A DAILY LOOK AT THE STORIES YOU SHOULD BE READING

Real Estate

- Freddie Mac has decided to investigate itself.

- California says “I will see your $8,000 tax credit and raise you…. to $10,000″

- Distressed Asset Investor:  Foreclosure Fix is not enough – please sell assets to me at realistic prices

- The most respected man in housing says “I agree with Cirios”

Finance

- The banks need more money … nothing funny about that

- The UAW agrees that having a job is better than not having a job.

- They have pilots that can land planes safely in rivers and you can now get a Coke without having to pay for it.  The new number one airline … US Airways.

Ciriosly Funny

- Once again, America’s pastime comes to the rescue

- Who knew cartoon characters could know so much about trading equities?

A DAILY LOOK AT THE STORIES YOU SHOULD BE READING

Real Estate

- Jaime Dimon, CEO of JP Morgan Chase, sees the housing plan helping borrowers. No word on whether he called his servicer to get a mod because his salary is now capped at $500,000.

- Businessweek has released its list of great affordable places to live. And honestly, who doesn’t want to move to Pewaukee, Wisconsin!?

- Despite continuing economic decline, many are seeing an opportunity to buy second homes that would have been out of reach only months ago.

- The recession will not stop this luxury hotel owner from opening up a posh new property.  $495 a night?  I thought you said it was expensive!

Finance

- On the bright side, it has never been a better time to go play some golf.

- The Bank of America deal to purchase Merrill Lynch gets more questionable by the day.

- Drug wars are just never very pretty.  Especially when they involve guys in suits fighting over board seats.

- Shouldn’t the SEC force Bernard Madoff to work as the head of the ponzi scheme investigation?  Seriously, this guy didn’t buy a security for 13 years!  He has my vote.

Ciriosly Funny

- Finally, scientists have discovered the road to riches. And its easier than you may think…….

By ANDREW JEFFERY

This post first appeared on Minyanville.

While pundits and politicians debate the various aspects of President Obama’s $275 billion housing bailout, one piece of data proves just how misguided federal efforts to revitalize the housing market are: $275 billion could buy more than half of all American homes already in foreclosure.

Such an undertaking would remove distressed homes from the market and spur community revitalization efforts throughout areas desperately in need of the hope they were promised in November.

According to real-estate analytics website Realtytrac.com, foreclosures were filed on 2,330,483 homes in 2008, up 83% from the year before. The median home price in the US is $180,100 - which means 1,526,929 of those homes could be bought with $275 billion. And since foreclosures are centered primarily in areas with low home values, the true number of properties the bailout money could be used to buy is likely much higher.

While the logistics for such an outrageously common-sense solution to the nation’s housing woes are daunting, they’re no less challenging than the massive loan modification efforts already in place. And their results continue to prove underwhelming, at best.

Such a solution also addresses the rapidly mounting discontent over bailing out those homeowners who made bad decisions. Distressed borrowers wouldn’t directly receive any taxpayer money – though they would indirectly benefit from the massive government expenditure in their community.

Cash would be funneled down to the local level, where cities and counties could more effectively distribute it. To be sure, local governments can be as bureaucratic and inefficient as Washington — not to say corrupt – but by allocating capital to localities, each community would be responsible for its own clean-up efforts.

Private investors, developers, nonprofits and real-estate professionals could compete for business, adding a free-market component to rescue efforts – and even spurring a little sorely-needed economic activity.

Some cities aren’t content to wait for federal money to trickle down from the White House. Menlo Park, California, best known for its devotion to the bubble lifestyle, is considering using city money to buy and refurbish foreclosed homes.

The town, like many others in America, is split by a highway that acts as a major dividing line between the haves and the have-nots. While there are just 97 homes in foreclosure in Menlo Park, the vast majority are on “the other side of the tracks,” away from the mansions and quiet, tree-lined streets of West Menlo. The proposal will use money from a $2 million fund already seeded by developers who opted not to allocate units for low-income housing.

The city plans to tap Habitat for Humanity to refurbish the homes, using community volunteers and local experts to oversee the improvements. The president of the local Homeowners Association, Ash Vasudeva, said “When rehabilitation is going on, it uplifts the entire community.” A simple statement, but true.

And while this is one small city undertaking one small project, it could serve as a model for other communities around the country. Not to mention the fact that the mere announcement of $275 billion in real-estate investments would hasten the price discovery the housing market so sorely needs.

Furthermore, banks stand to gain little from such a use of public funds – which could be why such a plan has yet to be proposed on Capitol Hill. When a bank forecloses on a home, JPMorgan Chase (JPM), Wells Fargo (WFC) or Citigroup (C) is forced to write the asset down to at least the amount of the outstanding loan. But since most properties are worth far less than the loan amount, selling the property at market prices would require further writedowns.

So, as banks soak up billions in bailout money under the auspices of massive loan modification efforts aimed at stemming foreclosures, vacant homes lay in disrepair, vagrants loot the pipes – and communities continue to deteriorate.

But instead of allocating funds for such grassroots efforts, Washington continues to issue broad, vague orders aimed at helping many, but in very small amounts. Such programs have failed before, and they’ll fail again.

Maybe it’s time for a new approach.

A DAILY LOOK AT THE STORIES YOU SHOULD BE READING

Real Estate

- Lenders finally have the motivation to do their jobs.

- Who doesn’t feel sorry for an institutional stock broker who can’t refinance his mortgage?

- That’s right, you can still overpay for a place in San Francisco.

- When incomes shrink and job losses mount, affordability doubles in Orange County.  Seems to make sense to me.

Finance

- California has a budget … sounds good I guess.

- The United States is not producing anything.

- It is about time the film industry got a bailout.  Now, can they finally make the long awaited sequel to The Burbs!?

- If you believe leading indicators based on historical data will always accurately predict the future you’ve got another thing coming.  With that strong caveat in mind, economists are predicting an easing to the recession.

Ciriosly Funny

- With all this talk about real estate, who’s keeping an eye on that biggest of future subdivisions?

For this week’s House of the Week, Cirios takes you on a ride to the formerly pastoral outskirts of Contra Costa County, an hour-long jaunt east from San Francisco. Brentwood, once a quiet farming town, became a poster child for the housing market’s boom and bust. Builders threw up development after development, buyers paying more and more with cheaper and cheaper loans.

Prices have fallen back to earth, but after more than a 50% decline in average sales prices, buyers are coming back into the market. Property values keep falling, but sales have been booming: In the past three months transactions are up over 300% from 12-months ago.

Address: 552 Sassafras Dr, Brentwood, CA 94513
Status: LISTED
Bedrooms: 4; Bathrooms: 4.5
Living Space: 4,678 square feet (yes, it’s that huge)
Lot Size: 21,911 square feet (0.5 acres)
List Date: 12/26/07 (421 days on market)
Original List Price: $1,200,900
Current List Price: $519,900
Elementary School API: 841 (High)
Zip Code Sales Last 3 Months (year-over-year): 331%
% Homes in Foreclosure in Zip: 9.3% (High)
% Housing Inventory for Sale in Zip: 2.6% (High)

Real Estate Agent Comment: Don’t miss out on a great opportunity to own a large home on an enormous huge lot! 4 bedrooms each with own bath! Large office with fireplace! Bonus/game room with fireplace! Large kitchen with granite counters! Great home to entertain!

(For all you aspiring agents out there, notice the perfect sentence to exclamation mark ratio of 1:1. Amazing work.)

WHAT WILL THIS HOME SELL FOR?
Post a comment below to guess!

Need more information? Please post a comment and we will get back to you.

A DAILY LOOK AT THE STORIES YOU SHOULD BE READING

Real Estate

- Obama decides to help home buyers and incentivize mortgage servicers to finally do their job correctly
- In a down market, it is amazing how not building homes can be considered unexpected.
- In breaking news, when homes are affordable, people want to live in them.
- The NY Times gives us examples of what you can get for approx. $150,000 around the country.  $169,000 house in Michigan … seems overpriced to me.

Finance

- Is the European Union about to go to war … with itself over subprime borrowers?
- If Americans are not buying American cars then I guess they aren’t buying American tires either.
- I want to party like its 1999 but the world of finance is a different place.

Ciriosly Funny

- Can you outsource social networking?  Maybe.

By RYAN TAYLOR

The National Association of Home Builders, or NAHB, released its confidence numbers for February this morning and the reading unexpectedly rose to 9, up from 8 in January. 8 is the lowest level the index has ever reached.

This surprise increase is not exactly a reason to start popping champagne and celebrating the bottom of the market for new homes: Sentiment is not deemed positive until it climbs over 50, so we have a long way to go before it is time to be optimistic.

“The market for new single-family homes remains very weak at this time,” NAHB Chairman Joe Robson said.

While the NAHB is rarely as misleading as the National Association of Realtors, these comments are far from reassuring. The basic reasons for the increase in the sentiment were increases buyers traffic and the blind hope that the $789 billion stimulus package would help turn the economy around.

“Looking forward, we are certainly hopeful that the newly passed economic stimulus bill, which includes some favorable elements for first-time home buyers and small businesses, will have a positive impact that will help get housing and the economy back on track,” said Robson.

In a more muted recessionary environment, we believe the $8,000 tax credit offered to first-time home buyers would have a significantly positive affect on demand. However, the economy remains quite weak and we believe most first-time home buyers are going to have a hard time buying homes since so many either A) no longer have a job or B) have seen their wages curtailed.

Finally, new home sales will continue to be hurt by the ever growing prevalence of REOs on the market. Given the fact that numerous banks are keeping many of their REO properties off the market, we do not foresee competition from REO properties being eliminated in the foreseeable future.

Buying a new home remains a risky proposition.

A DAILY LOOK AT THE STORIES YOU SHOULD BE READING

Real Estate

- South San Francisco has seen home values fall, but the town is optimistic about future development.

- Let the debate begin on which home buyers should be rescued from foreclosure and which should not.  Maybe a better question is who gets to make that decision and what makes them qualified?

- We aren’t alone.  The U.K is feeling the same housing pain we are.

- Real Estate continues to be a fall back profession for many even in hard economic times.

- Do you want to live like you are on HBO’s “Entourage”?  Now you can for $6,950 a month.

Finance

- Japan’s economy is bad shape and America’s economy could make the situation much worse.

- Liberty Media has decided that giving $530 mm to a company that has never been profitable is a good idea.
- Todd Harrison of Minyanville talks about the mindset of our society.

Ciriosly Funny

- For all of you San Francisco Giants fans out there, the problem with Barry Zito is the umpires no longer call his curveball for a strike.  And here I was worried that it was his lack of confidence, loss of velocity and inability to locate his changeup.

By RYAN TAYLOR

Looking at real estate from the perspective of an investor, it’s easy to forget that behind each transaction is an intensely emotional decision – often one that is life changing for the buyer. Not only do people want to buy a home to grow their wealth but they also want a place to raise children, be close to friends and enjoy the nuances that make a home special to them.

And while we use many different tools (Google Earth, Realty Trac, Trulia etc.) to value a home, it’s nearly impossible to know what intangible aspects of a house adds value to you, the buyer. The concept of your own personal preferences when it comes to a residence is “Your Value”.

One of the main reasons real estate will always be an imperfect market is because of Your Value’s influence on the market. It is impossible for the rest of the world to know when a house that’s for sale is next door to YOUR best friend or within walking distance of YOUR job. In both these cases, because of the intangible benefit that creates an increase in Your Value, you may be willing to pay more than the typical buyer for that particular home. As well you should.

In a declining market, Your Value becomes more important because the decision to buy a home is so much riskier from a financial standpoint. Buying a house is a big decision at all points in time but it is never more profound than in a market where your new home is likely to be worth less than you paid in a short period of time.

Now, more than ever, you should be uncompromising as a buyer. The home you are looking for should be well defined –

TOO Broad: A 3 bedroom single family residence in San Mateo
TOO Narrow: 1234 Main St, San Mateo, CA
Perfect: A 3 bedroom home with a large backyard and updated kitchen between the 101 freeway and the 280 freeway.

Think about it this way – if you had $500,000 cash and you were going to spend it all on something, wouldn’t you require it to be perfect or close to it!? Well, that is exactly what you are doing when you buy a house — you just get a bit of help from the bank on the cash part.

The reality is that you should always be willing to pay up for the house that fits your parameters. As any good real estate agent will tell you, you should never purchase a home that you do not see yourself living in for at least 5 years (in this market, preferably 10 or more). With this thought in your mind, having a clear understanding of what constitutes Your Value is critical when looking to buy a home.

While we continue to believe it is a risky time to buy a house, we understand that there are certain properties that meet or exceed your every expectation. It’s very possible this home will not be available when market conditions have improved and risk has fallen. When the home is affordable for your situation and Your Value is reached, it might just be time to buy.

And while that doesn’t mean you should rush out and start bidding on properties that you convince yourself are “perfect,” it does mean finding the right property, at the right price, even in this market, is certainly possible.

But before you hit the Saturday open houses with your neighborhood Realtor, ask yourself this very important question: Do You Have a Friend in the Real Estate Business?

By AUSTIN NELSON

How many times have you read a statistic like this one: “57% of Americans believe that the economy will do X in the next Y years”? Ever wondered how in the heck they can say something like that? Do they poll every American and ask them what they think?

The answer, of course, is no.

Through a series of statistical tricks, it is usually perfectly acceptable to make statements like the one above using only a small sample size. For national poll results, usually between 1000-2000 people suffice. Scientifically speaking, much can be inferred from such a sample, and its accuracy can be evaluated mathematically (hence the ubiquitous +/- 3% info that follows all poll data).

The goal of polling any sample is to get enough people to gather a representative group, without going overboard and designing polls that would take months to perform. The problem — and this is where one can get into trouble with polls and other studies using small samples to evaluate a large population — is in the process of sampling itself. For instance, in “nationwide” polls like one that could get the datum described above, polls are often conducted by phone, with pollsters “randomly” selecting people to poll and collecting the results.

But what does “random” mean? Presumably, these pollsters have a method akin to pulling a name out of a hat filled with every name in the phone book. There are a few problems with this assumption of “randomness.”  The first is that not everyone is in the phone book. The second, and more significant problem with this methodology, is that it takes a very specific kind of person to a) actually answer the phone when someone calls from a number they don’t know and b) actually stay on the line when the person on the other end announces they just need “a few minutes.” By choosing to interview people by phone, the pollsters have actually thrown random out the window and left a large portion of America out of their study entirely.

Now, Im not saying that every national poll is worthless. Far from it. In fact, polls can be very informative as to trends in public opinion because you can accurately compare the results of the same poll over time. But it should never be assumed, not even for one moment, that if the poll says 57% of Americans do whatever, that 57% of Americans in real life actually do that (even including the stated error range).

Sampling is a big issue in any area of scientific inquiry. The assumptions that underlie any statistical analysis are very specific as to the requirements for sampling. Outside of the physics laboratory, these assumptions are almost never met. However, through careful design and data acquisition, one can make a reasonable stab at satisfying their requirements.

One good example of this is the Case-Shiller home price index, or CSHPI. As described previously by Andrew Jeffery, the index uses paired-sale comparisons to evaluate current trends in housing markets. Their methodology is opaquely complex but freely available for the world to see.

Some argue against the method, saying that by only sampling homes that have repeat sales within a given time period, you leave out a huge chunk of homes whose sales could give you insight into home values in its area. This is true, and the CSHPI is far from perfect as a result, but there is simply no way one can achieve perfection in an undertaking like modeling home prices.

The important thing to keep in mind is that with the CSHPI, you know what exactly what you are getting — and what you’re not.

Is the index a perfect indicator for what is going on in Brentwood, CA or Mesa, AZ? Absolutely not, and anyone who tells you otherwise is selling you something you don’t want to buy. But it is a painstakingly accurate and admirably well-designed method for tracking trends on a large scale level. That it leaves a large chunk of the market out of its samples is an inevitable aspect of proper experimental design.

Only by controlling as many variables as possible (in this case, by only comparing one house to itself rather than every other house that has sold within a given time frame) can one hope to do any meaningful analysis of a market as complex as residential real estate.

Because of the way it is constructed, the index itself is really only valuable as a tracker of large scale trends. If the index goes down by 10%, you can’t reasonably say that any given property has declined by 10% or even use it to reliably estimate the price change of a specific property. But if the index has shown a 25% drop from its peak (as it has), you can reliably infer that things are not going well in US housing. By tracking the rate of that decline or the difference in trends between the individual indices of one metro area versus another (there are indices available for 20 metropolitan areas), one can gain valuable and reliable insight about the performance of those markets and make inferences about future trends.

In conclusion, sampling is one of the most important but least appreciated aspects of modern data analysis. In order to correctly interpret any given data, it is absolutely essential to know how that data was sampled and how that sample fits into the area of study. Be wary of data where the data collection and analysis methodology are not freely available. And understand that where samples are involved, usually the most valuable way to use that data is to monitor changes over time rather than making inferences about how any given time period’s data relates to whatever phenomenon you are interested in.

This is especially true when it comes to home values, where there is absolutely no single data model that can tell you how much your house is worth or how much to pay for that new house you’ve got your eye on. However, there is enough data currently available that with careful scrutiny (and the help of trained professionals like the friendly folks at Cirios Real Estate) you can confidently make those assessments.