Some good news from Wells Fargo, where their chief economist, Dr. Scott Anderson, predicts an economic turnaround in the second half of 2009. The impact of a staggering $2 Trillion in economic stimulus actions by the government will finally take hold, and Dr. Anderson predicts the 3rd quarter of next year will be better than expected. Anderson predicts that the housing sector will lead the way. “One bright note is that the sector that led the economy into this morass is about to turn the corner, perhaps as soon as this summer, and will start to lead us out,” Anderson said. Dr. Jim Paulsen, chief investment strategist of Wells Capital Management adds “It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid and all of a sudden it goes ‘poof!’” (courtesy of Yahoo News)

This is certainly welcome news for a very battered economy, both locally and nationally. Indeed, we are starting to hear more talk of a recovery in 2009, and with a new administration taking over in January, expect that thinking to gain momentum, especially since it appears all but certain that Obama’s first priority will be to pass another huge economic stimulus package as soon as possible. With the Fed lowering rates to historically low levels, along with government stimulus packages, it seems likely that things should begin to improve next year.

In the housing sector, while we have seen sharp drops in the Median home prices both statewide and nationally, sales activity is up, especially in the hardest hit areas of the central valley. Yes prices are down, but buyers are taking advantage of the bargains that are available, and that is a good start. And refinance applications are up sharply as well, thanks to the Fed. And the stock market seems to have found a stabilization point after a year of devastating losses.

But unemployment will continue to rise until we start to see a recovery, and corporate earnings and retail sales numbers will be brutal in January, so there is still some pain ahead early in the year. But it certainly appears that better days are ahead later next year. So as long as we are uncorking the champagne on New Year’s Eve, we will have one more reason to toast the arrival of 2009.

What are the holidays without catching at least part of It’s a Wonderful Life, the timeless classic with Jimmy Stewart and Donna Reed. (little known fact… the movie was a complete flop when it debuted in 1946. It is only later that it became quintessential holiday fare).

And you no doubt remember the scene when George Bailey (Jimmy Stewart) and Mary (Donna Reed) are leaving for their honeymoon, and there is a run on Bailey Brothers Building and Loan. George has to scramble to the bank, and personally doles out enough money for the anxious depositors to get by. George explains that he does not have their cash in a safe, but rather their deposits have been lent out to the community, in the form of a loan on “Joe’s house, and in the Kennedy house, and a hundred others”.

I wonder what George Bailey would be saying today. It would probably go something like this:

(George) “You got it all wrong. Your money is not back here back in a safe. We took your deposits and made home loans. With your money, we were able to get Nick the bartender a loan with a 1% start rate for 6 months so he could qualify to buy his new home. Isn’t it great! He only makes $2600 per month, but we were able to get him in with only 5% down, and his payment is only $1500 per month. Sure, it is going to go up to $2200 per month next year, but by then his home will have gone up 10% or 20%, and he can refinance!

(Depositor) So you have his loan here?

(George) Well, not exactly. You see, we sold the loan for a big profit to Lehman Brothers. They take Nick’s loan, and pool it with hundreds of others to create something called a mortgage backed security. We get the money back, plus a profit, and so we can turn around and lend it to other folks who can’t really afford to buy a house either, and turn around and sell the loan again. Lehman Brothers said since they pool a bunch of loans together, there is very little risk, so no one gets hurt, and we all make a ton of money!

(Depositor) Who do they sell these mortgage backed securities to?

(George) Large, institutional investors both here and abroad such as pension funds, investment funds, and insurance companies. They have a bunch of guys from Wharton and MIT running endless spread sheets and doing extensive computer analysis, and they think these securities are great investments. And these financial geniuses have created a whole bunch of neat investment instruments like Credit Swaps and Collateralized Mortgage Obligations to make even more money. So see, there is nothing to worry about!

(Depositor) So who is saying these investments are safe?

(George) Why Moody’s, AM Best… all of the credit rating agencies. It is their job to rate investments and scrutinize these large institutional investors. They have staffs of analysts much smarter than me, and if they say it’s safe, then it certainly is. In fact, they give these mortgage backed securities a AAA rating!

(Depositor) But I know Martino, and there is no way he makes $2600 per month. How can he qualify for a loan like that?

(George) I know that. Everyone knows that. But it doesn’t matter. It’s called a “stated income” loan. He just has to “estimate” his income, and we will use that figure to make the loan. Everyone fudges a little bit, but since they are pooled with other loans, no one gets hurt.

(Depositor) But what if the house does not go up in value? If his payment goes up to $2200 per month, he will not be able to swing it for very long. Then what?

(George) You worry too much. Houses always go up in value. Besides, the Federal Government said in that case they will lend banks like ours money in order to “unfreeze” the credit markets. Heck our little bank is getting a cool $20 Million from the Fed this week!

(Depositor) Good. So you are going to lend it out so we can start buying cars and houses again? It’s really hard to get loans right now. The economy is kind of hurting here in Bedford Falls, and everyone is getting nervous.

(George) What are you crazy? We don’t want to make risky loans to you people any more. We are taking the Fed’s money and buying a controlling interest in a bank in South America! We think we can make a lot more money buying bank stock than lending money in the community.

(Depositor) I don’t know George. Something just does not seem right. What happens if you do lose money on these risky loans you made, and the bank folds, or you get fired?

(George) Don’t worry! Everything is Beautiful! If they fire me my contract says I get a cool $5 million executive bonus. Now you’ll have to excuse me because I’m running late for my trip to the airport. AIG is going to fly me out to Phoenix on a private jet to attend their conference at some fancy 5 star resort to talk about what to do with the government bailout money they are getting. I hear they are flying in oysters from Thailand, and putting everyone up in $5000 per night luxury suites! Good thing that bailout money is going to good use.

Sad but true. And say what you will about old man Potter, but he knew how to analyze risk…

A few years ago, my family asked my dad, who’s health was failing at the time, what he most wanted for Christmas. He replied “I just want peace in the world, and all of you to be happy, successful, and healthy.” To which my older brother replied “would you settle for a sweater?” Gotta love pragmatism.

But other than shopping a little harder for deals and watching budgets a little more closely, this is not the season for pragmatism. It’s a time to reflect, to take stock in all that is good in our lives. And a time to express gratitude for all that we have. And no matter how bad things seem right now, and I know for lots of us things are pretty bad, I hope we can see past the troubles, and be grateful for what we do have. Because we are incredibly blessed to be living in this beautiful area, to be part of this community, and to live in this country. And yes I know that the traffic is a pain, and there are money problems, and Zillow.com says your house is worth $100,000 less than you paid for it, and you are feeling insecure about your job, etc etc etc. There will always be problems and challenges, but there will also be opportunities and triumphs as well.

So my holiday wish for you is simple… may you get to spend time with your family and loved ones, and get a chance to slow down enough to realize just how fortunate we really are. Even if we occasionally have to settle for a sweater.

And since we’re on the subject, here are Hollywood’s 40 greatest inspirational speeches in 2 minutes. Enjoy!

It is no secret that the schools in San Ramon are a magnet for home buyers looking for top-notch schools in a pristine, well-managed community. But it looks like the San Ramon schools are attracting more than just eager kids looking for a great education, as there has been a rash of coyote sightings recently at several San Ramon Schools:

Coyote sightings around San Ramon schools have been reported recently, the latest one Thursday morning when one of the animals was seen sleeping under a school’s marquee.

“It’s odd,” said San Ramon Valley school district spokesman Terry Koehne. “We’ve never had this many.”

Thursday’s sighting was one of a handful in the past few weeks at Pine Valley Middle School, said Koehne. It is believed to be the same animal, which a custodian unsuccessfully tried to shoo away before it left on its own. He said the county has set traps in hopes of catching the animal. Alerts have been sent to parents, though the district does not believe there is any danger.

There also have been other coyote sightings in the city. A parent reported seeing one Wednesday on a hillside behind Bollinger Canyon Elementary School. Two were seen on Nov. 19 in a California High parking lot.

In the Dougherty Valley, coyotes also were reportedly seen Dec. 1 at Live Oak Elementary and Dec. 4 at Quail Run Elementary.

If you encounter one, it is best to raise your arms to appear larger than you are, and shout loudly. Courtesy of the Valley Times.

One of the “perks” of being in a recession is usually downward pressure on interest rates. An economic slowdown reduces the demand for capital, and usually leads to lower interest rates. And volatility in stock prices usually leads to more investment in money market instruments, thereby increasing the “supply” of money available to lend. Add to this the Federal Government’s campaign to add liquidity to the market through cuts in the Federal Funds rate, and it is no surprise that interest rates, including mortgage rates, have moved downward rather sharply. (click on graph to enlarge)

The longer this recession drags on, the more downward pressure you are likely to see on interest rates. However, just because rates are low does not mean it is easy to borrow money. Lenders have continued to tighten up on their requirements, and borrowers, especially in the jumbo category, need to have solid credit, ample assets, and oh yeah…a job.

You know what they say… when the going gets tough, the tough read cartoons. Here are some of my recent favorites (click to enlarge)

Bloated. Sluggish. Slow moving. Weighed Down. Lethargic. No, I’m not talking about how I felt after consuming 22,000 calories on Thanksgiving (who invented yams with marshmallows on them anyway? That’s just not fair!). I’m talking instead about the Pleasanton real estate market, which limped through the month of November as if in a deep sleep. It seems the October melt down on Wall Street had an impact on the Pleasanton market, with sales down sharply for the month. There were 19 pending sales of single family homes for all of Pleasanton, down from 30 in October and 55 in September. Yes, the Thanksgiving holiday certainly had some impact, but historically November has been a fairly strong month. Inventory of available single family homes at the end of November was at 218, down from 231 at the end of October. Bargain hunters are definitely out in force, both in the retail shopping arena as well as the real estate market. The good news is that mortgage rates enjoyed a sharp decline as well, and are now near historic lows. Again, the combination of extremely low interest rates and bargain prices for homes in prime neighborhoods makes this an extraordinary time to buy. (click on graph to enlarge)

The under $1,000,000 market saw the sharpest decline in sales, with 12 pending sales for the month of November, as compared to 21 in October and 37 in September. This is somewhat surprising, as conventional logic would suggest that homes over $1 million would have seen the biggest slowdown in activity because of the volatile lending environment. Inventory dropped slightly, with 113 homes under $1 million on the market at the end of November, as compared to 122 at the end of October. (click on graph to enlarge)

The $1,000,000 to $2,000,000 market was relatively steady in November, with 7 pending sales, which matches the October sales level, although it is down from 15 in September. Inventory declined from 78 single family homes on the market at the end of October to 71 at the end of November. Clearly it is value that drove the activity in this price bracket, with buyers jumping on attractive, well priced homes that might have seen 3 to 5 offers in normal market conditions. (click on graph to enlarge)

The luxury home segment over $2 million saw no pending sales in November after registering 2 pending sales in October, and 3 in September. Inventory in this segment increased from 31 at the end of October to 34 at the end of November. Certainly the stock market melt down impacted net worth in this bracket, and perhaps made buyers a bit more cautious. (click to enlarge)

Meanwhile, the Fed is taking action to try to stimulate the economy. Their recent purchase of $500 Billion in mortgage backed securities, along with their hints that yet another interest rate cut might be on the horizon, will definitely have an effect at some point (hopefully soon). The experts are pointing at a recovery starting in the second half of 2009, which if true (one can only hope) means we are closer to the bottom of the market than most people realize. It might be time to act on that house in the neighborhood you always wanted!

The Dublin real estate market remained steady in November, with pending sales of single family homes matching October’s level at 23 for the month. This has been fairly consistent since August, with the exception of September, which saw a spike in pending sales to 42 for the month. Inventory declined slightly in November, with 101 single family homes on the market at the end of the month, down from 110 in October. This indicates a 4 month supply of homes in Dublin, which is a decent showing given the uncertainty in the real estate, mortgage, and financial markets. (click on graph to enlarge)

Value continues to drive activity, with buyers looking for homes that are priced to reflect the current economic environment. Indeed, we have seen continued downward pressure on prices, especially in the median home price as a larger percentage of transactions fall into the distressed sale category, including foreclosures and short sales. Because the overall price range in Dublin tends to be lower than Pleasanton, San Ramon, and Danville, the market activity has remained fairly steady in Dublin, while the other cities saw more pronounced declines in sales activity for November.

Now that it is official that we are in a recession, everyone is crossing their fingers that the recent moves by the Fed will jump start the recovery process. Look for continued downward pressure on interest rates as the Fed continues to increase liquidity and “prime the pump” in the credit markets to spur activity.

According to Forbes.com, San Francisco is one of the markets most likely to recover quickly from the current real estate recession. In a nutshell, commercial real estate experts think that San Francisco’s strategic access to Asian trade (via the ports of San Francisco, and more importantly Oakland), and relatively strong office and apartment rental markets make it a good bet to recover fast. The logic is that a strong job base and relative lack of overbuilding in the commercial market means the economy will be strong, which will filter to the residential housing market.

Okay, we’ll take it. Good news is not that easy to find right now, so beggars can’t be choosers!

A little humor to lighten the mood. Now this is funny!