Thursday, October 30, 2008
Home values have fallen a very real 20-30% in this area (worse in Detroit, Ypsilanti and Pontiac), so it’s going to take quite a while for us to be able to look back and laugh and I seriously doubt that we’ll ever be able to call these “the good old days.” If we get back to what was our historic appreciation rate of 3-4% per year, it will take 8-10 years to gain back the value that has been lost. Some houses may never get it back due to other factors.
So we need to accept that a fundamental and permanent reset of values has occurred and that we all lost in this reset. Life goes on, however, so we need to move on, too. If you owned a home during this period and now need to sell it, hopefully the loss in value was made up in the equity that you had (had being the operative work there). If you bought at the peak of the market – sometime between 2003 and 2005 – you just have to accept the fact that you have lost money on this investment and that it’s not coming back anytime soon. Yu may be “under water” on your mortgage and have to bring money to the closing table in order to sell. That happens every day. It’s not pleasant, but you just have to deal with it.
If you are a buyer, with nothing to sell, the market is still yours. While prices might stop dropping, they will likely never be lower in your lifetime, so buy now. You should only buy, however, if you see yourself holding on to the property for 3-4 years. It’s not the time to be flipping houses – buying and selling right away. Houses that you can get really cheap (usually foreclosed properties) these days usually need lots of work. Unless you are a builder yourself, with the skills, tools and equipment, connections within the trades and ability to buy materials at builder prices; it is a losing proposition, even at the depressed prices that you might find.
I see a lot of houses that are in a second foreclosure, which now have nice new kitchens or new carpets, roof, furnaces or other things that would-be flippers have put into them. The would-be flipper has run out of money and time and ended up in foreclosure himself. Now, a first-time buyer can come along and get a house that doesn’t need as much at a great price. Many of these now bankrupt flippers were themselves young singles or couple who thought that they could make a quick killing on the real estate market. Even the seasoned pros at flipping have been very cautious about investing in this market. So, proceed with extreme caution into that brave world.
As for me, I think the good old days are just ahead of us. We'll muddle through the current recession somehow; while the gang in Washington (no matter who wins) flails away at this rescue package and that; until time eventually fixes everything and they can start patting themselves on the back for their decisive actions (having conveniently forgotten the good old days when they caused the problems in the first place). In the mean time we can amuse ourselves watching the perp-walks of various mayors, ex-governors and legislator's on TV.
Tuesday, October 28, 2008
It's time for an upbeat message and Jack happened along with just the right words for the day. As things continue to get worse all around, sometimes all you have left is hope for a better tomorrow. That’s certainly true for Detroit Lions fans and for the local economy and housing market.
But there’s hope for tomorrow. Hope that we’re at or near the bottom on real estate prices and that tomorrow value will start creeping back up. Hope that our local economy will weather the troubles in the automotive industry and that tomorrow we’ll find a way to thrive without being so dependent upon the American automakers. Hope that tomorrow will be better.
There are actually many positive signs that feed that hope. We are actually closing deals on many more homes this year compared to last year. Our dollar volume is down significantly, since house values are down and this year about 21% of our “sales” are actually leases; but, people are still buying and selling (or leasing) houses every day. There’s hope in that.
And we will soon have new leadership in Washington. No matter who you are for in the elections you can count on there being change, at least change away from some of the current, unpopular policies and directions. Historically that has given people hope.
So, let’s all believe in the magic of tomorrow and let that belief lift us all. Jack went on to say in his blog that he likes the song “Tomorrow” from the musical Annie. I could add that the words from the famous Fleetwood Mac song apply too –
Don't stop, thinking about tomorrow,
Don't stop, it'll soon be here,
It'll be, better than before,
Let’s all hope so.
Monday, October 27, 2008
The National Association of Realtors already is pushing a plan that would give a tax credit to all buyers of houses nationwide -- not just first time purchasers -- and would make the credit non-repayable. Under housing legislation passed this summer, first time buyers can qualify for a $7,500 federal tax credit, but they have to agree to pay it back to the government over a period of years, or whenever they sell the property.
Though early estimates indicated that thousands of buyers would rush into the market to take advantage of what amounted to an interest-free loan from the government, Dr. Lawrence Yun says the payback requirement has turned off a lot of buyers and reduced the effectiveness of the credit. Yun says a larger credit than $7,500 "would be better," but as long as the repayment feature is removed, the current amount should be sufficient to stimulate sales and reduce unsold housing inventories.
Meanwhile, the National Association of Home Builders (NAHB) plans to ask Congress for an expanded credit as high as $10,000 to $12,000, with no repayment, and is working on a program to "monetize" the credit up front so that it could be used for immediate down payment cash by purchasers.
Under the builders' plan, private lenders would extend loans to home buyers at or before settlement; much like tax refund anticipation lenders now provide cash in advance to consumers who are expecting refunds on their federal income tax returns. The down payment cash would be paid back, plus interest, when the home purchasers received their tax credits the following year.
Even if both plans were approved and made law, we still have the issue in Michigan that our local economy and job market are both failing and flailing. The exodus from the state continues and will only get larger if the local car companies continue to implode and shed jobs. Our state needs more than tax breaks for buyers. We need jobs so that more people can afford to become buyers.
I fear that we are undergoing a fundamental reset of our state’s economy, away from the automotive industry, but towards a largely unknown future. While the governor’s plan to increase tourism is a start, we can’t all become tour guides for the hoards of out-of-state visitors that Lansing hopes we will attract to our pleasant peninsula. The wonks in Lansing keep touting our great workforce of engineers and skilled workers, but those are the folks who are leaving the state in search of work; and they are leaving behind an increasing number of empty houses to add to the local real estate inventory. So, offering tax breaks to a state full of laid-off, ex-auto-workers may not work for us. Who’s got the next big idea?
Saturday, October 25, 2008
Greenspan claimed that he thought that unfettered banks would do the right things and that housing values would just continue to climb forever, like they always have. Well he certainly gets a "D" for that view, as in, Duh! Several State Attorney's General tried to warn the Federal policy wonks about the chicanery that they were seeing and trying to prevent at the state level only to be turned away and even squashed in their efforts to pass state laws to prevent the mess by heavy handed Bushies claiming eminent domain over the entire financial process. Maybe we should have had a sound bite of Bush with Alan saying "You're doing a hell of a job Greenie."
Greenspan's remarks basically equate to saying, "Oops, my bad; who could have known." Well as the head of the nations bank and the most influential financial pundit of the time, the answer would seem to be - "We thought we were paying you to know." There is a phrase that covers a lot of sins in the real estate business that talks about things that the seller "knew or should have known" about his own house. We also use that phrase to discuss knowledge that the listing Realtor is assumed to know about the property. I think it applies to Greenspan in this case, too. How could 4-5 Attorney's General see the coming problems so clearly at the time and the smartest guy in the room be so blind. well remember that Ken Lay and Jeff Skilling and Andy Fastow were the smartest guys in the room down at Enron and they all ignored (willfully and fraudulently it turned out for Skilling and Fasatow - the jury is still out on whether Lay was himself a clueless victim of Skilling and Fastow) the warning about the mess that they were creating there.
But here we are, up to our eyebrows in foreclosed homes and just entering a credit crisis driven recession that is expected to long and deep and what do we get from Greenspan - "Oops, my bad!" He should be so embarrassed by his naivety in this matter that he should give back his Federal pension. Maybe they could break it up and give it to 8-10 regular Joes who have lost their houses their pensions and everything else. Oops, my bad. Did I suggest penalizing Alan Greenspan. I guess he really didn't break any laws, he was just clueless and apparently we still tolerate that in Ameria - at least we did at the top for the last 8 years.
Friday, October 24, 2008
The other thing that I hear a lot is, "I won't give my home away. If buyers aren't willing to pay what its worth, I'll just keep it." Well, I've got news for those people. Buyers are offering what its worth in today's market and if you won't sell it for that; well, you can keep it, because there are ten other sellers out there who will sell their homes for what the market says they are worth.
I'm just not sure where people are coming from when they say that they want to sell and then, in the next breath, basically state that they won't sell. They are living in a state of denial. If Yogi Berra were her he'd come up with something like, "You can't sell it, if you won't sell it." Well said, Yogi.
Here's the raw truth - your home is worth 20-25% less right now than it was 3-4 years ago. It is generally accepted in real estate circles that 2004/5 was the peak of the current real estate market and prices have been dropping ever since. Locally, we have seen a 1% per month drop in values/prices for the last 18 months. No one's home was/is exempt. Even lakefront homes in prestigious neighborhoods have fallen in value and in the prices that they will fetch.
It's not pleasant as a Realtor to have to tell potential listing customers this truth; however, it would be less than honest and a waste of their time and mine to go along with the charade that their house has not been impacted by the downturn. About the most encouraging thing that I can tell the owner of "the best house in the neighborhood" is that having the best house should help sell it quicker at the prevailing market price. That could mean saving thousands of dollars by not having to make several months worth of house payments; however, it isn't going to magically increase the market price.
So, get over it. Deal with it! Move on! Live in the moment, not in denial. Call me for an honest opinion of what your home is worth today. Just sit down before I tell you.
Thursday, October 23, 2008
Wednesday, October 22, 2008
I could pervert Jack’s words a bit to make the case, based on my recent posts, that hope is also becoming the poor man’s mortgage; at least the FHA’s Hope for Homeowners program might become his mortgage within the context of our current recession. The FHA program and workout programs that more and more of the lenders are starting to roll out may provide the only hope for many struggling homeowners. I certainly hope so.
I talk to way too many discouraged homeowners who have given up hope and have just accepted that they are going to lose their homes. To them I would offer another famous quote; this one from the famous Dylan Thomas poem –
Do not go gentle into that good night.
It is misplaced rage that currently causes otherwise rational people to trash their own home on the way out. Rather that you should turn that rage into a fight to keep the house or to at least sell it and to keep more of your credit rating intact. Putting your energy into doing something that feels positive, that feels like you still have some control, will make you feel better about the situation than just accepting defeat by the temporary circumstances in your life that have caused this mess and waiting passively for the foreclosure process to run its course.
So check out the Hope for Homeowners program, and call your bank and see if they have a workout program that might fit for you; and, if all of that fails, go to http://www.shortsales.net/ and see if you might qualify for a short sale as a way to salvage what you can of your credit rating. Do not go gentle into this foreclosure nightmare.
Sunday, October 19, 2008
During the boom, that might have meant a buyer who inflated his income to qualify for a bigger loan. Some went so far as to get a fake appraisal, invent a fake buyer, and after securing a mortgage, absconding with the cash. Such ruses may not work in this environment, with lenders tightening up their standards. But several scams still are effective, according to Jim Ronan of Interthinx, a provider to lenders of fraud-prevention services, and Robert Hagberg, a fraud investigator for mortgage giant, Freddie Mac.
"It's a constant battle to keep up with the innovative ways that scam artists come up with to defraud others," said Vincent Robago, an Arizona assistant attorney general who works on mortgage fraud cases, "especially in the real estate industry where transactions are very complicated."
The new appraisal fraud is taking some new directions. One modern gambit is under-appraising property values. These schemes involve short sales, which come up when a struggling homeowner is "underwater," or owes more on his mortgage than the home is worth. When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference. When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices - well below true market values. If busy bankers don't check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less. The scumbag buyers - in cahoots with the owner - then flip them for a big profit.
Another fraud, one more often committed by average buyers than by career criminals, has also morphed into something new. During the boom, many borrowers misrepresented their income or assets with "no-doc liar loans," approved on the basis of good credit scores with no documentation. After the mortgage meltdown, no-doc loans vanished, but applicants who lie have not. "Liar loans are now fully documented - but with really good fraudulent documents," said Hagberg.
In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary. Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand. Ronan said there are Web sites that provide believable documents that scam artists use. "Because they say it's for 'novelty purposes,' you can't really do anything about it," he said. "They don't say it can be used to defraud."
Scams that misrepresent income or employment are still the most common type of fraud, according to MARI. 'Buy and bail' is a new scheme that had no equivalent during the boom years (as reported here a couple of months ago). You're underwater on your mortgage and want a new, cheaper home down the block. You could just bail on the existing home, but no lender would give you a mortgage for the new one. So you tell the bank you plan to rent out the current home - even though you have no intention of doing so. "This is a very difficult scam to pin down," said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders. The Federal Home Administration announced in late September that it hoped to head off many buy-and-bails by no longer insuring mortgages if the homeowners had existing loans - unless they could show enough income to pay off both loans simultaneously.
But don't sell the sleazy fraudsters short - they'll probably find brand new ways to get around the FHA policy and invent whole new ways to commit fraud. No one has ever said that they are dumb. Indeed many are very smart, just too lazy to try to make a living honestly. Just remember that, if you participate in one of these fraudulent schemes, you could end up sharing a cell with your new-found friends. More likely, they will find a way to throw you under the bus and waltz away untouched by the slime that they dragged you into. Just don’t do it!
Saturday, October 18, 2008
It may well be that your situation is such that you qualify for one of the "work out programs", such as the Federal program Hope for Homeowners; or maybe your bank itself has a work out program. The key thing is to try. For more on that program, go to my Web site - The Milford Team and look under the Sellers choices in the left hand column. If you've missed a mortgage payment you are technically already in default, so don't wait until you start getting notices from the bank - call them now and ask to speak with someone who can discuss a work out program for your loan.
If that doesn't work and there doesn't seem to be any way that you can continue to make ends meet and get back up to date with your mortgage, then call me and let me help you understand your options. There are a couple of old sayings that are at work here - "Ignorance is Bliss" and "Knowledge is Power." In this case, ignorance isn't really bliss. Ignorance about the options available to you just leads to fear, uncertainty and doubt. what you need to cope with the situation that you find yourself in is honesty with yourself and others about the situation, knowledge about your options, a plan of action based upon those options and someone you can trust to help guide you through the process.
The biggest single deterrent to getting out of the financial messes that people find themselves in these days is denial that they have a problem and need some help. That denial can take many forms and would likely be a good blog topic all by itself; however, let's just take the Dr. Phil short-cut and say, "get over it and deal with it - you need help." Rather than wallow in self-pity and fear, let's move on to focusing upon what you can do now.
If you have just reached that point where you can no longer keep up the payments on your mortgage and perhaps you have called your bank and they don't have a workout program, your next step may be to see if your bank would accept a short sale of your home. Notice, right away, that you need to be at the point for this step where you have accepted that you cannot keep the house. Hoping and wishing for something to somehow happen that will prevent the loss of the house is not taking action, it is denying that there is a problem. Move on!
So, what is a short sale and why is that a good option? A short sale is the sale of your house for less than you owe the bank, with the bank's acceptance and approval. The very best outcome of this process would be that the bank accepts what the market will currently pay for your house and forgives the remaining balance of the loan. Even a scenario where your bank takes the proceeds from the sale but won't forgive you the balance of the loan is better for your credit rating than going all the way through the foreclosure process or bankruptcy. This is really about your future - your future ability to get another mortgage loan and to get credit for other purposes. A bankruptcy or foreclosure will negatively impact you credit rating far longer than will a short sale. Make no mistake about it, a short sale on your credit report will still have am impact, just less of one than the alternatives.
Now let's be honest here; banks don't like short sales. After all, they have to agree to take a loss on the sale; but, they like foreclosures even less and they make even less if a house goes through that process. So, most banks would prefer to do a short sale, rather than waiting for a foreclosure. That works to your advantage and will help you when negotiating the short sale with the bank. Ahh, that's the part where getting help is important - negotiating the short sale with the bank. That's where having someone who has been trained in the process and who understands what the banks want and need in order to make their decision is critical. That's where I can help.
Call me and I'll sit with you and discuss this option. It's not going to be easy or comfortable for you. It's not going to be fun; but, the alternatives are even more painful. The sooner you call and we get started, the quicker you'll be on your way out of this mess and on to he next stage of your life. Maybe I can help with that, too. After all, you'll need a place to live.
Friday, October 17, 2008
The report purports to show several things, the main one being what percentage of recent real estate sales are “distressed sales”. It also tracks the number of listings at the start of the following month and then calculates an Absorption Rate – the amount of time that it would take to sell off the beginning inventory at the rate at which things were selling last month.
As I looked at the report it was immediately obvious that something was very wrong with it. It showed almost every market as being between 90-something and 100% distressed sales. Milford, for instance was shown as 94% distressed sales and several townships – Beverly Hills, Bloomfield Hills, Clawson, Orchard Lake/Keego Harbor, Madison Heights, Southfield, Holly and others were all shown as 100% distressed sales. I thought that can’t be right and I was right. An explanation, or key, at the bottom of the page in a very tiny font said that the creator of this so-called real estate report has decided that any sale that is made for less than the 2008 published SEV value of the house is a “distressed sale.”
Well, DUH! Were has this guy been lately? Nearly every house in Oakland County now has a market value that is below its 2008 SEV level. I’ve opined here before about the political pressure on assessors to keep “assessed values” high. They are using excuses like “we assess at replacement value”, or any other reason that they can think of to keep the assessed values from dropping to reflect the current market prices. Even with that foot dragging on the assessors parts, values are coming down towards the real market prices. So, Braun, whoever he/she is decides to report that almost every sale is a distressed sale, because someone gets less than 2 times the SEV number. Phooey!
I report sales in the little five township area that I track on a weekly basis at my Move to Milford Web site. As I have shown, true distressed sales – those in which a Sheriff’s Sales has taken place or which are Short Sales – make up about ½ of all sales. Lately it has actually dropped below half. The only houses selling for 2 times their SEV values, or above, are a few lakefront homes and they almost always sell for more than SEV. I have consistently tracked and reported that homes are selling in this area for about 1.6 to 1.7 times the SEV. Truly “distressed” homes are actually selling for less than the SEV number (which is supposedly ½ of the value). Those are generally foreclosed homes that have fallen into disrepair and need lots of work.
So if you happen upon the Braun Report of Real Estate Sales in Oakland County, take it with a chuckle and a large grain of salt. It is meaningless for the most part. The absorption rate statistic has some value, although it might make more sense to express it as the number of months that it would take to sell a house, much as the Quarterly Market Reports do that I post on my Web sites. For a fairly comprehensive set of charts and statistics about my little piece of the market, go to either The Milford Team Web site or the Move To Milford site. You can get to them also from the MI Home Buyer site that focuses upon first-time buyers. I keep the current month's sales updated weekly and you can go back and look at over a year's worth of reports to confirm my findings on sales prices vs. SEV numbers.
Thursday, October 16, 2008
So, if you’ve saved and planned and are ready to be a homeowner, stay in the hunt. The inventory is very good, with about 30-40% of it comprised of foreclosed homes. Many of those homes are trashed or need major work, but many others are just fine and move-in ready. Put a good Realtor® to work for you (HINT: you already know one) and get out there and look at houses.
Those who are timid in this market; those who try to wait until everything is perfect; those buyers are going to have a bad case of the “coulda, woulda, shoulda’s” when they realize that the missed the really good deals. Here’s what it takes to win in this market:
Get a good Realtor (we’ve already discussed that – I’ve got you covered there)
Get a good Mortgage rep (I can recommend a great one if you need one) and get pre-approved, not just pre-qualified.
Get out and look – there’s lots to see right now
Don’t be afraid to make an offer, even if it seems low; you’d be surprised what banks and private sellers are accepting right now
Get a good home inspector and insist on a thorough inspection with all utilities on and the house de-winterized for the inspection
Get a good handle on the prospective costs of any needed repairs (a good inspector will be able to estimate those for you, but get a specialist if needed, for estimates for items like a roof or a furnace)
Negotiate getting the repairs made or getting the cost of them off the price or be prepared to make a decision on whether to go ahead with, or walk away from, the deal
Insist on getting an extended coverage or Eagle Brand title insurance policy on any foreclosed home – that will cover a multitude of potential issues
Remember that old sports saying that you can’t win if you not in the game. Now is a great time to be a buyer. So, don't go into hiding now.Get in the game and have some fun.
Wednesday, October 15, 2008
The concept of anything having some innate or attached value is one that we tend to apply differently to different things around us. In reality, nothing has any innate value; it only has attached to it the value of what we or others are willing to pay at any point in time. We seem OK with the fact that certain objects that we possess have a value and then depreciate over time, perhaps as they are used. Cars come to mind immediately. There used to be an old axiom that a car lost 40% of its value the minute that you drove it off the dealer lot. That isn’t as true any more, but it is still true that cars depreciate over time; unless you hold on to them for a long time and they become antiques or rare, at which time they can actually start to go back up in value. Why? Because now others are willing to pay more for something that is rare.
Underlying the value of houses is the value of the land that they are built upon. As I stated a few days ago in the posting about the $1.75 house in Saginaw, the land value of that property has to be worth more than that. The house itself is considered to be an appurtenance or improvement to the raw land. It is trying to put a current value on that improvement that is so tough these days. We have become accustomed to steady, sometimes dramatic, appreciation in properties and have come to believe that houses always appreciate (unless of course they are turned into dumps by the owners). We were told that over and over by the government and the mortgage industry as part of their campaigns to encourage home ownership. In reality there never was and never will be any guarantee that “values” will always go up. We’ve certainly seen that lately, with declines in this area of 20-30% over the last 2-3 years.
How can that be, you may ask? Well it’s simple. There are fewer people out looking; and they have less money to spend. There are lots of foreclosed houses competing for their attention and those foreclosed houses are the ones that are setting the market price for whole neighborhoods and house types. The market says that the 1970’s built, 1,500 Sq Ft, 3 bedroom, 1 and a half bath Tri-level that you paid $215,000 for in 2003 is now only worth $165,000, because that’s all that people out looking today will pay. That’s its new “value.” It’s no different than owning an once of 24 carat gold. Today that ounce may be worth $850, but next year it may only be worth $500. Has the once of gold changed? No. Want has changed is want people are willing to pay for it. It has no innate value, nor does your house.
Unlike the stock market, which has gyrated wildly lately and is now down over 30%, home values are not likely to rapidly recover the lost value from this downturn. The home market is undergoing a fundamental “reset” of home values. One reason is that many marginal homeowners – those who should never have been given a mortgage in the first place – have been forced out of the market and will not find it easy to return. Home builders overbuilt the market when it was easy for almost anyone to qualify for a mortgage; so, now we have an oversupply of homes, especially in the $200-300,000 price range, that will take some time to sell off. Unfortunately, those are the “move up” homes for the middle class that is currently being racked by fear, uncertainty and doubt about the economy and jobs; so they have just been sitting on the market. Only when things settle down in the economy overall will we have the chance to get back to a “normal” supply and demand driven home market. That may to take years.
So, when I show up and tell you that your house is now worth $175,000 in this market, I’m not asking you to give it away; I’m just helping you understand its current market value. If you don’t want to (or can’t afford to) sell it for that price, then don’t sell now. Wait until the market comes back and it appreciates back to a level where you can sell it. That may be 5-10 years down the road, given the level that we have fallen to with home values. In the mean time, I’m out there with buyers looking at homes. If your home is priced right and on the market, we’ll look. If not; oh well. At least you can sit there and content yourself that you‘re not giving it away. And you can tell yourself that the shag carpet in the living room is probably good for another 15 years, too.
Tuesday, October 14, 2008
By focusing on sales above $40,000 we have filtered out a significant share of the investor and rental transactions, leaving the vast majority of owner occupied sales to set a trend. The Western Wayne county numbers do not include the City of Detroit. Because most of the current sales in the city are under $40,000, we were not able to create an accurate investor filter for that market.
The trend line for each county shows where the sales are headed. In all counties, except Western Wayne, you can see the current trend shows a pretty clear bottoming out of the market, and in the case of Oakland County, a possible upward trend in the sales pace. Although these numbers are not as optimistic as the total sales numbers, they do confirm what we have been seeing in the last 90 days, that we are in a bottoming out phase in terms of sales units for owner occupied homes/condo’s.
The second graph, outlining median home values is more of a mixed bag, with Washtenaw, Oakland and Western Wayne showing a downward trend at the same pace and Livingston and Macomb showing a slowing in their price decline pace. In all cases values continue to decline but the rate is not increasing. Combine that with a reduction in housing inventory and you have lined up all the core real estate conditions for a neutral to improving market over the next 24 months. There is quite a bit of excess housing inventory yet to absorb in all price ranges before we will see these numbers translate into price appreciation.
Does this mean we are at the true bottom or are we in for another level of correction based on the current economic conditions? We are too early in the Wall Street reactions to make a prediction of any merit. We do know however that the result will certainly not increase our growth rate; it will either be neutral or a further downward trend.
With that in mind our advice for Sellers remains the same, price aggressively; do not expect the market to rise to your price. Our current price decline pace of about 1% per month will either remain constant for the next 12 months or accelerate, either way; a 10% price reduction today is the smartest hedge you can have against the uncertainty of the future markets. It is important to remember that the 10% number is based on a reduction from current market values. Many homes are currently listed anywhere from 5% to 25% above the current values, so for many the price decline needed is quite steep.
For Buyer’s there may be a tendency to hold back to see if prices fall even more, but again, the news is will either be neutral or possibly worse for buyers. Right now for the majority of Buyers mortgage money is surprisingly plentiful with the availability of FHA programs. If the financial crisis does worsen it will likely mean less mortgage money available, not more and higher rates, not lower. There is always the personal financial uncertainly that effects a home buyer’s decision regardless of the great deals in the market, however those who are comfortable with their financially position (understanding that your stocks will return their value over time) this is that once in a life time opportunity to buy.
This report confirms what I've been seeing and tracking in my much smaller patch of the market in Milford, Highland, Commerce White Lake and West Bloomfield. I've also noticed that foreclosed homes, as a percentage of the weekly sales, have been dropping slowly back down and the number of "regular" home sales has been creeping up, even those over $300K.. In some areas that I track, the sale price to SEV price has also been stabilizing and starting back up a bit. That's all good news. We have a long ways to go to get back anywhere near where we were on price/values a couple of years ago; but maybe that's a good thing, since where we were then was into highly inflated prices. We seem to be landing about where we should have been, so far as price/value goes, had there not been the big run-up in prices from 1999 to 2004/5.
Now if we can just get the stock market and the financial markets to stabilize...
Monday, October 13, 2008
Other key information from the survey includes:
44 percent of those 18-34 year do not own a home right now is because they believe home ownership is too expensive.
41 percent of 35- to 44-year-old respondents polled say they don’t think they can qualify a home loan.
92 percent of homeowners say they don’t plan to move in the next 12 months.
49 percent of homeowners still believe that their home is a great long-term investment
Only 4 percent of non-homeowners said that “Waiting for the new Housing Recovery Act to take effect” was keeping them from home ownership.
More than half of all non-homeowners said they still believe home ownership is an important piece of achieving “the American Dream.”
Women aged 35-44 in the survey agreed on this sentiment more than men aged 35-44 (66 percent versus 47 percent).
Non-homeowners with an annual household income of $50,000 to $75,000 agreed more strongly (78 percent) on a home being central to achieving their personal American Dream than those with an annual household income of under $49,000 or over $75,000 (51 percent and 53 percent, respectively).
When I was younger there were several components to the American dream, or at least the dreams that I had. While home ownership was in there, I recall that owning a Corvette some day was one dream, having a boat was another and having a date with a movie star like Sophia Loren Liz Taylor were all parts of the dream.
Well, I own my house; I had a Corvette (I sold it a couple of years ago, but I still own a 1978 MGB); and, I had a boat for many years before moving to Milford. I’m still waiting for the call from the movie star, but my wife likely won’t approve of that, now anyway. So, I guess I can say that I’ve lived the American Dream. Of course I had to sell the Corvette to pay the taxes on the house, but, hey, nobody ever promised that the dream would be perfect. Right now, I’m just trying to make sure that it doesn’t turn into the nightmare that has consumed so many others.
Sunday, October 12, 2008
An analysis by Zillow.com estimates that for people who bought their homes in the last five years, the situation is worse: 29 percent owe more than their homes are worth.
The majority of home owners still have equity, and even among those who don't, many continue to make their mortgage payments on time. The financial-bailout legislation could at least "keep things from getting much worse," says Celia Chen, director of housing economics at Economy.com.
Still, she expects mortgage money to remain tight and home prices to decline in much of the country for another year.
Locally I can attest to this trend. Of the last five houses that I’ve sold, four of the sales resulted in the seller having to bring money to the closing table and three of them had to be re-negotiated on price, because the appraisal came in for less than the agreed upon sale price. Prices have dropped so far, so fast that even real estate professionals are having a hard time advising their sellers on how quickly and low far to reduce prices.
Basically in our area the “values” of homes have plunged between 20-30% in the last five years. So if you bought a home for $200,000 in 2004, it is likely worth only $150,000 now. Even it you put 15-20% down on the home, you are likely underwater right now.
The foreclosure problems are many times caused by the ARM second mortgages that many buyers took out back then to get to the 20% level and avoid PMI. Those ARMs are resetting (or have already) and the homeowner who though that he would just refinance it when that happened now finds that he can get that refinance loan, because the house is now worth less than even his first mortgage alone. That leaves the homeowner trapped in a “toxic loan” that he now can’t afford.
What can you do? For now tread water and hope that government programs like Hope for Homeowners or some of the other bail-out programs provide an avenue for relief. Even the Hope for Homeowners program only provides for forgiving 10% of the principle amount of the primary loan and doesn’t deal with secondary loans at all.
Eventually some program is going to have to be invented that allows the homeowner off the hook for the original inflated value of the home and refinances the house at the current deflated values. Those will probably have to be 100% loans, since most distressed homeowners don’t have any money to put into the process. Stay afloat and stay tuned.
Saturday, October 11, 2008
A relatively new form of lighting solution for homes is the Tubular Daylighting Device or TDD, which captures sunlight on the rooftop and redirects it down a reflective tube into interior spaces. The tubing will fit between rafters and will install easily with no structural modification. At the ceiling level, an attractive diffuser spreads the light evenly throughout the room. It provides exceptional lighting. The light output is incredible, providing as much light output as you would expect from a skylight many times its size.
The house I have listed at 3940 Rivendell Ct has one of these devices in the kitchen and it is amazing how much light it puts out. I’ve seen them in two other houses lately. They can turn otherwise dark rooms or hallways into well lit areas. If you have closet space in which to hide the tubes you can even run these to the first floor of a 2-story house or to the basement in a ranch.
Installing one is fast, clean and easy. They require no structural reframing, tunneling, drywalling or painting. A professional can install the product in less than two hours and most Do-It-Yourselfers can finish the project in one day. The compact and flexible design of TDDs allow them to be installed in just about any room, including rooms without direct roof access and smaller spaces where daylighting would usually not be an option. TDDs allow you to switch off electric lights during the day, which provides savings on energy bills and also reduces environmental pollution.
It’s actually good for you, too. It has been shown in several prominent studies that increasing daily exposure to natural light can enhance mental and physical well-being, boost concentration and energy levels and a variety of other unexpected perks.
Tubular Daylighting Devices cost considerably less than other daylighting options, such as windows and skylights, including both product and installation costs and obviously it doesn’t use any electricity, so it is very cost effective, once installed.
These systems work even on cloudy days, albeit with less light output then. Solatube International Inc offers several models for differing room sizes and uses. Solatube Daylighting Systems also offers two available light kit options for their Brighten Up® Series so that the product can also double as a standard lighting fixture, for use at night.
1. Incandescent Light Add-on Kits: The Solatube 160 DS accepts one incandescent lamp up to 100-watt. The Solatube 290 DS accepts two incandescent lamps up to 100-watt. While there is minimal blockage of sunlight when a light kit is used, this can be minimized by using a clear bulb.
2. Compact Fluorescent Light Kit: This kit does not accept standard light bulbs, only special compact fluorescent bulbs with a pronged plug. It is available for users who want a very energy efficient light fixture. This fixture accepts one 26-watt compact fluorescent lamp. One fixture may be used for the Solatube 160 DS. One or two fixtures may be used for the Solatube 290 DS.
The exposed dome on the roof is strong enough to withstand anything that mother nature can throw at it and for a little more you can upgrade to a polycarbonate dome that is practically bulletproof. Check your local building supply stores or with local builders to see if thee is somewhere that you can go to see one of these systems installed. You can visit http://www.solatube.com/ for more information and to search for a local dealer. I think you’ll be impressed with the idea and the simplicity of putting one of these in. If you were planning to do some “green” updating in your home this would be a good project to consider.
Friday, October 10, 2008
Stamped concrete, often referred to as "patterned concrete" or "imprinted concrete", is concrete that has been designed to resemble other more expensive materials such as brick, slate, flagstone, tile or even wood. And the cost effectiveness, easy maintenance and endless design possibilities are making stamped concrete a must-have. In stamped concrete you can incorporate decorative patterns, even using other elements such as bond brick, hexagonal tile, worn rock or stone.
Another way to embellish your concrete is through the use of acid stains. Because concrete is naturally a neutral tone and it possesses a unique porous quality, it's the perfect blank slate. It allows decorative concrete contractors to create color schemes that mimic elements like marble or even leather, so that each homeowner achieves a truly custom look. Plus, adding a touch of color can make your home all the more elegant and inviting. A few of the numerous color choices include Green Lawn, Cola, Aqua Blue, Venetian Pink and Sandstone Cream. This way you can compliment the colors of your home with your driveway.
If you have an existing driveway, there are ways to get a lasting makeover without starting from scratch. For instance, you can resurface your concrete with overlay systems to eliminate cracks or blemishes, or you can choose to permanently engrave or sketch patterns for an enhanced appeal. Here in Milford, we have several examples of stamped and colored concrete, from a drive that looks like slate to a concrete drive that appears to be bordered with brick pavers, which is actually more concrete.
Stamped concrete is a great option for anyone looking to make a minor aesthetic change, with a major lasting impression. For more information about concrete stamping and sketching and for help finding a local contractor in Michigan, visit the Michigan Decorative Concrete Association.
Wednesday, October 8, 2008
And in a page right out of a TV commercial, when asked what she planned to do, she replies “I’m going to try to sell it now.” Sell what, one is tempted to ask; just top hear the answer – “That thing I just bought.”
Te woman has never been to Saginaw and never seem the house, other than in the picture on eBay. It is apparently a foreclosure house that the mortgage company Southern Investments LLC just wanted to dump. Saginaw, like much of Michigan has fallen on hard times lately.
Whenever I see a story like this or hear of homes selling in Detroit or Pontiac or Ypsilanti for some ridiculously low price I wonder how the area became so depressed that even land is effectively worth nothing. One has to wonder if the land value of this $1.75 house is at least worth the $850 in back taxes.
Whoever ends up owning this place will have an interesting time fighting the assessors over what it should be valued at and taxed upon. Local governments are already tearing their hair out over the decline in revenues from dropping home values. If the lady who bought it wanted to fix it up for sale, rather than just throwing it back on the market "as is", she certainly has a lot of fix-up cost headroom to throw some money at her $1.75 investment.
Tuesday, October 7, 2008
Sharing a home represents an old-fashioned approach to economic challenge, experts point out. Donna Butts, executive director of Generations United, an advocacy organization. "It is evolving in some ways back to how families used to live. That is, they're living in multi-generational households," Butts said. In many cultures it is fairly normal for the parents to move in with the children and for children to stay around well into their adult lives. We got away from that in America after WW II, as families dispersed geographically. Now, we may have come full circle.
I see some of that locally and it isn’t unusual to see homes advertised with in-laws quarters. Some of the houses that’s I’ve seen and even had listed were modified to accommodate the needs of elderly parents, including those confined to wheel chairs. Those modifications can impact the marketability of the house, since ramps to allow easy access and roll-in showers or wheelchair-friendly kitchens aren’t for everyone. Well designed in-laws quarters, especially those created in a walkout basement, can easily be re-purposed as family rooms with a wet bar or maybe the full kitchen, if it is left in place.
In-laws quarters or quarters for an adult child who has returned to home should both be designed with a separate, private entrance, if at all possible. Not only is it safer to have a direct way in and out, but it may help preserve the sanity of all of the parties involved if mom and dad or sonny Jim don’t have to troop through the living areas of the main house every time they want to go somewhere. Replacing the wall out slider door with French doors will provide a relatively inexpensive solution, so long as you also provide a walkway to get to the rear of the house.
It is also possible to have the major mechanicals and utilities for in-laws quarters set up separately and metered separately, but that required more planning and some expense. There is a pride rationale for that, as well as giving the residents more control over their own lifestyle, especially as it relates to heating and air conditioning and water usages.
So invite the kids back home or have mom and dad move in with you, but do some serious planning and remodeling first to help your home accommodate the new demands that will be put on it (and you). Where possible, try to think two steps ahead, not just about the new occupants moving in, but what to do with the space when it is no longer needed to accommodate them. Heck, maybe one of your kids will buy the place and you can down-size into the in-laws quarters yourself.
Monday, October 6, 2008
Then there’s the liability issue. If you are held responsible for an injury to someone in your home or someone's property in your home, without the liability coverage provision of a renter's policy, your current and future earnings could be at risk. You'll also have to foot the bill for any legal defense you could need. A renter's policy can also put a temporary roof over your head while damage to your rental home is corrected. Policies come with some limits but typically cover the difference between your additional living expenses and your normal living expenses.
The Insurance Information Institute reminds renters that because the property owner's policy covers the structure and common area and renters insurance covers only the value of the renter's belongings, renters insurance premiums are relatively cheap. The Apartment.com survey also found that an additional 18 percent of renters said the value of their personal belongings wasn't enough to warrant coverage. That's an oversight because renters insurance doesn't just replace property but provides protection from liability claims, loss of use and in some cases, involuntary unemployment insurance in the event are required to have a renters policy to live in their current home.
Renters can choose between two basic types of policies:
Actual Cash Value pays to replace possessions minus a deduction for depreciation up to the limit of your policy.
Replacement Cost pays the actual cost of replacing your possessions (no deduction for depreciation) up to the limit of your policy.
Typical renters policies come with $300,000 of liability coverage (varies by state and company) and may be purchased with even higher liability coverage. Additional coverage is available to boost limited standard policy coverage, especially for items such as jewelry, silver, furs, collectibles, and some computer equipment and work-at-home related items. Add-ons also cover perils not included in your policy such as accidental loss, according to the insurance institute.
Sunday, October 5, 2008
Risk scores of less than 10 percent aren’t statistically significant, according to David Berson, PMI's Chief Economist and Strategist. But in some areas where prices rose the most during the housing boom, the risk of price declines remains high.
The highest risk of future price declines are in Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (99.5 percent), Riverside-San Bernardino-Ontario, Calif. (99.5 percent), Orlando-Kissimmee, Fla. (99.4 percent), Miami-Miami Beach-Kendall, Fla. (99.3 percent), and Tampa-St. Petersburg-Clearwater, Fla. (99 percent).
The 15 areas where the risk of price declines is less than 1 percent are:
St. Louis, Mo.-Ill.
Milwaukee-Waukesha-West Allis, Wis.
Austin-Round Rock, Texas
Kansas City, Mo-Kan.
San Antonio, Texas
Houston-Sugar Land-Baytown, Texas
Fort Worth-Arlington, Texas
You’ll notice that our area is not on either list and that’s probably as good as we could have hoped for. To read the complete report, click here; or, to just see the index that ranks the major metropolitan areas, click here. The Detroit metro area and the Ann Arbor area both ranked LOW in risk for further price declines in this report. That’s probably because we’ve been leading the fall in values and have bottomed out already. We are hopefully poised to head back up, soon. Maybe we can at least catch our breaths, try to sell off some of the inventory overhang this winter, and be ready for a full recovery next spring. Let's all hope!
Saturday, October 4, 2008
The three things that he was advising my client to look at were the foundation, the structure above the foundation and the roof. I certainly have no argument with the importance of those three elements, which pretty much comprise the physical structure of the house.
His advice started by telling them to look at the foundation for cracks that would indicate potential major issues. Vertical cracks in poured concrete walls he advised aren’t a cause for major alarm and can be easily fixed with modern epoxy injection techniques. It’s the presence of horizontal cracks or those that go down a poured wall at an angle that are cause for alarm, because they indicate forces at work that are trying to shear the wall and which could cause eventual failure and collapse.
The next major area to look at is the wood structure above the foundation and there he advised you would be looking again for signs of forces at work – cracks over doors, doors that don’t fit, cracks at corners and other signs that forces other than normal settling might be at work, many times in conjunction with foundational issues. Other things to look for included mold and interior wall water damage, such as bowed walls. There is also the possibility of infestation from termites, carpenter ants and powder-post beetles, all of which occur in this area.
Finally there is the roof, the umbrella for the house, so to speak. Things to look for there include any leaks and the condition of the shingles as well as the provision for air flow to the inside of the roof. Also look for missing or improperly done flashing around chimneys and pipes that extend through the roof. Poor airflow will often result in mold on the interior of the roof decking and/or early failure of the roofing shingles, due to excess heat build up I the summer. Common mistakes include not enough ridge vent area or not enough can vents and blocked eaves vents. This inspector said that he has seen many cases of improperly installed ridge vents where there were actually no holes pierced in the decking materials to allow any air flow to the ridge vents. Another common mistake is covering over gable vents when new vinyl siding is installed.
To these elements of the house’s structure, I’d also add that there are three key systems in the house that can either be in good shape or cause major problems – the plumbing, HVAC and electrical systems. Homes with old or poor systems in any of those three key areas can become major money pits.
Looking at the plumbing one should look closely at how water gets into and out of the house – the age and makeup of the plumbing system. Look for copper or the new GFX piping instead of lead-based pipes on the feed side and PVC instead of cast iron on the waste side. Look also at the water heater, which is likely the shortest life span item in the system (other than maybe fixtures). It might also be an opportune time to put a good clean-out into the system, if one doesn’t exist.
The HVAC system is one of the more costly systems in the house and also one with a finite lifespan. If the HVAC system is more than 10 years old it is likely getting ready for replacement. If the old unit didn’t have central air, replacement time is the time to add that to the house. Also look at adding modern air cleaning and humidifying systems at that time, too.
Finally there is the electrical system, which many people overlook. An old fuse-based electrical system is both a pain in the butt to live with and potentially dangerous. Replace it with a modern
circuit breaker box and take that opportunity to get the service to the house upgraded. Lots of older homes had less than 100 Amp service to the home. Get at least 150 Amp, if not 200 amp service run to the house. Things have changed since the 50-60-70’s and there is lots more electrical demand in the modern home. Also look for GFCI circuits in the kitchens and baths and install them if they are not there now.
So when you have the home inspected, look at all of these areas. If you’ve stumbled upon a really good house – one that has had one or more really good owners in the past – you’ll find that most of these areas are up to date. Unfortunately these are areas that are all to often “out of sight and out of mind” and so become quite dated and even dangerous.
These six major areas are the really big money areas that should be of concern in any house that you look at. These areas cannot be helped with a new coat of paint or any other of the simple things that you might do to improve the appearance of the house. These are the real monsters in the closet that come back to bite you big-time. Pay attention to them in the front end, before you make the buy decision.
A good home inspector will focus upon these areas, plus the mechanicals—the furnace/boiler/ air conditioner, the hot water heater and the well and water treatment systems. You should also have the water tested if it is well water and have the septic field inspected, if it is on a septic. A Radon test is also advised, if you plan to use the basement for a living space.
If this advice all sounds like too much of a hassle and too expensive to you, think again. Each of these items can cost you thousands of dollars to fix later, if they have problems. None of these areas are glamorous and they certainly aren’t the reason that you would buy a particular house; but, they could be (and likely should be) the reasons that you might not buy a particular house that has problems in these areas.
Thursday, October 2, 2008
As I’ve opined here before, the answer lies in human nature, which has an unbelievable tendency to trump intelligence. A combination of arrogance and greed, two of the more powerful elements of human nature, was able to cloud the minds of these supposedly intelligent people and lead them into the abyss. Now being served mainly by arrogance, in the form of chutzpa, these same “intelligent” people are begging for a bailout. Save me and my multi-million dollar golden parachute, they plead. And across America the response has been overwhelming that the people on Main Street want to see some pain.
The American people want to see the equivalent of the “perp walk” that took place after Enron and Adelphia and WorldComm. It’s not enough to se some poor little guys with his box of stuff from his desk on Wall Street. The people wan to see some CEO’s being evicted from their Long Island mansions and maybe even a few going off to jail. What they’d really like to see is some judges taking back the $100 Million golden parachute payments and using it to help the little guys. It won’t happen, of course, but that’s what’s in the imaginations of many Americans.
We are now far more civil than the days of dragging the old, disposed king out and beheading them in the public square, but somehow we still need that to get past the sins that have been committed. We are a forgiving people, but only after a good public flogging of someone that we can blame. Maybe the deaths of several Wall Street firms and a few banks will suffice; however, we’ve yet to see that now destitute former CEO being interviewed on TV. Maybe the fact that he has to give up a week in Aspen this year will be enough suffering. Maybe the TV reporters can interview his crying wife who will be lamenting having to give up the weekly pedicure for Foo Foo, her Shtzu. Oh, the pain!
Wednesday, October 1, 2008
The current impasse is caused as much as anything because of fear and anger out in the hither lands. People should be angry. They have a right be angry. The mess on Wall street was caused by greed (yeah, I know I’ll get emails from the greed is good crowd), lack of any oversight of the arcane areas of the financial industry and stupidity in Washington, on wall Street and, yes, on Main Street. There’s certainly enough blame to go around and finger pointing seems to be the order of the day, rather than serious problem solving efforts.
The favorite question seems to be - where is this money coming from that will bail out the banks and Wall Street? There are few choices on that question. The only place government gets money is out of our pockets, whether they take it now or borrow and take it later, it all comes from the pockets of the taxpayers eventually. Some in Washington seem to think that the government should just guarantee the bad loans, instead of buying them. Well, how long do you think it will take to call in those guarantees? That’s just trying to hide the issue behind words that sound better to the masses. “No, we didn’t give them the money. We didn’t buy the bad loans. We just guaranteed them.” Oh, OK, then. You guys did a heck of job! Does that sound familiar?
Maybe we could put the FEMA guys in charge. Then they could buy trailers for everyone who looses their home and bring them ice, too. Of course later we would find that the trailers make everyone sick, so they’ll have to be replaced. I know. Buy them all houses. The government will own a big inventory of homes that they had guarantees on by then. See how it will all work out in the end. Honestly, I don’t think even Beckett or Pinter could have imagined any more of an absurd scenario than is playing out in front of us right now.