Where is Real Estate Appreciating & Depreciating?

It's out! Every quarter the Office of Federal Housing Enterprise Oversight publishes its "House Price Index (HPI)" showing appreciation rates for the entire country. It is a backward-looking report, since it tells you where appreciation has been , not where it will be, but it is still mandatory reading for every investor.

The report is available at http://www.ofheo.gov/media/pdf/2q07hpi.pdf.

If you don't want to read the whole thing, here's the highlights:

Significant HPI Findings:
Highest and Lowest Appreciation:
1. The West South Central and Mountain Census Divisions continue to have thestrongest housing markets. Appreciation over the past four quarters was 6.3percent for the West South Central Division (5.6% for the purchase-only index),which includes Texas, Oklahoma, Arkansas, and Louisiana. The appreciationin the Mountain Division was 6.1 percent (6.7% using the purchase-only metric).
2. The New England Census Division continues to have the most anemic houseprice appreciation. Prices grew 0.5 percent there between the second quarterof 2006 and the second quarter of 2007, more than one percentage point less than the second most sluggish Division (East North Central).
3. The states with the greatest appreciation between the second quarter of 2006 and the second quarter of 2007 were: Utah (15.3%), Wyoming (12.8%),Washington (9.1%), Montana (9.1%), and New Mexico (8.8%). The states with price declines for the same period were: Nevada (-1.5%), Michigan (-1.4%),California (-1.4%), Massachusetts (-1.0%), and Rhode Island (-1.0%).
4. The Metropolitan Statistical Areas (MSAs) with the greatest appreciation between the second quarter of 2006 and the second quarter of 2007 were: Wenatchee, Washington (23.5%), Provo-Orem, Utah (18.2%), and Salt LakeCity, Utah (16.0%). The MSAs with the largest price declines for the same period were all in California: Merced, California (-8.7%), Santa Barbara-Santa Maria-Goleta, California (-8.1%), and Stockton, California (-7.2%).

Other Notable Results:
1. The state price declines over the past year in five states is the largest numberof price declines since 1996-1997.
2. Of the 287 cities on OFHEO’s list of “ranked” MSAs, 226 had positive four quarter appreciation and 61 had price declines.
3. Eighteen of the 20 cities having the lowest four-quarter appreciation rates were in Florida and California. Those cities experienced price declines of between 4.2 and 8.7 percent.

Carlsbad's New Golf Course & Trail

Carlsbad just opened their new municipal golf course, "The Crossings". What many don't know is that there's also a new hiking trail through the course. Since exercise is part of my morning routine, I thought I'd check it out today. This is a view of some of the trail.

In all my years of hiking in San Diego County I've only seen one rattlesnake, but I guess Carlsbad has to cover themselves.

Crossings trail bridge in the early morning. The trial is hilly, and runs about two miles one way. There is also a tunnel that runs under Faraday Avenue (not pictured).


View of the Agua Hedionda Lagoon from the highlands of the Crossings trail. Some morning haze obscures the view of the ocean beyond.

San Diego County Foreclosures Up - Way Up

Foreclosures are way up this year, and these bank owned properties are making their way to the market, creating a glut of inventory. This is happening at the same time first time homebuyers have seen their purchasing power plummet as many loan programs which increased their ability to buy have disappeared. The result is that homes in the entry level price range are depreciating.

Countrywide, which had around 500 REO properties in California at the beginning of 2007, now reports 2468 homes in their inventory, and that number is still increasing. You can see these listings on their website, http://www.countrywide.com/purchase/f_reo.asp.

There is much more to come. The following chart from Credit Suisse shows that the greatest number of sub-prime ARMs will reset this November. Sub-prime mortgages are the grey bars. Reset means that the borrowers will have to start paying the real cost of borrowing money, not the "teaser" payment, causing a doubling or tripling of the loan payment. Many of these borrowers have over extended themselves, cannot afford the real payment, and will be facing foreclosure.

Notice a second wave of green bars, these are the "option arms" which will be resetting starting late 2007 until 2012, with the peak occurring in late 2010. Did you know that Countrywide reported that 75% of their customers are only paying the minimum payment option? So we expect to see plenty of foreclosures for a long time to come.
What does this mean to you? If you are a seller, be aware that these properties are your competition, and the banks WILL sell them. No "maybe we'll keep it" with these guys, they are going to get rid of these houses on the MLS, at auction, whatever it takes. You have to price your house to beat them.

If you are a buyer, you'll be able to buy a house in San Diego for less than you thought you could. It will be a great opportunity for you that shouldn't be missed, as home prices will go up again once this glut is absorbed. And yes, it will be absorbed, as those who left the state come back when they see affordable prices again.

If you are an investor, next year should bring exciting times. Remember those sub-prime loans resetting Novemeber 2007? Well, it takes about 3 months of missed payments before the bank forecloses, and then 4 months to get the property at the trustee sale. So somewhere mid to late 2008 we'll be seeing banks really and truly offering some great deals. Right now they are still fixing up the properties and trying to get top dollar. When the flood comes, they will not be able to fix them, and they will be dumping them at bargain prices. So get your finances in order so you'll be ready to deal!

Mortgage Rates on Jumbos Leap

The current credit crunch has hit the jumbo loan market. Lenders are raising rates on jumbo loans, those for more than $417,000, by a full point, or more.

Jumbo loans are now a point and a half above conforming loans. That's way up from the traditional premium spread of about a half to three-quarters of a point.

Blame it on Wall Street which has stopped buying the loans, even those with AAA ratings. The lenders hope with the higher premium, Wall Street will start buying again. We hope this is only a temporary blip.

The median price for single-family, re-sale homes in San Diego County fell 4.2% in July from the month before, and was down 1.7% year-over-year. The average price was down 1.8%, but managed to be up 2% over last July.

Home sales fell 13.6% from the month before, off 13.6% compared to last July. Year-to-date, home sales are down 14.8%.

The median price for condos dropped 3.8%. Condo sales were off 6.5% month-over-month, and down 16.2% year-over-year.

The sales price to list price for single-family homes fell 0.1 of a point to 95.2%. The ratio for condos rose 0.2 of a point to 96.4%.

My advice? For buyers, the rise in mortgage rates for jumbo loans, which are needed for most all sales in the County, will reduce your buying power. The thing to do is to look for lenders who keep their loans in-house and don't bundle them up and sell them on Wall Street.

For sellers, the pool of buyers in the low-end of the market have already been hit by tightened underwriting standards, now, the mid and upper-end of the market have been hit by rising mortgage rates. The pool of potential buyers has shrunk again. If you have to sell, you need to be very aggressive.

The real estate market is very hard to generalize. It is a market made up of many micro markets. For complete information on a particular neighborhood or for an evaluation of your home's worth, call me.

Running with Ben Comen

If you haven't heard of Ben Comen, he is a 20 year old runner with cerebral palsy. He should not be able to walk, let along run, yet he will not let anything stop him! He's a great inspiration, and takes away all of our excuses for not doing what we want to do.

Here's Ben's movie:
http://www.bluefoot.tv/movies/bencomen.html

And here's a small bio:
http://www.icommag.com/june-2005/june-page-12.html

Yesterday I had the opportunity to run with Ben and show support for his tenacity and hopefully have a lilttle of that kind of spirit rub off on me. So at 5:45 am, off we went down the streets of Palm Desert! He said, "If I fall, I'll bleed, and I'll get up and keep running", but thankfully there were no mishaps. It was a really uplifting experience, both for Ben, who enjoyed all the encouragement and support, and for us runners, who got to see "mind over matter" at work.




After a quick shower, it was back to the Tom Ferry seminar at 8 am for another day of real estate training. Some more notable quotes:

CHANGE = Constantly Having A New Growth Experience

"Add up all the days to make a year and then add up those years to make a lifetime and it will become apparent how repeating today's small failures can easily turn your life into a major disaster." - Jim Rohn

"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything - external expectation, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma, which is living with the results of someone else's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

"Stay Hungry. Stay Foolish." - Steve Jobs

Tom Ferry's Success Summit 2007

Palm Desert in August? Yes, that's where I am, with about 2000 other agents who believe in being the best real estate agents they can be, and doing the best job possible for their clients.

The Marriott Desert Springs is the beautiful venue for this year's Summit.

Plenty of energy is in the room!

Here's some great quotes from the seminar so far.

"No pressure, no diamond."

"An immediate reward for a lack of discipline is a fun day at the beach. A future reward of discipline in owning the beach. Unfortunately, most of us would choose today's pleasure over tomorrow's fortune." - Jim Rohn

"The pain of discipline weighs ounces, the pain of regret weights tons."

"It is only through action that we conquer our fears and realize our destiny." - Alexander The Great

"If you are passionate about something, what someone else says to you doesn't matter one bit." - Ben Comen

EGO = Edging God Out

"If you're not doing it, you don't know it." - Jennifer Cummings

Cabin work begins

So, how's our cabin plan going? As you may know, we are attempting to build a cabin in Idyllwild purely with money earned from real estate investing. We're doing this because we love the mountains, but we're trying to do it without usng any of our wages to prove a point. The point is that you can use real estate to buy real estate.

Of course, the plan has not gone smoothly. We are on the 9th revision of floorplans, because their are pros and cons to everything. The lot has a great view, but building on a slope has many challenges. We also discovered an easement that was not on the title report, and that is causing us grief.

Besides that, the declining market in many parts of the U.S. has taken a bite out of the equity we were going to use to build. And this is a second home, not an investment property, so to get the money we have to sell appreciated property, and then pay capital gains taxes on it. It is not easy!

To help us visualize where the house and the driveway will be, we needed to move some dirt around. So today was the day to let the dust fly!

The bobcat carving a parking space at the bottom of the lot...

and the dump truck bringing the dirt to the top.