So You Thought The Real Estate Market Was Going Down South. Think Again

Oftentimes these days, people ask me this question, even perfect strangers: “So, Paul, where do you think the market is heading?”

“Well, it depends on where you’re looking,” I tell them. And this is quite true.

New Homes Are Selling Like Hot Cakes

It’s amazing! If you go to a new home site, then you may agree with me. The other day in May, I visited a KB Home new home site in Fremont and there were droves upon droves of hip yuppies at the Sales Center . These young professionals, mostly Indians and Chinese, are scooping up brand new properties, especially in locations with great schools. KB Home kicked off its marketing campaign offering spanking new single family homes starting at $609,000. At the time of my visit the price for such homes was jacked up to $679,900. “Why’s that so?” I asked one of the sales agents at the site. “These things are selling so briskly we had to increase prices,” he answered me.

The same is true for a Regis Homes new home site in Mountain View. Back on May 10, 2008, I saw their newspaper ad tagging their townhome prices at $599,000. When I visited them at the beginning of June, just 4 weeks after that first publication, they’d increased their prices to $639,000. Now, these are townhomes, not single family residences. The developer had kicked off this development with a phase 1 release of 30 homes. The project started in February this year. At the time of my visit, only 4 of these townhomes were remaining. This is a site that’s next door to i-85, yet it’s also selling so well in GoogleLand.

And it’s not just in google city that prices for new homes are steady or on the upside. On Sunday, June 15 2008, I visited a KB Home new site in Hayward. This part of Hayward is not as sexy as Hayward Hills, yet the sales lady told me, when asked, that the developer was fixed on his price offering. “These things are selling so quickly that there’s absolutely no need to bargain,” she said. These properties have not even been built yet. People are simply viewing the models and putting their names on the Interest List.

If you thought the market in what I call the immediate Bay Area was softening, think again. New homes are flying in the face of the trends. True, the market is not a crazy as it was back in 2004-2005 but it isn’t down and out either. The KO that a lot of spectators are expecting ain’t happening, people, at least not as far as new builds are concerned.

REOs Are Another Hot Ticket

Another set of hot babies are the REOs (i.e. bank-owned properties). California, like Florida, Nevada and Arizona , has been heavily hit by foreclosures. In fact, only a few people saw this coming. Those affected are mainly people who bought homes in 2005 and 2006 banking on the hopes that their homes would continue to appreciate in value the way they did in the 2002-2005 era. Many of these people also bought homes on stated income (i.e. they used their good credit and inflated their incomes) oftentimes getting jumbo loans with absolutely no money down. That was a very dangerous premise to start with.

I have seen many foreclosed homes and most of them fall within this category. Homes bought for $600,000+ being foreclosed and now being sold at 60% of their purchased value. Of all trustee sales (i.e. homes auctioned by banks) only 4% get bought by all-cash investors. 96% of these homes go back to the beneficiaries (i.e. the banks). It’s very bad news for these banks and that’s why a lot of them have gone down under and many more are to follow as foreclosures continue to flood the market.

On the flip side, REOs are a great haven for investors and that’s why markets that have been badly hit like Stockton, Antioch and Lathrop, to name but a few cities in Northern California, have become hot beds for investors, who are scooping up properties in droves, putting them up for rent oftentimes to those who are losing homes. In the past, these investors could not cashflow in California . Now they can. The other day, a friend of mine told me that one investor, a doctor from Texas, sold his clinic in Texas , used the proceeds and bought 15 single family REO homes in Lathrop. That’s how sexy California homes have become. In places like Antioch , it’s not uncommon to see homes that in 2005 were selling for over $500,000 now being bought by investors in the $200K range. Street after street, these types of properties abound. People are walking away from their homes and unsustainable mortgages while investors are coming in and raking up these fine deals, renting them to Section 8 tenants and getting steady checks from the government month after month without fail. No wonder these types of properties are among the hottest.

Bio

Paul LeJoy is a real estate consultant based in the San Francisco Bay Area. Paul founded and is the CEO of Pacific Realty Partners, a company that shows people how to create wealth using real estate. A native of , Paul holds a Master’s degree in International Relations and Economics from the University of Kent , Canterbury, , and a California Broker’s License. A true cosmopolitan and globalist, Paul has lived in Africa, Europe, Asia and speaks English, French and Mandarin Chinese. An avid writer, Paul has authored and published 3 books and numerous articles on various topics. Lately, he expends all his energy in building his real estate brokerage firm. Paul’s office is located at

PS

To search for REO’s and other foreclosures in your backyard or any neighborhood in the , visit one of Paul’s websites: BayAreaForeclosuremart.com. Feel free to send this article to your friends and newsgroups.