4 More at Neighborly Realty to Better Serve You !!

Hello Neighbors,

Sorry (again) for the delay in blog updates.

It's been an exciting and wild couple of weeks.

Neighborly Realty is now a team of 8 - yes, 8 !!!

As many of you know, we are a different kind of real estate shop. We aren't in this for the "big bucks". We are in this to do the right thing for our clients, their families, and investors who need a helping hand.

Well, the momentum behind this vision has become overwhelming! Not only are our phones ringing off the hook with clients who want help - but a few agents have also jumped in to practice the Neighborly Way.

We are very pleased to announce that Jeff Engle and Peter Bond have signed up! They are practicing Realtors who like the Neighborly way of doing business and treating people.

How are we handling this growth at a time when the industry is hurting? We've brought in even more help!

A young lady named Jamie has joined us as a coach, training specialist, and mentor. A young man named John has also joined and will be helping us develop a formal Office Manager position.

The end result to you?

Darn good service.

Welcome Jeff, Peter, Jamie, and John to the Neighborly Team!!

- Jim

Neighborly Realty Adds One !!

Hello friends of Neighborly Realty,

This is an exciting post for me to type out... 5 years in the making.

Neighborly Realty has added another agent - the lovely and talented Jennifer Harris !!

Welcome to the team Jenny!

Jenny has 10 years of professional experience with Hewlett-Packard, and 4 years of experience with a design firm that used to setup model homes for builders. She absolutely knows how to stage a home for a Seller !!

Oh yeah, and she's my (Jim's) wonderful wife.

Woooo Whooooo!

- Jim

$7500 "Loan" from the IRS? Yes

...but you have to pay it back over a 15 year period.

To follow up my last post with this post seems odd.

As you know, we run a small group of like minded professionals in businesses that compliment Real Estate. The goal is to provide you with expert service providers in different fields so that you can trust who you are working with.

This note just in from our CPA (Certified Public Accountant) named Jeremy Stead. He's sharp, and keeps an eye on those things that impact my clients. Let me know if you would like his contact information.

An update on the new legislation passed this week:

**************
American Housing Rescue and Foreclosure Prevention Act of 2008

On July 26, 2008, Congress passed the American Housing Rescue and Foreclosure Prevention Act of 2008. President Bush signed the measure into law on July 30.

The legislation, H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act, would help stem the tide of foreclosures, stabilize local housing markets and provide incentives for first-time homebuyers. Chairman Rangel, a longtime advocate and leader for improved access to low-income housing was the author of the tax provisions contained in the bill.

“This bill received strong bipartisan support because it is the right thing to do for our country during this economic downturn,” said Chairman Rangel. “Provisions in this bill represent the most significant expansion and improvement of tax programs designed to provide affordable housing for low and moderate-income individuals since the inception of the low-income housing tax credit in 1986.”

“First, the bill would expand and improve the low-income housing tax credit, which is the largest source of federal support for the construction and rehabilitation of affordable housing,” continued Rangel. “Second, the bill increases volume limits on housing bonds to finance low-income rental housing and first-time homebuyers, while also providing states with greater flexibility on how to use those bonds efficiently. These improvements will go a long way to address the shortage of affordable housing options in our cities and towns.”

The Low-Income Housing Tax Credit (LIHTC) has been responsible for the development of over 2 million rental units across the nation since its inception in 1986.

The LIHTC is the most successful, longest running Federal program for supporting the development of affordable rental housing.

Included in the package is a ten percent increase in the credits allocated among states, and an $11 billion increase in tax exempt bond authority to support single family and rental housing, as well as many changes in the tax code to make the use of the LIHTC more efficient. Housing advocates agree these changes will result in additional units of housing and, especially, more units for lower-income families.

Also included in the package is a provision to enable cities and towns to more efficiently use tax-exempt bonds in the effort to develop affordable rental housing. The provisions will enable New York City to issue significantly more bonds so that it can support the development of thousands more rental units for low-and moderate-income families.

Below are the main tax provisions included in H.R. 3221:

First-time homebuyer tax credit to assist in making a down payment on a home. This would provide individuals and families with a refundable credit (equivalent to an interest-free loan) of ten percent of the purchase price of their home (up to $7,500). Taxpayers would be required to repay any amount received under this provision to the government over 15 years in equal installments. The credit is phased out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).

Additional standard deduction for real property taxes to help homeowners who claim the standard deduction by allowing them to claim an additional standard deduction of up to $500 ($1,000 for joint filers) for State and local real property taxes. This provision applies for tax year 2008.

Temporary increase in low-income housing tax credit and simplification of the credit. The bill would increase the current limit of the credit from $2.00 for each person residing in a state by an additional ten percent. This will help put builders to work to create new options for families seeking affordable housing alternatives. The credit will also be simplified to improve its effectiveness.

Temporary increase in mortgage revenue bonds The bill would also allow for the issuance of an additional $11 billion of tax-exempt bonds to refinance sub-prime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.

This legislation is supported by a broad group of advocates for affordable housing.
**************

Of course, CONSULT YOUR CPA if you have questions about this. I can't legally advise on tax issues, so please do talk to the right people.

Many thanks to Jeremy Stead for getting this data to us - and to you!

- Jim

Down Payment Assistance Programs - ACT BY OCT 1st

This news IS important.

Over the last year, 17% of all home purchases by first time buyers were made with down payment assistance programs.

The most noteworthy is the "Nehemiah" program. That program has been in the press for months, and the industry has been buzzing about it's rumored end. It looks like that is happening.

I just got this note from a colleague who works for that organization:

************

Dear Jim,

This week the President signed H.R. 3221, Housing and Economic Recovery Act of 2008, into law. The bill contains a provision (SEC. 2113) which forbids FHA from insuring mortgages in which the borrower’s down payment comes from a private down payment assistance provider, beginning October 1, 2008. As of this date, the minimum down payment will be increased from 3% to 3.5%.

The consequences will be devastating! By FHA's own estimates, DPA (Down Payment Assistance) comprises nearly 40% of FHA's volume. This means more than 300,000 working class families will be locked out of homeownership in the next year alone. Communities across America will take the brunt of the $50 billion in lost real estate sales, not to mention the indirect impact on the real estate, mortgage and building sectors that will be forced to shed tens of thousands of jobs due to this dangerous legislation.

************

It sounds a little dramatic, which is fine. They need people in my business to take action to try and save these Down Payment Assistance programs.

The reality is tough - if a first time buyer is going to buy a home using down payment assistance THEY MUST CLOSE ESCROW BY OCTOBER 1ST. If their escrow closes on October 2nd? They are out of luck. The dollars will not be available.

What does this mean?

If you want to buy, and you were planning on getting 3rd party down payment help to cover a shortage of your own funds - we need to act quickly.

I'm not a salesman, you all know that by now. However, this may be one time when conveying a "sense of urgency" is necessary. Call me and let's get going!

- Jim

Financial Title - Leaving California

That's the rumor... another title company bites the dust. It's a shame too, as I've had good experience with that provider.

Some of you may remember Alliance Title - they went under many months ago. That loss wasn't too bad...

From what I'm hearing, open escrows will transfer over to Chicago Title. We've done business with those folks too. Let me know if any of you need help as this change unfolds.


Blogging has been minimal in July do to client needs. Sorry about that. I will get back into the swing of things shortly.

Thanks everyone!

- Jim

2nd Largest US Financial Institution Fails (IndyMac / Bancorp)

WOW. Return from 2 weeks on vacation to news that another huge lender is going under.
This pulled from Yahoo finance. Many thanks to that organization!

Call me if you would like to discuss the requirements a lender has to maintain deposits with the federal government. It’s not really a hard link to buying or selling your home, but more of a macro-economic discussion (which I enjoy).

Again…. another one of the largest lenders in the US “failing” + Higher energy prices + an election year…. a sign of tougher macro-economic times ahead, especially this winter.

Here is the article:

Government shuts down mortgage lender IndyMac
Saturday July 12, 7:21 am ET
By Alex Veiga, AP Business Writer

Office of Thrift Supervision steps in and closes IndyMac Bank; FDIC takes over operations

LOS ANGELES (AP) -- IndyMac Bank's assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said.

The lender's failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country's biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion.

IndyMac's collapse is second only to that of Continental Illinois National Bank, which had nearly $40 billion in assets when it failed in 1984, according to the FDIC.
News of the takeover distressed Alan Sands, who showed up at the company's headquarters in Pasadena, Calif., to find out when he could withdraw his funds.
"Hopefully the FDIC insurance will take care of it," said Sands, of El Monte, Calif. "I'm also kind of kicking myself for not taking care of this sooner, sooner as in the last couple of days."

A couple of dozen customers could be seen outside the building, reading fliers handed out by FDIC staff. The agency set up a toll-free number for bank customers to call.
IndyMac Bancorp Inc., the holding company for IndyMac Bank, has been struggling to raise capital as the housing slump deepens.

IndyMac had $32.01 billion in assets as of March 31.

A spokesman for the lender referred media queries to the FDIC.

The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.
In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.

In a statement Friday, Schumer said IndyMac's failure was due to long-standing practices by the bank, not recent events.

"If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today," Schumer said. "Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs."

The FDIC planned to reopen the bank on Monday as IndyMac Federal Bank, FSB.
Deposits are insured up to $100,000 per depositor.

As of March 31, IndyMac had total deposits of $19.06 billion.

Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC said.

Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount.

During a conference call with reporters, FDIC Chairman Sheila C. Bair said the agency would cover all insured deposits and then try to recover its costs by selling IndyMac's assets.

"We anticipate trying to market the institution as a whole bank," Bair said. "How much money we derive from that will depend on who gets paid what."

Holders of unsecured IndyMac debt may not fully recover their investment, Bair said.
"Generally if a creditor is secured, they are at the top of the claims priority," she said. "If they are unsecured, they're pretty low on the claims priority and probably will take some type of haircut with this, but we have not had a chance to do a thorough analysis to know ... how extensive those losses will be."
IndyMac spent the last two weeks trying to reassure customers that it was not near default.

On Monday, IndyMac announced it had stopped accepting new loan submissions and planned to slash 3,800 jobs, or more than half of its work force -- the largest employee cuts in company history.

In the letter to shareholders, IndyMac Chairman and Chief Executive Michael W. Perry said the drastic measures were made in conjunction with banking regulators to improve the company's financial footing and "meet our mutual goal of keeping IndyMac safe and sound through this crisis period."

The plan was supposed to generate roughly $5 billion to $10 billion per year of new loans backed by government-sponsored mortgage companies, Perry said at the time.
But the run on its deposits ultimately short-circuited the strategy, prompting regulators to take action Friday.

Associated Press writer Raquel Maria Dillon in Pasadena contributed to this report.
FDIC IndyMac page: http://www.fdic.gov/bank/individual/failed/IndyMac.html

27,000+ Homes on the Market

In the primary 4 county area we do our core business in (Placer, Sacramento, El Dorado, and Yolo).

These statistics just in...

Of those 27,000+ homes:

- Roughly 26% are "REO" (Bank Owned, foreclosed properties)
- Roughly 36% are Short Sales.

Wow.

The remaining 38% are a combination of private party sales (the traditional home sale), relocation sales, and new construction (when the builder chooses to use MLS).

By comparison? In 2004 there were only two (2!) short sale transactions for the whole year in these same 4 counties! Now we're seeing months where more than 800 short sales are going on the market.

What is getting into escrow?

2 out of every 5 transactions are bank owned. This is a huge jump up in transaction rate, and a giant leap in their abilities from where they were 12 months ago.

Short Sales?

The rate of closure overall is still somewhere around 15% - 20%. What does that mean in how we generate offers for our Buyers? We still use the "shotgun" approach. Blast out offers on half a dozen properties and run with the first one that hits. Betting on just one property at a time will get you nowhere in this market.

Bottom Line?

Patience. If you can't wait for the delays caused by Short Sales or REOs... then call me and we will go look at new construction!

- Jim

RESPA Law and Paying Buyers

I had a question last week about paying Buyers back who use Neighborly Realty for their purchase. The question was basically, do we split our commissions with Buyers if they hire us?

We don't do that.

Commissions are always a touchy subject. What's most important to remember for those of us in the Real Estate business, is that commissions are our wages.

Although simply calling them "wages" may not be sufficient - as there are legal ramifications for how we use those earnings.

We are regulated on what we can do with those wages and how much we can do for clients. A big part of the regulation comes from something called RESPA - enacted in the 1970s and strengthened after the Savings & Loan failures in the late 1980s.

Here's what RESPA states:

In many states, Real Estate licenses are granted without close examination of an applicant's knowledge of RESPA guidelines. As a result, many Real Estate Agents go into business unaware that certain practices are prohibited via Federal statutes enacted by the US Department of Housing and Urban Development.

RESPA stands for the Real Estate Settlement Procedures Act. Introduced in 1974, RESPA law is designed to protect consumers in the process of purchasing a home. RESPA requires lenders to provide consumers with disclosures (Truth-in-Lending Disclosure Statement) at various stages throughout the loan process, and also prohibits kickbacks and referral fees that would increase the cost of settlement services for consumers.

There are two main points of the law that affect referral relationships between parties involved in the selling of a home:

Prohibition of kickbacks. RESPA states that no one can give any "thing of value" in exchange for referrals. According to RESPA, if a Real Estate Agent refers business to me, I cannot even send them a gift certificate as a way of saying thanks. This applies to any people involved in a Real Estate transaction. If a client of yours refers another person to you, you can't reward them with any "thing of value" in exchange for the referral.

Can you have a party and invite all your past clients and include referral sources? Yes. But you cannot exclusively invite referral sources, as this would constitute a provision of something of value in exchange for referrals according to RESPA.

Can you give a client a thank you gift after a transaction closes? Yes. Giving new homeowners a house-warming gift is great marketing tool to implement after the deal is closed. However, you cannot give them a thank you gift in exchange for referring additional business to you.


As the Broker for Neighborly Realty, I’ve taken several courses in Risk Management. I have too, as I hold an extra level of legal scrutiny by being a Broker.

RESPA is something we are very careful with. It isn’t entirely clear on some of the “gray areas” around gifts and sharing revenues.

I’ve been told that more legislation is coming – entirely due to the real estate market collapse that started in October of 2005.

Again, how we manage our wages is very important. We will never do anything illegal or unethical with those revenues. We hope our clients now have some insight as to why we do everything “by the book”.

- Jim

Latest DOM (Days on Market) Statistics

We're compiling some market data for a client.

They're house went live just a couple of weeks ago and they are thinking through some of our marketing strategies.

Part of this research includes keeping an eye on a very important variable - DOM. DOM means "Days on Market" and is a key indicator in how your area is doing.

Here are some of the averages for DOM in some key areas where we practice, for houses that are currently For Sale. When there are multiple numbers, it represents the average days on market in the different zip codes in that city (and surrounding areas):

Antelope 90
Auburn 101, 79, 144
Carmichael 83
Citrus Heights 95, 94
Colfax 103
Elk Grove 85, 90, 83, 73
Elverta 148
Fair Oaks 78, 87
Folsom 120
Foresthill 78
Freeport 89, 87
Gold River 90
Granite Bay 91
Land Park 95
Lincoln 126, 101, 95, 144, 83
Loomis 102
Mather 77
Natomas 68, 86
Newcastle 107
Orangevale 77
Penryn 110
Rocklin 89, 84, 103
Roseville 67, 70
Sacramento 76, 91, 80, 100, 84, 94, 93, 89, 141, 72, 86, 75, 99
South Land Park 71
Sun City Lincoln 104
Wilton 102

For those houses that are on the market now, the absolute average in all of Placer and Sacramento counties is 84 days.

Use this data in good health !!

Call me if you would like data on a specific zip code, neighborhood, or area. There are toooooooo many to type them all out by hand!

- Jim

"My Friend Told Me We Should....."

An important part of the home buying and selling experience is getting feedback. Validating assumptions is absolutely critical.

One thing you will find, is that everyone knows something about real estate. It's one of the joys and challenges of working in this industry. Everyone is willing to share their experiences, stories, and deep insight.

Be cautious.

Here are a few of my favorites:

* "My friend told me we should offer $xxx,xxx. He/she is an engineer and really smart".

* "My brother is in real estate in Pennsylvania. He told me we are missing the boat if we don't do X, Y, and especially Z. Please do them immediately"!

* "One of my co-workers lives in the neighborhood and tells me that prices are still doing pretty well. We should offer above list price".

* "My neighbor has a friend who's sister got a bank to drop 50% of their price on a foreclosed home, and I want the same"!


Please keep in mind that you've hired a professional in the Real Estate industry. Chances are pretty good that they know more about this business than those who aren't actually practicing in the profession.

Market drivers absolutely differ by state. What happens in Ohio has almost nothing to do with what happens in California. What happens in Southern California often has little impact to Northern California (did you know the processes for escrow are actually different within the same state?).

Differences between zip codes can be huge too - even neighborhoods across the street from each other?


Over the last couple of years, there are parts of Sacramento County that saw value decreases greater than 60%. Yet there are other locations in Sacramento County where the drop in value was less than 15%.

Placer County? An average drop of 23% last year. Yet there are places in Lincoln that dropped over 50%, while parts of Granite Bay actually appreciated!


Unless your friends, family, co-workers, etc.. are actually practicing Real Estate in your area, trust the professional that you are working with.

Chances are pretty good that that person is busy 7 days a week and works at least 12 hours a day. We have to. This market is changing so fast that daily participation is absolutely required, if we are to do the best job for our clients.

Operating models (placing offers, comp'ing for list price, etc) from just March are no longer valid! That's how quickly things are changing.

Pay attention to the professional you've hired. Listen to them. There will certainly be messages of good news and bad news. Ask questions. Dig deep. But make sure you are talking to the most knowledgeable person you can find.

Again, it is absolutely important to get feedback and to validate your assumptions. Just please do it with someone who is a professional and who is practicing on a daily basis. It will make your participation in these processes easier (and less emotional).

- Jim

Short Sales Getting Quicker

Hello Neighbors,

I think the lenders are starting to figure it out.

Last year (2007) we went for over 7 months "working" with one lender to get approval on one short sale. That lender (Wells Fargo) simply didn't have the process in place or expertise in their "asset manager" teams to handle Short Sales. When they did finally get back to us, they rejected our offer!

Put yourselves in the shoes of that Buyer. Would you have stuck around? Probably not - and neither did that Buyer.

Lenders can't do business this way. They need to figure out how to handle these "assets" (homes) quickly and efficiently.

Logically, it would seem like holding these assets is bad news for a lender or bank - and you are right! Financially, it isn't a good place to be if you are a bank. You aren't in the business of property management, and you should do everything in your power to sell these homes.

Well, logic need not apply.... in fact, forget logic completely. Lenders and banks aren't like you and me. Selling a home appears to be a 9 to 5 job for them, not an urgent situation that requires diligence and focus to get it done. Forget timelines too, as they ignore most offer contract timelines as they don't align with the paper pusher 9 to 5 timeline.

...However, that is changing. The last few short sales we offered on have had quick response times. In fact, we've had several that have been resolved within a week. That's great news. The pace of these transactions is picking up. A few of the Lender's real estate agents have even shared the lender's financial requirements (minimum net requirements) to get the houses sold. THIS IS HOW IT SHOULD BE DONE! Give us the information, give it quickly, and we will make it work. Families will get the housing they need, and Lenders will move back into the business they should be in!

Let's hope this trend continues.

Another important note: The smaller banks and Lenders (credit unions, local banks, regional banks) appear to be better at Short Sales than the big guys. Perhaps they have more to loose if they drag their feet? I'm not sure what it is, but our transactions that involve the big guys (see the Wells Fargo example above) are still going at a slower rate than the small lenders.

Watch this space for more real world updates,

- Jim

Bottoming Out - Wall Street Journal Agrees

Hello again Neighbors,

As you know, we are using this forum to bring you "real world" updates on the local housing markets. We hope you are finding it useful. We will continue to post data from our own actual transactions - so that you can make your own informed housing decisions.

...and, guess what? For a change, the media is starting to report what we've been documenting here in this blog since March... we are bottoming out!

This just in from the Wall Street Journal (thanks WSJ!):

The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Thanks again WSJ, nice to see some in the media are getting it!

- Jim

Property Taxes Dropping!

Hello friends of Neighborly Realty,

GREAT NEWS, and finally an answer to a question many of you have asked.

Yes, property taxes are dropping. With all of the foreclosures, bank owned property sales, short sales, and general decline in the marketplace between 25% - 65%, state / county property tax assessors are adjusting property taxes to match.

This won't impact everyone though.

Here is a direct cut and paste from a letter sent by Sacramento County to some of their property holders:


FOR IMMEDIATE RELEASE

ASSESSED VALUE DROPS ON 85,000 SACRAMENTO COUNTY RESIDENTIAL PROPERTIES

Reflecting the fact that much of the residential real estate market has been in a decline since mid-2006, Sacramento County Assessor Ken Stieger announces that the Assessor’s Office has reviewed the market values of residential properties in Sacramento County and will be reducing the assessed values for over 85,000 properties on the 2008-09 property tax roll. These decreases are often referred to as Proposition 8 reductions, reflecting the 1978 ballot proposition that authorized them.

Generally speaking, properties purchased in 2004 and later are affected. Most decreases will range between 10% and 30%.

The majority of the remaining residential properties in the county, some 300,000-plus parcels, will continue to be assessed under Proposition 13 provisions and will not be receiving notices. If a property was purchased prior to 2004, it is unlikely to receive the Prop 8 decrease in assessed value.

In the next few weeks, the Assessor’s Office will send letters to the owners of these properties, notifying them that the assessed value of their property will be reduced for the 2008-09 property tax roll. The letter will advise affected owners of their new Proposition 8 assessed value and will also include their Proposition 13 factored value for comparison. The Prop 8 assessed value will be reflected on the tax bills issued in October of 2008.

Proposition 8 value reductions are temporary. Once a property receives a Prop 8 reduction, its value must be reviewed as of January 1 each year to determine whether the current fair market value remains less than its Proposition 13 base year value plus inflationary adjustments. The Prop 13 value is typically the property’s acquisition value plus inflation factors for intervening years. The lower of these two values is the value used for property tax purposes.

Since the reduced Proposition 8 value represents the property’s current Fair Market Value, it can fluctuate from year to year without limitation, to reflect changes in the real estate market. When the real estate market recovers and the market value exceeds the Proposition 13 factored base year value, the property’s Proposition 13 value will be restored.

The anticipated decrease in assessed value for the 85,000 properties should approximate $6 billion, and will result in a revenue decrease equal to 1% of that amount, or $60 million. The lower amount of property taxes in the County will impact local schools, cities, and special districts.

Assessor Stieger also wishes to alert the public that property owners may receive solicitations from private businesses and individuals offering assistance in this process for a fee. While property owners are certainly at liberty to use these private companies, they can apply for this reduction themselves at absolutely no cost simply by writing a letter or otherwise contacting the Assessor’s Office.

Taxpayers may visit the Assessor’s web site: www.assessor.saccounty.net for more information or call the Assessor’s Proposition 8 Customer Service Line at (916) 875-0455.

That's Sacramento County.

Other counties are following suit, like Placer County for example: http://www.placer.ca.gov/Departments/Assessor/Decline%20in%20Value.aspx

Need specific info on your situation? Give me a call and we can figure it out together.

Many thanks, and Happy Memorial Day,

- Jim

Onsite: Real Estate Extravaganza, Friday May 23rd

Just an FYI to those of you who might like to talk about Real Estate services in person.

Neighborly Realty will be at the Addison Avenue Federal Credit Union tomorrow, Friday May 23rd from 11:00am - 1:30pm.

Addison Avenue has asked us to participate in their "Real Estate Extravaganza" week. They would like us to sit in their branch office and talk to their members about the local real estate markets.

If any of you are in the area, please do drop by tomorrow at:

1210 Roseville Parkway,
Suite #120
Roseville, CA
95678
(in the "BJ's Brewery" complex)

Obviously, if you need questions answered about loans and/or re-financing, this is the place to ask!

...stay tuned for an announcement on Addison Avenue too, and their recently announced "Lender of the Year Award" - congratulations Addison, and rightly deserved!

- Jim

The Market is Turning

We posted a note here in March that said the market was turning. We provided actual data from our own offers / sales to support the ramp up in activity. At the time, the data was confirming that the $300,000 and under segment was booming.

Well?

Now the $400,000s are starting to see similar action.

A few days ago, we tried to submit an offer on a bank owned house listed at $419,000 in Roseville. We were too late. Within 6 days the home went from ACTIVE (for sale, no offers) to SOLD (escrow done!). Amazing. The sales price was $415,000.

No chance for a competing offer, no backup offers accepted. Done.


Today I was standing in a home in Orangevale with a client. The list price for this home is in the mid $200,000s. WHILE WE WERE THERE - 3 other Realtors came through with their clients. This was in the span of roughly 25 minutes. Middle of the work day (a Wednesday at 3:15pm).


I had another agent call me yesterday to ask advise. He isn't with Neighborly Realty, but he's a good guy so we helped him out.

He was going after a Short Sale. His Buyer was tired of waiting on Short Sales and/or missing the chance to even submit an offer. He was effectively "done" with this process and wanted to know how to act.

He submitted an offer for that client that was $15,000+ above list price. He was competing against 3 other offers.


The market is turning. Those who aren't seeing these trends and who are waiting for the "bottoming out" are going to miss this chance.

Keep watching this space. I will continue to post real-world experiences. Ignore the popular press. I will post the actual transaction data, and let you be the judge.

Many thanks,

- Jim

Upcoming California Legislation & Eminent Domain

Several of you have asked for advise on the upcoming California Propositions 98 & 99, and their impact on Eminent Domain.

First though, what is Eminent Domain?

That's when local, city, state, or federal government groups take private property from an individual (or family) for "public use". The state delegates eminent domain power to certain public and private companies (typically utilities) such that they can bring eminent domain actions to run telephone, power, water, or gas lines. In most countries, including the United States (under the Fifth Amendment to the Constitution) the owner of any appropriated land is entitled to reasonable compensation, usually defined as the fair market value of the property. Proceedings to take land under eminent domain are typically referred to as "condemnation" proceedings.

OK, so what is the fuss with Propositions 98 & 99?

We went out to the California Association of Realtors web site to get some details.

A tangent too.... Do you know who the 3 largest lobbyist groups in the United States are working for? A Real Estate Finance professor once pointed it out to me:

#1 is the NRA (National Rifle Association)
#2 is the NAR (National Association of Realtors)
#3 are the Oil Company lobbyists.

Politics aren't discussed here, but know that the group in the #2 position fights time and time again for private property rights. They also fight for more legislation to keep home ownership the best vehicle for building a family's financial future.

So? Their advise on this particular matter is probably pretty good.

Here's what they had to say:

OFFICIAL C.A.R. POSITION
Vote YES on Proposition 98 and
Vote NO on Proposition 99
on the June Ballot

Local governments are abusing eminent domain to seize homes to give to private developers. It’s a rotten deal for Home Owners. Here are some real examples of eminent domain abuse:

-In Baldwin Park, CA, the city is threatening to use eminent domain to take 400 homes and businesses so developers can build new, higher cost retail and housing.
Los Angeles Business Journal, April 7, 2008

-In Vista, CA, city officials are attempting to classify 37% of the city as “blighted,” making it easier to seize properties within that area.
San Diego Union Tribune, April 13, 2008

SOLUTION: the June Ballot
REALTORS® – Support Proposition 98 and oppose Proposition 99.

The Solution -- Proposition 98:
-Provides real protection for homeowners.
-Limits eminent domain to legitimate public use.
-Prohibits price controls on private property.

Proposition 99 is a TRICK designed to maintain the status quo. It is particularly dangerous because if both propositions pass and Proposition 99 gets more votes, it CANCELS OUT Proposition 98.

Remember, YES on 98. NO on 99.

A YES vote on both measures is a vote against Proposition 98.

Thanks to CAR for the insight,

- Jim

Be Careful Out There!

Hello Friends of Neighborly Realty,

It is with sadness that I type this update. It is also with a word of caution for our friends and clients that I type this update. Be careful who you work with in this industry.

90% of the professionals I've worked with in these transactions are just that - professionals. Diligent. Competent. Accountable. Doing the best for their clients at all times. Living up to the Code of Ethics we all subscribe too. In short, they are nearly always people I would like to do business with again.

Of course it had to happen eventually.... We've run into our first transaction with a "professional" who is anything but.

It would be illegal and unethical to manage a “black list” of agents that we wouldn’t want to do business with. Just thinking about such a thing is nearly a violation of free trade legislation!

However, I’ve run into an agent on one of our transactions who is in a bit of legal trouble himself. This person runs both a real estate brokerage and a mortgage company. This person's methods are questionable and motives unclear, with several threats of litigation towards us. I've instructed my team to pass this person along to me as the single point of contact for Neighborly Realty, if we ever get into another potential transaction.

What's really unfortunate is that this person has been in this business for DECADES.

So?

Be careful. Watch who you work with. Ask for referrals from people you know and trust. These "transactions" are anything but - they are life altering, significant, and extraordinarily important processes to a family.

To treat them as anything but... just isn't the Neighborly Way.

- Jim

Technology & Neighborly Realty

As an ex Information Technology manager with Hewlett Packard and Agilent Technologies (and some time with IBM in San Jose), use of technology to help our clients is at the top of the Neighborly Realty business plan priority list.

As such, we've linked this blog to Technorati (blog management and publication service) and will be enabling RSS capabilities shortly.

Stay tuned.

The goal? Not to be sexy and wasteful with this technical stuff.... but use technology where it fits to better communicate with our clients, and to provide a level of service that outshines our peers.

- Jim

Technorati Profile

Another FED Rate Cut

Wow. The discounting continues.

This just posted to the financial wires a few minutes ago:

Federal Reserve cuts key interest rate by quarter-point
Wednesday April 30, 2:20 pm ET

Fed cuts key rate by quarter-point and says economic activity remains weak

WASHINGTON (AP) -- The Federal Reserve cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.

The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 percent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.

The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.

The Fed move was in line with expectations. Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than expected.


Interesting. I also read that Bank of America is dropping the Countrywide name by mid-Summer 2008. I guess the Countrywide name has a bit of a stigma to some folks....

- Jim

Is a Lease-Option a Good Idea?

I’ve had a few clients recently ask me about lease options and whether or not they are a good idea.

First of all, they are a bit misunderstood. It is not a risk-less way to get into a piece of property that you simply can’t afford now. Nor is it an absolute guarantee that entering into this arrangement will “land” you the property within a year or two.

You will find that many investor out there are willing to “buy the house for you and lease it back” while you save away enough for the down payment (when the purchase option is exercised). As an investor myself, I think this is wonderful. Someone pays the mortgage from me, I potentially benefit from appreciation, or at least I can theoretically use this arrangement to hedge against devaluation. Nice.

Is it the right thing for the Buyer? As a step of last resort, perhaps it is necessary. But if you can’t qualify for a standard loan in today’s market where rates are at a nearly all time low and FHA has jumped in to help, does that then say something about your financials to begin with? Are you ready for such a commitment?

Obviously it’s a case by case analysis and decision I would not make for a client family of mine. They would have to weigh the pros and cons (articulated with my help) for moving forward and make their own decision.

Here’s an article from the California Association of Realtors on Lease Options. One thing for sure… investigate wisely, as if you were going to be purchasing the home now.

Lease-Options are Back

A lease-option is utilized when a potential buyer wants to lease or rent the property with an option to buy it at a later date. The potential buyer pays separate consideration for the option to purchase at a later date to remain open for a specified period of time. If the potential buyers does not exercise the option, or does not purchase the property within the option time period, then the potential seller keeps the option consideration and retains the property.

Generally, lease-options are done in a slower real estate market when the reseller simply cannot sell the property outright. In this situation, a buyer, who may not have enough money for a down payment, can lease the property while they accumulate the money for a down payment. Often, a portion of the monthly payment by the potential buyer will go toward the down payment.

The option agreement must designate a price or state the price that will be determined by some objective standard when the option is exercised. Because the parties have entered into a binding agreement, the potential buyer may sue for specific performance on the option, requiring the potential seller to sell the property to the potential buyer under the terms of the agreement. The agreement must, therefore, contain all “material” terms for a purchase and sale to proceed.

Before proceeding with the lease-option, the potential buyer should consider:

a) Documenting the need for repairs with a property inspector

b) Checking for liens recorded against the property

c) Ensuring payment of the mortgage and taxed during the lease. Also, negotiating payment of insurance on the property

d) Ensuring that potential buyer will have the funds to make the down payment and qualify for any loan needed at the time of exercise of the option

e) Negotiating what will happen if the option period ends and potential buyer has not exercised the option.

f) Speaking with an attorney regarding removal of contingencies, disclosures, property inspections, etc.

After the lease-option is agreed upon, the option should be recorded to retain the potential buyer’s rights to the option.

Many thanks to CAR and Nicole Briggs for this article.

- Jim