Volume 6, Issue 3

NicholasFrench,BrokerAssociate,CRS

September1,2011

Quarterly Review
HoldorSellRevisited
Theques onremainsholdyourrealestateorsellit.Seemslikeastraightforwardques on,right?Thisis adebateamongprofessionals,investorsandhomeowners.Idontthinkitisaseasyasitsounds,especially inourmarketclimate.Yes,sellingyourrealestatecanbepartofalongtermpicture(Ihaveplentyofexam pleswhenapor olioshouldhavebeenliquidated),butholdingitcanbejustasbenecial.Irecentlyhada glassofwinewithacoupleIhavethehonorofknowing.Imetthemaboutfouryearsagoastheywerede cidingwhethertosellthehomewheretheyraisedafamily.Thechildrenaregrown,theyaregrandparents andhappilyre redforseveralyearsnowdecidingwhatarethenextsteps:keepthehomeandobtainlivein care,moveintoanassistedlivingenvironment,donothingun litisnecessary.Ihadmanyconversa ons withthiscouplewhetheritwastheright metosell,whatwasgoingtohappena er,etc.Fastforwardfour years,thehouseislongsold,theirnancialplannerhasbeenakeypiecetotheirtransi onandasImshar ingaglassofwineIhearhersay:Nick, selling the house and pu ng a strategy together was the best thing I could have done.Theyarehappilyenjoyingtheirtransi onhome,haveplentyofexibilitytoseetheirfami lyandarecarefreeabouttheirlargehouseburden.Idonttellthisstoryasasellcardtothosehomeowners, butIrememberthepleasureIfeltbeingpartoftheirprocessandcouldfeelhowhappyandcomfortable theywereintheirdecision.Iusethisasanexampletooneofmyconsidera onswhendecidingwhetherto sell:simplifyinglife.Anotheroldfriendwastheoppositerefusingtosellanythingandjustpastallofhis headachesontohischildren.Thatsanotherstrategyifyouwantyourkidstoconstantlyrememberallofthe headaches.Sowhichdirec onistherightone? Letsmakeafewassump onsinordertoanswerthisques on:1)wewillbeexperiencingafairlyatmarket

NicholasFrench BrokerAssociate,CRS 369S.SanAntonioRoad LosAltos,CA94022 6507738000(cell) 6509472999(oce) 6509473099(fax) nick@realtornickfrench.com www.realtornickfrench.com

Inside this issue:

HoldorSellRevisited TheRecoveryisSlow Surprise. TheRecoveryisSlow Surprise(cont.) TheElephantinthe Room

1 2

forthenextfewyears,2)lowinterestratesthrough2013,and3)overallinstabilityforthenextfewyears.I thinkthesearefairlyreasonableassump ons.Themarketisstrugglinginsomemarketsandstronginothers withexci ngchangesonthehorizonandinterestratesslatedtobeexcep onallylowun l2013.Sowhether webuyorsellwillbedependentonvariablesthatapplytouspersonally.Ithinksomeoftheconsidera ons onwhethertobuyorsellareuniversal: Considera on Seller Buyer

3 3

WanttoBuyaNewer 4 CondoorTownhouse? UpdatedNeighborhood 4 Sta s cs

SimplifyLife

1)Highcostofcapitalimprovements, 1)Landlordcon nuestoraiserent,2) 2)daytodayhassles,3)Tenantscon Unabletopaintorlandscapeyourway,3) stantlycallingwithhouseproblems Constantlymoving Overallliabilityasahomeowner Inherentriskasahomeowner(increased assets/liability)

RiskManagement HighNumberofDefaults

Compe ngproper esdrivingproperty Compe ngproper esdrivingproperty values+/ values+/

Theques onwasnotanswereddirectly,Iknow,buttheansweristhereisnosingleanswer.Itdependson manypersonaldecisionsandImhappytotalkyouthroughtheminordertocometotherightanswerfor yourfamily.Mygoalistodemonstratethatthereisnosingleanswer.Withkeyques onsbeingansweredI thinkwecanreachtherightanswerandwecanmakeitagreatride.

Quarterly Review
Page 2

TheRecoveryisSlowSurprise.
Investorswanttheirdividends,familieswanttheirvaca ons,poli cianswanttobereelectedandthecollegegraduateswanttheirbigjob. Unfortunatelywedontalwaysgetwhatwewantandinstantgra ca onreallyisntsustainable.Whentheeconomycrashedtherewere manylegi mateeconomiststhatclaimedwedreboundwithinquartersandstockanalyststhatdidntunderstandhowcompaniesthatnever turnedaprotcouldbelosingvalue.Well,manyyearslaterands llwearediggingourselvesoutofaverydeepholecausedbyyearsof livingoutsideourmeans.Governmentshavebeenbusyintheirpropagandadepartmentsbrainstormingprograms,monetarys mula on, bondbuybacksandotherni yprogramssearchingfortheHolyGrailtoreboundfromthisglobalrecessionwithinanunrealis c meperiod. Theansweritisnotasimpleorquickprocess,itisgoingtohurtandglobaliza onhastrulyboundtheinterna onalmarketssowefeeleach othersbruises.Arewegoingintoadoublediprecession,willthestockmarketstoptherollercoasterImge ngdizzy,andwilltheGiants endtheirlosingstreak? Imhearingtheexpertsclaimtheyareconcernedwemayberecedingtoamarketsimilarto2008.ThisstatementconfusesmebecauseI dontthinkweeveryreallycameoutofthatmarket.Yes,wehadupsanddowns,buttheywere edtomassiveinjec onsofnewmoney, programs,andgiveaways.Nosurprise,duringthelifecycleofprogramsweexperiencedrisesandsubsequentdips.Companiesarecon nu allybeingsavedforthegreatergoodorsomekindofnostalgia,asifthereisnolifespantoacompany.Itseemsthateveryweekthestock marketisupfourhundredpoints,thendownthefollowingweek.Ithinktheseanalystsallwanttobehedgefundinvestorsandarebuying andsellingasiftradingPokemoncards.FollowingtheFedannouncementofsustainedinterestratesthrough2013thestockmarketsurged, thenplungedthefollowingday,thensurgedthefollowingdayandplungedthefollowingweekImexhaustedjusttalkingaboutit.Soare theprogramsworking?ThatsanarguablepointandImhappytodiscussatyourconvenience.Fornow,wewillbepragma stsanddiscuss ourop onsgiventhe

DowJonesIndustrialAverageMonthofAugust,2011

schizophrenicmarketand leadersthrowingevery thingexceptthekitchen sinkattheeconomy.

FollowingthetripleA ra ngdropandstock marketdownhillslideI no cedachangetocon sumercondenceprac callyacrosstheboard.Peoplearepossiblyques oninghowlongwewillbeinthetrough.Specicallyonrealestate Ino cedapauseinbuyermo va on,albeithopefullytemporary,andfrustra onbysellersunsurewhyhomessuddenlystartedslowing.A fewvariablesareplayingkeyrolesinourlivingdramainaddi ontothecreditra ng:1)ThecurtainsarefallingonourSpring/Summermar ketwhichconsistentlyhasthemostvolumetransactedasweentertheFallmarkettransi oningtoaslowdownoftransac ons.Iconstantly nditinteres ngthateventherealestateprofessionalswilllookateachotherandsay,hmm,itfeelslikethingsareslowing.Ihearthis annualcommentanditisusually edtothefeelingofslowingduetofewertransac ons,whichnaturallyfeelsasifthereislessgoingon.I thinkthisfeelingofslowingtricklestothebuyersandsellersastheyseelessavailableinventoryonthemarketand evolumetoprices.I thinkitisanaturalassocia on,butoneshouldbecarefulhowtoassociatedonetotheother.Asthevolumeslowsinsomeareasthereare s llmanybuyerswhodidntndahouseinthesummerandares llmo vated.Nowtheyhavesimilarcompe torswithlessselec on;this makesforsomepremiumpurchasesfortherightproperty.Forexample,alocalpropertyinagreatneighborhoodjustsoldwith32oers signicantlyoveraskingprice.Iamnotfocusedonthenumberofoersorthepercentageoveraskingbecausethispropertywassignicant lyunderpriced,however,Idopointoutthattherearemanymo vatedbuyerslookingforthesamekindofpropertyprimerealestate.We areinamarketofloca on,loca on,loca on.Thatoldclichthatwedallshakeourheadatguesswhat,thatswhatissellingtodayfora premium.Tomanyofthehighlysavvybuyersinthemarketplacewithtruckloadsofcashitisnotaboutbeingabargainprice,butbeinga highlyprizedpropertyloca on.Manywontevenconsiderthebargainproper esastheyhavesomefundamentalblemishandbuyerswant thesupermodel.DuringthemonthofAugustwehad43closingsofsinglefamilyhomesinPaloAlto.Outofthesesales:9soldunderlist price,4soldatlist,30soldabovelist.Thisdemonstratesafewkeypoints:1)manyhomesarelistedundervaluetogeneratemul pleoers (youneedtoknowthemarketwellinwhichyourebuying),2)therearemanymo vatedbuyerscompe ngforminimalinventory(cont.pg3)

Volume 6, Issue 3
Page 3

TheRecoveryisSlowSurprise.(cont.)
(realestateisascarceresourceinprimeareaseveninaslowmarket),3)whetherbuyingforaprimaryhomeorinvestment,beingdiversi edwithliquidandilliquidassetssuchasrealestateiskeytoalongtermpor olio. Isaidinapreviousnewsle erar clethatIdidntthinkinterestratescouldbeanylowergivennearazerorate,butapparentlythereissome othermethodtomakeitlowerleaveittotheFedtohaveanalterna vetozero.Thewordonthestreetisthatnancingisnearlyimpossi bletoobtainforrealestate,butImseeingtheopposite.Ithinkrealestateloansareinaveryhealthyposi onandge ngbe er.Lenders arerecognizingthebenetofsomestatedincomeloansforhighnetworthindividuals(Ihavetwogreatlendersthatoerthesekindsof programs),andthebasicassump onofgoodcreditandreasonablefundsqualiesmanypeoplebasedontheirincomeyes,this me aroundyouactuallyhavetohaveincome,whereasduringthemarketrunpeoplewerege ngmilliondollarloansmaking$40,000peryear gurethatoneout.Wearealsoseeingridiculouslylowinterestrates.Investorscanobtaina30yearxrateloanaround4.5%oninvest mentpropertyandImseeing5yearxratesinthe2%range.Onewouldarguethebanksarepu ngusintothesamepredicament,but this mebuyersactuallyhavetoqualify,soIamfeelinggoodabouttheirstrategy.Manyofthelowerrateprogramsarebasedonbanking rela onships,soins tu onsarebe ngongrowingrela onshipsandhavingteaserinterestratestoobtainnewbankingcustomers. Therecoveryisslow,butreally,whoissurprised.Wearefortunatetohaverela velygoodhealthinourlocalcommuni esrestaurantsare full,thereiscommutetracinthemorningandcollegefundsarestar ngtogrowagain.Therecoveryshouldcon nueinaslowbutsteady direc onremember,slowandsteadywinstherace.Wewillseerhetoricandpropagandacomingfromourpoli ciansandleadersand therewillbecon nuedconictthroughouttheworld.Theworlddidntendasprophesizedandtheskyisabeau fulshadeofbabyblue. Letscon nuetoworkhard,stayposi veandsetourgoalsontheprizeofahappyandprosperouslife.Itoldayoungfriendrecentlynoth inginlifeworthhavingcomeswithouthardworkandsacrice.Weknowthistobetrueandcon nuetobuildmeaningfulrela onshipsand addvaluetoourcommuni es.Therecoveryisslow,butwillcome.

TheElephantintheRoom
Haveyouseenthebigelephantintheroom?Itispinkwithpolkadotsandsi nginthecorner.Itjustarrivedpayingsignicantlymorefor gasolinethanlastyear,drinkinganOdwallasmoothiewhichisabouthalfthesizeforthesamepriceandjustcamefromthegrocerystore wherethesameamountofmoneypurchasedaboutthirtypercentlessfood.DidImen onthisisaAsianelephantwheretheyhavebeen experiencingsignicantina on,sothiselephanthasrsthandstoriesoftheimpact.Now thesestorieswontbevaluableunlessweagreethattheworldisatandareconnectedat manylevels.Impor ngandexpor ngseemtohavemoresignicancethantheydidthirty yearsago.Ourelephantisntge ngmuchpressgivenourlocaleconomicissues,butdont thinkourpinkandpolkadotelephantisgoinganywhere.Mexicoislookingpre ygoodfor ashortstay,andIheartravelingthereischeaprightnow,butourelephantwillreturn.Itis evenbecomingpartoftheregularvocabularywithourfriendsattheFed.Onequotethat comestomindisBenBernankediscussingjobssta ngitsnotclearthatwecangetsub stan alimprovementsinpayrollswithoutsomeina onrisks,andinmyviewwecant achieveasustainablerecoverywithoutkeepingina onincontrol.Isitjustmeordoes thissoundlikeadoublenega veinotherwords,wecantimprovesalarieswithoutin a onrisks,butwewonthaveasustainablerecoveryifwehaveina on.Iguessheis justkeepinghisop onsopen.Idonotbelieveyoucanstandintherainwithoutge ng wet,butifitrainsonThanksgivingyoumaygetwet.IwonderwhenanalystswillstopjumpingwhentheFedmakesastatementsinceit seemsthatmanyoftheirstatementsareemptyorjustplainsilly.Weprobablywonthearsignicanttalksfromourpinkandpolkadotele phantun lweseesomemarketstability,butoncewedowellhearhowwevebeenexperiencingina onoverthepastXquarters/years andwillhavetotacklethatbeast.

Page 4

Nicholas French, Broker Associate, CRS

WanttoBuyaNewerCondo orTownhouse? Ifso,youshouldunderstand thedosanddontsofnewer developments,specically thehighpercentageofli ga onsledagainstdevelop mentsundertenyearsold.I wasshowingnewerdevelop mentsafewweeksagoand outofsixdevelopmentsve ofthemhadpendingli ga on.Thereasonfortheli ga onmayvary,butatypi caloneImseeingiscon struc ondefectssurround ingwindowashings. Shouldyoubuyabuilding underli ga on?Youshould denitelyunderstandthe risksassociatedwithitan manylenderswontlend,so ifyoucanbuycashornda lenderthereisusuallya gooddiscountforthes gma
City

UpdatedNeighborhoodSta s cs
Year Qtr 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 2011 2011 2010 2010 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Q2 Q1 Q4 Q2 Campbell Campbell Campbell Campbell Cuper no Cuper no Cuper no Cuper no LosAltos LosAltos LosAltos LosAltos LosAltosHills LosAltosHills LosAltosHills LosAltosHills LosGatos LosGatos LosGatos LosGatos MenloPark MenloPark MenloPark MenloPark MonteSereno MonteSereno MonteSereno MonteSereno PaloAlto PaloAlto PaloAlto PaloAlto Saratoga Saratoga Saratoga Saratoga Sunnyvale Sunnyvale Sunnyvale Sunnyvale No.of %ofList MedianPrice AveragePrice AverageDOM ClosedSales Price 73 98.68 667,500 694,535 61 43 97.31 690,000 759,386 83 52 97.05 685,000 719,094 87 76 100.13 689,500 713,758 45 116 100.86 1,127,500 1,179,248 26 46 68 99.23 1,122,500 1,117,131 93 97.78 1,074,000 1,109,364 47 134 100.77 1,059,100 1,108,475 32 89 98.54 1,665,000 1,794,956 27 51 98.42 1,592,500 1,622,355 61 84 96.55 1,605,000 1,732,927 65 98 98.21 1,500,000 1,636,253 41 33 96.53 2,210,000 2,581,030 90 19 91.5 2,400,000 3,042,666 123 25 91.91 2,150,000 2,492,875 146 19 94.63 2,400,000 2,618,800 115 1,297,500 1,426,095 80 98 95.44 83 96.22 1,100,000 1,200,108 83 86 95.35 1,080,000 1,263,714 92 102 96.53 1,265,000 1,371,235 61 128 99.52 1,279,000 1,363,751 48 60 98.74 1,119,000 1,300,559 38 81 97.8 1,250,000 1,288,323 57 105 99.01 1,249,000 1,351,570 42 7 96.85 1,645,000 1,697,214 77 6 94.54 1,690,000 1,710,000 79 9 94.31 1,875,000 2,176,611 91 93 13 96.73 1,755,000 2,030,129 166 103.16 1,570,000 1,812,076 28 80 100.82 1,400,000 1,806,133 45 124 100.86 1,315,000 1,406,402 45 123 99.91 1,468,000 1,681,872 36 97 96.29 1,475,000 1,620,688 54 1,410,000 1,581,881 95 43 94.75 59 96.18 1,249,000 1,407,171 52 110 97 1,499,000 1,618,118 61 179 100.02 836,000 797,303 43 111 98.93 773,000 723,438 66 124 99.46 716,000 686,617 54 177 100.95 851,000 815,204 43

Icompletedmymainracefortheyearthissummerandhadthebestsupportever mymotherwascheeringmeonfromstarttonish.Priortotheraceshewasmore nervousthanmeandIthinkthathelpedmenotbeasanxious.Itwasagreatexperi enceandquality mewithmymotherwhohadjustnishedaggressivechemotherapy treatment.Iwasjustasproudofherassheofme.