Another wild ride is in store this week after weekend news
of the failure of yet another large Wall Street investment
firm, this time Lehman Brothers, sends more waves of
concern across the markets. Lehman, one of Wall Street’s
oldest and most respected firms, has tried to find a buyer
but has been unsuccessful and faces bankruptcy this week.

The Fed is not stepping in this time to guarantee Lehmans’s
investments, nor to advance cheap treasury money
to a buyer. Merrill Lynch is also in the process of being
bought by Bank of America, in essence another bank failure.
The shrinking of sizeable banking firms left after this
market meltdown are certain to be felt by consumers eventually
as their options for credit shrink. The “free market”
relies upon competition to hold down rates and pricing on
services so a decline in competitors signals the potential of
less favorable pricing for consumers.

Washington Mutual is another bank in the spotlight this
week. WAMU is the largest savings and loan bank in the
US, so their failure would be another huge loss for the
consumer. The DOW is down 300+ points as I write this
and the S&P, which contains most financial sector stocks,
is down almost 36 points, about 2.8%. The end result of all
this is likely to be increased regulation of banks and investment
firms.

Some good news for folks who need loans larger than the
conforming jumbos that cap at $729,750…! I’ve located a
portfolio lender offering 5.875% on a 7/1 ARM to $1.5M.

Locally this means that clients who have stock portfolios
are likely to be nervous about their shrinking stock assets.
This spells an opportunity for you if you can communicate
the upside potential of real estate as an investment. Being
an expert at assessing sale property values has never
been more important. Equally important is your ability to
communicate the ways that real estate still remains one of
the most valuable and stable investments available. Sure
properties have lost value during this crisis, but they still
are far more stable when compared with Fannie Mae stock
and many other types of stock that have lost 75% of their
value or more. This is definitely the time to grab property
bargains in Marin and the greater Bay Area.

Market Update September 8, 2008
SPECIAL UPDATE! Sunday’s decision by the Treasury
Department to take over Fannie Mae and Freddie Mac is
shaking up markets and stock indexes are rallying today.
Here’s the scoop!
Fannie and Freddie back about half the total US mortgage
debt, around 5 trillion dollars worth. In 2008 they lost 14
billion in loan defaults and delinquencies. To make matters
worse, an investigation of their accounting practices
has led to accusations of improper accounting practices
within the companies. The concern among many has been
whether the two have enough capital to sustain such losses.
To this end, the Treasury discount window was opened
to them recently so that they can borrow at low 2.5% rates
to offset their losses. Many felt this was not enough.
So even this could not shore up the mortgage giants to the
satisfaction of investors. Remember that many of the largest
investors in this type of debt are foreign. So big losses
are being felt around the world as a result… contributing
to global recession. We are truly members of a “global village”
these days!
This weekend’s decision reflects a solution I had put forth
last year around this time… that the way to help the mortgage
market is for the US government to actually BUY
the MBS’s (pools of mortgages), and thus absorb both the
losses (from defaults) and also the income from all those
folks who continue to pay their mortgages on time. The
end result to taxpayers is that the US treasury may take a
loss to begin with, but then a profit once the crisis clears…
in effect being paid back over time. Initially, credit default
swaps will likely be triggered. This means that current investors
will demand that they be paid in full immediately,
so initial Treasury losses will be felt.
The Treasury will buy 100 billion in Fannie and Freddie
loans. In return the Treasury receives 1 billion in senior
preferred stock, thus becoming a 79.9% stockholder in
the companies, plus 10% in ongoing interest for it’s stake.
The companies are also placed in conservatorship, which
allows accounting and other practices to be revised and
corrected. In the end rates may drop, good news for you.
Will this stabilize the housing market? Stay tuned…

Happy Labor Day! While some may breathe a sigh of relief
as the summer of ‘08 real estate cycle comes to a close,
there is some cause for optimism. Yes, we know that home
prices and sales volume have taken a hard hit this year.
But it’s always wise to consider ALL the data that’s out
there, not just what you hear in the news. So this week’s
update is again dedicated to giving you the data that
relates to your life on a local level… here in the San Francisco
Bay Area and greater California.
• July 2008 home sales volume in the Bay Area moved
higher in the first “year over year” gain since early 2005.
July 2008 sales volume in the Bay Area was up 5.7% over
the previous month… but still shy of the average volume
for this time of year, down by 22% from the past year average.
• Foreclosure sales made up 33% of the properties sold in
July ‘08 in the Bay Area, up 29.9% from June 2007.
• Eight Marin zip codes showed an increase in sales volume
while 6 showed a decrease in volume. Seven zip
codes showed an increase in price per square foot, six
showed a decrease. A few more offered no data.
• Median home prices across the whole Bay Area, including
inland areas such as Solano County (which has been
harder hit than Marin), did push home prices down to the
lowest median price since June and July of 2007, a drop of
29.3%. But in Marin the drop was 13.2%. Only San Francisco,
with a drop of 6.3%, was lower.

Compare the above to 2007 annual numbers that showed
seven Marin zip codes dropping in value (and the highest
drop at 8.8% in Inverness), while nine zip codes went up
in value for the year. I suspect that the end result of the
housing crisis for the majority of Marin will be that home
values were fairly flat from 2005-2008, and in some areas
farther north and west (like Inverness) there will be a net
drop in price for the same period. When one considers that
in previous years there was double digit appreciation, the
slow down means that on average growth was in the 4-7%
a year on average… which isn’t that bad at all! Perspective
is key these days and I hope this helps inform yours.

market update   August 26, 2008
Fed minutes from the August 5th FOMC meeting were
released today revealing continued concerns over inflation.
At the center of concern is the question of whether
inflation will moderate in 2009. It may be this concern that
also has the DOW selling off mildly today, perhaps due
to fears that the Fed may tighten credit sooner than Wall
Street would like. But for now, Fed rates are unchanged
and the benchmark rate is a mere 2%. Don’t count on this
rate lasting into 2009 however, because the minutes also
reveal consensus that a rate hike will be the next move.
The big question left is “when?” Also of note were comments
about mortgage rate’s relationship to the housing
market and broader economy, which was termed “fragile”
by several participants. There is concern that care should
be taken to keep mortgage rates low or run the risk of potentially
higher payments further stressing home values by
making affordable mortgages even harder to come by.
An increasing number of analysts are indicating they believe
the bottom of the housing market is being seen right
now in several areas of the US, including the Bay Area.
Fresh monthly home sales (volume) numbers are up 2.5%
in July over June, but the numbers still show a dramatic
dip in sales volume when compared to last year. The Case-
Schiller index shows home prices down 2.6% nationally
in the second quarter. There is little doubt that the average
worker is feeling pinched, and discretionary spending
numbers signal declines in sales across multiple sectors.
Home buying incentives can help buyers when tax time
rolls around since newly signed legislation offers a $7500
tax credit to folks who buy by June 30, 2009. Check out
http://www.federalhousingtaxcredit.com/ for more information.
HUD has received a permanent raise to it’s loan
limits beginning in 2009 and FHA loans are, in some cases,
helping sub-prime borrowers avoid foreclosure with its
FHA Secure program. I’ll be giving you more information
about this next month after a seminar I’ll attend in mid-
September. More options may be opening up for jumbo
loan borrowers also. There are some new loan programs
available recently that again allow stated income jumbo
loans to $2 million with rates potentially below 7%. Sure
money is tight right now, but there are also some fantastic
opportunities to buy with a lot of upside potential. Smart
investors are buying right now. Are you among them?

market update August 19, 2008
Fannie Mae and Freddie Mac are the focus of increased
investor concern over the mortgage GSEs capital reserves.
The recent Fed takeover of IndyMac caused jitters throughout
the market when investors made a run on the faltering
California giant, the second largest wholesale lender in
the US. We’re currently still experiencing credit tightening
as write downs on existing mortgages continue. This
has investors concerned about the prospects of a lingering
recession.
Ben Bernanke continues to insist that he believes that the
economy will stabilize later this year, that housing prices
may also stabilize in late 2008 and early 2009, and that the
economy should increase its growth in 2009. Inflation is
the biggest concern so there is also focus on how to get
fuel costs in line and how to stop job losses that have been
climbing in recent months. But recent housing reports are
not as gloomy. In fact a lot of us (including myself!) have
been extremely busy this summer with sales in the Bay
Area. Yikes! I’ve been so busy that I haven’t been able to
find the time to write these updates for a month!
To help yourself and your clients important new developments
to remember include the following… Most loan
types are still available, and although qualifying involves
stricter guidelines, they can be met with success for most
borrowers. August has brought new restrictions by mortgage
insurers and lenders, restricting jumbo loan size
mortgage insurance to loans at 90% LTV or less, so plan
on clients needing at least 10% down to buy in most cases.
If the clients want a jumbo interest only loan then they will
probably need to plan on 20% down. Some conforming
loans (up to $419,000) can still be used for purchases in
lower price ranges with as little as 3% down… but remember
that lenders often reduce the LTV further (requiring
more money down) during underwriting if the property
is in a declining market area. The higher conforming loan
amounts available as a result of changes earlier this year
will likely be made permanent. The Treasury discount
window is now open to Fannie and Freddie… which means
they can borrow as needed to stay solvent. How fast can
things turn around? As fast as it takes to say, “election
year”.

Wall Street Indexes continue to be volatile based on bull
market trends in commodities but the S & P index has officially
entered a “bear market” (declining values). Today
trading has continued its swings with the DOW up one
minute and down the next. Mortgage rates today are improved
from yesterday and are fairly flat so far this month.

Bernanke stated that the Fed will be issuing new rules
next week with several important changes to mortgage
lending. According to the new rules pre-payment penalty
loans will cease to be made. He also says that stated
income loans will be removed from the market entirely…
and this is cause for concern in California because one
reason our property prices have appreciated so well is because
stated income loans made it possible for many self
employed borrowers to get the homes they wanted using
these loans. This will make it essential to have borrowers
pre qualified by loan agents who are can truly pre-underwrite
loans in order for these folks to get mortgages.

Bernanke also announced that the Fed will continue to
lend to Wall Street investment banks into 2009. This is an
unprecedented move that has drawn criticism from many
who believe that tax dollars should not be used to shore
up failing investment houses, many of whom helped to
create the current credit crisis. Indy Mac, the 2nd largest
wholesale lender in the US closed its wholesale division
yesterday, sad news for mortgage brokers.

California home sales in May were up 6% from April!
Pending home sales nationwide fell 4.7% in May, a larger
than expected drop that signals that the housing market is
still not as stable as we’d like nationally. In Marin and the
Bay Area however, While volume is still down in Marin,
square foot median prices were up in almost every zip
code in Marin!

Local pending sales seem to be gathering momentum. Using
the information above to help sellers price their homes
reasonably may be helpful. To help your sales be sure
to get your buyers pre-qualified according to “full doc”
guidelines. Financial strategy becomes ever more crucial
to getting sales finalized. But the good news is that there
are still winning loan strategies available for most buyers.

The Fed meeting currently in progress is not likely to
bring a change to current rates that were lowered in recent
months according to most financial analysts. The pertinent
question on everyone’s mind is how the US economy can
be strengthened without triggering inflation. Unfortunately,
speculation is driving up the costs of fossil fuels and
this is filtering through our, already weak, economy, pushing
up prices of goods as well as prices at the pump.
Karl Case, an economics professor at Wellesley College,
and cofounder of the S&P/Case-Shiller index said in an interview
on Bloomberg Television that there may be “some
surprises in the next few months that would indicate we
are at or near a bottom in probably one third to one half
of the country,”. This makes sense given our recent local
housing data. Data Quick reported that May Marin median
square foot prices increased in 10 Marin zip codes, while
they fell in 6 zip codes. When one considers the severity of
current US economic woes, Marin’s strong increases highlight
the relative strength of our local market, and seem
to indicate that the bottom may have been reached here.
The positive side to this is that once the bottom has been
reached the only place to go is up!
Congress is currently debating a second economic stimulus
package that goes beyond the one already in place.
This new package specifically targets increasing unemployment
benefits and creating a vehicle for local governments
to buy foreclosed properties in areas where a glut
of such properties is creating a drag on local tax income in
an effort to keep town budgets in the black.
What does this mean for you? Since it seems that many
potential buyers have been waiting for the bottom to be
reached before making offers, you might be able to move
them forward with strong data in hand. The same data
could help sellers to become more realistic in their pricing,
enabling you to gain sales. With rates still excellent, and
some niche loan products returning to the market, there
are many good reasons to buy right now. If you have clients
who need creative solutions to their financing needs
they are in luck! Some lenders are adding stated income
loans back to their product lines, and there are still some
great low down payment programs available.

Wall Street Indexes dropped yesterday on disappointing
earnings as oil and food prices push up inflation.
The Producer Price Index May report showed inflation
hitting manufacturer’s costs and chipping away at their
future earnings potential. This PPI index is one of the core
numbers that Fed watches closely and can be a primary
influence in decisions by the Fed regarding interest rates.
However most financial analysts and economists agree
that the readings so far do not indicate that the Fed will
raise rates at its meeting next week. Inflation readings will
be the numbers to watch in weeks to come.
It’s good to remember that daily stock market movement
is, above all, an indicator of current investor sentiment.
Much of the daily stock and bond trading numbers you
hear on the news are due to short term earning projections,
not long term. One reason that real estate remains a
strong investment is that it is a tangible asset that can be
counted on to gain value over time. Sure we’re experiencing
a serious downturn right now… but 1-3 years from now
this trend will most likely reverse again, just as it has in
the past. The beauty of real estate as an investment is that
you are using someone else’s money (the lender’s) to earn
money (appreciation) and getting a hefty tax write off (for
mortgage interest) in the process. Stock investments can
never offer this!
What does this mean for you? It’s a good time to remind
clients to stay focused on their long term goals. Basic
investment strategy dictates that the time to buy is when
market values are low… so it makes a lot of sense to buy a
home right now (if they don’t already own) and reap great
earnings in the next 10 years. There are many great investment
strategies that include real estate and this is where
you can shine and gain more business too. Most people
do not have anyone who reviews their entire investment
strategy from a real estate expert’s perspective. By broadening
your focus to include your client’s entire scope of
wealth planning, you can help them tremendously. I encourage
you to widen your focus to include more than the
one property your clients may be focused on, and to show
them how to make money through multiple real estate
investments. If you’d like more in-depth tips about how to
do this just give me a call. I’ll be happy to help you.

Today the US dollar rose in the biggest one day gain
since 2005, a welcome move on Wall Street. Last Friday’s
395 point DOW sell off came in response to a negative
jobs report and soaring oil prices that point to a looming
recession. Oil prices dropped today in response to
the US dollar’s gains. This week opened with lackluster
index movement for Wall Street and more write downs
by major financial players. Last night Ben Bernanke’s
speech brought a shift in language regarding inflation that
spooked investors further. Today we’ve seen bond pricing
deteriorating, which translates into higher mortgage rates.

But let’s keep this in perspective! Mortgage rates are not
much higher this year than years past, and although we
are certainly in a credit crunch, it is not as bad as ones in
the past. Remember the 1980’s when mortgage rates went
to 20%? We’re a long way from conditions like that and
thankfully, our Federal Reserve board seems poised to
act quickly to stabilize the market further. There are also a
number of analysts saying that if we are in a recession, it’s
likely to be a small one.

Important legislation is on it’s way to becoming law and
changing the disclosure of mortgage closing costs by
lenders. A lot of mortgage originators are fighting the
proposed changes… but at Avatara we applaud most of the
proposal. Why? Because we already disclose in a manner
that matches the proposed changes. Yup. Our business
model discloses YSP rebates and credits them to our borrowers
already, and we are careful to always be accurate
on our Good Faith Estimates of Closing Costs so there are
no surprises at closing. This is simply a fair and honest
way to do business!

Pending sales of existing homes rose again in April by
more than 6% as buyers pounced on advantageous pricing.
Locally we’ve seen a steady increase in buyer interest
and sales for over two months. Well priced homes are getting
lots of attention from buyers… and with interest rates
still low, this spells sustainable purchases that are wise investments.
It’s good to always remind clients that a home
is also an investment, and that in this area of the US it can
yield as much as stocks or other investment vehicles. This
approach can also set you apart from other Realtors.

Reports of “touching bottom” seem to be increasing
among media analysts in their comments about the housing
slump and credit crisis. The San Francisco Chronicle
recently reported an increase in properties being bought…
citing April sales in the Bay Area increasing by the largest
percentage in 20 years, a 30% from March. A group of 52
professional forecasters agreed that the worst of the credit
and housing crisis is over. I’m seeing loan options increasing
again. Some new lenders have sprung up in spite of
the market and I can again offer stated income jumbo
loans with decent rates. The new “conforming jumbo”
loans have come down in rate too, to the 6% range.
Locally we’re seeing a shift that signals better times are
just ahead. In January of 2008 my parent brokerage, First
Priority Financial, charted 35% of all loans being closed as
purchase money (as opposed to refi’s). This percentage
has increased to 60% in the months since. The number of
FHA loans being originated also rose dramatically. Both of
these trends seem to support hopes that some of the new
loan programs recently born from Congress’s intervention
are actually having a positive impact on the larger real estate
market. When these trends are added to others we’re
seeing on Wall Street, and among financial analysts, the
picture takes on a decidedly rosy glow… especially given
the rough ride we’ve had lately. It may not be time to dust
off that hammock yet… because your summer as a realtor
may be busier than you thought!
It’s “local heart felt service on transactions that counts,
not call center sweat shops”, wrote Tim Kearns, CEO of
First Priority Financial. He certainly has a point! The great
thing about real estate as a career is that you can literally
create the quality of business you want. Sure, we need to
follow impeccable ethics and have excellent training, but
in the end it’s your presence, demeanor, and unique ways
of conducting your business that makes you stand out…
and in these areas there is lots of room for creativity. If you
haven’t given your past clients a call recently to see how
they’re faring this is a terrific time to reach out with a heart
that genuinely cares. One thing may lead to another and
gain you valuable referrals. As you find unique ways to
reach out to others, you open doors for more business to
come your way. Enjoy the ride as your business grows!