While I don’t think that we will see prices in Berkeley or the surrounding areas decrease significantly, I don’t think we will see much increase either.  With rates continuing to remain low there is no reason for buyers to make rash decisions.  Buyers are indeed picky.  And they are patient.  Because of this, they will wait.

There is talk of an influx of foreclosures hitting the market.  This doesn’t surprise me.  I think we will see more short sales, but the days on market for short sales will decrease.  Not because the banks have their systems in place, but because more sellers will lose their home to foreclosure during the process.  The one thing to watch is that banks are starting to promote short sales for their distressed clients, and are proactively calling owners to see if they would like to short sale their home.

I think the allure of investors seeking foreclosed properties will continue to rise.

2011 brought a ton of cash buyers.  As the economy attempts to recover, cash purchases in all price brackets will continue.

One demographic that is being hit is the younger market, the 30 – 34 year old market.  Loss of jobs, loss of appreciation, and student loans out of deferment, homeownership amongst this age bracket is falling faster than any other.  This is a market that I service, and I have definitely seen a shift in the mindset of the 30-somethings.

Sellers are discouraged.  They are fearful.  They are worried that prices will never go up.  Those who don’t need to sell, won’t.

This all sounds pretty grim, doesn’t it?  Well come on now, the economy is still in the pits.  Did you think real estate would be any different?  The good news is that if you are a seller, there are a TON of buyers who are well-qualified.  If you are a buyer, rates are still at an all time low.  And with rents projected to rise, now is the time to cash in on some real estate wealth.

Wherever your real estate path may take you in 2012, I wish you good health, happiness, and a hot cup of tea by a cozy fire.

Cheers!

http://www.dsnews.com/articles/double-dip-altos-says-prices-have-been-steadily-rising-since-then-2011-06-02

What I find completely hilarious (and true!) is that the article deems the ebb and flow of home prices as the “Catfish Recovery.”

You laugh, but think about it.  As the article references, a catfish is a bottom dweller that moves slow, feeds off of the bottom of a lake or river, then heads up to the surface, then back down, all the while bobbing up and down without a clear direction.  Sounds like some investors I know!

For months we have been saying that that we are seeing prices continue to go down.  But that isn’t true anymore, it really depends on the area and the price range.  For buyers looking in the $550k and under range I am seeing more catfish-like effects with prices; the upper end ($850k and above) seems to be holding steady, probably due in part to low inventory.

Overall inventory has dropped in the past month (down by 1.7%), which is the first reduction since November 2010.  Distressed properties continue to dominate the market, but this is also decreasing.  So while national readings indicate a .93% increase in price, it is important that you look hyper-locally to see what a particular neighborhood is experiencing.

“It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it’s not out of the goodness of their hearts. It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses,” said John Walsh, DataQuick president.

A year ago the percentage of foreclosures that had not yet re-sold was about twice as great, while the number of unsold foreclosures from the 18-month period ending in July 2008 was about 50 percent higher than it is now.

Notices of Default (first step in foreclosure process)
houses and condos

Number 1: San Francisco

The San Francisco metro area has seen its home values drop by a quarter, and the city still has some pain to work through. The city’s median home price is expected fall another 8.3% by June 2010.

After that, however, the market there may come roaring back: Fiserv predicts a 14.3% gain between June 2010 and June 2011. Averaged out, that means a 4.8% gain over the next two years.

One reason for the sharp comeback is that much of the area’s excess inventory will have been sold. It’s already dropped by nearly in half over the past year.

The recovery will be delayed, though, as the area — particularly Oakland and the East Bay — works through its foreclosure problems. During the first six months of 2009, one of every 52 homes had at least one foreclosure filing.

The good news, according to Mark Fleming, chief economist for First American CoreLogic, is that core city neighborhoods don’t have nearly as many foreclosures as those out on the fringe. The steady demand in those communities will serve as a base as other neighborhoods rebuild.

Number 6: Oakland

Looming over Oakland’s metro area is the exotic mortgage, such as option ARMs, which will start to reset to higher rates over the next few months. It’s feared that could fuel another severe wave of foreclosures.

Still, the foreclosure problem of Oakland pales in comparison with those of inland California cities. Plus, the city also has a lot going for it, including many communities that are “highly sought after by homebuyers,” according to Mark Fleming, chief economist for First American CoreLogic. That should buoy home prices once the economy recovers.

Before that happens, Oakland will have to work through some significant economic problems. Unemployment, at 10.7% in the metro area, exceeds the national average, although it pales in comparison to some of the inland California metro areas. Yuba City, for example, has hit 16.1%, and El Centro is at a whopping 28.7%.
With the prospect of continued job losses, it’s no surprise that Fiserv is predicting an 11.7% drop in home prices by June 2010. After that, however, Fiserv expects Oakland to take off again thanks to its strong and varied businesses, such as health insurer Kaiser Permanente, Clorox and retailer Dreyer’s.

Its position across the Bay from San Francisco and its great educational institutions, led by the University of California, provide a further base for the economy. Fiserv forecasts that home prices will return to double digit growth starting next June and produce gains of 13.7% in the following year. Averaging out the drop and the gain, Fiserv expects a 0.4% rise over the next two years*.

Other cities on the list: Seattle, Pittsburgh, Rochester, Memphis, Birmingham

Click here to read the original article from cnnmoney.com
http://money.cnn.com/galleries/2009/real_estate/0910/gallery.housing_price_forecast/index.html

Hmmmm.  And how does one propose we do that? 

Here is what is expected in the Bay Area in 2035:

* Population: 9 million
* Median Age: 42.2 years (it was 35.6 in 2000)
* Jobs: 5.1 million (1.6 million more than today)
* Diversity: Latinos will represent more than 30% the population and come close to surpassing whites as the largest ethnic group
* East Bay Population: 3.3 million
* Biggest East Bay City: Oakland, which will have 25% of Alameda County’s people and job
* Commute: Average commute will be 20 miles/day

GROWTH
Santa Clara County will grow by 33%
Alameda County will grow by 27%
San Mateo County by 22%
Contra Costa County by 21%
(Source: Association of Bay Area Governments)

ARE YOU SERIOUS?? 

Do these people know that the median income for a family of 4 in California is $74,801?  Wealth should not be defined as what you make in a calendar year.  For instance, Family A and B each made $250,000 in 2008.  Famiy A lives in Oakland, CA, has 2 children in college, costing about $70,000/year.  Mom was diagnosed with cancer and their insurance did not cover all of the costs.  The past two months they have been unable to make their mortgage payments.  Family B lives in Clarksville, TN, has 2 children, each in Jr. High School.  Last year Family B went to Europe for 3 weeks and even purchased a second home.  But because both families earned $250,000 both families are considered wealthy.

Now lets look at the cost of living for both cities:

In Oakland, CA, you would pay about $680,000 for a decent size house to accomodate a family of 4; to rent, you would pay around $1800 – $2000. 

In Clarksville, TN, a house would cost you $226,000 and rent would be $620.

In high cost states, like California, many households make a combined income of $250,000.  But I would certainly not say that these families are wealthy by any means (at least not the ones I know).  This is why the presidents stimulous package isn’t going to help Californian’s a whole lot.  The caps on the package should be adjusted for cost of living, just like the loan limits.

For those curious cats out there, check out http://www.bankrate.com/brm/movecalc.asp to see how the cost of living varies city to city.

The Economy 2009
*GDP: -1.9%
*Unemployment: 9-10%
*Inflation: 1-2% (Mild)
*Interest Rates: 2% by year end
*Oil: $40-$45
*Dow: 8000 – 9500
*Recession: won’t end until beginning 2010

Real Estate 2009
*Prices will decline another 8-10%.
*Foreclosures will continue to rise, especially in CA, NV, AZ, FL.
*Sales will be up 30-60% in foreclosures and first time buyer areas, sales will decline 6-10% due to loss of wealth, jobs, and buyers.
*Commercial real estate, especially malls and office buildings, will decline 10-20%.  Inventroy will grow 10-20% and loans will be harder to get.
*Lower home mortgage rates will stay low and the government will help, but only for $417,000 conforming and below.
*Jumbo loans will still have 6.5 – 7.5% rates, need significant down payments, and at least 700 FICO score.
*New home prices will continue to decline another 10 – 15%.
*The bottom of the real estate market will vary by area.  Some will bottom by the end of 2009 by going back to 2000 prices while the more distressed areas will not reach the bottom until 2011 as prices need to go back to 1997-1998 prices.

She also said that it is a great year for first time buyers–more affordability, low interest rates, and declining prices.

The first graph is for single family homes in Alameda County, the second graph is Contra Costa County.  The blue bar shows “sold,” the green bar shows “for sale,” and the triangles show “pending.”

First of all, let’s look at the obvious.  Both graphs show a similar pattern with January being the lowest in inventory.  In February inventory goes up, peaks in April/May, and then starts to go back down.  In Oct. 2007 the market and economy were completely different yet the pattern is still the same. 

Look how low inventory got late 2008, yet sales were up from the same time the year before.  Why is this?  Money is a lot cheaper right now, and with home prices falling across both counties, more people are able to enter the market, including first time homebuyers and investors.  Both counties are experiencing opposing economic microclimates: certain areas within each county are experiencing record numbers of foreclosures while others are holding strong, and even experiencing multiple offers.

As the next wave of loans are about to reset inventory will continue to climb, as will the number of foreclosures.  I expect this wave to be consistent throughout the rest of the year.

1.  Home Values.  In most parts of the Bay Area they’ll continue to fall, some faster than others.  Why?  Because seller’s will have to compete with banks and home builders who are slashing prices to reduce inventory.  The steepest of the price declines generally happen in the first two years of a correcting market.

2.  Obama.  His admin will crack down on the shady and horrific lending practices of the past.  I think this new administration will do everything it can to rid this country of all of the corruption generated over the past decade, much of which we have yet to see unveiled.

3.  Mortgage Applications.  Will continue to increase, but remain strict.  Borrowers will need to provide extensive debt and income documentation.  Have great credit?  You will get the best rates.

4.  Foreclosures.  Should double by September.  Consumers are becoming wiser about the process which will allow them to make better decisions going forward.  I think we will see more companies appear which are geared towards purchasing REO portfolio’s from banks.

5.  Recession.  I think buyers will continue to be afraid throughout the next couple of months.  I don’t think consumer confidence will start to go up until the end of the summer.  I suppose that if the governement had actually accepted the fact that we were in a recession a year ago, we’d be in better shape.

6.  Interest Rates.  Will remain low.

7.  Going Green.  I think people are starting to think wisely about space, about remodeling, and about walking distances to places of interest.  This will continue.

8.  Technology.  Consumers are extremely tech-savvy and will continue to rely on mobile searches, webcasts, and online Q&A forums.

9.  Government Assistance and Bailouts.  I don’t think the government really has a plan.  How can they when they have committed to $8 Trillion in relief yet total tax revenue for the US Goverment last year equated to $2.7 trillion?  Sure, the most of the money is in the form of backing various debt securities, but what will happen when it is time to pay up?  I think we are on the horizon for a bubble in the US Treasury Market.  Uh oh.  The good news, real estate always comes out on top in a hyper-inflated market. 

10.  Bottom of the Market.  We are there.  In fact, Leslie Appleton-Young, chief economist for the California Association of Realtors, said it occured last October.

I guess I should also mention 11. Bank Failures.    With the FDIC reporting that the number of “problem banks” increasing tremendously in the last two quarters, we have much to be concerned about.  At the end of the third quarter, there were 171 banks on this list, up from 117 in the second quarter.  Fortunately this is only 2% of FDIC banks, compared with 10% in the late 80′s. 

The East Bay.  So here is something crazy.  Much of the Berkeley area housing market hasn’t been struck.  Ok, it has been struck, just not hard.  Do you recall a previous post where Forbes had declared Berkeley the best place to sell?  http://kristashouse.com/2008/12/forbescom-10-best-suburbs-to-sell-a-home-berkeley-is-1/  Well, we are still seeing multiple offers in many parts of Berkeley.  In addition, Rockridge, Piedmont and Claremont are also hanging on.  Places like Richmond, Oakland and the condo market have been hit the hardest.  As history shows, this is normal for our area. 

Being the eternal optomist (which makes me wonder if this is more hope than prediction) I think 2009 is going to be a turning point for many.  Losing houses, losing jobs, not being able to afford cable, and not being able to watch the next season of American Idol have become reality checks for many.  People are watching their spending.  People are getting out of their cars.  People are starting to really watch out for one another.  Family has become a priority.  Ok, so perhaps this is just hope.  What I do know is that people are demanding change.

Wishing everyone a wonderful year of change, and yes, hope.

1.  Predictably Irrational: The Hidden Forces That Shape Our Decisions.  This sly and lucid book discusses why we make the decisions that we do, including why headaches disappear after taking a 50-cent aspirin but not a 1-cent aspirin and why we ever started spending $4.15 on a cup of coffee.  This was a favorite read of mine- very insightful.

2.  The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket, by Stephen Elias.  Written from the perspective of a bankruptcy attorney, this is a must-read for anyone facing foreclosure. 

3.  The IT Girl’s Guide to Blogging with Moxie.  Blogging is the future.  People blog about everything from money to love to coffee.  This fun book is full of humor, wit, and great information on how to get your blog going, and noticed.  And this book isn’t just for the girls.

4.  Grown Up Digital: How the Net Generation is Changing Your World,  by Don Tapscott.  I haven’t read this, but was told that I should.  In reading the jacket, I think I will…afterall, it was selected as a 2008 best business book of the year by The Economist.

5.  Outliers: The Story of Success, by Malcolm Gladwell.  This book takes a look at why some people succeed and live remarkably productive and impactful lives, while so many more never reach their potential.  Read this and you will be saying “huh…who knew?”

6.  The Giving Tree, by Shel Silverstein.  The 40th edition of this book brings us back to a time when friendship has no barriers.  Give this special book to someone special in your life.

7.  A Whole New Mind: Why Right-Brainers Will Rule the Future, by Daniel H. Pink.  Ok people, time to re-think your world.  The author seeks to engage the brain in a new way of thinking.  The author uses research, storytelling, and provocative examples on why lawyers, doctors and accountants are out and designers, inventors and teachers are in.  Or, more specifically, why the latter will rule the world.

8.  Dreams From My Father: A Story of Race and Inheritance by Barack Obama.  When Obama was offered a book contract little did he know that the intellectual journey he planned to recount became instead this poignant, probing memoir of an unusual life.

9.  The Omnivore’s Dilemma: A Natural History of Four Meals by Michael Pollan.  I didn’t read this book, rather I listened to it on tape.  But it was worth the listen.  This book is a fascinating journey up and down the food chain, one that might change the way you read the label on a frozen dinner, dig into a steak or decide whether to buy organic eggs. I know I will never look at a Chicken McNugget the same way again.

10.   When You Are Engulfed in Flames by David Sedaris.  Because I think this author is just too damned funny.