Today Obama announced massive changes to the regulation of financial system, putting the Fed in a position of regulatory overseer of non-bank creditors, and businesses “too big to fail”. A new consumer protection agency would also be created. These reforms are poised to reshape the entire financial market and Wall Street is clearly nervous. Banking stocks were taking a dive this morning in advance of the news. The proposal still needs to make its way through congress and there will doubtless be some compromises between what the President asks for and what becomes law. But proposed changes may restrict the business methods of banks by setting interest rate caps, eliminating certain fees, and making it harder for creditors to change terms on credit cards once the account is opened. Other proposed changes will eliminate prepayment penalties on mortgages, and possibly put an end to mortgage brokerage itself by eliminating YSP and thus warehousing of loans for secondary market sales. The new regulations will cover complex financial instruments including derivatives, an investment type that has been blamed, in part, for the current economic crisis.

The recent market rally has ended. The stock sell off has continued into this week with losses especially severe in banking stocks. Eigtheen lenders, including Wells Fargo have seen their credit ratings lowered recently, and this has factored in the losses. The good news is that treasury bonds look more attractive to investors as s result, and thus mortgage interest rates have been falling since last week. Today they stand close to where they were three weeks ago. This is good news for buyers!

Housing starts, the number of permits issued for new construction, were up nationwide in April. This is significant because this is where we’ve seen previous economic recoveries begin. This is coupled with stronger sales volume recent months. In the Bay Area our recent sales have been more than 50% foreclosures. Since jumbo loans (above $729,750) are still difficult to get at a reasonable interest rate, higher priced properties are not selling as well. This skews the sales figures for median home prices lower, but the fact that the lower priced foreclosures are selling is excellent news. Once this inventory has sold the market can recover. My best advice is to hang in there! Better times are ahead…

Mortgage rates are under pressure from Treasury Bond selloffs, further complicating recovery for the real estate market. We’ve seen home purchases of existing homes rising in volume for the last few months, which is a welcome sign of a possible turn around. But this is largely due to “fire sale” pricing on foreclosed properties combined with the availability of extremely low mortgage rates. Rates have been low because the Fed has been buying treasuries to keep yields low. But now it seems questionable whether Bernanke et al will continue to do so and this has investors spooked. So corresponding mortgage rates, especially for 30 year fixed rate loans, jumped suddenly last week to whopping increases of .5% or more. I’m hopeful that a pending announcement by the Fed regarding it’s buying of additional treasuries will be made this week, and that the Fed will, indeed, continue to buy them. If this happens, rates should go back down. However, if the Fed declines to do so we may see rates continue to climb, bad news for an already struggling real estate market.

 
The national average decline in median home prices stands at -26% since the peak of July 2006. While this is obviously a troubling number, it could be far worse. Here is Marin we are faring better than many parts of California. Median home prices for all of California in April stand 54.3% lower than in the spring of 2007, which was California’s high point in the market. But in Marin Country, as of April, our median declines are -20.13% from this time last year. When one considers that more than half of the properties changing hands these days are foreclosures and short sales (with drastic price reductions), this number is not all that bad.

 
With this in mind it would seem that Marin continues to hold it’s value exceptionally well in the face of the worst economy in a century. Sales volume is steadily increasing in 2009 thus far, a welcome trend. When will prices stabilize and (gasp!) rise again? Once foreclosed property inventories have been sold, provided unemployment rates do not rise further, and wages do not deteriorate, we should see a return to a more balanced market. It’s good to remember the basics of economics so that you keep perspective, the law of supply and demand. And if there’s one thing that’s true in Marin, it’s that this area is in demand and likely will continue to be for many years to come. We certainly have a superlative location, location, location…!