I don’t often have nightmares about real estate, but the other night I did and even though it’s true, it does sound like one of the cautionary tales.  So in my dream I was caring something heavy up a flight of stairs and and an older couple at the top of the stairs said aren’t you going to show us more homes?  Well in my dream, I didn’t remember them, but said well sure, I was just waiting for them to tell me what they wanted to see.  But at that point, I asked them what they wanted to do about their present home.  Was it their intention to sell it first?  They said yes, they should sell it first but they wanted to get out of it what they paid for it and the also the cost of improvements.  At that point I realized this was a Wake-Up dream, like the ones where you are na-kid in a crowd.  I don’t know if you have been to the web site http://www.zillow.com/, but you can put in your address and get a price on your home.  Now the price that Zillow puts out, regardless of the market has nothing to do with what your house is worth or what it will sell for on the open market.  Now you can go into the Zillow site and add on improvements that you have made, and it will recalculate what your home is worth.  However Zillow only adjusts some improvements to market value, while leaving others at whatever price you put in.  I did this exercise and after adding on all our improvements, and Zillow’s market value for our home was way over what was realistic in today’s market.  With the current meltdown in the financial markets, if you are thinking of selling your house, you need a Realtor, like us, who know the Tri-Valley market and all it’s sub-sections to be able to value your home.

Joan and I are continually upgrading our home, but for us to think that the home buyers are going to fully value our concept of what is important in upgrades, would be naive.  One psychologist, that I heard on the radio recently said, that only people, who have never upgraded their homes, would price their house correctly, all the others, who have made upgrades, would expect more than buyers would be willing to pay in today’s market.  So if you are thinking of selling, talk to a local Realtor in your neighborhood, who really understands what is going on there.  As an example are short sales, or foreclosures driving prices down in your area  or is a lack of distressed properties keeping prices up but sales down.  A good Realtor, including us can talk to you about what is going on at the ground level.

Albert Einstein once said  “The definition of insanity is doing the same thing over and over again and expecting different results”.  Now I will allow you to pick the politicians, you think are likely to act insanely and those who wont, but for those people who want to sell their homes in today’s market and are expecting to sell at yesterday’s prices are insane.  In fact, except for a very few reasons, you should not be attempting to sell your home for some time.  Granted if you are dead, getting divorced or relocating for work these are good reasons to sell.  But in today’s market, especially in most of California, we have had a huge drop in prices over the past couple of years.  As an example using Livermore statistics from our local MLS BayEast, prices have dropped from $771,420 in August of 2007 to $534,688 this past August, a stunning 30.7%.  OMG!!!! But wait what if these numbers are just numbers?  Back in August of 2007, 76 unique single family homes were sold with 8 of them priced above $1,000,000, and 5 that were in foreclosure about 6.5% of all sold.  This August 72 single family homes were sold, but only 2 were priced over $1,000,000 and 19 were in foreclosure plus 11 were short sales, representing 41% of all those sold.  Now there was a 19% drop in single family homes year over year, which would make it a more balanced market in a normal housing climate, but as you might be aware, the number of distressed homes is a huge downward pressure on prices.  Sellers, who are not in trouble with their loans are still competing with these distressed homes.  We are also seeing a real struggle for people to move up, because they can’t get the prices they need on their current homes as evidenced by the drop in sales of million dollar properties.

So, unless you are a seller, who is downsizing with a good house, in a popular neighborhood, in a top school district and priced correctly,  take a step back and see if you can stay where you are for another year or two.  Or consider renting or leasing your home, if it makes financial sense, if you are moving out of the area with the thought that you might move back or just want your house to be sold in a more stable market.

Here’s  my best (worst) case scenario.  Currently we have a declining housing inventory, a growing population, a huge drop in new house construction, a group of buyers, who have sitting on the sidelines for the past few years and an unknown bailout/rescue financial plan that may unfreeze the credit market, which could turn a troubled market into a red hot housing market.  But we do we want to get back on the housing see-saw of the past 10 years.  Maybe slow and steady is the best answer which includes the implementation of rational and sane lending standards that protect everyone.

Bankruptcy Update:

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy.  Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations.  The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs.  An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.  Additionally, the lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.

A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time).  In addition, the borrower must receive permission from the court to enter into the mortgage transaction. 

Cash-Out” Refinances. 

“Cash-out” refinances are only permitted on owner-occupied principal residences and are limited to a combined LTV (FHA-insured first and any subordinate liens) of 95 percent of the appraised value, provided the property has been owned by the borrower for at least one year.  If the property was purchased less than one year preceding the loan application, the mortgage amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 95 percent.  Properties owned free and clear may be refinanced as cash-out transactions.

“Cash-out” refinances for debt consolidation represent considerable risk, especially if the borrowers have not had an attendant increase in income.  Such transactions must be carefully evaluated.

Self-Employed Borrowers.  A borrower with a 25 percent or greater ownership interest in a business is considered self-employed for FHA mortgage loan underwriting purposes.

The following conditions apply to underwriting self-employed borrowers:

A.      Minimum Length of Self-Employment.  Income from self-employment is considered stable and effective if the borrower has been self-employed for two or more years.  The high probability of failure during the first few years of a business makes the following requirements necessary for individuals who have been self-employed less than two years:

1.      Between One and Two Years.  An individual self-employed between one and two years must have at least two years of documented previous successful employment (or a combination of one year of employment and formal education or training) in the line of work in which the borrower is self-employed or in a related occupation to be eligible.

2.      Less than One Year.  The income from a borrower self-employed less than one year may not be considered effective income.

Commission Income.  Commission income must be averaged over the previous two years.  The borrower must provide copies of signed tax returns for the last two years, along with the most recent pay stub.  (Unreimbursed business expenses must be subtracted from gross income.) Individuals whose commission income shows a decrease from one year to the next require significant compensating factors to allow for loan approval.  Borrowers with commission income received for more than one but less than two years may be considered favorably provided the underwriter is able to make a sound rationalization for acceptance and can document the likelihood of continuance.

Commissions earned for less than one year are not considered effective income.  Exceptions may be made for situations in which the borrower’s compensation was changed from a salary to commission within a similar position with the same employer.  A borrower also may qualify when the portion of earnings not attributed to commissions would be sufficient to qualify the borrower for the mortgage.

Delinquent Federal Debts.  If the borrower, as revealed by public records, credit information, or HUD’s Credit Alert Interactive Voice Response System (CAIVRS), is presently delinquent on any Federal debt (e.g., VA-guaranteed mortgage, Title I loan, Federal student loan, Small Business Administration loan, delinquent Federal taxes) or has a lien, including taxes, placed against his or her property for a debt owed to the U.S., the borrower is not eligible until the delinquent account is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing.  Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.  If any regular payments are to be made, they must be included in the qualifying ratios. 

While talking to some of our buyers, it occurred to us that they currently have too many Choices .  Now this is not news to anybody who serfs the web, but if you plan to buy anything you have to set limits and need to have perimeters. We are currently into our third month of choosing living room furniture that no one will use.  I not going to make this a long post, but simply point out that in any buying decision, the buyer has to decide what they need, what their standards are, and what they are willing to spend. 

In the go-go days of the housing boom, you basically bid on your minimal requirements and hoped for the best.  Today with four times the inventory of the boom, many potential buyers are asking, isn’t; there something better at a lower price coming on?  We’ll, ya ,maybe.  But  what is it that you need and are you qualified to get it if it comes on the market.  Right now the biggest issue is getting a loan and the second will the property appraise. 

Think.  No home is perfect.  Everything can be changed for a price.  What neighborhoods do you like, what do  really need for for the next 5 to 7 years, then talk to your loan broker or lender and find out what you you can afford to pay on a monthly basis.

I’ve been writing lately about Short Sales, where banks agree to take less than the value of the loans and Foreclosures, where the lender owns the property and these links will give you a good background on what they are and how they work.  And as a disclaimer for what I am about to write, Joan and I currently have three short sale listings all with offers on them and one looks like it will close…maybe.

What got me to digging a little deeper into why short sales are such a headache was an article in the Washington Post with the headline; “Be ready for short sale to stumble”.  It was a brief but depressing look into some of the problems that come up during a short sale.  Though short sales technically always have existed, they were rarely seen in the last ten years.  The above article quoted a Virginia Realtor who said after checking his multiple listing service data that of every 20 short-sale listings that draw a contract only one makes it to closing.  That’s depressing!  What the article explains is that short sales are currently structured so that a home owner and a Realtor have to take a gamble that the lender(s) will agree to a short sale, but only after they have found a buyer, who is willing to take a shot (a 1 in 20 chance in Northern Virginia) at getting this home and willing to hang out for 2 to 6 months or more to find out if they did.  Lenders don’t want to do anything with a potential short sale until they have a live one on the hook.  Then the waiting begins.  The best case scenario for a successful short sale is there is only one loan and there is no Private Mortgage insurance.  Lenders will most likely let a property go to foreclosure, because they can only collect PMI in a foreclosure situation.  The second best scenario is if both a first and second loan are with the same lender.  They’ll negotiate among themselves.  With two lenders, it can get ugly, especially if the second lender, who will receive almost nothing wants to be difficult.  In California, in a non-judicial foreclosure, the first lender can not come after the owner for the difference between what the home sold for and the loan.  The second lender is in the same situation except if the second lender gets nothing, so that’s why it’s important to give the seconder lender somthing.  The other thing that can go wrong is that the potential buyer goes and buys something else, why the negotiations are going on.  There are many other reasons things can go wrong on a short sale.  Rather than deleving deeper into these reasons, let’s look at some imperfect results.  Since last September only 25 short sales of all types of homes have closed according to the MLS, in Livermore.  That’s out of 550 homes closed during the same 10 months.  Short Sales were just 4.5% of all closings overall, which is suprisingly close to the number the Realtor in Northern Virginia came up with, although the percentage has climb to about 8% in the last couple of months here in Livermore.  Short Sales are making up about 16% to 18% of the overall inventory.  I am not going to go any further down the slippery slope of statistics here, but while we see some improvement in short sales, there needs to be a lot more done to speed up the process and avoid a costly foreclosure.  This isn’t charity, this is business and it needs to be run as such to avoid bigger losses to everyone.  To be continued…

                  I wanted to update a post from a while back about house colors.  This time of year, many people start thinking about painting the outside of their home.  The big question is what colors to pick.  A few years ago, I wanted to paint our house because the original paint was fading.  Not wanting to go to our local home owners design committee for a change approval, we opted for the original color.  OMG, how boring, what was I thinking.  Anyway mistakes can be great teachers.  Now upon review, if you need to see some good uses of color, check out the Sandhurst neighborhood off of Murdell and Cancannon.  Many use a base, a trim and an accent color to set off the home.  So you can do a drive by and check them out OR you can go on line and play with colors. 

Here’s a site that really has a lot of resources about how to paint your home.  This link goes to a variety of paint programs that let you pick a style of house and then pick colors for it.  The second one on the list, Resene EzePaint from New Zealand was the toughest to use of the ones I tried, but had the most house styles to choose from and a seemingly endless pallette of colors.  Bob Villa’s and Better Homes’ programs were easier to use, but much more limited.  All these were the free versions, if you find one you like, you can buy your favorite that let’s you upload a  photo of your house.  Then you can see what it might really look like.  But the site has many more articles about how to choose colors, it is an information rich site.  Here’s another site with color suggestions and tools. 

So my suggestions is review the advice about colors in general, like looking at the color of your roof and using that as a starting place to pick your pallette, then play with the free programs to see which one you like.  Next buy or use a program that allows you to load photos of your home into it and play with colors.  Finally, if you have followed me this far on what could be a $3,000 to $6,000 investment, find a color consultant for $50 to $150 to review your choices so they can make recomendations, suggestions and corrections.  Exterior house colors are one of those First Impression things, you only get to make one. 

One final thought is to check Consumer Reports on their rankings of brands of paints.  A couple of years ago they ranked Behr paints available at Home Depot, as their number one paint and a best buy.  Many paint contractors like Kelly Moore partly because of discount they get from the store.  Try to get costs from both Home Depot and Kelly Moore, or your favorite choice of paint when you are getting bids from painters.  AND please get at least three bids and find out if they pass along their discount from the paint store. 

Towards the end of May, I tried to guess what the total homes sold or in contract would be for the entire month in Livermore.  My prediction was between 100 and 105, but  the actual total was 109, so I missed it by that much.  Then I noticed this post on the Huffington post that gave five reasons, why the housing market should turn around by the end of the 2008.  One reason he gave was that this is a Presidential election year and with a national yearning for change, who ever gets elected will give a boost to the mood of the country and the economy.  And a second specific reason was that housing prices in some areas have fallen enough to attract investors, who can get a positive cash flow by turning them into rental properties.  Livermore is getting close to that price point, Brentwood and other nearby towns are already there.  So a week away from the end of June, here are my predictions for Livermore and Pleasanton, cities sharing a common border but separated by a $200,000 to $300,000 pricing differential.  Livermore should see a total of 83 pendings and sales of everything.  That’s down from May, but an increase over June of 2007, when we had 72 sales.  Bank owned properties and short sales make up about 42% of all sales, which is hasn’t changed much in the last few months.  Also overall inventory continues to drop and is actually below what it was last year at this time.  Again these are free predictions not necessarily accurate ones, but buyers are starting to see a change in the Livermore housing market and there are not as many perfect homes to choose from as there use to be.  While short sales and REO properties make up 28.6% of the active inventory in Livermore, Pleasanton has only 17 such properties on the market or just 6.6%.  This is keeping the Pleasanton housing market from having a bigger pricing correction then Livermore.  The current housing inventory has remained stable in June, but sales have been sliding the last couple of months and my prediction is that total contracts and sales will drop from May’s 66 to about 60.  And that trend, we see in Pleasanton of rising inventory and falling sales, will just by the very nature of the market place cause downward pressure on prices. 

So if you are a buyer and want Livermore, our recommendation is buy now, especially if you have specific needs like a particular school or a specific yard need or number of bedrooms, because we are seeing fewer choices in Livermore.  However if you want Pleasanton, I think you still have time to shop around, prices will still be softening over the summer.

I have been getting a few phone calls from folks, who have been checking out my recent posts on Short Sales and Foreclosures .  I think the headline worked.  Joan and I actively work with sellers, who may qualify for a short sale.  Everything I have been reading lately shows that in most, but not all cases, short sales are a win-win for sellers and lenders.  They are not easy and despite the fact, that you would think that banks and other types of lending institutions would understand economics, they don’t always get why a short sale is in their best interests.  So trying to work smarter not harder, and rather than suggest that I am an ultimate authority on Short Sales and Foreclosures, I thought I would point those interested to a couple of sites with lots of information on both situations.  The first site is the California Association of Realtors or www.CAR.org, and here is a pointer to their legal “copyrighted” articles.  It says it’s just for members but I think anyone can take a look at the information as long as you don’t infringe on their copyright since I got to this link without logging in.  Anyway, I included all their legal articles so you have to scroll down to short sales and REO’s to look at what the C.A.R. says about them.  One caveat, some of the references to tax consequences on short sales seem to be out of date, and don’t refer to HR 3648 .  You do want to check with your CPA or tax person about tax consequences of a short sale.  Another company that we are planning to work with has a fairly good “FAQ” section on their web site about these issues.  Check out www.shortsalesexpress.com and click on their FAQ button.  Hope this helps, but feel free to call us if you have any questions especially if you are in the Tri-Valley Area, outside of this area you may want to check out HUD  approved counselors.

Here is an update on what is going on with the new FHA loans and how they might apply to you.  This information comes from our favorite Loan Broker, Mark Wharton.  Feel free to contact him with any questions you might have.

Hi Joan and Ted;

WoW, did that statistic catch anyone’s attention?  It caught mine during a Department of Real Estate course on Short Sales.  I thought (and still think the instructor with 28 plus years in real estate) knew what he was talking about.  But I have since tried to find the source of that statistic and the best I could find was that 50% of those in default and 40% in foreclosure never talk to thier lender.  Now Never is an interesting word in how final it is.  I mean how many people, when a notice of sale is nailed to the door finally pick up the phone and call the lender, I don’t know.  And what combination of the above two numbers can be put together?  Freddie Mac says at the beginning of this year 57% of borrowers don’t know what their options are to prevent foreclosure versus 61% in2005.  It’s probably not worth hurting your brain as to what exactly is the various percentage of non-contact and non-knowledge of foreclosures by borrowers, just know it’s really big.  Now my theory as to why this is happening is that the majority of borrowers are either, embarrassed, scared to do anything or fear that the bank is going to take their home no matter what.  Check the first link above, as just one of many articles, explaining that Lenders/Banks DO NOT WANT YOUR HOME.  One of the exemptions to this is if there is PMI (Private Mortgage Insurance) on the loan, then a short sale will not trigger the insurance, and the lender will allow the property to go into foreclosure so they can collect the insurance.

Here’s how to look at a foreclosure from a Bank’s point of view, not that they all realize it yet, but they are catching on.  On average a notice of foreclosure may take 6 months to be sent after loan payments have stopped.  Then they file a non-judicial foreclosure takes 3 months.  Judicial foreclosures can take at least two and half years and are basically unheard of.  Then the lender has to advertise 3 times over 21 days, let’s call it one month.  If the borrower files bankruptcy, it can take the bank 2 months to clear the bankruptcy.  Evictions can take an average of 2 months, and then figure 1 month to make repairs and fix-ups.  Then the house goes back on the market and sale time depends on price, but let’s call it 4 months and then a month for the sale to go through escrow.  It adds up to 21 months.  Could be shorter, could be longer.  In the meantime, the lender is going to have to pay taxes, insurance, and maintenance and eat the lost payments.  Cities around the county including the State of California have or are considering passing laws to require that lenders maintain the properties, so they don’t look abandoned.  Also lenders are totally scarred of vandalism, which could be very expensive.  Again the first link says is that banks may getting at best only 60 cents on the dollar of their loan.  What I am suggesting is that it is in the lender’s best interest to work with the home owner to either make a loan modification or do a short sale.  It’s a much more of a win win situation.  Best Advice, ask for help.  Ask us.

A quick market update for Livermore as I reported in my recent Realty Times market report that 27% of the homes in Livermore were either Short Sales or bank owned, but I just realized that some agents do not know how to enter these properties correctly in the MLS and my best low estimate guess is that another 8% to 10% are not showing up with the correct code for these types of sales.  So currently my guess is that 35% of all active listings are either short sales or REO’s in Livermore.  56% short sales and foreclosures represent current solds and pendings so far in June and are up from 43% in May.

A huge headline in today’s Valley Times in super big type, best used for the death of a head of state, yelled UNDER WATER, unfortunately the big headline is missing from the on-line version of the article.  The basic thrust of the article was that two out of three homes bought since 2005 in the East Bay are worth less than the mortgages on the houses. In Alameda County, 59% of homes during this period are worth less than mortgage according to study by Zillow.com.  I have a huge problem with Zillow, because their estimate of prices seem to be really wild guesses in my opinion.  You can go to their web site and put in your home to check what they say it’s worth.  Zillow uses recent sales of somewhat similar homes, but there is no fine tuning for upgrades, updates and other issues.  However saying all that, I do agree that Zillow probably is not far off from the numbers they present.  Even if you really crunched the numbers and came up with just 49% of homes in Alameda County under water, that’s still a big number.  In the article, they said that Dataquick estimated that 64,000 homes were sold in Alameda County between 2005 and 2007 and so Zillow’s estimate is that nearly 38,000 homes sold during that period are under water, and if as I think Zillow’s numbers are suspect, and only 49% are under water, that’s still 31,360 homes, still a stunning number.   UFTA, what a problem.   Did I mention that Ed McMahon of Tonight Show fame is in a foreclosure situation.  His house has been for sale for two years for $6,250,000, and their blaming Britany Spears for not selling.  Dude lower your price.  Actually the article about it is even weird than it sounds

  Well in the business section of the same paper, there was an article about how strong sales were in April in Eastern Contra Costa County.  Places like Brentwood went from a 22 month supply of homes in January to less than a 5 month supply in April and it’s probably lower now.  Livermore, as I cover in my recent Realty Times market conditions, has less than a 4 month supply of homes as overall sales and pendings rose to a level not seen since August of 2005 when overall inventories were less than half of what they are today.  And as the article and my market report shows, foreclosures and short sales are making up a large portion of what buyers are making offers on.   So while we may not be at the absolute bottom, some of these distressed properties are at least at low tide prices.  Civilian buyers as well as investors are taking aim at the best bargains and are shifting price points down but are moving sales up.  Competition is back at the lower end of the market, so expect to bid near asking and possibly be in a multiple offer situation.  Will this mini market last, who knows, this has only been going on for 2 months.  It could go on or it could go on summer vacation. 

Recently Joan and I had an email conversation with a couple thinking about selling their home and wondering what it was worth.  We checked public records and their location and emailed back that we could come over and give them our estimate of what their home was worth, but we raised the question of how many bedrooms they had, as public records showed they had 3, where as most homes of their size in their neighborhood had 4 bedrooms.  We also noted that their home backed up to a highway and would affect the price.  They responded that they were looking for a more ‘optimistic’ Realtor. 

Ok, so we maybe we should have withheld our concerns until we were at their home, but our feeling was that those two issues had a direct affect on the value of the house.  By avoiding the ‘elephant’ in the room, some agents hope to avoid awkward conversations that may make the sellers upset.  Now sales have been the best we’ve seen in April and May in Livermore since the middle of 2005.  But prices are being driven down by the fact that 40% of sales are Foreclosures and Short Sales.  With this knowledge, pricing becomes extremely critical and being Optimistic is not part of our strategy, being Realistic is.  All of us have a major ego investment tied up in our homes and for most of us our home represents our single biggest investment.  But if you are selling your property, it cease to be a treasured possession, but a transferable commodity traded on the open market to the highest bidder.  When it becomes a commodity, it needs to stand out from other similar commodities (homes)on the market.  With nearly 500 homes on the market in Livermore, buyers have choices and as a seller you need to find a unique selling position.  Currently that USP is Price, based on the intrinsic value of the home.  For this you need someone, who will be honest with you about the pluses and minuses of your home.  One example of what not to do is a recent listing in South Livemore for a 25 year old custom home over 3500 square feet on a half acre lot .  It is priced over $1,200,000 and of homes this size it is one of the most expensive.  Now I don’t know if they hired “Optimistic” agents, who agreed with this price but I feel a little ‘reality’ would have helped this home.  Another home in this development started at $1,250,000 and is now priced at $1,100,00.  I wont go into that homes issues, but this house has a fleshy pink outside and an original shake roof to start with.  Look if the house looks ugly, people are not going to stop and look inside.  For $4,000 to $6,000 you should be able to paint the outside of the home.  I don’t know the cost of a new roof, but the buyer is going to ask for one by either demanding one  or deducting the cost of a new roof in his offer.  But what stunned me after knowing about the curb appeal of the home was the fact that home was not staged or cleaned.  The living room looked like a big office and the dining room looked like another office with no dining table visible.  The kitchen had been updated but to a fairly unique taste and the attached family room was nothing special.  The upstairs was unchanged from 1987.  The backyard had a square pool with some stamped concrete around it and the rest was a vast expanse of lawn.  If the owner asked me what to do, I would take the property off the market, paint the home, replace the roof, have the home decluttered and staged and drop the price by at least $200,000.  Buyers are not stupid,they know what it costs to replace old dual pane windows, reface cabinets, update bathrooms, etc.  If this home goes for a $1,000,000, they will doing great, if they fix the outside. 

OMG, there are so many players trying to get money out of desperate homeowners that are so bogus, pardon my French.  Look if you are behind or could be behind on your mortgage, if your rate is going through the roof, or if your loan is a lot more than the value of your home, then you need to look at your options and what they mean to you and your credit.  Walking away, sending in keys or just plain old foreclosure is the worst thing you can do, but not according to those who promise to fix your problems for a fee.  Well that makes sense.  It must cost money to fix these things…NOT.  All diet books start out with the statement that diets don’t work…except theirs.  I can not say that I have seen all these sights, but basically they will say they wont cost you money, except for their fee and you will be made whole.  Please THINK! In today’s Contra Costa Times there were two articles about foreclosure scams, this is the main one.  A few of the things to watch out for are “mortgage or foreclosure consultants” who ask for a fee up front, want you to pay your mortgage to a company or a person directly and / or sign over the deed to you home. 

Joan and I market to a group of leads, who may or may not be behind on their mortgage.  What we are trying to do, is discover if a home owner’s situation is such that a ’short sale’ is appropriate.  We do not ask you for money or to sign anything except a short sale agreement.  You will have to move out of your house.  In recent posts I have talked about what to look out for and hopefully this is a good reminder that if you are in trouble on your loan and someone says they can fix it if you give them money or the title to your home, realize that they are scamming you.

I just wanted to do a quick post on what’s going on in Livermore and surrounding towns.   In April we reported in Realty Times that sales were up in Livermore, but short sales and foreclosures made up a big part of the sales.  Taking a snap shot of what is happening so far in May, sales are up with 87 homes sold or in contract versus 91 for all of April as of today.  So  with about 8 days left in the month, we might see total number in contract or sold at the end of May to be about 100 to 105 homes sold or in contract, a number we haven’t seen since August of 2005, which I consider the top of our market.  Now 41% of the sales are bank owned or short sales.  This is good news and bad news.  The good news is that the properties that are in trouble are being picked up, but the bad news is that this is re-setting property prices downward.  We had a $1,950,000+ listing that got a full priced offer the first week on market, but it was priced correctly.  Home sales seem to be picking up, but there is  a 20 to 30% drop in prices from the high in the market back in 2005-2006.

Before  After

The before picture is a listing we had back in 2002.  The home on a quiet court near Downtown Livermore was a late 60’s A-Frame with the garage converted to a flat roofed office.  Jumping ahead to now, the current owners raised the roof and added terrific looking dormer windows.  The new ‘upstairs’ is currently unfinished and used for storage, but it would be vary doable to add more living space on the second floor when desired.  Just recently they added this bold but pleasing Red paint with white trim to add a real contemporary feel to the home and compliments the black rood shingles.  This, in my opinion is curb appeal.  These owners came up with the design of the roof and the color scheme, but not to worry if you are artistically challenged, like me.  There are professionals out there, who do this for a living.  So if your home is curb appealed challenged, or the house you are buying is, then it is worth spending a little bit more to make the most of your upgrades.                                      

As I mentioned in a recent blog, although bank owned properties (REO’s) make up 10% of all active properties, and short sale properties, where homes are worth less than than their loans, represent 18% of all actives, these two groups make up at least 40% of all pending and sold homes in  Livermore so far this April.  Currently the MLS  does not  show short sales as pending until they sell.  Overall sales are up in April, year over year, but distressed properties are making it happen.  The home above is a perfect example.  It was over 1700 square feet, completely updated, with a pebble tec pool and a 10,000 square foot lot.  This home last sold three years ago for $705,000 and the new owners really did a nice job of upgrading the property.  The listing agent hoped for a quick sale and priced this totally updated south side home at $499,000.  Well guess what happened?  He got 26 offers and at least $75,000 over asking.  OOPS, boy was he working hard getting all that paper work in to the lenders.  Bottom line, if the price is too good to be true, it is.   Think Auctions.  Remember, the object of auctions is to get you over excited and forget what your maximum bid should be.  So I bring you this blog as a cautionary tale that real low offers or prices that are probably to good to be true  ARE.  However the number of sales of distressed properties hopefully will chew up the current inventory to get us back to a more balanced market.  Right now Livermore has a 5 month supply of homes versus a national average of 11 to 13 month supply.  Could be worse.  

At the annual Livermore Real Estate Round Up on April 16th several speakers painted a generally upbeat take on real estate market in Livermore.  A fuller description is given in the April 24th edition of The Independent on page 4.  Essentially commercial real estate is doing rather well with 60 new businesses opening in Downtown Livermore last year and the city is home to 70  companies that generate $500,000 – $775,000 in annual sales.   That figure does not include giants like LAM Research, the National Food Lab and the expansion of Comcast.  Other projects coming are the Prime Outlet Mall, a new Toyota dealership, which will be the largest in the Bay Area, the  Livermore Village Project, and the city is looking for a developer for a 100-room boutique hotel near the Bankhead Theatre. 

Residential Real Estate was also talked about in as positive way as possible.  One speaker (see article) said that while foreclosures are up in Livermore, they only represent 10% of active listings.  That figure is accurate as I write this.  What she didn’t mention is that REO or bank owned properties make up almost 32% of sales or pendings so far this month.  If you add in short sales, where the property is worth less than the loan, the number of properties in contract or sold so far in April is nearly 40% of all transactions.  Actually, while these types of sales will decrease everyone’s value, the sooner these troubled properties are off the market, the sooner the market will stabalize.   

 It’s Party Time again in Livermore on May 3rd and 4th.  Join 120,000 of your closest and dearest friends at this year’s celebration in Downtown Livermore.  This is the largest celebration in the Tri-Valley and second largest in the East Bay.  This year’s theme is 125 Years in Livermore Wine Country with Wente Family.  There is of course more than wine during the weekend with two entertainment stages, arts and crafts, kids area, great food and lots more. Check out “The Independent Magazine“  and click on the magazine link for all the details.  The Livermore Valley has 43 wineries and there are more coming soon.  If you can’t find a wine you like, you didn’t buy enough tickets.  Check out what commercial buyers like Costco or BevMo think of Livermore wines by going to the page 13 article in this week’s The Independent.  So mark your calendar and find a designated driver and come have fun next weekend in beautiful downtown Livermore. 

Being in the third year of the current Housing ’situation’, and with headlines like these from the Huffington Post   screaming ‘60% of Americans wont buy a home in the next two years’, well it’s time to take a breath and remember what housing is and isn’t.  Steve Butler in Sunday’s Contra Costa Times wrote abut the myth that real estate is the best investment out there, like Tulips were 400 years ago in the Netherlands.  The National Association of Realtors points out on their website that:  Since record keeping began in 1968, the national median existing-home price rose every year through 2006, even during recessions and periods of sales decline. Typically, in a balanced market, home values rise at the general rate of inflation plus 1.7 percentage points.  This would give you a 4.7% rate of return if inflation was 3%.  Also if you figure in upkeep at between 1% to 2% a year on average of your house’s value, housing doesn’t look so good.  Butler shows that if you had invested a $100,000 in stocks for 30 years and reinvested the dividends you would have $3.3 million today or about a 12.5% average annual return.  So Butler’s example and other studies have shown the average rate of return over the last 100 years and another going back 400 years in Holland is 3% . 

Now pre-housing bubble, the ability to own a home was the leverage of using other people’s money to buy a property you couldn’t pay for outright.  Twenty and thirty year loans are a fairly recent invention dating back to the 1930’s.  But after WWII, they helped fuel home ownership, as the population took off.  Besides the ability to get a loan, you were able to get tax breaks on interest payments and property taxes.  These breaks could make the payments nearly equivalent to renting the same type of property depending on the location.  Also the stock market doesn’t provide places to sleep.  Homes are normally very conservative investments, like bonds that hold there value over time.  Now the poll I started this post with, also said 59% of those surveyed thought that this was a good time to buy.  But until people are willing to act and not just think, we may not yet be in a buyers market.  You have to decide what is best for you, buying or renting.  You can check out a pro buying article like this one from back in 2006, this fairly neutral example, or you can check out a really negative one like this one.  This last one is a little light on the numbers, relying on a subscription link to an article in the Wall Street Journal to support their position.  They also leave out the cost of rent in addition to the $100,000 you dropped on Wall Street.  Anyway, I think my point: buying versus renting, buying now or waiting, or any other either / or question is, it depends on what you want…but you have to THINK, using logical tools as well as your emotions.

Renamed the California Independent Film Festival, it starts this Wednesday, April 16th celebrating its 10th anniversary.  Go on line to see the full schedule.  This year honoring Penny Marshall is this year’s honoree.  If you want to check out more details visit on line or go to there office at 171 South J Street here in Livermore or call 925-558-2797.  There are lots of great films and having started here in Livermore, the festival is a lot of fun.  Check it out.

I remember the first auction I went to.  I was in college in Miami and it was a police bicycle auction of recovered bikes.  Well, the room was full and the first items came up for bid.  Nothing great, but not bad and the bidding started and only one bid was made and it won the itens.  Wow, he probably got a great deal, I thought.  Then the next bike came up for bid and the bidding took off and I was pretty sure the winner over paid.  And it seemed most of the other winning bidders paid a pretty good price for their bike. 

Housing auctions have been around for a long time in buyer’s markets and seller’s markets as well.  In a seller’s market, the seller is hoping to see the highest possible price for their home, rather than guessing that the offers they receive in a normal sales process is the highest price.  In a buyer’s market, the auctioneers price the property at a seemingly low price compared to the value the house is/was worth .  This company Us home auctins shows bid prices as well as previously valued price.  Now I have a basic idea how this company comes up with a previous valued price.  As an example a property that is currently coming up for auction in Livermore, (auction site San Jose) at 1023 Lomitas has a starting bid of $229,000.  Wow sounds like a deal, because US Auction said it was previously valued at $699,000, because the bank or the realtor started it at that high price back in December against all reason.  But let’s look at it’s history.  It sold at the height of the market in  the spring of 2005 for $675,000 and then the investor (out of area realtor) tried to sell it a few months later in 2005 for $739,950.  Didn’t sell, even after a price drop to $719,950.  The owner kept trying and the last price was $559,900 as a bank owned property.  Now this property backs to Holmes Avenue, a busy street and it needs some a serious up-dating.  That is why it didn’t sell.  Buyers, who wanted to live there, didn’t want to pay $559,000 based on location and condition, same for investors.  However depending on how good the auctioneers are and the auction being based in San Jose, some possible investors may not even look at the property and make bad bids.   OOPS.

Look, if you are interested in particpating in housing auctions go to Google and type in Home auction tips or something like that and learn the basics about auctions, in fact go to several auctions before you want to bid, to learn how they work.  Joan and I plan to go to some just to see what’s happening, but not to bid.  From my research, auctions gennerally get between 80 to 95% of the value that the owner is hoping for.  The reason for that is human nature.  An auction is now!  If you don’t bid you lose.  Of course if you bid you could lose by over paying. 

Rules:  Research, research and go see the property.  Also have an upper limit on what you will bid on a property.  As an example, you are at the San Jose auction and the Lomitas property comes up and you have missed out on other bargins and the price starts to get over $500,000 and you bid, you may lose in the long run. 

“An expert is someone who knows more and more about less and less, until eventually he knows everything about nothing.”

Sometimes as I listen to the politicians or the experts, I realize that they not only don’t know what they are talking about, but that they don’t understand that they don’t know what they are talking about.  Of course this has been true all the way back to ancient Athens, they, the elite, tell the masses, the idiots in their opinion, what they think we want to hear in order to stay in power.  Of our current wars, it’s easy to look to Shakespeare to see that being entangled in a foreign war keeps the people from complaining too much about what’s going on locally.  

“Therefore, my Harry, Be it thy course to busy giddy minds With foreign quarrels; that action, hence borne out, May waste the memory of former days.” (2Henry IV, IV,5, 214)

Meanwhile, now that the foreign war thing isn’t working to distract us from domestic issues, we have a real outpouring of various and sundry economic policies that would have a University of Chicago Noble Laureates in Economics doing Danny Thomas spit takes when they hear them.  Basically the powers that be, both republican and democratic parties, think that our mental abilities about economics are about at the level of Andy Griffith discussing his first  football game. 

The current situation on the ground in Livermore is that 27% of the properties on the market currently are either REO (bank or lender owned) or short sale, where an owner owes more than the home is worth.  This 27% also represents 48% of all the properties in Livermore, Pleasanton, Dublin, San Ramon and Danville.  As for pending sales 38.4% of all sold or pendings in March were either REO’s or short sale properties.  This for the next 6 to maybe 18 months is the new competition and sellers, who ignore these properties will suffer.  I noted one property, which started last April just under $900,000 selling for $750,000.  If they had really looked at the market and started in the low 800’s, it might have sold closer to asking. 

We need ‘lenders’ to recognize that they have to take losses along with homeowners and adjust mortgages to current values, otherwise homeowners and lenders are going to take it in the rear end until we burn through all the homes bought since 2004, and need to be sold.  

 If you are interested in how the media is changing and how the elites looked at us previously take a look at this article in the New Yorker,

The stock market has recently gone on a very steep roller coaster ride with a 400 + day, this Tuesday.  I expect to see plenty of profit taking some time this week.  And a lot of this turbulence, while seemingly about Investment Banks, like Bear Sterns, is really about housing in the long run.  There is a lot of talk about what to do next in Washington DC, but for the most part , it’s still talk. 

Here in Livermore, Bank owned properties (REO’s) and short sales now make up 28% of all the active listings on the Multiple Listing Service (MLS).  That is up from 25% at the beginning of the month.  In talking to people, who are considering a short sale, we are seeing them with mortgage payments about $2,000 higher than the monthly rental cost of an equivalent property.  If you want a rough guess of what your house is worth today, take a look at what a similar home cost in early 2004.  That’s about what your house is worth depending on location, upgrades and condition, if there were no short sales or REO’s.  As an example off of North Vasco, a newer home with 4 to 5 bedrooms and over 2000 square feet sold last July before the mortgage meltdown for $700,000.  Currently there are about 12 homes like that currently on the market and only one has sold so far this year for $549,000 and one is pending at $499,900, both are bank owned properties.  A third bank owned property has had it’s priced dropped from $629,900 to $551,000.  Now if you are a buyer, which home are you going to look at first?  The one at $551,000 or the ones that have been sitting since last spring and are now priced in the $650,000 range.  If you are paying big bucks on a mortgage that is 10 to 20% more than your home is worth, you are not building equity and are in realty, a renter paying almost double rental rates plus TAXES!