The Yin and Yang of the current market

I do a lot of Market Analyses for people, about 6-8 a week on average. I almost every case lately I'm sending the news to these people that their houses aren't worth today what they were 2-3 years ago. Unfortunately a great number of them bought these houses in the last 3-4 years, many using 100% financing gimmicks of one sort or another; so, for many, they now owe more on the houses than the houses are worth. Most will email me back that they kind of knew that was true but that they just wanted to confirm the bad news. Some are still in denial and email back reasons why their house should be immune to the ravages of the current downturn.

The truth is that all properties in this area of Michigan (and likely in Michigan overall) are down 10-15-20% from just a few years back. Some areas, like Ypsilanti and Detroit have been especially hard hit, with values 25-30% less than a couple of years back. So just going "Say it ain't so!" doesn't get it any more. It is so, so deal with it. The hard fact is that many people just plain can't afford to sell right now. If they also can't afford to keep paying for what they've got, than they are between a rock and hard place called foreclosure. The homeowner can go appeal to the bank to refinance or they can plead a case for a short sale; but nothing is going to change what the market says it will give them for the place right now. Banks really don't want the place back, but they are up to their eyeballs in foreclosures and really don't want to hassle with short sales either. It's just plain nasty, if you've in the position that you have to sell. many sellers are coming to the closing table and bringing money instead of getting money from selling their houses.

If you're a buyer, of course, the picture is all rosy. There are more deals out there than you can shake a stick at and lots of really nice properties selling for 50-60 cents on the dollar. Not all foreclosed houses have been trashed, especially if you are looking up above about $250,000. The main issue that buyers have right now is being in a position to act quickly and being decisive when you do act. Buyers need to have their financing lined up and letters of pre-approval lined up (I say letters because you may need more than one dollar amount letter ready, depending upon what you bid). If the house has just been dumped to the "move it now" price by the bank, you'll need to bid close to the asking price to get it. Messing around with a low-ball bid on a house that has just had the price dumped by the bank is a sure way to get rejected. It's OK to ask for some concessions on the closing costs, especially if you bid at or near the asking price.If you are selling and also plan to buy in Michigan at least the whole thing washes out a bit. You'll lose on the sale but make it up on the buy-side.

Some people wonder what the impact has been on Realtors. For many this market has driven them from the business. For some it has been an opportunity, especially those specializing in foreclosures. For most of us it has meant working much harder for the same or less money than in past years. The fun side of the business - the people you meet and work with - is still there on the buy side. There is little joy on the sell side; maybe just relief, if one can find a buyer and get the distressed seller out from under the obligation of the house. And holding sales together through closing is getting harder and harder as things have deteriorated. Dealing with appraisal issues and mortgage issues is consumming more and more time and energy. I spend more time staring at my green dot and then looking for my smiley face to get re-charged for another day. Let's have another rousing round of "The Sun'll come out tomorrow!"

Sales up nationally

The National Association of Realtors announced this past Monday that sales of existing homes rose in February year-over-year-- 2.8 percent for single family homes and 3.7 percent for condominiums. Total sales hit 5.03 million units, though Wall Street economists had predicted another DECLINE to a consensus estimate of around 4.8 million units. This is fresh evidence that the housing cycle may finally be bottoming out after nearly three years of correction. Breaking the 5 million mark is pretty good, given where we are in the overall economy. Locally, anecdotal indicators have been indicating a pick-up in business over the last 30-460 days, with many more buyers out looking. Many are snapping up foreclosed properties as soon as they hit the “dump it” price with the banks.

In fairness, the latest sales gains were accompanied by a decline in the national median price of homes sold -- down by 8.2 percent from year-earlier numbers. While that is not good news, it does indicate that prices have adjusted and we are on our way to selling off the huge inventory that built up in the market. Not all of that decline in the Median sold price was from foreclosure value loss. There's another factor at work pulling down the national median number: Relatively more houses are selling in places like Texas, North Carolina and Utah, where prices are moderate and affordable, while there are relatively fewer sales in ultra-high-cost California. In Michigan, the lower priced “starter houses” have remained an active market all along and are also selling well. So the median price may be lower, but it's not just because home values across the country are crashing. The mix is different, so the median price is a lower number.

Low-cost mortgage money is also definitely helping to fire up sales. Average 30-year rates declined to 5.875 percent (National average) last week -- and any time mortgage money is under 6 percent, you're going to see more home buying. The changes to the FHA, Fannie Mae and Freddie Mac lending limits helped too, as we have reported before. A good percentage of Michigan’s “sweet spot,” pricing-wise is now within the FHA limits and all of the “Sweet spot” is within the limits of the other two organizations. I define that “sweet spot” as the $200-400,000 range. And remember that Fannie and Freddie borrowers may be required to have 10-20% down, but FHA borrowers can still do 3% down and get the great rate, too.

So let's take our good news about sales and interest rates … and look to better days as the Spring buying season kicks off. I’m showing houses to lots of buyers right now, so I see the increase in activity. And more and more of them are actually making offers, which is really a good thing. Maybe the little ray of sunshine has finally broken through and better days are ahead. I certainly cling to that hope.

An increase in sales and activity...

As prices settle and the inventory of foreclosures begins to decline, buyers and investors are moving in to pick up deals throughout the Detroit area – especially in the condo market. Around the metropolitan area, sales of existing units bumped up more than 12 percent in February, compared to February in 2007. In the city of Detroit, the number of units sold in February skyrocketed up nearly 50 percent, according to the Detroit Free Press website. February's increase marks the third consecutive double-digit sales increase for the Detroit area. In December, monthly sales were up 34 percent for both condos and homes; meanwhile, January reported a 15 percent hike in sales.

Could it be that the last few months' surge could be the sign of the turnaround in Detroit? Other cities in the Rust Belt state are seeing the same statistical increase. Grand Rapids listings have dropped so far this year, and sales have jumped nearly 20 percent from February to February. Dropping inventory and rising sales is a typical precursor to a more equal, or even a seller's market. Let’s all hope that is the case. It helps that a number of new-build condo projects stalled out, so there has been less new inventory pumped into the market lately.

I have certainly seen a pickup in buyer activity lately, so much so that I’ve been working harder and longer each day than I have in months - too long to get time to post to my blog many days. That’s a good problem to have. I’d love to stay and chat, but I’ve got to run. I have two closings this week to finalize and two next week. Things are popping! I'm sure that a part of this is the normal "spring surge" of pent-up demand from the dreary winter months, but a part has to be the market finally taking a turn towards more balance between buyers and sellers. I have the feeling that once we get the current overhang of foreclosed properties out of the way, things will return to some semblance of normality.

How'd this happen?

Lots of my customers can't understand what has happened to the "value" that they though was in their houses. The chart above is from the Federal Office of Management and Budget and clearly shows what happened. Until the late 90's, the housing market was appreciating at a historic rate that was tracking along with general inflation at about 3-5% per year, depending upon the year. Then in '98 or '99 things took off and all of a sudden we were seeing double digit appreciation. So a home bought in 1980 doubled in value due to appreciation between 1980 and 1999 and then doubled again in just a few years - 1999 - 2004.

Does that make sense to you? It didn't make sense to the market for long either. What this chart doesn't show is the drop in values once the bubble burst. However, if you look below, you'll see that the trend line the we were on, prior to their run up is likely going to be the landing zone for where prices are falling.

So what does this mean? Well for one thing; if you bought a house in 2000 for $200,000 it means it is more likely to be worth $250,000 today than the $400,000 that you may have thought it had appreciated to, at least as the historic trend line would indicate. Unfortunately, as prices fall back down towards the historic trend line, it also means that if you bought a house within the last 2-3 years, it was likely overpriced by as much as 25% against the historic trend line - more in many "hot" areas of the country.

We weren't as bad in Michigan in terms of the run-up in home values as , say, Florida or California or Nevada; however, we did let things get out of hand. When I first got into real estate back in 2000 I can recall that prices were appreciating in the high single digits or low double digits in some places in this area. Even the assessors couldn't keep up and one used to have to multiple the SEV by about 2.2 to 2.4 to get the market value. That is now down to an average between 1.3 and 1.4 times SEV, since the assessors overshot the market on home values too.

Like any "bubble" situation, the only way out is to deflate the bubble - let "value" out of the homes. It's disappointing to many and disastrous to a few. Those who bought in the 70's and 80's and have held on, without succumbing to the temptation to take equity out of their homes are doing OK. They feel bad about the "loss" of value, but it is just a paper loss. Those who bought during the run-up have actually lost real money already and will have to hold on for years, just to break even. Those who used their homes as piggy banks, taking equity out at every opportunity now find themselves upside down, with loans that are much greater than the value of the house, many of them "toxic" ARMs that are now resetting to high rates. Those are feeding the foreclosures market that we see all over.

Obviously easy money was a major contributing factor, but it was human nature that did us in - again. It all started with the snake and the apple in the garden of Eden and goes on today, with slick Willie the mortgage loan officer holding out the apple of easy mortgage money. I suppose we are forever doomed to repeat this mistake, either in the stock market or the housing market. It's human nature.

In the valley of dead elephants...

There has always been a legendary place where elephants supposedly go to die. No one's ever found it and it likely doesn't exist, but it does conjure up visions of a valley filled with elephant bones. I got to thinking recently about where all of the value goes that is lost in meltdowns like we are in right now in housing...the valley of dead house values, so to speak. According to recent reports the U.S. housing market either has or will end up losing close to 1 Trillion dollars in value, due to the current credit crisis and declining home values. Where did all that value go?

There are many answers to that question, of course. A good deal of it actually is still bouncing around in the economy - money that people took out of the inflated value of their houses to pay bills or buy stuff. Most of it is like the air being let out of the cartoon houses in the picture - it is ethereal and existed only in our imaginations. As I've posted here before, that turns out to be a hard thing for most homeowners to accept.

People who have lived in their houses for years and not run up their mortgages have strong mental images about what they think their houses are now worth, based upon what they saw happening with appreciation over time. Now they can't let go of those numbers, even though it was all a paper gain and a paper loss. The further bad news for them is that they paid taxes on the paper gains but they aren't getting much of a break on the paper losses.

If you think about it, housing is the only thing that we buy for which we expect to hold an appreciating asset. Cars, cloths, and other possessions all seem to lose value over time, even if you care for them. A house, on the other hand, is expected to be worth more, if you care for it while living in it, at the end of your ownership. That has pretty much always been the case and there have also always been exceptions. Whole neighborhoods have gone downhill, taking both the well-cared for and the derelict houses with them. In some cases house values have gone down and then made comebacks. There are many cases of that happening in inner-city areas as re-urbanization takes hold.

Our current crisis, like so many before and most of those yet to come was caused by human nature. We had been merrily going along with home appreciation that pretty much matched inflation or was even lower for a while – 3-4% per year was fairly common. Then, the era of easy money made it easier for people to borrow more and more – to buy bigger and better houses and to take more and more “equity” out of their houses. The appreciation rate for homes jumped into the double digits more is some hot spots like California, Florida, Nevada and Arizona. Even Michigan saw appreciation in the 10-15% per year level in some areas. The whole thing just snowballed and most people were happy to be along for the ride, tapping the home piggy bank for all manner of luxury purchases.

The run-up in values couldn’t last, but few foresaw the steep and deep declines that would follow and which are causing our current crisis, especially not the financial wizards who were gleefully creating all sorts of new and exotic investment vehicles to ride on the wave of home values. Then, BOOM! The elephant died! Now we all have to live through another recession that was caused by our own excesses. You would think we would have learned from past experiences of run-ups and busts, but apparently we are doomed to repeat failures by not learning from history. So, for a while let’s all lament the bones of the dead elephants in our neighborhoods and hope for better days ahead. Maybe our children or their children will do a better job than we did. Thank God it’s Easter. At least that reminds us of the one thing that we can always count on.

Appraisals adding to the problems...

One of the contributing factors to the mortgage meltdown mess that we're in right now was the complaisance of appraisers to go along with over valuing houses so that they could get big mortgages. Not all appraisers, mind you, but quite a few. Most were under tremendous pressures from lenders to come up with values that matched what the lenders wanted to lend on the property. The Feds eventually stepped in and slapped a bunch of hands and a few State Attorneys’ General made headlines as they pontificated about cleaning up the whole appraisal process.

Now we are suffering from the pendulum having swung too far the other way. Now lenders are telling appraisers to appraise conservatively. Lenders have designated our area as a “declining market” and have instructed appraisers to use the bank-own property sales in their comparables. The net result is dramatically lower appraisals for everything. Perfectly good homes in good neighborhoods are being dragged down by the one or two foreclosures that may be in the neighborhood or close-by. It’s crazy. In all likelihood, if you bought in the last 3-4 years your house would appraise right now for much less than you paid and likely for less than you owe.

What’s the solution to this mess? It appears that we just have to wait it out, if we can. The housing market needs to stabilize and stop dropping before we will see appraisals again showing rising values. Even then, most people will have lost 15-20% off the value of their homes and will have to wait out a period of another 3-5 years while appreciation slowly brings the value back up to where they were 2-3 years ago.

In the mean time I certainly hope that you do not have to re-finance your home anytime soon, since you are likely to not be happy with the appraisal. If you plan to sell your house anytime soon, it is likely worth the cost to get an appraisal done before you list; so that you have a good idea gong in what your house is worth in the credit market. Surprises like appraisals that are too low put a real damper on the euphoria of having made the sale. And certainly don't rely on the last re-finance appraisal that you had done a few years ago. Any appraisal over 3-4 months old is totally useless in this market.

A bumpy ride and a down escalator…

This time of year the unpaved roads in Oakland County, Michigan are a mess – a real bumpy ride. However, even they may seem to be glassy smooth compared with what’s going on in the stock market, which seems to have dips and peaks that swing hundreds of points every day. What a ride! The work behind the scenes by the Federal Reserve and the Federal government seems to be having some damping effect on that market, but it's still pretty wild. The stock market is no place for the faint of heart right now.

In real estate we seem to still be headed in the down direction only and the hard part for the professionals in the business is to try to keep up with how fast and how far things are falling. One used to be able to look back over a year’s worth of sales in an area to establish a good sold price baseline, then it went to looking back only six months; now if you look back more than a quarter, you’re probably too optimistic. To compound the problem not much is selling in many areas, so one may not be able to find any comparable houses to use to help establish medians or average sold prices. In some areas the only homes that have sold in the last 3-6 months were foreclosed houses, so the data is seriously skewed by their prices.

Appraisers and assessors are now required to use the sale data from foreclosed houses in their work, so that “bad” data is baked in to every appraisal that I’ve seen lately. I do 7-10 Market Analysis reports a week for potential sellers and I’ve had to forewarn them that I too use this foreclosed sales data in my analysis. It’s just a part of the market right now and foreclosed houses are competition for buyers’ attention. I think I’ve reported here often that I’m showing mostly foreclosed houses lately. I also have had to expand the search area that I use to look for sold comparables, sometimes going out as far as 3-4 miles; which really isn't good, but necessary today.

The work that the government has tried to do in this space, with new, higher limits for FHA, Fannie May, and Freddie Mac loans has helped a bit and almost everything that is selling is going through one of those programs now. As I opined yesterday; however, things are now so bad in the overall economy that many “regular Joe’s” now find themselves in potential default trouble, so a huge second wave of foreclosures looms on the horizon. We really can’t see the bottom of this down escalator yet.

I’m certainly hopeful that better weather will bring out buyers who had hunkered down for the winter. Even if they just want to look at foreclosed houses, that’s OK. At least that will help us get them off the market faster, so that regular homes for sale don’t have to compete with them. For home sellers my advice remains that you get as competitive as you can on price and make sure that your house wins on condition. All of the foreclosed homes need something, whether it’s just maintenance items that have been ignored or major repairs (due to previous owners or vandals damaging the house). So make your house a “move right in” winner for those buyers who are willing to take on home projects as soon as they buy.

See! There is hope and that’s what I try to deal in. As Napoleon said, “A leader is a dealer in hope.” (From this mornings Jack’s Winning Word Blog) I work for a leader like that and I’m married to a dealer in hope, too. My hope is that enough of their optimism rubs off on me that I can deal in hope, too. So, what I see in the picture of Napoleon is him reaching for his check book; so that he can write out the earnest money check on a cute little waterfront place on Saint Helena Island. Hope springs eternal!

The second wave...

I am by nature a bit pessimistic - a trait that both my wife and my upbeat manager are trying hard to get me to change. I've posted several times here about making 2008 a more optimistic and upbeat year for myself and I must admit that going into each day with a positive outlook has helped. I'm off to a reasonably good start to the year and have lots of good, positive things going on right now. However, I'm also starting to see a rather disturbing second wave of real estate problems develop that portends some rough times ahead in the market.

What I'm seeing now are not the sub-prime borrowers getting into trouble and losing their homes to foreclosure, but rather the prime-rate people starting to struggle. It doesn't take a whole lot to tip a highly leveraged society like ours into a recession and that has already happened. The combination of way higher energy prices and the ripple affect that has had throughout our economy and the current real estate driven credit crunch have put a lot of stress on ordinary people who were not in trouble a few months ago. Little things like overtime going down or a company bonus not being paid this year or a spouse getting laid off or going part-time can tip the balance between being OK and being in trouble and I'm seeing that all too often lately.

I'm reading articles written by learned economists that predict that this will be a "shallow" recession, but that it may last a while longer than normal. The unreported issue may turn out to be that very few of us are in a position financially to ride out a recession, no matter now shallow it may be. It has been well reported that Americans don't save enough, so there is little cushion in the bank to ride out the storm. That is what is driving the second wave of housing woes that I see on the horizon. If the housing market weren't already in the tank, many might have used the equity in their homes to ride this recession out. Now, many are discovering that their houses are worth less than what they owe on them. The piggy bank is empty.

So, all of a sudden Joe Average citizen, who was not some sort of sub-prime deadbeat, is in trouble with his mortgage, too. This could shape up to be the perfect storm in the real estate market and leave us awash in foreclosures. I certainly hope not. I hope that is just pessimism coming through again. I hope. And hope springs eternal. Let's all sing a chorus of "The sun'll come out tomorrow!" Where's my happy face when I need it?

It’s hard to feel sorry…

Yesterday we had the story of Bear Stearns, a Wall Street investment banking house going under and being bought out for pennies on the dollar. The reports included news that one investor (a single investor mind you) had lost $1 Billion in the debacle. Yet, it was hard to feel sorry for anyone associated with this failure, except maybe the receptionist at the front desk or a few secretaries and janitors. The news media always finds a way to get a shot of two or three people carrying their sutff out of the building in a box. Somehow it misses the exit of the fat cats in their Bentleys.

These are the same people about whom a year or two ago there were probably stories written about how they had just collected their $100 Million bonuses from all of the wonderful business they were doing by figuring out cool new ways to package up high-risk loans into investment pools and selling them to investors. These are people who lived by greed and who have now seen their fortunes wiped out by greed. How can you really feel sorry for that? They made huge amounts off these exotic investments that they created and managed, so why not loose huge amounts too?

So, Bear Stearns is gone and more may follow. The world will not end. The world as we knew it might end, but that was not a sustainable world anyway. Maybe the high rollers who worked there and created this mess can set up a card table and get three walnut shells and a pea and start another game. That’s what they had going this time anyway – a shell game, a scam.

I am not naive enough to believe that we don’t need investment bankers or that they don’t perform valuable services in our capitalistic system; however, I am naïve enough to hope that the world of investment banking doesn’t have to be filled with the kinds of fast-buck shysters that are getting clipped right now. There are other investment banks that didn’t jump into sub-prime lending and that didn’t leverage themselves to the hilt and that won’t go under in the current crisis. I, for one, wish them well and hope that they come out on the other side of this mess as some sort of example of how to run a good, honest business and still make it in the modern world.

All too often the “square” guys who are trying to do business is a fair, honest, open and conservative manner are held up to ridicule by the hip, “with it” firms that are played up by the press as defining that cutting edge of new ideas – an edge that sometimes, like now, comes back to cut both ways. The real unfortunate losers in this whole thing are the little, invisible investors whose 401K’s and savings are impacted by the scams that these shysters pulled on everybody.

It is also unfortunate that the guys at th top in situations like this seem to always find a way to avoid taking blame or getting hurt too bad. In fact many of the guys running failing operations this time are the same guys who headed up savings and loan companies when the S&L crisis hit several years back. You could say, "Won't they ever lear?" I'd say they've learned very well how to steal people's money in a way that appears to be legal. These are not dumb people who made dumb mistakes. These are very smart people who figured out how to gamble and win for themselves by using your money. And if they lose a gamble...Oh Well.

The good ole boys of Enron, who considered themselves to be smarter than anyone else and many of the other barons of greed, like the leaders at Worldcomm and Adelphia and Global Crossing and Arthur Anderson and so many other companies all ended up getting their due in the end. And off to the side, out of the glare there have always been the other players, the guys who weren’t gaming the system trying to make the extra buck. They get hurt by the scandals, too. All stocks in a segment tend to get hurt by the few bad eggs; but they’ll still be here tomorrow – plugging away to try to make an honest buck. Hopefully the Bear Stearns’ of the world will just fade away, and we may all actually be a little better off for their departure.

The guy in the tie…

Recently I decided to go back to wearing a tie everyday to work, after 10+ years of going without. Yes, I know that my picture here shows me in a suit, with a tie; however, that wasn't how I'd been dressing for work for quite a while. It's been casual shirts and slacks for years.

A part of the reason for the change back to a tie is that I realized in a recent photo session that I (like many men over time) had let the casual look go too far and that it has started to look a bit sloppy and certainly not as professional as I want to look. I was taking digital pictures of new agents so that they could get business cards ordered and I had one of them take my picture too. I don’t often get in the pictures at work or around our house, because I’m most often behind the camera. Even though I had my normal slacks and a nice casual shirt on, I didn’t like the results. The open-collared casual shirt, while nice, just didn’t seem to connote a business image. It looked a bit sloppy and way too casual. So it’s back to the tie for me.

I remember when we all started going informal, back in the 80’s. At first it was casual Fridays and then it just sort of took off. I remember that I was selling computers to General Motors when they open the first Saturn plant in Springhill, Tennessee. We were warned that if you wore your suit and tie to the Springhill plant they would take a pair of scissors and cut off your tie. They were really into the informal look. Everyone at the plant, managers and workers alike dressed in their informal; "Team Saturn" apparel. That was the real start for me of everyday casual business dress. Back then the term "business casual" still held up a pretty high standard of dress; but, over time, the “business" part seems to have melted away and just the casual part remains today. And that has gotten a bit too casual. I suspect the slow switchover from Hathaway and Van Heusen shirts to Dockers shirts and pants had something to do with that. It has now progressed to blue jeans being included as "casual dress."

Even nice restaurants are now filled with people in their “casual” jeans, something that my wife and I just won’t do. People even go to church in casual clothes, even jeans and shorts, these days. I've even been to weddings and funerals where several people showed up in jeans. It’s really gone way too far. Having the decency and good taste to dress for those venues and events or to go to a nice restaurant is a small show of respect for the people, places and events involved. The same is true for the business environment. Putting on a nice shirt and tie, along with a pair of nice slacks (not jeans) I believe is showing the respect of a businessman for his customers – no matter what they may be wearing themselves. So, I'll be wearing a tie everyday to the "office", even if I don't have a customer appointment that day. It just feels right for me. It feels professional. For me, it's the right thing to do.

Jack Roush of NASCAR’s Roush Racing is known around the NASCAR pits (with deference to Dr Seuss) as the “cat in the hat” because he always wears a fedora of some sort. So now, I’m known in our office as the “guy in the tie.” I like that. Maybe I’ll do an advertising thing around that theme. Perhaps if I can combine that with my new commitment to try to maintain a positive attitude "the guy in the tie" will also be "the dude with the 'tude." OK, enough already. See you around town. I'll be the guy in the tie.

Why “flat lining” may be good

Yet another report in the up and down world of real estate. Parts of this post appeared recently in one of the real esate news feeds that I get on a daily basis.

In the health care world “flat lining “is bad, very bad. It basically means that the patient has died. In the real estate world, recent news of flat lining in one particular measurement is potentially very good. It means the patient (in this case the real estate market) has at least stopped getting worse. The pending home sales index didn't decline last month as many economists had predicted after months of negative numbers. It just stayed flat. In a market that's been going negative, "flat" looks pretty good -- a sign that maybe -- just maybe -- two years plus of sales declines might be bottoming out, or could do so soon

Other encouraging news included a report that new mortgage applications nationwide jumped last week for the first time in more than a month, according to the Mortgage Bankers Association.

New applications for loans to purchase houses -- a very important indicator of home buying in the months ahead -- were up by 1.4 percent on a seasonally-adjusted basis. But they rose by a surprising 14 and a half percent on an unadjusted basis -- that's the raw numbers last week compared with the week before.

Why the sudden increase? Probably because 30-year fixed rates dropped by a third of a percentage point … down to 5.98 percent from 6.27 percent the week before. Home shoppers have been watching mortgage rates bounce around for the last month -- sometimes getting as high as the mid 6 percent range. So when they saw rates plummet, they put in their loan applications -- and locked. The rates have since bounced back above 6%, but even there rates are still low compared to historic levels.

Also, the Federal Reserve is expected to keep turning the dial down on short-term interest rates -- whatever it takes to kick-start the U.S. economy back into growth mode. Look for another quarter point cut in rates next week -- and maybe more in the weeks ahead.

And, we have the new FHA and Fannie Mae and Freddie Mac limits that came about because of the FHA Modernization Law, which allows FHA-backed loans to go as high as $297,500 in Oakland County, which gets FHA loans up near the “sweet spot” of our market and allows many first time buyers to look at a great number of the bigger foreclosed homes that are currently on the market. The Fannie/Freddie limits floated upwards too, allowing more buyers to look at bigger, more expensive homes without incurring higher, “Jumbo Loan” rates.

Maybe the treatments by Dr's FHA, Fannie May and Freddie Mac will have the desired affect on ther housing market. I certainly have experienced an upward spike lately in my little corner of the real estate market, with more buyers out looking and more potential sellers starting to come out of “bunker mentality” and starting to consider listing. So, flat lining is a good thing; although, I’d just as soon keep the experience all about real estate and not about my health, thank you very much.

Foreclosures Dip But Remain High

We're up, we're down, we're all around. what does this feel like? My last post was an upbeat assessment of the market activity having picked up lately, then comes this recent report on the foreclosure situation. Foreclosures in February were down 4 percent from January, but the rate of foreclosures remains high year-over-year. The February rate was up 57 percent from February 2007.

“The year-over-year increase this February was significantly higher than the 19 percent year-over-year increase in February 2007, indicating we have still not reached the peak of foreclosure activity in this cycle," says James J. Saccacio, CEO of RealtyTrac, which markets foreclosed properties.

The 10 states with the highest foreclosure rates were, in order, Nevada, California, Florida, Arizona, Colorado, Michigan, Ohio, Georgia, Indiana, and Tennessee.

The 10 states with the most foreclosures were, in order, California, Florida, Texas, Michigan, Ohio, Arizona, Illinois, Georgia, Colorado, and Nevada.

Source: RealtyTrac (03/13/2008)

So, Michigan remains firmly in Top 10 in this dubious category. This is starting to feel like one of those clowns that you punch and it falls over, but pops right back up - no matter how hard or how many times that you knock it down. I will say that some of the foreclosures that I've shown to buyers lately have been pretty nice. They are up in the mid-$200K's but were $300K+ houses just 6-months to a year ago. Maybe that's why the sales rate seems to be picking up, too.

I have reported here for some time now that the first half of 2008 will be a major foreclosure time for Michigan because so many of the toxic ARM mortgages just re-set late last year or are in the process of resetting right now. The foreclosures lag those events by anywhere from 3-6 months and it sometimes takes another 6 months to get the places on the market. so, we are likely to continue to see a high percentage of foreclosed properties on the market throughout 2008 and into the first half of 2009.

I suppose that the good news is that, if you're a buyers, there'll be lots of good foreclosed houses to look at this year. Whoops! There we go up again!

Febuary home sales leap 12.8%!!!

Finally, some good news! This morning's Detroit Free Press carried a story under the 30-Point banner headline above on the Business Page. The article by Greta Guest went on to say that figures released by Realcomp, the largest local Multi-List Service (MLS) pegged the February sales at 3,591 homes and condos in the metro area in February. In Detroit the increase was most dramatic with 49.4% more homes selling this year compared to last year - 804 in 2008 compared with only 538 in 2007.

The president of Realcomp, Karen Kage was quoted as saying that the reason for trhe rise is that "many of last year's foreclosures are being sold and with prices way down, as much as 15% in some areas, and interest rates stabilizing, buyers are beginning to step forward." Kage went on to say "We started to see things go up in the fourth quarter of last year but nothing like we are seeing now." She continued, "We are optimistic that sales will continue to rise."

Kage was particularly enthusiastic for first time buyers, saying,” If you are a first time buyer, I have never in my 30 years in the business seen a better time to buy." If you are a first time buyer, I recommend a visit to my Web site for first time buyers - www.MIHomeBuyer.com for lots of useful information and tips.

The report from Realcomp included this information about other areas in the local market. Macomb County Sales rose by 21.7% in February up from 397 in 2007 to 483 this year. Oakland County sales rose 7.54% from 761 to 818. Livingston County sales rose to 104 for 87, an increase of 19.5%. Wayne County sales rose 28.1% from 1,156 last year to 1,481 in February of 2008. Only St Clair County locally reported a loss in sales to 87 properties verses 96 last year, a drop of 9.4%

So, finally we have good news. Does this report potent a trend? Only time will tell. It certainly bears out the anecdotal inputs that I’ve been hearing around our local real estate office and the experiences that I’ve had lately with buyers. There’s definitely something good happening. I’m not sure that it’s just not the relief that something even worse is not happening, again; or whether we have indeed reached a bottom point and the start of a turn-around. I guess that I’ll hope that it is the latter.

Rent to own or lease with option

Many people who are in need of a place to live while they recover from some misfortune (many times a foreclosure) are turning to rent to own or lease with option scenarios. Here what that means.

A seller agrees to rent a property to an interested buyer for a set period of time, usually one to three years. At the end of the lease, the buyer has the option to purchase the home at a preset price. Many times the Realtor for the Lister will insist that the buyer sign a Purchase Agreement (PA) at the front end of the lease. That PA establishes the fixed price for the property and establishes that there was an intent to purchase at the beginning. It still does not lock the purchaser in to eh purchase at the end of the lease. It really is an option.

A portion of the monthly rent paid during the lease is usually counted toward the down payment. To cover that, the seller charges a rent increment or monthly premium of $200 to $300 compared to comparable rentals. In most states the seller is expected to keep and accumulate this money in a separate account and not to co-mingle it with other moneys from the lease (such as the security deposit) or with personal money.

Many owners also charge an option fee for taking the property off the market, usually 1 percent to 2 percent of the sale price. This may be applied toward the purchase. This is an optional practice.

Sellers have no guarantee that renters will buy at the end of the term, but if they don’t, they keep the option fee and the amount of the rent that would have gone toward the down payment. The renter walks away without any further obligation but loses all of the money that was being collected towards the purchase down payment.

This can be a good deal for both sides; but, in the end, if the option is not exercised, both sides can also view it as a loss. The renter sees "his money" that has been collected during the lease being kept by the owners and the owner see the loss of the opportunity to sell the place and perhaps a loss in value, if the renters caused any damages. The seller is further at risk for a loss if he is forced to evict a bad renter, since that can take months to accomplish.

So, is this a good idea? In this market it might be the only way for a seller to realize some value from a property and get some relief from his mortgage payments. The key will be to take the time up front to do the due diligence work to check out the renter ahead of time, to make sure that you don't get a deadbeat. For the renter there are few downsides. The loss of the small uplift amount that the seller may be charging is likely inconsequential and the lack of obligation at the end takes away most of the risk. If the renter really does like the place, and ends up buying it, at least some of what he/she paid in rent went towards the purchase - try getting anything back from an apartment.

I suppose you could also go to RAC (Rent-A-Center) and get all of your furniture, to Enterprise and rent your car and maybe Rent-a-Wife (yes there is such a thing - go to http://www.rentawife.com/) and then you'd be all set. Of course, maybe you'll need to visit http://www.rentapet.com/ too for man's best friend. Is there no end to the convenience of rentals?

The grand foreclosures safari

Getting ready to go out on a trip to visit foreclosed houses is almost like getting ready for a safari. You need to visit your "outfitter" first. Here are some of the things that I advise clients about, when we're about to set out to visit a bunch of foreclosed houses:

1. Use the restroom before we start. There will ne no place to go to the bathroom in almost all foreclosed houses. The water is usually off and the house has been winterized, which means that the pipes have been blown out and there is antifreeze in every sink and toilet trap.

2. Dress warmly. Foreclosed houses are often colder inside than the day is outside. Most have no power and no heat. It gets cold on a foreclosures day.

3. Wear boots. Most foreclosed houses aren't plowed or shoveled out when it shows so you'll probably have to trek in from the street through what ever snow has recently fallen.

4. Bring a flashlight. Even if it is mid-day, the basements of most foreclosed houses are dark and foreboding places that you will stumble around in without a flashlight.

5. Take your own bottled water. Again, the water is off there will be no place to quench a thirst.

6. Be prepared for a mess. Many foreclosed houses have been trashed, either by their previous, disgruntled owners or by vandals, since they have been abandoned. Some have been stripped and some have even been gutted down to the drywall. Some have been open t the elements or to critters. It can get pretty messy if animals and birds have been living in the house.

7. Be very cautious. There can be loose or missing stairs, ripped and loose carpeting, dangling wires and many other trip and fall hazards in a foreclosed house. Go slow and look where you're going.

Not all foreclosed houses are hazardous messes. In fact, I've also visited some very nice one lately, many of which still had heat and power on, which was nice. But the stories that you may have heard about what you might find in a foreclosed house are all just urban legends. I've been there and done that and they can get nasty.

Foreclosures hit all-time high

The sky is falling! It’s the Apocalypse! Oh, whoa is me! The foreclosure rate hit an all-time high in January of 2.04% of all mortgages the worst in the 36 years that foreclosure records have been kept. And there appears to be no end in sight. One reason it may take so long is that there seems to be no end in sight for falling home prices, even though yesterday I blogged that the end is near - different experts and different outlooks. Today the headline was about the worst evr foreclousre rate, which is a hard fact and not an opinion.

"Declining prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, the Mortgage Bankers Association's Chief Economist said in a recent prepared statement.

The foreclosure rates for prime and subprime adjustable rate mortgages both more than doubled compared with a year ago, from 0.41% for prime ARMs to 1.06% and from 2.70% for subprime ARMs to 5.29%.

But it was subprime ARMs that contributed most heavily to the nation's soaring foreclosure rates. Many of these loans come with low introductory rates that reset higher, often to unaffordable levels, in two or three years. Although they represent only 7% of all outstanding mortgage loans, they accounted for 42% of foreclosure starts during the quarter.

Delinquencies stood at 5.82% of outstanding mortgages, up from 5.59% during the three months ended September 30, 2007, according to the MBA. In the last quarter of 2006, the rate was 4.95%.

So is this it? Are pigs about to fly? Should we all grab our ankles and kiss whatever we can reach goodbye? Somehow, I don’t think so. Let’s see if a minor twist (I hesitate to call it a spin, because the politicians have forever tainted that word) can put this in a new perspective. Let’s try a different opening headline. Instead of a screaming 36-point, front page headline of “Foreclosed homes hit worst level ever at 2.04% of all mortgages.” Lets see how this plays out – “97.96% of all home mortgage holders doing OK and able to pay.” I guess it just doesn’t grab the headline writer the same way. It’s sort of like the Headlines on Crime statistics that scream “262 People Killed in Metro Area Last Year.” It just has more pizzazz than”3,672,344 people not killed in Metro Area Last Year.”

We’ve become a society where the only thing that makes the news is bad news. Somebody killed somebody. Somebody robbed somebody. Somebody’s house burned down. Even worse, we now have a news media that trips over itself to go film the reaction to the tragedies of life, by thrusting microphones into the faces of grieving people and asking them how that make them feel. If the networks could figure out how to go along on the murders and robberies and other crimes they would and would turn it into a reality show.

So, is the real estate news bad? It sure is, but it is not apocalyptic and it is temporary and real estate will come out on the other side of all of this as still being one of the best investments that a person can make. What we are seeing now is the result of a lot of people making bad decisions or getting caught up in bad timing. Many reached for too much and let themselves be talked into stupid mortgage loans and now they are paying the price. Many others got caught up in the wrenching economic changes that Michigan is undergoing and got laid off at a time when finding new employment is very tough.

All of this will pass. Will we return to the good ole days? Let’s hope not. That’s what got is in this mess to begin with. Let’s all just hope for stability, for things to level off and allow everybody to catch their breath. I think that is on the horizon and so do a lot of pundits and economists. Then we can all sing a rousing chorus of “the sun’ll come out tomorrow.” Of course the media will still be grasping at the negative with headlines like “Sun abandon’s U.S. – darkness descends upon the land.”

The end is near!

The end is near! At least that is the premise of lots of news articles lately. Apparently various "people in the know" in our industry are now making statements that they believe that the worst is over in the housing industry. Some excerpts from recent news feeds include these tid-bits...

Bank of America’s CEO Ken Lewis recently spoke with the South Florida Sun-Sentinel about the housing market. Here are some of his comments:

Q: When do you expect the nation's housing market to improve?

A: At best, it's a guess, but my anticipation is that by the end of the year, we'll begin to hit a bottom. But we're not going to see improvement for several more quarters. Prices will begin to normalize, but it will take some time and some pain.

Q: How will the mortgage industry be different now that the housing boom has ended?

A: It'll be a much simpler world. We're not going to see as many complex loans because there are no takers. Going forward, you'll see more prudent lending, with borrowers having more down payments. It'll be a more traditional environment than you've seen over the past five or six years.

The there was this from a famous builder in Florida...

Florida home builder Arthur Rutenberg, 80, says you can take it to the bank: The home-building bust is at or near bottom.

"Anyone who buys a home right now will say in five years, 'I'm glad we bought when we did,' " Rutenberg says.

Still active in the business, the developer spoke while inspecting a newly completed $1.5 million Arthur Rutenberg Homes luxury model in Orlando. Rutenberg remains chairman of Arthur Rutenberg Homes Inc., which has 32 franchised home building operations in Florida, Georgia, and South Carolina.

Rutenberg said the current building bust is especially deep because the run-up in prices and sales that preceded it was so robust. As a result, it takes a little longer to get prices and annual growth "back to a long-term trend line," he says

Finally, this bit of optimistic news came from the daily Realty times feed that I get...

Look around at blogs and news sites around the real estate side of the Internet and you'll see there's a lot of buzz about hitting the bottom in the condo market in various regions of the country.

J.P. Morgan Chase economist James Glassman argues in a new report linked from the Wall Street Journal's Real Time Economics blog that "most of the necessary decline in home prices has already occurred. 'Given the present trends in income and house prices, real estate excesses of the past five years will have vanished by spring 2008'" he says.

Matt Moroney, executive director of the Metropolitan Builders Association in Milwaukee, says, "We're cautiously optimistic that we've hit the bottom," quoted in the Small Business Times.

As a full-time realtor, all I can say is IT"S ABOUT TIME! I sure hope these people are right and that the housing bust that we've been in for the past 2-3 years is about to end. I can't say that I see that yet, but I am seeing more buyers out looking and that's a good thing. There are still lots of great bargains out there, so it's a good time to be a buyer. For sellers, maybe this is at least a time to get in when the values aren't going to continue to drop so much.

Like I said in yesterday’s post, you don’t want to look back at this time as your coulda, woulda, shoulda moment, as far as real estate is concerned. Get in, get active and get a deal while they’re still out there.

P.S. Several of you got the right answer to yesterday’s trivia question about Digital Research. They were the company that had he only competitor to Microsoft’s DOS operating system for PC’s back in the 80’s– CP/M (Control Program for Microprocessors). They are now just one of the computing industries coulda, woulda, shoulda trivia footnotes.

The coulda,woulda,shoulda's...

Did you ever have a bad case of the coulda, woulda, shoulda’s? You know that feeling. “Gee, I coulda done that. I wish I woulda done that. I guess I shoulda done that!” I have that every now and then when I think back on the fact that I was there, in the thick of things, selling the first PC computers when Microsoft was born. I could see early on that they were winning the PC operating system battle. Did I buy Microsoft stock back then? NO! It’s my major coulda, woulda, shoulda moment.

We are in the midst of what may become lots of people’s coulda, woulda, shoulda moment – the time that they will look back on and say, "why didn’t I buy a house when the prices were so good? I coulda and I woulda and I certainly shoulda done it."

Don’t let the current housing moment pass you by, if you are in a position to buy your first house or to make that move up to a bigger house. Now is the time to jump in and look around. There are some great bargains out there right now. Houses that were in the $300,000’s last year are now selling in the mid $200,000’s. And for the mid to high $100,000’s you can get houses that would have been your first move-up house in the $200,000’s. It’s just crazy out there right now and you can take advantage of it, if you’re a buyer.

And, if you’re a seller, trying to wait it out is not a very good strategy, especially if you really have to move for job or family reasons. Every month that you wait is another month of lost money into a house payment and a delay in getting on with life and maybe finding your dream house at a great price, too. Don't be saying - “Gee, maybe I shoulda put my house up and it coulda sold, so that I woulda been able to move on.”

Life’s to short to be looking back in regret with a bad case of the could, woulda shoulda’s. It gives me a case of the "willies" – will they list and sell it or not - just thinking about it. But, pardon me, I've got to paste some more stock certificates from Digital Research on the bathroom wall. Send me an email if you figure that one out.

A good rule of thumb...

I know that this looks like a thumbs-up, but it was the only thumb I could find quickly. I wanted to share a quick way for sellers to evaluate offers that they may get or maybe to aid in their planning for listing their houses. I almost called this post "the magic number", because there is a number that one can use for both of those things. It's not magic, just simple math that is based upon understanding of the real estate process.

The magic number is .925 and it is based upon the fact that we average about 7.5% as a cost of a home sale locally. That leaves 92.5% for the home seller to pay off his/her mortgage(s) and pocket what is left. The 7.5% number is based upon the fact that we've been averaging about 6% in real estate commissions locally - 3% to the listing agent and 3% to the buyer agent. The other 1.5% is just the cost that is made up of taxes and fees charged by the state and the title company involved in the sale. That covers the transfer taxes, the title insurance and processing fees.

So how would you use the magic number? Well if you get an offer on your house, just multiple that offer by .925 and the result will be what you’ll have, after the cost of selling, to pay off your mortgage(s) and hopefully to have something left over for you. If you are thinking of selling and need to understand what you need to get to be “whole” on the deal, take what you owe on the mortgage(s) and divide that number by .925 to find your “break-even” point. For instance, if you owe $200,000 on your home, your break-even point is $200,000 divided by .925 = $216,216. Anything that you get above that amount is going in your pocket. The $16,216 difference between what you owe and that number is what will pay the real estate commission and the taxes and title insurance and other costs to sell.

The math gets a bit more complicated if there are sellers concessions involved, but not all that much. In that case, you need to calculate the 1.5% on the original sale price and then the 6% of commission on the price after concessions. Say the offer is for $200,000 with 3% seller’s concession ($6,000 in concessions) the non-commission part of the magic number would yield costs totaling $3,000. and the commissions would normally be calculated on the net after the concessions ($194,000 in this example), so they would be $11,640. The total cost of the sale would be $14,640, leaving the seller with $185,360, before mortgage payoff(s).

If you want to be conservative, you can use 8% for a cost of sale and the magic number becomes .92, but I have found that the 7.5% works out to very close to what we end up with time after time. I hope this little bit of insight helps you with your planning or with your analysis of any offers that you might get. Normally your listing agent would do a seller’s net analysis of any offers and you’d get to see exactly where all of the money is going. That seller’s net analysis also usually includes an estimate of the tax prorating; which is actually going to add a little bit to what you’ll get on the sale, since you’ll be getting back some of the property taxes that you have paid.