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Friday, December 31, 2010

Reflection on my market...

2010 was a tough year for me in real estate. I closed about as many sides as in past years, but made much less from the efforts involved. Looking back, I only had two deals that were not either foreclosures, short sales or leases; two deals that I might classify as “normal” real estate deals. The rest were struggles with banks on short sales or with sellers and banks on short sales or just leases, which now make up almost 20% of our local market volume. Distressed sales – foreclosures and short sales – make up 60% of my little real estate patch.

I cover and report on six local markets, which are made up of six townships and the various villages and cities contained within them – Milford, Highland, Commerce, White Lake, Lyon and Brighton. That market spills over two counties – Oakland and Livingston – in which I do literally all of my real estate business. I list and sell houses outside the six markets that I track, but they are the ones that I focus upon with marketing efforts for listings and buyers.

The real estate statistics categories that I track on a weekly basis for these markets include the listed and sold prices of every home above $20,000 that sold during the year. Admittedly that is an arbitrary price cut-off; but I wanted to eliminate the leases and the sold as a tear-down homes. I calculate the percentage of sold vs. list price.

I record for each sale the State Equalized Value (SEV) listed in the public records. That is a number that is unique to Michigan and is supposed to represent ½ of the assessed value of the house (it is used for taxing purposes, although there is yet another Michigan-unique number for each property called the Taxable Value). I also calculate the sold price vs. SEV to see how close it really comes to being ½ the market value.

I record the Days-On-Market (DOM); although that is a mostly meaningless number these days what with all of the agent shenanigans going on with re-listing homes every month or so, to keep them “fresh” on the MLS. Finally, I record the Square Footage of the home and the list price cost per Sq Ft and the Sold price Cost per Sq Ft. There is enough data in these weekly reports to get a really good feel for these markets. In addition, I keep these reports by the month and have three years of data on line, month-by-month.

This year I also started a running Y-T-D report for each market; so now I’ll have yearly data on line, starting with this year. I’m trying to decide whether it makes sense to keep that annual data separated out by month next year. It probably does, so that one can see the differences in the market month by month. Below are some summary statistics from these reports.

In the Milford market, which includes Milford Township and the Village of Milford, the average sale list price was for $204K but the sales averaged $195K or 96% of asking price – not bad really and probably an indication that sellers are pricing more realistically lately. Home sale prices averaged 1.5844 times the listed SEV values. That means that the assessors are still lagging the market in terms of adjusting home values down enough to reflect the current market prices. Homes in the Milford market listed for an average of $92/Sq Ft and sold for an average of $88/Sq Ft.

Our neighbors to the north in the Highland and White Lake markets did not fare as well this year. Homes in Highland had an average list price of $156K and a sold price of $148K. Sold prices averaged 1.4072 times SEV and they sold for $75/Sq Ft vs. and asking price of $79/Sq Ft. In the White Lake market homes sold for an average of $76/Sq Ft, after being listed for an average of $80/Sq Ft.

The Commerce and Lyon markets did a bit better; however, the Brighton market was about the same as the Highland and White Lake markets. You can see all of this data at my Web site www.movetomilford.com by clicking on the “What has sold in the Milford area” choice.

I will continue to produce my weekly reports in 2011 and make more use of them as marketing tools with potential clients. They have certainly helped me make the case in listing appointments that I know and understand the local market. They also help with homeowners in price setting negotiations.

Wednesday, December 29, 2010

How low can we go?

I joke about Detroit being number one of so many bad lists and I’ve reported the tremendous loss of value that we’ve experienced locally; however, the latest Case-Shiller Market Report even surprised me. I had no idea we were so bad that the next worst city in the report isn’t even in view from our position. I remember once in high school when the track coach made me run in the mile run event. I’m not a distance runner…never have been and never will be. I was probably lucky that the leaders didn’t lap me out on the track. I was so slow that they were actually lining up for the next race by the time I got to the finish line. That’s sort of what the latest C-S numbers say about Detroit.

The C-S report shows how home values in various big U.S. markets compare to where they were in the year 2000. We all know that prices got wildly inflated in the mid-2000’s and then the bubble burst and they’ve been falling ever since in many places. Apparently some places have recovered better than others and clearly everyplace else has fared better than Detroit. Some places, like Los Angeles (174.05), New York (171.50) and Washington D.C.(186.67) are over 70% above their 2000 levels, which means that homes have appreciated in those areas by 74, 71 and 86% respectively.

Even cities like Las Vegas (100.97), Cleveland (102.20) and Atlanta (103.30), which took pretty good hits during the recession are back above their 2000 C-S value levels. And then there’s Detroit. According to this report, Detroit home values are at 69% of their 2000 levels. We’re back in the 1990’s somewhere, in terms of home prices. I’ve heard local assessors and appraisers place us back to about 1996 levels. That’s just depressing. Keep in mind that these numbers reflect values against 2000 as the ruler. They are still way below the market highs, which occurred in 2005-6. If current values were measured against that high-water mark Detroit home values would likely be down in the range of 40%.

About the only thing good that can be said about this report is that our bargain home prices are attracting more buyers to the area. I guess that’s understandable. Where else but Detroit can you find 1,350 homes for sale for under $10,000? It's not that bad out inteh burbs, but you can probably find over 1,000 homes for under $50K.

Tuesday, December 28, 2010

10,000 new customers a day

I read in my local paper this morning that, starting in January, 10,000 baby boomers a day will turn 65 and that this will happen every day for the next 19 years. Wow! That’s like getting 10,000 new customers a day for the next 19 years. The same article pointed out that the boomer generation, while it was quite innovative in many ways and changed our society in many ways, has not proven to be very good retirement savers. I’ll bet that many of them are also setting in McMansions that are currently worth much less than when they bought. However, a good number are probably still in that 1970’s or 80’s home that they bought and, even though it is worth less than a few years ago, they can afford to sell it and move on to a retirement home.

We’ve all been waiting for this tide of new potential clients to come in and it starts next year. Our work is cut out for us to help these new retirees understand the market dynamics of taking the paper loss on their current homes in order to get a good deal on a new, retirement home. Hopefully out of the 10,000 a day number there will also be a few that really did save properly for this time and can now act on their plans for retirement. I suspect that more than a few will just heave a heavy sigh and continue working, once they see that they don’t have enough saved to retire and once they find out what their home nest egg is worth on today’s market.

This is a potential market that I can get my arms around. I didn’t get into the foreclosure side of our business and haven’t really done many short sales, but helping retirees figure out what to do and what they can do with what they have I think I can help with. For one thing, I’m a little older than them and I’ve been “retired”, so to speak, for a couple of years now (even thought I work at two jobs pretty much full time). At least I can relate to the age group, to the things that we’ve been through and hopefully to the things we are looking ahead to doing.

So, I’ve got to run now, because I have 10,000 new clients to get ready for in January. Whew! I’m going to be busy.

Thursday, December 23, 2010

New Year’s Predictions - again

I’ve been publishing and distributing a paper-based newsletter to my SOI for the last seven years. As I prepared the Jan/Feb 2011 Edition (in better times it was a monthly newsletter) I started writing my annual real estate market prediction article and got to thinking about how many times I’ve offered the same “things will be better this year” advice (or maybe that was hope). As I rummaged through my achieves it was a little depressing to see that I’ve been writing about this terrible market for at least 5 years now. I’ve always found a way to sound upbeat and optimistic about the coming year and yet each January I’ve had to report that the year just passed was another tough year in real estate for homeowners, for sellers and for agents.

Again this year, I’ve found hope to write about in some of the data on improved home sales and an improvement in new home starts; however, I’ve also had to report that foreclosures and short sales make up more than half of our local sales and there is no end to that in sight yet, here in Michigan. I was able to put a positive spin on the fact that home values are not dropping nearly as rapidly as they have in the past; however, they are still dropping. There is also the ever popular “pent up demand” theory that various economists and real estate article writers drag out for want of any real proof that things will change. We are to imagine this pool of beet-red faced buyers who have been holding their breath for the last 3-4 years, awaiting the time to buy. Somehow they will supposedly make a collective decision that now is the time and rush to the market. It is unclear what magic sign they’ve been awaiting or when it will appear to them. Hopefully it’s the for sale sign that I put on someone’s yard.

It’s still a great time to buy a home in my market and still a challenging time to sell one, because you have to compete with pricing and appraisals that are driven by the distressed home sales. Homeowners in my area are coming to grips with the 30-40% loss in values that has occurred over the last few years. They don’t like it, but they are starting to accept that is happened and that the value is not coming back anytime soon. We’re sort of in that “life goes on” stage of acceptance of the situation that we find ourselves in today. Many underwater Baby Boomer homeowners have put off the inevitable for as long as they can and are now taking their losses to get on with retirement plans or other moves. Some are selling because they’ve exhausted their savings trying to keep up a lifestyle that they can no longer afford and now must get out before the house drags them under with it.

As for the agents in the business; many made the transition to working with banks and REO companies on distressed sales, but many did not. In the last few years the average sale price of sales that are made has dropped dramatically and a high percentage of transactions in my market are now under $100,000 per sale. The average transaction values have dropped from the mid $200K’s to the mid $100K’s locally. Leases have risen from a niche in the market to represent 20-30% of all transactions. All of that has made it difficult for many in the business to survive and many (including me) have had to seek “day jobs” to make ends meet.

So, again this year, I have published my optimistic missive of hope for the year ahead. When I looked back I found one article that I wrote about the market in 2008 in which I predicted that the real estate market would not turn around until 2011/2012 . I certainly hope I was right about that. We are currently breaking out the Champaign to celebrate that our unemployment in Michigan is down to only 12.7%. Maybe some of that euphoria will spill over into the real estate market. One can only hope, and hope, and hope…

Sunday, December 19, 2010

Turn the lights out when you leave...

Source: Forbes, Jenna Goudreau (12/08/2010) - Using data from Moody’s Economy.com, Forbes identified the top-10 states where more residents are leaving than arriving.

The factors that encourage outbound migration from these states are mostly economic — high employment and high cost of living — although both Louisiana and Mississippi have been affected by natural disasters.

The 10 states that have said goodbye to the most residents are:

1. New York
2. Illinois
3. Ohio
4. Nebraska
5. Kansas
6. Iowa
7. Louisiana
8. North Dakota
9. South Dakota
10. Mississippi

I’m amazed that Michigan is not on this list, with all of economic turmoil that we’ve had and with unemployment still running above 12%. An article in the Sunday paper (12/19 Detroit Free Press) stated that local demographers expect that Michigan will end up right below 10 Million people when the 2010 census data is all counted. That will keep the state in the Top-10 for population, but just barely above Georgia and North Carolina.

As one would expect, except for Mississippi and Louisiana, which both suffered in the aftermath of Hurricane Katrina, all of the population losing states are in colder climates or places with cold, snowy winters.
I wonder what this loss of population does to the local housing markets? In the distant past whole towns used to turn into ghost towns (The ghost town of Bodie California is pictured from WikiPedia) when the mines played out or whatever other local employment dried up. That doesn’t really happen any more, since people are more mobile and able to drive to jobs that would have been impractical in the horse and buggy days. Still, there have to be towns dotting the countryside that are mere shadows of their former glory days, before the big employer left town. That would make an interesting story for someone to research a dreport upon.

Thursday, December 16, 2010

Value vanished, into thin air…

A recent post on another blogging site – ActiveRain (a site primarily for people in the real estate business) – made the rather blunt point that the home value lost in this recession is NEVER, EVER coming back. The author explained that it has vanished into thin air and will never be recovered. He opined that, although prices will eventually start rising again; they are likely to rise at the historic rate of 3% a year, or about the rate of normal inflation. If that is true, then the increased price rise does not represent a true recovery of lost value, since one must adjust for inflation.

Many people commented on that post and most just didn’t seem to get it. For many, if the price goes up a bit then the value also went up and that means that lost value was recovered. That just isn’t true. Look at it this way. If a stock that I own drops in value 30% (a similar drop to home values in this area), that represents real loss of value. To make the example simple; if the stock was at $1 a share and I own 100 shares, then it was worth $100 just prior to the drop. Had I sold it before the drop, I could have bought goods worth $100 – let’s say 20 pounds of coffee at $5/pound. After the drop my holding in that stock is worth $70. With that, I could only buy 14 pounds of coffee.

Now if I hold on to it for 10 years and it finally makes its way slowly back to the price it was at when the drop occurred, my 100 shares would again be worth $100. But what happened to the price of the goods that I could have bought 10 years ago. At an inflation rate of only 3% in the price of coffee over that time coffee would cost $6.62/pound and I could only buy 14.88 pounds, or about what I could buy today for my $70. So the price is back to the pre-bust level, but the value has hardly improved at all. The same thing applies to home values.

The “value” that was lost from homes in the real estate bust was a paper loss for most but a very real loss for those who actually bought during the run-up prior to the bust. People who bought prior to 2000 are likely about at break even, that is their homes have a current value that is about the same as when they bought. They haven’t made the big appreciation that they hoped for (and once had, on paper); but, they are under water on their mortgages either (unless, of course, they got greedy and took equity out of the house during the boom).

And where did all of that value go? A good deal of the actual money that changed hands went to the developers and builders who were cranking out new homes as fast as they could, many of whom subsequently went bankrupt during the bust because they got greedy and overextended themselves to build even more homes. Some of it went into the well lined pockets of the cat-fat bankers and mortgage lenders and wall street operators who were busily packaging and selling off pools of mortgages and who scored outrageous bonuses prior to the meltdown, none of which will ever be recovered. Some went to the investors and layers of administration that are behind the mortgage lending process.

Much of the “value” that was lost was never real to begin with. That value was mainly in the inflated “market prices” of existing home stock and was the figment of some assessor’s imagination or the fantasy of some well greased appraiser. Both of those groups ran prices and “values” up as quickly as the market wanted, with little restraint. Asking where all that value went is like asking where your shadow goes at night.

So, what does this all mean? It means that we all need to let go of the past, give up the thoughts, hopes or dreams that we can wait this out and that the lost value will come back and everything will be as it was before the crash. That’s not going to happen. Get over it. Live with it. Get on with life..

Tuesday, December 14, 2010

Listen for the angels...


“If you are seeking creative ideas, go out walking. Angels whisper to you when you go for a walk.” (Raymond Inmon) from the Jack’s Winning Words blog.

I’m not sure whether it is angels whispering or just that a good walk can serve to clear ones mind and allow focus, but I do get some great ideas on the walks that I take with my dog. I don’t multi-task when I walk. No iPod or ear buds for me. I take the time to look around and see what’s happening in the neighborhood and maybe say hello to a neighbor or stop to talk.

Sometimes I’ll get so deep in thought about something that I’ll walk along, as if in a daze, and suddenly realize that I’m back home, having completed the walk and not remember how. Maybe the angels were whispering real loud on those days.

So, get out and take a walk. Let go of the iPhones and iPods and iWhatevers that tend to dominate life these days and just stroll along and enjoy nature and just being alive. You may be surprised at what wonderful ideas or thoughts pop into your head. Maybe it’s your angel whispering.

Monday, December 13, 2010

Using the numbers to understand the markets


Unless a large number of very expensive homes sell in the next 3 weeks, (which is highly unlikely) one can look at the numbers that I’ve been collecting and reporting all year long to get a better understanding of the local market. I collect and report weekly sold data for homes in six markets – Milford (Township and Village), Highland Twp, White Lake Twp, Commerce Twp (excludes Wolverine Lake Village and Walled Lake Village), The LyonTwp/.South Lyon market and the Brighton Twp and City markets (shown as just Brighton in the reports.

I decided early in the year to only look at sales of houses above $20,000, which probably leaves out a few really bad foreclosed and short sale houses, but also serves to remove any leases from the data. I report the last asked price and the sold price and calculate a percentage for the sold price vs. asked. I also report the SEV of the house at the time of the sale and calculate the SEV multiplier of the sold price vs. SEV. I report the Days on market, the square footage, the cost per Sq Ft asked and the cost per Sq Ft sold..

What good is all of this? Well it depends upon whether you are a buyer or seller. If you are a buyer, you can look at the data for the area that you are interested in and understand
What people have been paying for homes thereon a cost per Sq Ft basis and as a percentage of asking price. That is valuable information for negotiating a deal. If you are a seller or potential seller, you can see what a reasonable expectation might be for your home and maybe set a better market price for it that will help it sell faster.

For instance, in my home market area of Milford, sellers have been asking about $93/Sq Ft and getting about $89/Sq Ft. Those are just about the same for both the Average and the Median for those statistics. Buyers are paying about 97% of asking price, which means that homes seem to be fairly priced. Homes are also selling for about 87% of asking price in White Lake Township; however, the homes are priced at about $79/Sq Ft and are sold for about $76/Sq Ft. To see all of the data on all six areas, go to my Web site –
http://www.movetomilford.com/sold_homes.html

You can also get a feel for how far behind the assessors are in getting home assessed values down to reflect the market by looking at the derived number that shows the sold price as a multiplier of the State Equalized Value (SEV). In theory this quaint Michigan reflection of a homes value is supposed to be ½ of the homes assessed value, which should reflect the market value. If it is accurate the multiplier should be 2.0000, which would mean that one could multiply the sold value times 2.000 and get the market value.

In practice, because assessment adjustments in the downward direction have badly lagged the market, the numbers for most of the markets that I track are somewhere in the 1.5000 to 1.6000 range, with the Lyon/South Lyon market being the only one to average over 1.6000. Both the Highland and White Lake Markets are even worse in the 1.3000’s. That basically means that homeowners in those markets are being heavily overtaxed, since their taxes are based upon SEV values that are way above the market prices that are being paid.
Finally, you can also see how big the influence is of foreclosed homes and short sales – distressed properties. Nationally those types of sales make up about 30-35% of the sales that take place. In my six markets they have consistently run above 50% and for quite a while got as high as 70%. So far, in December they are running at 65% of the sales that have taken place.

What doesn’t show up in these numbers is the unknown number of would-be sellers who just can’t bring themselves to sell their hoes for what the market would currently bear. We’ll never know what that number is; nor will we be able to “see” the number of would be buyers who just can’t meet the current higher standards for a mortgage. There is believed to be a huge “pent-up demand” for both selling and buying just waiting out there for things to get better. There is also a reported “shadow inventory” of a large number of foreclosed homes that are being held back by the banks in hopes of a market turn around. Perhaps none of those would-be sales will ever occur; but, then we’ll never know, will we?

Sunday, December 12, 2010

Recurring themes – renewed hope…

I had occasion to go back over the last three years of postings to this blog recently and what jumped out at me was the recurring theme at this time of year for the last three years running – the bottom is near and things are about to get better.

It was actually hard to believe that I’ve been writing about this recession and its impact on the housing market for that long. Post after post was about the foreclosure mess and the mess that it has caused in the housing industry. I did see a few post back in the 08 and 09 that foresaw the current “new reality” situation that we are experiencing right now. I called it a fundamental reset of the American way of life in those posts. Perhaps that was a bit over dramatic but the basic premise – that things had changed permanently and that we would never return to the “the good ole days” turned out to be true (at least here in Michigan).

There were a few other themes that seem to have been consistent over the three years –

The ineptitude of government at the state and federal levels to deal with the issues at hand; with a running litany of alphabet soup programs HAFA, HAMP, HA-Whatever.
The ability of the scammers and sleazy operators in the banking and mortgage business to stay ahead of the regulators and to find new ways to rip people off during hard time.
The dramatic changes in the real estate industry as home values fell and as more and more practitioners turned to focusing on the distressed home market.
The failure of homeowners to accept and deal with the sudden loss in values of their major investment.
The unfortunate education of a whole new class of lowball buyers who are out trying to steal houses from the unfortunate foreclosed homeowners.
A recurring headline (used at least 5 times) of “Are we there yet?” as we all searched for the elusive bottom of this dreadful market.

Of course there were also lots of posts that encouraged hope and finding a positive attitude amidst all of the carnage. One cannot be forever the pessimist, after all.

Although I have been proven wrong for three years in a row, I am convinced that we are there now – bumping along the bottom and about to start climbing back. There are lots of positive indicators, from increases in housing starts and sales increases (albeit inconsistent, yet), to stories about the economy in general being back on track. In Michigan we were the first into the tank and many predict will be the last one out; however, even here we have some indication that the worst is over. Two of our local three automakers have been through their catharsis events (bankruptcy) and have returned to the living. The resulting ripples through our supplier companies are settling down and life is settling back into what will be the “new normal”. I’m even starting to see a trickle of move-up buyers cautiously re-entering the market – something that has been largely missing for almost two years now.

So, as we head into the Holiday season and I get to write my annual “looking back” and “looking ahead” posts, I’ll be dragging out the old theses about how it seems that the worst is over and the year ahead is going to be better. Hopefully I won’t look back o that someday and wonder, “What was I thinking?”

Tuesday, December 7, 2010

Who's running the show?

I read today that Fannie and Freddie are saying it’s OK to go ahead with sales involving foreclosed houses. That’s probably a good thing, since sales of those homes have been stalled by the legal actions in several states against shoddy bank foreclosure practices. Of course, not to be thought of as Scrooges, they also said that they would not evict anyone until the Holidays are over. How nice of them.

I also read that the Comptroller of Currency has ordered banks not to continue foreclosure proceeding against people with whom they have entered into the loan modification process. That makes sense, since they have on the one hand decided to see if this person can save the house if his loan is modified. To turn around and on the other hand (and most would probably say behind their backs) keep processing the foreclosure, perhaps even speeding it up because of delinquencies that are a part of the loan modification process, doesn’t seem fair or make any sense. Either give the guy a break with a loan mod or take the hose, but don’t give false hope of a loan modification, while during the process continuing the foreclosure procedure. That’s just wrong.

In other news from the asylum we call Washington, the Congress seems ready to add to the deficit by passing the extension of the Bush Tax cuts for all while also adding “sweeteners” for both the rich and poor. This all comes just after the President’s Deficit Reduction Panel released it’s finding that massive spending cuts and tax increases will be needed to get rid of the deficit mess. Only in Washington could the report of a patient dying from loss of blood be “cured” by suggesting that we attach more leeches to the poor devil.

Elsewhere in the news there was consternation about the suggestion from the debit reduction panel to eliminate the tax free sale status for real estate transaction over $500,000. That is among the sacred cows threatened by the need to reduce Federal spending or raise revenues by eliminating tax breaks. Tax breaks are like sacred cows in India or sacred monkeys in Thailand. No one wants to touch them, no matter what havoc they may cause. They have become like entitlements in America and are often mistaken for rights.

It is hard t see much pattern or logic in much of what passes for government in Washington these days. It has devolved into an show akin to the glory days of the WWF Saturday night Smackdowns. The stars from both political parties seem more interested in carefully orchestrated showdowns and posturing for the media than in actually trying to govern. It might all be amusing to watch, if the consequences on us all weren’t so profound. As it is, it’s just scary to watch.

Friday, December 3, 2010

Foreclosure sales dragging all real estate down...

The Associated Press reported in a story on December 2 the 10 states with the highest percentage of foreclosure sales:

· Nevada, 54 percent
· Arizona 47 percent
· California 40 percent
· Florida 37 percent
· Massachusetts, 35 percent
· Michigan 32 percent
· Georgia, 29 percent
· Oregon, 27 percent
· Idaho 25, percent
· Illinois 25, percent

They also reported that about 25% of all residential sales in Q3 were foreclosures. They didn’t report how many short sales were in the mix of residential sales, but if it tracks anywhere near our local market trends that would take the overall “distressed” portion of the market up considerably – perhaps as high as 35-40%. The market was also reported to be down both quarter to quarter for 2010 (Q12 to Q3 down 25%) and quarter vs. quarter against 2009 (31%).

There are no real surprises in this story; although, I’m pleasantly surprised to see that Michigan has dropped out of the top 5 foreclosure states. I’m a little surprised by the 32% that foreclosures make up of the market for Michigan overall, since the numbers in my little six-township market area have been consistently higher than that – averaging above 50% for the last 18 months – proof again that all real estate is local.

I haven’t done the math, so I can’t tell how much downward influence foreclosures are having on non-distressed homes; however, the howls coming from other agents about low appraisals killing deals is proof that the influence is considerable. I guess you can’t blame the appraisers for that. They are given instructions in their assignments about what to take into consideration when establishing values in communities and it’s pretty hard to ignore the 3-4 empty and/or foreclosed houses that seem to be in each neighborhood. Assessors are having a tough time too, since they are serving a master to whom they must continue to give bad news – home values, and with them tax receipts, continue to drop.

It’s interesting to me that every time I make a post like this I get feedback in the form of responses that things aren’t as bad here or there, usually from agents in states not on the list above. I have yet to hear from a Nevada or California agent telling me how much worse off I am than them. I actually have some difficulty imagining their situations, given the market that I’m facing. Now, I must quickly add that there are some markets in Michigan that are doing relatively well - Ann Arbor and Birmingham on this side of the state and much of the western side of the state seem to be in better shape.

I suspect that much of the problem that we are seeing locally is a manifestation of the old real estate saw – location, location, location. Some of our most depressed areas are in the farthest out suburbs – places where people seemed to be willing to drive to in better times, just to gain that little extra bit of “country” atmosphere. Now those places are “too far out” on the feedback forms as people focus more on getting to and from work. The locations out along major highway arteries are still doing OK, but if the location is 20-30 minutes off the main highway, “forget about it.” Or, so it seems.

So, where is the economic recovery that I hear about in nightly newscasts? I suspect that it’s on its way and has probably already arrived in some locations. It might take a while to reach us in this area. We still have a big pool of unemployed ex-workers from the automotive industry and a pretty big inventory overhang of foreclosed or distressed houses in the area. When the 2010 Census results are released, I would be surprised if Michigan hasn’t experienced a significant population reduction. That may mean that we have lots more housing stock that we need. I guess we’ll wait and see.

Wednesday, December 1, 2010

Small is beautiful…

I saw an article about tiny homes in this weekend’s local newspaper. That is a topic that I have written about before, but not for some time. The houses in these stories are really tiny – some less than 100 Sq Ft. You can read more about tiny homes at several Web sites - http://www.tinyhomes.com/ is one. Most of the companies in this end of the business offer plans for the DIY builder or will prefabricate the home for you. Some even mount the tiny homes on wheels (see http://www.tumbleweedhouses.com/ ).

I’ve also opined here about the general downsizing of just about everything that has come as a result of the current recession. I characterized it as a “reset” of the American way of life. Some have found that to be a relatively drastic view (or term). So, call it whatever you feel comfortable with; just as long as you acknowledge that some fundamental changes seem to have occurred.

The folks who might find this all to be a bit déjà vu are the grandparents or maybe great grandparents out there who lived through all or part of the great depression. Really anyone who grew up in the 30’s, 40’s and 50’s remembers when houses weren’t all that big. Just about any older town or city has whole neighborhoods full of little brick bungalows that are 800-900 Sq Ft. Most had 2-3 bedrooms a living/dining room and a kitchen. Many likely did not have garages; although many had basements. Your grandmother may still tell stories about raising her family in one of these small houses - and a happy family it was, I’m sure that she’ll add. Many of those old home still exist, although most have had additions added and perhaps garages built by now.

I can remember back to my childhood and living until I was in third grade in a 400-500 Sq Ft , one-bedroom house that had a lean-to addition that served as the bedroom for my sister and me. The whole house was heated by a single coal-fired pot belly stove in the winter. I slept on an old Army cot and my sister had the bottom of an old sofa as a bed. When you’re young living like that can seem like a grand adventure. We moved to a “grand” 1,000 Sq Ft three bedroom ranch on a slab and I grew up through high school in that house. I never felt like I needed more. Later I raised my children in a 1,400 Sq Ft quad level home with 1.5 bathrooms, which we all seem to have survived fairly well.

By the 2000’s the master bedrooms of most new homes were bigger than the first house that I remember and the great rooms on most McMansions probably had more room than that house that I really grew up in. “Bigger is better” was the mantra for the 80’s 90’s and early 2000’s. Perhaps, that is no more the case. People have come to realize the waste and cost of those huge homes and much of the earning power that supported that excess has largely evaporated, at least in the so-called middle class, especially the blue-collar middle class.

Maybe this is really a good thing. Maybe the latest generation, who are learning to be happy with less, will turn out to be happier than the generations that were defined by excess and self-centered spending, but which never seemed to be happy with what they had. I don’t think we’ll end up seeing the market going back to tiny houses, or even new-build houses under1.000 Sq Ft.; but we will see smaller new-build homes with much more practical use of space and probably much better energy utilization, too. I for one think that’s a good thing.

Tuesday, November 30, 2010

Faith hope and optimism

Yesterday I posted an entry about hope. I got to thinking afterwards about my earlier (a coupe of weeks ago) post about the three horsemen of the current financial apocalypse – Fear, Uncertainty and Doubt (FUD). Perhaps hope is part of the best triumvirate on the positive side – faith, hope and optimism.

I mentioned faith a couple of times yesterday, but didn’t dwell upon it. I failed to mention optimism at all yesterday. I really think that the current adverse environment has been both a test of out faith or perhaps has served to develop a latent faith in many. There is a point that one gets to after experiencing hopelessness that can only be explained by faith – a faith that grows out of giving up on trying to figure out how to solve your problems and putting them in bigger hands. Once you come to the point where you finally say – not my will but Thy will be done – then hope and optimism can also enter your life and things begin to change for the better.

So, perhaps the acceptance of reality that I wrote about yesterday was really acceptance of something else altogether. There are things that we can change and there are things that we just have to accept and move on. Accepting those things and making the best of the situation is so much easier when one has faith, hope and optimism going for them. The alternative is living a life ruled by fear uncertainty and doubt and leading towards the dark realms of despondency and despair. I do not choose to go there.

So, rather than cowering in fear, fretting about the uncertainty of things and having doubts about the future; you can chose to have faith in a higher power, have hope for a better tomorrow and be optimistic that things will get better. In fact, if you embrace that approach to life you may be surprised that you can be happy with what you have and not spend a lot of time focused upon what you don’t have. You may find that living happily in the moment is much more satisfying than worrying about the future.

Monday, November 29, 2010

Reality-based hope for the future.

There are lots of stories, articles, blogs and other communications that based on the concept of hope. Having hope is a uniquely human trait. Hope combined with faith gives even the most downtrodden of people a reason to go on living. But, hope must also be based in reality. It is all well and good to say I hope I win the lotto; but the reality, which almost every player of the lotto begins with, is some cursory understanding of the odds against that happening. So, that hope is really a wish or a dream more than a real hope.

We are faced with much the same scenario in our lives and in real estate these days. People may say, “I hope things get back to normal soon”; where the “normal’ that they are referring to is the state that things were in 3-4 years ago – before the big recession. Well, that’s not any more real than hoping that you win the lotto. You can wish that things would go back to how they where or you may dream about how things were a few years ago; but none of that is likely to happen. In fact it can’t happen.

The current recession has caused such a fundamental realignment and adjustment of things that a return to the state of affairs of the earlier 2000’s is impossible. Many jobs are just gone. They will never return. Many homes are just gone. You’ll never get them back. Many savings accounts, and retirement accounts and college funds are just gone – they will never come back. The automotive companies in this new reality now hire new workers at $14/hour, not $24/hour and there is no going back.

For would be home buyers, new lending rules require that you prove that you can actually can afford the house that you want to buy and that you have some down payment funds and closing cost funds. There’s no going back to the good ole days of no-doc loans. Lenders, once burned by their own greed and stupidity, now demand more assurance (and more insurance) of the buyers ability to pay; even as they find new ways to package and monetize new portfolios of mortgages.

So where is the HOPE in all of this? I think the new hope is found in the young Millennial couple out looking for a first home in the range of $50-80K with 800-900 Sq Ft; rather than a $150K 1,500 Sq Ft first home. There is hope to be seen in the retiring couple who have taken the loss on their McMansion and downsized into a comfortable small ranch home. Hope might be expressed by the couple who were planning to move up to a bigger house, but who now are adding on to their current home instead. Hope that is based upon accepting the new reality is truly hope for a better future, not necessarily based upon material things, but a better life with the important things that we have – family, health and faith.

For many letting go of dreams of the past and accepting that this is where we are and this is were we must base our hope from is tough. Denial is a strong adversary to overcome, almost as strong as despair (which all too many people in denial slip into when they are finally overwhelmed by reality). The good news is that hope combined with faith can work miracles no matter where you start from. So, are things going to get better soon? I certainly have hope.

Friday, November 26, 2010

Believing is seeing...

“I’ll see it, when I believe it.” (Dr Wayne Dyer), from a post last week in the Jack’s Winning Words Blog.

Read it again. That’s where we are with a lot of sellers right now. They don’t believe it, so they don’t see it. They don’t believe that it happened to them, to their house, to their equity. It may have happened to a neighbor down the street; but surely their house was spared and didn’t loose any of its value. They just don’t see it, because they don’t believe it.

Other sellers just don’t see the time that it’s going to take to get back the lost equity in their homes. They don’t believe that the so-called experts are right about it taking 10 years of more and they certainly don’t believe the Realtor sitting there in front of them who just told them the same thing. They see things coming back in a few months, if they just wait it out a little longer.

And what about those lowball offers that they might have been getting? They just can’t see “giving away their house, “ at those ridiculous offer prices. They don’t believe that the comps used by the other agent reflect the current reality. After all they used houses that were foreclosed or in short-sales; surely those don’t count when someone is looking at my house. I can’t see it.

And now, they say; you’re telling me that I need to lower my price again. What is this, some kind of bait and switch game you’ve been playing? We’ve only been on the market for 4 months. So what if we haven’t had a showing, it must be something that you’re doing wrong as my agent. It’s a great house and I can’t see that there’s anything wrong with my asking price.

What’s an agent to do with a non-believer? Educate, educate, educate! There are tons of articles and news reports and other third-party material out there to use with the non-believers. Sometimes it takes lots and lots of repetition to get the point across. Sometimes it takes more drastic actions – drag them out and show them what the comps and what they are selling for in this market. Sometimes it’s just a lost cause and you need to cut bait. You’ll see that too, when you believe.

Monday, November 22, 2010

Let go and move on…

In these tough times it is sometimes very difficult to just let go and move on with life. Agents are pulling out all stops and trying everything that they can think of to save deals. I can’t blame them for trying and sometimes the extra effort or new approach might actually turn up something that works. But, other times it amounts to beating a dead horse and it’s time to let go and move on. Sometimes, no matter how many suggestions one can make about trying something different for financing or taking a different approach to dealing with an inspection issue; there just isn’t any way to save the deal.

Sometimes agents get so involved that they start taking lost deals personally. It’s not about them. It’s all about the clients involved; and, no matter how hard the two agents work in the middle, if the two clients involved don’t agree there is no deal. Now, I understand that sometimes clients need to be counseled and educated and even cajoled a bit to stop over analyzing everything and make a decision. Who hasn’t hit that type of client? But the, “we’ve got to make this work,” mentality that sometimes sets in between the agents in a deal can end up doing a disservice to one or both clients. It’s the clients who need a win-win out of the deal, not the agents.

The frustrations of the current market have exacerbated the tendency on the part of some agents to view every deal as a “must win at any cost” game. Having to deal with short-sales in particular has increased the agents’ “stake” in the game, since so much behind the scenes work is involved that most agents on both sides don’t want to see that effort go unrewarded by a closing. It’s that win at any cost mentality that can lead to agents taking shortcuts in the process or making marginal ethical decisions, sometimes on behalf of an unsuspecting client.

In these trying times it is all the more important to be able to step back and let things go when that is the best thing to do. Sure there are gong to be disappointed clients, on both sides of the failed deal; however, dealing with a disappointed client is much better than dealing with an angry client who feels that his/her agent led them astray or wasn’t acting in their best interests. It’s not about us. It’s about the clients and meeting their needs. So, when you’ve given it your best effort but the deal is still going south, remember the words of that classic Beatles song and “Let it be, let it be.”

Sunday, November 21, 2010

The games we play...

There is a popular definition of insanity that goes, ‘doing the same thing over and over and expecting different results.’ In real estate these days that definition might be better stated as, ‘doing the same thing over and over and expecting the same results.’ The market we are in is just insane. Each sale is a whole new adventure, with a steep learning curve and no predictable end result. What few “conventional” sales there are these days are subject to the whims of ever changing mortgage and insurance rules, as well as the interpretive magic of those wizards behind the curtains – the underwriters. Even long-time mortgage agents can’t predict what will happen when a loan request is sent to underwriting.

And what about short-sales and foreclosures? This is about as lawless a landscape as can exist in what is supposed to be a business environment. Business is normally done under a set of accepted norms and rules that everyone buys into and understands. Not so with short-sales and foreclosures. There are no norms or rules, except those that each bank makes up as they go along. Each bank has its own set of procedures and creates its own set of requirements, which become its rules (for that sale anyway). And, within each bank, individual asset managers (or whatever term is used by the bank for the people in charge of dealing with distressed assets) seem to have wide latitude (sort of like the notorious underwriters) to set requirements for each sale.

The result is a game, although not a game where anyone appears to have any fun playing. The game starts out when an offer is tossed into the black hole that is the bank’s short-sale process or maybe their foreclosure process. The players are instructed to stand around and await an answer. How long should one expect to wait? Players are not told. What things will the bank evaluate about the offer to make their decision? Players are not told. What other terms and conditions may the bank impose on the sale? Many times players are not told ahead of the decision; but, sometimes players are given a peak at those terms and conditions. How can a player find out the status of the decision making process? Most times even the listing agent player is not told. Just be patient and wait for your answer is the answer.

The game was recently thrown into even great turmoil (seems hard to imagine it getting any worse) by the legal challenges to the foreclosure processes being used in many states. That, in turn was exacerbated by the whole securitization process for pools of home mortgages, which left the question of who really owns the mortgage on each home open to further debate and legal action. Who has the right to take foreclosure action on assets within those pools of home mortgages that have been turned into securities? The players aren’t told and the banks who packaged and sold the securities don’t know. Even the holders of those securities are too sure about that, but the inquiring minds of the Attorneys General of several states would like to know.

So, what’s a Realtor to do when facing this mess? I think the biggest thing that we need to do is to focus upon counseling and educating our clients (both sellers and buyers) that they are facing an uncertain process that will take an undetermined amount of time and has a very unclear outcome. Client-players who decide to play this game should be prepared to respond to or deal with what may seem like unreasonable requests from the lender(s) involved. Client players may have to make the decision to sink money for inspections or loan processing or repairs into the process, with no guarantee of success. They may be asked to pay for services that have nothing to do with the sale or their mortgage. They may be asked to assume debt obligations that they did not incur, but which come with the property. Realtor-players will often be asked, after the deal is struck to reduce their compensation, even though these are the most time consuming sales that they work upon. It’s all a part of the game. Good luck. Let the games begin.

Thursday, November 18, 2010

True real estate reality wouldn’t make for great TV…

I’ve been watching the shows on HGTV a lot lately, especially the Property Virgins show. It’s interesting how editing can make the process look a lot better than it is in reality. I must give the producers credit though, they do mention in the show that the couple being featured may have looked at 20 – 30 homes during the process, even though they only normally show three homes in each episode.

They also at least bring up issues like waiting for answers on offers, especially bank owned or short-sale properties. I guess it wouldn’t be very good TV if you couldn’t compress months into the 30 minute show window. It would be very boring to actually watch months pass while the buyers are waiting for an answer from the bank, as we do all the time in the real world.

I always wonder what role the hostess on that show is really playing in those deals. She can’t be licensed as a Realtor® in the 4-5 states that I’ve seen her show houses in on the program; at least I don’t think so. I suppose they have a licensed Realtor behind the scenes on each deal. It just makes for good TV to have her gong from Miami on one show to Boston on the next and Toronto on the next. It would be great if we Realtors could do that, but we can’t.

They also seem to compress time a little too much some times, such as when they have the couple sit there while she supposedly goes and presents the offer, retuning a short while later with a counter offer or an acceptance. Would that things actually worked like that and worked that quickly.

Still it’s good reality TV and does show quite a bit about the real estate process and the role that the Realtor plays in the process. One aspect of house hunting that turns up on the show quite often is the buyers changing their minds about what they want in the middle of the search. That happens all the time.

Sometimes buyers realize during the hunt that some things on their wish list are just not gong to be possible within their budget constraints. Sometimes it’s because, when they find a house with all of the features they say they wanted; they see that they don’t really like them after all. Sometime they begin to realize the amount of work that might be involved in really buying that fixer-upper that they specified.

For whatever reason, buyers often end up happily buying a home that is completely different than what they described in the beginning of the process. That happens a lot when they start out looking at foreclosed homes and get tired of walking through cold, dark houses that have been badly damaged by irate ex-owners.

I like some of the other shows too. The one on income properties is informative. Some of the remodeling and staging shows also have great ideas and some are a little over the top. Still one can get something from all of these shows and for a Realtor it’s sort of a “busman’s holiday” thing to sit there and watch others do what you also knows how to do.

I sometimes yell at the people on the shows, if they do or say something really stupid, but that’s all part of watching TV for me; which is why my wife doesn’t like to watch with me. All-in-all I’d rater sit there and watch those show that most of the inane comedies and tired old formula cop shows, even if I know going in how each show’s going to end. Just once they should probably have the young couple fire the agent or have the agent tell the young couple that they really aren’t ready to buy and have her fire them as clients. Now that would be good TV.

Wednesday, November 17, 2010

Boomers dealing with the new reality.

From IconoCulture comes this report about things impacting the older generation – the so-called boomers and matures. Iconoculture is a consumer data collection and reporting company. You can sign up to receive their weekly posts about what's happening in teh world of consumers at http://www.iconoculture.com/ .

WHAT'S HAPPENING

According to figures from the U.S. government, personal incomes declined significantly in September 2010. Personal income dropped by $16 billion, and disposable income fell even more — a whopping $20 billion. That led to unexpectedly weak consumer spending during the same period (WalletPop.com, 1 November 2010).

With incomes flat or falling, continuing unemployment and the depressed housing market, the outlook for consumers going into the holiday season is not a happy one.


WHAT THIS MEANS TO BUSINESS

Consumer spending is the main engine of growth in the U.S. economy. As long as that stays depressed, recovery will be slow and painful.

Americans seem to be retrenching in deeper thrift mode as the economy sputters.

The following remarks added by this author –

WHAT THIS MEANS TO REAL ESTATE

The bottom line from all this is that the much anticipated and bally-hooed great Boomer migration just isn’t going to happen. Boomers were supposed to be buying retirement hoes by now, but most are stuck in underwater homes that they can’t sell, much less consider buying anything else. Many Boomers were in the older groups that got laid off and found that they were now too old or over qualified for the jobs in this new economy.

Lots of Boomers burned through their savings, savings that had been ear-marked for those retirement homes or they used it to pay for their kids colleges. Now they are broke and stuck where they are, unable to find jobs that pay at the high levels of their last, pre-bust employment. In any event, they are now adjusting to the new reality of the situation of the economy and the country. That is not an easy or pretty adjustment for most. The “me” generation is not used to sacrifice or having to make the tough economic decision that current conditions demand.

One thing that this has meant to real estate is that many Boomers have delayed any plans for their retirement homes. They have not listed their McMansions because they can’t afford the losses involved. But they are tapped out and can’t afford to purchase a second property that might have been their retirement home. They are frozen in place and likely to stay in that state for some time.

So, what are we as Realtors to do to help with all of this? Well, we definitely need to do a lot of educating. Many Boomers are still in the denial phase of dealing with how things have changed and we need to help them get past that stage and accept the new reality. Then we need to help them plan for how they can get on with retirement, albeit a much different retirement than they may have initially envisioned.

Boomers need to understand that they will likely take a loss (maybe mostly a paper loss, but still a tough thing for these folks to deal with) on the sale of their current home, but that they may make some of that back on the purchase of a retirement home. A lot depends on the “from-to” locations involved. One cannot sell in the deeply depressed Las Vegas market and expect to get whole by buying in the still relatively hot South Carolina Market. Adjustments to locations and well as expectations may need to be made.

Fortunately most retirees are at least trying to downsize somewhat. We may have to recommend that they go further down the size and amenity ladder than most had in mind. A smaller, upscale condo, with a view of the ocean may have to take the place of the ocean-front luxury condo that they had in mind. Or perhaps a smaller, 2 bedroom home within walking distance to downtown may replace the grander 3-4 bedroom retirement home with guest space for the extended family.

However we finally agree upon the level of sacrifice required by the new circumstances of our clients, we can help and we should. Retirement plans delayed do not have to become retirement plans abandoned; they just need to be adjusted and refined and a good agent needs to help their Boomer clients find happiness in their new downsized reality. Maybe that could become the catch-phrase – Downsized Realty for the new Downsized Reality.

Tuesday, November 16, 2010

Turn "yucky" into "sweet" in your crawl space...

I recently did a short piece in my bi-monthly newsletter about crawl spaces and how putting in an encapsulation system can have a positive impact on the value of the home.To my great surprise, that article was the one mentioned most often by people who get my newsletter and see me at church or other places.

Crawl spaces are one of the foundation types used under homes - along with basements and concrete slabs. Crawl spaces are literally a space between the ground and the bottom of the house that are generally high enough off the ground to allow a person to crawl around under the house. Some crawl spaces are actually deep enough to walk around in under portions of the house and some are only a few inches off the ground. In many cases some or all of the major mechanical systems for the house (heater and hot water heater) may be located in the crawl space.

Crawl spaces are not something that get visited very often and thus they are the epitome of "out of sight, out of mind." That should not be the case, especially if you do not have an encapsulated crawl space. What's in or not in your crawl space can have a big impact on your living conditions within eh house itself. Unencapsulated crawl spaces allow moisture and smells to waft up through the floor and into the house. They also encourage critters to take up residence under your house. Most of the time you won't notice the critters until you get a skunk under the house. If the crawl under your home is damp there are multiple issues and mold could become one of them over time.

So, what can be done about this dirty, perhaps damp environment? If it's damp, you first need to find out why and fix that issue. It could be a simple fix like better routing of gutter discharge or is could be an issue with a source inside the house like a leak somewhere in the plumbing system. In either event, find it and fix the source of the leak before going further.

Once you have the crawl space dry find a company that does crawl space encapsulation and have them encapsulate your crawl space. They use thick polyvinyl films to create a vapor barrier between the ground and you home. Usually this barrier is run up the supports all the way to the underside of the floor. While this material has some small insulating value, it is not there for that purpose. It is there to seal out moisture. You may wish to also insulate the bottom of your house once you get the crawl space encapsulated.

Encapsulation will also discourage small critters from taking up residence under your home and will make the task of accessing any mechanicals that are under there much more pleasant. It is a relatively cheap home improvement and one that potential buyers will notice and put a positive value on, when it comes time to sell.

Monday, November 15, 2010

Is the sky really falling...again?

Let me begin by stating that I’m all for home ownership and being a Realtor®, I’m all for people buying homes – that’s how I make my living, listing and selling homes. I’m also a home owner.

Having said that; I read with interest the article in the November/December issue of REALTOR®, the bi-monthly magazine published by the National Association of Realtors (NAR), that had the front cover headline “Defending Home Ownership.” Inside the headline was “Countering the Critics.” While there were some thoughts expressed about the value to the community and the country of people owning their own homes, rather then renting; those thoughts were not fleshed out in the article.

Instead the NAR article was really just an overly simplistic explanation of the issue and some fear tactics aimed at heading off the political movement that is afoot to look at ending the mortgage interest tax credit – a sacred cow for the real estate and mortgage industries. Perhaps NAR hired some of the negative ads campaign writers from the recently completed elections to write this warning that the sky is falling.

There were of course some “facts” presented, such as the percentage of taxes that home owners pay each year (pegged at 80-90%) and an estimate by Lawrence Yun, the NAR Economist, of the potential negative impact on home values (pegged at 15% in the article), if the tax credit is removed and savvy buyers start factoring the value of homes, based upon lost tax advantages. Interestingly no facts were presented in the article about what percentage of home owners own their homes outright and thus get no benefit from this tax break.

According to Wikipedia, 67.8% of all occupied housing units are occupied by the unit's owner – the homeowner. A quick scan of Google returned the “fact” that 40% of all homeowners have no mortgage on their home, so they get no benefit from the mortgage interest deduction tax break. Do the math and that means that 59% of all people get no mortgage tax break. Put another way, as opponents of this tax credit are want to do, a minority (41%) of Americans are being given a tax subsidy by the rest of us taxpayers.

I should add in the interest of full disclosure that I am in that group with no mortgage and, thus, I get no benefit from the mortgage tax credit. I also recall the alarms that were sounded when the government stopped allowing the deduction of interest charged on credit cards. The sky was falling back then, too, and the end of credit as we knew it was direly predicted. Somehow we all survived and we’ll survive this tax policy shift if forced to do so.

What’s really under attack here? It’s not really the concept of home ownership. How many people make the decision to buy a house solely on getting that tax break? Admittedly, quite a few at the bottom end of the price ladder are heavily influenced by tax considerations. You just have look at the positive influence of the first time buyer tax credit and the negative impact on sales when it ended. Remember, too, that first-time buyers have made up between 40-50% of the overall homebuyer pool for well over a year.

So, tax policies do make a difference for first- time buyers. I can accept that; and, maybe the argument should be that we only need some form of low-end, entry-level buyer tax credit policy to get people started in the real estate market. There may also be a logical argument that the mortgage deduction incentive contributed to the housing bubble and subsequent bust by obscuring the true cost of housing and encouraging people to spend more than they really could afford. That was the good old pitch, “Hey I know the price is a stretch, but you’ll get it back in tax write-offs.”

But, does it follow that home ownership itself is under attack because the politicians are looking for more ways to pick our pockets again? Not really. The tax break is correctly identified in the article as an incentive. It was devised by the government in 1913 (along with the income tax, by the way) to provide incentive to people to own their own homes. For a good read on the topic click here. So let’s be clear. It is not a right. It is an incentive. Just like entitlement programs aren’t rights for the people who make use of them, neither is this tax break. Too many people have become confused about entitlements and incentives being “their right.” There’s probably a whole post that could be written just on that topic alone.

The NAR article had a call to action for Realtors to get out there and start pushing the advantages of home ownership. I think we all have always done that, just not primarily in tax code terms. Home ownership is a wonderful privilege in this country. I’m pretty sure that the founding fathers didn’t include any right to a tax break for that privilege. We should be espousing homeownership for reasons of security, comfort, and peace of mind – all of the things in the NAR video - not because of tax breaks. Hopefully, soon, we’ll be able to add that it’s a good investment back on the list. The sky is not falling. That’s my two cents worth.

Saturday, November 13, 2010

Why no lawsuits about this?

There appears to be no real shame about the lousy job on short sales that a few notorious big banks are doing on short-sales. Just as there was little attempt on their part to hide their obvious disdain for earlier programs that the federal government tried to encourage loan modifications, those same big banks are showing less than expected or hoped for backing of short-sales instead of foreclosure. The initial excuses about being surprised and overwhelmed might have worked for the first year or so, but we are well into the 3rd year of this mess and those excuses just don't hold water.

What is surprising is the lack of class action law suits against these banks by their stockholders. Think about the billions that have been lost in stock value for those investors because these banks have completely mismanaged the whole distressed home process. There would seem to be a case to be made that bank management that delayed reacting to this crisis, forwhatever convoluteded reasons, have caused billions in unnecessary losses and thus caused a loss in value of the stock.

Three years in to this foreclosure mess, there are still banks that can't process a simple short-sale offer in less than 2-3 months. We Realtors all know who the worst offenders are and so do their stockholders. Three years in, we still hear the same overwhelmed and understaffed excuses. They can't sell that excuse to us and I wonder how they continue to be able to sell it to their stockholders.


I'm no lawyer and I'm just not sure what the burden of proof would have to be for a stockholder class action suit to succeed. There doesn't seen to be anything so overtly crooked going on that any kind of fraud could be proven and unfortunately management stupidity is probably not justification for a suit; however, there does seem to be enough evidence of a pattern of failure to manage the situation or mimismanagement of the situation that some punishment and compensation for stockholders from management would seem to be in order, especially from those billion dollar bonus managers who have overseen this shipwreck.


I suppose this is just another area in which corporate management is not held accountable in any meaningful way. Banks, especially those that got Federal bailout money, are making money hand over fist off the inflated credit card rates and fees that they were allowed to hike ahead o new regulations, so they are in no mood to dampen their profits by taking the haircuts that they need to take on distressed properties. It's in their interest to turn down short sales and enven to delay foreclosures, rather than take the losses.

So, we seem stuck in this twilight zone where no decision is the best decision and inaction is the best action for the banks. The feds can't seem to get them to do anything; maybe their own stockholders could.

Monday, November 8, 2010

FUD reigns suppreme...

Fear, uncertainty and doubt - the triumvirate that make up FUD seems to be the order of the day in the housing market and indeed in the country's mood overall.

I can't say that I blame people for being fearful about things, maybe about the future. I think the people who do the "Fear This" signs for the back of pickup trucks should do one with Senator Mitch McConell's picture on it. It's a scary thought that this guy is in any position of potential power. I try to find some small comfort in the fact that at least McConell isn't majority leader of anything yet.

Uncertainty about the future wasn't helped much by the recent elections. We now have the devil we don't know in power verses the devil we did know. Is there any more certainty about what Speaker Boehner might do than what we all saw Speaker Pelosi doing? Sure he is less likely to push through big spending bills, but is he more likely to push through a conservative social agenda or worse? I'm not sure which is worse - Pelosi and the Democrats picking my pocket or Boehner and the Tea Party Republicans picking my lifestyle options for me

Doubt about the future is hard to hide. every politician mouths the words, "America's best days are still ahead of her"; but, that's a tough call right now. I'm pretty sure that lots of good days are still ahead of us, but they will be days measured against a new and different set of standards. Many American would be hard pressed right now to state that they see their children being better off than they were, that they are handing the next generation a better place to live in than what they inherited.

The soon-to-be retired auto worker is handing the next generation jobs that start at about 1/2 what he made when he came into the plant. But, at least there are still jobs to hand off. Too many retired manufacturing workers can only relate stories about how great the jobs at the now shuttered factories used to be. Now it is the Sung Lee family in China that proudly sends the next generation off to work in the factory for a good wage.

So, FUD is the order of the day. FUD keeps people from buying that move-up house - how can you be expected to move up when you fear that you might be in the next round of layoffs. FUD keeps people from being mobile enough to go to where the jobs are - after all you can't ever be certain that you can sell your current home for anywhere near what you need to pay off the mortgage; in fact, I doubt it. And FUD is still keeping many on the sidelines because they doubt that we've bottomed out yet. Just because some economist clowns in Washington have declared that the Great Recession ended last year doesn't mean that it feels like it on Main St., USA.

So, what is the cure for FUD? Hope is the best medicine for this debilitating condition. Hope for a more stable environment. Hope for a better tomorrow. Hope is built on two things - acceptance of the here and now and faith. If you can't accept the current state, then you don't have a foundation upon which to base your hope for a better tomorrow - you are still struggling with denial. And, if you don't have faith, then you have to face the daunting task of creating that better tomorrow alone. People with faith know that they are never alone and that gives them hope. So, what's the future for us all? I'm hopeful.

Saturday, November 6, 2010

Is it oxymoronic?


I passed a sign along side the road today that advertised Affordable Bankruptcies. Is that an oxymoron? I think so. What would happen if the person that was trying to get an affordable bankruptcy couldn’t afford to pay for it? Would the lawyer’s fee be added to the debtors list for that bankruptcy? Inquiring minds want to know.

Certainly the term short sale is an oxymoron if not completely oxymoronic. There’s nothing short about these sales and it’s getting worse. I’ve just had a bank that my client has been waiting to hear back from for 4 months come back and tell us that we have to close in 15 days. It’s not some cheap cash sale and the bank has known all along (or should have known as lawyers are want to say) that the buyers needs to get an FHA mortgage approved. That’s just moronic. The FHA mortgage people don’t even open the appraisal request to look at it within 15 days.

And now the foreclosure market is in such disarray that the best advice for many people facing foreclosure may be to wait it out. Some of those banks may never get things straightened up to where they can actually foreclose; especially if they were one of the ones that shredded the original mortgage documents when they went to electronic forms. I think every homeowner facing foreclosure anywhere in the U.S. should demand to see the written proof that the Electronic Registrant trying to evict them actually hold the mortgage that they signed. Since they want you to show them the money, maybe you should reply “show me the mortgage.”

In other real estate news, Bloomberg reported the following - The National Association of Realtors’ index of pending home resales dropped 1.8 percent after a revised 4.4 percent gain the prior month. Compared with the same month a year ago, pending sales were down 25 percent. Moratoriums on foreclosure and stricter lending are limiting progress, the group said.

The report went on to say that purchases have steadied after a 32 percent plunge in the months following the April expiration of a government home buyer tax credit. Mortgage rates near a record low have failed to stoke demand because foreclosures are depressing prices and unemployment is stuck above 9 percent.

In Michigan we are stuck above 13% unemployment and boy do we have a foreclosure and short-sale problem in the market. Right around 50% of all home sales for 2010 have been either foreclosures or short-sales. Distressed homes still make up a large percentage of the total listed homes, too. It’s been happy hunting for first-time buyers and investors for all of 2010.

Wednesday, November 3, 2010

Cue the fat lady...

Thank goodness the madness we call politics in America is over for this year. Pull the ads, pick up the yard signs and cue the fat lady. Now we can all have fun watching America greatest reality show - Congress in action (or maybe that should have been inaction). The Republicans won control of the House of Representatives, but they don't have control of the 800-pound gorilla in the room - the Tea Party.

All-in-all the uber conservatives did well, which speaks to the level of dissatisfaction in the electorate more than anything. It seemed a bit easier for them to campaign for things they were against than to provide any insight into what things they might do to change the status quo. There was lively debate going on as the TV commentators watched the results come in on whether or not one Tea Party winner in particular might choose to stand on principal and shut the U.S. Government down rather than vote for the necessary increase in the federal government spending cap, thus adding more debt. We shall see.

I got a kick out of the interview with the Democratic Party Chairman on one network when he was asked what the message was that he was hearing from this stinging defeat for the Democrats. His reply was classic political evasion of the topic. He replied that the American people were obviously telling all politicians that they must work together, rather than continuing the bickering and stalemate in Congress. This is like a fighter who just got his butt kicked getting up off the canvas and stating that his defeat obviously signals the need for more friendship and cooperation among pugilists, so that they can present a more unified show for the fight fans. Fights are as unlikely to move towards "Dancing with the Stars" presentations, with smiles all around; as are legislative sessions in Washington to become bipartisan love fests

So the American public fired Nancy Pelosi as Speaker of the House; but, retained Harry Reid as Majority Leader in the Senate. We also have a conservative father-son team in Congress - the Pauls, Ron and Rand. They could prove to be a hand full for the leadership of both bodies and should provide many entertaining moments in the months ahead. Maybe C-Span will become the new reality TV leader.

In Michigan we have put a non-politician businessman into the governors office, surrounded by a legislature full of amateurs. That will be interesting to watch, too. Rick Snyder ran on a theme of "hire me to be the next governor", as if the governors office is a CEO position. To a certain extent it is, and I wish him well in trying to bring good business practices into the state governing process. Good luck with the union contracts and huge pension liabilities that you've just inherited Governor.

So the "throw the bums out" movement worked in many places and now we can all watch to see if the new occupants turn out to be bums, too. I have this uneasy feeling, lurking in the back of my mind, that says telling me it's a bunch of different faces but the results at my level will largely be the same. I hope I'm wrong
.

Tuesday, November 2, 2010

The trouble with “guidance”…

I promise this will be the end of this election year rant. I have been receiving lots of “voting guidance” lately. Fortunately that will end tonight; however, my aversion to people attempting to guide me during any election will not end. There are few, if any, really intelligent voting information sites or articles or “guidance” available in any election and especially not in this one. All of the so-called guidance sites are not even thinly disguised attempts by highly biased groups to get people to see the world and their voting choices the same way as their group or block or cult sees it.

The message is always the same – you are intelligent and a real patriot of you see things this way and vote for our candidate; otherwise you are probably a socialist dirt bag and maybe an American-hating Al Qiada sympathizer. Or perhaps you are an ultra conservative Nazi out to make raped women have unwanted babies that threaten their very lives. Either way you are obviously unfit to call yourself an American unless you vote with us.

The real problem seems to me to be that we have, as a nation, become so polarized that is no room in the middle for thoughtful discussion of issues. You are either a conservative buffoon or a liberal idiot, with no in between - no middle ground – no moderate views allowed. You are either a Tea Party Patriot or a flaming Socialist. There are no liberal Republicans left and few conservative Democrats willing to raise their voices. Logic and civility have been quashed under the jack boots of extreme ideology.

The Tea Party has even dusted off old Joe McCarthy and said, “You know, he may have had the right idea.” So, maybe we’re ready for a Joe McCarthy for President kind of candidate. Maybe we need to elect someone so radically far right that they really would do away with the Federal Reserve and Social Security and Medicare and all of the other social and welfare programs and take the country into a kind of no-government is good government state of anarchy.

Everybody could get a gun and just hunker down at home protecting their own and shooting anyone who threatened their peace and quiet; while the Federal Government did as little as possible (aside of course from having the Army shut off the board with Mexico to stop the flow of illegals in to the country. We could seal off Fortress America from the outside world and turn inward. We wouldn’t need anything from anyone. Oh, wait; darn, North Korea has already taken that part on the global stage. Rats! We’ll have to think of something else.

Where’s that Constitution thingy. Let’s take another look at that and see if we can start fresh again. Where’s the part in there about passing a party litmus test on religion or abortion in order to be elected? And where in the Bill of Rights does it talk about entitlement programs becoming rights. Where did our insightful forefathers place the words that define providing health care for every citizen as socialism?

I guess I do need some guidance, but I’m not sure that the guidance being offered by the various political parties and activist groups provides much help. Barry Goldwater was roundly criticized by liberals when he said that “extremism in defense of liberty is no vice”, but he also said, “To disagree, one doesn't have to be disagreeable.” Barry turned out to be right about more than he was wrong about and would probably find today’s political environment to be very disagreeable.

Maybe there still wisdom in some of those old sayings that came from writings even further back than our Constitution.

Monday, November 1, 2010

The moment is at hand...

The moment of truth in politics is at hand...the day we finally get to vote and bring an end to the madness of all of those rancid TV ads. The voting process is as much about ending the mud slinging as anything.

I'm one of those dreaded Independent voters, not willing to be permanently labeled with the identity of either of the political parties. As much as anything that is because both seem to have drifted off to the extreme edges of the philosophical ideologies that they espouse. Both seem to have various litmus tests that they apply to test the purity of thought and commitment that one might have towards their agendas. I refuse to play that game

I try to look at the candidates and discern how they might think out and vote on future issues, based upon their past records or public statements. That's a difficult task, given the amount of negative information, many times inaccurate or colored in its delivery, that fill the airways during the campaigns. I try to vote for the best people for the job, no matter which party they happen to align themselves with for purposes of getting on the ballot.

This year we are also seeing lots of candidates run for office who have never held elected offices before. There have been numerous articles written about whether that is a good or bad thing, with most leaning towards bad, since some level of political savvy is deemed to be a good thing. While I suppose having some understanding about how things work in government could be a good thing; many of these candidates quite correctly point out that things haven't exactly been working well for some time using the old methods. Perhaps there is value in having a bunch of new people in office who are not necessarily bound by "how things work around here."

So, tomorrow I'll go to the polls armed with what knowledge about the candidates as I've been able to discern in the din of political shouting. I'll cast my votes for some candidates from either party and maybe even for some that don't identify with either party. I'm sure that not all of the candidates that I vote for will win, but I'll feel like I did my part to uphold the original intent of the democracy that we live in - I will have voted. You should, too.

Saturday, October 30, 2010

Black, white or some shade of grey?

I’m not normally a shades-of-grey type of person. Generally if there is a clear right and wrong, a stop or go, or a black or white decision to be made I tend towards not seeing shades of grey in the situation that will allow the “little white lie” excuse. There normally aren’t any little white lies... just lies.

Having said that, the current housing situation, coupled with the horrendous economy in our area has had me thinking in shades of grey, in terms of advising clients with distressed houses. This is especially the case if they have already tried one or more of the failed federal programs to help distressed homeowners. Those programs, while well-intentioned, were ill-conceived, poorly executed and never bought into by the lenders involved.

So is it wrong to tell someone to just go ahead and ride out the foreclosure process and let the bank have the house? What about if they and you have tried everything already – a loan mod, a short-sale and appeals to the bank? Is there any rationale to advising them to strip themselves of any and all savings, retirement funds or college funds in a vain attempt to avoid the stigma of a foreclosure? I think not.

The market has already dealt with the most egregious offenders – those who vastly over-reached or lied on mortgage apps. They were the first victims of the downturn and perhaps rightfully so. Now we are seeing the people being displaced who were OK before the bottom dropped out of everything. These are people who had good jobs and got reasonable mortgages on homes that might have been inflated in value, but which represented the market at the time. These are our neighbors and friends and relatives, not a bunch of deadbeats.

Now we are seeing the results of the economy not only destroying the value of our homes but causing an unprecedented level of unemployment, with no end in sight. More and more I talk with or read about the ex-automotive engineers or factory workers in our area who have been out of work for 1-2 years, sometimes longer. They are the type of people who did burn through their 401K money or college funds trying to stay afloat and trying to keep their homes. They also are the ones that initially trusted that the federal programs to assist them would work – until they tried to use them. Now they go to Tea Party rallies and shout slogans about government being too big and taxes being too high.

So, what are we to do when a client with almost no chance of selling (even with a short-sale), asks us what they should do? Obviously we have an obligation to advise them to seek legal advice and financial counseling; but, should we also render an opinion on their options? Most of us have some level of experience with the bigger banks and how they deal with distressed home situations. A few are OK; but, most are so understaffed and overwhelmed that the whole process is broken right now. I find it hard not to empathize with the poor, tapped-out homeowner who has tried and failed to get any real relief from his/her lender.

I know that the consequences of a foreclosure are bad and I usually point them to several articles that outline what the impact, both short and long term, will be. Even a short sale has credit consequences and there are still many stories, rumors or urban legends of lenders going after short sellers for the deficiencies. So, it’s hard to find a happy ending to talk about with these people. In the end it can come down to this – do what you have to do to take care of your family and yourself in these hard times. If that means riding out a foreclosure on a house that will otherwise take you under, then so be it.

I’ll tell them about the foreclosure process, so that they understand what is coming, how much time they have left in the house, what to expect the lender to try to do and maybe point them to some advice on what you can do to start rebuilding your credit. I can help them find a place to rent for their family. I’m not going to look at them and go “tsk, tsk, what a deadbeat”; instead I’ll take a moment to reflect – “there, but by the grace of God, go I.”

Tuesday, October 26, 2010

Do only scoundrels run?

Have you noticed that it seems that only scoundrels and scumbags run for public office - at least according to the ads being run as we near the election. There doesn't seem to be an honest person among the candidates, or so their opponents claim. Some apparently have lied about lots of important things, whether it be about their backgrounds or their military service or whether they knew (or should have known) about some malfeasance by their campaign staffs. Others have apparently voted for stuff in Washington that many (or at least their opponents) feel is bad for us or associated too closely with people in Washington that some consider to be dangerous to the well being of America.

It's a a little hard to sort out the truth in the calliope of ads, all claiming the the other guy is a crook or worse. Occasionally it seems like one candidate or another will get close to actually saying something positive about what he/she might do in Washington, if elected; however, it appears to be bad form to be too specific, since someone might try to hold you accountable for those statement later and call you a liar if you do do those things.

Of course a number of ads by so-called political action committees or other groups who are not supposedly associated with one candidate or another, try to be helpful by pointing out which candidates are likely to threaten you family and your very way of life, if they are elected. As best as I can tell, if we elect any of these bozos we're in big trouble; but don't say you heard that here. The best thing that I can say about this election is thankfully it will be over soon and we can get back to our regularly scheduled ED and laxative or stop peeing so much ads. Some how crass ads about bodily functions will be an improvement over the slime that is being spread right now.

Even judges, all the way to the top state court judges, seem happy to wallow in the mud at this time of the year, which makes the fact that judges are elected on partisan ballots even more disturbing than it already is. I'm sure that not all politicians are scoundrels or scumbags, but it does seem that a fairly large number deserve the handle during the mean season of elections. Morals and ethics seem to take a back seat to the "do anything and say anything to win" mentality. Civility would seem to be fading in our society and it is being pushed into the background along with the truth, logic and honesty. It is fortunate for the politicians that these personal traits are not required to hold the offices they are seeking either.

Monday, October 25, 2010

Biting the bullet…

I’ve noticed for the last couple of months that more and more home sales involve prices that are less than what it appears the homeowners owe (at least from the public records anyway) and yet are shown as not short-sales. My own experience this year representing underwater homeowners verifies this trend. Many underwater homeowners are biting the bullet and bringing money to the table to close of the sale of their homes, sometime quite a bit of money.

Most of these sales involve homeowners who wanted to (or needed to) move in order to get on with life. Perhaps the sales were caused by job changes or maybe family changes (it’s amazing how that small bungalow that felt so right for just the two of you when you were first married gets feeling cramped when the second baby comes along). For whatever reasons these homeowners decided to sell, not matter what the financial consequences. So they bit the bullet, sometimes a quite large bullet, just to get out from under that first house mortgage.

In my little market area the percentage of homes sold as distressed – foreclosed or short-sales- has fallen from an average of 50+% earlier in the year to less than 40% for the last three months. That’s the good news. It’s hard to gauge accurately the number of sales that are taking place that involve loses that the seller is absorbing; however, I look at each sale to see if the sale price is at lease at or above the last recorded mortgage level (assuming that the mortgage was taken out within the last 5 years). My gut feel is that 30-40% of the non-distressed sales were made for less than what was owed. That means that those home sellers were biting the bullet and absorbing the value loss themselves.

What is the long term impact of this? Well, for one, it also means that those same people had less money available to make a down payment on something else. Either they went into an apartment or other rental property for a while or they bought something of much less value, since they had little to put down after stripping their savings to get out from under the old house. In either case the long term impact was not good. There loss on the sale will ripple through the economy one way or the other. They won’t show up in the deadbeat statistics, but they will show up in the spending less (because they had less) categories across the board.

What does this all mean? Well me often have heard or read about the “shadow inventory” of distressed homes (foreclosures or the pre-foreclosure inventory that is yet to hit the market). We also have a huge overhang of unrealized losses in America that is just not going to go away anytime soon. We have people who are hanging on, paying their mortgages and hoping/praying/waiting for the values to come back on their homes. Folks, that ain’t gonna happen. That value is gone. At best, if we return soon to historic rates of appreciation (which is certainly not guaranteed) is will take 10 years or better to regain the lost values back to the levels of 2004 (of they ever get that high again).

So, is it time to bite the bullet? Well, I would ask, “Do you have a good reason to sell now?” If so, bite away; because, it will do you little good to try a short-term wait. It’s just not going to matter. What may matter more is that whatever loss you take on the sell side you can partially make up (more than make up if you are upgrading) on the buy side. If you are downsizing because you have retired or taken a downgrade in jobs, hold on to your old house if you can (and have a good mortgage rate) or bite the bullet now and get out from under it before it drags you under. Talk to your financial advisor to figure out the best way to access the money you need to make up the difference between what you an get for it now and what you owe.