Real Estate Digest
A California Real Estate Newsletter
Edition 13, September, 2016

National Market

The Housing Market: Not Properly Fixed

Did you know that the American housing stock is worth $26 trillion, making it the largest asset class in the world? The national mortgage-finance system contains $11 trillion in debt, making it one of the biggest concentrations of financial risk both at home and abroad. Close to 10 years after the beginning of the most recent housing crisis, the question remains, has this system been fixed?
  • After the crisis, due to new capital requirements, banks have increased capital by $1.2 trillion nationally which is more than two times the pre-crisis level. This implies that banks are indeed safer because the capital cushions banks against loss (mortgage default for example).
  • However, when a person takes out a mortgage, things do not stop with the bank. There now exists a huge, largely nationalized structure, including government sponsored Fannie Mae, Freddie Mac, Ginnie Mae, the FHA and VA. These organizations are designed to provide liquidity to the housing market, buying and guaranteeing loans that banks and other lenders originate so that more loans can be created.
  • One issue is that these enterprises are very poorly capitalized and are minimally profitable. These five organizations own or have guaranteed $6.4 trillion worth in loans.
  • The biggest issue is that these state-run securitisers transform risky mortgages into risk-free bonds. This means that the amount of risk taken on by the mortgage system is now entirely controlled by administrative fiat. This translates into taxpayers subsidizing housing borrowers up to $150 billion a year or 1% of the GDP.
  • The total loss for taxpayers, if another crisis strikes, would be $300-$600 billion, or 2%-4% of the GDP. Most of this would fall on Fannie Mae, Freddie Mac and the FHA, which would need to draw money from the government to pay out on the insurance claims made by investors. Such a bill would hardly bankrupt America, but it would undoubtedly cause major dissatisfaction among taxpayers. This is similar in size to the $700 billion TARP bailout that Congress reluctantly passed in 2008.
  • There are various proposals for reducing the government's role in the system. The White House proposed several in 2013, and there is a range of reform bills floating around Congress, the best of which is known as Corker-Warner. However, there is little momentum behind these reforms because they would result in higher mortgage rates at a time when the middle class is struggling.


While the mortgage system has been improved by increasing banks' capital requirements, the work is not done. The Economist argues that within the U.S. there are political motives to loosen lending standards to make housing more affordable, which can lead to an inflated housing market. Additionally, this author argues that the lack of financial safety nets underneath these government sponsored enterprises should be addressed. This is a complex issue, as the politicians are often trying to make affordable housing more accessible, however the question of how seems to remain unanswered. Read more here and here .

Environment: Rising Sea Levels and Local Consequences

With man-made climate change being widely accepted by the scientific community, the question is no longer "if" but "when" our communities will be affected by these large-scale changes in the environment. The Pacific Institute has recently released an interactive map which illustrates at-risk areas in the event of a major flood. The map also identifies areas that are at risk from erosion by 2100 with both scenarios dependent on a 1.4 meter (~4.6 ft) sea-level rise. Read more about the study conducted and associated map here and see the actual map here .

This topic has been on the minds of many in our community, with the City Council, UCSC Professors, and the Santa Cruz Sentinel writing about and making plans to mitigate the potential harm done by climate change. Read on for some interesting findings and related links.  

  • For the California coast, south of Cape Mendocino, it is projected that sea levels will rise between 2 to 12 inches by 2030, 5 to 24 inches by 2050, and 17 to 66 inches by 2100. Read more about these projections here .
  • As seen in the Pacific Institute's research, rising sea levels will result in major flood damage in high density areas like the Bay Area and Los Angeles.
  • The Bay Area would suffer a minimum of $10 billion in economic damages from an extreme storm. The damage would be severe along the Bay's waterfront land, where companies, such as Facebook and Google, employ hundreds of thousands of workers, 355,000 residents have homes, and key economic and civic infrastructure is located. ( source )

Santa Cruz:

  • Over the past 22 years, average wave heights in Santa Cruz County have risen by a foot and a half. In January 2016, the ocean swelled a foot above predicted tides. Consequently, areas like Twin Lakes, 21st Avenue, Moran Lake and downtown Capitola are increasingly vulnerable during periodic combinations of big swells and high tide.
  • If water were to breach the San Lorenzo River levee, it would flood downtown Santa Cruz from Pacific Avenue past Chestnut Street to the Santa Cruz High School playing fields, according to maps generated by FEMA (seen here ).
  • As seen in the FEMA map, homes also are vulnerable to floods on the lower part of Arana Gulch, north of the Santa Cruz Small Craft Harbor, parts of Branciforte and Carbonera Creeks and the lower part of Moore Creek on the far westside, city leaders said. Other vulnerable areas include the Beach Flats and Lower Ocean neighborhoods, as well as homes and businesses between River Street and the San Lorenzo River.
  • This report outlines future climate change impacts in Santa Cruz County and recommendations for future actions. Those directly relevant to real estate transactions include, but are not limited to:
    • Require setbacks for developments adjacent to cliffs.
    • Protect natural shoreline processes from alteration.
    • Restrict development in floodplains.


  • According to a local news report, The Monterey Bay Kayak buildings and the Beach House on the waterfront likely will not make it through the century and sea walls and artificial reefs will likely be necessary to protect Cannery Row. Read more here .
  • The California Coastal Commission gave the city $250,000 in funding to research the the potential impacts of sea-level rises. A final report on the Local Coastal Program will come to the City Council next spring for adoption.

Santa Clara:

  • Santa Clara County "coastline" along the San Francisco Bay is approximately 15 miles long. In April of 2013, "California's Flood Future" report from the California State Department of Water Resources and the Corps of Engineers, found that the county ranks second in the state in potential flood losses and third in the number of people exposed to flood danger. ( source )
  • The Bay Area Council predicts that in the case of extreme storm weather, Santa Clara could face $6.14 billion in damages. ( source )
  • The Santa Clara County Civil Grand Jury (The Jury) investigated sea level rise and found two important actions could mitigate damage: levee buildings, to protect flood-prone areas, and wetland restoration. Wetlands are areas such as swamps, marshes, and bogs which serve as giant filters, removing toxic pollutants and nutrient runoff that could damage the ecosystem of the Bay. These special areas help protect neighboring lands from flooding. As an added bonus, wetlands capture atmospheric carbon and store it.
  • The Jury has recommended that the Santa Clara Valley Water District  (The Water District) coordinate Santa Clara County's efforts to address sea level rises for all cities of the county that abut the Bay and to provide more information for residents of Santa Clara County. See The Jury's report here .
  • The Water District has created a web page to keep the community informed about its latest resolutions, discussions, and findings. Find it here .

Clearly, sea level rise will impact California real estate. As with all predictions, the exact amount and location of damage and the timing of events is uncertain. Additionally, many of these reports refer to sea levels in 2100, which seems far away. However, by taking steps to protect our communities from the adverse effects of climate change now, much suffering can be mitigated.

We will continue to research and keep you up to date on this topic, as we think that it is very valuable information to consider in all of your real estate decisions.

Sustainability, Green, Energy Efficient - What does it all mean in building design?


Building green can be be categorized in four ways: Energy Efficient Home Design, Energy Efficient Building Materials, Sustainable Design, and Renewable Energy.

  • Energy Efficient Home Design:
    • This includes considerations such as the solar orientation of a building and whether or not it promotes cooling in summer breezes.
    • It also includes things such as metal roofs with non-mechanical ventilating space and fan induced attic ventilation.
  • Energy Efficient Building Material:
    • This includes high performance insulation, moisture barriers, and energy-efficient windows and doors.
    • The energy-star logo can be used to identify energy-efficient appliances and equipment.
  • Renewable Energy:
    • Photovoltaics (electricity producing solar panels) can provide all or part of a house's electricity depending on your location.
    • Solar water heating and geothermal equipment may use electricity to run, but at a lower rate than more conventional systems.
  • Sustainable Design:
    • At times overused, "sustainable" simply means that the resources used can be replenished at a rate that matches or exceeds the rate of consumption. >Consider the following:
      • If you are using wood from a farm which manages forests and only cuts trees at a renewable rate, that would be "sustainable".
      • Bamboo is a sustainable material because it is growing at a much faster rate than we are currently consuming it.
      • Brick is sustainable because, while clay cannot be replenished, there is more than we will ever likely use and so it is considered sustainable. Bricks also have a very long useful life.
        • The useful life is an important factor when considering sustainability. Products that must be replaced frequently consume more energy and labor to manufacture and sell.
    • The disposal of a material is also an important consideration in judging its sustainability. Can it be reused or recycled efficiently?
      • Recycled building materials are a major factor in the sustainable design strategy. For example, brick and concrete can be recycled into new products.
      • Reclaimed building materials: these are materials that require little to no processing for reuse. Clearly this saves resources by eliminating the need to produce a new piece of material.
  • Other "Green" Features:
    • Some homes are equipped with a residential management system which monitors and controls the peak demand your home makes for electricity. Many electric companies reward you for not using electricity during peak hours and using one of these systems can save you up to 30% on your electric bill.
    • LEED (Leadership in Energy & Environmental Design) certified homes are those homes that have reached a specific level of environmental responsibility. Read more about LEED certification requirements here .  

Technology: What is Behind the Zestimate?

Zillow is the leading real estate website, with a total of 44.19 million visits, excluding those on mobile devices ( source ). Zillow is rich with information about property value estimates (Zestimates), sales histories, neighborhoods, and schools. Before visiting the site to get an idea of your or another's property value, be sure to keep a few things in mind:

  • Zestimates are a starting point when determining a home's value. The Zestimate is calculated from public and user-submitted data as well as a variety of MLS sources. It takes into account special features, location and market conditions. This means that Zestimates do not know if the kitchen has been renovated or the carpets are stained; these things can definitely affect the value of the property both positively and negatively.
  • The accuracy of the Zestimate depends on the the area. The accuracy ratings include "best", "good", "fair", and "unable to compute". Zillow reports accuracy for each city in California here . Zestimates in Santa Cruz are considered "fair" with only 40.9% of Zestimates within 5% of homes' true value and 69.9% within 10% of their value. Monterey and Santa Clara estimates are considered "Best" and "Good" respectively.
  • Why is it important not to overvalue the home when you list it? Because the longer the home sits on the market, the more likely buyers will wonder what is wrong with it. Additionally, if you do get an offer for a home that is priced above market value , a bank is unlikely to loan more money than the home is worth (as determined by an appraisal).

If you are selling, the best way to ensure that you have a good understanding of your property's value is to speak to a local, professional agent who studies the local market regularly. She will perform an in-depth analysis of your home and will help you to understand what factors increase and decrease its estimated value. You will gain peace of mind knowing that you have made an intelligent and well-informed decision about your listing price.

If you are buying, you will have to make an offer that is both competitive and frugal. Having an in-depth understanding of a given property's estimated value will put you in the position to do just this.

Technology:  In Home Robots

Whether it's a smart phone, computer, or tablet, technology has become deeply integrated in our everyday lives. Here are a few new devices that may change the way we live in and relate to the home.

  • Jibo is a home robot that can see, hear, speak, learn, help and "relate". The last feature involves communicating and expressing using natural social and emotive cues. Read more here .
  • The Dyson 360 Eye seen here is an autonomous robot that you can control from your smart phone. While this is not a new idea (the IRobot Romba see here is widely popular) Dyson promises the vacuum to be more intelligent and powerful than its competitors.
  • Smart Home is a kit, made by Samsung, which "brings your home to life". It includes a "hub" and a variety of smart sensors and gadgets that can do things like lock your house, turn on the hot water, and schedule the thermostat. User reviews on Amazon are mixed, however the technology appears to be improving. See it here and the reviews here .  

Note: We do not have sponsors and simply write about technology that we find interesting.

Quick Links

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In This Issue

Christine's Corner

Keeping in touch with big changes in the industry, precipitated by technological advances, we are restructuring how we serve our clients and customers. We are researching and improving how we value, present and market your property. We are gathering tools and knowledge to better help buyers understand the home, environment, and cost of buying and owning a property.

From feedback, we see that local market knowledge is important to many of you. If you own a property, you want to know what is going on in your local market regularly. We can now send you scheduled, detailed and thorough neighborhood reports. If you want to receive one of these reports or get scheduled for regular delivery, please contact us.

It's a joy to create a market when the one we have is just not enough for our customers and clients. We are using advancements in industry data and technology to put deals together. As of today, we have multiple buyers looking for properties; everything from a single-family home to apartment buildings with 50 or more units. We are farming for these properties, using technology and our networks to match our buyers with sellers ready to sell. We are sending out letters to owners of properties that fit the profile of our buyer's needs. If you own a home or investment property and want to sell or trade, please contact us. If you want to buy and can't find what you want, contact us. We would like to help you put your ideal deal together.

Schneider Estates, Inc.
Christine Schneider, Broker
BRE# 01749537

Issue 13
September, 2016