Feb 29, 2008

Investment Property Account Review

Hello Investor Friends of Neighborly Realty,

We've booked our next "account review" for the apartment complexes in Texas. We will be out there March 10th and 11th.

If any of you would like to join, just let me know!

- Jim

Feb 27, 2008

Existing Sales for January 2008

The numbers are in.....

How did our areas do?

Placer County
2007 January Median Price: $424,000
2008 January Median Price: $360,000
Year to Year Adjustment: - 15.09%

Sacramento County
2007 January Median Price: $348,750
2008 January Median Price: $250,000
Year to Year Adjustment: - 28.32%

El Dorado County
2007 January Median Price: $450,000
2008 January Median Price: $396,000
Year to Year Adjustment: - 12.00%

....I'm still digging for Yolo County, stay tuned.

Selling? Ouch.


- Jim

Fed Drops Rates Again Today

Hello Neighborly Realty Friends,

Yep - Mr. B is at it again today. I've pasted in the whole article from Yahoo Finance (many thanks to those folks) below my name.

REMEMBER though - the rate that the Fed plays with doesn't directly impact your mortgage rate. There may be some impact, but there isn't a 1:1 correlation. Why? That answer will come later when I post some educational material to our website on this topic. Stay tuned!
Here are a few definitions:

Federal Funds Rate = What banks charge each other for overnight use of their own funds that are stored at the Federal Reserve (set by the Fed at the FOMC meetings).

(Federal) Discount Rate = What the Fed charges for loans to (member) commercial banks, credit unions, and large lenders. - It largest recent drop was .50% on August 17th.

Prime Rate = What banks charge their best customers (ie., "A+ Paper").

Do you know which rate the Fed played with today? Call me with the correct answer and I will buy you a cup of coffee!

- Jim

Here's the article from Yahoo Finance:

Fed Ready to Cut Interest Rates Again
Wednesday February 27, 3:28 pm ET By Jeannine Aversa, AP Economics Writer

Bernanke Says Fed's Priority Is Shoring Up the Economy, Pledges to Cut Interest Rates
WASHINGTON (AP) -- The Federal Reserve is ready to lower interest rates again to brace the wobbly economy even as zooming oil prices spread inflation, Chairman Ben Bernanke signaled to Congress on Wednesday.

He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.

For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.
"The economic situation has become distinctly less favorable" since the summer, the Fed chief told lawmakers.

Since that time, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing -- further weakening the economy.
The country should prepare for "sluggish economic activity in the near term," Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.

Were energy prices to continue to rise at a sharp clip -- something the Fed does not anticipate -- it would "create a very difficult problem" for the economy, Bernanke said. Inflation would spread and growth would be further restrained, he said. If that happened, it would be a "very tough situation," he added.

The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, sticking closely to assurances he offered earlier this month.
The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter-century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18. Some analysts believe rates will drop again in April.

Brian Bethune, economist at Global Insight, said Bernanke's remarks "keeps the door wide open for further rate cuts."

Bernanke said at some point this year, the Fed will need to "assess whether the stance of monetary policy is properly calibrated" to foster the Fed's objectives of price stability "in an environment of downside risks to growth."

He was hopeful that previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business would energize the economy in the second half of 2008.

As the Fed chief began his first day of back-to-back appearances on Capitol Hill to discuss the economy, there was more bad news on the housing and manufacturing fronts. Sales of new homes fell in January for a third straight month. Orders to factories for big-ticket manufactured goods dropped in January by the largest amount in five months.

Bernanke has come under some criticism for not acting sooner in cutting rates. But Alabama Rep. Spencer Bachus, the committee's top Republican, expressed sympathy. "There is perhaps no other public figure in American who has been subjected to as much Monday morning quarterbacking as you have over the past six months," Bachus said.

The committee chairman, Rep. Barney Frank, D-Mass., suggested the economy is not suffering through a garden-variety slowdown.

"I don't want to appeal to you to use the word recession because I'm not going to be responsible for the nervous people at the stock market who overreact when you twitch your nose," Frank told Bernanke. "But the problems we now have are different."

Many of those woes are linked to the housing meltdown. Bernake was asked when he thought the housing market might stabilize. It possible, he said, that by "later this year it will stop being such a big drag directly" on the economy. But home prices probably will decline into next year, he added.

"It is very difficult to know, and we've been wrong before," Bernanke said.
Even as the Fed tries to shore up the economy, it must remain mindful of inflationary pressures, Bernanke said.

Oil prices, which have set records, briefly shot past $102 a barrel on Wednesday; prices eased, but still remain above $100 a barrel.

"Should high rates of overall inflation persist," Bernanke said, "the possibility also exists that inflation expectations could become less well-anchored." If people think inflation is escalating, they will act in ways that could make things even worse, a sort of self-fulfilling prophecy. Bernanke said that could complicate the Fed's job of trying to nurture growth while also keeping inflation under control.

If oil prices continue to skyrocket this year, it would be "hard to maintain low inflation," Bernanke acknowledged.

Feb 21, 2008

Loan Limits for California

Hello Friends of Neighborly Realty,

Still no update on the new Jumbo loan limits for the rest of 2008 (remember, these loan limit adjustments are only good until the end of 2008 - so jump on them once they are announced).

We discussed this timeline today at the Placer County Association of Realtors weekly Marketing Meeting.

The different lenders are all hearing different numbers. Most are hearing that these limits will be county dependent, and anywhere from the high $500,000s to the full $729,000 upper limit.

Consensus seems to be that we won't have a final answer from FNMA (Fannie Mae) and / or FMAC (Freddie Mac) for another month - mid March.

So stay tuned, email me if you have questions, and watch this space for updates as soon as we hear more.

- Jim

Feb 20, 2008

Jumbo Loan Limits - Still Waiting

Thanks for checking in folks. Stay tuned on the loan limit increases for Jumbos in our area. Although the HR 5140 bill was signed into law, we still don't have the final word on the increase in Jumbo Loan limits for our part of California. I will post that information as soon as I hear.


HR 5140 President Bush signed into law last week a $152 billion economic stimulus bill that will temporarily allow Fannie Mae, Freddie Mac, and the Federal Housing Administration to guarantee mortgages as large as $729,750 in some high-cost markets.

HR 5140, the Economic Stimulus Act of 2008, raises the conforming loan limit for mortgages eligible for purchase or guarantee by Fannie and Freddie to 125 percent of the median home price in high-cost areas, not to exceed $729,750. In areas not designated as high-cost markets, the conforming loan limit will remain $417,000.

The stimulus bill also increases the upper limit for FHA loan guarantee programs in high-cost markets -- currently $372,790 -- to 125 percent of the median home price, with an upper limit of $729,750. The upper limit for FHA-backed mortgages in "normal" housing markets will be increased from $200,160 to $271,050.

Federal regulators have said it will take longer for Fannie and Freddie to draft new credit guidelines and update their systems to evaluate what are now considered "jumbo" loans. The task is complicated by the fact that the new loan limits for high-cost areas will vary according to the median home price in a given county or metropolitan statistical area (MSA).

While HR 5140 is an effort to help the struggling housing market, there is no guarantee investors will accept the jumbo loans backed by Fannie and Freddie. If investors don't purchase the larger loans after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped. Mortgage interest rates remain volatile amid all the uncertainty. A cautious approach to float lock decisions may be wise.

Call me if you need help finding someone to talk to about re-financing, or purchase financing.

- Thanks to Ed Fontes for keeping us in the loop on this legislation, Jim

Feb 18, 2008

Sunday's Sacramento Foreclosed Home Auction

Interesting. A wild and exciting process, that's for sure.

This event took place at Cal Expo on both Saturday and Sunday. I joined for the Sunday session, and tracked the prices for the first 50 or so homes. I will do detailed comps on these 50 in the next couple of days, but we know these markets well enough to form a few initial thoughts:

End result? Be careful....

There is a 5% "Buyer's Premium" added to all winning bids. That means if you win the auction with a purchase price of $200,000 - you're really walking away with a $210,000 purchase price.

Once that number is added in, I don't think the prices were amazing deals. There were a few good deals, many homes that traded at fair market value, and a few that were actually over paid.

I watched homes go across the block in Auburn, Rocklin, Roseville, Elk Grove, North Highlands, Rio Linda, Sheridan, Orangevale, Lincoln, and Fair Oaks. I don't have enough data to do a true statistical analysis for each area, but at the higher level 50 homes is sufficient.

Key Lessons:

a) Some houses are noted as "Cash Only". As you would expect, the bidding on those homes was much slower than the rest.

b) If you are an all cash buyer, then there are good pricing opportunities for you. You may find that amazing deal. HOWEVER, those properties that are noted as "Special Financing, Cash Only" are likely noted this because there are problems with the property. Remember - a lender won't lend against a house that requires too much repair work. ...and if they have a really bad pest report on file, then you are in a tighter position. So? A cash purchase means a fixer-upper.

c) You must perform all of your own inspections BEFORE the auction. The auction organizer opens up the homes on specific days to inspect. Hustle. You are going to want to inspect a good 20 or 30 homes and be prepared to act on any of them during the auction process. You can't inspect the home after you've bid and then decide if you want to move forward. Be careful.

d) Homes will go "back across the block" (re-auction) during the day if the winning bidder can't put the financing deal together. 2 homes came across in the early morning hours, before we had even made it through 30 homes. Why? We don't know. The reason for the re-auctioning isn't mentioned. Rumor has it... that a bank/lender (whoever has title) can actually look at the winning bid and accept or reject the price! Again, I didn't speak to anyone who had actual knowledge of this, I only heard the buzz in the room.

e) The auction was attended by hundreds of people, I'm sure we had well over 1,000. Fees to get in and spectate? Nothing. Just the usual parking fee of $8.00 for Cal Expo.

f) I can represent Buyers. This is good news. It's actually encouraged by the auction company. This is probably a very smart idea too, as the documentation involved in this process is quite lengthy - and not the standard contractual documents we use.

g) Deals? Not quite. Yes if you have lots of cash and are willing to take on repair work. Other than that, there may be some "pocket" deals (property in North Highlands for example was going below market value), but once you add that 5% it is questionable.

If you want to go to this auction next time, give me a call. I do plan on going again and collecting more data for my clients.

Thanks, and good luck bidding!

- Jim

Feb 12, 2008

Existing-Home Sales to Hold in Narrow Range, then Begin Upward Trend

Sorry folks.... a few days there of nothing new. I had food poisoning from the buffet at a wedding, that then turned into the flu.... Anyway, let's get back to it. Here's an update from the NAR (National Association of Realtors) economists, with an opinion on the jumbo loan limit increases and the impact to our general marketplace. Enjoy.

A continuation of soft market conditions is forecast for existing-home sales in the months ahead, with improvement expected by the second half of this year if loan limits are increased, according to the latest forecast by NAR, the National Association of Realtors®.

Lawrence Yun, NAR chief economist, said sales activity is expected to remain soft through the first half of the year despite a generational low in mortgage interest rates. “Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” he said.

“Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices. If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas – that, in turn, would help to stimulate overall economic activity.”

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in December, slipped 1.5 percent to a reading of 85.9 from a downwardly revised index of 87.2 in November, and was 24.2 percent below the December 2006 level of 113.3. “We’re seeing a pattern that is consistent with skimming along the bottom of the cycle, and sales could ease modestly,” Yun said.

The PHSI in the Midwest rose 3.4 percent in December to 84.9 but is 17.3 percent below a year ago. In the Northeast, the index slipped 1.7 percent to 68.9 and is 26.0 percent lower than December 2006. The index in the South fell 3.0 percent in December to 96.4 and is 27.0 percent below a year ago. In the West, the index declined 3.1 percent in December to 83.9 and is 24.1 percent below December 2006.

Existing-home sales are projected at an annual pace of around 4.9 million in the first half of this year, rising notably to 5.8 million in the second half, and totaling 5.60 million for all of 2009. The aggregate existing-home price should decline 1.2 percent in 2008 to a median of $216,300, and then rise 3.2 percent to $223,200 in 2009.

“Areas with a high prevalence of subprime lending will continue to feel downward price pressure. Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices,” Yun said.
Current housing conditions vary widely. Preliminary data shows rising home prices in areas such as Rochester, N.Y.; Charleston, W.V.; Waterloo-Cedar Falls, Iowa; and Albuquerque, N.M. Fourth quarter metro area median existing-home prices, showing changes in approximately 150 markets, will be released February 14.

New-home sales are likely to decline 17.7 percent to 637,000 in 2008 before rising 7.6 percent to 685,000 in 2009. “Builders will further lower new home construction throughout this year and into 2009 to bring inventory under control,” Yun said. Housing starts, including multifamily units, are estimated to fall 20.1 percent to 1.08 million this year, and decline another 1.3 percent to 1.07 million in 2009. The median new-home price is expected to fall 4.3 percent to $236,300 in 2008, and then increase 5.0 percent in 2009.

The 30-year fixed-rate mortgage is forecast to rise slowly to the 5.9 percent range in the fourth quarter, and then average 6.3 percent in 2009. “Affordability conditions are anticipated to rise 14.2 percent this year, permitting more people to become homeowners, but buyers should avoid aggressive lenders and not over-stretch to enter the market,” Yun said. NAR’s housing affordability index is expected to rise from 113.0 in 2007 to 129.0 in 2008.
Growth in the U.S. gross domestic product (GDP) is projected at 2.2 percent in 2008 and 2.7 percent in 2009. The unemployment rate should rise to 5.4 percent in the second half of 2008 before averaging 5.2 percent in 2009.

Inflation, as measured by the Consumer Price Index, is seen at 2.7 percent this year and 1.4 percent in 2009. Inflation-adjusted disposable personal income is likely to grow 1.7 percent in 2008 and 3.5 percent next year.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

# # #

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.Existing-home sales for January will be released February 25; the next Forecast / Pending Home Sales Index will be released March 6. Fourth quarter metropolitan area median existing-home prices will be released February 14.

- Thank you NAR, Jim

Feb 5, 2008

"Short Sale" Help for Sellers

I'm getting more and more questions about the changes in tax legislation that will help Sellers in a Short Sale position. Hopefully this article from the White House's information page will help. Excuse any political spin, as this time I did a direct "copy and paste" from the government web site.

REMEMBER: Talk to your CPA about your own personal situation. This law has important clauses on "cash out" refinancing that may exclude certain borrowers from this relief.

On December 20th, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.
This Act Is A Good Step To Address The Housing Market, But Congress Has More Work To Do.

Congress needs to complete work on responsible legislation modernizing the Federal Housing Administration (FHA). This bill will give FHA the necessary flexibility to help hundreds of thousands of additional families qualify for prime-rate financing.

Congress needs to pass legislation permitting State and local governments to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans. Under current law, cities and States can issue tax-exempt bonds to finance new mortgages for first-time homebuyers.
Congress needs to pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. GSEs provide liquidity to the mortgage market that benefits millions of homeowners, and it is vital that they operate safely and soundly. The President has called on Congress to pass legislation that strengthens independent regulation of the GSEs and ensures they focus on their important housing mission.

The Administration Has Moved Forward On Targeted Actions To Assist Homeowners That The President Announced In August

The President and his Administration have launched a new initiative at the Federal Housing Administration (FHA) called FHASecure. FHASecure expands the FHA's ability to offer refinancing by giving it the flexibility to work with homeowners who have good credit histories but cannot afford their current payments. By the end of 2008, the FHA expects this program to help more than 300,000 families refinance their homes.

Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson have assembled the private-sector HOPE NOW alliance. HOPE NOW recently mailed hundreds of thousands of letters to borrowers falling behind on their payments and is supporting a toll-free mortgage counseling hotline, 1-888-995-HOPE.

HOPE NOW has developed a plan under which up to 1.2 million homeowners could be eligible for assistance. The HOPE NOW plan will help subprime borrowers who can afford the current, starter rate on a subprime loan, but would not be able to make the higher payments once the interest rate goes up.

- Jim

Feb 4, 2008

Jumbo Loan? Cross Your Fingers!

Living in a "high-cost" housing area?

If you are in California, the answer is likely YES.

As you may know, "jumbo" loan limits are currently set at $417,000. That means if you need to borrow more than $417,000, you pay a premium - a higher percentage rate for your mortgage.

Well, that could end.

Last week, the US House of Representatives overwhelmingly passed HR 5140 – an economic stimulus package that includes a temporary increase in the conforming loan limit and the upper threshold for FHA loan programs to as much as $729,750 in high-cost areas.

The temporary increase would last only until the end of 2008. The bill would also restrict Fannie Mae, Freddie Mac and the Federal Housing Administration from guaranteeing or purchasing loans above 125 percent of the median home price for a given area. That means that the existing $417,000 conforming loan limit for mortgages eligible for purchase by Fannie and Freddie would not increase in areas where the median home price is $333,600 or less.

In order to make higher limits a reality, the next step is for the Senate to pass the bill and for the President to sign it into law. The target date for final passage set by the White House and Congressional leaders is February 15. Check back here after the 15th.

Cross your fingers that this moves ahead. If it does, all of you with Jumbo loans will have an additional reason to re-finance, and save your family some money.

- Jim