California Mortgage Bankers Association 1955-2005
E-News
"The Voice for California's Real Estate Finance Industry"
Volume II, Issue IV
April 2005
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California Mortgage Bankers Association 1955-2005 E-News |
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"The Voice for California's Real Estate Finance Industry" |
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Volume II, Issue IV |
April 2005 |
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Headline News
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CMBA and Members Promote Financial Literacy
New Pope Calls For Unification
Hahn Trails Villaraigosa In Race For Money
Residential News
Home Prices Spiral Through Roof
San Diego Home Sales Decline From a Year Ago
Commercial News
Opinion
Housing Boom Defies Trends, Likely to Bust Soon - Won't It?
CMBA News
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Headline News
CMBA Promotes Financial Literacy at Press Conference/Fair!
SACRAMENTO - The California Mortgage Bankers Association teamed up with the California JumpStart Coalition, California Bankers Association, and a dozen other groups to celebrate and promote financial literacy at a press conference and fair Tuesday, April 19 at the State Capitol.
The morning press conference featured JumpStart Chair Mitch Freedman, Junior Achievement Chair Jim Eaton and Cynthia Dettner, a teach at Laguna Creek High School who has used financial literacy programs in her classroom. Following the press conference CitiGroup, a division of Citibank, hosted group sessions dealing with credit and financial literacy. In addition, a group of enthusiastic children were given a head-start in becoming financially literate thanks to Sammy Rabbit, who taught that "Saving is a habit" through an educational and fun read-a-long.
CMBA was proud to be a participant in the fair, and was pleased that other CMBA members were involved as well. Home Savings Mortgage and Wells Fargo displayed their financial literacy programs, and made themselves availble throughout the day.
CMBA and its members will be continuing to promote and encourage financial literacy throughout 2005. CMBA's members are commited to helping Californians achieve the Ameircan Dream of homeownership.
Financial Literacy Fair - April 19, 2005
Home Savings Mortgage Branch Manager Krystal Kashuba discusses financial literacy programs
Sammy Rabbit teaches area children that "saving is a habit!"
CitiGroup volunteers discuss credit management during free workshops
Sammy Rabbit was a hit with the group!
Who could resist?
Benedict XVI Calls For Unification of Christians
CNN.com ( 4-20-05 )
VATICAN CITY -- Pope Benedict XVI outlined goals for his papacy Wednesday, including the unification of all Christians, continuing the reforms of the Second Vatican Council and reaching out to people of other faiths.
"This successor of Peter knows he has been entrusted with the task of confirming his brothers ... with the intention of working to reconstitute the full and visible unity of all the followers of Christ," Benedict told cardinals gathered in the Sistine Chapel for his first Mass as pontiff.
Still adjusting to his new role as head of the Roman Catholic Church, the pope acknowledged that he was experiencing feelings of "inadequacy and an inner disquiet," but professed a "profound gratitude toward God."
Benedict often invoked his predecessor during his message, promising to continue John Paul II's legacy and to use the Second Vatican Council as the cornerstone for spreading the Gospel to the world.
The thrust of the council in 1965 was to make the Catholic Church more accessible to the masses.
"The new pope knows that his task is to make the light of Christ shine before men and women of world -- not his own light, but that of Christ," Benedict said.
"With this full knowledge, I would like to greet all those, including those who follow other religions ... to reassure them that the church wants to continue with its open ... sincere dialogue looking for the true good of man and of society."
Wednesday's traditional Latin Mass was held less than 24 hours after 115 cardinals from 52 countries elected Cardinal Joseph Ratzinger of Germany the 265th pope.
Benedict's election was seen by some observers as a sign that cardinals wished to maintain John Paul II's conservative course, but at the same time, may have wanted a shorter papacy than John Paul II's 26 years.
The new pope turned 78 on Saturday.
He had been serving as their dean and was one of the most powerful men in the Vatican under John Paul II -- acting as his chief theological adviser for 20 years.
Tens of thousands cheered Benedict when he appeared Tuesday evening on a Vatican balcony. Later he received congratulations from political and religious leaders around the world.
President Bush called Benedict "a man of great wisdom and knowledge."
German Chancellor Gerhard Schroeder said of his nation's native son: "It is a great honor for the whole country."
German Cardinal Walter Kasper, who clashed with the conservative Ratzinger through the years, praised his countryman's selection as the sixth German pope and the first since the 11th century.
"I think he will be a pope of conciliation and peace," Kasper said after taking part in the conclave.
Not everyone was enthralled with the selection.
It was "an enormous disappointment for all those who hoped for a reformist and pastoral pope," said Hans Kung, Catholic theologian, author and professor at Germany 's University of Tubingen .
"But we must wait and see, for experience shows that the papacy in the Catholic Church today is such a challenge that it can change anyone," Kung said.
Nearly three-quarters of American Catholics say they are more likely to follow their own conscience on "difficult moral questions," rather than the teachings of the new pope, according to a CNN/USA Today/Gallup Poll conducted after the pontiff's election.
Warning against 'relativism'
There had been a great deal of speculation about who would be chosen to succeed John Paul II, who died April 2 at age 84.
John Paul was widely credited with extending the reach of the papacy. He spoke more than a dozen languages and set an unprecedented pattern of pastoral travel, drawing huge crowds all over the world.
He was also strictly traditional on issues of sexuality and the role of women in the church, which won him support among some Catholics but alienated others.
Similar disagreement exists over the new pontiff's stances on issues such as birth control, stem cell research and the ordination of female priests.
Ratzinger, however, was critical of progressive Catholicism.
In a homily delivered at a Mass before the cardinals began the conclave Monday, he warned against "a dictatorship of relativism, which does not recognize anything as for certain and which has as its highest goal one's own ego and one's own desires."
The new pope served as archbishop of Munich , Germany , and since 1981 led the Sacred Congregation for the Doctrine of Faith, the office that oversees "the doctrine on the faith and morals throughout the Catholic world," according to the Vatican .
Hahn Trails Villargairosa In Race For Money
Los Angeles Times (4-8-05 )
Jeffrey L. Rabin and Patrick McGreevy, Times Staff Writers
Los Angeles Mayor James K. Hahn has raised significantly less money for the mayoral runoff campaign than rival Antonio Villaraigosa in the weeks since the March 8 election.
Hahn's campaign reported Thursday that the incumbent raised $407,795 through last Saturday, less than two-thirds of what his opponent collected during that period. Villaraigosa, a city councilman and former speaker of the state Assembly, reported Wednesday to the City Ethics Commission that he had raised $653,255.
Hours before filing his campaign finance report, Hahn said he was not concerned that he trailed Villaraigosa in money. "I haven't raised as much, but I'm going to be competitive," Hahn said at a campaign event in Van Nuys. "We're going to have enough money to get our message out."
Steven P. Erie, director of the urban studies and planning program at UC San Diego, said the fundraising figures are a sign that Hahn could be in trouble. "It's a fairly substantial gap," he said. "To be this far behind is not a good sign."
Hahn, however, also lagged behind Villaraigosa in the money race when they faced off in the 2001 runoff election. Villaraigosa raised $2.9 million, 42% more than Hahn's $2.1 million. But Hahn beat Villaraigosa by 7 percentage points.
Raphael Sonenshein, a Cal State Fullerton professor and an expert on Los Angeles politics, said Hahn's fundraising shortfall is significant, but probably has more of a psychological effect than a real one. As an incumbent mayor, Hahn has the ability to bring in large sums of money in the weeks before the May 17 election, Sonenshein said.
"Hahn is clearly the underdog," Sonenshein said. "But Hahn's reelection troubles have been visible for months, and yet you still can't count him out."
Sonenshein noted that Hahn has an advantage in being able to command free television coverage as mayor. And he said that having less money, though not desirable, could help Hahn blunt the criticism that he has taken a lot of money from special interests with business at City Hall.
Villaraigosa's campaign manager, Ace Smith, was delighted with the mayor's financial standing. "It's an incredibly weak performance for an incumbent mayor of one of the largest cities in America," he said. "His campaign is in big trouble. It's that simple."
In a city as sprawling and diffuse as Los Angeles, candidates are heavily dependent on television ads to reach voters. Since 2001, the cost of those ads has increased dramatically, making the money race that much more important.
Hahn's campaign returned to many of his longtime supporters to raise money since the March 8 election, which saw him finish 9 percentage points behind Villaraigosa.
The mayor's campaign received thousands of dollars from attorneys with law firms doing business with the city, including lawyers for Manatt Phelps & Phillips; O'Melveny & Myers; and Christensen, Miller, Fink, Jacobs.
A large number of real estate and development firms also contributed to the mayor. Hahn received $1,000 each from AEG and the firm's chief executive, Tim Leiweke. AEG built Staples Center with financial help from the city and is now trying to win city approval for a $1-billion development near Staples.
The mayor also turned to longtime insiders, including attorney George Kieffer, former president of the Los Angeles Area Chamber of Commerce; state Sen. Gil Cedillo (D-Los Angeles); and investment banker John Emerson, a former Clinton White House aide who was Hahn's chief of staff when Hahn was city attorney.
Checks also came from unions and trade groups, which have thrown their support behind the incumbent. Hahn received the maximum $1,000 each from the Los Angeles Police Command Officers Assn., Service Employees International Union Local 347, the Los Angeles Airport Peace Officers Assn. and Gunite Workers Local 345. He received $500 from the Directors Guild of America.
Hahn campaign strategist Kam Kuwata said Hahn's support from organized labor would include thousands of union members walking precincts and working phone banks.
City Hall lobbyists also made a big showing. Those who contributed $1,000 to Hahn include: Butterfield Communications, Darlene Kuba, Rudy Svorinich Jr. and Ek & Ek.
The last firm was co-host at a fundraiser for Hahn last week. The Airport Commission, whose members are appointed by the mayor, voted Monday to extend a contract for McDonald's restaurants at LAX. Lobbyist John Ek represents McDonald's outlets at the airport.
Hahn fundraiser Annette Castro and her husband, lobbyist Julio Ramirez Jr., each contributed $1,000. Ramirez represents the Hudson Group, whose contract to run bookstores and newsstands at LAX was also extended Monday by the Airport Commission.
Asked about contributions from firms that do business with the city, Kuwata said, "Both campaigns have that."
The entertainment industry also stepped up. Sylvester Stallone, Burt Bacharach, Warner Bros. President Alan Horn and producer Gary Ross donated $1,000 each.
Other prominent contributors who gave $1,000 included construction company president Ronald Tutor, billionaire philanthropist Eli Broad, Hilton Hotels co-chairman William Barron Hilton, Univision Chairman and Chief Executive A. Jerrold Perenchio and former Police Commissioner Bert Boeckmann.
The mayor also received $1,000 from Advanced Cleanup Technologies, a firm whose attorney is Harbor Commission President Nicholas G. Tonsich, a Hahn appointee. The firm recently won a $300,000 contract from the port.
Hahn, who lives in San Pedro, received support from businesses in the harbor town. Port of Los Angeles tenant Yusen Terminals Inc. contributed $1,000. Pacific Energy Group of Long Beach gave $1,000 and is seeking to build a large crude-oil terminal at the Port of Los Angeles.
Also giving $1,000 were Andrew C. Fox, president of Pacific Harbor Line, a port rail line, and Metropolitan Stevedore Co. of Wilmington.
Other San Pedro business leaders donating $1,000 include James Cross, head of a group seeking to launch a charter high school in a port building, and Jayme Wilson, owner of Spirit Cruises and co-chairman of a port community advisory panel created by Hahn.
Bush Signs Big Rewrite of Bankruptcy Law
Associated Press (4-20-05 )
Nedra Pickler, Associated Press Writer
President Bush signed a bill Wednesday that will make it harder for debt-ridden people to wipe clean their financial slates by declaring bankruptcy.
The legislation was strongly opposed by consumer rights activists who said it would prevent vulnerable Americans from getting the fresh start they need. But Bush said the law was "restoring integrity to the bankruptcy process."
"Bankruptcy should always be a last resort in our legal system," he said. "If someone does not pay his or her debts, the rest of society ends up paying them."
Many people in debt will have to work out repayment plans instead of having their obligations erased in bankruptcy court, according to the law, which takes effect in six months.
People with incomes above their state's median income will have to pay some or all of their credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.
"This practical reform will help ensure that debtors make a good-faith effort to repay as much as they can afford," Bush said. "This new law will help make credit more affordable because when bankruptcy is less common, credit can be extended to more people at better rates."
Those who fought against the legislation said the change will hurt low-income working people, single mothers, minorities and the elderly and will remove a safety net for people who have lost their jobs or face major medical bills.
"The big winners under the new law will be the special interests that literally wrote it, particularly the credit card industry," said Travis B. Plunkett, legislative director of the Consumer Federation of America. "This is particularly ironic because reckless and abusive lending practices by credit card companies have driven many Americans to the brink of bankruptcy."
The financial services industry made the case that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires who buy mansions in states with liberal exemptions to shelter assets from creditors.
Mallory Duncan, senior vice president and general counsel of the National Retail Federation, said bankruptcy filings have increased nine-fold since 1978, when bankruptcy laws were last updated. "Bankruptcy has gone from a stigma to a financial planning tool for many," Duncan said.
New personal bankruptcy filings went from 1,613,097 in the year ending June 30, 2003, to 1,599,986 in the year ending last June 30, counter to that upward trend of recent years.
Between 30,000 and 210,000 people — from about 4 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets — will be disqualified from doing so under the law, according to the American Bankruptcy Institute.
Under the current system, a federal bankruptcy judge determines whether individuals must repay some or all of their debt.
Under the new law, people with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above their state's median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would then order a repayment plan.
Those people have six months until the law takes effect to escape the tougher guidelines. Bankruptcy lawyers have said they anticipate a rush to the courthouse.
Los Angeles Times (4-17-05 )
Diane Wedner, Times Staff Writer
Reports of real estate's decline have been greatly exaggerated, to paraphrase Mark Twain.
Southland home prices, especially in the entry-level market, continued to rise robustly during the first quarter of 2005, according to data released Thursday. Home appreciation at the higher end of the price spectrum is slowing compared with last year, but sales are still strong.
Although not on a par with the record-breaking pace of early 2004, the number of home sales across the board is "way above the norm," said John Karevoll, chief analyst at DataQuick Information Systems, a La Jolla real estate research firm.
Sales of houses and condominiums in Southern California in January, February and March were down 3.3% compared with a year ago, but that still was the second-best first quarter in 17 years.
The median price of a home in Los Angeles County during the first quarter of 2005 was $428,000, up 18.6% from the same period a year ago, according to DataQuick. The median in Orange County was $554,000, up 17.1%.
The slight slowdown from last year's 20%-plus rate of appreciation in median prices is welcome news, analysts say.
"The pace of appreciation was quite unsustainable in the middle of last year," Karevoll said. "Right now it looks like we're headed for a soft landing. No one will get hurt."
In the million-dollar-plus range, which some experts view as a bellwether of the market as a whole, prices dipped in some areas late last year. Currently, those homes are appreciating again but not at the levels of the last two years, according to DataQuick. The high end is notoriously fickle, however. It can experience home-price depreciation for a few months, then shrug it off and bounce back.
Raphael Bostic, an economist with USC's Lusk Center for Real Estate, conservatively estimates that home price appreciation could end up at 5% to 7% by year's end.
The California Assn. of Realtors forecasts a more bullish 15% increase in home prices this year, while California sales are expected to drop 2.5%, said chief economist Leslie Appleton-Young.
"We'll still see a strong season," she said.
An array of easy-to-get mortgages, an intense demand for housing — especially at the entry level and in some move-up markets — and a sense of urgency to buy before interest rates climb higher have buyers still flocking to open houses, agents say. Creative financing options, such as negative-amortization loans, have helped even the most credit-challenged borrowers enter the real estate market.
"It's amazing what's going on," said Syd Leibovitch, owner of Paramount Properties in Calabasas. "The population is increasing, there is limited new land to build on, so this may not change any time soon."
The Inland Empire is leading the pack in price appreciation and home sales, with San Bernardino County posting a first-quarter median home price of $291,000, up 37.3% from the same period a year ago. It was the only county where sales were up for the quarter — by 2.3%. Riverside County saw price gains of 28.5%, although 1.8% fewer homes sold. The two-county area now accounts for a third of all Southland home sales.
The hottest Inland Empire locales for first-time buyers, said Mike Teer of Teer One Properties in Riverside , are Colton , Rialto and parts of San Bernardino , where buyers can find homes for under $300,000. Farther out, in Victorville and Hesperia, first-time buyers who may need to commute long distances can find four- or five-bedroom homes in 1,900 square feet starting at $250,000.
Not all are willing to live so far from their jobs, however. In Los Angeles County, some first-time and move-up buyers are finding less expensive homes in Highland Park, Inglewood, Culver City and Eagle Rock, said David Toyama, head of a Coldwell Banker real estate business in Eagle Rock.
Two of Toyama 's clients, independent TV producer Janet Martinez and her partner, Kate Johnston, a grant writer, wanted to move up from their Highland Park home, which they had bought for $145,000 in 1993. Although their home appreciated nicely in the interim, so did others in Highland Park , and they were priced out of the area.
They opted for Eagle Rock, where they bought a three- bedroom home with an office for $510,000. They sold their Highland Park house for $482,000, and they were able to put $350,000 down. They chose a "hybrid" mortgage, in which the interest rate is fixed for seven years, then turns adjustable. Their monthly payment is now about $800.
Martinez said they looked at about 70 homes online last year and, beginning in October, physically checked out 15 houses. They made three offers on homes they didn't get before buying the Eagle Rock house in January.
"This market is so crazy and overpriced," Martinez said. "You feel like you have to act now because there are five bids on every house. It's easy to get caught in the whirlwind of making an offer because you're afraid you'll lose the house."
The competition is even more intense in the San Fernando Valley . A Sherman Oaks tear-down in a prime location that was listed earlier this month for $750,000 had 54 offers. A client of Coldwell Banker agent Dan Drantch made an offer $110,000 over the asking price but was outbid.
A 750-square-foot house in Reseda recently sold for $25,000 over its $390,000 asking price, Calabasas agent Leibovitch said. First-time Valley buyers seeking bargains — that's roughly in the $500,000 range — are purchasing in Sylmar, Mission Hills, Van Nuys and North Hollywood , he said.
The San Fernando and Santa Clarita valleys had only 2,455single-family homes, condos and town houses listed for sale on Thursday, compared with 12,429 listings in May 1997, for example, before the rapid runup in prices, according to the Southland Regional Assn. of Realtors.
Many first-time buyers seeking homes in Orange County are instead purchasing in Los Angeles County . Homes in Norwalk , Bellflower , La Mirada and Whittier still are available for $400,000, said Barbara Kerr, a Fullerton Realty Executives agent. That no longer is the case in Irvine and Orange .
"Entry-level buyers are struggling to get in almost anywhere in Orange County ," Kerr said. "Ten years ago, I called Fullerton Orange County 's best-kept secret. Not anymore."
Relaxed qualifications and a mountain of mortgage options allow many home seekers who wouldn't have qualified in the past to buy a home.
One of the most popular loans today — and the one with the greatest potential for problems — is the adjustable rate, negative-amortization loan, said Mitch Ohlbaum, president of Legend Mortgage in Los Angeles.
These negative-amortization loans offer a first-month rate of 1%. The following month, the fully indexed interest rate — about 4.6% — goes into effect. At this point, borrowers can decide to make the larger payment or they can continue at the 1% rate, which keeps the monthly payment low. But that adds to their loan balance each month, eating away at their home equity.
"People are fixed on the cheapest payment they can get," he said. "They don't care about the risk."
A risky option
How negative amortization works: On a $500,000 home purchase, a buyer puts down $50,000, takes a $400,000 first mortgage and a $50,000 second.
The first mortgage is a 30-year negative-amortization loan with an adjustable rate that starts at 1% and a $1,287 monthly payment. The second is a home-equity loan.
After one month, the 1% on the first rises to the fully indexed rate of 4.6% or more and the monthly payment increases $247 to $1,534, said Mitch Ohlbaum of Legend Mortgage.
The borrower can duck the higher monthly payment by tacking the higher interest rate costs — $2,964 the first year — on to the loan principal. As a result, the borrower ends up with a bigger loan than when the house was purchased.
First-quarter median prices
Figures are for sales of new and existing single-family homes and condominiums.
Median prices (in thousands)
|
First-quarter |
First-quarter |
Percent |
|
2005 |
2004 |
change |
Los Angeles |
$428 |
$361 |
18.6% |
Orange |
$554 |
$473 |
17.1% |
San Diego |
$476 |
$411 |
15.8% |
Riverside |
$370 |
$288 |
28.5% |
San Bernardino |
$291 |
$212 |
37.3% |
Ventura |
$525 |
$446 |
17.7% |
Southern California |
$428 |
$357 |
19.9% |
Source: DataQuick Information Systems
CNN.com/Reuters (4-20-05 )
BEVERLY HILLS, Calif. (Reuters) - Major home and commercial builders painted a picture of a domestic real estate market awash in cash Tuesday, and they downplayed concerns about a bust in the superheated housing market.
Speaking at the annual Milken Institute Global Conference, executives of KB Home, D.C. Holdings Inc and Starwood Hotels & Resorts Worldwide Inc and Equity Group Investments discussed the real estate market as one of the greatest property booms ever.
Executives said the real estate market remained awash in liquidity, with easy financing available and a weak dollar to deliver foreign investors.
They also said despite the run-up in prices, gains have not been uniform and prices in major U.S. cities remained affordable compared to Europe and Asia .
The executives agreed that there has never been a better time to be a seller in U.S. real estate.
"We're in a market with real depth and real legs on it," said M.D.C. Chief Executive Larry Mizel.
"The big boom of the last 10 years was not seen all through the United States ," KB Home Chief Executive Bruce Karatz said. "There's a supply-and-demand balance that I think will stay good for many years."
"The housing bubble has been created more by the business press than reality," said Sam Zell, chairman of Equity Office Properties Trust and Equity Group Investments LLC. "You can't have a crash without oversupply."
The executives pointed to immigration as one of the biggest driver of home sales, and they also expected the growing senior market to add sales and innovations in housing products.
"The majority (of seniors) don't want to live on a golf course in Surprise, Arizona ," Karatz said. "They want to live close to where they were living and close to their families. This is difficult and we are trying to see if we can ramp up this type of development."
Starwood Executive Chairman Barry Sternlicht said his company also has begun acquiring single-family and senior housing "because we think the cycle will last longer than most people think."
"This is a great time to own and buy hotels," Sternlicht added. "We are buying at well below replacement costs ... same store sales are up, the business traveler is back."
Executives dismissed the idea that weakness in job creation could take the wind out of home prices, which rose 8 percent in 2004.
Zell and the other panelists expected labor and materials shortages to continue into next year, driving new construction out of reach for some builders and buyers.
"You can sell anything you can get your hands on in Las Vegas , but nobody knows what it costs to build there because (contractors) are stretched so thin," Sternlicht said.
Housing shortages and buyer demand have driven a huge number of conversions of apartments to condominiums, Sternlicht said. "It's wacko out there but it's fun, as long as you can get a chair when the music stops," he said.
The executives pegged the southwestern U.S. and Florida as best real estate buys, while Zell said he'd put his money in New York City as the best property investment in the coming 24 months.Home Prices Spiral Through The Roof
Bakersfield Californian (4-15-05 )
Jennifer Plotnick, Californian Staff Writer
Despite the traditional winter slowdown, home prices in Bakersfield are soaring so far this year.
The price of the average resale home rose about $75,235 January through March compared to the same time last year. That brought the average price of existing homes to nearly $247,545, the highest average ever.
"We may end up being the hottest market in the nation," said Gary Crabtree of Affiliated Appraisers in Bakersfield , who tracks local market data.
That'll become more apparent in the next few months, Crabtree said. The sales prices -- and pace -- will likely continue their upward march throughout spring and summer.
Will that happen in two years?
Or five years?
"It's practically impossible to forecast," said Delores Conway, director of the Casden Forecast for the Lusk Center for Real Estate at the University of Southern California .
As prices in other parts of California continue to rise, the appreciation rate is slowing. Bakersfield 's rate is still growing, and it's still relatively affordable.
"You have to look at Kern County relative to what's going on elsewhere," Conway said.
At 2004's end, the median price of a home in the Inland Empire was $322,000. Compare that with Orange County 's median of $628,000, she said.
Those high prices mean more out-of-towners are moving to Bakersfield . The market won't cool until that demand is quenched, Conway said.
In recent years, the local housing market has been especially hot in the summer after a slower winter season. But Bakersfield ranked No. 2 in the nation for price appreciation from the fourth quarter of 2003 to the fourth quarter of 2004, increasing 30.5 percent, according to government figures.
Bakersfield home prices continued to rise during the winter months. Signs of the increased activity Crabtree noted include:
* Resale home prices increased 3.6 percent per month from the fourth quarter of 2004 through the first quarter of this year, based on price per square foot. It's almost an 11 percent increase through the entire first quarter.
* Nearly 190 more homes sold during the first quarter this year compared with last, bringing the total to 2,144.
* Average prices for new construction homes rose nearly 29 percent, or $97,745, from last year to reach $335,632 during the quarter. About 10 percent of the increase was due to increases in construction costs. The other 19 percent increase was due to increased land costs.
* Sales of new construction homes during the quarter more than doubled to 432, up from 203 in the first quarter of 2004.
* Prices of entry-level homes, found mainly in the 93304, 93305 and 93307 ZIP codes, increased about $50,000 from the first quarter of last year to this year for an average of $165,826.
That locks some hopeful buyers out of the market.
"The first-time buyers are out the door; I feel so bad," said Betty Byrom, owner/broker of People Realty Inc.
While various programs are increasing their limits on the loans that buyers can secure, they aren't keeping up with the market, she said.
"It just breaks your heart," Byrom said.
Even current homeowners looking to move to a bigger home are having trouble.
Homeowner Desiree Drescher decided last June she would rather wait until January this year to buy a home.
Looking for a home in the winter gave Drescher more choices than she'd had in the frenzied market last June, but she also paid $60,000 to $80,000 more for the home than she would have then. She decided to act quickly, looking for a home for three weeks before making an offer.
"We had to decide whether to shop longer and go for exactly what we wanted or shop quickly for a home that met a majority of our needs," Drescher said.
She moved into her northwest Bakersfield home in late February. It cost her $305,000. Byrom, who was her agent, estimates her home would now sell for $350,000.
"What a difference three months can make," Drescher said. "We're extremely happy, but we did compromise a little with what we wanted."
As summer approaches, Bakersfield 's housing market will get pricier and busier, just like last year, several real estate professionals predict. Recent activity already shows home prices are on the rise as the second quarter of the year gets under way.
On the Multiple Listing Service on Friday, 396 homes were listed for sale in Bakersfield at an average price of $345,633, Crabtree said. The Bakersfield Listing Service had 225 homes listed at an average of $440,550, he said.
The average price for the BLS was higher because several BLS brokers have listings for more than $1 million, Crabtree said.
Area Home Sales Decline From One Year Ago
Voice of San Diego (4-15-05 )
Patrick Heald, Contributing Writer
For the third straight month, sales of new and resale homes in San Diego County declined. Sales of new and existing homes fell from a total of 5,312 during March 2004 to 5,018 in March of this year.
The figures are from a report released by DataQuick, a San Diego real estate information and analysis firm.
The report also shows the rate of annual real estate appreciation fell from 22 percent in March of 2004 to 12.5 percent in March of 2005.
According to the report, San Diego had the biggest sales percentage drop, 5.5 percent, of six Southern California counties -- San Diego , Los Angeles , San Bernardino , Orange , Ventura and Riverside . San Diego County 's rate of appreciation was also the lowest.
San Bernardino County had the largest increase in home sales from one year ago -- 3.8 percent. It also had the highest rate of appreciation, an astronomical 34.8 percent increase over one year.
While the number of total homes sold in the county fell, prices continued to rise. DataQuick reports the median sales price increased from $424,000 in March of last year to $477,000 in March of 2005, a 12.5 percent increase.
That increase is less than half of what it was one year ago. And it's just barely higher than the national average for 2004 which was 11.2 percent in 2004, according to data from the federal government.
Sanford Goodkin, president of Sandford R. Goodkin and Associates, has analyzed San Diego real estate since 1956, and he thinks the DataQuick numbers show the San Diego market has reached its peak.
"I would say that the combination of the pricing, higher interest rates and the huge amount of speculation has finally topped out the market," Goodkin said.
Interest rates are the key to how much and how fast the San Diego real estate market cools off, Goodkin said. If interest rates rise slowly, the market will cool off gradually, and if the rates shoot up quickly, Goodkin said to look for a rapid fall in appreciation rates, and overall housing prices.
"It's not surprising the San Diego numbers are at the low end because they were more pronounced on the way up," said real estate analyst Gary London. "I wouldn't be surprised if this trend continues for the rest of the year."
Rob Bryan, who sells real estate for the Tristany Group in San Diego , said the slowdown is bringing buyers and sellers back to reality but that the bottom will not completely drop out of the San Diego housing market.
"People are still overly optimistic," said real estate agent Linda Artiaga who has sold homes in central San Diego for over 20 years.
"The pricing has to be closer to the mark," she said. "You just can't ask what you want. Some people are having to drop prices. And the time on the market is longer."
She noted some buyers are now adopting a wait-and-see attitude, something unheard of in the winter of 2003 and spring of 2004. Spring is a busy time of year in the real estate industry, and the next three months will go a long way towards indicating the extent of the slowdown
"If in six months those trends in data have continued, then I think you can say the train has left the station," she said.
San Francisco Chronicle (4-17-05 )
Kelly Zito, Chronicle Staff Writer
Tom Arie-Donch last month put his three-bedroom home in Vacaville up for sale at $495,000. And that's the price he expects to get. No bidding wars, no open houses with 300 visitors, no sales for $150,000 above the asking price.
Even as what agents like to call the spring buying season gets under way in overheated areas like Noe Valley, Rockridge and Palo Alto, there remain pockets of the Bay Area where the price on the for-sale flyer is not the opening bid in an auction-style sale -- places like Vacaville, Brentwood, Santa Rosa or the village of La Honda on the Peninsula.
"I guess I'm quaint and old-fashioned," said Arie-Donch, 49, who is selling his house without a real estate agent. "You ask for a price, and that's what you get. The other stuff seems like a funny game."
"I'm hoping that two people want it and might bid it up a little," said Robert Ewell, who put his one-bedroom La Honda cottage on the market for $459, 000 about six weeks ago. "But if it only suits one person, well, that's fine."
Desirability translates to offers
Of course, multiple offers signal desirability, among other things. Homes from Mill Valley to Albany and Walnut Creek , for example, garner a lot of attention because they have good schools, are close to jobs and have good places to shop and eat. Nevertheless, these towns and neighborhoods share one major detraction -- steep competition.
Nowhere is the impact of multiple offers more striking than in San Francisco , where would-be buyers are increasingly descending on neighborhoods like Bernal Heights , Sunnyside and Visitacion Valley in the hopes of transforming them into the next Noe Valley .
Multiple offers recently helped drive the price of a two-bedroom fixer- upper on Anderson Street in Bernal Heights from $438,000 to $657,000, according to Alex Clark, who runs sfnewsletter.com, an online bulletin about the San Francisco real estate market.
Similarly, a three-bedroom home on Melrose Avenue in Sunnyside sold last month for upward of $1 million, more than 40 percent over the original asking price of $699,000.
A three-bedroom home on Winfield Street in Bernal Heights drew more than 24 offers and sold for $1.05 million after going on the market for $749,000 in February.
"It came on the market when there was no inventory, and it got a huge response," said Pat Carapiet, the B.J. Droubi agent who listed the property.
"When I interview a buyer," Carapiet said, "I tell them pretty much everything is multiple offers right now."
The feeding frenzy has spread farther afield to places like Petaluma , Dublin and Fremont , according to real estate agents in those cities.
"Housing here can be $100,000 to $200,000 less expensive than the other side of the bay," said Mena Rico of Prudential California Realty in Fremont . "So a lot of people come over here, and there can be 28 or 30 offers on a property. Even condos get eight or 10 offers."
Underpricing epidemic
Both real estate agents and would-be buyers, however, say the multiple- offer effect is directly related to a widely used sales strategy called underpricing.
It works like this: The seller and his agent set the asking price well below what they're fairly certain a house is worth. Sometimes it's 10 percent below, sometimes more than 30 percent. Then they set a date when they will accept offers.
The tactic usually attracts numerous buyers and sets the stage for a bidding war. Ultimately, sellers hope they sell the property for well above what they would have if they had listed the "real" price.
The losing bidders, many of whom attach family photos and "why I want to live here" letters to their offers, walk away frustrated. Often, that disappointment feeds a resolve to bid even higher the next time around.
While many agents openly condemn the practice, almost any home shopper in San Francisco will tell you underpricing is a marketing tactic as common as staging or professional photographs.
"If I was on the other side, I'd want as much (money) as I could get, but it does seem disingenuous to have these low prices on these properties," said Lew Hurwitz, 52, who recently bid and lost out on two flats in San Francisco.
One, a tenancy-in-common in the Haight listed for $470,000, garnered nearly a dozen offers and sold for $600,000, Hurwitz said.
Supply and demand
Multiple offers have not spread to all corners of the Bay Area, however, and part of that may be a function of supply. That is, many of these areas have fewer constraints on building; therefore there are more homes relative to demand.
In eastern Contra Costa County 's Brentwood , for example, much of the housing stock is more than 3,000 square feet, less than 5 years old and listed at between $500,000 and $700,000.
In general, there is also less emphasis on underpricing.
"I hear of people bidding $30,000 or $40,000 over in San Jose and places like that, but it's because they price it so low," said Brian Sharp, of Sharp Homes real estate in Brentwood . "That doesn't happen here.
"People here are pretty choosy," he said. "They don't want to overpay for something because they do have a commute."
Likewise in Santa Rosa , ReMax agent Roberta DiPrete listed a three- bedroom house in the Montgomery Village area for $529,000 in mid-March. By April 8, the sellers had received only one offer, but the two sides did not sign a contract.
"If you put a fixer (upper) on the market at the low end of the price range, you might get multiple offers, but mostly, you don't," DiPrete said.
Those few homes in Santa Rosa or Vacaville that do fetch multiple offers often sell for only a couple thousand dollars more than the asking price.
In areas where sellers can't bank on more than one offer, appropriate pricing is crucial.
Arie-Donch in Vacaville didn't want to use an agent because he said he prefers to cut out the middleman. So he consulted appraisers, title company experts and the Web for comparable sales. This helped him arrive at his $495, 000 asking price.
Arie-Donch, a sculptor who designs children's playgrounds, paid $193,000 for the home seven years ago. He's confident he'll get his price.
He calls multiple offers "an anomaly caused by people's panic."
Off the beaten path
La Honda, a San Mateo County hamlet of about 2,600 tucked in the Santa Cruz Mountains, is about as far away from the real estate froth as one can get even though it's only minutes from tony Woodside and about a half hour from the hub cities of Silicon Valley.
Ewell, 62, acknowledges the area is not for everyone. He jokes that he has crackers ready for visitors, many made queasy by twisty-turny route to town.
Those rustic surroundings drew Ewell, a carpenter, to the area seven years ago. But with more homes selling in the $1 million range and an influx of yuppies, he hopes to move to a place where underpricing and multiple offers are even less common.
"La Honda's gotten too busy for us," Ewell said. "We're thinking of going somewhere really inexpensive like the foothills of the Andes in Argentina ."
Still, for buyers like Hurwitz, the San Francisco shopper, a cabin in La Honda or Santa Rosa is out of the question. Hurwitz, who places proximity to cafes and shops at the top of his must-have list, may start shopping in Visitacion Valley or Sunnyside. He no longer wants to cross a bridge or sit in traffic on the way to his job as an accountant with state court in San Francisco .
"I grew up in the Bay Area, and I always thought I'd live in San Francisco at some point," he said.
Commercial News
CalPERS Buys Office, Parking Structure on R Street
Sacramento Business Journal (4-20-05 )
The California Public Employees' Retirement System announced Tuesday that it has purchased a five-story office building and parking structure at 400 and 500 R St. in downtown Sacramento.
"We made a promise to the residents of Sacramento and city officials that we will help to restore life and community to R Street," said Charles Valdes, chair of CalPERS' Investment Committee, in a news release. "These properties are a good addition to our commercial real estate portfolio and will generate additional income and help anchor our future housing developments along R Street."
The office building at 400 R Street includes more than 211,000 square feet and currently houses the California Department of Consumer Affairs. The accompanying parking structure at 500 R Street accommodates more than 570 parking spaces.
CalPERS officials don't expect to make any changes to the properties.
"We will hold these properties in our investment portfolio and continue their existing use," said Michael McCook, senior investment officer for CalPERS' real estate program. "This was a nice purchase given that the building and parking structure are so close to our new headquarters expansion."
CalPERS is near completion of its new headquarters, between Third and Fifth streets and Q and R streets.
The building and parking structure are the latest acquisitions made by the pension fund along R Street.
In February 2005, CalPERS announced that it is in contract to acquire the former Thompson Diggs Co. building, a four-story office structure at Third and R Streets with its real estate partner Regis Homes. The pension fund also purchased a half block between Sixth and Seventh streets on the south side of R Street, and a 2.5-acre parking lot at Third and R streets.
Last year, CalPERS purchased a parcel of land on R Street between Sixth and Seventh streets and unveiled designs for a three-story, 36-unit residential housing development.
CalPERS is the nation's largest public pension fund with assets totaling $182 billion. The system provides retirement and health benefits to more than 1.4 million state and local public employees and their families.
Business Wire (3-7-05 )
For all you brokers who were staying alive until 2005, how about, "You won't get your kicks until 2006."
In other words, first-quarter numbers are in and the rocky road to recovery may have hit another pothole. It's all the harder to bear after 2004 ended with such a flourish.
"Over the last six months of 2004, there was an astonishing positive net absorption of (250,000) square feet and a feeling that things were improving," Cornish & Carey Commercial noted in its first-quarter report for the North Interstate-680 corridor.
Then came 2005.
"From a leasing standpoint, the first quarter of 2005 saw little or no improvement over year-end 2004," the report states. "It seemed that every step forward was countered by a step back."
Step forward: More tenants are touring empty spaces.
Step back: More companies decide to consolidate space or downsize their labor forces.
Brokers have used the words "anemic," "flat" and "lackluster" to describe a market that burns on the sales and investment side, but just can't seem to light a spark under leasing.
It's the same at the southern end of I-680.
The Tri-Valley has 4 million square feet of vacant space, sending the vacancy rate to nearly 20 percent, according to CM Realty Inc. After a promising fourth quarter that saw a net of 268,000 square feet of space absorption in Pleasanton, Dublin, Livermore and San Ramon, the numbers slid back into negative territory with 45,000 square feet more space becoming empty than being leased during the first quarter, CM Realty said.
Cornish & Carey, however, read the tea leaves differently. C&C agreed that net absorption dropped from the fourth quarter but remained in positive territory at 178,000 square feet. Vacancy rates fell to 14 percent, C&C said.
CM Realty predicts that Oracle Corp., which prefers to own its buildings, will not re-lease 67,000 square feet occupied by the former PeopleSoft Inc. when the lease expires in 2007.
Oracle also revealed last week that it plans to sell or lease two former PeopleSoft buildings with 370,000 square feet between them. If the buildings are marketed for sale, it could be a tough one, given the fact they are empty.
If they are leased, the already stumbling market could trip. As CM put it: "If some or all of the existing campus is placed on the market for sale or lease, and demand remains status quo, then rental rates could experience downward pressure."
Ouch.
Signs - as in dollar signs - of the active investment market continue.
The newly designated Lamps Plus Plaza in Dublin changed hands for a cool $15.8 million. The Chiu Family Trust purchased the 55,800-square-foot center on San Ramon Road from the Dublin Town & Country Association.
And Dublin's Synpep Corp., a manufacturer of synthetic peptides, bought an 80,400-square-foot building in Livermore for a reported $9.2 million.
It took time - three years - but Impax Laboratories Inc. bought a 19,000-square-foot office building in Hayward from Youngs Holdings LLC for $1.2 million. John Steinbuch, the buyer's representative, called it an "aggressive" price for an off-the-beaten-track office building. Colliers International brokers Rick Keely and Greig Lagomarsino represented the seller.
Riverside Press-Enterprise (4-19-05 )
Kimberly Pierceall, Staff Writer
For 20 years, debt, bankruptcies, lawsuits and a national calamity have thwarted Mark Bragg's plans to build a $400 million golf resort along the road leading to the Palm Springs Aerial Tramway.
This could be Bragg's year.
Bragg has paid off his outstanding bonds and debts and refinanced the project, he said. He expects to break ground on his Shadowrock resort within the year.
"It's the objective I came here for," he said. "I can't give up."
The Sierra Club has no intention of giving up either.
For several years, the local Tahquitz Group chapter of the Sierra Club and the U.S. Fish and Wildlife Service have taken Bragg to court. They say an endangered peninsular bighorn sheep herd frequents the Shadowrock area and that development would kill them off.
Terry Kilpatrick, a lawyer who represented the Sierra Club in previous Shadowrock cases, said that parasites in the golf course and increased car traffic could kill the sheep -- a violation of the Endangered Species Act.
"We're totally opposed to the project in its entirety," said Jeff Morgan, the vice chair for the local Sierra Club's conservation committee.
Morgan said the group would likely challenge any city permits when Bragg chooses a construction date.
"We'll be waiting," he said.
Bragg started buying up parcels of land at the entrance to Palm Springs in 1984 when he decided a tennis resort would be a guaranteed moneymaker. But times and tastes changed, and the Coachella Valley became a haven for golf.
He spent seven years buying land to make one big golf course. In 1992, he moved from Washington , D.C. , to Palm Springs . Two years later, he had secured city entitlements and cleared the planning stages.
"We spent a fortune on trying to make sure we were doing this all right," he said.
He waited for the California real estate market to heat up. By 1997, with help from a $15 million municipal bond through the California Desert Public Finance Authority and city approval, he was ready to build a public golf course and resort.
Then came the lawsuits.
The U.S. Fish and Wildlife Service filed a suit claiming that the project threatened bighorn sheep, and the Tahquitz Group asked the court to demand a new environmental impact report. Both times the court ruled in Bragg's favor.
With the cases behind him, Bragg had secured a big-name resort developer by early 2001.
Then 9-11 hit shattering the U.S. economy, and with it Bragg's chances to finance his project.
"Our whole plan collapsed," he said. "It was a disaster for three years afterward."
Bragg had bought the Marquis Resort in downtown Palm Springs and was expecting it to be a financial boost that could support his Shadowrock project. But the hotel went bankrupt, and Bragg started owing interest on his municipal bond. He was treading water, he said.
Last fall, Bragg refinanced the project and paid off his debts, including the Marquis bankruptcy.
His plans were put on hold again until city residents voted down a measure on the March 8 ballot that would have restricted development in Shadowrock's vicinity.
"Every finance organization on the planet knew about Measure B," he said. The measure's defeat "opened the flood gates," to investment.
He now has a $20 million equity investment to move forward with the project, he said.
Doug Holland, the city's attorney, said there is also pressure on Bragg to start construction this year because the development agreement between the city and Bragg expires in 2006.
As for impending lawsuits, Holland said he doesn't foresee anything on the legal horizon. "From the city's perspective, there's nothing more to be done," he said.
"It's a well planned project," said Gary Wayne, the city's planning department director. "It provides not only the resort and the golf but some upper-end housing. I think it's going to be a big benefit for the city -- not only the revenues, but the tax base as well."
Bragg said he's in negotiations with a hotel developer for a 105-room five-star boutique hotel on site. Once construction starts, he said it would take five years and about 3,000 construction workers to complete the project.
San Francisco Chronicle (4-9-05 )
Dan Levy, Chronicle Staff Writer
San Francisco 's commercial real estate market showed signs of improvement in the first quarter, with prime office rents up 6 percent from the same period last year and the office vacancy rate down 3 percent.
Average Class A rents are $29.45 per square foot, while the vacancy rate for prime space is 19.5 percent, according to a new report from the Grubb & Ellis real estate services firm.
The commercial real estate market is still well below where it was during the tech boom in the late 1990s and early 2000s, when rents hit $80 per square foot and the vacancy rate was virtually zero.
There is about 12.2 million square feet of empty office space in the city -- much better than the 17 million square feet available at the bottom of the market in early 2003, but far from healthy.
"It's a slow and steady process," said Joe Cook, head of Cushman & Wakefield. "But the fact that we've had several consecutive quarters of positive absorption (vacant space being leased) is promising and a good sign for landlords."
More than 140 office deals representing 1.7 million square feet were signed in the first quarter, according to Grubb & Ellis. Most of the deals were for less than 15,000 square feet, but some were major.
Law firm Heller Ehrman White & McAuliffe's deal for 246,000 square feet at 333 Bush St. was one of the biggest leases in years.
The 13 1/2-year deal, signed at a rental rate of $31 per square foot, included a renewal for the firm's present space on floors 26 to 34 and an expansion onto floors 7 to 11. It's the largest law firm deal ever in San Francisco , according to Cushman & Wakefield.
"We were negotiating with other landlords, but the major factor in staying (at 333 Bush) was getting relief on our current lease term," said Jonathan Hayden, Heller Ehrman's managing shareholder in San Francisco .
Hayden said the firm was paying about $51 per square foot on a lease that was priced in 2001. The renegotiated price cut that by $20 per square foot and included the additional space.
"We thought this was the best time to lock in," Hayden said. "We're very pleased with the building."
Given that rents in San Francisco are at the same level as in 1996, many other large users of space are rushing to lock in the low rates.
Tove Nilsen, research director at Colliers International, said several large tenants seeking 100,000 square feet or more are shopping for space. They include UCSF, Barclays Global Investors, Blue Shield, Gallo Institute, Sutter Health, Citigroup, Providian Financial and Advent Software.
Nilsen said that without new construction -- a prospect that won't happen until rents reach at least $50 per square foot -- those tenants will have trouble finding contiguous blocks of space to meet their needs.
The city has always regarded itself as a premium location for business, but the average Class A rent of $29.45 is only marginally above the U.S. average.
While the city continues trying to attract new businesses, some highly publicized deals have either not panned out or are still up in the air.
Virgin Atlantic was supposed to base Virgin America, its new West Coast service, in San Francisco , but the airline is having trouble raising money and won't be opening a local office anytime soon.
And San Francisco officials have an uphill road trying to lure the new California Institute for Regenerative Medicine. San Diego , San Jose , Los Angeles and Emeryville are also bidding for the small but highly symbolic headquarters deal. The institute for stem cell research is scheduled to announce its decision May 6.
Looking up
Commercial rents in San Francisco are up 6 percent from a year ago, although the city's average of $29.45 per square foot is only marginally above the national average. Here are some of the major office lease deals that were signed in the city during the first quarter:
Municipal Railway: 1 South Van Ness Ave. , 270,000 square feet, $21.50 a square foot
Heller Ehrman: 333 Bush St. , 246,000 square feet, $31 a square foot
Hanson Bridgett: 425 Market St. , 79,000 square feet, rent not available
SBC: 525 Market St. , 68,000 square feet, rent not available
Artus Biotech: 185 Berry St. , 3,700 square feet, $25 a square foot.
Sources: Grubb & Ellis, Colliers International; Cushman & Wakefield
Opinion
Housing Boom Defies Trends, Likely To Bust Soon, Won't It?
Contra Costa Times (4-4-05)
Rick Jurgens
To two Bay Area residents who bought new homes this winter, it looked like a good time to make a move into something better.
And although each paid triple what the previous owners spent less than a decade ago, these buyers walked into a hot market well aware of the recent run-up in prices and emerged happy to have found a house or a condominium that fits their needs.
"I wanted to get in as soon as possible, especially with the way prices are going up in the Bay Area," says Carlo Cesar, a 34-year-old manager for Safeway. March 16, he moved into the two-bedroom, two-bath, 871-square-foot Antioch condo, for which he paid $295,000. Nine years ago, the same unit sold for $77,500, according to county records.
Many have profited from the Bay Area's recent real estate boom. Few can explain it.
Economists say house price appreciation normally reflects gains in income and employment. So what explains the 47 percent jump in the Bay Area's median price since the end of 2000, to $549,000 in February, during a period when the region's economy shed 450,000 jobs?
To some skeptical analysts, it appears that low interest rates -- the average interest on a 30-year fixed-rate mortgage has stayed below 6.5 percent since mid-2002 -- have produced a bubble of inflated house prices in the Bay Area and in some other hot markets in California and elsewhere. And while they bristle at the term "bubble," even optimistic market watchers expect rates to climb and house price appreciation to slow soon.
So far buyers have kept buying, softening the sting of high prices with the balm of cheap mortgages and inviting loan terms. With real estate values now widely viewed as immune to economic setbacks, buyers seem certain that no matter how expensive that bungalow in Bay Point or that mansion in Moraga is, it will command an even loftier sum a year or five years from now.
Also, a growing number of investors have jumped into the market. Real estate has replaced the stock market as the new millennium's sure-fire route to quick gains. To those intimidated by the risks and complexity of owning property, advertisements and free seminars promise quick lessons and eye-popping results in the speculation game.
Post-dot-com wealth
Before he bought in Antioch , Cesar learned the hard way about price appreciation. He recalls "kicking myself in the butt" for not pulling the trigger on a deal five years ago when he looked at condos ranging from $40,000 to $60,000. House and condo prices rose smartly in the past year, and he expects future appreciation to be even better.
But Brian Forschler, a 31-year-old salesman, has a more cautious outlook on house prices. "I'm not counting on a whole lot of growth," says Forschler, who just paid $975,000 for a three-bedroom, 21/2-bath, 1,800-square-foot house in Danville . Nine years ago, that same unit sold for $279,000.
Forschler has already benefited from the Bay Area boom. Three years ago, he and his wife bought a San Ramon townhouse for $391,000. Forschler estimates that its value has nearly doubled since. Without that run-up, he says, "we wouldn't have the down payment for the next place."
The Forschlers weren't the only ones to benefit from the real estate boom. From coast to coast, rising house prices boosted an otherwise sluggish economy. Homeowners cashed out more than $300 billion in equity through sales, refinancing or borrowing, according to Harvard's Joint Center for Housing Studies.
Californians led the way. The value of the state's inventory of 12 million houses and condos rose by $1.7 trillion during the past four years, according to UCLA economist Christopher Thornberg. With the smell of money helping to mobilize an army of agents, lenders, brokers and builders to serve the red-hot market, housing-related jobs accounted for more than half the growth in the state's private sector employment, according to Thornberg.
Real estate became the Bay Area's post-dot-com wealth machine. Between the first quarter of 2000, when the stock market bubble burst, and the end of 2004, the average price of single-family houses rose 76 percent in the East Bay , according to a house price index compiled by the U.S. Office of Housing Enterprise Oversight. During that same period, the Standard & Poor's 500 index of leading stocks fell 19 percent.
Getting into a home
Some attribute the rapid appreciation of real estate here to the shortage of land available for development. But last year real estate fever spread to the sprawling inland subdivisions around Sacramento , where prices rose 23 percent, and to Southern California , where prices in Riverside are up 30 percent. In the Las Vegas area, house prices rose 36 percent last year, according to OFHEO.
Such hikes in house prices can't go on forever, warns Christopher Cagan, an economist with First American Title Insurance Co.: "You should not assume you will get 25 percent price increase in a year."
Not that anyone but the most highly leveraged speculator would want that. The continuing real estate boom has already intensified worries that high housing costs will chase employers to lower-cost regions.
And with starter homes priced at $300,000 even in outlying areas, young buyers seeking to get into the house market now load up with debt and seek to put payments off into the future. "People are stretching more than they used to," Cagan says.
Allen Barnes Jr., a 26-year-old accountant, recently bought a three-bedroom, 21/2-bath, 1,280-square-foot house in Pittsburg for $350,000. Planning to leave their rental unit in Union City by the summer, Barnes and his wife thought about moving to Modesto but felt lucky to make the winning offer on their new Pittsburg house, which was only the second they had looked at.
Barnes and his wife chose a five-year adjustable-rate mortgage and a financing package for the full price of their new house "just to get in," he said. "From what I've been hearing, that's what people have been doing" to cope with high house prices, he added.
Last year in California , 28 percent of all house buyers -- and one in three first-time buyers -- opted for adjustable rate mortgages, according to a survey by the state Realtors association. Those buyers passed up the opportunity to lock in slightly higher fixed-rates, even though most experts view current rates as historically low and unlikely to be available in coming years.
Shocks ahead
Growing use of new lending products constitutes a worrisome trend, according to Economic and Real Estate Trends, a real estate risk forecast produced by Walnut Creek-based PMI Mortgage Insurance Co. The forecast expects increases in the benchmark interest rates that determine the adjustments to variable rate loans. "This could potentially lead ... to payment shock, because borrowers with imperfect understanding and limited information are not fully aware of the extent to which their monthly payments can rise," according to the forecast.
The shock could be even worse to bullish investors who have taken out loans to place bigger bets that house prices will go even higher.
There seems to be plenty of new players. In 2004, a record-high 1 in 6 house buyers surveyed by the California Association of Realtors said that they "bought primarily for investment and tax considerations." The 2004 rate of 16.2 percent surpassed the previous high of 15.3 percent in 1991, just before the state's housing market fell into a multi-year funk.
New investors see plenty of enticements. A full-page advertisement in the Times recently offered "a life-changing free seminar" on "how real estate investing can make YOU a fortune" and "how to get in the game." A brokerage in the red-hot Las Vegas market trolls for attendees at a free seminar with Mayor Oscar Goodman topping the bill of speakers. Mass e-mails invite investors to pony up $6,000 to join "a stock market of real estate."
Caution flags raised
So where is the market going?
The California Association of Realtors sees signs of another good year for those with a stake in real estate. "The outlook for 2005 is largely dependent on the trajectory of interest rates," the association observed in its recent report on the state of the housing market.
Yet even the normally bullish Realtors seem puzzled by the recent strength in the market. Their report describes 2004 as "a year of apparent contradictions" and notes that "home sales and price appreciation were robust despite a weaker-than-expected job market."
That can't go on either, says Thornberg, an economist at UCLA's Anderson Economic Forecast. "The housing sector's ... current growth path both in building and prices is clearly unsustainable," he wrote in a March 15 assessment of the state's economic prospects.
Industry insiders are also waving caution flags. PMI estimates that there is about a 50 percent chance that house prices will broadly decline within the next two years in the East Bay and other core counties of the Bay Area.
Cagan, the First American economist, recently published a report that tried to identify areas of risk in the nation's housing markets. It found that during the past 16 years long-term growth in house values has been broken into up and down cycles in some markets, including the Bay Area.
Cagan says the recent sharp rise in house values and the likelihood that mortgage interest rates will rise indicate that the up cycle may end soon, bringing in a period of flat or declining prices. "The cyclical markets are pretty close to peak," he says.
But the Bay Area may have "a little more room to go," with relatively high incomes and episodes of price flatness in recent years likely to cushion any local slump in real estate, he says. House markets in Alameda and Contra Costa counties have remained "healthy" at all price levels even as demand slowed for the most expensive houses in the region's most pricey markets, he adds.
Ron Atkins, a Pleasanton Realtor, says that although Tri-Valley real estate remains a sellers' market, with a shortage of houses listed for sale, he is watching for signs of a slowdown. "When it happens, it will happen quickly," he says.
Recent appreciation rates won't be sustained, he predicts. "As a knowledgeable homeowner, I am looking for a 5 percent to 8 percent (rise in house values) this year," he says. "There will come a time when it will dead flatten out."
Housing booms most often roll into periods of price stagnation, according to a recent historical study by the Federal Deposit Insurance Corp. But busts -- price declines, in one case of 40 percent -- did occur over the past 25 years when stagnation was accompanied by "rather severe, localized economic shocks that tended to affect major employers," the FDIC found.
These days the FDIC, which insures bank customers against losses, sees some worrisome signs. "There are reasons to think that history might be an imperfect guide to the present situation," its study says. "Foremost among these are changes in credit markets that are pushing homeowners -- and housing markets -- into uncharted territory."
So where does Barnes, one of those new homeowners, think the market is heading? "It beats the heck out of me!"
CMBA News
CMBA is exicted to announce our keynote speakers for the 33rd Annual Western Secondary Market Conference (July 12-13) and the Commercial Real Estate Finance Conference (September 25-27): Ben Stein and Billy Beane!
Highlighting the Western Secondary Market Conference will be 7-time Emmy Award-winning actor and economist Ben Stein!
Ben Stein has had what may be the most diverse career of anyone now on the national scene. He is in every sense a Renaissance Man. He has been an award winning actor, economist, writer, journalist, and teacher, and is equally well known in America ’s board rooms and in America ’s dormitories and fraternity houses. He is certainly the only man to be a famous humorous teacher about economics and law. He was a columnist for The Wall Street Journal and also wrote editorials for the Journal. In June of 1976, he moved to Hollywood to become a novelist, TV sitcom writer, and movie script writer. He has written and published 17 books, seven fiction and the rest nonfiction. He labored especially hard on a decade long project of exposing financial fraud and the self dealing at large companies. His work on the Milken/Drexel junk bond scheme was instrumental in the recovery of billions for investors and tax payers.
Stein has also taught about law, economics and securities law at Pepperdine Law School for many years and has served as an expert witness in many securities law cases.
In 1986, with no professional training, Stein became an instant cult hero for his role as the boring economics teacher in Ferris Bueller’s Day Off, which scene was directly voted one of the fifty funniest scenes in American film history. After that, Stein went onto be a recurring character in Charles in Charge, and then The Wonder Years, and then in 1997, began his long running hit quiz show, Win Ben Stein’s Money. The show has won six Emmies and Stein has won one for best game show host. In all, his show has been nominated for 17 Emmies.
Ben Stein has just finished his latest book, How To Ruin Your Life. He writes regularly for E-Online and The American Spectator and over his life has been a columnist for New York Magazine, Los Angeles Magazine, Barrons, and many other magazines.
Stein lives with his beloved wife of 36 years, Alexandra Denman, and their son, the devilishly handsome Thomas Stein, in Los Angeles, California, center of the universe.
We are very fortunate to also be featuring one of Major League Baseball's top executives at our Commerical Real Estate Finance Conference. Billy Beane, General Manager of the Oakland Athletics, has used one of baseball's lowest payrolls ($55 million in 2005, compared to division rival Los Angeles Angels of Aneheim's $98 million) to produce a consistently contending franchise.
He has literally changed the way baseball executives scout talent and budget salaries. He's doing it with computers and statistics wielded by a bunch of college boys
who never played baseball. Billy refuses to pay big stars what they're worth
because he's figured out how to replace them for a fraction of the cost, and
above all, he refuses to pay big money for marginal players. All by himself, he
has changed the game.
Beane's story is covered in the bestselling book Moneyball, and is an important and fascinating tale for managers and executives from any industry or profession. Combining a down-to-earth style, humorous anecdotes, and concrete lessons for business success, Billy Beane is a celebrity speaker with a difference – real content that will help attendees to the Commercial Real Estate Finance Conference to become more effective managers, whoever their Goliath is.
For more information about any of our conferences, or to sign up, please visit www.cmba.com/conferences, or call CMBA Meeting Services Director Randi Bolton at (916) 446-7100.
Calendar - Check our website for updates and registration info!
33rd Annual Western Secondary Market Conference - July 12-14, 2005
Keynote Speaker - Ben Stein!
Westin St. Francis
San Francisco, CA
50th Annual CMBA Convention - July 14, 2005
Westin St. Francis
San Francisco, CA
10th Annual Western States Loan Servicing Conference - August 7-9, 2005
Bellagio
Las Vegas, NV
8th Annual Western States Commercial Real Estate Finance Conference - September 25-27, 2005
Keynote Speaker - Oakland Athletics General Manager Billy Beane!
Bellagio
Las Vegas, NV
Legislative, Regulatory, & Compliance Conference - November 7, 2005
Location TBD
Orange County, CA
Mortgage, Quality, & Compliance Workshop - November 8, 2005
Location TBD
Orange County, CA
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President's Council
Fannie Mae
Countrywide Credit Industries, Inc.
Bankers Insurance Service
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