Has The Real Estate Market Bottomed?? Part 2

SEPTEMBER 24, 2009

· Real Average hourly earnings up 4.5% over the year

· CPI, Consumer Price Index up .4% in August, unchanged July, less food and energy up .1%.

· CPI for SF, Oakland and San Jose +. 2% 12 months ended August 2009 and 0.0% for past 2 months.

· Housing prices were forth art do thee go?

· Interest rates in the crystal ball

· Local market performance

By the look of the economic reports we are still looking for the end of the tunnel. I still go by my forecast that it will take us 10 years plus before we surpass the highs of 2007-8. Inflation is lacking; irrespective of what the investment gurus tell you about Gold, precious metal, commodities and the inflationary impact of the bond-selling binge of the

US Government. The key item here is to remember that the US wants inflation. The US want risk to come back into the investor mentality. We have inflation and we have risk again and we will have low unemployment and a growing economy with increased tax receipts and healthy banks and consumers. We do not have that now, that is why the US is feeding the economy with $$$$$.

I know we hear about gold and commodities, but did anyone notice the Real Estate indexes all had dramatic move upward in the stock market? For investors real estate was just as popular as precious metals and gold.

The stock market is up over 50% for the year. Is that not confidence in the future. At least in my experience and training the stock market is the forecaster of the future. Things will be better in the future says the stock market.

It is too soon for our economy to be moving in its old fashion. The old economy was built upon poor foundations of synthetic securities and over seen by blind watch dogs. We need the consumer protection agency in force, a new-invigorated SEC and FTC. Too big to fail means just simply TOO BIG, and they should be dismantled for the betterment of our society. Risk need to return and that can be seen by a yield curve that returns back to normal with a normal range between government, corporate debt. Investors need to be buying mortgage-backed securities, not the Federal Reserve System. This will all take time. Housing prices will stabilize, move up in some areas and stop declining in others. Foreclosures will end, and a new mortgage environment will emerge from the ashes of the old.

Where will interest rates go in the future? I say they remain flat for the near term into the first quarter of 2010. The FED has agreed to expand and continue its mortgage purchase program. This will keep rates down, increase affordability of homes and diminish the inventory of homes. Mortgages will be changed and banks will no longer be sellers of real estate. It will take time. Don’t expect the turn around to be noticeable. It will slowly occur in areas that will slip by you.

Sort of like grass growing, you don’t see the blade rising, but one day you look at the grass and say to yourself, “it needs to be cut”. That is how the real estate market will treat you.

To me the indications are in the high-end market. Buyers of Atherton and Woodside do not need mortgages because they are all cash buyers. When I created the report below, I looked at the homes that sold and the homes that are pending in Atherton and Woodside. The prices were from $3 up to $12 million and a few were not quoted in the sales price but listed ion the $6 million range. The homes had been on the market beyond 6 months and some over a year. Was there price sensitivity, yes some; but not a knock down and drag out kicking and screaming to the Title and Escrow Company.

On the other hand, the areas or towns that grew in the past boom like Menlo Park and Palo Alto are not the darlings of the past, they are seeing the inventories increase, but no matching increase in pending and sold properties. None of the high end home dominates the sold and pending list.

It is a time for value hunting, a time to buy rather than build new, a time for re-modeling, a time for paying down debt and saving and a time for buying real estate as an investment NOT A SPECULATION!

Gold, precious metals and commodities do not shelter you from the cold, rain and wind. They cost money to carry. They do not give you the satisfaction of hosting friends and family for the holiday. They do not store you precious belongings and remembrances that give you comfort during times of loss, sickness and death.

It is time we all get back to basics and realize that real estate is a home not a savings account to draw upon for fun and excitement.

For the buyers out there, get in touch before the end of the year. I see many places of opportunistic buying. For the sellers, don’t rely upon the past for your sales price. Remember you can’t work and play as you did ten years ago and you can’t expect the prices of a year or two ago to be good this year.

Rental properties should be considered for those of you who do not want to take on the risk of the stock market. Values are returning and the rents to debt coverage ratios are now coming back to a point there is positive carry in California Real Estate.

To the sellers, remember if you are down sizing or moving to another area, you are getting the same deal you are giving. We called it “Same Day Substitution” in my stock market days.

Don’t let your ego; greed and fear dictate your actions. Evaluate and ask questions, like busses and elevators; there is always another one coming along.