september 2008 quarterly newsletter

8/14/2019 September 2008 Quarterly Newsletter

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Inside this issue:

$$ Cash Is King $$ 1

Client TestimonialCoelho Family 1

$$ Cash Is King $$

(cont)

2

90 Day Snapshot 2

Real Estate Clarity

Knowing Thyself

3

Previous Newsletters 3

Updated Neighborhood

Statistics

4

Share The Newsletter 4

September 1, 2008

Volume 3, Issue 3

Quarterly Review

N i c h o l a s F r e n c h , B r o k e r A s s o c i a t e , C R S

These few simple words will be rolling off the tongues of many in the coming months. I am already hear-

ing it from financial advisors, investors and the media. In this time of troubled financial markets where

having a heartbeat will no longer qualify you for a loan and practically the other extreme of having similar

odds to being hit by lightning exists, consumers find themselves in a predicament as to the best strategy

for financial security and home ownership. With foreclosures and defaults at a historic high and individu-

als literally sneaking out of their homes by night I ask the question, what is the opportunity?

I have been a proponent of patience being a virtue and buying the right property and location. Over the

past few years I may have advised you against buying a property for one reason or another while others

have had the green light. Well, there was a good reason for that madness; while some communities have

been solid and even up (desirable neighborhoods, good schools, etc) there are other areas that have come

down locally (north, east, south San Jose, Milpitas, Gilroy, etc) even as much as fifty percent in the past

two to three years. You heard me correct granted that extreme of fifty percent is typically in some of

the less desirable areas. It is very important to note that these properties had spiked to unrealistic prices

almost to the point of Campbell. The characteristics of these purchases typically included: 1) purchases

between 2004-06, 2) no down payment, 3) aggressive loan programs, 4) low income, 5) similar communi-

ties. I can look at a distressed property and practically write the unfortunate story, but with this does

come opportunity.

Lets face it, banks do not want to be property managers and quite frankly are doing a very poor job man-

aging their current inventory of bank owned properties. It is becoming a fire-sale across the country and

even in our counties banks are dumping their inventory of mainly less-desirable properties to investors

and my favorite bottom-feeders. But is it the right time? I am of the mind that for these communities the

worst is not over. I come to this conclusion for a number of reasons including the fact that those buyers

that drove the market to unrealistic levels can no longer obtain financing because 1) they lost their last

house to the bank for non-payment, and 2) they dont have the 20-30% down payment and income levels

to qualify. That leaves us with an important question - who will be buying these homes from the bank?

That is where we investors will be watching on the fence for the good properties and opportunities to pick

up a few investment properties. It sounds much easier that it truly is and Ive been sharing my strategy

(cont pg.2)

$$ Cash Is King $$

Nicholas French

Broker Associate, CRS

4906 El Camino Real #2

Los Altos, CA 94022

650 773 8000 (cell)

650 961 2338 (office)

650 961 5238 (fax)

[email protected]

www.realtornickfrench.com

We met Nick after interviewing several Realtors and both of us instantly liked him. My wife liked the way

he truly listened and vibed with our ideas and wants, and I was impressed with the homework and knowl-

edge he brought to our very first meeting. Nick has a great way of understanding and adapting to each

person's needs and helping prompt them with his knowledge without being pushy about it. We were first

time home buyers and he helped not just with the basics of house hunting but also has great knowledge

of neighborhoods, schools, brokers and financing, inspections, plus other considerations like upcoming

city zoning and parks and recreation and so on. He managed to make this intense experience fun - we

shared jokes, restaurant tips and philosophy. Would absolutely recommend Nick and use him on our fu-

ture transactions.

Client TestimonialCoelho Family


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with some of you over the past few years. I have been adapting my approach based on how the market is

adjusting while maintaining the premise of buying investment properties for the next real estate cycle.

Again, it is not as easy as it sounds and we want to make sound and timely purchases. There are manypeople out today buying up the distressed properties for investment and most likely doing fine. I have

heard some that almost blindly pick up properties with the understanding that in the future will be worth

more. But I want my clients to be more informed! There is definite risk when owning investment property

such as having a tenant that doesnt pay rent or damages the property, but we want to conduct a thor-

ough analysis to verify the property makes sense from a financial position.

I do not think the worst is over for the distressed properties for the points I mentioned previously, but

mainly because of the current inventory and history. From defaults to foreclosures and short sales, we

have seen rocket-type increases and

there is still a large amount of property

that must be absorbed into the market.

The statistics below include properties in

MLS Listings and show a high number of

short sales still in the market and these

are properties where the owners are

unable to make the payments. These are

properties mostly likely in default that

will go back to the bank within the next three to six months and should come back to the market as REO

properties thereafter.

Some of the short sale properties are getting multiple offers because the price is so low, but the banks are

either to slow to respond or the delta of debt to price is too great and they let it go to foreclosure. Either

way, the market that we are experiencing includes multiple offers of some properties because the prices

are too good to resist with a climate only allowing certain individuals the ability to purchase.

Opportunities are out there but we need to go after them. Our area typically doesnt allow for investment

properties to have positive cash flow upon purchase except at the bottom of the market. We are getting

to a point where you can have positive cash flow on a property with thirty percent down. You no longer

have to go out of state to buy low price property with positive cash flow; you can own a property that you

can drive by and manage yourself. We are in a climate where: 1)homeowners are walking away from their

home and becoming renters, 2) home prices are in decline while rents are going up creating positive cash

flow, 3) financing difficulties where Cash Is King! Until the standards change and adjustments are made

which may include softening lending restrictions allowing higher-risk borrowers to obtain financing, less

inventory and more buyers and cash flow properties we will be seeing this transitioning market.

Opportunities are there if we are willing to take them.

Will the market jump up dramatically in a short time? Not

likely, the typical market includes plateaus and valleys,

not sharp transitions. Save money and be patient watch-

ing looking for positive cash flow and a decent neighbor-

hood. Feel free to contact me anytime about investment

property and if you are interested in buying investment

property in the coming months/years please let me know

because I have a special list for investment clients and

will have specific communication about the opportuni-

ties.

$$ Cash Is King $$ (cont pg.1)

Page 2

Quarterly Review

90 Day Snapshot

Crude Oil Speculation

July 11: $147.27

Sept 2: $109.71

FDIC Shopping Spree(bank closures)

IndyMac Bank

First National Bank

First Heritage Bank

9 FDIC-Insured banks

closed this year

Stock Market

Rollercoaster

May 30 - 12,638.32

Jul 15 - 10,962.54

Sep 4 - 11,220.96

Fannie Mae &

Freddie Mac

Solvency issues for

the mortgage giant

with US government

injecting capital into

organizations.

Dramatic changes

likely to occur in the

coming days whichmay include an

equivalent of a

government takeover

or significant capital

injections over the

coming months

Short Sales Real Estate Owned (REO)

Active Sold Active Sold

2004-05 0 203 0 112

2006 2 97 0 74

2007 253 406 27 174

2008 4841 1994 929 1231

Current

Inventory 4806 928

Source: MLSListings Inc

-10

-5

0

5

10

15

20

25

30

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

199

1999

2000

2001

2002

2003

2

4

2005

2006

2007

Percentage

Change

Year

Annual Percentage Change (MSA SF/Peninsula)

Source: http://www.ofheo.gov


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With all of the doomsday about real estate you may be asking yourself whether or not to buy a home for

your family. This is a legitimate question and not answered without knowing your situation. It is easy to

say generically that the market is down and dont buy, or sell for that matter. That is just as easy as whenpeople were saying just a few years ago to buy at any price, just get into a house because you will be

priced out of the market. Well, we know that outcome all too well. The reality is that with every situation

there are choices. One of the largest issues this year in areas like Saratoga, Los Altos, Menlo Park and the

like have been low inventory. Not very surprising given that when you turn on the news you hear the

market is horrible and you assume that includes your neighborhood. Many sellers have chosen not to sell

at this time or rent out their homes limiting the amount of inventory available as many buyers still eagerly

seek a home in certain communities creating frenzy purchases where a buyer purchases for 3-10% more

than the next buyer. Thus far price adjustments have not been the largest issue in our marketplace. But

again, it is about patience and finding the right property that fits your needs. The approach of educating

yourself on the market, your needs and negotiating a good property are the same whether in a hot or

slow market and that is how I can help clients get the right property and price. If this is your first real es-

tate cycle experience in the bay area Id like to suggest going to my website at www.realtornickfrench.com

and read my previous newsletters which discuss the market that we are currently experiencing even back

when some thought it would never happen in our area. While the California Association of Realtors cur-rently shows that home sales are up year over year 43.4 percent while median prices down 40.3 percent

across the state, how must we employ this information? We want to know whether or not to buy or sell

and for that we will need to consider many variables.

Should I buy/sell or wait for the market to provide clarity? Lets briefly look at whether or not to sell and

then focus on buying. Selling is an easier answer you will most likely ask yourself questions such as

whether you need the equity from the home to purchase your next property, keep your property and rent

out as an investment, capital gains benefits and some others. It is a financial question and we can review

your financials to determine the best strategy for your family. Buying is a bit more involved including sec-

ondary factors like interest rates, available inventory (homes you would consider purchasing) and emo-

tional factors like varying opinion from popular demand. What I have found is when purchasing a primary

home you want certain features not just three bedrooms, two bathrooms and a two-car garage. You want

a certain neighborhood, yard size, direction, floor plan and the like. This is not a simple task given ourcommunities are not new track homes in a sub-division where every house is practically the same. Our

homes have some character, uniqueness, and lets face it people dont move out of the best areas very

often. With these realities mean we have to be realistic; if we plan to buy a home for everyday living we

will need to educate ourselves on our preferences and then ask several questions knowing that either

direction will include strong representation and negotiating skills from me so that you get the best value

and home for your family.

Interest Rates vs. Purchase Price Banks have been losing historic amounts of money and will most likely continue that

trend for the next few quarters and once bottoming will attempt to make up some of the losses. Lending practices

have tightened and rates are floating generally the same. Earlier this year the government issued a temporary increase

to the conforming rate limit to $729,750, which has been confirmed to decrease on Jan 1, 2009 to $625,500. Typically

the confirming rate is lower than jumbo thus making this a purchase consideration. You may watch the market and

wait for certain home prices to adjust, but may have issues obtaining financing

Job Stability the latest unemployment figures show a five year high of 6.1 percent, according to national data. This

raises the concern to many of a recession warning and instills uncertainty with investors. The stability of your job is a

main consideration prior to purchasing and is mainly a concern with single-income families

Desirable Homes this category is often overlooked when initially deciding to wait or buy. In the down markets typi-

cally the best homes are not available and when they are we have enough willing buyers to purchase. If you have a

very particular taste or need certain home features, I generally suggest looking over a longer period of time because it

may be necessary to find the house you like. This may be a very important category for your family especially if you

plan on living in the home for a long time. If you are fortunate enough to like every home you see, then you can have

more flexibility on timing

Page 3

Volume 3, Issue 3

Real Estate Clarity - Knowing Thyself Previous

Newsletters

Did you know I have

my previous

newsletters online at

www.realtornickfre

nch.com

Revisit my old

articles such as Mar

07 for specific

information about

this market as

discussed years

prior. Know the

signs and how to

evaluate a market.

There is no crystal

ball, but there are

indicators to protectyourself and make

sound decisions.

Each of my

newsletters has a

valuable article

about the market. I

hope you enjoy the

information.

Send me your

money saving tips

for upcoming

newsletters


4/4

Updated Neighborhood Statistics

If you know someone who would like to receive this newsletter I would like to send it to them.

Please either have them contact me or provide me their information and I will make contact.

My goal is to have this newsletter add value and be an information source for my clients, family

and friends. Please do not hesitate to contact me if I can help you with any real estate ques-

tions, strategies or if you are seeking quality representation.

Please Send This Newsletter to My Family and Friends

City/Area Year QtrNo. of Closed

Sales

% of List

PriceMedian Price Average Price DOM

Cupertino 2008 Q2 112 100.76 $ 1,218,000.00 $ 1,255,704.00 36

Cupertino 2008 Q1 52 100.34 $ 1,185,000.00 $ 1,271,490.00 45

Cupertino 2007 Q4 80 100.98 $ 1,155,000.00 $ 1,192,545.00 45

Los Altos 2008 Q2 98 99.52 $ 1,722,500.00 $ 1,977,578.00 25

Los Altos 2008 Q1 46 100.11 $ 1,892,500.00 $ 2,020,065.00 31

Los Altos 2007 Q4 63 100.13 $ 1,750,000.00 $ 1,938,176.00 40

Los Altos Hills 2008 Q2 26 95.36 $ 2,587,500.00 $ 3,227,576.00 148

Los Altos Hills 2008 Q1 11 95.90 $ 2,900,000.00 $ 2,924,909.00 112

Los Altos Hills 2007 Q4 12 96.61 $ 2,462,500.00 $ 2,694,916.00 63

Los Gatos 2008 Q2 93 97.38 $ 1,400,000.00 $ 1,640,783.00 57

Los Gatos 2008 Q1 51 97.83 $ 1,595,000.00 $ 1,651,725.00 82

Los Gatos 2007 Q4 48 98.0 $ 1,450,000.00 $ 1,662,901.00 75

Menlo Park 2008 Q2 108 100.75 $ 1,637,500.00 $ 1,776,388.00 35

Menlo Park 2008 Q1 55 99.67 $ 1,535,000.00 $ 1,787,681.00 48

Menlo Park 2007 Q4 72 98.47 $ 1,255,000.00 $ 1,435,278.00 40

Monte Sereno 2008 Q2 11 96.25 $ 1,780,000.00 $ 1,888,181.00 65

Monte Sereno 2008 Q1 7 97.06 $ 1,820,000.00 $ 2,039,285.00 141

Monte Sereno 2007 Q4 8 96.24 $ 2,125,000.00 $ 2,459,375.00 147

Palo Alto 2008 Q2 124 101.38 $ 1,550,000.00 $ 1,780,321.00 30

Palo Alto 2008 Q1 65 100.13 $ 1,617,500.00 $ 1,977,301.00 20

Palo Alto 2007 Q4 88 104.06 $ 1,583,500.00 $ 1,861,633.00 24

Saratoga 2008 Q2 74 98.57 $ 1,656,944.00 $ 1,814,243.00 53

Saratoga 2008 Q1 61 98.43 $ 1,565,000.00 $ 1,674,203.00 67

Saratoga 2007 Q4 71 98.29 $ 1,550,000.00 $ 1,754,963.00 54

Sunnyvale 2008 Q2 175 100.20 $ 905,000.00 $ 914,567.00 35

Sunnyvale 2008 Q1 94 100.36 $ 893,133.00 $ 893,744.00 52

Sunnyvale 2007 Q4 109 101.43 $ 900,000.00 $ 898,608.00 34

september 2008 quarterly newsletter

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