Seth:Estate

Buy Home Via Listing Agent?

2012-01-24T16:41:00.000-08:00

When buying a home, some folks are tempted to go straight to the Listing Agent, i.e. the Agent whose name is listed on the sign post, and forgo representation by their own Buyer’s Agent. They hope to get an edge on offer acceptance, or save money by negotiating commission.

While these good intentions often lead to a perception of value, they virtually never result in actual value. Moreover, the unintended consequences can be huge… and the result could offset any perceived discount by many multiples.

While general market conditions can arguably be called “distressed”, anyone who has spent even a bit of time searching homes recently knows that good deals and/or good market segments are pretty competitive. The better opportunities often come with multiple offers.

“Pushing offers through” is a function of many variables, including price, motivation, down payment, credit worthiness, payment capacity, organization, technology, Buyer attitude, Seller scenario, Agent experience, and Agent incentive… just to name a few.

The idea of “pushing offers through” itself is largely subject to marketing spin. The main thing to realize is this: if you were selling a home, wouldn’t your main concern be to identify and accept the highest and best offer received? … regardless of who brings the offer?

Since a home purchase is typically one of your largest investments, it is likely your senses will be heightened to perceive any sign of advantage, social proof, or sense of validation. While these same deep-seated human survival instincts have been instrumental in propagating our human species… they also unfortunately tend to make folks vulnerable to compliance professionals who lever emotions. This is where it helps to trust in self-reliance and see outside influences for what they are.

In California, Agent commission is negotiated between the Seller and their Listing Agent. If for example, the total commission is 6%, the Seller usually authorizes the Listing Agent to pay 3% (or half) to the Agent who brings the home Buyer.

It is pretty easy for Listing Agents to plant a seed about “knocking off some commission” since they will “earn both sides” by representing you in addition to the Seller to create a “win-win” deal. But think about it… the commission is already pre-negotiated, and since the Seller pays for all of it… where in the process do you actually even see how much commission gets paid? The fact is you don’t. The total commission and subsequent breakdown do not get disclosed to the Buyer.

The Listing Agent usually has a good idea about what bottom line the Seller will likely accept. Ask yourself how hard it would be to inflate this number by an extra couple of thousand and then say they could take off the adjusted amount “just for you”. Since the commission is pre-negotiated, what incentive would the Agent have to give this money to you?

And if the Seller and their Listing Agent happened to agree in advance to reduce the commission payable by the Seller, then still… what incentive would the Seller have to pass this through to you? No Seller I know likes to give money away even in a good market.

Even in the extremely unlikely event whereby a Seller receives two remarkably similar offers simultaneously, I guaranty you one thing… the order of savings goes like this: first the Seller, then the Agent, then you.

And think about this. The type of property, which fetches competition, is priced low enough that only the highest and best offer wins anyway, and the Seller has ample opportunity to cherry pick everything from inflated offer prices, to all-cash quick-close deals. If a Seller is struggling to get top dollar, then they are unlikely to fetch multiple offers in the first place… and the odds of receiving multiple identical offers are staggering.

Either way, by law, and by every ethical standard we Agents are conditioned to uphold, every offer must be presented to the Seller in a timely fashion. Not doing so could result in license revocation.

At the end of the day, Listing Agents seek first to lock in a typical commission, before risking a sale, or client satisfaction by holding out for “both sides” of the commission.

Now, while the idea of pushing offers through is mostly myth, there are quite a few things we can do to strengthen our offer in its own right, aside from increasing offer price. This skill-set is more art than science, and you should seek a Buyer Advocate who can succinctly quantify their strategy in laymen’s terms.

There are many factors to consider when buying a home that far exceed the prospect of saving a few thousand bucks, and frankly too, whether or not we can beat the competition on securing the first listing we like enough to buy.

Meantime, out of all the variables that make up our home purchase, asking how to “push offers through” or how to “save a few bucks” are not the biggest of our concerns.

The aspect to really focus on is how many tens of thousands can be gained from buying the right property, with the right positioning for long term appreciation, and how to avoid the not so intuitive pitfalls that could bring tens of thousands in liability.

Bottom Line: using a Listing Agent to represent you when buying that same home is kind of like going to court with the same lawyer who represents your opponent. The Listing Agent gets paid by the Seller. Even with the best intentions, there is a conflict of interests. Meantime, since the cost of receiving your own independent advocacy is paid by the Seller, then you may as well enjoy it.

Further, since Buyer Agents are not limited to selling you just their own listing, they are better positioned than a Listing Agent to separate their advice from commission. And if an opportunity does present, to negotiate authentic value on your behalf, rest assured it will be the Buyer Agent, and not the Listing agent, who is better positioned to do so, since they are solely dedicated to fighting on your behalf, to further your interests at every turn.

Hot Listing Alert: Duplex < $1m in Cardiff

2012-01-04T13:40:00.000-08:00

Asyou know, 2-4 units rarely pop up west of I5, and when they do, they areusually priced above $1m.

This457-459 Brighton Avenue DUPLEX listing just went livetoday, and is located in the heart of our coveted Composer District,with an asking price $825,000-$875,000.

Hereis the mapped location for easy reference:

View Larger Map

Hitme back if you would like to schedule a viewing or be notified again if imagesget added to the online MLS report.

Wishing you a wildly successful 2012.

Market Outlook, December 2011

2011-12-01T18:15:00.001-08:00

Between raising a young family and operating at capacityon purchase, listing, and refi transactions, it comes to mind I have not loggeda market update in a while. Then again,not much has changed since I really had something important to say. The political and banking sound bites dujour have changed with the wind, but the basic kick-the-can-down-the-roadstrategy seems to have put us all in the same boat... whether we were draggedinto it kicking and screaming… or have begged, borrowed, bribed, or stolen a seat aboard.

What is also becoming increasingly apparent if notsomewhat humbling, is that when asked for my take on the market, most folks arereally just seeking the parts of my outlook that validates what they werethinking anyway.

But every now and again, I get challenged and inspired todistill my outlook into conscious thought, and with a green light from a valuedclient, Dennis, I am pleased to post for your review an exchange of thisnature. Following is a snapshot of thepart of my day shared in conversation with a sophisticated investor, who kicksthe tires of a vehicle he plans to use to get a job done:

[read bottom up]

From: Seth Chalnick
Sent: Thursday, December 01, 2011 5:17 PM
To: 'DEck43'
Subject: RE: reply from seth

Thanks Dennis, for thethoughtful validation. Me too (lunch)… and it seems I’ll need to stickwith water if I’m going to keep up with you :)

I look forward to helpingKeith find a killer location that blows the doors off similar but inferiorproperties, when it comes to long-term appreciation, by focusing on thefactors, which may seem today like nuances or subtleties, but will compoundover the 20-year resale trajectory.

From: 'DEck43'
Sent: Thursday, December 01, 2011 4:52 PM
To: seth@sethchalnick.com
Subject: Re: reply from seth

Thanksfor the response.

It seemslikely we will see some band aids as the banks fight for time.

Thepeople I speak with in big and small banks are shitting bricks. I am notsure the end game might be quicker than you think. We both know the inevitabilityof mark to market. I am therefore as worried about commercial and retailcenters.

Regardingthe use of funds, this is less than 1% of funds I am personallyinvesting. As the father I am not typical. I am locking in theridiculously low rate I can make on a mortgage to my kids. I gift themthe payment plus the balance of the 26,000. Therefore price is importantbut location and a 20 year horizon are my objectives.

I have asimilar investment with my daughter in Chicago: 750 to 1 mil keeps it even. She has three kids on 529 funds Keith 1.

Post thisemail exchange it will be good to work through Keith with a CC to me. Iwill definitely enjoy having lunch with you one of these first days. Thanks Dennis

In amessage dated 12/1/2011 4:22:06 P.M. Pacific Standard Time, seth@sethchalnick.com writes:

re: Appreciation/value…historically speaking, homes located west of I5 location have commanded thegreatest premium, have been the last to suffer downturns, and the first torebound. This trend was amplified in the following areas (listed fromhighest to lowest): Rancho Santa Fe, Del Mar, Solana Beach, Cardiff,Encinitas, Carlsbad. Add a 10%-15% premium for homes with a view of theOcean or Lagoon or location within a block or two of the beach.

I look forward to helpingKeith and you identify this level of value on a micro level when you activelybegin searching with me.

re: Banking… foreclosureswill pick up the moment the influence of all of this intervention let’s up…unless and until we inflate our way out our debt problems first… which willtake a decade or so. The fed and the government and the banks haveconspired to plug up a cracking dam for four years now, and I am frankly amazedthey have been able to kick the can down the road this far. You are quite rightabout the supply and demand of liquidity. But the banks were basicallyinsolvent after the subprime fiasco… and then they scratched “mark-to-market”accounting principles and boom- they were back in action.

I am convinced there will beno end to the magical things the fed, banks, and government will do to kick thecan down the curb. I don't know if any other real estate professionalwill admit this, and I don't even know if I should give many of them credit forknowing this in the first place… but I have consistently gone on record inpublic forums stating that real estate prices should continue to go down untilfolks can afford the payments with rates that are normalized (i.e. withoutintervention)… and until there is an answer to all the homes that make up theshadow inventory… and until there is an answer for what will happen when allthe 5 yr I/o loans currently in existence re-set back to principal andinterest.

So should the systemself-destruct? From a fundamental standpoint, probably… yeah. Butit is impossible to make rational predictions while the market is being manipulated. In other words, the hypothetical outcome of life without intervention is notthe question. The question we should be asking is this: what willhappen with continued intervention? Because this is our new normal. I don’t know the answer to this question, but if I had to guess, I suppose theultimate result will look like one of two things: We will either haverampant inflation and dilution of capital… in which case it will circle backaround to real estate valuations on steroids… and the 4% rates we see todaywill seem like free money in a few years. Or it will all go to shit… inwhich case I suppose I would rather own property than anything else because itis a tangible asset that will at least retain inherent value even in the worstcase scenario.

I see the opportunity ofbuying today as an opportunity to leverage cheap money. I don’t want totalk myself out of a commission or anything, but if it were me, I'm not sure Iwould put all cash down on a home in coastal North County today with all thispotential downward pricing pressure… unless it wasn't for purely investmentpurposes… or unless I could afford to allocate long-term resources withoutdisrupting the balance of the rest of my portfolio. I see the opp toleverage cash right now as buying $325k homes in inland Carlsbad, Oceanside,and San Marcos. These homes are much closer to their empiricalbottom. ROI is pretty turnkey for renting them. The replacementcost is not much less than the purchase cost. People could afford thesehomes with 20% down. They are the types of homes that people will need tomove to if they get displaced from higher-end homes. But then you missthe longer term appreciation… which I don’t see happening within the next 3-5years. So therein lies the tradeoff.

From: 'DEck43'
Sent: Thursday, December 01, 2011 3:16 PM
To: seth@sethchalnick.com
Subject: Re: reply from seth

You knowwhat historically causes properties to hold or build value in this area whatare those attributes?

Tosimplify banking my question. It is simply a money supply and allocationquestion. If bank balance sheets weaken and reserve requirementsincrease will foreclosures pick up or lending criteria change. If soanyone dealing with the banks should find borrowing or refinancing moredifficult. That should weaken the market.

We arenot trying to market time the exact bottom.

ThanksDennis

In amessage dated 12/1/2011 2:35:38 P.M. Pacific Standard Time, seth@sethchalnick.com writes:

Hi Dennis,

re: Downgrades… thefundamentals should continue to drive prices lower, but with all theintervention, who knows if this will happen and when? I resist thetemptation of timing markets, and simply focus on whether or not it is theright time to buy/sell for each client’s unique scenario. We may,in fact, be far from an empirical bottom, but then again it could be the besttime ever to leverage other people’s money if you buy right. Or it couldbe a bad time to buy from a pure cost basis perspective. The downgradeshave little impact in my book, because the ratings firms lost credibility whenthey failed to see what a lowly agent like me saw five years ago. True,lots of folks care what the media says, but the media is constantly offsettingitself with conflicting reports, such that only hindsight will be the judge.

re: Your question aboutincluding the “used to be price”… sorry if my response last time you asked wasnot clear. For easy reference, here is a more direct answer:

The alerts do not come from“my” system… they come directly from the MLS. It would be helpful if theMLS system automatically displayed the price reduction amount within the emailalerts, but they do not. However, if you click the link provided in thealert to view more info… then find that property in the list… and then clickfor details… you will find a field called “Orig.Price”. This shows wherethe list price started. It does not break down the increments of multiplereductions, but it does at least show how much they dropped the priceoverall.

To get the actual historyand increments of multiple price drops, you can visit “my” website here and then enter the propertyaddress in the ‘keyword’ search box… then on the profile page that displaysnext… locate the “price changes” link, where I intentionally had my guys codethis from scratch to fill in the gap of what I would agree is an MLSshortcoming.

Or you can simply shoot methe MLS number of listings you like and I will give you the history.

As far as my “favorites” go,I take a hands on approach to providing uncensored opinion about each home Ivisit in person with each valued client. I avoid sharing subjective viewsbeforehand, because anyway I slice it… it comes across as “selling”something. I have a large book of business and the criteria important toeach respective client varies greatly. Rather than dissipate focusattempting to be everything to everyone, I mindfully help folks when they aremost receptive. When Keith and I start physically looking at homes, heand you will very quickly see how I help laser onto what you like and avoidwhat you don’t. That said, if you share your short-list of potentialcandidates, it will be a pleasure to review each one and reply back with thepro’s, con’s, and ranking of each one.

I do not specialize inmanaging rentals, but the broker of my firm does. He has successfullymanaged a large stable of properties for over 20 years. I look forward tomaking an introduction as the need arises.

I look forward to helpingKeith find a great home.

From: 'DEck43'
Sent: Thursday, December 01, 2011 8:43 AM
To: seth@sethchalnick.com; ‘keitheck2’
Subject: Re: "encinitas" listings from seth for Dennis foundon Thursday, December 01, 2011 3:04 AM

How willthe bank downgrade play in to this?

From herecould you include the used to be price when we get a price reduction.

We wouldbe curious as a professional at this how do you rate the properties. Youcould put that under the tab on your site called favorites. Value,location, move in quality and rental would be a few of our criteria. Wehave stated before a desire to be within walking of school and the beach.

I spokewith Keith and he will flesh out his wish list a bit more.

Wediscussed this again and are serious at near the bottom.

Torestate it would be cash with a quick close.

Finally,does your firm manage rental situations for clients?

ThanksDennis

-----OriginalMessage-----
From: Seth Chalnick <seth@sethchalnick.com>
To: deck43, keitheck2
Sent: Thu, Dec 1, 2011 3:57 am
Subject: "encinitas" listings from Seth for Dennis found on Thursday,December 01, 2011 3:04 AM

HiDennis,

Here is a link to new listings and/or status changes that match our"Encrinites" search criteria.

Click here to view more information about the propertiesbelow.

New Listing $775,000 240 Cereus St
4 Bedrooms, Status: Active. Residential

New Listing $629,000 1751 Whitehall Rd
3 Bedrooms, Status: Active. Residential

If youwish to unsubscribe from this property update, unsubscribe here.

SearchName: encinitas.

As always, please call anytime with any questions.

Speak soon,
sc
Seth Chalnick
Broker, Realtor, Buyer's Advocate, Registered Mortgage Advisor
Pacific Coast Homes
2093 San Eliot Avenue
Cardiff by the Sea, CA 92007
m: 619.251.8803
f: 858.630.4086
www.sethchalnick.com

9-11 Memorial Surfboard

2011-09-09T12:02:00.000-07:00

Here is a excerpt from this inspiring post:

Jerry Anderson, owner of Headline Graphics... creates custom surfboard graphics on Photocloth, producing photo-realistic images. “I envisioned it immediately,” said Anderson, “I thought of creating a flag that ran the length of the board with the faces of the 343 fallen firefighters set in the white stripes.”

According to Jeff Grygera, “I have built thousands of surfboards, but none of them ever affected me like this. Working on that board, I would stare at those faces for hours, realizing these guys would never return to their families again. As a family man, that was really emotional for me.”

Cardiff Kook Ripped from Lineup!

2011-08-16T11:14:00.000-07:00

Click for News8 story.

This great shot by transworldSURF captures the scene of a prehistoric surf snatching. Our infamous Cardiff Kook has been upstaged yet again! Dude need some lessons or what?

Update 8/25/11... was just emailed this video:

Cardiff Kook Dinosaur Attack - Behind the Scenes from http://vimeo.com/apeel on Vimeo.

10-Year Bond-Yield Hits Record Low Today

2011-08-10T13:12:00.000-07:00

For better or worse the yield today on 10-Year U.S. Treasury Bonds dipped below the all-time record low.

English translation: the leading benchmark, used by the lending world to price rates like mortgage interest (among other things) briefly broke the historic record low, and as I write this post, is only trading a hair's breath higher.

For better... because it will keep pressure off those making payments on existing adjustable rate mortgages, especially those who are underwater. And it means home cost-per-month for new Buyers will likely get a bit more affordable, thereby buoying the housing market, which in turn, lends a ray of hope to underwater homeowners looking to break even.

Gas prices and credit card rates could also come down a bit.

For worse... because it means key economic players are signaling that the "economic recovery" is moving slower than expected. Followers of this blog may wonder how it is possible that key economic players can be surprised, when modest real estate professionals saw this writing on the wall as early as December 2008.

Also for worse... because this situation, while potentially long-lasting, is completely unsustainable and only presses snooze on the eventual day of reckoning. The day may come all at once, or it may come over a decade, but make no mistake, until asset prices are allowed to de-leverage the unfounded run up we had, well... what comes up, must come down.

To make this inevitable reckoning more palatable, okay less horrendous, the Federal Reserve, politicians, institutional traders, big banks, and at this point, pretty much everyone on Main Street too... have all, one way or other, gotten with the program of kicking the can down the curb to avoid the pain.

The idea is to dilute our economic problems over time, tax payers, and as many countries as possible, so that we inflate our way out of an unprecedented mess.

That's okay, but it would be short-sighted at best, and downright irresponsible at worst, not to make the realization here that even well-intended solutions to crisis often lead to unintended consequences. This is all pretty much a big experiment at this point, so buckle up folks, as we travel hereafter to parts unknown.

Bottom line: this is sort of short-term good news... and really bad news for the long-term hope that we are not in fact living out a "new normal".

341 Chestnut Avenue

2011-08-09T22:32:00.000-07:00

3bd/3ba/2car townhome two blocks from classic Carlsbad Beach.

Check out this new listing... a beautiful turnkey end-unit 3b/3b/2car townhome with open floor plan, flooded with natural light, and loaded with pride-of-ownership upgrades. One of only six charming well-run condo units, perfectly located away from congestion and only two blocks from classic Carlsbad Beach. Great opportunity to live or vacay at the beach and walk to shops and restaurants in Carlsbad Village. Asking price aggressively listed $5,000 below last sale in complex, which was comparable in quality and size.

Brokers, Barbers, and Not-So-Free Lovin’

2011-08-09T14:55:00.000-07:00

When it comes to Housing, people often mistake bottom calls like they pick a wrong partner. Somebody out there will complete me, if only I can find them. Well love ain’t a noun… it’s a verb. And so is picking a bottom. In other words, buying right is not something you obtain. It is something you do.

We might be at a bottom, depending upon your perspective, and upon your ability to capitalize on advantages relative to your strengths. For example, for the right reasons, people might take advantage of opportunities to buy below replacement cost. Some are borrowing other people’s money at a significant discount to the future cost of borrowed money. Some are positioning themselves against inflation happening as I type this sentence. Some are making investments to lock in ROI higher than the 10yr bond yield, and locking in an arguably safer investment.

But these folks are still the minority, and for good reason. Because, unless you are sure you are buying “right”, and that you have what it takes to DO what is needed to ensure this buying decision stays sound, and can DO so for roughly 10 years, then well… you are about to meet your future ex.

As it relates to housing bottom calls, the whole “revert-to-mean” crowd, I think, should really shift their attention away from price as an indicator to more of a result. Look more toward rates, than prices, because this, more than any other variable has been artificially suppressed. To be sure, lots of other factors have been manipulated, but rates are the only variable that also serves as a latent ceiling for growth, at least until we finish deleveraging anyway. (Oil too maybe, but this is a housing article).

As for prices, they will keep going down until either rates force them to back in line with market forces unfettered by intervention... or until the tide of inflation completely offsets the inevitable correction. Housing is affordable right now relative to monthly payments… but not necessarily if you factor (un)employment outlook, or diminished income from a strained economy.

Regardless of the continuous stream of nearly three month-old statistics being published incessantly, the previous two quarters have been stellar as far as transactional volume is concerned, in San Diego anyway, and this current quarter seems to be outperforming the last two. We are seeing more volume in this single quarter than we did in all of 2008.

However, let’s not get ahead of ourselves. The economy still absolutely sucks. Productivity within most small businesses seems off about 30%.

My thesis: people who are strapped for cash see the barber less frequently… but eventually need to get their hair cut. It is the same thing for housing. Rates have been relatively static for long enough now, that life changes are forcing folks to get on with things. So volume picks up. Rosy stats get published (albeit three months after the fact).

Meantime, if rates succumb to international pressure, and lurch one point within a single month, for example, as they did in January before quickly dropping when events in Libya took front and center… and your standard-issue $500k SoCal home drops another 9%.

There is a constant refrain heard from the whole bottom is now… no now... crowd, which goes like this: “Barring another catastrophic economic event it seems home prices will be looking around in this area trying to find a bottom”. I suppose it seems logical that only just so much pain can be inflicted by any given sector at a time. But it is critical to remember how the last catastrophic economic event was triggered. It was a housing free-fall that started this mess. It was not a reaction to it, but the cause. And it was not allowed to play out to its natural conclusion.

By all accounts, the pent up energy stored within the still highly dysfunctional ‘Prime’ mortgage market, is three times the magnitude of the mere ‘Subprime’ blip we saw last go ‘round. This was as easy to see three years ago as it is today. And it boggles the mind how super smart folks just don’t want to acknowledge we have to keep earning what we enjoy, like we need to work at our relationships, like we need to paddle out to catch more waves, like we need to resist immediate gratification to be healthy, like we need to save more than we spend, like we can’t just have an unearned run up of 25% year over year over year over year over year without consequences.

When rates revert to their long-term mean, and when buyers can afford the payments, after putting 20% down, on a suitable residence, that costs only a reasonable amount more than it does to rent a similar replacement, and that costs only a reasonable amount less than it does to build a similar replacement… then we will approach a bottom. This capacity varies by person, by market, and by the amount of work folks are willing to put into it.

And until you are ready to rip your own bottom from the fabric of the universe, you better love the one you’re with.

1124 Eureka Street, #40

2011-07-29T22:02:00.000-07:00

1bd upgraded townhome, blocks from USD, West Mission Valley.

Check out this new listing... a thoughtfully designed, pool-view 1 bedroom condo, loaded with upgrades and flooded with natural lighting. Excellent ROI for investment purposes and ideal for USD students who enjoy campus within walking distance. NOT a distressed scenario but Owner needs to move, so will look for fair-market value, despite having invested $140k between original purchase price and fully documented, upscale improvements that reflect pride of ownership. Ask to see before/after photos. Great location, close to some of the region's best restaurants, Mission Bay, beaches, Fashion Valley Mall, Sea World, Old Town, Riverwalk Golf Course, & trolley.

'Investing in Real Estate' by 'Just Landlords'

2011-07-29T12:31:00.000-07:00

I was approached by a representative of "Just Landlords", a property management company, with a request to make occasional guest contributions to this blog. They offer good content, which I believe some readers may enjoy as a compliment to my own. So without further ado...

Investing in the property market? Fancy yourself as a landlord? Well now may prove to be one of the best times to build a portfolio of properties with the sole intention of renting them out to prospective tenants.

The price of real estate is in decline at the moment and with increasing numbers of people struggling to get onto the property market in this current economic downturn, it could prove to be a great time to rent property out, as more and more people turn to rented accommodation as a short term fix until they can save enough money to then invest in some real estate of their own, provided they can secure a mortgage of course!

Landlords across the country will be rubbing their hands together with the amount of prospective tenants increasing. The most popular areas to live, such as the big city centres for working people, are likely to see increased rates for rent as a means by which landlords will take advantage of the increase in demand. However, by no stretch of the imagination is it an easy and care free life for landlords.

Landlords are commonly faced with issues such as tenants being unable to pay rent, or, just outright refusing to pay! This can be a tedious tribulation for landlords as they will then have to chase rent payments. Other difficulties landlords can be faced with are property damages and even theft. These are circumstances that are simply unpredictable. However, there is something that can be done in order to guard against such unfortunate situations. With Landlord Insurance you will be covered against such difficulties and you will be able to rest assured that the property is protected.

It will also be a good idea to maintain a great working relationship with your tenants. A happy household is always easier, and of course more pleasant, to deal with. It will probably be a good idea to run a credit check before you agree to any prospective tenants. This will be the best way to avoid any headaches of having to chase rent in the hypothetical event of them being unable to pay up.

Being a landlord is certainly not stress free, however it can be a great pleasure, and once the rewards begin to amount in the form of dollar bills then the real enjoyment will come! Investing in real estate in order to then rent it out is certainly something that has become more and more popular, and this is unlikely to change in the future.

Follow Us:

jack finn chalnick, 4.30.11 @ 4:03am, 7lb 20in

2011-05-05T17:56:00.000-07:00

Big Sister taking full credit.

414 Cerro Street

2011-04-26T13:48:00.000-07:00

4bd/2ba family style in Encinitas Estates, Village Park, Encinitas.

A few words from the client...

My wife and I have been looking to buy a single family home in Encinitas for the past two years. As first time home buyers, we were very cautious and skeptical about realtors, but Seth Chalnick at Pacific Coast Homes, exuded professionalism, knowledge of the area, and most importantly HONESTY. He worked with us tirelessly, for over a year, to help us find the perfect house within our means, and now that we are moved in, we both know that this could not have happened with any other realtor.

Seth truly looked out for our best interests, and in looking at many places, would be the first to point out things that he thought we might find issues with. He was not in it for the quick buck, but rather for ensuring that we found the exact house we were looking for....which we did!!

In addition to helping us find our house, Seth also handled the mortgage side for us. Our friends and family warned us to shop around for additional rates, which we did. In the end, Seth BEAT all the other quotes that we got, and we can't tell you how much time and hassle he saved us by providing both aspects of this transaction.

We would HIGHLY recommend Seth to anyone in the market for a house!

-George & Jamie R.

Seth's Keyword Search Rankings on Google

2011-03-25T17:53:00.000-07:00

You may have to maximize the video and/or increase resolution on this one...

For Dudes with Daughters

2011-03-25T11:02:00.000-07:00

3539 Elliott Street

2011-03-24T18:17:00.000-07:00

5bd/4ba 1933 built Loma Portal classic with city view in Point Loma.

A few words from the client...

We really appreciate all your help and support throughout this adventure. This could not have been possible without you! We are definitely going to have you manage the property for us, and look forward to continuing to work with you over the coming years.

-Diane & Edward H.

My Take on "How to Stop the End of America"

2011-03-16T12:55:00.000-07:00

This piece, by Porter Stansberry, producer of S&A Digest, makes alarming observations about our country's current financial outlook, which rings truer than anything else I have read this year.

Basic math shows how our country's economic path is unsustainable. Unfortunately, it seems our collective reality might best be described by tweaking this famous quote by Anaïs Nin: “…the risk to remain tight in a bud (is less) painful than the risk it (takes) to blossom”.

As indicated by Mr. Stansberry, the issues highlighted are not political in nature, they are economic. I agree, but to effect change, we would need to either go through, or above, the existing political machine, which currently appears to be derailed by incentives counter to any meaningful recovery. It is my fear that the political machine has now formed a critical mass in defining its biggest incentives yet... which are to defend its own existence even at the expense of delivering the very value it was created to deliver... and to leverage every crisis as an opportunity to extend its own influence.

For the sake of our well-being and for that of future generations, let's hope our collective attention begins to rally behind solutions to the issues, which Mr. Stansberry and others have been warning about with increasing alarm.

Market Outlook 3.12.11

2011-03-12T14:10:00.000-08:00

Here is my response to a great question from an investor who belongs to a discussion group a mentor makes available to me:

Investor
Wouldn't rising interest only further damage housing market....and drive demand for rentals...in short run? Two ways to get in...purchase apt building or apt reits...thoughts?

Response
But for the Mid East situation, rates have already been on a tear. They were up 1% in ONE month last month before settling back down. A buyer, with 30yr fixed rate financing and 20% down, who wants to keep their budget fixed when looking for a $500k home, can only afford a $445k home when the rates go from the low 4's to the low 5's. That's 11%. And that's just the purchase market.

As I've been warning for 2 years now, the refi market will adjust severely as fully indexed rates on 3, 5, and 7yr i/o's (interest-only) loans reset, and as rates get back to the teaser rate... by the tune of 40% payment shock. This is a number that will make current valuations unsustainable, especially in light of the fact that over 90% of US consumers today make less in real terms than they did five years ago, when they locked into their short-term financing. We are only about 30% of the way through the re-sets, and about 50% of these have the option to press snooze for another 5 years when converting to their i/o option. This means that each year, for the next 7 or so years, roughly 10% (half of the loans resetting annully) of 90% of everybody who refi'd or bought a home in the last 5 or so years (90% opted for short term rate locks on i/o loans), will likely be added to this "payment shocked" category. And this is if rates stop at 5.25%... and why would they?

So yes, I am confident it will not only damage the purchase market and valuations, but also cause many existing homeowners to face the foreclosure spiral. I do like apartment rentals for this reason but they are hard to finance and even harder to find. So the REIT option may be the way to go indeed. The only thing to look out for is that their rental income may not go up from here even as demand goes up. They will have fewer vacancies maybe, but I was surprised to note how rental prices have been coming down along with home prices, rather than surge. It seems that renters have less income to work with and will keep seeking lower end homes until they can find one they can afford. Unlike many of today's homeowners, they actually have to move out if they can't pay up. And I am also in agreement with David's call to finding those REITs that limit their focus to this vertical.

Lastly, I also like low end single family residences (not tied to potentially fragile HOA's), which will be the future home of many soon to be displaced homeowners. I even like the low end of mid-priced homes, even despite this forecast of lower valuations over the next 2-5 years... because today's 5% rates are soon going to feel like tomorrow's free money, and eventually our inflation and diluted currency will make these values roar back to life.

sc

iPhone 5 Wishlist

2011-03-07T23:52:00.000-08:00

Okay, so this is a bit off topic for real estate, but hey... it could keep your agent more productive anyway :)

Here are 10 things I wish the iPhone 5 will include:

Laser pico projector built inside.
MagSafe charger that fits all apple devices and also syncs info via wall outlet.
Print to PDF from iPhone (to dropbox)
App that enables iphone to access printers connected with drivers via cloud via router, so that it works even when pc or mac is turned off.
App that enables iphone to access home tv connected via router, so that it works even when pc or mac is turned off, which is better than a tuner because it makes use of existing technology and allows users to access content they are already paying for.
Better media player to stream music via dropbox.
Much better native voice recognition across multiple applications.
RFID type credit card feature that you can turn on and off to prevent thieves from capturing info by cyber pickpocketing.
Share your screen via FaceTime.

Who knows what ridiculous advancements this next iteration will bring, but I'm pretty sure I won't be able to resist buying into whatever they come up with next.

1010 Arcadia Rd

2011-03-04T15:28:00.000-08:00

Check out the virtual tour of this new listing... warm and charming home is engineered for indoor-outdoor living and entertaining, with maximum exposure to panoramic ocean views from virtually every room on both floors. Come see this thoughtfully designed floor plan loaded with natural lighting and too many features to list, including: skylights, open-beam vaulted ceilings, dual-pane picture windows, French doors, multiple decks, two fireplaces, gourmet kitchen, custom cabinetry, privately fenced yard, and much more.

Housing + More Reforms = Even Higher Rates

2011-02-21T16:26:00.000-08:00

Don't read this Los Angeles Times article if you're in a good mood. And if you do read it... then don't consider how higher rates will dampen the purchase market. And if you do consider it intuitively, then don't peek through the small slits in the fingers of your hand when reading this:

The going rate last month = $400k @ 4.125% = $1,938 p&i.

The going rate this month = $400k @ 5.125% = $2,178 p&i.

12% higher payment. In one month. And this is before they mess with Fannie/Freddie.

For perspective, a buyer who was planning to buy a $500k home, with 20% down, to lock in a $1,938 payment... now has to reduce their offer price to $445k, for the same home. That's $55k, or 11%!

And if you just couldn't help yourself from internalizing the information above, then whatever you do... absolutely, positively, do not read this prediction I made in late 2008.

1736 Hill Top Lane

2010-09-17T22:57:00.000-07:00

3bd/2ba family style in Seagate Village, Village Park, Encinitas.

A few words from the client...

"Dear Seth,

I am writing to thank you for all the heart and hard work you put into the successful sale of my house. You are "motivation" in human form. Your knowledge of today's real estate market, and of our current financial markets in general, is truly stellar. I have no doubt that it's because of your caring, hard work, and motivation that my house sold so fast and didn't linger on the market.

Again, thanks--and I don't need to tell you to keep up the good work--it goes without saying that that is what you will do.

Warmest regards,

-Patricia H, Concord, California (formerly Encinitas!)

_________________________________________

12/7/10 update: closed escrow at $575,000.

12/1/10 update: expected to close on 12/7.

10/27/10 update: now pending.

Check out the virtual tour of this new listing... a warm and inviting family-style, single-level, 3bd/2ba/2car home, with great floor plan, on well-located lot, within a highly desirable neighborhood. Natural light floods the home through large skylights, dual paned windows, sliders, vaulted ceilings, and lofty white walls. Park view from living room. Lush, park-like, professionally landscaped drought tolerant yards with large brick patio. Turnkey home one block from award-winning Flora Vista Elementary school. Low HOA and no Mello Roos. Great value!

1184 Arcadia Road

2010-07-25T00:30:00.000-07:00

Check out the virtual tour of this new listing, a charming, investor owned beach cottage located at the border between Cardiff and Encinitas. Features include hardwood flooring, a great eat-in kitchen, upgraded master bathroom, and beautiful French doors overlooking a charming deck, yard, and pond. An additional 1 bd/1 ba apartment is attached to the main home, which includes separate entry and parking! Close to beach and all conveniences.

Cardiff by the Sea, CA 92007

2010-04-30T13:27:00.000-07:00

Note: this is part of my Town-by-Town Description series.

classic view of cardiff driving up hwy 101

Overview

Classic flip-flop culture meets beautiful upscale architecture.
Ranges from country-like, multi-acre parcels approximately two miles inland... to thickly settled residences the closer you get to the coast.
Spectacular homes sitting right alongside multi-unit rentals.
The smallest of North County towns, but still has its own 92007 zip code.
Cardiff is the only North County town that doesn’t have structures built on the west side of Hwy 101… since the ocean cuts east up to the road. But its as if the Man Upstairs tempered this feature by tilting the whole setup along a fairly dramatic hill, offering more amazing sunset views per home than its North County neighbors.
Passport to North County- living here creates a sense of belonging to each of the neighboring towns too... its about 17 miles from the tip of Carlsbad to the bottom of Del Mar, and most of your frequented destinations will be within two miles of the coast.
Visitor Factor- the campground keeps a steady stream of visitors flowing, but also lends a special sense of ownership to the locals. If you are thinking about avoiding out-of-towners by choosing a different town instead… fagedabouddit… they get pressure too.
Cardiff... funky, real, cool.

Reports

Get town statistics at Onboard Informatics or Citi-Data.
Get school reports at Onboard Informatics or Yahoo.
See homes for sale here.
Request a personalized property search page here.

Sample Architecture

Features & Attractions

Composer District- named by its developer after the musical composers he loved, these coveted streets offer a sort of throwback to olde San Diego. The streets are winding... the views are spectacular... the architectural design is straight from a magazine. Here is a good article about is origins. Located north of Birmingham, west of I5.

sample composer district street
Walking District- highly sought after homes, plotted in a grid that surrounds Town Center. Walking distance to beach, shops, restaurants, and parks. Located south of Birmingham, west of I5.

street view overlooking the walking district
Crest Drive- a street that runs parallel with the coast, east of I5, along the highest point on the hill, overlooking the Pacific Ocean to the west, and mountain ranges to the east.

ocean view from crest drive

inland view from crest drive

random street between i5 and crest drive
Cardiff Campground is one of the best places in America to pitch a tent. Its like being in Big Sur, but warmer, without the cool redwood trees, and closer to gourmet food. The oceanfront bluff offers breathtaking views... the cost is nominal... the experience is memorable. I actually camped here 10 years ago for four nights when I first landed in Cardiff (from back east). I used it as home base until I found a killer rental that allowed dogs. Speaking of dogs, they are welcome at the Campgrounds (on leash). The surf ranges from ok to epic.

lifeguard tower by "campgrounds"

Cardiff Town Centre- located in the heart of Cardiff by the Sea, my Pacific Coast Homes office is based here, right next to Seaside Market. We get foot-traffic of 17,000 people per week! ...of which I estimate 16,000 wear flip-flops. You will also find here the best pizza place and dry-cleaner in North County, along with a Starbucks, surf art gallery, and several shopping boutiques. A new sushi restaurant is also being built in the former location of Yogi’s (see below).

cardiff town centre
Seaside Market- the best gourmet food source in North County. Everything you (not so much need as) want at high (but not obnoxiously) high prices. The freshest meat and fish around, albeit sold in cuts so huge, you can’t eat again for days. Hey, maybe that’s how people can afford to shop here! Great produce. Staples you need at convenience store prices. Good wine collection managed by a great guy. In fact all the people who work there are friendly... sort of like “In-and-Out” style only sans the funny hats.

inside town centre: seaside market and my pch office
Patagonia- a high-end surf store, out of which you’d love to buy many artful, enviro-friendly things if you didn’t have to also budget for food and diapers.

chlorine free merino wool lined wetsuit anyone?
Cardiff Lagoon- aka San Elijo Lagoon, contains 1,000 acres, 8 trail heads, 7.5 miles of trails & 700 species of plants and animals. Run by this conservatory.

cardiff lagoon

view from solana beach side

overlook
Glen Park- clean, safe, and beautiful ocean view park with picnic tables, and tennis and basketball courts.

glen park
Train tracks- used by North County Transit District's Coaster and Sprinter lines.

even our trains have killer views
More features and attractions:

classic hwy 101

driving down birmingham

ancient structure on school grounds likely involving juicy history i don't know about

can still park on dirt in some places

rare plot of land west of crest drive

standard issue surf van

Restaurants

Trattoria Positano- Quiet, cozy, romantic... good ambiance.

date night
Las Olas- the best sit-down style Mexican restaurant in North County. Located on famous Hwy 101, on the strand that connects Cardiff with Solana Beach. Semi ocean views... total beach vibe... better than average food... great margaritas, bloody maries, and bottled beer. And chips and salsa good enough that you never seem to be as hungry as you thought when the burrito comes.

tacos meet surf
East Coast Pizza- the best pizza in Cardiff. I like the sausage, meatball, pepperoni slices best.

hits the spot
Pipes Café- not sure what all the hubbub’s about… but its super popular with the surf crowd. When I first moved here I was excited to not only surf, but do all things surf related… and this includes Pipes for sure. Only the eggs came out steamed, I got like one slice of bacon, the lines were long, and I don’t think I've been back since. Note: my opinion here does not reflect consensus.

steamed eggs, brah!
Chart House- you pay more for the ambiance and ocean view than the food. But the food is very good, and view is in fact, killer, so the next time you feel like valet parking your car to enjoy an artfully presented scoop of ahi…
Cicciotti’s- formerly the Cardiff location of Vigilucci’s. While its just not the same as when it was Vigiliucci’s, and I honestly can’t put my finger on why… it serves up a diverse and yummy family style meal at “we’re not on a date” prices.
VG's- when you're in the mood to add back calories burned during exercise, drop by VG's for the absolute, hands down, best chocolate-glazed donut you ever did scarf.

best donuts this side of anywhere

Nightlife

Yogi’s Sports Bar Restaurant- has sort of a monopoly on Cardiff nightlife. I think it has something to do with it being hard to get a liquor license here. I haven’t been to the new location which is next to Las Olas on the 101 strand that connects Cardiff with Solana Beach, but I imagine it’s pretty much the same. (Yogi's used to be in Town Centre.)

your next old stomping grounds
The Office- one of those bars you visit when first coming to town and decide whether you’re going to make it a hobby. One of the funniest quotes I can remember hearing about, was said in this bar, by a guy who resembles Cliff Clavin straight out of Cheers, after being asked… “why do you even bother coming in here?” He replied, “because it feels so good when I leave”.

"honey, i was at the office"
The Shanty- even more of a commitment than The Office.

still here

Hotels

Cardiff Lodge- a place I recommend to my people… but my people tend to stay where they want to stay... and give me my opinion when they ask for it. $185-ish.

cardiff lodge
Holiday Inn Express- an inexpensive alternative… recently remodeled and nicer than you think. $135-ish.

Surf Breaks

Pipes- north of the campground… a fun peaky break, south of Swami’s.
Campgrounds- the beach in front of the campground that shows why California is better than wherever you come from.
Cardiff Reef- south end of the campground, by the river mouth, where grommets and oldie-but-goodies pretend they don’t irritate one another. Mostly long-boardable but can get epically epic.

cardiff reef
George's- is the stretch of coast in front of the Lagoon, aka “Restaurant Row”… ranges from frustratingly fat tide mush to fast micro-barrels.

My Wife is a Star!

2010-04-15T09:32:00.000-07:00

Dude, this has nothing to do with real estate, but I'm so proud of my wife, Jessica, that I couldn't resist posting this here!

5790 Friars Road, Unit F4: SOLD

2010-02-11T21:19:00.000-08:00

Check out the virtual tour of my listing, which recently sold for the highest price in the 52-unit complex in the last two years.

This sales price was 1.5% higher than the list price...

6% higher than the next closest sale in the complex...

11% higher than the complex's two year average sales price...

20% higher than a unit below with a 100 less square footage.

The lowest priced unit sold for 20% less than my listing only one month earlier. That unit happened to sell for the lowest sales price in the last two years. That lower priced unit sold for 8% less than the complex's two year average. Incedentally, I was that buyer's agent too.

What's Wrong With America, Part III

2010-02-10T10:26:00.000-08:00

FDIC

[Free Dollars Inside Connections]

For the epitome of our financial problems today... look no further than this video from "Think Big Work Small".

327 Whippoorwill Glen: SOLD

2010-01-28T21:31:00.000-08:00

3bd/2ba starter home sold for top dollar in Escondido.

The table above (click to expand) shows all sold or pending homes in last six months in the same community.

Note the model match that sold two weeks earlier for 5.6% less!

A few words from the client...

"Seth, I really appreciate everything you did to help us sell our house. I spoke with Teresa tonight after receiving your card and we both feel like you did everything and we just signed a few papers, from the comfort of our home in most cases.

I will recommend to anyone who will listen to use you as an agent next time they want to buy or sell a house.

Thank you so much for making this truly painless.

-Mike M."

752 Foxwood Drive: SOLD

2010-01-19T14:23:00.000-08:00

4bd/3ba mountain view in Oceanside.

A few words from the client...

"Working with Seth to find our first home has been wonderful. His professionalism and experience lent itself to our case, and was the sole reason our deal was completed. Our particular experience in finding a first home was not the smoothest with no fault to Seth, we know if he had not been our agent we would have given up long ago. His upbeat attitude and rediculous work ethic kept our spirits up while searching for the perfect home. His team of professionals worked through the holidays to accomplish a most difficult purchase in a very limited amount of time. Seth presided over every step in the process all the while keeping us informed. Our home had to be closed within two short weeks during the holidays for the fear of losing the deal. Seth and his team stepped up to the plate, put in extra hours and saw to it that everything got done as needed. When the time comes to sell our home and find a new one, we will only have one choice in an agent. We highly recommend Seth to anyone looking to buy a home."

-Kyle & Chinh H.

10 Reasons Why Real Estate Won't Bounce

2010-01-07T16:25:00.001-08:00

1. At best, maybe 25% of all mortgages that have defaulted since the beginning of the subprime crisis has been dealt with via foreclosure and subsequent resale or short sale.

2. Since the record foreclosure statistics we saw two years ago... we have only had an increase in loan defaults, not a decrease. And yet closed sales do not reflect anything near this quantity. Heck, we don't even have the inventory of homes for sale because the banks have not yet foreclosed on them. Where are some folks are getting the idea that this has been resolved? The only resolution has been relaxation of mark-to-market accounting standards and sweeping the crap under the rug.

3. As of Tuesday, in my area, there are a combined 19,453 active foreclosures that haven't hit the market yet. That's more than twice as many homes that are currently on the market.

4. The homes in some stage of active foreclosure are only a small minority compared to the homes that have defaulted that are not yet in active foreclosure.

5. Prime loan defaults are just now starting to default. The rate is up almost 20 percent from the previous quarter and more than double a year ago... right on schedule and perfectly aligned with this chart, which opponents argue presents "very stale 2005 CSFB data".

6. The magnitude of the prime pool is approximately 3x that of subprime.

7. The payment shock on a 5% five year interest-only loan, that re-sets to a 5% 25 year principal-and-interest loan... is 40%. This means a dude with a $400k loan will watch their payment increase from $1,666/mo to $2,338/mo overnight. This means a dude with an $800k loan will watch their payment increase from $3,333/mo to $4,676.

8. All of these woes exist despite unprecedented stimulus and zero interest rate policy. Imagine what happens when rates rise!

9. Some folks who complain how stale this re-set chart is may benefit from a quick glance at their own mortgage repayment terms. They may be sick of looking at the chart, but it's the only one that seems to be telling the true picture these days.

10. For all the hoopla we heard about derivatives as potential weapons of mass destruction... not only has there not been a resolution, but as far as I can tell, it seems they're still writing them!

Our fearless leaders just voted to raise the limit on our countrywide credit card, so that other countries won't stop lending to us. Wouldn't it be great if we could all do this? Only problem is, at the rate we're spending, we can only float that sick new countrywide jetski for another 8 months or so. I guess we'll just raise the limit again when we need to bailout the next big bank.

Alternate Theory to Pending Sales Plunge

2010-01-05T20:27:00.000-08:00

I love the book Freakonomics, by Steven Levitt and Stephen Dubner. I love the way it explores the questioning of questions, and the incentives that back them. And I was impressed by the way it compels readers to proactively uncover higher truths by unlocking the right combination of words that comprise the question.

A Freakonomics-inspired approach to framing questions, plus on-the-ground experience and anecdotal evidence, points to a different conclusion about the 16% plunge in pending home sales. Conventional wisdom views this plunge as a direct result of the coinciding period in which we collectively held our breath for the official announcement that the $8k tax credit would be extended to April... even though the equity market consensus expected a much smaller decrease.

Home shoppers are generally pretty confused about the whole tax credit thing. And since they do not recoup it anytime soon in the form of a lump sum, the benefit seems somewhat intangible. Most clients have even stopped asking about it.

I have another theory about why pending home sales decreased. But understanding the context fist requires some background.

Two years ago, we had record foreclosures. Since then, loan defaults have only been increasing. Inventory of homes for sale has been decreasing, but the number of homes actually being sold have remained flat or decreasing. This means there are a whole bunch of homes out there, not (yet) on the market, with mortgages in default.

Now, I don't want to spend too much time in this article explaining why banks don't always automatically foreclose on homes that are in default. But I will address one good reason for this briefly for the benefit of folks who don't eat, sleep, and breathe this stuff like so many SA enthusiasts.

When a bank forecloses on a home, it triggers an accounting loss on their books, which over time impacts their share price negatively. Additionally, too many foreclosures at once floods the market, thereby putting more downward pressure on home prices, which undermines the value of the bank's portfolio, which consists, at least in part, of a whole bunch of homes that are in default, causing a vicious cycle.

If the value of a bank's portfolio drops too far, then the very solvency of the bank comes into question. Raising capital to satisfy reserve requirements in this type of environment becomes, in itself, a self fulfilling death spiral. Throw in the implicit government support to avoid political backlash of displacing folks from homes on Main Street and you get at least an idea of why there is a shadow inventory "out there".

One last thing, and then I'll get back on track. To put the scale of shadow inventory in perspective, I recently posted a SA article called, The Forthcoming Prime Mortgage Meltdown. In it I wrote, "I can’t seem to find any good statistics on shadow inventory, so until someone shows me something better, my front line experience will rule, which tells me to estimate that only about one quarter of the toxic inventory has even been dealt with by foreclosure and subsequent resale. Mark to market relaxation aided this. The government moratoriums aided this. And mainstream media aided the groupthink that the recovery cavalry is on the way. It is not."

While the article stimulated quite a bit of commentary, no one challenged the estimated statistic.

More background...

In my area in 2009, 71% of detached homes sold below $500k. 65% of detached homes actively listed for sale now are priced above $500k. What stands out to me is that most of the homes actively listed for sale that will realistically be sold are lower-end homes. In other words, the market is top-heavy.

Nearly all lower-end homeowners watched their values get crushed so significantly that they can no longer sell at break-even or better. This means, they either keep on living there, paying upside down mortgages... or they walk. Consequently, the overwhelming majority of listings that come up for sale are either bank owned (REO) or dependant upon bank approval for a short-sale.

For the better part of 2009 folks were scooping up REO's and steering way clear of short-sales, because 2008 proved that only about 15% of short-sales ever end up closing, and most of them get reincarnated as an REO anyway. The few short-sales that did actually close were nightmares from start to finish and the banks ended up nickel-and-diming every party along the way.

The tax credit did stimulate a media frenzy about anticipated demand, and in this sense it took away the negative stigma of buying real estate. Rates dropped around 50 basis points, which added some wind to the sails. Then something weird happened. Banks stopped foreclosing.

And there were no more REO's.

The few REO's that did come online attracted 20+ offers within days of going live. Buyers started to get disillusioned as their many offers kept getting rejected. Agents started to scramble to keep them motivated, and so they revisited short-sales as a final card left to play. If the REO's were going to the full cash investors, then there was no hurry anymore, so we might as well put offers on multiple short-sale listings.

The need to conveyor belt the offer writing process helped push a new technology called "e-Signature" into a critical mass of acceptance. And in this way, agents turned the tables on the banks "shotgunning" offers on multiple listings without even viewing them in person. Whereas up until now it was considered bad etiquette to make more than one offer at a time... agents realized the banks were treating the buyers like numbers so why not return the favor.

The large short-sale segment of the market that was previously getting the cold shoulder, suddenly got traction, and so "pending home sales" spiked, as measured by signed contracts on homes "going to escrow".

Now the MLS did introduce a new category of status called, "contingent", and these short-sale listings should have been labeled as such, while they sat in purgatory awaiting approval by some anonymous overworked bank manager. But it's hard to retrain thought patterns en masse... especially those of real estate agents... and so, many short-sale listings remain in "pending" status to this day.

So what would explain the Pending Home Sales Plunge?

On the other hand, many short-sales fell out of pending status... because that's what happens with most short-sales... namely they fall apart. Many buyers had offers on multiple properties, and when one got approved, they dropped the others. Many of them fell apart because the offer price was rejected by the bank manager. And many of them "fell out" because, believe it or not, some agents actually got with the program, labeling their "contingent" status listings correctly after all.

Anyway you look at it, pending home sales were never a good metric to use in the first place. And they are still not a good metric to use today. But it does serve as a great example of what happens when we look for technical data to paint a picture that contrasts with the fundamentals that underpin the truth. And I fear it's the first in a very long line of examples as the whole facade starts to crack.

Hot Listing Alert 1.4.10

2010-01-04T15:25:00.000-08:00

I bet this listing goes pending within the week and will end up closing for $100k above list price.

New Seeking Alpha Article

2009-12-22T11:45:00.000-08:00

I am happy to report that my latest Seeking Alpha article submission was published this morning.

To view it, click here.

Seeking Alpha handpicks articles from the world's top market blogs, money managers, financial experts and investment newsletters - publishing approximately 175 articles daily. SA was named the Most Informative Website by Kiplinger's Magazine and has received Forbes' 'Best of the Web' Award.

It Ain't a DEFAULT if Golden Rule Applies

2009-12-18T13:03:00.000-08:00

Morgan Stanley is walking away from five office buildings they bought two years ago at the height of the market for $6.5 billion (that's B... not M), which have since lost as much as 50% in value. The reason, says corporate spokeswoman, "This isn’t a default or foreclosure situation... we are going to give (their lender) the properties to get out of the loan obligation.”

So let me get this straight....

Even as Banks were getting rewarded will billions in bailouts for pumping up the industry I work in to feed my family... deliberately so that they could profit on both the way up... and especially on the way down by using trades that paid off with leverage when it collapsed... I myself have gone on record, actually branding consumers and homeowners as "punks" for strategically defaulting on loans that they realistically still have the means to continue paying.

And all the while banks have been spewing out rhetoric about how morally reprehensible it is to damage the fabric of our society by turning our backs on the contracts, which underpin our agreements.

So here we are, at the beginning of the most extreme financial crisis since the Great Depression. And with the direct impact of bailouts that came straight from taxpayers, Morgan Stanley, who was saved from collapse due to their own irresponsibility, ended up clocking banner results this year... and the average compensation and benefits they paid each employee for just the first three quarters of 2009... was roughly $175,000... per employee!

Now they "give (these) properties away to get out of the loan obligation"??

And they have the blatant audacity to say in the same breath that "this isn’t a default or foreclosure situation"!!!

Don't take my word for it. Read the objective story from Bloomberg.

For some subjective commentary, I recommend: Huffington Post and Calculated Risk.

In the part I like best, Calculated Risk writes:

"One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.... I wonder if hearing about "rich" banks that are paying "large" bonuses walking away from commercial buildings also weakens the social pressure?"

Real Estate Market is Top Heavy

2009-12-17T19:47:00.000-08:00

Active vs Sold Analysis Last 90 Days

The preceding chart suggests to me that there is not enough inventory that people want... and too much inventory that people don't want. If we were in a normal, free market, I would expect higher-end homes to come down in price, and lower end homes to come up in price to bridge the gap.

But as followers of this blog know, I believe we are not in a free market at all, but a very manipulated one, that is vulnerable to many factors that could lead to futher downward pressure across the board.

Meantime, while lower-end homes still present good buying opportunities, notwithstanding futher price corrections, they are becoming increasingly difficult to purchase. As the rate of loan defaults continue to increase, banks are playing with fire by holding onto the non-performing assets, rather than foreclosing and putting them on the market, while there is still demand.

I say "while" because once rates tick up, or incentives go away, or 5yr interest only loans re-set in mass, or deriviatives explode, or unemployment rises to a job near you, or companies run out of areas to cut costs to show profits, or the stock market crashes, or any or all of these events or more occurs... it will be too late for people to buy with confidence at a pace that will outrun significant price drops across the board.

12411 Pacific Avenue, Los Angeles: SOLD

2009-12-10T13:26:00.001-08:00

2bd/2ba loft living Santa Monica style.

A few words from the client...

"Seth is very knowledgeable and provides great customer service. He made our refinancing a breeze."

Brian G. and Le D.

Perfect Starter Home

2009-12-02T19:23:00.001-08:00

Check out the virtual tour of this cool new listing.

Market Outlook, November 2009

2009-11-20T17:48:00.000-08:00

The market has been very interesting to say the least. There is a big disconnect between the low and high-end markets... in fact, they're almost behaving oppositely.

On the lower-end of the pricing spectrum, we simply can't get enough inventory. The banks and government are working together to artificially limit supply, and this is driving up prices and volume. On the high-end, there is very little demand for the loans that underpin the transactions, so very few sales are being made.

I expect downward pressure on prices in both market segments... but an especially significant correction on the high-end as the 5-yr interest-only loans start to re-set. Yes, I mean more of a correction... like another 30%. This may actually benefit lower-end homeowners, as higher-end folks who are displaced still need a place to live. (Btw, I went on record predicting this 11 months ago.)

Meantime the low-end market will suffer from overall economic problems too (i.e. unemployment) especially when the high-end corrects. But here's the thing... the low-end values have already dropped by half in some areas. Even if they drop another 15%, which would be huge, the rates are almost unanimously predicted to climb within the next 3-12 months. If prices drops by $50k, while rates increase by 2%, then your monthly payment will actually increase.

Right now rates are absurdly low (on amounts below $417k anyway)... around 4.625% with 1 point. The historic average is around 8%. It's only a matter of time before they spike. Most US citizens also benefit from an $8k tax credit if they close before July 2010, so this is a factor as well.

Bottom line: for low-end buyers with solid job outlook who can hold the property for 10+ years... I believe now is simply a great time to buy a home... if you can find one. 20% down payment is very helpful in this regard. For high-end buyers, time is on your side to wait, especially if you are putting down a lot of cash (which everyone is by necessity on the loan front). Unless you can afford to buy a high-end home just for the lifestyle, then stay out of the kitchen until things cool down from an investment perspective.

And that's the SethReport :)

A Few Words Are Worth A Thousand Pictures

2009-11-17T17:12:00.000-08:00

I love getting testimonials from clients, but there is something particularly awesome about getting validation from peers too. This card came from the listing agent of a home that was sold to a buyer I represented.

Average Sales, Number of Transactions

2009-11-17T15:24:00.000-08:00

Here are statistics for 'average sales price' and 'number of transactions' for the areas that include: Solana Beach, Cardiff By The Sea, & Encinitas [92075, 92007, 92024]...

Just a Thought...

2009-11-12T18:42:00.000-08:00

Is it just me?

Alan Greenspan

Woody Allen

Voted 'Best Answer' on Trulia

2009-11-12T11:35:00.000-08:00

Hey, cool... an answer I submitted to a question posted in a Trulia forum was voted "Best Answer".

I suppose if one posts enough answers it's not too hard to eventually get awarded "best"... after all, even a broken clock is right twice a day.

But what makes this honor special, is the question, which asks, "What makes you a Stellar agent?"

4424 Calle Mar De Armonia: SOLD

2009-11-10T19:11:00.001-08:00

5bd/3ba mountain/hill view with turnkey upgrades in Carmel Valley.

A few words from the client...

"Seth's attention to detail, strong negotiating skills and expertise in real estate as well as loan processing was critical in making my first-time home buying experience a successful one. He was truly a partner from beginning to end - he listened and created a plan based on my needs, provided excellent counsel when asked and walked me through every stage of the process. I am so happy to have worked with Seth as his leadership and no pressure approach was the perfect fit for me - I'm looking forward to building lots of good memories in my new home!"

-Navjot R.

Market Imbalance

2009-10-15T19:11:00.001-07:00

Impossible SeeSaw
Originally uploaded by R_Thull

Check this out... to keep abreast of local sales trends, I activley monitor MLS inventory in the territory that includes: Solana Beach, Cardiff, and Encinitas.

This year 78% of sales in this territory closed below $1 million... while the current asking price for 63% of homes that are actively listed for sale are above $1 million.

I thought this was interesting, so I checked the stats for the entire San Diego MLS... 80% of sales closed below $500k... while the asking price of 58% of homes actively listed for sale are above $500k.

On 12/12/2008 I went on record in an article published on Seeking Alpha, called "Market Prices: The Great Chasm" calling for a significant "Prime market" correction. Here is an excerpt.

“Prime” homes will also decline in value. My call is 35%-40% off peak prices. Only this time, the real drivers of economic stimulus, the small business class, will cut back spending for real. And lay people off. And cash out investments. And sell assets below value.

Major banks who have just received unprecedented amounts of cash infusions to plug up cartoon-like, bullet-ridden lending ratios will have to address the fact that depreciation of portfolios to date only reflects subprime default-related losses.

Maybe I should have entitled this article, “Market Prices: Which Chasm is Greatest?"

It was the adjusting of prime loans from "interest/only" to "principal and interest" that I predicted would stress the system. These loans are starting to adjust now. Houston, stand by.

Falling Up: The New Business Model

2009-10-05T09:29:00.000-07:00

I am happy to report that my latest Seeking Alpha article submission was published this morning.

To view it, click here.

There's a Financial Elephant In The Room

2009-10-05T08:50:00.000-07:00

When folks say "there's an elephant in the room", they are referring to an important and obvious topic, which everyone present is aware of, but which isn't discussed, as such discussion is considered to be uncomfortable.

Well in today's bankerment cirlcles there is a humungous, hungry, stinky elephant, and it looks very silly covered up by a blanket.

For a succinct overview of the problems that led to our banking crisis, and the reasons we are still in for very rough ride, you just have to watch this interview of Janet Tavakoli (a structured finance expert) by Max Keiser, a popular media broadcaster. They do a brilliant job of distilling the facts into laymen's terms.

Hot Listing Alert

2009-10-04T09:48:00.000-07:00

Hey, I posted this on 10/4... predicting it would go pending within a week. It went pending the next day! I guess I do know my shizzle.

Bet this listing goes pending within a week:

4 Transaction Types I Do Not Execute

2009-10-02T12:24:00.001-07:00

Short Sale Listings- Click to see why. In addition to this link, which describes why I direct buyers to look at short-sales only as a last resort... I suspect, down the road, the folks who "successfully sell short" may look to place blame elsewhere if and when they find out they may still be on the hook for tax consequences and credit problems.

Loan Modifications- Click to see why.

Hard Money Loans- Click to see why. Also, while this could technically be a helpful tool for some specific scenarios, in my experience, the only deals the lenders make are the ones where the scale is tipped way in their favor... away from the borrower, who has everything to lose... and often does.

Reverse Mortgages- Click to see why.

Pool Chef

2009-10-01T16:03:00.000-07:00

In case anyone was wondering... after 14 months, this is what a scrunched up raisin blooms into:

Daddy? What happens to an iPhone when you dunk it in Sully's bowl?

How I Roll

2009-09-30T16:34:00.000-07:00

I received an email today from an old friend. We worked together at a mortgage bank. She became a loan officer at a large bank... and I became an self-promoting blogger.

She has a mortgage client who is unhappy with their real estate agent, and she wanted to know if it would be ok to present my name and one other as a referral. She diplomatically explained why she is presenting more than just one name... that the client had requested several options.

I replied back straight away without thinking too much about it... and it really struck me, after the fact, how much my reply lies at the very core of my business offering... and then I wished for way to shamelessly self promote it... echemm:

This is awesome! And thanks for setting the background, which I totally understand. I am grateful for the opportunity to compete. I look forward to speaking with him when he calls.

Meantime, my approach will be to set realistic expectations straight out of the gate. I will present my take on the market, which will likely address some of the issues that made him frustrated in the past… and while I can’t magically increase the amount of active listings for sale… I will:

grant access to the same inventory as everyone else
offer killer technology to make his life easier
recommend ways to work smarter, not harder
lend strong negotiation skills to protect his interests
commit to showing him as many homes as it takes without any sort of pressure until he finds the perfect home at a price he likes
give examples of how well you and I have worked together in the past, that he’s in great hands with you as their LO

In return, I will ask for him to commit to working with me as their agent. I won’t expect him to do this until I earn his trust and his business. It is our company policy to sign a “buyer’s broker” agreement along with the first offer submitted and my clients rarely if ever take issue.

Thanks a million, and I look forward to helping you close more purchases in this crazy market than ever before!

sc

Loan Modification Attorneys Under Investigation

2009-09-29T12:01:00.000-07:00

Looks like the California Bar is starting to get with the program as far as loan modification shenanigans are concerned. Followers of this blog may recall my strong disatisfaction with the way most mods are being rolled out to date. You can click here for a quick review:

Meantime...
, this bulletin just in from the California Assocation for Realtors "Reallegal" division...

"The State Bar of California has recently launched numerous investigations against attorneys for misconduct related to loan modifications. In a rare move, the State Bar has released the names of 16 attorneys under investigation, by opting to waive investigation confidentiality in favor of public protection. These attorneys have allegedly taken fees for promised services, but failed to perform those services or even communicate with their clients who face the possible loss of their homes. Their non-attorney staff may also be under investigation for unlawfully practicing law.

Not all attorneys engaged in loan modifications are unscrupulous. However, this announcement from the State Bar serves as a good reminder for REALTORS® and their clients to be careful when dealing with attorneys and others for loan modifications. Scam artists may intentionally associate or affiliate themselves with attorneys in an attempt to lend credence to their fraudulent schemes. The list of attorneys currently under investigation is available at here."

My loan modification advice remains this: if you think you may be a candidate for a modification, then call your loan servicer directly to see what can be worked out. Do not miss payments in order to qualify, and do not pay a third party for something you can do yourself. Not that it won't be a completely frustrating phone hell experience, but if you can't get it done, I would be skeptical that someone else can do it for you.

heheh

2009-09-28T15:51:00.001-07:00

Creating Value With e-Signatures

2009-09-25T13:01:00.000-07:00

I am excited to roll out a great new tool, called DocuSign, which enables you to add signatures electronically instead of the old fashioned way.

I started using it yesterday, and no joke... by the end of the day, I helped two sets of clients take action on deals that may have otherwise fizzled if they had to meet in person. Both of my “guinea pigs” nearly fell off their chair when they finished marking signatures… and they each replied with comments like, "far better than before" and "love it!"

Until now you had to either...
meet me at a physical location... or find an office setting to do the "print-sign-send" dance. This method can be challenging, living as we do in such a fast paced world.

And while face-to-face meetings remain my default preference, holy smokes… what a time saver!

When writing multiple offers in hotly contested areas, or signing some of the many counters, addendums, instructions, and disclosures that make up typical transactions... this tool eliminates the need to disrupt your day.

Now, you simply check email, click "start", press tab to locate your first signature box, click to sign, and repeat as needed until all sigs are recorded. You can review the document as you go and save a copy when you’re done. It is literally that simple.

DocuSign acts as a third party verifier and their business model is fully compliant with our real estate industry's legal protocol.

If you are buying or selling a home in today’s extraordinarily competitive market conditions, then my e-Signature tool will help you be in two places at once. This technology is a good example of the many resources I continue to amass, to ensure each client receives unparalleled service that exceeds your expectations.

Expand the "Scribd" box (below) to see an "on paper" example:

Sample Docusign

2540 Chestnut Avenue: SOLD

2009-09-17T19:35:00.000-07:00

4bd/2ba panoramic view in Carlsbad.

Sarah and Mike with big smiles to mark the end of a very consolidated escrow!

"Best Value" Picks for Cardiff by the Sea

2009-09-16T17:54:00.000-07:00

If you frequent our Cardiff Town Centre courtyard to pick up groceries, change out dry cleaning, or get a coffee fix, then odds are you’ve also noticed well into evening hours, the tall guy behind our illuminated windows, slouched over his desk, pecking incessantly at the computer.

Over the years, many folks have chimed in to a running joke, chirping as they swing by, “dude, are you like, the hardest working realtor in Cardiff?”

Exactly what this tall guy does, remains somewhat of a mystery… but speculation ranges from:

Writing offers?

Browsing cookie recipes to schmooze walk-ins at the next open house?
Avoiding chaos during bath hour at his family’s quickly growing household… while his glaring (but beautiful) wife suspiciously eyes these same fishbowl windows from up the hill?

One thing’s for sure, his bad posture certainly reflects many hours scanning the MLS for deals that reflect uncommon value. And your effort as a loyal window-checker-in-er, is about to pay off, because now… without further ado… we present Seth's picks for:

“Best Value for the Buck" in Cardiff by the Sea

14030 Condesa Drive: SOLD

2009-09-15T19:48:00.000-07:00

4bd/2ba ocean view cottage in Del Mar.

A few words from the client...

“Seth was fantastic in helping us find a house and settle in Del Mar. We knew from the moment we talked to him that he really knows what he is talking about and he understood exactly what our requirements were without wasting our time. We appreciated how he knew the right questions to ask, with the intension of safeguarding us, and at the same time he was absolutely transparent and honest about the pros and cons of every house.

After the house was selected, he made sure that all the necessary paperwork was done and signed by both parties in time and because of him, we have moved in exactly on the date we wanted. It’s been a really smooth process and my family and I were really happy to relax with the confidence that our needs and requirements were being looked at.

Apart from his professional experience and competence, he is also a very friendly guy with whom you can talk very easily.

Having said that, I have no hesitation in recommending Seth if you are thinking in moving to California. You can be sure you will be well taken care of.”

-Francisco & Ines d.C.

In The News: Pacific Coast Homes

2009-09-03T18:52:00.000-07:00

Here is an article Coast News recently published about our Pacific Coast Homes 10-year Anniversary:

Coast News Article

Short Sale Audacity, Part II

2009-07-30T15:09:00.000-07:00

Holy Cow.

There is a short-sale listing in the MLS that directs the attention of brokers to an attachment entitled, "Items not included in the Sale."

I can not even muster one sarcastic comment to reflect my feelings about this. Here is their list:

Due to the seller’s hardship in the sale of his home,the Following items will not be included in the sale but Seller is considering selling them at a discount price.

1. All ceiling fans.
2. French doors.
3. Front Door.
4. Stove, Microwave, Refrigerator and Washer and Dryer.
5. Safe in Garage floor.
6. Spa in the back yard.
7. Blinds in Master.
8. Mirrors in bathrooms.
9. Stand fixture in master.

He will also be selling the following furniture:
1. Bar Set
2. Pool Table

For prices on the above items the seller will provide all the information needed regarding all items.

Are you kidding me? The frickin' front door??

Ground Zero of What’s Wrong with America

2009-07-27T11:46:00.000-07:00

There are many great things about our fine country. And there are some not so great things too.

Well this weekend, I actually put my finger on the exact spot of the very epitome of the problem with things today.

On behalf of a nice young couple looking to buy a starter home, I made an offer on a short sale... a basic 3 bed / 2 bath / 2 car garage home. Keeping with standard protocol the other agent replied back to confirm receipt. But check out her reply (...I swear this is true):

“I received your offer and won’t be able to present until next week. The sellers are on vacation.”

Umm…

1.) how can a consumer selling short afford to go on vacation?

2.) how do they find the nerve to ask for a handout but be too busy to respond?

Is this what financial gurus mean when they say to “pay yourself first?”

My reaction was similar to my client's, when she replied to my update... OMG!

Gangster Government

2009-07-14T16:01:00.000-07:00

You have to watch this video.

Many SethEstate visitors, even infrequent ones, may be somewhat surprised to see a post go live that is even remotely associated with political bias. Its not that I sit on fences to avoid alienation of either Democratic or Republican potential clientele. On the contrary, just like I strive to separate my advice from commission, I also boldly assert my major displeasure with both parties. And I trust new clients from both pools will continue to seek my advocacy, if for no other reason, then because the value I create for them outweighs disinterest in my political opinion.

In this video, Congresswoman Michele Bachmann simply kicks ass. She speaks the raw truth so extemporaneously and so beautifully that it goes beyond commanding attention, to grab hold of our most core American values.

I would think this testimony would be received as bipartisan, or nonpartisan, or transcending politics altogether… but just in case it offends anyone… good!

Since I previously had no idea who Ms Bachmann was, a quick google search yielded this: Republican Representative from Minnesota.

Go girl.

My Reply to a Great Question: "What's Wrong with FHA Financing?"

2009-07-10T14:01:00.000-07:00

Recently, Ben Nicolas, Broker in Long Beach, CA posted a great question on Trulia, which recieved really mindful responses from a broad range of perspectives. The real estate professionals made good arguements from both sides of the issue, which is namely should or shouldn't these offers get accepted as easily as offers that contain more conventional financing. I encourage you to read the question and responses for yourself here if you like.Meantime, I am reposting my reply here, first, for the benefit of San Diego readers, and second, because, well... its my blog and I can do what I like.

I get the intent and spirit of this question, and really respect each of the answers posted. And I agree that:

-FHA gets a bad rap from the seller side of things

-It is counter-intuitive to believe (but true) that less money down may actually result in a quicker close than more money down (when MI is involved).

But I would also like to present an opinion from a totally different perspective. One that takes the question at its exact face value... and address it from the perspective of the buyer and the taxpayer.

What's wrong with FHA financing is that it is embodies the very problem that everybody now blames as being a large contributor to "the subprime mess". Really, it’s like I can just imagine the closed door meetings of bankers and lawmakers:

“You know “zero down loans” are so 2007… hey! let’s call them FHA loans… we’ll make people cough up 3.5% so it won’t have that “zero down” stigma… good deal, but if the government is going to be in on it, they have to get theirs too… right, right… we’ll just tack on 1.75% to the loan balance to keep Uncle Sam happy. “

Between the higher rate, the mortgage insurance premium, the upfront mortgage insurance fee of 1.75% (added to the loan balance, costing even more interest for the life of the loan), and the cost of borrowing more money than a conventional loan in the first place... all adds up to a lot.

On the ultra-low end, FHA sort of makes sense for buyers, since the percentages work out to be less severe. But in the $400k to $550k market segment the costs are extremely prohibitive... to the tune of $1,000 extra per month as compared to a conventional loan.

Of course, the counter argument is which is the lesser of the two evils? don't buy at all because you can't afford conventional standards? or pay a huge premium to access capital you otherwise wouldn't get?

For the right buyer, who earns a disproportionately high income compared to their asset holdings, FHA just might be the right tool. But I'm afraid many folks who are getting these loans will be a future (government subsidized) failure in a long line of subprime failures. But not before "prime" loans join "subprime" in our more imminent failure.

So my thinking is this: it probably makes sense to just not buy yet if you can't put down 20%. And with all the downward pressure on pricing we are about to experience, what's the rush anyway?

I'm not saying everyone should wait for the empirical bottom, which can only be viewed in hindsight anyway... because there is much to be said for the intrinsic value these lower-end $325k homes offer… as well as the opportunities to leverage distressed situations in the $400k to $550k market. But just because FHA is available, doesn't mean everyone should rush in to take advantage of it.

Finally, at the risk of pointing out the obvious… 20% down has been the underwriting standard for generations for a reason. And we have seen the devastation caused in part by deviating from this plan. And we are about to be collectively surprised to see how much more devastation lies ahead. Does the taxpayer need to shoulder any more risk at this point?? FHA = government insurance = taxpayer money. Sorry if this sounds cold, but as much as my income depends upon folks being able to buy homes… not everybody deserves one, and I can’t afford any more long-term effects in shouldering the burden of those who do not.

Jamie Dimon... not a fan

2009-07-09T20:58:00.000-07:00

The following post is an exact copy of my response to the opinion of Jamie Dimon, the CEO of JPMorgan Chase & Co, which The Wall Street Journal published on June 29, 2009:

Mr. Dimon,

With as little respect as possible, I have to say this commentary is likely the most hypocritical piece of rhetoric any human has ever recorded and I can’t help but wonder whether it made even you a little sick while writing it.

When you suggest that regulation is welcome, do you mean before or after you increase minimum payments on your most loyal cardholding customer base by 2.5 times overnight?

Or was that what you meant about being careful not to regulate too far?

When you talk about how good it is to increase liquidity, did I somehow miss where you voluntarily explain just how many toxic assets are being hidden via mark-to-market accounting practices?

Are you the slightest bit concerned about the size of your glass mansion, when you cast stones at those “who extended absurdly low introductory ‘teaser’ rates”?

At least those “lightly regulated brokers” made people sign blatant disclosures that clearly explained their terms… before selling their loans back to your sorry (self).

When you talk about earning back the trust of the American consumer, do you so quickly forget the aggressiveness with which your solicited consumers with misleading, if not false, solicitations for “life of loan” terms, that you now call back at an unreasonable pace to trigger usurious rate hikes on the resulting defaults.

Do you plan to earn back the trust of the consumer by taking bailout money, which results in tax increases that will likely hit these same consumers the hardest… and then have the audacity to squeeze your most loyal producers in a desperate attempt to make up for your mistakes?

As you irresponsibly push a good portion of these roughly 850,000 consumers to financial bankruptcy… do you contemplate your own moral bankruptcy?

Mr. Dimon, you may be the biggest hypocrite ever to step foot on this planet.

-Seth Chalnick

Latest Move by Chase Contradicts Testimony

2009-07-09T20:42:00.000-07:00

Chase Bank is delivering a huge blow to its most creditworthy (i.e. least irresponsible) subset of credit card holding customers by changing repayment terms in an unethical fashion. This action also stands in direct contrast to Chase’s official testimony (to the U.S. Senate Committee on Banking, Housing and Urban Affairs) about providing “opt out” options when making policy changes.

Resisting the urge to hit people already down by asking why it is they racked up debt in the first place, consider asking these questions first:

Were they paying it back?
Can they prove a history of timely payments?
Can they demonstrate a track record of over overpaying to reduce the principal?

If the answers come as a resounding yes to each question shouted by ~850,000 consumers in unison, then consider asking why Chase Bank should rock this boat?

Chase determined that “the total number of (these) customers (are) relatively low, but the balances that these customers carry amount to billions of unsecured debt”.

Great job Chase… way to solve the case!

Currently ~850,000 people who have been making timely repayments and overpayments for years have received notices that their minimum payments are being increased from 2% to 5%.

This may not seem like much, but to a consumer or small business owner struggling to pay off a $30k balance… the $600 monthly payment just increased to $1,500…

And a $60k balance with a $1,200 monthly payment just increased to $3,000.

Chase heavily solicited these consumers, and aggregated many more by buying up competing lenders too. They posted record earnings while lending out money at 3.99%. Then the realization hit home that they mismanaged the rest of their portfolio. Then they took bailout money resulting in tax increases that will likely hit these same consumers the hardest. Now they turn on their most loyal producers in a desperate attempt to make up losses.

Chase is effectively calling back loans they made to folks who paid a premium to receive favorable terms (similar to buying down the rate of a mortgage by paying a point), via balance transfer fees, and by the opportunity cost of forgoing a zero percent introductory rate for as many as 12 months.

The intention is clear:

Accelerate repayment of balances that were misleadingly, if not falsely, solicited as “life of loan” terms, and trigger usurious rate hikes on the resulting defaults.

Unlike bailouts for banks, car companies, and loan modifications, etc., there is not a single web message posted from any consumer affected by this, who did not communicate their history of unwavering determination to pay back their obligation.

Meantime, as an auto-reply to complaints filed by California-based consumers, Senator Barbara Boxer dismisses the matter as solved, by relating how she was “proud to work for passage of H.R.627, the Credit Cardholders' Bill of Rights Act”. Her insipid self-congratulation is especially ironic, because it is this very legislation that has pushed companies like Chase to redistribute their usurious practices from non-performers onto those consumers who still have credit profiles left to defend.

So now the credit card industry officially joins healthcare, mortgage, and taxation as the most recent failed attempt to subsidize losses… you know… the new standard: squeeze the few producers still standing to shoulder the burden of the ever-growing masses who do not.

This straw may be the one to break many of the 850,000 backs, which in turn, will create a further drain on the system.

So at the next cocktail party, when someone launches into the whole “problem today with the welfare-disability-loan-modification-unemployment-benefit-receiving-populous” discourse… consider mustering your most sarcastic reply… that it officially does not pay to produce.

Market Outlook, July 2009

2009-07-07T19:31:00.000-07:00

Back in March I began helping a client execute a search for homes under $325k in the Carlsbad, Oceanside, and Vista areas. We had 20% down, plenty of reserves, solid credit, and great income. We ultimately negotiated the successful purchase of a great home that fit their goals and budget… but not before viewing literally 150+ homes, spread across a 25 mile radius, and making 10+ offers on different properties before our bid was finally accepted after three months of aggressive searching. In one case we were outbid even after offering 20% above list price.

Talk about a seller’s market.

Largely based on this type of anecdotal evidence, there is a sentiment brewing on the street that “the real estate market” may have reached a bottom. Also sprouting up lately are bullish media driven statistics like this one:

“The pace of decline in residential real estate slowed in April… Furthermore, (nearly all) metro areas… recorded an improvement in monthly returns over March”

But here’s the thing...

In my last post, entitled “Here’s a Statistic I dare you to challenge”, I conclusively present how our local MLS database reflects an artificial short supply of inventory in this hottest selling, low-end market segment.

Furthermore…

73% of all sales this year have been under $400k
11% were from $401k to $500k
11% were from $501k to $700k
8% were over $700k

So while this market bottom sentiment is based more on wishful thinking than fundamentals, at least its thought process is understandable. However, folks who point to this type of statistic as some sort of a bottom are being misleading at best and ridiculous at worst. To take a low-end-specific, ultra-short-term statistic grossly out of context to self promote a lame argument that the overall “market" has bottomed is preposterous.

Not only are these types of statistics misleading because they make it seem like “declining at a slower rate” is a good thing… or because one month does not establish any real trend… or because they apply exclusively to the lowest end of the pricing spectrum… but they are deceptive too, since they do not reflect a functional free market.

It’s a seller’s market alright… but only because roughly three quarters of the inventory is being artificially held back. While the supbrime re-set waves are behind us, the problem has not been fully digested. So far, 25% of all US mortgage holders are upside down. This number is just gaining traction.

Many good folks have been working extra jobs to pay their mortgage on time, creating no room for excuses. They have been pleading for loan modification aide. But the aide has been going to the wrong subset of consumers… the ones who have already missed payments and therefore have no credit profile left to defend. Aside from sending the wrong message to the folks still hanging in there… it is pretty safe to say this insipid plan is failing, since over 50% have already re-defaulted!

Even as we lick our subprime wounds, a new time bomb is imminent… and its impact looks to be three times the magnitude. The big thing people are missing is this: its more than just taboo terms like ‘Option Arm’ and ‘Alt-A’ that need to be baked into the market… the very best “A-Paper Prime 800 FICO Fully Documented Income Loans” that were written during the last five years... should also be placed in the same category as “subprime”. We do not have a socio-demographic problem. We never did. It has always been a math thing.

Leverage up = fun.

De-leverage down = not so fun.

If the measly little subprime crisis brought the financial world to its knees, what will happen when the real hammer drops?Let’s see how many “good credit risks” hold onto their homes when they’re upside down by $200k.The idea of a bottom is nothing short of preposterous.

Bottom line:

If you own a $700k to $10m home, and realistically expect to hold onto it for the next 10 to 12 years, then you’ll probably make out very well with anticipated inflation and demographic explosion. However, if you think you will be selling anytime between now and the next four or five years… I would seriously think about an immediate, aggressive price drop… before your neighbors do. Prospective buyers of this segment are better off waiting to lower their cost basis regardless of their cash position.

Prospective sellers in the $500k-$700k market should recognize how quickly this market is deteriorating. Cut your losses as quickly as you can. On the buy side, this market really needs to be approached with caution. If you are financing a lot of your purchase then proceed on a case by case basis. A minimum down payment of 20% is strongly recommended because FHA pricing and/or mortgage insurance fees are cost prohibitive using this high of a loan amount. This market is deteriorating rapidly so good deals are starting to sprout up… but there is a good amount of downward pricing pressure expected. Rates are anyone’s guess, but if they stay low there is no hurry to buy right away. If they start ticking up, you may want to consider how your monthly payment will go up even as prices come down. If you are paying all or mostly in cash, then time is on your side.

In the $350k and below market segment, prospective sellers who still have equity are actually in a great position to sell but the appraised value will limit the price they can obtain. Buyers in this segment can’t go too wrong. There is a lot of demand for these homes. It is possible that an inevitable flood of inventory can outpace demand, but even prices drop substantially, the intrinsic value at $325k exceeds the risk of downward pricing pressure… even substantial pressure.

A good way to measure intrinsic value is by using my market bottom triangulation principal.

A good way to determine your budget is by using my awesome housing payment calculator.

A good way to get immediate, personalized, meaningful advice is by contacting an agent committed to customer service excellence.

Here’s a statistic I dare you to challenge!

2009-07-01T13:45:00.000-07:00

Sellable listings in the San Diego MLS represent only 25% of the distressed loans out there.

This short sentence gets right to the point, but admittedly contains some open-ended terms that vary widely by interpretation. By narrowing down the definitions of these terms, and by getting our arms around their underlying sentiment, we will shed light on some significant implications, unlock some “aha” observations, and stimulate a whole lot of thought… not so much about where things stand in today’s real estate market… but about the types of questions we should be asking.

To squeeze the underlying juice out of this powerful statistic, here’s what we will do:

We will break down each term to arrive at a lowest common denominator.
We will explore where this statistic did NOT come from.
We will discover where this statistic WAS found.
We will re-triangulate the findings.
We will resist the urge to make fun of folks who think we are at a “real estate bottom”… by focusing instead on a golden opportunity being missed by government over-regulation and by the (in)action of individuals whose incentives are not aligned with a plan for a broader economic recovery.
Then we will invite you come back again soon… to poke fun at folks who think we are at a “real estate bottom”.

Breakin’ it down:

Let’s deconstruct this statistic by defining it’s parts:

By “sellable listings” I mean mostly lower-end, mostly non-short sale. I hereby estimate 83% of active homes on MLS as “sellable”. If you care to know why, click here. If you clicked, and you still don’t like it, write your own blog.
(The main reason higher-end homes are mostly un-sellable, is because there is virtually no marketplace for their financing. The main reason short-sales are mostly un-sellable, is because bank managers have incentives to make their banks money… not lose money… and so they are reluctant to approve losses).
By “MLS” I mean the “Multiple Listing Service”, which agents use as the industry standard, and by which the vast majority of all US homes are sold.
By “distressed loans” I mean any mortgage whereby the consumer missed two monthly payments in a row and who has not yet paid it back.
By “out there”, I mean not on the MLS …yet.

Here’s where I did NOT get this statistic:

It did not come from the media, public records, the California Association of Realtors, or even omnipresent Google. Its not that I didn’t try… but rather that they all pretty much conclude that this statistic is virtually unknowable.

Not being a conspiracy theorist, I felt a bit paranoid at first suspecting the government and banks to be “in on it”… obfuscating the truth and all that. Then I settled on a far more satisfactory conclusion, which is namely, to not give these institutions that much credit… they’re not that smart.

Seriously though, there are some legitimate reasons why these entities can’t quantify the amount of what some insiders and bloggers are starting to refer to as “shadow inventory”.

In a brief interview with the President and CEO of the California Bankers Association… who actually does come across as one of the smarter people I know… Mr. Rodney Brown, explained that the term “shadow inventory” would imply that there is an actual inventory out there, i.e. a pipeline of bank owned properties that the banks are unable or unwilling to sell. He was quick to point out how banks are in the business of earning money on loans… not holding onto nonperforming assets or renting via property management. When banks take back inventory (from consumers who are in default), they place it on the MLS in short order.

OK, point well taken… however, maybe we should tweak the definition of “shadow inventory”… or better yet, as I have done with this statistic’s phraseology… just lump this mystery “inventory” into “distressed loans out there that have not found their way onto the MLS… yet”.

The thing is, people have short memories… 12 to 18 months ago, we had a record surplus of (bank owned, foreclosure, REO, short-sale, traditionally owned) properties flooding the market, especially on the lower-end.

So, what the heck?

Why are we agents… the ones still standing after staving off economic ruin… by powering through a 12 to 18 month period of unprecedented industry challenges, stalled transactions, massive lower-end price declines, inane legislation, and mass peer exodus, etc… why are we agents, who have now seemingly willed from the ether, a fresh batch of first-time home buyers to work with… some of which who actually have 20% to put down… why are we having to show each client literally 100+ properties, and make dozens of offers, while bidding 20% over list price, before we can get one to go to escrow??

Are all the problems solved? Did we hit a bottom while nobody was looking? Is it truly a seller’s market?

Being an industry insider… having executed both loans and real estate transactions for many years… having witnessed the stock market’s total dislocation from reality leading up to the subprime collapse… seeing how the stock market is still, perhaps, even more dislocated from reality… understanding that we’ve had no let up on defaults of loans since last year when we’ve had record surplus of distressed sales… I really started to wonder… where the hell is all this inventory? Did it go to the place where lost socks and faxes end up?

Where this statistic WAS found:

Shortly after I became a full-fledged broker, after serving for a while as a (half-fledged?) agent, I was somewhat surprised to quickly realize there was only one major difference behind the role that came along with the new title: there is no higher up authority to go to when you have questions… so you learn to trust yourself.

Now I’m just one guy… and when your own smarter than average father-in-law who routinely teaches you a thing or two, about a thing or two… looks at you sideways when you make such a bold assertion, its easy to second guess your thinking.

So I asked another insider colleague… who’s gut feeling not only confirmed my most aggressive projection, but was even more aggressive in his own projection… and so I asked another insider… and then another… each of which backed up my gut feeling within a small variance. It was then that I realized there was some juice to this.

In all, I asked 20 seasoned, professional, industry insiders, including loan officers, mortgage bankers, REALTORS, escrow officers, title representatives, real estate investors, and a former banker turned options trader.

The most conservative projection was that the MLS represents only 50% of the distressed loans out there.

Scientific? Controlled? Foolproof? Maybe not… but who to trust? Fickle media? Self-interested institutions? Politically motivated bureaucrats? California Association of Realtors, who just yesterday discovered a “computer error” responsible for drastically overstating home sales by more than 13 times? Or foot soldiers who eat, sleep, and breathe this business who have their fingers squarely on the pulse on the real life market?

25% was the average assessment. Put that in your pipe and smoke it.

Re-triangulation:

"This voice speaks San Diego"

In some great articles written by Kelly Bennett, Staff Writer for Voice of San Diego.org, I link with permission to these telling San Diego statistics:

“This March, the 90-day delinquency rate shot up 2.6 percent from March last year… but the rate of home loans going into foreclosure was… up just 0.3 percent over the year. That means there were more loans falling delinquent than received official notice of default -- indicating a bottleneck and a potential flood of foreclosures to come.”
“This March, 25 percent of the county's Alt-A loans were at least 60 days delinquent… (and) 38.5 percent of the active subprime loans… were at least 60 days delinquent.”
In April, 5.74 percent of outstanding mortgages were at least 90 days late on payments… but only 1.5% of homeowners (received “Notices of Default”).”

“Google’s not too shabby after all”

The act of writing this post itself helped to adjust my Google thinking cap… and guess what happened after I dialed in my keywords using phrases like “how will the foreclosure moratorium effect shadow inventory”?

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory."

How could this be?

“Government gets its peanut butter all over the banks’ chocolate”

In one way or another, there has been some form of a foreclosure moratorium in effect for the last 18 or so months. This means, banks with some exceptions, have been disallowed from foreclosing on non-performing loans.
Fannie and Freddy issued moratoriums.
Banks issued some voluntary moratoriums… perhaps attempting to cut losses while getting some, rather than no payback… perhaps reluctant to drive the real estate market down further… perhaps to create demand, by limiting supply… or perhaps because they’re in no hurry to report more defaults to shareholders.

“Creation of even more irresponsible lending standards”

Ever heard of “stated income”? This was when borrowers (over)stated income and assets to obtain loan approval. Want to know how loan modifications work? Borrowers (under)state their income and assets to determine a “fair” payment.

“Lowering standards” works especially well in conjunction with the “peanut-butter-chocolate theory”

Don’t allow banks to foreclose on consumers unless they offer loan modifications to folks who have demonstrated that they need help… by missing their mortgage payments.
We’ll just assume that the people who have been working three jobs to make their payments come hell or high water are less deserving than the folks who have missed their payments.
Never mind that the folks who have missed their payments will default again the first chance they get. Don’t take my word for it? Did you know over half of the modifications already granted… are in default again?

“Fuzzy math shenanigans”

Whew, good thing banking stocks rebounded recently… why bother adding up those tedious mortgage lates… is there really any rush to alert the shareholders and drive down stock prices?
Right, and while we’re keeping share prices from dropping like an empty can of soda, how about we 86 that pesky mark-to-market accounting practice to “free up” our reserve requirements!
Yeah… and “zero down loans” are so 2007… let’s call them FHA loans… we’ll make people cough up 3.5% so it won’t have that “zero down” stigma… good deal, but if the government is going to be in on it, they have to get theirs too… right, right… we’ll just tack on 1.75% to the loan balance to keep Uncle Sam happy.

“In marble lobbies we trust”

Banks have no obligation to report statistics on loan defaults.
Banks have no obligation to report statistics on loan modification requests.

“Working the system”

Some folks seem to stave off the foreclosure man by making partial payments or pressing the right levers or I don’t know how but they are still in “their” homes.

And not factored into my homegrown statistic… “the mother lode of shadow inventory”

Consumers who are 30 days late.
Consumers who are current but can’t hold on for long.
Per Bloomberg, nearly 25 percent of ALL mortgage holders are upside down.

The golden opportunity being missed:

The purpose of taking this poll, posting its results, and researching its guts out, was not to sarcastically attack the banks and government for perpetuating an already bad situation. The purpose is to call attention to a golden opportunity being missed.

While all this havoc was being wreaked upon our economy, a new freshman crop of first-time home buyers came online while nobody was looking. With good credit, a stable job, and 20% down from savings or from a little help from the ‘rents… the under $325k market is actually the one segment that does make sense to buy right now.

The rates are still low. People can qualify. More importantly, people can afford it. The post write-off payment is on par with rental prices. The sales prices have already taken a serious beating, and even planning for the worst… if the downward trend continues, future monthly payment savings will likely be offset by higher rates. There’s also that tax credit thing nobody really knows how to explain or whether it will be around long enough as advertised, but hey, it can only help too. In short… it makes sense.

And in this one and only market segment where it does makes sense to buy… the government is doing its darnedest to artificially limit supply.

This stance creates a head fake to higher-end markets that the tide has turned, which will irresponsibly cause more consumers to be caught off guard. It also sends a message to the hardest working class of consumers we have, who have not made room for any excuses, that it pays to quit.

We have a chance here to stop subsidizing more of what we don’t want. We likely have enough pent up demand to replace non-performing borrowers with performing ones. And if the demand on deck does not prove to be sufficient… then now is the time to find out. It is so important that we firm up a bottom to this madness in advance of the high-end displacement yet to come. A low end line in the sand is desperately needed to create a last chance foothold from which to draw a bridge when the high-end drops off the precipice. I say take the hit now while we still can:

Remove the moratoriums.
Set up an REO conservatory to rent to foreclosure displaced consumers.
Enforce banks to report defaults and non-performing loans to shareholders.
Let the market take care of itself.
Adjust incentives for bank managers to execute short sales (rather than pretend).
Recognize that new home purchases will stimulate the economy.
Understand that nobody “deserves a home”.
Stand up for the contracts that underpin our social fabric.

Invitation:

All ya’ all real estate junkies are cordially invited to revisit SethEstate in the next few days… to find out why we are so not even close to a high-end “real estate bottom”.

1379 Calle Goya: SOLD

2009-06-08T18:19:00.000-07:00

4bd/3ba fixer with good bones in Rancho Del Oro, Oceanside.

A few words from the client...

694 Rimini Road: SOLD

2009-05-23T19:36:00.000-07:00

4bd/4ba beach classic in Olde Del Mar.

A few words from the client...

"Your help and persistence is much appreciated. Also would you be interested in helping one of Bart's collegues find a house in Del Mar- he is coming over in a month's time. Can I pass your details on?"

-Bart & Gemma J.

4296 Mount Henry Avenue: SOLD

2009-05-18T18:33:00.000-07:00

4bd/2ba valley/canyon view in Clairemont.

A few words from the client...

"Hi Seth,

So we are 100% done now? Or is there one more form? Just kidding!

Thanks again for all you help through this difficult process. We certainly couldn't have done it without you."

-Charlie K. & Lydia B.

1145 30th Street: SOLD

2009-04-29T20:08:00.000-07:00

5bd/3ba historic classic with downtown views to the Pacific in Golden Hill.

A few words from the client...

"Seth, Ron is going to be calling you or feel free to call him. He wants to buy a house next to his as an investment."

-David P.

______________

A few words from the listing agent...

Mr. Jones is a Punk

2009-04-05T20:51:00.000-07:00

In this WSJ article the author writes, "But after four years of struggling to pay his own mortgage, Mr. Jones says he has no equity to show for it. He may end up walking away from his home...

I would offer up a thought here... Mr. Jones is a punk and I resent his sorry, tough-get-going I-guess-I'll-quite since life isn't giving me what I'm entitled to guts.

I would also like to put on record the next short-sale seller who gives me an attitude for showing up at "their" home after I call in advance for an appointment per MLS instructions, whose instructions by the way, are nearly always more elaborate than the instructions of other comparable re-sellers who are also trying to sell their home the traditional way.

If you happen to be a short-sale seller, I harbor no judgment against you. I don't blame you for your situation and don't question why you aren't working four jobs to somehow make it work. But if you are going to break your agreement, and ask for a hand out, which is exactly what every short-sale seller is asking for, then for Pete's sake, try to dig down deep and help us help you... or at least get the hell out of the way.

By the way, I also posted this entry on Trulia's website, which enjoys huge consumer traffic specific to real estate. The post stimulated quite a bit of discussion, so for anyone interested, I invite you to review the thread.

Lagoon Front Living

2009-04-03T18:43:00.000-07:00

Check out this cool new listing... or click for a virtual tour.

4921 Trojan Avenue, #5: SOLD

2009-04-02T19:56:00.000-07:00

1bd/1ba starter near SDSU.

A few words from the client...

"Thanks for all the help on the condo - Thanks for being straight with me through the whole process, and hopefully this is only the beginning of our working relationship."

-Clifton M.

Is It "Bottom" Yet?

2009-04-02T11:11:00.000-07:00

The inspiration for this post came from a trulia post, in which a member, Fred Posner, cites today's WSJ article. Following are comments I added:

There is still a huge discrepancy between low and high-end markets.

On the high-end, I will go so far as to say we haven’t even seen a correction yet. 10% off peak prices is not the end of this. The ARM rate re-sets have not even started in this segment, and we have about three more years of this mess to unwind. While the levels of the indexes associated with these loans are still very low, the switch from interest-only to principal-and-interest is going to push some marginal folks to “walk-away”, after they first try refinancing but then realize the low rates mentioned in the article only apply to $417k and lower loan amounts. We have a blueprint of how this ends up right before us… its called “subprime”. And next up is “prime”.

On the low-end, however, I made offers last week on nine different properties before I even got a counter offer. The other properties all got 10+ bids within a week of going live. You can’t source the land and build these homes for less money than they are currently selling for. And you can get 5-10% net ROI on all-cash purchases.

The only question remaining is this: will the indirect effects of the impending high-end market collapse (i.e. slowed consumer discretionary spending, higher unemployment, etc.) drag the entire economy into a deeper recession/depression? ...or will the displacement of higher-end consumers bridge the gap to the lower-end segment, as high-end foreclosure displacement stimulates increased demand for more affordable housing?

Lastly, I will point out my observations about today’s stock market upswing coinciding with today’s relaxation of “mark-to-market” accounting standards… is not really coincidental. We’re on a very slippery slope right now… as we keep burning brighter today at the expense of tomorrow’s future. At a time when we try to create more confidence about trust in the system… we’re basically sweeping more toxic assets under the rug. And this is the attempt to clean up the mess we currently have… what happens when we get more toxic assets from loans that haven’t even reset yet? For some perspective here, the amount of loans that have re-set so far, are but a minority of the loans that have not yet re-set.

Moral of the story: the bottom is where you find it.

Shazam!

2009-03-21T12:16:00.001-07:00

And just like that, the listing described in the preceding post is "pending"... happily with me as the buyer's agent.

Hot Listing Alert

2009-03-20T15:59:00.000-07:00

This is the body of an email I just sent to my active buyers:

Hi this is Seth coming at you live… happy Friday. So, from time to time I send out a “hot listing” alert… but only truly good ones… not just “salesy agent” ones.

Here’s the thing… the market is very efficient. There is usually no such thing as a “good deal”, because the second the deal gets marginally “good”... demand rushes in to snatch up the supply. But every once in a while I come across truly uncommon value, and if you are on my list to send properties, then you’ll automatically get this announcement.

I found a place that looks pretty dismal from the street. Then you walk in, and you’re like, “wow, I wasn’t expecting this”… and then you see the back yard, which goes on a long way, and then the amazing canyon views that go on for forever. The house has received a “Notice of Default”, but unlike 99.9% of the other houses in this category… this one has equity. So it’s a race against the clock to sell it before the bank gets it. They have started to drop the price to the point where other people will figure this out and I bet it goes pending within the next 3 or 4 days.

The house is nothing fancy… only about 1,235s.f. but the floor plan is thoughtfully designed, and there’s lots of potential fixer-upper-ness. The pix don’t do the yard justice, so let me know if you want to see it in person. It’s located in Clairemont in the “Mount” street district.

Request the MLS listing link here.

But We Drive BMW's !

2009-03-16T12:34:00.000-07:00

Will the $700k to $2m market see more downward pressure on prices?

I sure wish that increased savings and super low interest rates will mitigate the impending problem, but I fear a truly objective analysis suggests a really ugly outlook. By impending problem, I mean that the amount of "sub-prime" loans that re-set so far, are only a minority compared to the amount of alternative and prime loans that have not re-set yet. And by re-set, I mean when the interest rate on a loan switches to a variable rate (from an introductory rate). And by problem, I don't mean that the rate is re-setting... I mean that the loan also switches to principal and interest (from interest only)... and not to a 30 year amortization, but a 25 year amortization, thereby making the payment go from "man I can't believe my mortgage payment is this high and my value is this low" to... "my payment is going to cost HOW MUCH?"

I'm not attached to being right, and I hope I'm wrong… in fact let’s pray I'm wrong. But every rosy view we can muster includes at least some amount of wishful thinking, whereas the more pessimistic view is based on a simple harsh blueprint that we all just witnessed roll out in Rate Re-Set Part I.

Here’s how Part II looks to be shaping up:

It is true that the $700k to $2m homeowner crowd, as a group, does enjoy greater insulation (i.e. savings, education, discipline, opportunity, other resources, etc)… but they are also a sort of a giant, in that the bigger they come, the harder they fall.

For sure, some folks are watching this unfold and saving more like crazy. But here's the deal: even if 90% of the crowd can bunker down, it just takes some marginal folks, say a hard working couple with a new baby, two jobs, two cars, credit cards, and escalating healthcare expenses. One loses a big account, the other gets their hours cut.

It is not the rate re-sets that pose a problem... but rather the loan re-sets from i/o to p&i… and not over 30yrs... but 25yrs. On and $800k loan, this equates to $1,245/mo higher payment... and that’s with rates being super low.

Imagine if the loan was $1.2m. Imagine if rates tick up.

We don't have a socio-demographic problem. We have a math problem. And a disciplined savings plan is not going to protect high-end homeowners from watching their value get erased.

Because once a few marginal folks are forced to sell an asset, for which there is virtually no market… in a market where low rates do not exist for refi's, where no attractive financing is available for purchases either, where there is little demand, in part because the rates on jumbos are high, and in part because folks are worried about their income stream trend and security… whose effect will, in turn, decrease discretionary spending further… which will put more pressure on the next level of marginal people to sell… while the neighbor who could afford making payments on their $900k loan but watch their value go down to $700k… Part II sucks.

The scariest thing about this whole mess is not that people don't see this coming... its that they don’t see it coming because they don't want to.

And way more than the “sub-primers” and way more than the “richest 1%'ers”... the upper middle class are the true stimulators of the economy. When their cash flow freezes... look out below.

Of course, home values will eventually come back up... in like 10 years or so... so if you plan on staying for the long haul, just make sure you are locked into a long-term loan, and don't read the news. But if you're not sure about weathering the storm... you may consider selling now, rather than risk trying to catch a falling knife later.

Loan Modifications: Helping Hand or Moral Hazard?

2009-03-16T12:09:00.000-07:00

Of the myriad facets within our insipid bailout program, the least effective subset is that of the loan modification, as described recently by Federal Housing Finance Agency (FHFA) Director James B. Lockhart.

I say “is” and not “has to be” because its failure is already evident… we just have too much political inertia to change course.

Now, before judging this post as too harsh, first understand this: there is a huge distinction between “loan refinances” and “loan modifications”.

Refinances are for folks who can:

Truly afford the new terms, AND…
Pony up good credit worth defending.

I am all for refinances where, balances are slashed by lenders, rates are subsidized down to 2%, and to some extent, new amortization schedules that go out to 40 years (though the 40yr thing helps lenders more than the borrowers). This is where our government can make a difference.

And while this model in which consumers can directly refinance with their loan servicing company, temporarily eliminates any revenue I could personally derive from executing refinances as a real estate broker, I’m all about separating commission from advice. And while banks are giving free money away, the best advice I can give anyone who will listen is to help bring this proactive servicer-to-consumer model mainstream.

Now, modifications on the other hand (as opposed to refi’s), are for people who have already missed their payments, and this reactive model is doomed before it starts. Unless the propensity to repay can be demonstrated with a clean credit history, then like the Seinfeld sandwich guy would say…”no principal or rate reduction for you!”

Now personally, I don’t blame the “entitlement crowd” too much for feeling entitled, because if you extend an undeserved benefit to an otherwise hardworking person and then take that benefit away, of course they are going to get salty.

Nor, by the way, do I blame investors for getting fat while underwriting these loans in the first place. Who really is so naïve as to think that incentives for the common good will match up to incentives for individual gain anyway?

But I do blame in advance, the pundits being pressured to “do something” who will pave a new lane on this economic freeway and then act surprised when it gets jammed with more traffic.

Here is the point: the entitlement crowd could not afford the old payment… and they can not afford the new payment… and even if they could afford the new payment, they will not be able to afford it the first chance they get.

Am I being ruthless? You bet I am… because while the rest of us see our own income decreasing, we still keep paying our bills. And now we get to pay more taxes on the meager income we do make to repay the mess the entitlement crowd helped make.

You know why? Because we still have a credit profile to defend.

If we offer loan modifications to people who have already destroyed their credit, thereby killing the integrity of the fundamental method by which we measure credit worthiness, then we not only reward the people who are undeserving… but we also provide an unprecedented incentive for well intentioned consumers to just stop carrying their burdens.

Well I guess not unprecedented, if we count healthcare… but I digress.

If I tell you that 50% of all loan modifications previously executed... are already in default... would you believe me? What if I tell you this statistic is four months old!!

Once the credit is damaged there is NO INCENTIVE to make payments on a depreciating asset while the opportunity cost of renting is cheaper. If values continue to decrease (and they will) then the modificationee will do the wrong thing... again. Because that is what they do.

If it were so simple to fix things this way, then how about the next time there is a traffic jam on the freeway, we all just hit the gas at the same time? Are you going to trust the car in front of you?

What is "Mark to Market" anyway?

2009-03-13T09:38:00.000-07:00

I was so impressed with this blogger Destor23's post about the method of "Mark to Market" accounting, and how it impacts the banking industry, that I am linking to it here.

A very clear, economical, and well crafted piece. I landed there via google, while trying to improve upon my vague understanding about what MTM actually is, and to confirm my intuitive understanding about how short-sighted it will be to make reforms, which in effect, amounts to nothing more than “looking the other way” while our shady asset problem continues to get swept under the rug.

The article really helped me check these items off my list, so I felt compelled to share it with my readers too.

New, New Conforming Loan Limits

2009-03-11T19:40:00.000-07:00

If you're confused about the newly revised Fannie/Freddie Conforming Loan Limits... that's because they're, well... confusing. I'm talking, of course, about the newly revised-revised ones... not just the old revised ones.

The old $417,000 San Diego conforming limit was recently bumped to $546,250. Up until now, lenders have been offering competitive rates, say 4.875% (with 1 point) on the $417k limit, and they were supposedly going to offer about .625% more than that, say 5.5%-ish for "agency jumbo" loans between $417k and $546k. However, in practice, lenders were still charging substantially more than this.

Now, $546k is the new (supposed) conforming limit... and the "agency jumbo" is bumped up to $697,500. So in theory, the $546k limit will get the killer 4.875%-ish rate, while the $546k-$697,500 loans will get the good, but not great 5.5%-ish rate.

Clear as mud, but at least we're moving in the right direction.

Meantime an actual horse's mouth told me today that lenders are actually beginning to offer loans above $417k at the 5.5%-ish rate... but I don't know yet how high a loan limit they will allow... mostly because I think, the lenders don't know either.

As a side note, this stuff pretty much pertains to purchases only, of course, since few actual homeowner these days seem to have equity sufficient to refinance, and the government seems bent on subsidizing everyone with a mortgage anyway, at least until the money runs out... but don't get me started.

No Soup For You!

2009-03-11T10:51:00.000-07:00

I am happy to report that my second Seeking Alpha article submission was published this morning.

To view it, click here.

Seeking Alpha handpicks articles from the world's top market blogs, money managers, financial experts and investment newsletters - publishing approximately 175 articles daily. SA was named the Most Informative Website by Kiplinger's Magazine and has received Forbes' 'Best of the Web' Award.

In addition to these articles, which I plan on submitting regularly, I am also happy to share that I just received Seeking Alpha Gold Standard Certification, which was approved in part, by meeting SA's rigorous quality standards and by agreeing to abide by comprehensive compliance standards.

Most importantly, I now get to post this cool badge on my shizzle and perpetrate like I know what I'm talking about:

Good stuff.

1025 Brightwood Drive: SOLD

2009-03-03T19:06:00.000-08:00

4bd/3ba ocean view in San Elijo Hills, Carlsbad/San Marcos.

A few words from the client...

“My wife and I are first time home buyers and out of towners, and with Seth’s knowledge of the area and his extensive experience, he helped us find our perfect home! He gave us his honest opinions, informing us of all the positive and negative characteristics of homes we looked at… truly a buyer’s advocate. We felt that Seth really cared for us, and shared our joy in finding our perfect home. We felt that he wanted the best for our situation and lifestyle, and we’re extremely happy to have worked with Seth.”

-Adam R.

Values vs Mortgages per SD Union Tribune

2009-02-17T12:41:00.000-08:00

Click here for article by San Diego Union Tribune.

How To Get The Lowest Interest Rate

2009-02-15T10:46:00.000-08:00

To get the best rates in today’s general marketplace, your loan amount needs to be under $417k, have 740+ fico scores, and show a history of sustainable income (ratios). In this scenario, the rate will be somewhere in the high 4%'s. In other words your loan needs to be conforming.

If your fico is lower or your loan amount is a bit higher, you can still get attractive rates… just not the best ones.

If you have a relationship with a manager at a big bank like Wells or BOA where you keep your primary account… ping them for refi opportunities.

If this leads to a dead end, find one good mortgage broker you trust, and put your faith in them. They will be way more likely to help you save money if they feel you will be loyal to them for the hard work they are doing for you. Letting someone else shop for the best rate for you takes a leap of faith, especially in light of all the bad press brokers get. But I guarantee a good broker who wants your business for life will take better care of you, if you put your faith in them, than if you try to learn just enough about the mortgage business to be dangerous.

If your loan falls into the jumbo category (i.e. $545k+ in San Diego), the only places right now offering competitive rates are credit unions like San Diego County Credit Union. It may be worth opening an account there just to take advantage of there insanely low rates.

But if you are like 95% of the people out there, and have a loan amount under $417k, and equity of less than 15%-20%, there is simply no way to get a competitive rate... unless you bring cash into the deal to buy the loan back down to $417k or close to it.

If you can't do this, then save yourself some energy and look elsewhere to optimize your budget, because it is not going to happen via refinance.

And a more relevant question may be: why bring cash to the deal, since having cash right now is the only way to prosper in this brutal economy? If you have lots of extra cash, then buying the loan amount down may be a good idea if the subject property is trading at or close to its intrinsic bottom… but if it has more room to go, I would recommend waiting for your lender to bail you out… which may take a long time, but hey they have as much to lose as you do, so if it were me, I’d wait and see what develops.

Some lenders like GMAC are just now beginning to voluntarily write down consumer loan amounts and extend low, long-term rates. We will likely see more of this in the coming months… especially since the lame alternative other lenders have been using so far is simply not working. 50% of all loan modifications made thus far are already in default! Click here to see why.

If you are getting approached from your lender to do this sort of "work out", then make very sure it is coming from your genuine lender and not someone else who is perpetrating to call on behalf of your lender. As in health related issues, get a second opinion.

I would not recommend going through a "loan modification" specialist to negotiate on your behalf. Although it is standard protocol for lenders to not even talk with consumers until they are late on making payments… do not believe the hype that they would prefer to talk instead to some other specialist on your behalf. This protocol is stupid, and it is counter to common sense, and it is frustrating… and while it “is what it is” we are seeing lenders get pressured from all sides to make changes. I would recommend just being patient and that you keep making your payments if you can. If the lender is willing to talk turkey then do it yourself... you don't need a “specialist” putting another finger in your pocket.

I eat, sleep and breathe this stuff… and I love helping folks figure out exactly where they stand. So for more info, feel free to ping me...

Not Down with Digg

2009-02-15T09:46:00.000-08:00

1.) Adding the "Digg This" feature to my blog, made page loads painfully slow.

2.) It seems like only SEO savants can crack the code of Digg-ability. 99% of Digg entries do not get a fair shot at being dugg.

So onward... Digg has left the building... and I look forward to resuming the organic growth the site was experiencing without eSteriods.

2.10.09 Interest Rate Alert

2009-02-10T17:18:00.000-08:00

My team recently locked a $417,000 loan on a clean purchase file at 4.875% with 1 point plus standard closing costs. Best rates are going to folks with stellar credit, solid debt-to-income ratios, and 20% minimum down payment.

While we are still getting files approved when one or more of the these criteria fall outside the box, things get sketchy pretty fast. But if the file is clean, we're 30 days in escrow, clean as can be.

Looking forward to posting more entries soon, after I get a handle on a welcomed spike of activity.

Meantime, as always, call anytime with any questions.

1851 West Point Drive: SOLD

2009-02-03T19:13:00.000-08:00

5bd/3ba ocean view in Telescope Point, Carlsbad.

A few words from the client...

Too busy to blog!

2009-01-20T22:34:00.001-08:00

No, really. I'm not just saying that. Working 14 hour days, 7 days a week to keep up with a mad rush of home tours, purchase offers, counter offers, escrows, and the respective loans and refi’s.

I am not complaining since this presents a good opportunity to recoup some commission after last year’s four-month dry spell, while all of the nations banks decided to take an undeserved break from lending.

What's moving? Well predictably enough (achemm) the $250k to $550k market. And while some clients recognize more potential downward pressure in the $700k-$2m range, all-cash buyers seem to be swinging a pretty big hammer in this segment too.

But let’s not get carried away… people have been talking about today's news item that declared Solana Beach a big winner in 25% appreciation last year. I have a healthy skepticism for all news items, so I pulled my own numbers to fact check. I show a 12% increase but hey, this is still great. Then again I also show that the 4th quarter average sales price tumbled 34% compared to the same period in the previous year.

This suggests to me, that my stance on market outlook is unfortunately shaping up to be accurate. Let's hope not, but if I had to get off the fence, I would say that we are sitting in the eye of the storm. Lot's of good deals out there if you know where to look, but lot's of pitfalls too if you don't. I miss blogging, but not only does baby need a new pair of shoes... so does daddy.

Reasons to Avoid Short-Sales

2008-12-29T10:12:00.000-08:00

If there is a 70% chance that your escrow process will end with a deal-breaker, but only after being stretched beyond 30 days (while your rate lock expires), potentially with no end in sight for months, and after you spend $800 and numerous hours of due diligence and planning, and potentially losing your pre-approval and having to start all over again with a new lender, but not before canceling all the plans you made to move, and all the vendors you would have contacted at that point, for example, your existing lease agreement or home sale, SDGE, EDCO, locksmiths, carpet cleaners, moving companies, etc.

…would you put yourself in this position?

A short sale is when the seller must obtain approval from their lender to sell their home for a price that will result in the lender receiving less than they are owed.

The first hurdle in a short-sale involves getting the seller’s lender to issue preliminary approval. This means they review the listing agent’s estimated cost analysis and then issue approval of the estimated loss. This can take anywhere from a few days to many months.

Once pre-approval is issued, the escrow process resumes in pretty much the same way as a traditional escrow. However there is one huge difference:

In a short-sale escrow, the seller’s lender does not issue the final approval until the very end of escrow.

Even if a short sale escrow takes only 30-45 days (most run much longer)… after doing all of the inspections, disclosures, agreements, trips to the property, loan signing, final walkthrough etc… you (the buyer) will be waiting for nothing left to do but fund… and then the seller's lender will either approve the deal, or more than likely, issue a counter at that time.

The counter can be as little as a $1,000 for some outstanding HOA dues… or as much as $10k, $20k… $50k, etc. or some other amount that represents the difference between their expected proceeds… and the proceeds they could receive instead by foreclosing and/or collecting mortgage insurance.

The seller’s lender does not do this analysis in the beginning, when it would make the most sense for all parties. Rather, they wait until the very end of escrow because this way they know for sure they have a live buyer who, prepared to pay what the market will bear, who has been fully approved with empirical numbers to work with. They also do it this way because banks are a bureaucratic mess whose incentives are not aligned at all with a broader economic recovery. And most simply put… no single bank manager really looks forward to having their own boss fry their ass for approving a loss.

Of course, upon receiving a counter offer so late in the game, you will be under no obligation to proceed… and you will get your deposit back if you choose to terminate the deal. But this happens after you will have paid a minimum of $800 in inspections and appraisals, and after you end up canceling all the plans you made to move into the new home, and canceling all the vendors you would have contacted up to that point, for example, your existing lease agreement or home sale, moving companies, SDGE, EDCO, locksmiths, house cleaners, carpet cleaners, etc.

There is no control you can use to negotiate against this possible outcome. This is why over 70% of short sales escrows do not close.

So… if there is a 70% chance that your escrow will terminate but not before resulting in major inconveniences, disappointment, and loss of time and money... while potentially losing your loan pre-approval and having to start all over again with a new lender… and a new subject property... why put yourself in this position?

Happy Holidays

2008-12-24T07:55:00.000-08:00

Here's to a happy holiday season and a fun New Year!

1213 Highbluff Avenue: SOLD

2008-12-23T19:17:00.000-08:00

2bd/2ba townhome in San Elijo Hills.

A few words from the client...

"I highly recommend Seth Chalnick to anyone thinking of buying or selling property. Not only is he a great guy with a beautiful family, he is also very knowledgeable and professional. Even though I bought a lower priced condo, Seth made me feel as if I were his most important client. He always returned e-mails and phone calls promptly and, because he also handled the loan for me, I knew I was getting the best rate and loan preparation. Being able to take care of all the paperwork right in Seth’s office made efficient use of everyone’s time. Thanks for all your hard work, Seth!"

-Ellen S.

What's the Difference: REO, Short-Sale, Re-Sale

2008-12-17T00:26:00.000-08:00

The goal of this post is to make you go, "Oh... alright then!"

There are four categories of homes for sale:

Unapproved Short-Sale- a homeowner is said to be "upside down" on a home when the proceeds from a potential sale would be less than the amount owed on mortgage and lien balances. If they are unable or unwilling to continue making payments, they basically have two choices... try to petition the bank to eat the loss... or walk away. Short sales create slightly less havoc on credit ratings so homeowners have some incentive to cooperate. Here's the problem: it's "someone's ass" at the bank if they sign off on the loss, so managers are often reluctant to do so. The official party line is usually goes like this: "we are so overworked with short-sale requests, we may take a few months to get to you". And in fact they often do. A prospective buyer will make an offer... sit around for 2, 3, 7, 8 months awaiting lender approval... get their hopes up… get approved for their own financing… continue to waste money on rent payments… and in the end, most listing agents report back that the manager asked for a higher sales price… or just said no. Meantime the buyer’s own financing gets dated and they have to start all over again, so they often give up. My take: stay as far away from this category as you can.
Pre-approved Short-Sale- up until recently, I put all short-sales into the category above... but alas, banks are starting to get smart. Once a short sale is approved, they actually move through the escrow process almost as smooth-like-butter as in the other categories. The downside is the short-sale approval price is mostly non-negotiable. The upside is the prices are usually set way low to begin with. But I still say let someone else go through the rigmarole of getting lender approval. You might ask, “Doesn’t this mean some other buyer will get the deal?” In my experience, the other buyer will get so frustrated after months of waiting, they will move on to greener pastures. Later, the smarter banks (doesn’t say much) get real and approve the sales price. A smart agent can distinguish which listings have been approved, though it is labor intensive. This category represents good value. I'm closing one this week for $240k... the original list price was $400k. No joke. [Well its been about a week or so since I wrote this post and we did end up closing this sale... but it closed a week later than expected. As mentioned I have been advising clients against making offers on short sales due to their extremely poor closing ratio... and while I thought the pre-approval would address these nightmares I learned a big lesson about one last step all short sales must go through that only luckily did not kill our deal. For more detail, see my revised take on short-sales.]
REO- this category goes by many names (i.e. "bank owned", "real estate owned", "notice of default", "NOD", "notice of sale", "NOS", "public auction", "tax default", etc.), but they all mean the same thing. Usually these are short-sales that took so long in getting approval that never came, that the bank ends up foreclosing. Once the bank takes back ownership, it switches to a different side of their balance sheet. Then, the bank’s REO asset managers are empowered to get rid of the asset at very competitive prices once and for all.
Re-Sale- good old fashioned homeowner looking to sell their home. Here's what I have to say about this category... anyone looking to sell in this market... really has to sell, so do not preclude them from your search in the name of getting a "good deal". Don't miss the forest through the trees, and get sucked into the vortex of REO marketing spin.

"Oh... alright then!"

Bottom line: when it comes to helping people buy the right house, at the right price, and with financing that meet's their goals… all at one point of accountability... I believe I am the best Buyer's Advocate in San Diego.

Don't just take my word for it... check out some testimonials to kick the tires.

REO: Smart Search

2008-12-17T00:21:00.000-08:00

If you are getting frustrated with companies who perpetrate access to an exclusive line of REO listings, only to find (after registering) that they are in fact, bunk... you've come to the right place.

Here is why bait-and-switch marketing practices are prevalent in the REO space:

Public records indicate which properties are in default.
Just because they are in default (i.e. late on their payments) does not mean they are available for sale. The owner still has the right to catch up payments, and even if they don’t, there are about 120 days of processing that must first occur before they foreclose.
REO's have tons of nick-names, like "bank owned", "real estate owned", "notice of default", "NOD", "notice of sale", "nos", "public auction", "tax default"... and the list goes on!
Because anyone can pull public records, and because there are so many confusing names for REO's... some companies are making money by exaggerating the features of what you are looking for... namely "a good deal".
In the end, they pass off homes (that may technically, at some point, go default)... as homes that are genuine REO's.
They do this to attract as many "leads" as possible so that some percentage of them will end up buying other listings that are active... some REO's... some not.

In my experience, there are only two good ways to identify REO's:

Go direct to lender's websites... but they only have their own listings, not other lenders. And you will likely end up with an agent representing you who also works for that lender.
Manually search the confidential remarks in the MLS database. The only people who have access to these remarks are agents. It is rather labor intensive to sift through pages of listings for just the REO's, but if you partner with me by providing specifically what you are looking for... I will do this for you.

So you see... I ask for your "registration" too. But instead of trading your email address for bunk information, you get real value, and not just its mere perception.

I'm Big in Japan

2008-12-12T07:37:00.000-08:00

Hey, I reached a cool milestone today.

Seeking Alpha, the premier financial website for actionable stock market opinion and analysis, published an article I submitted. They handpick articles from the world's top market blogs, money managers, financial experts and investment newsletters - publishing approximately 175 articles daily. Seeking Alpha was named the Most Informative Website by Kiplinger's Magazine and has received Forbes' 'Best of the Web' Award.

After accepting 20%-25% of new author contributions, they edit articles for clarity and consistency, and then organize and tag them for easy searching by stock ticker, sector, and theme.

Here's a link to my article. In it, I pilfer one of my more catchy blog post titles and condsolidate the underlying theme of my high-end market sentiment, but hey, its mine right?

"Conforming" Loans for Laymen

2008-12-09T14:29:00.000-08:00

What is a "conforming loan"?

In layman's terms, it conforms to standards that reduce the likelihood a borrower will default on making payments. "Standards" mean back to basics… i.e. substantial down payment, clean credit, and proof of income. Conforming loans have (semi) government backing that insures against default. Since the risk of making these loans is not too high, investors are willing to charge a relatively lower interest rate, compared to loans they could otherwise make to individuals with inferior qualifications, or without the government-backed insurance.

What's in it for you?

You get a low interest rate if you qualify.

How do you qualify?

Why are "conforming rates" buzzing in the news?

Because they are close to their 50-year historic lows. With no points, you can get a 5.5% 30yr fixed rate loan. If you paid a point or two, you could lower the rate to ~5%.

What are points?

One point means one percentage point of your loan amount… so one point on a $400,000 loan means an extra cost of $4,000.

Want to view a "Rent vs Own" comparison?

The following chart shows the monthly payment for different purchase prices, after putting 20% down, at 5.5% and at 5%. It also estimates the total extra cost needed to buy vs rent:

Market Prices: The Great Chasm

2008-12-09T08:40:00.000-08:00

At first, I was going to title this post "The Great Divide," which somehow sounds more catchy... but it just doesn't have the right connotation. "Divide" suggests a gap that is difficult to bridge... whereas "Chasm"... well now, that's a place things fall into.

What many folks are missing today is the huge disconnect between high-end properties that haven't even corrected YET, and low-end properties that are selling at rock bottom anyway you slice it.

On the low-end:

Prices have dropped below the cost to buy the lot and build the home.
Net annual return on an all-cash purchase exceeds 5%.
You have to win seller acceptance over competing offers within a matter of days.

For homes currently valued between $750k and $2m:

The correction has not even begun in earnest. A huge percentage of these homeowners have ARMs. None have reset yet. They will. Its not the interest rate adjustment that will push them over the edge… since their fully indexed rate will still be low, at least for now... but rather, the fact that some of these loan programs force principal and interest payment re-amortization over the remaining 25 years.

Some marginal folks will need to sell. And when they do, since there is exactly zero market for making loans in this segment, people will face increasing pressure to get out, which at best, will put downward pressure on prices, and at worst, spiral into another “sup-prime” type debacle. And that’s with LIBOR staying low.

We just saw the blueprint of how this plays out in sub-prime. It is not a socio-demographic thing, but rather a math thing. These homes will decline in value, 35-40% off peak prices, and the lower-end homes currently trading below intrinsic value will hold their own, or come up a bit to bridge the gap, as foreclosure displacement puts upward pressure on the rental market.

If you would like help figuring out how all this creates challanges or opportunities for you, call anytime with any questions.

Loan Modifications are Good... Right?

2008-12-08T12:49:00.000-08:00

As stated in this article by Alan Zibel, The Associated Press: "More than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again, banking regulators said Monday."

Man... maybe Obama ought to tap me to be on his real estate advisory team... I would accept the same salary as the good ole' boys... and totally credit back the appraisal fee on his next home purchase. In my Critique of the US Mortgage Plan, I write about loan modifications and how "the people who have already missed three or four payments have already damaged their credit something awful, so their incentive to make even modified payments on a depreciating asset is already reduced, if not eliminated."

So what we're seeing here is pretty simple really... once their credit score is damaged, people will likely fall behind on payments when their home's value drops below the amount owed. There are only three incentives to pay off a home loan:

To profit from the home's appreciation.
To preserve credit scores.
For intangible benefits (...the reason the other 50% did not fall behind... yet).

Why pay the bill if the credit score is already damaged for years and it costs less to rent a comparable property? Why pay the bill if there was already one reward extended for not paying the bill?

If lenders are going to modify loans, then they ought to consider doing it proactively, before the credit is damaged. But rather than plug all the cartoon-like bullet holes that riddle this housing crisis, we may want to let the pressure find its own inevitable equilibrium. How about letting over-priced homes fall to levels buyers can afford? We are already seeing a successful resolution in the low-end markets as buyers triangulate the market bottom to determine fair bids. As for the high-end market... watch your back(yard).

11.4.08 Interest Rate Alert

2008-12-04T16:35:00.000-08:00

Big news in the mortgage world… here’s the scoop:

The Good

Conforming rates drop to low 5%’s… could head lower!
San Diego conforming loan limit increased to $546,250 (from $417k)!

[click here to see limits in other high-cost counties]

“Conforming” (backed by Fannie/Freddie) qualification means:

Loan amount: at or below the limit.
Credit: 680+ fico.
Income: debt/income ratio below ~45%.
Collateral: 20%+ equity (some wiggle room here).

Bottom Line: this is great for home buyers. In fact there has never been a better time than right now to buy homes under $750k. Rates are as low as ever. Prices are close to rock bottom. If your income is stable, and you can afford to make the long-term payments, and you plan to live there (or can afford to rent out) for the next ten years… then now is the time to buy.

This is also a great time for qualifying homeowners to refinance.

The Bad

The temporary “Agency Jumbo” program that extended loan limits closer to $700k for a nominal increase in cost has been eliminated.
If you have an adjustable loan, and your equity is not sufficient to qualify, consider bringing in cash to make the deal happen. The rates are that good, the risks of keeping the adjustable loan are getting worse, and it might be better to park your money in a hard asset than roll the dice with other investments.

The Ugly

Loan re-sets on high-end homes pose a potential Triple Whammy Threat:

Some re-sets force principal-and-interest payments.
Some re-sets force re-amortized payments over 25 years, not 30.
Some fully-indexed rates may increase immediately.

Check the terms of your “Adjustable Rate Note” to see where you stand.
Today’s ugly jumbo refinance interest rates (~8%) would mean principal and interest payments ~50% higher than existing interest-only payments.
It is very hard to qualify for a “Jumbo” loan today anyway.
This is a huge reason why sales volume is down.
A huge percentage of high-end homeowners currently have “5yr I/O” loans.
None of these loans have re-set... yet.
The immediate problem is not so much the interest rate adjustment, because the indexes tied to them are currently so low, it may actually lower payments in the short-term… keeping in mind that long-term payments can potentially double.
Here is the immediate problem: an $800k loan re-set that forces the re-amortization from interest-only to principal-and-interest payments over 25 years... with the same interest rate… goes to $4,912 (from $3,667)… that’s $1,245/mo higher... and that’s with rates being low.
Some loans allow five more years of I/O payments after switching to adjustable… but keep in mind they will later be re-amortized over 20 years (…not 25, not 30).

Bottom Line: Up until now, the $750k to $2m range has hung in there… fending off major price drops. The items listed above suggest that marginal folks will face increasing pressure to get out, which at best, will put downward pressure on prices, and at worst, spiral into another “sup-prime” type debacle.

If you have a jumbo loan that is re-setting soon, you should check the “Adjustable Rate Note” (received during loan signing) to see when it calls for re-amortization. Regardless, now may be a good time to consider bringing cash in to make a conforming refi happen.

If you cannot refinance, then make sure you have the resources to withstand payment shock from re-amortization and potentially much higher interest rates. If the outlook is sketchy, consider selling now, rather than catching a falling knife later as other people find themselves in the same situation.

4.5% Mortgage?

2008-12-03T18:24:00.000-08:00

Per this CNN article, the Treasury is mulling a plan to lower mortgage rates to 4.5%.

On the surface, this would be great, but the overwhelming majortiy of people who really need help... i.e. the folks who's rates are about to reset... won't be able to qualify since they have less than 20% equity.

This sure will attract new buyers to the market though.

North County Town-by-Town Description Series

2008-12-01T13:01:00.000-08:00

Ever notice that its hard to find a good, unbiased, description of neighborhoods on the web, without someone trying to sell you something?

For folks who are interested in getting acquainted with the lay of the land… this "Town-by-Town Description" series presents one take on the places and culture that comprise coastal North County San Diego… seen through the eyes of a 38 year old, husband, father, and neighbor who has lived here for 10 years.

Now of course my views are biased… and of course I’m trying to help people buy, sell, and finance homes… its just that my town descriptions aren’t intended to influence you (directly anyway... ha!).

Just click to explore:

92008, 92009, 92010, 92011 Carlsbad (coming soon)
92024 Leucadia (coming soon)
92024 Encinitas (coming soon)
92007 Cardiff by the Sea
92075 Solana Beach (coming soon)
92014 Del Mar (coming soon)

How does Debt Effect my Chances for Loan Approval?

2008-12-01T12:39:00.000-08:00

We calculate all figures on a monthly basis, and here's how it works...

Ratio
The total proposed monthly debt from all co-borrowers, divided by the combined monthly gross income of all co-borrowers = debt to income ratio (should be less than approx 45%).

Income
Let’s say you and partner earn $6,666/mo (or $80k combined annual gross before taxes)…

Debt
Let's say you'd like to make an offer on a home that costs $460k, and you're putting 20% down.

Your proposed mortgage payment will be $2,200/mo, property taxes will be $300/mo, and we'll assume HOA fees $175/mo… assuming no other fees like mello roos or homeowners insurance, or a myriad of other things...

(I can help you figure this out, but if you'd like to try for yourself... feel free to use Seth's Awsome House Payment Calculator).

Plus... you have minimum payments of $90 student loan, $150 credit card, and $250 auto loan that show up on your credit reports…

Debt to Income Ratio
Then total debt of $3,165 / total income of $6,666 = 47%

Conclusion
So in this example, your ratio is a little high... too high to be in the range lenders like to see, but not necessarily too high to make your deal work. All scenarios are very dynamic. You can reduce your monthly obligations by $165, or cut back (or negotiate lower) your purchase price by $15k-$20k, or lower your interest rate, or have an experienced mortgage broker present your compensating factors to the underwriter in spite of the 47% ratio.

Bottom Line
A good broker can help you play with the variables, set your price expectations realistically, and optimize your chances for approval.

Call for personalization anytime… Seth 619.251.8803

7466 Burbank Street: SOLD

2008-11-28T17:22:00.000-08:00

3bd/2ba starter home with large private yard in Linda Vista.