Kent Johnson

Thanksgiving afterglow and the foreclosure market

It is Monday after a long Thanksgiving Weekend, dubbed “Cyber Monday” by the marketers with their fingers on the pulse of retail activity.  The last of our three children who were home for Thanksgiving left this morning to catch an early flight back to San Francisco and the afterglow of the family time together is dissolving.

 

During the visit we learned of friends of our now-grown children, post college and beginning life in the “real-job” market, who have bought homes recently.  Four years ago parents of my age would lament, “How will our children ever be able to afford a home in Southern California?”   Now, after three years of falling prices, it looks like they can!  That’s the bright side of the downturn.  Of course, if they expect to start with a newer three bedroom home with granite counters and an ocean view, that probably won’t happen.

 

The local beach newspaper today contains a full page ad by one of the nations largest homebuilders with the bold headline “Foreclosures are Risky Business…with no customer service, no financing assistance and no warranty you never know what you’re going to get.”  They go on to list their housing projects currently selling in Southern California and add that they are “priced to compete against foreclosures.”  It’s a candid admission of the fact that foreclosures are setting the tone of the market.

 

My headline would suggest: Foreclosures are Tricky Business.  The risks of  “not knowing what you’re getting” can be offset by thorough due diligence and inspections.  The tricky part is actually getting an offer negotiated and accepted.  Many bank-owned properties are being offered at prices well below market value in order to spark a bidding war among competing buyers.  In the last month I have represented offers on bank-owned properties in which one had fifteen offers and the other had eleven.  Buyer’s were instructed to submit their “highest and best” offer by a deadline…and then wait for notification of acceptance for the “winner.” 

 

This may be a smart tactic by the sellers, but it can be extremely wearing on the buyers and their agents.  Imagine that for every accepted offer there are ten buyers and agents who did the drill of finding and inspecting the property, arranging financing, getting approval letters, drafting the offers and getting signatures, relaying all the paperwork, making the calls, setting the appointments, etc.  And in the end the buyers are pitted against each other in a bidding war in which the price is an unknown characterized by the listing agent as “higher than asking price.”  All for naught. This is a recipe for frustration.

 

Fortunately, there are several strategies that can be used by savvy agents to expand opportunities and create success for buyers in this chaotic market environment.  Stay tuned for more information on how to navigate the mine-field that is the foreclosure market.  And meanwhile, enjoy the entrée to the holidays that is the month of December!

 

Latest API Report for Schools

The state of California has just released the latest Academic Performance Index (API) for schools.  You can look up the information at this website:   http://www.cde.ca.gov/ta/ac/ap/

Warren Buffet Op-Ed Article

The company I have worked for the last 19 years was purchased by Warren Buffet (the Home Services division of Bershire Hathaway) in 2001.  Here is an interesting article written by Warren that appeared in the New York Times.  Enjoy.

October 17, 2008

Op-Ed Contributor

Buy American. I Am.

By WARREN E. BUFFETT

Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Who's making loans

Concerned clients are calling to ask about mortgage loans amidst news that banks are crumbling and banks are not making loans.  Here are some of the facts:

1.  Money is available.  What is NOT available are many of the alternative financing options that fueled the market over the last 5-6 years.  Stated income, no asset, zero down and sub prime loans are almost non existent.  The government takeover of Fannie Mae and Freddie Mac have assured the retail lending institutions that they will continue to have a market for their loans.  Home financing is readily available for qualified buyers seeking conventional and government (VA and FHA)financing.

2.  Full documentation is required for loans today.  Loans are often going through multiple levels of underwriting and credit review.  Last-minute audits are common.  Over-documenting loan applications is often the key to a smooth loan process in the current environment.  Pre-approval for buyers is more important than ever.

3.  Rates are very attractive.  For instance, today a buyer can obtain an FHA loan up to $697,500 with only 3% down payment.  This is a fixed rate 30-year loan!  There is a one-point charge for the loan but it is common for the seller to pay this fee in the current buyer's market.

Property Tax Reassessment

Check out this scam that charges for filling out a form that you can do directly with the assessor in five minutes.