The 300th post milestone

Actually I'm not sure that anyone else in the civilized world cares, or would even call this a milestone, but this is my 300th post. I suppose it would be more appropriate to celebrate one's 365th post, since that would seem to indicate a full year's worth of postings; however, since I don't post here every single day, that would be misleading. I looked back, because I have forgotten when I started and June 11th will be my one year anniversary here on BlogSpot. It's been an interesting year with likely about 1/4 of my posts somehow centered around foreclosures and the impact that they've had on the real estate market locally - not good.

I've taken a lot of good posts from the Jack's Winning Words blog as starting points for my musings and I've picked up lots of good stuff from the various news feeds that I get daily. I've had some fun with a few topics and went off on a few rants, but all-in-all it's been a very interesting and rewarding experience. I suppose that there's a little writer in all of us (some might say that I have very little in me), so this vehicle has served and an outlet for my urge to write.

I can't say that having this blog has generated any real estate business for me directly, but I can report that many of the people who apparently read it regularly have either personally commented to me about it or sent me emails. Thanks for the support and generally kind words. I promise to get back "on message" (whatever that is) tomorrow. For now, let's just all ponder the irony of using a picture of a pen and paper to illustrate a blog posting.

VA Jumbo Mortgages

I marched in the Memorial Day parade yesterday - I'm a Viet Nam vet. After the parade there were several comments from people about what a great parade Milford puts on with fly-overs, military vehicles, marching bands and lots and lots of vets. Several thousand people lined the parade route to cheer and honor the vets who marched. It does feel good to be so honored.

It’s fitting that the day after Memorial Day there should appear a story in the real estate news feeds about the VA’s Jumbo loans program. A jumbo mortgage in Michigan would be one for more than the current $417,000 limit for Fannie Mae and Freddie Mac qualifying loans.

For years, the Veterans Administration has allowed "Jumbo" VA loans; it's just that hardly anyone knew about them. The current VA loan limit with zero down, is $417,000, matching the conforming loan limits set by Fannie Mae and Freddie Mac. But the VA does make allowances for VA loans above that amount, called Jumbo loans..

Current Jumbo fixed rates are anywhere from 1.00 percent to 1.50 percent higher than conforming rates. That's a lot, and has many Jumbo buyers in a quandary. A 30 year fixed conforming rate might be 6.00 percent while a similar Jumbo rate could be 7.50 percent. That spread used to not be so vast. Prior to the current mortgage mess, Jumbo rates were typically about .25 to .5 percent higher than a conforming loan. But not so with a VA Jumbo loan. VA Jumbo rates are near conforming rates, about .25 percent higher. And loans can be as high as $700,000.

If you're a qualified Veteran or Reservist, there simply is no better home loan out there with no money down. Period. Even when every lender on the planet was shouting "No Money Down!" for their home loans it couldn't hold a candle to a VA loan when comparing rates and closing costs. As long as the VA loan didn't exceed $417,000 ($625,000 for Alaska and Hawaii). But a little "quirk" in VA lending allows for VA loans above that $417,000 as long as the veteran comes up with some down payment -- as with any Jumbo mortgage.

To figure out how much down payment a veteran will need, simply multiply the amount of the sales price over $417,000 and take 25 percent of that. For instance, a home sells for $650,000. Now subtract the maximum "zero down" VA loan amount of $417,000 and you get $233,000. 25 percent of $233,000 is $58,250. That's the down payment needed from the veteran. That works out to about 9 percent down payment on a $650,000 home! As on all VA loans, there is a Funding Fee of about 2.2 percent of the loan amount but that can be rolled into the loan and not paid out-of-pocket. In this example, the final loan amount would be about $604,750. With a conventional Jumbo loan, you'd need 20 percent down and pay a higher rate, say 7.50 percent compared to 6.25 percent.

Not all lenders will offer this program, so you'll need to do a little homework and even those that do may have their own VA Jumbo limits. But, if you're in the Jumbo market and are VA eligible, this could be the best program that you'll find anywhere. If you’re a Vet and have never used your VA benefits, now may be the time. The prices on homes that might qualify for Jumbo mortgages have never been better and now the VA rate is the best way to go. Veterans returning from active duty, could be in position to take the best advantage of this program, since they might have saved up and have the down payment for a bigger home.

In pain in Milford...

It's Memorial Day weekend and that means several things in Milford. One - it's finally time to plant. You can't trust the Michigan weather until at least Memorial Day, and sometimes not even then. I played golf in 40 degree, see-your-breath weather this morning. Then it was home and time to plant. My wife and I bought lots and lots of flats of annuals during the week and this is the weekend to get them in. That means a lot of sore muscles and knees and almost everything else (when you get my age).

Two -It's bunting weekend - the time to get the patriotic bunting out and get it on the house. We have a big wrap-around front porch, so it gets bunted on three sides. One just doesn't bunt before Memorial Day weekend. It would be like wearing the full Cleveland look of white pants, white belt and white patten leather shoes before Memorial Day - it just isn't done. For women this weekend marks the time when wearing summer white is OK, even though I've noticed quite a few examples of early white faux pas.

Three - In Milford, this is also the weekend for my wife's favorite parade the Memorial day parade of veterans. Every year the local VFW sponsors a parade that includes lots of military vehicles, marching bands and fly-overs by the local air national guard and by the Confederate Air Force - a local group that preserve and fly WWII planes. Of course the local vets march, too, usually about 1,000 strong and representing all of the wars and military actions since WWII. My wife likes the fly-overs and the fact that this is the only non-commercial parade of the year. Usually we have 3,000 - 4,000 people turn out to line the parade route and cheer for the vets as they march by. I've marched in it the last few years (I'm a Viet Nam vet).

So. there's lots to get done and to do this weekend. In addition., I'm showing houses, too. Realtors never really get time off, just times when no one wants to see a house. It's in those times that lots of flowers will get planted. Have great three day weekend!

Big Air Rooms Out

I’ve reported here before on the concept of functional obsolescence in real estate. That generally refers to some feature or style in housing that has fallen out of favor – split-level houses for instance. Now, from one of the real estate news sources that I get comes word that a much more modern design component in houses is “out.” The cathedral-ceiling "great room" -- a defining feature of big suburban houses for the past 15 years -- is losing favor. Owners say these double-height rooms are expensive to heat and cool. They can be drafty and reverberate noise; cobwebs are hard to reach; painting requires long ladders; changing light bulbs in ceiling light can be a challenge and washing the second-story windows can be a nightmare. Moreover, growing numbers of home buyers think these soaring rooms waste space.

More home buyers are opting to add second-floor rooms in place of a double-height ceiling, builders say. Major home builders including Pulte Homes, Toll Brothers and K. Hovnanian say more buyers are looking for the maximum number of rooms and square footage for their money, so they're opting to have a loft, bedroom or playroom built in the air space where the plans call for a double-height ceiling.

Meantime, some people who already own such a room are seeking new uses for the air space. The housing crunch and mortgage mess mean more people can't afford to trade up to a bigger house. Filling in the space below the ceiling costs about half of what it would to add an addition because the walls and roof are already there. All a contractor typically needs to add are joists, flooring and doors, he says.

U.S. Census data seem to affirm the trend. Expenditures on interior restructuring of homes rose about 40% to $13 billion from 2005 to 2007, according to the census. But spending on new-room additions fell 57% to $4.8 billion over the same period. Andy Hait, a survey statistician with the Census Bureau, says these figures indicate that homeowners are spending more to reconfigure existing space, such as by building a loft, and much less to expand a house's footprint.

For decades, cathedral ceilings have been an attempt at grandeur. They started gaining momentum among suburban homes in the late 1970s and early 1980s as a way to show off wealth in a growing economy, builders say. The most common variety involved ranch houses with a vaulted room near the entryway (à la the house on "The Brady Bunch"). When the housing market soured in the early 1990s there was a brief blip toward smaller homes. But as the economy recovered and building once again boomed, tract homes moved toward more traditional, two-story models including faux Tudors and chateaux, and double-height ceilings became common in great rooms -- the new term for family rooms. As housing lots shrunk, having a taller (or "Big Hair") home with an airy, light interior helped give the impression of more space.

Then came high-ceiling fatigue. Toll Brothers started to see interest wane in the Carolinas, where people tend not to have basements and wanted an extra room. The trend to fill in the ceiling area spread to the Northeast, where heating and cooling such high spaces cost more and rising land prices made additions prohibitive.

Many people put a bedroom where the high ceiling was. But Atlanta-area architect Lisa Stacholy says a laundry room, exercise room or homework room can be better uses for some families. In many areas companies still uses two-story ceilings in model homes because they're great to lure prospective buyers. But when it comes time to buy, the proportion of people choosing to put a room above the great room in place of the cathedral ceiling is now around 20%, compared with fewer than 5% two years ago.

So the volume room look is out. To be honest I never could understand it. I like the 9.5’ ceilings in my historic home, but I wouldn’t want them to be any higher. I visited a grand old historic in a nearby town a few winters ago that has 13’ ceilings. I’ll admit they were grand to look at, but the owners told me the place (which is over 4,000 Sq Ft spread over three floors, with a five floor turret in front) cost them over $1,300 a month to heat in the winter – too much for me! I also wondered about the noise problem, since he ceiling seemed to be a perfect place to bounce sounds off and into the kids’ bedrooms.

I haven’t seen any homes locally that look like they started out with high ceiling great rooms and then were modified to use that space, but I’m going to start looking a bit closer. I have noticed a few newer homes that one might have assumed had the big air rooms and then got into and found that the room wasn’t there. Maybe they made the change to the plans when they were building.

When will the market come back?

I get the above question on a daily basis, mainly from sellers or would-be sellers. To answer that question, I like the advice that was on the Jack's Winning Words blog today.

“The only thing we know about the future is that it will be different.” (Peter Drucker)

Isn't that the truth. A few weeks back we were getting advice that we might not even reach the bottom of this market until 2009. Today a report in one of my real estate news feeds held out hope that the end of this market is near, much sooner than had been expected. Parts of that report appear below.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

That sounds great. I certainly hope that the Michigan market is included in this good news. We've suffered longer than most and seen deeper cuts that all but a few markets.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

That's good news too, but all is not rosy.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend. That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

That's sort of what we're sensing locally. There are great deals out there right now, both on foreclosed houses and on regular home sales that the owners have priced to the market; however, too many buyers are sitting on the sidelines, worried about the future of their employment. Those who are out there are scooping up really great deals.

For those would-be sellers sitting on the sidelines, hoping to wait out the current market malaise, I would advise that they get on with life. Things aren't going to turn around so much and so quickly that all of a sudden all of the lost value in homes is back. That's not going to happen in this turnaround. What will happen is the start of a long, slow process of more normal home appreciation in the historic 3-4% per year vein. That means years before the houses return to anywhere near where they were 3-4 years ago and some may never make it back.

So, when will this roller coaster ride that we've been on be over? Well to paraphrase Yogi, it'll be over, when it over. We'll probably figure that out about 2-3 months after it's over. We seem to do a much better job of peering into the future by looking in the rear view mirror.

Dude, where's my equity?

One of the biggest issues that I face on a daily basis is trying to help home owners who want to sell face the reality that much of the value that they thought was in their homes has vanished in the current market.

I recall the concern that I had when the stock market took its big downturn in the early 2000's. I watched month after month as my financial statements arrived and showed me that I too had been hit hard by the decline in the stock market. It took a good five years to recover from that and I'm really still not all the way back.

The same is true of the housing market. I know that the people that I'm talking to have seen the reports in the newspapers and seen the TV reports of the loss of value in the local market; yet, most seem capable of thinking that it really didn't happen to them. many cling to that last appraisal, done 3-4 years ago that showed them how much their home was worth then. Surely it can't have fallen much from that, right? WRONG! Any appraisal over 3-4 months old is out of date and likely way too high.

The folks that I feel really bad about are the ones who bought within the last 3-4 years. They are almost all underwater - they owe more on the home than it is worth today. Usually the people who've been in a house for 5 or more years are OK, if somewhat disappointed at the current values. The other group that is having major heartburn with the current prices are the older homeowners, many of whom have been in the house for 20-30 years and who had been counting upon the equity from the home as a big part of their retirement nest egg. They are having real trouble letting go of the "value" that they saw 3-4 years ago in their homes, even though they are now worth 2-3 times what they paid for the house when they built or bought.

In reality, one almost has to look at this much in the same way as one weathered the stock market downturn. Your house value went down, just like your stock portfolio. Over time it will come back, just like your stock portfolio did. It will just take 4-5 years, much like it did with stocks. And, we've all learned a take away lesson from this - home values don't always go up, at least in the short term.

Foreclosures hurt renters, too...

From a recent article by Kelly Evans in the Wall Street Journal real estate Web site comes this “news.” Across the country, a rising number of landlords are falling behind on mortgage payments, sending their properties into foreclosure, according to legal-services attorneys, local officials and financial experts -- and in many cases, their tenants are being forced out of their homes. Often, the tenants' first inkling of trouble occurs when they get a letter from the bank directing them to leave the premises. Statistics show that just over 20% of all foreclosures are rental properties.

In many cases, the homes and apartments entering foreclosure are owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit -- before their mortgage rates rose. Now, with the housing market badly depressed in many areas, the owners can't sell the homes or afford the higher mortgage payments. Many are defaulting. I suspect that we have that problem all over the Detroit area. I certainly know of some local real estate investors who thought that they could take advantage of the down market to build up a portfolio of rental properties but who now find themselves in default on one or more of the properties.

In most states, foreclosure voids leases, and banks move quickly to get tenants out. Depending upon the state, tenants get between three and 30 days notice.. A few states (not Michigan) have laws protecting tenants from eviction in the event of foreclosure, and others are moving to give renters more notice. It is clear that, nationwide, tenants who did nothing wrong except to rent from a defaulting owner are suffering harsh collateral damage from the mortgage fallout. Foreclosing banks often refuse to pay the utility bills or make repairs on the properties, so some tenants find themselves without power or with dangerous repair situations while they are fighting eviction.

So what can renter do to protect themselves? Chip Cummings, a 25-yr. mortgage industry veteran and best-selling author of the book “Mortgage Myths - 77 Insider Secrets to Saving Thousands on Home Financing” offers these tips to renters who think their apartments/homes may be involved in a foreclosure proceeding:

* In all cases, notice of the foreclosure must be served on the property. Look for notices posted on doors, and if suspicious, check with your county for a filing notice of the foreclosure action.

* Ask for a credit report on your landlord, or at least three credit references to be satisfied that they are making their payments. Check for overdue utility bills or notices. Look for deferred maintenance on the property. Even small items that have been ignored could raise a red flag for a foreclosure action.

* Is the property all of the sudden for sale? Check with the real estate agent to find out why they are selling and how motivated they are. Be wary of deep-discounted listing prices and incentives. Check your rent checks to see if they have been assigned to a third-party agent in recent months.

* If you are aware of a foreclosure action on the property, don’t pay the landlord - pay your rent into an escrow account and contact an attorney who specializes in foreclosure property issues.

* File a legal action against the landlord for “non-performance” on the lease, and try to recover expenses, damages and the costs of relocating you incur as a result of the foreclosure.

* Call the new owner (the foreclosure lender) directly, and try to negotiate a short-term lease and offer to protect the property for them while you search for new housing.

The sad truth is that renters are just part of the “collateral damage” of the current mortgage meltdown that I have reported on before in this blog. I suppose it would be the height of bitter irony if a person whose home was foreclosed moved into a rental house that was then foreclosed. It could happen.

Reaching 100%

I certainly didn't think this would happen, although it's always been possible. I track the sales at a detail level on a weekly basis in four Townships - Milford, Highland, White Lake and Commerce. At a less detailed level, I add West Bloomfield and track the sales in those five Townships. You can see the charts that I produce and the reports at my web site - http://www.themilfordteam.com/ and the detailed report of sales at http://www.movetomilford.com/. This week, for the first time 100% of the sales that took place in the four township area that I track in detail were foreclosures. There were only 11 sales last week, which is down from the normal 15-18 a week that I've been seeing and all were foreclosures.

I've been reporting here that I'm mainly showing foreclosures, with about 60-70% of my buyer clients interested primarily in seeing what great deals they can get on foreclosed houses. So, I guess it's not surprising that a high percentage of the sales that result would be on foreclosed houses. The reports have been running fairly consistently in the range of 50-60% of sales being foreclosures, but it never looked like it would get to 100%.

The other thing that I've noticed is that about 15-20% of the sales are at prices that are below the State Equalized Value (SEV) for the houses. In the "good ole days" one could double the SEV and come close to a market value. In fact it was running at 2.2 times SEV only 3-4 years back. Now days, the multiplier is more like 1.4-1.6 times SEV to find market value. The local governments are going to have to do a lot more re-assessing to get down to the current value levels and that will hit them hard in the budgets.

This trend towards more and more foreclosed home on the market and falling values has hit hardest at the poor regular sellers - people who aren't in distress (yet), but, who are just trying to sell their homes and move on with life. They have to compete against he foreclosed homes on the market. That's getting tougher because many of the foreclosed homes are in pretty good condition, although I still occasionally see the destructive aftermath of an angry displaced homeowner who trash the house on the way out. And there is some vandalism going on, no matter what the neighborhood. The non-foreclosed home seller still has the advantage of having a home that can usually be presented in a better manner and in better condition that a foreclosure. The issue is getting the home down to a competitive price so that they even get a look by the shoppers.

So, we've reached a milestone of sorts. Let's hope we can look back on this someday soon and say, "that was the bottom of this market." At least it can't get any worse. I think 100% is about as bad as it can get, isn't it?

Signs of better times ahead?

From one of my real estate news sources comes some good news in a recent report. Despite all the grim news about gas prices and recession, there are more than a few encouraging signs popping up in the national economy that aren't getting a lot of attention. Worker productivity in the U.S., for example, jumped by 2.2 percent in the latest quarter -- and that was on top of a 1.8 percent gain the quarter before.

Why's that significant for housing and real estate? Because rising productivity generally points to lower inflation … and lower inflation fears help keep interest rates low. Lower inflation also means that the Fed can keep the discount rate low to encourage more lending. We continue to see mortgage rates hovering near record lows. Thirty year fixed rate loans dropped again last week -- the second week in a row -- and went under the six percent mark to 5.9 percent, according to the Mortgage Bankers Association of America. Fifteen year rates slid to 5.5 percent.

Equally important, the number of consumers applying for mortgages to purchase homes took a healthy jump last week -- up 12.1 percent, according to the Mortgage Bankers. Applications for FHA mortgages -- the hottest product in the home purchase space right now -- were up by 13.2 percent. This “spring surge” in loan applications is important because it points to potentially higher home sales in the months ahead. Lower home prices in major markets, plus the arrival of the long-awaited FHA "jumbo" loans in high cost areas, are definitely pushing applications. FHA mortgages now make up the majority of mortgage in this area.

But despite these positive signs for the housing economy, there are some troubling developments as well. Toughened underwriting restrictions that began a year ago with the sub-prime loans mess have now "spilled over into the overall mortgage market including prime," according to the Fed survey. 62 percent of all banks reported imposing more restrictive loan standards during the first quarter of this year compared with last year. Until they start loosening up, it will be tough to move to a full real estate recovery. If people can’t get mortgages they can’t buy houses.

So, is this all just grasping at straws in hopes of finding some good news to report in the midst of the current recession? Perhaps, or perhaps we are starting to see signs of the economy beginning to deal with the issues that put us in this slump and finding a way out. I certainly hope so.

Go slow with home decorating...

From one of my recent real estate news sources comes this tidbit.

Buyers are often in a hurry to decorate their new home. But advocates of a fledgling decorating philosophy known as “slow design” say that's not the best decision. Instead, they urge home owners to feel comfortable letting their décor grow organically, adding one unique item at a time. “It's a big investment, and you're going to live in the space for a long time. Decisions shouldn't be made over a glass of wine on a weekend," says Wynne Yelland, principal with Locus Architecture in Minneapolis.

Here are some suggestions for giving a home personality "slowly" — and without spending a fortune:

Think heirloom. Seek out well-made pieces by local artisans.
Start small. Anchor each room with one piece that will have real character, depth and meaning that will last.
Be patient. Don't buy a roomful of furniture all at once. Let the décor evolve over time.
Don’t automatically throw away things that are old. Sometimes a coat of paint or a small repair can result in furniture that is better than new.

One nice thing about this approach is that it may save you money; or at least you won’t spend it so fast.

I can remember when my wife and I moved from our modern home in Orchard Lake out to our current, historic home in Milford. Nothing that we had in Orchard Lake seemed to fit in our new home; and, indeed, within a year or two, I don't think that we still had more than a handful of furniture items that we brought with us. We spent a lot of time in antique stores for the first year, finding tables and lamps that would fit in to the historic look that we were going for in the Milford house.

It was amazing to us how many lamps and floor lamps we had to buy. Very few rooms in the Milford house had overhead lights that one could turn on with a switch. All of the rest of the rooms needed multiple lamps to light them up. So, finding the right accessories for each room - end tables and lamps, was a big deal and time consuming. We went slow with that and sort of did one room at a time.

One other thing that I might add to the advice above is to spend some time thinking out what overall theme you want to have for the house. Even though “eclectic mix” could be thought of as a theme, it is jarring and somewhat disconcerting to walk from one room to another in a house and experience a dramatic difference in the design theme in each room. Going from a room done in a look of classic elegance into a room decorated in modern contemporary just doesn’t work (at least not for me).

There are transitional themes which would allow for the mixing of the new and old that might work if well executed. The theme will also help with color choices for walls and window treatments. French Art Poster colors may work well in a modern house, but wouldn’t necessarily fit in a historic house.

So, maybe the overall takeaways here are two – go slow and go consistent (stick to a theme).

Help for the underwater

From a Wall Street Journal article comes this story of some help on the way for hapless homeowners. Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being "underwater."

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal -- something many lenders are reluctant to do. Fannie's refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

Officials of Fannie Mae, a government-sponsored provider of funding for home loans, said the new program is limited to people who have kept up on their payments so far and whose loans are owned or guaranteed by the company. Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn't worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.

The program will allow refinancing loans of as much as 120% of the property value. Fannie Mae officials project that 150,000 households could qualify for such refinancing. Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover (which is what many of them have been saying too). The National Association of Home Builders and the National Association of Realtors praised the program, and many politicians have been pushing Fannie and rival Freddie Mac to do more to help borrowers. So, if you have a Fannie Mae backed loan now and are underwater on the value of the house, watch this summer for this program.

If you’re shopping for a house this summer, I’d certainly advise getting pre-approved for an FHA loan (if the house is under $300,000), since the FHA rates are great and you can put as little as 3% down on the house. There are even programs, which you may qualify for, to have that 3% paid by the seller. So, don’t give up on home ownership. It still beats renting by a long shot and you’d be surprised how many programs are still out there to help make it happen for you. What’s not there any more are the no doc, no down payment, 100% financing programs that ended up getting so many buyers into foreclosure trouble. And that’s a good thing.

When not to bad is good…

Dr. Orawin Velz a top mortgage industry economist sees conditions in the market at the moment: It's all kind of "flat." He was referring to the latest big-picture, "macro" numbers on the U.S. economy that underpin the housing market: The gross domestic product or GDP -- all the goods and services generated in the national economy -- registered a zero point six (0.6) growth rate in the first quarter.

No question that's pretty anemic. But it's better than the negative growth predictions that had been made by many Wall Street analysts. What’s that old joke about how good it’s going to feel when you stop banging your head against the door?In the latest month, manufacturing production was better than just about anybody expected -- factory orders jumped by 1.4 percent in March. No big deal you say? It was the first increase in factory orders we've seen in the last three months, even if it maybe did miss Michigan..

The employment picture was also better than projected. The US economy lost 20,000 jobs in the most recent month, which is not good. But Wall Street had forecast an 80,000 job loss number -- and the stock market took a nice bounce on the news of the smaller loss. Plus, the national unemployment rate dropped to 5 percent from 5.1 percent.

On top of all this, the Federal Reserve did precisely what most analysts expected -- cut the short-term federal funds rate by another quarter of a point. Now that doesn't translate into lower 30-year mortgage rates, but it is very welcome news for millions of people with home equity credit lines and adjustable-rate mortgages heading for payment resets.

The fed funds rate is now at 2 percent, and the prime bank rate is just 5 percent - which is outstanding -- and should eventually have a stimulative effect throughout the economy. Mortgage rates also fell slightly last week. Average thirty year rates inched downward to 6.01 percent, according to the Mortgage Bankers, and 15 year rates averaged 5.5 percent.

All in all, things could be worse. And they could be better. We are all paying horrendous gas and food prices and that psychology diminishes consumers' appetites to buy and sell houses. On the other hand, the underlying US economy is defying the pundits, hanging in there like a boxer who refuses to go down. Home prices and the cost of money are more affordable, and a number of local real estate markets are picking up on that combination -- and improving.

So: the economy may be flat. But, flat looks relatively favorable at the moment. It sure beats the alternatives. In Michigan, and in this area, we are still in decline, but perhaps starting to level out. Activity and sales are up a bit, mostly because the good weather has brought out the buyers. Foreclosures are still high and foreclosed properties still make up almost half of our local sales. But, hey; there's nothing wrong with getting a good deal on a foreclosed property, and many of the previous owners have likely left the state anyway.

The $2 Billion Home

In the midst of all of the gloom of the current mortgage and foreclosure mess, let us pause to contemplate what a $2 Billion (that's with a "B", not and "M") homes looks like. The picture on the right shows only the tops floors of the 27 story home. The first six floors are the parking garage. Most of this story appeared first on the Forbes Web site.

While visiting New York in 2005, Nita Ambani was in the spa at the Mandarin Oriental New York, overlooking Central Park. The contemporary Asian interiors struck her just so, and prompted her to inquire about the designer. Nita Ambani was no ordinary tourist. She is married to Mukesh Ambani, head of Mumbai, India-based petrochemical giant Reliance Industries, and the fifth richest man in the world. ( Lakshmi Mittal, ranked fourth, is an Indian citizen, but a resident of the U.K.) Forbes estimated Ambani's net worth at $43 billion in March. Reliance Industries was founded by Mukesh's father, Dhirubhai Ambani, in 1966, and is India's most valuable firm by market capitalization. The couple, who have three children, currently live in a 22-story Mumbai tower that the family has spent years remodeling to meet its needs.

Like many families with the means to do so, the Ambanis wanted to build a custom home. They consulted with architecture firms Perkins + Will and Hirsch Bedner Associates, the designers behind the Mandarin Oriental, based in Dallas and Los Angeles, respectively. Plans were then drawn up for what will be the world's largest and most expensive home: a 27-story skyscraper in downtown Mumbai with a cost nearing $2 billion, says Thomas Johnson, director of marketing at Hirsch Bedner Associates. The architects and designers are creating as they go, altering floor plans, design elements and concepts as the building is constructed. The only remotely comparable high-rise property currently on the market is the $70 million triplex penthouse at the Pierre Hotel in New York, designed to resemble a French chateau, and climbing 525 feet in the air. When the Ambani residence is finished in January, completing a four-year process, it will be 550 feet high with 400,000 square feet of interior space.


The Ambani home, called Antilla, differs in that no two floors are alike in either plans or materials used. At the request of Nita Ambani, say the designers, if a metal, wood or crystal is part of the ninth-floor design, it shouldn't be used on the eleventh floor, for example. The idea is to blend styles and architectural elements so spaces give the feel of consistency, but without repetition.

Antilla's shape is based on Vaastu, an Indian tradition much like Feng Shui that is said to move energy beneficially through the building by strategically placing materials, rooms and objects. Atop six stories of parking lots, Antilla's living quarters begin at a lobby with nine elevators, as well as several storage rooms and lounges. Down dual stairways with silver-covered railings is a large ballroom with 80% of its ceiling covered in crystal chandeliers. It features a retractable showcase for pieces of art, a mount of LCD monitors and embedded speakers, as well as stages for entertainment. The hall opens to an indoor/outdoor bar, green rooms, powder rooms and allows access to a nearby "entourage room" for security guards and assistants to relax. (Ed. That's what I'm missing in my home...I knew there was something.) There is an entire floor for exercise and another floor for a theater room.

Ambani plans to occasionally use the residence for corporate entertainment, and the family wants the look and feel of the home's interior to be distinctly Indian; 85% of the materials and labor will come from outside the U.S., most of it from India.

I suspect that I could get my entire home into one floor of this palace. They have nine elevators, maybe one button could be marked "Norm's floor." I wonder if each kid will get his own floor, likely with an Au Pair suite included for the nanny. Ahh, well; the good news is that this guy is recycling his wealth. Maybe some of it will trickle down to us. I should send him a card, in case he ever needs a Realtor to unload the place. And, can you imagine the taxes that would be charged if this place was in your neighborhood. As close as I can calculate, he would owe $10,137/day in taxes if the place was in Milford. Wow, we could use a taxpayer like that.

Analyzing Activity in the Milford Market

I tend to be a numbers person. I track a lot of statistics about my little piece of the market - what's sold, what's on the market and for how long and things like that. Our manager shared a little report that focuses just on our office and the Milford area market that we serve and it reinforced something that I've been telling my clients for some time - the heart of the current market is down in the $150-200K price range. What this report showed was the percentages of where our listings are priced and more importantly which price ranges are getting the most showing activity and thus the most sales.

There were 20 price bands on the report starting at under $50k and ending up at the Over $1,000,000 level. Because of the way the numbers were divided into those 20 buckets, the ranges weren't all on nice neat borders, so the $150-200K band ended up being $155,554 to $208,330., but that's close enough to support my point. That band represents just about 25% of our office listings ( 24.47% to be exact). It also represents 25.1 % of all of the showings that we are recording for properties and that category has the highest activity level (percentage of properties in each price band that get showings) at 24.7%. The next highest price band in all those categories is the one right below it - the $102,777 to $155,553 band, which makes up 14.6% of our listings and accounts for 21% of all showings. Taken together, houses from about $100 to about $200K make up 39% of our listing inventory and 46% of our showing traffic.

Those statistics are consistent with my own anecdotal observations in the market, both in Milford and elsewhere. I suppose a part of it is that so many of the foreclosed homes fall into that price range now and foreclosed homes is what most buyers are asking to see. The other confirmation for me that came out of this report concerned the slow activity in the $300-400K price band. Houses in that price range make up 23.7% of our listing inventory, which is a healthy slice, but they generated only 18.6% of our showings. (NOTE: due to the report price range boundaries, I had to use homes in the range of $261,108 to $419,438 for this price band, so the numbers are bit higher than the real 300-400 price band would have been) That has been a very slow price band for about 18 months now, since it covers a lot of the "move-up" houses that nervous middle management types have been holding off of buying.

The real "heart" of our market is between$102,777 on the bottom and $313,884 at the high end. That roughly $200K range represents 64% of our total market inventory and generates 70.5% of our showings. And showing eventually generate sales. As I compare these statistics to one that I keep on my Web sites they all fall into place. The lower price bands tend to have great numbers of homes in the inventory, but also tend to have lower Days on Market numbers, meaning that they turn over faster. Because there is more turnover in the lower bands, other statistics like the median sold home price tend to be held lower.

So, what does this means to you? Well if you have a home that would likely be priced somewhere between $100K and $300K it means that it's still a good time to be on the market, with lots of showing activity. If you house would price above $300K it means that you;ll need to be as aggressive as you can on price and be prepared to be a bit more patient and persistent. Your agent may also have to try some different marketing approaches to generating more showing traffic. It's also important, if you are gong to get less showing traffic, that you make the most out of what traffic you do get; so, listen to your agent's tips on how to best prepare your house to make the best impression on showings.

The spring selling season...

The spring selling season has opened with a boom. I track the weekly sales of homes in a portion of the area that I normally cover - Milford, Highland, Commerce, White Lake and West Bloomfield. For the past four months sales have been pretty steady at about 23-26 per week, sometimes almost getting to 30. Last week sales shot up to 49 homes. That's good news. Further good news is that less than half of the sales were foreclosed houses. Foreclosures have been running between 40-50% for some time, but they are now down to the high 30's level.

Spring is historically a great time to be on the market, since people who have been pent up by winter seem eager to get out and look and to buy. People with families have a fairly short window of opportunity to buy a new home and get the family moved in before the new school season starts. They really need to have their home buy made before the end of July to ensure that they'll get in an get a bit settled before the new school year starts in their new neighborhood.

So, even though this isn't a frenzied market, like at a really great retail sale; it is a big improvement over what we've been experiencing. There are some great bargains out there in the housing market right now, especially the foreclosed houses that banks are dumping right now. The pressure from the foreclosure homes has also driven regular home sale prices down, so you can find a really nice, move-in ready home that is priced to compete with a foreclosed house that may need work.

My advice is not to sit on the sidelines waiting for the market to go down further. Get out and start looking while the selection is greatest. If you are a buyer with nothing that you have to sell, you will be treated like royalty. There will likely never be a better time to be a buyer than right now. Take advantage of it, while you can.

Beware the sleazy operators...

The current real estate market has proven to be a fertile field for sleazy operators - both in the real estate and the mortgage side of things. Whenever lots of people are in distress, following a natural disaster or just experiencing things like our current economic conditions, there are always sleazy people who view it as an opportunity to swoop in and take advantage.

We've heard quite a bit about the mortgage side, what with so-called "toxic ARM's" that people didn't understand to the "I can help you get out of debt" artists who end up owning some poor guy's house because he thought it was OK to sign it over to the con-artist and then rent it back until he could get back on his feet.

Now we're seeing the sleazy side of the real estate world, too. I've had clients who were contacted by some of these con artists with pitches to put the house up for lease at the same time that I have it for sale or the "don't worry, we'll take care of everything for you" pitch to people approaching or entering foreclosure. Look closely at any of these pitches and you find sleazy operators at best violating the Realtor's Code of Ethics and at worst breaking the law. One thing is consistent, they are taking advantage of people who aren't thinking clearly, due to the stress of the situation; and, they are counting on ignorance of the process and the laws involved. I advise my clients that if they hear one of these pitches that if it sounds too good to be true - guess what?

These are tough times in real estate and for mortgage borrowers. Don't let yourself become the victim of sleazy operators in either field. And don't be fooled by people working for what seems to be a big national brand outfit. Both the real estate and mortgage national brands tend to do quite a bit of their business as franchise operations with little local franchisees. In both the mortgage and real estate businesses many of the practicioners that you meet are independent contractors, i.e. they work for themselves, supposedly under the supervision of a broker. That supervision is sometimes fairly lax, again depending upon the company.

Just be skecptical if someone comes to you and promises to fix everything or take care of everything. Tell them the banana boat left yesterday and you didn't just fall off it. Unfortunately you can't avoid sleaziness in these tough times, but you don't have to fall victim to it.

Being the cheerleader...

I live with a cheerleader and I work for a cheerleader. Both my wife and my manager at Real Estate One are naturally upbeat people, who are constantly trying to get everyone around them to be upbeat, too. Sometimes that can be annoying, but for he most part it's the right thing to do and is working with me (not always, but much more than it used to). I've got to get more positive, not only for my own sanity, but to try to keep my sellers thinking positively, too. That;s not easy in the current market.


Whenever I get a bit down, my manager sees it and she calls me Mr. Grumpy. That normally is enough to break the mood. As I said here a few days ago, I'm a person who enjoys humor and to me I guess that is humorous. We can all use some humor these days.

Today's newspaper headlined the "news" that Michigan had the worse ever April for foreclosures last month and went on to state that May looks to be even worse. The writer quoted some unknown local economist as stating that 10,000 foreclosures in Michigan this year is within reach at the current rate. I'll have to get out my "We're #1" rubber finger picture again. Oh, wait. Is that Mr. Grumpy showing up again? Call out the cheerleaders.

Actually, one could view that as good news, if one is a buyer or working with buyers, which I am. I seem to be showing almost nothing but foreclosed houses lately and most of them are in fairly good shape. It can be a challenge to get an offer through the process, depending on who the bank is that currently owns the house, but it's worth the effort. There are just some super buys on the market right now. Young, first time buyer couples seem to realize that this market represents an extraordinary chance for them to skip right past a starter house and get right into what would have been their first move-up house.

As for sellers, I'm encouraging the good honest people who are trying to make a normal sale that the sale will come, it just may take a while longer and bring in a little less than they had hoped. Most normal sellers have the advantage of being able to present to the market a house that is better maintained than the foreclosure homes. For people looking for a place that they can just move right into, without a bunch of work, the normal houses on the market are the way to go.


So there you have it. I've progressed from Mr. Grumpy to Mr Happy, all because I live with Pollyanna and work for little Mary Sunshine. Thanks, ladies!

Getting excited by a warranty…

As long time readers of this blog know, I do not generally endorse products here, nor have I gotten all that excited about most of the “new and improved” products that have come out lately for the real estate business. However, American Home Shield (AHS) has just rolled out a product in this market that is different enough and has enough meaningful new features that I’ve gotten excited about it.

The new product is called Home Warranty FlexPlan. Like most home warranty products it has a base-level plan and then offers upgrades to that base level. AHS calls their base level plan the Core Coverage Plan and it covers most of the core mechanicals – heating, Air Conditioning, duct work, Plumbing, Plumbing Stoppages, Whirlpool Motor and Pump, Water Heaters, Electrical, Exhaust/vent/Attic Fans, Built-in Microwaves, Dishwashers, Garbage Disposal Units, Ranges/Ovens/Cooktops and Trash Compactors. That is a fairly standard list of things to cover, although there may be a couple of things on that list that you won’t find in other warranties.

AHS includes the somewhat standard 13 SEER replacement coverage if they have to repair an older defective air conditioning unit. What is not standard in the industry, is that AHS includes in what is covered under this Core plan, the need for repairs to these units that may be caused by sediment, rust, corrosion and insufficiently maintenance. Think about it. What causes a lot of problems with the items on this list is neglect by the previous homeowner. This policy appears to cover the issue that might be caused by that neglect.

AHS also introduced two levels of upgrade to the Core Plan that are really noteworthy.

The AHS ServicePlus Package is available for an extra $79 and covers six critical areas that all home sellers and buyers should be covered for: Refrigerant recapture, reclaim and disposal (should they have to repair your air conditioning unit or a refirergator), removal of defective equipment, pulling permits (up to $250) for any repair work that requires a local permit, code violations (bringing things up to code, with a max of $250/coverd item), covering undetectable pre-existing conditions (a major potential issue in foreclosed homes)covering repairs to correct improper installations, past repairs or modifications (in other words correcting the mistakes of the not-so-handy-man previous homeowner) and correcting issues caused by mismatched systems (likely another handyman-caused issue). This coverage covers a multitude of past sins and should give the buyer much greater peace of mind, especially when dealing with a foreclosed home, where the previous owner is long gone and the bank has included 40 pages of “we know nothing and are liable for nothing” language in the deal.

For an additional $55, AHS has what they call their CoveragePlus Package, which adds coverage for a number of niggling little items that most buyers just don’t want to deal with, including: ceiling fans, garage door openers, telephone wiring, built in food centers, doorbells, instant hot/cold water dispensers, central vacs and smoke detectors.

To these coverage plans and packages it is possible to add up to 11 more coverage items from refrigerators w/ice dispensers to swimming pool and spa equipment to well pumps and septic systems. Each has an ala carte price.

I have not been an ardent fan of home warranties in the past, but this new set of products from American Home Shield has made a convert of me. The money to pay for the first year coverage of all of these items would easily be recovered if almost any of the covered items had to be repaired or replaced. The fact that AHS has taken a position that covers so many of the unknowns and common maintenance (or lack thereof) issues and handyman-homeowner-caused issues makes this the only home warranty product that I’ve seen that should be considered mandatory for all buyers.

Now there are two things that I will insist that my foreclosure home buyers do – get an “Eagle Brand” extended coverage title policy and get the AHS Home Warranty FlexPlan with at least the ServicePlus Package. Get both of those, plus have a good inspection done, and you’ll be about as well protected as you can get when buying a foreclosed home.