Archive for the ‘The R/E Business.’ Category

API Myths

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St. Clare School. Oldest Elementary School in ...

St. Clare School. Oldest Elementary School in Silicon Valley (Photo credit: Wikipedia)

Heiwa elementary school %u5E73%u548C%u5C0F%u5B...

Heiwa elementary school %u5E73%u548C%u5C0F%u5B66%u6821 _18 (Photo credit: Wikipedia)

An increasing number of new home Buyers are using the API system as a major factor when choosing where to buy a home. 90 % of 1st time Buyers start by requiring that the Elementary School has a 900+ score. Given that this eliminates approx 95% of schools in Silicon Valley we have a problem.

The solution is to explain how to use the API System for what is is designed to do, not what they are being told by other uninformed parties.

First we clarify that API does not tell how good a school is. Specifically at the Elementary level it measures only 2 subjects: English and Math.

Whilst these are important i firmly believe there is much more involved in being a good school than teaching how to take tests in 2 subjects only.

An API FULL REPORT also gives the demographic make up in a given school, and how each group is scoring. For example, let’s just take a typical Silicon Valley Elementary school which has an API score 0f 860 and a total of 350 students, 50% White, 50% Asian, and 50% others. We will consistently see that the Asian student group has a 900# API, while the White group will be in the 800’s.

If I were an Asian Buyer I might see this as a good reason to save a huge amount on my home purchase by considering an 860 Total Score for such a school to be perfectly acceptable for my children. This decision could well allow me to buy a suitable house for $500,000 rather than the $600,000 it will cost in the next school district which is similar in all respects except the API score.

The 2nd and most important piece of advice is to find one or more suitable neibourhoods, then go and visit the local school(s) during the normal day. Every school I know is delighted to allow future parents to do this and thereby get a real life idea about the quality of the school.

 

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SMART FHA CHANGE

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A great deal has been writen in the past few weeks about the MAJOR good news from FHA. It’s all useful to the professionals but let me try to take out the fluff and show just the bones.

As of August 8th, 2013, people who recently lost their homes due to temorary hardship in any of the following ways have a good chance of qualifying for a new FHA loan:

0. Foreclosure.

o. Deed in Lieu of Foreclosure.

o. Short Sale.

o. Bankruptcy (ch 7 and 13).

If you think you might qualify under the new guidelines talk to a Loan Agent who has strong FHA background. Understand that not all of them have strong FHA experience.

Logo of the Federal Housing Administration.

Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

 

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ANALYSIS/PARALYSIS Syndrome

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Raven's Progressive Matrices Example

Raven’s Progressive Matrices Example (Photo credit: Wikipedia)

A nasty medical condition has been diagnosed amongst a small segment of the population here in Santa Clara’s Silicon Valley.

It affects only Highly Educated, Computer Literate, people between 25 and 35, and only when they decide to try to buy a house.

The virus feeds off such people’s addition to “DATA” regardless of accuracy, or relevance to the Home Buying process, and despite the lack of sufficient knowledge to accurately evaluate it.

In a very short time they lose all sense of purpose and truly believe that if they could just know everything there is to be known about the history of a house and all persons who have ever lived in it, plus the ethnicity of every family living within 2 miles of it, and the IQ of all children of these families, there is a “DATA” supported formula which will tell them if they should buy it, and if so, how much they should be willing to pay.

The lack of such a formula throws them a frenzy of inaction leading to the diagnosis of the dreaded ANALYSIS/PARALYSIS Syndrome. Unofficially this is referred to as the “I can’t decide” problem.

Being Highly Educated (NOT THE SAME AS INTELLIGENT) they will blame the problem on their Real Estate Agent who is obviously not finding them the relevant “DATA” needed to make the correct decision.

They then select a new Agent based on his/her promise to provide them all the “DATA” they ask for and to never offer them advice.

To this date no-one suffering from this debilitating condition has  actually bought as house as long before they reach any decision the subject property has already sold at, on average, 15% higher than the price their process suggested.

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FOOD FOR THOUGHT FOR FRUSTRATED BUYERS

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 Many buyers in Silicon Valley are getting fed up of having their offers beaten out by other bidders who value the property higher than them. I’m beginning to hear “We’re going to drop out until the market calms down and we can buy at a sensible price”.

IS THAT A SENSIBLE STRATEGY?

Not in my opinion. When the market calms down it will be because SUPPLY and DEMAND have equalized as they ALWAYS DO. When this happens prices will have leveled off at a higher point, and the number of new homes for sale each week will be stable.            

All of us in the industry know prices aren’t going down and neither are rates! And deep down most buyers know it too.

As it stands, mortgage rates on the Conforming 30-year fixed loans are just over 4% for the best borrowers, up from 3.5% (or lower) in May.  

Many incoming buyers are in payment shock. Combined with higher home prices future buyers are seeing their planned for mortgage payment get higher with the new rates.

So What Does Fannie Mae Think?   

When  Yahoo’s “The Daily Ticker” asked Fannie Mae chief economist Doug Duncan if he felt rates would go down, he said rather bluntly, “We do not”.                                          

Duncan did sprinkle in a little bit of good news as well.

“Mortgage rates have probably increased more than the Fed wanted, seeing that they’ve jumped about 60 basis points (.60%).     

“Some improvements in rates are in the near future because all the bad news the Fed is going to slow its mortgage purchases are built in. 

  “We could possibly see a slight improvement in rates for a very short time”.   

CONSIDER:

A ½ % rate increase in a $500,000 loan will cost an extra $9,000 over 5 years,

The current rate of price increases will level off, but at a higher level.

English: Mortgage debt

English: Mortgage debt (Photo credit: Wikipedia)

The end result of delaying will be a higher price with a more expensive mortgage.

 

Is it Time get back in the hunt!!!

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THE MUTIPLE OFFER PROBLEM

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THE MUTIPLE OFFER PROBLEM

To Bid or Not to Bid?

In Silicon Valley we are now about 12 months into the latest outbreak of “Multiple Offer Syndrome”.

English: This is one of the huge welcoming sig...

English: This is one of the huge welcoming signs for Google plex in the silicon valley. (Photo credit: Wikipedia)

A large majority of homes are currently being listed on Wed, hold Open Houses Sat and Sun, schedule offers for mid week, and are sold to the best of multiple offers by Friday.

The reason for this is very simple.

There are too many Buyers chasing too few houses. This is a direct result of historically low interest rates which will not start rising till early 1014 at the soonest.

As any Economist will tell you, in a free market the solution to this is equally simple. The law of Supply and Demand will automatically correct the problem.

If there is a shortage of any product more of that product will be brought to market.

In this case where there is a shortage of Houses for Sale, prices will be driven up. As this happens more homeowners will decide to sell, and Builders will accelerate getting new homes into the market. Obviously these things do not happen quickly so you can be sure the current price escalation will continue for at least 12 months and then probably just slow down to the historical norm for Silicon Valley i.e. 5% per year.

 

Looking west over northern San Jose (downtown ...

Looking west over northern San Jose (downtown is at far left) and other parts of Silicon Valley (Photo credit: Wikipedia)

If you are a Buyer who has several times lost out to higher bids you might wonder if it’s better to hold off till the market turns.

Consider the following:

Demand will not slow down for at least 12 months.

Each new sale sets a higher price for the next one in the same area.

In 12 months time it’s a near certainty that interest rates will be higher.

When things slow down and you decide to come back into the market you will be paying 12% to 15% more than today. (Based on price increases over the past 18 months in Silicon Valley.

In the meantime you are paying close to cost of a mortgage (which has major tax benefits) for rent which gives those same tax benefits to a Landlord.

Think carefully before holding off.

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THE NEXT BUBBLE IS COMING

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Global Real Estate Bubble

Global Real Estate Bubble (Photo credit: Ryan Harvey)

Zillow.com launches!

Zillow.com launches! (Photo credit: Billiard)

Housing forecasters remain optimistic that property values will continue to increase over the next several years and exceed pre-bubble rates by 2017, according to the first-quarter Zillow home price expectations survey.
Based on predictions from 118 economists, real estate experts, and investment and market strategists, these respondents believe home prices will end 2013 up on average 4.2% and rise cumulatively by 22% over the next five years.
Similar to this year, survey respondents anticipate home values will escalate another 4.2% in 2014 before moderating somewhat to annual appreciation rates between 3.6% and 3.8% over the next three years. With an annual 4.1% prediction in housing unit prices expected between 2013 and 2017, this represents the first time the average annual growth rate has surpassed pre-housing bubble (1987-1999) since the Seattle-based analytic firm began its survey three years ago.
The most optimistic of panelists predicted a 6.1% increase in home values this year, while pessimistic economists projected for an average jump of 3%. Furthermore, through 2017, the outlook for cumulative home price change projections ranged from 34.2% among the most positive quartile respondents to 11.7% for the most discouraged housing forecasters.

NOTE: These predictions cannot be used to discuss any specific area.They are for the whole of the Country. In my area, Silicon Valley, these folks are about 2 years behind the times. In other parts of California, mostly inland areas, are only now seeing early signs of recovery.

 

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SHORT SALES-THE END??

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Silicon Valley

Silicon Valley (Photo credit: Wikipedia)

For about 2 years now my market (Silicon Valley) has seen a steady increase in sales prices. This is finally causing changes in Banks approach to Short Sales.

I just had my 1st experience where a Bank (BofA) cancelled a previously approved short sale when they realized that the current value of the property is now higher than the amount of the loan.

They have now re-started the Foreclosure process where they can expect to get all of their money back and not have to take a loss after all.

This also gives the owner/borrower the opportunity to minimize the Credit hit by selling the property before the foreclosure completes, and maybe even get a little money back themselves.

I firmly believe that the age of the Short Sale Specialist is coming to it’s end and all those useless seminars will disappear with them.

However, there

Bank

Bank (Photo credit: 401(K) 2013)

for the home owner who is falling behind  if the Banks begin to think it might be smarter to foreclose and lose a lot less than previously, rather than expend time and effort trying to keep the afloat.

The next 6 month will be very interesting.

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BAY AREA HOME SALES BOOMING

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The Northern California Bay Area Real Estate Market is still heating up and posted its strongest January home sales growth since 2007. As always numbers vary significantly by County with Santa Clara, Alameda,San Mateo, and Contra Costa Counties all showing close to 30% Median Price increase. Even the lowest (Napa) had a 14% increase. Be sure to check out your County via the related link below.The San Diego-based firm DataQuick reported Thursday that about 5,500 homes were sold in the San Francisco Bay area last month, up more than 3 percent from January 2012.

USGS Satellite photo of the San Francisco Bay ...

USGS Satellite photo of the San Francisco Bay Area. Light gray areas are heavily urbanized regions (Photo credit: Wikipedia)

The median price for a home in the nine-county region was $415,000. That was up more than 27 percent from the price a year earlier.

There were fewer sales of foreclosed homes and short sales,  Sales also shifted away from low-cost homes to mid-market and move-up homes.

 

Related: Full report and county-by-county breakdown 

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THE DIGNITY MORTGAGE

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About 6 years ago the greedy incompetent Banks managed to effectively take mortgages back to the Dark Ages. Since then the idea of having mortgages designed in the interest of the Borrower has been totally abolished.

Now at last we are hearing stirrings of intelligent ideas coming from the industry.

BEFORE READING THE REST OF THIS ARTTICLE PLEASE BE AWARE THAT THERE ARE NO SUCH THINGS AS “SUB PRIME MORTGAGES”. THERE ARE ONLY “SUB PRIME BORROWERS”.

Housing advocates are pushing for a new type of loan, called the “Dignity Mortgage,” They are approaching bankers and federal regulators proposing this.

The Dignity Mortgage would be geared to applicants who have rebuilt their finances since losing their homes and or jobs during the past 5-6 years, but who have been able to get steady employment and repaired their credit scores since then.

Despite this it is very difficult to get a regular mortgage from the standard lenders at this time says Faith Bautista, who heads the National Asian American Coalition.

The Dignity Mortgage would target Borrowers who had a good credit history prior to the collapse, and have been able to save at least a 10% down payment since then.

Since it would be a higher risk loan, it would come with a higher rate for a higher risk. For example, borrowers would pay 1.25 percentage points above more creditworthy borrowers (e.g. 4.75 percent if more A+ borrowers were paying 3.5 percent), the Los Angeles Times reports.

However, if borrowers made timely payments for five years, the deal could greatly improve.

“At that point, the extra money they had paid in interest would be used to reduce the mortgage balance, and their rate would be cut to whatever borrowers with sterling credit and 20 percent down payments were charged at the time the loan was made,” the Los Angeles Times reports in explaining the proposal.

Source: “New Type of Subprime Loan Pushed,” Los Angeles Times (Jan. 29, 2013)

Loan

Loan (Photo credit: Philip Taylor PT)

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INVESTORS MOVING IN

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San Francisco Bay Area highlighted in red on a...

San Francisco Bay Area highlighted in red on a map of California (Photo credit: Wikipedia)

Another sign that Real Estate is fast recovering from its bottoms is that investors, individual and business, are making major moves to capitalize on today’s opportunities all over the Country.
A recent story from Bloomberg covered how Blackstone Group, the largest U.S. private real estate owners, sped up its purchases of homes to try to beat out fast rising prices.
This is a sign for on the fence buyers to start their hunt before the weather heats up and they face more competition than they can handle.
This is just one of the many indicators that point to a continued increase in prices, and proof once again that where the Bay Area leads the rest of the Country will follow

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