December 2008 Quarterly Newsletter

Volume 3, Issue 4 December 1, 2008

Nicholas French, Broker Associate, CRS

Quarterly Review Happy Holidays

Nicholas French Broker Associate, CRS 369 S. San Antonio Road Los Altos, CA 94022 650 773 8000 (cell) 650 247 2999 (office) 650 947 3099 (fax) [email protected] www.realtornickfrench.com

Inside this issue: Happy Holidays

I am sure we agree that 2008 will not be a year soon forgotten: from the stock market and financial collapse, to the government nationalizing of the banking system and the national housing bubble affecting the masses and finally the confirmed recession. There sure are plenty of events to hang our head in shame, but there were also some inspiring events like the Beijing Olympic Games and the Presidential election. This is a great time of year for reflection on the many events that have touched your family and an opportunity to appreciate what we have and how we can enrich our lives further. I am grateful for my family, health and friendships. Though it is easy to take for granted I feel fortunate to have such strong relationships with my family and friends. Especially during the holiday season, I guess it is a convenient time to reflect, I want to express my humble gratitude for your support and confidence this year with my health and business. We will take the challenges at hand whether in business, family or community and do what we can to improve our quality of life for our family, friends and neighbors. I wish your family a healthy and prosperous 2009.

“I Want to Buy an REO”

1

“I Want to Buy an REO” 1 Market Snapshot

2

Market Summary

2

Client Testimonial— Marinovski Family

2

3 The Great Bailout of 2008: Follow the Dollars Catton Properties Joins Sereno Group

4

Updated Neighborhood Statistics

4

Property Taxes Due Dec 10

4

Share The Newsletter

4

Whether over the water cooler, intranet posting or blog, you may be seeing the REO frenzy and saying, “I want to buy an REO too”. I will make a few assumptions that you are probably using for your rationalization: 1) REO prices are much lower than comparable properties 2) They are easy to buy in the current market climate 3) The house will be ready to go. There is no argument that REO (real estate owned) properties are prolific in some of our local neighborhoods, but what is important to know is that these properties have gone through the foreclosure process and generally were not purchased during the short sale and auction process. This is typically because these properties are either in less desirable areas with few buyers, the condition is poor or in some cases the property is too far underwater on financing. In any case, once the bank receives the property there is little to no improvements or clean-up on the property; literally I see homes with the previous owner’s mail and food still in the refrigerator, there are few disclosures about the property and neighborhood and the bank contract often takes away buyer’s rights that are found in our local real estate contracts. I share my view with clients that if a particular property, which happens to be an REO, is priced below comparable properties it is mainly because the condition is poor, it does not show well, or there are less qualified buyers in the neighborhood. If there are two similar properties side be side relatively the same whereas one is a standard sale and the other is an REO the price should be similar and the non-REO property should be easier to negotiate. Banks located in Wisconsin dealing with local properties do not have the wherewithal or motivation in most cases. For more information please feel free to contact me directly at [email protected] or 650 773 8000. Santa Clara County Foreclosure Statistics Year Notices of Defaults New Trustee Sales REOs SOLD 2008 9817 5906 3290 229 2007 4314 1124 869 137 2006 1998 582 69 86 Source: The BlueSheet, Oct 08

Approximately 56% of the current Trustee Sales become REOs compared to 77% in 2007 and 12% in 2006. The decrease in 2008 is due to banks negotiating the terms and completing Short Sales

Quarterly Review Page 2

Market Snapshot Crude Oil Speculation July 11: $147.27 Sept 2: $109.71 Dec 2: $46.96

Fed Rate Cut Sep 07 - 5.25% Oct 08 - 1%

NASDAQ Dec 1, 97 - 1630.72 Mar 24, 00 - 4963.03 Dec 1, 08 - 1398.07

Dow Jones Industrial Avg May 30 - 12,638.32

Market Summary Depending on which side of the table you sit the good and bad news is that the Santa Clara median home price dropped approximately 34% year over year in October. This is definitely a headline, but not a complete surprise. Putting real estate history and statistics aside let us just discuss this specific scenario. With the price decline came an increase in sales, which means people are buying the lower price homes. This is significant because the prices in some areas have reached a point to where even the bottom feeders (so they like to be called) like Donald Trump are out picking up bargain properties: it is the Thrift Store of real estate. This phenomenon did not happen overnight. Over the past few years we’ve been watching and discussing the foreclosure rate rise and inventory build-up and slowdown of certain neighborhoods like Central San Jose, but the data was not showing the complete picture until just recently. Why is this? I believe it is strongly tied to the fact that the higher end markets in our county were still selling in good numbers and strong prices. The high end market, if you will, was carrying the county. It October Area New Available Pending didn’t matter that the lower end was not selling because when you look at the median or average 2007 C. San Jose 98 343 38 prices you see strong numbers and many did not 2008 C. San Jose 104 337 95 look at the actual data to see that the sales were 2007 Cupertino 56 69 45 heavily weighted in specific neighborhoods. Over 2008 Cupertino 68 127 23 the past several months we have seen a slowing trend even in the highest price neighborhoods such as Atherton and Monte Sereno. The great news is that if you view my older articles you will see that typical real estate cycles end when the high-end properties slow down – they are the last to go down and the first to go up. Data suggests that over time singlefamily homes will have the largest growth rates comparing the various property types and residential multi-unit investment property will have the most consistent, albeit slower rate of appreciation since the value is tied to the cash flow generated from rental income. We will see how the government continues to fight this fire. So far it appears they are using strategies from both the Savings and Loan crisis and other recessions. Money is basically free for banks and still they are hesitant to lend to qualified borrowers. The risk premium (profit) for lenders is currently very high, so current borrowers are subsidizing some of the poor decisions made by borrowers in previous years. I will continue to keep you up on how the market is adjusting and always feel free to contact me directly. During these cycles there are years of negative or no growth and a handful of double-digit growth years where we see most of our gain. The trick is long-term real estate holdings. Whether it be your primary home or a rental property there is an expectation that some years will be golden and others will be difficult, but in any case it should work for your family and portfolio.

Jul 15 - 10,962.54 Sep 4 - 11,220.96 Nov 20 - 7,552.29 Dec 1 - 8,149.09

Client Testimonial—Marinovski Family Our experience with Nicholas French was superb! Nicholas is very dependable, professional and knowledgeable. His diligence and attention to detail is an asset to any home buyer. He knows his business and the area very well and was able to find us the home that we love. The entire process went very smoothly as Nick has taken care of all details. We would highly recommend him to others!

Volume 3, Issue 4 Page 3

The Great Bailout of 2008: Follow the Dollars... SAVING WALL STREET Term-auction facility

$1.6 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to #300 billion in October, up from $20 billion when the Fed began the program

Dollar swap lines

Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December

Bear Stearns

$29 billion in a special lending facility to guarantee potential losses on its portfolio. With the lending facility, JPMorgan was able to step in to save Bear from bankruptcy

Lending to banks

$70 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March. $92 billion a day to commercial banks $250 billion allocated to banks from $700 billion rescue package in exchange for equity stake in the financial institutions in the form of senior preferred shares $300 billion in troubled asset guarantees and $45 billion in cash-injections to prevent fourth-largest bank from failing

Cash injections Citigroup Fed rate cuts SAVING MAIN STREET

Down to 1% in October 2008, from 5.25% in September 2007

Stimulus checks

$100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy

Unemployment benefits

$8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks. Some states must now offer 39-week benefits after an extension act was passed in November

Bank takeovers

$15.5 billion drawn down so far from the FDIC's deposit insurance fund after 22 bank failures in 2008

Rehab foreclosed homes $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties Student loan guarantees Money-market guarantees Housing rescue Deposit insurance Consumer loans

$9 billion so far in government purchases of student loans from private lenders. Higher borrowing costs made student loans unprofitable for a number of lenders, many of whom stopped issuing the loans $50 billion in insurance for money-market funds. The Fed then began to lend an unlimited amount of money to finance banks' purchases of debt from money-market funds. The fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds, which was extended for six months in November $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest-bearing accounts and newly issues unsecured bank debt $800 billion extended to consumer loan-backed securities, including $200 billion for assets backed by credit cards and car loans and $500 billion in mortgage-backed securities. The Fed will also buy $100 billion of Fannie Mae and Freddie debt to try to make loans cheaper

SAVING CORPORATE AMERICA Business stimulus Fannie Mae, Freddie Mac AIG Automakers

$68 billion in tax breaks to corporations to help loosen the stranglehold on businesses trying to finance daily operating expenses $200 billion to bail out the mortgage finance giants. Federal officials assumed control of the firms and the $5 trillion in home loans they back $152.5 billion restructured bailout, including a direct investment through preferred shares, a easier terms on a $60 billion loan, and new facilities meant to take on the company's exposure to creditdefault swaps $25 billion in low-interest loans to speed the industry's transition to more fuel-efficient vehicles

Commercial paper facility $271 billion in corporate debt purchased so far by the fed since its so-called Commercial Paper Funding Facility opened. The Fed allocated $1.4 trillion for the program

Source: CNNmoney.com

Page 4

DON’T FORGET PROPERTY TAXES ARE DUE DEC 10 Catton Properties joins Sereno Group I am pleased to announce that I have joined efforts with a small brokerage that has similar business philosophy and commitment to the community. The new venture will allow me to maintain my same business practices and style while adding benefit to clients through superior marketing and off-market property data (I expect to see many more listings off market throughout this market cycle). I hope to tell you more about this venture when I see you next.

Updated Neighborhood Statistics City

Year

Qtr

No. of Closed Sales

% of List Price

Median Price

Average Price

DOM

Campbell

2008

Q3

56

97.45

775,000

785,344

58

Campbell

2008

Q2

44

97.82

729,500

786,472

60

Campbell

2008

Q1

45

97.73

795,000

844,240

81

Cupertino

2008

Q3

95

98.47

1,180,000

1,221,998

41

Cupertino

2008

Q2

112

100.76

1,218,000

1,255,704

36

Cupertino

2008

Q1

52

100.34

1,185,000

1,271,490

45

Los Altos

2008

Q3

68

99.04

1,950,000

2,017,432

48

Los Altos

2008

Q2

98

99.52

1,722,500

1,977,578

25

Los Altos

2008

Q1

46

100.11

1,892,500

2,020,065

31

Los Altos Hills

2008

Q3

18

94.23

2,425,000

2,743,647

78

Los Altos Hills

2008

Q2

26

95.36

2,587,500

3,227,576

148

Los Altos Hills

2008

Q1

11

95.90

2,900,000

2,924,909

112

Los Gatos

2008

Q3

76

95.71

1,265,000

1,577,520

74

Los Gatos

2008

Q2

93

97.38

1,400,000

1,640,783

57

Los Gatos

2008

Q1

51

97.83

1,595,000

1,651,725

82

Menlo Park

2008

Q3

77

98.88

1,340,000

1,385,125

53

Menlo Park

2008

Q2

108

100.75

1,637,500

1,776,388

35

Menlo Park

2008

Q1

55

99.67

1,535,000

1,787,681

48

Monte Sereno

2008

Q3

8

96.75

2,505,000

2,768,000

74

Monte Sereno

2008

Q2

11

96.25

1,780,000

1,888,181

65

Monte Sereno

2008

Q1

7

97.06

1,820,000

2,039,285

141

Palo Alto

2008

Q3

99

101.10

1,700,000

1,793,510

32

Palo Alto

2008

Q2

124

101.38

1,550,000

1,780,321

30

Palo Alto

2008

Q1

65

100.13

1,617,500

1,977,301

20

Saratoga

2008

Q3

72

96.41

1,676,500

1,938,044

57

Saratoga

2008

Q2

74

98.57

1,656,944

1,814,243

53

Saratoga

2008

Q1

61

98.43

1,565,000

1,674,203

67

Sunnyvale

2008

Q3

175

99.43

875,000

835,940

47

Sunnyvale

2008

Q2

175

100.20

905,000

914,567

35

Sunnyvale

2008

Q1

94

100.36

893,133

893,744

52

Please Send This Newsletter to Your Family and Friends If you know someone who would like to receive this newsletter I would like to send it to them. Please either have them contact me or provide me their information and I will make contact. My goal is to have this newsletter add value and be an information source for my clients, family and friends. Please do not hesitate to contact me if I can help you with any real estate questions, strategies or if you are seeking quality representation.