McKae Properties Commentary

Ignition and lift off!

Thu, 3 May 2012 12:52:42 -0700

Palo Alto continued its “Red Hot” path from my last posting. In the single family home section there were 38 properties that either closed escrow or went pending. The average listing price was $1,793,722 and the average sale price was $2,447,333. Does that tell you something? Let me add the average days on the market was 14! Want to buy in Palo Alto? Be prepared to offer over list. Oh yes, pay cash! In Condo’s and Town homes there were only 3 pending sales. The average list was $1,396,000. There were no closings to give you an idea of the over bidding.

Menlo Park turned is a sizzling performance too! There were 38 homes that either closed escrow of went pending since April 15, 2012. The average list was $1,649,586 and the average sale was $3,40,000 and the days on the market was 23! The item that created the distortion in average sale price was 3027 Barney in the sought after Las Lomitas School District of the County Area of Menlo Park. It sold the same day of the list at $4,800,000. Menlo townhouses and condos did not close since April 15, but 7 went pending at an average list of $766,571 with 47 days on the market.

Atherton had 4 pending and one close since April 15th. The big number on the board was 92 Sutherland which was listed at $19.8 million and sold in 51 days. The average days on the market was 42. No condos and townhouses in Atherton

Portola Valley had 8 homes go pending at an average price of $2,027,750 with 43 days on the market. There were no closings.

In Woodside 5 properties went pending at an average price of $3,077,000 and 64 days on the market. there are no town homes in Woodside.

What do the reports tell you? It tells me that the sweet spot is still the $2 million range and it is going higher. Higher in the prices buyers are willing to pay. With the exception of Sutherland there are not standout high end sales.

Now the OFF MLS, this is a growing force of buyers and sellers. I spoke to Eric Trailer the President of Producers Forum, www.producersforum.org, there are over 200 buyer for Single Family Residential homes from $3-10 million in our area and 15 buyers for over $12 million.

Again, as I have warned in my previous posting, do not get into the belief we are in for a wild ride up in home prices. this market has been highly selective. It is “them that has is them that gets” is an old saying. So is it the cases in home markets. Our inventory levels are down in the most active markets with multiple offers and over biding. As you can see form the attached LIST, The markets of Palo Alto, Menlo Park and Los Altos have seen over bidding and multiple offers. In my opinion, because they have inventory levels below that of the prior year. As you can see
1. Palo Alto active 2012 of 44 vs 2011 of 55
2. Los Alto active of 48 vs 64
3. Atherton active of 22 vs 31
4. Los Altos Hills active of 48 vs 54Mountain View active of 20 vs 42
5. Sunnyvale active of 41 vs 106

In condo’s and Town Houses the discrepancies are even greater
1. Menlo Park 9 vs 24
2. Palo Alto 8 vs 29
3. Mountain =view 17 vs 55
4. Sunnyvale 16 vs 65.

Woodside is even with a year ago and Portola Valley has 21 vs 29

In Woodside and Portola Valley the high end market has come on replacing the “sweet spot” market of $2.5-3 million.

Then the rest of the markets not mention have fits or revival and they are soon hit by Short Sales and REO.

REO’s and Short Sale will be a contributing factor restraining a run away price in our entire are. The high end homes are selective. New construction or relatively new construction is favored. Older homes are of interest by contractors and spec builders; neither of whom are aggressive price buyers.

To give you an idea of the inventory of homes over hanging the market in San Mateo County, there are 159 homes scheduled for Trustee Sales, 118 homes with Notice of Defaults, and 99 Bank Owned properties, compared to 66 homes for sale of which 7 are short sales. In Menlo Park 35 homes are in for trustee sale, 28 notices of default, and 30 bank owned properties.

Short Sale and REO Activity: February saw a drop in foreclosure activity, but a jump in short sales.

Featured REO property Menlo Park:
1. Stone Pine $750,000
2. Severer Avenue $229,000

For the buyer short sales should not be ignored. They are becoming a larger share of the market place for sales Over the past 4 years this a been an enormous part of our San Mateo county market share, with some months approaching 50% of the sales. REO’s are difficult, but that too should not be ignored. Understanding the REO and the Short Sale market is to understand the paper work and administrative process that is required. Is the short sale under HAFA, is a regular short sale, is the short sale part of the $25 billion settlement. Is the short sale a Fannie, Freddie, FDIC or HFA sale. All of these sales require different terms conditions and paper work Working with an inexperienced agent will be costly frustration and in many times a valuable waste of time. As a final item, don’t be surprised to see the price of REO’s increase. They have seen increases in the US, so that could be a tendency here as rents increase and investors willingness to pay up for higher rental income will prevail.

Is the recovery here? I think the recovery as many of you wish to view it a years away. The inventory of foreclosed homes is still very high.

While we may have a hot market in some sectors, and thee are stalks of a bottom in real estate, we must consider IF THIS BOTTOM WILL STICK?

As we move into May and past the highly touted and expected Facebook offering, don’t let you enthusiasm get out of hand. SELL IN MAY AND GO AWAY, is an old Wall Street axiom. Robert Stiller thinks we are in the age of the Late Great Recession.

Local Markets Ignite

Fri, 20 Apr 2012 12:13:22 -0700

Something happened while everyone was worried about Europe, unemployment, QE III; local home prices jumped dramatically.

Our inventory levels is and was very low coming into 2012. March saw multiple offers in Palo Alto with over bidding the norm. April had some big surprises for Atherton and Menlo Park. In Atherton, a $19.8 million estate sold after 6 days on the market. In Menlo Park, April saw a bank owned old rancher in the county area go for multiple offers over $1.3 million, another county out of area owned go for multiple offers over $1,388,000 and another $1.3 million off MLS went in days after it Easter Day Open House in multiples “way over” asking price.

The market is definitely getting hot. IPO’s and expanding employment in Silicon Valley is creating not only liquidity but demand for entry level homes. The high end has slowly been creeping up and like the $19.8 million sale some happen so fast most miss it.

This rise is most confusing as one reviews the news items. We know that Foreclosures have slowed down and short sales have increased. We know that banks still have a large inventory of homes from the Robo Signing Era and after. So why the optimism?

It comes down to the market. The foreclosures and short sales are not in the high end and the levels of Menlo Park, Atherton and Palo Alto. Those homes are the less than median $600,000 - $700,000 price range. This market is the bottom of the food chain.

The food chain is the top down food Chain. As Silicon Valley increases employment it is not in the non-professional level. These are technology oriented people and related managerial positions. As these people get employment they eventually need work done to improve, remodel or build anew. Then comes the food chain delivery. Architects are employed, they add to staff, contractors are employed, they add to staff, suppliers then follow suit. The new hiring then allows debts to be paid off and new debt through buying to occur. BINGO we have a lively economy.

Think of our housing market as a two level market. The over $1 million is growing in demand and price appreciation, while the supply is limited. The under $1 million is being hit with short sales and bank owned sales. This market is seeing supply increasing and prices declining. The end result is median prices, which combine both high end and median and below, end flat to down. Down because the low end pulls down the median price. A $19.8 million sale may help median prices for the month of the close, but soon the low end bank sales and short sales drag down median prices, or at best keep median prices unchanged.

To understand why the lack of supply or low inventory is coming from you must look into the Mortgage Modification Programs in force today. The Treasury stated that the number of active permanent mortgage loan modifications agreed to by the banks rose 13,836 during February to 782,609. That means there were 13,836 less potential short sales and foreclosures.

Pressure from the Obama Administration on Fannie and Freddie to start reducing loan balances for troubled borrowers is another reason for inventory to remain low. With the pressure on Fannie and Freddie which the US owns is the pressure from the Administration on Banks to do the same. Then steps in Bernanke stating that he wants the banks to raise their asset levels. To keep the pressure from Bernanke off the banks and their trading departments they will cooperate. With cooperation comes complacency of the home owner.

From the complacent home owner comes optimism and from optimism comes the belief in higher home prices. 33% of respondents to Fannie Mae’s monthly housing survey said they expect home prices to rise and average .9%. Whether that is computable or not to the analyst, the fact remains that the belief that a home price will increase affects buyers behavior. The result is eventually stable home prices and rising home prices.

Now let’s deal realistically with the optimism. While there is a belief home prices will increase and while there is a low inventory and there are multiple offers and over bids; just remember where we came from. We are not talking 1999-2001. That was the peak and the fulfillment of a dream. We are seeing price in some areas come up to the level before the Lehman collapse. This month Palo Alto prices came up to 2008 levels. That is still far below the levels of 1999-2001.

We may be looking at a generation of no growth in home prices from a level that corrected the over sell of 2008 and forward. Just remember the world as we knew could or would have come to an end had it not been for the FED action. I like to use a description I used in the securities industry and a stock price. A stock sells of for a fundamental reason and then turns into a route due to an emotional reason. Now think of dropping a buoy from an airplane into the water. The buoy drops down below water level and then stops and rebounds and generally pops out of the water and then settles at water level. That is how prices operate and that could be exactly what we are seeing today.

What will this mean for investors? The sales of foreclosed property will continue. Bank of America just announced a launch of 2nd round bulk sales of foreclosed homes. Bank of America is one of the top 5 in banking that are loaded with foreclosed property. Individual investors are now finding competition from Hedge Funds as the Hedge Funds find a ready market for rental property.

If you are an investor this is part of an excellent formula for a profitable investment. Sales of discounted bank property is combined with the lowest rate of Mortgage Rates on Record! Interest rates are low. Yields in rental property is 4-5% locally. That beats CD’s and long term investment graded bonds.

We may not see 1999-2001 GAIN, BUT WE WILL SEE PRICES REBOUND FROM THE FIVE-YEAR LOW. How far that buoy pops out of the water remains to be seen. If you are looking to buy or sell this is the time for you to get the best price and terms as a seller and a position for long term growth and or income if you are a buyer.

To nail down this section is recent news on Existing Home Sales which confirm my paper above, Existing Sales Fall in March, Prices Rise.

What will our future bring and where are the opportunities can be found in the study that 1. Large Manufactures More Likely to Move From China to the US. This gives us a kick in employment and new construction of plant and a pop for equipment. 2. Phoenix, one of the Hard hit Housing Staes Rises From the Ashes. One of the worst housing markets in the US, but now investors are swarming over foreclosures on Phoenix, Arizona in search of big rental returns. You to can find those same opportunities in selected Silicon Valley Markets.

REAL ESTATE MARKET HAS BOTTOMED

Wed, 4 Apr 2012 15:07:49 -0700

Oh boy, where have they been? They being the National Press. If you bought a home in 2011 and have a mortgage from 2011, all you can do is look back on how fortunate you were. Was it an accident, did you plan or did you listen to someone. Well, if you listened to someone, I hope it was me. READ

We in Silicon Valley are quite fortunate. The area has been able to tough it out for numerous market cycles. Don’t get too optimistic though!

There is always a period of adjustment. As the market improves it will be based upon our economic strength. As our economy improves the need for below market interest rates for lending will cease. The market will adjust itself upward. The FED will no longer be supporting the market by keeping interest rates un-naturally low. The recent FED comments today put a shudder in the stock market, that will be temporary. The bond market has been moving in the direction of a stronger economy for weeks now and bond yields have been moving up and prices down. This caused movement out of bonds into equities. The initial move in equities that started in October 2011 was made on the continuance of QE staying in place. The stock market has gotten used to QE or quantitate easing and with each jolt of adrenaline from the FED the stock market learned to say, “that is good”. Now it is back to the old basics of investing. As the economy improves the FED no longer needs to support it. Interest rates will move up to their natural level. The recent FED Minutes here will give the feelings of the FED. The stock said is that bad? I feel it will see that growth of the economy will not need the life support of the FED. It is like a person getting cared for in Intensive Care. It is good the patient is discharged. A discharged person needs to learn how to walk, fed and care for themselves under the supervision of the doctor., the FED The economy is now discharged. The FED is overseeing the progress.

Of course I wrote Don’t Get Too Optimistic. Foreclosures and short sales will continue to have an impact on real estate prices. It will be a process of researching your market. The day is gone for buying at highly discounted levels. Banks will continue to unload their inventory, but it will not be a fire sale. There are still forecasts that home prices will drop 10%. I cannot see it in the high end on non-conventional mortgage market. I could imagine that the areas of heavy foreclosure activity will see their prices impacted by inventory adjustment and short sales. I don’t see our markets being adjusted downward for 10%.

Could the banks hold their inventory and trade out at higher prices? There would be revolution in the streets. If there were protests against Wall Street, just think what will happen if the banks play their foreclosure inventory against a raising real estate market. Some banks were saved by tax payer money, some banks illegally foreclosed on some homes, some banks paid their officers big bonuses and now some are trying to profit on the misfortune of other tax payers who saved them? I don't think so. Some is all banks from the populace’s viewpoint is my opinion.

I do think that we are in a long process of adjustment in our financial system. There were a number of changes and liberalization of rules and regulations of the post depression era to the 50’s and 60’s that were unwound by previous Republican and Democratic Administrations. Those liberalizations were more the reason for our financial meltdown, in my opinion. Now will be the time forward that banks could be under the threat of being broken up. “Too Big To Fail”, I doubt politicians, and citizens will fund another bail out of banks. There are some banks that thought owning a stock brokerage was a license to steal, legally. They really did not understand RISKS as a stock trader understands RISK. At some point this article on Break Up, will make sense and could see a beginning of the end of “Too Big to Fail”.

For investors and buyers this is a story of The Good, The Bad and The Ugly. Clint Eastwood is not the star, it is national real estate. The rebound that is being noticed is in the areas that were hit by the real estate price collapse.

What does this all mean for us? As I have written in the past,inventory is very low and well below last year in many areas. The latest weekly report here will give you an idea of our markets. We are down in many areas. Buyers are being bumped out of property by multiple offers and offers are going over lists. It is not unusual to see 30-40$% over list occurring. That is hard for many buyers to understand, when all they hear is how bad things are in real estate. You must remember, we are not median and we are not national. We are a local market driven by local circumstances.

Investors have fueled the real estate market in the area of short sales and foreclosures. Generous rental income and demand for rental properties are providing rental income returns not seen in decades in our area. That type of buying has finally hit the press.

If you are one of those who look at old formulae for investing just think how some of the economist are trying to figure out employment and growth have become disconnected.

Where is the “sweet spot” in home prices? There was a time the sweet spot in high end was $1 - 1.2 million. It then went to $1.7-1.8 million, next stop $2.2 million, now anything below $3 million is a sweet spot. Where is the next sweet spot?

What will happen when Facebook comes? I don’t think Facebook will be a wealth of money to drive prices unrealistically high. I think Facebook is the success of an IPO and will continue to show that the investor is accepting risk.

The investor is selling no yield treasury bills and bonds giving up security of principal and buying equity growth, taking on risk. Just as real estate investors are buying yield in properties, they see their high yield in comparison to Treasury Bonds. In comparison, real estate yield have their yields at a historically high premium, in comparison to Treasury Bonds. That means that when real estate investors add appreciation though amortization of principal of a mortgage and price appreciation of real estate. As a result, their returns are double digit.

Here is an interesting article from Bloomberg.

Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls
Matthew and Carina Hensley offered $10,000 more than the asking price for a three-bedroom house in suburban Seattle, then lost out to one of seven other bidders.
Their $270,000 proposal last month came with a family portrait and a letter introducing the couple, their eight-month- old daughter, Harper, and their desire to build a family in the Renton, Washington, house with a yard backing onto a woody hillside.
Bidding wars, absent from most parts of the U.S. residential market since its peak in 2006, are erupting from Seattle and Silicon Valley to Miami and Washington, D.C. The inventory of homes hovers close to a six-year low, while an increase in jobs and record affordability are tempting more buyers. The number of contracts to buy previously owned homes jumped 14 percent in February from a year earlier, the National Association of Realtors reported yesterday.
“We understand there is going to be fierce competition in the offers made for your house but Carina and I both felt very strong about letting you know what it would mean to us if we were given the opportunity to live in your gorgeous and charming house,” wrote Matthew Hensley, 33, a credit union branch manager whose wife is a dental hygienist. Such letters from eager buyers were common during the housing boom.
While listings will probably rise as banks accelerate foreclosures and sellers gain confidence in the market, the U.S. metropolitan areas with the strongest economies may be ready to absorb the additional inventory, said Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania. Low values and interest rates have made buying a better deal than renting in 98 of the largest 100 metropolitan areas, according to Trulia Inc.
‘Better Times Ahead’
“The housing crash is finally giving way to recovery in an increasing number of markets across the country,” Zandi said in an e-mail. “The decline in unsold listings and vacant homes and the increase in rents presage better times ahead for single- family housing.”
The bidding wars seen in such places as Seattle aren’t found everywhere. In metropolitan areas including Atlanta and California’s Riverside and San Bernardino counties, housing remains weak as high unemployment and falling prices deter first-time and move-up homebuyers.
A contraction in supply hasn’t helped increase property values, which are down by a third from their July 2006 peak. Prices, hurt by discounted foreclosures and other distressed sales, will fall 2 percent more this year before rising 1.4 percent in 2013, according to a Moody’s Analytics projection.
Boosting the Economy
A residential comeback would provide a boost to the U.S. economy. Housing will “contribute modestly” to the economy this year for the first time since 2005, according to Peter de Bruin, an economist at ABN Amro Group Economics in Amsterdam.
Rising demand for homes has cut into the supply, which is already low because many sellers -- especially those with negative equity -- are waiting for prices to increase before putting properties on the market.
About 2.43 million existing homes were listed for sale in February, the fewest for the month since 2005, the year U.S. home sales reached a record 7.08 million, the National Association of Realtors reported March 21. The number of listings rose by 100,000 from January, a seasonal bump that occurred every February since 2000 except for 2008, according to data collected by the Realtors.
The February supply of unsold homes listed for sale was down almost 50 percent from a year earlier in markets such as Miami, Phoenix and Oakland, California, according to Realtor.com, the National Association of Realtors’ official website.
Slower Than Expected
The U.S. inventory of new homes stood at 150,000, a 5.8- month supply, in February, when new houses sold at an annual pace of 313,000, slower than analysts expected, the Census Bureau reported March 23.
The supply of new houses rose from 5.7 months in January “as builders put inventory in place for the spring selling season,” Stephen East, an analyst with International Strategy & Investment Group LLC in St. Charles, Missouri, wrote in a note to investors. “This is the fourth consecutive month inventory has remained below six months’ supply, which is broadly considered supply/demand equilibrium.”
The new-home supply peaked at 12.1 months in January 2009, forcing builders to book losses as the economy fell into recession. While the inventory has declined from that high, the housing market still has hurdles to overcome.
Negative Equity
One hurdle for the residential market is the more than 11 million homes that had negative equity at the end of 2011, meaning more is owed on the mortgage than the house is worth, preventing owners from trying to market their properties, according to CoreLogic.
“A big issue is underwater borrowers,” said Sam Khater, senior economist for CoreLogic Inc. (CLGX), a real estate data provider based in Santa Ana, California. “If they want to move, they’re not flexible with their price. The lowest they can sell at is their mortgage amount. So there’s price stickiness.”
In a sign that demand for new homes remains weak, orders fell 8 percent from a year earlier for the quarter ended Feb. 29 at KB Home (KBH), a Los Angeles-based builder that targets first-time buyers.
“In a recovering market, the results did an absolutely ugly U-turn,” East, the International Strategy analyst, wrote in a note after earnings were released March 23.
The median existing-home price in the U.S. climbed 0.3 percent to $156,600 in February from a year earlier. It was the biggest year-over-year gain since July 2010, when President Barack Obama’s homebuyer tax credit temporarily boosted values.
Lagging Indicator
“Prices are a lagging indicator,” Khater said in a telephone interview. “The key metric to look at are sales numbers.”
Existing homes sold at an annual pace of 4.59 million in February, up 8.8 percent from a year earlier and the busiest February since 2007, according to the National Association of Realtors. The February number was down 0.9 percent from January, when an unusually warm winter in much of the country helped increase demand, according to Paul Dales, senior U.S. economist for Capital Economics in London.
“Good weather does not generate extra housing demand -- it just brings it forward from future periods,” he wrote in a March 21 note to clients. “But the bigger point is that a genuine upward trend is under way, with sales 9 percent higher than a year ago and 13 percent above levels seen in July.”
‘Demand Picks Up’
Asking prices tend to be higher and inventory tends to be lower from March through May, while sales peak by June and inventory reaches a top in July, said Jed Kolko, chief economist for Trulia, a consumer-oriented real estate information service.
“As housing comes out of hibernation in the spring, demand picks up,” Kolko said in a telephone interview from San Francisco. “Prices peak early in the season and inventory peaks later. Buyers should be more patient, but sellers should move faster.”
Agents encountered multiple bids on about half of offers in Seattle, Boston, Washington, D.C. and Oregon this year through March 15, said Tim Ellis, real estate analyst for online brokerage Redfin (RFNN). In the San Francisco area, Redfin agents reported that three of four offers involved competition, he said.
One home in Palo Alto, California, received 38 offers and sold for $1.65 million, or $452,000 more than its asking price, said Ken DeLeon, a real estate broker in Silicon Valley since 2002. Another client paid $2.56 million for a home in 2007 and is listing it for $3 million, with the expectation of receiving higher offers, he said. The seller wants to use the proceeds to buy a home in Saratoga, about 18 miles southeast of Palo Alto, where the market hasn’t heated up yet, DeLeon said.
Facebook Millionaires
Prices are hitting all-time highs, above Palo Alto’s 2007 peak levels, in the 94301 and 94306 ZIP codes, as buyers rush to purchase in advance of an expected flood of newly minted millionaires when Facebook Inc. (FB) has its initial public offering, DeLeon said. The Menlo Park-based social-networking company filed paperwork in February for an IPO that may result in a market valuation of $75 billion to $100 billion.
“It’s insane,” DeLeon, who brokered 101 home sales last year valued at $275 million, said in a telephone interview. “It’s probably the hottest housing market in the nation.”
In Phoenix, total listings as of March 23 were down 43 percent from a year earlier to 21,346 homes on the market, according to the Cromford Report, a Phoenix-area market research service. When pending sales are excluded, the number of available homes on the market fell 55 percent from a year ago. Distressed offerings dropped more, with the number of short-sale listings down 84 percent and bank-owned homes off 80 percent.
Shopper Sentiment Improves
The average home’s time on the market fell to 90 days from 114 a year earlier, and the median sale price rose to $126,000 from $110,000, according to the Cromford Report.
Contributing to the higher prices and faster sales pace in Phoenix were high investor-buying activity, normal homebuyers attempting to enter the market, speedier short-sale processes and an improvement in shopper sentiment, said Mike Orr, publisher of the Cromford Report. In a short sale, a property is sold for less than the amount owed on it.
“The inventory decline is accelerating,” Orr, who’s also director of the Center for Real Estate Theory and Practice at Arizona State University’s business school, said in an e-mail.
The key ingredients are in place for a housing recovery in the strongest U.S. job markets, where sales are outpacing new listings and banks have worked through the backlog of foreclosures, Douglas Duncan, Fannie Mae (FNMA)’s chief economist, said in an interview.
Declining Unemployment
The unemployment rates have fallen over the past year by more than one percentage point in the Miami, Phoenix, San Francisco, Seattle and Washington, D.C., areas, according to Bureau of Labor Statistics data.
Listings in Washington fell 27 percent from a year earlier in February, while the median price rose 11 percent to $398,500 and homes sold after an average of 74 days on the market, a 20 percent decline, according to Metropolitan Regional Information Systems Inc., a real estate listing service in Rockville, Maryland.
In neighborhoods such as Capitol Hill, sellers are prompting bidding wars by asking less than they expect to receive, said Sean Aalai, an agent with Lindsay Reishman Real Estate.
“They’re purposely pricing a little low,” Aalai said in a telephone interview. “Buyers walk in and fall in love and the property starts getting bid up.”
Miami Prices Rise
Single-family home prices in the Miami area increased 19 percent from a year earlier to a median $175,000 in February, the third consecutive year-over-year increase, the Miami Association of Realtors reported March 21.
The number of listings fell to 5,061 in February, or about six months’ supply, down from a nine-month supply a year earlier, as foreign buyers joined out-of-staters and Floridians seeking to take advantage of low prices, said Ron Shuffield, president of Esslinger Wooten Maxwell Inc., a real estate firm in Coral Gables, Florida.
“This has been the best spring season since 2005,” he said in a telephone interview. “The entire world’s buying here. They love the weather.”
The Miami-area inventory of homes selling for less than $100,000 fell to less than three months’ supply in February as investors snapped up low-cost properties and the availability of bank-owned homes shrank as lenders slowed the pace of foreclosures, Shuffield said.
Foreclosures to Come
Listings may swell in coming months as lenders allow more foreclosures to flow onto the market. The top U.S. mortgage servicing banks, which agreed to a $25 billion settlement over foreclosure abuses last month, slowed the pace of foreclosures as they negotiated for more than a year with state attorneys general.
A shadow inventory of an estimated 1.6 million homes either facing foreclosure or already repossessed by banks was being held off the market in January, little changed from a year earlier, CoreLogic reported March 21.
“As we move into what is traditionally the peak selling season for real estate, servicers will certainly be watching closely to see if now is the time to move more inventory out of the shadows,” CoreLogic Chief Executive Officer Anand Nallathambi said in a statement.
Arizona, California
Many states that don’t require court approval for foreclosures have worked through much of their shadow inventory. In Arizona and California, where banks take less time to repossess and resell foreclosures because the process doesn’t require judicial review, 7 percent of mortgages were delinquent at least 90 days or in foreclosure in the fourth quarter, down from about 13 percent in 2009, according to the Mortgage Bankers Association.
In Florida, where the court system is clogged with home seizure cases, 18 percent of houses with a mortgage are in the foreclosure pipeline, compared with 20 percent in 2009, the Mortgage Bankers Association reported. In other states that require judicial review, such as New Jersey and New York, the number of homes in the pipeline increased.
“If the foreclosure process has moved efficiently so that whatever problem there was has been taken care of, you’re going to see price appreciation as long as employment is growing,” Fannie Mae’s Duncan said in an interview.
For the most part, sellers are marketing their properties because of life changes, including taking a new job, getting a divorce or having their grown children move out, Khater said.
Time to Move
A four-bedroom home on 1.3 acres (0.53 hectare) in the Detroit suburb of Bloomfield Hills, Michigan, went on the market in October, when the owners decided to “downsize,” said Barbara Nigro, who has lived in the house since 1976.
“Now it’s time for another family to move in and raise their children there,” she said in a telephone interview from Scottsdale, Arizona, where she and her husband own a winter home.
The Nigros dropped their asking price by $150,000 to $950,000 in January, according to the listing. An offer is pending.
“Maybe if I kept it for two more years I’d make more money,” said Michael Nigro, 71, a retired pediatric neurologist. “I don’t have the patience for that. I don’t want the responsibility.”
Lori Bakken, the agent who represents the Hensleys, said three of four bids she submits on behalf of buyers face competition. She said she expects the dearth of supply to be temporary.
Seizing the Opportunity
“As word gets out there that there is a lack of inventory, I believe sellers will seize on that opportunity,” Bakken said.
The Hensleys haven’t given up on living in the Renton, Washington, area, where both sets of parents live. The winning bidder offered $15,000 above the asking price and didn’t make the sale contingent on successful financing or inspection, according to Kimberly Hobbs, the Seattle broker who represented the seller.
“From this experience we learned that we have to move fast, especially if a house is nice,” Matthew Hensley said. “The competition is fierce out there.”
To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; John Gittelsohn in Los Angeles at johngitt@bloomberg.net
To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net
Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/

Economic Recovery, Risk Acceptance

Fri, 16 Mar 2012 11:41:21 -0700

Last issue I spoke of a possible top in the stock market. I have had a chance to review my thoughts on this. It appears that the Dow Jones, the S&P and the NASDAQ are all moving higher. Higher in terms of gradual movements not dramatic movements. While the equity prices are gradually increasing the Treasury Bond Market is declining and yields are moving up on the mid and to the long end. Gold is selling off, Banks are willing to purchase from the Federal Reseve the Toxic Loans of AIG and most importantly commodity prices are increasing. Investors are moving from risk adverse and saftefy of principal assets to risky assets. This is a sign of confidence. It is not natural for equity prices to go up when bond yields go up. But in this case it is a sign that money is flowing back into risky assets. Investors are selling the store of value assets, US Treasury Bonds and Gold and buying stocks! Real Estate too as the Miami Condo Market has gone from Bust to Boom!

Commodity prices increased as producer inventories are depleted by increased demand. Supplier inventories are depleted by produceer buying in expectation of greater consumer purchases.

Along with the commodity Price increases, corporations are issuing warnings that the next quarter earnings may not be as great as the prior quarters as they have to compete with rising costs.

The US Corn market got the sale it was looking for this past Tuesday. The USDA reported private exporters sold 240,000 metric tons of US Corn for deliveries unknown. Commodity Traders believe the “deliveries unknown” was China. In addition to the “unknown” was that Chinese Feed Companies have signed contracts to import US Corn and many more International Feed Companies are considering the same. China is expected to import 4 metric tons of US Corn this year up from 1 million metric tons last year. Don’t expect weakness in grain prices; in fact, don’t expect weakness in commodity prices in general. Do expect higher prices in ethanol, corn and corn products and those food products that are dependent on Corn; i.e., the meats,

Signs of strength abound as China has hiked minimum wages and the hike is rippling across Asia. As companies move their prodiuction facilities from China to Malaysia and Thailand, wage demand and hikes follow.

Continued show of strength can be seen in the stress tests recently held by the FED on US Banks. US Banks are now stronger than European Banks. With the strength in the Banks and the rise in interest rates, can available home mortgages and a loosening in their lending practices be close at hand?

As we move forward the strength in the economy can be seen in the Consurer Debt Strength. Does the strength really mean Stress?

Payroll revisions came out on March 7th. The revisions point to a stronger job market.

With the improving outlook the FED will remain on hold as the need for more quantative easing deminishes.

The jobs report is most encoraging in the housing market. The states hardest hit by the Housing Collapse lead the US jobs recovery.

That recovery has encouraged the youngest of investors as a 14-Year Old Florida Youth bought her first home for $12,000 with monthly income of $700 per month.

Wondring what to do with your IRA, tired of low money market returns, worried about the stock market risk, worried about lossing equity in your bonds as interest rates rise? Well CNBC has the answer, “Buy Foreclosures With Your IRA” This is not an old idea. Back in the recession of the late 70’s indendent, “Self Trustee”, IRA adminsistrators were the new growth industry as they held investments in real estae, gold and collectibles. To help you, CNBC has given a list of administrators who will help you and some of the caution items to take care of when buying your first Foreclosure.

As China adjusts to new rulers and the economy adjusts to it growth. Other countries will prosper. China will see investors look elsewhere to invest and move their capital. With the adjustment China’s lending is weak. The London Financial Times recently had their Blog refer to this situation. This all means that the US will continue to be the place to invest and eventually the US$ will become the currency of choice. I don’t see that until 2013.

As the world adjusts to democracy and the Arab Spring matures and continues to grow and other nations find themselves in transition, Why is This Happening? The Economist has a great article on the change and from a historians perspective a very sensible and correct analysis.

The markets here are changing quickly. Short sales are getting multiple offers, regualr sales are getting multiple offers. People are over biding to get properties and to add to the stress inventories are at historic lows. It is not unusual to see inventories 50% below last yea in various Silicon Valley communitiesr.

Some notable sales occured in Atherton where a large estate on the market for 172 days recieved an all cash offer at full list of $18.9 million and closed in one day. In Woodside a Glens property sold in 10 days; represented by an out of the area Chinese Agent and a Chinese buyer, I am told. Palo Alto contimues to see multiple offers and buyers are scrambling to find proeprties in Menlo Park, but none appear.

Spring is upon us and Easter will soon see the typical rally in home proces. If you are thinking of selling, get ready now. If you are a buyer, beat the rush and have your qualifcation letter in hand or cash in hand. It you are a buyer and see the right proeprty, BUY IT! Don’t wait, prices are not gong to get any better and new homes will only see competion and multiple offers.

Growth drops over the world

Tue, 6 Mar 2012 10:41:27 -0800

2012 growth rate in the US is at a forecasted rate of 2.5-3%, China is down to 7%, Europe is in recession and Brazil’s growth engine as sputtered to 2.7%. Oil bounces around like a rubber ball as Iran, Israel and the US wonder how this will end. Gasoline prices jump dramatically and President Obama says get natural gas powered cars.

In between we have Greece on the front page of Worry Magazine with feature articles on Portugal, Italy and Spain. The back section has all the peripheral European Nations ready to fall beneath the waves of the Euro ship of state.

Hedge Funds control the Greece vote on restructure as they decide on whether to take the 75% haircut or force the Credit Default Swaps into action. Hedge Funds are also attributed to the large run up in Apple. Of course one of their own Mitt Romney is on his way to the White House feature event with a War chest filled to fight.

The Dow Jones has had a 25% increase since October 2011 after posting a lost and pitiful returns. High Tech dominate the returns. Since the begining of February the market has had not much to crow about in returns as it churns around 13,000.

There isn’t a day that we don’t hear something from someone on the next upside breakout in the stock market, the next bubble bust in the stock market or the bottom of the housing market or the bottom is not here, hold on!

With all that chatter it is hard to figure out where to go and what to do. Remember that the commentary you hear or read is from a national perspective. We live in Camelot, remember that . Just outside the borders of or select little community you have foreclosures, short sales and horror stories of families displaced and without a home to move into.

Just last week, I represented a buyer on a home in Palo Alto. I came into the seller’s Realtor’s Office to submit my offer. There was one other agent there. Within 15 minutes there were 10-15. By the time I present my offer and left, there was no standing room. From what I heard it went +20% over asking price or over $300,000 and “AS IS without Contingencies”; termites, foundation issues and electrical issue considered!

Palo Alto is hot as is Los Altos. Fixer uppers in the prime location of Los Altos are going 10-15% over list, as is without contingencies. Multiple offers are common in both of these markets. Well they should be, inventory is low by all standards and historical measurements. Liquidity from Silicon Valley is high and young people with cash are eager to buy in the areas close to their work or Stanford.

It is not unusual to find inventories Palo Alto, Los Altos, Woodside, Menlo Park down 50% from one year ago.

Supply and demand can have great effects on prices. With supply low it does not take much for prices to move up with terms favorable to sellers. Liquidity will feed any demand driven market.

I have been told that last year in San Mateo County 48% of the sales were short sales and foreclosures, WOW! Just think the few buyers of Palo Alto, Woodside, Atherton, Portola Valley and Los Altos' were noting compared to the rest of our area where 48% of the sales were from those under financial stress. There is something that does not make sense to me here. Why are our legislators in DC giving billion of $ to Egypt and Pakistan and blowing billions more are areas we can’t win in as Afghanistan when they can put that money to use here in the US. Municipalities are going bankrupt, pensions are being cut or eliminated, our growth rate is declining, our budget deficit continues to increase and we still support countries that have no allegiance to us, or whose dictators use our money for their own best interests. We need a change.

Back to real estate, what will make the markets pick up out side of Palo Alto and Los Altos? Of course it is like in stock investing ROTATION. Sooner or later, someone looks around and discovers they can get the same of better house in Menlo Park, Woodside or Portola Valley. Baby Boomers who are liquidating down size to Redwood City, San Carlos, Belmont and Burlingame or San Mateo. Where are the funds from excess capital are then reinvested. Where to reinvest? Money Market at less than 1%; which I may add, are being scrutinized by the Federal Government for safety. Do they jump in at the top of the stock market?

If you look at the buyer mix of the short sale foreclosure market you will find that an enormous percentage of buyers were individual. they call them “mom and pop” Americans. I know Mr. Buffet would put million or billion into single family homes, that is talk. Americans are acting.

There was a time that real estate for investors in California was too low in return. Investors look for cash flow, not playing appreciation of property. Today, 5-6% returns are not uncommon in single family homes. Take a resent short sale in Redwood City, $340,000 with $2000 per month rent. The insurance is minimal, utilities covered by renter, property taxes are 1.25%. That’s a little better than 7% gross return. If you use some leverage the return increases.

Let’s get back to rotation and flow of funds. What will cause prices to increase and other real estate areas to stablize and turn positive? Cash flow will cause it. As more cash comes into the market and the shortage of inventory is felt, prices increase. It is Econ 101, The Law of Supply and Demand.

Where will this cash flow come from? the stock market is the source. this run we have had of up 25% in 6 months while the US has a 2.5 to 3% forecasted growth rate is done! The higher the Dow Jones goes in stock prices, the greater the risk, the greater the risk the more nervous the investor. Sooner or later POP goes the ballon and prices correct. Is Apple worth $500 a share or Gold $1700 an ounce? Sure as long as they go up, they go down they are not. That is simple investing 101.

Consider this, as I write, March 6th at noon, the Stock Market or Dow Jones Industrials is down 225.68, this is the first day in 45 days that the market has suffered a 100 point decline. On March 5, is was 45 days without a decline the longest stretch since 2006! Now look at the IPO market, of the IPO’s for 2012 of US listed companies, 23 are down 15%. Yesterday the VIX or volatility ration was 18.05, the lowest level in 6 months. Today it jumped 17% to 21.14. Acqusitions dropped to $113.9 billion form $181.1 billion a year ago. To top the cake, the average volume on the composite is down 11% from last year, 2011. Finally, we need a brather and may more because the average investor has not bought into this market. I rest my case.