Tuesday, December 4, 2007

East Bay 2008 Market Forecast

The Berkeley Area is one of the most stable markets in California.
--Leslie Appleton-Young, Chief Economist, California Association of Realtors 10/31/07
As is true for the national real estate market, many areas in California have experienced great problems from the sub prime loan crisis. Berkeley, however, has one of the best and most stable real estate markets in the state. Although our sale's volume is down, median home prices are up.
"(The East Bay) median price climbed almost 9 percent from a year ago, to $810,490. The median home price gained 3.3 percent in October over September's." --Mark Calvey, San Francisco Business Times.
We are predicting a continuation of this trend and modest gains for our stable neighborhoods in 2008. Our confidence for the New Year comes from embracing the three "L"s of real estate, (and we don't mean location, location, location.) Our revised list includes; Local expertise, Leveling of the playing field, and Lifestyle choices.

1.) We believe local expertise is mandatory in navigating the emerging marketplace. In this case, we mean local to the nth degree. Even in the East Bay, neighborhoods within an individual city can perform differently. Homes in the flats of Oakland are performing much differently than in the Hills. North Berkeley responds differently than West Berkeley.

In addition to physical location, the health of our local economies will influence the real estate market. California's unemployment rate continues to be lower than the national average and our diverse businesses and industries add further stability to our marketplace.
"If the economy's okay, your market will be too... You needn't worry about house prices collapsing if local industries are doing well. By merely reading the business section of the local paper, you get a sense of the economic climate." Joe Light, Money Magazine.

Local expertise is crucial. The current loan climate is unprecedented and has rendered some national economists mute on future predictions. In reference to the down market experienced in much of the state, Leslie Appleton-Young cautioned that it was tough to predict how long the current decline would continue because it differed from previous real estate downturns. The 1990s slump, she said, was exacerbated by the national economic downturn. "In the past, the market dipped because of a recession," she said. "Now we're independent of a recession, there's still moderate growth." Absent an historical model, she declined to predict an outcome. History can't tell us what to expect in the New Year. We believe that the best information will come instead from the real estate professionals who are present to monitor the events as they unfold, and astute enough to perceive emerging patterns.
2.) We see the leveling of the playing field as another benefit to the new market place. It was unhealthy for homes to sell for substantial gains month over month. Many buyers paid a premium (beyond justifiable property values) in order to buy themselves out of the market. Now buyers can enjoy more reasonable negotiations. "Buyer friendly" contingencies are back, which allow for more time to conduct inspections and a more thoughtful process. In addition, it is now possible to buy the home of your dreams without necessarily being out-bid by a competitor.

3.) Finally, we see individual Lifestyle choices as playing a big role in the New Year. 2007 was the year for sitting on the fence as reflected in the reduction in the volume of sales. We believe more sellers and buyers will see 2008 as the year to move on with their lives. Area sellers may have to get more realistic about how long it may take to sell their home. Prices are not plummeting, but time on the market has increased. Hoping and waiting for the return of the frenzy circa 2003 will just add more days to your time line. Life involves change and if those changes include the sale of your home, we are here to tell you that sales are still strong in much of Berkeley, Oakland, Albany, Kensington and El Cerrito.
"If you've owned a house for a while, you don't have to worry. The gains you've enjoyed in recent years are huge compared with recent price downturns." --Joe Light, Money Magazine.
As for Bay Area buyers: Our area continues to be a desirable landing spot. We predict that buyers in 2008 will be interested in putting down roots in their new personal residence. 2008 buyers will value all of the wonderful intangibles that come with the bundle of rights associated with home ownership. For those buyers the market is ripe. View our post titled, It's a Great Time to Buy Your Dream House.

Monday, December 3, 2007

It's Not Easy Being Green

The mayors of Oakland, Berkeley, Richmond, and Emeryville have joined forces to form the East Bay Green Corridor Partnership, a cooperative effort to lead in environmental innovation, emerging green business and industry, green jobs and renewable energy.
Anxious to jump on the band wagon, we are busy greening our piece of Solano Avenue in Berkeley. We clambered on board the city's food waste and organics recycling by placing a green compost can in the kitchen. We weatherstripped and added florescent lights where appropriate. This summer, we even opted to install additional ventilation and fans in order to forgo air conditioning all together. We recycle our paper products and we're moving toward paperless transactions. I do my part by riding a scooter (100+ miles/gallon) around town when solo, and by carpooling whenever possible.

In the midst of these efforts, we contacted the city to find out about a green business designation. Apparently we are not alone in our efforts, as the city auditors (vital to the process) are booked out more than a year in advance. The official designation for our office is on hold, but we are tickled by the knowledge that this social movement is bursting the administrative seams (or at least challenging their calendars.)

Stay tuned.

Wednesday, November 21, 2007

We Have Much to be Thankful for!

In uncertain times it is good to remember the extent of our good fortune. We are grateful for the beauty that surrounds us in the East Bay. The bounty of our area's attributes have stabilized the market in our area. Home prices in much of the East Bay have held steady, even as we watch outlying areas absorb a heavy hit from the sub-prime fallout. We give thanks to the wonderful clients that have honored us by choosing Berkeley Hills Realty to represent them. We are further grateful for our past clients' willingness to refer us to their friends and family. Approximately 80% of our business continues to come from such referrals. We give thanks to the people we work with in our office and the larger real estate community. Our office is filled with dynamic individuals with diverse offerings and backgrounds. I am continually impressed by a group that represents a multitude of languages spoken, varied and impressive educational backgrounds, and most of all boundless levels of integrity and compassion. To all of my associates, clients and friend, I will raise a glass to you tomorrow. Be well. Cheers to you and yours!

Thursday, November 8, 2007

Halloween Teeth Recall

Berkeley Hills Realty received a notice from a participant in our Halloween Party alerting us to the Ugly Teeth recall. Some novelty teeth were part of the party favors distributed at the event. As a mother of a three year old, I share concern for this recall. The teeth in the Jamba Juice cups were not the Party Favor brand on the TV spot. The teeth were purchased at the local Target store from the Target line of party favors. I went online to the Target site, and no party teeth are listed for recalled there. I also talked to a live individual at Target customer service. Targets representative, although frustrating to speak with, stated clearly that Target did not carry the recalled product. They gave me a number to call about the recall 800 335-7585, if you have any additional questions. None-the-less, better safe than sorry. Please throw out the teeth you received (I know I will) with our deepest apologies.


Wednesday, November 7, 2007

Realtors Have Fun Too!

The Berkeley Hills Realty Halloween Party was a blast. We had nearly 50 entries for the Haunted House Drawing contest and many happy winners. Mechanics Bank donated fifty dollar savings bonds to the winners in three age groups. Other prizes were provided by Old Republic Title, Chicago Title, Payn’s Stationary, Sweet Lotus, Jamba Juice, Five Little Monkeys, & A Child’s Place. Thanks to all for a successful event.

Tuesday, October 16, 2007

Halloween Children's Art Contest

Haunted House Images Wanted
Bring Your Child’s Entry to:
1714 Solano Avenue, Berkeley 94707 · 510.524.9888
Any Materials may be used · Size restricted to 8 ½” x 11”
Artwork must be received by October 29, 2007, 4:00 p.m.
(Please sign your monsterpiece. On the back print your name,
grade in school, your school, and your phone number.)

Great Prizes from Our Local Haunts:
The Mechanics Bank, Chicago Title Company, Old Republic Title Company,
Payn’s Stationary, Sweet Lotus, Jamba Juice, Five Little Monkeys, & A Child’s Place
Prizes awarded in three age groups:
Grades; K-1, 2-3, and 4-5
OPEN HOUSE: October 31, 2007
Berkeley Hills Realty (1714 Solano Ave.) · Winners will be posted

All are welcome from 2:15 - 4:00 p.m. for tricks and treats!

Thursday, September 13, 2007

It's a Great Time to Find Your Dream House

Many factors have come together in recent weeks making now a great time to find your forever home:
  • Rates have dropped creating an opportunity to lock into a 30 year loan at historically low interest rates.
  • Moving your equity to a more stable location can help protect your current investment.
    The Bay Area should escape worst of the states economic slump. "Real estate losses in the Bay Area will not be that bad, and the rest of the economy should be doing pretty well," Ratcliff said. "The Bay Area is positioned to do better than the rest of California for the next few years."
Real estate is cyclical. In the past, the market has repeated in roughly five year cycles (the recent 9 year up cycle is historically unusual, which could indicate that we are over due for a correction.) This could be a predictor that the market may be at the beginning of a five year downward trend. Desirable neighborhoods in Albany, Berkeley, Kensington and Oakland have held relatively steady during past downward trends.
  • For the sake of your investment, real estate agents recommend holding a property for a period of longer than five years. Purchasing a home that can meet your long terms needs will minimize any short term shifts in the market. The market traditionally responds to cyclical downturn with five years of rebound and gain.
  • Competition has decreased as some buyers sit back and wait for the market to declare itself. Decisive buyers have the advantage. Although prices have not dropped in desirable locations, prime properties in prime neighborhoods are available without the heartache of multiple offers. Your odds of being able to purchase the first house you fall in love with have increased.

Wednesday, September 12, 2007

Refinance or New Purchase: What You Need Today to Get a Good Loan

Mortgage rates have fallen with the expectation that the Federal Reserve will lower the federal funds rate when they meet on September 18th. This has increased the number of applicants looking to refinance and apply for new purchase loans. Rates are good, but qualifying for the best rate is more difficult during the current mortgage crunch. Banks are understandably a bit shell shocked from the recent melt-down in the sub-prime market. This will result in a pendulum effect and a conservative approach to evaluating borrowers. Proceeding with caution is a good thing. Let's learn from past mistakes and move forward. For those looking to take advantage of the good rates, here is what it takes to impress a lender:
  • A Good FICO Score. Improve yours today with simple tips from our past post: Fix Your Credit...

  • A Sizable Down Payment. Most loans now require at least 10 percent down, and lenders prefer 20 percent down.

  • A Reputable Mortgage Broker. A good lender can increase your odds. Walking into your local bank branch may seem like an obvious approach to securing a home loan. However, your bank will have limited products available at any given time. Conversely, a good mortgage broker can shop your assets through multiple sources and help find the best program available for your situation. Reputation is important because you don't want to be disappointed if promises are not kept. Call your real estate agent for a reliable recommendation.

  • Verifiable Income. Lenders would like to see at least two years of documented income. Self-employed individuals can still get financing, but rates may be higher.

  • Patience. As banks take a more critical look at their borrowers, it may take longer for approval. Gather all the paperwork, and then realize that you may have to wait.
  • A Backup Plan. Some well-qualified buyers were disappointed recently when their lender unexpectedly pulled the plug.
  • A Dependable Real Estate Agent. A good real estate agent can help coordinate the pieces and keep your escrow on track.
Research source for this article: Dow Jones Business News (09/03/07)

Tuesday, September 4, 2007

This Old "Green" House - An Environmentally Conscience, Period Sensitive Kitchen Remodel

Modern sensibilities are easily honored and reinterpreted with today's "green building" materials and techniques. Eco-friendly materials such as recycled glass, cork and bamboo look great in a mid century or contemporary homes. But, is it possible to do a sensitive restoration on a historic home and still inject green practices? Although there is always more that could have been done, here is how we met the challenge during a recent kitchen remodel:

  1. We installed low formaldehyde insulation while the walls were open to increase the rooms energy efficiency and minimize off-gassing. We also opened up the floor plan through the mud room; with a screen door on the far end, a casement window (which cranks out to capture bay breezes) in the middle, and large opposing crank windows ( equipped with simple shades rated to block heat and UV rays) at the table end. This increases cross ventilation through the kitchen which is sufficient to cool the room sans air conditioning in the Summer.
  2. We purchased formaldehyde free solid wood cabinetry: No off-gassing and durability for a longer useful life.
  3. We Installed recycled oak floors (purchased from a demolished barn) and used low VOC water-based stains.
  4. We strove for a "forever" kitchen by choosing finishes with longevity in mind and honoring the original architecture over current trends. Appliances were the exception because they tend to have a serviceable life that is relatively short, and we expect they will need to be swapped out at some point. Modern appliances also help a historic kitchen appeal to a wider audience.
  5. We looked for energy star ratings on all appliances. Ranges do not appear on the www.energystar.gov list because there is no agreement on what to test. We bought a high-end range top, because its longevity will likely out serve all the other appliances in the kitchen. Also consider whether a new appliance will make you a better cook, or if the manufacturer of the appliance is just selling you the idea that it will make you a better cook. We opted not to have any fancy warming drawers or wine refrigerators that use extra energy.
  6. For the most part, we used florescent lighting for all task and overhead illumination. We cheated a bit, and used two incandescent fixtures as accents over the sink and table (but they get the least amount of use.)
  7. Our counter tops are marble with a low-VOC sealant done by Green Envirotek. This isn't a super green surface, but we hope they will go the distance in our "forever kitchen." The new earth friendly sealants take away most of the maintenance issues and the marble can be re-polished down the road to bring back its original luster. Marble also gets extra points for its timeless beauty.
  8. At the prep sink, we opted for a roll-out composting bin instead of a garbage disposal. The main sink accommodates both trash and recycling bins.
  9. Every project has its concessions: I started a search for recycled glass for the back splash along the range wall. I fell in love with an Ann Sacks, Glace tile, which is not made of recycled glass instead. I like how the hand made quality of the tile speaks to a home with history, and the shape feels reminiscent of old subway tiles. Later, I found a 100% recycled alternative at Bedrock Industries, BlazeStone Tile. Too late for me to mend my ways, but maybe this can benefit someone else.
  10. Recycling gave history to some of the room's accessories. The artwork is old crate labels that we found at an antique shop and the kitchen chairs were re-purposed from an old dining room set.

Tuesday, August 21, 2007

Bay Area Real Estate 411: Opportunities for the Adventurous

Do you have to be Warren Buffett to find "deals" in the current market?
Buffett has been increasing his stake in financial services companies, including those with significant exposure to the mortgage market.
Nation wide, real estate markets are stalling as the financial turmoil sorts itself out. Many prudent buyers are on the sidelines as they wait to assess the resulting implications to the Bay Area real estate market. This may create opportunity for the adventurous. First a warning: This post is about speculation and speculation involves risk. For those ready to put a big toe in the deep-end here are some facts in your favor:

1.) Buyer competition has been greatly diminished. Some buyers are out of the market because they will not qualify for a loan given the implementation of more prudent lending practices. Some buyers are out because they do not have a sufficient down payment mandated by new guidelines. Some buyers will sit the next few months out voluntarily as they wait for the market to declare itself.

2.) Lending institutions do not want to be landlords and some will be anxious to unload bank owned property to free up capital. Bank owned properties are not as common in the East Bay as in other parts of Northern California, but they are more common than they have been in past. Some banks will still seek to protect the value of their collateral by pricing aggressively and holding firm through negotiations. However, it is our experience that most bank owned properties are not advertised optimallyl or as well presented as other "pride of ownership" properties. If you have a little vision (and look beyond challenged aesthetics and the advertised open houses) you may find an opportunity.

3.) More Sellers will be willing to negotiate. Sellers who do not need to sell will wait for the market to correct itself. These are the sellers who can afford to wait for the perfect buyer and are often the most tenacious negotiators. When this group sits out, buyers will find a more level playing field. Other sellers will need to sell based on personal circumstances, job transfers, or excessive holding costs. In contrast to the first type, these are the motivated sellers and qualified buyers will have their attention.

4.) Money talks as well-qualified buyers gain renewed credibility. As the mortgage market stands on shaky ground, buyers with good credit and decent down payments are gaining the attention of Bay Area sellers. In addition, a bird with cash in the hand is worth a flock of seagulls. Sellers will give extra credit and consideration to Buyers offering all cash.

Buyer Tips:
  • If you are looking for your "forever" home, don't obsess about the short term market. As your event horizon projects further out, market fluctuations will have less impact. This is where buyers can really benefit from reduced competition and greater opportunities. Desirable homes in prime locations are experiencing an unforeseen lull.
  • Look for the motivated sellers and buy below current market value. Time is money for some banks looking to unload. Don't be afraid to try a low offer as your timing may be opportune.
  • Be prepared to hold onto your investment through any downturn with an expectation that a market correction may take several years. If you plan for a downturn, you resulting decisions will be more prudent.
  • Make location your primary objective. Buyers often seek "fringe" properties during a hot market with the hope that the gentrification tide will absorb them and the value will increase exponentially. In a downturn, values often recede from these areas first as buyers can once again afford the prime locations.
  • Seek your agent's advice in obtaining real-time market data. Look to the most current sales in order to assess value. June sales are already obsolete in most areas. Some agents also know market grapevine information which may be more telling than recorded sales data.
Seller Tips
  • Good news for those who need to sell now; the area has not yet experienced significant price reductions. If price reductions do happen, they are likely a month or so out. However, you may have to be willing to make more concessions to buyer contingencies because the pool of buyers is reduced.
  • 417,000 is the magic number. This is the cap on a conforming loan. Conforming loans have become more desirable as jumbo loans become less available and rates increase. If you can price your home within range of a conforming loan, you may find more buyers.
  • Exposure is your key to success. As the pool of buyers shrinks, increased market exposure will reach the widest possible audience. Now is not the time to put a sign on the front lawn and wait for a buyer. Discuss with your agent a strategy for reaching the most qualified buyers possible.

Friday, August 17, 2007

Recession or Rally? The Feds Lower Discount Rate

Aug 10 (NYT) -- Saying it now feels that the recent disorder in financial markets has raised the risk of an economic downturn, the Federal Reserve today approved a half-percentage point cut in its discount rate on loans to banks....

The upheaval in the credit markets have confronted Ben S. Bernanke, the Fed chairman, with the first crisis of his 18-month tenure. In recent weeks, the Fed has intervened to support the markets by lending in the money markets against mortgage securities and Treasuries. It did so again this morning, by lending $6 billion against mortgage securities. Over all, since Aug. 9, the Fed has injected $94 billion into the financial system by lending in the open market.
The Federal Reserve is scrambling to address the mortgage crisis in an effort to stabilize the US economy. A reduction of the discount rate will specifically target banks that are having short-term financial difficulty (like, Countrywide.) This rate does not have a direct impact on consumers, so we will not see an immediate drop in interest rates. It does however free up financing making loans easier to obtain.
The discount rate is the one the Federal Reserve charges qualified lenders, mainly banks, for temporary loans. Lowering interest rates encourages banks to lend more money to mortgage borrowers.

That in turn could make it easier for home buyers, especially those using big-ticket loans called Jumbos, to get financing.
Lending restrictions will remain tight and sub-prime loans difficult to obtain. The ultimate question remains: Will the Feds efforts be enough to bolster consumer confidence? Information may arrive instantly, but insight takes longer. Fortunately, our traditional/seasonal August slowdown will give us an opportunity to sit back and watch the chips fall. Hopefully, the market will announce itself come September.

Wednesday, August 15, 2007

Keeping an Ear to the Ground: Update on the Real Estate Market

It appears lenders are facing the increase in jumbo loan rates with new yet, prudent flexibility. Instead of recommending jumbo loans at 8% for clients who qualify, many are turning to loan combinations: Specifically, a buyer looking to purchase a single family home in this area for $750,000 with 20% down ($150,000) might consider a conforming first mortgage for $417,000 and a second mortgage at a reasonable rate for the remainder ($183,000.) In many cases the average interest on the two loans is more favorable then a jumbo loan of equal value. This flexibility is accompanied by more stringent qualifying criteria, as lenders pendulum away from the looser standards which contributed to the sub-prime fallout and resulting nationwide foreclosures.

There are oportunities for Buyers in this market. More stringent requirements have resulting in a smaller pool of buyers, and less competition. There are oportunities, but not a lot of bank owned property available for any reasonable discount. We do not have the frequency of foreclosures that some out-lying areas, such as Sacramento, are experiencing. There are two reasons for this. First with a high median price for Bay Area houses, many buyers enter with strong dual incomes and often bring equity from a previously owned property. This means fewer buyers sought 100% financing. Also, because our market has still had reasonable gains over the last two years, those who found themselves in trouble had more of an opportunity to sell and limit their losses. For Sellers, time on the market has increased and multiple offer winfalls are less likely, but buyers are still out there.

Friday, August 10, 2007

Help is on the Way: Central Banks Rally to Stabalize the Credit Market

Aug. 10 (Bloomberg) -- Central banks in the U.S., Europe, Japan and Australia added at least $131.3 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets
More than just a housing crisis, the sub-prime fallout threatened worldwide economies as confidence faltered and stock market funds plummeted. Monday mortgage lenders seemed to be over-reacting as many companies stopped taking new applications and others failed to honor existing commitments. Major lending sources recoiled in fear of uncertain futures. Now the central banks are uniting to inject money back into the banking system. This major act is designed to help stabilize the market and soften the risk for mortgage-backed debt.
In the U.S., the federal funds rate opened at 6 percent, the highest in six years. The rate fell to 5.25 percent after the New York Fed bought $19 billion of mortgage-backed securities and then followed up with $16 billion of funds in a second operation.

'Unlimited' Ability

"The Fed has almost unlimited ability to supply liquidity if they feel that is appropriate,'' Rivlin said. She noted that it was "symbolic'' that the New York Fed's first operation today involved mortgage-backed debt -- the type of securities that investors are unloading.

Thursday, August 9, 2007

"Suddenly It's Not So Easy to Borrow"

As is often the case the New York Times says it best. Click on the link below for an easy to follow explanation of how we got into trouble:

Housing Busts and Hedge Fund Meltdowns: A Spectator's Guide

As new money loans dry up, sellers may have to consider creative financing to help buyers get in the front door, including; seller financing, land contracts and lease options. These concepts are not new, but feel more difficult to approach as sellers grapple with "the house that sold down the street two months ago for over asking price and closed in two weeks." As part of our service to sellers, we hope to expose your home to the largest pool of buyers, sell your home for the most money possible, and do our best to ensure that you never have to look back. Creative financing might help accomplish the first two tasks, but may keep your purse strings tied to the picket fence.

Wednesday, August 8, 2007

Lending Freezes, Rates on Hold, Clinton seeks Remedies

Here is an article listing some of the companies that have put a hold on writing new loans, or in some cases have declared an inability to fund existing obligations:

Mortgage mess spreads, creates bargains (Reuters)

The Federal Reserve met on Tuesday and left interest rates unchanged at 5.25%

Fed keeps US rates on hold; acknowledges market turmoil (AFP)

Hillary recommends action:

Clinton seeks aid for at-risk homeowners (AP)

Monday, August 6, 2007

The Sub-prime Fallout and Housing Affordability in the Bay Area

All of my usual optimism aside: For many months the sub-prime fallout did not seem to affect East Bay real estate, but now we are getting direct evidence that it is in fact taking some buyers out of the marketplace. A local lender, MPR Financial just sent a bulletin stating, "The secondary mortgage market has become extremely bearish on buying any new mortgages evidently due to the sub-prime fallout. If you have clients who are approaching the purchase of a home or new pre-approvals, please let them know that rates have risen dramatically and that lending guidelines have changed considerably." Although conforming loans are still available at reasonable rates, interest rates for jumbo loans are now exceeding 8%, and qualifying criteria has become more stringent. Self-employed and first-time buyers are often hardest hit as no-doc or low-doc loans and low-down payment loans become the first casualties of tightened lender restrictions.

Lenders are quickly closing the door to borrowers with low credit scores, small down payments for a new home or little equity in their current homes. Homeowners and buyers in high-cost areas such as California, Florida and the Northeast are also reeling as lenders chop "jumbo loan" programs.

"The market for virtually any loans with the slightest element of risk has effectively disappeared," John Bollman, an executive vice president at Cleveland-based National City Mortgage, wrote to his employees.

This will increase financing costs, mandate larger initial down payments for some buyers, and make monthly payments on some loans more expensive. Subsequently, the cost of home ownership has increased in our area. The full extent or length of this trend is unknown. Our housing inventory is still limited by our geographical boundaries, so how this will effect home prices remains to be seen.

Tip for Home Sellers: Make certain your real estate agent is equipped with the latest information on lending requirements and is assertive in asking the right questions of your perspective Buyer. Dated pre-approval letters may not meet the latest lender standards and no-doc, or low-doc loans may no longer be possible. A sizable down payment is now an even more valuable consideration in evaluating a purchase contract.

Tip for Home Buyers: Now more than ever, an experienced loan broker can help match your strengths to the best available loan program. Be wary of online lenders, especially if you do not have a local broker available to answer questions. A reliable real estate agent is also a must in the current climate. In a changing market reputable advisers are the best protection for your investment. See our post on fixing your credit score.

Saturday, August 4, 2007

Can We Know It All? Introducing the New California MLS Alliance

East Bay Regional Data has just announced, "in an unprecedented cooperative effort, ten MLS organizations in California have signed a joint data sharing agreement forming the new California MLS Alliance, a new MLS gateway providing agents and brokers with a single source for accessing real estate information throughout California." Now East Bay agents have access to 2.5 million active listings and off-market properties throughout the state, including; Alameda, Contra Costa, El Dorado, Lake, Marin, Mendocino, Merced, Napa, Placer, Sacramento, San Francisco, San Joaquin, San Mateo, Solano, Sonoma, Stanislaus and Yolo counties.

This provides great access to outlying real estate trivia. However, more is not always better. We believe in quality representation and take pride in our local expertise and area knowledge. The merit of our personal business lies in Alameda and Contra Costa counties, specifically; Albany, Berkeley, El Cerrito, Emeryville, Kensington, Oakland, Piedmont and Richmond. We know East Bay real estate and will provide unparalleled service here. We also know our limits. We would no sooner represent a Seller or Buyer in Napa than we we would attempt to fix your automobile. We are acquainted with many reputable agents throughout California and can confidently recommend the appropriate expert for any outlying community. If you or anyone you know needs some sound real estate advice, let us guide you where we know best, and refer you for the rest.

Friday, July 27, 2007

Bay Area Home Sales Still Down, Median Prices Up

Even though home sales were down nearly 30% for June, Alameda county experienced slight price increases to the median home price compared to June 2006. Contra Costa county was the least changed with a slight .3% decrease in home values. Marin and San Francisco counties experienced the highest increase, while Napa and Solano counties' values appear to have been the hardest hit.
"Obviously there's still a bit of a standoff between buyers and sellers. It looks like unsuccessful sellers would rather take the home off the market than bring the price down, which is remarkable after almost two-and-a-half years of sales declines. Mainly, the price adjustments we're seeing are in more affordable outlying parts of the Bay Area, and those adjustments aren't all that significant except for Solano County," said Marshall Prentice, DataQuick president.
This data supports what we have been experiencing in the East Bay real estate market. We are seeing more homes coming back on the market, or being withdrawn from the market as Sellers resist selling their home for what the current Buyers are willing to pay.

In past markets, we advised Sellers looking to move on from their current residence to buy first, without a sale of house contingency. The theory was; they would be in a better position to buy without a contingency, their home would show better if stored items and clutter were taken to the new place, and banks could accommodate help them finance the interim with bridge loans. The past market was so heated and quick that we could nearly guarantee a fast sale and a good price. The current market is less predictable. Now our best advice is sell first so that you know what you can afford on the other end. Too often Sellers equate what they need with what their home is worth. This equation does not work for Buyers, who have seen competing inventory and the most recent sales. As emotional as residential real estate can be, buyers use concrete data to support their contract price; including syndicated press reports, area inventory and past sales. If a Sellers expectations are not met through initial marketing attempts, more time on the market only works to decrease perceived value for the Buyers.

Who you chose to represent you is important. Sellers need to make sure they have the best marketing advice to help them achieve the highest possible price.

All Homes No Sold
No Sold
Alameda 2,198 1,536 -30.1% $600,000 $605,000 0.8%
Contra Costa 2,102 1,413 -32.8% $599,000 $597,000 -0.3%
Marin 453 350 -22.7% $830,000 $961,250 15.8%
Napa 195 128 -34.4% $680,500 $577,000 -15.2%
Santa Clara 2,763 2,163 -21.7% $681,000 $699,000 2.6%
San Francisco 705 633 -10.2% $790,000 $825,000 4.4%
San Mateo 906 755 -16.7% $770,000 $795,000 3.2%
Solano 773 453 -41.4% $475,000 $419,500 -11.7%
Sonoma 735 533 -27.5% $580,000 $532,500 -8.2%
Bay Area 10,830 7,964 -26.5% $648,000 $665,000 2.6%

Source: DataQuick Information Systems, www.DQNews.com

Friday, July 20, 2007

Preparing Your East Bay Home For Sale - Top Ten Value Added Improvements

Nearly every property we list for sale can benefit from some market prep. Buyers need to fall in love with the visual appeal of your home before the will notice any other improvements. Your agent can help you decide how to get the biggest bang for your pre-market buck. Here is our top ten list for showcasing a Bay Area home's best features:

1. Have your home professionally staged. Professional staging ups the ante on a home's emotional cache by creating a magazine quality interior; which in turn sparks the fantasy of that picture perfect life. For the price of one stainless-steel kitchen appliance, you can spread the impression of luxury to every room of the house. The impression of quality will stick, even though buyers have no expectation that the expensive looking stuff is included in the sale. Contemporary furnishings can update a home's interior for a relatively low investment. More importantly, 75% of all buyers use the internet during their home search. When these buyers view the on-line photos, it is impossible to get any perspective on a rooms size and/or best use without the visual map of well placed furnishings. Instead, the viewer's eye goes straight to the rooms back wall. This makes any space look substantially smaller. It has also become an industry standard to show a home "staged." The few homes we see that are not staged give the impression that the homeowner does not believe their home is as worthy as their competition. This impression further diminishes a buyer's perception of value.

2. Professionally paint the home's interior and bring out trim with a contrasting color. One of the benefits of our older housing stock lies in time-honored original details. Make sure buyers take notice by helping them stand out. Fresh paint also reflects pride of ownership and will help buyers feel confident in a home's overall condition. (If you attempt this one yourself, spend extra time on prep and be sure to take the time to achieve a professional looking finish. A sloppy job can have the adverse reaction of putting doubt into your buyer's mind about the quality of other home improvements.) One of our favorite neutral combinations is Benjamin Moore's Mongomery White for the walls (This cream with a tint of yellow looks sun-kissed in any setting) with White Dove trim.

Get expert help when picking the color pallet. Choosing a modern, cohesive color pallet is the most cost effective way to update an interior. Those original details will more easily mix with a buyer's contemporary possessions if a designer color pallet is already in place. It doesn't cost much more to go with color. Just make sure you are getting sound color advice. In the 80's and 90's neutral, "blank slate" walls were all the rage. Then, buyers wanted spaces they could personalize. Now, our demographics reflect busy, often two-income households with limited time on their hands. An appealing color design represents real value to today's buyers.

3. Paint the outside entry, porch and window trim. This can be a good way to update your curb appeal without the expense of repainting the whole exterior. Do caulk, patch and paint any surface in need of attention. When painting porches and walkways, add sand to the mix to improve traction.

4. Professionally polish your hardwood floors. Hardwood floors continue to be a desirable selling feature. Professionally polishing is much less expensive than completely refinishing them, and the visual impact is nearly as impressive. Having your floors polished is often only 1/5 the expense of refinishing, but it has the benefit of bringing there original beauty approximately 3/4 of the way back.

5. Mini-makeover your kitchen. Kitchens sell houses. If yours is not likely to inspire an offer, consider the mini-makeover. Paint existing cabinets and install updated hardware. If the linoleum is dated consider installing Marmoleum over the top. This sheet product is gaining popularity because, unlike linoleum, Marmoleum is considered a "green" home improvement. Finish the look off with a solid surface counter, new sink and faucet. New appliances are a bonus and you may be able to negotiate with the buyers to take them with you to your next home.

6. Mini-makeover your bath. Second in the minds of buyers to kitchens are baths. Repaint chipped bathtubs with an approved enamel paint. Replace any cracked tiles and clean the tile grout. As needed replace the toilet, sink, vanity mirror and update the lighting.

7. Lighten up. A dark house can send a buyer back out the door. Look for cost effective ways to add light to a dark interior. Remove heavy draperies and window awnings. Opt for sheer panels instead. Prune trees to allow more light through the windows. Install a light tunnel to a windowless room or dark hallway. Light tunnels cost less than traditional skylights and are easier to install. Replace dated light fixtures with new ones. There are lots of low cost and stylish options now available online. Add floor and table lamps as needed to brighten a room. Finally install the highest wattage bulbs allowed by the manufacturer in all the homes light fixtures. Warm-toned fluorescents will keep the electric meter from spinning.

8. Freshen up the landscaping. Landscaping for curb appeal includes adding color spots (usually flowers) and the aesthetic pruning of existing plants. Plant themes can help define architecture: A Mediterranean drought resistant garden enhances a Spanish style home, while a cottage garden looks great in front of our California Bungalows. Fresh mulch can make the yard look well maintained. Meandering pathways and delineated outdoor living rooms can help small yards feel more generous. Water fountains can soften the sound of traffic.

9. Create storage solutions. People now days have lots of stuff. Helping buyers picture where there stuff can go can help them visualize living in your home. First on this list is clearing clutter. Clutter in a room will keep buyers focused on your things and they may not see the architecture. Also, if it looks like you no longer fit in the house, buyers will relate and worry where to put their things. A staged house is usually only about 60% furnished. You will notice that dressers are the often missing. Clear closets and cabinets down to the essentials. Add closet systems to maximize capacity. If a room doesn't feel like a true bedroom because it is missing a closet, install one or include an armoire in the sale. If the home lacks a garage, consider erecting a garden storage shed. Sellers often overlook this advice, but if a buyer can't bring their stuff, they will likely not want to live there.

10. Clean, clean, clean. A spotless house will inspire buyer confidence because it speaks directly toward home maintenance. A thorough cleaning can also bring life back to many surfaces. We routinely set up the following for our clients:
  • Professional window washing - the best way to bring the outside in and add instant sparkle
  • Power washing of decks and entryways. Wood decks and mildewed concrete undergo a spectacular transformation with a jet stream of water.
  • Carpet cleaning
  • Interior cleaning with attention to sometimes neglected areas like light fixtures, ovens and the tops and insides of refrigerators.
Share your money conscious improvement ideas here. (Click on text)

Tuesday, July 17, 2007

First Time Home Buyers Struggle to Enter the Market

This is a follow up to my last post. As previously mentioned, the meltdown in the subprime market has not pulled the doormat out from under Bay Area home owners. Still this economic phenomenon has not left the real estate market entirely unscathed. We had hoped that a leveling of the market would turn a greater percentage of housing dreams into realities. Unfortunately for some first-time home buyers, the carrot remains just out of reach. USA Today reports:
Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices in most areas. On top of that, lenders are now demanding that customers produce larger down payments, more cash reserves in the bank, higher credit scores and less debt — all of which many first-time buyers lack, especially in high-cost states such as California, New York and Florida.
As we look into our crystal ball, we can't help but be concerned for our infrastructure. If the trend continues, how will our teachers, police officers, and firefighters afford to live here? The Bay Area housing market has held strong due to a strong and diverse economy, the area's intrinsic desirability, and limited sprawl. But, what will happen if the people who service the needs of our community can no longer afford to live here?

Given increased housing costs and gentrification, how do you see our East Bay culture changing? (Click on text to leave your comment.)

Monday, July 16, 2007

The Subprime Crisis

Subprime lending, also called "B-Paper", "near-prime" or "second chance" lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high-interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk.
Some of you may be wondering, why we haven't talked much about the "subprime lending crisis." We have noted that buyers have been seeking alternative financing to compensate for decreased afford ability. Some of these buyers have turned to suprime loans in order to qualify for their home purchase. Subprime loans do help some buyers who would otherwise not be able to enter the market. The downside is that the flexibility has encouraged misuse by some predatory lenders. As a result, we have seen an increased number of foreclosures and short sales. This fact has prompted us to caution buyers about their lending options (See the post titled, Would You Risk an Extreme Mortgage.) However, the impact on housing prices has not been great enough to affect our forecast for the general East Bay real estate market.

An independent real estate market forecaster, Housing Predictor, reported the following:
Hundreds and perhaps thousands of local real estate markets scattered throughout the U.S. are insulated from the sub-prime loan crisis and as a result are not suffering from fall out of the sub-prime fiasco, according to the latest Housing Predictor study.
Beginning in late 2006, subprime mortgage lenders began filing bankruptcy. This meltdown prompted some economists to fear a fallout similar to the U.S. Savings and Loan Fraud Crisis of the late 1980's. Although our market has experienced a healthy leveling, this gloomy prediction is not being realized. The subprime crisis seems to have been limited to less affluent areas with less healthy local economies.

Saturday, July 14, 2007

Weighing the Odds As a Bay Area Home Buyer

Purchasing a home is a balancing act. Buyers have to weigh fears about a changing market against sometimes unrealistic seller expectations. Add to that the tight-rope multiple offer situation; that fine line between the safety net of buyer protections and the free-fall of incentives that prompt sellers to accept an offer. In a perfect world we want buyers to have the benefit of all applicable contingencies. However, in this marketplace it sometimes behooves a buyer to present a clean offer. A "clean offer" is an offer that is well-written and often contingency-free.

Incorporating contingencies into a purchase contract may seem like the best way to protect buyers' best interests. Not true, if these complexities preclude them from buying a house. Even a contingent offer reaches a point when the contingencies expire. In any market, it is impossible for your agent to keep you safe from all liability. However, a good agent can give you a deeper understanding of the nuances associated with the risk and grant you the clarity to overcome peril.

A financing contingency is an example of a manageable risk. A loan contingency buffers the risks inherent to the loan application process. Why would buyers write an offer without a loan contingency? The best answer is because; they fully understand the risk, they feel empowered to manage that risk, and they can improve the chance their offer will be accepted.

Most buyers are pre-approved with their lender when making an offer. A well-qualified buyer's pre-approval letter will have three outstanding lender conditions. If the conditions are not met, the buyer will not get the loan. Here's what's at stake:
  1. The lender must approve the contract. (You can limit this risk by using an approved CAR form and having an expert help you draft your offer.)
  2. The lender will require an ALTA policy of title insurance. This is the title insurance that protects the lenders interest in the property against any liens or encumbrances unknown to the lender. (This one is easy, the approved form contains language which incorporates CLTA and ALTA policy into the agreement.)
  3. The lender will need to approve of the properties value in respect to the loan amount through a bank ordered appraisal. This is the doosie. If the house doesn't appraise, you don't get the loan. (Believe it or not, this last risk is also manageable. In fact, the lender is not even concerned wether the house appraises at your contracted purchase price. Lenders do not care if you are not getting your money's worth. They only care that property's value (their collateral) is strong enough to justify the loan amount. To the primary lender this works out to roughly the loan amount plus 20%.)

We have not seen many issues with appraisals, but this could change as the market fluxes. At any rate, it is safe to assume that every house will appraise at some value. Based on your pre-approval, your liability -should the home not fully appraise- is not the entire contract price, but rather the difference between the price you promised the seller and the appraised value the lender accepts. A buyer can manage this risk and successfully avoid breaching the contract with the seller.
  • First, research comparable sales with your Realtor. We do care that you get your money's worth. Your agent can and should help you become a savvy consumer well before your contract is accepted. Then, if the appraisal falls short, your agent can advocate on your behalf by providing the appraiser with the comparable sales.
  • Next, check the strength of your own pocketbook. Do you have any resources to bridge the gap between the appraised value and the contract amount? If the house does not appraise, a home buyer can provide the additional funds necessary and complete the transaction. Similarly, if you have a large down-payment (greater than 20%) you can more confidently waive your financing contingency, because the lender is more likely to find the desired collateral.
  • Last of all, your mortgage broker can be a great resource. They can sometimes save the day by finding a secondary lender who is willing to loan you the additional funds required.

Each buyer is unique. Each house represents new circumstances.
"We think in generalities, but we live in detail." These suggestions are not universally applicable. They are listed to illustrate how your real estate agent can help manage your risks by brainstorming the available options. We do not believe in advising our clients to act on what is "customary" for our marketplace. We do not follow the crowd just because that is the current trend. Rather, it is our objective to serve our clients well. To think outside the box -and in it, when necessary or prudent. Dialog is essential in assessing the needs of the individual in relation to the virtue of our professional experience.

Thursday, July 5, 2007

Is It a Buyer's Market Yet?

I keep reading that Bay Area home sales are at the lowest level in 12 years. This headline has left buyers scratching their heads wondering, "where are all the resulting deals?" Unfortunately for buyers, it's the number of sales that have declined not the prices. Fewer homes on the market have resulted in the recording of fewer sales. This translate to low inventory for buyers. This in turn creates competition and results in multiple offers. The Median Price for a single family home in the Bay Area has increased to $660,000, the highest recorded level yet.

There is good news for buyers despite the confusion. The current median price reflects a modest 3.4 percent gain over last year, as reported by DQnews.com. This is a small gain compared to the 20 percent increase from 2004 to 2005. (In 2005, the median price for a single family home in the Bay Area was at $556,000.) This isn't a windfall for Buyers, but it does indicate a healthy leveling of the Bay Area market.

In our office, we are seeing buyers react cautiously to a sometimes spotty market. The market is "spotty," because some, but not all houses, are drawing the competition from buyers that results in sales prices which exceed market expectations. For our sellers, we do our best to increase the odds in their favor (which makes our track record better than most) but the current market is more susceptible to buyer whim. As sellers work to rally scattered enthusiasm, buyers gain an improved bargaining position.

This brings more good news to Buyers. In addition to the tempering of competition on some houses, buyer contingencies have regained some strength. In particular, buyer inspections have returned along with the negotiations associated with their findings.

We have also seen a continued increase in the number of homes "back on the market" as buyers struggle to develop a well rooted sense of value in what has been a changing market. Sellers too struggle to rationalize the reports from the neighborhood grapevine (with tantalizing instances of sellers who seemingly still hit the jackpot) with the realities of a leveling playing field.

We will be watching to see how this market plays out in July as we head toward August. August traditionally slows down as Bay Area residents take their summer vacations and prepare for the coming school year. As a result, what happens in July often informs the September market.

For Buyers and Sellers: Berkeley Hills Realty works hard to improve the odds in your favor. We remain ever vigilant and strive to think outside the box as it relates to all new information. For our Sellers, we have put new strategies in place designed to expand market exposure and to increase a property's perceived value. We also consult with our Buyer clients on factors that create and protect value as it relates to the purchase of their new home. As we embrace this new marketplace, we invite you, your friends, and family to call with any and all real estate related inquires. As always, we are happy to share our thoughts.

Tuesday, July 3, 2007

Good Fences Make Good Neighbors? (revisited)

My last post has a stealthy link to a Robert Frost poem called Mending Wall. Published in 1914, Frost questions the artificial construct of a privacy wall. Today someone sent me a link to a SF Gate article that brings back the radical notion of doing away with fences in our Bay Area backyards.
Taking down the fence had another outcome: She established a more communal relationship with her neighbors. No longer playing in tree houses, Westberg, Pettler and their neighbors share barbecues, garden tips and a glass of wine at sunset, all accomplished without the formality of front doors.
We have examples of overwhelmingly successful boundary-breaking in our East Bay neighborhoods. The article mentions one area in North Berkeley around Mariposa and there is another popular South Berkeley communal backyard nicknamed, the Meadows. The logic is particularly adaptable to our neighborhoods, where small lots can be expanded by open minds. Experience tells me that expanding verdant outlooks will also increase a property's value in the real estate marketplace. What do you think? Can you imagine tearing down your own backyard fence?

Monday, July 2, 2007

Is it in a Safe Neighborhood?

Good fences make good neighbors? Hopefully this blog will do more to build bridges than mend fences. Although sometimes there isn't a fence high enough, if the neighbor is truly a nuisance. We repeatedly advise buyers to spend time in the neighborhood where they want to live. There are a lot of things about a house that you can change as your needs dictate. Location isn't one of them. Learn who your neighbors are before you sign on the dotted line. As for that pesky little question, "is it in a safe neighborhood?" There are lots of websites that provide crime statistics, but only you know what kind of surroundings make you feel comfortable. Only you know you. Even so, you are apt to feel comfortable in different places during different stages in your life. I lived in the Tenderloin neighborhood of San Francisco once. It was my last years of college when poverty felt like a badge of honor and the invincibility of youth gave me courage. Later, my first pregnancy sent my bravado packing as my mothering instincts gained ground.

Still that first apartment, filled only with furniture collected off the street and the rare salvation army splurge, had me thinking of my role in the bigger picture. In some ways I was a better person then. I was certainly more sympathetic, or at least more aware concerning the issue of homelessness. Beyond the education brought on by the state of my own meager means, a walk from the Civic Center BART station through Civic Center Plaza was a bit like immersion therapy for the armchair activist. The experience ignited in me the eternal optimism that takes seed easily in the collegiate mind. The homeless have been mostly pushed out of the area now, with only a small presence near Market Street. It's a shame that the problem was shuffled not solved. Back in the day, such open evidence of great need strengthened conviction, and even humble college students wanted to make a difference. A small group of us used to make a weekly foray into the Plaza with a box of peanut butter and jelly sandwiches, fruit, carrots and surplus cheese. After repeated questions about which religious institution we were affiliated with, we dubbed ourselves, "the Peanut-Butter and Jelly Church." Talk about putting a face on homelessness, I still remember some of the characters we met. (Are you out there Hobo and Red?) I hope they are well, but that renewed mothering instinct has me worried.

Today, I get great satisfaction in helping new buyers into their first home. (Thank you to our clients for the opportunity.) Our office makes annual contributions to places where we think the money might matter. In addition, our agents also make contributions from their earned commissions to the Berkeley Association of Realtors Community Fund. We can go home saying, "I gave at the office." However, every year homelessness fosters old and new faces, and my stage in life has me reconciling a check book and hoping it will truly make a difference.

Buyer Tip: When you're interested in a house, walk the neighborhood. Meet the people that live there and ask questions. Call the non-emergency number for the local police department. They can often put you in contact with the beat officer for the area. Also, check out our previous post (and user comments) on the new Google Street Views.

Seller Tip: Disclose any issue you are aware of that affects your home or neighborhood. Full disclosure buffers your liability and can give a buyer more confidence in the overall transaction. Be specific about the problem, not the individual. If a neighbor is loud enough to be considered a nuisance, describe the noise level and time of day. This is more useful to the buyer (and less offensive to the neighbor) than any attempt to define the individual's character.

Friday, June 29, 2007

Would You Risk an "Extreme Mortgage?"

We recently met with new buyers to discuss the process of buying their first home. Since the first step in today's market is always getting pre-approval for a home loan, we spent a lot of time on the subject. With our advice and recommendations, these buyers were already pre-approved by the time of our face-to-face meeting. Although their credit and finances are strong, they were concerned with the loan broker's recommendation to consider an interest-only loan. With housing prices on the rise, loan products have gotten creative to meet the demand for more affordable payment structures. With a myriad of options out there, real estate agents can not be experts in the area of home financing and do not have access to all the answers to suit each individual buyer's needs. I am not an expert (although, I can recommend one.) I do, however, have first hand experience in the marketplace and can put my finger on two conflicting truths:

1.) A gamble on financing your biggest purchase is not worth the risk of foreclosure or a short sale. Short Sales and foreclosures are losing propositions and should be avoided at all cost.
A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. Sometimes the debt in not "forgiven," but rather the difference is paid through a personal loan or alternative collateral.

2.) Home ownership is an admirable goal which can lead to increased financial security making some risk worthwhile. See MSN Money's article Why its smarter to buy than rent.

Reconciling the above concepts is a tasks best left to the experts. Real Estate agents can help you understand factors affecting the value of a particular property. Similarly, a loan broker can help you grapple with the value of a particular financial package. Today a loan broker sent me this insightful newsletter:

(excerpt From Cohns Loans Financial Newsletter dated 6/29/07)

As housing prices rise on the coasts -- $1,000 a day in some places -- buyers are taking on outsized mortgages and outsized risks. With the median home price in the Golden State nearing a half-million dollars, it's no wonder that fewer than 1 in 5 Californians can afford to buy a home. But plenty of people are snapping up high-priced houses anyway, on both East and West coasts, thanks to a burgeoning number of nontraditional mortgage loans. Can't afford a $100,000 down payment on a half-million-dollar home? Get a separate loan at a higher rate and borrow the money. Think you'll be richer down the line? Pay just the interest on your loan for a few years. Scared of high monthly payments? Get an adjustable interest rate that will stay low, at least for a while. It's a far cry from the days when 20% down payments and 30-year fixed-rate mortgages were the norm.

Borrowers on a precipice
But not everybody is so optimistic. A small band of skeptics is warning that homeowners are setting themselves up for a financial fall. If interest rates go up and home prices dip, owners may be forced to sell their homes at a big loss, some experts warn. "I'm nervous about it," says Elaine Worzala, professor of real estate at the University of San Diego. "I do worry about the borrowers in markets such as this one, where homes are so expensive." Her cautions are mostly ignored. To many aspiring homeowners, the housing market is issuing a clarion call they can't resist. In some parts of California, everyone seems to know someone whose home has skyrocketed $50,000 or even $100,000 in value in just the last two years or so.

A rush to buy, now or never
Although there are signs that local real-estate markets are cooling, "people act like we're going to run out of homes -- if they don't buy now they'll be left out forever," says Dan Ruiz, a mortgage broker who specializes in assisting Latino buyers in southern California. Because many of his clients can't afford to pay tens of thousands for a down payment, nearly all borrow the money, Ruiz says. And no wonder. In popular "80-20" or "100% financing" loans, potential homeowners borrow 80% of the purchase price of a home at one rate and the other 20% at a higher rate. Down payments used to be virtually mandatory "because the banks wanted you to have money in the investment to protect themselves," says Worzala. But now, the complex world of mortgage securities allows more flexibility.

Steeper risk in 'interest-only' mortgages
Adding to potential risk, buyers in California and elsewhere are turning to "interest-only" loans. By paying down only their interest for a few years, they keep initial payments low. Variable-interest-rate loans also woo potential home buyers. In many "hybrid" loans, the interest rates are fixed for the first few years, then can go up in the future, although the amount of increases is typically limited. For example, a homeowner might pay a fixed 3% interest for the first few years, with future increases limited to two percentage points a year or six points overall. The interest rate in this case, therefore, would never go above 9%. Sound reasonable? Lyndon Garcia thinks so. He had his eye on a $355,000 fixer-upper in the Los Angeles suburb of Whittier, but he didn't make enough as an environmental project manager to afford a $70,000 down payment. An 80-20 loan with an adjustable rate and interest-only payments was just the ticket. "There are so many positives to it," Garcia says. "Overall, it's an excellent plan. It helps the little guy." At least for now. But when interest rates go up, increasing monthly payments under adjustable rate mortgages? Combined with lower home prices -- something experts have been predicting in California for months, if not years -- they spell disaster. "A lot of people are already spending 50% of their income on their mortgage payment," says Worzala, the real-estate professor. "If the interest rates go up, they're all of a sudden very cash-poor, putting themselves in a position where they have to default on their loan and lose their house." Borrowers will be in especially bad straits if they haven't begun paying down the principal on their loans instead of the interest. "What's the incentive of staying if you have no equity?" Ruiz asks. But to new homeowners like Garcia, who bought his home with the help of Ruiz, the risk is worth it. Thrilled about his new house, he thinks his complicated mortgage loans are a "win-win."
One should consult with a qualified mortgage professional prior to implementing any mortgage strategies.
CohnsLoans is a full-service mortgage brokerage approved with numerous lending sources throughout the state. CohnsLoans provides conventional, nonconforming, jumbo, FHA and VA loans. We assist customers with great credit, bad credit, and no credit. CohnsLoans can also assist individuals who are self-employed and require either full documentation and no documentation loans. We can assist individuals and professionals with their financing needs whether buying, selling, or refinancing real estate. If we can be of assistance, please email us at newsletter@cohnsloans.com or call us at 510-528-3400.