July 31, 2008

The Real State of Carlsbad Real Estate (San Marcos Too)

What’s the real state of Carlsbad real estate?

Last night at our home-buying class, we went through recent pricing trends and foreclosures in Carlsbad and surrounding areas. You can find the full slides here (large file), and we’ll have another event in Carlsbad in late September. Look for it and RSVP here.

But here’s some data to snack on while you’re waiting for the slides to download.

Carlsbad Detached Home Sales, June 1- July 27, 2008

Carlsbad Attached Home Sales, June 1- July 27, 2008

Note: When list price was a range, an average of the high and low value listed was used.

Bonus link: The Carlsbad Crawl blog notifies us that summer is here. Hit the beach!

Photo credit: mysilverbuddha25 on flickr.

July 30, 2008

Weekly News Round-Up

Crystal Ball Gazer of the Week goes to REO Chronicle, which published “The California Real Estate Market in Perspective: 2008-2012.” Amongst prediction are: Lenders will become more conservative. Well, that’s pretty much a given, since everyone is watching, the government is implementing regulations, and mortgage lenders are failing left and right. Coastal home prices will drop. The article makes a good point that many coastal homes (read: oceanview) are up to 7 times available local income, but remember that many of these homeowners are not typical residents. Malibu, La Jolla, Monterey/Carmel, are all affluent areas, and many of the coastal homes are megamoney mansions or second homes that really are not in danger of being sold and bringing down values. More remote areas, such as upper Highway 101 around Eurkea, may indeed experience a downturn, but I think it an oversimplification that coastal properties in all areas will tank, like the inland/valley areas they compare it to. In total, they list 15 points dramatizing why prices will continue to fall.

I think it was back in middle school when a teacher told us that the results of studies, and statistics in general, can be manipulated to read in favor of whoever is writing. In the PR world, this is called “spin.” And in perusing various articles this week, I see that the media cannot agree on how things are going right now. We have “Slump Persists: House Sales Tumble Across the US” by Yahoo News, then there is “U.S. Housing Market Freezes in June” on Forbes.com, and then “Existing Home Sales Fall 2.6%” on Marketwatch.com. Who to believe?

CNNMoney reports this week that amidst the government’s hurry to enact legislation to regulate the mortgage industry, that elected officials neglected to include anything in the bill that forbids or regulates loan kickbacks to mortgage brokers. “New Fed rules miss one key lending abuse” by Les Christie points out the flaws in the bill and why this should have been an included component.

And then there is the gossip about the Extreme Makeover family who has squandered their good fortune and are losing their home. Three years ago, an Atlanta family was the recipient of one of the largest homes ever built on the popular TV show. Once completed, the family owned the home free and clear, had an account to pay taxes for a decade or more, and their children had a scholarship fund. Subsequently, the homeowners took out a whopping $450,000 loan and that money has vanished. Considering dad works and there was no mortgage payment, where did all that money go? An average of $150,000 a year? What do you think? Shame on them?

July 29, 2008

Granite Countertops: All the Rage but May Not Be the Healthiest Option

New high-end homes, as well as many remodeled kitchens over the past few years have featured granite countertops. Along with stainless steel appliances, granite has been a “must have” item. While I personally feel it has been overused and will go out of style, leaving a kitchen dated, until now it has not lost much of its luster. That may all change with news reports that granite countertops may contain higher than acceptable levels of uranium, which emit radon gas as it decays.

Now, don’t panic and flee the scene of what may potentially be radioactive material. Not all granite will be unsafe, and in fact, much of what is available is perfectly fine. But with the increase in consumption, there has been an increase in importation of granite, from more exotic locales. Most retailers carry less than 100 kinds of granite, but there are more than 10 times that available on the market. And while the majority won’t emit anything worse than you find in a normal environmental setting, and certainly less than if you were to have an x-ray, there are some types that are unsafe.

Radon is a leading cause of lung cancer and can be particularly hazardous to children, pregnant women and their unborn child, or people who have lung conditions. The E.P.A. recommends taking action if radon gas levels in the home exceed 4 picocuries per liter of air (a measure of radioactive emission); about the same risk for cancer as smoking a half a pack of cigarettes per day.

As reported in The New York Times, David J. Brenner, director of the Center for Radiological Research at Columbia University in New York, said the cancer risk from granite countertops, even those emitting radiation above background levels, is “on the order of one in a million.” Being struck by lightning is more likely. Nonetheless, Dr. Brenner said, “It makes sense. If you can choose another counter that doesn’t elevate your risk, however slightly, why wouldn’t you?”

Again, there is no reason to panic. If you are concerned about your countertops, you can contact the American Association of Radon Scientists and Technologists, and find a qualified specialist to test your home for radon. The Environmental Protection Agency also has a website devoted to radon, with links to certified technicians and do-it-yourself kits.

July 17, 2008

Weekly News Round-Up

Has Countrywide decided to stop offering jumbo loans? Well, it seems that way when they now require a 25% down payment. While that may have been the norm of the day 30, 40, even 50 years ago, it isn’t a realistic option for new buyers in the Bay Area. On a $500k home, that’s $125,000 down. So maybe they are just snubbing you first-timers and going for the gold—those that are upwardly mobile, buying larger homes or empty nesters with huge equities that are buying down. Seems to be getting harder and harder to get a loan these days between down payment requirements, credit scores, and income requirements. But maybe that’s a good thing?

Of course, maybe Countrywide is trying to avoid the same fate as IndyMac, which experienced a federal takeover on Friday. Closing the bank early on Friday, regulators spent the weekend getting the house in order and re-opened on Monday. Concerned customers lined up to withdraw money, reminiscent of the beginnings of the Great Depression. Kathleen Pender over at the SF Chronicle wrote an article that appeared this morning titled “‘Who Is Next’ lists 7 banks in ‘danger zone’.” Based on an analysis done by Dick Bove of Ladenburg Thalmann & Co., those institutions which are the likeliest to falter are: Downey Financial, Corus Bankshares, Doral Financial, IndyMac Bancorp, FirstFed Financial, Oriental Financial Group and Bank United Financial. Pender went on to say that “IndyMac is by far the largest of these. Washington Mutual, one of the nation’s 10 largest financial institutions, was 12th on Bove’s list.”

And then there is the Freddie Mac/Fannie Mae debacle. Articles abound all over the ‘net reporting doom and gloom and the fact that these government-established agencies own $5 trillion (yes, that is a T) in mortgage debt. I suggest The New York Times piece “The Freddie Fannie Fallout” by Gretchen Morgenson to shed a little light.

Fire Update: Things are settling down a bit across the state, with only 81 fires actively burning at this time, compared to the 323 that we reported on last week. The firefighters have been doing an amazing job, with a little help from a drone and resources from New Zealand, Australia, and Greece, which have kindly sent us manpower to ease the burden of our overworked elite. The drone is actually an unmanned NASA plane that has been flying up and down the state snapping infrared photos and identifying hotspots for firefighters. (Read more about it at SFGate.) Images from the drone helped contain a potentially devastating hotspot in a canyon in Butte County, where one of the biggest fires has raged for weeks. It is now 75% contained, while the Basin Complex Fire down near Big Sur is 61% contained. The highway and businesses in Big Sur have re-opened and welcoming visitors, but beware of smoke and poor air quality if planning a visit.

July 16, 2008

Federal Reserve Cracks Down on Lenders

Well, it’s about time. In an effort to regulate what has been seen by many as a lawless industry, the government has taken a step to clean up lenders’ practices. In the works for over 6 months, the new lending rule (an amendment to Regulation Z: Truth in Lending) has undergone multiple revisions prior to being approved. While many loopholes have been closed, thanks to the work of consumer advocacy groups, the disappointing fact is that these proposed rules will not go into effect until October 1st of 2009, which is more than a year away and leaves plenty of time for unscrupulous lenders to continue practicing.

The final rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction. Fed Chairman Ben Bernanke says, “Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers.”

The rule covers two areas: general mortgages secured by a borrower’s primary dwelling and higher-priced mortgages secured by a borrower’s primary dwelling. The rules applicable to the first category are:

• Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers’ loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer’s credit history.

The higher-priced loan rules are not for high-end or expensive properties, but for those loans that are 1.5 points or more above the average prime offer rate (which would be applicable to subprime mortgages). For the higher-price loans, the following rules also apply:

• Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a “pattern or practice.”

• Require creditors to verify the income and assets they rely upon to determine repayment ability.
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
• Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

Much of the terminology feels vague and open to interpretation, but overall this seems to be a step in the right direction. What do you think?

July 9, 2008

Weekly News Round-Up

Summer is not only bringing heat waves, but it will also bring 300,000 additional subprime loan resets. That’s right folks, 300,000. The Washington Post article last week reports that “Lenders, federal officials and housing counselors have worried that borrowers will not be able to afford the higher payments after the reset and will quickly fall into foreclosure. Declining home prices have made it impossible for many of these homeowners to refinance.” All total, there are 718,000 resets set to hit this year on subprime loans. The good news is that so far, only 1% of these loans has gone into foreclosure, according to Hope Now, a group monitoring the subprime debacle.

Is the news as good for those with Option ARM loans? BusinessWeek reports that Option ARM loans originating in 2006 and coming due next Spring, are already starting to default. One million resets will occur on the Option ARMs next year, and the default rate is running 2.1% thus far. The thought is that “these borrowers might simply be giving up on the mortgages because they have less and less of an incentive to keep paying.” With 70% of these loans in California and Florida, we could be in for another surge of homes coming on the market.

Oh, and did I mention that HELOCs aren’t doing so hot, either. Home Equity Lines of Credit were a popular way to pull equity and pay for college, put in that pool you’ve always wanted, or to do remodels. Unfortunately, bankers are seeing more and more delinquent accounts. In the scheme of things. 1.1% of all accounts is not so bad, but add that to the 4.5% of credit card accounts, and top if of with the Alt-A, subprime, and Option ARMS, and now you know why lenders are in a world of hurt.

While our readers have shown no love for those who agreed to subprime, Alt-A, or other loans, and are struggling to make ends meet, the debt collectors are capitalizing on their failures. And many are doing it unscrupulously. While I have never dealt with a debt collector, I have heard stories. Some good and some bad. Even if you are in good financial shape, it is worth reading the story on CNN Money, which outlines what debt collectors can and cannot do, what your rights are should you be contacted, and what is prohibited.

California Fire Update: While the firefighters are working tirelessly, and have contained over 1400 fires, right now there are 323 fires actively burning in the state. The Gallery and Basin fires just south of the Bay Area in Big Sur shut down Highway 1 over the 4th of July weekend, and continues to be closed. The fires are only about 20% contained at this time. Southern California is relatively quiet right now, with no large-scale active fires burning. Keep your fingers crossed that this continues.

July 7, 2008

Doing the Math: A Little Help for Today’s RE Market

I have noticed a recent increase in advertisements for real estate classes and seminars. How to Buy Foreclosures, How to Buy Your First Home, How to Get Rich Quick…you get the picture. For a price, you can hear “experts” tell you what you need to know. Most of these feel dishonest in some way, an attempt to lure the masses with false data. If you find a good course, panel, or seminar that worked for you, let us know. We’d love to report on the reputable presentations.But while we bide our time, trying to figure out when to buy or when to sell, or whether to buy or rent, you can get some simple online help. Here are three sources of analysis and comparison for you to play with:

(1) MSN Money Home Affordability Calculator (HAC)
This is a very simplistic way of calculating the maximum house you can afford. You enter your income, monthly minimum payment on your debts, and your down payment amount. Fill in the interest rate (no, not the rate you’d LIKE to have, but the going rate), and estimate your credit rating. The HAC will tell you what you can afford, the size of your loan and an estimated payment, along with info like whether you might need to pay PMI.

(2) The New York Times Rent-to-Own Graph
This calculator will allow you to do a quick comparison of renting and buying equivalent homes. I put in the monthly rent for a 3 bedroom home in our neighborhood, along with an average sale price for the same home. Assuming a 10% down payment, 6.1% mortgage rate, the program will provide a graph with two sliding indicators. WARNING: DO not be alarmed if the initial setting says “Buying is never better than renting over 30 years if…” You do have to input (on the sliding scale) the annual home appreciation and annual rent increase. I tried the graph at -7% appreciation (Based on the last two years on our home) and rent increases of +9% (which is what my daughter has experienced the last two years). The result: Buying is better than renting, if I own for 21 years. I also tried the graph at +20% (given the annual increases in the first 11 years of owning our home, and factoring in the last two negative years) and +9%. The result: Buying is better than renting after 1 year. Of course, in this case, buying is only better than renting if you can afford to do it!

(3) Housemath: Stock versus Real Estate
This is another analysis program, which digs a little deeper and requires more information. You provide a location and home price, enter mortgage details and approximate appreciation, then tax advantages, closing costs, and amount of time you expect to own the home. It may take a few more minutes, but what you get is whether it is prudent to buy a home over the long haul. It also provides a true monthly cost. I was slightly confused by this last factor, but found tabs at the top of the analysis that give details of everything. In my analysis, using a retirement home I would purchase in Las Vegas, I found that it would be more advantageous to invest the money elsewhere (stocks, bonds, mutual funds, etc), not that this isn’t abundantly apparent given the Las Vegas housing market!

July 5, 2008

Weekly News Round-Up

MSN Money ran a story Monday by Bill Fleckenstein titled “The End of the Superbubble.” Apparently “bubble” isn’t descriptive enough, and now we are referring to the past flourishing economy as a “superbubble.” And while we all know it is coming to an end, and taking (the worlds’) housing, credit, banking, and car markets with it, apparently Alan Greenspan is to blame. “Behold the wretched beast he created,” writes Fleckstein, and I must say I do admire his prose. Do I agree? Do you? I’m hesitant to blame any one person for such a widespread faltering of the economy, but he tries to make a case for just that.

Seeking Alpha got out the crystal ball and is asking “Will Housing Bottom in 2010 or 2012?” With phrases like “lagging indicator” and “multi-dip recession,” it gets a bit technical, but you might want to see what they say.

We are already seeing the effects of the drop in tax revenue in California, as I am sure they are across the country. Businessweek provides some insight in their article “The Next Victim of the Real Estate Crisis,” which addresses the decreased cash flow to governmental budgets and what types of cuts we are likely to see.

California Fire Update: The top third of the state continues to be plagued by the majority of active fires, while SoCal looks quiet for the time being. CalFire reports a total of 72 active fires at this time. Locally, the Basin Fire down near Big Sur is still actively burning (3% contained as of yesterday), covering over 50,000 acres, while the Indians fire is almost completely contained. Air quality is continuing to improve, but if you are traveling, make sure to check resort areas, and possible road closures.

July 4, 2008

Happy Independence Day!