Monday Morning Coffee

Monday Morning Coffee

Concentrated Benefit vs. Diffuse Harm

October 26, 2009

Good morning!  I hope you had a great weekend.  On the real estate side of things, the market is still slowly shrinking with 8397 total active listings in the county (not including mobile homes).  This continues to fall by 50-100 each week.  I received some interesting articles last week relating to the economy and real estate in specific. 

  The first one was the monthly report from Foreclosure Radar for September.  They looked at all the homes that have been taken back statewide and compared them to the number of homes the banks have sold.  They came up with a couple of interesting conclusions:

• There is no shadow inventory.  The banks are selling all that they are taking back.  The banks have been reducing their inventory over the past several months as demand has grown and the number of homes they have foreclosed on has gone down (due to delays caused by various moratoriums and the Home Affordable Modification Program). 

• The number of scheduled Trustee Sales has increased, indicated that the Home Affordable program may have delayed foreclosures while banks investigated modifications, but has not seriously halted the foreclosures – they are still coming.

 The second article was the text of a speech given by David Einhorn of Greenlight Capital.  He pointed out that there are two major flaws with our current system of government when trying to deal with an economic crisis such as we are in now:

 1.      Officials favor policies that have short term impacts over policies that will do the most good long term.  This is because they get elected based on short term results and won’t be around for the consequences (easy enough for even a Realtor like me to understand).

 2.      Concentrated Benefit vs. Diffuse Harm.  Also known as special interests – and the banks are using this to their advantage.  For those of you who weren’t aware of the problem (lol), imagine that your child goes to school with 19 other kids.  One of the kids can’t afford lunch, so the teacher asks each other student to bring him lunch every 19 days.  Now, we all believe it is good for all kids to have lunch and we each only have to make an extra lunch every 19 days, so we all agree (this is called charity, neighbor helping neighbor and was how it was done when our parents were kids).  Then, another child needs a lunch and of course, since we are caring parents, we all chip in – now we are making an extra lunch every 9 days.  Two more kids need lunch, we all pitch in and 16 of us are making an extra lunch every 4 days.  Now, here is where it becomes a problem.  The parents of the four kids getting the free lunches have a lot more interest in the free lunches than the 16 parents who make an extra lunch every four days, so the 4 parents band together and get the school to declare that the lunches you make must be of a certain quality and since we can’t be counted on to make them, we should just send the school enough money and the school will make them (this is called welfare).  Well, they aren’t that efficient and it costs them more money to make them that it does us, so the cost goes up.  The school is worried that we will get tired of supporting the program, so the principal starts to send home notices telling us we need to “step up and do our part”.  Then more parents decide they want in and pretty soon 12 parents are supporting all 20 kids.  (If this sounds familiar, that’s because 12 out of every 20 in the US population pays 100% of the federal income taxes). Eventually, the “lunch makers” become overworked (taxed) and the school prints IOUs to pay for the lunches thinking someone else will pay it back sometime later when someone else has to worry about it (this is called passing the buck and is how it is done now).  What some people are worried about is when taxes are high enough that your income all goes to buy lunch for kids whose parents don’t want to work, everyone stops working.  (I have many right wing friends and left wing friends and am not going to get into the free market vs socialism argument, this is more about how in a democracy as people vote themselves more benefits the system gets weighed down). 

The article goes onto discuss the differences between what the government is saying and what it is doing. With President Obama advocating the end of “too big to fail” and Secretary Geitner creating systems that protect the big from failing by moving the risk to the people while keeping the profit with the (bank, hedge fund…)  He goes into a lot more technical detail, but suffice to say while the first article had me happy that the market was absorbing all the current foreclosures, the second had me more worried about the overall economy three years out.

 Ok, back to cheerful real estate – I have the web site up for our downtown condo with Ocean Views that we listed last week.  A couple of you had expressed an interest, so if you would like to see it, please let me know.

 I will have more information on the silent short sales we listed last week, but that will have to wait a week.

 Enjoy the Coffee! 

The Wooden Bowl

 A frail old man went to live with his son, daughter-in-law, and a four-year old grandson. The old man’s hands trembled, his eyesight was blurred, and his step faltered. The family ate together nightly at the dinner table. But the elderly grandfather’s shaky hands and failing sight made eating rather difficult. Peas rolled off his spoon onto the floor. When he grasped the glass often milk spilled on the tablecloth. The son and daughter-in-law became irritated with the mess. “We must do something about grandfather,” said the son. I’ve had enough of his spilled milk, noisy eating, and food on the floor. So the husband and wife set a small table in the corner. There, grandfather ate alone while the rest of the family enjoyed dinner at the dinner table. Since grandfather had broken a dish or two, his food was served in a wooden bowl. Sometimes when the family glanced in grandfather’s direction, he had a tear in his eye as he ate alone. Still, the only words the couple had for him were sharp admonitions when he dropped a fork or spilled food. The four-year-old watched it all in silence.

 One evening before supper, the father noticed his son playing with wood scraps on the floor. He asked the child sweetly, “What are you making?” Just as sweetly, the boy responded, “Oh, I am making a little bowl for you and mama to eat your food from when I grow up.” The four-year-old smiled and went back to work. The words so struck the parents that they were speechless. Then tears started to stream down their cheeks. Though no word was spoken, both knew what must be done. That evening the husband took grandfather’s hand and gently led him back to the family table.

For the remainder of his days he ate every meal with the family. And for some reason, neither husband nor wife seemed to care any longer when a fork was dropped, milk spilled, or the tablecloth soiled. Children are remarkably perceptive. Their eyes ever observe, their ears ever listen, and their minds ever process the messages they absorb. If they see us patiently provide a happy home atmosphere for family members, they will imitate that attitude for the rest of their lives. The wise parent realizes that every day that building blocks are being laid for the child’s future.

Let us all be wise builders and role models. Take care of yourself, … and those you love, … today, and everyday!

Have a Great Week!

 Scott

Monday Morning Coffee – Effect of First Time Home Buyer's Tax Credit

Monday Morning Coffee – First Time Home Buyer’s Tax Credit

October 19, 2009

Good morning!

I hope you all had a great weekend.  I just completed the market analysis I promised I would have today (and it is early Monday morning), so this is going to be brief.

The most illuminating piece of information that came out of the analysis was a rough estimate of the market effect the First Time Home Buyers Tax Credit is having.  You can find it on my blog if you are interested.

Oh and for those of you who asked about the Aggie the dog, she seems fine.  Just must have had an urge to have us blow $650 on vet bills in a week.

I am working on the web site for the downtown unit in the Grande and will have it up next week (a couple of you asked for more info and I will send it your way when it is up.

I do have 2 more new listings that are in the silent short sale category and will be on the market in the next month.  One is a condo in Torrey Highlands and the other is a smaller 4 bedroom detached home in 4S.  If you think you might be interested, let me know and I will get you details on them.
Enjoy the Coffee!

Inspirational Poem – Do Not Quit

When things go wrong,
as they sometimes will,

When the road your trudging
Seems all uphill,

When the funds are low
And the debts are High,

And you want to smile,
but you have to sigh,

When care is pressing you down a bit,
Rest if you must, but don’t you quit.

Life is queer with it’s twists an turns,
As everyone of us must sometimes learn,

And many a failure turns about,
When he might have won had he stuck it out,

Don’t give up though the pace seems slow,
You may succeed with another blow.

Success is failure turned inside out,
The silver tint of the clouds of doubt,

And you can never tell how close you are,
It may be near when it seems so far,

So stick to the fight when you’re hardest hit,
It’s when things seem worst that you cannot quit.

Unknown Author

Have a Great Week!

Scott

A look at the Market – the Value of the tax credit.

I like to look at the 4S Ranch market every quarter or so (sometimes I cover it hear and sometimes just in Monday Morning Coffee).   I think that 4S is very representative of the San Diego County market as a whole and actually serves as a forecastor of the market.  The reasons are that 4S has homes that range from 1 bedroom condos that go for around $200k to 5,000 sf estate homes in the $1.5M range.  There are also an abundance of the Alt-A and Sub-prime loans that threaten to send a lot of homes into foreclosure.  Yet, it is a very successful master planned community near places of hi-tech employment with good freeway access and great schools.  So, while 4S has lead the drop in the market along with other areas of new construction (Eastlake, Downtown, San Elijo Hills, etc.), it is likely to rebound earlier than the others due to the factors listed above.  Also, since I live in 4S and sell a lot of homes here, if the data is questionable, I have a chance of figuring out why.   So, with that explanation, what does the market tell us?

First of all, for those of you who are familiar with the area, I am including all of 4S Ranch plus Bernardo Springs and  Bernardo Point as they were part of the 4S Master Plan and have housing very similar to 4S.  I am not including Santa Fe Valley’s three communities of Bel Etage, Salviatti nor Savannah as they are distinct and would warrant their own analysis.

One of the things I try to do is break the homes into categories so I can watch the change in each category over several quarters.  I think this is much more accurate than the standard “Median Price” as the median price changes as the average house gets larger or smaller.  The median house for the county might have been a 1900 sf home last year, but might be a 2100 sf home this year – the difference in the sizes of homes people are buying can affect the median price as much as the actual price per square foot, and it gives us an incomplete look at the market.  It tells us only if the average person is spending more or less, not if they are getting more or less for their money.  The main categories I look at in 4S are:  Attached condos, detached condos, and detached single family (fee simple ownership).  I further break these down in to square footage ranges (a 4,000 sf home is going to sell at a much lower price per square foot than a 2,000 sf home).  Over the years, I have picked one range out of each category that has consistently had the most sales and has also been the best indicator of how the overall market for that type of homes is doing.  The homes I focus on are:

Attached Condos – 1,351sf – 1,700sf
Detached Condos – 1,751sf – 2,000sf
Detached Single Family – 2,751 – 3,500sf

The Detached condos give the least realiable data as there are only about 500 units total, so a high or low sale can skew the numbers.  The others are fairly stable and easier to understand.

First, let’s look at price per square foot:

Historical 4S Ranch Market Prices

Ok, so right off the bat, let’s explain away the large jump in prices in Q1 of 2007 for the Attached homes.  Prior to this point, the only attached housing was in Sitella (Bernardo Springs).  When condos were first sold in 4S by the builders, they did not put them on the multiple listing service (mls).  As the market slowed, the builders put their inventory through the mls. These units used to sell for about 15-20% more than the Sitella (it has fallen to about 5-10% as the lower Mello-Roos in Sitella makes up for the 6 year difference in age).  That taken care of, the most interesting thing in this chart occurs in Q1 of this year.  This was an inflection point for both the Attached and Detached Condos as their prices hit bottom and turned back up.   On the other hand, the detached homes stayed about the same before drifting down again last quarter.

This is very easily explainable by the First Time Homebuyers Tax Credit.  The credit provides for up to $8k in tax relief for those who have not owned a home in 2 years.  It phases out with an income over $150k.  One-third of all homes being purchased are being bought by people taking advantage of the tax credit.  To qualify for one of the single family homes in the graph, your income would have to be close to the $150k that would nulify the advantages of the tax credit.

If my theory is valid, the difference between the 2% drop in the detached homes and the 2-4% rise in the condos is the effect of the tax credit (4-6%).

Other numbers in the data were not near as interesting.  Sales are up, but you knew that.  Days on market has pushed out a bit, but that is largely due to how the MLS is tracking short sales that are awaiting bank approval.  The percentage of listings sold (vs cancelled or expired) was also up slightly which I believe is the result of the banks getting better at approving short sales and getting them closed.

Monday Morning Coffee

Monday Morning Coffee – A Busy Week

October 11, 2009

Good Morning!

I hope you had a great weekend. Ours was very nice as it started with Kim (my assistant) getting married on Friday afternoon.  The reception started with the sun going down over bay (Admiral Kidd Club on the base in Point Loma).  It was really a beautiful setting and a great evening.  Saturday was our friend Larry’s 50(ish) birthday party which was a lot of fun (and would have been more fun if my 40-something year old body could bounce back from a wedding like it did when I was 20-something).    We almost made it to 4 consecutive weeks without a family member having to go to the hospital when Agatha the dog had to go on Saturday.  The $250 diagnosis was allergic reaction to a bee sting, but since she is still in pain, I am going to guess we have more like a $500 tooth extraction courtesy of Zach feeding her ice cubes, but I’m hoping not.

I  was going to do my quarterly analysis of the 4S Ranch market (serves as a good microcosm  of the overall market with homes going from 1 bedroom condos to 5000+sf estates with a lot of bad loans).  However, with a wedding, party, vet and open house I never was able to run all the numbers, so I will have it next week.  I expect it will show that prices are moving up on the low end and down on the high end.

Overall, inventory continues to slowly fall as buyers are trying to take advantage of the mortgage tax credit.  I will update county numbers next week also.

I mentioned I would have a new listing for you this week.  We put it on the market Friday and have offers in already.  If it looks interesting to you, please call me quickly – 3 beds, 2.4 baths, 2344 sf in 4S Ranch.

We also listed a gorgeous condo downtown at The Grande.   It’s a 2 bedroom with phenomenal views.  It is listed at $1,049,000 and I will have a site for it next week.

That’s it, enjoy the coffee!

A Story To Live By

by Ann Wells, Los Angeles Times

My brother-in-law opened the bottom drawer of my sister’s bureau and lifted out a tissue-wrapped package. “This,” he said, “is not a slip.  This is lingerie.” He discarded the tissue and handed me the slip. It was exquisite; silk, handmade and trimmed with a cobweb of lace. The price tag with an astronomical figure on it was still attached. “Jan bought this the first time we went to New York, at least 8 or 9 years ago. She never wore it. She was saving it for a special occasion. Well, I guess this is the occasion.” He took the slip from me and put it on the bed with the other clothes we were taking to the mortician. His  hands lingered on the soft material for a moment, then he slammed the drawer shut and turned to me. “Don’t ever save anything for a special occasion. Every day you’re alive is a special occasion.”

I remembered those words through the funeral and the days that followed when I helped him and my niece attend to all the sad chores that follow an unexpected death. I thought about them on the plane returning to California from the Midwestern town where my sister’s
family lives. I thought about all the things that she hadn’t seen or heard or done. I thought about the things that she had done without realizing that they were special. I’m still thinking about his words, and they’ve changed my life.

I’m reading more and dusting less. I’m sitting on the deck and admiring the view without fussing about the weeds in the garden.

I’m spending more time with my family and friends and less time in committee meetings. Whenever possible, life should be a pattern of experience to savor, not endure. I’m trying to recognize these moments now and cherish them.

I’m not “saving” anything; we use our good china and crystal for every special event-such as losing a pound, getting the sink unstopped, the first camellia blossom.

I wear my good blazer to the market if I feel like it. My theory is if I look prosperous, I can shell out $28.49 for one small bag of groceries without wincing.

I’m not saving my good perfume for special parties; clerks in hardware stores and tellers in banks have noses that function as well as my party-going friends’.

“Someday” and “one of these days” are losing their grip on my vocabulary. If it’s worth seeing or hearing or doing, I want to see and hear and do it now. I’m not sure what my sister would have done had she known that she wouldn’t be here for the tomorrow we all take for
granted.

It’s those little things left undone that would make me angry if I knew that my hours were limited. Angry because I put off seeing good friends whom I was going to get in touch with-someday. Angry because I hadn’t written certain letters that I intended to write-one of these days.
Angry and sorry that I didn’t tell my husband and daughter often enough how much I truly love them.

I’m trying very hard not to put off, hold back, or save anything that would add laughter and luster to our lives. And every morning when I open my eyes, I tell myself that it is special. Every day, every minute, every breath truly is…a gift from God.

by Ann Wells in the Los Angeles Times

 Have a Great Week!

Scott

Monday Morning Coffee – Silent Short Sale

Monday Morning Coffee

Good morning!

 I hope you had a nice weekend.  Ours was busy as we mixed family time in with a lot of showings and appointments.  The market is staying heated with buyers trying to beat the expiration of the tax credit (which will be extended).  I wanted to address two items before we get to the Coffee this week:

Last week, I talked about a new Loan Re-Write program as an option to foreclosure.  This week, I want to talk about another option.  Many people are turning to a short sale to help lessen the impact on their credit and allow them back into the market in two years (instead of five with a foreclosure).  The problem with a short sale, is that they can take a long time and your home is advertised as a short sale so all your neighbors know you are going through the foreclosure process.  Furthermore, most agents are using a strategy of pricing the home low to drive traffic – which is not only very disruptive to a family, but often results in an offer too low for the bank to take seriously.  So, the house gets opened back up for another parade of showings.  Only this time, it has been on the market for 90 days and buyers start to think there is something wrong with the house or that it is going to be too hard to get closed.  We have come up wi th a better way (for the homeowner) to do a short sale.  We are going to call it the Silent Short Sale.  If you or someone you know are considering a short sale, please check in with me prior to starting an overly disruptive process that can be done much more effectively.

 Quickly looking at September’s numbers shows a continuation of the trend we have been seeing.  Inventory is down considerably over last year and continues to fall a little every month.  Closings are up a couple of points over last year and look to be fairly even with August.  I expect October to stay strong and then November to start to tail off for the holidays.

 We will be putting one new home on the market this week.  It is a 3 bedroom 2,344 sf home in the Cedar Creek development at 4S Ranch.  It is a very nice home and Cedar Creek has some of the lowest Mello-Roos in 4S.  It will be priced in the low $600k range and I will have photos for you next week.  If you want an early peak, let me know.

 That’s it for this week – Enjoy the Coffee!

ATTITUDE IS EVERYTHING

 By Francie Baltazar-Schwartz

 Jerry was the kind of guy you love to hate. He was always in a good mood and always had something positive to say. When someone would ask him how he was doing, he would reply, “If I were any better, I would be twins!”

 He was a unique manager because he had several waiters who had followed him around from restaurant to restaurant. The reason the waiters followed Jerry was because of his attitude. He was a natural motivator. If an employee was having a bad day, Jerry was there telling the employee how to look on the positive side of the situation.

 Seeing this style really made me curious, so one day I went up to Jerry and asked him, “I don’t get it! You can’t be a positive person all of the time. How do you do it?”

 Jerry replied, “Each morning I wake up and say to myself, ‘Jerry, you have two choices today. You can choose to be in a good mood or you can choose to be in a bad mood.’ I choose to be in a good mood. Each time something bad happens, I can choose to be a victim or I can choose to learn from it. I choose to learn from it. Every time someone comes to me complaining, I can choose to accept their complaining or I can point out the positive side of life. I choose the positive side of life.”

 ”Yeah, right, it’s not that easy,” I protested.

 ”Yes, it is,” Jerry said. “Life is all about choices. When you cut way all the junk, every situation is a choice. You choose how you react to situations. You choose how people will affect your mood. You choose to be in a good mood or bad mood. The bottom line: It’s your choice how you live life.”

 I reflected on what Jerry said. Soon thereafter, I left the restaurant industry to start my own business. We lost touch, but I often thought about him when I made a choice about life instead of reacting to it.

 Several years later, I heard that Jerry did something you are never supposed to do in a restaurant business: he left the back door open one morning and was held up at gunpoint by three armed robbers. While trying to open the safe, his hand, shaking from nervousness, slipped off the combination. The robbers panicked and shot him. Luckily, Jerry was found relatively quickly and rushed to the local trauma center.

 After 18 hours of surgery and weeks of intensive care, Jerry was released from the hospital with fragments of the bullets still in his body.

 I saw Jerry about six months after the accident. When I asked him how he was, he replied, “If I were any better, I’d be twins. Wanna see my scars?”

 I declined to see his wounds, but did ask him what had gone through his mind as the robbery took place. “The first thing that went through my mind was that I should have locked the back door,” Jerry replied. “Then, as I lay on the floor, I remembered that I had two choices: I could choose to live, or I could choose to die. I chose to live.”

 ”Weren’t you scared? Did you lose consciousness?” I asked.

 Jerry continued, “The paramedics were great. They kept telling me I was going to be fine. But when they wheeled me into the emergency room and I saw the expressions on the faces of the doctors and nurses, I got really scared. In their eyes, I read, ‘He’s a dead man.’

 ”I knew I needed to take action.”

 ”What did you do?” I asked.

 ”Well, there was a big, burly nurse shouting questions at me,” said Jerry. “She asked if I was allergic to anything. ‘Yes,’ I replied. The doctors and nurses stopped working as they waited for my reply. I took a deep breathe and yelled, ‘Bullets!’ Over their laughter, I told them. ‘I am choosing to live. Operate on me as if I am alive, not dead.”

 Jerry lived thanks to the skill of his doctors, but also because of his amazing attitude. I learned from him that every day we have the choice to live fully. Attitude, after all, is everything.

 Have a Great Week!

Scott

Why the Tax Credit will be Extended – It's about Health Care

Why the Tax Credit will be Extended

There is a lot of speculation in the market is to whether or not the $8,000 tax credit for first time home buyers will be extended or not.  I think this is a “no-brainer”.  It is going to be extended, and the reason is Healthcare.  Ok, I lost you there.  It’s really pretty simple – if politics can be simple.

• The Democrats are in power with a super majority.  The Republicans are reduced to the little brother who can only tell on an older sibling who beat them up while mom and dad were gone – the problem is, mom and dad think you deserved it so there really is nothing they can do.
• The Democrats have badly wanted to bring health care into the government fold since Bill & Hillary missed on it back in the old days.
• President Obama and Congress are starting to run into increasing opposition to the “public option” as people are raising a little noise against the policy.
• President Obama’s popularity has also started to erode a bit (this was pretty unavoidable consdering how pupular he started out).
• If the economy starts to stall again, the Democrats will start to be concerned about re-election and will not want to risk angering their constituents by radically altering the current exensive, yet mostly effective system.
• 1/3 of all home buyers are taking advantage of the tax credit.  It is not an exageration to say that the tax credit is driving the current recovery (where there is a recovery).  If the tax credit disappears, a lot of energy in the housing market goes with it.  With a lot of foreclosures being processed through the banks, taking away the largest buying incentive could leave a lot of neighborhoods with a lot of vacant homes – not a good sign for the economy.
• The tax credit is VERY expensive.  It is a large drain on revenues.  But, it is a drain that our kids kids will have to pay. Government’s are great at borrowing money that doesn’t have to be repaid until after a future election if it helps them survive the next election.
• So, by keeping the tax credit going, the Democrats have a better chance of keeping the economy going which is a translates into a better chance for the public option health care program.  And that means the tax credit will be extended.

Ok, the next question is why haven’t they extended it yet then.  The simple answer is that as soon as they do, it takes the urgency out of the current market.  So, expect it to be extended around the first of November.