Thanks Kevin Labianco for this photo.

I am posting this purely for its entertainment value. The numbers will surprise you.

By Donald J. Boudreaux
Wednesday, May 16, 2007

The economist Paul Romer notes the astonishing fact that if you thoroughly shuffle a deck of 52 cards, chances are practically 100 percent that the resulting arrangement of cards has never before existed. (more…)

It is always fun to see what the most expensive real estate in the United states is. Forbes has a nice montage of some of the United States most expensive real estate. Looks like the Bay Area has taken 2 of the top spots. The first Bay Area property on the list was brought to market by Olivia Hsu Decker from Decker Bullock who listed a 65 million dollar property in Belvedere, California. The second Bay Area Property on the list is a 65 million dollar San Francisco, California home which was listed by David Barrett of the Warwick Property Group.

It is nice to see that the Bay Area has some of the most expensive real estate in the US.

I think Mr. Robbins is right on in this article.  The last sentence in the article speaks to the primary piece that would solve all of these problems, better educated consumers.  Every time I read a press account about a homeowner who lost their house in an “exotic” mortgage, the homeowner always says that they didn’t know what they were signing.  That’s astonishing when you think about it.  A better educated consumer will produce better results.  Now whether our Congress can produce education to teach fiscal responsibility is a whole other matter.

Mortgage official defends subprime loans They should be preserved as tools to buy homes, MBA chief says
By Robert Schroeder, MarketWatch
Last Update: 12:30 PM ET May 22, 2007  

WASHINGTON (MarketWatch) — The chief of the Mortgage Bankers Association defended the use of subprime loans Tuesday, saying they’ve enabled millions of Americans to buy homes and urging that a fix for that sector of the market not end up hobbling the entire mortgage industry.

At the same time, MBA Chairman John Robbins acknowledged that “unethical actors” in the mortgage industry have hurt borrowers and damaged bankers’ reputations. Subprime delinquencies have jumped in the U.S. as interest rates have climbed and house prices stopped rising. Subprime loans are usually extended to those borrowers with blemished credit records. But Robbins, in a speech at the National Press Club, said subprime loans remain “an extremely important tool for providing homeownership opportunities in this country.” “We must find a way to prevent future abuse without eliminating subprime loans,” Robbins said in a prepared text. (more…)

Thanks Beej Jorgensen for this photo.

People say that the market is sliding? Check out this article in the Marin Independent Journal. The median single family residence in Marin just broke $1,000,000 for the first time in history.

This means that more then half of the inventory that sold was over $1,000,000. Marin is now the first county in California to surpass $1,000,000 detached single family residence median home price. Looks like some counties are on the rise, while others are struggling. Even condos in Marin zoomed upwards with double digit gains, while other counties saw losses.

I believe we are now seeing a true buying opportunity for many different Bay Area neighborhoods. Rates are still historically very low and the general market consensus seems to be changing from downward trending to a more normalized market. In fact, I am sure that many buyers in Marin are being priced out of the market by rising interest rates and rising median home prices.

Thanks Kiwi NZ for the photo.

Well it seems California has been hit again. This time Allstate, California’s 3rd largest residential insurance company, says, “It will stop selling new home insurance policies in California and they are seeking a 12% increase in the rate of current policy holders.” This has been typical in years past, with insurance companies pulling out of the state pursuant to our earthquake, mold and fire liabilities. This LA Times article typifies why a good insurance broker is worth their weight in gold. Getting the right insurance broker can often increase your coverage while lowering your insurance costs.

We assist our clients with finding the right insurance broker that can take care of all their insurance needs. If you are currently insured by Allstate then give us a call and we will help you to find an insurance agent to assist you.

We have all been reading the newspapers that are filled with numerous stories of home owners getting loans by overstating their income.  This behavior is called bank fraud and there are stiff penalties if one gets caught. 

Now, there is fall out.  I have heard of two things that have begun to happen and they are very interesting indeed.

#1: Husband and wife got a loan.  Husband filled out the loan application with a much higher number than he actually makes.  He put in the number that worked to get the loan he wanted.  Six months later, he and his wife get divorced.  (See where this is going?).  In the divorce proceedings as they are haggling over alimony, the wife pulls out the signed loan application to prove that the husband is making more money than what he is representing for alimony purposes.  So the judge asks him a very simple question, “So Mr. XXXXX, do you make more money than you are now representing or did you commit bank fraud?”

#2: The IRS is digging into these applications and checking against the Federal Tax Returns.  If the loan application says more than what they said on their Federal Tax Returns, the IRS is calculating their tax due on that amount and demanding payment.  OUCH!

If you plan to overstate your income to get a loan, beware!  My simple answer is, don’t do it.

The FOMC remains concerned about inflation so the mortgage market reacted today by raising short term rates slightly.  Your auto loan and home equity line rate remains the same.

Read the Fed statement

Central bank policy-makers hold rates steady at

 5.25 percent for the seventh straight time.

NEW YORK (CNNMoney.com) — The Federal Reserve left interest rates unchanged Wednesday for the seventh straight time. Following is the text of the statement from the central bank’s policy-making Federal Open Market Committee: 

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Fed leaves rates alone again

 

Federal Reserve Chairman Ben Bernanke

Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.

Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh. 

The Prime Rate follows the Fed Funds Rate.  If you have a home equity line of credit, you’d like this rate to drop.  Consensus is that the Federal Open Market Committee will not lower the Fed Funds rate in their meeting this week nor will they raise it.  Your equity line rate will remain the same according to consensus estimates.

Fed Won’t Change Rate Without Convincing Data

By John M. Berry

May 4 (Bloomberg) — Federal Reserve officials, confronted with conflicting evidence about where the U.S. economy is headed, won’t change the 5.25 percent key interest rate at their policy-making meeting next week.

The Fed board members can’t be sure that economic growth will rebound in the second half of the year, nor whether core inflation will subside gradually as they have hoped.

While the officials are less than certain about their forecast, they also have no strong reason to change it. Until convincing evidence emerges one way or the other, the overnight lending target set last June won’t budge.

Some analysts are predicting there won’t be a surge in growth — and that the Fed will lower the rate to 4.5 percent by the end of the year. That won’t happen unless it’s clear that core inflation is slowing. (more…)

We hear so many infomercials, advertisements, book reviews and magazine articles about how to get rich.  We don’t much hear about the killers of wealth.  In my role, I see the personal balance sheets and income statements of my clients and although I cannot and wouldn’t reveal any specifics, I can tell you the killers of wealth that I observe.  I’m writing this just to give you, the reader, some things to think about as you do your retirement calculations.  You are doing retirement calculations, aren’t you?

Overspending - this shows up in excessive credit card debts and large auto loans and it can also be hidden so be careful.  By hidden, I mean that it can also show up as a zero savings account even if there is not credit card debt.  Student loans are prevalent with young professionals but this is a different category than spending.  Student loans can be an investment in a future income stream so long as the income stream is realized, the investment in education can be justified from a financial standpoint. 

Inflation - many people do not account for inflation in their retirement calculations.  This is a killer of wealth in that it can reduce your spending power by 2-3% per year and in some larger expenses (health, college education) by as much as 10% per year.

Taxes - when the government is taking 40% of your pay, it is very difficult to earn enough to pay for all of one’s obligations and still save. You can’t change the tax rates but you can get advice about how to structure retirement savings to be diversified from the tax man at the time you take distributions.

Divorce - this takes the income of one household and distributes over the expenses of two households.  The numbers simply do not add up when you look at paying for two homes on the same income as the family used for one home.  Divorce also causes disruptions in income, family harmony, children’s well-being and in the well-being of the two adults.  These costs show up in increased expenses and decreased income for a time.

Job (or Income) Interruption - a loss of income for 3 months or more puts severe stress on the balance sheet of many families as the expenses continue but the income is reduced.  With fixed costs so high in many families (mortgage, property tax, auto loan payments, etc.), there is often not enough room to cut expenses so that a job loss is not felt.

So, these are a number of killers of wealth.  Conversely, if you can avoid overspending, stay married, do some wise tax planning and keep improving your job skills, you can use this to your advantage to increase your wealth. 

Pele smiling in his new yard.

With this posting I would like to start a new definition of the term Realtor®. I propose that a real estate professional is far superior to a so called Realtor®. There are currently over 500,000 real estate licensees in California. Most of them belong to the National Association of Realtors and are thus designated as Realtors®. You can find the definition of a Realtor® on the National Association of Realtor’s web site. I doubt many of the 500,000+ Realtors® even know what being a Realtor® means.

I recently received a photo from a client who just purchased a home in Oakland’s lower Rockridge district. The photo above is of their dog Pele. As you can see he is one happy dog in his new backyard (might I add that Pele’s owners have an interesting blog that chronicles interesting products for people who are taller than average. It’s called tall order).The photo made me think about the transactions we have had over the last couple of years. As of late, the news media has been filled with stories about real estate and mortgage pitfalls. With all of the market turmoil and increased number of mortgage defaults and foreclosures, you would think that we would find significant evidence of past clients that were in over their heads or unhappy with their real estate situations; but I could not. I have met plenty of Realtors® who have clients that are experiencing break downs with the changes in the market. Why?

I attribute our client’s success to the fact that we serve our clients differently then our other 500,000+ peers. For instance, I often get clients that say, “You must like selling million dollar homes!” Our response has always been, “It’s not the price of the home but what we can do for the individual.” Katie and I do not chase dollars, we assess whether or not we can take care of an individual’s concerns.

So, how do we define a Real Estate Professional? A Real Estate Professional must adequately take care of the known and unknown real estate concerns that their clients have. This means Real Estate Professionals must take an interest in all aspects of a real estate transaction. Many Realtors® are finding they neglected the financial concerns that many of their clients did not even know they had. This breakdown is evident in the many foreclosures and short sales that are currently taking place.

It is also important for Real Estate Professionals to note that all of our clients come to us with different backgrounds. Some of our clients are buying their first home… Some have not bought or sold property in many years, but now need to sell their family home and buy another… Some clients are relocating out of state… Others are constantly buying and selling investment property. As real estate professionals it is our duty to take care of all the unique real estate related concerns that arise so they do not become breakdowns for our clients. Thus, being a Real Estate Professional is quite a daunting task that requires a diverse network of experts who also understand they must act to care for a client’s concerns. The power of a Real Estate Professional’s network and how it benefits you is another conversation that we will address in future postings. Not all networks are made equal.

A true Real Estate Professional understands that a client’s concerns do not end when property closes escrow. Thus, we constantly make ourselves available to respond to our client’s concerns. The art of being a Real Estate Professional takes the emphasis off of sales volume and puts it where it counts, in the unique concerns of each of our buyers or sellers. What defines your Realtor®?

If you can make this event, I recommend making your way over to the Commonwealth Club to continue your financial education.