Wholesale prices jumped up 1.3% in February, a strong increase more than twice what analysts had expected. Energy prices have risen sharply in the past few weeks, with gasoline now selling for well over $3.00 per gallon. This will likely eliminate any chance of the Federal Reserve lowering the Federal Funds rate in the near future. Of course, it all depends on the economy. The Fed meets next week to consider their position on interest rates, which are likely to remain unchanged.

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A mountain lion was spotted yesterday near Valley View elementary school in Pleasanton at about 3:00 in the afternoon, close to the time when school gets out. It was reportedly spotted by a city parks employee. According to the employee, it was likely global warming caused this poor mountain lion to roam the streets of Pleasanton (just kidding).

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(Click on image to enlarge)

Gotta love politicians. Courtesy of Time.com.

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Amidst the optimism of the early spring rebound in the Pleasanton and Tri-Valley markets there remains some powerful economic factors that are problematic. Perhaps the biggest long term factor is affordability. The fact remains that California is the least affordable state in the nation, and some of the statistics are sobering. Take for instance

* Only 25% of the California population can afford an entry level home (vs. 61% nationally)

* First time homebuyers paid a median price of $477,400 in California, which is 2 1/2 times the median home price nationally.

* 18 of the 20 least affordable metro areas are in California

This is leading to some mixed outlooks for the state’s real estate markets.

Forecasters don’t expect an outright plunge in California prices. With those palm trees and the Pacific Ocean beckoning, the Golden State appears sure to retain gilt-edged home values.

But if there’s a floor under home prices in the nation’s most populous state, there is also a ceiling.

“Home prices have gotten out of balance with incomes,” says Mark Milner, a real estate analyst at PMI Mortgage Insurance in Walnut Creek, Calif. “Over time, those have to come back in balance.”

Many analysts say the market here, and nationally, will stabilize this year. The economy remains generally healthy, they say, and builders have slowed down to avoid a pileup of unsold homes.

“There is reason to believe that [price] appreciation will be coming back soon,” says Luke Tilley, a Philadelphia economist at Global Insight, who follows the California market.

Another camp of forecasters says California prices probably have further to fall. They note that housing downturns often take several years to hit bottom, and that high prices have sidelined many would-be buyers.

“We’re expecting … a sharper and deeper contraction,” says Celia Chen, a housing economist at Moody’s Economy.com in West Chester, Pa. She says the state’s price run-up went beyond what could be justified by income or population growth.

The firm has predicted that several California cities will see prices drop further – some by 10 percent or more – and won’t hit bottom until sometime next year.

It is important to keep in mind that job growth, especially in the East Bay, is strong and shows no signs of slowing. And California, and the East Bay in particular, is always in demand. People are willing to pay for the quality of life, for the weather, and for the innovative climate that offers immense opportunities for those who want to advance their careers or grow a business. So California will always be more expensive than other parts of the country. We will likely see an increase in higher density and mixed use type of residential developments which can be built near transportation hubs and are usually more affordable. I’ll bet on California every time.

Courtesy of yahoo news.

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So the news is filled these days with the recent (an certainly not unexpected) troubles of the “subprime” lenders. Subprime is not a word for a lousy cut of meat. It is a catagory of mortgage loans made to less than perfect borowers, who normally have some credit issues, or in some cases unsubstantiated income or assets. Normal “A Paper” borrowers typically have strong credit, and easy to verify income and assets. But, as the old Forrest Gump saying goes, “Stuff Happens”. Job losses, medical bills, carelessness, and business failures have shredded the creditworhtiness of some buyers. Enter the subprime lenders, who have made boatloads of money making creative loans to these borrowers. Because there is more risk due to the nature of the borrower, the lender can demand higher rates and fees. So it has been a very profitable segment of the mortgage business, especially when home prices are strongly appreciating.

Unfortunately, the last couple of years has seen home prices erode, especially in some of the lower cost areas where these types of loans are common. This has lead to an increase in the default rate for all loans, but it is especially pronounced with subprime borrowers, who may not have the means to weather the storm of price declines. Even more troubling is that many of these loans were made with below market “teaser” rates that turn into negatively amortizing adjustable loans either immediately, or after some period of fixed rates and payments. So on top of declining home prices, borrowers have often seen their payments incrase dramatically at a time when their equity is shrinking. This is a recipe for disaster.

So how does this effect you? Mortgage lenders are already coming under immense pressure to tighten underwriting guidelines to make it harder to obtain these types of loans now that the default rate has skyrocketed. Inevitably, this knocks some potential (albiet marginal) buyers out of the market, thereby decreasing demand for homes, especially on the lower end of the price structure where buyers often struggle to get into that first home. Liquidity in the real estate market often comes from the bottom up, meaning that when a person buys a starter home or condo, it frees that seller up to purchase a more expensive home, which then frees that seller up to pursue an even more expensive home, and on and on. It will also tighten up underwriting guidelines for all borrowers to some degree or another (this is a result of the increased default rate on loans). So the bottom line is it is going to be a little more difficult to get loans for the foreseeable future. Perhaps equally as important is the deluge of bad news in the mortgage industry just when real estate was starting to show signs of recovery, which could impact buyer’s attitudes and their outlook for the market. Stay tuned….

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Statewide new home sales were up 9.4% in January as compared to December 2006, but down by 18.6% as compared with January of last year according to the California Building Industry Association. Median prices, however, were essentially the same as December, but up 2.2% from January of last year.

Builders, who began controlling releases and offering incentives in the last half of 2005, seem to be more optomistic about the market, especially in the Pleasanton/Dublin/Livermore/San Ramon area. And the local statistics seem to indicate that there is reason for optimism.

In the Oakland-Fremont-Hayward metropolitan statistical area, 484 new homes were sold in January, up 7.8 percent from 449 in January 2006, and 28.4 percent from 377 sold in December. The area’s median asking price rose 6.7 percent from $579,990 in December to $618,990 in January, but last month’s figure was still down from the $676,000 median price in January 2006. The area covers Alameda and Contra Costa counties.

Certainly with the early spring strength in the Pleasanton and Tri-Valley resale real estate market there is cause for optimism in the new home market. Don’t be surprised if the February and March builder statistics show dramatic improvement.

Courtesy of the East Bay Business Times.

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The national unemployment rate dropped to 4.5%, providing further evidence of the strength and stability of the economy. Average hourly wages also increased, with the last 12 months showing a 4.1% increase in income. Both of these figures are positive indicators that the economy continues to perform well, although they also are indicators of increased inflation risk, which could lead to higher rates if the trend continues, especially with the spike in oil prices (gasoline, much to my dismay, was well over $3.00 a gallon yesterday).

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My market meter has been upgraded to reflect the continuing strength of the early spring real estate market in Pleasanton and the Tri-Valley. The turn around has been most noticeable on the lower end, where activity is strongest right now. This seems to be a result of pent-up demand from last year’s slower market, where buyers were content to sit on the sidelines and wait for prices to erode. It looks like a lot of these buyers have decided to stop waiting. The market is strong on the peninsula (no big surprise there… when is it not hot), the south bay, and the east bay. The primary markets seem to be gaining momentum. The secondary markets (Tracy/Manteca, Solano County, etc) are still slow, with lots of inventory and skeptical buyers. As it has been in the past, it is the primary markets (close in areas with job centers) that recover first, and that seems to be happening now.

The question remains… how much inventory will this induce? In addition to pent-up demand on the buyer side, there is “left over” inventory on the seller side… sellers who got discouraged trying to sell their home last year, and will try again once the market shows signs of life. There are also sellers waiting in the wings who delayed putting their home on the market last year because of market conditions, but will likely jump in if they see conditions improving. Is the market hot enough to absorb a spike in inventory? We will have to wait and see.

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Wallmart has withdrawn their proposal for a new superstore at the corner of Isabel Ave and East Jack London Blvd. Wallmart, which already has a stor in Livermore at First St & 580, as well as Pleasnaton off 580 & Hacienda Dr, had submitted plans for a 200,000 sq ft mega store, but has decided not to pursue the store after the Livermore city council recommended looking at a new ordinance that would limit future “big box” retailers in the city. The city, which has significantly enhanced downtown Livermore with a new theatre, new residential & commercial projects, and a redesigned First Street that encourages restaurants and specialty retailers, wants to retain that small town feel, and feels that megastores such as Wallmart will hurt the downtown business they are trying to encourage. It certainly clashes with the quaint downtown, heart of the wine country persona that they are trying to promote. A possible compromise… maybe Wallmart will agree to sell Duckhorn Vineyards, Silver Oak, and other premium wines for under $25 a bottle in order to get the store through. In that case, grab the kids honey… we’re going to Wallmart!

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I admit it. I watch 24 every week, tuning in faithfully to see what impossible obstacles Jack Bauer is going to overcome this week. And as much as I love watching Jack save the U.S. from all those terrorists and their right wing puppet masters, there are things that are starting to get on my nerves. Here are the 5 dumbest things about this show.

1. Is Jack on drugs? Or for that matter, is the whole CTU staff on drugs? How do they stay awake, alert, and focused for 24 hours straight under incredible stress and duress? I’d be passed out from exhaustion by the 3rd hour.

2. Cloe needs to strop frowning all the time. She always looks so dour and pained. Maybe she should lighten up and go to a comedy show. Or stay away from the spicy food at lunch.

3. Okay, so you’re going to tell me that the front line in our anti-terrorist defense is an organization with like 20 people? Give me a break. How often do you see the computer geeks working frantically, only to tell their supervisor that they’ll get to it in a minute because they are busy working on this and that. C’mon folks. This is not the IT department for Macy’s, but the main terrorist fighting unit in the country. Do you think that maybe they could hire a few more people? If the survival of the U.S. was at stake, I’d have a staff of like 200 computer people ready to do anything that is asked of them. I mean we have 15 year old kids writing code for video games, but somehow we can’t find qualified computer analysts to help save the world? From what I can tell, if Cloe calls in sick or become incapacitated, we are all screwed.

4. Why are all the people who work at the White House so creepy? And the lighting… it reminds me of that campy old T.V. show Dark Shadows. Are we going to find out at some point that ex-president Logan is really a vampire? And for god’s sake, please check his nutjob wife into the Betty Ford clinic or something.

5. More personnel problems. CTU should invest in a human resources department.
Seriously. So how many times does this happen… CTU has a fix on a suspect, usually one of the only links to keeping the terrorists from exploding the bomb/unleashing bio terror/killing millions of Americans. Once they have his location identified, they send over an SUV with like 6 swat officers. Excuse me, but if the fate of the free world depended on catching this suspect, I’d have the 6th fleet surround the guy, along with 15 helicopters, and a national guard road block for 5 miles around the perimeter, the goodyear blimp, 10 swat teams, the navy seals, and maybe even Steven Seagal. How many times are they going to let the bad guy escape? Okay, so maybe it happens once… but it happens every episode. Can’t these people learn from their mistakes? What is the old joke about military intelligence…

How about this for an idea. End this season as usual, with Jack saving the day (again), only to find himself in trouble at the end of the last episode. Then the new season, maybe 2 or 3 shows into it, have him die a shocking death, thereby ending the show. It would be one of the most talked about TV events ever, if they could keep it a secret. It would make “who shot JR?” look like childs play, and we could finally get a dose of realism. After all, no one lives forever, especially when they narrowly escape death 2 or 3 times each episode.

Oh well, I’ll be watching again Monday night.

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