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Thursday, July 31, 2008

Changing home buying patterns

“Change your thoughts, and you change your world.” (Norman Vincent Peale), from the Jack’s Winning Words blog. Peale was talking about changing from pessimism to optimism as a way to change your life. From a recent news feed about the results of a poll by Harris, it would appear that home buyers are changing their thoughts about what they want in a new home and when they can afford to buy it.

The Harris interactive poll commissioned by Move.com reveals that potential home buyers value "green" building features more than luxury amenities. When given the choice of features like solar energy panels or energy-saving appliances, a whopping 49 percent considered them important, while only 31 percent rated luxury amenities as important. This could be the result of the weight of the Gen-X and Gen-Yers kicking in to overcome the “me first” attitudes of the Baby Boomer generation.

The survey also revealed that rating the neighborhood they might choose would depend largely on two major factors: crime rates and proximity to work. Somewhat flip-flopping the mindset of home buyers even just a few years ago, more respondents in the survey admitted that they were willing cut personal spending and sacrifice some comfort to be able to afford a home. As few as 6 percent would, however, be willing to give up their proximity to shopping and a meager 3 percent would give up their proximity to public transportation.

Even though these statistics are telling, the survey also found that a large majority of potential home buyers -- 81 percent -- say they are facing considerable financial obstacles in purchasing a home, including high prices, a marked uneasiness with the economy, and income concerns as well. That is reflected in the almost total stoppage of the “move-up” market locally, where the homes in the above $300,000 range are languishing. Those homes have in the past been purchased by workers who were getting promotions and moving up in life. These days just staying afloat is the goal of most. Don’t even mention moving up.

The underlying current from the survey, however, is strong in the long run, with almost half of the respondents expecting conditions for buying a home to improve after the election, 44 percent admitting they would like to purchase a different house and 47 percent wishing to do so within the next five years. I for one wish that they would do something, too.

Wednesday, July 30, 2008

Home improvements suffering in housing slump


Many homeowners are reluctant to put money into a home improvement for fear their home value will decline anyway, and they're probably right in this market. Home improvements, once used to help boost the value of homes, are the latest victim of the housing crisis. A recent article in one of the real estate news feeds that I get discussed this issue.

Harvard's Joint Center for Housing Studies says home improvements are set to decline by an annual rate of more than 11 percent into the first quarter of 2009. Kermit Baker, director of the Remodeling Futures Program of the Joint Center blamed weak home sales and the growing inventory of unsold homes for discouraging upper-end remodeling in many areas. Weak home sales and swelling inventories are the byproducts of a housing market plagued by foreclosures and tight underwriting standards.

The fallout prevents new home purchases and refinanced mortgages that often result in cash pulled out for home improvements. The same areas with the worst foreclosure conditions, California, the Southwest and Florida, are also finding fewer homeowners engaging in home improvements. Still, long term forecasts expect industry growth, Harvard projects a 44 percent inflation-adjusted increase in the remodeling business nationwide from now through 2015. Homeowners who make home improvements now will be better positioned for the next spurt in home prices.

This is fairly consistent with what I'm seeing locally. Many "builders" have reluctantly become home improvement contractors, just to make ends meet. Unfortunately, I still have to spend quite a bit of time trying to explain to perspective sellers why they won't get all of their home imporvement costs back upon sale. The other issue is that many home owners think of regular maintenance items like a new roof or getting the exterior painted or putting in new windows (after 30 years) as "home improvements." While they are improvements over what was there before, you just don't get credit from buyers for doing what you shold have been doing all along to keep up the property. Buyers will pay something extra for well done remodelings to the kitchens and baths or for a well finished basement (see my post of a few days ago on that); but even those will not return 100% of the invstment.

I normally advise people to do home improvements for their own enjoyment, while they own the house. The imporvements may add a little value to the sale price, and they surely will speed up the sale, compared to homes that still need major improvement projects. That's also a reason that I caution against doing last minute improvement projects, just before listing your home. They just don't pay back. It's better that you should take the cost of the imrovement project off the offer price.

Monday, July 28, 2008

American dream lost?

Down payment assistance a fatality of the homeowners rescue bill.

The recently passed (and hopefully soon to be signed into law) bill that would provide some relief to at lease an estimated 400,000 US homeowners had at least one casualty buried within its 1000+ pages.

President Bush has long wanted to kill off the so-called charitable down payment assistance programs, such as Ameridream, which purported to give home buyers their 3% minimum down payment (as required by FHA). The Ameridream program long ago lost its tax exempt cache when the IRS ruled that the requirement for the seller to contribute a like amount to Ameridream, plus a fee for processing, meant that the Ameridream “charitable contribution” was neither a real charitable contribution nor tax deductible. The program was continued, even after that ruling and has been extensively used on people with little or no money for a down payment. Bush argued that these programs just encouraged people who can’t afford a house to get in over their heads – certainly an argument with some merit.

So, once the homeowner assistance bill becomes law, Ameridream and other like down payment assistance programs will become history – at least until the sharpies who rule these things figure out a new way around the laws. There will always be people around the edges of any legitimate business trying to figure out ways to cut corners or make a buck off something that is illegal or only marginally legal.

I read an article last night about people in the finance worked who are already dreaming up new “financial instruments” to replace the securitized mortgage instruments that recently went bust. The article was about people who are packaging up commodities futures contracts and creating tracking indexes that can be bought and sold. As best as I can figure, it involved people who will be betting on the success or failure of other people who have bet on the rise or fall of the price of commodities sometime in the future. The things that I get a kick out of is that no one in this whole chain of events actually owns anything tangible. It makes about as much sense as betting on the pool of bettors who put money on specific horses in a horse race. You could bet (invest, as they would prefer to call it) on whether a horses odds would go up or down, right up to the start of the race, at which time, your options would expire. No wonder so many idiots lose so much money when these stupid houses of cards fall apart. It’s all a big pyramid scheme with no underlying real value.

Friday, July 25, 2008

Buyer’s Remorse and Seller’s Regrets…

As a full-time real estate agent, I get involved occasionally with buyers and sellers who both have second thoughts, once an agreement is reached.

Buyer’s remorse is a normal reaction that sets in about 24 hours after receiving the good news that the buyer’s offer has been accepted. Up to that point the buyers’ emotions had been driven by anticipation and hope, as well as the thrill of the hunt for the perfect house. Once the offer has been accepted, the reality of the size of the debt obligation sets in, as well as the upcoming responsibilities of being a homeowner (especially for first-time buyers). Thoughts of “What have I gotten myself into?” can quickly take over.

Usually the buyers’ doubts and fears pass quickly, as anticipation again takes over and visions of the fix-up or remodeling that the buyer has in mind take over. If everything goes OK in the inspection, most buyers settle into the waiting period and begin shopping for furniture, appliances or whatever else they’ll need once they own the house. I have to keep them focused upon doing what is necessary with their lender to make sure that the mortgage goes through and that they understand what they’ll need to bring to the closing. Sometimes those verbal estimates that they got in the front-end of the mortgage process turn out to have been low and surprises, in the form of fees and points and other charges start to pop up as the mortgage is finalized. That’s why I always advise buyers to get a written Good Faith Estimate up front, from whatever lender they are using.

Seller’s regrets can come in to variations. If the house sells quickly, the sellers may come to believe that they got bad advice and priced their home too low for the market. If the house has been on the market for too long, the sellers regret not having priced it closer in the first place to where it ended up selling. Of course, both of those scenarios are almost always blamed on the advice given by the sellers’ Realtor. In the latter case, sellers often forget the original pricing advice given by the Realtor, which is often where the house ends up selling after sitting on the market overpriced for months and months.

These days, sellers may also regret what they ended up having to accept and have second thoughts about selling at all, but it’s too late by then. Sellers then have to refocus their worry on the inspect ion and the appraisal, both of which represents “outs” for the buyers, if they don’t go well. I’ve certainly had lots of issues with appraisals lately, since appraisers are still using the “declining market” guidance that they have from lenders to take value off houses (about -5% is the norm these days).

As the agent of either the buyer or seller (and rarely both) I sometimes become the easiest target for venting the emotions of these feelings. What have you gotten us into? If I’ve done my job right (and I certainly always try hard to make sure that I do), I’ve advised the buyers or sellers all along on what their options were and hopefully provided them with good data and analysis of what to offer or how to evaluate an offer. That isn’t always easy in this market. With values dropping like, they have, and the market being as slow as it is; finding Comps to use to advise either side is getting harder and harder. Even appraisers are having difficulty finding Comps in many markets.

As a listing agent, trying to keep sellers at least up with the market on price has become a constant challenge and advising buyers on how low they can go on bids is always interesting. Most sellers end up “chasing the market”, always a little too high and too late with reductions. As a buyer agent, trying to balance out the strident media reports of real estate doom and gloom is the challenge. Most buyers have been conditioned to “low-ball” everything, because they’ve been led to believe that every seller is desperate.

I guess the best way to put the role of the agent on either side of the process is to say that he/she must manage the expectations of their clients. A good agent will work to inform and educate the client through every phase of the process, so that there are no surprises for the clients. Certainly, I can’t manage away a home inspector finding some issues during the inspection or an appraiser being unable to support the agreed upon sale price; however, I can alert the clients (on either side of the deal) of the possibilities of that happening and give them the options available to them to deal with the problems. Most issues can be resolved and the deals go forward, if there are informed and cool heads on both sides.

So, to paraphrase an Ole Blue Eye’s song – Regrets, I’ve had a few; but then again, too few to mention. Real estate transactions should be happy, win-win situations and it is the role of the agents involved to help make that true.

Thursday, July 24, 2008

Putting lipstick on this pig...


Boy, talk about putting a “spin” on the news. A recent news feed that I get carried a story about the results of a recent poll of home buyers. This is how they started the story - A recent survey conducted by Harris Interactive on behalf of Move Inc. shows that 44 percent of home buyers expect improvements in the housing market when the new president is installed next year. Even the headline over the story was positive – Poll: Housing Market to Get Better with New President.

Two days earlier, another news feed that I get used the same poll and the same results under the headline “New President Won’t Make Any Difference in Housing Market”. Of course that article referenced the 56% of home buyers who don’t expect a new president to make a difference and you can imagine that it went on to paint a doom and gloom picture for the next few years. The writer of the positive spin article should probably be a political speech-writer, since it appears that he/she could put lipstick on a pig and call it beautiful.

Anyway, the article went on to say that in the same poll, 81 percent of home buyers are still nervous about the current housing market (well, DUH!) and say there are barriers between them and home ownership. Respondents cited the cost of a down payment (28 percent), their annual income level (20 percent), lack of confidence in the economy (26 percent) and high home prices (31 percent). Anyone sighting high home prices either hasn’t looked lately or are just trying to imagine themselves in too much house. There haven’t been lower prices in years. And as for the annual income issue – well, yeah, you do have to be able to afford it or find something cheaper.

Despite those reservations, the survey indicates underlying demand for home ownership is healthy. While nearly half (41 percent) of current homeowners do plan to purchase a home again, 80 percent of all renters plan to purchase a home someday with 47 percent planning to purchase a home within the next five years (again with the positive spin, since that means that 53% aren’t going to do anything in the next five years). Most home buyers (78 percent) are also willing to make sacrifices to save and earn extra income for down payments, and will compromise on neighborhood features and residential amenities in order to buy a home in the current market.

I think what we are seeing is the settling in of the reality that the great American dream of home ownership will remain just that – a dream – for many people, for longer than they imagined. We tried the other approach – no money, no job, no problem, here’s your mortgage and that didn’t work out so well. There are always going to be some people in our society who can’t afford to buy a house. That’s why other people build and run apartment complexes and rental homes. Owning your own home wasn’t, isn’t, and never will be, an entitlement.

Wednesday, July 23, 2008

The Boomers are coming, the Boomers are coming...


For years now we've been reading about the huge expected changes to everything, once the Baby Boomer generation starts retiring. The messages ranged from strident alarm - Who will fill all of those jobs? - to hope for a real estate spending boom - Boomers will be downsizing and buying up condos.

Several factors have worked to blunt the impact of the expected shift into retirement for Boomers. Many have discovered that, due to economic factors, they will have to continue working and delay their retirement plans. Some have retired and discovered that they can't sell their McMansions for what they hoped or in the time frame that they had planned. Others, in this area in particular, have retired and moved away, most heading south. The overall impact has been less than anticipated locally.

I am seeing some increase in activity from older buyers who are looking to downsize. Most that I've met still want a house vs. a condo; however, there is fair consistency in the features that they are looking for in a new home. Most want a ranch-style house, or at lease one with the master bedroom on the entry level (the same for the laundry). many who are looking in the Milford area would love to get a home that is close enough to town to allow them to walk downtown. Almost all of them want a move-in ready home, rather than one that needs any work (been there and done that and I'm too old to do it again is the standard reply to a fixer-upper). I have yet to get any older buyers who are specifically looking for a home that is wheelchair friendly or at least is designed and built to accommodate the needs of someone who might be mobility-challenged.

One of the hard things for many of these buyers to do is to downsize their possessions at the same time as they are downsizing their homes. It's amazing how much stuff we all collect over a lifetime and letting go of it is tough. Just getting rid of furniture that won't fit into small spaces can be a painful experience for some. There are whole lines of "apartment-sized" furniture that fit better is smaller spaces and that is usually the solution. I often recommend that people who are downsizing try to sell off some of their furniture to whomever buyers their old house - it obviously fits there and somehow you feel better that it is staying "home".

So, I'm out here in Milford, awaiting the Boomer stampede. We have a wonderful, walkable little place to live and I can show several homes that fit the "everything on one level" criteria to perspective buyers. We have houses and condos that are ready to move in and live. Even if you've not a Boomer, give me a call and I'll find you a new home in Milford.

Monday, July 21, 2008

Amateur Hour in Lansing Again...

Well, I see that our states amateur lawmakers are at it again, trying to save us from ourselves and screwing things up in the process. An article that I read related to a bill in our legislature that actually started out fine, but which has now had an amendment attached by a lawmaker who doesn't understand what he's doing and has effectively messed up the intent of the bill.

The bill was one to require some formal training and licensing for home inspectors in Michigan - those folks that we all hire to take a look at a house that we are trying to buy. I certainly always recommend getting a good home inspection, especially for those trying to buy a foreclosed home, since the banks know nothing about the property and usually tell you that in 20-30 pages of legalise. Right now, home inspectors have no regulation, no required training and no license requirement. If I wanted to, I could have cards printed up that say Norm's Home Inspections and be in the business right away. That's probably not a good thing; so, the original intent of this bill, to set some training and licensing requirements was good.

What happened is that some obscure lawmaker added his own amendment to the bill at it's second reading. His amendment states that the home inspector may be held liable for any defects that are missed in the inspection and subsequent report. The amendment doesn't put a dollar or time limit on that liability. Currently, the normal recourse available to the buyer of an inspection service is to sue to get back his/her inspection fee, which is generally in the $300-500 range. There is no provision for holding the inspector liable for anything that he/she may miss, even if that turns out to be a significant and costly issue.

Why, you might ask, is this bill, as currentlky written, a bad thing? Well for one, the only way that home inspectors could stay in business with this level of liability would be to get liability insurance (and quite a bit at that), which would drive up the cost of inspections, perhaps putting them out of reach for the common buyer. Secondly, current home inspections are non-invasive and non-destructive. The inspector can't look behind the drywall without poking a hole in it, but that's where the hidden mold might be that this stupid law would hold the inspector liable for. There are all sorts of places in a home that the inspectors can't get to - sealed up attic or crawl spaces, finished walls in a basement and others. Either the inspector has to poke holes in the walls to get to those spaces or just hope that nothing is back there that might crop up later (I smell more insurance, if that is the case).

Another consequence might be creation of an environment of fear, the same as what has happened in the health care industry. Because of fears of liability, doctors order tons of tests, many unneeded, just to cover their bases (and whatever else needs covering). That drives up the cost of health care. Home inspectors could start requiring that home buyers run all of the tests - mold, infestation, radon and others - just to make sure that nothing is missed.

So, I guess we'll see if sanity prevails and someone removes this bit of stupidity from what otherwise was going to be a good law to require more training and accountability (through licensing) for home inspectors in Michigan. The various home inspection associations were for the original bill, but now they are fighting this stupid amendment. Perhaps, if we are to continue with a term-limited amateur legislature, we should have some rules about a minimum level of intelligence that would be required to become a legislator.

Sunday, July 20, 2008

A foolishly set jaw

We have unfortunately all been the victims of a President with a foolishly set jaw, on the war, on medical research and on many other topics that have caused the nation and the people great harm. Luckily that will change shortly and history can deal with him.

In the local real estate market there are many would-be sellers who have adopted a similar approach - "I don't care what the market is doing, I'm not going to give my house away!" How often have I heard that in the last couple of years. Usually these are the same people who burn through 4-5 Realtors, complaining all the while that they aren't doing enough to sell their overpriced house.

You can see the impact of having a number of people in a small local market all setting their jaws against the wind of the market. If you go to my Web site - http://www.themilfordteam.com/ - and look at the Real Estate Market Statistics page, you will find a couple of very telling charts. One tracks the Days on Market and Inventory for an Oakland County area that I focus my listing activity upon - Milford, Highland, Commerce, White Lake and West Bloomfield. Another charts the markets of Brighton, Marion, Genoa, Highland & Oceola and Howell Townships in Livingston County.

If you look at the chart for the Oakland County market you will see one price bracket that literally goes off the chart - the $400,000 to 500,000 market in Milford Township. There a few "sellers" have set their jaws and the Days on Market is now closing in on two years - 522 days. In the Livingston market the $300,000 -400,000 price category is now at 651 days.

So does this mean that it would take you that long to sell, if you had a house that should be priced in that range? Not necessarily. What it means is that there houses in those price ranges in the the two markets that are probably not worth what they are priced at and they are just sitting there. The sellers are being stubborn and refusing to lower the price to match the market, so they sit. And they will continue to sit for the foreseeable future. The market is cruelly efficient at sniffing out these overpriced houses and ignoring them.

How or why does this happen? I can only relate about the ones that I have some knowledge. Owners often put too much money into "improvements" - a new roof or a new kitchen right before putting it on the market that they then try to get back in the price. Often the "improvements" were nothing more than getting caught up on delayed maintenance (the roof or painting or finally replacing that leaky hot water heater) and involve things that no buyer is going to give credit (or extra money) for in this market.

Often these seller will point to some house that they think is similar to theirs and tell me that it sold for $50,000 more only a few years ago. Or they will quote some relative who lives in another state that their house is worth so much more than I have advised them to price it at. When that happens, if I'm smart I say thanks but no thanks and walk away. That person isn't likely to be a reasonable client and I just don't need to spend hours arguing with my own clients.

So, if your house has been sitting on the market for months and months and maybe you've even gone through 2-3 Realtors, ask yourself, "Do I really want to sell?" If the answer is yes, then resolve to listen to your Realtor the next time they advise you on pricing. You're not going to get what you wanted in this market. You're going to get what the market thinks your property is worth. If that doesn't work for you , then get it off the market. Letting your house languish on the market just marks it as a problem house, even if the problem is you.

Saturday, July 19, 2008

Fannie and Freddie are fine, says Bernanke


Federal Reserve Chairman Ben Bernanke reassured Congress last Wednesday that Fannie Mae and Freddie Mac are in “no danger of failing.” That's Ben in the middle telling Congress that he sees no problems with Fannie and Freddie. Fannie, on the left, refused to listen to congressional concerns, while Freddie on the right invoked his fifth Amendment rights and refused to testify.

The two mortgage giants are "adequately capitalized," Bernanke said. However, "weakness of market confidence is having an effect" on the companies, making it difficult for them to raise capital.

"We will work our way through these financial storms," Bernanke said.

He called the depressed housing market the central economic issue and urged Congress to approve legislation helping consumers refinance out of troubled mortgages, set a stronger regulator for mortgage giants Fannie Mae and Freddie Mac, and approve a new Treasury Department plan to bolster the two firms, which back half of U.S. mortgages; although Bernanke couldn't relate why the two firms needed bolstering, considering his earlier statements that they were OK.
Bernanke went on to reassure displaced residents of New Orleans or those that have returned and now live in contaminated trailers that the big guy - Bushee - is still doing a heck of a job. In other related news, FEMA said that it is still studying whether or not to declare New Orleans to be in a flood zone. The FEMA director said that they don't want to make a hasty call on that critical designation, since it could affect the ability of home buyers to get loans back by Fannie Mae and Freddie Mac. More on that as it develops.

Friday, July 18, 2008

The World Famous Whoopee Bowl


I was out in Independence Township the other day, close to Clarkston on Dixie Highway, looking at a house that I might list. While I was there I got to thinking nostalgically about the long gone World Famous Whoopee Bowl. When I first move to Michigan in 1978 a neighbor turned me on to the Whoopee Bowl, a great junk store. I'm relatively sure that they called themselves a salvage store or a discount surplus store, but they were a classic junk store in the good sense of that name.

If you needed something really obscure - a nut or bolt, a spring, a piece of upholstery leather, whatever; you might be able to find it at the Whoopee Bowl out on Dixie Highway, just beyond I-75. You never knew exactly what would be there, but half of the fun was searching through the aisles of piled up stuff, in hopes of finding whatever it was that you needed. My wife never really got in to going to the Whoopee Bowl, but my daughter and I spent many a fun weekend day there, searching for the stuff that she used at the time to make unique jewelery - leather bits, springs, beads whatever.

When the City of Pontiac replaced all of their old street lights, the Whoopee Bowl bought all of the old lights and put them on sale. Of course, both of my kids had one in their rooms. An when I needed a place to buy the switches that I used to make them operational, where do you think I turned - the Whoopee Bowl. when I decided to make small crafts items that featured a mirror as a part of the item, where did I find bins of old car mirrors that fit the bill - the Whoopee Bowl. And who else locally featured the mounted heads of the Jackalope - a cross between a Jack Rabbit and an Antelope - of course it was the Whoopee Bowl.

The Whoopee Bowl closed in 2005; the owners content to sell off the 23 acres of land that they had to developers, after three decades of operation. I miss the place. I'm sure that you can probably find everything that was there on the Internet somewhere, but that doesn't take the place of dusty aisles and bins of physical stuff to sort through. We've lost too many Whoopee Bowls in life - victims of a faster pace and shorter attention spans, I suspect. That's a pity. Now my grand daughter and grandsons will never have the experience of wandering through mounds of stuff or the excitement of finding a treasure amidst the junk. I miss the World Famous Whoopee Bowl. So should we all.

Thursday, July 17, 2008

Mid-year review...




Some comments on the market from our President of Brokerage, Dan Elsea.
For the first six months of the year, the number of homes sold is a mixed bag with lower value markets gaining over last year with Northwest Michigan showing the steepest decline. However, in all markets home values are still declining and we can expect that trend to continue through the end of next year as well. On average the rate of value decline is running around 1% per month.

The Northwest Michigan/Traverse City market is showing a steeper sale unit decline which should begin to narrow next year. Because of a stronger base economy their recovery will be faster so the entire state should wind up at the same spot by the end of 2009. It is interesting to note that although the market is slowing in Northern Michigan, so far home values there have shown the most stability.

How will the auto changes and specifically the GM change our market? With over 60,000 homes currently available for sale in Southeast Michigan, the 2,400 or so reductions will not have a major impact except in markets with high GM employment. In the short run the buyer pool may contract until the employees of GM and their suppliers know who is going and staying. What this means to Seller’s is they may need to be more aggressive in pricing if they want to generate a sale by the end of the year.

What is the best overall advice for Sellers for the balance of the year? It is the same as the first half. Focus on being one of the top 5 best priced homes in your competitive range. We will not be moving out of a buyer’s market for at least 24 months so price aggressively enough to more than match the market value declines. Distressed sales are your value benchmark (you don’t have to match the value of the poor conditioned foreclosure down the street, but you do need to move toward it). On average the spread between the foreclosure and non-foreclosure sales prices are running about 20%, but that does vary quite a bit depending of the condition of the homes.

For Buyers, move now! Every indicator says interest rates are going to rise over the next 12 months. Any gain by waiting for the price to drop will be lost in higher interest rates.

So, basically the market is still declining in our area. Here. like other hard hit parts of the country, there is some evidence that the rate of decline has slowed and we may be nearing the bottom (or maybe that's just wishful (wistful) thinking). Maybe, if we can get past the GM, Ford and Chrysler are all going to go bankrupt messages, we'll see some improvement locally. I have certainly seen more people out looking lately, because I've been with many of them. And. I've seen more houses sell lately (I had a couple in July), so things are at least picking up in my little corner of the market.

And finally, on the front page of this mornings Oakland Press was the headline "Home Sales May Rise", a story based upon pending home sales for June being up 23% over last year. Of course the same article did mention that actual sales in June were down in Livingston County by 14.4 percent. down 2.7% in Oakland Count and 2.4% in Macomb County. Detroit had a sales increase of 54.9% and Wayne County an increase of 31.4%, with investors snapping up foreclosed houses for pennies on the dollar. But, hope springs eternal and the article focused upon pending sales, which were up in Macomb County (10.8%) and Livingston County (10.8%), too.

We have one more strong quarter to go before we head towards the holiday season and them into the winter months. I certainly hope that things continue to improve, which is the message of this campaign season , isn't it? Many folks are counting on things getting better as soon as we have a new President. That's just about guaranteed, no matter who wins.

Wednesday, July 16, 2008

Fed Issues New Lending Rules


From a recent Associated Press story, comes this news. The Federal Reserve on Monday of this week adopted rules designed to protect home buyers from the kind of loans that drove many into foreclosure.

The new rules apply to all lenders and not just to banks supervised by the Fed. Most are expected to take effect Oct.1, 2009. Escrow requirements won’t go into effect until April 1, 2010.

Here are the new requirements:

- Prevent loans made without documenting borrower’s income.

- Require lenders to escrow money to pay taxes and insurance for risky borrowers.

- Limit and in some cases ban prepayment penalties.

- Prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value.

- Require mortgage advertising to contain information about rates, monthly payments and other features of the loan.

- Insist lenders credit a mortgage payment to a home owner’s account on the day it is received.

- Brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.

Granted, about half of these new Fed rules fall under the "Well, DUH!" rule (a rule made up by the same people who authored the “5 second rule” for dropped food). I have long suspected that requiring that the borrower had a job or some visible means of support is a good thing.

Hopefully new rules like these, combined with the spanking that the financial institutions took over the last two years will be enough to discourage future bad lending practices. Now, if they could just come up with something to encourage the banks to make more good loans that might help get things rolling again.

Tuesday, July 15, 2008

"Change we must". (Yoda)

“I cannot say whether things will get better if we change; what I can say is that they must change if they are to get better.” (Georg Lichtenberg). Those words from the Jack’s Winning Words blog certainly apply to the real estate world. We have seen some small changes already – more people out looking and a slight up-tick in the number of houses selling.

We are still experiencing a heavier than normal foreclosure rate, but the market seems to be absorbing them fairly well.

Sellers have come to grips with what has happened to prices and are now more realistic when putting houses on the market.

Buyers are aware that this great housing market, accompanied by relatively low mortgage rates, can’t last forever; so they are getting out and finding bargains right now.

We are still going through wrenching changes in our local auto industry. Perhaps we’ve become a bit punch-drunk from taking so many layoffs and plant closings and other bad news; but, it seems like the next story of bad news out of the industry is being announced with a little less stridency than would have been the case a year ago. It’s become – another day, another release of bad news from the little three (they’re actually being called the local three in the local press, now; although I can’t imagine why including Daimler-Benz as a local company makes sense to anyone).

Change is inevitable, so let’s hope it’s for the better and soon!

Monday, July 14, 2008

Tough Love...


Sometimes tough love is better than no love at all. Washington is still buzzing over Treasury Secretary Henry Paulson's blunt, tough-love comments about the home foreclosure crisis and the real estate market last week. His core message: Foreclosures are a fact of life in the mortgage world. They happen in large numbers even when the economy is booming. They're especially high now because a lot of people messed up - home buyers as well as lenders. In the wake of those messes, the federal government's clean-up role can only be a limited one.

"There is little (that) public policy makers can, or should, do to compensate for untenable financial decisions" by home buyers looking for quick profits and willing to take on unreasonable debts, said Paulson.

The Treasury secretary's comments at an FDIC housing conference came on the eve of Senate action on a housing-relief bill that would provide refinancing opportunities to a fraction of financially-distressed homeowners now stuck with bad mortgages. Everybody else will be left to either work out loan modification terms with lenders or end up in foreclosure.

Paulson also used his speech to punch holes in the widely-accepted perception -- fostered by media coverage -- that the housing market is in deep trouble nationwide. "We need to recognize that there is not a national housing market," he said, "but a collection of regional," highly-localized sub-markets down to the neighborhood level that often perform starkly different than the national headlines might suggest.

Though news about high foreclosure rates on a national basis may be scary-sounding, the fact is that the housing bust is highly concentrated geographically. For example, said Paulson, just four states: California, Florida, Arizona and Nevada -- accounted for one quarter of all mortgages nationwide, but 42 percent of foreclosure filings last quarter. Adding in Michigan, Indiana and Ohio, these seven states -- all by themselves -- have accounted for over half of all foreclosure filings this year. Well, OK, by-golly, we’re the Magnificent Seven!

So, here we are in the midst of our little regional blow-up in Michigan, waiting for any help that we can get to get our economy back in balance and our housing market out of its tailspin. I don’t disagree with Secretary Paulson, but I sometimes wish we were hearing from Pat Paulson instead of Henry Paulson. At least, maybe we’d get a laugh out of his take on things. I used to love his dead-pan delivery.

Friday, July 11, 2008

In search of a problem...

I recall a simpler time in life, when we were all blissfully ignorant about the various personal hygiene or health issues that now drive about half of the TV commercials that we see every day. Now, of course, we are told incessantly why we can’t go on without this product or that product, which will fix those problems that we didn’t know we had. Going too often or not going at all – we have a solution for that. We’re pretty much covered from our heads (dandruff shampoos) to our toes (athlete’s foot and toenail medicines for those).

This new phenomena in our society is the embodiment of solutions in search of problems, or in search of people who believe that they may have a problem. Every day the TV blares out “ask your doctor today if this drug is right for you.” I wonder how many times the doctors have to explain that the drug is not right for someone, because they don’t have the problems that the drug was designed to treat?

From a recent real estate news feed comes the story that there's growing evidence duct cleaning may be a solution in search of a problem rather than cure for what ails the air in your home. Consumer Checkbook (a subscribers only) research released this year says the dust you see in your ventilation ducts pretty much stays where it is. It likely won't become airborne unless disturbed -- say by duct cleaning. Under most circumstances duct dust is inert and harmless.

The latest U.S. Environmental Protection Agency information on the subject also says succinctly, "Duct cleaning has never been shown to actually prevent health problems. Neither do studies conclusively demonstrate that particle (e.g. dust) levels in homes increase because of dirty air ducts. This is because much of the dirt in air ducts adheres to duct surfaces and does not necessarily enter the living space."

The EPA does recommend servicing for fuel burning furnaces, stoves or fireplaces before each heating season to protect against carbon monoxide poisoning. And you should regularly have fireplace and wood burning appliance fire boxes and flues cleared of potentially flammable sooty deposits and creosote, the by-products of incomplete combustion.

But, the EPA only recommends duct cleaning if:

Ducts are infested with vermin (including rodents or insects), in which case you may also need a licensed pest control operator.

Ducts are clogged with excessive amounts of dust and debris and/or particles that are actually released into the home.

There is substantial visible mold growth inside hard surface (sheet metal) ducts or on other components of your heating and cooling system. A positive determination of mold's existence can be made only by a certified microbiology expert and that may require laboratory analysis for final confirmation.

The EPA recommends that you consider hiring National Air Duct Cleaners Association (NADCA) members who are locally regulated, licensed or certified. Talk to at least three different service providers, get written estimates and only then decide if you want your ducts cleaned. When the service providers arrive have them show you the contamination that would justify having your ducts cleaned. Just the fact that there is a National Air Duct Cleaners Association is proof of how far, as a society, we’ve progressed into the ridiculous on issues like these.

Maybe I can come up with some new service to offer homeowners to solve a problem that they weren’t aware that they had. Then I could start my own “National Association of Whatever” and make myself its President. Maybe I could offer to remove and air out and vacuum the feathers from natural down pillows for homeowners; so that they avoid exposure to any potential duck or goose-feather related allergies. Then I could be President of the National Association of Down Aerators or NADA. Stay tuned for TV commercials about pillow-borne down allergies and diseases that you could avoid. Don't let your down pillow embarrass you in public ever again. Shown on the right is a test vacuum of a pile of feathers. Don't try this at home, as it takes years of practice to vacuum a pile of feathers without sucking the feathers into the vacuum. You should only use a NADA pro for this delicate task.

Thursday, July 10, 2008

Obstacle Illusions


“Life is full of obstacle illusions": (Grant Frazier). That wonderful line that I took from a recent Jack’s Winning Words Blog, might have come from the comic strip’s Malaprop Man. It certainly makes a great point that many, if not most, obstacles that we believe we hit in life are, in fact illusions. As Malaprop Man might put it – “They are pigments of our imagination.”

These obstacle illusions often lead to fear, which leads to hesitation, which ultimately leads to paralysis. I know that I face that in my life and my job. I hate cold calling, so I create obstacle illusions to give myself a way to rationalize not doing it. There’s the no-call list, of course; but that can be dealt with using an simple on-line search before calling. I have created a whole list of obstacle illusions that I allow to get in my way to put off cold calling; yet, I know that I have to do a certain amount of cold calling in order to continue generating enough business to make a living. So, that is one of my obstacle illusions.

In today’s market, sellers have erected a whole barricade of obstacle illusions to convince themselves that now is not the time to sell. There is certainly a great deal of reality about price erosion and the glut of homes on the market; however, homes are selling everyday, so it is possible to sell now. That’s where real estate professionals come in. There has never been a time when it is more important to have the help of a real estate professional than now. Getting professional help to price your home for the market and to properly prepare it for showings are keys to selling quickly.

The most pathetic thing to see is some small “For Sale By Owner” sign sitting forlornly on someone’s front lawn. You just know that this would-be seller has created an obstacle illusion out of the fees that a Realtor would charge to get the house sold. Never mind that study after study has shown that FSBO sellers actually end up making less on a sale than if it were listed with a Realtor and that the sale takes considerably longer to make (if it ever happens). I’ve had many, many buyers tell me that they won’t even consider going to see one of those homes, because they know that the owner has probably priced it too high and is unlikely to be willing to negotiate. I could go on about the lack of exposure for the house, but you get the point. Trying to FSBO in this market is a losing proposition.

Buyers, too, have become conditioned to erect the “not so fast, let’s look at a few more houses” obstacle illusion for themselves. The “shop ‘til you drop” mentality has taken hold in real estate, because buyers have become convinced that the perfect home at the fire-sale price is just around the corner. Now, I have no problem with buyers who have a good grip on exactly what they want in a house taking their time (and mine) to find it. I’ve gone as long as a year or more looking at houses with buyers, before finding just the right one. What is a bit frustrating is working with buyers who really can’t describe what they’re looking for in a home and how much they are prepared to pay. Often I’ll get an answer like “I’ll know it when I see it.” That runs a big red flag up that these may be shoppers, instead of buyers, especially if it’s accompanied by “I’m in no hurry.” That means that there is really no motivation to do anything.

So whether you’re interested in selling or buying, don’t make it harder on yourself by interjecting obstacle illusions into the process. Let me help you with either task. A part of my job is dealing with those things to make the real estate process easier and more satisfying for you.

Wednesday, July 9, 2008

Jobs and houses…


The Labor Department reported increased unemployment claims for May of this year last Thursday, which would make May the seventh consecutive month for job losses. Out of 369 metropolitan areas, 328 reported higher unemployment rates, or lower employment, if you will. The housing industry watches jobs reports closely, because that's the best indicator of economic health to come.

According to the Conference Board, leading indicators of employment suggest more trouble in the job market in the months ahead resulting in one of the most turbulent, hard-to-read markets ever. As an example, Dallas-Fort Worth added the most jobs this year (+66,100) while Detroit lost the most jobs (-47,400.) Employment went up 2.2 percent in Dallas, while it dove 3.3 percent in Detroit. Well, that’s just another category that we didn’t need to be number 1 in, isn’t it?

The National Association of Realtors expects job losses to be temporary, as companies clean house. The unemployment rate should average 5.4 percent this year and rise to 5.8 percent in 2009, but that's still well under the seven percent unemployment we had as recently as 2003. Actually, I believe that we are above 7% in the Detroit area already.

This might mean that a mass migration is about to start as people who are out of work seek employment in greener pastures. That's good news for cities that are adding jobs that perhaps missed the housing bubble like Dallas. And it's good news for buyers in more challenged areas, too. In Detroit, the people who still have jobs are buying homes. Realcomp, the Realtor's MLS for the Detroit metro, says home sales are up for the sixth month in a row in June year-over-year, (+13 percent.) Pending sales are also up by a whopping 32 percent. A part of that “whopping” sound is the result of the sellers getting hit “up side the head” by the low prices that they are getting. In places like Detroit, Pontiac and Ypsilanti, there are many home sales taking place for under $10,000, which is essentially under the cost of the land itself.

One reason is that homes are competing with foreclosures, and the average price for a home has plummeted. The median sales price for a home in Detroit is $137,000, and median foreclosed homes are selling for about $40,000. Compare that to the median national sales price of $205,300, expected by year's end. Whenever housing is affordable, sales tend to go up, so as the national median falls more than six percent in 2008, that could tip an increase in sales prices of as much as 4.3 percent in 2009. And those areas that are adding jobs are going to push sales back up even more. That means location has never been more important, says the NAR.

The old real estate mantra – Location, Location, Location – is still true; but, in today’s market I would put it this way – LOCATION, Price, Price. Price is second only to location and is really the most important factor, when you can’t do anything about location anyway. For many, there is no option, or maybe no desire, to move out of Michigan, even if jobs are scarce here. And, if you have to stay in Michigan, now is a great time to buy a house. Call me and I’ll help you with the location part, too.

Monday, July 7, 2008

Selling a house fast is still possible...


The fastest sale that I’ve ever personally made was a house that was only on the market for 7 days. Some houses sell in as little as one or two days, even in today’s market. Why is that?

In the down market that we find ourselves in these days, price is king and trumps everything but location and location doesn’t win by that much, assuming that the house wasn’t built under and overpass on a busy interstate highway I’ve actually seen a few houses that somehow got trapped between the east and west lanes of a busy Interstate and a north-south interchange. Imagine trying to sell them. What where those people thinking when they turned down the offer to buy them out so the highway could be built?

Anyway, if a house is priced right for the market AND it has some appeal to a specific buyer group - whether it is a lakefront property , or a horse property or a log cabin property or some other unique property – it can sell quickly. You have to have a little luck. There has to be someone in the unique groups of buyers who appreciate the property who is looking at the time that you put it on the market. Bring those circumstances together and you can get a quick sale.

So, why don’t more homes sell quickly? Well, let me give you this scenario. I get a call from someone who says that they want to sell their house. I make an appointment and go over and look at the house, mainly to access it’s current condition. Based upon my visit and the market data that I can research from the MLS on recent sales of similar houses, I go back and recommend a listing price of between $250-275,000 and I give them my marketing plan for the house. Great plan they say and we’d like to list with you. We’d like to start at $350,000 for the house, because our uncle George knows a guy who has a house like ours and he sold it for $350,000 2 years ago. Sounds ridiculous? It happens all the time.

For a while, I, like most other Realtors, was whoring myself by agreeing to list the place for the ridiculous price that the owner wanted; because, I thought, “Well, I can talk them down to a reasonable price later.” It just doesn’t play out that way. What really happens is that you end up chasing the market down, always behind the market, always a bit too high, always the bridesmaid and never the bride. I’ve stopped doing that. If a potential seller won’t get at least close to what I recommend as a reasonable market price, I won’t take the listing. It’s just doesn’t make sense in this market.

So, yes, your house can still sell fast – in a month or less – but not at the price that you may want or have in mind. Take your Realtor’s advice and price to the market. If your house has no specific features that would make it stand out; then, make it stand out by being the best (condition, clutter and cleanliness) house that buyers will see at that price. Believe me; it does make an impression and a difference.

Lots of people are out buying houses right now. If they aren’t visiting your house; or, they visit, but don’t make any offers, you are likely priced too high. You can protest all that you want that you are priced as low as you can go. Quite honestly the market just doesn’t care. Buyers don’t hear your boo-hooing. They don’t care what you owe. They don’t care that you might have to bring money to the table to close. All they care about is what homes that are similar to yours have sold for recently. They will make you a “market offer” for your house. Take it or leave it; but at least believe it. That’s what the current market says your house is worth.

So you can sell it fast or you can sell it last. It’s really up to you.

Sunday, July 6, 2008

The vultures have arrived


From a CNN Money news story comes this item: Rock-bottom home prices have finally begun to lure vulture real estate investors into the fray.

Sharon Restrepo, a broker in South Florida, where home prices have dropped nearly 27% over the past 12 months, recently bought a three-family home in Cape Coral from a very motivated seller for a mere $65,000. It listed for $195,000. She can rent the three apartments out for about $1,500 and turn a profit, while she holds on to the property until the market recovers. "The savvy investors here," she said, "are buying up everything they can."

Even in the Seattle area, where prices are down just 5% year-over-year, small investors like Liberty Capital, a three-man operation, are snapping up cheap properties. Liberty's portfolio manager Davis Hsu has purchased four homes this year, including a "very clean" 2,700 square foot four bedroom in suburban Federal Way, for about $330,000. He estimated that he bought it at 70 cents on the dollar. He quickly flipped it for a modest profit. He bought another house for only $80,000, a 55% discount from the market, he figured, and made $60,000 profit when it sold. The other two properties he plans to hold onto for a while, renting them out until the market rebounds. "You can get good deals on distressed properties," Hsu said, "if you're willing to wait two or three years before you sell them."

Peter Zalewski, founder of Florida-based Condo Vultures, LLC, which specializes in bulk purchases of condo properties, is finding very deep discounts for his clients. In one deal he recently negotiated in Tampa, a developer's lender agreed to sell 149 units for $12 million - a 43% discount to the outstanding $21 million loan.

Prices are even cheaper in the Midwest. There, buyers like Jeff Ball, president of Austin, Texas-based Econohomes, purchase packages of bank-owned homes from lenders and resell them after little if any rehab. He buys five to 50 houses at a time, sight unseen. Often, the homes come with encumbrances, like back taxes, water bills or other liens that can add up to tens of thousands. Still, he comes out ahead. Econohomes has purchased about 500 of these homes - located primarily in Ohio and Michigan - over the past two years, at an average price of less than $5,000. Ball said he's bought homes in Cleveland and Detroit for as little as $3,000. They sell for an average of $25,000.

His business has been criticized; usually city officials would prefer the homes be renovated before they're resold. But Ball said the money spent doing that would make the business unprofitable; nobody would buy at the prices he would have to charge. They would sit vacant and become havens for squatters, looters and drug dealers. "The most significant thing is to stabilize the situation," Ball said. "Get people back in the house." The new owners move in and start taking care of the properties, according to Ball. If that starts to happen in large numbers, these communities may spring back to life.

In nature vultures and other opportunistic creatures perform a valuable service by cleaning up the remains of dead animals that would otherwise litter the landscape and pose a health hazard. I guess in real estate these vulture investors perform a similar service; although I’d agree with the local governmental bodies that wish they would invest a bit in them. I suppose they would have to make obvious repairs in order to rent them or even to flip them. In any event, the faster they can get the glut of foreclosed houses off he market the better.

Saturday, July 5, 2008

Wars and foreclosures


From a recent news feed...Families of our nation's fighting forces are struggling much more against the scourge of foreclosures. The rate of foreclosures in towns where soldiers and sailors live is increasing at nearly four times the pace of the national average. That's more than during the Vietnam War, the Korean War and World War II, according to data from Realtytrac.com.

Realtytrac.com says foreclosure filings in 10 towns and cities within 10 miles of military facilities, rose by an average 217 percent from January through April this year, compared to last year. Nationwide, the overall rate during the same period was only 59 percent.

The biggest surge was in Columbia, South Carolina, home to Fort Jackson, where the Army trains recruits for combat in Afghanistan and Iraq. In Columbia, properties in some stage of foreclosure rose a whopping 492 percent from a year earlier. The second-biggest strike against homeownership was a 414 percent increase in foreclosures in Woodbridge, Virginia, next to the historic Marine Corps Base Quantico.

Foreclosure filings were up 300 percent in the cities around the Norfolk, Virginia Naval Base and the Camp Pendleton Marine Corps Base near Oceanside, California, RealtyTrac said. Foreclosures have more than doubled in Havelock, North Carolina, site of Marine Corps Air Station Cherry Point. Other military base cities experiencing foreclosure rates above 100 percent include Carlsbad and Barstow, California and Columbus, Georgia.

The Servicemembers' Civil Relief Act protects soldiers and sailors from losing homes for nonpayment of mortgages only while on active duty and for 90 days after they return home.
However, military families were frequently targeted as subprime mortgage customers during the housing boom because of their frequent moves, frequent calls to duty, and low military pay, making them more likely to have weak credit application credentials.


I'm not sure if the RealtyTrac people capture the full extent of the damage that being at war has caused int he housing market, because a good number of the men and women serving in the two war zones are now being drawn from the Reserves and National Guard. There are certainly many stories about what happens when a National Guardsman gets called up to serve in Iraq and has to leave his job and family behind. Some companies (but very few) make up the difference between the service pay and the pay that the employee would normally get, while they are on active duty. Otherwise, it's tough for the family that's left behind to cope sometimes and many Guardsmen and reservist may return to pre-foreclosure situations, with maxed out credit cards and delayed or non-payments on the house.

Friday, July 4, 2008

We live in risky times...

From a recent real estate news feed comes this story - PMI Mortgage Insurance Co., the primary U.S. subsidiary of The PMI Group, Inc. (NYSE: PMI), today (7-1-2008) released its Summer 2008 U.S. Market Risk Index(SM), which ranks the nation's 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years. The U.S. Market Risk Index shows risk further diverged along two distinctly different paths during the first quarter of 2008, continuing a trend that began in the fourth quarter of 2007. In general, risk continued to intensify in many of the MSAs where home price growth had significantly exceeded historical norms during the housing boom, but continued to decline in many other areas across the country.

A complete copy of the Summer 2008 PMI ERET report and an appendix that provides data for all 381 U.S. MSAs is available at: http://www.pmi-us.com/eret. I have shown only the top 25 MSA below, which includes Detroit at number 24.

The highest risk of future price declines remains in Riverside-San Bernardino-Ontario, CA (95.5), followed by Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (92.2), and West Palm Beach-Boca Raton-Boynton Beach, FL (91.9). The areas with the lowest risk of price declines are in Fort Worth-Arlington, TX, Dallas-Plano-Irving, TX, and Pittsburgh, PA, each at less than a 1 percent chance.

The risk of lower prices in two years declined in 35 of the nation's 50 largest MSAs, and among all 381 MSAs, 326 experienced a decline in risk. Among the top 50 MSAs, 16 ranked in the two highest risk categories, and among those, 15 were in California, Florida, Nevada, and Arizona. Risk of lower prices in two years is greater than 50 percent in all of these MSAs.

Risk scores translate directly into an estimated percentage risk that home prices will be lower in two years. The Summer 2008 Risk Index is based on first-quarter Office of Federal Housing Enterprise Oversight (OFHEO) data.


PMI Summer 2008 PMI U.S. Market Risk Index

Risk-O-Meter Rank (My term) - Score

1 - Riverside-San Bernardino-Ontario; CA - 95.5
2 - Fort Lauderdale-Pompano Beach-Deerfield Beach; FL - 92.2
3 - West Palm Beach-Boca Raton-Boynton Beach; FL - 91.9
4 - Orlando-Kissimmee; FL - 91.1
5 - Las Vegas-Paradise; NV - 88.1
6 - Tampa-St. Petersburg-Clearwater; FL - 86.6
7 - Santa Ana-Anaheim-Irvine; CA - 85.8
8 - Los Angeles-Long Beach-Glendale; CA - 85.7
9 - Miami-Miami Beach-Kendall; FL - 84.8
10- Sacramento-Arden-Arcade-Roseville; CA - 82.2
11- Portland-Vancouver-Beaverton; OR-WA - 79.7
12- Phoenix-Mesa-Scottsdale; AZ - 79.6
13- San Diego-Carlsbad-San Marcos; CA - 78.0
14- Jacksonville; FL - 73.2
15- Oakland-Fremont-Hayward; CA - 72.8
16- San Jose-Sunnyvale-Santa Clara; CA - 51.3
17- Providence-New Bedford-Fall River; RI-MA - 43.4
18- San Francisco-San Mateo-Redwood City; CA - 35.7
19- Washington-Arlington-Alexandria; DC-VA-MD-WV - 21.4
20- Nassau-Suffolk; NY - 21.2
21- Edison-New Brunswick; NJ - 16.2
22- Virginia Beach-Norfolk-Newport News; VA-NC - 13.8
23- Boston-Quincy; MA - 11.8
24- Detroit-Livonia-Dearborn; MI - 11.1
25- Minneapolis-St. Paul-Bloomington; MN-WI - 8.2

The PMI Economic and Real Estate Trends (ERET) containing the US Market Risk Index is published quarterly by PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE: PMI). The Risk Index is a proprietary statistical model that measures geographic house price risk by predicting the probability that home prices in the nation's 381 largest metropolitan statistical areas (MSAs) and metropolitan statistical area divisions (MSADs) (as measured by the House Price Index from the Office of Federal Housing Enterprise Oversight (OFHEO)) will be lower in two years. The PMI U.S. Market Risk Index is based on data including the OFHEO House Price Index, labor market statistics from the Bureau of Labor Statistics, and the PMI Affordability Index, which uses local per capita household income, home price appreciation, and a blended mortgage rate to calculate the local share of mortgage payment to income relative to its baseline year of 1995. The PMI U.S. Market Risk Index scale ranges from one to 100 and translates to a percentage. For example, a score of 50 indicates a 50 percent chance that home prices will be lower in two years.

So, what does this all mean? Well for one, we are still in an area of declining values, with (in our case) an 11.1% probability of further declines in home values. While that’s not good, it’s better than living in Riverside/ San Bernardino/Ontario, CA; where the probability of further declines in value is 95+%. We certainly are not out of the woods at this point, but maybe we can avoid going too much further into the hole. I guess studies like this justify the continued use of the "declining market" designation and accompanying penalties by the banks.

Thursday, July 3, 2008

Take good news where you find it.

Switching from yesterday's post to today's almost makes me feel like I have bi-polar disease; but, that's the nature of this market. We should all be ready to take any good news whenever and wherever we can find it. Take the latest (May) National Association of Realtors home resale report: Sales were up by 2 percent nationally in May, and up 5.5 in the Midwest and 4.6 percent in the Northeast. Condo sales also jumped 5.5 percent nationwide.

Sales of existing homes were up even in some of the hardest hit local markets -- Sarasota on the Gulf Coast of Florida, for example, and Sacramento California and Battle Creek Michigan. A lot of that activity is attributable to severely depressed home prices, short sales, and banks dumping foreclosures. No question that's true. But the down cycle has to stop somewhere, and in the toughest local markets and that means deeply-discounted and distressed properties coming out of foreclosure now look like excellent deals to bargain hunters. Locally, there are still foreclosure bargains to be had; but, much of the resale market activity for the last month has been in non-foreclosed houses, and that’s a good sign, too.

So, houses with slashed prices are selling fast and pushing up sales numbers. That's the way cycles work. The cyclical rebound gets rolling on the wreckage left over from the boom. There are other signs of possible relief in the housing market as well: The federal government agency that tracks home price movements -- based on multiple sales of houses financed by Fannie Mae and Freddie Mac -- found home values actually increased in two major regions in the U.S. last month. Prices continue to rise in Texas, Louisiana, Arkansas, Oklahoma, Kentucky, Tennessee and Mississippi. Dozens of metropolitan markets in the mid section of the country never participated in the boom, and they are showing steady increases in prices.

Still another plus: Mortgage rates took a surprise dip last week -- reversing the previous week's sharp increases. Thirty year fixed rate loans are back down to 6.4 percent and fifteen year rates are under six percent again. And here's one more positive sign to add to the mix: Personal consumption -- an important indicator of the economy's underlying rate of expansion -- rose by four tenths of a percent in May. That's the largest gain since December of 2006. Of course we still need to watch how the Fed reacts to rising inflation. If the Fed clamps down on credit to stop inflation, that could cause this delicate recovery to stall out again. Let’s keep our fingers crossed that they don’t do that.

For now, heading into the long Fourth of July weekend, things are looking up a bit. Local activity is relatively high. People are buying and selling houses, and not just foreclosed houses. It’s too early to declare that a turn-around has taken place, but it sure feels like we’re not headed on down the slope at nearly the same pace as we have been.

Tuesday, July 1, 2008

Business Week and the Housing Abyss

This week’s Business Week features a front page story on what they are calling the Housing Abyss. Citing various sources they document the rather precipitous decline in home values in several key markets. Like most national publications, they tend to focus upon the coasts and a few big markets in the southwest – Las Vegas, Denver, Phoenix. The Midwest does get a mention (is that good or bad?) for the declines in Ohio and Michigan.

What they have apparently just discovered is that this whole declining value thing has turned into a self-fulfilling prophesy and has now started to feed upon itself to make things worse. The trend was started by the increase in foreclosures, which were mainly due to bad loan decisions in the early stages. That trend snowballed when the economy started reacting by also going down and taking many honest, hard working people down with it. It was exacerbated by the reset of ARM loans that pushed many people over the edge on their ability to keep up. Then the banks started making it harder to get loans and started imposing a “declining market” penalty to appraisals, such that most houses that were financed or re-financed over the last few years are now under water (the owners owe more that the house is worth). The banks made sure that their view of the market as declining came true.

Add to all of that the rise in energy prices and all of the increases which that caused and the fall in stock prices and one ends up in the perfect storm, according to Business Week. They couldn’t find anything good to say in the whole article. Even the parts about the work that the government is doing to pass legislation they considered to be too little, too late. About the only point that they made that could be taken as good news was the portion about it being a good time to be a buyer, if you have the wherewithal to put 20% down on a house.

OK, so we’re staring into the abyss. What is one to do, if you had hoped to sell your home? You could assume fetal position and whimper loudly; or, you could take to the bomb shelter and not come out for several years. Neither is a very appealing strategy. I’d suggest that you take Dr Phil’s advice and GET REAL, DEAL WITH IT. You can’t hope the current crisis away, nor can you deny that it affects you and your home – it does.

So, get a good Realtor to help you understand what your house is worth in the current market and then use that Realtor to make sure that you get at least that much, and as quickly as possible. You likely don’t have enough time to wait out the current market downturn and wait for the value to get back to where you thought it was. It is likely to take 5-8 years to get back the value that has already been lost.

Sit down and figure out what you owe on the house and what it costs you a month to keep it. Anything that you can get above what you owe is all good and the sooner that you sell the fewer times you’re going to have that cash outflow on this house. Remember to use "the magic number" - .925 - as a quick guide to help you with pricing. If you come up with what you need to just break even, divide that amount by .925 to find the purchase price at which you would break even. Once you are on the market, multiply any offer price by .925 to get a quick feel for what you would have, after the cost of the sale is removed, to pay off your mortgage(s) and put in your pocket. Sometimes it may make sense to take less that you owe (bring money to the table), just to get out from under the monthly obligation, especially if you are in a situation where you are slowly chipping away at your savings, just to keep up with this house.

The important thing to try to do is to price to the market (that’s where that good Realtor mentioned above can help the most) and not to what you “need” to get. The market is cruelly efficient and just doesn’t care what you need or want for the place. The market only cares what houses that are similar to yours are selling for now. You may get a slight premium over the market average, if yours is in the best condition among all similar houses, but it won’t be 10-15% more.

The good news is that houses are selling. Buyers are out right now, trying to get into a new home before school restarts. You can avoid being sucked into the abyss. Sell it now!