Those who share my 30 years in real estate recognize that our business is cyclical.  Real estate is a long-term investment.  There’s no such thing as a bad market.  There are always plenty of people ready to buy and sell.  In fact, 2007 existing home sales surpassed those of 2002, then a record breaking year.  Today, buyers have more choices and favorable interest rates.  Economic indicators remain good.  Most areas of the country are experiencing employment gains, inflation is under control, and the gross domestic product is growing.  Bad news should be put in perspective, when newspapers talk about foreclosure spikes, they ought to provide context: The problem is predominantly with subprime loans, which are held by less than 10 percent of home owners.  Most subprime loans will never go into foreclosures, and not all those that do will be foreclosed on.  The foreclosure rate on prime loans is only 0.6 percent.  Now’s a great time to buy.

Excerpts from Richard Gaylord, 08 NAR President.

Bay Area home sales edged up from a seven-month run of record lows last month, indicating that mortgage availability is improving and that an increasing number of fence sitters have decided they like today’s lower prices, a real estate information service reported.

A total of 6,310 new and resale houses and condos sold in the nine- county Bay Area in April. That was up 28.8 percent from 4,898 in March, and down 15.3 percent from 7,447 for April 2007, DataQuick Information Systems reported.

The month-to-month jump was the strongest for any March/April in DataQuick’s statistics, which go back to 1988. Starting last September and through March, each calendar month was the slowest on record.

“Vultures” plucking housing deals are a sign that the housing market is at or near the bottom.  They’re circling and picking off what some are calling the “steals of the century.  Reasons why, we’re at bottom or near it.  We expect a repeat of 1991 to 1996 – the last time the market recovered – when prices stabilized with modest annual gains that took five years for prices to start heating up.  This time will be no different.  This outlook isn’t based on optimism as much as indicators and conditions that you can’t ignore.  California has 36 million residents and an economy with an annual output of $1.6 trillion that is 30 percent larger than the last housing slowdown.  There is still an annual housing shortfall of 200,000 units in California.  Investors are the ones who are deciding the bottom of the market.  Real estate agents say investors account for between 50 to 60 percent of the current sales. The balance is primarily first-time buyers. “Everything is price driven today.”

With all the ink and air time given to housing recessions, subprime loans, the credit crunch etc., it’s hard to understand that right now is the time to buy a home. It should always be your first investment and it will always be profitable. For a first time home buyer with good credit, consider it a five year plan. It’s a perfect time to enter the home buying market. Do it now before interest rates wipe out your advantage. Any gain in prices dropping further could very well be off set by rising financing costs. Stop procrastinating, buy a home today.

Instead of home prices being inflated far beyond actual home values, prices have finally reached a realistic level.  According to National City Bank Chief Economists, housing prices are back to long term norms, and by the end of the year housing markets could be broadly undervalued.  Price declines have continued into 2008 with interest rates up slightly, but still lower than the same time last year.  Soaring foreclosure rates are further depressing home values.  California ranks among the top three states for affordability gains over the last three years.

To head off more loans, Countrywide Financial Corp recently sent out letters to 122,000 homeowners informing them that their home equity credit lines were shut down since their estimates home values had dropped below their loan amounts.  Right behind Countrywide was Chase Home Lending, which notified borrowers in Los Angeles, Imperial and Orange Counties that they could tap their credit lines for no more than 70% of the value of their house.  Previous limit had been 90%.

Home price declines in California this year will be steeper than she originally forecast, an economist for the state’s biggest real estate trade group said Wednesday in Campbell. But there’s a silver lining: Prices are dropping fast enough that the market may hit bottom faster than most people anticipate.

“I’ve obviously had to eat my ’soft landing’ words,” said Leslie Appleton-Young, chief economist for the California Association of Realtors, referring to a refrain from the statewide housing forecast she delivered in October.

Last fall she predicted median prices in the state would drop about 4 percent this year. Wednesday, she said she’s in the midst of revising that forecast, and that a median price decline of 8 to 10 percent is more realistic.

A 10 percent drop would bring the median price of a detached, single-family house statewide to about $518,400 in 2008, based on California Association of Realtors data. Speaking to about 900 Intero Real Estate Services agents and guests gathered at the Campbell Heritage Theatre, Appleton-Young said it’s “absolutely impossible” to craft a one-sentence version of how California’s housing market is performing now. Conditions vary too widely among regions and even neighborhoods.

In general, statewide, “The lower the median home price, and the cheaper the dirt, the more likely it is that prices are falling” and that the area was plagued by high levels of subprime lending, she said. But she described the Bay Area as “a relatively stable, strong market, compared to almost every other part of California,” though it too has pockets where falling values and rising foreclosures are creating a downward spiral.

Stephen Levy of the Center for Continuing Study of the California Economy, based in Palo Alto, said Appleton-Young’s revised estimate for home price erosion is much more realistic than her original. He said a 10 or 15 percent decline in the state’s median home price would be “about right” for 2008. He agreed with her observation that the bottom of the cycle could come sooner than many anticipate.

Appleton-Young cited recent aggressive moves by the Federal Reserve to cut short-term interest rates as the primary factor hastening the ride to the bottom - and eventual recovery. But Levy disagreed. “The reason we’re closer to the end is that prices are falling faster than anyone expected” in many California markets, he said. “Even I am surprised by the speed with which prices are adjusting.” However, prices are still out of line with most Californians’ incomes, and with home prices in other states, he said.

As did Intero founder Gino Blefari at the outset of Wednesday’s meeting, Appleton-Young exhorted real estate agents to double their efforts to cultivate prospective clients, especially first-time buyers who are finally seeing conditions turn in their favor. “Believe me, they are out there,” she said, and waiting until they think prices are reasonable. “Nobody rings a bell at the bottom of the market,” Appleton-Young said. “Everybody’s waiting for the bell.”

WASHINGTON (MarketWatch) — The Senate has passed a $150 billion economic stimulus package designed to provide a timely, targeted and temporary boost to the flagging U.S. economy. The Senate approved the measure, nearly identical to one passed by the House last week, on a 81-16 vote. The House will take up the bill quickly and is likely to send it to President Bush for his signature by the weekend. The plan would give tax rebates of up to $1,200 for households, with $300 more for each child. The full rebates would be sent to families with incomes under $150,000, including seniors and the disabled. The plan would also cut business investment taxes by $44 billion.

I asked colleague lan Reynolds a question about mortgages today, and he replied with what I think are some useful points that usually don’t appear in the crisis-obsessed media.  Here are what Alan believes are the rough stylized facts:

Most foreclosures are prime, not subprime. 

Half of subprime mortgages are fixed, not ARMs.

The vast majority of recent subprime loans were for refinancing, not buying.  As house appraisals went up, some just borrowed all the phantom equity and spent it.  About 96% of all mortgages are paid on time.  Most of the rest are late, but not in default.

The main reason for default is that home prices fell in some areas, leaving more owed on the mortgage than the house is worth.  Serious delinquency (2-3 months late in payments) is much more common than foreclosure, partly because deals are being renegotiated.  The media often confuse numbers of late payers with numbers of actual defaults.

Most foreclosures of ARMs happened before the rate adjusted, not after.  Often within one year.  This was often due to borrower fraud –lying about income and assets.  When the house or condo could not be quickly flipped at a profit, those with zero down just stopped paying.

Very few subprime borrowers qualified for the lowest teaser rates — most paid about 7% or so from the start, so far as I can tell.  The adjustments on ARMs are limited, and with rates now falling some adjustment will be down rather than up.

Finally, Alan notes that there is a lot of misinformation out in the media about mortgages, much of it coming from the Center for Responsible Lending which, in turn, received a lot of cash from John Paulson who just made $3-4 billion by shorting mortgage-backed securities during the panic and hype about “subprime.”

posted by Chris Edwards on 1.24.08 - From the official blog of the Cato Institute.

Under the terms of the proposed stimulus package, the conforming loan limit — the maximum loan amount that government-sponsored enterprises like Fannie Mae and Freddie Mac may purchase or guarantee on the secondary market — will be raised from $417,000 to as high as $725,000 in high-cost areas.