What goes up very quickly, must come down.  Sounds familiar?  With the decline in prices in the Trivalley and the surrounding areas many home owners have been forced to sell or abandon their homes and begin renting.  Further, with the bubble bursting in the outer cities such as Stockton and Tracy, we are seeing a lot of commuters walk away from their homes, reduce their driving time and rent in cities closer to their work.  So while prices have decreased anywhere from 10%-50% from the peak, rents in the Trivalley and surrounding cities have had an inverse relationship and jumped up in rates.

Today, the rental markets in Pleasanton is scorching hot!  Recently, a three bedroom, two bath house in Pleasanton with only 1555 sf rented out for $2600.  A two bedroom condo in Livermore just rented for $1600.  With interest rates still historically low and prices at or near “the bottom” investors are taking advantage and jumping into the market with both feet.  The deals are so good, that with a 20-25% downpayment, many of these properties actually get pretty close to having a break even cash flow.  This is something that has not been seen in years. 

In years past, a California investor who wanted to see break even cash flow would need somewhere between 40%-50% downpayment in order to not need to pay into the mortgage on a monthly basis.  Investors purchased in California not for the cash flow, but for the appreciation on the property.  With today’s market condition, you can see both a good cash flow with as little as 20%-25% down and expect future appreciation.

Let’s take a hypothetical look at how a possible investment property and how the numbers would pencil out.  The below chart shows a purchase price for a 3 bedroom, 1600 sf townhouse in East Dublin.  These units sold for over $600K at the peak but today can be purchased in the mid to high $400s and can be rented out in the low to mid $2000 range on a monthly basis.

As you can see by the chart, with a 20% cash infusion, there is an actual $11 positive cash flow when factoring in all tax write offs including depreciation.  Please keep in mind that these figures are solely for the purpose of discussion and all figures should be validated by a CPA (here is mine!)  The big picture is that indeed today’s market is not a seller’s market, but if you are an investor looking to put your money to work for you in one of the most stable investments out there, this is a great market to consider.  As Mr. John D. Rockefeller is quoted, “The way to make money is to buy when blood is running in the streets.”

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Chris Kamali is a TriValley Real Estate Agent, helping clients buy and sell homes in Dublin, Pleasanton, San Ramon and Livermore.

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While the media may not have caught up to the increase in sales activity in the Trivalley for the past three months…I have.  The chart seen below, displays the increase in activity in home sales for the TriValley since the beginning of 2008.  The increase in home sales can be attributed to several factors including a dramatic spike in rental prices, aggressive sellers willing to wheel ‘n deal, and historically low mortgage interest rates.

So, are we at the bottom?  Is this the time to buy?  Quite honestly, I don’t know.  But here is something interesting to think about.  Maybe you should buy BEFORE we hit the bottom (this is not a typo).  Here’s why.

If we are 6-18 months away from the ‘bottom’ and prices are going to slide down further, then maybe it is a good idea to wait it out until then.  However, if we are 3-6 months away from the bottom, then I think that would be the best time to buy. 

(Keep in mind this analysis is only for individuals who are currently renting and thinking of entering into the housing market.  If you currently own a home and are thinking of moving up, you have no worries because you would be selling and buying in the same market, whether it is a hot or cold market)

Let’s take a look at the chart I have drawn up.  Letter “A” represents the market if we are 6-18 months away from the bottom.  With a possible year and a half of price correction left to go, it would most likely be wise to wait on the sidelines until things were closer to letter “B”. 
The only way we know we have hit the bottom of the market by definition is only after we have bounced back as represented by letter “C”.  As the chart suggests, the prices we see right before the bottom would be similar to the prices right after the bottom, hence a buyer buying at point “B” or point “C” would be buying while the market price would be the same.  While the market price would be similar in this scenario, there would be a significant difference in the purchase price and terms.

At point “B” the market has still not recovered and the economy is suffering.  As a result, interest rates will be lower and banks would be competing for the business of the buyers.  Capturing a lower interest rate, can save you thousands in the long run even if you pay a higher price than someone who buys the house for cheaper but pays much more in interest over the years. 

Further at point “B” the other buyers are still on the sideline waiting and waiting and waiting.  This allows you to be selective and not have to fight over best house deals in the neighborhood.  When you put in your offer, the sellers are nervous of losing you and your offer and as a result would be willing to negotiate price and terms much more aggressively and in your favor.

In review, point “B” allows you to purchase in an environment which would share similar market prices compared to the market once we bounce back from the bottom, you are able to capture in most cases a lower mortgage interest rate, pick out your favorite home from a large selection and negotiate a better price and terms with sellers who are afraid they may lose you if they don’t deal…sounds good to you?

And what if you wait until point “C”.  Point “C” represents the market after prices have jumped back up and everyone knows we are back at a regular increasing market.  The media is back on the housing bandwagon remembering that real estate is still the best investment.  The federal reserve is again raising interest rates making mortgages more expensive.  Open houses are busy with buyers and the best homes on the block receive multiple offers.  You put in an offer and the seller now knows that we have hit the bottom and they are no longer willing to negotiate as they did just months ago.

So, are we at the bottom should not be the question because we will never know until we bounce back.  Are we 3-6 months away from the bottom…now that’s a good question!

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Do you feel like the Trivalley housing market is continually going down with homes not selling and prices dropping?  Do you feel like you see the same old homes on the market forever on your Internet home searches?  Do you feel confused that when you look at the stats that the market is actually doing well and home are selling compared to your reality?  Do you know why you are confused and your perception is off? I do.I couldn’t figure out why many of the Trivalley buyers that I am working with kept telling me that they are seeing home prices drop on the listings that I email them, while I myself am experience a much different market.  My open houses today are much busier, the phone is ring again, and I am having to deal with multiple offers again.  Why does my research show many Trivalley homes pending and selling everyday, while my buyers see prices drop on homes in their search? 

And then it hit me…I guess it depends where we are looking.  Let me explain. 

Continue Reading

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It appears as though the decrease in home values and the tightening of the credit crunch have caught up not only to home buyers and sellers, but homeowners.  While not very prominent, some of the major banks including Bank of America and Washington Mutual have begun freezing existing borrowers home equity lines on their existing home.

While it is unclear on what will raise a flag which may freeze your existing line of credit, it is clear that you may not be immune from it.  These freezes have nothing to do with the borrower’s credit score or repayment schedule.  In efforts to protect their own interest and stay ahead of the curve, the banks are reducing, readjusting and removing existing lines of credit in certain situation based solely on property value from their automated programs.

In certain markets, where prices have adjusted downwards 10% or more, it only makes sense that the banks would do this when presented with the opportunity.  The bank’s chief equation for determining how much to lend is based on the loan to value, or how much money is borrowed compared to the going market rate for the home.  For example, a home buyer purchasing a $1,000,000 home may have borrowed $900,000 which would have included an $800,000 first loan and a $100,000 second home equity line.  The combined loan to value (LTV) for this situation would be 90% ($900,000/$1,000,000).

Fast forward two years and now the home buyer has paid down their home equity line to zero, so in essence they have only one loan outstanding with $800,000.  The home equity line which is now paid down to zero typically acts as an open line of credit, so traditionally speaking, the borrower would have unrestricted access to pull up to the original balance of $100,000 should they need the money for an emergency or remodeling.  What is recently occurring however is that the banks are freezing the home lines of equity because of the decreased they are seeing in the housing markets.

Take our example of the $1,000,000 home and a decline of 10% in the market value to give a new value to the home of $900,000.  And remember that the banks agreed to lend up to 90% loan to value of the property.  So if we take the new price of $900,000 and lend 90% that would result in total loan commitments of $810,000.  Since there is an existing first of $800,000 we may see the second line of equity being capped at $10,000 thus maintaining the original 90% LTV or a maximum loan amount of $810,000.

Many home owners such as myself pay down the equity line because of the convenience of being able to tap into the funds if needed.  Now with this latest developments, nervous homeowners are prematurely drawing the funds available from the equity line and placing the money in another financial institution to ensure that should they need this money, it is available for them to access.  While we have not seen this move from the banks occur too many times, it has happened enough where you should be aware of the situation.  If you or someone you know may be in this situation, please contact me or your financial professional to see what your options may be.

Chris Kamali is a TriValley Real Estate Agent, helping clients buy and sell homes in Dublin, Pleasanton, San Ramon and Livermore.

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Gone are the days when your home would sell over the weekend. Gone are the days when everyone would be looking for investment property in Las Vegas, Arizona and Idaho because that was the next best thing. Gone are the days when you had to pull your hair out as a buyer because no matter how much you paid or were willing to put up with for that Pleasanton home, your offer was just not the best one. Fast forward two years. Here are the days that nothing seems like a value…except bank owned homes, right?If you are a buyer in the Trivalley, and have spoken to me in the past 12 months, at one point you have said to me, “I would like to look at foreclosures.” (You know who you are!) The reality is that you do not want foreclosures–where you go to the court steps and buy the home in cash without getting to perform inspection or even see the interior at times. What you want is a home which has already gone through the foreclosure process, didn’t sell, and is now banked owned. Bank owned homes, more commonly known as REOs (Real Estate Owned) are now the buzz word for buyers as they are believed to be the real value out in the market.

This shift of the buyer’s attention from the entire market to just REO listings has created an interesting phenomenon in my view. As buyers zoom in only on REO listings, it has created an artificial higher demand thus defeating the primary reason why people are looking into buying REO homes. Not enough people take advantage of supply and demand. I want what you want, and you want what he wants. We as consumers don’t take advantage of going against the grain and seizing the opportunity. We all want REOs, and I am warning you to look outside of the box, as there are some great deals out there from the traditional seller.

Don’t believe what I have to say? Continue Reading

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So you have decided to sell your home and you contact your trivalley real estate agent to talk about the price and you are ready to get the house on the market. The trouble is that you have lived in that home for the past 10 years and the house is filled with your trinkets and family photos on the walls…who would want to buy THAT house? Having seen many homes with buyers, I can tell you that we spend more time looking at your family pictures than we do at the house. We begin trying to figure out who’s who…which room belongs to which kid in the family portrait and start reading all the messages your friends wrote you around your wedding photo. So what do you do? Continue Reading

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