On October 3, 2008, President Bush signed into law the “Emergency Economic Stabilization Act of 2008.” A less known aspect of this bill extended tax credits for energy efficient home improvements (windows, doors, roofs, insulation, HVAC, and water heaters). Tax credits for these residential products, which had expired at the end of 2007, will now be available for improvements made during 2009. However, improvements made during 2008 are not eligible for a tax credit.
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So what has this week’s rollercoaster ride on Wall Street meant for our local housing market? I am pleased to report that some offices are having near-normal new pending sales activity. They higher-end communities seem to be the most lethargic during the wild Wall Street ride, as you’d expect. The Santa Rosa office, with the most REO’s in our region, has hit 98% of their October projected open units prior to Oct 15th. Let’s take a look…
That’s our market in a nutshell. Overall, things seem to be steady. Bank owned properties continue to drive much of our activity. The higher end properties are more sensitive to pricing than they have been in several years. But make no bones about it, homes are selling today, and not a week goes by without several reports of multiple offers.
Does it feel like the movie Groundhog Day? Following the second straight week of economic unrest, watching coverage from the trading floors on Wall Street resembled an endless video loop, replaying the same performance day after day. The U.S. stock market endured its worst five-day performance since 1932 on fears of a severe economic downturn. Two days later (on Thursday), stocks plunged in the final hour of trading, sending the Dow Jones industrial average down more than 675 points or more than 7% to its lowest level in five years. In response to this news, overnight stocks plunged in Europe and Asia, as well. Most notably, Japan’s Nikkei fell more than 10 percent Friday.
We’re all affected by this, whether or not we have 401k’s and stock portfolios suffering large losses. The business owner who may be completely detached from the stock market personally, and fortunate enough to not be in need of a commercial loan to make payroll, is still affected by his or her customers who are experiencing actual losses. Many consumers were afraid to open their third quarter 401K statements as they arrived this week in the mail. Others are making countless calls to their financial advisors in hopes of a miracle or a quick fix to stop the decline. Still others are choosing to ignore it with the “ignorance is bliss” philosophy. The bottom line is, we’re all in this together.
What I am thankful for is that I am not hearing very many instances of our customers who are qualified for loans by today’s standards not being able to get loans. I am speaking regularly with my mortgage contacts over the subject, and we just aren’t seeing situations where loans are being pulled or denied unreasonably at the last minute. I have heard from some agents that they’ve dealt with a lender that had a buyer qualified for 25% down, and then changed the requirement to 30%. This is by far the exception rather than the rule. To date, most loans opened in the past 30 days are funding as they were packaged. Naturally, jumbo loan resources are fewer today, but there is enough money out there at very reasonable rates to satisfy the current demand.
Last week’s passing of the Emergency Economic Stabilization Act of 2008 should help to alleviate some strain as one of the goals of the act is to unfreeze the credit markets to encourage intra-bank lending. Once we start to see this, banks should begin to lessen their stringent requirements and consumers should be able to once again see more resources for mortgages, auto, and school loans.
Historically speaking, during times of economic crisis consumers tend to invest their money in tangible assets, like real estate. We expect that this may be the case in the months ahead as consumers look to buy homes for all of the lifestyle reasons that prompt people to buy (i.e. marriage, births, divorce, deaths, retirement, job relocation, etc.) but also with a consideration of the historic long-term appreciation that makes homeownership a valuable investment over time.
Earlier this week, Bloomberg.com reported, “Rates are low enough that some consumers stung by losses in their portfolios may want to pull the trigger on a purchase or refinance if they can lower their payments.”
Indicative of this fact, the article went on to report, “A nationwide survey of consumer credit rates showed 30-year fixed rate mortgages averaged 5.8 percent yesterday, according to Bankrate.com. Rates were 6.26 percent on August 29 and also July 31, in the same survey. Home-loan applications rose 2.2 percent last week, according to the Mortgage Bankers Association and purchases were at a six-year low the previous week.”
We certainly are in a time of uncertainty. But while many sit glued to CNN and others fret over their investment portfolios, the housing market continues to labor on in the Bay Area. Because the beautiful thing about real estate is that it’s not just an investment—though it may be one of the most important investments a consumer will make in his/her lifetime. Your home is where you raise your family and plant your roots. It’s where you hang your hat and make memories to last a lifetime.
With the Economic Stabilization Act now passed, let’s take a look at last week in real estate:
- East Bay—Castro Valley—which for weeks has been our bright spot of activity—saw a bit of a slowdown this week due to the concerns on Wall Street. We still have plenty of deals thanks to REOs but buyers are nervous. It seems buyers really need the counsel of their real estate Agents right now so they may navigate these murky waters. Our Danville office is reporting quite the contrary, however, noting that business in the San Ramon Valley is steady and that deals are coming together. Buyers seem to be most active in the REO arena, as they search for what they believe to be the best deals. Please do keep in mind that not all bank-owned properties are created equal and not all are guaranteed deals. Overall, the East Bay continues to thrive thanks to REOs and the remainder of the markets are quiet. We should see those markets pick up as we continue to eliminate our REO inventory.
- Monterey County—CB’s Monterey County offices are noting some positive news, even in the wake of a tumultuous week on Wall Street, noting “Even though this week has been a tumultuous one in the financial world nationally, it amazes me that our Sales Associates are still busy writing offers throughout the week.”
- North Bay—Despite the economic hardships of the week, our North Bay offices reporting that things seem to be moving pretty steadily. Our Greenbrae office noted, “The next few weeks look promising for buyers and sellers.” Our San Rafael office noted that “we are seeing more all cash buyers coming into the market.” Our Sonoma County offices continue to enjoy a lot of activity thanks to bank-owned properties and our Petaluma office is noting that short sales are becoming increasingly easier to deal with as negotiating with banks becomes more positive.
- Peninsula—People seem to be unsure during these uncertain economic times but savvy buyers are contacting their Agents and many feel now is the perfect time to make an offer. We are starting to see more upper-end listings come on the market which is a good thing as our upper-tier has been plagued by low inventory. Half Moon Bay is reporting that listings are up at the highest level in several years and at the same time there are at least six distressed properties on the market. According to our Half Moon Bay Manager, “This is the best time to buy on the coast in years.” Our Menlo Park El Camino office called this market “A tale of two buyers…Confident and not confident.” It’s business as usual for those who have confidence and those who don’t may miss out on one of the best buyer’s markets in generations.
- San Francisco—My own office is seeing more listings and navigating through more obstacles in transactions. CB’s Market Street office noted that some buyers backed off this week due to the issues in the finance sector but now that things have worked themselves out we expect them to return. Our Van Ness office noted that we remain on a reasonable pace for the current climate with five out of nine deals this week under $900,000 and one large sale for the week.
- Silicon Valley—Consumer confidence seemed to be hindered this week as many of our Silicon Valley consumers awaited news of today’s act. In doing so, this week floor calls slowed a bit as did open house activity. But I believe now that we can all get off the couch and away from our TVs (awaiting the act’s approval), we can get back to work and we’ll start to see more deals closing.
Overall I believe the Emergency Economic Stabilization Act of 2008 puts us on the right track. No, it isn’t an overnight answer, but I believe the efforts of the new legislation point us in the right direction and place us on the right path towards stability, and eventually long-term economic growth.
The government’s resolve to take action that is focused on fixing the credit crisis is to be commended, particularly because these major moves to add greater liquidity to the market will have a beneficial effect on homebuyers/sellers and the real estate industry as well. Keep in mind that housing represents 20 percent of our GDP, and as such it is a critical piece of our national economy.
It seems nothing in the financial markets is very predictable in the short-run any more, but next week should seem a bit more stable and calm than last. Until next week…
Second time was certainly a charm! With a vote of 263 to 171, the House passed the $700 billion Emergency Economic Stabilization Act of 2008. The Senate had approved the same bill Wednesday night by a vote of 74-25. Soon after, the President signed the bill, officially passing the far-reaching legislation.
I know the question we are all asking ourselves right now is how is this going to affect all of us. How will it affect our retirements? How will it affect the mortgage crisis? How will it affect our portfolios? The answers to these and other questions will only be answered over time but what I can tell you is that the legislation is a critical step toward stabilizing our markets. The main goals of the act are to:
- Shine a new light of scrutiny and accountability on Wall Street including a curb on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it’s later proven that earnings or profit statements were inaccurate. The bill also underlines the Securities and Exchange Commission’s power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue. Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.
- Let financial institutions sell to the government their troubled assets, mostly mortgage related which would allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.
- Provisions that support taxpayers including one that would direct the President to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.
- The bill would set up two oversight committees. A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary. A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties.
- The bill calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.
- Provide tax breaks for the middle class including three key tax elements. It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels. The legislation would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns. In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called “income tax for the wealthy.”
So how long will we take for this to be seen on the proverbial Main Street? According to some analysts, it will take several weeks for us to see credit unfreeze but we should see some almost immediate benefits on Wall Street. It will be interesting to watch their reaction . We’re all anxious for some stability after a really wild week in the markets. President Bush also deliberately noted today that it will take “some time for this legislation to have a full impact on the economy.”
I agree with NAR’s stance that we are gratified that the government recognized the importance of passing the Emergency Economic Stabilization Act of 2008. The health of the nation’s housing market is critical to the financial well being of every household in the country and that, of course, is front and center here in California. I believe the legislation will help restore the liquidity in the mortgage market, which will stabilize the housing market and protect home owners. People have been, and will be debating for a very long time, the specific causes, who’s to blame, who should be paying the price – but ultimately we needed quick action in the credit markets in what was quickly becoming a severe global financial crisis.
