Multiple Offers Now the Norm in Silicon Valley Real Estate

Multiple Offers Now the Norm in Silicon Valley Real Estate.
In Silicon Valley real estate, there are more buyers than sellers right now. I know, it’s hard to believe. The news says we’re going to hell in a hand basket. There are foreclosures all around us. But the reality is that it’s a seller’s market. I’ve been working with a very nice young couple who are looking to buy their first a condo and can pay all cash (don’t ask). We’ve been outbid twice in the past two weeks. We were not asking for an appraisal contingency and were offering a free rent back so the seller could have some extra time finding a new home. Sorry, not good enough. We were out bid by an investor who gave the seller up to eight months to rent the place. That knocked us out of contention. It’s frustrating for the buyers who are looking for a home to live in. It’s even more frustrating for them because they keep hearing that they shouldn’t be paying full price for a home and to negotiate a better price. Sometimes I have to share with clients that the press info is typically 3 months old. Today for instance, the local paper reported that real estate prices in June 2009 are up. Well, it’s almost August, but I suppose better late than never. I’m on the frontlines every day and know the market, then inventory and the latest trends. But clients have difficulty reconciling between all the news from CNN, Wall Street Journal, the local papers and little ‘ol Gary Nobile. In a way, I can’t blame them. These media outlets spend millions researching, investigating and reporting through all the major channels. Here I am with my blog that doesn’t even charge me to post. The others have hundreds of reporters. Uh, I guess it’s just me reporting (not including the 150 other agents I talk to every week to gauge the market). But the one thing that is very hard for any news agency to do effectively is to consistently report on a niche local market like San Jose real estate. No one could report on your profession better than you, right? If you like what you see here, post a comment. If you’re CNN or The Wall Street Journal, perhaps you should subscribe to this post. Good news or bad, I’ll always share accurate data. www.GaryNobile.com

Cher’s Malibu Mansion on the Market, Price Reduced

Cher’s Malibu Mansion is back on the Market, Price Reduced. Extending approximately 1.7 acres and overlooking the Pacific Ocean, the three-story, 14,000-square-foot beach estate comes complete with six bedrooms, seven bathrooms, a theater, a gym, multiple verandas, a tennis court and a pool. Not bad for a gal that got started singing “I Got You Babe”.
The home, which she built in 1992, used to house her collection of English Gothic Revival antiques, which she auctioned off about three years ago. Personally, I think keeping them would have added to the mystique of the home. She might have considered offering a package deal to include them as personal property. It certainly could have caused more buyers to come in and take a look. Then again, I suppose not every beach estate buyer appreciates the whole Goth thing.

According to the Mercury News, last year Cher had this beach palace listed for $45 million. Apparently, there were no takers so she remodeled and dropped the price to $41 million. Sounds like a steal to me, but then again, Cher won’t be roughing it anytime soon.
In 2006, she bought a condo in Los Angeles and that same year sold a bayfront house in Key Biscayne, Florida, for $8.8 million, just before the collapse of the Florida condo market. Looks like Donald Trump has some competition. Oh, and in case you weren't sure, that's her place atop the bluff. www.GaryNobile.com

Depreciation: One of Real Estate's Most Powerful Weapons

Depreciation: One of Real Estate's Most Powerful Weapons.
Of all the benefits of owning investment real estate, one of the least understood is the benefit of depreciation. Depreciation is a method for matching the costs of acquiring property over the property's estimated economic life. The IRS requires that most property be depreciated via the ‘straightline’ depreciation method. Using the straightline method, residential income properties are depreciated over 27.5 years. Commercial property is depreciated over 39 years. Depreciation Calculations: It is important to note that land is not depreciable. In order to properly calculate depreciation, the value of land must be excluded. For example, a $1MM duplex with land worth $300,000 has $700,000 worth of depreciable real estate.Using the straightline depreciation method, the annual depreciation amount is approximately $25,500 ($700,000/27.5) NOTE: The IRS will typically not challenge the assessment of the land value if it reasonable. A tax advisor, attorney or real estate agent should be able to provide guidance for what is reasonable based on the location and type of land.Depreciation BenefitsDeprecation is an ‘intangible expense’ that will reduce the reportable taxable income from the property. This is good, because the end result is more money in your pocket and less tax to the IRS. Here’s how it works: Assume that the yearly rental income from the example duplex is $36,000. At the end of the year, this will have to be reported to the IRS. However, the IRS does not tax the entire $36,000. The taxable income from the property is calculated as follows:Rental Income(Less Expenses) (less Deprecation) = Taxable Rental Income. If the expenses of operating and managing the duplex are $5,000 for the year, the taxable rental income is calculated as follows: Rental Income $36,000 (less Expenses, $5,000) (less Deprecation, $25,500 = Taxable Rental Income $5,500. NOTE: Please always seek the guidance of a tax advisor. It may be beneficial for some property owners to depreciate certain items on the property (fences, fixtures, etc) at different depreciation schedules, which is allowed via cost segmentation. Depreciation Tax Upon the sale of an investment property: The IRS requires the payment of a depreciation recapture tax. The tax rate is currently set at 25%. In the example above, if the duplex was owned for 10 years, the entire depreciation taken on the property would amount to $255,000 ($25,500 x 10). The IRS requires a recapture tax on that entire amount. Hence, the sale of the duplex will result in a $63,750 deprecation recapture tax (255,000 x 25%). This is in addition to state and federal capital gains taxes. The deprecation recapture tax as well as any associated capital gains taxes can be deferred in full via a 1031 Exchange. Conclusion Of all the benefits of owning real estate: Depreciation may be one of the most important. The tax advantage depreciation offers is powerful. The IRS will always assume that depreciation is taken and will hold an investor liable for the deprecation recapture tax – even if the investor failed to take advantage of the depreciation. Bottom line: make sure you are taking advantage of this powerful tool.The subject matter in this newsletter is intended as general information only and not intended as tax or legal advice. Please always consult your tax or legal advisor for any specific tax or legal matters.

First Time Home Buyers Struggling with Foreclosures

First Time Home Buyers Struggling with Foreclosures. For the past couple of months I’ve been writing about the surge in home sales in Silicon Valley and the fact that inventory of homes available for sale has been dwindling. That fact has broken through to a whole new level. After reviewing last week’s sales figures, it became apparent that the number of homes that are pending (sold, but awaiting closure) exceed those actually available for sale. Let’s state it this way. This means that more buyers that have bought homes and are waiting for them to close than there are homes remaining for sale. Be prepared for a quick run up in prices. For first time home buyers, REO properties (foreclosures) are very difficult to obtain. Because of the way banks price properties, their listing prices are several months old. When there’s a run up in prices, there are multiple offers for these underpriced properties. That puts Jack and Jill first timer at a disadvantage because they are typically coming in with less down payment than investors. And because of the volume of offers, the banks are selecting the offers with most or all cash with no contingencies, something a first timer rarely can keep up with. I keep hearing that there’s another wave of foreclosures coming, but I still haven’t seen them. For the next quarter, I’d suggest that first timers consider narrowing their search to looking at properties with traditional sellers that have been on the market a while, unless they have a lot of cash.

Cambrian Home Prices Poised to Shift (San Jose)

Cambrian Home Prices Poised to Shift (San Jose). There is a very popular area of San Jose referred to as the Cambrian area. It’s a nice part of San Jose with many retail options and it’s still somewhat affordable. That may be changing. I find that most people who do not live in Cambrian have heard much about it but aren’t quite sure where it is. Here’s some help. Geographically, the boundaries are roughly Foxworthy (northern) Highway 17 (western) Almaden Road (southern) and Almaden Expressway (eastern). It’s surrounded by Willow Glen, Campbell, Los Gatos, and Almaden. Based on the info I’m seeing, homes available for sale are down. WAY down. Down 80% to be exact. One of the metrics I follow is “Months of Inventory”. To clarify, Months of Inventory measures how many months it would take to sell all of the existing homes for sale. For example, if an area has 600 homes for sale and they are selling at a rate of 100 per month, there would be six months worth of inventory available for sale. A Months of Inventory number greater than six months is a buyer’s market, less than six months is a seller’s market. There’s rarely ever equilibrium because that only takes place as a rather brief period between a shift in the market. As I’ve been sharing for several months now, we are now in a seller’s market. Ready? The Months of Inventory in the Cambrian area are down to less than 2 months! Get prepared because prices rise when more buyers are chasing fewer in demand homes. Just like supply and demand for any other product. http://www.garynobile.com/

Willow Glen Home Sales Up

Willow Glen Home Sales Up. Willow Glen homes sales are up 57% from last year. If one looks at pending sales as a leading indicator (as I do), it’s a compelling story about the health of the local real estate market. I can recall my first day in statistics class. My professor’s opening line was: ‘There are lies, damn lies, and statistics.” I also heard a famous author say, “If you didn’t read the newspaper you were uninformed, but if you read it you were misinformed”. But if one looks carefully at the information and interprets it correctly, it can be a potent indicator. Once in a while the press gets it right and the statistics are correct. Today, the San Jose Mercury News had headlines showing that home sales are up to the highest levels in 3 years. Perhaps they finally are starting to read my blog because I’ve been talking about this for several months now. The point is, if you’re looking to trade up, do it now because waiting will not only cost you in terms of home price, but it will cost you in property taxes as well! Search for your new home at: www.GaryNobile.com Need a consultation for the value of your home? www.GaryNobile.com

Blog Writer Reveals Himself

Blog Writer Reveals Himself. Looking back at my past several months of blogging, I noticed how one dimensional I’ve become. Real estate, real estate, real estate. There has to be more to life. While I’m very pleased with the content I’ve shared in hopes to inform the public on the fast changing environment of real estate, that’s all I’ve talked about. When I read news, I suppose I never really cared so much about the writer so much and figured you’re probably much the same way. Just give me the info, and let me be on my way. I’m too busy to read about your personal crap. But in case this is one of those days where you have an extra minute to read about my, ur, stuff, here it is.
Last night I played in our first softball game of the summer league at Twin Creeks in Sunnyvale. It’s a great park (except for the “Candlestick South” winds). I’ve been playing softball as an adult for over 20 years and their umpires are the best I’ve ever been around. They’re accurate, fair, and often times personable. They don’t get too caught up in the ego of being in control unless one does something dumb enough to irritate them (something I’ve learned the hard way). Twin Creeks has a nice clubhouse for food and drinks and the fields are fairly well maintained. Anyway, last night was an exciting game. We started with 8 players (you need 10 in softball) and the other team took advantage of the obvious holes in our defense going up 4-0 in the first inning. Then the rest of our guys showed up and we came back going up 15-10 in the sixth inning. The opposing team tied it in the top of the last inning and we didn’t score when we were up causing us to go to extra innings. The opposing team then went ahead 17-15. Our last set of at bats was interesting. We came back to tie it 17-17 with two men on base and two outs. During the game I was walked two times (who wants to walk in softball?!) got one hit, made one out (fielder’s choice) and scored two runs. So I was in the first base coaching box waiting to see what would happen with one of our good hitters at the plate. He hits a soft pop up a little over the second baseman’s head, but it was catchable. But their guy dropped it and we won. As much as I love winning, it reminded me of two weeks earlier. We were in a playoff game where it was all tied up in extra innings and I dropped the ball. We lost. Our team played a terrific game and I felt horrible. It wasn’t like me to make an error in a pressure situation. But last night all I could think of was, I’m glad it wasn’t me.

Santa Clara Home Sales Up, For Sale Down

Santa Clara Real Estate Home Sales Up, For Sale Down.
In my effort to keep you apprised of various areas around Silicon Valley, I thought it would be a good idea to spotlight different areas over time. If we care about real estate, we all look at the numbers that show us how our neighborhood measure up with others in the area. Sometimes we lose perspective because we’re too busy comparing and not investing enough time viewing the information in an in depth manner to make it meaningful. And while most writers have their biases, I’m doing my best to keep this neutral. I’ll provide you with what I believe is a meaningful interpretation as if I were the consumer. You may find that hard to believe, but bear with me. Take a look over time at what I’ve written. And if you don’t believe it, post a comment. Good or bad, I can take it. Back to the info at hand. Santa Clara inventory is way down from a year ago. Homes that looked overpriced and in poor condition back then are selling briskly now. If you’re thinking about selling, it might be a good time to ride this wave. The city seems pretty determined to make the 49ers stadium in Santa Clara a reality. That will in effect be Santa Clara’s home grown stimulus package. So while it will take several years for the stadium to be built, the economic activity will begin well before that. That’s a bit of peace of mind buyers can have buying in Santa Clara. Need more info? www.GaryNobile.com

Silicon Valley Entry Level Real Estate on Fire

Silicon Valley Entry Level Homes are on Fire. No, this doesn't mean that San Jose homes are actually ablaze. It does mean that entry level single family housing in the Silicon Valley real estate market continues at its frantic pace. This week at our weekly sales meetings, many agents are again stating several cases of multiple offers by buyers. In one case, there were over 50 offers on a one house! On another case there were over 20 offers! Pending sales (sales where a seller has accepted a buyer's offer but has not yet closed) have now exceeded the number of homes for sale. That puts us squarely in a seller's market. One could argue (correctly so) that prices aren't what they were 2 years ago. However, I'm seeing cases in this area where banks with foreclosure properties for sale will only look at offers with large sums of cash down payments. It gives you a sense of the strength of the market when sellers start to dictate terms. I keep hearing from the press that there are more foreclosures coming when adjustable mortgages reset. But apparently the market has gotten tired of listening and is buying real estate now.

Palo Alto Townhouses a Bit Sluggish

Palo Alto Townhouses a Bit Sluggish.
After conducting some research for a client in Palo Alto, an interesting phenomenon surfaced. Palo Alto townhouses seem to be having a surplus of demand (shown in red) compared to demand (shown in green) than some other market segments in our area. The data suggests that while more properties are selling, an even greater number are being put on the market. This is a change from many other areas of Santa Clara County the past couple of months. Understanding the why is what’s important most consumers. From what we’ve been able to observe, we believe that people are opting out of the Palo Alto Townhomes and are trading to single family homes that have come down significantly in price. Palo Alto has always been a desirable area to own real estate and that hasn’t changed. I was recently working with a developer not long ago who had built a magnificent home in Palo Alto only to learn that it wasn’t quite worth what he thought it would be. He dropped his price from $4.2 million to $3.2 million, and that’s nothing to sneeze at. The townhouse market is not nearly as expensive in most cases. However, an $800k townhouse in Palo Alto will translate into a pretty nice single family home in a lot of areas in Silicon Valley right now. And the single family homes won't have HOA dues and generally will include a more spacious yard. The point for sellers in this segment is to make sure they price their home spot on, or it will sit and won’t sell. The point for buyers in this space is that you’re in the driver’s seat. Want a larger view and more graphics? Drop me an e-mail. www.GaryNobile.com

New Regulation Raises Costs to Real Estate Buyers

New Regulation Raises Costs to Real Estate Buyers.
Every now and then, the government gets it all wrong. This time, they’re regulating the appraisal process and it’s coming at the expense of the consumer….again! This new regulation requires that mortgage brokers outsource appraisals to a third party company who in turn outsources the appraisal to an appraiser. The idea was put into law in April with the intent to eliminate collusion between mortgage brokers and an appraisers. Before April 2009, the cost of an appraisal on a typical 3 bedroom 2 bath home in Silicon Valley was about $350. Now it’s $500. That third party company that picks up the phone and calls the appraiser costs the consumer $150! That’s a bit ridiculous don’t you think? Oh, and one more thing, the mortgage broker cannot even talk to the appraiser, even if there’s a problem. Ironically, sometimes appraisers don’t always understand the market dynamics with prices changing, inventory on the market and so forth causing inaccurate values. If the mortgage professional calls and speaks to the appraiser, that appraisal cannot be used for that transaction. Cha-Ching, there goes another 500 bucks. And if that buyer has an FHA loan, guess what? There’s another FHA appraisal that now has to be conducted. That’s $1,000 the buyer has to pay or they won’t get their loan. But the government thinks this will solve all the real estate problems. Let’s think back to the dot-com bust in Silicon Valley earlier this decade. Who did the government blame what that time? The appraisers. They said it was the appraiser’s fault that prices got overheated. It was their fault that when there was a mini recession in hi tech, prices dropped too quickly. At that time the government said, well, let’s regulate those nasty appraisers. Let’s require that an appraiser be certified by a regulatory authority, then everything will be swell, At that time, it caused appraisals to go from approximately $150-$200 to about $300-$350. Let’s see, how did that work out? Take a look at the real estate market in 2007 & 2008 and you’ll find the answer. Is this really what we need? Sorry for the rant (but not really). www.GaryNobile.com

Having Trouble Paying Your Mortgage? (Part 2)

If you’ve already tried talking to the bank to renegotiate your loan and you aren’t getting anywhere, there are still a few things you can do to alleviate your pain. The most obvious one is to sell the home. For many, that’s an emotional decision. It brings feelings of fear and failure. However, it might be better to sell the home and preserve your credit (and your sanity) if you’ve gotten in a little over your head. Look, things change. You may have bought your home with an unwritten guarantee of values always going up. By the way, that’s what Wall Street believed when they were selling all those sub-prime mortgages as high rated securities so you’d be in good company. You may have experienced a job lay-off or relocation God forbid; you may have even suffered a death of a co-borrower. Perhaps your interest rate is adjusting upward beyond what you expected. The point is, weather you feel that it was something you had control over or not, selling your home is nothing to be ashamed of. Sometimes just you need to hit the reset button and agree to re-engage in home ownership in the future when your circumstances improve. The obvious catch is that first you have to have enough equity in your home (or cash saved) to enable yourself to sell it. How much does it cost to sell a home? It varies, but I’d use a guide of about 7% of the sales price. If you don’t have that much cash or equity to close the gap, there are other options. Stay tuned for Part 3. Questions? Try me at www.GaryNobile.com

How Does Yield Spread Help Buyers Buy?

I thought this was an excellent article and wanted to share it with my readers. ~ Gary

RISMEDIA, July 2, 2009-Opportunity is knocking fairly loudly for many considering homeownership. Home prices have declined in many markets around the country and tax incentives and other inducements have first-time home buyers and others weighing the possibilities.
Home affordability, as defined by the National Association of Realtors’ Housing Affordability Index, stands near all-time highs, thanks to declining prices and historically low mortgage rates. Yet, while some consumers hold off on purchases as they attempt to catch the home-price bottom, they could miss the mortgage-financing opportunity of a lifetime.
Consider the weekly average yield spread between Fannie Mae’s 6.5-year bond to the “benchmark” 10-year Treasury note, a classic relationship that involves the cost of making mortgage loans to consumers. Before disarray in the financial markets, the spread ran about 1% above Treasury bonds, reflecting investors’ confidence that owning debt of bonds backed by Fannie and Freddie is nearly as safe as owning government bonds.
The spread began widening in July 2007 as the global financial crisis unfolded, then spiked to above 2% during the next year as the U.S. economy seized and credit grew scarce. It grew to a startling 2.5% late last year as bond investors’ skittishness about continued delinquencies and defaults-and that the risk of these mortgages had not been properly assessed-resulted in higher risk premiums and higher costs to borrowers.
Late last year, however, the Federal Reserve Bank stepped in with a promise to purchase $500 billion in Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities, and raised that figure to $1.25 trillion in March. The move, combined with loan-modification initiatives and other federal intervention, restored investor confidence in the secondary market and mortgage rates declined rapidly. The yield spread in March dropped to 1% and zero and then fell to an unprecedented minus 0.5% by early May.
This condition is certainly unique and, likely, short-lived. Statistically, when the yield spread deviates from historical norms, the chances are great it will return to those levels. That could quickly drive mortgage rates higher. How much is anyone’s guess, but if the cost of making a mortgage goes up by 1.5% so, too, might mortgage interest rates.
Yet, factor in some additional variables. The marketplace for bonds relies heavily on purchases by offshore buyers who remain skeptical as the global economy continues in flux. Then there’s the inflation-deflation conundrum. Many fear a deflationary spiral-with falling prices for goods and services that lead to falling wages-can still drag down a stabilizing U.S. economy.
Conversely, others believe inflation will kick in, ushering in higher consumer prices, including higher mortgage rates. How this issue shakes out will have important implications for interest rates.
One thing is crystal clear: the odds that mortgage interest rates will rise are much greater than any continued mortgage-rate decline. And for most home buyers, the cost of mortgage financing can be as important as the price of the home itself.
Real estate sales professionals can help their customers make the best long-term decisions by demonstrating the degree to which housing prices and mortgage interest rates could move from this point forward. Customers waiting for the absolute lowest price on a house could miss a golden financing opportunity and the lowest overall cost of homeownership.
Written By Andrew Downs
RISMedia welcomes your questions and comments. realestatemagazinefeedback@rismedia.com.

Having Trouble Paying Your Mortgage?

I recently had a conversation with a gentleman who was telling me that he and his wife were having trouble paying their mortgage and thought it would be best not to pay for 3 months then request a loan modifation. A lot of damage can be done to your credit in 3 months. I explained that in 57% of all foreclosures cases, no one contacted the bank to try to solve the problem. If you are having trouble paying your mortgage, you might want to try contacting the bank first. It doesn’t cost you anything (except for some time) and you might be able to work out a payment plan that provides you some relief for a couple of years. I know people who have successfully modified their loans directly with the bank. It’s worth a try. It's free and it preserves your credit. If you have questions or need help in this area, contact me through www.GaryNobile.com