Can You Have Your Cake and Eat It Too?

by Uma Moldenhawer
(the following is a summary of an article posted by the Hills New Group on May 13, 2011)

A real estate buyer often needs to prioritize between 2 primary attributes – location and features of the property. You have already heard by now that Location, Location and Location (has to be said 3 times for max effect!) is all that matters in real estate. There is proven value in that old saying. While property features (such as the style of the property, number of bedrooms, bathrooms, kitchen size…) often can be changed, convenience and desirability of a location can’t be easily modified, and definitely not over a short period of time.

Buyers don’t always understand the trade-offs associated with prioritizing a great location. We have had buyers say, “Even though we are willing to spend 700K on a home in the Berkeley area, we still feel like we are settling for it rather than getting our perfect home.” A Berkeley location often dictates higher prices and homes that are smaller and older when compared to most of the country. So, how do you avoid compromise? With a little imagination, you can have your cake and eat it too. Think creatively about how to manipulate property features and make a house your own sweet home.

We walk our clients through all the possible rearrangements and renovations for the subject property, to come to a conclusion on whether this is the right property or not. Sometimes fulfilling a dream is more than just finding the right house. It often requires helping buyers visualize some amount of remodeling and rearrangement. Your dreams are unique, so it is difficult to find exactly what you are looking for in the existing inventory of homes. This means either a compromise or a willingness to make changes: Be it a new paint color, a new deck or knocking out a couple walls. I believe that you should compromises only if the changes are not feasible, do not make sense economically or if you do not want to deal with the hassle.

“Think of the possibilities, not just what it is today. This is our philosophy when evaluating the features of the property – think about the possibilities and if that still doesn’t meet your needs, let it go.”

If creative visualization fails, it may be worth compromising a bit on location, especially if it is determined that a particular feature is of greater importance. Recently, we held an open house in Albany, where Mamood and I met a sweet young couple who told us that they were burnt out from searching for a home. They had been out every weekend, and it had already been 4 months since they started their search! When we asked them what feature was most important, their number one criterion was “large lot size” with the ability to garden. I couldn’t stop myself from saying, “then why are you looking in Albany where most of the lots are 5,000 square feet or smaller? You should be looking in Berkeley or Kensington.” They were tiring themselves out by looking in the wrong location. And remember to bring your creativity: If there is concrete or a deck in the wrong place, it can be removed.

For the blueberry cake (pictured above) recipe click here.

It's Time to Invest in Bay Area Real Estate

With a projected market recovery, historically low interest rates, ample inventory and low prices, now may be the time to invest in California real estate. Many first time home buyers lamented the loss of the $8,000 tax credit. However, lower interest rates still provide an opportunity. Today’s mortgage rates are hovering around 4.5%. This is a substantial financial incentive. Each percentage point saved on a home loan equates to about a 10% increase in affordability. With a principal and interest (PI) payment of $2,025 at today’s 4.5% interest a borrower can get a loan of $400,000. If interest rates increase to 5.5% that same PI payment of $2,025 will only allow the borrower $360,000. The extra $40,000 of affordability is a direct result of low interest rates. Each percentage point increase in rates decreases affordability by an additional 10%.

The Ups of Downs - Buying Up in a Down Market

Many homeowners are understandably on the fence about moving to a new home in a shaky market. We have talked to some homeowners who would like more space for their family, but are hesitant given daunting headlines. The current market, however, is ripe with financial incentives to support such a move.

Phenomenal interest rates make now an opportune time for buyers in the real estate market. A one percent rise in interest rates represents a 10% decrease in affordability. For example; a buyer with a 20% down payment can afford a principle and interest payment of $3,400/mo. Today, while interest rates are hovering around 5.5% our buyer can afford a purchase price of roughly $750,000. If rates increase to 6.5% the same monthly payment and 20% down will only purchase a home of $675,000. Try it yourself with our mortgage calculator.

If you are planning to move up to a $750,000 and sell a home in the $500,000 range you can further profit from discounted prices. Although you may be concerned about a loss on your current home, it is important to remember the benefit of the discount on your larger purchase. For instance, if we assume the same 10% depreciation for both price ranges and home locations, your current home might sell for $450,000 when it had been worth $500,000. That is a loss of $50,000. Ouch. However, the same market discounts the larger purchase by the same ten percent and the $750,000 home now sells for $675,000. Although you may stand to loose $50,000 on your home's sale, you can save $75,000 on the new purchase netting an overall savings or $25,000 through the transaction.

It is important to note that not all markets and price ranges are preforming uniformly. It is often true that the lower priced homes do better than the higher priced homes because there is greater competition in the "starter home" price range. As homes become more expensive, fewer buyers can afford them. This may benefit a buyer looking to move up to a larger home as the move helps this buyer bracket away from some competition.

Location is also very important and a couple of miles can make all of the difference. Check out Zillow Real Estate Market Reports Fourth Quarter: October-December 2008. If you are moving from a down market to an unchanged market, you may not be able to overcome the loss on your current home via our simplified formula. However, the best markets now will likely be the best future investments. It may still be worthwhile to move toward a better location while taking advantage of low interest rates and decreased competition.

This is a complicated market, and we recommend that you talk out all scenarios with your real estate agent. There are risks here. Namely, you must have confidence that your current home will sell in a timely manner. If you have the resources and can find alternative housing, the smart strategy may be to sell your current home first. This too carries the risk of becoming a "permanent renter," if things heat up and you become priced out of the market. Berkeley Hills has many experienced agents available for immediate consultation.

Twisted Statistics

Say you were standing with one foot in the oven and one foot in an ice bucket. According to the percentage people, you should be perfectly comfortable.
~Bobby Bragan, 1963

Here’s the real problem with year-over-year statistics:

The follow is quote is from the comments on Which California did you mean?!

Year-over-year appreciation in your markets (by city) was as follows:
Albany -8.6% ~David G from Zillow.com

Here are the actual unscreened statistics taken from the Multiple Listing System:

Market Summary Month of April 2007
Price Range		No. of Listings	Dollar Volume	Average Price	Median Price	DOM
Detached
$550,000 - $554,999		1	$550,000	$550,000	$550,000	13
$565,000 - $569,999		1	$565,000	$565,000	$565,000	29
$580,000 - $584,999		1	$580,000	$580,000	$580,000	12
$595,000 - $599,999		2	$1,195,000	$597,500	$597,500	17
$605,000 - $609,999		1	$605,000	$605,000	$605,000	21
$645,000 - $649,999		1	$645,000	$645,000	$645,000	13
$725,000 - $729,999		1	$727,000	$727,000	$727,000	12
$795,000 - $799,999		1	$795,000	$795,000	$795,000	15
$875,000 - $879,999		1	$875,000	$875,000	$875,000	14
$1,005,000 - $1,009,999		1	$1,006,000	$1,006,000	$1,006,000	8
Sub Total		11	$7,543,000	$685,727	$605,000	16
Condo
$285,000 - $289,999		1	$285,000	$285,000	$285,000	156
$430,000 - $434,999		1	$430,000	$430,000	$430,000	56
$450,000 - $454,999		1	$450,000	$450,000	$450,000	3
Sub Total		3	$1,165,000	$388,333	$430,000	72
Townhouse
$485,000 - $489,999		1	$485,000	$485,000	$485,000	9
Sub Total		1	$485,000	$485,000	$485,000	9
		15	$9,193,000	$612,867	$596,000	26

Market Summary Month of April 2008
Price Range	No. of Listings	Dollar Volume	Average Price	Median Price	DOM
Detached
$350,000 - $354,999	1	$350,000	$350,000	$350,000	98
$610,000 - $614,999	1	$610,000	$610,000	$610,000	14
$625,000 - $629,999	1	$625,000	$625,000	$625,000	18
$680,000 - $684,999	1	$681,500	$681,500	$681,500	8
$765,000 - $769,999	1	$767,500	$767,500	$767,500	17
Sub Total	5	$3,034,000	$606,800	$625,000	31
Condo
$340,000 - $344,999	1	$342,000	$342,000	$342,000	7
$345,000 - $349,999	1	$348,000	$348,000	$348,000	31
$385,000 - $389,999	1	$385,000	$385,000	$385,000	55
Sub Total	3	$1,075,000	$358,333	$348,000	31
	8	$4,109,000	$513,625	$497,500	31

1. Because of low inventory, many statistics rely on a small handful of closed transactions. Last year the City recorded 15 closings in the month of April compared with only eight in 2008. One of the five single family homes (three were condos) used to derive this years statistics was a freeway impacted fixer on Polk street which sold for an artificial low of $350,000. This home alone has a dramatic impact on the statistics representing 20% of the remaining single family homes recorded.
2. Many of the sales forced by the mortgage melt-down are in lower price ranges where sub-prime financing played a key role in the purchase. 40% of this years sales in April were condominiums verses 26% last year.
3. Conversely, many of the sellers with significant equity in desirable neighborhoods are choosing to stay put. The resulting inventory has shifted towards lower priced houses which in turn affects the statistics. The property with the highest value last year ($1,006,000 for 1749 sq ft of living space) was at 1031 ORDWAY STREET, which is Albany's top location. This year the highest value ($767,500 for 1372 sq ft of living space) was on 535 STANNAGE AVE just two blocks above San Pablo Avenue a good two tiers below Ordway in neighborhood desirability.

The year-over-year sales jumped to different locations within Albany, and to smaller properties-- while presenting fewer properties to test the averages. What does -8.6% mean if the statistics are chasing a moving target?
Tip for Sellers: The transactions we see daily do not behave according to the stats. We see the specifics change dramatically neighborhood by neighborhood and street by street. If you want to know what your home is worth in all of this, have your real estate agent prepare a Comparative Market Analysis, which will pull the most current sold prices for homes nearest to your property. Compare apples only to other apples. Random percentages don’t cut it anymore; you need to see for yourself where the statistics are coming from.

Tip for Investors: The twisted statistics do create an opportunity for investors. Since institutional lenders are not here in the trenches, they must rely on statistics, regardless of how faulty they are. What's more, in the current climate they are happy to act conservatively based on the numbers. Short sales and foreclosures (where they exist) do present an opportunity for investors as it is easy to negotiate and justify a low price to someone who is judging our market by the statistics.

How to Cut Your Property Tax Bill

Courtesy of David Anderson, Chicago Title

Proposition 8 - allows a temporary tax reduction when a property’s market value on January 1st, is below the prior years assessed value.

Ask your Assessor - if your home is worth less than you paid, chances are you can get a temporary reduction in your property taxes. It’s free and easy to do yourself.

Assessors in some Bay Area counties hit hard by the housing downturn – Contra Costa, Alameda, Santa Clara and Solano – are automatically reviewing homes purchased in the past few years to see if the homeowner qualifies for a cut in assessed value for 2008-09.

Even in these counties, homeowners who think their home’s market value on Jan. 1 was lower than the assessed value on their last property tax bill can ask for a review.

You can call or write your assessor’s office or download a form from their Web site and mail it to the assessor. To provide tax relief the assessor will be looking at recent sales in your area that are comparable to your home. If the homeowner and the assessor cannot agree on a value through this information process, the homeowner can file a formal appeal with the county’s assessment appeals board, which will have the final say on the property’s value.

The formal appeal must be submitted between July 2 and Sept. 15 in counties that send assessment notices to all homeowners by Aug. 1. In the Bay Area, these include Alameda, San Francisco and Santa Clara counties.

Before filing a claim for an adjustment, be advised that your assessed value could increase once market values go up. Property owners should consult directly with the Assessors Office to inquire on how this would be determined before filing any forms.

For more information on assessment appeals from the state Board of Equalization, see

boe.ca.gov/proptaxes/pdf/pub30.pdf

Access forms online for Alameda and Contra Costa:

http://www.acgov.org/forms/assessor/2008_2009_informal_request_decline_market_value.pdf

http://www.co.contra-costa.ca.us/depart/assr/forms/4695.pdf

Tip for Homeowners: Your Realtor can help you by providing some recent home sales data in your area which can help justify your request to lower the assessed value of your home. Some counties are considered depreciating markets even though individual cities and neighborhoods remain strong. (See our post on Appraising the Current Market Situation.) Check with your local real estate representative to learn more about home values in your area, and to discuss whether a reduction of your home's assessed value can be justified.

We Are What We Eat

You gotta love a University town! Two days ago at UC Berkeley, The co-founder and CEO of Whole Foods, John Mackey delivered a multimedia presentation of the Past, Present, and Future of Food.

(Click here to watch the webcast.)

The presentation did a fabulous job of outlining our cultural trends in regard to food production. I love mapping trends. We can try to predict the economic growth potential of real estate investments based on such social influences. Property values tend to follow the ripple effects of basic city growth patterns. City growth patterns follow predictable trends. John Mackey outlined food production trends by mapping a time line of six different eras. What resonated in the lecture for me was the sixth era, Ecological. The ecological era is certainly upon us. In real estate this trend includes green architecture and building practices (both the construction and renovations of homes, see my post on historic renovations.) In the larger community, buyers are looking to shop locally and the availability of local ammenities has become more important than ever. (click here to read, A Hop Skip and a Jump in Property Values.)

The strength of the Bay Area economy can be measured by the luxury of choice when it comes to local food. Renowned restaurants and specialty markets not withstanding, choice is a privilege that can lead directly the better health of the population; specifically, through the availability of good local produce and quality packaged foods. In the Bay Area we have many resources beyond Whole Foods including; local farmer's markets, The Berkeley Bowl, Farmer Joe's Market (in the Laurel and Dimond Districts of Oakland), the The Food Mill (two locations on MacArthur Blvd. in Oakland), Lakeshore Natural Foods, plus Berkeley and El Cerrito Natural.

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.

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

Mortgage applications rise as rates tumble.

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)

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.

Useful Resource:
2007 Home Remodeling
Green Building Guidelines

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.
  

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.)

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.

California Real Estate: Kai Ryssdal interview