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.

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.

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.

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 3^rd 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.

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 3^rd 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.

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.