Ed's Blog

Here's some information that I sent out to my clients the other day and it has created a lot of discussion! Thought it would make a good post also.

One point I'd like to clarify is regarding buying homes at 20% to 40% below market highs. This isn't possible in all markets. For example, San Francisco is holding values in most price ranges and neighborhoods. In fact, the median price has still been rising.

And you can't get 20-40% off on all homes for sale in markets where those discounts are available. However, in a number of markets these kinds of discounts are readily available. This is particularly true for homes that have been foreclosed upon and lenders want to get them off their books. I've seen discounts like this in Bay Area markets like Santa Rosa, Vallejo, Fairfield, Antioch, Pittsburg, Brentwood, Concord, Livermore and southern Santa Clara County just to name a few. And in the Central Valley cities, Inland Empire (So Cal) cities, and various markets around the US.

One of my appraiser friends tells me he'd like to go out and raise a million dollars to buy homes at these prices!

So take a read and let me know your thoughts.

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I hope you had a great Thanksgiving and are all set for the holiday season! I want to bring you up to date on some important developments in the mortgage and real estate markets that may be of benefit to you. (Yes Virginia, there is some good news in the real estate world!)

There is certainly no shortage of bad news being reported on the state of the housing market. I don’t deny that some of it is warranted. However, I’d like to bring “the upside to this down market.” If you are looking to refinance, trade up for a new home, or invest in real estate there are some great opportunities out there.

Refinancing: Take Advantage of Lower Rates

If you’re considering refinancing, this could be a great time to do it because interest rates are incredibly low. In fact, rates for conforming loans ($417,000 and under) are near their all time lows again. And rates for jumbo loans (over $417,000) have finally stabilized and drifted downward after their spike in August due to the subprime crisis.

Many of our clients are not only lowering their rates, but also are paying off equity lines and credit cards. Some are switching from adjustable rate loans to fixed rate loans (and vice versa) while they’re at it.

Trading Up: Make Money By Buying At a Bigger Discount Than You Sell For

If you are ready to move to a larger home (trade up), there is great news. It is true that you may have to sell your current home for less than your ideal price. However, consider that the home you plan to buy will be discounted as well. In nearly all cases, the discounted price on a more expensive home, will more than make up for the discounted price your home commands.

And if you can swing it try this strategy that many of my clients used in the downturn of the early 1990’s. Buy up without selling your current home. Instead, rent it until the housing market recovers. Then sell it.

Investing: Take Advantage By Buying Houses At 20-40% Below Their Market Highs

As long as your intention is to invest for the long term, the current market presents great opportunities. Because of the discounted prices on homes for sale, you stand to buy a property below market value, only to see it appreciate dramatically after the housing market returns to a calmer state. In many cases you can buy a house at 20% to 40% below the market highs of just a year or two ago. Wow!

Please note that I don’t advise you make a decision on any of these options without a great deal of consideration and calculation. I simply wanted to share with you the often overlooked upsides to a down market.

If you’d like to learn more about these options, contact us at Smith Craine Finance. We will work with you and review your particular circumstances and goals, to ensure that refinancing, trading up, or investing in real estate is a financially sound decision for you. Give me a call at 415-406-2330 or send me an email to ed@smithcraine.com and we’ll set up a time to talk.

When I was recently interviewed for a Year In Real Estate Review type of feature for a large daily newspaper, I was asked to offer my thoughts on 2007 coming to a close. Before I could stop my loose lips from betraying me, I blurted out “Good Riddance!” This was immediately followed by my thinking, “What did I just say?!”

It’s been a couple of weeks since that interview and in hindsight I probably could have been a little more eloquent in my send off to 2007. But in all honesty, there was at least some truth behind my outburst. 2007 will forever be known (in no particular order) as the Year of the Sub Prime Storm, the Year of The Mortgage Meltdown, and/or the Year of the Foreclosure Frenzy.

Now that I’ve had some time to reflect upon my words, I realize that there are a few things that occurred in 2007 which absolutely do deserve to be bid good riddance. But there are a lot of lessons that were learned that I’m grateful for as well.

First, I’m hoping that 2008 will bring with it a slowing in the nonstop negative media coverage that the mortgage industry receives. So, I bid good riddance to the barrage of bad press that true mortgage professionals were on the receiving end of in 2007.

Secondly, I bid good riddance to the mortgage industry employees who were poorly trained, unethical in the advice they provided to unsuspecting clients, lied to homeowners and buyers, and sought to fatten their own wallets at the expense of hardworking Americans who trusted them. These unsavory sorts have thankfully deserted the industry, and I bid them a very heartfelt good riddance!

Thirdly, I bid good riddance to the loans that almost seemed by their very design, to set people up for failure and financial ruin.

Fourthly, I bid good riddance to the lack of responsibility by Wall Street companies that fed the demand for exotic loans by buying up loans that were at best risky, and at worst a calamity in the making.

But you know what? Even with all of these things that I’m happy to see become nothing more than a distant bad memory, I’m also grateful for a lot of things that happened in the mortgage and real estate industries in 2007.

I couldn’t be happier that many of the liars and incompetents, who knowingly put people into loans they couldn’t afford, have left the industry.

I’m happy that the true mortgage professionals –although they are technically my competitors- have stuck around during this tumultuous time, because it raises the bar for all of us. These mortgage professionals are those I want to be competing with. I welcome competition from ethical, educated and professional colleagues.

I’m happy that guidelines and underwriting standards have become universally tighter and stricter. Having been in the industry for so long, I remember a time when it used to really mean something to be able to buy a home. It was something people saved for, budgeted for, dreamed about and when they were finally able to obtain a loan and make it a reality, they were so grateful, and prideful to have achieved one of the foundations of the American Dream- owning your own home. And, they were much better equipped to understand their mortgage and make their payments.

I’d be lying if I said that I wanted 2007 to last forever, but I did want to recognize the good things that have come out of the bad. So, instead of my only parting words to 2007 being “Good Riddance,” I’d like choose to send off 2007 with these additional parting words; “Lessons learned, whether through triumph or failure, are still lessons learned.”

How are the Fed rate cuts affecting mortgage rates is a question that I’m getting a lot lately.

The cuts are certainly helping people with adjustable rate loans that are tied to LIBOR & COFI, as well as home equity loans that are tied to Prime.

But ironically, it’s been a mixed bag with fixed rates. The first couple of cuts were followed by drops in fixed rate mortgages, but the last cut has been followed by a ¼% increase in fixed rates.

What the heck is going on?! Well, the bond market (and mortgage backed securities market) marches to the beat of a different drummer. It reacts to daily economic and news. And in the last two weeks that news raised fears of inflation from a stronger than expected economy! (What news are they reading and watching?!)

Go figure. The Fed and most of us are worried about a recession or worse. But bond investors see a little bit of good news on jobs and they get jumpy. They sure are a dark lot aren’t they?

The bond market also reacts to geopolitical news. And the assassination of Benazir Bhutto has had the effect of lowering rates in the last two days. So we now have competing forces acting on bond and mortgage backed securities prices.

It just goes to show that you never can predict how bond investors will view Fed actions. It also shows how deregulation and globalization of financial markets now limit Fed policy because bond traders and investors are setting long term rates.

No matter, rates are still awesome. And some lenders are easing up a little on underwriting guidelines. More on this another time. What more could you ask for?

If you’d like us to take a look at a particular loan scenario, give us a call. We’d be glad to help.

Hope you have a very happy, healthy, and prosperous New Year. We're looking forward to a great 2008 and hope we’ll be able to help you along the way!

It's amazing how history repeats itself and what kinds of opportunities this cyclical nature presents. Take real estate for instance. I moved to California in 1980. Real estate had just finished a big run-up in values during the late 1970s, but was cooling off. There were record high interest rates and a national and local recession. Foreclosures were high. People were saying don't buy real estate because it's too high and will never go up again. Unbowed by the nay-sayers, my wife and I went ahead and bought a house anyway. It was one of the best decisions we ever made. Median home prices in California at that time were just breaking the $100,000 “barrier”. Think about that as you read on.

Real estate prices started climbing by the mid to late 1980s. People who had bought in the early 1980s enjoyed huge rewards. Prices went crazy just like in the late 1970s. And sure enough, just like the winter follows the spring, summer and autumn, real estate prices started to moderate and drop. Foreclosures reached all-time highs. The economy moved into a recession. Lenders tightened up on lending standards and people said don't buy real estate because it was priced too high and would never go up again. Something interesting happened. Many savvy investors started buying real estate. Just like the spring follows the winter, real estate prices started to climb again. Investors who bought in the early 1990s reaped huge equities in their properties. Many of them have been able to retire from the fortunes they made from those purchases.

Here we are in 2007. We have recently finished one of the great bull runs in real estate. Prices are moderating and dropping. Lenders have tightened the reins. Foreclosures have climbed to record levels. People are saying don't buy real estate because it will never recover again. By now, this must be sounding familiar to you.

So what to do now? It's my opinion that it's a great time to buy and hold for what I believe will be the inevitable significant appreciation. Why do I believe this? Because I've seen it happen twice before (and I've read about it happening at other times in our history). Is it guaranteed that now’s the time to buy to make great gains in equity? No! There are no guarantees in life! However, there are often great opportunities for those who are prepared and who are willing to take action.

If you'd like to take advantage of some great buying and investing opportunities, give us a call and we'll show you some terrific possibilities.