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CATEGORY ARCHIVE: Real Estate Economics

March 18, 2010

Relaxing BMR Rules At Mission Walk To Compete With Bank-Owned

Plugged-in people should have seen this coming (others simply scoffed at our noting reductions on BMR re-sales and comparisons of bank-owned and BMR price points).

From the Examiner today:

Purchasing rules that govern scores of San Francisco Redevelopment Agency condos are being relaxed to help sell the units in a battered real estate market.

“We’ve never had this much inventory on the market,” Redevelopment Agency Executive Director Fred Blackwell said.

Agency commissioners this week raised the income cap for buyers to qualify for some of the units at Mission Walk — a 131-unit, two-building project completed on Mission Bay’s Berry Street in July — from those earning 100 percent of The City’s median income to those earning 120 percent.

“The price points, when you look at foreclosures and look at our units, are pretty much the same,” he said. “What people are doing, it seems, is choosing to go with the foreclosures because the foreclosures don’t have the same kind of income restrictions or equity restrictions.”

Income restrictions have already been relaxed for the Bay Oaks development at 4800 Third Street and are expected to be relaxed for the 125-unit project at 5600 Third Street.

The Redevelopment Agency might also begin offering down-payment assistance for buyers in either of the two Third Street developments.

∙ Reductions Reach Below Market Rate Units On Ora Way (And Others) [SocketSite]
∙ Buy A BMR For $10K $25K More Than Bank-Owned At Candlestick Point [SocketSite]
∙ Changing rules to spur homebuying [San Francisco Examiner]
∙ Mission Walk (330/335 Berry) Phase 2 Inventory/Application Scoop [SocketSite]

Posted by socketadmin at 8:30 AM | Permalink | Comments (39) | (email story)

March 16, 2010

The Fed Pledges No Bump In Benchmark And No More (M)BS

"Federal Reserve officials repeated their pledge to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market [by buying mortgage-backed securities] will end as planned this month."

∙ Fed Pledges to Keep Rate Low for ‘Extended Period’ [Bloomberg]

Posted by socketadmin at 1:45 PM | Permalink | Comments (25) | (email story)

March 15, 2010

While The Fed Forgives, California Does Not (For Now)

"When the foreclosure crisis started, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 so foreclosed homeowners would not be liable for their canceled debt. It is in force through 2012. California had a similar law, but it expired at the end of 2008, leaving Californians who lost their homes in 2009 potentially liable for big state tax bills."

∙ Short sale tax shortchanges ex-homeowners [SFGate]

Posted by socketadmin at 7:30 AM | Permalink | Comments (1) | (email story)

March 10, 2010

If Only We Hadn’t Already Used Our "Making Flippy Floppy" Headline

"Taking effect on April 5, the [government's new program] could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale....Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed."

∙ Program Will Pay Homeowners to Sell at a Loss [New York Times]
∙ Lenders (And The Market) About To Be HAMPstrung? [SocketSite]

Posted by socketadmin at 5:45 AM | Permalink | Comments (9) | (email story)

February 26, 2010

A One Time Fire Sale To Address An Ongoing Budgetary Problem

From Guardians of The City with respect to old Engine Company No. 16 at 909 Tennessee:

City Architect John Reid Jr. designed this two-story brick structure to replace the original 1887 home of 16 Engine that was a block away at 1009 Tennessee Street. A two-story brick firehouse with a cornice brightened with small colored tiles, terra cotta keystones accent the arched dormitory windows and plaques above the doors.

Off of Third Street, near the Pier 70 complex, in what is called the "Dogpatch" section of the Potrero District, Engine Company 16 was considered a waterfront company. From the 1880's through World War II the Potrero Point Pier 70 area was a very active shipbuilding and steel manufacturing district. It became the largest civilian shipyard on the west coast.

This firehouse is located on a bigger plot of land owned the City. To the rear of the firehouse on the corner of 3rd and 19th Streets are the former Potrero Police Station and the neighbor Public Health Emergency room.

Engine Company No.16 was disbanded on July 1, 1970, due to ordered City budget cuts to the Fire Department. From 1970 to 1976 the firehouse was used by Toy Program. From 1976 to 1992 the house was used as a Museum annex apparatus workshop and collection storage area. Since 1992 the firehouse is being used by the Department for storage.

According to a plugged-in tipster the San Francisco Fire Department will be selling 909 Tennessee in order to help balance its budget.

And our tipster’s (paraphrased) question: Does it make sense to address an ongoing budgetary problem with a one time sale of an asset in a down market?

UPDATE: The asking price is expected to be around $735,000.

∙ Engine Company No. 16 (909 Tennessee Street) [guardiansofthecity.org]

Posted by socketadmin at 2:30 PM | Permalink | Comments (63) | (email story)

February 25, 2010

Lenders (And The Market) About To Be HAMPstrung?

"The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program."

∙ Obama May Prohibit Home-Loan Foreclosures Without HAMP Review [Bloomberg]
∙ Insight Into The Inevitable Once Again? [SocketSite]

Posted by socketadmin at 12:20 PM | Permalink | Comments (24) | (email story)

Into Our Apple Cart (And Back To 2005) 79 Woodland Goes

The apples to apples sale of 79 Woodland closed escrow yesterday with a reported contact price of $1,335,000 ($6,000 over asking). Purchased for $1,300,000 in June of 2005, call it average annual appreciation of 0.6% over the past five years for the remodeled single-family Parnassus Heights home.

But we wouldn't call it a "push" in terms of whether or not it’s fallen from "peak" having appreciated (and then depreciated) since 2005.

We’ll also call the effective pre-tax benefited cost of ownership around $8,000 per month over the past 56 months and let you run your own numbers in terms of rent versus buy from an economic (versus emotional) standpoint.

∙ Parnassus Heights Apples To Apples (And Neighborhood Economics) [SocketSite]
∙ Another Market Metric And Food For Thought At The End Of The Year [SocketSite]
∙ To Rent Or To Buy, That Is The Question (That Only You Can Answer) [SocketSite]

Posted by socketadmin at 9:00 AM | Permalink | Comments (66) | (email story)

Sound Familiar?

"Government stimulus programs including the homebuyer tax credit [which is set to expire at the end of April] and a Federal Reserve program to buy mortgage-backed bonds lifted the real estate market in the closing months of 2009.

A sustained recovery in housing faces hurdles that include mounting foreclosures and a weak labor market, said Thomas Lawler, a former economist with Fannie Mae who now is an independent housing consultant in Leesburg, Virginia."

∙ Home Prices Decline 1.2%, Smallest Drop in Two Years [Bloomberg]
∙ Senate Approves First-Time (And Move-Up) Homebuyer Tax Credits [SocketSite]

Posted by socketadmin at 9:00 AM | Permalink | Comments (2) | (email story)

February 23, 2010

Parnassus Heights Apples To Apples (And Neighborhood Economics)

We missed the listing for 79 Woodland prior to its heading into contract, but seeing as how its sale still hasn’t closed we’ll feature this apple to be anyway.

Purchased for $1,300,000 in June 2005, the Parnassus Heights single-family home returned to the market three weeks ago asking $1,329,000 and is currently in escrow with contingencies having been waived.

A plugged-in tipster adds, "we are renting a bigger house on the same block for just under [$4,000 per month]."

∙ Listing: 79 Woodland Avenue (3/2) - $1,329,000 (In Contract) [MLS]

Posted by socketadmin at 9:00 AM | Permalink | Comments (60) | (email story)

February 19, 2010

Selling At A Loss In An Attempt To Make A Profit (Elsewhere)

Purchased for $245 million in 2005, the 730,000-square-foot south financial district twin-tower building at 303 Second Street is returning to the market with expectations of a $220 million sale price for the 90 percent leased building.

The key quote from TMG Partners CEO Michael Covarrubias:

“It’s a matter of what their basis is and what their alternative capital opportunities are,” said Covarrubias. “These buildings (like 303 Second St.) are not going to appreciate rapidly and there may be an opportunity to redeploy it and buy other distressed assets.”

Think that thinking might be playing a role in the recent return of previously unsold new construction condo units as well? More on this next week.

∙ S.F. building owners sell the best, keep the rest [Business Times]
∙ 303 Second Street [303second.com]
∙ Artani (818 Van Ness) Scoop Redux: Unsuspending Sales [SocketSite]

Posted by socketadmin at 8:00 AM | Permalink | Comments (17) | (email story)

February 18, 2010

Overshadowing The S&P/Case-Shiller Home Price Index's Recent Rise

"In summer 2009, the seasonally adjusted S&P/Case-Shiller Home Price Index rose for the first time in virtually two years. Since May 2009, the index has risen by over 3%, suggesting that the necessary correction to U.S. residential home prices is nearing an end.

However, in Standard & Poor's Ratings Services' view, the mortgage crisis may be far from over. The overhang of homes heading toward liquidation suggests more delinquencies and lower home prices are to come."

∙ The Shadow Inventory Of Troubled Mortgages Could Undo U.S. Housing Price Gains [S&P]
∙ November Case-Shiller Index: Up For Bottom Tiers But Flat At The Top [SocketSite]

Posted by socketadmin at 8:30 AM | Permalink | Comments (36) | (email story)

February 16, 2010

Proposed Seawall Lot 337 Development Scrambling For Investors

With its retail space having been cut in half last year, the San Francisco Business Times reports that the proposed development for the Port of San Francisco's Seawall Lot 337/Pier 48 (a.k.a. Mission Rock or Giant’s parking lot A) is now scrambling for equity investors:

The San Francisco Giants are rushing to assemble a new team to redevelop 16 acres across from AT&T Park after the economic downturn prompted key equity investors in the project to pull out or scale back their involvement.

While the shake-up in the team on the $2 billion development is still in flux, Kenwood Investments will likely drop out of the project, while hedge fund Farallon Capital Management could opt out or play a much smaller financial role than originally planned, according to development and port sources.

Once again, a 17-year development cycle that was expected to start in 2013 and yield "875 housing units, 1 million square feet of office space, 240,000 square feet of shops and restaurants, 180,200 square feet of exhibit/event space, 8.7 acres of public open space and 2,650 parking spaces."

∙ Batters out in San Francisco Giants’ $2B project [San Francisco Business Times]
∙ San Francisco SWL 337 Proposal: Downsized And Drawn Out [SocketSite]
∙ SocketSite Weekend Special: One Proposal For San Francisco SWL 337 [SocketSite]

Posted by socketadmin at 8:30 AM | Permalink | Comments (6) | (email story)

February 11, 2010

2010 Index of Silicon Valley: Economy Stalled And At Risk

From Joint Venture: Silicon Valley Network with respect to the 2010 Index of Silicon Valley:

The economic recession has stalled Silicon Valley’s vibrant innovation economy and left its global competitive standing at risk as never before...

With respect to jobs:

Between November 2008 and November 2009, employment in Santa Clara and San Mateo Counties dropped 6.1 percent, compared to 3.8 percent nationally. Silicon Valley lost 90,000 jobs between the second quarter of 2008 and 2009, bringing total employment down to 2005 levels.

With respect to housing:

Residential foreclosure activity dropped by 39 percent in 2009 yet in some cities more than a third of sales are foreclosures. Housing affordability for first-time homebuyers is improving [i.e., values are falling]. New affordable housing units in the region doubled from 2008 to 2009. Average rents declined six percent from 2008, the first drop in rents since 2005.

And with respect to commercial real estate:

Office vacancy rates are at an all-time high since 1998. The continued decrease in demand for commercial real estate combined with the creation of 1.7 million square feet of new commercial space have driven commercial vacancies up 33 percent in 2009 over 2008.

On the plus side, growth in new Silicon Valley "green" businesses and jobs were up 18% and 24% respectively from 2004 to 2008 while median household income was up 5% over the same period. But the real blows to Valley employment didn't kick in until 2009 and per capita income fell 5% from 2007-2009.

∙ 2010 Index of Silicon Valley [jointventure.org]
∙ Silicon Valley Faces Tough Climb Back From Recession [jointventure.org]

Posted by socketadmin at 6:00 AM | Permalink | Comments (27) | (email story)

February 4, 2010

Perhaps At Some Point The "Unexpected" Shouldn't Be Quite So

"Initial [U.S.] jobless applications increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week.... The number of people receiving unemployment insurance was little changed [at 4.6 million] and those receiving extended benefits increased [by about 242,000 to 5.86 million]."

∙ Initial Jobless Claims in U.S. Unexpectedly Climbed [Bloomberg]

Posted by socketadmin at 8:15 AM | Permalink | Comments (0) | (email story)

January 27, 2010

Will Our Sprinter Get A Second Wind?

Our headline for November’s existing U.S. home sales gain of 7.4 percent: A Sprinter's Or Marathoner's Pace? In December the pace of U.S. existing home sales fell 17 percent.

According to the National Association of Realtors, the decline "was the biggest since records began in 1968."

At the same time, the pace of new home sales in the U.S. (a leading indicator) declined 7.6 percent in December. "[F]or all of 2009, sales dropped 23 percent to 374,000, the lowest level since records began in 1963."

∙ A Sprinter's Or Marathoner's Pace? [SocketSite]
∙ Sales of U.S. New Homes Unexpectedly Fell in December [Bloomberg]

Posted by socketadmin at 9:00 AM | Permalink | Comments (1) | (email story)

January 26, 2010

166-178 Townsend Landmarking For Tax Breaks Deal In Trouble

Approved by the Planning Commission last September, an unpaid tax bill and added sixth floor has the City’s Budget Analyst recommending against the tax break for landmarking deal for Martin Building Company's development of 166-178 Townsend.

"The Budget analyst recommends disapproval of the requested Mills Act Historical Property contract to provide property tax reductions to the property owner because the property owner currently owes The City $105,126 in past-due delinquent property taxes for fiscal year 2005-06, FY 2008-09 and FY2009-10,” [Budget Analyst Harvey Rose] says in his report.

Not only that, but Rose said as the application [was] pending, the property owner increased the height of the project to add a sixth floor “such that The City’s estimated first year property tax losses from $170,961 to $185,599, an additional loss of $15,638, or 9. 1 percent,” the report says.

As proposed, the development will add 94 luxury rentals, 15,000 square feet of underground parking, and a ground floor restaurant space to the market.

∙ 178 Townsend Approved To Become Mixed-Use With 94 Rentals [SocketSite]
∙ Overdue taxes jeopardize historic property deal [San Francisco Examiner]

Posted by socketadmin at 6:00 AM | Permalink | Comments (2) | (email story)

January 20, 2010

FHA To Tighten Its Belt, But With Its Fly Wide Open?

As a plugged-in reader notes, the Federal Housing Administration is expected to announce a few changes with respect to standards, fees and rules for FHA-insured loans today.

Expected changes: 1. Minimum credit score of 580 (none prior); 2. Initial insurance premium of 2.25 percent of the loan (up from 1.75 percent); and 3. Maximum seller credit of 3 percent of the value of the home for closing costs (versus the current 6).

As of December, the F.H.A. was insuring 5.8 million single-family residences that had a total loan balance of $750 billion. More than half a million of the loans were seriously delinquent and heading toward foreclosure.

Many of these troubled loans were made in 2007 and 2008 as the market was plunging. Last fall, the agency said its cash reserves had tumbled to 0.5 percent of its loans outstanding, far below the 2 percent mandated by Congress.

Two years ago FHA insured mortgages accounted for less than 0.5 percent of all Bay Area home sales. This past November that number was over 26 percent.

∙ FHA Waives Prohibition To Aid Quick Foreclosure Flips [SocketSite]
∙ F.H.A. to Raise Standards for Mortgage Insurance [New York Times]
∙ OMG For The FHA [SocketSite]

Posted by socketadmin at 10:15 AM | Permalink | Comments (23) | (email story)

Making Lemonade (And History) With A Lemon of An Addition?

We’ll have to call it hearsay, and we can’t confirm, but a plugged-in reader offers one explanation for the seemingly semi-restored façade of 50 Carmelita:

Supposedly the plan was to remove the incredibly ugly retrofit garage (aka the giant box that ruins the facade) and restore the original front staircase leading up to the front door. But the planning department would not allow it, saying that the ugly box was historically protected, having been in place for more than 30 years or whatever.

Of course that’s only one side of the story and we're willing to listen if you have the other (perhaps related to the economics of removing a two-car garage in San Francisco).

UPDATE: And here's an other:

In order to change the outside "envelope" of the building by removing the garage the project would have to undergo a neighborhood review. By keeping the garage, the contractor was able to get away with pulling very limited permits.

Or simply in the words of a plugged-in Planning Department employee with respect to the original hearsay explanation, "this is not true." Cheers.

∙ Carmelita’s Way: A Renovated 50 Carmelita Returns [SocketSite]
∙ Damn That Planning Department To Hell! Oh, Wait A Minute… [SocketSite]

Posted by socketadmin at 9:15 AM | Permalink | Comments (16) | (email story)

December 15, 2009

Buy A BMR For $10K $25K More Than Bank-Owned At Candlestick Point

As we wrote in October:

The Mayor’s Office of Housing is helping to promote the resale of Candlestick Point (101 Crescent Way) Below Market Rate unit #2213. It’s two bedrooms, two baths, 1,063 square feet and asking $399,945 with purchase and resale restrictions.

If interested, you might also want to take a look at the bank owned Candlestick Point #2305. It’s two bedrooms, two baths, 1,063 square feet and asking $389,900. And it's without any restrictions – other than the free market – of course.

Today, the list price for 101 Crescent Way #2305 was reduced from $389,900 to $374,900. The BMR remains available at $399,945.

∙ Listing: 101 Crescent Way #2213 (2/2) 1,063 sqft - $399,945 [MLS]
∙ Listing: 101 Crescent Way #2305 (2/2) 1,063 sqft - $374,900 [MLS]
∙ Buy A BMR...For $10K More Than Bank-Owned At Candlestick Point [SocketSite]

Posted by socketadmin at 5:30 PM | Permalink | Comments (17) | (email story)

December 11, 2009

The Rapid Rise Of "Strategic" Defaults

Defined as those who stop paying their mortgages but remain current on all their non-real-estate debts, Experian and Oliver Wyman estimate nearly a third of all defaults in California were "strategic" in 2008 (up from 2 percent in 2004).

As the stigma of abandoning a mortgage wanes, the Obama administration could face an uphill battle in its effort to keep people in their homes by pressuring banks to cut their mortgage payments. Some analysts argue that's not always the right approach, particularly if it prevents people from shedding onerous debts and starting afresh.

"The effect of these programs is often to lead homeowners to make decisions that are not in their economic best interests," says Brent White, a law professor at the University of Arizona who has studied mortgage defaults.

No word on whether or not any of the bank owned units at Watermark might have fit the strategic default bill (or if others are in the works).

∙ American Dream 2: Default, Then Rent [Wall Street Journal]
∙ Rewarding Forgiving Their Riskiest Borrowers [SocketSite]
∙ Another Bank Owned Watermark Comp To Be: 501 Beale #6C [SocketSite]

Posted by socketadmin at 11:30 AM | Permalink | Comments (34) | (email story)

The House Picks Up Where The Senate Left Off

"...lawmakers defeated a mortgage “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court."

∙ Mortgage ‘Cram-Down’ Bankruptcy Amendment Fails in U.S. House [Bloomberg]
∙ JustQuotes: SocketSite Says...The Senate Gets One Right (So Far) [SocketSite]

Posted by socketadmin at 10:45 AM | Permalink | Comments (2) | (email story)

December 4, 2009

The Story (And Faces) Behind The Rise And Fall Of The Lembis

San Francisco Magazine digs deep to tell the story of the Lembis.

Their business plan was simple: Exploit the difference between artificially low, rent-controlled rents and the sky’s-the-limit, market-rate rents they could charge when the old tenants were out and new ones took their place.

This has been the motive behind many a buyout and eviction, legal or illegal, in San Francisco and in every other city with rent control.

For the Lembis, however, it was also a strategy that made their holdings more attractive to all that practically free short-term money—hundreds of millions of dollars—flowing in from around the globe.

The full story. And our quick three link chronology.

∙ War of values [San Francisco Magazine]
∙ Cash Flows Catch Up To The Lembi Group [SocketSite]
∙ The Chronicle Reports "Dozens," A Plugged-In Source Says Over 100 [SocketSite]
∙ CitiApartments Is No More! Well, Sort Of… [SocketSite]

Posted by socketadmin at 1:00 PM | Permalink | Comments (69) | (email story)

December 3, 2009

It's The Principal Of The Underwater Mortgage Matter

"We’re looking now at whether we should provide some further loss sharing for principal write downs," [FDIC Chairman Sheila] Bair said. "Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress."

∙ FDIC’s Bair Weighs Mortgage Principal Cuts to Fight Foreclosure [Bloomberg]

Posted by socketadmin at 1:45 PM | Permalink | Comments (15) | (email story)

November 30, 2009

An Emotional Bricks And Mortar Asset Allocation For The Wealthy

"Real estate investment among wealthy individuals [with more than $800,000 to invest] is set to rise to 30 percent of the average portfolio for the next few years from 28 percent now, according to [a Barclays global] survey. That excludes properties used as a principal residence. Most rich people, other than the extremely wealthy, should have no more than 10 percent of their assets in property, said [Mike Dicks, the London-based head of research at Barclays Wealth]."

"I was surprised how big a share of their wealth property represents," [said Dicks]. "It’s not what I would tell grandma. None of our data suggests that would be a good allocation."

∙ Wealthy Investors Plan to Buy More Real Estate, Barclays Says [Bloomberg]

Posted by socketadmin at 11:30 AM | Permalink | Comments (36) | (email story)

November 25, 2009

U.S. New Home Purchases Up, Median Price Falls

"Purchases of new homes in the U.S. rebounded more than anticipated in October [up 6.2 percent to an annual pace of 430,000] as buyers rushed to take advantage of a government tax credit before it expired...Home values may remain under pressure as builders are forced to compete with mounting foreclosures as unemployment climbs."

As we wrote on Monday, two things to consider: 1. the impact of home buyer tax credits that were originally slated to expire on November 20; and 2. the state of October 2008.

∙ Sales of New Houses in U.S. Climb to Highest Level Since 2008 [Bloomberg]
∙ One Of Thirty Underwater Properties New To The Market This Week [SocketSite]
∙ Animating The Unemployment Wave And Wondering About Its Impact [SocketSite]
∙ Pace Of U.S. Existing Home Purchases Up 23.5 Percent YOY [SocketSite]

Posted by socketadmin at 8:00 AM | Permalink | Comments (25) | (email story)

November 24, 2009

Animating The Unemployment Wave And Wondering About Its Impact

As the pace of existing home purchases in U.S. picks up and the latest Case-Shiller Index twenty-city composite ticks up, a plugged-in tipster points us in the direction of a rather sobering animation of the rising unemployment wave spreading across our country.

The questions: what’s really driving any real estate "rebound," is it sustainable, and what happens if it's not? Are we currently scooping up fish left floundering on the ocean floor by receding seas unaware of a wave that's soon to return?

∙ Pace Of U.S. Existing Home Purchases Up 23.5 Percent YOY [SocketSite]
∙ September Case-Shiller: Bottom Tiers Up But Flat At Top For SF MSA [SocketSite]
∙ The Decline: The Geography of a Recession [americanobserver.net]
∙ U.S. Unemployment At 10.2 Percent, Five Tenths Above San Francisco [SocketSite]
∙ San Francisco County Unemployment Up To 9.9 Percent In October [SocketSite]

Posted by socketadmin at 10:45 AM | Permalink | Comments (39) | (email story)

November 20, 2009

San Francisco County Unemployment Up To 9.9 Percent In October

Preliminary October labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 9.9%, 8.1% and 9.1% respectively, up 0.2 percentage points in San Francisco and up 0.1 percentage points in Marin and San Mateo.

While the number of unemployed in San Francisco increased by 700 (from 43,400 to 44,100) in October, the number of employed fell by 1,600 (from 403,700 to 402,100) as the labor force contracted by 1,000 (from 447,100 to 446,100).

Overall California unemployment increased by 0.3 percentage points to 12.3%.

∙ Monthly Labor Force Data for Counties: October 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment At 9.7 Percent In September [SocketSite]

Posted by socketadmin at 7:30 AM | Permalink | Comments (15) | (email story)

November 19, 2009

US (But Not DA) Prime And FHA Mortgage Defaults Climbing

While subprime adjustable-rate foreclosures starts dropped in the third quarter of 2009 (from 5.52 percent to 4.92 percent), both the number and pace of FHA backed and prime fixed-rate mortgage defaults climbed.

One out of every six FHA mortgages was late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979, the Mortgage Bankers Association said today. The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972.

The percentage of loans on which foreclosure actions were started was a record 1.42 percent. New foreclosures on prime fixed-rate loans increased to 0.71 percent from 0.67 percent, while FHA foreclosure starts rose to 1.31 percent from 1.15 percent.

From DataQuick today:

Federally-insured FHA loans, a popular choice among first-time buyers, made up 25.9 percent of all Bay Area purchase loans [in October]. That was up from 24.9 percent in September, 19 percent a year ago and less than 1 percent two years ago.

And while default rates are climbing, keep in mind money remains historically cheap:

The 30-year rate dropped to 4.83 percent from 4.91 percent, the lowest since May, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The average 15-year rate fell to 4.32 percent, the lowest since records began in 1991.

∙ FHA, Prime Mortgage Defaults at Records on Job Losses [Bloomberg]
∙ OMG For The FHA [SocketSite]
∙ U.S. Mortgage Rates Fall for Third Consecutive Week [Bloomberg]

Posted by socketadmin at 9:30 AM | Permalink | Comments (1) | (email story)

November 17, 2009

Plugged-In People Should Have Seen This One Coming A Year Away

"A report released Monday by the [San Francisco] controller's office shows that property tax revenues will likely be $35 million less than anticipated in the 2009-10 fiscal year that began July 1. Payroll tax revenues will probably be $24.8 million less than expected..."

∙ S.F. home value drop, jobless drain city budget [SocketSite]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 6:30 AM | Permalink | Comments (14) | (email story)

November 12, 2009

OMG For The FHA

"The Federal Housing Administration’s net capital ratio, or reserves after accounting for projected losses, fell to 0.53 percent in the year ended in September, from 3 percent in fiscal 2008 and 6.4 percent in 2007, according to an annual review sent today. While FHA said the fund “has good prospects,” it is changing its risk models to account for the possibility of the ratio falling below zero."

"[Housing and Urban Development Secretary Shaun Donovan] said the economy is worse than housing officials expected and projected claims against the insurance fund are higher than forecast. The fund is already below the 2 percent reserve threshold FHA is required to maintain by Congress."

∙ FHA Reserve Ratio Falls to 0.53%, Lowest in History [Bloomberg]

Posted by socketadmin at 9:15 AM | Permalink | Comments (6) | (email story)

Average Tax Assessed Reduction Request Is 40% For 2009/10

Perhaps our reader’s 25.7% drop in assessed value for 2009/10 was actually low. From the Chronicle:

Owners of more than 4,000 homes and commercial buildings [in San Francisco] have appealed to the city to have the assessed value of their properties lowered to reduce their taxes. There were 1,200 appeals last year and 300 the year before that.

The total value of those 4,000-plus properties is about $25 billion…[and] the average of the requested reductions is 40 percent, but they have yet to be settled.

We believe there were actually 1,673 appeals last year (versus the Chronicle’s reported 1,200), 810 of which were granted with an average reduction of 11.5%. Unfortunately we don’t have the average for what was requested last year for an early apples to apples comparison.

∙ A 25.7% Drop In Assessed Value For A Plugged-In Reader In 2009/10 [SocketSite]
∙ San Francisco union workers facing layoffs [SFGate]
∙ Average Granted Assessed Value Reduction In San Francisco: 11.5% [SocketSite]

Posted by socketadmin at 6:30 AM | Permalink | Comments (12) | (email story)

November 10, 2009

Coming Up Short On Apparent Appreciation In Bernal: 3661 Folsom

Purchased for $685,000 in 2005 (10% over asking at the time), it’s a plugged-in reader that notes the buyers of the single-family Bernal house put nothing down (there’s nothing like overbidding with other peoples’ money) and financed the investment with two variable rate loans.

Returning to the market eleven months ago with a newly remodeled interior and asking $875,000, the list price has since been reduced three times, most recently to $749,000 at the end of August as which point it became a hopeful short sale at $488 per square foot.

Which leads our reader to wonder, how could a home that’s listed for $64,000 (9%) over its purchase price possibly qualify as a short sale? And while we can’t say for certain in this case, the newly remodeled interior is probably a good guess. Negative amortization or a home ATM scenario could also be at play.

UPDATE: A plugged-in agent adds:

The seller was forced to put a substantial amount of money into the home because damage was done to its foundation by a major renovation of the house next door. I believe those expenses have helped make this a short sale.

∙ Listing: 3661 Folsom (3/2) - $749,000 [MLS]

Posted by socketadmin at 7:30 AM | Permalink | Comments (69) | (email story)

November 9, 2009

Speaking Of Million Dollar Foreclosures (And "Shadow Inventory")

Purchased for $1,212,000 with ten percent down and two variable rate loans in November of 2005, 773 Rhode Island returned to the market in March of 2007 seeking $1,395,000. It was taken back by the bank in September of 2008.

It's now fourteen months later and the Potrero Hill view property has finally made it back onto the MLS as official inventory asking $909,900 (25% under its 2005 sale).

∙ Listing: 773 Rhode Island (3/2) - $909,900 [MLS]

Posted by socketadmin at 9:00 AM | Permalink | Comments (25) | (email story)

November 5, 2009

Fannie Mae As The Largest Lender Landlord In All The Land?

Having taken back 57,000 properties through foreclosure in the first half of 2009, "bringing its total real-estate owned inventory to 63,000 properties valued at $6 billion," Fannie Mae is rolling out a "Deed for Lease Program" in the hopes of generating some cash from the non-performing assets and mitigating the near-term impact of so-called "shadow inventory" on the market.

The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don't qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments.

Borrowers who haven't missed any mortgage payments aren't eligible for the program, and the borrower's mortgage servicer would have to show that a borrower isn't eligible for a loan modification before the homeowner could apply for the Deed for Lease program.

Of course collecting rents from those who have already lost their homes to foreclosure might be a challenge. And while the tipster that first pointed out the story notes, "Good news for RE investors like me, that's fo' shore!", we’d argue it's the opposite.

∙ Fannie Mae to Rent Foreclosed Homes Back to Borrowers [WSJ]

Posted by socketadmin at 8:15 AM | Permalink | Comments (24) | (email story)

November 4, 2009

Senate Approves First-Time (And Move-Up) Homebuyer Tax Credits

The Senate has approved an extension of the $8,000 first-time homebuyers’ tax credit for homes under $800,000 through April 30; increased the income ceiling for eligibility to $125,000 for individuals and $225,000 for couples; and introduced a new $6,500 credit for existing homeowners that have lived in their current homes for at least five years and now want to "move up." It’s on to the House for a vote.

UPDATE (11/5): The House approved the legislation by a vote of 403-12. It's on to Obama to sign.

UPDATE (10/6): President Obama has signed.

Posted by socketadmin at 4:30 PM | Permalink | Comments (17) | (email story)

November 3, 2009

Medians Are Up, But Don’t Confuse That With Increasing "Prices"

SFGate recently ran a bit called "Is the bubble back?" highlighting a "creeping" median sales price from August to September in San Francisco as evidence of increasing prices and a real estate "comeback."

Ignoring the fact that the featured RE Report summary data for August doesn’t tie to their own District level data (288 "Home" and 207 "Condo" sales according to their summary versus 202 and 188 sales respectively when we sum their District data), perhaps a basic understanding of what’s driving the change in median sales price is in order.

Repeating the down and dirty analysis we outlined a year ago, if we rank order average District medians in August and September from low-cost to high-cost areas (considering condos and single-family homes as two distinct "Districts"), establish a median "District" or cutoff based on total transactions, and then compare the number of sales in Districts above and below said median we see a nominal 1% decrease in "low-cost" District sales versus a 10% increase in "high-cost" district sales.

Isolating single-family home and condo sales, we see a 23% decrease in "low-cost" district sales versus a 2% decrease in "high-cost" districts for single-family homes. And for condos it’s a 9% increase in "low-cost" districts versus a 22% increase in "high-cost" districts.

In other words, absent any change in underlying "prices," or even despite a decrease, the median sales price in San Francisco was bound to increase as the proportion (mix) of high-cost home sales increased.

And for the last time (we can dream), while median sales price isn’t a bad measure of what people are buying, using changes in median sales price as a proxy for market appreciation (or depreciation) is a lousy if not misleading measure when mix is changing as well.

∙ Is the bubble back? Median prices creeping up in San Francisco [SFGate]
∙ SocketSite's San Francisco Listed Housing Inventory Update: 8/05/08 [SocketSite]

Posted by socketadmin at 3:15 PM | Permalink | Comments (32) | (email story)

October 30, 2009

One More Year! For Super Conforming Limits Assuming Obama Signs

As far as we know President Obama has yet to sign the bill, but congress has passed an extension of the $729,750 "super conforming" loan limit for high cost areas through the end of 2010. Considering the extension was attached to legislation without which most federal agencies will have to shut down by midnight tomorrow, we’re guessing it’s signed.

∙ Congress Passes Stopgap Funding Plan, Higher Mortgage Limits [Bloomberg]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]

Posted by socketadmin at 3:00 PM | Permalink | Comments (16) | (email story)

October 26, 2009

Whether Or Not Credits Moved The SF Market, Phase Out Hits Home

∙ A House Response To Rising Unemployment (And Lobbyists) [SocketSite]
∙ Nelson Says Senate to Extend, Reduce Homebuyer Credit [Bloomberg]
∙ U.S. Stocks Retreat on Concern Housing Tax Credit to Phase Out [Bloomberg]

Posted by socketadmin at 1:00 PM | Permalink | Comments (21) | (email story)

October 21, 2009

Take Two To Stimulate New-Home Purchases In California

"Last week, the California Senate passed a bill 35-1 that would provide $30 million in tax credits to about 4,000 additional new-home purchases [up to $10,000 a piece]. The bill now moves to the Assembly floor, which could take it up as early as Monday."

∙ New-home buyers' tax credit may return, briefly [SFGate]

Posted by socketadmin at 2:30 PM | Permalink | Comments (4) | (email story)

October 16, 2009

Lending Standard Changes On The Way Or In The Works

The Mark Company provides a nice overview of lending standard changes in the works or on the way for Fannie Mae and FHA in general, and a few local lenders in specific, including a reminder that the "jumbo conforming" limit of $729,750 is once again set to expire at the end of this year (at which time it would return to $625,500).

∙ TMC Lender Update – Q4 2009 (pdf) [themarkcompany.com]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]

Posted by socketadmin at 11:00 AM | Permalink | Comments (17) | (email story)

October 14, 2009

Party Like It’s 1999: Dow Crosses 10,000 For The First Time In A Year

While unemployment in San Francisco crossed the ten mark in August (10.1%), today the Dow crossed its ten mark (10,000) for the first time in a year. And which it first did in 1999.

∙ San Francisco County Unemployment Up To 10.1 Percent In August [SocketSite]

Posted by socketadmin at 11:50 AM | Permalink | Comments (15) | (email story)

October 8, 2009

A House Response To Rising Unemployment (And Lobbyists)

“There’s under consideration whether we extend the first-time homeowners’ credit,” Pelosi, a California Democrat, told reporters today in Washington. “And the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?”

∙ House to Consider Extending Home-Buyer Tax Credit [Bloomberg]
∙ $15,000 Homebuyer Tax Credit Cut, Conforming Loan Limits Restored [SocketSite]

Posted by socketadmin at 12:00 PM | Permalink | Comments (23) | (email story)

October 2, 2009

We Have A 310 Townsend (#303) In Progress

Originally asking $957,000 through the sales office in 2007, 310 Townsend #303 ended up selling for $850,000 in November of that year (a discount of 11.2%). Back on the market today after a two year hold and asking $785,000 (7.6% below it purchase price, 18% under the developer’s original list).

Let’s call it an effective rent of around $4,000 per month for the one-bedroom plus den condo over the past two years not accounting for transaction costs or any capital loss (assuming a sale at asking). Call it closer to $9,200 per month if you do.

∙ Listing: 310 Townsend #303 (1/1) 1,136 sqft - $785,000 [MLS]
∙ 310 Townsend: Available And Selling [SocketSite]

Posted by socketadmin at 7:00 AM | Permalink | Comments (8) | (email story)

September 28, 2009

Record High Ratio Of Unemployed To Openings

At the end of 2001 US unemployed workers outnumbered job openings by a little over two to one, a ratio that climbed to almost three to one in 2003 but then fell to under two to one in 2004.

According to the New York Times and Bureau of Labor Statistics the ratio is currently six to one and climbing.

And while we don't have the ratio for San Francisco (tipsters?), San Francisco unemployment has reached double digits (10.1%) and a twenty-five year high.

∙ U.S. Job Seekers Exceed Openings by Record Ratio [NYT]
∙ San Francisco County Unemployment Up To 10.1 Percent In August [SocketSite]

Posted by socketadmin at 6:10 AM | Permalink | Comments (5) | (email story)

September 25, 2009

U.S. New Home Sales Climb On Discounts And Foreclosures

“Sales of new U.S. homes climbed in August to the highest level in almost a year as builders cut prices at a record pace to compete with the foreclosures that are flooding the market for previously owned houses.”

∙ New-Home Sales in U.S. Climb to Almost One-Year High [Bloomberg]

Posted by socketadmin at 8:15 AM | Permalink | Comments (10) | (email story)

September 21, 2009

San Francisco County Unemployment Up To 10.1 Percent In August

Preliminary August labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 10.1%, 8.3% and 9.2% respectively, up 0.2 percentage points in San Francisco and San Mateo and up 0.1 percentage points in Marin from June.

The 10.1% unemployment rate for San Francisco represents a new 25 year high.

The number of unemployed in San Francisco increased by 800 from 44,800 to 45,600 in August while the number of employed decreased by 3,000 (from 409,300 to 406,300) as the labor force decreased by 2,100 (from 454,100 to 452,000).

Overall California unemployment held steady at 12.1% percent in July.

∙ Monthly Labor Force Data for Counties: August 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment Up To 9.9 Percent In July [SocketSite]

Posted by socketadmin at 5:00 AM | Permalink | Comments (36) | (email story)

September 9, 2009

How A Mere Ten Percent Drop Becomes A Hundred Plus Percent Loss

From Bloomberg's story about a spike in "wealthy individuals’" bankruptcy filings related to real estate:

“Real estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.

And then there's that oft touted leverage. Oh, and if we’re not mistaken the image that accompanies Bloomberg’s story looks rather local and familiar.

∙ Wealthy Families Face Bankruptcy on Real Estate Crash [Bloomberg]

Posted by socketadmin at 8:45 AM | Permalink | Comments (8) | (email story)

September 4, 2009

U.S. Unemployment At 9.7 Percent, Two Tenths Below San Francisco

"The pace of U.S. job losses slowed in August as signs emerged that the recession is ending, while the unemployment rate reached a 26-year high [9.7%]....A rising jobless rate, stagnant wages and falling home values signal a lack of consumer spending may curb an economic recovery."

∙ U.S. Payroll Losses Slow, Unemployment Rises to 9.7% [Bloomberg]
∙ San Francisco County Unemployment Up To 9.9 Percent In July [SocketSite]

Posted by socketadmin at 8:15 AM | Permalink | Comments (10) | (email story)

August 21, 2009

San Francisco County Unemployment Up To 9.9 Percent In July

Preliminary July labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 9.9%, 8.2% and 9.0% respectively, up 0.1 percentage points for San Francisco and San Mateo and up 0.2 percentage points in Marin from June.

The 9.9% unemployment rate for San Francisco represents a new 25 year high.

The number of unemployed in San Francisco increased by 700 from 44,100 to 44,800 in July while the number of employed increased by 3,500 (from 405,800 to 409,300) as the labor force increased by 4,200 (from 449,900 to 454,100).

According to the State of California versus the Labor Department, overall California unemployment has broken through the 12 percent mark (12.1% percent in July).

∙ Monthly Labor Force Data for Counties: July 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment Jumps To 9.8 Percent In June [SocketSite]
∙ It’s Funny What Happens When People Are Forced To Sell, They Do [SocketSite]

Posted by socketadmin at 9:45 AM | Permalink | Comments (8) | (email story)

August 10, 2009

Will It Or Won't It, You Make The Call On A Commercial Backed Crisis

"Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital Inc., the investment-banking division of London-based Barclays Plc. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”"

∙ Fed Focusing on Real-Estate Recession as Bernanke Convenes FOMC [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (8) | (email story)

August 7, 2009

It's Not Often A 9.4 Percent Jobless Rate In The U.S. Is Bullish News

U.S. payrolls fell by 247,000 in July versus a 443,000 loss in June, and the jobless rate dropped from 9.5% to 9.4% as the labor force contracted. July labor force counts for San Francisco will be out in a week with June at 9.8% unemployed.

∙ San Francisco County Unemployment Jumps To 9.8 Percent In June [SocketSite]

Posted by socketadmin at 8:30 AM | Permalink | Comments (15) | (email story)

August 4, 2009

U.S. Pending Home Resales Up, U.S. Personal Incomes Down

Pending sales of existing U.S. homes are up while personal incomes are down. As previously outlined, locally a lot will likely come down to (un)employment.

∙ Pending Sales of Existing Homes in U.S. Surge 3.6% [Bloomberg]
∙ U.S. Incomes Fall 1.3%, Biggest Drop in Four Years [Bloomberg]
∙ San Francisco County Unemployment Jumps To 9.8 Percent In June [SocketSite]

Posted by socketadmin at 11:30 AM | Permalink | Comments (4) | (email story)

July 29, 2009

Beige Book Results: Real Estate and Construction Remain Weak

The Real Estate and Construction summary from the latest Federal Reserve regional business survey (a.k.a. The Beige Book) for the twelfth district ("San Francisco"):

Conditions in District housing markets remained very weak but showed further signs of improvement, while demand for commercial real estate continued to erode. Sales prices for new and existing homes fell further in most parts of the District, and home construction activity remained at very low levels. Combined with low mortgage rates, however, price declines have propelled a sustained pickup in the pace of home sales in many areas.

Demand for commercial real estate fell further, and with rising vacancy rates, tenants have successfully been requesting rent concessions and other new terms on existing leases. Construction activity for commercial properties also continued to fall, and contacts noted that a lack of available credit remained a constraint for construction activity and investment transactions in some areas.

To summarize the summary, residential sales volume is up on falling prices and commercial is getting squeezed. Nothing that should catch a plugged-in person by surprise.

∙ Federal Reserve: Beige Book Twelfth District Summary (7/29/09) [federalreserve.gov]

Posted by socketadmin at 12:30 PM | Permalink | Comments (26) | (email story)

July 17, 2009

San Francisco County Unemployment Jumps To 9.8 Percent In June

Preliminary June labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 9.8%, 8.0% and 8.9% respectively, up 0.7 percentage points for San Francisco and up 0.5 percentage points Marin and San Mateo in May.

The 9.8% unemployment rate for San Francisco in June represents a new 25 year high.

The number of unemployed in San Francisco increased by 3,300 from 40,800 to 44,100 in June while the number of employed fell by 1,300 (from 407,100 to 405,800) as the labor force increased by 1,900 (from 448,000 to 449,900), a net loss of 5,100 over the past three months.

∙ Monthly Labor Force Data for Counties: June 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment Up To 9.1 Percent In May '09 [SocketSite]

Posted by socketadmin at 10:00 AM | Permalink | Comments (21) | (email story)

July 16, 2009

California $10,000 Tax Credit Pool For New Home Buyers Closed July 3

With $58,355,593 of tax credits already allocated, $101,638,616 in credits claimed, and 1,505 applications in a back-up position, the California Franchise Tax Board has stopped accepting applications for $10,000 tax credits for new home buyers in California.

∙ California Tax Credit For New Home Buyers [ca.gov]

Posted by socketadmin at 11:30 AM | Permalink | Comments (2) | (email story)

San Francisco Real Estate Barometer: Three Negatives And A Neutral

According to San Francisco’s latest Economic Barometer, the average asking rent for one-bedrooms in the city fell 6.3% from April to May and is down 15.4% year-over-year while the commercial average asking lease rate has fallen 30.6% year-over-year.

The City’s five-year position for Median Home Sales Price (currently "neutral") and Commercial Average Asking Lease Rate (currently "negative"): "weak" on rising unemployment.

∙ San Francisco Monthly Economic Barometer - May 2009 [SFGov]
∙ San Francisco County Unemployment Up To 9.1 Percent In May '09 [SocketSite]

Posted by socketadmin at 10:00 AM | Permalink | Comments (13) | (email story)

July 14, 2009

When Arms Length Appraisals Are "Too Far" Away

"Major real estate groups are pushing for a moratorium on new appraisal standards that they say are scuttling sales, hampering refinancings and depressing prices at a time when the sector desperately needs a boost."

∙ Bill would suspend new home appraisal standards [SFGate]
∙ Loan Officers Forced To Play The Field Rather Than Pick Their Horse [SocketSite]
∙ Fannie And Freddie Forced Aim To Help Fix Appraisal Fraud [SocketSite]

Posted by socketadmin at 7:45 AM | Permalink | Comments (42) | (email story)

July 10, 2009

Note to Short Sellers (And Their Agents): Read The Fine Print

From the San Francisco Business Times:

The rising tide of “short sales” by troubled home owners facing foreclosure is prompting lenders to become more aggressive in their attempts to pursue former homeowners for their loan losses in a short sale. In a short sale, a house is sold, with a lender’s approval, for an amount that won’t pay off the mortgages on the property.

Often, the troubled home owner assumes the loss will be eaten by the lender. But Bank of America and Chase have quietly added language in their short-sale agreements that require the borrower to sign a promissory notefor the shortfall.

A spokesman for the American Bankers Association said this week that he wasn’t aware of the practice, suggesting how little attention has been paid so far to collection of these notes from troubled borrowers.

BofA says its intention is to protect investors holding the mortgages.

Damn those greedy lenders.

∙ Sellers owe balances after short sales [San Francisco Business Times]

Posted by socketadmin at 12:30 PM | Permalink | Comments (55) | (email story)

July 9, 2009

JustQuotes: Mortgage Rate Update

"The average 30-year rate dropped to 5.2 percent from 5.32 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today....The 15-year rate averaged 4.69 percent."

∙ U.S. Mortgage Rates Drop to 5.2%, Freddie Mac Says [Bloomberg]

Posted by socketadmin at 7:30 AM | Permalink | Comments (36) | (email story)

July 6, 2009

QuickLinks: Thank Goodness That Foreclosure Crisis Is Over…

∙ New Evidence on the Foreclosure Crisis [WSJ]
∙ Another wave of foreclosures is poised to strike [LA Times]
∙ A New All-Time High (Or Rather Low) For U.S. Prime Delinquencies [SocketSite]

Posted by socketadmin at 11:00 AM | Permalink | Comments (6) | (email story)

July 3, 2009

Full Taxation On Your Location? (The Great Proposition 13 Debate)

"No taxation without representation" was the catchy and quite effective battle cry back then. While today’s "Close The Loophole" by San Francisco Assessor-Recorder Phil Ting simply doesn’t have the same ring.

We’ve been saving the topic for this long weekend which seems especially well suited for a Proposition 13 discussion and debate. Bonus points for a better slogan.

∙ Phil Ting: Close The Loophole [philting.com]

Posted by socketadmin at 1:00 PM | Permalink | Comments (118) | (email story)

July 1, 2009

Fannie And Freddie Boost Their LTV Limits As The Waters Deepen

"Fannie Mae and Freddie Mac will begin refinancing mortgages with loan-to-value ratios of as much as 125 percent," up from the current 105 percent limit in a bid boost participation in anti-foreclosure programs.

But the basic question of whether or not a significant enough number of underwater borrowers will manage to qualify for said refinancing to slow the slide remains.

∙ Fannie, Freddie to Refinance Larger Underwater Loans [Bloomberg]

Posted by socketadmin at 1:45 PM | Permalink | Comments (18) | (email story)

June 30, 2009

A New All-Time High (Or Rather Low) For U.S. Prime Delinquencies

The delinquency rate for prime mortgages over 60 days behind continued to climb from 2.4% in the fourth quarter of 2008 to 2.9% through March 31, 2009 (up from 1.1% at the same point in 2008) as "first-time foreclosure filings on [prime] loans rose 22 percent from the fourth quarter."

The delinquency rate for prime mortgages in the U.S. has hit a new all-time high (or perhaps low). And overall, "mortgages 60 days or more past due rose 88 percent from last year." You know, when it was simply a subprime problem.

∙ U.S. Prime Delinquency Rate Doubles, Alt-A Approaches 10% [SocketSite]
∙ Delinquencies Double on Least-Risky Loans, U.S. Says [Bloomberg]

Posted by socketadmin at 11:00 AM | Permalink | Comments (13) | (email story)

June 29, 2009

Past Performance Recoveries Are No Guarantee Of Future Results

"The residential real estate market improved ahead of the end of the past seven contractions, with home construction starts beginning to climb an average of seven months before gross domestic product picked up and sales gaining about four months in advance, according to data compiled by David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California."

∙ Housing in Peril as Obama Fails to Get Financing Breakthrough [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (2) | (email story)

June 26, 2009

Will SWL 337 Or SWL 351 Meet The Same Fate As Transbay Block 8?

"With many developers predicting that highrise development of any sort won’t work economically [in San Francisco] for another five years, public agencies are struggling with a development model in which private builders pay for the right to develop valuable land and, in the process, bankroll public benefits like parks, roads and affordable housing."

∙ Real estate slump threatens projects [San Francisco Business Times]
∙ Transbay Block 8: No Deal Or Development In 2009 [SocketSite]
∙ San Francisco SWL 337 Proposal: Downsized And Drawn Out [SockeSite]
∙ Cosmic Development Karma For San Francisco's Seawall Lot 351? [SocketSite]

Posted by socketadmin at 5:45 AM | Permalink | Comments (3) | (email story)

June 23, 2009

QuickLinks: A Foreclosure Triptych

∙ Home Resales in U.S. Rise 2.4% in May to 4.77M Rate Amid Foreclosures [Bloomberg]
∙ U.S. Home Prices Drop 6.8 Percent in April as Foreclosures Rise [Bloomberg]
∙ Housing Eludes Recovery as Job Losses, Foreclosures Climb [Bloomberg]

Posted by socketadmin at 7:30 AM | Permalink | Comments (3) | (email story)

June 19, 2009

San Francisco County Unemployment Up To 9.1 Percent In May '09

Preliminary May labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 9.1%, 7.5% and 8.4% respectively, up 0.3 percentage points from April across the board.

The 9.1% unemploment rate for San Francisco in May represents a new 25 year high.

Extending the observations of a plugged-in reader last month, the number of unemployed in San Francisco increased by 1,000 from 39,800 to 40,800 in May while the number of employed fell by 5,800 (from 412,900 to 407,100) as the labor force fell by 4,800 (from 452,800 to 448,000), a loss of 7,000 over the past two months.

∙ Monthly Labor Force Data for Counties: May 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment Dips To 8.8 Percent In April '09 [SocketSite]

Posted by socketadmin at 11:00 AM | Permalink | Comments (44) | (email story)

June 11, 2009

Mortgage Rates Continue To Climb (And It's All The Russians' Fault)

The average 30-year U.S. mortgage rate bumped up 30 basis points over the past week to 5.59 percent, a 68 basis point jump over the past two weeks. Of course we're kidding about it being all the Russians' fault, but they do come into play.

∙ Mortgage Rates in U.S. Rise to Highest Since November [Bloomberg]
∙ A Six Month High For Mortgage Rates (But Still Historically Cheap) [SocketSite]
∙ BRICs Buy IMF Debt to Join Big Leagues, Goldman Says [Bloomberg]

Posted by socketadmin at 3:00 PM | Permalink | Comments (16) | (email story)

June 4, 2009

A Six Month High For Mortgage Rates (But Still Historically Cheap)

"Fixed U.S. mortgage rates jumped to the highest level this year, signaling the Federal Reserve’s plan to lower borrowing costs has stalled. The average 30-year rate rose to 5.29 from 4.91 percent a week earlier...The last time the rate was higher was Dec. 11, when it was 5.47 percent. The average 15-year rate rose to 4.79 percent from 4.53 percent."

∙ U.S. Mortgage Rates Jump to Highest Since December [Bloomberg]
∙ It's Like The Fed (And Taxpayers) Just Bought You A Couple Of Points [SocketSite]

Posted by socketadmin at 9:15 AM | Permalink | Comments (13) | (email story)

May 28, 2009

JustQuotes: While Buyers Don't Defaults Do (Move Up)

"The inventory of new and old [U.S. Mortgage] defaults rose to 3.85 percent, the MBA said today. Prime fixed-rate mortgages given to the most creditworthy borrowers accounted for the biggest share of new foreclosures at 29 percent, and prime adjustable-rate mortgages were 24 percent, [Jay Brinkmann, the MBA’s chief economist] said. It shows the mortgage problem has shifted from a subprime issue to a job-loss problem..."

∙ Mortgage Delinquencies, Foreclosures, 30-Year Rates Increase [Bloomberg]
∙ San Francisco County Unemployment Dips To 8.8 Percent In April '09 [SocketSite]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 8:15 AM | Permalink | Comments (24) | (email story)

May 22, 2009

San Francisco County Unemployment Dips To 8.8 Percent In April '09

Preliminary April labor force data counts for San Francisco, Marin and San Mateo counties puts the unemployment rate at 8.8%, 7.2% and 8.1% respectively, down 0.2 percentage points from March across the board.

The 9.0% unemploment rate for San Francisco in March represented a 25 year high.

UPDATE: A plugged-in reader adds:

There is an interesting detail on the SF numbers. The number of unemployed in SF fell by 1000 from 40,800 to 39,800. But the number of employed fell by 1300 from 414,200 to 412,900. And the number in the "labor force" fell by 2800, from 455,000 to 452,800.

Looks like a few thousand workers packed up and left SF last month. Re the housing market, easing unemployment would certainly be good, but a smaller workforce would not.

∙ Monthly Labor Force Data for Counties: April 2009 (Preliminary) [EDD]
∙ San Francisco County Unemployment Hits 9.0 Percent In March [SocketSite]

Posted by socketadmin at 12:00 PM | Permalink | Comments (15) | (email story)

May 15, 2009

QuickLinks: Signs Of Bay Area Economic Life (And Discounts)

∙ Bay Area economy shows signs of life [Business Times]
∙ Spike in San Francisco condo sales may signal comeback [Business Times]

Posted by socketadmin at 5:00 AM | Permalink | Comments (35) | (email story)

May 4, 2009

California Income Tax Revenue Drops 44% In April (Year-Over-Year)

"They just posted the [California Income Tax Tracker] results for April 30. For the full month of April, income tax receipts were $7.336B. For April 2008, the total was $12.995B. This is a 44% decline. The fiscal YTD is down 20%. I suspect that the April numbers reflect actual tax returns that show lower incomes and more refunds than April 2008. But it also must indicate that wages/incomes are dropping at an accelerating pace."

∙ California Personal Income Tax Daily Revenue Tracker [ca.gov]

Posted by socketadmin at 4:10 PM | Permalink | Comments (32) | (email story)

April 30, 2009

JustQuotes: SocketSite Says...The Senate Gets One Right (So Far)

"The U.S. Senate rejected legislation letting U.S. bankruptcy judges cut mortgage terms to help borrowers avoid foreclosure, a victory for banks and credit unions that said the measure would lead to higher loan costs."

∙ Senate Defeats Mortgage ‘Cram-Down’ as Democrats Balk [Bloomberg]

Posted by socketadmin at 2:00 PM | Permalink | Comments (47) | (email story)

April 17, 2009

San Francisco County Unemployment Hits 9.0 Percent In March 2009

The unemployment rate for San Francisco County has moved from 6.5% in December, to 8.0% in January, to 9.0% in March. The unemployment rate for the San Francisco MSA hit 8.5% in March (up from 7.5% in January) with Marin at 7.4% and San Mateo at 8.3%.

∙ Monthly Labor Force Data for Counties: March 2009 - Preliminary [EDD]
∙ Unemployment In The San Francisco MSA Ticks Up To 7.5% [SocketSite]

Posted by socketadmin at 10:30 AM | Permalink | Comments (88) | (email story)

April 8, 2009

Co-opting A Reader’s Comment: Our Commercial Market Decline

As a plugged-in reader commented and we’ve now co-opted, San Francisco’s commercial real estate market continues its decline. A few stats from Bloomberg:

San Francisco office rents dropped 24 percent in the first quarter from a year earlier, the biggest decline since the dot-com crash in 2001.

The office vacancy rate rose to 13.2 percent from 12.6 percent in the previous quarter and up from 10.2 percent a year earlier.

Almost half of the largest companies in the San Francisco Bay Area plan to cut staff in the next six months.

Not good. Unless, of course, you’re a renter looking to expand or renegotiate a lease.

∙ San Francisco Office Rents Fall Most Since 2001 [Bloomberg]
∙ Doesn't Everybody Want To Work Here? (Class A Rents Plunge) [SocketSite]

Posted by socketadmin at 1:30 PM | Permalink | Comments (6) | (email story)

Effective San Francisco MSA Residential Rents Lead U.S. Decline

Effective residential rents in large apartment buildings in the San Francisco MSA declined 2.8% in the first quarter of 2009, the sharpest recorded decline amongst the top 79 U.S. markets. New York recorded a 2.6% decline to take second place and San Jose a 2.5% drop to take third.

According to San Francisco Apartments Association Executive Director Janan New by way of the Examiner, "rents have dropped most in the Marina, Russian Hill and Telegraph Hill neighborhoods, and least in Mission and Inner Sunset."

As outlined in our 2009 residential real estate outlook in January, we expect to see rents in San Francisco continue to drop throughout 2009.

∙ Landlords See a Jump in Vacancy Rates Even as Rents Drop [WSJ]
∙ Bay Area rents fall more than any U.S. region [Examiner]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 9:00 AM | Permalink | Comments (60) | (email story)

A Non-Planning Related Shadow Study: Unaccounted For Foreclosures

Carolyn Said takes a stab a calculating the Bay Area's "shadow inventory" of foreclosure homes - propeties that have already been foreclosed upon but have not yet been registered in county records as having been resold.

For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for.

The county with the highest percentage of unaccounted for foreclosures? According to the Chronicle that would be San Francisco with 50.2% unsold versus an average of 34.5% for the Bay Area as a whole.

UPDATE: As noted, according to the Chronicle’s analysis 50.2% of properties that have been foreclosed upon in San Francisco from January of 2007 through February of 2009 remain unsold and constitute "shadow inventory."

Based on our back of the envelope calculations, roughly 750 properties in San Francisco County became bank owned during that 26 month stretch. And as such, the Chronicle’s methodology would suggest around 375 bank owned units are unaccounted for.

At least 69 of those bank owned properties, however, are accounted for and currently listed for sale in San Francisco. And while 69 is not 375, it is a swing of roughly nine percentage points in terms of the percentage San Francisco foreclosure inventory that's out in the open versus possibly lurking behind. No update for the Bay Area as a whole.

∙ Banks aren't reselling many foreclosed homes [SocketSite]

Posted by socketadmin at 7:30 AM | Permalink | Comments (39) | (email story)

April 1, 2009

A Plugged-In Perspective On The Local Economics Of Medicine

A plugged-in reader’s perspective on the local economics of medicine:

I wanted to comment on the economic decline and which groups are affected. Some sources talk about the medical field being unaffected, but this just isn't true. I'm finishing my specialty training in 2 months, and I can tell you that all of the specialty fellows, GI, Cardiology, Nephrology, Pulmonary, etc. are having trouble finding jobs.

The graduating residents are running into the same thing. The larger employers, like the University of California system and Kaiser, have implemented hiring freezes in a lot of their departments. This applies to support staff as well (nurses, resp therapists, etc), not just MD's. The smaller private groups seem to be doing the same, just not announced "official" freezes. A lot of the older docs are also not retiring to make up for all the money they've lost recently in their 401k's. This increased physician "supply" is also dampening the overall salaries as well.

The relevancy to local real estate? Earnings, wealth and perception. Okay, and a chance to get our Case-Shiller discussion back on track.

∙ January S&P/Case-Shiller: San Francisco MSA Decline Accelerates [SocketSite]
∙ JustQuotes: FIFO Not LIFO For The San Francisco Economy? [SocketSite]

Posted by socketadmin at 10:45 AM | Permalink | Comments (124) | (email story)

JustQuotes: FIFO Not LIFO For The San Francisco Economy?

"[San Francisco] continues to struggle through an economic recession that has gutted revenue from property taxes and other sources. [Mayor Gavin] Newsom said that property tax revenues, which had been climbing 11 percent every year, are now growing only about 1 percent year over year and economic forecasters said they don't anticipate that revenue will improve significantly any time soon. San Francisco was late to be hit by the recession, and may be late to recover from it, the report noted."

∙ Report: S.F. deficit $750 million in 2011 [SFGate]

Posted by socketadmin at 7:30 AM | Permalink | Comments (36) | (email story)

March 27, 2009

The Dow Continues To Move (While 2170 Pacific Still Hasn’t)

It’s at least the fourth time a listing for 2170 Pacific Avenue has touted "On Tour as New" and "1st OPEN!" Now asking $2,995,000 with an official one day on the market according to those industry stats.

Purchased on 5/27/2004 for $2,350,000. Once again, closing price for the Dow Jones Industrial Average on that day: 9,958. On October 10, 2008 when last listed at $3,250,000: 8,174. And currently: 7,787.

∙ Listing: 2170 Pacific Avenue (3/3.5) - $2,995,000 [MLS]
∙ At Least Some Of The Photos Look To Be "New" As Well: 2170 Pacific [SocketSite]
∙ It's Deja Vu (But Not DJIA) All Over Again: 2170 Pacific Avenue Edition [SocketSite]

Posted by socketadmin at 10:30 AM | Permalink | Comments (15) | (email story)

March 19, 2009

QuickLinks: The Fed Covers The B-52’s (Legal Tender)

∙ ‘Rambo Fed’ Will Buy Treasuries to Combat Crisis [Bloomberg]
∙ Mortgage Rates May Fall to Lowest Since WWII on Fed Purchases [Bloomberg]
∙ Dollar Rally Crumbles as Fed Ramps Up Printing Press [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (31) | (email story)

March 18, 2009

From Coming Soon To On The Market To Up For Rent: 1391 Clayton

On the market last October asking $2,795,000 and then relisted in January for $100,000 less, 1391 Clayton has hit Craigslist as a rental asking $7,500 per month. We’ll let you run your own numbers, but be sure to show your work if you do.

∙ Listing: 1391 Clayton (4/4.5) - $2,695,000 [MLS]
∙ $7500 / 4br - New Modern View Home [Craigslist]
∙ From Coming Soon To On The Market And A Peek Inside: 1391 Clayton [SocketSite]
∙ To Rent Or To Buy, That Is The Question (That Only You Can Answer) [SocketSite]

Posted by socketadmin at 9:00 AM | Permalink | Comments (11) | (email story)

March 6, 2009

U.S. Unemployment Joins San Francisco County In The 8% Club

While the preliminary unemployment rate in San Francisco County hit the 8.0% mark in January, in February it hit 8.1% nationally. From Bloomberg:

The U.S. unemployment rate jumped in February to 8.1 percent, the highest level in more than a quarter century, a surge likely to send more Americans into bankruptcy and force further cutbacks in consumer spending.

Employers eliminated 651,000 jobs last month, the Labor Department said today in Washington. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since the data began in 1939.

Do not underestimate the impact of unemployment on real estate, the brunt of which we believe has yet to be seen.

∙ U.S. Economy: Unemployment in U.S. Surged to 8.1% in February [Bloomberg]
∙ Unemployment In The San Francisco MSA Ticks Up To 7.5% [Socketsite]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 9:45 AM | Permalink | Comments (5) | (email story)

March 5, 2009

Unemployment In The San Francisco MSA Ticks Up To 7.5%

From the Chronicle:

California officials say unemployment rates in the Bay Area jumped in January, reaching 9.4 percent in the San Jose area, 9.2 percent in the East Bay and 7.5 percent in San Francisco and vicinity.

The San Francisco metropolitan area, which includes Marin and San Mateo counties, experienced the mildest rise from December's 6.2 percent, and still has one of the lowest rates in the state.

And in related national news: Mortgage Delinquencies Rise to Record on Job Losses.

UPDATE: County level detail from a plugged-in reader:

Note that SF's unemployment rate is 8.0% (up from 6.5% in December) according to today's release. Marin and San Mateo counties' rates are lower, bring the MSA rate down. So we're "less bad" than the rest of the state, but that is a huge one-month leap.

∙ Bay Area unemployment jumps higher [SFGate]
∙ Mortgage Delinquencies Rise to Record on Job Losses [Bloomberg]

Posted by socketadmin at 12:45 PM | Permalink | Comments (22) | (email story)

March 4, 2009

Beige Book Results: Economic Conditions Continue To Deteriorate

From the latest Federal Reserve regional business survey (a.k.a. The Beige Book):

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies "remained weak." The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.

As we wrote in April of 2008 when the Twelfth District ("San Francisco") was showing weakness: what does economic activity have to do with real estate? We'll just pretend you didn't ask that question (if for some strange reason you did).

∙ Federal Reserve Bank: Beige Book Summary (March 4, 2009) [federalreserve.gov]
∙ Beige Book Results For The Twelfth District (San Francisco): Flat [SocketSite]

Posted by socketadmin at 12:00 PM | Permalink | Comments (8) | (email story)

March 3, 2009

Note To Daly (And Others): Let The Market Take Care Of Itself

From the City Insider:

Supervisor Chris Daly plans to introduce a series of new laws that's intended to help renters during these tough economic times -- a proposal that is likely to anger landlords.

The proposals include the suspension of any rent increases that would cause a tenant's rent to exceed one-third of their income; expansion of the rights of tenants who want to add roommates to help pay their rent; and limiting the amount of "banked" rent increases -- where annual rent increases allowed under city laws are saved up and then imposed at one time -- to 8 percent.

Our note to Daly (and others): stop introducing externalities and let the market take care of itself. If you let it, it will.

∙ Help for SF renters could be on the way [SFGate]
∙ San Francisco Rental Market Weakness: SocketSite Readers Report [SocketSite]

Posted by socketadmin at 3:15 PM | Permalink | Comments (57) | (email story)

U.S. Pending Home Resales Drop 7.7% In January, December Revised

The National Association of Realtors reports a 7.7% January drop in U.S. pending home resales and has revised their originally reported 6.3% gain in December down to 4.8%.

"There are just too many headwinds for homebuyers -- tight credit, mounting job losses and fears of further price declines," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "The housing market is showing no sign of a bottom. This could be the story for the first half of this year."

Sounds familiar. That being said, pending sales increased 2.4% in January for the West but driven by the sale of bank owned homes.

∙ Pending U.S. Home Resales Slump More Than Forecast [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (20) | (email story)

March 2, 2009

Buffet Calls Shenanigans Shambles (And The Dow Dips Below 7,000)

The Dow Jones Industrial Average has fallen below 7,000 for the first time since 1997 and Warren Buffet has eloquently predicted our economy will remain in "shambles" throughout 2009 (and "probably well beyond"). Now about our outlook...

∙ Buffett Says Economy ‘In Shambles,’ Promises Best Days Ahead [Bloomberg]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 7:30 AM | Permalink | Comments (37) | (email story)

February 27, 2009

Downward Revisions: They're Not Just For NAR These Days

"[U.S. GDP] contracted at a 6.2 percent annual pace from October through December, more than economists anticipated and the most since 1982, according to revised figures from the Commerce Department today in Washington. Consumer spending, which comprises about 70 percent of the economy, declined at the fastest pace in almost three decades."

∙ U.S. Economy Shrank 6.2% Last Quarter, Most Since ’82 [Bloomberg]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]

Posted by socketadmin at 5:45 AM | Permalink | Comments (13) | (email story)

February 26, 2009

The Bay Area "Jumbo Conforming" Foreclosure Bailout Amendment

"I've drafted an amendment [to President Obama's housing rescue plan] so that rather than being limited to whether the loan was conforming at time of origination, it will be based on (whether it's conforming at) the time of (modification), which will take the limit up to $729,750 in high-cost areas. This should make more people in the Bay Area eligible."

∙ Speier plan would aid refinancing in Bay Area [SFGate]
∙ The Bailouts Are Coming But Is The Bay Area Dying On The Vine? [SocketSite]

Posted by socketadmin at 5:40 AM | Permalink | Comments (59) | (email story)

February 18, 2009

The Bailouts Are Coming But Is The Bay Area Dying On The Vine?

The $787 billion Stimulus bill (including the restoration of higher conforming loan limits and the inclusion of a modified homebuyer tax credit) has been signed. The President is rolling out a $75 billion plan in an attempt to stem foreclosures. And GM is looking for another $16.6 billion to keep it afloat.

Through the eyes of one plugged-in Bay Area banker:

What I see as a banker really scares me. We are working with several exceptional technology companies (based in the valley of course) with excellent, cutting edge products that are very profitable. Many of them are running on fumes in terms of cash, and need money to invest in sales engineers, inventory, and development and test equipment (i.e. fund their growth). Us bankers are finding it nearly IMPOSSIBLE to find them even a small, conservative amount of financing they need to achieve their growth goals (including hiring [actual] employees at ~$100K/year). It is unprecedented. I'm talking about potential category leaders with a global market that runs into the billions who cannot get a few million dollars to fund some necessary investments. And yet there is somehow $800 billion dollars about to be pumped into propping up housing, backing bad debt, bailing out xyz, etc. Yet, the very engines that provided so much of the valley and American wealth are literally dying on the vine now.

It is a sad state of affairs and it has really [been] hitting home for me that the true engines of our economy are dying in front of us, yet all the media and politicians ever talk about is bailing out legacy auto companies that lost to Asia long ago and bad mortgages. Doesn't anyone remember how beneficial science, technology, innovation, and investment in advanced research and product development brought us so much wealth in the first place? Have we all given up on learning real skills and doing real work? (And before I get ripped for being a banker, I was an engineer and computer scientist who did primary research earlier in my career - paid my dues there.) This is a clear sign to me that both the Bay Area and the US in general is clearly in a great decline... How depressing.

Food for thought, ideas for debate, and if nothing else a framework to discuss the bailout dollars allocated to date.

∙ $15,000 Homebuyer Tax Credit Cut, Conforming Loan Limits Restored [SocketSite]
∙ Obama Sets $75 Billion Plan to Stem U.S. Foreclosures [Bloomberg]
∙ GM Seeks as Much as $16.6 Billion in New U.S. Aid [Bloomberg]
∙ SocketSite's San Francisco Listed Housing Update: 2/17/09 [SocketSite]

Posted by socketadmin at 8:00 AM | Permalink | Comments (38) | (email story)

February 17, 2009

SocketSite's San Francisco Listed Housing Update: 2/17/09

Inventory of Active listed single-family homes, condos, and TICs in San Francisco rose 13% over the past two weeks (versus an average of 1.7% for the same two weeks over the previous three years) and is now running 29.5% higher on a year-over-year basis (up 14.3% for single-family homes and 40.5% for condos/TICs).

Overall listed inventory is up 83% versus February of 2006 while listed sales have continued to trend down (a 49% drop in January versus 2006). Keep in mind that "listed" (or MLS based) inventory counts do not include the vast majority of units in new developments about town and neither do "listed" sales.

The standard SocketSite Listed Inventory footnote: Keep in mind that our listed inventory count does not include listings in any stage of contract (even those which are simply contingent) nor does it include listings for multi-family properties (unless the units are individually listed).

∙ SocketSite's San Francisco Listed Housing Update: 2/02/09 [SocketSite]
∙ Early January Listed Sales Results For San Francisco: Down 34% [SocketSite]

Posted by socketadmin at 10:30 AM | Permalink | Comments (81) | (email story)

February 11, 2009

Fannie Seeks To Stoke Demand By Increasing Limits For Investors

From Bloomberg:

Fannie Mae, the mortgage-finance company under U.S. government control, will no longer bar real- estate investors from qualifying for its loans if they already own four properties as it seeks to increase housing demand.

The company will expand its limit for investor and second- home loans to as many as 10 properties per borrower, according to a Feb. 6 notice to lenders on Washington-based Fannie’s Web site.

According to the new guidelines the borrower cannot have any history of bankruptcy or foreclosure within the past seven years, cannot have any delinquencies (30-day or greater) within the past 12 months on any mortgage loans, and must have a six month reserve (two months for some second homes).

Also nice to note, maximum loan to value ratios of 75% for one unit properties and 70% for multi-unit purchases.

∙ Fannie to Expand Mortgage Rules for Realty Investors [Bloomberg]
∙ Updates to Multiple Mortgages to the Same Borrower Policy (pdf) [Fannie Mae]

Posted by socketadmin at 1:45 PM | Permalink | Comments (16) | (email story)

February 6, 2009

Office Space For Sublease And Unemployment Up In San Francisco

From J.K. Dineen at the San Francisco Business Times with respect to office space:

San Francisco tenants unloaded another 250,000 square feet of unwanted office space onto the market in January, as employers slashed workers and pushed to generate sorely needed cash by subleasing floors in Class A downtown towers.

Companies adding to the avalanche of available sublease space include Charles Schwab, which said Jan. 30 that it would cut 500 to 600 jobs in the first quarter. Schwab is seeking a subtenant for 80,000 square feet at the 1 Montgomery Tower. Also in that building, Thomas Weisel Partners Group is looking to sublease 20,000 square feet on the 35th floor, billed as a “high-end build out with panoramic views.” Other chunks of sublease space coming available include 15,639 square feet of brand-new space at the just completed 555 Mission St. being subleased for $48 a square foot by law firm DLA Piper, and the entire 22nd floor of 345 California St., former UBS space that Cushman & Wakefield is looking to lease for five years at a rock-bottom $27 a square foot.

And with respect to San Francisco unemployment:

The number of unemployed San Francisco residents grew by 10,300 in the fourth quarter of 2008 to 29,500, according to Ted Egan, chief economist for the City of San Francisco. In spite of the fourth-quarter increase, Egan pointed out that the 10,000 jobs eliminated during the final three months of 2008 came in dribs and drabs rather than the sort of en masse layoffs announced in recent days by Charles Schwab and Macy’s, which announced 1,400 San Francisco layoffs on Feb. 1. A loss of 2 million square feet of occupied space equals about 10,000 workers.

“Now we are starting to see major layoffs from major employers,” said Egan. “This is the sign of the recession coming to San Francisco.”

∙ Quarter-million square feet added to S.F. sublease glut [Business Times]
∙ Jones Lang LaSalle Office Outlook For San Francisco And The Valley [SocketSite]
∙ A Virtual Tour Of 555 Mission Street (And Downtown San Francisco) [SocketSite]

Posted by socketadmin at 7:15 AM | Permalink | Comments (1) | (email story)

The Good News: Stock Futures Rise. The Bad News: The Reason Why.

The good news, U.S. stock futures rose last night. The bad news, the reason why:

U.S. stock-index futures advanced on speculation a government report showing the highest unemployment rate since 1992 will force Congress to pass an economic stimulus package.

∙ U.S. Stock Futures Rise on Optimism Jobs Data to Spur Stimulus [Bloomberg]
∙ U.S. Jobless Rate Soars as Payrolls Plunge by 598,000 [Bloomberg]

Posted by socketadmin at 6:45 AM | Permalink | Comments (7) | (email story)

February 5, 2009

JustQuotes: A Safe Place To Discuss And Debate Mortgage Rates

"The average U.S. rate on a 30-year fixed mortgage rose this week, thwarting Federal Reserve efforts to cut borrowing costs, on investor concern the government will increase spending. The fixed rate increased to 5.25 percent from 5.10 percent last week...The 15-year fixed rate jumped to 4.92 percent from 4.8 percent."

∙ Fixed Mortgage Rate Rises to 5.25%, Freddie Mac Says [Bloomberg]

Posted by socketadmin at 12:00 PM | Permalink | Comments (28) | (email story)

Proposed $15,000 Homebuyer Tax Credit Clears The U.S. Senate

A homebuyer tax credit of up to $15,000 has passed in the U.S. Senate. Unlike the current $7,500 tax credit for first-time buyers, as proposed this credit would be available to all buyers of primary residences and would not need to be repaid. Not unlike efforts to lower rates, if eventually signed into law it will be a nice bonus to buyers but we see it having little direct effect on boosting new demand (or prices) in San Francisco.

Posted by socketadmin at 8:30 AM | Permalink | Comments (23) | (email story)

January 27, 2009

SocketSite’s Residential Real Estate Outlook For 2009

We currently see across the board weakness in San Francisco’s residential real estate market throughout 2009 as economic woes compound the impact of tighter credit markets and a shift in market psychology.

Downturns in residential real estate have traditionally been triggered by a downturn in either the local or national economy. The reality which we’ve foreshadowed for quite some time is that the majority of the current market weakness in San Francisco, the Bay Area, and beyond has been driven by a contraction in the credit markets (the deflation of a credit bubble) and a recent shift in market psychology (the deflation of a speculative bubble). The real impact of a weakening economy is yet to come.

With an economy that generally lags the financial markets by nine to twelve months, the full brunt of October’s melt-down won’t be felt for at least another six months. And we expect to see continued weakness in both consumer and corporate spending over at least the next couple of quarters which will further depress corporate earnings and likely lead to additional layoffs and stoke the real real estate killer, unemployment.

With no discernable recovery in sight, we expect the financial market’s destruction of wealth both real (investments) and potential (options) to continue to drag down the San Francisco residential market throughout 2009, and to weigh particularly heavy on the luxury market.

Historically low interest rates will continue to benefit those who buy, but we don’t see rates alone significantly driving demand in San Francisco, or at least not offsetting the decrease in demand due to stricter lending standards and the loss in wealth. And the supply and absorption of new inventory will continue to put downward pressure on housing throughout the city, and not just District 9 as a limited number of active buyers are drawn from other parts of the city by unemotional (well, for the most part...) developer price cuts.

We believe the real estate flight to quality we called two years ago, and up until recently provided support to the upper end of the market, is waning. And value (versus growth) is the new darling of the ball. Oh, and that rents in San Francisco will fall (further challenging values on a fundamental basis).

Our outlook has nothing to do with emotion (other than with respect to acknowledging the psychological shift in the market). And it’s not to suggest that we don’t see any opportunities, especially when it comes to adding real value. It’s simply perspective to help manage expectations and actions (be it in buying, selling, renting or staying put).

And yes, while we are currently bearish on the market in the near-term, we’ll be the first to point out the real bullish signs. As defined by analysts, not sales agents or the industry.

Posted by socketadmin at 7:30 AM | Permalink | Comments (89) | (email story)

November S&P/Case-Shiller: San Francisco MSA Down, Rate Levels

According to the November 2008 S&P/Case-Shiller Home Price Index (pdf), single-family home prices in the San Francisco MSA fell 3.0% from October ’08 to November '08 and are down 30.8% year-over-year (down 31% in October). For the broader 10-City composite (CSXR), year-over-year price growth is down 19.1% (having fallen 2.2% from October).

All 20 metro areas, and the two composites, posted their third consecutive monthly decline. In addition, eight of the MSAs posted their largest monthly decline on record – Atlanta, Boston, Charlotte, Chicago, Dallas, New York, Portland and Seattle. Although in decline over the past few years, some of these regions have out-performed on a relative basis, when compared to the national average. It is clear, however, that the decline in home prices is affecting all regions regardless of geography or employment opportunities.

Condo values in the San Francisco MSA also continued their decline falling 2.7% from October ’08 to November '08, down 19.2% on a year-over-year basis and down 22.0% from an October 2005 high.

And San Francisco MSA single-family home prices once again fell across all three price tiers.

The bottom third (under $342,467 at the time of acquisition) fell 2.2% from October to November (down 40.2% YOY); the middle third fell 1.6% from October to November (down 26.9% YOY); and the top third (over $591,729 at the time of acquisition) fell 1.9% from October to November (down 14.6% YOY).

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA have retreated to December 2000 levels, the middle third has returned to February 2003 levels, and the top third has fallen to June 2004 levels.

The standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the "San Francisco" index (i.e., the greater MSA) and are imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best).

∙ Home Price Declines Continue/Home Prices Indices Set New Record Annual Declines [S&P]
∙ October S&P/Case-Shiller: San Francisco MSA Down Across The Board [SocketSite]

Posted by socketadmin at 7:00 AM | Permalink | Comments (84) | (email story)

January 26, 2009

123 Laidley: Same Sales Flair Now Available For Rent (And Analysis)

As a plugged-in reader points out, the Jeremy Kotas re-designed 123 Laidley has gone the rental route. Now asking a "PRICE REDUCED" $5,550 per month.

And now that we have an idea of potential income (or at least a ceiling), it’s interesting context for both the sale in 2003 ($1,042,500) as well as this past October's asking price ($1,700,000).

∙ $5550 / 4br - PRICE REDUCED Stunning One-of-a-Kind Home in Noe Valley [Craigslist]
∙ 123 Laidley (To Which Jeremy Kotas Added A Bit Of Height And Flair) [SocketSite]

Posted by socketadmin at 6:45 PM | Permalink | Comments (25) | (email story)

JustQuotes: Remember That "Positive" Sales Surprise? Surprise!

"Fannie Mae, the largest source of home-loan money in the U.S., said it will need to tap as much as $16 billion in emergency funds from the U.S. Treasury Department to stay afloat as deterioration in the housing market persists.

Fannie’s planned request, announced today, follows Freddie Mac, which said Jan. 23 that it will need as much as $35 billion more in federal aid. Unprecedented mortgage losses drove the net worth of both companies below zero last quarter, they said in separate securities filings."

∙ Fannie to Tap U.S. for as Much as $16 Billion in Aid [Bloomberg]
∙ U.S. Existing Home Sales Rise on Record Price Slump [Bloomberg]

Posted by socketadmin at 6:30 PM | Permalink | Comments (6) | (email story)

January 22, 2009

It's Bigger Than Google But Not A Bad Starting Point (And Relevant)

The biotech discussion was too far along to parse it from the rest of the Palms discussion, but we will redirect a reader's no comment comment about Google:

No comments about Google today? Weird. It seems that for every company on the ropes there is at least one that is doing ok. How did they do it? Can they continue?

Also appears that a lot of companies in the valley, like Google, are taking steps to actually retain employees instead of shed them (option repricing). Although that usually resets the vesting period it can still do a lot for morale. Thoughts?

∙ A SoMa/Palms Wake Up Call (And Apple): 555 4th Street #401 [SocketSite]
∙ Google Profit Tops Estimates as Web-Ad Sales Rise [Bloomberg]
∙ The Google Chart Of The Day (And A Bit More Foreshadowing) [SocketSite]

Posted by socketadmin at 2:40 PM | Permalink | Comments (52) | (email story)

January 20, 2009

JustQuotes: While Treasury Rates Drop, Risk Premiums Rose

"Thirty-year, fixed-rate mortgages averaged 4.96 percent last week, according to McLean, Virginia-based mortgage finance company Freddie Mac, or 2.64 percentage points more than 10-year Treasuries. Before the credit markets began to seize up in the second half of 2007, the difference averaged about 1.78 percentage points since the start of the decade."

∙ Treasury Yields Flattened as Fed Fights to Cut Mortgage Rates [Bloomberg]
∙ That TED Sure Is A Funny Fellow (And Worth Keeping An Eye On) [SocketSite]

Posted by socketadmin at 8:15 AM | Permalink | Comments (51) | (email story)

January 14, 2009

One Rincon Hill (425 First Street): Rental Market Stumbling As Well?

Following in the footsteps of its “massive price reduction!!!” in December (originally asking $1,399,000, currently asking $999,900), the asking rent for 425 1st Street #1802 has been reduced to $4,200 per month as well (once asking $5,250).

Don’t forget to update those assumptions on your valuation/rent versus buy worksheets.

∙ One Rincon Hill (425 First Street): Secondary Market Stumbles [SocketSite]
∙ Listing: 425 1st Street #1802 (2/2) - $999,900 [MLS]
∙ $4200 / 2br - PRIME VIEW AT ONE RINCON HILL - RENT REDUCED [Craigslist]
∙ Four Floors Lower, But Asking One Hundred And Fifty Thousand Less [SocketSite]

Posted by socketadmin at 8:45 AM | Permalink | Comments (104) | (email story)

January 13, 2009

That TED Sure Is A Funny Fellow (And Worth Keeping An Eye On)

"The difference between the London interbank offered rate, or Libor, that banks say they charge each other for three-month loans in dollars and the yield on the three-month Treasury bill, fell 12 basis points to 98 basis points today. The so-called TED spread last closed below 100 basis points Aug. 15. Dollar Libor dropped to 1.09 percent today, the lowest level since June 2003."

"The three-month dollar Libor is still 84 basis points above the Federal Reserve’s target, compared with an average of 12 basis points in the year before the crisis began. The spread was 332 basis points on Oct. 10, less than a month after the collapse of Lehman Brothers Holdings Inc."

∙ TED Spread Narrows to Least in Five Months as Credit Eases [Bloomberg]

Posted by socketadmin at 7:15 AM | Permalink | Comments (2) | (email story)

January 6, 2009

But Hey, What's The Bay Area Economy Have To Do With Real Estate?

"For all of 2008, just six venture-backed companies made their public debut, the worst showing since 1977 when there were also just six VC-backed companies that went public. Preliminary figures show just 260 M&A transactions last year, the first year since 2003 that were less than 300 venture-backed acquisitions.

Venture capitalists unable to cash in on their investments spells big trouble for the entire venture community and the broader Bay Area economy. The venture business is an engine of growth in the Bay Area, which traditionally gets about a third of all venture dollars invested."

∙ Venture-backed IPOs last year hit 30-year low [San Francisco Business Times]
∙ Sequoia’s Take On The New New (And Quite Local) Economy [SocketSite]
∙ From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]

Posted by socketadmin at 6:45 AM | Permalink | Comments (110) | (email story)

JustQuotes: Can You Say Risk/Default Premium?

"Federal Reserve officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Credit costs for households and businesses haven’t followed yields on government debt lower. Fifteen-year fixed-rate mortgages were at 5.06 percent last week, 2.59 percentage points above 10-year Treasury yields; the spread averaged 0.88 point in 2003, when the Fed slashed rates to 1 percent."

∙ Fed Focuses on Consumer, Corporate Rate Spreads Over Treasuries [Bloomberg]

Posted by socketadmin at 5:00 AM | Permalink | Comments (7) | (email story)

January 5, 2009

Mortgage Rate And Driver(s) Update: January 5, 2009

A quick mortgage rate update from Julian Hebron at RPM mortgage:

Rates open the first full week of the year about the same as they were leading into the holidays. A good 30yr fixed rate target for loans up to $417k is 5% or below, and the target for loans up to $625k is around 5.25%. For loans up to $417k and $625k, we’re close to those targets. Rates for loans from $625k to $1m are mid-6% range.

The Fed announced just before New Year’s that they’ve hired outside money managers to run their $500 billion mortgage bond purchase program and that it will start in January. We’ll likely see another update on timing this week. When that purchasing starts, it will drive bond prices up and rates down. [Editor's Note: They've started.]

The biggest news this week is Friday’s jobs report for December, which calls for 475,00 lost jobs and unemployment going from 6.7% to 7%. And this doesn’t even include post-holiday retail worker layoffs that won’t be captured until next month. It would mark 12 straight months of job losses and about 2.5m jobs lost for 2008. This news can cause rates to drop as investors dump stocks and buy bonds.

UPDATE (1/6): "Longer-term Treasuries fell for a fourth day, pushing yields on 10-year notes to the highest in three weeks, as concern the U.S. will sell record amounts of debt drove investors from the safety of government securities."

∙ All Your Home Loans Are Belong To Us (To Boost Liquidity) [SocketSite]
∙ Treasuries Drop Amid Concern U.S. to Sell Record Amount of Debt [Bloomberg]

Posted by socketadmin at 11:45 AM | Permalink | Comments (13) | (email story)

All Your Home Loans Are Belong To Us (To Boost Liquidity)

"The Federal Reserve Bank of New York started buying mortgage-backed securities today as part of a $500 billion program to support the U.S. housing market."

∙ New York Fed Begins Purchases of Agency Mortgage Debt [Bloomberg]

Posted by socketadmin at 6:15 AM | Permalink | Comments (2) | (email story)

December 23, 2008

JustQuotes: Forget The Hopes, It's Time For Prayer

"Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing hopes that the market was close to a bottom."

∙ U.S. Economy: Housing Prices Collapse at Near-Depression Pace [Bloomberg]

Posted by socketadmin at 10:15 AM | Permalink | Comments (69) | (email story)

December 17, 2008

QuickLinks: Lower Rates Will Save San Francisco! Oh, Wait A Minute…

∙ The FOMC Speaks (And Not In Tongues): It Ain't Pretty Out There [SocketSite]
∙ U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition [Bloomberg]
∙ Banks Show No Signs of Easing in Step With Fed’s Cuts [Bloomberg]
∙ Mortgage Rates Left in Dust by Treasuries, Failures [Bloomberg]

Posted by socketadmin at 8:15 AM | Permalink | Comments (16) | (email story)

December 16, 2008

The FOMC Speaks (And Not In Tongues): It Ain't Pretty Out There

"The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters."

∙ Federal Open Market Committee Statement: December 16, 2008 [federalreserve.gov]
∙ The Fed Cuts Rates To One Percent To Avert "Prolonged" Recession [SocketSite]

Posted by socketadmin at 11:25 AM | Permalink | Comments (35) | (email story)

December 12, 2008

San Francisco Firms Continue To Shed And Sublease Office Space

"Cost-cutting tenants have dumped 1.2 million square feet of unwanted office space on the sublease market since July 1, the latest sign that San Francisco’s economy is slowing amid a national recession and credit crisis.

The trend has accelerated over the last 60 days as some 170 companies sought to unload 685,000 square feet of space, according to a report from Colliers International. A total of 2 million square feet of sublease space is available in the greater downtown — enough to accommodate about 8,000 workers. About 35 percent of the available sublease space is already vacant."

"With new top-notch sublease options coming on the market weekly, the spread between the price of view space and non-view space has narrowed. At the height of the rent bubble, view space was attracting $25 a square foot more than non-view space; now that has dropped to about $8 a square foot, with water view blocks going for $55 a square foot and city view suites leasing at closer to $35."

∙ Space glut drives down San Francisco office rates [San Francisco Business Times]

Posted by socketadmin at 8:00 AM | Permalink | Comments (10) | (email story)

December 9, 2008

The Economic (And Employment) State Of San Francisco: Not Good

From the Examiner with regard to the economic state of San Francisco:

The City is facing a fiscal “crisis,” with one of the largest deficits in San Francisco history expected in the next year, Mayor Gavin Newsom said Monday, adding that hundreds of layoffs could be announced as soon as Tuesday.

And with respect to employment (or lack thereof):

Unemployment in The City hit the 6 percent mark for the first time since June 2004, according to the [Controller’s Office October economic barometer report], which stated that “most indicators continue to show accelerating weakness in San Francisco’s economy.”

Stating the obvious as some like to say (but yet somehow seem to be missing), the economy, employment and real estate prices tend to be correlated. And it's not looking good.

∙ Mayor: City's budget situation 'legitimately a crisis' [San Francisco Examiner]
∙ From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]

Posted by socketadmin at 4:30 AM | Permalink | Comments (119) | (email story)

December 8, 2008

JustQuotes: Why Simply Reducing Rates Won't Cure The Market's Ills

"Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue..."

∙ Majority of Modified Loans Fail Again, Regulator Says [Bloomberg]

Posted by socketadmin at 9:45 AM | Permalink | Comments (46) | (email story)

December 5, 2008

Once Again, We'll Posit It's Just Starting (Not To Mention Matters)

"Skittish employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, dramatic proof the country is careening deeper into recession."

"The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists said many of those people probably abandoned their job searches out of sheer frustration. In November 2007, the jobless rate was at 4.7 percent."

∙ Employers cut 533K jobs in Nov., most in 34 years [SFGate]

Posted by socketadmin at 7:45 AM | Permalink | Comments (41) | (email story)

December 4, 2008

Bernanke Goes From Bad To Worse And Wants Your Dollars To Follow

"Federal Reserve Chairman Ben S. Bernanke urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own.

The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans."

∙ Bernanke Says U.S. Must Step Up Foreclosure Efforts [Bloomberg]

Posted by socketadmin at 9:00 AM | Permalink | Comments (17) | (email story)

December 3, 2008

JustQuotes: And Housing? Uhh...No.

“What we’ve seen since mid to late September is that business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.”

∙ U.S. Economy: Service Companies Shrink at Record Pace [Bloomberg]

Posted by socketadmin at 9:45 AM | Permalink | Comments (20) | (email story)

December 1, 2008

QuickLinks: While The Cost Of Capital Drops, Availability Does As Well

∙ Treasury Yields Drop to Record Lows as Bernanke Cites Buybacks [Bloomberg]
∙ U.S. Consumers Seen Facing ‘Liquidity Squeeze’ [Bloomberg]

Posted by socketadmin at 4:00 PM | Permalink | Comments (22) | (email story)

November 25, 2008

It's Like The Fed (And Taxpayers) Just Bought You A Couple Of Points

"U.S. mortgage rates fell more than three-quarters of a percentage point today after the Federal Reserve said it will buy as much as $600 billion of debt."

∙ U.S. Mortgage Rates Fall on $600 Billion Fed Plan [Bloomberg]
∙ As Lenders (And Consumers) Hoard, The Fed Commits Another $800B [SocketSite]

Posted by socketadmin at 3:00 PM | Permalink | Comments (7) | (email story)

"Foreign Buyers" Never Materialized And Now Tourist Dollars Decline

“The dollar’s resurgence, as well as a drop in home and stock values outside the U.S., will discourage foreign shoppers into next year as the global financial crisis intensifies, [Stifel Nicolaus & Co. analyst David Schick] said. He estimates sales will decline 8 percent at Tiffany’s Fifth Avenue store in New York in the third and fourth quarters, versus gains of 25 percent and 10 percent a year earlier.”

∙ Saks, Neiman May Slump More as Tourist Spending Slows [Bloomberg]
∙ Recap: What’s The Scoop On Foreign Investment In San Francisco? [SocketSite]

Posted by socketadmin at 9:15 AM | Permalink | Comments (4) | (email story)

As Lenders (And Consumers) Hoard, The Fed Commits Another $800B

As lenders and consumers continue to hoard, the Fed announces a $800B spending spree:

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

Yet across the pond Libor continues to rise:

Libor’s declines are stalling on concern the U.S. government’s attempts to contain the financial crisis won’t be sufficient to revive bank lending.

And not included in that $800B is the $230B of taxpayer funds the Fed has put at risk with the bailout of Citigroup this week.

∙ Fed Commits $800 Billion More to Unfreeze Lending [Bloomberg]
∙ Libor Drop Stalls as Bailout Concern Fuels Bank-Cash Hoarding [Bloomberg]
∙ Citigroup gets a monetary lifeline from feds [SFGate]

Posted by socketadmin at 7:30 AM | Permalink | Comments (4) | (email story)

November 20, 2008

The Seven Year Itch Low: San Francisco Business Optimism Falling

"Businesses in San Francisco have been hit hard by the global economic malaise, with new figures showing Bay Area business optimism has sunk to new lows and more than one-third of companies in The City expect to shed staff [but 18% to add] before June."

In San Mateo, 48% of the firms surveyed by the Bay Area Council expect to cut jobs in the next six months, while 14% expect to add.

And in terms of when a recovery will begin, 59% of those surveyed in San Francisco are currently forecasting in one to two years, with 73% of those in San Mateo responding the same.

∙ Bay Area businesses reeling from global downturn [San Francisco Examiner]
∙ Once Again, It's Just Getting Starting (And It's Going To Last Longer) [SocketSite]

Posted by socketadmin at 5:30 AM | Permalink | Comments (0) | (email story)

November 19, 2008

Did Somebody Say Deflation?

From the New York Times today:

In another sign that the struggling economy continues to slow, consumer prices tumbled by a record amount in October, carried lower by skidding energy and transportation prices, raising the specter of deflation.

From a plugged-in reader's comment we promoted last year:

Thanks for the questions regarding how I can be predicting deflation when everyone else seems to be saying inflation (and some price measures are pointing that way). It does seem contradictory, but it's really pretty straightforward when you take it step by step...

It's good to be plugged-in.

∙ Consumer Price Decline Prompts Fear of Deflation [New York Times]
∙ Promoted From Comment To Post: Satchel Does Deflation [SocketSite]

Posted by socketadmin at 12:15 PM | Permalink | Comments (130) | (email story)

November 18, 2008

We'll Connect The Comments, You Connect The Dots (And History)

From a comment this afternoon:

I remember Palo Alto holding up well (in nominal terms) [from 1990 to 1992] and I trust the best parts of SF did too.

But from a plugged-in reader last week:

A friend of my Dad was just reminding us that he bought a couple Palo Alto REOs in 1994 for about half of what they sold for in 1989…

We'll connect the comments. You connect the dots (and history).

∙ Once Again, It's Just Getting Starting (And It's Going To Last Longer) [SocketSite]
∙ A Plugged-In Reader Picks An Apple For Himself (1968 Greenwich) [SocketSite]

Posted by socketadmin at 12:30 PM | Permalink | Comments (23) | (email story)

Once Again, It's Just Getting Starting (And It's Going To Last Longer)

"From a Bay Area view, the global slowdown threatens tech exports and tourism, which have so far cushioned San Francisco and the Silicon Valley from the housing bust that has already clobbered the East Bay..."

∙ Economists say recession is here, and will last [SFGate]
∙ The Google Chart Of The Day (And A Bit More Foreshadowing) [SocketSite]
∙ From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]
∙ And Speaking Of Being Plugged-In To Bay Area Employment Trends… [SocketSite]

Posted by socketadmin at 6:45 AM | Permalink | Comments (15) | (email story)

November 14, 2008

And Speaking Of Being Plugged-In To Bay Area Employment Trends…

"Of course, if this was limited to Sun, it probably would not have a huge impact on anything concerning this site. But Sun is obviously just one of many going through this. You can't believe how swamped our labor & employment group is right now with work managing large tech layoffs, most of which are still in the planning stage (the lawyers get involved early on)."

∙ From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]

Posted by socketadmin at 1:00 PM | Permalink | (email story)

From Underwater To Unemployed (And Sorry, But It’s Just Starting)

A plugged-in reader's comment:

Remember all the excitement over Google millionaires buying up places with cash? We are now entering a period of huge tech layoffs (see Sun as one of many examples). I'm simply pointing out that this is yet another factor that is going to have a substantial negative impact on the market, particularly in the southern half of the city (which is much more than Ingleside and Visitacion Valley).

Said example: Sun to cut up to 6,000 workers, 18 pct of staff. And of course, the foreshadowing: The Google Chart Of The Day (10/24).

UPDATE: A plugged-in Sun employee chimes in:

Sun employee (for the moment), checking in. I don't think they are going to do layoffs for a few weeks, but I do think that 6k number might actually be a little low in the end.

A huge percentage of Sun's engineers telecommute at least part time so the impact will be spread out over most of the Bay Area.

What they're really talking about with this layoff is a cut in product lines, from top to bottom. There are a couple that are really housed elsewhere and it may not hit the Bay Area much at all. I think it will probably cause more pain in the RE market in Broomfield CO than it will here.

∙ TIC Troubles Via The WSJ (But We Wouldn't Discount That Downturn) [SocketSite]
∙ Sun to cut up to 6,000 workers, 18 pct of staff [SFGate]
∙ The Google Chart Of The Day (And A Bit More Foreshadowing) [SocketSite]

Posted by socketadmin at 10:30 AM | Permalink | Comments (54) | (email story)

November 12, 2008

The Market Might Not Like It, But We Do: Paulson Changes Rescue Plan

"U.S. Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets....Buying 'illiquid' mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said."

∙ Paulson Shifts Focus of Rescue to Consumer Lending [Bloomberg]
∙ $700 Billion Bailout Bill Round Two: One Down, One To Go [SocketSite]

Posted by socketadmin at 9:15 AM | Permalink | Comments (12) | (email story)

November 7, 2008

JustQuotes: Proposing To Change The Terms To Protect The Principal

"[Governor Arnold Schwarzenegger has proposed] imposing a 90-day stay for the foreclosure process for owner-occupied homes [in California] that have received notices of default. Lenders could be exempted from the stay by proving they have an "aggressive modification program" to keep borrowers in their homes.

The loan modifications would be modeled on the approach used by the Federal Deposit Insurance Corp. to help borrowers of the failed IndyMac Bank. New monthly payments would have to be 38 percent of borrowers' incomes. To reach that level, lenders could reduce the interest rate, increase the loan length up to 40 years and/or defer some of the principal balance until the home is sold or refinanced. The governor's office said such modifications could cut payments by 25 to 30 percent."

∙ Governor proposes plan to avert foreclosures [SFGate]

Posted by socketadmin at 1:00 AM | Permalink | Comments (21) | (email story)

November 6, 2008

Solid Or Squishy? (And Being “Cash Flow Positive” Isn’t Always So)

From the listing for 555 4th Street #715 in The Palms:

Solid investment property, already rented $2800/month…Property virtually rents and manages itself…No eviction control, no rent control…Low maintenance since the property is almost new…Hoa dues paid through december 2009.

We’ll let you confirm that’s a sustainable market rate rent, run your own numbers, and draw your own conclusions about how solid this investment might or might not be.

We will note, however, that focusing on being “cash flow positive” is rather naïve in terms of investing. In a down market the loss of principal can quickly offset any carry. And being “cash flow positive” doesn’t speak to a rate of return.

∙ Listing: 555 4th Street #715 (1/1) - $605,000 [MLS]
∙ The Palms (555 4th St.): Secondary Market Slowdown And Short Sale [SocketSite]

Posted by socketadmin at 7:55 AM | Permalink | Comments (27) | (email story)

October 29, 2008

The Fed Cuts Rates To One Percent To Avert "Prolonged" Recession

A year ago Friday the Federal Reserve cut its benchmark interest rate to 4.5% and signaled that further cuts were unlikely. The thought at the time:

"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets," the Federal Open Market Committee said in a statement after meeting today in Washington. "After this action, the upside risks to inflation roughly balance the downside risks to growth."

This morning, the Federal Reserve cut its benchmark interest rate to 1 percent, “matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era." And with that, the rate kegs have nearly run dry.

∙ Fed Cuts Rate to 1% to Avert Prolonged Recession [Bloomberg]
∙ The Federal Reserve Cuts Benchmark/Discount Rates By 0.25% [SocketSite]

Posted by socketadmin at 12:00 PM | Permalink | Comments (32) | (email story)

October 24, 2008

The Google Chart Of The Day (And A Bit More Foreshadowing)

Click to enlarge. And once again, a bit of foreshadowing. Yes, with regard to local housing.

Posted by socketadmin at 8:30 AM | Permalink | Comments (52) | (email story)

October 21, 2008

Beacon Economics Forecast For San Francisco, Marin And San Mateo

Beacon Economics’ forecast for the three (not nine) county zone of Marin, San Mateo and San Francisco through the first quarter of 2010:

∙ Home prices will fall roughly 25 percent from their peak
∙ Taxable sales will drop by 10 percent
∙ Payrolls will shrink by 2.5 percent
∙ Rental rates will likely to continue to rise, particularly in San Francisco

We’ll agree with the direction, but not necessarily the magnitude of home price movement in San Francisco. Rents in San Francisco will depend on how many people lose their jobs in the downturn. And how many new condos end up as rentals.

∙ Report calls S.F. state's strongest economy [SFGate]

Posted by socketadmin at 9:45 AM | Permalink | Comments (5) | (email story)

October 15, 2008

California Association of Realtors’ 2009 Forecast (And Perhaps Folly)

If the California Association of Realtors’ 2009 forecast is accurate, the median sales price of a home in California will decline by 6 percent in 2009 while sales volume will rise 12.5%.

Regardless, there’s the quote with which we absolutely don’t agree (once again, cue the foreshadowing): ""The worst is over, but we're still not out of the woods," said Leslie Appleton-Young, the association's chief economist." And the one with which we do: "This forecast is not baking in a recession with huge job losses."

Or as JPMorgan Chase CEO Jamie Dimon said today, "We have to be prepared that [the economic slump] gets a lot worse and we are." Unfortunately CAR doesn't appear to be part of that latter "we."

∙ Forecast: Calif. home prices to dip further in '09 [SFGate]
∙ JPMorgan's Dimon Plans for More Loan Losses as Economy Weakens [SocketSite]

Posted by socketadmin at 11:45 AM | Permalink | Comments (50) | (email story)

October 10, 2008

Sequoia’s Take On The New New (And Quite Local) Economy

It's not the kind of image on which we typically like to end the week, but In the words of a plugged-in tipster:

Know this is a bit off topic, but since the valley tech is such a driver for home sales (and vc dollars are a driver for tech), thought you might be interested in this if you haven’t already seen it.

PowerPoint from Sequoia Capital...just delivered this to their ~100 portfolio companies. Good economic context, and, equally importantly, a telling embedded message (fire as many ppl as it takes to get to break even).

Yep. And our "on topic" take on Tuesday (we're taking Monday off).

∙ Sequoia Capital on startups and the economic downturn [slideshare.net]

Posted by socketadmin at 2:00 PM | Permalink | Comments (32) | (email story)

October 9, 2008

Pilfered Headline Of The Day: All Your Bank Are Belong To Us!

A reader issues a Photoshop challenge (from which we pilfer our headline). Another responds on the fly (we’re still seeking others). And the genesis:

Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.

Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions.

∙ QuickLinks: Everybody Cuts (But Nobody Seems To Care) [SocketSite]
∙ Paulson Signals Treasury May Invest Capital in Banks [Bloomberg]
∙ $700 Billion Bailout Bill Round Two: One Down, One To Go [SocketSite]

Posted by socketadmin at 9:00 AM | Permalink | Comments (6) | (email story)

September 30, 2008

What To Do When Incentives Don’t Work? (Lower Prices Perhaps?)

From Bloomberg:

“The [homebuilder] industry will ask lawmakers to pass a $15,000 tax credit for all homebuyers, replacing a smaller incentive enacted earlier this year that they contend failed to stimulate demand.”

From the chief executive officer of the National Association of Home Builders:

“Our members are really hurting…The [$7,500] tax credit passed in July seems to have failed to have sparked interest. We are hearing from high volume and small volume builders that it has had no impact.”

And from the co-director of the Center for Economic and Policy Research in Washington:

“Let the house prices settle, then worry about stimulating the market…I have very little sympathy for these builders. If they weren't able to figure out what was going on during the bubble, don't go crying to the government.”

∙ `Hurting' Builders Seek New Tax Credit to Help Market [Bloomberg]

Posted by socketadmin at 5:45 AM | Permalink | Comments (5) | (email story)

September 29, 2008

$700 Billion Bailout Breaking News: Round One Rejected By The House

"The fate of a controversial $700 billion financial bailout plan was in doubt Monday as a House vote turned against it. The next steps were not immediately clear but supporters were scrambling to put it up for another vote."

"The measure needs 218 votes for passage. Democrats voted 141 to 94 in favor of the plan, while Republicans voted 65 to 133 against. That left the measure with 206 votes for and 227 against."

∙ Bailout plan rejected [CNN]
∙ Once Again, We’ll Simply Go With The Worst (In Terms Of The Bailout) [SocketSite]

Posted by socketadmin at 11:20 AM | Permalink | Comments (169) | (email story)

September 25, 2008

Once Again, We’ll Simply Go With The Worst (In Terms Of The Bailout)

Perhaps it was a bit understated last week when we simply wrote “We'll Go With [The] Worst” (with respect to Paulson’s proposed $700 billion bailout and approach). But hey, that's how we roll. A few (hundred) others, however, not so much.

In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson's plan because it's a "subsidy" for business, it's ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.

No kidding.

"The structure [of Paulson's plan] is designed for the Treasury to be the first line of defense," said [University of California-Berkeley economics professor David I. Levine], who studies organizations and incentives. "A whole lot of people made money supposedly by putting their capital at risk, and those are supposed to be the first line of defense, that's how capitalism works."

Bay Area represent (in more ways than one). And for some reason, this all sounds strangely familar. At least if you're plugged-in.

UPDATE: The full text of the economists' letter courtesy of a plugged-in reader and the bogleheads forum:

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

And the 166 who signed.

∙ QuickLinks: A Bloomberg Bailout Trio (And We'll Go With Worst) [SocketSite]
∙ Hundreds of Economists Urge Congress Not to Rush on Rescue Plan [Bloomberg]
∙ Economists Letter To Congress [chicagogsb.edu]

Posted by socketadmin at 4:00 PM | Permalink | Comments (139) | (email story)

August 20, 2008

Mortgage Modifications: Short-Term Solution To Long-Term Problem?

The intended impact of lowering mortgage interest rates for IndyMac borrowers who are currently delinquent:

“We hope to keep tens of thousands of troubled borrowers in their homes and avoid the negative consequences that foreclosures can have on the broader economy,'' [FDIC Chairman Sheila Bair] said.

The unintended impact (and food for thought):

Bair's efforts may lower the value of mortgage-bond holdings by delaying foreclosures until home prices are lower, said Julian Mann, a mortgage- and asset-backed bond manager at First Pacific Advisors LLC in Los Angeles, which oversees $11 billion.

∙ FDIC Will Modify Mortgages for Some IndyMac Borrowers [Bloomberg]

Posted by socketadmin at 12:45 PM | Permalink | Comments (22) | (email story)

August 13, 2008

It's A Good Thing It's Simply A Subprime (And District 10) Problem...

"Yields on mortgage securities guaranteed by Fannie Mae rose this week to about their highest relative to Treasuries since March amid concern that defaults are spreading to prime and Alt-A mortgages from subprime loans.

Fannie's current-coupon 30-year fixed-rate bonds currently yield 6.07 percent, 213 basis points more than 10-year Treasuries, according to data compiled by Bloomberg. That's 25 basis points from the 22-year high of 238 reached March 6, a week before the Federal Reserve helped bail out Bear Stearns Cos.

The worst housing slump since the Great Depression has blotted out much of the wealth Americans accumulated in their homes, hurting their ability to pay bills and boosting spreads on auto-loan and credit-card backed bonds as well as mortgage securities. Fannie Mae, the largest U.S. mortgage-finance company, last week slashed its dividend 86 percent after posting a worse-than-expected loss and said it will stop buying and guaranteeing Alt-A loans."

[Editor's Note: And no, this shouldn't catch any plugged-in people by surprise.]

∙ Agency Mortgage Bond Yield Spreads Widen as Loan Losses Expand [Bloomberg]
∙ Subprime And Alt-A Statistics By County: The Feds Mortgage Map [SocketSite]
∙ Fannie Follows Freddie (And Makes It Easy For The Copywriters) [SocketSite]
∙ Fannie Mae, Battling Losses, to End Alt-A Mortgages [Bloomberg]
∙ JustQuotes: Is The Subprime Sickness Spreading? [SocketSite 7/07]

Posted by socketadmin at 2:30 PM | Permalink | Comments (26) | (email story)

August 5, 2008

JustQuotes: The Fed Holds At Two Percent, Withdrawal Yet To Come

"The Federal Reserve kept its benchmark interest rate at 2 percent and signaled that weak employment and financial instability will delay any increase in borrowing costs."

"The Standard & Poor's 500 Index gained 35.87 points, or 2.9 percent, to 1,284.88. Stocks were also pushed higher by a retreat in crude oil prices. The yield on the 10-year Treasury note rose 6 basis points to 4.02 percent as investors concluded that a crackdown on inflation isn't imminent."

"What we have now is artificially low interest rates,'' [Allen Sinai, chief economist at Decision Economics Inc.] said. "You overdose the patient to get them on their feet, and then you have to withdraw the overdose."

∙ Fed Keeps Rate at 2% as Economic Growth Stagnates [Bloomberg]
∙ Fed Shift Indicates Main Rate Will Stay at 2% to Revive Economy [Bloomberg]

Posted by socketadmin at 4:00 PM | Permalink | Comments (26) | (email story)

July 31, 2008

Have We Had Our "Cathartic Event" Or Are We Simply Late Bloomers?

The relatively good news for California:

Across the state, sales rose for three consecutive months starting in April after 30 straight months of declines, the California Association of Realtors said. About 40 percent of those transactions were foreclosure sales, DataQuick Information Systems reported. "California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, in an interview. "This signals the beginning of the end.''

The not so great news:

Almost $1.3 trillion of homeowner equity was lost in California since home prices peaked in December 2005, Zandi said. Discounts of as much as 50 percent will extend into 2010, helping clear a glut of foreclosures and leading to a more balanced housing market, said Ryan Ratcliff, an economist at the Anderson Forecast at the University of California in Los Angeles, and Christopher Thornberg, principal of Beacon Economics LLC in Los Angeles.

And the question: considering sales volume in San Francisco has actually declined over the past two months, and the number of foreclosures within the city remains rather nominal (but is growing), have we had our "cathartic event" or are we going to be late bloomers?

∙ California's Discount Foreclosure Sales Point to Housing Bottom [Bloomberg]
∙ San Francisco Recorded Sales Activity In June: Down 9.8% YOY [SocketSite]
∙ One Antithetical Quote To The “Foreclosures Aren’t Comps” Argument [SocketSite]

Posted by socketadmin at 12:00 PM | Permalink | Comments (14) | (email story)

July 24, 2008

Bill Gross Goes Mooooooo! (And That Graph Should Look Familiar)

An excerpt from Bill Gross’ August investment outlook (simply titled "Mooooooo!"):

Here is one asset [homes] that all observers can agree is going down in price for justifiable reasons. Maybe not Donald Trump’s Palm Beach mansion at $95 million big ones – thank you very much – but everybody else’s. They’re going down because quite simply, they went up too much and were financed with excessive debt. The housing bubble was well inflated by low interest rates, easy, and in some cases fraudulent credit, a lack of federal and state regulation, and a gullible public who read the history books for the past half century and knew full well that home prices never, ever go down. Not much of an enigma there. No riddle to be solved it would seem. It was simply a fairy tale too good to be true.

Yet housing, unlike other asset classes, carries with it an aura more like a bad dream than a fairy tale. Unlike the frog that when kissed turns into a handsome prince, housing can morph a froglike economy into something resembling Godzilla. That is because it is the most levered asset class and the one held by more “investor” citizens than any other. U.S. homes are market valued at over 20 trillion dollars with nearly half of the value supported by mortgage finance of one sort or another. At first blush that appears to be reasonably levered, but at the margin, homes purchased in 2004 and beyond are now at risk of turning upside down – negative equity – and there are some 25 million or so of those. The “upsidedownness” in many cases results in foreclosures, or outright abandonment and most certainly serves as an example of what not to do for millions of twenty-somethings or new citizens choosing between homeownership and renting. The dominoes fall month-by-month, forcing prices ever lower as shown in Chart 1 provided by Case-Shiller. An asset deflation in turn becomes a debt deflation, as subprimes, alt-As, and finally prime mortgages surrender to the seemingly inevitable tide. PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble. The problem with writing off 1 trillion dollars from the finance industry’s cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth, creating what Mohamed El-Erian fears as a “negative feedback loop.”

That one trillion sounds familiar. And that graph should look familiar as well. Then again, what would the head of a $830 billion investment management company that’s all about the bond know about debt? And it's bound to be different here. Just look at all those mansions in Pacific Heights.

∙ Bill Gross' Investment Outlook: August 2008 [PIMCO]
∙ They're Betting Against Us (San Francisco) On The CME [SocketSite]

Posted by socketadmin at 9:30 AM | Permalink | Comments (33) | (email story)

Will San Francisco Suffer From Premature Loan Limit Reduction? No.

In case you missed it, some great reader discussion and debate on the potential impact of H.R. 3221: Foreclosure Prevention Act of 2008 yesterday (which passed in the House and is on to the Senate).

Amongst other things, H.R. 3221 permanently increases GSE "conforming loan" limits from $417,000 to a maximum of $625,500 (or 115% of the local median home price, whichever is lower). And it’s that “maximum” that has a few readers worried (or at least a little confused).

The question: will H.R. 3221’s conforming loan maximum of $625,500 supersede San Francisco's temporary conforming loan limit of $729,750? Our answer: we very much doubt it (we know, not exactly definitive but we’re still seeking written confirmation).

Regardless, do keep in mind that the $729,750 conforming loan limit for high-cost areas as brought about by the Economic Stimulus Act of 2008 is set to expire in five months. And whether or not that act gets extended is another issue altogether.

UPDATE: Definitively confirmed (and thank you for plugging in).

∙ Bam! Bam! Barney Frank’s Bailout Bill Survives As A Provision [SocketSite]
∙ H.R. 3221: Foreclosure Prevention Act of 2008 [govtrac.us]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]

Posted by socketadmin at 2:00 AM | Permalink | Comments (12) | (email story)

July 22, 2008

What’s Twenty-Five Billion Between Three Hundred Million Friends?

The good news, there’s a “better than 50 percent” chance it won’t happen. The bad news, if it does it will “probably” cost taxpayers $25 billion (luckily not each). And regardless, it’s looking like at least half of the not so dynamic duo these days might be suffering from a shrinking appetite for new mortgages.

Yes, they’re talking about Fannie Mae and Freddie Mac. You know, the duo which the “Bush administration is depending on…to help pull the U.S. out of the worst housing slump since the Great Depression.”

∙ Fannie, Freddie Rescue May Cost Taxpayers $25 Billion, CBO Says [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (13) | (email story)

July 10, 2008

When We Wrote Watch Your Fannie, We Really Weren’t Kidding

Our headline earlier this week: “You Had Better Watch Your Fannie (As Well As Freddie)." And we weren't kidding. From Bloomberg this morning:

Fannie Mae tumbled as much as 20 percent and Freddie Mac slumped as much as 24 percent in New York Stock Exchange composite trading as concerns escalated that the biggest providers of financing for U.S. home loans don't have enough capital to weather the worst housing slump since the Great Depression. The decline in Freddie Mac creates ``challenges'' for the company's plans to raise $5.5 billion in capital, UBS analysts said in a report today.

Chances are increasing that the U.S. will bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

And in response, U.S. Treasury Secretary Henry Paulson:

The Office of Federal Housing Enterprise Oversight "has made clear that [Fannie and Freddie] are adequately capitalized,'' Paulson said in prepared testimony for the House Financial Services Committee.

Paulson said he is counting on Fannie Mae and Freddie Mac, which own or guarantee about half of the $12 trillion in home loans, to help revive the U.S. housing market.

Like they have since the Economic Stimulus Bill was signed into law five months ago?

∙ Fannie, Freddie Tumble on Solvency Concerns, UBS Price Cut [Bloomberg]
∙ Paulson Says Ofheo Assures Fannie, Freddie Capital Adequate [Bloomberg]
∙ JustQuotes: You Had Better Watch Your Fannie (As Well As Freddie) [SocketSite]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]
∙ JustQuotes: The Big (As In Jumbo) Difference Between Can And Are [SocketSite]

Posted by socketadmin at 7:30 AM | Permalink | Comments (37) | (email story)

July 9, 2008

Let's See, Drop The K And Carry The S...

We're not about to jump the pond fulltime (at least not yet). But it is a bit eerie, or to some perhaps comforting, to see the parallels in the U.K. market as mortgage rates rise (now at 6.63 percent for the equivalent of a two-year ARM).

The U.K. is skirting a recession as house prices fall, oil costs rise to a record and lenders refuse to pass on the Bank of England's three interest-rate cuts since December. Policy makers, who make a rate decision tomorrow, said last month that they considered increasing borrowing costs after inflation accelerated to the fastest in a decade.

"This is doom and gloom," said Alan Clarke, an economist at BNP Paribas SA in London. "The housing market is in freefall and unemployment is rising. The Bank of England's credibility is in question with the worst peak in inflation in its history, but there are a lot of reasons not to hike now."

And now back to the "Supercities" discussion...

∙ U.K. Mortgage Rates Surge, Consumer Confidence Slumps [Bloomberg]
∙ Supercities Are Immune To Declines (At Least Until They’re Not) [SocketSite]

Posted by socketadmin at 4:00 AM | Permalink | Comments (17) | (email story)

July 7, 2008

JustQuotes: You Had Better Watch Your Fannie (As Well As Freddie)

“Freddie Mac and Fannie Mae plunged in New York trading and their credit-default swaps rose as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.”

“As mortgage delinquencies grow at a record pace, the companies likely will take further losses, [Deutsche Bank credit strategist John Tierney] said. Banks repossessed twice as many homes in May as they did a year ago and foreclosure filings rose 48 percent, according to RealtyTrac Inc., a real estate database in Irvine, California. Home prices in 20 U.S. metropolitan areas fell 15.3 percent in April by the most on record, S&P/Case-Shiller home-price index.”

"Spreads between 10-year Treasuries and bonds backed by Fannie Mae reached a 22-year high of 238 basis points on March 6. An increase boosts the cost of new mortgages for the most creditworthy consumers. A basis point is 0.01 percentage point."

∙ Freddie Mac, Fannie Mae Plunge on Capital Concerns [Bloomberg]
∙ Fannie Mae To Market: It’s Not Getting Better, But Rather Worse [SocketSite]
∙ April S&P/Case-Shiller: San Francisco MSA Declines Across All Tiers [SocketSite]
∙ Agency Mortgage-Bond Yield Spreads Rise on Potential Bank Sales [Bloomberg]

Posted by socketadmin at 11:45 AM | Permalink | Comments (12) | (email story)

June 26, 2008

U.S. Home Resales Up But Remain Off (As Do Mortgage Applications)

While previously owned U.S. home sales ticked up two points in May to an annualized rate of 4.99 million sales, on a year-over-year basis sales remain off by 16 percent, the median sales price dropped 6.3%, and the increase is compared to the month prior which “matched a record low for existing home sales.”

A drop in property values may have spurred demand in some of the most distressed areas, such as California and the Midwest. Even so, rising mortgage rates, a glut of unsold homes, and stricter borrowing rules indicate the real estate recession will persist for most of the year.

And looking forward rather than back, "The Mortgage Bankers Association's index of loan applications to purchase homes fell last week to the lowest level in more than five years."

∙ Home Resales in U.S. Rose to 4.99 Million Rate in May [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (0) | (email story)

June 20, 2008

California Unemployment: We’re Still The Best (But The Bloom Is Off)

The unemployment rate in California jumped 0.6 perentage point in May to 6.8%, "the largest one-month increase since the state began keeping records in 1976." The San Fransciso MSA, however, remains a relative - but not necessarily absolute - stalwart.

In the San Francisco metropolitan area, which includes Marin and San Mateo counties, unemployment was 4.6 percent in May, up from 4.2 percent the month before. In the San Jose area, the rate rose to 5.6 percent from 5.2 percent. And in the Oakland area, including Contra Costa and Alameda counties, unemployment was 5.7 percent, up from 5.3 percent.

"The Bay Area still is the best part of the California economy," said Howard Roth, principal economist for the California Finance Department. "But the bloom is off the rose."

∙ State records biggest jump in unemployment in May [SFGate]

Posted by socketadmin at 2:15 PM | Permalink | Comments (9) | (email story)

June 16, 2008

Homebuilder Confidence Falls: From The Fringes To San Francisco?

A plugged-in reader reports (and posits):

I was on a conference call today with the National Association of Home Builders (NAHB) CEO Jerry Howard and Chief Economist David Seiders where they were presenting the June Housing Market Index (HMI).

It was pretty bad. They were basically pleading with all news organizations and others to put pressure on the federal government to bail out the housing meltdown.

Jerry even went so far as to say that it is effecting senior citizens and it is just not right that they are losing their equity.

The NAHB reported that the index is at an all time record low of 18. Down from 19 in May. (a rating of 50 is neutral, greater than 50 means a majority of positive responses. less than 50 means a majority of negative)

David did say that he expects further declines since the current index does not reflect the recent rise in interest rates.

I really wish I could describe in words the sense of desperation that came from the call.

It seems easy to look at particular neighborhoods and say that a major downturn is not coming but I would have to agree with those whom have studied bubble and mass movement mentality. The drastic movement starts at the fringes and moves in over time.

Stockton -> Contra Costa -> Specific Districts in SF -> Top of Russian Hill

If we look back in 5 years I will be very surprised if those prime districts have not followed suit.

∙ Homebuilder Confidence Index Unexpectedly Fell to 18 [Bloomberg]
∙ SocketSite's San Francisco Listed Housing Inventory Update: 6/16/08 [SocketSite]

Posted by socketadmin at 1:45 PM | Permalink | Comments (34) | (email story)

May 9, 2008

Preaching To The Choir: Fundamentals, Cash-Flow, Longer Horizon

They’re preaching to the SocketSite choir: fundamentals, cash-flow positive and a long-term horizon. The current challenge: finding those opportunities a bit closer to home (assuming you're not reading from Vallejo). Our solution: continue to plug in.

∙ Timing may be right for real estate investors [SFGate]

Posted by socketadmin at 7:00 AM | Permalink | Comments (5) | (email story)

May 8, 2008

JustQuotes: Fewer Transfers Yields Fewer Dollars And Offsets Savings

“On Tuesday, the City Controller’s Office released a report that put [San Francisco's projected budget] shortfall for next fiscal year at approximately $305 million, $33 million less than what was projected a few weeks ago.

The savings came from the departmental cost-cutting, as well as well-performing hotel, sales, property and business taxes, according to the Controller’s Office.

The “good news” however, is tempered by less-than-expected property transfer tax revenue. The City budgeted to receive $123.5 million from the sales of real estate in San Francisco [down from $144 million the year before], but have now adjusted that figure and expect to bring in $91.6 million.”

∙ Sales of soaring skyscrapers sag [Examiner]

Posted by socketadmin at 6:50 AM | Permalink | Comments (10) | (email story)

May 7, 2008

When Bulls Become Bears (AKA No Longer Working For The Realtors)

During his tenure as Chief Economist for the National Association of Realtors (NAR), David Lereah published the infamously titled "Why the Real Estate Boom Will Not Bust.” Since parting way with NAR and Move Inc., however, Mr. Lereah has had an epiphany: not only has the boom busted, but it's going to get worse.

∙ It’s Going to Get Worse [Newsweek]

Posted by socketadmin at 8:55 AM | Permalink | Comments (32) | (email story)

April 29, 2008

Yes, The Greater California Housing Market Does Matter To You

“Gov. Arnold Schwarzenegger said Monday that California faces a budget gap that could approach $20 billion through June 2009, a dizzying projection that adds further confusion to the depth of California's financial crisis.”

“The estimated gap for the fiscal year that begins July 1 already has prompted talk in Sacramento of tax increases and spending cuts that could hit classrooms, law enforcement and health care.

The new figure essentially doubles the Republican governor's deficit projection from just days ago. California's economy has been hammered by the slumping housing market, while soaring gas prices have cut into consumer spending.”

∙ Schwarzenegger says Calif. faces $20 billion budget deficit [SFGate]

Posted by socketadmin at 6:00 AM | Permalink | Comments (24) | (email story)

April 24, 2008

U.S. New-Home Sales Slide Plunge To Near Seventeen Year Low

“Purchases of new homes in the U.S. plunged more than forecast in March to the lowest level in almost 17 years as stricter loan rules and falling prices caused buyers to hold off. Sales dropped 8.5 percent to an annual pace of 526,000, the fewest since October 1991, from a 575,000 rate the prior month....”

∙ New-Home Sales in the U.S. Plunge More Than Forecast [Bloomberg]
∙ U.S. Existing-Home Sales Slide (This Time Despite The Seasonality) [SocketSite]

Posted by socketadmin at 10:00 AM | Permalink | Comments (44) | (email story)

April 21, 2008

If This Has Been The Calm, What Happens To Sales During The Storm?

“The Bay Area's largest public companies experienced the calm before the storm in 2007. Amid signs of an impending recession, local companies continued to expand at a moderate pace, one that most other U.S. regions would envy.

The Chronicle 200, [an] annual report on the 200 largest public companies in the Bay Area, demonstrates the economic diversity and health of this region. Despite a national housing slump and credit crunch, most companies still delivered solid financial performances in 2007 - although there are clearly clouds on the horizon for 2008.”

“Some of that resilience can be traced to local companies' strong presence on the world stage. Most of the corporate leaders, especially Silicon Valley companies, have major international sales. The dollar's weakness has fueled the rest of the world's appetite for U.S. products.

The flip side is that many of those companies also have hefty employment rolls overseas, so while their robust global sales boost the bottom line back home, they don't necessarily translate into job growth here.”

∙ Chron 200: Bay Area enjoys calm before the storm [SFGate]
∙ San Francisco Recorded Sales Activity In March: Down 20.6% YOY [SocketSite]

Posted by socketadmin at 7:30 AM | Permalink | Comments (10) | (email story)

April 16, 2008

Beige Book Results For The Twelfth District (San Francisco): Flat

According to the latest Federal Reserve regional business survey (a.k.a. The Beige Book), economic growth has slowed in nine of its twelve districts. And the Twelfth District of San Francisco is one of the nine, not one of the three.

Economic activity in the Twelfth District appears to have been largely flat on net during the survey period of March through the beginning of April. Upward pressures on labor costs continued to moderate in some sectors, while upward price pressures were subdued for most products but remained strong for food and energy-intensive items. Retail sales weakened further and demand growth for services continued to slow. Manufacturing activity was mixed across sectors but appeared to hold steady on net, while agricultural producers saw solid growth in sales. Demand for residential real estate remained exceptionally weak, and demand for commercial real estate softened a bit in some areas. Banking contacts reported that loan demand was largely unchanged or fell slightly on net and credit standards tightened further.

What does economic activity have to do with real estate activity? We'll just pretend that you didn't ask that question (if for some strange reason you did).

∙ Federal Reserve Bank: Beige Book Summary (April 16, 2008) [federalreserve.gov]

Posted by socketadmin at 12:06 PM | Permalink | Comments (3) | (email story)

April 10, 2008

It's A Good Thing San Francisco's Fortunes Aren't Tied To The Valley

"Housing prices in Silicon Valley remain defiantly high. New BMWs and Saabs cruise Highway 101. But for the first time there are signs that the current economic downturn is taking its toll on the country’s cradle of technology and innovation.

Job growth has slowed, start-up companies are hiring and spending more cautiously, and early-stage investors who nurture the start-ups with money and expertise are growing more frugal."

∙ Economy Has Become a Drag on Silicon Valley [New York Times]
∙ And What Happened Seven And One Half Years Ago In San Francisco? [SocketSite]

Posted by socketadmin at 11:13 AM | Permalink | Comments (41) | (email story)

April 8, 2008

JustQuotes: U.S. Pending Home Resale Index Hits Seven Year Low

“The number of Americans signing contracts to buy previously owned homes declined more than forecast in February, indicating no sign of a bottom in the U.S. real-estate recession that is entering its third year.

The National Association of Realtors' index of signed purchase agreements decreased 1.9 percent to 84.6, the lowest reading since records began in 2001, the group said today. The drop follows a revised 0.3 percent increase in January.”

“Pending resales dropped in three of four regions, led by a 9.8 percent decline in the West. Purchases fell 5.5 percent in the South and 3.7 percent in the Midwest. Pending sales increased 3.2 percent in the Northeast.”

∙ U.S. Economy: Pending Home Resales Fell More Than Forecast [Bloomberg]

Posted by socketadmin at 8:06 AM | Permalink | Comments (48) | (email story)

March 27, 2008

Are We Detached From More Than Simply The Fundamentals?

An interesting chart of California MSA home price appreciation as measured by the OFHEO*, put together by the Public Policy Institute of California (pdf), and by way of a plugged-in tipster. And an important observation which shouldn’t catch any plugged-in readers by surprise:

While California’s previous housing crisis (southern California in the early and mid‐1990s) was part of a broader economic slowdown, the relationship between housing and economic conditions today is less clear‐cut. In 2007, employment in Merced and Stockton grew more than 2%, despite crashing housing prices, whereas employment grew only 0.6% in California overall and even fell in Los Angeles, Orange County, Ventura County, and Riverside-San Bernardino – where home prices are holding up better than in the Central Valley.

*Note: For those who are unfamiliar, the OFHEO Home Price Index (HPI) is based on data from repeat single-family home sales, or refinancings, that involve conforming mortgages. Data from transactions involving either condominiums or non-conforming loans (two major components of the San Francisco market) are excluded from the Index.

∙ The California Economy: Crisis In The Housing Market (pdf) [ppic.org]
∙ OFHEO: U.S. House Prices Don't Fall (But Do In CA And The SF MSA) [SocketSite]

Posted by socketadmin at 9:38 AM | Permalink | Comments (60) | (email story)

JustQuotes: At Least It’s Getting Cheaper For Those Foreign Buyers…

"The difference between the 10-year government bond yield and the average U.S. fixed mortgage rate was 2.7 percentage points last month, the widest spread since 1986, data compiled by Bloomberg show. Banks are defying Bernanke and hoarding cash after writing down the value of more than $200 billion of mortgage-related securities since July."

"Fed policy makers have made seven rate cuts since September, shaving 3 percentage points off borrowing costs, and the effort has failed to spur a recovery. The average rate for a 30-year fixed mortgage dropped half a percentage point during that period."

Banks Fail to Lower Mortgage Rates as Bernanke Cuts Money Costs [Bloomberg]

Posted by socketadmin at 7:03 AM | Permalink | Comments (4) | (email story)

March 26, 2008

No Real Signs Of Recovery (Much Less Of Simply Stopping Its Slide)

While U.S. existing home sales were “up” in January (but once again, down 23.8% on a year-over-year basis and with prices down 8.2% nationally and 13.4% in the West), the pace of U.S. new-home sales continued its slide in February, down 1.8% to its lowest level since February 1995 and with a median sales price that's down 2.7% (year-over-year).

In short, the national housing market has yet to show any real signs of recovery much less of simply stopping its slide (see the light blue line).

∙ The Good And The Bad (But Not Necessarily The Ugly) [SocketSite]
∙ New-Home Sales in U.S. Fall to Lowest in 13 Years [Bloomberg]
∙ January S&P/Case-Shiller: San Francisco MSA Continues Decline [SocketSite]

Posted by socketadmin at 7:39 AM | Permalink | Comments (7) | (email story)

March 19, 2008

We'll Just Go With The Graphic (And Note That 6% Is Low Not "High")

∙ Fed tries to shake stubborn rates with cut [SFGate]

Posted by socketadmin at 8:06 AM | Permalink | Comments (24) | (email story)

March 18, 2008

JustQuotes: The Fed Cuts By 0.75% Amid “Weakened” Outlook

"The Federal Reserve cut its main lending rate by three-quarters of a percentage point to 2.25 percent as officials try to prop up the faltering economy and restore faith in the U.S. financial system. Chairman Ben S. Bernanke is struggling to cushion consumers and companies from the worst of the credit freeze that's made some of the world's biggest banks reluctant to lend to each other. Officials also showed renewed concern about inflation, making a smaller reduction than traders anticipated."

"The moves helped relieve some stress in credit markets. Yield differences on a Bloomberg index for Fannie Mae's current- coupon, 30-year fixed-rate mortgage bonds and 10-year U.S. government notes narrowed about 22 basis points to 176 basis points, or 61 basis points less than the 22-year high reached two weeks ago. Still, mortgage lending will tumble to an eight-year low this year and house prices will continue to decline, according to the Mortgage Bankers Association."

∙ Fed Cuts Main Rate to 2.25%, Says Outlook `Weakened' [Bloomberg]

Posted by socketadmin at 3:14 PM | Permalink | Comments (13) | (email story)

March 11, 2008

Two Economic Hands: Which Is The Left, And Which Will Be Right?

On the one hand are the economists at UCLA: "…the housing collapse won't cause a California recession because the sector is too small to cause the state's overall economy to contract."

On the other are many others: "…the housing woes are prompting consumers to cut back and making credit harder to get, putting the brakes on broader economic activity…a recession is already at hand."

And in this case, we happen to be more with the "many others" than not.

∙ UCLA forecast sees no California recession [SFGate]

Posted by socketadmin at 10:32 AM | Permalink | Comments (15) | (email story)

A Liquidity Boost (And A Chance To Launder Some “AAA” Securities?)

"The Federal Reserve, struggling to contain a crisis of confidence in credit markets, plans to lend up to $200 billion in exchange for mortgage-backed securities.

The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems. The Fed said in a statement it will hold auctions of Treasuries in exchange for debt including AAA rated mortgage securities sold by Fannie Mae, Freddie Mac and by banks.

Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. While they fall short of the calls by some analysts for the Fed to make outright purchases of mortgage debt, the central bank left the door open to expanding the effort."

∙ Fed to Lend $200 Billion, Take on Mortgage Securities [Bloomberg]

Posted by socketadmin at 7:54 AM | Permalink | Comments (13) | (email story)

March 10, 2008

And What Happened Seven And One Half Years Ago In San Francisco?

As we’ve often pointed out, sales volumes and home price appreciation have been falling in San Francisco over the past couple of years despite the fact that that by most accounts our local economy remains strong, employment and wages are up, and the cost of borrowing remains near historic lows. And this has been in marked contrast to our last real estate decline (2001-2002) which directly coincided with a local economic meltdown (a.k.a. The Internet Bubble).

And now, both the national economy and Bay Area Business Confidence Index are faltering and Federal rate cuts are failing to spark sales (but are doing a great job of weakening the dollar). In fact, The Bay Area Business Confidence Index “tumbled to its lowest level in its 7 1/2-year history, based on results of a survey conducted in late January and early February.”

Let’s see, 7 1/2-years ago would be right around...

∙ Record low Bay Area business confidence [SFGate]
∙ U.S. Economy: Payrolls Unexpectedly Decline for Second Month [Bloomberg]
∙ Bay Area “Notices Of Default” Heading North? (So To Speak) [SocketSite]
∙ February S&P/Case-Shiller Index Decline Continues For SF MSA [SocketSite 4/07]

Posted by socketadmin at 9:55 AM | Permalink | Comments (14) | (email story)

March 6, 2008

New Conforming Limits Expected Today, Access Within A Month?

Increased FHA loan limits for high-cost areas were announced and effected yesterday (apparently Wells Fargo will begin writing in about two weeks). Today, the new conforming loan limits are expected to be announced. And if Kathleen Pender is correct, “Fannie and Freddie are expected to begin buying the bigger loans in about a month."

Still no word on any new conforming guidlines (down payment, credit score, loan-to-value and debt-to-income ratios). Any tipsters within (or with "intimate knowledge" within...) the agencies?

And an FHA aside: "The FHA program has been sporting double-digit delinquency rates for years...We are potentially shifting risk from the private market onto the federal government. It puts the taxpayers on the hook. No doubt about it."

∙ FHA boosts home mortgage limits [SFGate]
∙ Loan Limits Have Been Raised For FHA-Backed Loans In California [SocketSite]

Posted by socketadmin at 7:31 AM | Permalink | Comments (2) | (email story)

March 5, 2008

JQ: While The Fed Giveth (Cuts), The Street Taketh Away (Spreads)

"The extra yield that investors demand to own so-called agency mortgage-backed securities over 10-year U.S. Treasuries rose to the highest since 1986, boosting the cost of loans for homebuyers considered the least likely to default.

The difference in yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes widened about 1 basis point, to 204 basis points, or 70 basis points higher than Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less. A basis point is 0.01 percentage point."

"Spreads tightened last week when the regulator for Fannie Mae and Freddie Mac, two of the largest buyers of the securities they guarantee, announced that temporary caps on their $1.5 trillion portfolio would be lifted. Investors have realized that the step was unimportant because the companies remain "capital-constrained," [a] New York-based UBS analysts wrote."

∙ Agency Mortgage-Backed Bond Spreads Reach Highest Since 1986 [Bloomberg]
∙ JustQuotes: What The OFHEO Are They Thinking? [SocketSite]

Posted by socketadmin at 9:04 AM | Permalink | Comments (8) | (email story)

March 4, 2008

Did Your Portfolio Help Bailout An Overleveraged Homeowner Today?

Federal Reserve Chairman Ben Bernanke, urged lenders “to forgive portions of mortgages held by homeowners at risk of defaulting” this morning in Orlando.

"Lenders tell us that they are reluctant to write down principal," Bernanke said. "They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again."

The Fed chairman countered that by reducing the amount of the loan, this "may increase the expected payoff by reducing the risk of default and foreclosure."

Bernanke also urged investors in mortgage bonds to accept "short payoffs" of loans by allowing borrowers to refinance at a lower principal.

For investors, a reduction in principal that's "sufficient to make borrowers eligible for a new loan would remove the downside risk" of further writedowns or defaults, Bernanke said. Investors may be able to share in future gains in home prices under some plans, he said, citing a proposal by the Office of Thrift Supervision.

Wall Street reacted accordingly this morning in New York. There’s nothing like talk of a federally orchestrated, yet privately funded, bailout in the morning.

∙ Bernanke Urges Banks to Forgive Portion of Mortgages [Bloomberg]
∙ U.S. Stocks Fall on Bernanke Plan; Citigroup, Oil Shares Drop [Bloomberg]

Posted by socketadmin at 9:46 AM | Permalink | Comments (17) | (email story)

February 28, 2008

JustQuotes: Freddie Follows Fannie (As Is Human Nature)

"Freddie Mac, the second-largest mortgage-finance company, posted a record $2.45 billion loss for the fourth quarter as rising defaults sent credit costs soaring....Government-chartered Freddie Mac and Fannie Mae, which account for 45 percent of the $11.5 trillion home loan market, are posting their biggest-ever losses as foreclosures and tumbling home prices increase costs. Freddie Mac Chief Executive Officer Richard Syron said today the company remains 'extremely cautious' for 2008."

∙ Freddie Mac Posts Record Loss, Remains `Cautious' [Bloomberg]

Posted by socketadmin at 6:56 AM | Permalink | Comments (7) | (email story)

February 27, 2008

JustQuotes: What The OFHEO Are They Thinking?

"U.S. regulators removed limits on the combined $1.5 trillion mortgage portfolios of Fannie Mae and Freddie Mac, enabling the companies to increase financing for the slumping housing market.

The asset caps, imposed in 2006 after the two largest mortgage finance companies revealed $11.3 billion of accounting errors, will end on March 1, the Office of Federal Housing Enterprise Oversight said in a statement today. The agency will still require the companies to set aside reserve capital that is 30 percent more than the usual minimum.

Unconstrained by portfolio limits, the government-chartered companies may buy more loans and bonds, replacing buyers who fled the market amid the collapse in subprime mortgages."

"Ofheo lifted the constraints after Fannie Mae and Freddie Mac met a demand that they resume timely reporting by the end of the month. Fannie Mae today posted a fourth-quarter net loss of $3.55 billion, as record home foreclosures increased credit losses."

∙ Fannie Mae, Freddie Mac Portfolio Caps Will Be Lifted [Bloomberg]

Posted by socketadmin at 1:40 PM | Permalink | Comments (7) | (email story)

February 25, 2008

JustQuotes: Damn Those "Broader Effects"

"Sales of existing homes in the U.S. fell in January to the lowest level since records began nine years ago and prices slid for the sixth time in seven months, posing a threat to consumer spending, the largest part of the economy.

Resales declined 0.4 percent, less than forecast, to an annual rate of 4.89 million from a revised 4.91 million in December that was higher than previously reported, the National Association of Realtors said today in Washington.

The figures indicate declines in home prices so far aren't sufficient to entice more buyers. Former Federal Reserve Chairman Alan Greenspan said today that the deepening rout in housing is having a 'broader effect' on spending, and that a recession this year may be deeper than previous downturns."

∙ Existing Home Sales Decline to Nine-Year Low [Bloomberg]

Posted by socketadmin at 5:55 AM | Permalink | Comments (10) | (email story)

February 19, 2008

Savings From Increased Conforming Loan Limits Get Shaved

Remember that little comment we made a few weeks ago regarding increased prepayment risk associated with increasing conforming loan limits? From the Securities Industry and Financial Markets Association (SIFMA) on Friday:

Higher balance loans which are now temporarily eligible for Federal Housing Authority (FHA) and GSE guarantee programs under H.R. 5140, the Stimulus Package, will not be eligible for inclusion in TBA-eligible pools. They are instead expected to be securitized under unique pool codes for trading on a “specified pool” basis or inclusion in Real Estate Mortgage Investment Conduit (REMIC) transactions.

Thank increased prepayment risk for the unique pooling. And why does the pooling matter?

Jumbo mortgages now eligible for purchase by the nation's largest home loan finance companies [under the Stimulus Package] will be locked out of the market where trading helps lower rates to consumers...

Including jumbo loans in TBA pools would have had the unintended effect of raising rates on traditional conforming loans since investors assume they will receive the larger loans when they take delivery of the bonds, according to Freddie Mac. In TBA, the loans must be deemed fungible, so investors buy without knowing attributes.

In other words, hello "super conforming tier" and goodbye "conforming" mortgage rates for loans between $417,000 and $729,750 in San Francisco.

∙ Conforming Loan Limits: A Placeholder For Discussion And Analysis [SocketSite]
∙ SIFMA to Update MBS TBA Good Delivery Guidelines [SIFMA]
∙ Jumbo loans to be isolated from mortgage TBA: SIFMA [Reuters]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]

Posted by socketadmin at 1:22 PM | Permalink | Comments (24) | (email story)

February 14, 2008

The California Budget Project Reports: It’s Expensive In San Francisco

The conclusion from the California Budget Project’s ominously titled “Locked Out 2008: The Housing Boom and Beyond” report:

California’s home sales and prices boomed in recent years, driven in part by loosened mortgage underwriting standards and the promotion of loans with risky features – such as ARMs with short-term teaser rates – that allowed many Californians to buy a piece of the “American Dream.” As teaser rates have expired, mortgage payments have jumped to unaffordable levels for many homeowners, helping to trigger a rising wave of foreclosures that could exacerbate the state’s current economic slowdown. Although the housing downturn has been dramatic, other characteristics of California’s housing market – such as lack of affordability and high rates of overcrowding – have remained relatively constant.

And setting the stage for the upcoming DataQuick sales report for Nothern California:

Analysts point to two key reasons that the median home price continued to increase during 2006 and early 2007 as sales declined. First, home prices “tend to be ‘sticky’ on the downside” of a housing-market cycle, because some sellers take their homes off the market if they cannot sell for their preferred price, which initially keeps home prices from falling. Second, the composition of home sales had changed. The downturn in sales was most apparent in neighborhoods with lower-priced homes, in part due to rising foreclosures, tightened underwriting standards, and the decline of investment funds for subprime loans. Meanwhile, sales of higher-priced homes remained steadier as Californians with higher incomes continued to purchase homes. As a result, higher-priced homes made up a larger share of sales, thereby boosting the statewide median home price even as overall sales declined.

Or as we often write in far fewer words, “think mix.”

∙ Locked Out 2008: The Housing Boom and Beyond (pdf) [California Budget Project]
∙ Locked Out 2008: Profile of California Counties (pdf) [California Budget Project]

Posted by socketadmin at 5:00 AM | Permalink | Comments (53) | (email story)

February 13, 2008

If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will

President Bush is expected to sign the economic stimulus bill this afternoon which will likely raise the conforming loan limit in San Francisco to $729,750 (at least “temporarily”). Don’t expect the new limits to take effect for at least 30 days or for the first closings to occur until a few weeks after that.

And in terms of the actual impact on mortgage rates, Julian Hebron of Residential Pacific Mortgage offers one perspective:

There has always been tiered pricing in the Jumbo market. Rates on Jumbo loans from $417k to $650k can be lower than rates on loans from $650k to $1m, and so forth as loan amounts rise into the ‘Super Jumbo’ realm above $1m. Early lender chatter is that when conforming limits rise, we may see higher rates on the ‘Super Conforming’ tier from $417k to $729k.

We also may see rates on all conforming loans rise as a result of the new loan limits. Right now, conforming 30yr fixed rates are about 1% lower than jumbo rates. Conforming 5yr, 7yr and 10yr ARMs are about .5% lower than jumbo rates. If we had a so-called Super Conforming pricing tier, or if conforming loan limits rose in general, expect the benefit of a new Super Conforming versus a jumbo to be cut in half or worse. This might not happen, but such adjustments are a normal part of open market pricing, so just be aware of it.

As always, only time (and the traders) will tell.

UPDATE: Bush has signed the bill.

UPDATE: In response to a reader's question about timing, keep in mind that the Secretary of Housing and Urban Development now has 30 days to establish official median home prices for the high cost areas (the first step in calculating the new conforming loan limits) and updated underwriting guidelines still need to be debated, drafted and distributed.

∙ Conforming Loan Limits: A Placeholder For Discussion And Analysis [SocketSite]
∙ Bush Signs $168 Billion Measure Designed to Stimulate Economy [Bloomberg]

Posted by socketadmin at 9:46 AM | Permalink | Comments (24) | (email story)

JustQuotes: It’s Not About The Rates But Rather The Spreads

"The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on so-called jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines."

∙ Fed Interest-Rate Cuts Fail to Lower Borrowing Costs [Bloomberg]

Posted by socketadmin at 8:19 AM | Permalink | Comments (3) | (email story)

January 31, 2008

Senate Advances Stimulus Plan Without Any Loan Limit Adjustments

As a plugged-in reader notes, while the House has approved a “Stimulus Plan” which includes the much ballyhooed increase in conforming loan limits for California, the Senate is advancing a package which does not. Game(smanship) on.

And yes, we still owe you our thoughts on the whole shebang.

UPDATE: And as another reader notes below, "Republicans are filibustering it and 60 votes are needed for it to pass. According to the NY Times, Sen. Schumer says they will pass the house version if they can't get 60 votes for the Senate version."

∙ House Approves Economic Stimulus Plan [New York Times]
∙ Conforming Loan Limits: A Placeholder For Discussion And Analysis [SocketSite]
∙ Senate Democrats Short of Votes for Stimulus Bill [New York Times]

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January 30, 2008

JustQuotes: The Federal Reserve Cuts Rates Yet Again (0.5%)

"The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.

'Downside risks to growth remain,' the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that 'financial markets remain under considerable stress and credit has tightened further for some businesses and households.'

The dollar tumbled and two-year Treasury notes rose after the decision as traders anticipated another reduction at the Fed's March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. The Standard & Poor's 500 Index closed 0.5 percent lower and is down 7.7 percent this year."

∙ Fed Cuts Interest Rate to 3% as U.S. Growth Falters [Bloomberg]

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January 28, 2008

JustQuotes: U.S. New Home Sales Follow In The Footsteps Of Old

“Purchases of new homes in the U.S. fell to a 12-year low in December [and fell 26% on a year-over-year basis], capping the biggest annual decline on record.

Sales decreased 4.7 percent to an annual pace of 604,000, the fewest since February 1995, from a 634,000 rate the prior month, the Commerce Department said today in Washington. The median price last month dropped 10 percent from December 2006, the biggest 12-month decline in 37 years.

The report may reinforce concern that falling home values and stricter lending rules will lead to more foreclosures and hurt consumer spending. Federal Reserve policy makers, meeting later this week, will probably cut interest rates again to try to ward off recession, economists said.”

∙ Sales of New Houses in U.S. Fall More Than Forecast [Bloomberg]
∙ U.S. Existing Home Sales Decline More Than Forecast In December [SocketSite]

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January 24, 2008

U.S. Existing Home Sales Decline More Than Forecast In December

"Sales of existing homes in the U.S. fell more than forecast in December, capping the biggest yearly slump in more than a generation.

Purchases fell 2.2 percent to an annual rate of 4.89 million, the National Association of Realtors said today in Washington. For all of last year, sales of single-family homes declined 13 percent, the most since 1982, and prices dropped for the first time in at least four decades [and likely since the Great Depression].

Falling property values and tougher borrowing rules may lead to more foreclosures and depress housing for most of this year. The worsening real-estate recession is at the core of the economic slowdown and will probably prompt the Federal Reserve to lower interest rates next week and in future meetings, economists said."

∙ U.S. Existing Home Sales Fell More Than Forecast [Bloomberg]

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January 22, 2008

The Federal Reserve Cuts Benchmark/Discount Rates By 0.75%

Twelve weeks ago the Federal Reserve cut the benchmark interest rate by 25 basis points (0.25%) and signaled that further cuts were unlikely. Six weeks ago they cut again by 25 basis points as house prices continued to drop, spending continued to slow, and banks continued to tighten their lending standards.

And in an unscheduled session this morning, the Feds have further cut the benchmark interest rate by 75 basis points (0.75%):

The Federal Reserve lowered its benchmark interest rate in an emergency move for the first time since 2001 after stock markets tumbled from Hong Kong to London and the U.S. economy showed increasing signs that it's headed into a recession.

The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.

And once again we ask, will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?

∙ The Federal Reserve Cuts Benchmark/Discount Rates By 0.25% [SocketSite]
∙ It’s Déjà Vu All Over Again: Fed Cuts Benchmark/Discount Rates .25% [SocketSite]
∙ Fed Cuts Rate 0.75 Percentage Point in Emergency Move [Bloomberg]

Posted by socketadmin at 7:08 AM | Permalink | Comments (33) | (email story)

January 14, 2008

The 2008 Housing Market Through The Eyes Of The (Not An) MBA

Expectations for the national housing market in 2008 according to the Mortgage Bankers Association (MBA):

- A 2 percent decline in nominal median sales price (versus 2007)
- A 13 percent decline in existing home sales (versus 2007)
- A 15 percent decline in new home sales (versus 2007)
- An 18 percent decline in purchase mortgage originations (versus 2007)

The MBA is also forecasting that the 30-year fixed-rate mortgage yield will trend up slightly to 6.2 percent by the end of the year (yes, “still quite low by historical standards”), and that the market will start its recovery in 2009.

∙ 2008 MBA Forecast: Slow Economic Growth/Lower Levels of Mortgage Originations [MBA]

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January 8, 2008

JustQuotes: Just Don’t Bet On (Or Call It) A Potential ARM Bailout

""There is no evidence it is bottoming,"' [Treasury Secretary Henry Paulson] said of the housing decline on CNBC television during a trip to New York. "The evidence would be that it has further to run."

The Treasury chief indicated the outlook may prompt an expansion of the plan Bush administration officials brokered with mortgage lenders last month. The initiative is aimed at helping as many as 1.2 million Americans keep their homes by making it easier to negotiate affordable loans and freezing some adjustable-rate mortgages at current rates.

"We have this wave of resets coming," Paulson said, referring to the almost 2 million of adjustable-rate loans forecast to jump to higher rates in the coming two years. "One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers.""

∙ Paulson Sees `No Evidence' Housing Decline Is Ending [Bloomberg]
∙ Pending Sales of Existing U.S. Homes Fell in November [Bloomberg]

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December 28, 2007

JustQuotes: National New Home Sales Drop To 12-Year Low

"Sales of new homes in the U.S. fell to a 12-year low in November, pointing to bigger declines in construction that will hobble economic growth throughout 2008."

"Purchases fell in three of four regions, led by a 28 percent plunge in the Midwest. Sales dropped 19 percent in the Northeast and 6.4 percent in the South. They rose 4 percent in the West."

∙ Sales of New Homes in U.S. Dropped 9% to 12-Year Low [Bloomberg]

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December 20, 2007

Their Mascot Might Be A Bull, But Merrill Lynch Is Anything But

The title of yesterday’s Economic Commentary from Merrill Lynch: “Housing deflation could be a multi-year process.” And the executive summary:

Both the near-term and longer-run outlooks for the housing market remain clouded in what is a severe downturn in starts, sales and prices that has become national in scope. As we saw in the November housing starts data, the builders are now frantically cutting production.

But with the sales backdrop still softening, they may have to slice their construction plans by another 30% before we hit bottom on a cyclical basis. And, that bottom could be as long as a year away. Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the “price”. The looming dominance of the “move down” buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply. In fact, real estate pricing in general can be expected to be in the doldrums through 2012.

The need to save for retirement will have to increasingly come “organically” in the form of setting aside an extra nickel or dime from every dollar earned in after-tax wages and salaries as opposed to what we as a society have been doing for the better part of the past decade, in essence, blurring the distinction between real estate as a “consumption good” (place to live) and real estate as part of the “portfolio” (investment) that was going to experience sustained double-digit appreciation and emerge as a fountain of cash-flow in the future.

Expectations are already in the process of being deflated and we are at the early stages of a savings revival in the traditional sense of the word, and this will (i) be deflationary for the aggregate demand curve; (ii) be bullish for Treasury bonds; (iii) act as an underpinning for the dollar insofar as this process continues to foster an improvement in the current account deficit (which, excluding energy, is down to a six-year low).

See the chart [above] – at the height of the bubble, almost one in four households who were contemplating a move into real estate based their decisions on future price appreciation. This “investor class” that dominated the housing market for so long has now seen its share dwindle to a record low of 4%. This is a very big deal as it illustrates just how far the speculation has been expunged, and it also heralds a major (and healthy) shift in how the public now perceives real estate.

And while the report is national by nature, there are obviously themes that might resonate right here at home. And of course, there’s the punch line:

Here is what we really “do not get”. There are still economists out there talking about how the housing recession is still local and not regionally broad based. We have no idea who their data vendors are. In our view, this clearly goes down as the most national real estate downturn since the 1930s.

Posted by socketadmin at 2:00 AM | Permalink | Comments (13) | (email story)

December 19, 2007

Promoted From Comment To Post: Satchel Does Deflation

We’re not sure whether to call it a guest editorial or a soapbox, but in either case we’re handing plugged-in reader Satchel the mike.

Thanks for the questions regarding how I can be predicting deflation when everyone else seems to be saying inflation (and some price measures are pointing that way). It does seem contradictory, but it's really pretty straightforward when you take it step by step. Apologies to anyone who finds this pedantic or useless. And of course for some of you this will be very obvious. But maybe some of you would find this interesting? As usual, it is long…

First, real wealth is not the same as monetary value (prices). Real wealth (sometimes called real assets) consists of things like real estate, useful goods (like, say, a nice handmade guitar or maybe a store of grain) and control of the factors of production (people typically think equities, but it's really much broader - intellectual capital, the ability of a mother to teach her young children in their earliest years, small unlisted businesses, etc.). Most real assets are assigned a monetary value or price, especially if they are to be exchanged. This is obvious with real estate or equity prices. But think out of the box. Think about how people sometimes say, "I need to monetize my idea" or "monetize my time". Wealth is a pretty broad concept.

Real wealth grows slowly, and is correlated with productivity growth, which is a small number, and, although the tech guys will not like to hear this, is actually today lower than pre-WWII. Lots of debate, and no real reason to go into it here, but suffice it to say, we're talking gains of roughly 1-2% per year per capita. So, real wealth grows slowly, and if too much government gets in the way, it can turn negative (think USSR post- about 1980). (Please guys, don’t tell me about the recent uptrend in trend productivity. I’ve seen the NY Fed data – they’re wrong as far as I can tell, because they’re derived from a deflator that is understated; I guess this is arcane, but for those of you who understand this, you’ll also understand why the government has a systematic bias in favor of understating price inflation measures for obvious reasons.)

In a fiat system, money is debt. Simple as that. Money is literally borrowed into existence. Think about when you buy a house in SF in 1999. Its monetary value then was $1MM. In 2005, say, its monetary value is $2MM. The real value (or wealth) inherent in the house has not increased (technically, there is a slight increase or decrease, but people are already complaining about the bandwith I use, so forgive me if I skip that wrinkle) because it is the SAME house. Same utility. Same wealth. Same real value.

Now, if you borrow $500,000K against it, you get money. Where did that money come from? It was borrowed into existence. That's how it works. In the old days, before Dr. Greedscam, the amount of borrowing available was limited by reserve requirements, so that the Fed could control the rate of growth, at least somewhat (not that they really did). Following 1991, these limits gradually disappeared, as securitization took hold. In its most extreme and current iteration, one could literally create money out of nothing. All you needed was a willing investor (hello silly Asian savers and Eurosclerotics) in a SIV (or conduit, or ABS tranche, or CDO, or CLO, get the picture?), and you could always find a willing American Debt-Serf. By now the fed had basically relinquished all control over borrowing, especially as it was unwilling to disappoint the masses who were increasingly tricked into thinking debt was wealth (and this confusion was a very happy happenstance for the banks and corporations BTW). Nominal debt (and derivatives) EXPLODED – literally into the hundreds of trillions of dollars, although some of these net against each other. Wall Street siphoned off a little bit every time they created one of these things, then took a little more every time they traded, and for good measure even bought them and traded against the infinitely less sophisticated public officials, pension funds, money market funds and, yes, even homebuyers (through excessive fees siphoned off by brokers, re agents, etc). It was literally a slaughter.

Following the example, after you create the $500K of money, you are no more wealthy. This is important. You have exchanged your future earnings (with interest of course) for the newly-created money. In other words, you have exchanged part of your FUTURE wealth (your earnings power and productive capacity or your ability to consume in the future) for current wealth. (You might sometimes hear people throw around the term “Riccardian equivalence” which is basically this idea.) There is an illusion of increased wealth, because of all the money flying around, but wealth is the same on a net basis (across time), increasing slowly as it does. Actually, you take a hit to your wealth – LOL! That’s why all the hedge fund guys are buying yachts and mansions!! – but you won’t realize that until later, if ever. Where do you think Wall Street got all the hundreds of billions in bonuses in the last 6 years while equity markets returned approximately 0% (excluding the fraudulently small dividends received)? Now that return was for the broad S&P. If you happened to be invested in tech stocks generally…..well, you know it was a(nother) slaughter. Hmmm, BTW, where did all that money go?? I’ll let you figure that out, but I’ll give you a hint – drive around Atherton or, even better, Greenwich, Connecticut for some clues…..

Back to your questions now. I think your confusion about inflation is that you are only thinking about it as prices. Think of it as money (credit) supply. As the credit supply is expanded (through borrowing) it is inflated. As it contracts, it deflates. Inflation/deflation. That’s it. But think about the effect on monetary values (prices) of things when credit inflates. The extra money created “chases” some asset prices and goods/services up. Generally, these items are what amateur trader/economists call “houses and haircuts” – that is, fixed assets and services that cannot be arbitraged. You can’t get a haircut from China. You can’t get a house from China. And you can’t eat out at a restaurant in China on a Staurday night and still be home for bedtime. So that created money tends to flow here, raising prices for houses, haircuts and restaurant meals. For things that you can get from China, well, you know the story. Price deflation, which is what you would expect because as productivity rises things become cheaper to make (in real terms).

There’s no real reason prices should go up in the aggregate, absent credit creation. In fact, before we had a fiat money system (basically prior to 1913), you might be surprised to learn that a house in 1780 cost basically the same as it did in 1900! Imagine that. Real estate didn’t go up over a 120 year period!! Well, of course that makes sense, because the REAL VALUE doesn’t really change too much. It never does, not even today. (This is of course super oversimplified, but you get the idea.) Incidentally, over this period, living standards and real income increased dramatically, as many prices fell (through increased productivity), freeing people up to enjoy the fruits of their increased productivity.

Sometimes when credit is expanded recklessly, and under apparent mass psychology conditions that no one can really figure out, the public’s attention is turned to a particular asset or asset class. It could be tulips in Holland, could be land in Florida 1925-26, equities in the 1920s, railroad stocks in the 1840s, a crazy company that no one really could figure out what it was supposed to do (except somehow exchange stock for newly created government debt) in the 1720s England, the twin Japanese real estate and stock bubbles of the late 1980s, the NASDAQ in the late 1990s, or, most unfortunately for some of us, what looks to be the biggest bubble of them all, the (almost) global housing bubble. Although no one wants to admit that SF suffers from it, it would be strange for it to sit out the party, don’t you think, since it is usually on the cutting edge and all??

We’re getting to the good part. What happens when there is deflation? That is, when money/credit is destroyed? And what effects will this process likely have on asset prices, and can certain consumer prices (like food or oil, for instance) still rise in an environment like this, or its variant, what is often thought of as stagflation?

I’ll post more tomorrow. If anyone appreciates this at all, or wants me to absolutely stop, either way, put up a comment, and I’ll try to be a “people pleaser” – as I’m sure you can tell, something that does NOT come naturally to me!

Editor's Note: We're not all that interested in lowest common denominator thoughts, so please don't worry about trying to be a "people pleaser" on this post. And as always, thank you for plugging in (and provoking thought).

Posted by socketadmin at 9:46 AM | Permalink | Comments (40) | (email story)

December 11, 2007

It’s Déjà Vu All Over Again: Fed Cuts Benchmark/Discount Rates .25%

Six weeks ago the Federal Reserve cut both the benchmark interest rate and the discount rate by 25 basis points (a quarter percent) while signaling that further cuts were unlikely. Our questions at the time: “Will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?”

Today the the Federal Reserve cut both the benchmark interest rate and the discount rate by another 25 basis points. And it looks like we have an answer (at least to question number one):

The economy is faltering after a third-quarter surge as house prices drop, consumer spending slows and banks tighten lending standards for even their best customers. Chairman Ben S. Bernanke has struggled to insulate the economy from financial- market instability since the central bank began reducing borrowing costs in August.

"Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending," the FOMC said. "The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.''

And related to our question number two (regarding local rates):

Because banks are protecting capital, lending has been cut and concerns about counter-party risk are higher. About 40 percent of lenders have increased their standards for the most creditworthy borrowers to qualify for a so-called prime loan, according to a Fed study in October.

Interest rates for jumbo 30-year fixed-rate mortgages are about 6.68 percent, a spread of 92 basis points over non-jumbo loans of $417,000 or less. A year earlier, the spread was 36 basis points, and last month it was 57. A basis point is 0.01 percentage point.

∙ Fed Lowers Benchmark Rate by a Quarter Point to 4.25 Percent [Bloomberg]
∙ The Federal Reserve Cuts Benchmark/Discount Rates By 0.25% [SocketSite]

Posted by socketadmin at 11:28 AM | Permalink | Comments (17) | (email story)

December 10, 2007

NAR Adds 0.18% And Aims To End The Year On A Positive Note

For the first time in nine months, the National Association of Realtors has revised their forecasts for national existing home sales in 2007 and 2008 upwards.

In both cases, however, NAR's revised forecasts have added 10,000 home sales to last month's estimates of 5.66 and 5.69 million (2007 and 2008 respectively). And in both cases it represents an increase of 0.18% over last month's forecasts (which seems to be more spin than substance) and a drop of 12.5% as compared to 2006 (which would represent the lowest level of market activity since 2002).

The trade group also said its index that forecasts near-term home sales inched upward in October. The trade group's seasonally adjusted index of pending sales for existing homes rose 0.6 percent to 87.2 from an upwardly revised September index of 86.7, but was down 18.4 percent from a year ago — the third-largest year-over year decline on record.

The Realtors group also said the median price for U.S. existing homes — the point at which half sold for more and half for less — will sink by 1.9 percent to $217,600 this year and rise 0.3 percent next year to $218,300.

∙ Realtors' Forecast Bucks Common Wisdom [Associate Press]

Posted by socketadmin at 9:17 AM | Permalink | Comments (8) | (email story)

December 6, 2007

JustQuotes: A Preview Of The Federal Subprime Freeze To Come

“President George W. Bush today will announce a [five year] freeze on some subprime mortgage rates in an effort to stop a wave of foreclosures undoing the six-year expansion.”

“The agreement addresses homeowners unable to afford higher interest rates once starter rates increase, and offers help in one of three ways, a White House official said. The options are freezing rates or refinancing into either a new private mortgage or a Federal Housing Administration-backed loan, he said on condition of anonymity.”

“The freeze will apply to mortgages issued between January 2005 and July 2007 that are scheduled to reset between January 2008 and July 2010, said the people familiar with the plan. To be eligible, borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property [and have a FICO score below 660].”

∙ Bush Aims to Prolong Expansion With Subprime Freeze [Bloomberg]

Posted by socketadmin at 8:00 AM | Permalink | Comments (36) | (email story)

December 3, 2007

An Apples To Apples Sale In The Marina (1751 Beach): The Investment

A little over two years ago (on 9/30/2005 to be exact) 1751 Beach Street was purchased for $1,400,000. The purchase appears to have been financed with a down payment of $170,000, a first (variable rate) mortgage in the amount of $980,000, and a second (variable rate) mortgage of $250,000. And HOA dues for the condo are a reasonable (especially considering they include earthquake insurance) $275 per month.

Assuming a blended mortgage rate of 6% in 2005 (which is likely understated based on the combination of a super Jumbo first and a second), interest payments over the past two years would have been running at least $6,100 per month. And property taxes (based on the sale price in 2005) around $16,000 a year.

Based on these numbers, our back of the envelope calculations put the after-tax cost of holding this property at around $4,400 per month (at a minimum); the opportunity cost on the down payment at around $700 per month (assuming a 5% annual return); and the total effective cost at $5,100 per month over the past two years. At the same time, this property did appreciate in value by about $800 per month (based on its recent sale for $1,420,000).

In other (overly simplified) words, if the person who purchased 1751 Beach Street last month for $1,420,000 had passed on the purchase in 2005 (for $1,400,000) and instead rented a similar condo for anything under $4,300 per month (in 2005), they would have likely come out ahead (at least financially).

Looking forward? Well, that's a topic for tomorrow.

∙ An Apples To Apples Sale In The Marina (1751 Beach): The Market [SocketSite]

Posted by socketadmin at 12:11 PM | Permalink | Comments (64) | (email story)

November 30, 2007

No Direct Support! But Any Bets On Tax Credits For Security Holders?

“U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks to stem a surge in foreclosures by fixing interest rates on loans to subprime borrowers, according to people familiar with a meeting he led yesterday.”

“While the government can't force the industry to modify loans, Mr. Paulson and other administration officials have been using moral suasion to push for workouts, telling the companies it is in their interest to avoid foreclosure since most parties can lose money when that happens. A similar plan to freeze interest rates temporarily was recently announced by California Gov. Arnold Schwarzenegger and four major loan servicers, including Countrywide.

Among the holdouts have been investors, who typically hold securities backed by mortgages. If interest rates are frozen, they would lose the potential benefit of higher payments. But investors have cautiously moved toward cooperation, likely on the grounds that it's better to get some interest than none at all.”

“Officials in Washington have been cautious about steps that would be seen as rescuing borrowers, lenders and investors from the consequences of their own bad decisions. That is why few are suggesting direct support for borrowers who can't afford their loans. Mr. Paulson has decided his best option is to prod the markets to sort matters out themselves, as long as companies bear in mind the public interest in keeping people in their homes.”

∙ Paulson, Banks in Talks to Stem Surge in Foreclosures [Bloomberg]
∙ U.S., Banks Near A Plan to Freeze Subprime Rates [WSJ]
∙ JustQuotes: What’s The Cause And What’s The Effect? [SocketSite]

Posted by socketadmin at 9:10 AM | Permalink | Comments (10) | (email story)

November 28, 2007

We’ll Say It Once Again: It’s All About Managing Expectations

“The [U.S.] housing sector has continued to decline and to erode at a very, very rapid rate,'' [Federal Reserve Vice Chairman Donald Kohn] said in response to a question. “It would be nice to see some early signs that it was beginning to stabilize, and we haven't seen that yet.”

Merrill Lynch & Co., Citigroup Inc. and other banks that underwrote so-called collateralized debt obligations linked to mortgages and other credits have already warned of losses of at least $47.2 billion on CDOs and other holdings. The securities slid as investors shunned assets linked to subprime U.S. mortgages following a surge in loan defaults.

“There's further to go” in revealing losses, Kohn said today. He added that the more information that is made public about potential losses “the better,” as it will help ease uncertainty."

UPADTE: A publishing error resulted in this excerpt being published twice. And an editor’s error (damn monkeys) resulted in the deletion of the version with (rather than without) our reader’s comments (which we didn’t even have a chance to read). Sorry about that folks, no slight intended, and please feel free to comment again. And as always, thank you for plugging in.

∙ Kohn Sees Risk of Reduced Credit From Market Upheaval [Bloomberg]

Posted by socketadmin at 9:59 AM | Permalink | Comments (0) | (email story)

November 20, 2007

We’re Looking For A Messenger (And Promise Not To Shoot)

The agenda (and no, not that kind of agenda) for yesterday’s real estate and economics symposium hosted by the UC Berkeley Fisher Center for Real Estate and Urban Economics.

The Chronicle’s summary: “A real estate symposium on Monday…predicted more gloom in the Bay Area housing market over the next year or so.”

And a reader’s inquiry (which we’ll simply have to parrot): “Would love to hear to some insider scoop on the symposium.”

UPDATE: And will_h comes through with a plugged-in reader's synopsis of the symposium.

∙ 30th Annual Real Estate & Economics Symposium: Agenda [berkeley.edu]
∙ Bay Area real estate symposium forecasts more gloom [SFGate]

Posted by socketadmin at 8:29 AM | Permalink | Comments (11) | (email story)

November 14, 2007

JustQuotes: The Foreclosure Spillover, Symptom Or Subterfuge?

"The losses (from foreclosures) are extending to neighbors and to entire communities," said Martin Eakes, chief executive of the Durham, N.C., Center for Responsible Lending, which released the survey on Tuesday. "The spillover effect is disturbing because we've only just begun to see the foreclosures."

"Foreclosures aren't causing prices to fall - it's a symptom of the whole thing unraveling," [Christopher ] Thornberg said. "If you had no foreclosures at all, prices were still going to fall. (Foreclosures) may accelerate the process, but it's a process that has to happen one way or another because when you look at (home) prices relative to income, it's completely insane."

∙ Ripple effect of foreclosures touch entire communities [SFGate]

Posted by socketadmin at 8:30 AM | Permalink | Comments (24) | (email story)

November 5, 2007

The Fortune Forecast For Where Home Prices (And Rents) Are Headed

As a plugged-in reader notes, Fortune Magazine looks at historic Price to Rent ratios (pages 76-88) across 54 major metropolitan areas in an attempt to forecast where home prices are headed.

In most markets people won’t lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble. But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents “behave much like price/earning rations for stocks,” says Yale economist Robert Shiller. “Like P/Es, price-to-rent ratios are mean-reverting.” In other words, while prices soar from time to time, sending the ration to exceptional heights, sooner or later the relationship is bound to return to its historical average.

Of course, rather than prices falling rents can rise. And while Fortune forecasts a 28.3% correction in the Price to Rent ratio over the next five years for the San Francisco MSA, they’re forecasting it's derived from a 10% drop in prices along with an 18% increase in rents. Over in the East Bay, however, the Fortune forecast is a bit more grim as they're calling for a 38.1% correction driven mainly by price declines of >30%.

And of course, the concept of a housing P/E (and rising rents) shouldn't catch any plugged-in readers by surprise.

∙ Real Estate: Buy, Sell, or Hold? (Pages 76-88) [Fortune Magazine]
∙ Not The “P” But The “E” [SocketSite]

Posted by socketadmin at 3:48 PM | Permalink | Comments (179) | (email story)

October 31, 2007

The Federal Reserve Cuts Benchmark/Discount Rates By 0.25%

The known: the Federal Reserve has cut both its benchmark interest rate and discount rate by 25 basis points (a quarter percent) while signaling that further cuts are unlikely.

"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets," the Federal Open Market Committee said in a statement after meeting today in Washington. "After this action, the upside risks to inflation roughly balance the downside risks to growth."

The big unknown(s): will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?

∙ Fed Lowers Rate by a Quarter Point to 4.5 Percent [Bloomberg]
∙ U.S. Federal Open Market Committee Statement: Text [Bloomberg]

Posted by socketadmin at 11:53 AM | Permalink | Comments (32) | (email story)

October 25, 2007

JustQuotes: Pick Your U.S. New Homes Sales Headline And Spin

U.S. New-Home Sales Rose in September After Revisions [Bloomberg]
“Sales of new U.S. homes unexpectedly rose in September after figures for previous months were revised down, maintaining concern the housing slump will restrain economic growth. Purchases increased 4.8 percent to an annual rate of 770,000 that matched the median forecast of economists surveyed by Bloomberg News. August purchases were revised down to an 11-year low of 735,000, the Commerce Department said today in Washington.”

New home sales hammered again [CNN]
“The pace of new home sales was weaker than expected in September, although it was a slight pick-up from an even weaker revised figure for the previous month, according to a government report. The pace of new home sales came in at an annual pace of 770,000 in the month, up from the revised 735,000 rate in August. Economists surveyed by Briefing.com had forecast sales would slow to a pace of 775,000 in the month.

But the report showed more weakness than the narrow miss of the forecast would indicate. Both the pace in July and the pace in August were revised lower. The previous reading of a 835,000 sales pace in July was cut to 798,000, while the original August reading to 795,000 was cut 8 percent to an 11-year low."

Posted by socketadmin at 7:45 AM | Permalink | Comments (18) | (email story)

October 24, 2007

U.S. Existing Home Sales Fall 8% (And Yes, It Might Matters To You)

Sales of previously owned U.S. homes fell 8% in September (19% year-over-year) and the median price paid fell 4.2% compared to September 2006. And while some might point to a national slump as a macro trend that’s irrelevant to us in the micro San Francisco (no slight intended), any drag on the macro economy (think a potential slowdown in consumer spending) will most definitely have an impact on the Bay Area.

Stricter lending standards and higher borrowing costs are making it more difficult to qualify for loans, causing an increase in the number of unsold properties and pulling prices down. Some economists say falling home values, by making owners feel less wealthy, may reduce consumer spending.

"The credit freeze in August definitely impacted sales in September," said Lawrence Yun, a senior economist at the [National Association of Realtors]. The negative influence was greater on jumbo loans, or loans larger than $417,000, affecting high- priced areas such as California, Yun said.

The good news? Another rate cut by the Fed is looking even more likely (think mortgage rates). The bad news? Another rate cut by the Fed is looking even more likely (think our weakening dollar).

And while some might take solace in Goldman Sachs’ chief U.S. economist’s quote that “[e]xisting home sales are still not particularly low by historic standards,” don’t forget the punch line: “Housing still has a lot of weakness ahead of it.”

∙ U.S. Existing Home Sales Fall More Than Forecast [Bloomberg]
∙ Dollar Falls Against Yen on Home Sales Decline, Merrill Loss [Bloomberg]

Posted by socketadmin at 9:17 AM | Permalink | Comments (84) | (email story)

October 22, 2007

JustQuotes: Delving Into The Drivers Of Demand (Part I)

“Many analysts have fingered easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy econometric analysis, the authors conclude that the availability of new kinds of mortgages, mainly ones with low down payments, accounted for 56% to 70% of the decade-long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31% of the effect.” (A Troubled 'Ownership Society')

Posted by socketadmin at 10:36 AM | Permalink | Comments (26) | (email story)

October 10, 2007

NAR's Monthly Moving Target (October Edition)

For the eight month in a row, the National Association of Realtors has lowered their annual sales forecast for existing homes across the nation. And the latest forecast now calls for an 11 percent drop in sales (down from 8.6% last month). At the same time, however, the median existing home price is now forecast to drop only 1.3 percent (versus last month’s forecast of a 1.7 percent decline).

“The forecasts signal the housing decline is deepening and the market isn't recovering. Mortgage lenders such as Countrywide Financial Corp., the largest, and Wells Fargo & Co., the second-biggest, have raised standards in reaction to a surge of foreclosures, Donald Kohn, Federal Reserve vice chairman, said in an Oct. 5 speech in Philadelphia.”

∙ U.S. Existing Home Sales May Drop to Five-Year Low [Bloomberg]
∙ JustQuotes: NAR's Monthly Moving Target (September Edition) [SocketSite]

Posted by socketadmin at 8:26 AM | Permalink | Comments (43) | (email story)

October 2, 2007

The National Association of Realtors Pending Home Sales Index Falls

Citing mortgage woes, the National Association of Realtors reports that their forward-looking national Pending Home Sales Index (based on signed contracts) fell 6.5 percent from July to August and is down 21.5 percent year-over-year. In the West, the Index fell 2.7 percent and is down 27.1 percent as compared to August 2006.

“The impact was greater in high-cost markets that are more dependent on jumbo mortgages. In some areas, as much as 30 percent of signed contracts were falling through in August when the credit crunch problem peaked,” [NAR senior economist] Yun said. “The problem has since become less severe, though jumbo loan rates are still higher than they would be under normal conditions. Therefore, sales activity in late fall will better reflect market fundamentals.”

We're not exactly sure what "normal conditions" may be (and if anything would argue that the past few years have been anything but), but we do understand fundamentals (a return to which might not be such a great thing for the market).

And citing mortgage woes of thier own, today Morgan Stanley announced a 25% reduction in “residential mortgage origination and servicing jobs.” Which isn't a great thing for 600.

∙ Mortgage Problems Continue to Hamper Pending Home Sales [realtor.org]
∙ Morgan Stanley Cuts 600 Jobs in Home Loan Business [Bloomberg]

Posted by socketadmin at 8:39 AM | Permalink | Comments (4) | (email story)

September 28, 2007

JustQuotes: Don’t Shoot (But Feel Free To Debate) The Messenger(s)

“A recession within the next 12 months is likely and its impact on the Bay Area will be "sharp but short" due to the area's strong economic underpinnings, according to a new forecast.”

“A recession will be brought on by slowing consumer spending prompted by a cooling housing market, said economist Jon Haveman. "People who have seen their house values rise 10 to 15 percent annually have been spending accordingly," he said. The Bay Area housing market is overpriced and Haveman expects prices to drop by as much as 20 percent by 2009 before stabilizing.”

“While the forecast, presented to business executives this month, predicts a relatively short recessionary period, there are risks to the local economy. Among them is the commercial real estate market, Haveman said.

Low interest rates allowed unprecedented speculation on office space. If lease rates dip, that could trigger an unraveling of mortgage-backed securities in the commercial market, the forecast said. "The same excesses in the mortgage markets have also been seen in commercial markets," Haveman said.” (Bay Area may be in for short, sharp shock)

Posted by socketadmin at 2:30 AM | Permalink | Comments (14) | (email story)

September 27, 2007

JustQuotes: The Bigger Picture Is Looking A Bit Bleak

“Fannie Mae Chief Executive Officer Daniel Mudd said the [national] housing slump will last beyond next year, dragging down home prices and increasing credit losses at the largest provider of financing for U.S. mortgages. ‘We don't think we hit a bottom until the end of '08 and then we have some period of time to work our way back up again,’ Mudd said today in an interview in Washington.”

“Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, underscoring the Federal Reserve's concern about the broader economy. Purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, the Commerce Department said today in Washington. The median price dropped 7.5 percent from a year ago.”

“Sales fell in two of four regions. The decline was led by a 21 percent slump in the West and a 15 percent drop in the South. Purchases increased 42 percent in the Northeast and 21 percent in the Midwest.”

∙ Housing Slump to Last Beyond 2008, Fannie's Mudd Says [Bloomberg]
∙ U.S. Economy: New-Home Sales Decline 8.3 Percent [Bloomberg]

Posted by socketadmin at 9:30 AM | Permalink | Comments (5) | (email story)

September 25, 2007

July S&P/Case-Shiller Index: San Francisco MSA Continues Decline

And speaking of the S&P/Case-Shiller index (and no, that wasn't a coincidence), according to the July 2007 index (pdf), single-family home prices in the San Francisco MSA slipped 4.1% year-over-year and fell 0.4% from June '07 to July '07. For the broader 10-City composite (CSXR), year-over-year price growth is down 4.5% (down 0.5% from May).

The standard SocketSite footnote: The S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).

∙ They're Betting Against San Francisco On The CME [SocketSite]
∙ Summer Swoon Evident in the S&P/Case-Shiller® Home Price Indices (pdf) [S&P]
∙ June S&P/Case-Shiller Index: San Francisco MSA Mimics U.S. Decline [SocketSite]

Posted by socketadmin at 8:00 AM | Permalink | Comments (9) | (email story)

September 20, 2007

JustQuotes: What Happens When Lenders Can’t Borrow For Less?

“The U.S. commercial paper market unexpectedly shrank for a sixth week, extending the biggest slump in at least seven years and signaling the Federal Reserve's interest rate cuts haven't drawn investors back to short-term debt.”

“Commercial paper is bought by money market funds and mutual funds that invest in short-term debt securities. In asset-backed commercial paper, the cash is used to buy mortgages, bonds, credit card and trade receivables, as well as car loans. Some of the programs are backed by subprime loans, issued to borrowers with poor credit or high debt.”

“The buyers' freeze shut out borrowers including mortgage lenders Countrywide Financial Corp. and Thornburg Mortgage Inc. as well as GMAC LLC and investment company Cheyne Finance Plc.”

∙ U.S. Commercial Paper Slump Extends to Sixth Week [Bloomberg]
∙ Reader Dave Is In The Money As The FOMC Lowers By Half A Point [SocketSite]
∙ Countrywide Secures Another $12 Billion As Application Volume Falls [SocketSite]
∙ JustQuotes: Signs Of Some (Prime) Liquidity In The Mortgage Market [SocketSite]

Posted by socketadmin at 8:31 AM | Permalink | Comments (11) | (email story)

September 18, 2007

Reader Dave Is In The Money As The FOMC Lowers By Half A Point

“The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, hoping to keep the U.S. from sinking into a recession sparked by spreading housing-market fallout.”

And while (according to our lawyers) we don’t condone betting, it’s time to make good if you participated in the friendly wager. Then again, you could always go double or nothing on the actual impact on mortgage rates (if any) and local sales.

∙ Fed Lowers Rate to 4.75 Percent, First Cut Since 2003 [Bloomberg]
∙ JustQuotes: Why Listen To This Guy About The Housing Market? [SocketSite]

Posted by socketadmin at 11:51 AM | Permalink | Comments (40) | (email story)

September 17, 2007

Alan Greenspan Flip Flops On A National Bubble (But Not Local Froth)

According to the Financial Times, Alan Greenspan (as in the former chairman of the Federal Reserve) now acknowledges a national housing “bubble”; that price declines will be “larger than most people expect” (good thing you’re not most people); and that “froth” was a euphemism for a bubble (no kidding).

He said he still thought froth – a collection of bubbles – was a better description, because of the variation in house price appreciation in different local housing markets. But he said “all the froth bubbles add up to an aggregate bubble”.

As some might recall (or could find by searching SocketSite), it was a little over two years ago that Greenspan acknowledged local housing bubbles but dismissed the idea of a national one. And it was soon thereafter that his testimony on “exotic forms of adjustable rate mortgages” caught our eye.

UPDATE: And speaking of British news, the conversation quickly turns to the run on Northern Rock (the UK's fourth-largest mortgage company) and LIBOR (a bit closer to home).

∙ Greenspan alert on US house prices [Financial Times]
∙ Greenspan Sees Local Housing Bubbles [SocketSite]
∙ Greenspan Speaks [SocketSite]
∙ Northern Rock Stock Tumbles Further Amid Run on Bank [Bloomberg]

Posted by socketadmin at 2:00 AM | Permalink | Comments (19) | (email story)

September 12, 2007

A Few More Forecasts (And Data Points) For Your Consideration

Rounding out a few of the recent real estate forecasts, Mark Zandi, co- founder of Moody's Economy.com in New York “forecasts a decline of 3 percent in the last quarter of this year and subsequent drops of 4 percent to 6 percent for the following three quarters” in the San Francisco Bay Area.

While a bit closer to home, Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley declares “no place will be immune” and forecasts “[h]ome prices will decline 5 percent to 10 percent from last year's peak in New York and San Francisco” based on increased supply, decreased demand, and a psychological shift (to the negative). No place? No kidding.

∙ New York, California Metro Home Prices May Decline [Bloomberg]
∙ JustQuotes: Parsing The UCLA Anderson Forecast For The Bay Area [SocketSite]
∙ JustQuotes: NAR's Monthly Moving Target (September Edition) [SocketSite]

Posted by socketadmin at 5:26 AM | Permalink | Comments (8) | (email story)

JustQuotes: Parsing The UCLA Anderson Forecast For The Bay Area

“Despite the Bay Area's notoriously high home prices, the housing slump won't be as acute as in the rest of the state because supply and demand are in better balance, especially in the inner counties of San Francisco and San Mateo. Combine that with expected solid performances in such key sectors as technology and tourism, and the region should weather a slowdown well, UCLA forecasters say.”

“Wells Fargo & Co. economist Scott Anderson agrees that the Bay Area is California's strongest region, and he is optimistic about prospects for the region's tech sector. But he stresses the risks of a statewide economic downturn more than UCLA forecasters do, pointing to how vital construction and other housing-related jobs have been to the state's growth in recent years.”

“Statewide, home prices could fall as much as 10 percent from their peak, [Scott] Anderson expects. In the Bay Area, the drop should be less, no more than 6 or 7 percent, he said.

Both Anderson and UCLA forecasters stress that the biggest risk to California's economy is that the housing slump will prove worse than they predict. It's become harder for home buyers to get loans. And the high-water mark for rising rates of adjustable-rate mortgages is still several months away, which could mean more loan defaults, more foreclosures and more downward pressure on home prices.”

∙ Bay Area should escape worst of the state's economic slump [SFGate]
∙ UCLA Anderson Forecast: California Will Avoid Recession [BusinessWire]

Posted by socketadmin at 3:00 AM | Permalink | Comments (10) | (email story)

September 7, 2007

From Rumor To Reality: Up To 12,000 Layoffs At Countrywide

It was two days ago that “ex SF-er” commented: “Rumor alert: Countrywide may be laying off 6,000 to 10,000 employees.”

And it was but less than two hours ago that Countrywide announced possible workforce cuts of between 10,000 and 12,000 people over the next three months. The culprit, a sharp drop in expected demand: “New mortgages probably will drop 25 percent in 2008 from this year's levels, the Calabasas, California-based company said in a statement today.”

And no, perhaps not entirely unexpected.

∙ What Happens When It’s Time To Fund? We’ll Have To Wait And See [SocketSite]
∙ Countrywide May Cut Staff by 12,000 as Demand Wanes [Bloomberg]
∙ U.S. Economy: Employment Unexpectedly Drops in August [Bloomberg]

Posted by socketadmin at 4:05 PM | Permalink | Comments (21) | (email story)

September 5, 2007

JustQuotes: NAR's National Pending Home Sales Index Plunges

"The National Association of Realtors' index for pending sales of existing homes decreased at a seasonally adjusted annual rate of 12.2% to 89.9 in July from June's 102.4, the industry group said Wednesday. The NAR index, based on signed contracts for previously owned homes, was 16.1% below the level of July 2006."

"In a news release, the NAR said the index shows existing-home sales are likely to decline in coming months as mortgage disruptions work through the housing market. "It's difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren't closing because mortgage commitments have been falling through at the last moment," NAR senior economist Lawrence Yun said."

"These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans," Mr. Yun said. "Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat."

"By region, the Northeast decreased 12.2% in July from June; it fell 10.0% from a year earlier. The Midwest decreased 13.1% in July from June; it fell 15.8% from last year. The South dropped 6.6% in July from June; it tumbled 15.2% since July 2006. The West decreased 20.8% in July from June; it fell 21.8% from a year earlier."

∙ Pending-Home Sales Decline 12% [WSJ]
∙ July pending home sales index falls 12.2% [Marketwatch]

Posted by socketadmin at 9:41 AM | Permalink | Comments (18) | (email story)

August 31, 2007

Read Our Lips: President Bush Announces FHA Secure

Three weeks ago we pointed out President Bush’s careful choice of words when he spoke out against federal bailouts for struggling homeowners ("If you mean direct grants to homeowners, the answer would be `No, I don't support that.'"). This morning, the President spoke again.

President George W. Bush today pledged to help people who've fallen behind in their mortgages keep their homes and to tighten safeguards against predatory lending, while rejecting a bailout for ``speculators.''

``I plan to help homeowners, the government's got a role to play,'' Bush said in a statement at the White House. But, he said, ``it's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.''

Bush said he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates.

Bush said that ``in the coming days'' the FHA will begin a new program called FHA Secure that will permit homeowners who have a good credit rating but can't afford their current payments to refinance into FHA-insured mortgages.

According to Bloomberg, "The president gave no estimate on the cost of his proposals. He said he also will support proposals in Congress to provide tax relief for homeowners who refinance." Is it a token act, or simply act one of an even larger production?

∙ Housing And Credit Concerns Abound (Here And Abroad) [SocketSite]
∙ Bush Pledges FHA Help for Subprime Borrowers [Bloomberg]

Posted by socketadmin at 10:45 AM | Permalink | Comments (26) | (email story)

August 24, 2007

JustQuotes: New Home Sales - A Real Recovery Or A Red Herring?

"U.S. stocks rose after new home sales [up 2.8 percent to an annual pace of 870,000] and durable goods orders topped economists' forecasts [820,000] in July, spurring speculation the economy can weather losses in credit markets."

``We don't see a recession in the cards,'' said Hayes Miller, who helps manage $38 billion as portfolio manager of global equities at Baring Asset Management Inc. in Boston. ``There's still going to be enough corporate spending, there's still going to be enough investment, there's still going to be enough government spending.'' (U.S. Stocks Gain as Home Sales, Durable Goods Top Forecasts)

On the other hand, ``Call me a skeptic here, but I'm going to need to see a couple more months before I believe this is something that's really happening'' in new home sales, said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``Lending standards have gotten tighter and so this should weigh on the housing numbers near-term. Maybe it wasn't showing up in July, but for August and September it will.'' (U.S. Economy: Durable Goods Orders, Sales of New Homes Increase)

Posted by socketadmin at 8:18 AM | Permalink | Comments (14) | (email story)

August 23, 2007

JustQuotes: Why Listen To This Guy About The Housing Market?

“Countrywide Financial Corp. Chief Executive Angelo Mozilo said Thursday the housing market is showing no signs of improvement and could lead the U.S. into a recession.” (Countrywide CEO: economic outlook grim)

Posted by socketadmin at 10:39 AM | Permalink | Comments (26) | (email story)

A Few Points From A Local Mortgage Banker (No, Not “Blogger”)

Julian Hebron, mortgage banker and branch manager for the San Rafael office of Residential Pacific Mortgage, submits a copy of his most recent MarketWeek report (“Ride The Storm”) for review. Not too surprisingly Julian notes the Fed Discount Rate cut as well as the shuttering of Capital One’s GreenPoint mortgage (in Marin). What might be a bit more surprising (at least to some) are his following two points:

WHEN WILL MARKETS IMPROVE?
The Fed’s Discount Rate cut plus their infusion of about $80 billion into the banking system has prevented an all-out market meltdown, but results are muted so far because there’s still a lot of bad mortgage and investment debt in the financial system. It will take weeks or months for this to unwind – with more volatility and more company closures.

Meanwhile, new mortgage originations based on tighter approval standards will create a new wave of good quality Jumbo loans above $417k that investors will buy, securitize and trade. Rebuilding a robust mortgage securities market could take as long as 24 months because tighter guidelines will cut down the pool of eligible borrowers.

HIGHER RATES = LOWER PRICES
Home buyers, like any investors, often get nervous when markets are stormy. But this is the time to really pay attention. Higher mortgage rates mean lower property prices, and as I illustrated explicitly in my most recent client newsletter, the financial benefit of a lower purchase prices [sic] far outweighs the higher rate.

The math on this theory overwhelmingly proves the case in short- and long-term scenarios. It will become more important to use this formula for evaluating decisions in the coming months. If you need a copy of this article or need to have me run an example for you, please let me know.

The mortgage market recovery won't be quick and without more pain? Fewer eligible borrowers? Higher rates might lead to lower prices? Damn doom and gloom "bloggers!” Oh, wait a second…

[Editor's Note: Interesting yield curve on those Jumbos. And no, we haven't had an opportunity to check Julian's math (but we will).]

∙ MarketWeek 8/21/07: Ride The Storm (pdf) [Residential Pacific Mortgage]
∙ JustQuotes: Acknowledging “Downside Risks” To The Economy [SocketSite]
∙ JustQuotes: Upping The Underwriting Ante (And Industry Layoffs) [SocketSite]
∙ Revisiting The “Real-World” Impact Of Rising Rates On Home Values [SocketSite]

Posted by socketadmin at 3:00 AM | Permalink | Comments (15) | (email story)

August 21, 2007

JustQuotes: Higher Rates For the Vast Majority Of San Franciscans

"Some lawmakers are calling on Congress to stimulate the moribund jumbo-loan market by letting Fannie Mae and Freddie Mac purchase substantially larger loans on homes in high-cost metro areas."

“As of Friday, the average rate on a 30-year fixed-rate jumbo loan was 7.36 percent, versus 6.64 percent on a conforming loan, according to HSH Associates. That difference - almost three-quarters of a percentage point - is about three times as wide as normal.”

“In the first half of this year, 62 percent of home-purchase mortgages in the Bay Area were jumbos. In San Francisco, San Mateo and Marin counties, about 78 percent were jumbos, DataQuick reports.”

∙ Fannie, Freddie could help to stimulate jumbo mortgage loans [SFGate]

Posted by socketadmin at 10:52 AM | Permalink | Comments (46) | (email story)

August 17, 2007

JustQuotes: Acknowledging “Downside Risks” To The Economy

"Stocks soared Friday, propelling the Dow Jones industrials up more than 180 points, after the Federal Reserve, acknowledging that the stock market's plunge posed a threat to the economy, slashed its discount rate by a half percentage point."

"The Fed cut the discount rate to 5.75 percent from 6.25 percent, declaring that "downside risks" to the economy have increased appreciably.

However, the central bank did not change its target for the federal funds rate, which has remained at 5.25 percent for more than a year. Many strategists believes the market won't settle down until the Fed lowers the fed funds rate — the rate banks charge each other on overnight loans. The discount rate only covers loans the Fed makes to banks."

"Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.70 percent from 4.66 percent late Thursday." (Stocks jump on discount rate cut)

Posted by socketadmin at 7:30 AM | Permalink | Comments (8) | (email story)

August 9, 2007

Housing And Credit Concerns Abound (Here And Abroad)

While credit concerns once again rocked the equities market ("All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.”), President Bush spoke out against federal bailouts for individual homeowners that have some concerns of their own (i.e., foreclosure). We note, however, a careful choice of words: "If you mean direct grants to homeowners, the answer would be `No, I don't support that.'"

UPDATE (8/10): And no, we weren't being flippant about "abroad."

∙ Stocks Fall; Dow Down 300 Points [SFGate]
∙ Bush: No Bailout for Pinched Homeowners [SFGate]
∙ U.S., European central banks step in to contain mortgage crisis [SFGate]

Posted by socketadmin at 1:47 PM | Permalink | Comments (60) | (email story)

JustQuotes: No No-Doc? No Kidding (And Hopefully No Surprise)

“Kurt Herrenbruck, a mortgage planner with Fishman Financial Group in Berkeley, saw one client's financing evaporate in the space of three days last week.

"The client is well-heeled, with (a high credit score), and $500,000 in the bank, making an owner-occupied purchase with a 25 percent down payment," Herrenbruck said. "He needs a no-doc loan (meaning he cannot provide documents to prove his income) because of an employment hiccup."

Herrenbruck said Wednesday he found two lenders willing to make a no-document loan. But by Thursday it was down to one. And Friday, when his client's offer was accepted, there was none. "He can't buy even though he had the strongest profile of any no-doc: superlative credit, money in the bank and a whopping down payment."

∙ Mortgage crunch hits Bay Area hard because of jumbo loans [SFGate]
∙ JustQuotes: From Credit Crisis To Credit Squeeze To Credit Crunch? [SocketSite]
∙ JustQuotes, RandomRumors, And Readers Report: Alt-A All In One [SocketSite]
∙ JustQuotes: Forget Subprime In San Francisco, But How About Alt-A? [SocketSite]

Posted by socketadmin at 9:07 AM | Permalink | Comments (43) | (email story)

August 8, 2007

JustQuotes: NAR's Monthly Moving Target (August Edition)

“The National Association of Realtors trimmed its sales forecast for the sixth straight month but pared back its predicted drop in existing home values. Existing-home sales should hit a pace of 6.04 million units this year, down from the 6.11 million units it predicted last month.”

“The national median sales price for existing homes should ease by 1.2 percent to $219,300 this year, the association concluded. Last month, the trade group said prices should slip 1.4 percent. [While the] median new-home price will probably fall 2.3 percent to $240,800...” (Housing gets mixed outlook)

∙ NAR’s New New National Forecast (Yes, Another Little Cut) [SocketSite]

Posted by socketadmin at 8:00 AM | Permalink | Comments (5) | (email story)

August 6, 2007

JustQuotes: From Credit Crisis To Credit Squeeze To Credit Crunch?

“What had seemed like a contained problem, involving home loans to people with poor credit, has suddenly mushroomed into a rout that threatens to make life difficult for everyone who needs to borrow money.

Home buyers are likely to pay more for mortgages, and some with less-than-pristine credit or an inability to come up with a down payment may find they no longer can borrow at all.”

∙ The Loan Comes Due [New York Times]
∙ Housings Busts and Hedge Fund Meltdowns: A Spectator’s Guide [New York Times]

Posted by socketadmin at 2:45 AM | Permalink | Comments (18) | (email story)

July 31, 2007

May S&P/Case-Shiller Index: San Francisco MSA Continues Decline

According to the May 2007 S&P/Case-Shiller index (pdf), single-family home prices in the San Francisco MSA slipped 3.4% year-over-year and fell 0.3% from April '07 to May '07. For the broader 10-City composite (CSXR), year-over-year price growth is down 3.4% (down 0.3% from April).

The (now) standard SocketSite footnote: The S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).

∙ Late Spring Numbers Bring Chilly Returns (pdf) [Standard & Poor’s]

Posted by socketadmin at 8:49 AM | Permalink | Comments (5) | (email story)

July 25, 2007

San Francisco Notices Of Default/Foreclosures Are Way Up (Sort Of)

We’re just going to pretty much parrot what we wrote three months ago: While a 102.4% year-over-year increase in San Francisco Q2 “Notice of Default” activity sounds quite dramatic, in absolute terms it still represents relatively few properties (257). Within the greater Bay Area, however, Contra Costa hit a record level of Q2 default activity (2,316 notices, up 219.4% year-over-year) as did Sacramento (3,840 notices, up 184.0% year-over-year). And Alameda isn’t too far behind (1,612 notices, up 148.4%).

According to DataQuick, “[m]ost of the loans that went into default last quarter were originated between July 2005 and August 2006. The median age was 16 months. Loan originations peaked in August 2005. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8% in May 2005 and has since fallen.”

And while the actual number of foreclosed upon homes in San Francisco jumped a whopping 444.4% last quarter (on a year-over-year basis), that represents a total of 49 properties (versus 9 in the second quarter of 2006). In Contra Costa, however, 778 homes were foreclosed upon last quarter (versus 62 in the second quarter of 2006).

Keep in mind that long-term interest rates remain near historic lows, and according to most, the Bay Area economy and stock market remain strong (and incomes are up).

UPDATE: As a reader notes below, some great perspective from the Chronicle with regard to the relative number of Bay Area defaults/foreclosures over the past twenty (or so) years. In summary: we’ve already surpassed the early 90’s.

∙ Bay Area “Notices Of Default” Heading North? (So To Speak) [SocketSite]
∙ California Foreclosure Activity Continues to Rise [DQNews]

Posted by socketadmin at 3:00 AM | Permalink | Comments (101) | (email story)

July 12, 2007

A Little Mix Here, A Little Mix There, Here A Mix, There A Mix...

It might be yesterday’s (or even last month’s) news that the upper-end of the market has remained relatively strong (and not only in San Francisco). And we won't disagree (other than with that "it’s a relative bargain" shtick).

At the same time, keep in mind that any reports of market “appreciation” (or even “depreciation”) that are based on a change in median sales price are now that much more suspect (if that's at all possible). And yes, that includes NAR's national numbers.

∙ Can’t Sell Your Home? Maybe It’s Priced Too Low [New York Times]
∙ JustQuotes: They Say Bifurcated, We Said Bipolar (A While Back) [SocketSite]
∙ NAR’s New New National Forecast (Yes, Another Little Cut) [SocketSite]

Posted by socketadmin at 12:17 PM | Permalink | Comments (2) | (email story)

July 11, 2007

NAR’s New New National Forecast (Yes, Another Little Cut)

For the fourth fifth time (in as many months) the National Association of Realtors has revised their forecast for the performance of residential real estate in the U.S.

“[NAR] now projects that the median existing home price for all of 2007 will be down 1.4 percent, which is slightly worse than its previous forecast of a 1.3 percent drop….[and] is looking for a 2.6 percent drop in new home prices for all of 2007. That is also worse than the previous estimate of a 2.3 percent drop in prices."

And for those of you sitting patiently on the sidelines, the forecasted national market "recovery" has been pushed back to the second quarter of 2008 (for now).

∙ Housing slump gets longer, and longer ... [CNNMoney]
∙ Whoops, They Did It Again (NAR Revises National Forecast Once More) [SocketSite]

Posted by socketadmin at 11:00 AM | Permalink | Comments (50) | (email story)

July 10, 2007

JustQuotes: When (Not If) Rates Rise What Will Happen To Prices?

“Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average U.S. rate for a 30-year fixed rate home loan probably will be 6.7 percent this quarter, according to the forecast. That's the highest level so far this year, and it's half a percentage point above the 6.2 percent average in the first three months of the year.”

∙ U.S. Housing Sales to Tumble to Six-Year Low on Rates [Bloomberg]

Posted by socketadmin at 8:48 AM | Permalink | Comments (51) | (email story)

June 14, 2007

JustQuotes (And A Note): And Yet Money Is Still Relatively Cheap

“The average rate on 30-year fixed-rate loans climbed to 6.74 percent for the week ending June 14, from 6.53 percent the previous week. That marked the biggest one-week increase since July 2003….Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), expects mortgage rates to top out near 7 percent by the end of the year.”

[Editor’s Note: A rate shift from 6.53 to 7.00 percent would requite mortgage balances to drop by almost 5% in order to maintain the same level of payment affordability.]

∙ Mortgage rates: biggest spike in 4 years [CNNMoney]
∙ What’s The Treasury Got To Do With It? (Quite A Bit) [SocketSite]

Posted by socketadmin at 11:25 AM | Permalink | Comments (2) | (email story)

June 13, 2007

JustQuotes: One We Couldn’t Resist And Another We Shouldn’t

"You're safer taking a ride with Lindsay Lohan than being in homebuilder stocks," said David Lichtenstein, chief executive officer of Lightstone Group LLC in Lakewood, New Jersey, which owns malls and hotels. Actress Lohan was arrested May 26 for driving under the influence after crashing her car.”

And on a more serious (and perhaps local) note, "It appears that the impact of stricter lending standards, primarily arising from problems in the subprime market, is negatively affecting affordability at lower price points," [Toll Brothers Chief Executive Officer] said. "This in turn can and probably does impact the entire housing food chain including some of our potential customers' ability to sell their existing homes."

For context, under 2% of Toll Brothers’ buyers are subprime borrowers. Did someone say bipolar (or bifurcated) market?

∙ Subprime Crash Squeezes Out First-Time Home Buyers [Bloomberg]
∙ JustQuotes: They Say Bifurcated, We Said Bipolar (A While Back) [SocketSite]

Posted by socketadmin at 10:10 AM | Permalink | Comments (2) | (email story)

June 8, 2007

What’s The Treasury Got To Do With It? (Quite A Bit)

As the 10-year treasury goes, so do mortgages. And as the 10-treasury yield has been pushing higher, so have mortgage rates.

The average U.S. 30-year fixed mortgage rate was at 6.12 percent Thursday, up from 5.98 percent a week ago, according to Bankrate.com. The average 15-year fixed mortgage was at 5.82 percent, up from 5.69 percent last week.

And while a one week increase from 5.98 to 6.12 percent in long-term mortgage rates seems nominal (and rates remain near historic lows), keep in mind that a buyer that could only afford a $600,000 mortgage last week can only afford $591,000 now (1.5% less).

∙ 10 - Year Treasury Yield Passes 5 Percent [New York Times]

Posted by socketadmin at 3:45 AM | Permalink | Comments (5) | (email story)

June 6, 2007

Whoops, They Did It Again (NAR Revises National Forecast Once More)

The National Association of Realtors (NAR) has now lowered expectations for their 2007 national housing forecast for the third time. The newly revised forecast calls for a 4.6% decline in 2007 existing-home sales (down from -2.2% -2.9%), and a 1.3% drop in median existing-home prices (down from -0.7% -1.0%).

At the same time, a rebound is currently being forecast for 2008.

∙ NAR Revises Forecast (Key Phrase: “Stricter Lending Standards”) [SocketSite]
∙ Realtors lower forecast for home sales [msnbc]
∙ Home prices: More pain to come [CNNMoney]

Posted by socketadmin at 11:50 AM | Permalink | Comments (2) | (email story)

May 29, 2007

March S&P/Case-Shiller Index: Mixed Results For San Francisco MSA

According to the March 2007 S&P/Case-Shiller index (pdf), single-family home prices in the San Francisco MSA slipped 2.3% year-over-year but gained 0.1% from February '07 to March '07 (the first monthly uptick since May 2006). For the broader 10-City composite (CSXR), year-over-year price growth is down 1.9% and down 0.4% from February.

As previously noted: The S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).

∙ Spring Brings No Signs of Warming in Home Prices [standardandpoors.com]
∙ February S&P/Case-Shiller Index Decline Continues For SF MSA [SocketSite]

Posted by socketadmin at 7:32 AM | Permalink | Comments (3) | (email story)

May 8, 2007

NAR Revises Forecast (Key Phrase: “Stricter Lending Standards”)

A month after revising their 2007 national housing forecast downward, The National Association of Realtors (NAR) has once again lowered expectations. The newly revised forecast now calls for a 2.9% decline in 2007 existing-home sales (down from -2.2%), and a 1.0% drop in median existing-home prices (down from -0.7%).

According to the association, “stricter lending standards and subprime mortgage woes are producing headwinds for the sector.” And while subprime woes are mostly subterfuge in the San Francisco market, stricter lending standards are not.

∙ NAR Again Lowers '07 US Home Sales Forecast [nasdaq.com]
A Quick Reversal In Forecasts (And Fortunes?) [SocketSite]

Posted by socketadmin at 10:00 AM | Permalink | Comments (2) | (email story)

April 24, 2007

February S&P/Case-Shiller Index Decline Continues For SF MSA

According to the February 2007 S&P/Case-Shiller index (pdf), single-family home prices in the San Francisco MSA dropped 0.5% from January '07 to February '07 and slipped 2.2% year-over-year. For the broader 10-City composite (CSXR), year-over-year price growth is down 1.5% (a near 15 year low).

And once again, by most accounts our local economy remains strong, employment and wages are up, and the cost of borrowing remains near historic lows. This is in marked contrast to our last real estate decline (2001-2002) which directly coincided with a local economic meltdown (a.k.a. The Internet Bubble).

As previously noted: The S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).

∙ Persistent Declining Returns (pdf) [Standard & Poor’s]
∙ January S&P/Case-Shiller Index Down For San Francisco MSA [SocketSite]

Posted by socketadmin at 8:07 AM | Permalink | Comments (24) | (email story)

April 23, 2007

JustQuotes: Investment Bankers And Their Wacky "Fundamentals"

“Median California home prices are still creeping up, and the state's strong employment trends should support the real estate market. But Goldman [Sachs] is worried that surging prices in the state in recent years weren't driven by traditional factors such as strong employment and income growth. Instead, the bank reckons an increase in ARM mortgages offered to borrowers who were already stretching to buy high-priced homes fueled the boom.” [Editor's Note: Inconceivable!]

∙ California home prices to weaken further: Goldman says [MarketWatch]

Posted by socketadmin at 3:41 PM | Permalink | Comments (13) | (email story)

April 12, 2007

A Quick Reversal In Forecasts (And Fortunes?)

“The National Association of Realtors said Wednesday it expects its measure of [U.S.] home prices to fall this year for the first time since the group began keeping track nearly 40 years ago. In its latest monthly forecast, the real estate group said it expects a 0.7 percent decline in the median price of an existing home sold in 2007. A month ago it had been projecting a 1.2 percent increase.”

Keep in mind this represents a non-recession-related decline. And while it is a national rather than local forecast, it is worth mentioning. If for no other reason than the National Association of Realtors' Chief Economist “[David Lereah]…tried to put the best picture on the housing price decline, saying much of it was caused by a sharper slowdown in sales in higher-priced markets along the East and West Coasts.” Wait a second…

∙ Home prices set for first drop in 40 years [CNNMoney]

Posted by socketadmin at 4:00 AM | Permalink | Comments (8) | (email story)

April 11, 2007

To Rent Or To Buy, That Is The Question (That Only You Can Answer)

Here’s the reality. As with any analysis, it’s all about the assumptions.

Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent.

And in the end, it's an individual decision.

Clearly, there are benefits to owning a house beyond the financial, like the comfort of knowing you can stay as long as you want or can fix the roof without permission. But real estate has been sold as more than a good way to spend money. It has been sold as a can’t-miss investment. Back in 2005, near the peak of the market, the chief economist of the Realtors’ association, David Lereah, published a book called “Are You Missing the Real Estate Boom?” The can’t-miss argument was wrong then, and it may still be wrong today.

And in either case, we do love that interactive graphic.

UPDATE: And yes, the “all important mortgage interest deduction” is accounted for in the interactive tool (not to mention the capital gains exclusion, transaction costs, and return on cash), but it also assumes a traditional fixed-rate mortgage amortization schedule. And before you critique, please take the time to check out all of the Advanced Settings (i.e., other assumptions).

∙ A Word of Advice During a Housing Slump: Rent [New York Times]
∙ Interactive Graphic: Is It Better to Buy or Rent? [New York Times]

Posted by socketadmin at 10:04 AM | Permalink | Comments (60) | (email story)

March 27, 2007

January S&P/Case-Shiller Index Down For San Francisco MSA

According to the January 2007 S&P/Case-Shiller index (pdf), single-family home prices in the San Francisco MSA dropped a nominal 0.17% from December '06 to January '07 but slipped 1.4% year-over-year. For the broader 10-City composite (CSXR), year-over-year price growth is down 0.7% (a thirteen year low).

As previously noted: The S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).

∙ The New Year Begins With Negative Returns (pdf) [Standard & Poor’s]
∙ S&P/Case-Shiller Index Down For San Francisco [SocketSite]

Posted by socketadmin at 8:29 AM | Permalink | Comments (16) | (email story)

March 16, 2007

JustQuotes: Home Or Investment?

“In San Francisco, where it looks like prices may have hit their high mark in the third quarter of 2006, home values peaked in early 1990 before falling for the next eight years.”

∙ Why your home isn't the investment you think it is [WSJ]

Posted by socketadmin at 5:00 AM | Permalink | Comments (22) | (email story)

February 22, 2007

Just Quotes: The Downside Of Getting Aggressive

“Aggressive lending allowed people to buy homes who otherwise could not have, and that increase in demand is part of the reason home prices soared in the first half of the decade. In a December 2006 paper, "Aggressive Lending and Real Estate Markets," Wachter and co-author Andrey Pavlov of Simon Fraser University concluded that neighborhoods and cities that had high concentrations of aggressive lending suffered the largest home-price declines after the market cooled.

They focused on neighborhoods in which disproportionate shares of loans were ARMs -- adjustable-rate mortgages. "For each one-percent higher share of ARMs in 1990, the price decline increases by 1.3% for that neighborhood," they write.”

∙ Could Tremors in the Subprime Mortgage Market be [a Sign] [Knowledge@Wharton]

Posted by socketadmin at 12:10 AM | Permalink | Comments (4) | (email story)

January 31, 2007

S&P/Case-Shiller Index Down For San Francisco

According to the November 2006 S&P/Case-Shiller index, single-family home prices in San Francisco dropped 0.7% from October '06 to November '06 (down 0.9% year-over-year).

A couple of things to remember, the S&P/Case-Shiller index only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), and it is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best). Regardless, it is another data point.

∙ Continued Wide Spread Home Price Declines in November (pdf) [Standard & Poor’s]
∙ A Decade Of Movement In San Francisco's Mean Sales Price [SocketSite]

Posted by socketadmin at 12:30 PM | Permalink | Comments (9) | (email story)

January 25, 2007

A Decade Of Movement In San Francisco's Mean Sales Price

Once again, this data only reflects properties that were listed and recorded as sold on the SFAR Multiple Listing Service. And as always, while a change in average (or Median) sales price might be a fair measure of the market's appetite, it’s not necessarily the best measure of actual home/condo appreciation or performance. It's just another data point.

∙ San Francisco Home/Condo Sales: Historical Context [SocketSite]
∙ Expectation Setting: San Francisco Appreciation [SocketSite]
∙ NAR Home Price Analysis For San Francisco [SocketSite]

Posted by socketadmin at 12:10 AM | Permalink | Comments (41) | (email story)

January 19, 2007

San Francisco Home/Condo Sales: Historical Context

We turn to Malcolm Kaufman’s latest ‘Pulse of The Market' for twenty years of MLS sales history for San Francisco’s single-family homes (SFH) and condominiums. Keep in mind that this history only reflects properties that were listed and recorded as sold on the SFAR Multiple Listing Service, and as such, actual condominium sales volumes, and most likely average sales prices, are understated (think new developments).

Regardless, it’s additional context for our analyses and discussions of “demand” and market activity going forward. And be sure to “plug in” next week for an inventory overview (i.e., "supply") and updated Complete Inventory Index (Cii) for San Francisco.

∙ SocketSite’s Complete Inventory Index (Cii) [SocketSite]
∙ Malcolm Kaufman’s Pulse of The Market [sfpulseofthemarket.com]

Posted by socketadmin at 9:15 AM | Permalink | Comments (24) | (email story)

January 16, 2007

The Economics Of Apartments Versus Condominiums In Washington

The New York Times looks at the struggling new condo development market in Washington D.C. and the impact of developers changing course from sales to rentals.

“After six weeks of failing to lure more than a couple of dozen buyers, Mr. Franco and his partner, Jeff Blum, joined the builders of nearly 6,000 condominium units in the Washington metropolitan area who have decided in the last three months to recast their projects as rental apartment buildings.”

“The latest salvage operation on the part of condo developers is far from a sure bet, however. Condominium buildings generally cost more to build and operate than those built for apartments from scratch. And while rents are high and rising in most cities, in many cases they still are not sufficient to turn a profit.

Industry analysts also point out that rents may start sagging if too many condos are converted into apartments too quickly.”

And while we’re not suggesting that Washington is the best barometer for the San Francisco condominium market, with 188 King reverting to rentals for their unsold inventory, and rumors of The Palms and a number of other higher profile buildings considering following suit, it’s simply additional insight into the impact and implications of local developers changing course.

∙ Buyers Scarce, Many Condos Are for Rent [NYTimes]
∙ 188 King Street: The Rents [SocketSite]
∙ The Palms: Financing Incentives And Inventory Update [SocketSite]

Posted by socketadmin at 7:44 AM | Permalink | Comments (11) | (email story)

December 18, 2006

We’re Losing Faith (And Not Necessarily In The Market)

We asked the obvious two months ago when Economy.com predicted 3.6% home price gains for San Francisco, San Mateo, and Marin over the next two years despite analysis that suggested “prices in the three counties were…7.5 percent higher than Economy.com predicted they should be based on historical comparisons.”

This week, Fortune “asked Moody's Economy.com and Fiserv Lending Solutions to crunch the numbers for the top 100 markets in the United States.” Their forecast for home prices in San Francisco-San Mateo? Down 0.2% in 2007 and up 1% in 2008. That’s still no “crash,” but that is an effective two year swing of -6.5% as compared to the Economy.com prediction of just two months ago. We’re losing faith (and not necessarily in the market).

∙ Economy.com Weighs In On San Francisco [SocketSite]
∙ Hot spots, cold spots: Chill on the coast [CNNMoney]

Posted by socketadmin at 12:10 AM | Permalink | Comments (4) | (email story)

December 14, 2006

Hindsight For Some (Foresight For Others?)

From Inman News (free until midnight):

With the "perfect vision of hindsight," [Nicolas] Retsinas [director of Harvard University's Joint Center for Housing Studies] said it is clear that the slowing began late in 2005. "Everyone knew you couldn't sustain double-digit appreciation," he said.

Well, either perfect vision or you’ve been “plugged in” to SocketSite. And yes, we’ve only called “the slowing” once (November 2005).

∙ 2006: Year of market correction [Inman News- $]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 11:04 AM | Permalink | Comments (28) | (email story)

December 6, 2006

Not If You’ve Been “Plugged In” (Hidden That Is)

A tipster forwards ‘The Hidden Truth About Home Prices' from the New York Times.

“The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.”

“For many homeowners, of course, the decline doesn’t much matter. They didn’t really benefit from the run-up, and they won’t suffer from the decline. And for any renters hoping to buy a home, the fall in prices is downright good news.

Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”

∙ The Hidden Truth About Home Prices [New York Times]

Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)

November 28, 2006

Existing Home Prices Fall Nationally (And In The West)

While it's the local housing market that you really need to "plug in" to, it's worth keeping an eye on the broader market trends as well.

The National Association of Realtors said Tuesday that [U.S.] existing home sales edged up 0.5 percent to a seasonally adjusted annual rate of 6.24 million last month. It was the first increase after seven consecutive monthly declines.

However, the median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record.

It marked the third straight month that median prices have fallen compared with the same period a year ago, the longest stretch of such declines on record. The median is the point where half the homes sold for more and half for less.

David Lereah, chief economist for the Realtors, said he expected home prices to continue falling for the rest of the year as sellers, accustomed to the booming market conditions of previous years, reluctantly cut their prices.

"Many buyers remain on the sidelines," Lereah said. "After a period of price adjustment, we'll see more confidence in the market and a lift to home sales should be apparent in the first quarter of 2007."

It's also worth noting that U.S. housing inventory is up 34.4% as compared to October 2005 which puts “months of available supply” at 7.4 (up 51% year over year).

And we have to wonder, will falling home prices actually buoy buyer confidence? While a downward price trend might aid in affordability, we can’t imagine it will inspire too much near-term confidence in terms of housing as an “investment.”

∙ Existing Home Sales Rise, Prices Fall [SFGate]
∙ Existing Home Sales Rise in October, Market Stabilizing [realtor.org]

Posted by socketadmin at 12:25 PM | Permalink | Comments (4) | (email story)

November 13, 2006

Just Quotes: So Is San Francisco Hot Or Not?

"Do not be afraid of falling prices. It's sales that are important," [David] Lereah said. "We needed prices to fall. We had a balloon and we are deflating it. It got to the point where homes were unaffordable and we reached a breaking point. That's the reason we are in this contraction."

"It's the hot boom cities -- that is where the problem is," Lereah said. "But these were the boom markets because they had good economic fundamentals, and for the most part that is still true. This is a temporary correction in these hot markets -- but how you define temporary I just don't know."

Forget temporary, how do you define “correction?”

∙ Housing Market Showing 'signs Of Recovery' [Morningstar]

Posted by socketadmin at 12:07 AM | Permalink | Comments (5) | (email story)

October 31, 2006

San Francisco's One Thumb Up

BusinessWeek gives San Francisco real estate a “thumbs up” in terms of "Value for the Long Run." And while we agree, the jury is still out with regard to the near term. From BusinessWeek:

Housing has gone from a sure thing to a complete muddle. Median prices fell nationwide for a second straight month in September, the first time that has happened since 1990, according to a report on Oct. 25. Homeowners don't know whether to sit tight or bail. They have no idea whether they're experiencing the beginnings of a deep bust that will leave a permanent hole in their wealth, or a small hiccup.

How do you know if your own local market is the kind that will snap back or the kind that will languish indefinitely? One key factor is the ease or difficulty of building new homes. Places where new home construction is a long and expensive process, such as Boston and San Francisco, tend to experience big price movements, both up and down. "Restricted supply leads to more volatility in prices," says Edward L. Glaeser, a Harvard University economist who has studied big-city housing markets.

Key word: volatility. And then there’s that second to last paragraph: “Sure, [restricting housing supply] can make current owners richer by increasing the scarcity value of their homes. But it's murder on first-time buyers. And in the long run, it's bad for the local economy. As Glaeser notes, companies tend to migrate away from areas with costly housing to avoid paying the higher salaries needed to compensate employees for their home costs.”

∙ Boom! Bust! Boom? [BusinessWeek]

Posted by socketadmin at 12:25 AM | Permalink | Comments (12) | (email story)

October 23, 2006

Just Quotes: Et Tu David?

David Lereah, the senior vice president and chief economist of the National Association of Realtors, “expects real estate prices to continue to fall in most U.S. markets. In areas that experienced the largest price appreciation in recent years, a correction is needed, he said, this time citing San Francisco as the best example.” (Realtors' chief economist tells Rotarians to concentrate on local market)

Posted by socketadmin at 10:41 AM | Permalink | Comments (10) | (email story)

October 18, 2006

The Article (And The House)

From the Chronicle: "After five open houses, a $40,000 price-cut and three months on the market, Leslie Nakajima hasn't had a single offer on her three-bedroom house in Potrero Hill. Nakajima, who does public relations for tech firms, said she's surprised it's taking so long to sell."

"She was considering taking a job in Seattle last year and put the house on the market last fall. After just two weeks, she received two offers, including one for $975,000. She decided against the new job and turned down the bidder. Now, she's decided to move to Europe and is asking $949,000 for her house."

"If she hasn't received any offers by month's end, Nakajima said she'll stop trying to sell the house, which she bought 2 1/2 years ago. "They aren't building single-family homes up on the hill in San Francisco any more,'' said Nakajima. "If I absolutely had to sell, that would be one thing. But I'm not desperate, and just breaking even is not really what I had in mind."

∙ Home prices slip after 4 hot years [SFGate]
∙ Listing: 868 Arkansas (3/2.5) – $949,000 [MLS]

Posted by socketadmin at 11:30 AM | Permalink | Comments (31) | (email story)

October 12, 2006

Those Numbers Sure Can Be Tricky

Some interesting September-to-September data points courtesy of the SFHomeBlog:

∙ MLS listed inventory in San Francisco is up 36% from 9/04
∙ MLS recorded sales in San Francisco are down 28% from 9/04

We can't vouch for the data, but if you take it at face value, listed housing supply in San Francisco has increased from 3.0 months in September 2004 to 5.6 months in September 2006. And if you're an advocate for simple “supply and demand" economics for housing, any thoughts on what one should infer regarding prices?

Just for the record, we’ve never used the words “crash,” “tanking,” or “bleak.” We are, however, quite fond of the words “trend,” “changing,” and “informed.” (And yes, sometimes even “troubling.”)

∙ Basic Supply & Demand (San Francisco) - pdf [SFHomeBlog]

Posted by socketadmin at 12:00 AM | Permalink | Comments (16) | (email story)

October 5, 2006

Economy.com Weighs In On San Francisco

Three quotes from the Chronicle:

Prices in San Francisco, Marin and San Mateo counties will rise about 3.6 percent a year for the next two years even as home values in the East Bay slip, according to a Moody's Economy.com report.

"There doesn't appear to be much excess supply in the San Francisco market," said Gus Faucher, director of macroeconomics at Economy.com.

"San Francisco is perpetually unaffordable,'' said Faucher, who noted that an analysis showed that prices in the three counties were just 7.5 percent higher than Economy.com predicted they should be based on historical comparisons. "We think the metro area should be able to sustain that.''

Okay, we’ll ask the obvious, if the “analysis showed that prices in the three counties were just 7.5 percent higher than Economy.com predicted they should be based on historical comparisons,” why are they predicting 3.6% gains over the next two years? Not exacly a vote of confidence in their own analysis. And please tell us they’re not simply looking at “listed” inventory when measuring supply.

∙ Mixed outlook for local housing [SFGate]

Posted by socketadmin at 9:59 AM | Permalink | Comments (1) | (email story)

September 13, 2006

The President Of N.A.R. Goes To Washington

A couple of quotes from the testimony (pdf) of Tom Stevens, the President of the National Association of REALTORS, at today’s U.S. Senate hearing on “The Housing Bubble and Its Implications for the Economy” (emphasis added):

"Sales are down significantly in Florida, California, Arizona, Nevada, Virginia, and Maryland. These regions experienced the greatest rise in home prices in recent years and affordability has become a major issue. The sharp decline in sales have resulted in a much higher housing inventory (tripling and quadrupling in some cases) and these areas are vulnerable to outright price declines, particularly if interest rates were to rise further."

"Contrary to many reports, there is not a “national housing bubble.” All real estate is local. For example, the housing market in California is extremely different from Oklahoma. Home price-to-income ratio, home price-to-rent ratio, and more importantly, mortgage debt servicing cost-to-income ratio have greatly increased in some markets to worrisome levels. Markets in Florida, California, Arizona, Nevada, Virginia, and Maryland exhibit trends far above the local historical norm, thus it would not be surprising for these markets to experience a price adjustment."

"Due to very high home prices, interest-only, adjustable rate, and/or option-ARMS became the only way to enter the housing market for some homebuyers. In essence, the homebuyers in the coastal markets are at their financial capacity. With rising mortgage rates, homebuyers are becoming exhausted financially, which explains why sales have tumbled in high priced regions of the country."

So ARMs and affordability are pressing problems, sales are slowing, and we're "vulnerable to outright price declines" and “adjustments”? Who could have possibly seen that coming (last November)…

∙ Witness Testimony: Mr. Tom Stevens, President N.A.R. (pdf) [senate.gov]
∙ The Housing Bubble and Its Implications for the Economy [senate.gov]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 3:11 PM | Permalink | Comments (18) | (email story)

August 23, 2006

Presentation To The NAR Leadership Summit

A tipster forwards the link to David Lereah’s Real Estate Reality Check presentation given at the National Association of Realtors (NAR) Leadership Summit last week. Very little of the data is San Francisco specific, but as our tipster notes, “definitely an interesting look at the national market.”

A couple of not so positive slide titles that caught our attention: “Condo – Significant Price Depreciation in West and South,” “Mortgage Obligation to Income – Worrisome in the West,” “Prices Do Decline,” and “Correction Necessary.” And according to the “What Will Happen?” slide, “Prices [are] expected to fall for remainder of year,” (although “[p]rice fall will be limited due to pent-up demand at lower prices”) and “[s]ome local markets are fragile and vulnerable to rate rise” (that would be us).

The five-day-old presentation forecasts national existing home price growth of 4.3% in 2006 and 3.8% in 2007 (down from 12.4% in 2005), and existing home sales of 6.6 million in 2006 (which was lowered to a seasonally adjusted annual rate of 6.33 million just this morning).

∙ Real Estate Reality Check: NAR Leadership Summit (8/06) - pdf [realtor.org]
∙ Fresh Data Shows Cooling Housing Market [SFGate]

Posted by socketadmin at 3:50 PM | Permalink | Comments (8) | (email story)

August 17, 2006

Affordability Is Up! (But Not Really)

Earlier this morning, we referenced the Housing Affordability Index (HAI) which is published by the California Association of Realtors (C.A.R.). According to the last published index (February), the percentage of households that could afford to purchase a median-priced home in the Bay Area was 12% (and only 9% in San Francisco).

Almost right on cue, C.A.R. released a new First-time Buyer Housing Affordability Index (FTB-HAI) this afternoon:

C.A.R. began producing its Housing Affordability Index (HAI) in 1984. At that time, fixed-rate mortgages were the prevailing form of financing a home purchase, while the calculations used to produce the HAI reflected a 20 percent down payment. The methodology also assumed a monthly payment for principal, interest, taxes and insurance that was no more than 30 percent of a household’s income.

In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed.

C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market.

According to the new model, the percentage of first-time buyers able to afford a median-priced home in the Bay Area stands at 24% (16% in San Francisco). And while that’s more palatable than 12% and 9% respectively, keep in mind that based on this new model (which takes into account relaxed lending standards and the shift away from long-term, fixed-rate mortgages), affordability in San Francisco is down about 18% from a year ago, down 28% from two years ago, and down 35% from the second quarter of 2003. That's the market reality.

∙ Nobody Actually Owns A Home In "Bay Area” [SocketSite]
∙ Housing affordability at 23 percent, according to newly developed index [C.A.R.]

Posted by socketadmin at 2:02 PM | Permalink | Comments (9) | (email story)

July 21, 2006

But Isn't The Median Sales Price Up?

Last November, 2760 Sacramento #3 (a 1,220 sqft. first floor, one bedroom, one bath condo without parking) sold for $827,000. Three days ago, the asking price for 2760 Sacramento #11 (a 1,220 sqft. top floor, one bedroom, one bath condo with parking) was reduced $40,000 after failing to sell at $795,000.

If you assume parking is worth $50K (which is probably conservative), a selling price of $755,000 is effectively $575/sqft., or about 15% less than the buyers of #3 paid ten months ago ($677/sqft.). Either we're missing something (so let's hear it), or once again, this might be evidence of a potentially troublesome trend.

Regardless, if you’re planning on hitting the open house this weekend, bring your trunks/bikini and a towel. The building has a sweet little pool…

∙ Listing: 2760 Sacramento Street #11 (1/1) - $755,000 [Coldwell Banker] [MLS]
∙ A Troublesome Trend? [SocketSite]

Posted by socketadmin at 12:10 AM | Permalink | Comments (10) | (email story)

July 19, 2006

San Francisco Median Sales Price Rebounds Slightly

According to DataQuick, the median sales price for existing homes in San Francisco was $778,000 last month, up 2.4% from $760,000 in June ’05 (matching the high-water mark of October ’05/April ’06). Sales volume continued to trend down year-over-year (652 sales versus 723 in June ‘05), but showed signs of a slight seasonal up-tick as volume increased 4.2% as compared to June '06 (626 sales).

For the greater Bay Area, the recorded median sales price in June was $644,000 (up 5.6% year-over-year) and sales volume was 9,892 (down 24.0% from June ’05 but up 9.1% from April ’06). Marin, Napa, and Sonoma continued to record negative year-over-year sales volume growth but all recorded positive year-over-year price appreciation.

From DataQuick president Marshall Prentice, "The Bay Area's market is reaching the end of a real estate cycle, it looks like prices could flatten out sometime this fall. What happens after that is anyone's guess."

∙ Bay Area home sales continue to drop, prices reach new peak [DQNews]
∙ San Francisco Year-Over-Year Appreciation Flat [SocketSite]

Posted by socketadmin at 1:55 PM | Permalink | Comments (1) | (email story)

July 11, 2006

Noe Valley Numbers And Insight

Garrett (of Greg & Garrett fame) was kind enough to drop us a note to let us know that our post on Noe Valley price reductions inspired him to add some Noe Valley sales stats to the Greg & Garrett blog. (We’re suckers for numbers.) The comparison of actual second quarter sales in 2005 and 2006 yields some interesting insight.

Based on Garrett’s numbers, the Average Sales Price of a single family home in Noe Valley increased 17.5% between the second quarter of ’05 and ’06. At the same time, however, the average sales price per square foot ($/sqft) dropped 8.7%. This is perhaps a textbook example of how a change in the sales mix (in this case larger homes) can obfuscate a weakening (depreciating?) housing market.

Even more straightforward, a comparison of condominiums/TICs sales in Noe Valley shows a 5.0% drop in Average Sales Price between second quarter sales in 2005 versus 2006, and a 12.6% drop in the average sales price per square foot ($/sqft).

And yes, we'll be the first to admit that dealing with “averages” can be dangerous, but it's all we've got (for now...).

∙ The Cost Coming Down? [SocketSite]
∙ More Quarter 2 Numbers [Greg & Garrett’s]
∙ It’s All About The Mix [SocketSite]

Posted by socketadmin at 11:39 AM | Permalink | Comments (0) | (email story)

July 10, 2006

Increasing Rates, Decreasing Availability

Square Feet points out that rates on home equity lines of credit have nearly doubled over the past two years (now 8.2% on average). And the LA Times runs Kenneth Harney’s piece about a likely increase in “piggyback” mortgage rates and availability. (Piggyback mortgages are second liens that borrowers with less than 20% down payments employ in order to avoid having to pay mortgage insurance premiums.)

The reason for the change, according to Standard & Poor's credit analyst Kyle Beauchamp, is that an exhaustive study of the performance of piggyback loans found them anywhere from 43 percent to 50 percent more likely to go into default than comparable stand-alone first-lien purchase transactions.

According to a study by SMR Research Corp., piggybacks quadrupled their market share between 2001 and 2004. In a sample of loans in California markets, according to the SMR study, the percentage of piggybacks exceeded 60 percent in some cases.

Think San Francisco might be one of those markets?

∙ Rates on home equity lines soar [Square Feet]
∙ Default rate of 'piggyback' loans spurs Wall Street to action [latimes.com]

Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)

June 14, 2006

Bottoming Out In 2009?

According to a study by Global Insight/National City, San Francisco has gone from being “fairly valued” in 2001 (well okay, 4.8% overvalued) to being over-valued by 40.8% in 2006. Interestingly enough, that doesn’t even put us in the “Top 50” of “over-valued” metro areas (Naples, Florida leads the nation at 102.6%). And it's nothing we haven’t heard before.

One new twist, however, is that based on a “historical examination of 66 actual metro area price corrections” (including a drop of 11% in San Francisco from 1990-1994), the study suggests that when/if "prices do fall from overvalued levels, they typically fall by about half the overvaluation” but that a “correction usually takes three and a half years.”

∙ Global Insight/National City Study: House Prices in America – pdf [globalinsight.com]
∙ More housing markets overvalued [MarketWatch]

Posted by socketadmin at 11:27 AM | Permalink | Comments (1) | (email story)

June 12, 2006

Those Damn Fools

The Motley Fool pounces on the National Association of Realtors (NAR), the press, and housing as an “investment”:

These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can't afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode.

Damn Fools.

∙ I Want My Bubble Back! [Motley Fool]

Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)

June 8, 2006

Harvard’s State Of The Nation’s Housing Report: 2006

Harvard released their annual “State of the Nation’s Housing” report this week. We haven’t had a chance to do anything other than skim the contents (current slowdown should be moderate; most immediate risks: interest rates, erosion of affordability, and growing inventory; long-term outlook for housing is bright), but for those who want to join us in a little light weekend reading (lots of pretty graphics), the full report is available online (warning: 5.1mb pdf). Just remember, they’re talking about macro level trends which may, or may not, be relevant to the local market.

A tip of the hat to the Matrix for pointing out the link to the pdf.

∙ The State of the Nation’s Housing 2006 - pdf [Harvard]
∙ [Getting Graphic] Harvard: The State of the Nation’s Housing 2006 [Matrix]

Posted by socketadmin at 3:22 PM | Permalink | Comments (0) | (email story)

From Gain To Loss In Just Three Short Months?

This past March, Matt Lanning at the SFhomeBlog set out to demonstrate the “real-world” impact of rising mortgage interest rates on home values. As always, the devil is in the details (or in this case, the assumptions), and as such, we thought it might be interesting to use Matt’s own model, with updated assumptions (reflecting the ongoing changes in mortgage and home appreciation rates), to see what it says about the current market.

Matt’s model is straightforward: take the purchase of a $750,000 property (with 20% down) and after a year, net out the impact of decreased purchasing power due to rising interest rates from any increase due to local market appreciation. Based on this model, and with his assumptions, Matt suggests that you would have had a “positive price appreciation of at least $25k” from March ’05 to March ‘06. Key assumptions: mortgage rate moving from 5.75% to 6.5% (30-year fixed), and a “conservative” year-over-year market appreciation of 10%. Now let’s fast forward three months...

According to Bankrate.com, the benchmark 30-year fixed-rate mortgage is now 6.72% (up 1.07% from a year ago), and the benchmark 5/1 adjustable-rate mortgage is now 6.29% (up 1.14% from a year ago). In either case, in order to keep mortgage payments the same as a year ago, the price of a $750,000 property would have to drop to about $665,000 (for a loss of $85,000).

At the same time, year-over-year appreciation (imperfectly measured by the change in median sale price) is currently running around 4% and would suggest that a $750,000 property purchased a year ago should be worth $780,000 today (for a gain of $30,000). Based on Matt’s model, we now net the $85,000 loss against the $30,000 gain for an effective loss of $55,000 over the past year.

Yes, this model is flawed and overly simplistic, but it does highlight two points: 1. in any model, question the assumptions, and 2. the SFHomeBlog’s own model would suggest that property values are actually depreciating (not appreciating) in San Francisco. But please don’t blame us, it’s really not our model.

∙ Mortgage rate comparison - Then & Now [SFHomeBlog]
∙ Rates hardly move in paucity of economic data [Bankrate.com]
∙ SF Year-Over-Year Appreciation Now At 3.6% [SocketSite]

Posted by socketadmin at 12:15 AM | Permalink | Comments (3) | (email story)

June 7, 2006

QuickLinks: Cause And Effect

∙ Fed Chief Raises Inflation Concern [washingtonpost.com]
“Federal Reserve Chairman Ben S. Bernanke expressed more concern about rising inflation than the cooling U.S. economy yesterday, sending his strongest signal yet that interest rates are probably headed higher.”

∙ Realtors see lower US home sales [washingtonpost.com]
“The National Association of Realtors on Tuesday lowered its forecast for U.S. home sales in 2006 and called on the Federal Reserve to stop raising interest rates because parts of the housing market are "vulnerable.""

Posted by socketadmin at 12:15 AM | Permalink | Comments (0) | (email story)

June 1, 2006

OFHEO Reports 1.15% First Quarter Appreciation For San Francisco

The Office of Federal Housing Enterprise Oversight (OFHEO) released its first quarter House Price Index (HPI) and appreciation tables this morning. According to the OFHEO, “U.S. home prices were 12.54 percent higher in the first quarter of 2006 than they were one year earlier. Appreciation for the most recent quarter was 2.03 percent, or an annualized rate of 8.12 percent.”

For the San Francisco MSA (which includes San Mateo and Redwood City), home prices were 14.60 percent higher than a year earlier, but appreciation for the first quarter of 2006 fell to 1.15 percent, or an annualized rate of 4.6 percent (about half the national average).

“These data show average housing prices still growing stronger than some might have expected,” said [OFHEO Acting Director James Lockhart]. “They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most.”

∙ OFHEO First Quarter 2006 House Price Index Report [OFHEO - pdf]

Posted by socketadmin at 10:29 AM | Permalink | Comments (1) | (email story)

May 30, 2006

No Pop (But No Appreciation?)

While it’s an "old” speech (February ’06), it’s still a good one.

Christopher Thornburg, senior economist at UCLA's Anderson School of Management, offers his perspective on whether the recent cooling trend in residential real estate indicates an imminent bubble burst or just a lull in California's otherwise booming housing market in this edition of the Economics Roundtable at the University of California, San Diego.

Our favorite quote and topic: “People don’t think about fundamentals, they think about trends” (minute 37:08). A couple of other key segments in the 58 minute speech: California real estate (21:11); The bubble (30:15); When is it going to end? (45:15); What does this mean to you? (49:37); The punch line (51:48). (A tip of our hat to the Bubble Meter for the link)

∙ Economics Roundtable: The California Economy -- Housing Boom or Bubble? [Google]
∙ Google Video: "The California Economy: Housing Boom or Bubble?" [Bubble Meter]

Posted by socketadmin at 11:26 AM | Permalink | Comments (0) | (email story)

May 25, 2006

From Bull To Bear?

You could actually hear the collective nodding of heads when Christopher Mayer, an economics professor at Columbia University, referred to San Francisco as a “superstar” city and argued that “land shortages and rising populations would translate into ever-rising prices.” Well, now Mr. Mayer is changing his tune.

Yes, we’re still the a superstar city, but Mr. Mayer is conceding that “prices in the most expensive markets could drop 15 percent in the next year” (that’s us). He’s obviously never been in San Francisco on a day like today.

∙ Can you still get rich in real estate? [CNNMoney]

Posted by socketadmin at 8:47 AM | Permalink | Comments (0) | (email story)

May 16, 2006

Up Yet Down

CNNMoney reports that while the median sales price of a U.S. home is up over ten percent (10.3%) year-over-year, it dropped 3.3% during the first quarter of 2006. And based on data from the California Association of Realtors, the median sales price in the San Francisco MSA (which includes Oakland and Fremont) was up 5% year-over-year for single-family homes (12.1% for condos and coops). We'll wait for the DataQuick numbers before making any bold statements.

∙ Real estate cools down [CNNMoney]

Posted by socketadmin at 12:01 AM | Permalink | Comments (0) | (email story)

May 3, 2006

DataQuick Reports Part 2: The SocketSite Insight

Trying to predict the market is often considered a fools game, but we don’t see any reason to let that stop us. Two weeks ago we promised our commentary and insight into DataQuick’s March sales stats for San Francisco, so here we go…

While median sales prices in San Francisco trended up 4.1% to $763,000 in March ‘06, and recorded a very respectable 9.6% year-over-year gain as compared to March ’05 ($696,000), the real story is that they’ve been relatively flat for the past eleven months. In fact, compared to April ’05 ($751,000), the San Francisco median sales price is up only 1.6% (and is still 1.9% below its peak of $778,000 in October ’05).

Now granted, it’s not unusual to see an up-tick in median sales prices from March to April, but even with another 4% gain over March, San Francisco will record year-over-year appreciation of below 6% next month. And based on a two-year linear forecast, the outlook is even more dire: a year-over-year appreciation of 4%.

That’s right, for the first time in years, we just might see the rate of home price appreciation dip below the cost of borrowing (i.e. mortgage rates). The impact? You'll just have to stay tuned for Part 3 (later this week Monday Thursday).

∙ DataQuick Reports Part 1: The Basic Report [SocketSite]

Posted by socketadmin at 1:51 PM | Permalink | Comments (0) | (email story)

April 24, 2006

From ‘Sticky’ To ‘Slippery’: A Fundamental Change In The Housing Market?

Technical traders and analysts often talk about support levels or a floor price. In the housing market, real estate agents talk about “stickiness.”

Previous downturns in the housing market have left homeowners owing more that their homes were worth (i.e. “underwater”) and unable, or unwilling, to sell or move. Those who were forced to sell (think job transfer, an unexpected medical expense, or perhaps a new baby in a one bedroom condo) did so at a loss. But the vast majority of owners just stayed put and waited it out – three, five, or even ten years until the market turned around.

And while the housing market might take a turn for the worse, it rarely plummeted. Homeowners sitting on the sidelines made sure of that. These owners kept the market from being flooded with inventory, provided natural resistance to depreciating housing prices, and kept the market out of an associated “crash.”

As Celia Chen writes for the Dismal Scientist, “There is an inherent downward stickiness in home prices, as many homeowners can simply take their product off the market rather than sell at a price lower than they desire." Or according to Kelly Zito of the Chronicle, “even in a slackening market, sellers often resist losing money on a property or simply not making as much as the Joneses next door. Sometimes that can mean sales volumes will decline, but prices will stay resilient . . . . ”

Historically, the vast majority of homeowners could afford to wait as long-term fixed-rate mortgages kept expenses in line with budgets. Month after month, or year after year, homeowners would simply continue to make their mortgage payments and wait patiently for the market, and their equity, to return.

Unlike the Internet’s “new economy,” however, this time it really might be different. While short-term adjustable, interest-only, and negative amortization mortgages have quite literally opened the doors to a whole host of new homeowners, combined with cash flow negative “investment” properties, and highly leveraged buyers without sufficient reserves, they have also created a more volatile housing market.

Instead of not being able to sell in a downturn, many new homeowners might find that they can’t afford to hold (or wait). Mortgage payments will increase faster than incomes, rental income won’t offset an investment property’s carrying costs, and a high loan to value mortgage will constrain an owner's ability to tap into equity to help weather any storm.

And for the first time in history, might we find that the “stickiness” that has traditionally kept the housing market from being flooded with inventory in a downturn, and prices from plummeting, has actually turned quite “slippery?”

Posted by adamkoval at 12:39 AM | Permalink | Comments (5) | (email story)

April 19, 2006

DataQuick Reports Part 1: The Basic Report

Ten hours later and this is already old news, but for those of you who missed it, DataQuick reported Bay Area sales stats for March this morning.

For the Bay Area, the “median price paid for a Bay Area home was $622,000 last month. That was up 1.0 percent from February's $616,000, and up 9.5 percent from $568,000 for March a year ago. The median peaked at $625,000 last November. Last month's year-over-year increase was the first time was below 10 percent since prices rose 9.7 percent to $443,000 in January 2004.” March sales (9,745) were up from February (6,206) but down 13.8% as compared to March 2005.

For San Francisco, the median sales price was $763,000 in March, up 4.1% from February ($733,000), and up 9.6% year-over-year. As expected, March sales volume (561) was up from February (385), but down 15.0% as compared to March 2005.

We’re saving our commentary (and insight) for Part 2.

∙ Slowdown in Bay Area home sales, appreciation rate [DQNews]

Posted by socketadmin at 8:40 PM | Permalink | Comments (0) | (email story)

April 4, 2006

There Is No Bubble! (Unless You Live In San Mateo)

Gary and Margaret Hwang Smith, two economics professors at Pomona College, recently concluded that there is no national housing bubble ("Bubble, Bubble, Where's the Housing Bubble?"). In fact, they suggest that numerous cities across the nation are actually undervalued.

“They argued that the value of a home is determined by the rent it could fetch. Calculate the future rents, subtract mortgage payments, taxes and other costs, factor in a good annual rate of return of 6 percent or more, and one should be looking at the proper price of a house or condo.”

Before you take too much comfort, however, realize that their study was based on data from ten (10) US cities. And out of the ten, only one Bay Area city (San Mateo) was included in the study. And out of the ten, only one city (San Mateo) was determined to be overvalued. And based on their calculations, this one city (San Mateo) is overvalued by between 42 and 54 percent. No word on San Francisco.

∙ Some New Math on Homes [NYT]
∙ Bubble, Bubble, Where’s the Housing Bubble? (pdf)

Posted by socketadmin at 9:39 AM | Permalink | Comments (0) | (email story)

March 28, 2006

The Danger (Not Wonder) Years

Quick, what’s the ‘riskiest’ year in the life of a mortgage from a lenders perspective? Think it’s the first? Guess again.

“Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages…After years of strained budgets, borrowers may have little in savings to draw on to handle a crisis; this is also the period when major repairs begin to crop up; finally, many home buyers go through life changes, including starting a family.”

In the Bay Area, this is also the period during which many adjustable rate mortgages re-set. And despite all the 30-year fixed rate subterfuge, please keep in mind that short-term interest rates have continued to rise.

∙ The "danger years" for homeowners [CNNMoney]

Posted by socketadmin at 11:54 AM | Permalink | Comments (0) | (email story)

March 24, 2006

New Home Sales Plunge In The West

Right on the heels of Thursday’s report of an increase in previously owned home sales, the Commerce Department reports that national new home sales fell by 10.5% last month - the largest drop in nine years.

And perhaps more noteworthy for readers of SocketSite, new home sales in the West dropped by 29.4% (while sales actually rose in the Northeast and Midwest).

∙ New Home Sales Down by Most in 9 Years [SFGate]

Posted by socketadmin at 10:56 AM | Permalink | Comments (1) | (email story)

March 23, 2006

San Francisco Prices Up/Sales Down

According to the California Association of Realtors, Bay Area median home prices gained 1.7% last month, and on a year-over-year basis remain up 6.1% (8.0% in San Francisco County). Not too surprisingly, Bay Area sales volume was relatively flat as compared to January (-0.4%) and sales volume continues to fall on a year-over-year basis (-12.3%). Overall, relatively in line with DQNews.

Trying to make sense of the seemingly contradictory 'prices up, volume down, and inventory building' stats? You’re not alone.

∙ February 2006 sales/price report [C.A.R.]
∙ February 2006 Median Home Prices [C.A.R.]
∙ San Francisco Sales Slide In February [SocketSite]
∙ It’s All About The Mix [SocketSite]

Posted by socketadmin at 12:34 PM | Permalink | Comments (0) | (email story)

March 20, 2006

Projecting A 12.5% Default Rate On ARMs

Originally we wrote, “Nothing new, but a good reminder from The Wall Street Journal”. And then we re-read the last sentence of the third paragraph:

“In the hot housing market of recent years, many households took advantage of "affordability" mortgage loans -- heavily promoted by lenders -- that hold down payments for an initial period. Now the initial periods are coming to an end on many of these loans, leaving borrowers to face resets of their interest rates that can cause monthly payments to shoot up between 10% and 50%.

More than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007, estimates Moody's Economy.com, a research firm in West Chester, Pa.

Most borrowers will be able to cope with the coming wave of resets, in some cases by refinancing with new loans, lenders and mortgage industry analysts say. But some borrowers will have trouble meeting the higher payments and may be forced to sell their homes or could lose their homes to foreclosures. A recent study by First American Real Estate Solutions, a unit of title insurer First American Corp., projects that about one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans.”

Projecting a default rate of 12.5% for adjustable-rate mortgages that originated in 2004 and 2005? And the majority of new Bay Area mortgages have been adjustable-rate over the past couple of years? This ought to be interesting.

∙ Millions Are Facing Squeeze On Monthly House Payments [RealEstateJournal]
∙ An ARM (And Quite Possibly A Leg) [SocketSite]

Posted by socketadmin at 11:41 AM | Permalink | Comments (0) | (email story)

March 16, 2006

San Francisco Sales Slide In February

According to DQNews, “Bay Area home sales remained at their lowest level in five years in February, as price increases continued to slow….” San Francisco sales volume is off by almost 19% compared to 2005, and although the median sales price rose 1.5% last month, year-over-year appreciation now stands at 4.9%.

That being said, DQNews also reports, “Indicators of market distress are still largely absent. The use of adjustable-rate mortgages has decreased significantly the last three months…Down payment sizes are stable and there have been no significant shifts in market mix…”

∙ Slowdown in Bay Area home sales, appreciation rate [DQNews]

Posted by socketadmin at 12:14 PM | Permalink | Comments (1) | (email story)

March 13, 2006

The Bull

Okay, so who’s the genius at NAR that decided that a “balloon is a much better image” to represent the strength of the real estate market?

Are we the only ones who remember week-old birthday balloons lying shriveled on the floor? Or popping balloon after balloon in failed attempts to overfill those little water balloons? Regardless, David Lereah, chief economist of the National Association of Realtors, seems to be firmly on board.

“His prediction for the housing market's future is, with a few exceptions, a remarkably sunny one: low interest rates, continued annual appreciation, a lean supply accompanied by demographics guaranteed to produce a strong demand.”

"The factors that have some real estate economists worried, which include a decline in sales and appreciation, higher interest rates and reduced affordability, Lereah says, are merely signs that some air is slipping out of the balloon.”

"More air will come out in some areas than others," says Lereah. "But you can't sustain double-digit price increases forever. You need a cooling-down period. It's healthy for the market. It's still a sound balloon."

"The fundamentals haven't changed," Lereah says. "It's still a great time to invest in real estate."

We agree, air is slipping out of the balloon and double-digit price increases are not sustainable. We do, however, disagree that the “fundamentals haven’t changed.”

The fact that the majority of new Bay Area housing “investments” would lose money on an income producing basis challenges a basic fundamental of investing. And widespread speculation (i.e. banking on asset appreciation) in the housing market signals a fundamental shift in "investor" behavior (and risk).

∙ A BULL, A BEAR AND THE BUBBLE [SFGate]
∙ Why the Real Estate Boom Will Not Bust [Amazon]

Posted by socketadmin at 12:15 AM | Permalink | Comments (2) | (email story)

The Bear

A loud "Amen!" with regard to reducing your exposure to "variable-rate or interest-only loans”, but damn, even we’re not as bearish as financial consultant, and author (Sell Now! : The End of the Housing Bubble), John Talbott:

“According to San Francisco's LoanPerformance.com, half of all Bay Area home buyers used interest-only loans to make their purchases last year. With so much of their income already relegated to their mortgage payment, says Talbott, even a small rise in interest rates will push many to -- and beyond -- their limit. For others, a divorce or job loss will spell financial ruin.”

“The problem, he says, is that home prices are way overvalued -- just as Internet stocks were during the 1990s before that sky collapsed. As evidence, he points to the growing discrepancy between Bay Area home prices and rents, an indicator commonly used by economists to determine a property's true value.”

“People should protect themselves, Talbott says, by divesting themselves of any investments in real estate, including stock. They should sell their vacation homes. They should get out of any variable-rate or interest-only loans. They might even consider selling their primary residence, investing that money in something other than real estate, and renting for awhile.”

Here’s what we say: if you won’t be able to afford your “investment” (i.e. property) should interest rates rise and/or the market turns, then now might be a good time to either consider selling, or to reconsider any irrationally driven (e.g. “prices always go up” or “if you don’t buy now, you’ll be left behind forever”) urges to buy.

Otherwise, just don’t worry about it (too much).

∙ A BULL, A BEAR AND THE BUBBLE [SFGate]
∙ Don’t Fear The Bubble [SocketSite]
∙ Sell Now! : The End of the Housing Bubble [Amazon]

Posted by socketadmin at 12:05 AM | Permalink | Comments (1) | (email story)

March 2, 2006

Don’t Fear The Bubble

As one of the New York Times “Most E-Mailed Articles”, chances are you’ve already read David Leonhardt’s Don't Fear the Bubble That Bursts. But if not…

…instead of panicking, most homeowners should be taking a deep breath. The real estate slump of 2006 offers a fresh chance to puncture the No. 1 myth about the nation's No. 1 topic of conversation: the idea that we should all be rooting for high house prices. The myth is good for real estate agents, but it creates needless anxiety for everyone else. It's time that most of us learned to stop worrying and love the bursting bubble.

"Even in the most vulnerable markets, most people just have to look through it and ignore it," said Mark Zandi, the chief economist of Moody's Economy.com, "because it's of very little relevance to them."

Amen. Now read the rest of the article (especially if you plan to comment).

∙ Don't Fear the Bubble That Bursts [NYT]

Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)

February 28, 2006

San Francisco Sales/Prices Trend Down

On a year-over-year basis, home prices are up 6.1% in the Bay Area (8.1% in San Francisco County) according to the California Association of Realtors. Yes, single-digit year-over-year appreciation for San Francisco County. Historically irrelevant, but it’s quite a change from the past couple of years of “guaranteed” double-digit appreciation.

And last month, both sales volume and median prices fell (-32.9% and -0.8% respectively) for homes in the San Francisco Bay Area (prices fell 1.2% in San Francisco County).

∙ Jan. 06 sales/price report [C.A.R.]
∙ January 2006 Median Home Prices [C.A.R.]

Posted by socketadmin at 2:56 PM | Permalink | Comments (1) | (email story)

February 24, 2006

Economic Impact Of Industry Slowdown

A couple of interesting paragraphs from Inman News yesterday:

“As real estate industry layoffs continue and the toll mounts, some industry experts predict a toll of as much as 40 percent of existing jobs lost by the end of the year, while others insist that the WaMu layoffs [2,500 jobs] are just an anomaly.”

"The real estate occupations tend to be more flexible and move with the economy because everyone knows they are cyclical," said Dr. Delores Conway, director of the Casden Real Estate Economics Forecasting Project at the University of Southern California Lusk Center for Real Estate.”

“It might seem that one way to chart a drop-off in the real estate profession would be to tally the number of real estate licenses being granted. But, according to Vince Malta, the president of the California Association of Realtors, historically there is a two-year lag between a change in the housing market and any change in membership.”

“The California Association of Realtors has 180,000 members at present and Malta predicts there will be 210,000 members by the end of 2006. California's Department of Real Estate currently has 475,000 current real estate licensees. Malta said the Real Estate Commissioner predicts there will be 500,000 licensees by June. "Generally there is a lag," Malta said.”

“As far as the state of California's real estate market, Malta said, "We are still projecting the state to have about 620,000 single-family (sale) transactions this year. The record is 625,000 last year and 624,000 in 2004, so we're going to still have a good year in terms of transactions. We are going to have a more balanced market.”

A couple of key words: “cyclical”, “lag”, and “balanced”.

∙ Real estate slowdown leaves casualties [Inman - $]

Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)

February 19, 2006

Fiserv Says San Francisco Home Prices To Drop 1.9%

Fiserv Lending Solutions (a provider of mortgage and consumer lending services) is forecasting a 1.9% drop in home prices for the San Francisco MSA in 2006.

Unfortunately we’ve never heard of Fiserv Lending Solutions, have no insight into their methodology, and have no idea how accurate any of their forecasts have been in the past (or if they even have a “past”). It’s just another data point (but from within the industry).

∙ Price forecasts for 379 metro areas for 2006 [CNN/Money]

Posted by socketadmin at 7:29 PM | Permalink | Comments (2) | (email story)

And We Definitely Agree With Sir Issac Newton

An evenly balanced follow-up from the Chronicle with regard to the their coverage of the most recent DataQuick report:

This spring, Bay Area homeowners are likely to know whether the housing market has merely paused before resuming its upward climb or has truly downshifted to the slow lane and, if so, how dramatically.

Last month, the number of homes sold declined for the 10th month in a row and hit its lowest level since 2001, and price gains slowed markedly as well.

Now, the question is, will the market simply cool or will it dive into negative territory?

Each housing cycle in the past has had its own set of twists and turns in which a multitude of factors comes in to play.

As the current housing frenzy exhausts itself, variables ranging from interest rates and employment growth to affordability, new home supply and sellers' willingness to part with their No. 1 asset will help determine the swiftness and magnitude of any downshift.

"Making this cycle more unique ... is that there's been a big increase in homeownership since the early 1990s," said Celia Chen, director of housing economics at Moody's Economy.com. "We've brought a lot more people into the market, and it's uncertain how these people will react in a down cycle."

Here’s where we definitely agree with Sir Issac: “I can calculate the motions of heavenly bodies, but not the madness of people.” (Sir Issac Newton having lost his shirt in the South Sea bubble, 1721)

∙ HOUSING -- JUST COOL OR GOING COLD? [SFGate]
∙ Rates Cheap. Houses Not Cheap. [SocketSite]
∙ Real Estate Vs. Real Behavior [SocketSite]

Posted by socketadmin at 1:22 PM | Permalink | Comments (0) | (email story)

February 17, 2006

We Agree With David (Sort Of)

For the past eight months we’ve been yammering on about “risky mortgages”. Why? We’ll let David Lereah (chief economist for the National Association of Realtors) explain:

“Home price appreciation, after reaching an astonishing estimated 12.7 percent national annual rate, will decelerate back into single-digit territory, registering 6.1 percent and 7.3 percent for existing and new home prices, respectively.

This cooling is exactly what markets need today, because it helps check the rise in speculative buying and the growth in risky mortgages, such as the interest-only loans we started seeing at the height of the boom.

That risk-taking changed the residential real estate landscape in significant ways by encouraging some investors to flip properties and home buyers to spend beyond their means.

There will be some adjustment, of course, as many of the hottest areas transition from a seller’s to a buyer’s market.

We’re already seeing inventories rise and days-on-market increase as buyers and sellers search for equilibrium in pricing, with buyers saying no to double-digit price hikes and sellers dragging their feet before agreeing to adjust their price downward.”

We’re just surprised nobody saw that coming. Oh, wait a minute…

∙ Sometimes, second is best [Realtor.org]
∙ An ARM (And Quite Possibly A Leg) [SocketSite]
∙ We're Raising The “Bubble Alert” Level To Yellow [SocketSite]

Posted by socketadmin at 1:47 PM | Permalink | Comments (0) | (email story)

February 16, 2006

Rates Cheap. Houses Not Cheap.

According to the most recent DataQuick report, Bay Area home sales plunged last month while prices held steady. From the Chronicle:

Bay Area home sales tumbled to their lowest level in five years last month, and prices hovered well below record territory, further evidence that the region's seemingly unstoppable housing boom may have peaked with the blistering market of 2005.

What remains to be seen is whether the new figures amount to a hiccup or the beginning of prolonged slowdown.

Rising interest rates, and tighter lender standards, seem to be taking a lot of the blame. A quote from the director of the Center for the Continuing Study of the California Economy in Palo Alto: "People chose to bet on future appreciation by choosing loans where they knew payments would go up by a lot -- but they got in cheap…There are no cheap loans now."

The scariest thing? Current mortgage rates are still well below historical averages (second to last graph).

∙ Home sales falter, hinting at slowdown [SFGate]
∙ Interest Rate Trends [Mortgage-X]

Posted by socketadmin at 11:07 PM | Permalink | (email story)

February 13, 2006

Scary Gary Speaks

We can’t help but take a little journey down South this morning where Realtor Gary Watts (a.k.a. Scary Gary) appears to be the groundhog for the Orange County real estate market. And apparently he hasn’t seen his shadow. From FORTUNE:

If you want to know where real estate prices are headed in California's Orange County, the man to talk to is Gary Watts. The Mission Viejo broker has 35 years of experience and doubles as a spokesman for the O.C.'s Association of Realtors.

But it's his track record more than his resume that has won him serious credibility with his peers. In 1989 he earned the nickname "Scary Gary" by correctly predicting that the housing market in Southern California was headed for a tumble. Then, in 1996, he was one of the first to call the area's rebound. Since 1997, Orange County home prices have seen a 195 percent rise. Will the good times last another year? Gary doesn't hesitate. "Fifteen percent is pretty much in the bag for Orange County in 2006," he says. "It's impossible for prices to go down this year."

Half a decade into the biggest real estate boom in our nation's history -- and a full two years after pundits began sounding alarms about its coming to a close -- the endgame is still unclear. Pick your cliche: Are we in a bubble that's ready to burst, or are we, as National Association of Realtors chief economist David Lereah recently asserted, headed for a "soft landing"? The almost daily drumbeat of national statistics doesn't help sort things out. Is it more significant that we just had a fifth straight year of record home sales, or a third straight month of decreasing prices?

"No one really understands how these things behave," says Robert Shiller, the Yale economist and author of "Irrational Exuberance," who presaged the dot-com crash and has lately been spending much of his time studying real estate. "Looking for indicators is a little bit futile because we've never seen this kind of growth in housing before."

In fact, the best way to get a handle on where the broader housing market is headed is probably to ignore the national numbers and heed the example of Scary Gary: Stay local, and always follow the inventory.

Always follow the inventory? We couldn’t agree more. And we’re on it.

∙ A tale of two markets [CNN/Money]

Posted by socketadmin at 9:15 AM | Permalink | Comments (0) | (email story)

January 25, 2006

December Prices and Sales Fall In San Francisco

The California Association of REALTORS® (C.A.R.) reports that both prices and sales of single family homes fell this past December in the San Francisco Bay Area. According to C.A.R., the median sales price fell 1.4% while sales volume fell 9.8% from the month prior (down 14.2% from December 2004).

As it stands, year-over-year price appreciation for single family homes in the San Francisco Bay Area now stands at around 8%, well below the double-digit appreciation of the past couple of years. It’s also interesting to note that statewide sales prices for single family homes remained flat (condo prices actually fell by .8%) and sales were off by 17.6% compared to December 2004.

∙ December 2005 Regional Sales and Price Activity [C.A.R.]

Posted by socketadmin at 12:07 PM | Permalink | (email story)

January 23, 2006

We’re Still Not Moving To Texas

Local Market Monitor, a real-estate market research provider, estimates that the San Francisco/Oakland real estate market is overvalued by 53%.

“The level of over-valuation matters in three ways, according to Ingo Wenzer, president of Local Market Monitor. The higher it is, the greater the risk of it correcting; the greater the correction can be; and the longer it will take to return to present-day prices after they fall.”

Nine of the “Top 10” overvalued cities were in California, while Texas had four cities that were actually considered to be undervalued. Hope they’re prepared for a flood of speculators...

∙ Home prices get even more overvalued [CNN/Money]

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January 20, 2006

Declining Sales (And Prices) In December

According to DataQuick and the Chronicle, Bay Area single-family home sales were down 15.5% compared to December 2004 and the median sales price dropped 3.5% as compared to November 2005. It should be interesting to see what The California Association of Realtors reports on January 25th.

Slowing sales, increasing inventories, and falling prices in the Bay Area? Who would have thunk it? Oh, wait a minute...

∙ Bay Area home sales down in December, prices slide [SFGate]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 10:54 AM | Permalink | (email story)

January 18, 2006

Broker's Index Says…Buyers Market In Marin

Real estate broker Nate Sumner developed The MARKET HEAT Index™ to track “the intensity of buyer competition for listed residential properties.”

The Index is derived by “adding the number of closed residential sales in the prior 30 days to the number of current pending residential sales and then dividing this sum by the total number of active and available-for-sale homes & condos.”

According to Nate, an index number above 1.25 indicates a sellers market characterized by multiple offers and above asking closing prices, while an index number below .80 indicates a buyers market characterized by below asking offers and a slower sales cycle.

As of today (January 18th), the Market Heat Index for Marin stands at .67 which is down from 1.54 last year and marks its lowest point since Nate started tracking the Index in 2002.

∙ Nate Sumner’s Marin MARKET HEAT Index™

Posted by socketadmin at 6:53 PM | Permalink | (email story)

January 9, 2006

Soros Speaks

Last November we called the top of the San Francisco housing market. Two months later George Soros calls the top of the US housing bubble.

"Soros said he believed the U.S. housing bubble, a major factor behind strong U.S. consumption, had reached its peak and was in the process of being deflated."

Perhaps we should start trading currencies...

∙ Soros: U.S. recession may occur in '07 [CNN/Money]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 12:36 PM | Permalink | (email story)

January 6, 2006

Ignorance Is Bliss (Until You lose Your House)

It looks like the two Davids are starting to plead ignorance with regard to the impact that investors (i.e. speculators and flippers) will have on the housing market.

First David Seiders, Chief Economist for the National Association of Home Builders: "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us." You don't say.

And then David Lereah, Chief Economist for the National Association of Realtors: "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Not for much longer.

Risk? Problems? Uncharted territory? That’s quite a shift from the hyper confident “everything’s fine, so buy, buy, buy!” message coming out of these two organizations over the past couple of years.

Posted by socketadmin at 1:56 PM | Permalink | (email story)

January 4, 2006

Not Exactly A “Soft Landing”

Billing itself as “by far the leading Real Estate News site on the Internet” (whatever), the Realty Times analyzes Robert Campbell’s November edition of The Campbell Real Estate Timing Newsletter:

In his November, 2005 edition, Campbell writes, "Creative financing can be very dangerous when the price of the asset loses significance. People start believing that it doesn't matter whether a home sells for $200,000 or $400,000 because the monthly payment is the same. Sorry, but when mortgage loans are based on fictional values as opposed to true values that are supported by economic fundamentals, financial bubbles can develop that eventually implodes."

If the market reverts to the mean, housing in California should cost about $314,000, which makes it susceptible to a stomach-lurching 42 percent drop.

"Pushed to extreme levels of overvaluation by greed and easy money," writes Campbell, the California real estate market is now a bubble. Housing prices have risen to a price/earnings ratio that is significantly out of balance with sustainable economic fundamentals. When a bubble bursts, history shows that, at a minimum, prices will retreat back to levels that are consistent with long-term norms.

That would represent a 44 percent decline from today's median home price of $544,000.

∙ California Market Timer Pessimistic [Realty Times]

Posted by socketadmin at 8:00 AM | Permalink | (email story)

January 3, 2006

Hardly A Bunch Of Hacks

Thanks to The Housing Bubble 2 for alerting us to the following:

Q: PIMCO is following the U.S. housing market very closely, forming a research team and sending people around the country to observe regional markets for signs of a slowdown. What did the team have to say at the December Forum?

A: At the December Forum, Scott Simon, our mortgage guru, gave a special presentation detailing the work of his group on the state of the housing market and the mortgage market. Their key conclusion is that the leading indicators of a slowdown in housing have clearly turned. Going back to September, the group identified the leading indicators but those indicators had not yet turned at that point. The leading indicators for the housing market have now turned and we anticipate that the market itself will be turning in the months immediately ahead.

One key indicator is that the inventory of unsold homes is rising, as former buyers are becoming sellers, trying to monetize their speculative gains. Price discounting in selective markets is a second leading indicator. And probably the most important indicator that we are seeing is a severe slowdown in the affordability associated with exotic mortgages. In fact, we’re now seeing layoffs by mortgage brokers who specialized in exotic mortgage creation.

A key characteristic of the property market is that it’s very momentum-driven. This is sometimes called a "reflexive" market, meaning that people are more excited when prices go up even though there is less value, and less excited when prices go down even though there is more value.

Because of reflexivity, once momentum turns and home price appreciation slows, we should see a rather dramatic slowdown in volumes. Home prices don’t have to actually fall for you to have a sharp slowing in the volume of transactions. That is a key analytical aspect of our forecast that a slowdown in home price appreciation will have a bigger impact on the household’s ability to withdraw equity than the consensus probably thinks.

So even if you don’t want to listen to us, perhaps you’ll listen to a firm with over $500 billion under management (i.e. PIMCO).

∙ Paul McCulley Discusses PIMCO’s Cyclical Outlook and Investment Strategy [PIMCO]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 5:18 PM | Permalink | (email story)

Can You Say Speculative Bubble Froth?

"At the same time rental rates were dropping, we had housing prices totally skyrocketing". Credit Andrew Zacks, a “San Francisco lawyer who handles Ellis Act evictions and other land use cases” with that comment. A comment that points to a market driven by speculative froth rather than sound investing (i.e. banking on the appreciation of, rather than the income derived from, an asset).

∙ Renters getting deja vu to bad old dot-com days [SFGate]

Posted by socketadmin at 4:50 PM | Permalink | (email story)

December 19, 2005

2006 California Housing Forecasts

Economic forecasts for 2006 are hitting the wire. With respect to 2006 housing prices, Wells Fargo is forecasting a 5.7% increase for Northern California, while FORTUNE is forecasting an anemic .1% growth for San Francisco in 2006 (-2.9% in 2007). From FORTUNE:

Nationally, the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.

Indeed, at some point in the next two years, according to the forecast, a third of the nation's 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.

Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops...As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice [ed: emphasis added]. But in the long run the loss of wealth becomes all too real.

For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.

So keep reading SocketSite and avoid becoming one of those aforementioned "regular folks"...

∙ Exclusive forecasts for the 100 largest markets [CNN/Money]
∙ Wells Fargo Northern California Economic Report - pdf [Wells Fargo]

Posted by socketadmin at 2:36 PM | Permalink | (email story)

December 7, 2005

UCLA Anderson’s California Economic Forecast

The Chronicle highlights the most recent UCLA Anderson Forecast:

1. Slower job growth but no recession
2. Home prices flatten but don't plunge
3. A change at the Fed adds to uncertainty

∙ Sluggish growth seen for state; Experts say real estate boom will cool [Chronicle]

Posted by socketadmin at 9:33 AM | Permalink | (email story)

December 2, 2005

Yes, Yes, No!

Here we were, just about to close the office early and start getting ready for the Hayes Valley Holiday Block Party, when a story from The Bakersfield Californian lands in our inbox with a thud...

When house prices plummeted in the early 1990s, especially in Southern California, there was a serious recession, said Delores Conway at the University of Southern California's Lusk Center for Real Estate.

Thousands of people lost their jobs and put their houses on the market, creating a huge surplus.

“As long as we have a steady job growth then people are not forced to sell,” Conway said. Even if house prices do dip, it should be a minimal drop, she said.

You have got to be kidding. Yes, house prices in Southern California plummeted in the early 90’s. And yes, individual financial hardship resulted in a huge surplus of properties. But NO, in this environment it’s not going to be “steady job growth” that determines whether or not people are forced to sell.

This time around, think over-leveraged buyers holding short-term interest only or adjustable rate mortgages, and novice "investors" with a portfolio of negative cash flow properties (and limited cash reserves). These are the new factors that will lead to forced selling (and potential surpluses). With, or without, job growth.

∙ Economist: Local housing market should stay strong [Bakersfield.com]

Posted by socketadmin at 11:04 AM | Permalink | (email story)

November 29, 2005

The “Rogue” Sales Report

According to the Commerce Department, US new homes (as opposed to existing homes) sold at an annual rate of 1.42 million in October, up from a revised 1.26 million pace in September; a 13 percent increase and the biggest jump since April 1993 (and sales in the West showed more than a 40 percent jump).

At the same time, “the average price fell from September, suggesting that new homes at the upper end of the market had shown more softness than middle- and lower-priced homes.” A point that led economist Robert Brusca to comment, "All other housing signs are in the other direction. For now consider this a reversible, rogue report."

We offer two words to consider: Builder Incentives (i.e. discounting).

∙ New home sales soar [CNN/Money]
∙ US Existing Homes Sales Down, Inventory Up [SocketSite]

Posted by socketadmin at 9:19 AM | Permalink | (email story)

November 28, 2005

California Median Home Prices And Sales Fall

Today’s California Association of Realtors press release carries the bold headline: “Median price of a home in California at $538,770 in October, up 17.2 percent from year ago; sales decrease 2.8 percent”. And while prices are indeed up from a year ago, they are DOWN from the previous month (“The October 2005 median price decreased 1 percent compared with September’s $543,980 median price.”).

In addition, “C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in October 2005 was 4 months, compared with 3 months (revised) for the same period a year ago.” The press release also included the following:

“Note: Large changes in local median home prices typically indicate both local home price appreciation, and often, large shifts in the composition of housing market activity. Some of the variations in median home prices may be exaggerated due to compositional changes in housing demand.”

In other words, even if “median sales prices” are increasing, it could be due to a changing sales mix (i.e. wealthy owners/investors getting while the getting is good) rather than any real home value appreciation. Keep that in mind while we report that the median sales price in the San Francisco Bay Area ticked up 1.4% from September to October, while sales activity fell nearly 10% during the same period (and over 10% year-over-year).

∙ California Association of Realtors Press Release (11/28/05) [CAR]
∙ October 2005 Median Home Prices Chart [CAR]

Posted by socketadmin at 1:45 PM | Permalink | (email story)

US Existing Homes Sales Down, Inventory Up

We’re not too surprised by a winter sales slowdown, but the nationwide inventory numbers caught us by surprise. According to Reuters:

Sales of existing U.S. homes slowed in October and the inventory of unsold houses rose to the highest level in nearly 20 years, a trade group said on Monday in a report confirming the end of the nation's housing boom.

Sales of previously owned homes fell 2.7 percent from September's upwardly revised 7.29 million unit annual pace, and the drop would have been even larger if not for a surge in home-buying linked to Hurricane Katrina, the National Association of Realtors said.

"The housing sector has likely passed its peak ... and the boom is winding down to an expansion," NAR chief economist David Lereah said. "Many of our hot housing markets are transitioning from a sellers' market to a buyers' market."

Welcome to transition.

∙ US Existing Home Sales Fall 2.7 Percent in October [Reuters]
∙ Top O’ The Market To You! [SocketSite]

Posted by socketadmin at 10:30 AM | Permalink | (email story)

November 22, 2005

Over Half Of San Francisco Loans Interest-Only

According to LoanPerformance, San Francisco had the second highest percentage of interest-only loans originated during the first half of 2005. At 53.4%, it was second only to Santa Cruz/Watsonville (54.8%), and almost double the national average of 28.5%. Oakland wasn’t that far behind at 48.8%.

Guess they believe Bob. The good news? 53.4% might be significantly less than previous estimates of nearly 70%.

∙ Boast Busters In The Making [SocketSite]
∙ Interest-only loans meteoric rise in the Bay Area [SocketSite]

Posted by socketadmin at 2:43 PM | Permalink | (email story)

November 18, 2005

Top O’ The Market To You!

Inventories and interest rates are up, sales are down, and prices are either flat or falling. So we’re calling it: welcome to the top of the San Francisco housing market!

For sale signs are popping up left and right, and as one seasoned agent recently commented, “we’re going to wake up one morning and it’s going to be like it snowed ‘For Sale’ signs the night before.” In addition, thousands of new condominium units are either coming on the market, currently under construction, or have recently been funded.

Long-term rates continue to climb, but more importantly, short-term rates have climbed even more: one-year ARMs are at a three year high and are closing in on the 30-year fixed rate. This is extremely significant in a market where buyers have turned to short-term ARMs for affordability reasons rather than financial wherewithal.

The difference in monthly payments between a one-year ARM at 4% versus a one-year ARM at 5% is over 14% (that’s an extra $400 per month on a $600k loan). In other words, and from a cash flow perspective, prices would need to fall at least 14% in order to maintain the same level of affordability in the marketplace.

Year-over-year sales have declined for the seventh month in a row, and the median sales price has flattened over the past quarter. And while many agents are still quick to point out the year-over-year positive appreciation in prices, that number is meaningless if you purchased a home during the past couple of months over which the median sales price has actually fallen.

We’re not predicting, we’re just observing and calling a spade a spade (or a duck a duck). Welcome to the top of the market.

∙ Bay Area prices slow as mortgage rates rise [Chronicle]
∙ San Francisco Housing Inventory: Up, Up, And Away! [SocketSite]
∙ Bay Area Inventories Up, Agent’s Spirits Down [SocketSite]
∙ Median San Francisco Bay Area Home Prices Down $20k [SocketSite]

Posted by socketadmin at 8:43 AM | Permalink | (email story)

November 17, 2005

Writing On The Wall

“U.S. housing starts fell 5.6 percent in October as construction of both single-family and multifamily homes slid, while a drop in permits for future groundbreaking was the largest in more than six years, the government said on Thursday.”

Granted, not Bay Area specific, but perhaps even more telling. And a perfect setup for our announcement tomorrow...

∙ Housing starts and jobless claims fall [Yahoo!]

Posted by socketadmin at 6:55 AM | Permalink | (email story)

November 8, 2005

Boast Busters In The Making

To be fair, this isn’t nearly as much of a boast as the original, but it still needs some busting. Under the Inman headline “Realtor questions value of interest-only real estate loans”, columnist Robert Bruss downplays the potential of a “financial foreclosure debacle”. According to Bob:

“...after the first 10 years, most of these [interest-only] mortgages are "recast" and become fully amortizing for 20 years. More likely, the borrower will sell the home and pay off the mortgage.”

“Interest-only mortgages allow first-time home buyers to get started building home equity. They are also ideal for home buyers who expect to stay in their homes less than 10 years.”

“I hope today's versions of interest-only mortgages won't have the same sad result that occurred during the Great Depression...Frankly, I'm not worried.”

Bob might not be worried, but we sure are. San Francisco inventories are already on the rise, and over the past couple of years, the majority of new Bay Area mortgages have either been interest only or adjustable rate. Now guess what happens when, as Bob points out is most “likely”, they all try to sell at the same time?

And understand that the only way holders of interest-only mortgages “build equity” is through speculation (i.e. increasing property values). Over the past quarter, median sales prices in the Bay Area have started to retreat. And never mind a down market, even a flat market can be disastrous for those who have banked on speculation to “build equity” due to transaction, maintenance, and carrying costs.

The fact that numerous buyers turned to interest-only or short-term adjustable rate loans for affordability reasons, rather than investment prowess (i.e. maximizing cash flow/tax deduction), is going to have a huge impact on the market. And not in a good way for those who have only recently entered the market.

Posted by socketadmin at 9:49 AM | Permalink | (email story)

October 24, 2005

When Barrack Speaks, You Should Listen

Some choice quotes from Tom Barrack, head of Barrack's Colony Capital (one of the largest private equity firms devoted to real estate and having provided returns of 21 percent annually since 1990):

"I feel totally safe playing polo on a field full of pros," says the bronzed 58-year old. "But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back."

It's the same with U.S. real estate right now. "There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them.

Says Barrack: "That's why I'm getting out."

Right now, Barrack's view of the U.S. market couldn't be clearer: It's a great time to sell, and a terrible time to buy.

∙ The king of real estate's cashing out [CNN/Money]

Posted by socketadmin at 10:27 AM | Permalink | (email story)

October 17, 2005

We’re Moving On Up!

According to a Global Insight study, the San Francisco real estate market is overvalued by approximately 36% (up from 30% at the beginning of the year). As such, San Francisco is considered to be “extremely overvalued”. What’s that mean?

“Study findings indicate that 53 metropolitan areas, representing 31 percent of the total value of the US housing market, "are extremely overvalued" and face a high risk of price correction. To be considered "extremely overvalued," markets had to have current prices exceeding the expected price by 30 percent or more, a threshold that was determined from the median degree of overvaluation that preceded 63 known local price drops over the past 20 years.”

So if you’re planning on making a 10% down payment, imagine losing 300% of your investment. Yes, the dark underbelly of “leverage” that most agents never talk about; you can lose more than you invest. Much more.

∙ Overvalued Housing Market? Depends Where You Live [Global Insight]

Posted by socketadmin at 4:57 PM | Permalink | (email story)

October 11, 2005

San Francisco Loses 85,000 Jobs

Well, so much for justifying the San Francisco real estate run-up over the past five years on a booming local job market. According to the Examiner, “San Francisco has lost 85,000 jobs since 2000 when the flood of high-paying technology jobs began drying up.” That’s 10% of the entire City’s population. Any agents care to comment?

∙ S.F. commissions economic study [Examiner]

Posted by socketadmin at 1:25 PM | Permalink | (email story)

October 4, 2005

San Francisco Inventories On The Rise

Although a 16% increase in the San Francisco for-sale listings is hardly substantial, it is directional (and important to note). According to the New York Times:

For-sale listings have also swelled throughout California, according to the California Association of Realtors. In the San Francisco Bay area, they have increased 16 percent in the last year, Coldwell Banker Residential Brokerage said...

"We are seeing a market in transition," Leslie Appleton-Young, the association's chief economist, said.

Brokers said that some houses seemed to be on the market longer because sellers priced them too high, assuming that their value was still rising sharply. In other cases, people who otherwise would have waited a year or two to sell their homes - like empty nesters ready to move into smaller quarters - had listed them now out of fear that prices would soon fall.

Some economists and commentators have for years predicted the bursting of a real estate bubble, and previous slowdowns have turned out to be relatively brief pauses before prices started accelerating again.

But with mortgage rates now rising, the cost of gasoline hovering at or near $3 a gallon and house prices in some areas out of reach for many families, brokers and analysts said they thought that this slowdown could be the real thing.

Again, even with the 16% increase in inventories, the San Francisco market remains a “sellers” market (based on historic metrics). But if it’s a trend, and new developments continue to come online in SOMA, Mission Bay, and Bayview, then watch out. The tide could quickly turn.

∙ Slowing Is Seen in Housing Prices in Hot Markets [NYT]

Posted by socketadmin at 9:03 AM | Permalink | (email story)

September 28, 2005

Uppity Academics

It’s doom and gloom Wednesday. Not only are the economists at UCLA’s Anderson school calling the peak of the California real estate market, they’re putting 50/50 odds on a statewide recession by the end of 2007.

California's housing boom appears to be peaking, and the resultant slowdown is expected to produce "weak growth" in the state's economy during the next two years and a possible recession by the end of 2007.

“There are some signs that the housing party is ending," said Christopher Thornberg, senior economist at the UCLA group and author of its California forecast.

Thornberg points to an almost doubling of homes on the market in the last six months, a flattening of sales activity and the increasing reliance on high-risk mortgages by buyers to acquire today's expensive homes. Property in California, he said, is now overvalued between 40% and 45%.

Although UCLA forecasters have consistently been more pessimistic about the housing boom and California's economy than many other analysts, their views are notable because they were among the first economists to predict the 2001 recession and to identify the current housing boom as a bubble.

Just remember, please don’t hate the player (or blame the messenger).

∙ Peak for Housing Said to Be Near [LA Times]

Posted by socketadmin at 11:30 AM | Permalink | (email story)

September 27, 2005

Three Months Of Stagnating Prices In San Francisco

According to the California Association of Realtors (CAR), the median sales price of a SF Bay Area home was $730,360 this past August (and sales volume dropped 3.7% compared to August ’04). While this does represent a $6k increase in the median sales price from July ‘05, it is still $4k below the June '05 mark of $734k.

The CAR spin is “Sales in the San Francisco Bay Area continued to fall below last year’s pace, but remain at elevated levels that approximate the market in 2003…(and) the median price continued its trend of year-to-year percentage increases in the low teens.” True, but this is effectively the third month of no movement. Or taking a lesson from CAR, “a three month trend representing a zero percent annualized gain”...

∙ Median price of a home in California at $568,890 [CAR]

Posted by socketadmin at 4:10 PM | Permalink | (email story)

September 26, 2005

Renting Is The New New Thing

While the Times is more eloquent, the Chronicle is obviously closer to home. Another testimonial for renting over buying in the Bay Area:

After 15 years as a homeowner in the Bay Area, I've cashed out and taken advantage of a bizarre situation: Homes that sell for a fortune are available to rent for as little as $1,500 a month, less than half the cost of ownership, even after factoring in the tax benefits from the federal mortgage-interest deduction.

(We missed this piece when it originally ran, but luckily we keep tabs on The Houising Bubble 2)

• Why own when you can rent? [Chronicle]

Posted by socketadmin at 1:58 PM | Permalink | (email story)

Renters Rejoice

Feeling blue or left behind because you’re a lowly renter in the Bay Area? Don’t. The New York Times echoes our insight, debunks a number of home-owning myths, and reaches the following conclusion: In the Bay Area, renting might be more financially savvy than buying. Yes, even accounting for the over-hyped “mortgage tax decuction”...

To determine the cost of renting, the Times analysis added monthly rent and renters' insurance. For owning, the analysis included typical costs for home insurance, major repairs, property taxes and mortgage payments, as well as the tax deductions they create.

Renters were given credit for a small return - about 4 percent, after taxes - on the money they could have invested in bonds or stocks instead of spending it on a down payment and closing costs. Buyers received credit for the portion of the mortgage they were paying off, as opposed to the interest costs.

Add it all up - which The New York Times did, in an analysis of the major costs and benefits of owning and renting, including tax breaks - and owning a home today is more expensive than renting in much of the Northeast, Florida and California. Only if prices rise well above their already lofty levels will home ownership turn out to be the good deal that it is widely assumed to be.

So renters rejoice and celebrate your financial wherewithal. Hell, make it blow-out by tapping into that extra $2k a month you’re saving in insurance, property taxes, and maintenance. Just be sure to send us an invite.

∙ Is It Better to Buy or Rent? [NYT]

Posted by socketadmin at 9:00 AM | Permalink | (email story)

September 20, 2005

Dueling Academics

A new study by researchers at Columbia University and the University of Pennsylvania's Wharton School suggests that housing prices in San Francisco are NOT overvalued. The study, titled “Assessing High Housing Prices: Bubbles, Fundamentals and Misperceptions”, points to “basic economic factors, including low interest rates, strong income growth and abnormally low prices in the mid-1990s”, rather than a “speculative frenzy”, to explain the recent run-up in prices.

The report did not include data on condos or second homes and the researchers “acknowledged that higher interest rates could squeeze prices, particularly in expensive, volatile markets.”

On the flip side, and a bit closer to home, “Ken Rosen, an economist at UC Berkeley, estimates that speculation accounts for 10 to 20 percent of the market activity nationwide.” And “[w]hen mortgage interest rates increase -- as he expects them to do within 18 months or so -- as credit standards tighten and investors flee prices in the Bay Area could decline by as much as 15 percent in the market”.

Either way, perhaps our nohousingbubble.com domain name just became a bit more valuable...

· Bubble won't burst [Chronicle]

Posted by socketadmin at 9:27 AM | Permalink | (email story)

September 19, 2005

Buy A BMW 325i For Only $80k!

The Mortgage Bankers Association reported that 44.8% of all mortgage applications last week were for refinancing activities (versus new home purchases). Implications? Considering mortgage rates have been at historic lows for the past couple of years, it suggests that homeowners, “aren't cutting their interest rates at all; rather, they're just increasing their debt.”

Borrowing against your home looks, to many people, like a no-brainer.

But whether it really is depends on how that freed-up cash is used. So here's a rule of thumb: Long-term borrowing should be used only for long-term needs.

For example, it can make sense to refinance to get cash to put an addition on your home that you'll enjoy for decades.

It's not OK to pay interest for 30 years to fund this evening's dinner out, this winter's ski trip or a fancy car that will immediately start losing value. With the interest included, that $40,000 car financed with mortgage debt could cost more than $80,000.

Are you listening reading Doug?

· Refinancing just for cash creates risks [Gazette Times]
· Los Angles Snickers, San Francisco Shudders [SocketSite]

Posted by socketadmin at 8:13 AM | Permalink | (email story)

September 16, 2005

Sticks And Stones...

Nothing like being labeled a housing “Danger Zone” (as if earthquakes weren’t enough). CNN/Money confirms that the majority of buyers in San Francisco (and 49% of buyers in Oakland) are resorting to “non-traditional” loans. Not new news to our readers (other than the moniker), but the quote from the chief economist with the National Association of Realtors surprised us a bit. Looks like he’s starting to hedge his “we’re not in a bubble” bets:

At greatest risk, says David Lereah, chief economist with the National Association of Realtors, are markets where a majority of buyers are opting for nontraditional loans.

"There will be cases where lenders and borrowers will be caught with their financial pants down," he says.

· Crazy loans: Is this how the boom ends? [CNN/Money]

Posted by socketadmin at 12:34 PM | Permalink | (email story)

September 14, 2005

DataQuick Reports Record Bay Area Prices

According to DataQuick, the median price for a Bay Area single-family home hit $651,000 last month (versus $643,000 in July, and up ~19% from last August). At the same time, however, the number of sales fell 4.1% from 2004 and “...insiders say the number of homes for sale has surged in recent months, as sellers try to capitalize on still-rising prices.”

Look for C.A.R.’s August sales numbers before jumping to conclusions about the strength of the market. Believe it or not, we actually don't think this is a "bullish" report.

· Home sale prices still scorching, but volume tails off [Chronicle]

Posted by socketadmin at 1:31 PM | Permalink | (email story)

September 7, 2005

We’re Down With Lao

Lao Tzu, a sixth century B.C. philosopher, is quoted as having said, “Those who have knowledge, don't predict. Those who predict, don't have knowledge.” Or said much less eloquently, and applied to the real estate market:

The problem is that no one can predict the precise peaks and valleys of real-estate cycles any more than meteorologists can predict the exact path or intensity of a hurricane. And while most experts agree with Federal Reserve Chairman Alan Greenspan that the housing market will inevitably "simmer down," and that "home-price increases will slow, and prices could even decrease," nobody really knows when or where this will happen.

· Timing the Market For a Condo Purchase [RealEstateJournal]

Posted by socketadmin at 8:00 AM | Permalink | (email story)

August 25, 2005

Tenants In Common (TIC) Thursday

Rumblings of TIC lottery reform and continued coverage of individual loans for TIC units are headlining stories today. To be honest, TICs scare the hell out of us these days. In an up market everyone’s happy (okay, so not everyone), but if the market should change, watch out. We believe that too many current TIC purchasers are undercapitalized and overly banking on appreciation.

Almost by definition, these buyers, along with 91% of all San Francisco residents, don’t have the resources to purchase a traditional condo or single-family residence in the city. And if they’re already stretching to make the purchase, there’s a good chance they’re going to be stretching when it comes to the carrying/conversion costs. As the Chronicle notes, “inflated housing prices mean TIC owners who get in over their heads can sell their units at a profit. But if the market were to cool significantly, TIC owners would face more potential liability if their co-owners financially flounder."

Don’t get us wrong, TICs aren’t inherently evil or flawed. But in the immortal words of Hill Street Blues, “Let’s be careful out there.” Run the numbers on your purchase, and your partners' finances, assuming that the market is going to turn. And then be pleasantly surprised when it doesn’t. Rather than financially ruined if it does.

· Supe proposes new TIC lottery system [Examiner]
· Strangers sharing mortgages [Chronicle]
· San Francisco TIC borrowers about to get some TLC from lenders [BizJournal]

Posted by socketadmin at 11:42 AM | Permalink | (email story)

August 23, 2005

San Francisco Bay Area Sales And Prices Down

According to the California Association of Realtors, the median sales price for existing homes in the San Francisco Bay Area dropped 1.3% from June to July. Perhaps more importantly, sales volume was down 12.1% from June to July of this year, and down 16.3% compared to July 2004 (i.e. accounting for seasonality).

And although we don’t have figures for San Francisco, the C.A.R. “Unsold Inventory Index for existing, single-family detached homes in July 2005 was 3.2 months, compared with 2.4 months (revised) for the same period a year ago.” A 33% increase.

· July 2005 Regional Sales and Price Activity [C.A.R.]

Posted by socketadmin at 5:13 PM | Permalink | (email story)

August 22, 2005

Now That’s A Chart!

(Chart from NYT article: Be Warned: Mr. Bubble's Worried Again)

Robert J. Shiller, the Yale economist who published "Irrational Exuberance" in the year 2000, is at it again. And with a vengeance.

Shiller argues that, “the housing craze is another bubble destined to end badly, just as every other real-estate boom on record has.” And he predicts that, “prices could fall 40 percent in inflation-adjusted terms over the next generation and that the end of the bubble will probably cause a recession at some point.” As usual, we’re memorized by his data (and chart).

· Be Warned: Mr. Bubble's Worried Again [NYT]

Posted by socketadmin at 2:27 PM | Permalink | (email story)

August 20, 2005

Condo Investing Myths

Ready to cash in on the condo craze? Not so fast. Three condo investing “myths” as dispelled by CNN/Money:

Myth 1: Get in early and you'll be guaranteed a profit.
Remember the lust for Internet IPOs? Ordinary investors bid up the stocks of hot little companies that hadn't even registered their first sale yet. Today's version is a preconstruction condo...

Myth 2: Creative mortgages lower your payments and guarantee positive cash flow.
Whatever your choice...your expected rent should cover at least 70 percent of your total monthly costs. Tax write-offs on condo losses can help close some of that gap...(Up to $25,000 in losses, excluding mortgage-principal payments, can be charged against total income of less than $150,000.)

Myth 3: You should buy in your backyard, where you know the landscape.
To help you determine where to invest, take the average price at which units are selling in a city and divide it by the annual rent the average apartment there generates. That will produce a price-to-rent ratio. The lower the better. Houston, Atlanta and Philadelphia, for instance, still look relatively good, while New York City and San Francisco do not.

· The three myths of condo investing [CNN/Money]

Posted by socketadmin at 2:52 PM | Permalink | (email story)

August 11, 2005

Reading Between The C.A.R. Lines

According to the California Association of Realtors, the median sales price of a San Francisco Bay Area home increased 1.8% from May to June.

At the same time, C.A.R. reports that the affordability index (i.e. percentage of households that can afford a median priced home) in San Francisco County increased from 8% to 9%.

So unless household incomes have significantly increased over the past month (which we doubt), and assuming that interest rates haven't dropped (which they haven't), it appears that the median sales price of a home in San Francisco proper has actually dropped over the past month.

· California's Housing Affordability Index – June ‘05 [C.A.R.]

Posted by socketadmin at 3:14 PM | Permalink | (email story)

A Clue From Down Under?

Ever been to Sydney, Australia? It’s beautiful on-the-bay living in a geographically constrained, internationally desirable, and damn expensive city. Sound familiar?

So when JPMorgan goes on record stating that house prices in Sydney are overvalued by 37%, and due for a correction, we sit up and take notice. For despite the fact that their surf is a hell of a lot warmer (and bigger), Sydney really reminds us of San Francisco.

From the Australian Financial Review:

Australian house prices remain 22 per cent overvalued despite the recent property downturn and Sydney is still the most inflated market, according to leading investment bank JPMorgan.

The study, which employs a discounted cashflow model to assess property as an investment, is not good news for anyone, particularly those in Sydney and Melbourne, hoping that the market will stabilise.

"The significant overvaluation in national house prices relative to earlier cycles suggests the downside for house prices should be harder and more prolonged than the modest declines seen in earlier corrections," JPMorgan economists Jarrod Kerr and Stephen Walters said in the study.

"Investors ignored poor fundamentals, blinded by expectations of substantial capital gains, and piled into the market despite rising vacancy rates, record low rental yields, and new supply flooding key parts of the market."

· Houses still 22 pct overvalued - new study [AUS Financial Review]

Posted by socketadmin at 1:21 PM | Permalink | (email story)

August 8, 2005

Euro Subterfuge

We’re tired of hearing it: “Compared to London or Paris, San Francisco looks cheap to the Europeans. Especially with the strength of the Euro.” All the while the London market seems to be tanking, and according to the Economist, “Investors from outside North America bought $8.6 billion-worth of real estate [in North America]…but sold $11.6 billion.” That hardly seems to qualify as a Euro feeding frenzy (and leaves us wondering what they know that we don't).

Posted by socketadmin at 9:34 AM | Permalink | (email story)

August 3, 2005

We’re Tired of Being Number One

Once again the San Francisco Bay Area ranks number one in the state. According to the California Association or Realtors (C.A.R.), the average San Francisco Bay Area household income falls $102,230 short of the qualifying annual income ($170,370) required to purchase a local median-priced home (the highest gap in the state).

Yes, the calculation assumes no more than 30% of a household's income is used for housing expense, but the real kicker? The calculation also assumes an average 20% down payment ($144k).

· C.A.R. Homebuyer Income Gap Index™ Report [C.A.R.]

Posted by socketadmin at 2:23 PM | Permalink | (email story)

August 2, 2005

Real Estate Vs. Real Behavior

A great post (and quote) brought to our attention by Ben Jones’ The Housing Bubble 2 this afternoon:

First the quote:

'I can calculate the motions of heavenly bodies, but not the madness of people.’ (Sir Issac Newton having lost his shirt in the South Sea bubble, 1721)

And now a couple of choice excerpts from the post on Elliott Wave International:

It is universally presumed that the primary law of economics, i.e., that price is a function of supply and demand, also rules finance. However, human behavior with respect to prices of investments is, in a crucial way, the opposite of that with respect to prices of goods and services.

When the price of a good or service rises, fewer people buy it, and when its price falls, more people buy it. This response allows pricing to keep supply and demand in balance. In contrast, when the price of an investment rises, more people buy it, and when its price falls, fewer people buy it.

Attempting to apply the law of supply and demand to investment markets is akin to attempting to apply the laws of physics to falling in love. They do not pertain.

Rather than become excited to buy as prices fall, as consumers of goods and services do, investors become excited to buy as prices rise. Since desire and hope are entirely on the side of price rise, only fear and despair can be on the side of price decline.

· Home Sales: Financial vs. Economic Behavior [Elliott Wave]

Posted by socketadmin at 1:28 PM | Permalink | (email story)

July 29, 2005

QuickLinks: Friday update (updated)

Home Depot Approved: Hope you brought that popcorn (and a chair).
· SF Commission OK's Home Depot Plans [KRON4]
· Heated meeting over Home Depot plan [Chronicle]

PMI Risk Report: Okay, this time SocketSite was only a day earlier in reporting.
· Home value declines seen as more likely [Chronicle]

SocketSite Survey: Damn those “Industry Experts”, we want to hear from YOU.
· SocketSite’s Highly Scientific Real Estate Survey [Zoomerang]

Posted by socketadmin at 10:34 AM | Permalink | (email story)

July 28, 2005

Here We Go Again

Remember last May when we first suggested you take a look at the Spring PMI Risk Index? And then how two months later Kiplinger’s finally gets around to publishing a story about the report and gets all the press? Well, here’s another two-month head start for the SocketSite community...

According to the PMI Group’s Summer Market Risk Index, the chance of a price decline in San Francisco increased 6.4% last quarter (the third largest increase amongst all the major MSAs), and now stands at an overall 45.9% likelihood of decline. That’s not good.

Marco Van Akkeren, an economist with PMI Mortgage Insurance Co., explained, "We are continuing to witness record-pace home price appreciation in many markets without the necessary gains in income, home affordability and rent inflation. This is causing the current home price environment to diverge from long-term economic fundamentals, which cannot be sustained indefinitely."

Across the bay Oakland hit 50.9% to become only one of six US markets with a greater than 50% chance of decline.

· Economic and Real Estate Trends: Summer 2005 – pdf [PMI Group]

Posted by socketadmin at 9:49 AM | Permalink | (email story)

July 26, 2005

To Sell, Or Not To Sell

The majority of San Franciscans are trying to figure out if (or how) they will ever buy a house in the current market, while a minority find themselves contemplating a sale of their primary residence in order to “cash out” on a bubble. CNN/Money weighs in with four options for those considering a sale of their home:

Option 1: Cash out and sit it out
Option 2: Cash out and invest
Option 3: Cash out and downsize
Option 4: Cash out and stay put

We’re partial to Option 3 and share a bit of advice: trying to “time the market” almost always underperforms a “buy and hold” strategy over the long-term. But be prepared for the long-term to be 10, 15, or 20 years...

· Should you cash out while you can? [CNN/Money]

Posted by socketadmin at 2:37 PM | Permalink | (email story)

July 25, 2005

Sales Activity: National Versus Local

According to the National Association of Realtors, national existing home sales came in at a record setting annual pace of 7.33 million homes as measured in June. And according to the California Association of Realtors, statewide home sales are up 3.6% as compared to June of 2004.

Sales activity in the San Francisco Bay Area, however, fell 11.1% as compared to June of 2004 (up 15.5% from last month). And the median sales price increased to $734,610 (+1.8%), reversing last months downward slide.

· Existing Home-Sales Smash Record Again [NAR]
· June 2005 Regional Sales and Price Activity [CAR]

Posted by socketadmin at 10:57 AM | Permalink | (email story)

July 22, 2005

Not The “P” But The “E”

You might recall our previous discussion about San Francisco’s housing P/E. In summary, it’s out of whack.

From an investing perspective, while the cost (Price) of an investment in San Francisco real estate has risen, the returns (Earnings) have remained flat. This suggests that the majority of buyers are banking on appreciation (i.e. speculating), which is not a problem as long as the market continues to climb. Either that, or rents have to go through the roof...

· Area rental prices ignore housing bubble [Chronicle]
· Modest rise in apartment rent [Examiner]

Posted by socketadmin at 12:11 PM | Permalink | (email story)

Kiyosaki Speaks

When Robert Kiyosaki speaks, the masses seem to listen. Sparking an investing revolution with “Rich Dad, Poor Dad”, Kiyosaki recently shared his thoughts about the current real estate craze with Carol Lloyd of “Surreal Estate” fame.

"Don't get me wrong, I'm still buying real estate," he told me, adding that he was in the process of buying seven new properties but that he wasn't buying anything in expectation of appreciation. "I'm an investor, not a speculator. ... I want it to cash flow."

He knows that many others have not been so prudent. "I'm worried about people using their houses as ATM machines," he says, referring to those homeowners who have refinanced their homes to buy cars, remodels or simply more real estate. "And I'm worried about all the people who are flipping properties [those who buy properties in order to immediately resell for a profit] -- that's really stupid right now."

Amen. Exactly. And right on.

· Rich House, Poor House [Chronicle]

Posted by socketadmin at 11:10 AM | Permalink | (email story)

July 21, 2005

Dueling Reports

If you read the Examiner, the median sales price of a San Francisco home is now $760,000 (a reported 16.4% gain from 6/04); and if you read the Chronicle, the median sales price is now $800,000 (a reported 15% gain from 6/04). Both papers credit DataQuick as their source. Our take, if you’re trying to buy, read the Examiner, and if you’re trying to sell, read the Chronicle...

We can’t wait to see what the California Association of Realtors reports later this week.

· Home prices top $610,000 [Examiner]
· Home prices boom on [Chronicle]

Posted by socketadmin at 8:06 AM | Permalink | (email story)

July 18, 2005

It’s About Time

Two months ago SocketSite highlighted the PMI Group’s Economic and Real Estate Trends report that indicated a 39.5% likelihood of decline in the San Francisco real estate market over the next two years (and a ten-year price appreciation of 2.3%).

Two months later Kiplinger's generates a ton of buzz with its “The 13 Riskiest Housing Markets” article (based on the very same PMI report). Granted, we didn’t coin any of those cute monikers like “Beantown Bubble”, “Big Apple Bailout”, or “Lauderdale Lunacy”, but we did manage to get our readers the information two months earlier...

· The 13 Riskiest Housing Markets [Kiplinger's]

Posted by socketadmin at 11:24 AM | Permalink | (email story)

June 29, 2005

Price Drop In San Francisco Bay Area

According to the California Association of Realtors, the Media sales price of a single-family detached home in the San Francisco Bay Area dropped .2% (from $723,070 to $721,730) in May of this year. Granted, not a huge decline, but directionally interesting. Also of note, sales activity has declined 8.3% from a year ago.

· Median price of a home in California [C.A.R.]

Posted by socketadmin at 4:13 PM | Permalink | (email story)

June 28, 2005

Housing Prices Always Come Back

Should the housing market “pop”, it will return. It’s just a matter of time. But how long will it take? Let’s take a look at three historical housing market declines for some insight.

First up, Houston. The Houston housing market declined 22.7% from 1983 to 1988; it recovered nine years after its peak. Granted, not a great comparison to San Francisco, but the point is that homes can lose significant value for an extended period of time.

Next up, Los Angeles. The Los Angeles housing marketing declined 19.5% from 1989 to 1996; it recovered eleven years after its peak. Still not the best comparison, but it is much closer to home and constitutes prime coastal real estate.

And finally, New York. The New York housing market declined 7.7% from 1988 to 1995; it recovered ten years after its peak. And no, Manhattan, that geographically constrained, “fully developed”, and highly desirable piece of real estate to our East was not immune.

Considering we Americans tend to move every 7 years, a decade could be an awfully long time to wait for a market to return.

Posted by socketadmin at 9:00 AM | Permalink | (email story)

June 23, 2005

An ARM (And Quite Possibly A Leg)

As you already know from diligently reading SocketSite, adjustable-rate mortgages (ARMs) are all the rage in our fair city and account for the vast majority new mortgages. What you might not know, and few brokers or agents like to emphasize, is that most ARMs expose barrowers to significantly more risk than traditional fixed-rate mortgages.

Now don’t get us wrong, ARMs definitely have their time and place if effectively employed and managed. All we’re suggesting, is that if you’re considering using an ARM, please take the time to fully understand, and mitigate, the potential risks associated with these loans. A couple of articles to get you started:

· Hazards of option ARMs [Chronicle]
· More sharks in home loan waters [Money]
· Why Hybrid Mortgages Can Be a Huge Gamble [RealEstateJournal]

Posted by socketadmin at 10:00 AM | Permalink | (email story)

June 22, 2005

Yes! Yes! No.

The title naturally caught our eye (Why You Can’t Afford a House in San Francisco), and we think the author’s analysis gets off to a strong start. But then he sputters. And falls flat.

The entire premise of this article is that housing prices should be directly correlated with purchasing power (a combination of interest rates and income). The author’s model seems to work quite well on a national level where, based on his assumptions, the median household income of $60k provides enough purchasing power for a $215k home (versus an actual median home price of $187k). But then he goes and gets a bit cocky,

Now that we understand what drives home prices—loan size dictated by rates and income—most everything else about the real estate market, even at the local level, falls neatly into place.

The punch line? Prices are high because we San Franciscans make a lot of money, and you can’t afford a house in San Francisco because you don’t earn enough. Genius!

(Of course the mean San Francisco household income is around $75k, which, based on the author’s model, would predict a median house price of $270k. Just slightly below our current median price of $723k...)

· Why You Can’t Afford a House in San Francisco [Efficient Frontier]

Posted by socketadmin at 9:25 AM | Permalink | (email story)

June 21, 2005

Trade School Versus Academia

Yes, once again it’s the academics squaring off against the Realtors®. Not too surprisingly, they offer two wildly different views. Play along and see if you can match the forecast to the group:

1. [M]edian home prices across the state will rise 15 percent year-over-year in 2005, down from 21 percent last year. In 2006, prices will probably increase less than 15 percent, but well above zero.

2. Prices are not associated with reality...[they] are gambling on massive amounts of appreciation, and it's not worth the price compared to the rental value. It's a house of cards.

That’s right, the first is credited to Leslie Appleton-Young, economist at the California Association of Realtors. And number two? A pesky academic economist at UCLA named Christopher Thornberg.

· Housing market tumble forecast [Chronicle]

Posted by socketadmin at 9:42 AM | Permalink | (email story)

June 20, 2005

Freakonomics Freaks NAR

Freakonomics just moved to the top of our summertime reading list. Pointing to data that suggests that “full-service” "realtors get 3-4% more for their own houses and leave their own houses on the market 10% longer” than their clients' properties, and suggesting that “discount” brokerages might be the way to go, seems to have irked the National Association of Realtors (NAR).

Perhaps they were just jealous that they didn’t get to meet Katie Couric. Regardless, NAR quickly fired off a nasty gram (to which the authors responded in kind).

· Freakonomics [Amazon]
· NAR Responds to Erroneous Statements Made on Today Show [Realtor]
· Professors Dubner and Levitt Made Erroneous Statements on Today Show!! [Freakonomics]

Posted by socketadmin at 10:51 AM | Permalink | (email story)

June 16, 2005

You Are Here (A)

Eric Jansen of Trident Capital waxes poetic on his “Seven Steps” in the boom-bust cycle of housing (not to be confused with the deadly sins or highly effective habits). Although it’s a bit dire, it’s well written and worth a read regardless of your bubble philosophy. And we just can’t stop staring at that damn chart...

· Housing Bubble Correction [Always On]

Posted by socketadmin at 8:00 AM | Permalink | (email story)

June 10, 2005

30,067 Fewer Home Buyers

According to the California Association of Realtors, only 8% of San Francisco households can currently afford to buy a median-priced home in the city. That’s down from 12% in April of last year.

· Housing Affordability Index falls three points to 17 percent in April [C.A.R.]

Posted by socketadmin at 5:58 PM | Permalink | (email story)

Greenspan Speaks

Although we don’t always listen to, or agree with, Chairman Alan Greenspan, one part of his recent testimony definitely caught our eye.

The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.

Some households? Greenspan should obviously plug in to SocketSite.

· Testimony of Chairman Alan Greenspan - June 9 [Federal Reserve]

Posted by socketadmin at 8:55 AM | Permalink | (email story)

June 4, 2005

Riotous Living Anyone?

According to a study by the California Building Industry Association, Bay Area homeowners have increased the equity in their homes by roughly $234 billion over the past five years. Which, if the basic assumptions of the study were neither biased or flawed, would be quite impressive.

The study assumed that over the past five years the average California home buyer financed their purchase with a 15% down payment and a 30-year fixed-rate mortgage (they must have missed our piece highlighting the surge in interest only loans over the past three years). And while the study acknowledges the possibility that some of the equity might have been cashed out (i.e. plasma screens and convertibles), it does not bother to quantify, or account for, the amount.

As other economists point out, “many homeowners may have tapped into their equity, effectively reducing their so-called housing wealth to a negligible sum.” Or according to Michael Carney of the Real Estate Research Council, “[t]o the extent that there has been significant refinancing, it could be that individuals have refinanced and spent it all on riotous living.”

Good old riotous living. Please feel free to drop us a note if you feel like sharing a little.

· California Home Equity Analysis – doc [CBIA]
· Owning a home pays off [Chronicle]

Posted by socketadmin at 10:23 AM | Permalink | (email story)

May 29, 2005

San Francisco’s Housing P/E

As sales prices have risen, and rents have dropped, San Francisco’s residential “rent ratio” has climbed to a nation-wide high of 34.1 (according to The New York Times). We’re higher than New York City (25.4) and San Diego (28.9), and up from a rent ratio of 12.5 in 2000.

In other words, on average, properties in San Francisco are selling for 34.1 times the rental incomes they could generate in a typical year. Think of it as a property's “P/E” ratio. And from an investment perspective, the higher the P/E, the higher the expectation of future returns. And the higher the risk.

In the stock market, a high P/E usually signals that investors are betting on a significant growth in future earnings (think Google). And from an income property perspective, a high P/E usually carries expectations of increasing rental income. If not, investors are speculating on market appreciation, rather than investing in a growing income stream, to provide a return on their investment.

Of course psychological factors play a role in housing purchases. A cultural emphasis on owning rather than renting, pride in ownership, and not wanting to ‘get left behind’ all affect our decision making processes. But from a purely analytic perspective, the increasing P/E ratio is cause for concern amongst investors (yes, even factoring in the mortgage deduction).

On the other hand, renters celebrate. It’s a great time to sign a new lease.

· Is Your House Overvalued? [NYT]

Posted by socketadmin at 10:49 AM | Permalink | (email story)

May 24, 2005

Economic And Real Estate Trends Report

Considering the purchase of an investment (rental) property in San Francisco? Thinking of leveraging an interest-only loan to finance a short-term speculative buy? Do yourself a favor and read The PMI Group’s latest Economic and Real Estate Trends report. The PMI Group is publicly traded residential mortgage insurer and is in the business of accurately measuring market risk.

Even if you don’t agree with their assumptions or conclusions, it’s worth understanding the underlying analytics PMI employs to evaluate future market risk and home-price appreciation (or depreciation). And based on their analytics, they believe that the San Francisco home market has 39.5% likelihood of decline over the next two years, and a ten-year price appreciation of 2.3%.

· Economic and Real Estate Trends: Spring 2005 - pdf [PMI Group]

Posted by socketadmin at 12:29 PM | Permalink | (email story)

May 20, 2005

Greenspan Sees Local Housing Bubbles

While dismissing a national bubble, Alan Greenspan acknowledged signs of market “froth” and local housing bubbles during his address to the Economic Club of New York this evening. A couple of choice quotes:

"We don't perceive that there is a national bubble but it's hard not to see ... that there are a lot of local bubbles."

"Even if there are declines in prices, the significant run-up to date has so increased equity in homes that only those who have purchased very recently, purchased just before prices actually literally go down, are going to have problems"

Two questions: does the Bay Area represents one of those “local bubbles”, and if so, what will constitute “very recently”?

· Greenspan Is Concerned About 'Froth' in Housing [NYT]

Posted by socketadmin at 10:43 PM | Permalink | Comments (0) | (email story)