The Emerald Hills Blog

Once Upon a Time…

It wasn’t too long ago that the subject of foreclosures was solely linked to sub-prime mortgages.  Certainly, the first few waves of foreclosed homes to hit the market were comprised almost entirely of sub-prime borrowers.   But that trend is slowly beginning to change — not the rate of foreclosures, because those are continuing to increase at alarming rates.  No, the big change in the foreclosure market is the rapidly increasing percentage of prime borrowers (those with good credit and standard loans) who are starting to fall behind on their payments.

The Silent Sufferers

According to this article in the San Jose Mercury News, prime mortgages accounted for a whopping 33% of all foreclosures in the most recent quarter.  And they’re starting to show up in some of the more “well-off” neighborhoods, too.   Why is this happening?  Despite all of the talk about the rebounding housing market, the job market around here is still in dire straits.    The unemployment rate in Silicon Valley is still around hovering around the 12% mark.  Unfortunately, many people who have decided to call Emerald Hills their home hail from the tech sector in Silicon Valley, so this is hitting home especially hard.

Having spent 20 years in the tech industry, I know there’s a unflattering stigma associated with being unemployed.  Before I made the transition over to real estate, I had to lay off my entire sales team, and they I was unceremoniously showed the door…Twice.   So I know that being out of work is not something you’re going to talk about with your neighbors or at a dinner party.

The problem is, the longer this the job market continues to sputter, the less reserves that unemployed homeowners have left to stay under their roof.  The rise in prime foreclosures that we’re seeing now may very well be some of those unfortunate ones who ran out of runway.     Don’t be surprised if it’s someone that you least expect, too.

What’s Next?

According to the aforementioned article, and from about every other Realtor that I speak with, there’s another wave of foreclosed homes that is going to hit the market soon.  Nobody knows where or when, but it will clearly happen — the rate of foreclosures is far in excess of the rate that these homes are being re-sold as REO properties.  This means that there’s a massive stockpile of failed dreams waiting to be sold at a later date, and of course this may have a negative impact on home values in the near term…

But until the job market recovers, there’s no point in talking about a “real” housing recovery.

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A Tale of Two Loans..

It was only a few months ago when the credit market imploded on itself, and left a wake of destruction in its path. The home loan market was not exempt from this destruction, as money of any sort became very difficult to get. The government stepped in an bolstered the conforming loan market by rescuing Fannie Mae and Freddie Mac, and expanding the existing conforming loan limit temporarily from $417,000 to a maximum of $729,000. This meant that borrowers could once again get a reasonable rate on a loan, at least in the entry-level buyer range.

What about Jumbo loans?

Jumbo loans (those over $729,000) didn’t fare as well. The pool money that is used to fund jumbo loans comes largely from private investors and foreign countries, and this spooked group of investors didn’t come back right away after the market collapsed. For those few they did, the interest rates they demanded to offset the new risk drove the rates on jumbo loans way beyond 7%. This had a devastating effect on the luxury home market — the only people buying homes in this range were those who had enough cash to buy the home outright, or to at least push the loan balance below the aforementioned conforming limit.

Needless to say, that’s a pretty select fraternity of buyers, and even THEY weren’t too anxious to jump into a volatile luxury home market. The net effect on the Emerald Hills real estate market has been devastating. As I’ve discussed on this blog, far fewer homes are selling in Emerald Hills this year, and those that do sell are fetching prices well below the level of previous years. It’s a pretty dire situation when you’re selling a product that nobody can afford.

But help is on the horizon.

Enter Bank of America….

B of A has quietly introduced a new product to the market that may help jump-start the slumbering luxury home market. Right now, for the right buyer they will fund 80% on loans up to $2M. Paying 1 point on this loan will get you a rate in the upper-5% range. Not bad considering that this same loan was easily 2 points higher 6 months ago. This is big news, and I’m not aware of any other major lender who has a package like this.

Will this help Emerald Hills?

Considering that the average price of a home in Emerald Hills and Farm Hills Estates is well south of $2M, this loan provides an attractive option for those thinking of buying in this range, but just assumed they couldn’t get a loan. Of course, there are other factors that are keeping buyers on the sideline right now, such as unemployment. But availability of funds should no longer be a roadblock.

If you’d like to speak with a great loan agent at B of A who can explain this program in more detail, simply shoot me an email and I’ll forward you his contact info.

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(“Colton’s Corner” is an occasional series on the mortgage and financial market provided courtesy of Colton Daines, Loan Consultant with Sage Financial Services and a long-time Emerald Hills resident.)

Black Friday has been said to be the busiest retail shopping day of the year and November 28, 2008 was an important day for retailers trying to get off to a positive start in this struggling economy.  Rising job losses, declining assets and home values along with a number of other economic concerns have shoppers buying for fewer people and looking for bargains.  About 84% of shoppers compared to 66% last year said they are discount driven according to America’s Research Group.  Promotions by retailers helped lead better then expected sales, but whether they can hit their holiday sales goals remains an unanswered question.

Cyber Monday, which refers to the Monday immediately following Black Friday, is the ceremonial kickoff for holiday online shopping, and over the past five years has seen a steady increase in volume. As the average consumer becomes more and more comfortable using the internet to make transactions the numbers of online shopping will rise. It allows a consumer to simply search and click rather then getting in the car and driving to multiple stores. Many Wall Street analysts said the rush in traffic is unlikely to last through the holidays, but the turnout was very positive with crowds lining up for early morning shopping.

Rates are close to all time lows!!

Colton Daines
Loan Consultant
Sage Financial Services
724 Oak Grove Suite 140
Menlo Park, Ca. 94025
office: (650) 618-3622
cell: (650) 400-0804
Email: colton@sagetrust.com
www.coltondaines.com

It’s possible…The basis for many Adustable Rate Mortgages is the London Interbank Offered Rate, or LIBOR.   How many?  According to reports, LIBOR is used to calculate rates on $360 trillion (with a t) worth of financial products worldwide.  Basically, the rate that a bank will charge on a LIBOR-based ARM is calculated by the simple equation:

Margin + LIBOR = Rate.

Since the bank’s margin is usually a fixed amount when you close your loan, your ARM will fluctuate as the LIBOR changes.   Well, one of the effects of Congress’ failure to pass the $700B bailout plan was that the overnight LIBOR rate spiked by a record level yesterday.   Here’s an article from Bloomberg News with more details:

Libor Rises Most on Record After U.S. Congress Rejects Bailout

What impact will this have on adjustable rate mortgages?  It’s tough to say, because you have to factor in when a particular ARM is due to adjust, and what rate caps may be in place.  But if you have a LIBOR-based ARM that’s due to adjust soon, you might be in for an unwelcome increase.   Check with your lender to see if you’re potentially in this situation, or simply take a look at your Note for those details.

The good news from Wall Street just keeps on coming…

With all the bad news we keep getting pelted with regarding the economy, and with how much the media is microscopically scrutinizing interest rates, it’s easy to lose perspective on where interest rates really are.  The graph below tells it all:  No matter how bad things seem, we’re still enjoying the lowest interest rates in decades.

Graph provided courtesy of:

Colton Daines
Loan Consultant
Sage Financial Services
724 Oak Grove Suite 140
Menlo Park, Ca. 94025
office: (650) 618-3622
cell: (650) 400-0804
Email: colton@sagetrust.com
www.coltondaines.com

Today, (6-27) the ten year treasury rates were down four basis points to 3.992. Bonds were in demand sending yields down as the stock market was weak with concerns about further writeoffs by major financial institutions. This means rates will move in our favor. I expect Monday to be a good day for rates as lenders look to close the quarter with strong loans on their balance sheets.

If you have any additional questions, feel free to contact:

Colton Daines
Loan Consultant
Sage Financial Services
724 Oak Grove Suite 140
Menlo Park, Ca. 94025
office: (650) 618-3622
cell: (650) 400-0804
Email: colton@sagetrust.com
www.coltondaines.com

Today (6-20) the ten year treasury yield was down six basis points to 4.137. The lower yield was caused by a weak stock market and concerns about financial institutions’  financial conditions. The safe haven of treasury bonds was used by the institutions and others. Rates remain attractive for qualified buyers and the Emerald Hills area continues to be a place where families will pay more then other areas around the peninsula. I am constantly closing purchases in Emerald Hills and see firsthand that the market is strong.

If you have any additional questions, feel free to contact:

Colton Daines
Loan Consultant
Sage Financial Services
724 Oak Grove Suite 140
Menlo Park, Ca. 94025
office: (650) 618-3622
cell: (650) 400-0804
Email: colton@sagetrust.com
www.coltondaines.com

Today, 5/27/08 the ten year treasury yield was up to 3.921 as the market is anticipating large auctions of the 5 year note on Thursday of an estimated $19 billion. The treasury is flooding the market with paper and we will also have an estimated $30 billion of the 2 year notes auctioned off tomorrow. Economic indicators are still weak. Rates remain flat with great opportunities for qualified borrowers.

(Colton Daines and his extended family have lived in Emerald Hills for many years; he is a loan consultant with Sage Financial Services in Menlo Park. Please feel free to contact him directly with any questions.)

Colton Daines
Loan Consultant
Sage Financial Services
724 Oak Grove Suite 140
Menlo Park, Ca. 94025
office: (650) 618-3622
cell: (650) 400-0804
Email: colton@sagetrust.com
www.coltondaines.com