Volume 5, Issue 1
Quarterly Review
March 1, 2010
Nicholas French
Broker Associate, CRS
369 S. San Antonio Road
Los Altos, CA 94022
650 773 8000 (cell)
650 247 2999 (office)
650 947 3099 (fax)
nick@realtornickfrench.com
www.realtornickfrench.com
Inside this issue:
Investment Property 1 cuss what is best for you. You can buy an investment property that is relatively close to cover-
vs. Real Estate Invest-
ment Trust (REIT)
Visit My Blog 1
The Real Estate Rol- 2 lower prices. I would say one of the most difficult tasks is focusing your energy on a particular
lercoaster
The Real Estate Rol- 3
lercoaster (cont)
Buyer Website Tool: 3 long as you have a reasonable time horizon your investment should prove to be a good deci-
Property Notes
Dashboard
Campbell—Hot Spot in 4
Silicon Valley
Share This Newsletter 4 I am working at keeping my blog updated with additional articles about financing,
Updated Neighborhood 4
Statistics
Nicholas French, Broker Associate, CRS
Investment Property vs. Real Estate Investment
Trust (REIT)
So you want to take advantage of the depressed real estate market? Are you ready for toilets,
tenants and trash, or are you a more passive investor that wants the value of owning a real
estate asset at the current value without dealing with the day to day issues of rental property.
I will be the first to tell you that having investment property like a condo, duplex or apartment
building is not without a good amount of work. Get used to tenant calls about the neighboring
unit’s radio noise or the clogged drain after sticking potato peels down the garbage disposal
(“it’s for the food waste, right”). The investment property you own should be based on your
goals and available time. Buying a real estate asset has historically returned the highest yield,
but if you are limited on time, experience or stomach you may want to consider an alternative
investment that still leverages real estate (in a sense) while keeping your life simple. I posted a
useful 2010 REIT Outlook, courtesy of Oppenheimer, on my website at
www.realtornickfrench.com, which you can read at your convenience to provide an initial back-
ground on Real Estate Investment Trusts and the market outlook (which forecasts REITs to un-
derperform in 2010.) I would suggest considering a low leveraged REIT that is currently buying
real estate since the values, especially across the country, are so low.
I personally prefer to buy the actual real estate asset every time— but I enjoy the crazy stories
and scenarios with tenants. It is pretty much a good time to buy any investment, so let’s dis-
ing it’s expenses within twenty miles of your current home—that’s pretty amazing given our
region typically only has a short period of the real estate cycle that has this opportunity. Wait-
ing may be fine as so many variables are unknown, but you can quantify the data today and
with the low rent rates you should experience a larger upside in the coming years. Feeling a bit
more tolerant, consider a multi-unit building (up to 4 units is still conforming) that too has
type of investment strategy. With so many attractive opportunities focusing your energy is the
best way to make a move.
Without focus you will typically fall into the trap of paralysis by analysis. Make your spread-
sheets, talk through the pros and cons, discuss your time horizon and get ready to jump in. As
sion and when your friends look back and say “you were so lucky”, you will know it was not
luck, but analysis and execution.
Visit My Blog for Updates
market conditions, community information and pretty much anything else that I think
is interesting (including my food blog). You can find it on my website:
www.realtornickfrench.com. If you have any suggestions for an article or would like
my opinion on a topic, feel free to send me a note and I’ll get on it.
Quarterly Review
Page 2

The Real Estate Rollercoaster

Is it just me or did the first few months of 2010 come and go very quickly? Let’s hope the year of the Tiger brings prosperity,
or at least clarity, to the market climate. The past several months have been fairly typical: low inventory, interested buyers,
and a cargo ship of speculation. Many who jumped into the market during these months were mostly disappointed with the
lack of options, less than enthusiastic pricing and the typical statement: “I thought it was a Buyer’s market”. I have found
these months to be valuable in educating clients on neighborhoods, schools, and all the many amenities that must be de-
cided and or compromised during the process. As the inventory comes to market my clients will be ready for the homes that
work best for them. I must add that typically the spring and early summer offer the best selection of inventory, irrespective
of market condition, so those waiting on the sidelines need to have a reality check whether they want a home that works
best for the family or just a home that is purchased under an arbitrary listing price. My advice, from the great words of Soc-
rates, know thyself.

Why am I excited to wake up in the morning? Well, for one I am of the mind that the worst is behind us in this economic ca-
lamity. It is clear that the market peaked and declined to reach the current state. As I’ve mentioned in previous articles be
cautious of the statistics as I argue the values declined prior to showing in sales prices. For example, in winter 2008 we ex-
perienced fewer transactions as seller’s weren’t getting their desired price or activity and decided to “wait until spring”, since
many think spring brings the best prices (I think just the most motivated buyers and sellers). By March 2009 we began to see
homes that couldn’t wait any longer close at prices well below the previous quarter average. Many Listing Agents and Sellers
said these sales were price anomalies and in many cases withheld the actual closing price from the Multiple Listing Service
because they did not think it was a true representation of the neighborhood values. Nevertheless, the new baseline was
setting in and future listings had to consider these sales when pricing their home. The price adjustment appeared to occur
very quickly, but depending on your area, valuation in the mindset of buyers had been changing and no longer would many
pay the same prices as seen with neighboring homes. Spring and early summer 2009 had a tremendous amount of uncer-
tainty for a number of reasons, so those that braved the storm found themselves purchasing with less competition and rela-
tively attractive pricing compared to the end of summer and into the year end. The coming months of data should look
promising comparatively since the market seems to have stabilized (some areas rebounded, I argue, too much and may see
some slowing in early 2010) and the comparison data is at price levels which are similar if not a slightly lower in many areas.
As promising as it sounds we should be mindful that real estate and stock markets do not rebound the same and a real estate
recovery should be slow and steady.

Now more than ever it is important to know neighborhood information such as home types, historic sales, trends, desirabil-
ity, schools, etc. We are not in a market, and will most likely not see one for several years, where you can randomly pick a
home, move in, get tired of it and upgrade. Your next purchase should have some roots to it. But as we discuss how to cal-
culate the value of a home, whether to sell or buy, there is no exact answer, so we use many variables and market knowl-
edge to evaluate a reasonable and expected range. Part of this depends on the amount of inventory in the area, how com-
mon is the home, are there multiple offers (yes, multiple offers are back depending on neighborhood and pricing), and of
course comparable sales. I like to look at the comparable value during the peak of the market and adjust for the respective
neighborhood adjustment as a calculator of value. My point is there are many methods to determine value: some are quan-
titative and others are qualitative; both are important methods that should be used to make the best decisions.

The biggest difficulty in completing a transaction in the current state of affairs is financing. I argue the industry doesn’t de-
serve to be called lending, since they are doing practically everything they can not to lend. Granted the financing at our price
levels (loans over 729,000) are portfolio loans, so banks are well beyond being careful knowing they will keep these loans for
the foreseeable future as well as only having a certain amount of liquidity planned to put into mortgages. For a number of
reasons the lending market is very tight, but as the market settles and confidence begins to restore, or at least not diminish,
lenders should ease requirements slightly along with increases to interest rates.

While you or a friend may be sitting on the sidelines, you should know that there are plenty of buyers in the market. Who is
purchasing, you may ask? First and foremost is the savvy buyer who is taking advantage of the 15-20% discount

(Continued Page 3)
 Volume 5, Issue 1
Page 3

The Real Estate Rollercoaster (cont) Buyer

(up to 50% off peak in some neighborhoods) and ridiculously low interest rates. This segment
may also include the buyer that does not over analyze, but recognizes a market that has prices
rolled back five to ten years and does not fall into the category paralysis by analysis. Granted
there are many unknown variables that can dramatically affect the market such as the global Website
economy, interest rate adjustments and consumer confidence, so it is prudent to be careful
and make calculated decisions. Another buyer type is the foreign currency buyer. These are
the individuals whom are leveraging currencies again the weak dollar and buying properties Tool:
cash or with significant down payments. The reasonable statement you may have is “how
many of these buyers can be in the market”? Though this is not the majority of the buying
pool it does not take a huge amount to slide the prices of good homes motivated to sell. Re- Property Notes
member, only motivated sellers are currently listing their homes, so next time you are looking
for distresses and motivated properties just look around – they are practically everywhere. Dashboard
But the number one purchaser of real estate (specifically loans) is the United States Govern-
ment. Our tax dollars at work are buying up over a trillion dollars in mortgage-backed securi-
ties from Fannie Mae and Freddie Mac, which is scheduled to end March 2010. Once the Fed Now you can
stops buying these loans they will likely hold the securities for the foreseeable future until in-
vestors are ready to purchase. The secondary market is still practically a desert – super dry.
Whether you get in today or next year we may be making similar statements about the market
make notes
condition. Assuming property values remain static, buying or selling, now or later, would net a
similar amount. Of course if rates go up you will affect your purchasing power and the carry- as you search
ing costs of holding property may be significant. My advice, do your homework: 1) research
your options by getting informed (talk to professionals, read up on different aspects of the
market, etc), 2) prepare yourself by having a strategy and setting goals (don’t forget to get pre-
property on
approved if you are buying), and 3) execute by having realistic expectations. It is not rocket
science and there is no crystal ball – I’m continuing to stay informed as best as possible and all the main
passing that information to my clients.

While many economists and analysts agree that there are several economic uncertainties lin-
real estate
gering in the market, there is little consensus as to what is anticipated in the coming quarters.
I for think the market should remain relatively flat with a rebound measured in terms of years, websites—
not months. Arguably we will see small adjustments either way with an overall market fairly
flat. As the economic condition improves it is likely we will see interest rate increases as well
as inflation, to name a few. Concern for capital gains changes and tax increases are two large
create your
topics that are on the political
agenda. Some are selling property account on
as a preemptive measure to these
issues while others are sitting on
the fence and waiting for clarity
my website
before taking action. There is talk
about a double-dip in the market under Prop-
given government subsidized lend-
ing (end of March anticipated date
to stop buying loans in secondary
erty Notes
market), end of the first-time homebuyers credit (April 2010) and the unstable economy.
Higher interest rates are on the horizon and the Fed increase to the bank emergency loan rate Dashboard.
in late February was a perception change to the public signaling possibly a change of philoso-
phy. It is exciting because every day brings more data, more analysis and more speculation of
the coming quarters.
See you
there!
Page 4 Nicholas French, Broker Associate, CRS

Congratulations Updated Neighborhood Statistics

No. of Closed % of List Median Average Avg
to the City of City Year Qtr
Sales Price Price Price DOM

Campbell 2009 Q4 70 96.56 671,500 721,522 63

Campbell! - The Campbell 2009 Q3 56 98.17 680,000 707,268 50
Campbell 2009 Q2 78 96.73 675,000 703,441 83
New Hot Spot in Campbell 2008 Q4 43 96.55 725,000 770,930 87
Cupertino 2009 Q4 80 98.33 1,130,000 1,200,789 71
Silicon Valley, ac- Cupertino 2009 Q3 115 96.74 1,060,000 1,073,864 58
Cupertino 2009 Q2 94 95.52 1,056,000 1,121,735 58
cording to the Cupertino 2008 Q4 33 96.42 1,035,000 1,125,732 68
Los Altos 2009 Q4 80 95.64 1,510,000 1,650,578 71

San Jose Mer- Los Altos

Los Altos
2009 Q3
2009 Q2
87
75
96.10
94.94
1,606,340 1,720,916
1,500,000 1,598,876
67
54
Los Altos 2008 Q4 38 97.85 1,605,000 1,758,841 42
cury News (see Los Altos Hills 2009 Q4 26 94.76 2,391,944 2,368,124 107
Los Altos Hills 2009 Q3 19 92.69 2,255,000 2,226,688 79
the article on my Los Altos Hills 2009 Q2 18 95.71 2,800,000 2,921,140 100
Los Altos Hills 2008 Q4 6 93.81 1,762,500 1,769,166 53
blog) Los Gatos 2009 Q4 81 95.35 1,249,675 1,332,355 84
Los Gatos 2009 Q3 77 96.16 1,120,000 1,237,877 91
Los Gatos 2009 Q2 72 95.01 1,005,000 1,074,057 83
Please Send this Los Gatos 2008 Q4 39 93.55 1,200,000 1,617,761 69
Newsletter to my Menlo Park 2009 Q4 86 96.66 1,150,000 1,233,613 75
Family and Friends Menlo Park 2009 Q3 77 96.96 1,115,000 1,270,045 52
Menlo Park 2009 Q2 102 96.20 1,137,500 1,373,503 60
If you know someone who Menlo Park 2008 Q4 59 97.46 1,010,000 1,155,194 49
would like to receive this news- Monte Sereno 2009 Q4 5 94.87 1,655,000 1,760,600 160
Monte Sereno 2009 Q3 12 92.53 1,782,000 2,100,818 105
letter I would like to send it to
Monte Sereno 2009 Q2 7 95.86 1,699,000 1,883,586 86
them. Please either have them Monte Sereno 2008 Q4 5 86.58 1,850,000 2,479,000 75
contact me or provide me their Palo Alto 2009 Q4 109 99.16 1,370,000 1,547,801 47
information and I will make Palo Alto 2009 Q3 111 96.81 1,298,000 1,430,655 57
Palo Alto 2009 Q2 114 97.63 1,372,500 1,568,627 44
contact. My goal is to have this
Palo Alto 2008 Q4 67 98.89 1,350,000 1,473,550 37
newsletter add value and be an Saratoga 2009 Q4 53 93.51 1,395,000 1,593,660 88
information source for my cli- Saratoga 2009 Q3 88 95.40 1,402,000 1,601,718 104
ents, family and friends. Please Saratoga 2009 Q2 64 94.0 1,467,500 1,515,139 92
do not hesitate to contact me if Saratoga 2008 Q4 30 94.77 1,600,000 1,714,317 75
Sunnyvale 2009 Q4 141 99.44 760,000 740,857 52
I can help you with any real
Sunnyvale 2009 Q3 186 98.37 777,000 745,116 56
estate questions, strategies or Sunnyvale 2009 Q2 132 97.57 740,000 707,024 70
if you are seeking higher quality Sunnyvale 2008 Q4 90 98.31 656,500 712,863 47
representation