The Cline Times

Clayton’s House of Cards…

As a follow up to the 60 Minutes expose that showed Jan. 27, 2008 regarding the recent mortgage meltdown and falling home prices, some local commentary on the recent real estate market as it relates to Clayton & neighboring communities would be helpful.

60 Minutes explained that “in the last six months, Americans have seen their investments shrink, their property values plummet, and the country edge closer towards a recession. At the heart of the problem is something called the subprime mortgage crisis, which began last summer and continues to ricochet through the economy.” So, just how has this Subprime Tsunami affected Clayton? Three major forces were at play:

• Loose lending practices made credit available to borrowers in some cases at 100%+ of the transaction price with little to no documentation.
• Overbuilding in certain areas such as East County (Antioch & Brentwood) and West County (Pinole & Richmond)
• A certain ‘irrational exuberance’ that home values would only go up.

In preparing this article I spoke with several real estate professionals in the area. The consensus was that we are in a declining market. Opinions varied on the length. Some thought we have already hit bottom while others believed it would take a good 2 years before we start seeing appreciation. While there has been some rigor placed back into the lending industry there is still a lack of credibility that will take some time to rebuild. Also, there are some great opportunities for a savvy buyer.

I spoke with Greg Farrand, President/Broker of HomEquity and he had this to add:

"There has been so much upheaval in the mortgage industry and so many lenders have shut their doors. Many homeowners are stuck in situations where their loans are adjusting and their payments are sky-rocketing; yet, they are unable to refinance. My brokerage was fortunate that we did not make a lot of sub-prime or creative financing loans over the past few years. In fact, many of the loans we made were to take people out of these types of loans. Even at times when the interest rate was higher than their existing interest rate, we recommended that clients refinance to eliminate the risk of not being able to refinance when the value of their homes declined."

To localize the current impact on home values, it might be wise to get a copy of Kenny Rogers “The Gambler” grab your whiskey and read on…

Know When to Hold em…

In general, average property values reached a peak in mid 2005, held relatively stable into 2006, and began to trending downward the later half of 2006 and through 2007. Currently, values are trending down.

Regionally, Contra Costa County’s Median Price declined 12.36% on a year over year basis and Clayton has experienced an average rate of decline of (5.8) %.

Source: Data Quick Systems

Data suggests that Clayton’s rate of decline is not as severe when compared to some of the neighboring communities such as Brentwood, Antioch (in East County) vs. Concord, Walnut Creek, and Pleasant Hill (in Central County).

Know when to fold em…

When evaluating the market, one must always is to consider the market as a whole and from an informed buyer’s perspective. Each neighborhood and property has to be viewed on a case-by-case basis.

Before a home goes into foreclosure, the seller may try to sell as a short sale. A short sale can be a long process that involves bank approval for the seller to pay off the existing mortgage for less than is owed (thus the name, short sale). When a short sale does not sell, it usually ends up in foreclosure status. Although difficult to obtain measurable data, there is an increase in short sale activity as reviewing MLS has been noticed.

As Foreclosure activity mounts, it will set the market as we are seeing in parts of East Contra Costa County. In other cases, they have been incidental here in Clayton although they are on the rise.

Know when to walk away & Know when to run…

It is no secret that foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than it's market value. This sets the stage for potentially defaulting if there is any negative impact to the pocketbook. Examples would include mortgage payment shock due to interest rate reset, a job loss, a medical emergency that results in large unplanned expenses or the owner needs to move,"

Recent data shows that the number Notices of Defaults have increased in the Bay Area a staggering 136.9% (of which Contra Costa County increase is 151.8%) compared to the same time a year ago. This suggests that further softening will continue.

Notices of Default (Houses and Condos)

Source: Data Quick Systems

For Clayton, foreclosures (the total of pre-foreclosure, Bank Owned, and Homes up for Auction) were reconciled to 43 properties with prices ranging from 350,000 – 1,000,000+ based on public and syndicated data sources. In some areas, especially where you had a lot of spectacular activity, foreclosures and short sales have essentially become the market in places like Antioch & Brentwood.

Multiple Listing Service shows the following for Clayton’s single family dwellings that sold for under $1 Million dollars:

Source: Multiple Listing Service

The rationale for including homes that sold for under $1MM is to help isolate current market conditions for the majority of Clayton’s inventory. Providing some historical comparison of the above yields:

Source: Multiple Listing Service

Key Highlights to note:

• Current prices are experiencing downward pressure
• Average days on market (DOM) are increasing
• Inventory although moderate, is beginning to increase
• Overall, further softening is expected in the near term.

There are some keys that may change current market sentiment in the near future:

• Spring is around the corner – traditionally the kickoff to the cyclical real estate market
• Recent interest rate cuts by the Federal Reserve
• An Economic Stimulus Package increasing the conforming loan limit
• Potential further interest rate cuts if the economy continues to show weakness

“Now evry gambler knows that the secret to survivin
Is knowin what to throw away and knowing what to keep.”

There is no doubt; Clayton has many positive features that make it very desirable:

1. Appearance – Let’s face it; our city is clean, orderly, and comfortable with that small town charm
2. One of the largest public trail systems & proximity to Mt Diablo State Park
3. Ranked #57 Best Places to Live in 2007 according to Money Magazine.
4. Schools are top notch with some of the most creative educators there are (designated as Distinguished School helps property values)
5. Low Crime Rates
6. Great Sense of Community
7. A Warm Summers Eve in the New Downtown Park (although I haven’t tested the grass yet!)

In all, Clayton is a wonderful place to own a home. Yes, the current market will have its ups and down, but for me “Therell be time enough for countin when the dealins done”

Casey Cline is a Real Estate Market Analyst & licensed real estate appraiser for Cline Appraisal. He lives and works in Clayton, Ca.

I am often asked what the return on investment is for common remodeling projects.  This is great question as we all strive to do the fiscally prudent improvements on our homes to make them nicer and more valuable.

Many ask, “Should I remodel my kitchen or bathroom?”, and whether your costs will be recouped. It’s a tricky question to answer, but if you’re thinking of doing it, you might as well check the numbers to get a ballpark estimate:

I recently ran across this article on Remodeling Online:

Cost to Remodel vs. Cost Recouped

Again, if it's a ballpark you are looking for, this is a helpful tool to helping you figure out where you can get the biggest bang for your buck!

Recently, I was asked to help clarify & educate a few clients on a little known bill that was signed into law on October 5, 2007, California Senate Bill 223 (CA SB 223).

To summarize, the bill prohibits a licensed appraiser from engaging in any appraisal activity in connection with the purchase, sale, transfer, financing, or development of real property if his or her compensation is dependent on or affected by the value conclusion generated by the appraisal. Probably, the biggest reason why an appraiser can’t have contingent fees is that it takes away the whole ‘independence’ argument out of the picture.

The bill also prohibits anyone with an interest in a real estate transaction involving an appraisal from improperly influencing the reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.

Some examples of improper influence or attempts to improperly influence an appraiser would include coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.

Remember, the appraisal is one of the major factors that lenders rely upon in making a lending decision. To help with that decision, appraisers need to perform independent, unbiased, objective analysis to support their final opinion of value.

The bill does not prohibit a person with an interest in a real estate transaction from asking an appraiser to do any of the following:

1. Consider additional, appropriate property information.

2. Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.

3. Correct errors in the appraisal report.

So, appraisers are still required to perform quality professional appraisals that can be relied upon. Rest assured, you can count on Cline Appraisal for your valuation needs as each appraisal is held to the highest quality and professional standards.

For more laws that may impact you, I encourage you to refer to the California Department of Corporations.