TIGHTEN YOUR SEAT BELTS

Copy for Real Estate Guide Column for 8-31-07

REAL ESTATE PATTERNS
By Ken DuVall

TIGHTEN YOUR SEAT BELTS

The economy is at a fork in the road. Credit and housing woes are deepening. A third of the U.S. mortgage market is effectively shut down. Some banks won’t even loan money to each other. As Groucho Marx said, “I wouldn’t join a club that would have me!” Bank of America did provide troubled Countrywide Financial a needed $2 billion transfusion last week. Expect the Fed to step in again soon to head off a potential recession.

However, the CEO of giant Century 21 Real Estate remains upbeat, saying he “refuses to join the real estate pity party… remember that we’re less than 2 years off the greatest real estate market of all time… if you sell your home for less than you could have 2 years ago, that doesn’t mean you’ll lose money... inventory was down 4.2% in June to 8.8 months supply of homes for sale, and the median price has increased .3%, which looks pretty good.”

Things may seem bleak today, but most homeowners who bought 5 years ago have a 45% to over 100% increase in value. If you want to buy a home, have respectable credit and a reasonable down payment, lenders will accommodate. Financial institutions have become prudent, reverting to old standards. Money for risky loans and marginal buyers has dried up. Qualified buyers hold a powerful hand today.

As history repeats, expect investment markets to overshoot and panic. When excessive exuberance dissolves into excessive pessimism, re-evaluation and analysis begin, ending up somewhere between extremes. For the next few months, expect continuing turbulence. “It ain’t over ‘til it’s over.” But don’t be panicked by the media’s ongoing shock headlines. They’re not above “creative reality.” America will work through this. Keep the Faith.

Two million adjustable loans- $80 billion worth out of the $10 trillion in total housing loans- are set for rate increases this fall. There’s $1 trillion worth of subprime loans. So far 40,000 mortgage industry employees are on the street, plus 20,000 construction workers. It’ll get worse before it gets better. Psychological and investor apprehension dominate the housing/credit world. Note: U.S. residential real estate is the single largest asset class in the world, worth some $27 trillion, a colossal component that affects the entire global economy.

Despite the record increase in foreclosures, only a small percentage of defaults ever go to foreclosure. Likewise, a relatively small percentage of those lethal subprime loans are delinquent. No one knows how many others will follow suit. It’s not a pretty picture. The only heartening reports are new home sales are up and interest rates have plummeted. More positive housing news is becoming vital. Feng Shui anyone?!

Meanwhile, China’s housing market is red hot. Sales rose 7.5% in July year-over-year in 70 cities with price gains from 12% to 18%. Now if they would only make decent products. I remember when the “Made in Japan” label was the kiss of death. Now we send Japan 100,000 razor blades and they ship us back a Lexus!

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

ECON 101

Copy for Real Estate Guide Column for 8-17-07

REAL ESTATE PATTERNS
By Ken DuVall

ECON 101

We need a bedtime story- and a hug! We’re all nervous. Predicated on a multitude of expert’s reports and data, here’s my analysis for the foreseeable future. “America’s economic fundamentals are very solid”, Treasury Secretary Henry Paulson said last week. “We’ve been through periods of excess that will take some time to work through, but the underlying economy is quite healthy.” Sounds valid to me.

REALTOR’s Chief Economist Lawrence Yun says, “Existing home sales should be relatively stable over the next few months, holding in a modest range, but with pent-up demand growing. Mortgage disruptions may hold back sales over the short term, but long term fundamentals are favorable.” The national Pending Home Sales Index, based on sales going into escrow, was up 5% over the previous month. Chico’s housing inventory is holding at fairly steady levels and homes continue selling. OK there.

Yun continues, “With the population growing, demand for homes isn’t going away- it’s just being delayed. More buyers, and cutbacks in new construction, will draw down the inventory and support future price appreciation. Speculators have left the market. Existing home prices may ease 2% this year but rise 2.3% in 2008.” Housing is just suffering a big hangover from too much partying. It’ll take time to get over it.

Is a recession looming? According to Kiplinger, probably not. “Given the support the economy continues to draw from ongoing employment gains, exports, and productivity increases, these components should be enough to sustain growth.” The Fed left interest rates unchanged last week, commenting, “The economy appears likely to continue expanding at a moderate pace over coming quarters.” Investors are betting a Fed rate cut next month is all but certain; the consumer confidence index hit a 6-year high last month, while mortgage rates have plunged. All positive elements.

Kiplinger continues, “The stock market is not going to fall out of bed. The “Bull” is resting. But the ongoing stream of housing bad news plus tighter credit will continue to weigh heavily on investors.” Don’t kid yourself- the credit/mortgage issues are grim. Expect continuing volatility in all markets. This tumble is an overdue correction.

Twenty million dollars worth of commercial properties have sold in Chico since 1-1-07, including one $5.7 mil sale just last week. This represents smart, big money buying when the time is right. When commerce stops, we better hunker down for a long, cold winter. But for now, so far, so good, Chico.

Irony department: Homes in the Platinum Triangle I mentioned last week are being targeted by burglars. The L.A. Times reports crooks are exploiting the very isolation and privacy so attractive to the wealthy. Walls, ornate gates and dense plantings shield burglars from view while they do their thing. So far they’ve hit 150 homes and swung with $20 mil in loot. The L.A.P.D. says most suspects remain at large. There’s no “Neighborhood Watch” in Bel-Air, folks!

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

BACK TO THE FUTURE

Copy for Real Estate Guide Column for 8-10-07

REAL ESTATE PATTERNS
By Ken DuVall

BACK TO THE FUTURE

My readers know I’m always intrigued by the big money set. Some of us don’t even have a pot while others have ones of solid gold. My crystal ball is cloudy this week so as markets struggle, gyrate, and churn, driven by forces beyond our control, let’s take a breather from the turmoil to gaze upon the Realm of the Super Rich. For starters: L.A., the “Sultan of Sprawl.” I know the turf all too well.

The palatial home market known as the “Platinum Triangle” defies the housing slump. It consists of Beverly Hills, Bel-Air, and Holmby Hills, all situated just north of Sunset Boulevard and west of Hollywood. Late news: Poor little Paris Hilton has decided to move to a gated community for her own privacy/security. She just listed her Hollywood Hills 3000 SF home for $4.25 mil ($1416/SF). She paid $3 mil for it in 2004. It’s just down the street from Cameron Diaz’s manse.

One new Triangle listing offers 36 BR’s, 34 BA’s, 3 living rooms, a gymnasium, library, and “embassy-size dining chamber”. Six of the BR’s are under the tennis court with 9 more above the 10-car garage. At $40 mil your neighbors in the ‘hood will be the hot soccer star David Beckham, Amazon.com CEO Jeff Bezos, and actor Tom Cruise, who all paid from $22 to $35 mil for their nearby cribs.

The Mother of all Triangle listings recently listed at $125 mil situated on 5-acres in Bel-Air sporting 45,000 SF ($2777/SF) including the above amenities, plus an indoor jogging track. There’s been over a dozen showings already but only to billionaires. However, you get toured in a chauffeured Bentley.

Homes in the Triangle sell because it’s where the truly rich choose to live. They perceive it as one of the last best places to own. In just the first quarter alone, 23 Triangle estates have closed for $10 mil and up. Meanwhile, home sales in the general L.A. area fell 19%. Forbes List of Billionaires has now swollen to 400. One thing they do with their money is buy trophy homes. Smart. They didn’t get filthy rich by making dumb investments.

Northern California sales of homes $2.5 mil and up are also on the increase in S.F., San Mateo, Santa Clara, Alameda, Contra Costa, Santa Cruz, and Monterey. Inventory of these homes decreased 5% in the first quarter while the number of less significant homes increased. A brand new 15,800 SF 10 BR 10 BA home on 40-acres near Folsom Lake just listed for $9.2 mil ($582/SF). High end homes consistently sell while the rest of the market fluctuates. As always, where people want to live, demand and prices go up.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.