewhat masculine home, two men lived there, but it could be easily converted to a more family environment with color and some softer furnishings. It is very modern and sleek, but you can really feel the care that went into all aspects of the home. The balconies over look a small wooded valley, and the out door seating areas a very serene. With its fabulous kitchen that boasts a built-in espresso maker and man made quartz counter tops, this home was made for entertaining.
If you are around this Sunday, give yourself a treat and visit59 Vicente in Berkeley.
By the way, the home I featured in last weeks Thursday Tour, gorgeous Craftsmen in a so so area, got 6 offers. Its a good lesson. A well priced, special property can overcome the weaknesses of a neighborhood.

A Little Bit of This and a Little Bit of That

Yesterday Fed Chairman Bernanke testified before the Senate that he believed the economy to be strong and that there should be slow to moderate growth for the year. He also indicated that inflation was no longer an issue, and the Fed would not be raising rates in the near future. Wednesday's stock market rallied on this news, and the DOW rose to a new high.
Today during his second day of testimony before congress, Bernenke seems to have become a bit more guarded. He saw a strong economy, but with inflation still being the major obstacle. Bernanke warned that the Fed was still on guard and ready to battle any signs of inflation with higher interest rates. Again, the markets reacted to Chairman Bernanke's more nuanced statements.
Congressman Barney Frank seemed to sum up the Chairman's testimony when he told Bernanke, "It seems a little odd to say 'here's what I think, but it might also be worse than I think."
This week interest rates dribbled down again for 30 year fixed mortgages.

The Numbers for 2006

Today's post is all about the numbers. Some times that is all my clients want; some facts to mull over and chew. The California Association of Realtors (CAR) has come out with their statistics for the past year 2006.

• First time home buyers in 2006 were a smaller share of the Real Estate market, dropping from 30.5% in 2005 to 27.1% in 2006.
• Those using zero down payments increased dramatically from 4.5 % in 2000 to 21.1% in 2006, and of those using zero down payments, 2/3 were first time home buyers.
• 6% seems to be the magic threshold for interest rates and market activity. Since 2002 as interest rates fell below 6% market activity increased, and activity slowed as it approached 6% for the years 2003-2004. Activity has decreased as rates went above 6% starting in late 2005.
• Bay Area home sales decreased 10% in 2005 from 2004, and in 2006, home sales decreased 19% from the previous year.
• The state wide median sales price increased 14% on a year to year basis until we reached 2006 which closed out with a 2% increase for the year.
• The typical first time home buyer was 35 and married in 2006. Typical repeat buyer was 45.
• The typical home seller was 50.
• Median net cash gain peaked in 2005 at $220,643, and declined in 2006 by 8.4% to $202,000 for the first time since 1997.

Those are some of the numbers for 2006.

The Comfort of Home

The rains have finally come to the Bay Area. In the business of Real Estate we can sometimes forget that the whole point of buying a home goes way beyond investments, loans and the conditions of the market. In the end it is about finding a place to settle in and to find comfort in. It is warm, safe place in which you can gather the people you love best. Rainy days can bring back the true meaning of "home" as you cozy down against the weather.

Here is an easy recipe for Mac and Cheese. It is truly the homiest of dishes, and this recipe is easier than the box version. You don't even have to boil the noodles. A green salad and a glass of wine makes this a meal.

Easy, Great Mac and Cheese

2 Tablespoons Butter

1 cup Cottage Cheese

2 cups whole milk

1 teaspoon dry mustard

Pinch cayenne

Pinch fresh nutmeg

½ teaspoon salt

½ freshly ground black pepper

1 pound extra sharp cheddar cheese grated

½ pound elbow macaroni

Preheat oven to 375F and position rack to upper third of oven.

Use 1T of butter to grease your pan.

In a blender, puree cottage cheese, milk, mustard, cayenne, nutmeg, salt and pepper.

Pour puree into a large bowl, and fold in the grated cheese and uncooked macaroni. Reserve ¼ cup of cheese for the topping

Pour into pan, cover tightly with aluminum foil, and bake for 30 minutes.

Remove foil and gently stir macaroni. Sprinkle remaining cheese on top and put back in oven, uncovered. Bake for 30 minutes.

Allow to rest for 15 minutes before serving.

You can add ham and frozen peas to make it more interesting, or some julienned sun-dried tomatoes to give it some punch.

Rainy Thursday Tour

It was a strange tour today. After a Monday Tour that was full of new homes on the market in Piedmont, the Thursday Tour was strangely quiet. I wish I had a spiffy theory about it, but I don't.
There was one surprise on tour today, 954 43rd Street in Oakland. This home is located just below Market Street in North Oakland. It is a surprising listing, because it is a gorgeous Craftsman in a neighborhood in which you would not expect to find one. It is full of wonderful details like the original built-ins and wooden pillars, and it sits on a fantastic 5000 square foot lot It is a 2 bedroom home, but all the rooms are generously sized from the formal dining room to the wide hallway. It is a lot of house for $510,000. You just have to decide whether you like the area or not.

After the Superbowl

Except for the half time show with Prince and the first 7 minutes of the Superbowl, the game was its usual once a year bore. The commercials weren't even that good.
But, as I thought, this week sees a flood of new properties on the market.On the Monday Broker's Tour it was like the city of Piedmont just made it to the map with a half dozen new properties on the market.
I was talking to a loan broker this morning and 30 year fixed mortgages are at 6.375% percent, and adjust ables are at 6.25%. With so little difference between the two, most buyers are moving towards the 30 year fixed mortgage, which is actually healthier for the market in general. One of the things that lead to the hyper inflated Real Estate market of the last few years were the overly creative packages that banks were offering that allowed buyers to offer way more for a property than they could normally afford.
In fact, as my loan broker told me, those people who bought homes with 5/1 ARMS are now showing up seeking to refinance their loans. In the beginning they were paying as low as 4% for their mortgages, but now they are looking at payments as high as 7.5%. Of course when you tell someone that they will be paying 6.375% when they have been paying 4%, you still get a scowl, eventhough you saved them from an even higher payment.