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One of the interesting things about what is currently happening in the real estate and financial markets to me is all the pet theories people have about what drives prices. Folks will create spreadsheets and graphs that somehow prove, or at least don't disprove their ideas, and then other folks will agree or disagree based on their personal prejudices.

One theory floating around out there is the "Time Delay" theory. The Time Delay theory says that Los Altos and the surrounding area real estate pricing trends tend to lag trends in other parts of the country by 18 months to 2 years. It seems as though what the theory attempts to do is simply that some rule exists whereby you can predict what will happen in the Los Altos and the surrounding area market by looking at other real estate markets around the state or country. What this theory doesn't do, is indicate any understanding as to why markets may or may not behave differently. The proponents of this theory are quick to discount any strengths that the Los Altos and the surrounding area has that would mitigate the effects of a slowdown in the economy or real estate market.

In a nutshell, I would refer to the Time Delay theory as the idea that whatever happens elsewhere must inevitably happen to Los Altos and the surrounding area, and we are just late to the party. Obviously, the flaw is that you are looking at an effect and trying to imply causality.

I am not saying the theory is completely without any basis, however. It does seem to be true that our local economy may at times be up when other parts of the country are down, or vice versa. However, there are reasons why this happens, one of which is international trade. We are somewhat unique in that we have one of the strongest balances of international trade in the country. So, if the dollar is weak, and the economy overall is somewhat weak, our local economy can sometimes be buoyed by selling more of our goods overseas.

Not to say we are immune from economic factors that plague the rest of the country, but we do have the good fortune of not being tied as closely to the domestic economy. Conversely this can be a negative when the dollar is really strong, as our products then become more expensive domestically--this explains partially why Boeing orders go up when the dollar is weak, and Airbus orders pick up when the dollar is strong. At any rate, these factors lend validity to this idea that when the US at large is up, Washington might be down, or vice versa. But the important thing to note is that any time a trend like this exists, there will usually be reasons why it is, or is not so. It's an effect, not a cause.

The problem for us is when the global economy and the domestic economy go down the drain at the same time. Because then, there is no one to buy our stuff. And if no one buys our stuff, people tend to lose their jobs.

To return to this time delay theory, one of the theories that is floating around that I take the most exception to is this idea that Los Altos and the surrounding area real estate market is following in the footsteps of other inflated markets like San Diego. The theory seems to indicate that if San Diego has fallen 30%, then so too inevitably must Los Altos and the surrounding area --it is just taking us longer to get around to it. After all, the theory goes, San Diego what with its sun and fun, is a more desirable place to live than Los Altos and the surrounding area. How can our economy hold up when we don't even have a Sea World?

In my introspective moments, I've sometimes wondered this myself. There are days (rainy ones, usually) when I would rather be living in San Diego than here. But, there are a few factors that have always kept me here. Obviously, the first would be my family situation--being part of a Los Altos tends to limit the number of places that one might conceivably live. Another is the fact that I have actually visted San Diego, and did not like it. It is the proverbial place that is nice to visit, but not to live.

This is partly because of the sun and fun factor. Like most of California, San Diego has always had a boom and bust real estate market. Like it's bubble cohort Miami, part of what has always driven the market in San Diego is the 2nd home market. When times are good real estate in San Diego becomes very expensive because not only are companies that are located in San Diego expanding, you also get a lot of retired people (they call them Snow Birds) buying 2nd homes that they live in during the winter when the weather is bad in their home state. And because the 2nd home market tends to dry up whenever times are bad, that means that San Diego's real estate market is more volatile than our market here.

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Diane Schmitz Top Realtor Review

By ALAN ZIBEL – 12 hours ago

WASHINGTON (AP) — Pending home sales rose 7.4 percent from July to August, an unexpected piece of positive news for the battered U.S. housing market.

The National Association of Realtors said Wednesday its seasonally adjusted index of pending sales for existing homes rose to 93.4 from an upwardly revised July reading of 87. The reading was the highest since June 2007.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.

Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 84.9.

The index, which sunk to a record low of 83 in March, stood at 85.8 in August 2007.

Sales are picking up in places that have seen the most severe declines in housing prices — including California, Florida Nevada and Arizona, plus Rhode Island and the Washington, D.C. area, said Lawrence Yun, the trade group's chief economist. Still, Yun does not expect home prices to rebound until next year and only expects a modest gain of 2 to 3 percent in 2009.

A major unknown is how the worldwide financial crisis and economic slump will affect the housing market.

Despite numerous efforts by the Federal Reserve to encourage banks to lend more, lenders have kept tight reins on mortgage lending, and average rates on 30-year mortgages have remained over 6 percent for most of the year.

The latest effort by the central bank came Wednesday, when the Fed and six other major central banks around the world slashed interest rates Wednesday in an attempt to prevent a mushrooming financial crisis from becoming a global economic meltdown.

The Fed reduced a key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent. Also cutting rates were the central banks of China, Canada, Sweden, and Switzerland.

There's no guarantee, though, that mortgage rates will match the Fed's cut.

That's because long-term interest rates, which influence 30-year mortgages, don't always move in sync with the Fed's action, which lowered the interest rate banks charge each other on overnight loans.

However, the Fed action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement.

California, Florida drive mortgage delinquencies

Pacific Business News (Honolulu)

Mortgage loan delinquency rates in Florida and California are driving the nation's residential delinquency rate, which jumped 0.06 percent in the second quarter to 6.41 percent of all outstanding loans, according to the Mortgage Bankers Association.

Florida and California accounted for 58 percent of all prime adjustable rate mortgage foreclosure starts in the second quarter ending June 30 and 78 percent of the increase in those types of mortgages.

The foreclosure start rate for Florida is 3.2 percent, while for California, it is 2.47 percent. The national median is 1.06 percent. The foreclosure start rate for subprime ARM loans was 9.1 percent in Florida and 9.5 percent in California, about double the national median rate.

Seventy-seven percent of first-time home buyers say lower home prices played critical role in decision to purchase a home

LOS ANGELES, Sep 11, 2008 (BUSINESS WIRE) -- Declining home prices coupled with low interest rates prompted more home buyers to purchase in 2008 compared with last year, according to the CALIFORNIA ASSOCIATION OF REALTORS(R)' (C.A.R.) "2008 Survey of California Home Buyers." Sixty-nine percent of all home buyers reported that price declines encouraged them to buy a home, while 40 percent said that low interest rates enabled them to move to a better location. Seventy-seven percent of first-time home buyers said lower home prices played a role in their decision to purchase a home.

"The housing market has confronted headwinds on several fronts since early 2007," said C.A.R. President William E. Brown. "Lax underwriting standards that left some subprime borrowers unprepared for rate adjustments, the global liquidity crunch, sluggish economic growth, and higher fuel and food prices are some of the factors that led to the downturn in the housing market.

"As the housing market dropped sharply from record sales levels set in 2004 and 2005, and prices began to soften, home buyers dramatically changed their attitudes and behaviors towards home buying and adapted to the new housing environment," he said.

The Internet continued to be an integral part of the home-buying process, with 78 percent of buyers utilizing it to search for a new home and find a real estate agent, compared with 72 percent in 2007. The share of traditional buyers -- those who did not use the Internet during the home-buying process -- decreased from 28 percent in 2007 to 22 percent in 2008.

Both Internet and traditional buyers spent considerably more time searching for a home with their agent than in previous years, a reflection of the variety of home choices available in today's market. Internet buyers spent an average of 8.3 weeks looking for a home with their agent, an increase from 5.2 weeks in 2007, and nearly quadruple the number of weeks from two years earlier when Internet buyers spent 2.2 weeks looking for a home. Traditional buyers spent 10.3 weeks looking for a home with their agent, compared with eight weeks in 2007. Traditional buyers also visited nearly twice as many homes with their agent, averaging 23.3 homes, compared with Internet buyers, who visited 12.7 homes.

"Due to the high inventory of homes on the market, and uncertainty about the direction of home prices, buyers are more cautious and are moving at a slower pace during the home buying process than in previous years," Brown said. "The Internet also continues to play a vital role in this process and has solidified the relationship between REALTORS(R) and home buyers."

According to the survey, 72 percent of home buyers either "agreed" or "strongly agreed" that using the Internet helped them better understand the role of real estate agents, and increased their appreciation for real estate professionals and how key they are in the home-buying process. More than half of Internet buyers thought the information their real estate agent provided was more useful than the information they gathered on the Internet. None of the Internet buyers reported that the information they found on the Internet was more useful than the information provided by their real estate agent.

Other key findings from C.A.R.'s 2008 Survey of California Home Buyers include:

-- Internet buyers spent significantly more time considering buying a home before contacting an agent, averaging 8.2 weeks than did traditional buyers, who spent 3.6 weeks.

-- Nineteen percent of all buyers were first-time buyers, who spent on average 9.6 weeks with their agent, compared with 5.8 weeks in 2007. Repeat buyers spent 8.5 weeks with their agent in 2008, versus seven weeks in 2007.

C.A.R.'s "2008 Survey of California Home Buyers," formerly the "Internet vs. Traditional Buyer Survey," is available for purchase for $29.95 in electronic format at http://www.clarusresource.com/datamine. The survey is no longer available in hard copy format. Journalists who would like a complimentary copy of the report should e-mail markg@car.org or call (213) 739-8304.

Leading the way...(R) in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS(R) ( www.car.org) is one of the largest state trade organizations in the United States, with nearly 175,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

In the past year, plenty of people in Southern California have been pinched by the real estate crunch. During the same time period, about two thousand people have lost their jobs at Amgen, which is based in Thousand Oaks, north of LA.

As this morning’s Ventura County Star reports, Amgen’s giving a little extra breathing room to some unlucky folks who have been hit by a double whammy — losing their jobs and finding themselves on the wrong end of the housing bust.

It was common practice for the company to offer second mortgages to help new employees relocate, Amgen spokesman David Polk told the Health Blog. The standard term of the loans was five years, but employees who left before that time was up were supposed to pay back the loans within 30 days.

As the cutbacks came down last year, the company said employees who took voluntary buyouts or were laid off could have until October of this year to repay the loans. Now, with the real estate market in a tailspin, the company is giving former employees an extension until next February to repay the loan.

Polk said that employees who left as part of the cutbacks got a severance of at least 24 weeks pay, as well as company health insurance through the end of this year. But even a decent benefit package plus an extension on the loan may not keep everybody afloat.

The Ventura Star asked one homeowner if the extension would help. “Unless we win the lottery, not really,” she said.