The passion of Face Book has left many deflated pocket books along with the real estate bubble that was created from the anticipation of the offering. This bubble that was created gave reason for me to write about the dislocation of the Supply Demand Curve in my last post. Today as I write, I see some opportunity. Opportunity not in the median price range but in the Ultra-High End Market.
As I initially looked in anticipation of the underwriting in Face Book, I did not see the new buyers from the underwriting coming to buy homes. I saw the pipeline of offering that would have hit the market as the “IPO window” was now open, to give my old career slogan some use. When I was working the IPO market in my prior career, buyers were willing to take on an underwriting once they saw that the IPO market was booming. Prices in the after market were up and value could be gotten from the issuance of new company stock. Once a well publicized deal flopped, it was time to pull in one’s horn and wait. So it is the case with Face Book. the pipeline of IPO’s at the lawyers who specialize in Silicon Valley are now on hold as they await for a repair of trust. This repair of trust may take some time. This is especially the case as so many underwriting investment banks took some very large losses from the inability of the NASDAQ to report executions. “What did I buy, how much and when are you going to report it” takes me back to the old ticker tape days when executions came in at the end of the day or sometimes the next day. In this time of high technology, the days of 40 years ago are unacceptable. That means the window will remain shut until the trust can be re-assured and some risk in IPO’s can show some success, especially large capitalization IPO’s.
Successful IPO’s in real estate point to the Ultra High-End Markets of Woodside, Portola Valley, Menlo Park, Atherton and Los Altos to name a few. In ALL of these markets inventory has Sky-Rocketed.
Atherton went from 23 at the end of February to 48 as of this writing. Los Altos went from 39 at the end of February to 81!. Menlo Park with a well publicized 87% increase from 58 at the end of February to 94. Portola Valley at the end of February was 18 and as of this writing is 32. Woodside was at 43 at the end of February and today at 68.
The lone stand out was Redwood City At the end of February there were 58 homes and today there is 68 homes. The lack of of a sizable increase to match the 87% increase in Menlo is the “short sale and REO” category. There were only 5 homes in this category in Redwood City as of this post.
The “Law of Supply and Demand” came back into gear as when size increases in listings so does price come down. In Atherton alone we saw price cuts of existing properties for sale in the high end of 20%. One large estate in Woodside was put up for auction as no new buyers came form MLS or Off MLS attempts. Woodside saw 20% cuts home 150 days on the market and more. On the exclusive Moore Road 3 properties had prices cut and one taken off the market.
Redwood City was a standout for price and inventory for one reason. No bank pressure on short sales and no bank issued REO’s. Why? First we must look at the foreclosure market and the bank shadow inventory. Shadow inventory has dropped to its lowest level since 2008. Without bank inventory building up thee is no pressure on owners in default to be pressured into a short sale. But do not look at that situation to exist for long. While shadow inventory is declining the foreclosure activity has picked up. Sounds a bit confusing? Not really as foreclosures are a function of local conditions. I wrote about the foreclosure activity going east in my last post. That is an indication of the markets. The west coast had the prospect of a successful Face Book IPO and the follow up of IPO activity as the “window” was open.
What we have before us is a pick up in short sales as banks have put together trained real estate agent to handle short sales with a select agent(s) to handle their defaults. I have been selected to represent short sales for Bank of America. It is certainly an honor, on my part. The process has been very demanding. Bank of America processes their short sales on an internet platform called “Equator”. Not only must I know the system and operate within Equator, I must know the Bank of America procedures in filing a short sale and the documentation necessary to process a short sale. While many readers may think that the “BANKS” are the owners of the mortgages, this is incorrect. Banks only service the mortgages. In the case of a majority, say 80% or more, the owners are FDIC and Fannie Mae. Very few are the banks themselves or hedge funds and institutional investors. In addition to the investors who own the mortgages there is PMI, principal mortgage insurance. PMI covers the first 20% of the 1st Mortgage in case of a default. In this case the investor and the PMI must give their approval to the short sale. The delay in short sales has impacted the amount of short sales on the market in inventory. Do not expect that to last Banks will be speeding up short sales. With the speed up in short sales and the creation of a system of short sale approved agents and a system of bank short sale departments there will be the inevitable decline in “Median Home Prices” as the Law of Supply and Demand comes back into play.
Now that we see the inventory increasing where will the demand come from? The signs of a global recession are every day in the news. But with the recession are the seeds of opportunity in low or lower interest rates, which reflect into lower mortgage costs. With lower mortgage cost is the desire to refinance existing mortgages. This summer could mean a hot market in the housing sector for refinance, lower home prices bringing in buyers who do not have to fight and over bid, and investors. Investors have been the major portion of buyers in the REO and Short Sale Markets. The reason is high rent yields. As more people find themselves looking for homes in a flat real estate market, investors find that the rental market is buoyed by rental increases as demand for rental out pace supply.
Look for the market forces to correct themselves in the upcoming months. Somewhere along the time line, short sale offering will increase and those home owners who fight the system, foreclosures will be the ultimate outcome.
If you know of anyone, friend or family, in financial stress, please have them call me. There are options to foreclosure. Even in the short sale area there is the opportunity of a Loan Modification. To those who have a Freddie Mac owned loan the chance of a lower rate in a modification remains strong. they need to know their alternatives. You can help by directing them to me.
