Now may be the time for your to find your next home or investment property. The pace of sales has been relatively stable since August. The National Association of Realtors reports that U.S. home and condo re-sales inched higher in May.

Re-sales of U.S. houses and condos rose 2% to a seasonally adjusted annualized rate of 4.99 million in May from 4.89 million in April. It's the highest sales pace since February. The median sales price in May was $208,600, down 6.3% from a year ago. It's important to note that many sales aren't counted in the realtors' survey because they do not go through the multiple listing service.

Regionally, sales rose 5.5% in the Midwest, 4.6% in the Northeast, 2% in the West, and fell 0.5% in the South. Lawrence Yun, NAR's chief economist says, "It'd be premature to say the improvement marks a turnaround".

Real Estate is all local - but these stats do heald a smidge of good news.  I think the median sales price being down, is a good thing for sales in general.  As we see prices getting more attractive, more people will be buying. 

What we need now for prices to begin to rebound is lower inventory levels.  I believe we are still many months away from that, the mess with the distressed and REO properties still need to work it's way out of this market before prices will recover and begin to rise. 

As I always say, if you are in it for the long term now is a great time to buy. 

In Morgan Hill, San Martin and Gilroy sales are picking up, just last week our percentage of closed transactions in Morgan Hill, that is houses that sold last week rose 100% from an average of 7 for the past four weeks to 14. Figure that number of Single Family Homes sold in the last 90 days were only 32, 14 in one week is impressive.  We are making progress.

I have been doing a bit of calculations on the make-up of the market for Area 1 in Santa Clara County which consists of Morgan Hill, San Martin and Gilroy.  Last week I went through all the listings and found out which were a Regular Sale – which I call a seller with equity who has decided today is a great time to sell, a Short Sale – which I call a seller with no equity and needs the banks help in order to sell his property and a REO/Bank Owned property which is basically a foreclosure.

I wanted to know how much of the “actives” on the market were really saleable.  Which means homes where the principle owners is the decision makers – such as the Regular Sale or the REO/Bank Owned properties and how many “actives” were homes that were in great distress and where the owner needs the bank to forgive some debt in order for the sale to proceed.  My thoughts are that the “Short Sales” aren’t really saleable in the traditional sense of the word, that we have added an additional party that needs to be negotiated with in order for title to transfer. 

This is not to say that you can’t sell a “Short Sale”  it is just that it takes a very special skill set from the listing agent to get a “short sale” sold.  When the lender is taking it in the “Shorts” (by the way that is not where the term “Short Sale” comes from) they are not too happy about letting the borrower off the hook, paying what would be considered normal and customary sellers fees and are really not too pleased about paying a realtor anything at all.  The banks know they need us, like we also need Proctologists, we just don’t like seeing them very often and in the case of the banks when they are writing off sometimes hundreds of thousands of dollars if they can take from the agents, they will. 

Another disheartening aspect of Short Sales is that if we can’t get all parties, including the bank(s - there most often is more than one) to agree, the house could be sold at auction out from underneath the buyer.  At that point in the near future you should see that property come back on the market as a REO and your chances are excellent at getting a closed sale.  Banks love money but hate Real Estate – unless they can loan money against it and get paid back.   

So… here are the stats and I for one thing they are very telling.

As of June 22, 2008 in Morgan Hill 74% of all listings were of the Regular Variety, 6% were REO’s and 18% were Short.  Of all the Pending Sales in Morgan Hill 57% were Regular, 13% REO and 30% Short.  That tells me that 30% of all the sales out there may or may not be sales and that depending upon the Agents and the Banks may or may not close. 

As of June 29, 2008 in Morgan Hill we have added 20 new listings and 9 homes have gone pending this week.  Of these homes 50% were Regular, 15% REO’s and 35% Shorts.  A disturbing trend if the coming weeks continue to see the erodsion of our Regular sales and an almost 100% jump in our Short Sale percentage.  When we look at Pending Sales we see in Morgan Hill of the 9 sales that went pending last week 44% were Short and 56% were Regular sales, there were no REO’s that went pending last week.  Again a jump in the Short Sales going pending, but if the Agents are following the MLS rules that only means that they received an offer on the property and they are beginning the long and often protracted negotiations with the bank. 

Looking at Gilroy for June 22, 2008 51% of all the Active listings were Regular, 18% were REOs and 39% were Short Sales.  Of Pending Listings there are only 23% of all pending listings in Gilroy of the Regular kind, 35% are REO’s and 42% are Short Sales. 

When we look at this past week in Gilroy they added 20 new listings and 40 homes went pending or into contract.  Looking at the make-up of these listings and sales 40% of all the new listings are Regular Sales, 30% are REO’s and 30% are Short Sales.  It is the Pendings in Gilroy that really tell the story, only 18% of all the Pendings were Regular, 28% were REO’s and 55% were Short.  So here it looks like “Gilroy is Selling” which is what I heard from more than one local agent – I am not so sure if 22 of all the sales this past week were Short Sales.  I would say that Gilroy is trying to sell – maybe the agents should focus on the properties that are a bit easier to sell first. 

If you just look at Actives vs. Pendings and don’t take into consideration the Make-up of those numbers you can get a skewed perspective of what is happening in the market. 

There is no question that Short Sales are a drag on this market, however if you are going to try to purchase a Short Sale make sure you have boundless energy, limitless patience and a great agent who knows how to negotiate the many pitfalls that accompany Short Sales. 

My advice to all my clients is to look at the Regular Sales and the REO’s first, there is great value in those properties and you can negotiate a great deal.  If the Short Sale is the home of your dreams, then by all means work hard to get it, but be prepared for the process.

In Morgan Hill, San Martin and Gilroy – the South Santa Clara County where Gentleman Farmer meets
Old MacDonald and Ancient Hippies, Yuppies, Yippees, Dinks, Drinks and Drunks crowd Downtown is
this Paradise or Paradise Lost?  A few years hope abounded, new Los Gatos, new Saratoga was on
everyone’s lips, growth with x-rated abandonment suited some where others favored a more
measured and often times misguided view on controlling growth.  Downtown revitalization took many
forms and poor Gilroy’s downtown revitalization program was in full swing for the third time.  And
what is with those speed bumps in Morgan Hill, whose brilliant idea was that?

Now we have a market that is full of what we lovingly call “distressed” properties.  But to what extent,
and where has all the money gone?  Can we look at land use practices and conclude that over building
and poor planning contribute to the mess we are in.  Do the City Fathers have a piece in the mortgage
meltdown?  No, they did not buy the houses, lend the money and walk out on the loans.  But they did
give a green light to certain building practices and in there; “It’s a beautiful Day in the Neighborhood”
attitude do anything to hedge against the dark clouds that were loaming in the distance.  If everyone is
borrowing to buy – what type of community are you really building?

Now the “CHICKEEEENS HAV E COOOOMMME HOOOME TO ROOST” to quote a recent Reverend.

I am not advocating Government intervention into this problem; I think the market needs to correct
this imbalance so that we can get back to a balanced market.  The sooner the private sector comes in
and picks up these properties and turns them into productive properties the better off we will be. 
What do I mean by productive properties, I mean properties that are owned by people who are both
paying the mortgage and the taxes and contributing to the community or people who are renting
these properties out to people who are contributing to the community. 

The real loser for the community is the Seller that has to sell but is not forced to sell.  The one with
equity and that for whatever reason has decided that this is the time to sell.  Hopefully they have a
great agent that can navigate them through this difficult market, help them with the touch choices and
get them sold at the highest possible price.

 

Mortgage Interest Rates Historical Mortgage Rates

Here is a great post by Rick Soukoulis about what is happening in the mortage industry and what we can expect in the future.  Thanks Rick for keeping us all up to date.

   

What the heck is going on here?  Washington Mutual has closed virtually its mortgage
lending centers.  Countrywide is being sold to the Bank of America.  B of A says it will
eliminate many of Countrywide’s programs. Getting a loan seems like it’s no longer as easy as
it used to be.
 
Again, I ask, what the heck is going on?
 
First, getting a loan is going to be different, but it’s going to get easier.
 
The big players are running for the exits, it shouldn’t be all that surprising.  Many of them
were overly aggressive, ignored service and thought they could still get plenty of business by
simply lowering their standards.
 
They were partly right. They got plenty of business by giving loans to people who would
never be able to make the payments.  They made some money upfront, but they’re now
taking tens of billion in losses as these borrowers default.
 
I could have told them: You can get plenty of business by that old fashioned thing called
service.
 
So what's next, what the heck is going on?
 
Second, there will be fewer choices.  And that's probably okay.  A person buying a home
doesn’t need 20 page rate sheets. Most buyers will do just fine with a traditional ARM, a
thirty year fixed, or perhaps a loan that is fixed for five years. 
 
At some point, too many programs just confuses everyone.
 
Third, the regional lender will probably re-emerge as the mega-lenders exit the business.
 
The regional mortgage banker will know the local markets, be more involved with local
realtors, and will offer a service level that hasn't been seen for decades. 
 
One effect I hope will return will even be the regional mortgage banker getting back into the
loan servicing business. 
 
It used to be that borrowers could drop their monthly payment off at the local bank that
made them the loan. Over time, companies such as Washington Mutual and Countrywide
bought up all this local servicing, and they now service portfolios well over a trillion dollars
in size!
 
Borrowers now mail their monthly payments to some anonymous post office box in a city
they never heard of. 
 
What’s worse is trying to resolve a problem.
 
When people’s loans were serviced by the local bank or mortgage bank, a borrower could
always go down there in person to talk to someone.  This all but ceased in the 1990’s because
of outsourcing, and if a borrower was able to somehow get out of Voice Mail Hell and
actually speak to a human, it was often someone half way across the world.
 
While they might sincerely wish to help, communication was never the same.  Borrower’s
frustration was rampant.
 
But as the mega lenders are retreating from the business, and as regional players return, I
believe we will once again have borrowers going back to the model of yesterday, when they
could talk to someone at a local servicing center who could actually solve their problem.
 
There will be many other ways the regional mortgage bankers will make life easier for buyers
ands realtors alike.  It’s hard to know what these will all be, but I think that they will all be
positive.
 
Rick Soukoulis
Chairman and CEO
Intero Mortgage
408.578.8700   
rsoukoulis@Interomortgage.com
 
 

 

Did you know that 43% of all the pending sales in Blossom Valley are Short Sales?  or that 41% in Berryessa are short sales?  Compare that to 2% in Los Gatos and we can see that it really is Location Location Location. 

Or did you know that 47% of all the active listings in South San Jose are Short Sales? or 45% for Alum Rock. 

Are Short Sale Listings really Active?  The one thing I know about a Short Sale is that there is nothing Short about it. 

In Area 1 where I work, Morgan Hill, San Martin & Gilroy the stats are 28% of all the pendings are Short Sales and 24% of all the listings are Short.  I would bet a Starbucks that over 60% of the Shorts are in Gilroy. 

Why does this matter?  Well... when we listen to National Media making generalizations about the Real Estate Market and predicting more blood in the streets with recovery coming in maybe 2012 or 2023.  The only thing I can say is maybe in some places but not really in the Center of the Known Universe which is, frankly the Silicon Valley.

The reality of the Real Estate Business is that every day we go out and look for work.  We might be looking for a buyer at Open House or a seller through our sphere, a Great Agent always listens for the deal.  This market is a great crucible for Agents, Brokers & Loan officers. 

Check out this article - some frightening statistics.

It reminds me of a saying that one of my Art Instructors told me, "The difference between a Successful Artist and an Unsuccessful Artist is that the Successful Artist kept working".  In this business where rejection is one of the only constants and that staying focused and managing your time effectively is critical, I can see where is would be easier to "get a real job".  My problem is that no one would hire me.  I am too focused, driven and assertive to be a good team player.  I was once told that there was no I in Team, but there wIn and I am here to get my clients the Win and get them what they want.  Plus it will be fun you'll love it.

All in all I think it is a good thing to get the part-time, non focused agents out of the profession. There is too much at stake for the clients to have someone who just dabbles in Real Estate handling their deal.  The deals are tough, the competition is fierce, the clients (even great ones) can be challenging (its alot of money) but there is nothing better than putting together a difficult deal and seeing everyone get what they want. 

Rick gives another compelling arguement as to why rates will continue to go down even if the Fed don't do any more rate cuts.  Give us Hope Rick - Give us Hope!

The Chance of a Lifetime

 

What do you think your business would be like if 30-year fixed rate mortgages fell to 4.5%?  
Would your phone be ringing off the hook?  Would listings come pouring in and buyers be
lining up to over-bid?

You know the answer better than I do, but I know something about mortgages.

And I’m here to tell you that this is very likely to happen.  In fact, I’m 100% convinced that
mortgage rates will be below 5% at some point during this year?

Why?

The answer is a concept that applies to much of life, a term that statisticians call Reversion to
the Mean.

If you remember high school math, the Mean is just another word for the average.  So
Reversion to the Mean just means that things return to the way they’ve been in the past.

I don’t know how many of you are baseball fans, but let me use that sport to give you an
example.  Let’s say a baseball player averages 23 home runs a year for the first seven years of
his career.  Suddenly, he hits 47 home runs in his 8th year.

Reversion to the Mean theory states that his 8th year was probably an aberration that won’t be
repeated, that he will probably return to his statistical average of hitting somewhere around
23 home runs.

Another way of looking at it is that flukes do happen, but they’re just flukes and not a whole
new level of performance.

So what the heck does this have to do with a 4.5% mortgage rate?

The answer is that there has been a statistical relationship between the rate on 10-year
treasury bonds and mortgage rates that has been remarkably consistent for decades.

Going back to the 1970’s, and probably earlier, pricing on mortgage rates has consistently
been 1.0 to 1.5% over 10-year treasuries.

As I sit here writing this, mortgage rates are 2.25% higher than 10-year treasury rates, and
they were actually 2.75% higher last summer.

Trust me, my friends, this is not some new way that the capital markets are pricing
mortgages. It is the ultimate fluke, a result of everything awful you’ve read in the business
headlines the past 7-8 months.

The capital markets have been going through very difficult times, and the so-called Mortgage
Meltdown has thrown everything into a temporary state of confusion.

But we always return to old patterns of behavior, and things always revert to the mean.

Quite simply, the 10-year treasury is at 3.5% today.  So if we add the historical spread of say
1.25, it means that mortgage rates should be 4.75%. 

Aside from Reversion to the Mean, Congress has loosened the rules that govern Fannie Mae
and Freddie Mac.  They authorized the two entities to increase mortgage purchases.
Secondly, the Federal Reserve has begun buying mortgage backed securities.  They typically
limit their buying and selling of securities to bonds issued by the U.S. government, but their
move into mortgage securities should also bring more liquidity to the mortgage markets, and
it should also drive rates somewhat lower.
The Fed will buy up to $200 billion in mortgage securities while the Home Loan Bank will
make available another $100 billion. That’s a whole bunch of liquidity coming into the
market, and it can only help drive mortgage rates lower.

Only you know what impact this will have on your real estate business. 

But it can only be for the better, I recommend that you be prepared for it. 

This could be the chance of a lifetime.

Things Revert to the Mean, and we will have rates below 5.0%.

Rick Soukoulis
Chairman & CEO
Intero Mortgage

Rick gives us hope in the never ending Challange of "whos got the best loan". 

One thought that with the conforming limites going up that the affordability of homes in Morgan Hill and other parts of Santa Clara County would ease up a little bit.  But NO.....  Instead of Conforming and Jumbo all that the Fed's increasing the limits on Conforming did was create a new category of "Jumbo Conforming" which has a higher interested rate than the regular Conforming loan. 

It has a lot to do with Banks not really knowing what their risk factors are so they add a bit more interest to make them feel a bit more comfortable.  But Gee Wizz, when will there be any balance.  Rick says November and is willing to buy coffee to back up his claim - any takers?  Pamala Meador


Fights on

Many years ago, a young and brash boxer named Cassius Clay predicted he’d knock out the
Heavyweight champion, Sonny Liston.  When he accomplished this goal, he was asked about
his bragging so much.

“It ain't bragging if you go ahead and do it” he said.

Cassius Clay became Muhammad Ali, and the rest, as they say, is history.

Is bragging just another form of prediction, although one that luckily comes true?

It’s hard to say, and certainly, in the area of economics, predictions have a way of making
even the most prescient and intelligent look foolish.

As one man put it, “Wall Street indices have predicted five of the last nine recessions”, or as
another put it, “Forecasting is the art of saying what will happen, and then explaining why it
didn’t.”

Funny quotes, all, but let’s look back at this column for the past few months.

Our two biggest predictions did come about.

Biggest was my firm belief that spreads would tighten, a fancy way of saying that mortgage
rates would go down without the market going lower.

Second, was that underwriting standards would be relaxed, especially the down- payment
requirements.

I don’t want to be seen as patting myself on the back.  Not at all.  I’ve been in this business
over 27 years, and to me, it was obvious and inevitable that these would happen.

In many ways, government as well as private sector policy had caused the housing crisis.  So
it was obvious that they would have to make some changes to undo that crisis.

In my view, the down payment requirements that Fannie Mae recently relaxed were the most
crucial to those of us who work in the Silicon Valley and San Francisco Bay Area.

When people are paying $ 700,000 or more for a home, the difference between 20% and 3%
down is huge. It makes all the difference in the world as to whether a family can buy a house
or not.

But what might a crystal ball show for the next year or so?

First, the higher loan limits are set to expire December 31 of this year.

I’m 100% certain that with an election coming up, Congress will absolutely extend these
limits.

No politician wants to be seen pulling the rug out from under the American homeowner,
especially in the middle of san election year.

Second, the economy clearly appears to be under stress, and this will keep pressure on rates. 
I’ll say I’m 98% certain that rates aren’t going up, and that they’ll probably continue to come
down.

Third, the difference in rates between conforming (loans under $417,000) and Conforming
Jumbo ($417,000 - $729,000) will continue to shrink, as we have seen over the past several
weeks. Fannie Mae and the Fed are working diligently to drive rates between those two
categories closer together, and they have made great progress in a very short time. It will get
even better.

Let’s meet here, same time, same place, in six to nine months and see if these three predictions
will have turned out to be right.

Better yet, give me a call to set a date by which I come by you’re office, maybe meet in
November or so, and we can discuss it in person.

And maybe we can even set a bet at who buys coffee in November. 

Rick Soukoulis
Chairman & CEO
Intero Mortgage

I think Rick hits a home run with this article.  It clearly outlines the problems we in the business have of dealing with the debt instruments that are on these homes.  I call them veggie-matic loans which were sold with the same type of excitement and wild abandonment that have been associated with veggie-matics the world around.  Pamala Meador.


Foreclosures and other opportunities

Have you ever noticed the changes in late night ads and infomercials for real estate
opportunities? During a boom period, the late night ads are all about how to buy with
nothing down and how to build an empire of rental houses.  People who bought the
programs tell all speak glowingly into the camera about how much they are making in
a week, and it seems they’re always filmed from some beach in Hawaii where they’ve
presumably retired to.

But isn’t it kind of amazing how quickly the ads change once the real estate cycle turns?

Over the last few months, I’ve noticed a not-so-subtle change, as most of these late night
ads now tell us how much money there is to be made in foreclosures, short sales, and
other side effects of a difficult real estate environment.

Are these ads accurate?  Is there big money to be made during times of great stress in
the housing markets?

They answer is that there can be, but that it’s gotten much more tricky this time around.

Why do I say that?

In the old days, and this may have been just  15 years ago or less, dealing with
foreclosures and the like was pretty simple.  There was a good chance that the loan was
owned by a local bank or savings & loan, and many realtors developed relationships
with the foreclosure departments tat these banks.

When good deals came along, the bank would call the realtors they worked with, and
everyone made money.

Like a lot of things in modern life, things have gotten much more complex.

It sounds strange, but it’s not so simple to understand who owns a given loan anymore,

You’ve all heard of securitizations, right? It’s taking a large number of loans and
putting them into a mortgage-backed security of some sort and then selling that
security on Wall Street.
It’s like a bond that’s backed up by a whole bunch of individual mortgages.

That part sounds pretty simple, and whoever owns that security really owns the
underlying mortgages.

For a number of reasons, we now have financial “engineers” who take a lot of thee
securities and then slice them into thin pieces.  They’ll then take these thin slices from
maybe 10 different mortgage securities and combine them into new securities.

I know it sounds strange, but a single loan could end up being a part of 5-10 different
securities. One might get the interest payments of the loan, while a totally different
security might have the principal payments. One security might absorb the first 10%
loss on a loan, while another security could absorb loses that exceed that 10%.

If you’re getting just a bit confused, well, it is confusing.

When you’re dealing with foreclosures, short sales and loan modifications, at some
point you need to talk to the owner of that loan.  At some point you need the owner of
that loan to sign off on what you’re trying to accomplish.

If it’s unclear who owns that loan, you’ll most likely need a decision that can only come
from the owner of that security, or perhaps the custodian.

And not to scare you, but here’s a very possible scenario:  The loan you need a decision
on could be part of a mortgage security owned by the Michigan State Teachers
Retirement Fund. But another part of that loan could be owned by an insurance
company in Japan.

How the heck will you ever get a decision on your proposed loan modification or short
sale?  Unless you know your way around this world of securitizations, or unless you
know someone who does, you might not ever know that the custodian for these
securities can make the decision.

My point is quite simple:  Financial engineering by Wall Street has made things more
complicated, but there is some good news to this situation.  There are mortgage
professionals who understand this process and who can guide you through it
successfully. Intero Mortgage is here to help.

Rick Soukoulis
Chairman & CEO
Intero Mortgage