Case-Shiller Index of Housing Prices - Double Dip?

The headlines today about the Case-Shiller Housing Index do not reflect what is going on in the Silicon Valley market.  Read the data from the actual Case-Schiller tables via this link. The bottom of the single family housing market for Santa Clara County is essentially March 2009.  The data that was released today is about March 2011 - the Index has a two month lag time so that the data can be compiled. Seasonally adjusted index for the San Francisco region is 134, compared to two years ago of 121. We are significantly positive over the last two years.  Also, consider that the data is for the SFO region which takes into account some more severely impacted areas of the East Bay.  If the data were strictly for Santa Clara County, the numbers would be even better.
Now this is not necessarily a rah rah of the Valley - when considering a purchase or a sale of real estate, we want to take into account all the possible factors - it's not just about price! 

San Jose Bank Owned Homes

I just did a search of future San Jose Bank Owned Homes based on a 5 mile radius scan of Notice of Trustee Sales. The parameters were, 5 mile radius of my office at Intero Santana Row and NTS within a 60 day period. The return was 775 homes scheduled for trustee sale in the next two months. Of course, many of these will be postponed due to short sale offers, bankruptcy filings and mutual agreements with lender & borrower to work through loan modification, etc. This is a very large number given the comparison to the approx 3,500 homes on the market in Santa Clara County. An additional 20% REO or short sale inventory will have a significant impact on pricing. Banks are being cautious not to flood the market. Although, some banks may decide to sell their inventory first at perhaps higher prices than waiting it out.

Real Estate on it's Head in Silicon Valley

For a bank owned home in Silicon Valley - buyers should offer 10% over asking and better be "all cash" in order to beat the competition.
For a "normal" sale - buyers can offer 5-10% below asking and get favorable responses.
For a short sale - buyers can offer less than 10% below asking and get sellers quite thrilled to take that offer to their short selling lender.

Now don't quote me on this - this is NOT completely factual - actually very anecdotal - yet, ask most buyers, sellers and agents in this marketplace and that is typical of what is going on.

United Commercial Bank seized by FDIC and sold to East West Bank

One of the largest banks in the US focusing on Asian American lending was seized this weekend by the FDIC. This is the 120th bank to fail this year. East West Bank, with a similar Asian American focus was chosen by the FDIC to acquire UCB's assets, loans, liabilities and branches. This is a boon for East West Bank - especially because the loan loss liabilities are covered by the FDIC. Locally, UCB had a $22,000,000 loan in default on The Globe development in Fremont. Construction lending was the core of UCB's business. Typically a high profit lending segment, although of course the high risk is evident in this economy. See the San Jose Business Journal article on this for more details.

Why Wells Fargo bought Wachovia and not Washington Mutual

Great insight into why Wells Fargo bought Wachovia. I just read this article as I was searching for ways to get my client's Wells Fargo short sale approved. The banking industry of course is very influential to real estate and knowing why banks do certain moves is power. Eric Meyerson's blog Free Rise is outstanding. He is a banking industry insider and San Francisco area resident. Check him out.

Corole Rodoni Speaks to Intero About Housing

Listen to 10 minutes of Carole Rodoni's review of the current real estate issues of the day. She has been consulting and researching the Bay Area real estate market for decades and has always had great insight.

Santa Clara County Foreclosures Rising Again

Check out the article by Mercury News real estate reporter Pete Carey about the rising tide of Foreclosures in the Valley. The tide is rising again, somewhat buffered by the Obama plan and other local governmental agencies artificially halting foreclosures. This will stretch out the problem so that the pain will be felt more evenly over the next couple years. Expect a significant impact in listing inventory as we get past September.

Short Sale 4plexes are Gone

The market is improving all around. I cannot say this is our firm bottom by any means. Although, there are a lot of buyers and their agents chasing single family homes, townhouses and condos with multiple offers and going over asking prices. What I found interesting is that this wave has finally come over to the duplex - fourplex market. A few months ago, there were some outstanding short sale opportunities in west San Jose, specifically near Southwest Expressway and San Jose City College. Now those deals are all in escrow - some 3,500+ square foot fourplexes were listed at $650,000-$750,000. My client just bought a fourplex on Leigh Ave - very nice property - Pollack & Gambord style - for $700,000. If that property went on the market now, it would easily be worth $800,000+. We were in a short sale escrow for approximately 3 months and the market moved higher in that timeframe. There are still some deals that are not being chased, but they are becoming fewer. Has the market really turned...? Comments and thoughts please!

Santa Clara County Home (REO) Stats

5,800 listings for sale on the MLS in Santa Clara County.
*** 48% of those are Bank Owned REO or short sales ***
2,200 homes are in "Pending" status
*** 78% of the Pending homes are Bank Owned REOs or short sales ***

The bank deals ARE the market. This is very clear. Some "normal" sellers will price according to what the banks are selling homes for or they will not attract buyers. Yes, this is not easy to accept, yet that is reality.

Mervyn's Bankruptcy Leases Purchased by Kohl's & Forever 21

Good locations trump bad economic times.

I'm leading with the moral of the story. I know that is bass ackward. Although this market is somewhat that way too. So, it makes sense!

Have you seen a Forever 21 store? I have, they do not look like a company that would set up shop in a 80,000 square foot space recently occupied by Mervyn's. Maybe they will take a front corner section and install ice skating or a BMX park in the other 70,000 square feet. Now to be news worthy, F21 expects to widen their product line offerings and step up to a big box presence. I am NOT going to that new store with my daughter anytime soon.

Kohl's I understand. They were head to head competitors with Mervyn's. Although, may I ask, where was Target in this bidding?

The bankruptcy auction of these spaces yielded interesting results. F21 bid on some 70 Mervyn's locations. They walked away with 15. Other bidders were real estate investors. They undoubtedly won some spaces. Which probably will then be offered to the Kohl's and Forever 21 companies.

The auctions were oversubscribed because there was good value in the under- market leases that Mervyn's controlled. As in a previous posting, some of these spaces were at $.20 per foot! Bankruptcies gives us a good vantage point on real estate. Kmart went through the same process years ago. Some sites were swooped up (as in Kohl's first entry into the Bay Area) and other sites sit vacant in the middle of long stretches of highway from here to nowhere. Yes, that is why I like in-fill locations in strong metros. (Hmmm....is that the moral of the story?)

Campbell's Soup - Biggest % Gainer Today

Sad and Ironic:

Today's Biggest Losers:

Wachovia - down 82%
Sovereign Bancorp - down 72%
National City Corp - down 63%
Fifth Third Bancorp - down 43%
Regions Financial Corp - down 41%

Today's Biggest Gainer:

Campbell Soup Company - up 0.3%

I'm curious to see if the cardboard box companies did well today too...

Ok, I'm a bit sarcastic today. But..."When life gives you Lehmans..."

When life gives you Lehmans....

Fantastic quote from super blogger Dave Pell of Davenetics in San Francisco. It's apropos to a lot of things going on these days in the financial world. Any definitions that you would suggest? Comments appreciated. Or let's just call it our own "moment of Zen".

Fannie Mae & Freddie Mac

Interesting how two pseudo-government agencies, are now owned by the US Government. Seems as if they were guaranteed by the Fed, that it would suffice. Of course not. Guarantees were only for a small amount of loans - which was the assumed risk factor. The guarantee was never for a system that was about to implode due to wild speculation being generated from Wall Street (for the rationale and map of this statement - it was covered months ago). The FDIC too was formed to give confidence to bank depositors - that security as we all know now was like a carefully worded insurance policy with many limitations and outs for the insurer.
OK, enough Monday morning rambling - what does this mean for you and me? Interest rates will come down - confidence in the market has just improved. Lower interest rates will boost home sales. And more loan products will eventually enter the market. The loans that are highly anticipated are short term loans for people who lost their homes to foreclosures. This is always the case after a downturn in the market. When that happens, the market will again begin to percolate.

Financial Title Insurance Update

Any open escrows are being transferred to First American Title Company from the closed Financial Title offices. First American was underwriting the title insurance policies of Financial Title, so it seems like it will be a straight-forward process. First American is a strong financial institution with very good reserves. I am sure the insurance regulators will be looking far more closely at the other privately held insurance companies regarding their financial stability.

Financial Title Company Shut Down

It looks like the rumors were true about the financial stability of Financial Title, the flagship of Mercury Companies, Inc. title and escrow empire in California. While Mercury is a privately held company and not publicly traded - their financial stability did not need to be fully disclosed like a public company and hence the rumors only until today's curtain call.

Another Mercury title insurance company, Alliance Title shut their doors in December 2007. Alliance had approximately a 22% market share locally. Most escrows were folded into Financial Title offices. Recently Financial had approximately a 11-14% of market share in the last couple months. This relatively low figure undoubtedly due to a lack of confidence in the financial stability of the mother ship - Mercury.

When someone chooses an insurance carrier, you want to be able to know they will be there long term.

My pick for title services has been Chicago Title, a Fortune 500 public company with over $1.3 Billion in reserves, nationwide and in business for over 160 years. CT is under the huge umbrella of Fidelity National Financial.

US Bank Economic Forecast June 2008

As paraphrased by my best contact at US Bank, Kit Ng, Client Manager of the Northern California Business Banking Group: Keith Hembre, Chief Economist for US Bank says:

First, he does not believe that inflation will become problematic enough for the Federal Reserve to reverse direction and begin to increase its fed funds rate this year. If he is correct, interest rates in general should be relatively stable in 2008. Second, he believes that the S&P 500 Index, valued at 15.8x our 2008 earnings forecast, is now fairly valued by historical P/E standards. How we arrived at a fair valuation is a painful story, with S&P 500 index down 4.5% since May 1st (the S&P financial index down 16.7% during that period).

If you want the full 17 page June outlook, please email me for a copy.