Southern California home sales jumped 65% in September,
setting new sales records as the biggest year over year
jump in 20 years+ of sales history. Nearly half of those
sales were foreclosed properties. We saw interest rates
drop briefly in August and early September, so this may
be one reason for the sudden spike in closed sales as folks
grabbed those lower rates. The good news though is that
this means that foreclosure inventory is selling, a much
needed trend. As foreclosure inventory gets sold, and loan
modifications gain momentum, inventory should begin
to stabilize. It will take some time for this to happen, but a
step in the right direction is certainly welcome.

The idea of a second stimulus package is gaining ground in
the media and in Washington. In a testimony to the House
Budget Committee Ben Bernanke, Federal Reserve Chairman,
said congress “should consider including measures
to help improve access to credit”. He went on to state that
consideration of a stimulus is “appropriate”. Within the
hour the White House said the administration is “open” to
the idea. Several plans are being brought forward by Nancy
Pelosi and others.

Today stock indexes are fell today after an upward bounce
yesterday. The current bailout pushed forward by Treasury
Secretary Henry Paulson may be taking an unintended and
troubling turn. Apparently a number of banks who have
jumped on the “bankwagon” to get a piece of the $250 billion
advanced by the treasury are using the money to buy
smaller competitor banks instead of using the money to
recapitalize so that they can make new loans. With the US
economy in recession it’s a given that stocks will continue
to be volatile into 2009 as investors search for earnings.

Important trends for you relate to agency (Fannie & Freddie)
and FHA (HUD) loan limit changes on the horizon.
Right now “agency jumbo” loans to $729,750 are available,
but this limit changes on January 1 to $625,500. So
buyers should act now if they plan to get one of the larger
loans. You may want to tell your sellers about this change
also, since it can impact their pricing. FHA rates are higher;
this is essentially the new subprime. Mortgage rates went
down yesterday across the board and the LIBOR index has
dropped, good news for folks with ARMs that have already,
or are about to, reset.

This past Saturday’s NY Times Business Day section had a very interesting article by Joe Nocera titled “Shouldn’t We Rescue Housing?”.”  In it Mr. Nocera effectively argues that the root cause of the current financial meltdown is not being addressed. That problem is the continuing decline of housing prices. He believes, and rightfully so, that until housing prices stabilize and the on-going foreclosures halt we will continue to experience financial turmoil.“ It’s perplexing that the Federal Government has pledged hundreds of billions of dollars to stabilize Wall St. but has thus far done little to stabilize the housing market and the lives of those Americans who are directly and adversely affected by the mortgage-lending debacle – a debacle that has crippled not only the US but the entire world as well. Is the magnitude of the problem not apparent enough in Washington, D.C.? Or, could it be that there is not as much political pressure from homeowners as there has been from Wall St.“ Although the solutions proposed in Mr. Nocera’s article might not be perfect they certainly address the problem and will, hopefully, be the first real step in recognizing, addressing and effectively dealing with the real cause of the current crisis.

Panic or writing on the wall? After huge stock market
losses last week Monday’s market opened with gains
higher than any other one day on record. But don’t break
out the champagne yet… because the crisis is far from over.
Monday’s gains brought us back to around Wednesday of
last week in terms of stock index levels. Today we have an
almost flat market so far with mixed indexes, some higher,
some lower. Expect more huge swings and volatility in
coming weeks. Stay cool. Talk with your financial advisor,
but above all, don’t get caught up in emotional selling. This
said, more losses may be writing on the wall into the next
quarter, so plan accordingly.

World banking heads agreed that the global crisis demands
coordinated action. So Monday opened with coordinated
global rate cuts. But the amount ($250 Billion) that the US
plans to inject into our failing banking system is a pittance
of the trillions Europe is already injecting into theirs. This
leads some to argue that gains from the US plan will be
small. Combine this with the prospect of a recession that
lasts 18-24 months, and which some say could be “deep”,
and it looks like additional economic stimulus will be mandated
to turn the tide. I expect we’ll be hearing more about
a new stimulus package before long. The IMF says credit
loses will reach 1.4-1.6 trillion dollars.

In the local real estate market we seem to be experiencing
somewhat flat sales numbers, and continued lowering
of pricing as we seek a bottom. The LIBOR indexes rose
sharply in the past week, so folks with ARM home loans
that are resetting will feel abruptly higher rates, keeping the
refinancing of these notes into fixed rate loans extremely
important. Look for the stimulus package increases to loan
limits to become permanent as we approach year end
(when higher loan limits would expire).

What can you do? VOTE! Perhaps the most important thing
any of us can do is plan to vote for a president who will
bring solutions that work to the table. In the meantime FHA
loans continue to refi subprime mortgages while Fannie
and Freddie loans offer attractive rates. We may also see
more pressure on existing loan servicers to modify loans
voluntarily. The silver lining to this mess right now is low
inflation, thus low mortgage rates, allowing buyers to buy,
and refi’s to pick up speed.

Yesterday brought a Fed rate cut by a half point that was
part of a series of coordinated cuts by the European Central
Bank, the Bank of England, The Bank of Canada, the
Swedish Riksbank and the Swiss National Bank. But this is
only one step. Stock losses are growing as the credit crisis
expands to global markets. The trend signals a bear market
and likely a global recession. As I’ve written previously
the markets are directly affected by census emotions, and
we’re seeing investor panic as the indexes drop below historical
thresholds. This week’s update is devoted to giving
you knowledge to get through this situation with the best
outcome possible for all.

Credit trends are showing tightening money (yet again)
due to the expanding freeze on credit that is rippling
through a variety of credit sectors. This condition has
spread to all credit sectors, including commercial paper. So
it’s more imperative than ever to ensure that your buyers
are pre-approved… especially buyers needing jumbo loans.

It might be timely to remind your sellers that the ultimate
price of their home depends almost exclusively on the
eventual appraised value, NOT their listing price. Appraisal
reviews are more common now, especially in declining
markets. This means that the lender may lower the appraisal
value if they think the property is worth less than the
agreed purchase price. When you write purchase contracts,
or review offers, plan that the review could extend the escrow
period by a week or more.

FHA programs that promise to write down loan principle
are not proven yet. We won’t know until more of these
close in the next 3 months whether the borrower’s credit
scores are lowered by participating in these FHA loan programs.
I’ve heard that when lenders do a short sale or loan
modification the original lender may place a derogatory
mark on the credit report that is as serious as a foreclosure.
More on this later when additional data is available.

My best advice is to stay calm and keep things in perspective.
The stock market crisis only serves to illustrate the
relative strength of real estate as an investment. With pending
sales up nationally in August by 7.4% there ARE homes
being sold. Compared to a 33% loss in stock values real
estate here remains a solid investment.

Huge stocks losses in the past week eclipsed former records
as a sell off on Monday pushed the DOW index down
by over 777 points. This is the largest drop in one day for
the DOW in its entire history. The S&P and Nasdaq also lost
more than 7% of their values during Monday’s tumultuous
session. The trigger for this sell off was the House’s failure
to pass a bailout package for the struggling US financial
system. The global economy is certainly suffering as a
result and several more banks fell this week.

Washington Mutual was bought by JP Morgan and Wachovia
was absorbed by Citi Group this week. Both WAMU and
Wachovia were prominent promoters of negative amortization
loans… so their portfolios were susceptible to huge
losses. You can expect more bank failures unless sweeping
legislation passes the house in the near future.

The senate passed the “bailout” plan, (which some call
the “rescue” plan) last night by a large margin. In spite of
this the DOW is down today as I write this by more than
260 points. The house will still need to pass this bill for it to
be made law. Calls for updated regulation of the banking
and investment sectors are increasing as politicians point
fingers and search for ways to ensure this crisis does not
repeat itself. With the conversion last week of major investment
firms like Merrill Lynch to banks, the era of investment
banking on Wall Street ended with a whimper.

How does this affect you? Well, the most pressing challenge
is that the credit markets are essentially frozen right
now. This makes it harder to get loans for any reason.
Although our Fed and the European equivalents are pouring
billions into the banking industry in attempts to get
banks to lend again, it is still uncertain that banks will
begin lending again at reasonable rates. The premiums to
get loans right now are steep, which translates to higher
interest rates for all types of credit, including auto, real
estate and college lending. The LIBOR indexes, upon which
many ARM loans are based, jumped this week… another
unsettling bit of news. The House will most likely pass the
Senate bill. One piece of the bill increases FDIC coverage
to $250,000 to safeguard people’s savings, and other sections
offer ways to ensure that CEOs and banks needing aid
eventually pay back tax payers. These welcome changes
should help to ease the current crisis.