So, you think you want to know more about me…..

Fair enough. I have had a number of people tell me that I should not just blog about Real Estate; I should broaden the scope of my posts and give you a glimpse into the things that I find interesting and the occasional ‘Day in the life’ post.

I will start with a cool discovery I made via one of our clients (thanks Aakar and Sangita!). There is a free (did I say free?) program available called Skype. It allows you to talk, videoconference or simply IM over the internet.

Now, for some of you, this news is as old as the Google IPO - bear with me. For me, once I fully understood it’s possibilities, it was an epiphany. I download Skype (did I tell you it’s free?), buy a decent web cam* and I can speak to and see anyone who has Skype and a cam in real time. This could not have come at a more opportune time as Kirsten and our daughter are over in Denmark for a few weeks visiting Kirsten’s family. We hooked it up today and I got to see my family for the first time in a week…. that definitely qualifies as a ‘gotta have’ piece of technology.

In past lives I had a corporate job that took me all over the world and kept me away from home more days in a month than I like to admit; before that I was a touring musician for years on end. This technology would have made the road a much less lonely place.

Now that I do have it, I see a lot of applications for it. Not just family and friends but business applications as well. A lot of our clients are out-of-state Trustees who need to occasionally see one of our faces just to reconnect. In this day of endless emails and scans the personable side of the real estate transaction falls to the wayside and we aren’t happy about that. I think we will start putting our Skype address on our business cards and business materials in an effort to share this great technology with our clients who would be interested.

In a way, this makes me a Skype disciple. Not in a religious way but in the way defined by Guy Kawasaki in his fantastic book entitled “Selling the Dream“. It is also a ‘gotta have’ book for anyone who provides a product, service or cause. If you want to create true fans and the elusive ‘customer for life’, you need to read this book.

There you have it, I am going back to Real Estate now- we have closings this week and another counter is coming over the fax as I write this. Hope you enjoyed it.

*After doing some serious research, I came to the conclusion that the Logitech PRO 9000 is the best web cam for the money. Click on the link to see the features. I also found that Costco.com had the best price.

Sold in 15 Days!

Some Good News, Some Bad News. Another (Weak) Week in Real Estate

The National Association of REALTORS sees some light at the end of the tunnel with developments this month in the credit markets, specifically with Fannie Mae and Freddie Mac.

Existing-home sales slowed in April, partly because restrictive lending practices hampered home buyers. At the same time, a greater number of areas are showing sales gains from a year ago and a recent reversal in mortgage policy means the market is better positioned for a turnaround, according to the National Association of Realtors^®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 1.0 percent to a seasonally adjusted annual rate of 4.89 million units in April from an upwardly revised pace of 4.94 million in March, and are 17.5 percent below the 5.93 million-unit level in April 2007.

NAR President Richard F. Gaylord said the good news is that mortgage restrictions have just been eased. “In the past week, Freddie Mac and Fannie Mae announced that they were eliminating their ‘declining market’ policies, effective June 1,” he said. “This means consumers across the country will have access to safe, affordable financing with down payments of only 5 percent on most mortgages, with 100 percent financing available on some loan products, and we could see an upturn in home sales this summer.”

Lawrence Yun, NAR chief economist, said eliminating restrictive policies should be a big help to home buyers. “I would encourage buyers who were disappointed by poor mortgage options to take another look at the market because the lending changes are significant,” he said. “Also, a recent notable drop in interest rates on conforming jumbo loans will help consumers in high-cost markets like California and New York.”

The unusual mix of market conditions around the country continues, but areas showing healthy price gains include Greenville, S.C., and Springfield, Mo., both with solid local economies. “On the other hand, some markets like San Diego, Calif., and Fort Myers, Fla., are experiencing rising sales after sudden double-digit drops in local home prices, so lower prices and low interest rates are starting to generate results,” Yun said.

The national median existing-home price for all housing types was $202,300 in April, which is 8.0 percent below a year ago when the median was $219,900. Because the slowdown in sales from a year ago is greatest in high-cost areas, there is a downward distortion to the national median with relatively more sales in low- and moderate-priced markets.

Total housing inventory at the end of April rose 10.5 percent to 4.55 million existing homes available for sale, which represents an 11.2-month supply at the current sales pace, up from a 10.0-month supply in March.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage slipped to 5.92 percent in April from 5.97 percent in March; the rate was 6.18 percent in April 2007.

Single-family home sales slipped 0.5 percent to a seasonally adjusted annual rate of 4.34 million in April from 4.36 million in March, and are 16.1 percent below the 5.17 million-unit level recorded one year ago. The median existing single-family home price was $200,700 in April, down 8.5 percent from April 2007.

Existing condominium and co-op sales fell 5.2 percent to a seasonally adjusted annual rate of 550,000 units in April from 580,000 in March, and are 27.9 percent below the 763,000-unit pace in April 2007. The median existing condo price was $214,900 in April, which is 3.7 percent below a year ago.

Regionally, existing-home sales in the West rose 6.4 percent in April to a level of 1.00 million but are 15.3 percent below a year ago. The median price in the West was $285,700, which is 16.7 percent lower than April 2007.

Mission Hills Starter Home or Income Property- $399,900

Spectacular Eagle Ridge Remodel!- $749,999

The Spin is In- What to Read Between The Lines

Mortgage and Treasury rates have stayed within a tight range for six-straight weeks: 5.875 percent to 6.25 percent and 3.7 percent to 3.92 percent, respectively.

Given the lurching in other markets, the credit market stability may seem other-worldly, but it is not — recent bond trading accurately reflects the current economy. We are still stumbling forward, avoiding one open manhole after another. The cardinal indicator: The labor market is still intact; there are no waves of layoffs; and new claims for unemployment insurance are just as steady as interest rates. The Fed knocked 1 percent off its prior GDP forecast, down to a range of 0.3 percent-1.2 percent for the remainder of 2008.

The unprecedented mix of oil, inflation risk, housing recession, credit crunch and explosive growth overseas has turned normal economic discussion — the search for centerline probability — into a freak show.

Back to the center, here, in three parts beginning with oil. Markets have had it right since oil first jumped the forty-buck fence in 2004: Price increases will slow the U.S. economy, and that slowing will cancel the inflation threat. In the ‘73-’74 and ‘78-’81 spikes the U.S. immediately went to wage-price spiral, inflation each time to 11.8 percent; in ‘90-’91 only to 5.5 percent. No spiral this time: Foreign competition has capped wages, and as in ‘90-’91 the Fed has kept clamps on money.

This oil spike is not as damaging as the ‘73-’74 run from $3/bbl to $12/bbl, nor the ‘78-’81 trebling from $14 to $38. Oil has tripled this time, too, but new GDP today requires less than half the energy as then, and we are vastly wealthier — that vast increase, of course, is the main reason that oil is up so far. We can afford to pay, as can overseas competitors that we have never had before.

To those who protest in pain: Go find an old person and ask what it was like, twice in one 10-year span to wait in a mile-long line, pushing your car to be able to buy the 5-gallon limit. Have a look at the tattered, 35-year-old solar panels on tract homes. Ask where those carpools went, and why HOV lanes require only two bodies.

Then inflation. This week’s worst contribution came from Bill Gross, Poobah and Oracle of PIMCO. He announced (again) that U.S. CPI numbers are fraudulent, and he is certain because inflation is high in other countries and so must be here. Beware of irresponsible twaddle from those who should be leading. His trump card: The 30 percent drop in the dollar must be the result of inflation. It is not, of course: It is the result of hosing $650 billion overseas in our annual excess of imports over exports.

The Fed is playing a very dangerous game exceptionally well. Inflation is under control here because the Fed is allowing the crunch, oil and housing effects to slow the economy, refusing to print money, and allowing us to suffer the consequences of unspeakably stupid public policies. If the economy slips into real recession, this Fed looks tough enough to let us find our own way out, and not try to print us out.

Housing. Center! Any home-price report containing the words “average,” “median,” “Case-Shiller” or “Zillow” without qualification is an intentional effort to mislead. Hysteria sells. The national home market has shifted its mix of sales to lower-price ranges, and the portion of distressed sales has increased (1.45 million foreclosures will do that), thus each of the approaches above overstates the decline in prices.

However, the brand-new OFHEO data for Q1 ‘08, appraisal-based and weighted-average, is disturbing. Its state-by-state listing (p. 19-20, HPI) for the first time shows a nationwide stall. Only two states (Colorado and Indiana) enjoyed as much as 1 percent appreciation in the quarter. Only six states had price declines of 1 percent or more, but to have the whole USA go flat … that’s fragile.

Causes include slowdown and energy-crimped budgets, and certainly overshot prices in the Bubble Zones, but I think the unifying downward force is the inadequate and still shrinking supply of mortgage credit. There are noninflationary fixes for that problem, all eluding policymakers for 10 months. We are running out of time.

Even Congresswomen Are Walking Away (Say What?!?)

As the real estate market softened in 2007, the new owner of a three-bedroom, 1,600-square-foot house in Sacramento’s Curtis Park neighborhood ran into trouble. The house that was purchased for $535,000 in January had lost equity. The owner fell behind in her payments, and eventually, the bank seized the home.

What makes this story different from the thousands like it is that the owner of this house was a member of Congress.

The story of the foreclosure of Long Beach Democrat Laura Richardson’s Sacramento home is a tale of a real estate market gone sour. It is also an illustration of how far many candidates will go to seek elected office, even if it means quite literally mortgaging their own financial future.

While being elevated to Congress in a 2007 special election, Richardson apparently stopped making payments on her new Sacramento home, and eventually walked away from it, leaving nearly $600,000 in unpaid loans and fees.

Richardson’s decision to let the house slip into foreclosure was set in motion by an unlikely chain of events, only some of which had to do with Sacramento’s crumbling real estate market. Richardson was elected to the Assembly in November 2006, and purchased her new capital home two months later. But in April 2007, Rep. Juanita Millender-McDonald succumbed to cancer, creating a Congressional vacancy in Richardson’s district.

Richardson declared her candidacy for the seat, and soon found herself locked in a hotly contested, and very expensive race for Congress against state Sen. Jenny Oropeza, D-Long Beach.

While her campaign heated up, Richardson’s house slipped into default. Richardson fell behind on her mortgage payments as she loaned her Congressional campaign $60,000 – money that has begun to be paid back to Richardson personally from her campaign account, according to records from the Center for Responsive Politics.

Richardson’s opponent, Oropeza, loaned herself $115,000 for her run against Richardson. Oropeza’s Congressional committee still shows nearly $200,000 in debt.

Richardson declined to comment for this story.

But tax records at the Sacramento County assessor’s office show that in January 2007, Richardson took out a mortgage for the entire sale price of the house — $535,000. The mortgage amount was equal to the sale price of the home, meaning she was able to buy the house without a down payment, even though the housing market was beginning to turn.

A March 19, 2008 notice of trustee’s sale indicates that the unpaid balance of Richardson’s loan, which is held by Washington Mutual, is more than $578,000 –$40,000 more than the original mortgage.

The Curtis Park house is not Richardson’s primary residence. She also owns a four-bedroom house in Long Beach, in her Congressional district. Real estate records show she purchased that house in 1999 for $135,000. An estimate from Zillow.com puts the current value of that house at $474,000

Like many homes that have gone through foreclosure, Richardson’s new residence quickly became an eyesore. With Richardson gone, upkeep on the home lapsed, and neighbors began to get angry.

“The neighbors are extremely unhappy with her,” said Sharon Helmar, who sold the home to Richardson. “She didn’t mow the lawn or take out the garbage while she was there. We lived there for a long time, 30 years, and we had to hide our heads whenever we came back to the neighborhood.”

Helmar and her husband, Mark, sold the Curtis Park home to Richardson because Sharon’s arthritis required the couple to move into a one-story house. With the area’s real estate market slowing down, the house remained on the market for months, and the Helmars, who lived in the house for more than 30 years, were getting desperate to sell.

Helmar said that she has never met Richardson personally, but dealt with Richardson through her realtor. The Helmars wound up giving Richardson $15,000 toward closing costs, she said.

And she is still angry over what happened to a home that clearly she never really wanted to leave. “It’s kind of silly. You would think people who are making decisions for others would be able to make good decisions for themselves,” she said. “She should have known what she could afford and not afford. In this neighborhood, you just don’t do that.”

While Richardson walked away from her loan, she bested Oropeza in a June special election, and moved on to Congress. As a member of Congress, Richardson has been asked to vote on legislation pertaining to the spike in foreclosures around the country.

On the biggest pieces of legislation having to do with government bailouts for people whose homes have entered foreclosure, Richardson has recused herself. She did not vote on legislation by Rep. Barney Frank, D-Mass, which would direct $2.7 billion in government funds to help an estimated 500,000 homeowners who are at risk of foreclosure.

Richardson also did not vote on a measure by Rep. Maxine Waters, D-Los Angeles, that would give local governments $15 billion to purchase, rehab and resell foreclosed properties.

While Richardson walked away from her bank loan, she has begun to pay herself back for the money she personally invested in her initial race. Records show that Richardson spent $587,000 out of her Congressional campaign committee since declaring her Congressional candidacy through March of this year. Of those expenditures, Richardson has spent $18,000 of that money to begin repaying herself for the money Richardson loaned to her campaign.

According to documents at the Sacramento County Clerk’s office , Richardson first received a default notice in late 2007. By December 2007, less than a year after Richardson purchased the house, she was behind in her payments by more than $18,000.

Three months later, on March 19, a notice was filed with the county that Richardson’s property would be sold at auction. According to the documents, the unpaid balance and other charges Richardson owed the bank was $587,384.

Okay, what does the Fed’s cut today mean for Mortgages?

US News and World Report just published this article that ties in nicely with my post from earlier today:

Faced with a weak dollar and rising inflation, the Federal Reserve seems done with its aggressive rate-cutting campaign. Here’s how this shift in monetary policy may affect mortgage rates this year:

How have fixed mortgage rates been moving recently? They’ve climbed. The average 30-year, fixed-rate conforming mortgage increased from 5.91 percent for the week ending March 21 to 6.11 percent for the week ending April 25, according to HSH Associates, but it’s still on the low side by historic standards.

How will the rates change over the next several months? With several factors pushing interest rates higher–and not much pulling them lower–fixed mortgage rates are likely to increase modestly in the coming months. “They are right around 6 percent now, [and] they are probably going to stay there the first half of this year,” says Gus Faucher, the director of macroeconomics at Moody’s Economy.com. “Then they are going to gradually move higher in the second half of this year.”

Is that because of what the Fed is doing? No. This upward trend has little to do with monetary policy. The federal funds target rate–the Fed-controlled interest rate that banks charge one another for overnight loans–plays only an indirect role in setting mortgage rates. Instead, the rates are being driven higher by recent developments affecting the yield on 10-year treasury notes, which influences mortgage rates more directly.

What’s happening with the 10-year treasury yield? It has been on an upswing. With fear reaching teeth-chattering levels in the days after the Bear Stearns investment bank came close to collapse in mid-March, the yield on the 10-year treasury–where investors head for safety during times of turmoil–fell to near-historic lows. But after the Fed cut interest rates and created innovative new ways to get cash to banks, the market staged a turnaround. Yields climbed nearly 17 percent, to 3.87 percent, from March 17 to April 25.

So, what’s driving the yield higher? There are two key reasons behind this about-face:

–Risk looks better. Some market participants think they see an end to the credit crisis. “The worst is behind us,” Lehman Brothers CEO Richard Fuld recently told shareholders, according to Bloomberg. With credit markets on the mend, those safe but low-yielding treasuries suddenly don’t look so appealing. Investors are “pulling money out of the safest places in order to put them back to work in perhaps somewhat more risky assets,” says Keith Gumbinger, vice president of HSH Associates. Less demand for treasuries means lower prices and higher yields.

–Angst about inflation. Rising concerns over inflation are also pushing 10-year treasury yields higher. For example, in early April, the government reported that the cost of imported goods jumped nearly 15 percent in March from the same month last year. “The data only goes back to 1983, [but] we’ve never see inflation this high,” says T. J. Marta, a fixed-income strategist at RBC Capital Markets. With inflation worries increasing, bond investors are demanding a higher return on their money at risk. “You see the yields start to rise fairly sharply because now people are focused on inflation,” Marta says.

Is there anything that might help moderate this increase? There is. Not all of this increase will be passed on to consumers in the form of higher mortgage rates. Typically, rates on a 30-year fixed mortgage are about 1½ percentage points higher than the yield on the 10-year treasury. But after the housing crisis hammered their portfolios, lenders and investors have grown wary of mortgages and are demanding higher returns. As a result, the difference between the 30-year fixed-rate mortgage and the 10-year treasury yield–known as the risk premium–has ballooned about 50 percent, to 2.32 percentage points, over the past year, according to HSH Associates.

But with lenders having tightened underwriting standards–making mortgages safer investments?–these risk premiums could narrow, Gumbinger says. “If underlying interest rates do rise, my suspicion is that there won’t necessarily be a corresponding increase in mortgage rates,” he says. “They will probably be influenced to some degree, but there is an awful lot of spread which could be compressed.” So while higher 10-year treasury yields will put upward pressure on fixed mortgage rates, some of that increase will be absorbed by narrowing risk premiums–helping moderate the rise.

What’s the outlook for adjustable-rate mortgages? Adjustable mortgage rates will face similar upward pressure from rising treasury yields. The conforming 5/1 adjustable-rate mortgage–which offers a fixed interest rate for the first five years and then adjusts annually for the remaining 25–stood at an average of 5.89 percent for the week ending April 25, down from 6.08 percent a year earlier, according to HSH Associates. “By the end of the year, we might be working toward around 6.25 percent,” says Mike Larson, a real estate analyst at Weiss Research.

Has the Fed’s rate-cutting campaign helped struggling adjustable-rate-mortgage holders who may be facing foreclosure? Yes, but you might not see it. Although adjustable-rate mortgages are more closely linked to the federal funds rate than fixed-rate home loans are, they have fallen only about half a percentage point since September, despite the Fed’s aggressive series of rate cuts. That’s because exotic mortgage products have played a key role in the foreclosure crisis, making them radioactive to investors. When investors aren’t eager to buy these loans, rates must increase to attract buyers. As a result, adjustable-rate mortgage holders have not seen their monthly payments decrease a great deal.

But that doesn’t mean the Fed’s actions have not helped borrowers who have ARMs, says Faucher of Moody’s Economy.com. “The truth is that if [the Fed] hadn’t cut [the federal funds rate], adjustable rates would be even higher…and the problems would be much more severe,” Faucher says. “So you can’t just say, ‘Well, the Fed hasn’t done anything.’”

Buyers, Start Your Engines!

I read this morning that the Mortgage Bankers Association reported that new mortgage applications fell 11.1% this week. We have seen traffic fall off a little over the same period but there are a few things that anyone who can buy a house today needs to realize:

1. Assuming we get the quarter point rate cut that the Fed is expected to deliver later today, they are DONE. The Fat Lady has sung on rate cuts and it is not going to get any better (or cheaper) than that. It is now up to the lenders to ease the liquidity problem in the credit markets; money will not get cheaper than it is now. They need to start trusting (in any order) each other, their originators and their borrowers and get liquidity flowing again.

2. The lenders have repriced risk. You are not going to see 4% mortgages in the foreseeable future so get used to 5.5% and higher. I personally believe that we will look back at 6% with fond nostalgia in a couple of years; the government is going to have to act in order to stabilize the dollar as soon housing finds it feet firmly on the bottom.

3. Buyers looking for the home they are going to live in for the next 4+ years should be pulling the trigger now in order to get the the best houses available in the current inventory. You may not be “getting a steal” on it but then the seller isn’t “giving it away” either. Once the Los Angeles Times declares we are “at the bottom”, everyone will jump in and you will be fighting for the leftovers.

4. While there are certainly a lot of folks who are predicting an additional 30% decline in home prices, I believe the majority of the retraction (at least in our markets) has already taken place. There is some more to go, but the sky is not falling. The assumption in that statement is that you don’t not have any REO’s or Short Sales in your neighborhood. If you do, their impact is immediate and lessens with each month that goes by. If you have a number of REO’s and Short Sales in your neighborhood you will be affected to a much greater degree than others.

5. Sellers have gotten realistic (although I would love a dollar for every time I hear “I don’t want to give my house away!”) and as a rule understand what their homes are worth. If your agent is maintaining a professional dialogue with their counterparts during the offer process there should be hard data going back and forth to justify each other’s position. It’s hard to sell $20 bills for $25.00 these days. If the comps are indicating that it is worth $20, don’t pay $22. Conversely, don’t offer $17 if you really want the house. Unrealistically low offers set a bad tone if the transaction actually gets into escrow; you will be fighting each other at every point going forward.

Take the long view if you find a house you absolutely love and be prepared to pay what is fair with a realistic expectation of some further retraction that will be made up in the next few years. Homes should be viewed as just that, not short-term investment vehicles. Find the home you love and enjoy it everyday; THAT is a great return on your investment.

Of Shiller and Slate.com

If the current economic news isn’t scary enough, two “respected” analysts have come up with Doomsday scenarios that are guaranteed to terrify you.

Here’s one from Mark Gimein, who writes for Slate.com.

Gimein argues that the subprime crisis is going to spill over into prime loans, greatly expanding both the reach and the consequences of the mortgage debacle and the housing price meltdown.

What’s coming, says Gimein, is a “wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we’ve seen in subprime.”

The effect wil be that many thousands of upscale homeowners will walk away from their homes (and their loans), causing even greater loses for lenders and an even greater fall in housing value. Another effect: no federal bailout will be able to prevent the total collapse of the housing market.

Here is his reasoning:

“When those dominoes start falling next year [as ARMs reset to higher rates], we may or may not have a subprime bailout plan, and the discussion will start about how to bail out this next tranche of borrowers. The bailout plans on the table now…are reasonably based on the principle of bringing payments down to a point that homeowners can afford.”

“But where prices fall 40 percent to 60 percent, all that goes out the window. Why? Because in expensive locales like San Diego, tens of thousands of people with 100 percent loan-to-value mortgages and option ARMs are living in homes in which they have no equity and on which they owe a lot more than the house is worth.”

“In these places, accepting a government “bailout” that pays them, say, 90 percent of the value of the house to keep from foreclosing will be very tough for lenders, who (if the appraisers don’t fudge the numbers) could be forced to take 36 cents or 45 cents on the dollar for their loans. On the other hand, any plan that makes them pay more if they can afford it is hugely disadvantageous for the borrowers, who have option ARMs about to reset and are much better off handing the keys to bank—and maybe even scooping up the foreclosed house down the street.”

“If you’re…in this position, you might start thinking very seriously about just how attached you are to the wisteria vine snaking over the basketball hoop on your garage. That’s what a lot of other California borrowers will be doing.

“Bet on this: Whatever moral qualms are being urged on borrowers to keep them from walking away from their mortgages, they’ll count for a lot less than the economic reality facing borrowers whose homes have fallen in value by half. Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.”

“Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it’s perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.”

Now, we have a few problems with his reasoning (aside from the fact that Slate.com is not our go-to source for economic forecasts):

1. The vast majority of prime borrowers did not take 100% financing to acquire their primary residence. In our experience (and that of the peers we sampled) most prime buyers put down between 20% and 40% down when they purchased their home in the last four years. Some went as little as 10% but the majority had 20% or greater.

2. Most ARM resets are going DOWN, not up. As long as the Fed maintains it’s current rate (or keeps cutting) that will continue to be the trend.

3. Most prime borrowers have a history of responsible finance management (it’s why they are prime) and are sophisticated enough to know that it will cost more to walk away from the loan (in higher interest rates, loss of tax deductions, inability to get a home for 5 years or more, impact on employment and ability to rent, etc.).

4. For prices to fall 40 to 60 percent outside some of the extremely overbuilt and bubbled locales (Miami Beach Condo scene immediately comes to mind) you are going to be hard pressed to see that kind of retractions. Granted, those who bought in late 2005 and 2006 have taken the biggest hits but they are nowhere near the 40-60% declines predicted (at least in our markets).

5. He insinuates that appraisers are still able to fudge numbers. If he had any real inkling of what is going on in the market today at the transaction level he would realize that the exact opposite is happening. Appraisers, fearful of lawsuits, are coming at purchase price or less. The lenders are then performing what is called a Review Appraisal which more often than not result in a 5% reduction in the appraised value; at least one lender is reducing the 5% as a business practice on every loan that comes through. Perhaps if a lender and appraiser were working together to scam the system they could pull it off but as a hard and fast rule the appraisal gets more attention than any other part of the transaction.

If that scenario isn’t chilling enough, Yale University economist Robert J. Shiller (author of Irrational Exuberance and co-developer of the Case-Shiller home-price index) has warned that the current housing crisis could exceed that of The Great Depression.

Specifically, Shiller announced that there’s a good chance housing prices will fall further than the 30% drop in the historic depression of the 1930s. (See our earlier post entitled “Are We There Yet?”)

“I think there is a scenario that they could be down substantially more [than in the Depression],” Shiller said in a speech spech given last week at the New Haven Lawn Club and reported in the Wall St. Journal.

Here is Shiller’s reasoning:

Even normal real estate cycles typically take many years to correct. Because home prices rose about 85% from 1997 to 2006 adjusted for inflation in the biggest national housing boom in U.S. history, the current downturn is likely to go much deeper and last far longer than any other has in the past.

“Basically we’re in uncharted territory,” Shiller said. ” It seems we have developed a speculative culture about housing that never existed on a national basis before.”

Shiller has been calling for the end of the world as we know for a number of years. He was wrong for a number of years and then he was right about the downturn; we personally do not believe that makes him the Nostradamus of Real Estate although the media sure loves his soundbites.

The true, as usual, lies somewhere in between the Prophets of Doom mentioned above and those who believe we are firmly at the bottom of the downturn. Our opinion is that we are bumping along the bottom but not resting on it yet. Just remember, this market is more calculus than arithmetic- a lot of variables.