Lots of sub-prime money

I am usually at the kitchen table with my first cup of coffee and the newspaper by six-thirty. The first section of the paper I go to is the business section. Being self-employed and in sales, the state of the economy is important.

Two headlines caught my attention in Monday’s business section. The “Mandatory time off” bill, proposed by the Democrats who now control things in Congress, provides paid sick leave for 57 million employees who don’t already have this employee benefit. I wonder who is going to pay for that? I bet self-employed real estate agents aren’t included in that category of “covered workers.”

The next big headline was “Slower outlook for state.” That’s an attention getter but the first sentence of the article appeared out of context……..”The housing downturn has done little so far to slow the California economy.” Naturally, the article went on to say that the most recent economic forecast project slower growth in the future. In case you have been missing out, the national economy and the California economy have been really doing well the past few years with record new employment, low unemployment, record corporation profits, lots of consumer spending and low interest rates.

The slower economic forecast is attributed to a slower hosing market, which will be caused by “The drying up of subprime credit suggesting that home sales in California will be stagnant for some time to come.” Now, I really need to check into my unemployment benefits and perhaps it’s time to support that mandatory time-off legislation if it will include 2,000,000 real estate agents. The abbreviated version of the article was the lack of sub-prime lending in the future, not the fall-out from its past indecressions is finally going to slow the California real estate market.

By seven o’clock I am in my office checking my daily fax broadcast from lenders. Their daily barrage of flyers and advertised offerings as to their interest rates and loan programs ties up my fax machine each morning. Lenders must not be reading the newspaper’s economic forecast. They must not be aware of the looming shortage of sub-prime loans that will result in a slower economy. There is lots of sub-prime money! Here are some examples of what major purveyors of money are offering today: “100 PERCENT LOANS” “NO CREDIT LOANS” “JUMBO LOANS WITH LITTLE FICO SCORES AVALIABLE” “NO DOC LOANS” “EASY QUAL” “BKs OK”.

The housing market is still going through an adjustment. It appears to be quietly settling. It didn’t crash and won’t. Lenders will continues to make loans. That’s what they do. Sub-prime will continue. Loan programs will be adjusted, there will be more disclosure forms for borrowers to sign but borrowers who are serious about buying a home will continue to have many options to choose from.

Economic growth isn’t consistent. Some years are better than others. Recessions appear every ten years or so. It doesn’t take a PHD in Economics to predict slower growth in light of past cycles. This is a normal pattern of economic behavior. It isn’t the result of sub-prime lenders. They are still looking for reasons to make loans.

Busniess is good for California

More and more movies these days portray the villains as “businessmen.” When people are polled about whether “businesses” should pay more taxes or be responsible for providing health care, the knee-jerk response is, “absolutely.” Yet, a look at some figures recently assembled by the Assembly Republican Caucus should remind people that most “businesses” are not big corporations but small firms, owned by your neighbors, operating in your community, laboring under excessive state regulations.

The following figures come from the U.S. Small Business Administration:
· California has about 14% of the nation’s small businesses.
· Small businesses represent 92% of all businesses in the state.
· Such firm employed 53.1% of the state’s workforce in 2004.
· Small employers with fewer than 20 employees on the payroll contributed 71% of all dollars paid to employees in 2004.

According to the U.S. Census Bureau, of the 696,301 firms in California:
· 319,053 have between 1 and 4 employees
· Another 120,000 have 5 to 9 employees
· 73,958 have 10 to 19 employees
· 65,681 have 20 to 99 employees
· 12,951 have 100 to 499 employees
· 5,447 have 500 or more employees.

When you consider the huge number of small businesses, the following rankings are frightening:
· The Small Business and Entrepreneurialship Council ranked California 49th out of the 50 states for small business friendliness in 2006. That ranking was determined by high personal income, capital gains and corporate income taxes, as well as the high minimum wage, health insurance mandates, and increasing government spending.
· The Tax Foundation’s State Business Tax Climate Index ranked California 45th in the nation on corporate taxes, individual income taxes, sales tax, unemployment insurance tax, and property tax.
· The Tax Foundation puts California’s top individual income tax rate as the highest in the nation.
· The state’s 8.84% flat corporate tax rate is the highest in the western U.S., and at $193 per capita in 2004, the 7th highest nationally.

I am reminded each year about this time as to how expensive it is to run a small business in California. It is the private sector that generates the revenue necessary for public sector employment to exist. “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”…..Ronald Regan

First Time home buyers

Some agents claim to be specialists. Their advertisements and business cards proclaim them: “neighborhood specialist” “horse property specialist” “El Dorado County specialist” “luxury and estate home specialist” and recently I have seen a “short sale/foreclosure specialist.” I have always been a little suspicious of self-proclaimed experts. Do specialists have additional real estate licensing credentials? Do specialists possess special knowledge not available to non-specialists? What happens when a “horse property specialist” runs across a buyer for a non-horse property? Should they refer their clients to a “non-horse property specialist”? Should a “specialist in El Dorado Hills” be allowed to sell a home in Placerville where they are not? I don’t see many agents who are self-proclaimed “first time home buyer specialists”. What’s up with that?

All my life I have been a generalist. That’s what happens to Political Science majors. Engineering majors spend their careers as engineers. Pre-med students will continue throughout their life in the medical field but Political Science majors will spend 45 years at many different jobs as generalists. We know a little about everything and not especially a lot about any one thing.

Generalists, however, fit well into real estate sales. The business demands constant multi-tasking (one reason I think women are more natural at it that us guys). There are many decisions to make about where to spend our limited resources of time & money most productively. I would rather be showing houses than completing disclosure forms; I would rather talk to people in person than on the phone or by e-mail; I would rather be the bearer of good news than bad and I like helping first time homebuyers. The commissions are less but the rewards greater. Does that make me a “first time home buyer specialist”?

Most first time buyers are fun to work with and don’t require the expertise of a specialist. They have a hopeful expectation about buying their first home but usually don’t have a clue about the process. I like working with first time buyers because they don’t have an inflated ego or an “it’s all about me” attitude. They think my Honda Accord is a luxury car and are impressed if I spring for lunch at Taco Bell. First time home buyers were scarce in our county in 2005 and most of 2006 but that is starting to change.

El Dorado County has not been first time home buyer friendly. Our home prices have been too high, selection of affordable homes too limited and it can be a long, commute to work, major shopping or entertainment. Many potential home buyers associate El Dorado County with the McMansion in El Dorado Hills or Serrano. They are not aware of the more affordable Diamond Springs, Placerville or Auburn Lake Trails. Recently, however, more first-timers are discovering El Dorado County.

Since the beginning of the year, 355 homes have closed escrow in the county and 36 percent (129) have been priced below $400,000. With the median price of a home in California holding at $550,000 a good one-third of our home sales are in an affordable price range by comparison.

Most first-time home buyers are price sensitive and will choose more affordable Sacramento County to begin their home buying journey. The median selling price of a home in Sacramento County is $350,00 while ours is $495,000. Many young families, however, are discovering distinct differences in the quality of life enjoyed in El Dorado County in comparison to the urbanized Natomas, Elk Grove and Antelope. Our past shortages of homes priced under $400,000 has prevented home buying opportunities for first time buyers but today we have 370 homes priced under $400,000 to choose from.

Living in the foothills offers recreational opportunities that appeal to younger and more active residents. Family safety and security are more important concerns and many young families are seeking a more simplistic and natural lifestyle, found in our rural areas. The Miwok Indians are already planning for a younger constituency visiting their Shingle Springs, Foothill Oaks Casino. Their gaming facility will include five restaurants, a childcare center and family fun center. The 900 new jobs will likely attract many younger county residents.

First time home buyers have often been over looked by agents specializing in working with more affluent and upscale buyers. First time buyers can be more difficult to qualify for a loan and require more time and attention. Our current market, however, presents an opportunity for first time buyers and agents who want to call themselves “First time buyer specialist.”