Looking back on 2007

2007 was a tough year in the real estate business and in business in general in Michigan. This was another FUD (Fear, Uncertainly and Doubt) year for our state’s main industry – the automotive OEM’s and their suppliers. Try as they might, the states leaders (and I use that term very loosely as it applies right now to the folks in Lansing) can’t seem to make much progress towards a more balanced economy. Of course using the word balanced in any context with state politicians is likely an oxymoron. And speaking of morons… no we won’t go there, today. After the governor touted the health care industry as the future of the state, we all watched in disbelief as Pfizer made its announcement that it was effectively exiting the state. Now, tourism is being touted as our future big industry. But, enough about Michigan, let’s look at the real estate scene.

For at least the fourth year in a row we were locked into a buyers market. The inventory of houses for sale was way up, foreclosures were way up and buyers were still scarce, although that started to change in the last 1/3 of the year. Foreclosures continued to be the big story of the year, with our hero’s in Congress finally jumping into the act and the President using his bully-pulpit to jawbone the mortgage industry into doing more to restructure loans that are in jeopardy. A bit of after-the-fact legislation was finally passed that removed the threat of the IRS going after taxes on the forgiven debt portion of a foreclosure on the unfortunate people who lost their homes. Foreclosures represented about 6-8% of the active market for much of the year, but only .66 of the total housing mortgages in the state.

Across the country, state after state slid into the muck of this market mess and California fought for it’s usual role of being the largest (in this case the largest looser) in the foreclosure category, although Michigan, Ohio, Colorado and Nevada gave California a good run on that. For all of the year Michigan was in the top 10 of state with foreclosure issues and for much of it in the top five. In one category, Michigan and Ohio made California look like a piker, when it came to loss of property values (See post of Dec 22 – Oh Great! Were #1 Again!). We lost over $185 Million in the value of homes in Michigan, while California only lost $30 Million. Of course our local politicians were mainly concerned about the loss of tax revenues for their coffers.

Congress and the Administration also finally took notice of the plight of homeowners caught in the sub-prime mortgage mess and took some action, albeit a little late and a lot less than some wanted. Congress also finally got around to looking at the disaster in the housing market that Adjustable Rate Mortgages have been causing and which loom large for 2009. There are relief packages in the works for that too. And, at the last minute, the Senate passed a version of the FHA Modernization Act, which now goes to a compromise committee to be reconciled with the House version. That will help by freeing the FHA to take a more aggressive role in the housing market.

Of course the press had a field day with the whole thing, since there were great photo ops and lots of “film at 11” of people suffering hardships this past year. The new “reality show” approach to news seems to be a camera crew running up to someone who has just suffered through a disaster or personal loss and asking “How do you feel about this?” Well, it didn’t feel real good in 2007.

The "green" movement made minuscule progress in 2007, primarily because there was so little building of any kind going on. There was lots of press about it, much of it devoted to "green" ideas that one could implement in existing homes.

In our business many companies are suffering and some have already gone out of business. This includes builders, who just about stopped all work in 2007. Locally several builders sold off their developments and exited the state, some have gone bankrupt. The “collateral damage” has been high, too. Several mortgage companies disappeared and many of the title companies that did business here left as well. Those that have stayed have had to downsize in order to stay in business. Many other ancillary business that depend on the real estate market have suffered, too – home inspectors, home warranty companies, even building supply companies have all had down years.

In the real estate profession we’ve seen most of the marginal agents leave. Many of those were part-timers or fairly new agents trying to make a living, but who had not yet established themselves. It was a tough year to be a newbie, if you have to earn your living selling real estate. The across-the-board slowdown left many agents with large inventories of listings that just sat there the whole year, costing money for marketing but yielding no return. It was a challenge all year long to get the sellers to understand what was happening in the market and to adjust their pricing accordingly. Many just ended up taking their houses off the market, when the prices slipped below their break even point. There were many cases of sellers having to bring money to he closing, just to be able to sell.

For those of us with a little more time in the profession it was certainly a challenging year, but one could still survive – there were still people buying and selling houses. About half way through the year the focus for many buyers turned to seeking deals on foreclosures, so activity in that segment picked up noticeably. It is unfortunate that the misfortunes of others is what provides opportunities for buyers; but, it is what it is, so it was a great year to be a buyer or investor. We started to see the rise of young investors who are jumping into the market to snap up foreclosure properties. It remains to be seen if they’ve done enough homework on real estate investing and have the financial wherewithal to make a go of it or if they just become the next round of victims in this market.

So, all-in-all, 2007 wasn’t a very good year in real estate. I think our industry and the people in the market – sellers and buyers – have done a fair job of adapting to the market, even though all the participants weren’t happy. We will exit the year on some hopeful notes with the actions that Congress has finally taken. We appear to be at, or near, the bottom for our local market and have great hope that things will start to turn around in 2008. Almost everyone in the industry has made the major adjustments that were necessary to be successful in this market; so now is the time to get this lean, mean real estate selling machine cranked up and launch into 2008 with enthusiasm and confidence. People are still selling and buying houses! To paraphrase Ty Pennington’s opening cheer on Extreme Makeover Home Edition – “Let’s do it people! LET’S SELL THAT HOUSE!!!”

Our own little Catch-22

We are officially in a “declining market” in Michigan. I say officially because that is what the mortgage companies consider our market to be and these days that’s about as official as one needs to get. What does that mean? For most buyers/borrowers it means paying more – higher rates and other “fees” that come with living in a high-risk area or maybe not even being able to get a mortgage. The risk here is that the value will continue to decline to below the loan amount, at least that’s what the banks are afraid of right now.

Joseph Heller would have a ball with this whole scenario. People are losing their homes to foreclosure; and, then, when they try to re-finance or when someone else wants to buy that house they can’t because it’s in a declining market and they can’t get a loan for it. And, why is it a declining market – because people are losing their homes to foreclosure and thus dragging down the values in the neighborhoods. Now there’s a real Catch-22!

I suppose I’m like a lot of people who never considered their more upscale neighborhoods to be high-risk; but, in today’s market, it doesn’t matter if you’re in Detroit or Birmingham or Gross Pointe or Southfield, you’re in a declining market. Sorry, Charlie, no mortgage for you! Values have dropped by anywhere from 10-20% in our area over the last year or two. In some places the values may be down as much as 30%. Nowhere in southeastern Michigan have homeowners been spared. The western side of the state may be doing better.

The really stupid thing is that many of the banks holding on to the foreclosed properties in our area also refuse to do FHA or VA loans, which means that they cut out many of the very people that are out there today looking to buy. The FHA programs in particular could help, because they don’t use the risk adverse approach to granting loans that the banks are using. So, now we have lots of major banks holding declining properties and other major banks refusing to let the buyers who want them have the only loans available that do not penalize the buyer for the risks involved. I tried to find a major-major joke there somewhere, but it just isn't funny. Heller would have loved this scenario. You basically can’t get out of here because you can’t get there from here – where ever “there” is these days.

If you've got to smell...

Emeril Lagassee likes to joke on his show “Emeril Live” about how he wishes there was such a thing as “Smell-o-vision,” so that the audience at home could experience the smells that emanate from his cooking. In real estate we have a little-known saying that “if you have to smell, at least smell good.” Actually it may just be me who says that, which would, I guess , make it a really little-known saying. But, you get the point. If people are going to smell things when they walk into your house (and they will), you should at least try to make the experience pleasant for them.

Let’s face it, once your dog gets passed the “puppy breath” stage he/she just smells. Cats, too, leave a distinct odor in the house. Many people can tell at the front door whether a pet shares the house and for some that is an instant turn off. Mustiness is another odor that can greet visitors at the basement door and make a bad first impression about the basement. There are many other, strong odors which could give visitors a bad first impression and you may not even smell them anymore. It’s totally unscientific, but I will say that pet owners in general develop some sort of tolerance for the odors of their pets and often don’t even smell them any more. That is often not he case with potential visitors who may visit. A huge whiff of Fido or of Tabby’s litter box is not going to help the sale and it is even worse if the pets have house training issues. When buyers smell pet odors they immediately start looking for stains in the carpeting, which they will likely find whether it was Fido or not who made them.

Realtors have for a long time recommended “aromatherapy” for houses, including baking pies or cookies and lighting candles. Since the introduction of the plug-in air fresheners, many homeowners have moved to them, but air fresheners can be overdone, leading the prospective buyers to wonder if there’s something that the home seller is trying to hide. Even candles can be overdone, if you have more than one burning in every room, especially if they are all different smells. If can become as overpowering as walking through a candle store.

Ethic cooking can also be the source of odors that some will find unpleasant. Everyone loves garlic in foods, but garlic smells lingering in the air can be a put-off. The same can be true of strong curries or the cooked cabbages that are so prominent in some cuisines. It’s though not to like the smell of an apple pie or fresh baked cookies, but the lingering smells from preparing corned beef and cabbage can not only be resisted, but, may actually be offensive to some.

You may need help recognizing whether or not your house has an odor problem. Ask your realtor for an honest opinion. If he/she doesn’t feel that they have a good nose for the job, have them bring in some of their office compatriots. There’s almost always a good nose in every office, someone who can walk into a house and tell you if a dog or cat lives there or maybe ever has or whether the house was ever smoked in by prior owners. A good carpet cleaning and maybe a fresh coat of paint on the walls and ceilings will normally mask those things out fairly well. For basements there are products available at Home Depot and Lowe’s that claim to absorb the musty smell, as well as the moisture in the air. I’ve also used a spray on product call Odor Begone that works well in basements and other hard to deodorize areas.

Just remember, if the prospective buyer is going to comment on how your house smells, work hard to make sure that it’s a good comment.

Don't let the cat out...

When I show houses I quite often will get showing instructions that include “don’t let the cat out.” That always raises an alarm in my mind. Why would they say that, unless the cat is one of those who wants to get out and might try to escape when I open the door? Most cats that I encounter are more likely to run and hide under a bed somewhere than to aggressively try to get out, but I’ve had a few cats that just wanted out and there was no way that one could stop them. They bolted just as the door was opened. Fortunately they didn’t really want to stay out that long, so they came back in when I left. But, I’m sure that there are cats that would just as soon roam around the neighborhood for the day, especially if the weather’s good.

I’m not sure what the solution to this issue is. As a Realtor I have a fiduciary obligation to try to carry out the wishes of my client (the buyer in this example), but I also am bound by our standards of practice to try to protect the home owner from any damages or loses that might be caused by our visit (which would include the homeowner’s pets). So, I take my shoes off and make sure that my clients do, too; if the homeowner has specified that. I try to turn off the lights before we leave, although some homes have light switches that are hard to find. And, I try not to let the cat out. But, cats don’t always co-operate with the program.

Most dog owners will cage their dogs or restrict them to a room or the garage, if the dogs are likely to either threaten visitors or are too friendly. Most dogs will still bark when strangers enter the house and that can be a distraction for the showing. Cat owners seldom cage or room-restrict their cat, so one can encounter the cat anywhere in the house. One can try to make a game of it (find the cat), but many buyers would just as soon not have to be stepping gingerly around the house afraid that they might step on the cat or have the cat attack their stocking feet (that has happened to me, too).

So, home sellers who have pets should understand that they share the responsibility, if they let their pets roam the house while they are gone. Doing doggy or cat day-care, if you can afford it is better than having a barking dog or a scampering cat in the house while an agent it trying to show it.

As a home seller you should think about the impact of making your pet(s) an issue with showing the house. There is also the whole issue of the allergies that dogs or cats can kick-off in many buyers. I’ve had clients have allergic reactions just by walking into a home with a cat. We didn’t stay and they didn’t buy.

So, I will try not to let your cat out; but, don’t let your dog or cat be the reason that your house doesn’t sell.

Enough already...

When does “news” stop being news. Likely, when the media has beat the heck out of it to the point that the public just tunes it out, when it comes on. The news media likes bad news – wars, murders, robberies, natural disasters – anything that will have some pitiful or pathetic footage opportunities for “film at 11.” They get to barge into grieving families lives, camera crew and microphone in hand, and ask really stupid questions like “How do you feel now that your entire family has been wiped out?” or “What was your reaction to seeing your house burn down?”

On slow news nights, where there were only a few murders or robberies and no good film to show, they’ll resort to good old stand-bys like the real estate crisis in America. It’s always easy to find someone who’s house is in foreclosure or who lost a house already and ask them really dumb questions, like., “How’s it feel to be homeless?” or “What would you tell others who are about to lose their home?”

I, for one, am getting tired of these stories. They are nothing but exploitative opportunities for some footage of someone crying on camera. The media seldom has time to really explore the issues, so they just go for the pitiful and pathetic angle and move on to the next commercial break. You just almost never see the media go back a week, a month or a year later to see how those people are doing, where did they go and what has become of them. They really don't care, so long as they got a sound-bite reaction for the next "news" show. The on-going coverage of the Hurricane Katrina story is a rare exception; but, even that story has a not-so-well-hidden media agenda - let's wack the dead horse of the government's screw-up on Katrina relief one more time.

Sure we have people losing homes in this area; and, yes, home values are down; but, the number of people losing their homes is less than 1% of the overall housing market (actually about .66%) and home values are still higher now than they were 5-6 years ago. This is a cyclical downturn, exacerbated, in the case of Michigan, by a concomitant set of circumstances in the local automotive industry that combined to drive us down faster and further than the rest of the country. But, the rest of the country is now catching up (or down, as the case may be) and we may already be at our bottom and about to start back

My gut feel is that most of our state’s residents are fed up with all of this bad real estate “news” and also are ready for our recovery. We’ve lived with it and dealt with it and now we’re ready to be rid of it. Let’s hope that the good news of our recovery gets some media attention. I won’t hold my breath though. The media will be on to the next horrible disaster somewhere, shoving microphones in grieving people’s faces and asking the same dumb questions, “ How does this feel?”

Perhaps some reality show producer should do a story on the news media. I can see it now. The program would show people all over the country ignoring the news show and then the program's host could shove a microphone into the newscasters' faces and ask "How's it feel to be completely ignored and irrelevant"?" There's little hope for that, but one can dream.

The 2008 outlook

I've been reading various predictions for the national real estate market for 2008 and the news does not appear to be good at first glance. Housing starts for new-builds are still way down and expected to stay that way through much of the year. The re-sale homes inventory is still way up, with more expected on the market as ARMs reset (bailout or no bailout there will be plenty of ARM-driven foreclosures this year as there were last). Home values are also projected to continue the slide in 2008, with most economists predicting a landing somewhere around 20-30% less value for homes that were in the rapid appreciation "real estate bubble" zones (especially California, Florida, Nevada and Colorado). We've already lost more real estate value in Michigan than any other state (see my post of December 22 - Oh Great! We're #1 Again!).

Pretty dark stuff. So where is my little ray of sunshine, my glimmer of hope? I think as much as anything it's in the fact that we've been out ahead of these trends in Michigan all along. My gut feel is that we're at the "been there, done that" stage while the rest of the country is just getting to the bad parts. Sure we've still got quite an inventory overhang and foreclosures still make up about 6-8% of the inventory on the market; but, we've kind of plateaued and have been bouncing along the bottom for a while now. Quite a few sellers gave up and took their homes off the market and buyers have been snapping up the foreclosures quickly; so, our inventory adjustment has already kicked in a bit.

Another factor is that our sellers have had the time to adjust and absorb the bad news about property values and many have decided that "it is what it is" and they have become more realistic about their selling prices. They aren't necessarily happy, but they've decided to get on with life and take what they can get out of their houses. The sellers who are still hurting are the ones that over-mortgaged their homes or who've only owned the home for a short time (2-3 years) and now have to sell. There is little that can be done for those folks, so many have put their homes up for lease instead and put their dreams on hold.

The final supply-side factor that gives me hope for our market is that our local builders stopped building over a year ago - some two years ago. Many have exited the state and sold off the stalled projects or land that they were developing. Just in my little corner of the world (Milford, MI), of the 8-9 new-build developments that were underway a couple of years ago, all but 1-2 are stalled, so not a lot of new-build inventory is coming on line. And that's actually a good thing, right now; although, I doubt that the local builders see it that way.

On the demand side, I'm seeing more buyers out right now than I've seen in quite some time. Many are out looking for foreclosure bargains and that's OK. Some have just waited about as long as they can for the market to bottom out and are looking for good deals on move-in-ready housing. A few, who were frozen into inaction by the upheavals in the automotive industry, now feel secure enough to start looking for that "move-up" house that they've wanted for some time. And we even have a few new companies moving into Michigan with workers who will need housing. All of a sudden, I'm working with more active buyers than I've had in 2-3 years. These are all good things that give hope.

I think it will probably take the first 3-5 months of 2008 for all of the new laws that Congress has passed (and will pass early in the year) to kick in and for buyers to get used to the new credit landscape (the days of the zero down, 100% mortgage will be long gone in 2008; but remember that the FHA limit will be raised to $417,000 in 2008 (see my post of Dec 21 - Congress Slays the Dragon), which will cover the "sweet spot" in our market). So, certainly by spring, we should start seeing a comeback in Michigan. There likely will still be plenty of foreclosures and they will make the headlines; but, value shoppers will likely find that they don't need to settle for some stripped and damaged, fixer-upper foreclosure house in order to get a good deal. Good deals are out there right now for move-in-ready homes and more are on the way. And buyers are out there now, with more on the way.

So there is hope. And, where hope lives good things can happen.

Merry Christmas

Last night I received the most marvelous gift and it was something that couldn’t be wrapped. We always celebrate Christmas at our house on Christmas Eve. We all go to church first, then back to our house for dinner and open of presents. We live in a big old Victorian house in the Village of Milford, not unlike the one pictured above and we decorate it extensively for Christmas. We had a nice fire going and the whole family gathered around.

This year, for the first time in a while there were no babies; but, that meant that all of the little grandchildren were mobile this year. What a scene that was! It was chaos and the din from four happy, giggling kids and seven adults (my sister-in-law from St. Louis spends the holidays with us, too) made a joyous noise in the house. And to make matters worse grandpa gave each grandchild a Nerf sword, so there were sword fights everywhere. And of course, lots and lots of noisy new toys. Boy, are grandpa and grandma ever glad that those swords went home with the grandchildren. We always told our kids that someday, when they had kids, we'd get even with them. Ha!

So, my gift – the best ever – was to have all of my family here, healthy and enjoying the season with us. It’s noisy and rambunctious and something almost always gets broken and things are spilled, but we wouldn’t trade it for the world. Beyond the joy of celebrating the birth of Jesus the second best thing is having family to celebrate with at the holidays. We hope you have a joyous Christmas. As for us, we’re resting and recovering today – and maybe starting to think about how much fun Easter will be this year, too. I wonder if the Easter Bunny should put swords in their baskets, too; or, maybe we'll have a water balloon tossing contest.

T'was the night before Christmas...

T'was the night before Christmas and all though the house the only creature that was stirring was one little mouse. The house was locked up tight as a drum, for six months before the sheriff had come. The water was turned off and so was the gas, no power for lights, it was dark when you passed.

This house is empty and located next door, it's been abandoned for months, a real eye-sore. When up on it's roof there arose such a clatter I looked out my window to see what was the matter. And there in the moonlight I could see on the roof that thieves had climbed up to plant there a spoof. Merry X-Mas the sign said that they had erected, with Santa in a bathtub, and he looked quite dejected. Eight tiny reindeer were ahead of his "sleigh", made from bits of the plumbing, duct tape, and hay.

I chocked back a snicker, that would have been bad. "This is awful," I thought and really quite sad. What a terrible ending for such a nice place, the family that lived there had left in disgrace. The dad lost his job and started to drink, mom filed for divorce and they started to sink. The kids were caught up in the terrible mess. Now, they're all long gone and the house in distress.

The house had been ransacked and stripped until bare, even the plumbing was taken, there was nothing left there. It had once been a home, a place of delight. Now it's a shell, empty, a blight. And what of the people who once had lived there? What had hapened to them, did anyone care?

And I thought to myself as the thieves drove away, it could happen to anyone, so be thankful today. Foreclosures are sad things and should not be made light; but pray for the people, not the houses tonight. Merry Christmas to all and to all a good night.

A trap of your own making...

I was perusing the various news feeds on my Web site – www.themilfordteam.com yesterday when I came across a feed that focused upon the reactions to an article written recently in a Florida newspaper. The gist of the article was that many seniors in Florida feel “trapped” in the homes or condos that they bought decades ago because they can’t sell them for what they think they’re worth now. Apparently one example sited by the reporter who wrote the article was of an elderly lady who wants to move into assisted living, but refuses to lower her asking price for her condo to a price that is in line with the market today. The gist of the remarks posted about the article were very unkind to the writer – did she do any homework or have any understanding of the market – as well as about the seller who was used as an example – get over the paper loss you are taking and get on with life.

I thought back to the blog post that I did on this topic (August 8 – Coping with paper losses). I have had some clients who are in similar situations and who, for similar reasons, have not yet sold their houses. They were mostly older clients (actually around my age) and most have owned their homes for decades. Some had paid the houses off and some had very small mortgages. They all shared the characteristic that they just can’t bring themselves to give up the paper appreciation that they thought they had made over the years and which they believed is still there in the "value" of the house. Some of these owners paid less than $100K for the houses 2-3-4 decades ago and now they can’t bring themselves to lower the prices below the $280-300K that the tax assessors say the place is worth and which even the market said they were worth 2-3 years ago. Unfortunately in today’s Michigan market, the houses are probably worth less than $250K. That’s just the cold hard truth of the market that we are in.

Some of these seniors had been counting on the payout from their investments in the houses to help fund their retirements. Others aren’t dependent on what they get by selling to be OK in retirement, they just refuse to “give the place away”, as they saw it. So, they sat on the market - overpriced, not being visited by buyers and frustrating the heck out of the owners and the Realtors involved. I've tried everything that I know to get the sellers that I have in this situation to understand that they are just not going to get what they thought out of the old homestead, but these are proud and stubborn people who really believed that they’ll get what they‘re asking if they just waited long enough. In most cases, it didn't happen! One seller eventually and begrudgingly lowered his price to the what the market dictated and sold, another just gave up in disgust and took his house off the market. He's still sitting there waiting out the market and feeling "trapped" in his house.

So, if you’re a senior citizen who is ready to cash-out of the home that you’ve owned for a long time, the best that I can tell you is to get over whatever pre-conceived notions you have about what your house is worth, get a good Realtor (if you’re in Southeast Michigan that would be me) and TAKE THEIR PRICING ADVICE. Understand that your Realtor is working for you and trying to get you the best deal that he/she can, with the most money to you; but they don’t do you or themselves any good by going along with a bogus, high price just to make you feel good.

Let your Realtor do the research and the competitive market analysis (CMA) and when they do, they’ll give you a suggested price range. Don’t take that price suggestion and add “some wiggle room” to it or anything else. What they're trying to tell you, with the CMA, is what the market will pay for your home. Your real choice is whether or not you want to sell right now, not how much to ask. Trust me on this; the market just doesn’t care what you need or want for your home; it just knows what it will pay for a home like yours. I can sell your home, but only you can determine when. The market will determine for how much.

Oh Great! We're number 1 again!

Battered by a declining manufacturing base, low or no population growth and low demand for housing, Michigan and Ohio rank No. 1 and 2 on mortgage finance company Fannie Mae's list of states with the largest credit losses through Sept. 30. I suppose we should be proud to have beaten Ohio at something this year, although I can think of better categories in which to compete.

Fannie Mae, which finances or guarantees one of every five home loans in the United States, listed losses — loans written off as having no chance of being recovered — of $185 million for Michigan and $101 million for Ohio, two states with strong ties to the troubled automotive industry. In contrast, California had $30 million in write-offs and Florida had $21 million. That’s almost hard to believe, isn’t it?

Nationwide data from Countrywide Financial Corp., the nation's largest mortgage lender, found the No. 1 reason its customers have been defaulting on mortgage loans is reduced income. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year. Once illness and divorce are factored in, cash-flow problems caused 80 percent of mortgage defaults nationwide, according to Countrywide's data; payment adjustments (read that as ARM resets) alone accounted for only 2 percent. Hmmm! Maybe we should rethink this shift to "service industry jobs", if the people working in the service industries can't afford a house.

If there is any good to be taken from all of this perhaps it is that Michigan and Ohio have already taken the lumps that this recession has to give and may be ready to turn the corner locally, while the rest of the country goes through what we’ve experienced. Various economists and publications (Business Week for one) are warning that 2008 will be a down year for the U.S. economy, but we can already say – “been there, done that.” At least let’s hope that’s what it means. With so much value already out of our real estate market, there are great bargains to be had all over Michigan.

There was also some good news to be found in the recent congressional action on FHA Modernization Act, which the Senate finally passed last week. Once things get hacked out with the House there should be some help in the form of changes to FHA loans. For one the bill provides that FHA loans can now have as little as 1.5% down, instead of the 3% that has been required. Also, the limits are being raised from the current $221,000 to $417,000. That will make the vast majority of our market inventory eligible for FHA mortgages. The new law also provides for FHA to accept Fannie May and Freddie Mac approved Condo projects, which may help that currently stalled market.

An additional boost could come from the fact that FHA programs are not “risk based”. Right now we often fall victim to the conventional mortgage companies playing the “declining market” card as their reason for not extending loans to our buyers. The FHA is not concerned with “declining markets”. Since we are in a declining market, this should help. Some banks with foreclosed properties won’t entertain FHA programs in offers right now, but most will – they just want to get rid of the properties.

So call me. There are lots of FHA programs available and heaven knows we’ve got lots of houses to choose from. We often work with John Adams Mortgage on those programs and about 30% of their business currently is FHA approved mortgages (projected to go up to 50% this coming year). Maybe Michigan can be #1 at something positive, like getting people in new homes with FHA mortgages, for 2008. I’ll bet we can beat Ohio on that, too.

Congress slays the dragon!

After months of no action at all, the Senate last week finally got around to acting on a couple of housing bills that will have impact here.

If you recall, I reported on the two-headed dragon (August 25th post) of debt that a foreclosure had become. Not only did you have the foreclosure issue itself on your credit rating, but then the IRS when after you for taxes on the portion of the original debt that the bank had to forgive in order for you to do a short-sale or as part of the foreclosure. so, if you owned $200,000 to the bank and they ended up selling the place for $150,000 and "forgiving you" for the balance. the IRS treated the $50,000 difference as unearned income and taxed you on it. Talk about throwing salt in the wound.

Well our heroes, the hard working men and women of our elected Congress, have come to your rescue. After months of deliberation or whatever it is they do when they take months to pass a "no-brainer" piece of legislation, they have passed the Mortgage Forgiveness Debit Relief Act. That act prohibits the IRS from demanding income taxes from the already financially challenged ex-homeowner whose lender forgave a portion of the debt as part of the short sale or loan modification. The bank may still decide to come after you for the difference or turn it over to a collection company, but at least the IRS won't be joining in on the chorus of people hounding you.

That same bill also extended the deductions that you can take for PMI on your mortgage through the year 2010. That's good news too.

The same week the Senate also passed the FHA Modernization Act, which the House had passed earlier. That act ups the limits on FHA loans, although House and Senate still have to hash out a compromise on just how high that limit can go. right now the Senate version limits the upper end to $417,000, but the House used a floating limit that would allow houses in super expensive areas (read that California and Florida) could float up over $700,000. And to think we were happy locally when the limits went up near $300,000.

I'm sure that there are more bills bubbling through the Congressional process to deal with the foreclosure issue. I think that they've got something cooking on the ARM reset issue that will go beyond President Bush's jawboning of the industry. Just like when they sprang into action to require the labels on lawn mowers that you shouldn't put your hand under the mower while it is running, Congress will save us from ourselves again.

The economics of happiness

I saw an article in one of my real estate news feeds on this topic a couple of days ago. I was not surprised to read that happiness has little to do with material wealth – money and possessions, especially money. When I Googled that phrase “the economics of happiness” I was a bit surprised to find the large number of scholarly studies, articles and papers that have been done on this topic.

The consensus seemed to be that happiness is very independent of money (money can’t, in fact, buy happiness), once one gets above the subsistence level. I guess it’s harder to be happy if one is starving, cold and homeless, but not impossible. Happiness is more involved with what things you really value – family, faith, health, a sense of safety and well-being, and the environment around you, plus other non-tangible things. Missing from the reports of what makes people truly happy were hoards of possessions and lots of money.

A home was still on the list and it apparently contributes greatly to a sense of well-being and happiness if one has a home of their own – hint: I can help with that aspect. Even within the context of ”home” there is much evidence that the size, cost and elegance of the physical house doesn’t contribute as much to it’s happiness contribution as “home”, so much as other factors, such as fold memories of good times there and feelings of warmth, coziness, security and family that go along with the physical building. So long as it isn’t dangerous or otherwise inhospitable, even the most modest house can evoke strong positive feelings of “home” for most happy people.

We have a saying in real estate that one sells a house but buys a home. That saying really reflects the transfer of the feelings of love and happiness to and from the physical building. Many sellers initially have great difficultly letting go of the physical part of the fond memories that they have for life in the house. That’s what sometimes initially causes them to price it too high. What they don’t understand is that the new owners have yet to weave their own set of emotions and memories into the structure and so don’t have that level of happiness investment in it yet. They might, someday.

It’s that hope for a “home”, that nesting instinct about a house becoming your home that is usually the thing that sells the house. Buyers try to describe it as “fit” – somehow “that last house didn’t fit but this one does.” That “fit” is really them imagining the good times, imagining the happiness and using those images to imagine the house as their home. Call me and let’s turn those thoughts of how nice a home would be into the reality of a new house.

YEA - We're not in the top five...

It was reported in the newspapers this morning that RealtyTrac Inc. published the foreclosure numbers for November yesterday and that Michigan has dropped out of the top five. We're number six now, so there's still problems, but at least we're headed in the right direction. In fact our foreclosure rate was down 14.5% according to the report that I read. That was the first double digit drop since April 2006.

Nevada led the list again with Florida second Followed by Ohio. Other states in the top ten included Georgia at #4, Arizona at #5 and Colorado, California, Indiana and Illinois following Michigan at #6. Nevada has the dubious distinction of leading the list for 11 months now. Metro Detroit is still in the top 5, so far as foreclosure rates in the major metropolitan areas in the U.S.

Oakland County reportedly had 1,164 foreclosure filings in November, or one for every 446 households in the County. That compares to 975 filings in Macomb County (one for every 355 households) and 6,074 filings in Wayne County (one for every 138 households). AS a state, Michigan had one filling for every 391 households. The nationals average if one filing for every 617 households. Nevada had one filing for every 152 households.

So, we're moving in the right direction. I've noticed more buyer activity lately too, albeit lots of buyers are out looking for those foreclosure bargains. That combination will hopefully allow us to work off the excessive inventory that is currently on the market and get back to a more balanced market. And, that would be a good thing.

Since it will take quite a while for housing prices to rebound, there will still be lots of great buys in the market for those looking to buy. For seller's, the reduction in competition from foreclosed houses will be welcomed, but you will still need to be realistic about what your house can bring in the current market. If you're selling and buying in Michigan, it'll all wash anyway. If you want to sell here and go someplace warmer - try Nevada, Georgia or Arizona, there are some great buys on foreclosed properties there.

Traditions, habits and bureaucracy...

“Tradition is a guide, not a jailer.” (W. Somerset Maugham). Those words (once again from the blog Jacks Wining Words), got me thinking about how traditions and habits seem to become jailers or at least can restrict one's thinking enough to trap you in place. The hair stands up a bit on the back of my neck every time I hear "We've always done it that way." That's especially true if I've just asked someone why something is done in a way that doesn't seem right to me or efficient or, in some cases, doesn't even make sense.

If you really persist in trying to find out why something is done a certain way - a tradition or a policy or rule - many times you find that it was someone's arbitrary decision sometime it the past and that "someone" is now long gone. What you've stumbled upon at that point is bureaucracy at it finest. The world is full of bureaucrats, most of whom are perfectly happy to carry out the policies that were set by others. That way they can feel no sense of responsibility for anything that happens. After all they're just "following the way its always been done," implementing the policy.

The other sure sign that you've stumbled onto a full blown bureaucracy is to look for forms. If there is a form for everything that you might want to do, you're in a bureaucracy. Forms take personal involvement out of the decision making process and take accountability out of the decisions. Forms usually go to some through some mysterious process, ending up at unidentified decision making committee where everyone can find plausible deniability for whatever decision is made. If all else fails, the form was probably filled out wrong, so the originator of the form is at fault.

This week's Business Week has a great article about fighting bureaucracy in organizations, written by Jack and Suzy Welch. As I reflected upon this article I realized that even my company has become a bureaucracy. There are forms for everything and most of the "communications" that occurs in the organization is through the impersonal use of email. We still have weekly sales meetings in each office, in which quite a bit of personal communications takes place and I can still go talk to the office manager if I have a problem or issue that I need help with; but, for almost everything to do with "headquarters" there is a form. And behind every form, there is a procedure or policy and "that's how we've always done it."

Come Sancho, I see a new windmill ahead!

Competing in a market full of foreclosures

There is a tendency in the market these days for sellers to get down about having to compete in a market that has so many foreclosed properties. They are, after all, normally priced well below what a house that is not foreclosed might be priced at, for comparable size and features. So, how does one compete, if your price is $40-50-100K more than the foreclosed house next door? Remember the 3-C's of real estate - condition, clutter and cleanliness - that's how.

Most foreclosed homes that I've been in lately are a mess inside and out. Most have been neglected for quite some time and some have been trashed by the prior owners or vandalized after they were abandoned. So a buyer going into one of these places starts off with this low, low price in mind; but, by the time they get through making their mental lists of things that need to be done, in some cases just to make the place habitable, that low price won't look quite as attractive. Your edge, if you're looking for one is that you can present a "move-in-ready" house to the market. Just make sure that your house doesn't also generate a long list of to-do's when people visit it. See my earlier posts on the 3-Cs's and on giving your home a mini-makeover for some tips on making that happen.

If you're a seller or thinking of selling, just remember that a well maintained and presented house will eventually attract buyers. You still need to be competitively priced, but only against other, non-foreclosure houses.

Finding that ray of sunshine

I've promised my wife and myself that I'm going to go into 2008 on a more positive note and find that ray of sunshine in the midst of all of the doom and gloom in real estate these days.

I suppose that my ray of sunshine is that I'm relatively busy showing houses these days, albeit mostly foreclosures. The good news that I can take away from that is that people are out buying houses or trying to anyway. There are just too many great deals on foreclosed houses to ignore these days. I also have a few buyers who are looking at normal for sale houses, so that's good, too.

I made a conscience effort to balance my listing business with my buyer business and that has paid off. I still have a nice inventory of listings and fortunately none of my current clients is in foreclosure. That makes it tough on one hand (competing in this market isn't easy), but it also means that I don't have panicked sellers (or ticked off sellers, depending upon how they react to the foreclosure process). Been there and done that, and it wasn't fun.

Most buyers are fun to work with, especially if they have the wherewithal to be looking for investment properties. Some of the foreclosed properties that I've been through lately are in pretty rough shape or have major issues and lots of them have no power or gas, so it's a cold experience. My buyers and I have had some good laughs at what we find and we've both wondered about the fate of the past residents and what caused them to fall on hard times. It's also amazing to see what people strip out of houses when they leave and wonder what they did with all of the toilets that they took or with the kitchen sink.

So, I'm off this afternoon to visit a bunch of these sad homes, including a HUD home (always a favorite) with some of my buyers. I'm not sure that things in the real estate market are gong to change much for 2008, so I guess I'll just have to change how I deal with it. I'll dress warmly and take a flashlight, so that I can provide my own little ray of light in the darkness.

Jack's winning words...

“Wise men talk, because they have something to say….fools, because they have to say something.” That little bit of wisdom, which is attributed to Plato, came from the daily post that I get from Pastor Jack Freed in his "Jack's Winning Words" blog here at BlogSpot - http://jackswinningwords.blogspot.com. I read whatever thoughts Pastor Freed is sharing for the day the first thing every morning and most days the winning words have some impact on my day; or at least give one pause to think about them before setting out on the day.

Today's winning words got me to thinking about Blogging and whether or not I really have anything to say each day or just say something because I think that I should. I usually have some tidbit of news or insight that I think is worth sharing, much of it admittedly just my reactions to things going on around me in the real estate world. I suppose it is somewhat arrogant of me to believe that others care what I think about things and heaven knows that I've ranted about arrogance in real estate here.

So, I've decide to include in my list of New Year's Resolutions that I will take care to only post here when I have something of real interest to be shared, either about real estate topics locally or about issues like the economy that are impacting the real estate world. Of course regular readers will still have to suffer through topics that I think are of real interest that have absolutely no use for he rest of the world - sort of like this post.

Holidays a good time to sell

This is probably one of the best times of the year to have your house on the market. People love seeing other people's Holiday decorations and most homeowners have their houses looking their best for the season, especially if they expect to entertain over the holidays. Buyers are usually in a good mood this time of year and many in this area have the next couple of weeks off, so they have time to look.

If you're going to have house guests over the holiday's you may want to inform your listing agent that you might need extra warning time before a showing to get everyone out of the house. Adult guests will understand your need to show the house and you can make it a game for the children who might be visiting to help out getting things picked up in a hurry (hint - have a few "prizes" for the best helpers).

So, put a batch of Holiday cookies in the oven (baking cookie aroma is always recommended) and leave a plate out for visitors. Don't get paranoid about someone stealing all of your Christmas presents; the showing agent wouldn't let that happen. Turn on all of your Holiday lights (and regular lights. too) and put on the Christmas music on your stereo or Cable TV. remember to put a chair out, and a rug, if you're asking people to remove their shoes. If you have a safe gas fireplace, leave a fire burning for the visit. The inviting, warm and cozy feelings that people will get in your home might just be the key to them choosing your house. Maybe you'll find an offer in your stocking on Christmas morning. Now, that's worth Hoo-Hoo-Hoo-ing about.

Happy Holidays and happy home showing!

Bats in the belfry and mold in the attic

I did an inspection today on one of the foreclosed houses that I seem preordained to make bids upon. There weren't any bats, but if there had been they would likely have been sick puppies. To no ones great surprise, there was mold in the attic -not just a little, lots! This house, like so many 70's homes was built with inadequate roof ventilation and that was further exacerbated by the owner (or some helpful insulation contractor) when they insluated right out to the edges of the attic, thus covering and blocking the eves vents from doing their job. So, no circulation, combined with poorly placed can vents and you get mold.

Likely this isn't the dreaded "toxic black mold" that everyone is so afraid of but we took a sample for the lab to test, just to be sure. There were other issues with the house, most just really maintenance things, but a couple more of serious enough nature to require some action. There are almost always going to be issues in a foreclosed house, some of them liely to be serious, due to the neglect that the house has gone through.

The game now becomes one of "what will the bank do?" A few months back banks might have been willing to make the necessary repairs. These days they are not so inclined and many aren't even ofering any compensation to the buyers to fix it themselves. Some say it's because they have already dumped the prices and can't afford to loose any more on the place. Some say they just don't care any more - take it or leave it. Of course getting them to say anythng at all can be the challenge. I've had one request in for over 2 weeks now, with no feedback at all from the bank. See yesterday's post - Waiting for Godot and the banks. It's all so surreal. So this great buy of a house is now maybe a little less of a deal.

Waiting for Godot and the banks

In the theater of the absurd "Waiting for Godot" is a favorite. In the theater that is real estate these days, the absurd is waiting for the banks.

Banks end up owning most of the foreclosed houses; and, once they take them over, they enter the twilight zone of the absurd. You would think that the banks would want to sell these depreciating assets, to get them off their books as fast as possible. Apparently not! I have been waiting for three weeks now for an answer, any answer, on an offer that I have in for a client on a foreclosed house. There is no indication that the bank has any intention of answering or of ever selling. I can't get an answer. The listing agent can't get and answer. No one at the bank is responding to telephone calls or emails. It is ABSURD. Yet this is actually the norm and not the exception. The banks apparently have no mechanism to deal with the crisis that they are in today. Instead they just ignore everyone and everything. I cannot for the life of me figure out how they ever intend to sell any of the properties that they now own, if they won't respond to offers.

So here we sit. My clients and me. Waiting for Godot and the banks; trapped in an absurd play, with no rhyme or reason. I call every day and get the same answer every day - nothing yet from the bank. I suppose I now appear to be a commercial for the definition of insane - doing the same thing over and over and expecting a different result. It's insane. It's real estate in 2007.

Foreclosures and the neighborhood

Have you got a house that looks like this in your neighborhood? Maybe the foreclosure on your block isn't boarded-up. Maybe it just looks a little worse for the wear or the lawn was a little long and ratty looking (thank goodness for the snow). In some urban areas the foreclosed houses are easy to spot - they're the ones that have been stripped - aluminum siding gone, plumbing gone, anything of value gone. In nicer neighborhoods it may be harder to spot a foreclosed and empty house, until you get a lot closer, then the lack of maintenance and attention shows through.

Various groups in Washington are wrestling with what to do with this foreclosure mess. Much attention has been focused upon working out a way to avoid foreclosures by freezing the ARM resets that are coming due. Little has been discussed about what to do for the homeowners who are already into the foreclosure process. Many of these people had ARM resets this year and couldn't handle the new rates. Lots of those folks are now in the 6-month redemption period. Hundreds of homes have already been lost to foreclosure and now sit on the market - abandoned and decaying. All of these empty houses are now driving down the neighborhood values for the other homeowners who aren't in foreclosure.

One proposal being put forward to help epople already in the foreclosure process is to do "value resets" on the properties - limit the recovery claims of the lenders to the current market value of the homes, rather than the amount that was originally borrowed. That might allow the foreclosed homeowners to remortgage on the new, lower values of the properties and save their homes. Of course, the bankers don't like that idea at all. They would rather take over the houses and sell them at a loss than "forgive" any part of the original debt. It's sort of like the neighborhood loan shark who doesn't want to be perceived as a softy, in fear that others will take advantage of him. So he says, "I'd like to let you off the hook on this loan, but I'm afraid I'm gonna hafta break your leg instead -you understand, I can't look like a soft touch." You gotta love the logic of this approach.

The other argument by the lenders and bond holders is that many of these loans were based upon fake statements of income and assets, and backed up by hyped-up appraisals; so, they should be allowed to fail. I have no sympathy for any buyer who used those methods to fraudulently obtain a loan; but, I also cannot let the lenders off the hook for running their businesses so loosely that they had no mechanisms in place to spot these frauds. Now, they're claiming to be the victims not the bad guys. Well, duh! You hired the bad guys to go out and sell these loans in the first place and then didn't do any due-diligence in the management of the process.

It's amazing how pious the greedy can become when their plans to rape and pillage the landscape go bad. Their "poor little me" cries should be falling on deaf ears everywhere. As I stated before in this blog, it's also amazing how many of the clowns in charge of the biggest messes this time are the same clowns who lead their S & L's into the S & L debacle years ago. They did no jail time then and they'll likely get off this time, too. They'll be back with the next big idea of how to get you the home of your dreams for no money down - no matter how much you owe. Now, that's the American Dream.

Foreclosures mostly what's selling..

I track the local market on a weekly basis - See the real Estate Statistics sections of either of my web sites - http://www.themilfordteam.com/ or http://www.movetomilford.com/. This week's statistics, about what sold last week, provide a short term glimpse of how the market has been lately. 80% of the homes that sold last week were foreclosures.

I've been reporting for some time that I'm primarily showing foreclosures to clients - see Repo Man, my September 13th blog entry. Until last week the share of sale that were foreclosures was normally 30-40% and never higher than 50%. I suspect that we'll see this trend for a few months as the bargain hunters pick over the foreclosure inventory. I have three foreclosure deals in progress right now myself, so I can't complain. If I weren't selling foreclosures I'd likely not be selling anything right now.

The other thing that is noticeable is the very low prices that many of these properties are selling for these days. Banks seem to be in "dump 'em" mode, just trying to get out with whatever they can get. I reported back in the fall that the old SEV to price formula (price = 2 X SEV) had gone out the window in this market. recently these dumped foreclosure homes have broken through the 1.0 X SEV level, with many selling for below SEV. If the houses aren't trashed or haven't been damaged through neglect, that makes them great bargains. Many are in really nice neighborhoods and just need some quick TLC to return to their previous values (or what passes for that these days).

The foreclosure market is creating a whole new group of real estate investors and speculators. These are people who never imagined themselves buying and flipping houses; but, who now see opportunity in such a down market. Whether or not they have adequately planned for the expense and time required to accomplish the fix-up and re-sale of the properties remains to be seen. Some of them will undoubtedly be involved in the next wave of foreclosures, hopefully not also involving their primary residences too.

It won't sell if it's not for sale...

This is the time of the year when many home sellers ask about taking their homes off the market for the holidays or maybe the entire winter. My advice is always consistent - you can't sell it, if it's not for sale. Keep it on the market!

Sure it's a hassle to have to keep the house ready for a showing at any time during the holidays, but you can specify a different set of showing criteria - maybe more notice or block out certain days when company will be with you. The point is to keep it active.

There are a surprising number of people who use their holiday vacations to get out and house hunt, especially if they're being transferred into the area, which happens a lot in this area. Another factor is that buyers who are out looking now are generally very serious buyers and not tire-kickers; so, the extra hassle is offset by the extra seriousness of the buyers. You house also likely looks about as good as it will get during this season, since you likely have it all decorated up for the holidays.

Since some sellers will not heed this advice, you gain the added advantage of being on the market in a reduced inventory situation. There is less competition. See my post of November 3 for some tips for selling in the winter. Maybe you can even put a big bow on the roof to make your house an inviting Christmas gift for some family.

What's wrong with this picture?

An annual report by the Michigan Bureau of Labor Statistics produced the chart that you see here. It shows that Michigan has not only lost over 200,000 manufacturing jobs in the last few years; but, also that Michigan now has more state paid workers than it has manufacturing workers. We have long had more services industry workers than manufacturing workers and the farming and mining industries in Michigan are far smaller than in the past. So, basically we have more people shuffling money around or spending money than we have creating new value - manufacturing, growing or digging something up.

I suppose this will not come as a big surprise to many. We've all heard for some time that Michigan has been losing manufacturing jobs at a rapid rate (across the last two administrations it was noted). This chart was in the middle of an article about Michigan's economic forecast and that was not a very rosy picture. The article pointed out that Michigan is the highest tax state in the upper, eastern Midwest group that we belong to (with Illinois, Ohio, Wisconsin and Indiana) and spends more on education than Illinois, yet retains less of it's college grads than Illinois. We are also a net negative migration state, having lost population in the last census and being a "net out-move" state for the moving companies in the state.

The article tried to show some hope for the future by pointing out things other than the automotive industries that Michigan could focus upon for the future. The gist of those suggestions revolved around trying to leverage our State Universities while we still can and working with what pharmaceutical industries that we still have to increase drug manufacturing. There was also the expected bow towards increased tourism to take advantage of our lake frontage and even a fleeting mention of leveraging our water resources - a touching subject at best. The article also outlined several things that Michigan needs to do at the state level to make the state more hospitable to businesses. The cornerstone of that list was getting rid of onerous laws and rules that require unionization and so-called "prevailing wages contracts", i.e. make Michigan a "right to work" state. There were also numerous other examples of Michigan laws that are considered not to be business friendly and which purportedly discourage investments by business in Michigan.

So, what was the conclusion of this gloomy article? That there's still time to "save" Michigan from total collapse, but that we'll have to save ourselves from our government first. Strange. That's what some are saying at the national level, too. We'll likely not regain our previous preeminent manufacturing status, but we have enough going for us to survive and prosper again, if we can only keep those pesky government hands out of our pockets and out of trying to dictate how we live our lives. Less is more is the theme and it should start with the state government.

Remodeling's paybacks

I get the question a lot, from potential home sellers, about which things they might want to remodel or invest in to increase the value of their homes for the market. Generally I tell them that the time to make major investments in the home is not at the point in time when you are selling. It's almost impossible to recoup the cost and homeowners have the tendency to try to add 100% of their costs to the recommended houses price, thus overpricing the house. At the time that you decide to sell, you should focus upon doing all the little maintenance items that have built up, de-cluttering and cleaning the place to make it look it's best. Perhaps some paint would help, too. (See my post of June 28 on the 3-C's of real estate).

It is good, however, to know which projects that you might have in mind for your home now will potentially pay back the best, should you later sell. Remodeling Magazine does an annual survey of what the real estate industry says are the paybacks from various remodeling projects that one could do around the house. They look at which projects return what percentage of their costs in terms of increasing the home's value by some amount to offset the cost.

In the past most of the projects that had fair returns were inside the house. This year the focus shifted to the outside. The best paybacks listed in the 2007 report from Remodeling Magazine were for things like replacing your current siding with the new, upscale fiber cement siding, which paid back at a level of 88.1% of the cost, with a mid-range vinyl siding coming in at 83.2% - still a decent payback. replacement windows (wood at 81% and vinyl at 81.2%) also pay back nicely. Adding a wood deck actually ranked second in the survey at 85.4%.

Those numbers were a national average, with each region of the country having slightly different priorities and paybacks. Our region had the lowest paybacks of any, mainly due to the depressed housing market in the "East North Central" region that includes Illinois, Indiana, Ohio, Wisconsin and Michigan. replacing siding with fiber cement still led the payback list at 82% in our area, with vinyl siding second at 79%. The least payback in our area was reported as adding a backup generator at only 46.9% followed by adding a sun room at 52.3%. So I guess you should just plan on sitting in the cold and dark until the power comes back on.

On the inside there is still reasonable payback from a few minor projects that one might tackle while getting your house ready for market. While I don't recommend a major kitchen update at that time, a minor kitchen update, which might include new fixtures, cabinet pulls, lighting and maybe even replacement cabinet doors still returns a decent 83% nationally (73.2% in our region). The least return inside is realized from a home office remodeling at 49.5%.

All-in-all, the report gives further credence to what I've been advising clients to do for some time now, when it's time to sell - Focus on the little things. I also advise homeowners that they should never stop investing in their homes and that they should look at budgeting for one of the major remodeling projects - kitchen, baths, basement or exterior additions/updates - every 3-5 years while they own the place. A part of what you should consider to be the "payback" from those investments is your own family's enjoyment of the updates and upgrades. You don't want to come to the end of 15-20 years of ownership and then realize then that you should have been updating stuff. It's too late then to get any payback. I was reminded of the 50's habit of encasing new furniture in plastic as soon as you got it, "so it would stay new." The problem was that you never got to enjoy the feel of the new sofa or chair, because you were always sliding off or stuck to the plastic covers.

Looking for simple answers...

Normally when you think of the FDIC you think of the agency that insures your deposits at your local bank and that is it's role. Ms. Bair, however, weighed in recently with her suggestion for a solution to the current sub-prime mortgage mess. Writing in the New York Times; Ms. Bair suggested that, for loan holders who are current in their payments, all of the so-called toxic loans just be frozen at their current levels of interest and not be allowed to reset to new, higher levels that would drive an increasing number of homeowners into foreclosure. It is a simple solution and one that I've mentioned here before. Alas, there seem to be no simple solutions to problems as complex as the mess that we find ourselves in.

From what I've read, there is growing support for this idea in Washington, mainly I suspect because it is so simple and potentially so immediate in it's positive impact. There are likely to be many more than the 2 million foreclosures that we've had this year, if something isn't done to forestall the ARM re-sets that are due next year.

The downside of this suggestion is that it shifts the burden of the problem onto the financial markets - the folks who buy the loans and provide the money for future loans. It also does nothing to help the folks who have already slipped into foreclosure because of re-sets that have already taken place. It also skips over any punishment or accountability for the idiots who made these bad loans in the first place - the greedy mortgage brokers, loan officers and underwriters who were all too happy to put people into these toxic loans.

By shifting the burden to the financial market there is a concern that, because they won't end up earning the higher rates that they anticipated when they bought the paper for these loans that they'll hesitate to buy future packages of loans. I guess I wonder why they would feel that way rather than feel good about not having as many foreclosed houses to deal with, if they let the current scenario play out. It's not as if the suggestion to freeze the rates is going to cause them to loose money; rather it would seem to just be a case of not making as much money. I'm probably missing something in that simple analysis. As for the unfortunates who are already in, or on their way to, foreclosure because of 2007 rate resets, I guess that is just further Collateral Damage (see my post of November 15). The idea, at this point, is to do triage and stop the bleeding before it gets worse.

I'm confident that this or some other "solution" to the problem will be found by our fearless legislators in Washington. After all they've never found an issue that they can't save us from somehow; even if it means saving us from ourselves.

Buyer mistakes can derail the deal

There was an interesting article today on this topic in one of the news feeds that I get. The story revolved around buyers who make financial mistakes between the time an offer is accepted and the closing. Many of these had to do with foreclosed houses and buyers who were likely marginally qualified to do the deals in the first place.

What these buyers didn't understand about the mortgage process, which is taking place as you move towards closing, is that the mortgage companies will recheck your credit worthiness right up to closing. If anything substantially changes, they'll walk away from the mortgage commitment. One example used in the article that I read was a young couple who were so thrilled to be getting the foreclosed house of their dreams that they went out and bought a brand new truck to put in the garage. Of course the mortgage company saw that new debt on their credit report and all of a sudden they no longer qualified for the mortgage. Another couple celebrated their good fortune by taking a vacation cruise, which just happened to use up the money that the bank had seen as providing them with some emergency cushion. BAM - the mortgage is gone.

I had a case several years back where the buyer got laid off the week of closing. He wanted to go ahead with the closing, assuming that he could find another job quickly (which did not pan out, by the way). He was fairly sure that he had enough in savings to make the payments for months to come and just wanted to keep quiet about the lay off and proceed. Of course, I couldn't let that happen. It would have been fraudulent not to admit to the mortgage company that he no longer had the good paying job that they had evaluated him on for the mortgage. He did not understand (but I sure did) that there is a form that is signed at the closing table by the buyer which essentially is a sworn statement that things have not substantially changed since you applied for the mortgage. Once I explained it all to him, we walked away from the deal, even though he lost a substantial amount of his deposit, since this was a new build.

Another thins that I'm seeing some of is the never ending demands syndrome. Some buyers aren't satisfied to get a good deal. Once they have an agreement in place they start asking for more - fix this, replace that or give me more off the price for remodeling. If it's a foreclosure home the banks vary greatly on how they respond to these requests. NO is a favorite response; but, some will do a few things to keep a buyer on the hook. Private sellers may go along with the first few things, but some buyers just keep pushing to see where the boundaries are. That can quash a deal, too. There is a fine line between getting the best deal possible and crossing the line into greed.

So,the bottom line is that just like for Santa at Christmas, you've got to be good all the way up to the day of closing (or Christmas, for Santa). The mortgage companies are making their list and checking it twice and they will find out if you've been naughty with your money. So be nice and hold off until after the closing to celebrate. Even then, keep in mind that you do need that cushion of money at hand to meet any unexpected emergencies with the home. Memories of your trip to the Bahamas may warm the cockles of your heart, but the rest of you needs to be warmed by that furnace that you had to have repaired or replaced.

OK, no more XXXXScore emails please

I've posted the Drivescore and the Bikescore messages as comments to my original Walkscore posting; so, please, no more. There could be a Skateboardscore or a backflipscore or who knows what. These applications are basically all the same - they use Google maps and a set range (1-2 miles for walking, 4-5 miles for biking and who knows how far for driving) to determine what you could get to using whatever mode of transportation being scored. Most of them are posted by sites trying to use the apps as a way to attract visitors who will then be bombarded with advertisements - one way that the site generates revenues.

The walk score and the drive score made sense to me. The bike score not so much. Measuring what you can walk or dive to in terms of stores or venues seems logical. When considering bikers; however, I would assume that an application that shows whether the area in question has bike trails for mountain bikers would make more sense. Road bikers just need to see paved roads to be happy that there is someplace to ride. I don't know of too many people who actually ride their bikes to the grocery store and back, but I suppose that there could be a few.

So, enough already! No more "whatever score" sites are needed, as far as transportation modes are concerned. I already know (because they told me in their email) that the Fizber people intend to do a whole host of different score applications (they are responsible for the bike score thing, too). Perhaps there would be some value in a "Culture Score" site that looked around an area for things you could get to; like libraries, museums, cinemas, theaters and opera houses, etc. that support or enhance the culture of the area. I'm not sure that one should include the site of the monster truck races or the WWF wrestling arena on that list, but the term culture does vary a bit by area.

The amazing deflating home...

American car buyers are used to the idea of the car as a depreciating asset. You buy it and 3-4 years later it's worth about 20% of what you paid for it. If you hold on to the car long enough and it's not one of 2-3 Million of that model made, it may actually start back up the value curve, assuming that you've kept it in good condition. Just look at the 70's muscle cars for extreme examples of that - many are worth 10 times what they were worth brand new.

The same is not normally expected of real estate, unless it is commercial real estate. Houses, if kept up, normally are (or were) expected to appreciate over time. For a while in the late 1990's/early 2000's the rate of appreciation in some areas was consistently in double digits. Not any more. We've actually had a flat or falling values market for 2-3 years now; so, that house that you bought brand new in 2003 is likely worth 8-15% less that when you bought it. Bummer!

Of course, one major difference between the house and car scenarios is the length of time that each is financed; and, so, how fast they're paid off. Cars are normally financed for between 3-5 years. If you go 5 years or more, you'll likely be paying off the car as it's value is nearing it's low point. Depending upon the make, model manufacturer, and it's condition, it may still be worth from 20-40% of it's original value and you won't owe anything on it.

Buy a house and pay for 5 years and you will barely have made a dent in the principal that you owe. Almost all of the money that you pay in the first 10-15 years goes towards interest. So, 5 years down the road you take a job transfer or get laid off and try to sell the house. It's then that you discover that you might well owe more on it that it is worth in the market, especially if you bought it with one of those sweet sounding 100% mortgages. If you put at least 10% down at the outset, you might be above break even 5 years into the loan, but likely not. It costs abort 7.5% to sell the house, so if there was even a little depreciation - 2.5% or more - you'll be underwater on the house. In our area the depreciation has actually been in the 8-13% range, so you can see why so many people are forced into foreclosure.

So, do we have a future to look forward to with houses that depreciate like cars? Not likely over the long run; however, for the immediate future, homeowners need to understand that they have lost value, they continue to loose value and they will likely loose value for the next year or two. When we eventually return to historic home appreciation rates, likely within the next two years; it will still take a good 4-5 years for the values to climb back up to where they were in the early 2000's. I guess it's like the words of advice in the old Kenny Rogers song about the gambler - you gotta know when to hold em and know when to fold em. Ask your Realtor for advice - he/she's not a gambler, but a professional.