News of Government Takeovers: Freddie Mac & Fannie Mae

The Jury is out on whether long term government involvement of these formerly private institutions will benefit our home buyers. So far the market has reacted possitively.

Our hope is that the resulting lower interest rates (at least in the short term) may make this an exceptionally good time to invest again in real estate. Could we be facing a unique market where the bottom (assuming we are near the bottom) could actually coexist with reasonable interest rates?

From AP:
Investors, Industry Pleased With Govt. Takeover




Here is the California Association of Realtor's official (cautiously optimistic) stance:

In light of the U.S. Dept. of the Treasury's action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.

While the short-term impact of the Treasury's actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.

Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.

C.A.R. is concerned that the Treasury, and Fannie Mae's and Freddie Mac's new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.

The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California's and the nation's housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.

Bargain Hunting For Homes Can Be Misleading

Many buyers looking for foreclosure deals are finding Internet research tools misleading.

From an Inman News article posted on July 7, titled When Prices are Too Good to be True, by Matt Carter:

"A constant stream of headlines about rising foreclosures and falling home prices in many U.S. markets might lead bargain hunters to believe that there are some incredible deals to be had out there....

Is the housing downturn so bad that you can now swoop in and buy a house in Hermosa Beach, Calif., for less than $100,000? A search for foreclosure properties on Trulia -- which puts the average sale price of a home in the coastal city at $1.67 million -- might lead you to believe that the answer is yes.

The problem is that most, if not all, of these properties aren't officially on the market. They are "pre-foreclosures," meaning that their owners have defaulted on a loan, prompting a lender to begin the foreclosure process."

"Pre-forclosure" lilstings do not only artificially inflate the numbers of available listings for a particular area...

"The reality is that the majority of homes that start the foreclosure process never complete it. The borrowers refinance, catch up on their payments, or do something else to avoid foreclosure." - Brad Geisen, the founder and chief executive officer of Foreclosure.com

...they also grossly misrepresent the prices.

"They may represent the amount outstanding on the loan that's in default -- sometimes a relatively small second loan -- or the amount that the borrower is in arrears. Real estate agents, investors and sophisticated buyers will know that it's impossible to buy a house in Hermosa Beach for $4,712. But first-time home buyers may miss the fine print on sites like Yahoo and Trulia that explains that this is not the home's listing price -- and that the property may not even be for sale." - Matt Carter, Inman News

"If you are looking for the best deal... contact a Realtor!"

Doug Birnbaum, a Realtor with Veranda Homes in Costa Mesa, Calif., said he recently fielded a call from a client who saw what she believed was a listing for a four-bedroom house for $100,000.

"In Costa Mesa, there's not going to be a four-bedroom for less than $350,000," he said. The $100,000 figure "could have been the second mortgage in default, "Birnbaum said, but "the Web site was so misleading I never actually figured out where the property was -- there was no address, just an intersection."

That experience led Birnbaum to post a warning on Trulia Voices, titled: "RealtyTrac, are the prices too good to be true?"

"It appears that ReatlyTrac is posting homes on Trulia for shockingly low prices, "Birnbaum wrote. "Now what these prices actually reflect is the dollar amount of one of the liens on the home. This in no way reflects ... the true value of the home. If you are looking for the best deals in this red hot market, contact a Realtor!"

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.