Monday Morning Coffee – New Office, Crashed Hard Drive and Merry Christmas

Monday Morning Coffee

Moving is No Fun!

December 20, 2009

Good Morning,

I hope you all are remembering to slow down and enjoy your families this time of year.  This has been a busy week for us as we received the keys to our new Rancho Bernardo office on Friday.  The internet and furniture should be set up by Tuesday afternoon and we hope to be settled in by the New Year.  It will be nice to move the office out of the house.  The new address is 10815 Rancho Bernardo Rd #390.  If you are in the area, drop in and say “hi”.  Added to the busy job of moving the office, my 2 month old laptop had a hard drive failure on Saturday and Magic Man Eric (if you need an outsourced IT guy in San Diego, let me know – he is great) is recovering what data he can before I take it back tomorrow (if you have sent me an email since Saturday, I have not received it as I am working on an old laptop that doesn’t have Outlook loaded).  So, on top of moving I get to spend a day reloading programs, preferences, etc.

Ok, enough complaining – it really is a great time of year and we are very thankful for everyone’s support again this year.  As I mentioned last week, I did a couple of blog posts on interest rates and the tax credit. If you don’t want to read the posts, the short version is:

I think interest rates will rise significantly in the second quarter of next year and demand will drop off at the same time.  They may both be a drag on the market, but I think that because rates may rise as much as 2% next year, if you are going to buy, buy now and lock in a 30 year loan.  If you have a loan now, refinance and buy down your rate.  I think that in addition to rates going up, we are going to get some inflation.  If you can lock in today’s prices and rates there is a good chance you will look very smart and have a payment that is a much lower percentage of your income in 5 years.

I have not posted my thoughts on interest rates, but will do so in the next week.

No new listings to report – will have some in the New Year.

Since this is a busy week with moving and getting a laptop that works and the more important fact that I want to slow down a bit and enjoy my family (this is the first year Zach is getting the idea of Christmas and he has just about the coolest “Wow!” you’ve ever seen or heard), I am going to skip Monday Morning Coffee next week.  So, this is Merry Christmas and Happy New Year!

 Enjoy the Coffee!

The Gift of Forgiveness

by John William Smith

The Christmas of 1949 we didn’t have a tree.

My dad had as much pride as anybody, I suppose, so he wouldn’t just say that we couldn’t afford one.

When I mentioned it, my mother said that we weren’t going to have one this year, that we couldn’t afford one, and even if we could – it was stupid to clutter up your house with a dead tree.

I wanted a tree badly though, and I thought – in my naïve way – that if we had one, everybody would feel better.

Taking Matters into my Own Hands

About three days before Christmas, I was out collecting for my paper route.

It was fairly late – long after dark – it was snowing and very cold.

I went to the apartment building to try to catch a customer who hadn’t paid me for nearly two months – she owed me seven dollars.

 Much to my surprise, she was home.

She invited me in and not only did she pay me, she gave me a dollar tip!

It was a windfall for me – I now had eight whole dollars.

What happened next was totally unplanned.

On the way home, I walked past a Christmas tree lot and the idea hit me.

The selection wasn’t very good because it was so close to the holiday, but there was this one real nice tree.

It had been a very expensive tree and no one had bought it; now it was so close to Christmas that the man was afraid no one would.

He wanted ten dollars for it, but when I – in my gullible innocence – told him I only had eight, he said he might sell it for that.

I really didn’t want to spend the whole eight dollars on the tree, but it was so pretty that I finally agreed.

I dragged it all the way home – about a mile, I think – and I tried hard not to damage it or break off any limbs.

The snow helped to cushion it, and it was still in pretty good shape when I got home.

You can’t imagine how proud and excited I was.

I propped it up against the railing on our front porch and went in.

My heart was bursting as I announced that I had a surprise.

I got Mom and Dad to come to the front door and then I switched on the porch light.

Surprise!!

“Where did you get that tree?” my mother exclaimed.

But it wasn’t the kind of exclamation that indicates pleasure.

“I bought it up on Main Street. Isn’t it just the most perfect tree you ever saw?” I said, trying to maintain my enthusiasm.

“Where did you get the money?” Her tone was accusing and it began to dawn on me that this wasn’t going to turn out as I had planned.

“From my paper route.” I explained about the customer who had paid me.

“And you spent the whole eight dollars on this tree?” she exclaimed.

She went into a tirade about how stupid it was to spend my money on a dumb tree that would be thrown out and burned in a few days.

She told me how irresponsible I was and how I was just like my dad with all those foolish, romantic, noble notions about fairy tales and happy endings and that it was about time I grew up and learned some sense about the realities of life and how to take care of money and spend it on things that were needed and not on silly things.

She said that I was going to end up in the poorhouse because I believe in stupid things like Christmas trees, things that didn’t amount to anything.

I Just Stood There

My mother had never talked to me like that before and I couldn’t believe what I was hearing.

I felt awful and I began to cry.

Finally, she reached out and snapped off the porch light.

“Leave it there,” she said. “Leave that tree there till it rots, so every time we see it, we’ll all be reminded of how stupid the men in this family are.”

Then she stormed up the stairs to her bedroom and we didn’t see her until the next day.

Dad and I brought the tree in and we made a stand for it.

He got out the box of ornaments and we decorated it as best as we could; but men aren’t too good at things like that, and besides, it wasn’t the same without mom.

There were a few presents under it by Christmas day – although I can’t remember a single one of them – but Mom wouldn’t have anything to do with it.

It was the worst Christmas I ever had.

Fast Forward to Today

Judi and I married in August of 1963, and dad died on October 10 of that year. Over the next eight years, we lived in many places. Mom sort of divided up the year – either living with my sister Jary or with us.

In 1971 we were living in Wichita, Kansas – Lincoln was about seven, Brendan was three and Kristen was a baby. Mom was staying with us during the holidays. On Christmas Eve I stayed up very late. I was totally alone with my thoughts, alternating between joy and melancholy, and I got to thinking about my paper route, that tree, what my mother had said to me and how Dad had tried to make things better.

I heard a noise in the kitchen and discovered that it was mom. She couldn’t sleep either and had gotten up to make herself a cup of hot tea – which was her remedy for just about everything. As she waited for the water to boil, she walked into the living room and discovered me there. She saw my open Bible and asked me what I was reading. When I told her, she asked if I would read it to her and I did.

The Truth Comes Out

When the kettle began to whistle, she went and made her tea. She came back, and we started to visit. I told her how happy I was that she was with us for Christmas and how I wished that Dad could have lived to see his grandchildren and to enjoy this time because he always loved Christmas so. It got very quiet for a moment and then she said, “Do you remember that time on Twelve Mile Road when you bought that tree with your paper route money?”

“Yes,” I said, “I’ve just been thinking about it you know.”

She hesitated for a long moment, as though she were on the verge of something that was bottled up so deeply inside her soul that it might take surgery to get it out. Finally, great tears started down her face and she cried, “Oh, son, please forgive me.”

“That time and that Christmas have been a burden on my heart for twenty-five years. I wish your dad were here so I could tell him how sorry I am for what I said. Your dad was a good man and it hurts me to know that he went to his grave without ever hearing me say that I was sorry for that night. Nothing will ever make what I said right, but you need to know that your dad never did have any money sense (which was all too true).

We were fighting all the time – though not in front of you - we were two months behind in our house payments, we had no money for groceries, your dad was talking about going back to Arkansas and that tree was the last straw. I took it all out on you. It doesn’t make what I did right, but I hoped that someday, when you were older, you would understand. I’ve wanted to say something for ever so long and I’m so glad it’s finally out.”

Well, we both cried a little and held each other and I forgave her – it wasn’t hard, you know.

Then we talked for a long time, and I did understand; I saw what I had never seen and the bitterness and sadness that had gathered up in me for all those years gradually washed away.

It was marvelously simple.

The great gifts of this season – or any season – can’t be put under the tree; you can’t wear them or eat them or drive them or play with them. We spend so much time on the lesser gifts – toys, sweaters, jewelry, the mint, anise and dill of Christmas – and so little on the great gifts – understanding, grace, peace and forgiveness. It’s no wonder that the holiday leaves us empty, because when it’s over, the only reminders we have are the dirty dishes and the January bills.

Have a Very Merry Christmas and a Happy New Year!

Scott Voak

858 688 0189

When the Music Stops – Tax Credit

Another important component when considering the real estate market for 2010 is the tax credit that runs through the first quarter of next year.  According to the National Association of Realtors, over 40% of home purchases in the third quarter of 2009 were motivated by the tax credit.  The tax credit combined with the artificially low interest rates (see my last post on interest rates) are encouraging people who might otherwise buy in the next two years to buy now.  These buyers have been responsible for the surging demand that has helped the market recover some of its lost ground at the entry level (I am writing generally about California and specifically about San Diego County).

This has been fantastic for a number of reasons:

1. The rising real estate market has helped the emotional state of economy and provided hope that things are getting better – with that hope, people may spend a little more which will help the economy further.
2. The rising prices at the low end of the market may allow some people to re-finance their homes when their rates adjust in the next few months as increased prices mean an incease in equity.
3. The increase in transactions has helped those of us (like yours truly) who sell real estate be able earn an income and not have to get a real job (since my last job as a busboy in high school didn’t work out so well, this is by far the most important result of the rising market).

However, there is a downside.  If buyers who would normally make their first home purchase over the next two years are buying now, who is going to buy in the next two years?  I think that when the tax credit expires, we are going to find that the demand is going to slow down and be lower than expected for one to two years (for a parallel example, look at the car industry which did great with Cash for Clunker when people who might have bought a car over the next year and an incentive to do it earlier – however the following months have disappointing as the people who would normally be buying now have already purchased).

Will this in and of itself be a disaster?  I don’t think so.  However, combined with tighter financing and higher interest rates I think that it will be a serious drag on the market.

By now you are saying, “This guy isn’t too bright.  He needs to sell houses because he can’t bus tables and yet he’s saying the market could be in for a downturn.”  Well, you’re right.  But those of you who know me are aware that I am comfortable losing a sale if it means I am honestly letting you know what I think the market is doing.  I lost a lot of buyers in 2005-2007 because I was honest about where I thought the market was going.  That doesn’t mean you shouldn’t buy (and for many people who bought in 2005-2007 it was the right move).  I am still saying the same thing now I was then:  If you are buying a home to put down roots and raise a family, you should do so.  If you are buying a home for two years, think carefully.

I think the combination of currently low interest rates and easy financing make it a great time to buy a home.  Just be sure you get yourself in a 30-fixed loan and get the best interest rate you can.  Also, buy a home that will work for 7-10 years.  Although I would love you to buy another in 2 years, that is not a smart plan of action right now.  If you are newly married and planning a family in 2 years, buy a 3 bedroom so you can grow into it.  Maybe you won’t need to stay in the home for 7 years.  Maybe I’m wrong and the market will keep shooting up.  Great – turn it into a rental if that happens.  Think conservatively at this point as the market direction for the next two years is murky at best.

What Happens When the Music Stops – Interest Rates?

The current real estate market has been a nice surprise (if you aren’t surprised, you weren’t paying attention this time last year).  However, is it going to last and what happens if it doesn’t?  I think there are two factors to loook at.  Back in August or September I wrote that the administration and Congress were likely to extend the First Time Home Buyer Tax Credit to try and help the economy going until they were able to at least get healthcare passed (see posts from that time frame for the full logic).  Surprise!  In October, it was announced that not only was the credit being extended through the first quarter, but it was broadened to include more people.  Plus, the Fed was to continue buying MBSEs through March.  These actions (the Tax Credit and Fed purchases of MBSEs) are largely responsible for the current recovery.  Each of them is working on different factors that are driving the market.  In this post, I am going to talk about Mortgage Backed Securities (MBSE) and the effect they are having on interet rates.

 MSBEs were a major contributor to the mortgage meltdown.  When a bank makes a lot of mortgage loans, the package them up and sell them as a “pool” of mortgages.  This pool may be worth $200-$500M.  By securitizing the pool, it can be split into many pieces.  The idea was that this allowed investors to buy a piece of a lot of mortgages rather than all of a single mortgage. 

 The thought was that this limits risk.  After all, one homeowner might lose his job and go into foreclosure, so by putting his mortgage in with 200 others, it lessened the blow.  Since this made investing in mortgages a “very low risk investment”,  hedge funds and other aggressive investors would buy MSBEs using 10% of their own money and then borrow 90% from banks making a spread.  If you are interested in the math, read the next section, otherwise jump ahead:

• Hedge Fund invests $10M of its own money and borrows $90M at 4% (paying $3.6M in interest a year)
• Same Hedge Fund uses the $100M to buy MSBEs paying 5% or $5M a year in interest.
• After paying the interest, the Hedge Fund made $1.4M a year but only invested $10M
• 14% Return.  That’s leverage. 

Making 14% in what is supposed to be a risk free investment is unheard of.  So, they demanded more mortgages and to make them available, the banks had to relax standards.  Instead of 20% down, a good income and good credit, nothing down with decent credit and your word that you had a job was good enough.  Nobody figured that making $700k loans to people with a fake income was going to be a problem.  And, since the loans were so easy to get, everybody got a house or three, driving the market up insanely. 

When the market collapsed, the Hedge Fund above couldn’t make its payment on the $3.4M because the borrower with fake income couldn’t pay his mortgage.  All of a sudden, the banks realized that the 90% they had loaned the Hedge Fund was gone (bye bye Shearson) and the companies that insured these MSBEs had issues too (bailout for AIG). 

For our discussion here, the important point is that this frenzied investing in MSBEs drove the availability of money up and therefore allowed home prices to go up to a point we had a bubble.  When the bubble popped, nobody wanted to buy MSBEs anymore.  Not to mention, that the banks didn’t know (and still don’t know) how much of their money was gone – since the loans are securitized, everyone owns a piece of the mortgage and nobody can really tell which ones are good and which ones are bad. This is when the entire world credit market frooze and the Fed had to inject large amounts of money into the system.

One of the things they did was to steop in and announce they would buy a few mortgages (currently about $14B a week).  Well, with the Fed guaranteed to buy this many loans, banks have been willing to write the loans again.  AND, since the Fed is using your and my tax dollars, they don’t care too much about the return them make, so the loans are at a very low interest rate.  (When you hear that the Fed is subsidizing interest rates, this is what it means).

Here’s the problem.  The Fed is going to stop buying these mortgages at the end of March and someone else will have to step in. 

Now, think real hard.  How many foreign countries can you think of that have a lot of excess cash?  Really rich people that would jump at a 5% return?  Not many.  To get people other than the US Government to buy these mortgages, the return on them will have to go up.  Which means the interest you and I pay for a mortage is going to go up.  How much?  Well, if you were sitting on $100M to $200M, what kind of return would you want?  Before you answer, consider also that investors want a higher return if the risk is high.  After all, if you might lose your money, you want to make more on it than if you know it is safe. 

How risky are mortgages?  Well, consider what the administration is doing to help people with these loans.  They are “encouraging” the banks to reduce the principal and interest rates.  Sounds great for you and me, but it is basically telling the investor, “Listen, I know you were promised 5% but it just isn’t going to happen.  We want you to drop your return and, by the way, reduce the amount you are going to get paid back by 20% (principle reduction).  So you are going to lose money rather than make money.”  Since this has happened before, you would be stupid (and probably wouldn’t have $100M lieing around) if you didn’t think it could happen again.  Since you know that this could happen, would you invest in the mortgages for a 5% return?  How about 6%?  7%?  Me either.  Not a lot of people are going to be lining up to purchase these mortgages.  Which means rates will have to go up significantly. 

In my converstations with Pwastim (People Who Are Smarter Than I Am), he says that the market is expecting rates to go up between .5% and 2% in 2010.  Ouch.   Here’s the other problem.  Even if rates go up, I think it will be hard to find $14B a week of investor money.  This means that banks will raise rates AND make fewer loans. 

What does this mean.  Basically that this was a very long explanation for the following recommendation:

If you have a mortgage or are buying a home.  Get a 30-year fixed and pay the points to buy down the interest rate.  You will not see interest rates like this for another 5-15 years if ever.  Plus, in another post I will talk about inflation and why you will look REALLY SMART in 5 years if you do this now.

Monday Morning Coffee – Slowing down for the Holidays

Monday Morning Coffee

December 13, 2009

Good morning,

Hope you had another great weekend – Saturday inside watching movies, staying warm and Sunday enjoying the great weather.  Things have definitely hit “holiday speed” as everything is slowing down.  Two articles in the San Diego press were worth noting last week:

1. The median price was up 22% in November compared to last year for San Diego County.  That is great – but remember that November of last year was when the Sherson Leahman debacle filtered through to home mortgages and most people with mortgages that were over the conforming limits lost their loans.  Therefore the homes that sold were the lower priced homes.  Because of this, the median home was a smaller home last year than this year (median is not the average price of homes, but the price of the average home that sold).
2. Re-finances are hard to get, even for people with equity.  This is important because almost everyone in the business expects the mortgage rates to go up in or shortly after the first quarter when the Fed stops buying Mortgage Backed Securities (A couple of weeks ago I explained how with the Fed buying $14B a week, the banks could offer a low interest rate as they have a guaranteed buyer.  That ends early next year and rates will have to go up to entice foreign governments and extremely welthy people to buy the mortgages – that means the rate you pay will go up.)  Because of this, I think everyone who has equity should seriously look at re-financing your loan now.  I will try and write a more detailed explanation on my blog early in the week.  The blog will be on my site at www.VoakHomes.com

The new listing we have decided to wait until after the new year, so we will have 3 or 4 in the first couple of weeks, but will be slow until then.

That’s it, Enjoy the Coffee – with an Ice Cream Comb.

  The Ice Cream Comb Story

By Rick Beneteau
http://www.RickBeneteau.com

She was three. Just released from a far-away hospital after life threatening brain surgery, ready to take on the world again. I was happy just to have her back. My little “Mr. Clean” (shaven head and hoop earrings) and me driving along to our local mall. Hanging out with dad day.

I recall her words as if it were yesterday.

“Daddy, can I get a treat?”

As she was understandably spoiled (if there is such a thing), I replied “ok honey, but just ONE”.

Her eyes beamed like the Fourth of July in anticipation of that something only she knew at the time.

We drove around to the new end of the mall on the normal seek-and-destroy mission of capturing a parking place. After all, it was Saturday. We landed a fair distance from our destination, and began walking hand-in-hand towards the entrance, her pace gaining momentum with each tiny step. A few feet from the doors she broke loose and ran hands-first into the thick wall of glass, trying with everything she had to swing the big doors open. No luck. With a little assistance, she ‘did it’ and tried the very same thing at the second set of doors.

It was then that I asked her what she wanted for her treat. Without hesitation, she matter-of-factly said “an ice-cream comb from the ice-cream store”. Ok, the goal was set and we were in the mall!

But hold on! What was this? At the end of what was just an ordinary looking lane of retail chain outlets she spied something new—this huge fountain, water shooting who knows how high into the air. The new goal line!

She ran, and I walked (don’t ya just hate it when parents let their kids run wild in public?), and we arrived at the spectacle at about the same time. The turbulent noise was almost deafening.

“Daddy, can I make a wish, can I make a wish?” she screamed as she jumped with the kind of pure joy we’ve all long since forgotten.

“Sure honey, but that will be YOUR TREAT you know” I explained (gotta be firm with these kind of things).

She agreed.

I fumbled around in my pocket and pulled out what I think was a dime (big spender) and placed it in her outstretched hand. She cupped it tightly, closed her eyes and grimaced, formulating her wish. I stared at that little scrunched-up face and said my own kind of prayer of thanks, feeling so blessed to still have this ball of energy in my life. And then like a shooting star, the coin was flung into the foaming water and with it, her wish.

We happily continued our stroll into the familiar section of the mall. An eerie silence ensued, which I was admittedly uncomfortable with. I couldn’t resist breaking it.

“Aren’t you gonna tell daddy what you wished for?”

She retorted “I wished I could get an ice-cream comb”.

I just about lost it right then and there. Couldn’t imagine what the shoppers thought of this lunatic laughing uncontrollably in the middle of a crowded mall. And needless to say, she got her wish, and two treats.

Little did I know then that my beautiful little girl would soon embark on a long road of seizures, surgeries, special schools, medications and end up partially paralyzed on her right side. She never learned to ride a bike.

Today, she is almost seventeen. She cannot use her right hand and walks with a noticeable limp. But she has overcome what life seemed to so cruelly inflict on her. She was teased a lot and always struggled in school, both socially and academically. But each year she showed improvement. She is planning a career in early childhood education. With one year still remaining in high school, her and I, one night not too long ago mapped out all the courses she would need to take in community college. It was her idea. She volunteers weekly at a local hospital, on the children’s floor. She baby-sits a neighbors children five days a week. On her own this year, she stood outside in line for four hours on a cold Canadian January afternoon and enrolled herself, with her own babysitting money, into two courses she felt she would need for college.

You see, to her, failure was never an option.

It would almost be redundant for me to explain why I wanted to share this story with you. She IS my daughter and I carry all those fatherly biases with me wherever I go. But these aside, she is a very exceptional person and one that I admire and have learned a lot from.

It is my sincerest hope that her story will have even a momentary positive impact on you as a human being, a parent, a spouse or even, an entrepreneur.

I’d like to leave you with a closing thought. As human beings, we deserve all the treats, and the multitude of good things that life can offer us. We all have wishes and dreams, AND the power to make them reality. Just simple truths of the universe.

We can wish for, and get, that ice-cream comb.

Have a Great Week!

Scott Voak

858 688 0189

November Numbers

 I promised a quick look at November numbers for San Diego County, so very briefly here it goes:

• Sales were 2,506 for the county, Up from 1,956 the year before, but down from 3,201 in October (the drop is seasonal and very normal.
• Looking at inventory by price range, it breaks out the following way:

•  
  • Under $400k there are about 7 weeks of inventory
  • Between $400k and $600k there are 2.5 months of inventory
  • Between $600k and $1M there are 4.5 months of inventory
  • Over $1M there is are about 16 months of inventory

I like these numbers a lot better than when we looked four months ago.  At that time the market under $400k had only  2 weeks of inventory and the market over $1M was at 2 years of inventory.  Both numbers are healthier for the long term market.  Although I am worried because the inventory reduction on the high end was not so much due to more sales as it was people pulling their homes off the market.  I will be interested in looking at the numbers again in about another three months when we are through the holidays to see if the inventory rises again at the high end.

We have one new home coming on the market this week.  It is a 3 bedroom 1300 sf home in the Tanglewood subdivision of 4S Ranch.  We are taking photos on Tuesday and should have a site up for next week.  We are going to list the property for $400k.  If anyone wants an early look, let me know.

Coming Loan Mods and Foreclosures

This is a re-print of a Monday Morning Coffee from 3 weeks ago.  Someone asked me to post it on the blog, so here it is.

I spent a lot of time going through data this week with the goal being to look at all types of mortgages that are currently out there and see what the delinquency rate is and when they are due for interest rate adjustments.  We know from historical data that the following has been true:

• Once a loan is 60 days late, there is a 98% chance that it will be liquidated through a foreclosure, short sale or a loan modification will take place.
• Over the past 2 years, it appears that for every 1 foreclosure or short sale there have been 3 loan modifications.
• Within one year, 58% of all loan modification are 90 days late and since the banks do not do 2 loan modifications on the same loan, at least 58% of the 75% delinquents that were modified the first time around will be liquidated within between 12 and 24 months of first going delinquent.
• Taking those together, once a loan is 60 days late, about 25% of the homes will be liquidated within a year (that’s the longest they are generally taking to process) and 44% (58% x 75%) will be liquidated in the second year.  (I could not find data on the second year after loan modification, most likely because there isn’t enough yet).
• This means that the effects of the mortgage defaults are felt over an extended period.
• These numbers will likely improve over the next couple of years as the Home Affordable modifications do more to reduce principle and payment that previous modifications.  However, there are many that don’t think it will make much difference.  The Home Affordable modifications allow for 5 years before the new loan adjusts towards market interest rates.

With the above track record, I was hoping to look at all loans that are out there and overlay loan types with when they are adjusting and the forecasted foreclosure/modification rates to get an idea how long until we work through the distressed inventory of homes (and who said I’m not a fun guy to hang out with on a Friday night.)

Unfortunately, I cannot get my hands on all the data.  Those who have it are not giving it up without a lot of dollars and frankly, I think we can get a rough idea with what I did find. 

What I found is available on the Federal Reserve Bank of New York’s Web site (if you want to get really depressed, they have a map showing every county in the country with mortgage, auto, credit and student loan delinquencies).  I was able to download the data for Sub-Prime and Alt-A loans as of June 30 of this year.

Quick note – Alt-A borrowers have better credit scores than Sub-Prime borrowers and typically longer time periods before adjustable loans re-set which is why you see lower delinquencies.  

So, the first wave of foreclosures that started last year was in the sub-prime market and the next (possibly this summer) is the Alt-A market.  But look at the number in bottom that is bolded – even after the loan mods and foreclosures of the past year 50% of the people in the country with sub-prime loans are delinquent!

I know this is getting long, but a couple more pieces of information on both types of loans, focusing on CA:

Sub-Prime:

• Of the 326,521 sub-prime loans in existence, about 208,000 are adjustable.
• 172,359 of those have already re-set (the introductory interest rate is over).
• There are only about 36,000 homes left to re-set.

Alt-A:

• Of the 613,650 Alt-A loans in existence, about 428,000 are adjustable.
• 181,898 of those have already re-set.
• There are 246,000 homes left to re-set (most of them more than 2 years out)
• Because of better credit scores, more Alt-A homeowners were offered negative ammortization loans which will be harder to modify because they have no equity.

At least in California there is likely to be more damage in the second wave as the Sub-prime loans that were modified the first time default again combined with a larger pool of Alt-A loans that are re-setting over the next 3 years.

However, I don’t think this means a 20% drop in market prices.  I think we are likely to see another drop during 2010 and an extended period of up and down (the Alt-A loans will re-set through the next 3-4 years and then we will have the Home Affordable loans re-setting starting in year 5 which should be a smaller number (if the market stabilizes) but will still be a negative influence). I think we are mostly through the painful devaluation phase and moving into what I can best call (someone else’s term) an extended “muddle through” period.

In summary as I have said before, we have oversold housing as an investment over the past 10 years and undersold it as “home”.  We don’t have a choice anymore but to look at our homes as places we raise our families and with the help of 30 year fixed mortgages, slowly pay off so that our true  “investments” don’t have to pay for our mortgage when we retire.

Monday Morning Coffee – November Numbers

Monday Morning Coffee

First Look at November San Diego Home Sale Numbers

December 6, 2009

Good morning,

I hope you had a great weekend.  I promised a quick look at November numbers for San Diego County, so very briefly here it goes:

•  Sales were 2,506 for the county, Up from 1,956 the year before, but down from 3,201 in October (the drop is seasonal and very normal.
• Looking at inventory by price range, it breaks out the following way:
•  
  • Under $400k there are about 7 weeks of inventory
  • Between $400k and $600k there are 2.5 months of inventory
  • Between $600k and $1M there are 4.5 months of inventory
  • Over $1M there is are about 16 months of inventory

I like these numbers a lot better than when we looked four months ago.  At that time the market under $400k had only  2 weeks of inventory and the market over $1M was at 2 years of inventory.  Both numbers are healthier for the long term market.  Although I am worried because the inventory reduction on the high end was not so much due to more sales as it was people pulling their homes off the market.  I will be interested in looking at the numbers again in about another three months when we are through the holidays to see if the inventory rises again at the high end.

We have one new home coming on the market this week.  It is a 3 bedroom 1300 sf home in the Tanglewood subdivision of 4S Ranch.  We are taking photos on Tuesday and should have a site up for next week.  We are going to list the property for $400k.  If anyone wants an early look, let me know.

Enjoy the Coffee!

Love Is Understanding

By Steve Goodier

 You’ve heard it said: “Love is patient and kind.” If love is patient, it may be because love is truly understanding.

 Do you know what the most common craving is among pregnant women? (I’m sure this is factual.) The most common craving among pregnant women is not spicy food, pickles or ice cream. Not even close. It is for MEN to get pregnant.

 Why? Because then they would know what it is like! Then they might be more patient. What most women need during times of cravings, discomfort, swollen ankles and morning sickness is… understanding.

 Much of our conflict is simply misunderstanding. As a new bride, one woman moved into the small home on her husband’s ranch in the mountains. She put a shoe box on a shelf in her closet and asked her husband never to touch it.

For 50 years he left the box alone, until his life partner was old and dying. One day when he was putting their affairs in order, he found the box again and thought it might hold something important.

Opening it, he discovered two doilies and $82,500 in cash. He took the box to her and asked about the contents.

“My mother gave me that box the day we married,” she explained. “She told me to make a doily to help ease my frustrations every time I got mad at you.”

Her husband was touched that in 50 years she’d only been upset enough to make two doilies.

“What’s the $82,500 for?” he asked.

She explained, “Oh, well that’s the money I’ve made selling the doilies.”

Have a Great Week!

 Scott