Weekly Market Update

There are two types of buyers out there right now—those who see this as an opportune time and are acting on it, and those who have adopted the "wait and see" philosophy and are afraid to act. For the most part, our Silicon Valley offices are reporting that buyer interest has slowed with floor calls and open house activity decreasing. Last weekend, we had only 4 groups through my Sunnyvale townhouse listing. The market that seems to be faring the best is the entry level and continued success lies in the bank-owned arena where REO properties continue to generate multiple offers. With all of the drama on Wall Street, things have slowed quite a bit. An Agent in the Morgan Hill office just sold a home that was listed earlier this year for $1.1 million—the final purchase price was $750,000 (as a short sale).
There are two types of clients who are seeing success in today’s market:
Buyers who see real estate as a long-term investment and see this market as an opportunity and are acting on it.
Sellers who price their home correctly, stage it and are motivated.

A Look Back

I took a tour of my older posts today, and, out of curiosity, checked out what I had written a year ago...scary how quickly things can change. Despite the optimism in this blog, there were plenty of warnings in others that I wrote.

Friday, October 19, 2007
When "Spin" is a Sin

Here they go again! Big black headlines in the Merc this morning...20 Years After Black Monday, What if it Happened Today? and Home Sales Plummet 40% in the Bay Area. The implication is that stocks could drop by 22% as they did in the market collapse of 1987. So then what happens this morning? The Dow Jones, at an all-time high of nearly 14,000, drops almost 300 points. The NASDAC falls by 55.
Sue McAllister says in her article that "Wary buyers and a shaky mortgage market slammed the brakes on Bay Area home sales in September, which reached the lowest level of any September in the past two decades"...scary stuff, but true. It's the negative emphasis that I object to, especially since a chart on page two shows that although sales are down from last year, the median price in Santa Clara County is up 5.4% from last September. Also hidden in the second page is Richard Calhoun's comment that the market in Silicon Valley remains skewed, with our more expensive areas dramatically outperforming cheaper ones.
But so many people read just the headlines...

Some Common Sense

This was sent to me from Gabe Bodner, an excellent local lender:
We are clearly in the midst of a brutal bear market that began on October 9th of 2007. Since that time, Stocks have declined by a staggering 41% as measured by the S&P 500. Remember that a decline of 20% constitutes a bear market...and a 10% decline is a "correction". The last bear market which occurred between March 24th of 2000 and October 9th 2002, and saw a 49% drop. Overall, the average bear market lasts for 12.3 months, with the average decline being 32%.



The current bear market is right in line with the average historical time frames, and the extent of the decline is worse than previous bear market averages, but still slightly better than the bottom made in 2002. So the historical data might suggest that we could be nearing a bottom. Many people will say that it's different this time, and that we have never had a financial crisis like we are seeing. While that is true, it's always different, and it's always something. The last bear market was driven by fears of terrorism and fueled by a dot com/tech bubble...both of which had never been seen before either. As for the date October 9th, which was yesterday, it's interesting to note that October 9th of 2002 marked the end of the last bear market. And October 9th 2007 was the beginning of the present one. While it may just be coincidence, it will be interesting to see if our current low has some significance in stock market history.
One bright spot is that oil prices are plunging, falling from a high of $147 last July to current levels of around $75 today, at least making a trip to fill up at the gas station slightly more bearable.

California Offers Some Debt Relief

Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012.
The state has been slow to conform to the Fed. decision, but starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Not perfect...but better than nothing.

Wait and See

That seems to be the mantra of the week. Sellers are saying it, and buyers seem to be taking the same tack. They're waiting to see what happens with the bailout, with the election, with the mortgage industry, and with the housing market. They're watching the stock market move up and down, and wondering about their job security.
Meanwhile, people are less likely to go out and buy things, especially a long-term investment like a new home.
Those who are closer to making a purchase are waiting to see what impact the bailout might have on interest rates before they proceed with a purchase, and those who had planned to sell stock for a down payment are reluctant to sell in a declining market.
Economists and real estate pros agree that even with the bailout package, it will take the housing market some time to recover.

A Weekend off To Recover

After the last week, and the disastrous dip in the stock market, I needed some R&R.
Three days of square dancing at the Jubilee held at the Fairgrounds in San Jose gave me just the break I needed. There's nothing like music, exercise and the company of good friends to get your mind off your troubles.
Fortunately, two agents in my office were able to hold open house at my townhouse listing. Their reports were that traffic on both Saturday and Sunday was very slow.
I have a feeling that everyone is taking a "wait and see" position. Mortgage money is still very tight and despite today's welcome rise in the market, I expect that stocks will yo-yo for some time with every bit of good or bad economic news.
Maybe I'll have to do a lot of dancing.

Thoughts on the Economy from Coldwell Banker

This week, we're afraid to open our third quarter 401K statements as they arrived in the mail. Some of us are making countless calls to their financial advisers in hopes of a miracle or a quick fix to stop the decline. Still others are choosing to ignore it with the “ignorance is bliss” philosophy.
The bottom line is, we’re in this together. The problem that we have right now is that we as Americans collectively borrowed more than we could afford to pay and in turn, we created a system on Wall Street to support that culture. Now we’re paying for the errors of our ways.
This is a huge wake up call for all of us and should be a good opportunity to remind ourselves to be more fiscally responsible and much more conservative than we have been in the recent past.
One of the major issues affecting the real estate sector of our economy right now—keep in mind housing represents 20 percent of the GDP so it is an important part of our national economy—is the inability for consumers to get mortgage loans. We have a lot of interested buyers right now—many of whom see the opportunities available in today’s market—but unfortunately, only those with golden credit seem to be able to close the deals.
As an important aside, historically speaking, during times of economic crisis, consumers tend to invest their money in tangible assets, like real estate. We expect that this may be the case in the months ahead as consumers look to buy homes for all of the lifestyle reasons that prompt people to buy (i.e. marriage, births, divorce, deaths, retirement, etc.) but also with a consideration of the historic long-term appreciation that makes home ownership a valuable investment over time.
We certainly are in a time of uncertainty. But while so many of us sit glued to CNN and our investment portfolios, the housing market labors on. Because the beautiful thing about real estate is that it’s not just an investment—though it may be one of the most important investments a consumer will make in his/her lifetime. Your home is where you raise your family and plant your roots. It’s where you hang your hat and make memories to last a lifetime.