Mortgage default notices, which are the first step in the foreclosure process, showed dramatic increases in the last quarter of 2006. In Contra Costa County, Notice of Default filings were up 179% compared to the same period the year before. In Alameda County, the filings were up 157%. Nationally, foreclosures rose more than 42% in 2006 as compared with 2005. A decline in home values and an explosion of aggressive adjustable rate mortgages were the main culprits.

“The main culprit here is the loss of appreciation,” said Andrew LePage, an analyst with DataQuick. “The market has flattened out in the terms of home prices. … There was always a certain amount of buyers in financial distress, but it was masked when prices were jumping 10 (percent) to 20 percent a year.”

Ed Jeffry, a loan consultant with Peregrine Lending Co. in Walnut Creek, said stringent new loan qualifications make it harder to refinance into lower-interest loans.

“Rates climb as your loan devalues,” Jeffry said. “So it makes no sense to refinance.”

Even those with high credit scores will be given higher rates if they reach close to 100 percent of their loan, he said.

“If the NOD (notice of default) rate continues to rocket from here, it could get nasty,” LePage said. “We’re not there yet, and we may not ever get there.”

Still, the filing of a Notice of Default does not always mean the home will go into foreclosure. The Notice of Default is the official notice from the lender that they are starting the foreclosure process, which typically takes 4 months or more to run its course. Often, the homeowner will sell the property, or find another way to pay off the lender. But the dramatic incrase is certainly troubling.

Read the whole article.

Another reminder why it is improbable that the Pleasanton area real estate market will experience significant price declines… In a report to be released this week, Silcon Valley has added significant jobs for the first time since the dot com bust of 2000, with 33,000 new jobs added in the year ending June 30, 2006. Silicon Valley continues to be the driving force in the bay area economic engine. And while it slumped after 2000, it also reinvented itself, becoming more globalized and pioneering new industries, including promising fields such as alternative energy, medical devices, and media & entertainment. Silicon Valley continues to be ground zero for innovation, technology research, and venture capital.

The index looked at how Silicon Valley stacks up against other high-tech hubs. The area ranked No. 1 in per-capita employment in information technology and computer manufacturing, with Austin, Texas, second and Singapore third. It also ranked first in venture capital per capita, and was fourth in patent registrations per capita.

The valley long ago shifted its focus from manufacturing to idea generation. The report shows that it continues to expand into new fields, some of which may provide an economic engine of the future.

A new generation of Silicon Valley companies has sprung up to work on improved energy generation, storage and efficiency, a field known as clean tech. Venture investment in clean-tech Silicon Valley companies increased a staggering 929 percent over the past two years, albeit starting from a low base. It hit $290.5 million in the third quarter of 2006, almost double the $150 million invested in the preceding quarter.

“In the future, this will be Energy Valley,” said T.J. Rodgers, CEO of San Jose’s Cypress Semiconductor Corp., who will appear on a clean-tech panel at Friday’s conference.

He has a personal case in point: In 2002, Cypress bought a majority share in a small Sunnyvale company called SunPower Corp., and spurred it into high-volume manufacturing of solar panels and cells. Rodgers, who is chairman of SunPower, said the company will approach $1 billion in sales this year.

“Solving the energy problem is a huge economic opportunity,” Rodgers said. “Electricity is a trillion-dollar with a T market.”

He says the valley’s system of capitalism — seed capital, entrepreneurial spirit, technology talent and free enterprise — is ideally suited to foster the emerging clean-tech industry.

“The game is not going to be won by building power plants more efficiently than PG&E, but by changing the rules — the way Silicon Valley always works,” he said.

Venture funding is what economists call a leading indicator — a harbinger of how well a region is likely to do in the future when nascent companies grow up and become major employers.

There’s no question that venture funding has declined nationally and locally since 2000, but Silicon Valley’s share has remained strong. In 2005, Silicon Valley drew 27 percent of all U.S. venture funding, up from 21 percent in 2000. For the first nine months of 2006, the area drew $5.2 billion in venture investment, up from $4.6 billion in the same period of 2005.

The biomedical field attracts significant dollars, accounting for more than a fifth of all VC funding, spread between biotechnology at 9 percent and medical devices and equipment at 12 percent. Other emerging areas for venture funding include media and entertainment at 6 percent. Still, the lion’s share of venture funding goes to the region’s perennial moneymakers: software at 23 percent, semiconductors at 15 percent, telecommunications at 9 percent, and networking and equipment at 8 percent.

Indeed, the future looks bright for Silicon Valley, and for the East Bay.

Read the whole article here.

The high cost of housing in Pleasanton, the Tri-Valley, and the Bay Area are a constant source of conversation. But if you think it is expensive here, check out this 77 (yes, that’s 77) square foot apartment for sale in London for a mere $335,000. And it comes without electricity.

The closet-sized space in the exclusive Knightsbridge neighborhood may be only “about the size of a ship’s galley, said real estate agent Andrew Scott, who’s handling the sale. “But it’s permanently anchored to one of the wealthiest neighborhoods in the world.”

At more than $4,340 a square foot, the mortgage buys a spot within walking distance of tony stores like Harrods and London’s iconic Hyde Park. Originally conceived as a maid’s room, the apartment at 18 Cadogan Place hasn’t been used for years and is littered with trash bags and crumbling paint.

A coffin-sized shower is en suite, and storage is provided by a shallow closet and 10-inch-deep shelves cut into the wall. Two hot plates and a small sink make up the kitchen. Two dirty windows allow light to filter into the basement room, and the fire escape could conceivably double as a shared patio.

With no electricity or heating, Scott said it would cost an additional $59,000 to make the room habitable.

“It is an investment,” he said, as he stretched his arms the width of the room, laying his palms flat on opposite sides of the wall.

The sale of this dark, mildewy room illustrates the astronomical rise in property values across London, which in the past year has seen average residential property prices increase 22.4 percent, to about $703,000, according to figures released Monday by Rightmove, which tracks the British property market.

Prices in London’s most desirable neighborhoods have grown even faster, with average house prices in the borough of Kensington and Chelsea — where Cadogan Place is located — rising 61.8 percent over the past year to a jaw-dropping $2.2 million.

And it’s a fixer upper too!
Courtesy Yahoo News

Lower oil and gasoline prices and favorable economic news propelled the consumer sentiment indes to its highest level in 3 years, providing more evidence that the U.S. economy is poised for more growth in 2007.

The preliminary January reading on sentiment by the Reuters/University of Michigan Surveys of Consumers rose to 98.0 from 91.7 at the end of December.

This was the highest since 103.80 in January 2004 and well above the 92.5 median forecast of analysts polled by Reuters.

“Consumers reported more favorable assessments of their personal finances and anticipated a higher rate of economic growth,” said Richard Curtin, director of consumer surveys at the University of Michigan, in a statement

However, in the world of interest rates and inflation, this good news could end up being bad news, as it puts yet more pressure on the Federal Reserve to keep inflation in check by keeping interest rates on the high side

“This was a nice upside surprise that continues the run of generally favorable U.S. data that have tempered concerns about the health of the economy. This will further put to rest the notion of an early Fed rate cut,” said Alex Beuzelin, senior market analyst at Ruesch International in Washington, DC.

We’ll keep our fingers crossed.

Courtesy of Reuters/Yahoo. Read the whole article here.

After a surge in activity in November, the Pleasanton real estate market quieted down in December. Sales were down from November, which is to be expected given the holidays, and the inventory of available homes continued to decline after peaking in July.

In homes under $1 million, pending sales showed a decline in December after a robust November. Inventory showed further declines, which again is normal for the month of December. Inventory of unsold homes peaked in July, and showed steady declines through December.

In the $1 million to $2 million market segment, the story was similar, with inventory declining throughout the fall, and December sales declining after a robust November.

In the luxury home segment (over $2 million market), the market conditions remained much the same, with plentiful inventory and sluggish sales. Inventory did decline in November and December after peaking in October. Market conditions in this segment remain soft.

Look for inventory to surge as we enter the new year, with a pick up in sales as buyers look to get a jump on the Spring real estate market.

Real Estate bubble? Not likely. Friday’s report that the East Bay employment base surpassed the 1 million mark in December, making it the largest employment base in the Bay Area, shows continuing strength in the East Bay economy. San Francisco and the South Bay were both under the 1 million mark. So much for the bubble theory.

As has been pointed out numerous times on this blog, and in other media, the risk of a “bubble”, or a catastrophic collapse of home prices is minimal in the Bay Area, and especially in the East Bay. This is because the economy is too strong, and too diverse, and the current and future growth in jobs and population adds demand to a housing market that is already in high demand regionally, as more and more people look to the East Bay for housing.

This does not mean that the Pleasanton and Tri-Valley areas are immune to fluctuations or corrections in home prices, as we have just witnessed in 2006. Certainly other factors influence the housing market, most notably interest rates, inflation, the economy, overbuilding, and national and international political events. But the risk is significantly lower in the East Bay because of population gains, strong employment growth, and a diversified economy not overly dependent on one segment. In the long run, the Tri-Valley real estate market will be as sure a bet as you could find.

So the only talk of bubbles should occur when you break out the Champaign to toast your new home purchase!

Ok…here we are in the first few days of the New Year. Along with the deluge of diet and health club ads we get predictions for what this year will bring for the Pleasanton area and East Bay real estate markets. We know one thing for sure… there is no consensus. Some see a market much the same as 2006, others see stabilization and more activity, and still others see another year of soft conditions and price deterioration.

Here are three different opinions from experts as reported in the Contra Costa Times

Most residential real estate professionals are calling 2007 a transitional year, for better or worse. Although there’s some disagreement about what the new year will hold, the only consensus is that it will not be a year of booming appreciation or sales like those seen in the past five years.

The majority also said that home prices will drop slightly in 2007, but sales may stabilize to historically normal levels. Most said that sellers have to be more realistic and buyers should be warned that there is no huge decline in prices projected, even by the most objective economists.

The Economist

Ed Leamer,Director
UCLA Anderson Forecast, Los Angeles

Comfortable in the role of real estate agent bugaboo, Leamer, UCLA Anderson Forecast’s director, rarely holds back on bad news. However, Leamer said he didn’t foresee the residential real estate market changing dramatically in 2007.

“We expect that existing home prices will continue to slide just a little because buyers and sellers are looking in opposite directions,” he said.

Leamer said that new homes will fare better in 2007 with more competitive marketing and pricing.

Price appreciation will not be considered normal, meaning 5 percent or 6 percent a year, but probably closer to 2 percent or 3 percent, he said. This period could last from a year to five years.

The problem with home sellers is that many aren’t seriously selling but testing the market to see whether they will get their ideal price, he said. There’s no immediate need to sell, so they won’t.

He said buyers should also stop thinking that the longer they wait, the better the deal.

“Prices will come down a little, but they will come down so slowly the strategy of waiting and waiting will not work,” Leamer said, adding that in the past, prices dropped 25 percent — but over five years. “They need to lock in that mortgage rate and stop reading the real estate page.”

The Real Estate Industry Spokesman

Robert Kleinhenz, Deputy Chief Economist
California Association of Realtors, Sacramento

Kleinhenz said the East Bay’s real estate outlook would track closely with that of the state, only with slightly higher price appreciation because of the Bay Area’s leaner inventory.

“I would be surprised if we saw any huge deterioration in home prices, but I would expect some small declines,” he said.

Kleinhenz said he expected interest rates to stay fairly low throughout the year, a sign the housing market could hold steady or improve. “I would suspect in the second or third quarter the Federal Reserve Bank may cut rates,” he said.

Prices won’t be languishing into the next decade, Kleinhenz said. “I think if the economy continues to expand and does not head into a recession, we shall see the housing market stabilize in 2007,” he said.

The Builder

Drew Kusnick, Territory President

KB Home South Bay, Pleasanton

Kusnick said he’s much more optimistic about the coming year. The past six weeks have been profitable, and he has been able to raise prices on new homes after six months of cutting them.

“I think it will be a transitional year,” he said. “I think we’re seeing prices stabilize right now and seeing more people buying. Now, there seems to be some real demand in the marketplace.”

The decrease in inventory and more buyers starting to look serious have contributed to this, he said. “I think we’ve seen the depths of where we were going to go,” he said. “I think the key factor is buyer confidence and demand.”

Kusnick said the market has picked up fastest in communities in the South Bay, where there’s less competition, followed by the Tri-Valley and competitive East Contra Costa County.

Nearly everyone agrees on one thing. There will be no strong price appreciation this year. But aside from that, there is a diversity of opinion on the local real estate market. What is my opinion? I will give you my opinion soon

Read the whole article here.

There is a continuing debate in the Real Estate industry regarding Days on Market (or DOM) and the practice of “relisting” homes for sale. In short, when you see DOM statistics currently, they are largely meaningless. The reason is that many realtors “relist” listings if they have not sold and have been on the market a while (typically anywhere from 30 days or more). When they are relisted, the DOM gets reset to 1, giving the impression that the home is a new listing or has not been on the market. This is a very common practice in Pleasanton and the Tri-Valley area. This skews the DOM statistic dramatically downward because it fails to take into account homes that have been relisted. The net result is that it is almost impossible to get an accurate DOM statistic from MLS data, so take any DOM stats with a grain of salt.

There are 2 schools of thought on this. Many agent see nothing wrong with the practice, as their duty is to market and promote the listing and protect the seller’s best interest. And there is no argument that it is in the seller’s best interest to have fewer rather than more days on market, as the listing can appear “stale” if it has been on the market for a long period of time. Also, listings are constantly competing for Realtor’s attention in the marketplace, so relisting a home as a new listing puts the home on the radar screen of both realtors and buyers through the various technologies available from the local real estate board and the MLS system (for example, many buyers and realtors receive automatic email notification of new listings).

So what is wrong with this practice? MLS purists argue that the MLS is a database, and not a marketing tool. The thinking is that many agencies, ancilary businesses, and analysts rely on MLS data to get an accurate sense of the real estate market. When a major statistic such as DOM is compromised, it renders it useless in terms of accurate reporting. In the macro perspective of full disclosure and transparency, it is a misleading practice that overstates the strength of the real estate market by artificially lowering the DOM statistic.

For example, DOM for luxury homes in the Tri-Valley, where market times for many homes can be 6 months or longer, was 40 days at the end of October 2006. This is obviously not realistic for homes over $2 million. Here is a graph of average DOM for the past several months in the $2 million plus market.

MLS systems are now starting to take action. Our local system imposes fines on agents who relist homes to reset the days on market. Others are starting to add another statistic Cumulative Days on Market, which measures how long the home has been on the market, even if it has been relisted several times. Expect to see more emphasis on this in the future.

For an interesting read on this topic, see this excellent article by Carol Lloyd in the Chronicle today.