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Tuesday, September 30, 2008

Falling back to earth…

The Greek myth about Icarus and his wax wings serves as somewhat of a nice metaphor for the current housing market meltdown, except in the housing market case the homeowners (Icarus) were sold a bill of goods (wax and feather wings) in the form of easy credit. Too many took up those wings and soared into home ownership without a clue as to how to pay for everything. That caused the so-called housing bubble, which was essentially a quick run-up of housing prices produced by too much easy money chasing too few houses. That was especially true in places like California, Florida and Las Vegas.

In Michigan we did experience a run-up in perceived values just due to the overall jump in appreciation rates. We went from a norm 3-4% annual appreciation to 5-8% per year for a while. So what happened was that perceived (and assessed) values shot up, even though there was little real reason for that in our area. Easy money, even in Michigan, did make it easier for more and more buyers to try to get into houses, so prices rose quickly.

Then, the wax melted; and, flap our arms as we might, we can not fly and we all fell to earth. Actually we’re still falling. In my post yesterday there was an example of a home that happened to be out west, but could have been anywhere. It has fallen 8% in the last year from a “value” of $230,000 down to a current estimated value of $212,240. The article mentions that prior to the run-up that started in 2001 it would have been valued at $154,100. Let’s use that example to see how this works.

Because of the steeper appreciation curve that it was on, due to the housing bubble, it had “appreciated” 150% over those 7 years. If the normal appreciation rate of the pre-bubble years had applied it would have only appreciated maybe 127% (using equal numbers of 3% and 4% appreciation years) and it would be worth about $201,552 today. So the “overshot” of it being perceived at a value of $230,000 is about 14%. That’s why it’s not hard to believe the estimates that I see of values dropping by 10-18% in our area. We likely had that much overshot on prices, plus we’re in a depressed economy locally.

The high point of the run-up was supposedly 2004. If you look at what has been happening to values, even assessed values you can actually see the values peak and then start back down. The fall in assessed values lags the market by almost two years, since assessors were initially reluctant use much of the really bad data (foreclosures) in their work. After 2006 they could no longer deny what was happening and you start to see assessed values falling in 2006 and beyond.

In the Greek myth, Icarus plunged to his death in the sea, which I suppose we could equate to the foreclosure mess that we’ve seen in the housing market. Recall however that Icarus’s father Daedalus did not take the risks that Icarus did and he was fine. I suppose the analogy there is that there were lots (many more in fact) home buyers who did not get caught up in the euphoria and who are safe (a relative term in this economy to be sure).

It would make the story more meaningful if the myth contained references to some sleazebag wax salesmen selling bad wax to Icarus’s father, but I can only push this analogy thing so far and, truth be told, Icarus brought much of his fate upon himself. Suffice to say that we are falling back to the level we should have been at, had we followed the normal appreciation curve, maybe even a little below. Hopefully, we will land soon and start a more normal appreciation cycle again.

Monday, September 29, 2008

Dude - where're all the buyers?

Prices have dropped a lot. But it's still surprisingly hard to find buyers. Much of this post comes from a Money Magazine article from a few days ago, with pithy comments or extensions were I thought they might help.

Maybe you've started thinking that now you can finally find a buyer for your house. After all, this summer the National Association of Homebuilders asserted that houses were more affordable than at any time during the previous four years. Prices have slid so far that many homes are now within the reach of people who couldn't buy during the bubble. And you've cut out most of your "wiggle room" to get down to the bone on your house (at least as you see it).

Whether shoppers will become buyers; however, depends on a mix of factors including the financing that buyers can get, whether there are enough of them who want to live where you do, their other housing options and how they feel about investing so much in an asset whose future appreciation is iffy.

Price, though, is still the primary measure of affordability for any buyer. And while the median price for an existing house has tumbled 8% from $230,100 to $212,400 since its peak in 2006, according to the National Association of Realtors, many potential buyers still see asking prices as expensive. And they're not wrong. That $212,400 house, after all, costs 39% more than it did back in pre-boom 2001 when it sold for about $153,100. Prices in red-hot markets such as Miami became even more inflated during the boom and are still up about twice as high as they were in 2001. I suspect, however, that the $1,000 houses in Detroit may be at their low point.

And then, the price may be right; but if buyers can't borrow enough, the house isn't affordable. Difficulty borrowing is keeping many Americans from buying. "The industry went from little or no credit standards to credit standards on steroids," says Marc Savitt, president of the National Association of Mortgage Brokers.

According to the Federal Reserve Board, about 85% of lenders, worried about falling prices and rising foreclosures, have stiffened requirements for borrowers in the past three months. Those with a credit score of 600 or lower cannot get loans at all, says Keith Gumbinger of HSH Associates, a mortgage information publisher. The upshot: 21 million, or 13% of those who have credit records, many of whom would have qualified for mortgages during the bubble, can no longer do so.

Those whose credit scores are high enough to qualify for a mortgage will likely pay more. Fannie Mae and Freddie Mac, which set the lending criteria for most loans, in November will require a 740 score, up from 680 for buyers to escape a surcharge that ultimately increases their interest rate. As a result, the 33 million Americans whose scores fall between 680 and 740 (roughly 20% of adults with credit histories) may have to pay half a percentage point more to borrow. On a $300,000, 30-year loan, that would add about $100 to a buyer's monthly payment.

Buyers also face higher interest rates, which allow them to borrow less. In mid-2004 a borrower with good credit could have qualified for a rate of 5.87% on a 30-year fixed $300,000 loan. That translates to a monthly payment of $1,774. Now, with the rate for the same loan at 6.57%, the same monthly payment could support a loan of just $278,500. And while banks once allowed a homeowner's monthly principal, interest, taxes and insurance (PITI) to make up as much as 45% of a family's before-tax income, now buyers are restricted to using only 32% for a house payment. If PITI rises beyond that limit, banks consider the loan unaffordable and the family cannot receive a mortgage. That limit boosts the amount of income a homeowner needs to purchase. Say your house has dropped from $425,000 to about $395,000. A couple of years ago a family needed an income of only $80,000 to buy. Now, even though the house costs less, a prospective buyer must have an income of $92,000.

Fear, uncertainly and doubt may be the biggest obstacles keeping buyers from knocking on your door. During the boom, people were willing to spend as much as they did on housing because they thought that they were putting away money for retirement or college. And they could draw on their equity for renovations or other goodies. Few these days think of real estate as a safe place to invest, however. According to Gallup, only 27% of the population believe a home is their best long-term investment, down from 50% in 2002. "Nearly a quarter of potential buyers are on the sidelines waiting for some form of encouragement," says Walter Molony, spokesman for the National Association of Realtors. Maybe they're looking for some sign that houses have truly become more affordable. The price declines haven't done that yet

In our area the "fear factor" is exacerbated by the daily headline about more layoffs in the auto industry and indeed by the articles that call into doubt the very on-going existence of some of our biggest automotive industry employers. So, where are al of the buyers? Is that them over thee in the corner curled up in the fetal position and shivering uncontrolably? Opps, no, that's a group of sellers. The buyers must be somewhere else.

Sunday, September 28, 2008

What would the inspector find at your house?

I spent most of Friday night (‘til 10 PM) at a home inspection. This was on a fairly new and house – built in 1998 – that, while not really what you might call an upscale house, it is priced over $300,000; so, one would expect it to be nice and in good condition. In general it was, although the inspector found at lease 5-6 things that need immediate attention and a list of 10-15 maintenance items that the new owner should get to sometime soon. As I was whiling away the hours; I asked my buyer, who was there observing and learning about the house, “What would the inspector find at your house?”

That’s an interesting question that all homeowners should ask themselves from time-to-time, even if they aren’t contemplating selling anytime soon. Answering that question honestly would likely result in a good long To-Do list for yourself. Good inspectors, like we had that night will take 3-4 hours to do an inspection, starting on the roof and working their way down to the basement. Finding a roof with absolutely no issues would be rare, with missing or badly installed flashing or drip molding being the most common, followed by poorly installed valleys or just plain worn out or missing shingles. Poor water management, such as gutters without proper length downspout runoffs are a common exterior issue, as is rotted wood and improper or missing caulking around doors and windows. These days, it’s not uncommon to see pieces of the vinyl siding that are loose or separated – that’s easy to fix.

Inside, the inspectors always look for any evidence of water intrusion, usually spotted due to discolored paint. They look for proper polarity and grounding of electrical outlets, leaks in any plumbing, missing or moldy grout around tubs and showers, proper left-right installation of the hot and cold water in sinks and tubs. Many inspectors check all appliances for proper operation, but some refuse to do that. Inoperable garbage disposals and sump pumps are common finds in even newer houses. They will check the water softener and water heater and cycle the heating and cooling units (unless it’s winter, when they can’t run the AC). It’s not unusual to find inoperative humidifiers or at least humidifiers with solidly caked pads that need to be changed. Furnace filters are examined, too and the furnace and hot water heaters both checked for gas leaks. Furnaces are checked for any evidence of cracks in the heat exchangers, which can let deadly carbon monoxide get into the heating system.

The inspector will likely open and close all windows and doors to check for proper operation and note any that have broken seals (foggy glass). A good inspector will crawl around in your attic to see if there are any issues there – water intrusion, mold, evidence of pests making a home there – and to see that it is properly ventilated. It is not uncommon to find that the well-meaning homeowner has blown in lots of extra insulation and covered over the access for air from the eaves vents. Then there are the handy home owners who finished their own basements. That normally provides a host of issues that need to be resolved, since most homeowners don’t understand or follow all of the local building codes. All electrical plugs in the bath and kitchen and in the garage are supposed to be ground fault interrupt (GFI) types and the inspector will check that (you can buy a little polarity and GFI tester at the hardware store for under $10)

The inspector that I use most often is very thorough and the buyers usually end up really appreciating the detailed understanding that they get out of the process. He told us that night that, in over 3,000 inspections that he has done, he has never found a perfect home. He said that only 3-4 homes that he can recall came close to having zero defects, even though many were new-builds. So, as an exercise in keeping your home up to snuff and ready to sell someday, walk around your house with a pad an pen and take note of the things that an inspector might find in your homes that need work. Then, get to work!

Saturday, September 27, 2008

The bailout impasse…

Why am I not surprised that the congress has been in a stalemate situation again – this time on the bailout bill. This was, after all, proclaimed to be a “The Sky Is Falling” moment in our history, only to be greeted by a “Wait a Minute Here” response in Congress. In this case there are certainly good arguments to be made for a thorough examination of what is being proposed. After all, $700 Billion isn’t something to be lightly thrown at any problem.

Both Main Street Americans and many in Congress agree that taxpayers shouldn’t bail out the greedy on Wall Street; however, Congressional republicans don’t want to see their wealthy contributors getting dinged in the process, so they are against holding down the outrageous payouts to wall Street CEO’s who bail out. The Congressional Republicans also appear to be against the American taxpayers getting a share of the businesses that are bailed out in return, citing concerns about interfering with normal free-trade commerce. I’d be more concerned that whatever governmental body is eventually created to sell off these “assets” would just screw it up as they always seem to do.

This is certainly a situation that is ripe for a successful “throw the bums out” campaign; except, we’d have to throw just about everybody who’s currently in Washington out and start over. While that is an appealing thought, it is impractical; so, we’ll have to leave a few bums there. The hard part would be figuring out who to leave; although, that would surely be a shorter list than whom to keep.

So, as we wait and watch for a solution (will there be white smoke rising from the capitol dome chimney?) to the crisis, we can only contemplate a better answer than we’ve had so far about where all this money is supposed to come from. We all know the answer to that, don’t we?

Friday, September 26, 2008

Guy things in a house

There was an interesting article in one of my news feeds recently about the growing importance of garages in home-buying decisions and in home construction. I have to believe that this is one of those guy-things. I have never known one of my female clients to get all excited about the garage. Guys, on the other hand tend to look for things like a big garage, along with several other things that the women could care less about.

Guys will go looking for the sump pump or open the electrical panel box to check out the circuit breaker count and the room for more. Guys will walk around the furnace and the hot water heater, perhaps making comments about their apparent condition or their size. Size apparently matters to guys, when it comes to hot water. Size also matters when it comes to closet space in the master suite. Most guys know that they will only get a tiny bit of the closet for their stuff, so having a big walk-in closet is a must, perhaps even a second closet for his stuff would be even better. More than once we've joked about storing his stuff in a spare bedroom closet.

The basement in general seems to be more of a guy space, unless it is already well finished. Even then, many conversations seem to turn on making a finished downstairs room into a man-cave fitted for watching football or housing a pool table. Guys will stand around for some time "harrumphing" about how they might finish off a bare basement, while most of the women just want to get out of the cold, dark space and get back to the main house.

Returning to the garage for a minute, the article had some advice about things that a would-be home seller might consider doing to make the garage more appealing. The tips included dry walling the whole thing and painting it, plus doing the floor in either epoxy paint or perhaps even tiling it. Of course, it was recommended that the garage not be ignored in the process of de-cluttering and straightening up the place. For real garage aficionados a natural gas powered garage heater is a must and for the fanatic there is nothing to drool over more than a garage with a lift built in.

Adding storage organizers and cabinet/work spaces also helps. Depending upon the construction technique used above the garage, one might also provide access to additional storage with a pull-down ladder. Don't do what one home-seller that I hit had done - he cut out a bunch of the stringers from the garage roof trusses to allow more space to be used for storage. The roof had already started to sag over the garage because of that and he had to make an expensive repair to sell the house. If the garage was built using pre-built roof trusses, leave them alone.

I suspect that guys know ahead of time that the only spaces that they will have to themselves will be out in the garage or in the basement somewhere and that's why they gravitate to those places while looking at houses. They might also spend some time out back on a patio or deck fantasizing about grilling burgers or steaks, since that too seems to be a part of the man's realm. But it is the garage or basement where they can hang their neon beer signs and pictures of their favorite NASCAR driver or put up the display of the old school colors for game day. And what could be better than having a place for a wide screen TV, an old sofa and an old refrigerator full of cold beer than the man-cave in the garage or basement.

Thursday, September 25, 2008

Where are they to go?

Recently I've been working to help a bunch of people who have fallen victim to the ravages of the current housing crisis. Most, through no real fault of their own hit some bump in life's road and ended up losing their home to foreclosure. Now they are out looking for a place to live.

The cruel second shoe that oft times drops is the requirement, even to rent a home, for a credit report, in addition to other background information. Most of them have crappy credit reports; so now, they are again in danger of being denied a place to live, because for their earlier mistakes. I guess I can't blame the owners of the rental units for being cautious; especially if someone displays a history of being unable to live up to financial obligations; however, many of these folks have turned things around and are now quite capable and ready to meet new rental requirements, maybe even ownership requirement. The issue is that their credit is trashed for at least 3 years, if they went through a foreclosure, even longer if they chose to declare bankruptcy.

What are they to do - go live in a cardboard box under an overpass for 3 years? I think not and I certainly hope not. right now all of the bailout efforts are aimed at triage - stopping the bleeding in the financial sector and slowing or stopping future foreclosures. The large group of people who have already been foreclosed has been temporarily forgotten. I can almost guarantee you that this will not last. Although some Republican politicians in Michigan wanted to focus on disenfranchising those people for the coming election, the majority of politicians will eventually turn a sympathetic ear to this group and laws will be enacted to help them, too. As a group they are being discriminated against and that will eventually be righted.

What could we do to help them and yet not stomp all over the rights of the property owners? I suppose there cold be some form of rent guarantee program that would be more or less an extension of programs that already exist for low-income families in some urban zones. Since the government is going to end up owning most of the foreclosed homes, I suppose they could offer them up at reduced rental rates to these people - a sort of subsidized housing program like they already run in many cities. whatever it end up being it will all be about money - it always is.

The point is that, before this mess is all over, we will have about 6-10 Million families that have lost their hoes and are out on the street looking for housing and who have bad credit reports, due to the foreclosures on their old homes. As a part of any rescue/bailout plan, we need to figure out more than just how to save a few banks on Wall Street; we need to figure out how to save a few million people on Main Street.

Wednesday, September 24, 2008

Walking, talking potpourri …

It's time to stop talking about the smell coming from Washington these days and look closer to home. Did you ever stop to think how many smells we slather on ourselves every day as we get ready for the day? I started looking at just the bath and personal hygiene products that I use everyday. My shampoo promises to make my hair smell like a giant strawberry, joined in its mission by my conditioner which adds the smell of green apples. Of course my soap couldn’t just smell like soap, so it adds a touch of pine scent, which one assumes is what the spring in Ireland must smell like.

Toothpaste is not allowed to go odorless either, so a touch of mint is added, reinforced by another dash of mint in the mouthwash. Then it’s on the underarm department, which fights to mask our human odor with a burst of “Fresh”, whatever that smell is supposed to represent. To finish things off a spritz or two of a Spicy smelling cologne adds to the calliope of smalls.

Of course if we moved on down the body we’d find other must have personal hygiene items that all have their own, “sure to make everybody love you” smells, except of course at the bottom, where we find Odor Eaters, whose mission is to stop smells, not add to them. Thank goodness some products don’t add to smell inventory. Of course, my clothes themselves do not escape this olfactory onslaught, since they are washed in lemony fresh something or other and dried to smell Downy Fresh, whatever that is. Apparently they are meant to end up smelling like a lemony teddy bear.

I was reminded of Carmen Miranda by these thoughts. She was a Brazilian performer in the 40’s, 50’s and 60’s who often performed wearing what looked like a fruit basket on her head. We must all smell somewhat the same way these days. We have become walking talking potpourri baskets.

Interestingly, our obsession with smelling good is offensive to many other cultures, where the natural human body odor smell is accepted. Those cultures, many in the Middle East, find our habits, especially when it is a man, to be effeminate, which is not looked upon favorably. Better to smell like a sweaty man in those cultures. Only the women are expected to wear scents.

Still, on balance, I suppose that I’d prefer to smell like an Irish Spring or a Mountain Waterfall (whatever that smells like), rather than a goat herder in the afternoon sun. A good motto might be, if you have to smell, at least smell good! But, to whom, might remain the question.

Tuesday, September 23, 2008

Theeeeeey're back….

You’ve certainly got to give the financial guys credit for being persistent and creative. With many of their traditional mortgage products in the pooper, they’ve come with a new product, frequently called a shared-appreciation arrangement or equity release. This product is being primarily pitched to older homeowners as a way to get some equity out of their homes for whatever purposes that they need the money.

The way this product works is that the homeowner gets money now, based upon the value of his/her home and on the promise (and commitment) to share some (often 1/2 ) of the future appreciation on the home. The loan comes due upon sale or when the homeowner decides to terminate it and pay back the lender. Generally the loans are written for 5 years, sort of like a balloon-payment mortgage with the lender not liable for any losses during the first three years. So the lender can’t lose during that time frame.

If the home appreciates and the owner decides to sell in 5 years, then ½ of that appreciation, plus the initial loan amount are due. If it doesn’t appreciate, well you still owe the initial loan amount, but you can deduct ½ of the loss that you’ve incurred over that time, so you win. The likelihood that real estate prices are going to be less than they are now in five years is considered remote, but it could happen.

This sounds like a good deal right now, with values down and the end to the value slide not yet in site; however, this type of loan can end up costing a lot more than just a straight equity line of credit or even a reverse mortgage. For the full Wall Street Journal story on how this works and the risks involved, click here.

Now we all know what the next step in this storyline will be don’t we? Some slick operator will figure out a way to package up a bunch of these equity release loans and sell the packages as collateralized investment instruments to pools of investors. Sound familiar? Here we go again! Eventually some of these loans will prove to be bad bets and another round of bailing out the banks will become necessary. We haven't even got the current bailouts started and the financial guys are working on the next set of questionable products.

Honestly, these financial products guys have more chutzpa that a New York cab driver and apparently more lives than a cat. The only common element in all of their products is that they could and maybe should be sold under lottery licenses, since they are all bets on an unknown future. However, unlike a lottery, in which the odds can be calculated and shared with the “investor”, these clowns make these investment bets sound like business propositions and never share the odds (because they have no idea themselves).

So beware the friendly financial salesman with the new pitch about how you can unlock the money in your home. Do the home work. Read the article(s). Study the alternatives and try to figure out the odds. Maybe it will work for you; maybe not. Just remember that old saw about things that sound too good to be true.

Monday, September 22, 2008

Who's counting…

One Trillion dollars. That’s a big number. That’s a one followed by 12 zeros - $1,000,000,000,000. If you laid one dollar bills end to end, you could make a chain that stretches from earth to the moon and back again 200 times before you ran out of dollar bills! One trillion dollars would stretch nearly from the earth to the sun. It would take a military jet flying at the speed of sound, reeling out a roll of dollar bills behind it, 14 years before it reeled out one trillion dollar bills. Yet, if you read the news about the real estate market and the loss of value in homes across America, we’ve somehow lost about $4-7 Trillion in home value over the last couple of years.

I base my estimate on reports that Fannie Mae and Freddie Mac together accounted for about $5.4 Trillion in home loans (either guaranteed or owned), which is described in those same articles as representing about half of the U.S. $13 Trillion in mortgages. Since many homes are paid off and don’t have a mortgage that would be reported in those numbers, I added another $7 Trillion to account for them. That totals about $20 Trillion as the total value of U.S. homes, prior to the current meltdown. It’s probably bigger than that, but we’re already at a number that’s hard to get our minds around anyway, so let’s just go with $20 Trillion.

Various estimates from the gloom and doom doctor himself – Robert Shiller – to economists for various banks and interested parties – Lawrence Yun, economist for the National Association of Realtors, for instance – have put the loss of value for U.S. homes from15 – 25%. At the lower number we lost $3 Trillion in value and at the higher number fully $5 Trillion. There is an interesting article by Daniel Amerman that explains how this value has been lost. You may read it by clicking here. He makes the case for $6 Trillion in losses, based upon multiple factors, which include declining U.S. pay and the depreciating impact of inflation.

I guess, whether its $3 or 5 or 6 Trillion, those are big numbers and we’re all going to have to work a lot of overtime to make that up. My grandson Cole had his second birthday last Sunday and we gave him a savings bond. I suspect that somewhere in the fine print on that bond is the bill for his portion of the debt that is piling up to pay for all of this mess. Happy birthday, Cole, you owe $100,000 for the messes that Granddaddy's generation left for you.

Sunday, September 21, 2008

Like ducks in the shooting gallery…

Did you ever see those cartoons where the shooting gallery duck get hit, falls over and then comes back up going the other way? That’s sort of like what our so-called leaders in Washington are like when it comes to things like regulating the financial industry.

Quack. Everything’s fine with Fannie Mae and Freddie Mac. They’ll get through this OK. Bang!

Quack! The Sky’s falling. We need to bail them out now! Bang!

Quack. We don’t need any more regulation of the financial industry. Bang!

Quack! The sky is falling! How did we get in this mess? We need more oversight of these unregulated banks! Bang!

Quack. Investors should remain calm. Lehman Brothers, Merrill Lynch and AIG have plenty of liquidity to see them through. Bang!

Quack! Bail out! Bail out! The sky is falling! We need a bail out immediately or the whole system will collapse!

Bang! You’re dead.

The best newspaper cartoon that I’ve seen lately shows our White House Bozo calling for taxpayer bailouts when Fannie and Freddie failed and taxpayer bailouts when the big investment banks failed and taxpayer bailouts when AIG failed and then looking befuddled (one assumes the cartoonist had no trouble with that pose) when the advisers said that now the taxpayer need a bailout. How true is that!

The really pathetic thing about all of this is that the same clowns who stood by and let this all happen are still there and now they’re in charge of getting us out of the mess that they helped create. I guess the only good news is that the pendulum has swung back to the “Do Something” side of the aisle, from the “Do Nothing” nothing side that it has been on for years. I’m not sure whether the “regulate everything and make everyone equal” crowd on one side of the legislative aisle is any better that the “regulate nothing and let the market work” crowd on the other side. There does not seem to be a “let’s find a reasonable, common-sense compromise” option in Washington any more.

So, like the ducks in the shooting gallery, we all cruise along.

Quack. I’m retired with a full pension and health care. Bang!

Quack! The sky is falling! The company just canceled my health care and turned my retirement into a lump sum cash payment. Bang!

Quack. I’m OK. I’ve got a good union job and seniority. Bang!

Quack! The sky is falling. My plant was closed and I was laid off.. Bang!

Quack! I’ve got a nice home in the suburbs. Bang!

Quack. The sky is falling and I’ve been foreclosed. I’m losing my house. Bang!

What the hell happened to America? Bang!

Saturday, September 20, 2008

What drives you crazy?

From an oft referenced source – Jack's Winning Words Blog - comes this little piece of wisdom. “No one can drive us crazy unless we give them the keys.” (Doug Horton). Who has your keys?

Less than competent Realtors often have my keys and they do drive me crazy. Why it’s so hard to call a fellow Realtor back or to respond to a request for feedback after a showing is beyond me. Yet, that happens all the time. I suspect that is why the number one complaint about real estate people from the customer base is that they don’t return calls. That would drive anyone nuts. I must have left one of my keys in their lockbox.

It also gets to me that I don’t get one of my two morning papers before it’s time to go to work. I often call it my afternoon paper, because the Detroit Free Press doesn’t make it to my house before 8 AM many mornings and not before 9 AM on weekends. The Oakland Press is almost always on the sidewalk by 7 AM, weekdays or weekends. Some weekends I don’t get the Detroit Free Press until after 10 AM. Grrrr! So, somehow my Free Press delivery person has a set of my keys, too.

And don’t even get me started on dumb drivers. These days a lot of people are really moving around in mobile phone booths, too busy talking to pay much attention to the world around them, which just happens to include me, other cars, signals and signs and pedestrians. I might as well just toss them a set of keys.

Inconsiderate parking also gets to me and I often take the time to inform them of the availability of “parking for dummies” classes and books in the form a little notes left on their windshields. It is especially annoying to see non-handicapped cars in the handicapped parking areas or some idiot in a 12-14 foot long crew cab truck parked in a “Compact Cars Only” spot, with his bed hanging half way out into the road. More keys please.

Wow, this is starting to sound like an Andy Rooney piece on 60 Minutes. I guess I am becoming an old curmudgeon, too; and that ticks me off. Hand me a key.

Friday, September 19, 2008

Foreclosure fever still with us…

From a couple of different news feeds that I get comes this story about the still rising foreclosure crisis in America. RealtyTrac, the leading online marketplace for foreclosure properties, has reported that filings increased 12 percent in August from just July. The figures are 27 percent above August 2007 numbers.

“In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we’ve seen in any month since we began issuing our report in January 2005; however, the annual increase of 27 percent was actually substantially lower than in previous months this year, when it was hovering around 50 to 65 percent,” said James J. Saccacio, chief executive officer of RealtyTrac. These numbers are showing that 1 in every 416 U.S. homes received a foreclosure filing.

Certain states have an even higher rate of foreclosures. Nevada holds the lead at 1 in every 91 homes. Michigan has slipped in the rankings number 6, with 1 home in every 490 being in foreclosure; and that’s a good thing.

Economist David Shulman of the UCLA Anderson Forecast says he thinks foreclosures will continue to rise for the remainder of the year as more adjustable-rate mortgages reset, including more so-called "no-doc" loans, which don't require verification of borrowers' income.

Rick Sharga, vice president of RealtyTrac, expects a 35% to 40% jump in foreclosure filings this year over last year.

Some areas are suffering much more than others. Five states -- California, Florida, Texas, Michigan and Ohio -- together accounted for 50% of the nation's total foreclosures in March, according to RealtyTrac. But it was Nevada, Colorado and California that had the top three foreclosure rates for March.

Among cities, California's Stockton was No. 1, with one foreclosure in every 128 households -- a 137% spike from February. Las Vegas, with 4,307 filings, had the nation's second-highest metro foreclosure rate in March, with one foreclosure filing for every 139 households -- more than five times the national average. Other metro areas with foreclosure rates among the nation's 10 highest included Greeley, Colo. (No. 4); Detroit (No. 8) and Denver (No. 9). For a full story from MSN and the complete list of where the fifty state rank in the foreclosure derby, click here.

I can certainly attest to the fact that foreclosures are what most of my buyers want to go see these days and there is no lack of houses to show them. The other thing that appears to be happening in this market, at least locally; is that banks, scared by what has happened recently to some of the largest holders of foreclosed properties, are now in full dump 'em mode. Prices have tumbled on foreclosed houses as the banks try to unload them before they are dragged down by them. Hopefully that will clear out the inventory overhang of these properties. It's still a great time to be a buyer, but this won't last forever; so, get in the market now to get the best choices on great deals.

Thursday, September 18, 2008

America’s growing band of real estate gypsies…

When we hear the word gypsy we may initially think of the old European images of gypsies who wandered about the country in wagons, camping near towns and going in to find work or just to beg or perhaps steal. Gypsies did not have a good name in Europe, for the most part.

Now, in America we have a growing band of gypsies; however, these gypsies have their kids and belongings packed in their Cadillac Escalades and they are wandering around in search of a place to live while they rebuild their credit. They are the foreclosed or the bankrupt; the people who’ve lost their homes in the current economic meltdown and now need a place to settle for a couple of years, while they try to get their lives back in order.

Maybe they went through a divorce (I see a lot of that right now) or maybe a layoff, or perhaps their toxic ARM loan just reset to a level that they could no longer afford. Whatever the reason, they lost their home and they lost their credit at the same time; s, now they are in search of a place to rent or lease until they can recover. They are our American real estate gypsies.

In many cases, maybe most, they will not live where they lease for more than the time it takes to get their credit rating back to where they can buy a new home. They may be willing to put up with housing that is substantially below the level that they were used to, but that is not their long range plan. Someday they plan to be back in that community that they left; or at least in a house that is similar to what they lost. It’s funny how they never accept the reality that the past is lost and that perhaps wiser choices could be made in the future. I guess that realization might set in later.

So, I end up showing a lot of houses to these gypsies. For the first 2-3 outings we look at things that they can afford but which they turn up their noise at. By outings 3 or 4 they are beginning to realize just what it is that circumstance now dictates that they live with, and they get more realistic. It’s interesting that I’ve noted that their kids are often well ahead of them on that front, especially if they are younger. To the kids it’s all a great adventure, while to the parents it’s often still a painful embarrassment that they have yet to come to grips with completely.

I try to be as supportive as I can and try to find them the best situation that I can get them in for what they now can afford. To add insult to the already painful injury of having lost their home, most landlords require an application and credit check which re-exposes this raw nerve for these people. Some landlords will not lease to people who’ve been foreclosed or declared bankruptcy, because they fear having to evict a deadbeat renter later.

So the new American gypsies wander the landscape in their packed SUV’s or U-Haul, looking for a new town to stop at and for a home to rent. Most aren’t bad people who will cheat you or steal from you; they’re just ordinary folks who caught a bad break or made a bad financial decision. They’re not even looking for a handout, just a nice place to live while they get things back together. So, give ‘em a break if you have a place to rent or lease. Who knows, they may even start to like the neighborhood and want to buy the place.

Wednesday, September 17, 2008

Hunker down or take action?

As I opined yesterday, these are calamitous times for all of us, caused mainly by the on-going financial meltdown. Predictions of even worse times to come, give one pause to ask, what should I be doing?

There is a natural inclination to hunker down, to take to the fox hole, or head under the table and cover one’s head and not to look up until the noise dies down. One is taught to run to the basement and hide when the storm comes and this surely is a financial storm if monumental size and potential consequences.

But, what are the alternatives? Well one could sell what you have left, go to Las Vegas and put it on a number at the roulette table. Or, one could cash out of the markets and take the cash and hide it in the mattress. Neither alternative sounds convincing as a winning strategy. But, perhaps this is not a zero sum game where there has to be a win or lose strategy.

There are times when “do nothing” is bad and could even get you killed – standing on the tracks as a train approaches come to mind; however, other times doing absolutely nothing may be the only way to survive. This may be one of those times. Running around trying to figure out where to move your money to avoid further losses may only benefit those who make money every time you buy or sell stocks (those same wonderful folks who work for the companies that got us into this mess to begin with). To my way of thinking that would be very much like market timing, which I have been repeatedly advised not to try.

Just about anything that you do at this point to try to make things better also has about a 50-50 chance to actually make it worse. So let’s all head to the basement and play a few rounds of Monopoly, which is the only place where we’ll have a chance to make money for a while. To those saying that you should be doing something; ask, “What?” Then spread a little salt on the floor and listen to the soft shoe routine going on in front of you. If the person telling you that is your broker advising you to start selling and buying a bunch of things; remember that he/she is the only one that will make money off those moves.

If you are still overwhelmed by the urge to do something; then gather up all your money and come see me. We’ll go out a buy a bunch of foreclosed houses together. You can get some great deals right now. You’ll feel better and I’ll certainly feel better, but your broker and financial advisor will be really PO’d. You can find me hiding in the basement.

Tuesday, September 16, 2008

Hitting the reset button…

America appears to be hitting the reset button big-time. Home values are being reset, stock prices are being reset, the very landscape of our financial markets is being reset. The big question which is still up in the air is “reset to what?”

Will we reset to the values and price that we had right after the 9-11 crisis or are we gong further back in time? The Dow closes below 10,000 today. Where are we headed? Will it fall below the 9,000 level? Will home values fall into the 1990’s or 1980’s levels? Where will we land?

Those are certainly troubling questions and thinking about the potential answer is even more troubling. I watched much of my retirement nest egg disappear in the bust following the Internet bubble. It took 5 years to climb back to near where it was before that event. Now in just days all of that gain is gone again and we start over; maybe this time from an even worse level – it hasn’t stopped falling yet.

When I was much younger and working at a good high paying job, I guess I wasn’t as concerned about such events, After all there was always time to earn it back and I was years and years away from needing it anyway. Now that I’m trying to live off at least a part of it (trying to earn a living at real estate has a way of doing that to you these days), it is of great concern to me. I don’t have the time to keep hitting the reset button and waiting out yet another financial crisis.

So it is with great trepidation that I watch the news of the market falling a couple hundred points last week and over 500 points today. Each of those points likely represents another bill that I’ll have trouble paying or a vacation trip that my wife and I can’t take. It’s already meant that I’ve got to patch up the old car again and try to see if it can go another 50-100,000 miles and I’m hoping that the roof can last an extra few years.

It was during the Lyndon Johnson administration that the term Misery Index was first used to describe how bad things were for the citizenry of the country. That index combined unemployment with inflation to rate the misery level of the country. Well drag that puppy back out, because this is getting pretty miserable; only now we'll have to have it measure a combination of loss of value in our stock portfolios and home values - the loss of our net worth. For many negative numbers will have to be used.

Of course both political parties will be trying to lay claim to being the ones that can change things and make it better. Getting rid of George Bush and his policies will already make it somewhat better (like pulling an impacted tooth); but, we’ll still have the infection of this financial mess to cure before we really recover.

So, let’s get on with the elections and hit the reset button and hope, just hope, that where we end up doesn’t leave us with another 5-10 year fight to get back to where we were just a year or two ago. I’m told that adversity and struggle build character, but I think I’m a character enough without any more of this – enough already!

Monday, September 15, 2008

Are we seeing a change in American mores?

The social stigma associated with defaulting on a mortgage seems to be disappearing as the nation's housing crisis escalates. More homeowners are choosing to freely walk-away from their homes as the values plummet. Traditionally there's been a social stigma tied to homeowners who default on mortgages, but as home values decrease as a result of Wall Street and mortgage lenders creative financing that acted to manipulate home prices to new all time highs, the stigma that ached at the heart of the foreclosure crisis is eroding.

Many home owners are choosing to leave their homes to foreclosure instead of paying higher mortgages on adjustable rate loans where they have no equity. And because the problems are so wide-spread; almost everyone knows someone who has been foreclosed and the stigma that used to accompany that dilemma has now turned to sympathy and understanding. If anything, people tend to assign the role of victim to the unfortunate foreclosed homeowners and lay all of the blame on the “mortgage loan sharks” involved.

While it isn’t right and may even be illegal, this trend also gave birth to the “buy and bail” phenomenon that I reported on earlier in the year. In those case, homeowners who can see that they will be in foreclosure soon are using their good credit, before the foreclosure, to obtain a mortgage to buy a second house (most often small and of less value), by claiming that it is a vacation home or rental property. Then they just walk away from their primary home when it is foreclosed.

Susan Wachter, professor of real estate and finance at Wharton School of Business, says the depth of this crisis shows social attitudes are changing. "This is the kind of conversation that's going on at cocktail parties, at swimming pools," Wachter said. "And suddenly this option, which was truly unthinkable in the past, becomes thinkable." Studies have not yet been conducted on walk-aways, but the country's major mortgage lenders and banks acknowledge that walk-a-ways are an increasing part of the foreclosure crisis.

As a result, personal bankruptcy filings are increasing in the majority of states. Home prices in many of the nation's harshest hit markets have deflated as much as 60% on average in California, Florida, Michigan, Ohio and other pockets scattered across the country from the markets peak. Some 3-million more homes are forecast by Housing Predictor to be foreclosed through 2011 due to the crisis.

There are consequences to walking away from a mortgage and allowing the bank to foreclosure. Foreclosures remain on credit reports for 10 years, but with the re-establishment of good credit in other areas many have been able to obtain a mortgage again as soon as three years after a foreclosure. However, mortgage experts warn that may not be the case in the future considering changes in federal lending laws, which are expected to experience sweeping changes affecting the entire mortgage system. The recent collapses of Fannie Mae and Freddie Mac and the resulting Federal takeovers have just served to increase the need for changes to the system that will likely result in it becoming much harder to obtain a mortgage.

But for now the question remains, is it OK to just walk away from your mortgage obligation? Should everyone just nod knowingly and say, “Well, it could happen to anyone, what’s a person to do?” are we going to be satisfied by that hack phrase “It is what it is”, or should we push back and state, “No, it is what you made it to be.” Where would we draw the line? If that displaced homeowner reacted to being foreclosed and evicted by robbing a bank to get the money to pay off the loan, would we say “Well, you do what you have to do?” I think not.

I know several people who are going through this personal financial mess. The ones that I know are good people who didn’t get greedy or take out toxic loans on their homes. They’re just average working Joes who had a bad break turn their lives upside down – a divorce here or a layoff there or a prolonged illness without medical insurance. It often doesn’t take more than that to start the foreclosure ball rolling. Once it gains momentum, most people find themselves unable to catch up, unable to cope and unable to stop the foreclosure process.

So, is there a stigma attached for them. You betcha! If nowhere else, it’s in the hearts of the foreclosed. It hurts to go through the loss of your home. But, do I think less of the one that I know as a result? No, they all tried as best that they could to find a way to keep up with the payment or to arrange a workout with the banks involved. There just isn’t enough interest or emphasis on the part of the banks to work with the beleaguered homeowner to restructure a bad loan situation in order to save a customer and homeowner from falling into foreclosure. I’ve tried to help more than one get in touch with their banks to see if a short sale or a restructuring could be worked out. All were told that there was nothing that the banks could do until the homeowner is delinquent on the loan. By then it’s often too late.

Are our mores changing to accommodate this crisis and remove the stigma involved? I don’t think so. We are, as always, a forgiving people and a people who truly would try to help a neighbor or friend or relative, if we could. We are more likely to be concerned about where the neighbor who got foreclosed is going to go, or what he’s going to do now; than to waste time looking down our noses and going “Tsk-tsk, you know I always knew that he was a deadbeat.” That’s not the American way. Our mores and values aren't changing, and I'd add that it is those values that will get us all through this mess. The good honest people who've been swept up in this maelstrom will bounce back eventually and the few bad apples who have taken advantage of things (on either side of the mortgage) will get their comeuppance someday. That's the American way.

Sunday, September 14, 2008

So, you want to sell your house…

Yesterday I talked about what it costs to buy a house. Many first time buyers are totally naïve about the costs involved and, unfortunately, too many mortgage brokers take advantage of that naiveté to suck those buyers into situations that are bad for them. My advice, as usual, was to seek out an honest and competent mortgage person who is willing to sit with you and go over the details of what it is going to cost and who will give you a written “good faith estimate”.

Today, let’s talk about the other side of the equation. What it costs to sell. This, too, is a topic that is misunderstood by many, which usually results in a failed attempt to save money by putting the house up “For Sale By Owner.” Ask any FSBO seller what he/she thinks they are saving and they’ll tell you “all of those real estate commissions.” They usually think that they will save 5-6% on the sale of the house and they have no idea what they will still have to pay.

So let’s look at this scenario. I will use only what I would normally ask for in a real estate listing, since all listings are subject to a negotiated process, as far as commissions go. Then we’ll also look at the reality of a FSBO sale and see what was really saved, if anything.

When I take a listing I ask the sellers for a 6% commission. I explain that I will be offering cooperating brokers and their agents half of that, or 3%, if they bring the buyer to the transaction. So my commission on the sale is really 3% and the seller is allowing me to offer the other 3% as an incentive to other Realtors to show the property and maybe bring a buyer.

I also advise my clients that the real cost of selling a house is about 7.5% of the sale price. The real estate commissions make up 6% of that 7.5% and the other 1.5% is made up of the fees, taxes and title insurance costs that the title company will charge to do the closing. Even if that FSBO seller is lucky enough to have an unrepresented buyer make him the offer, he will still have that 1.5% cost, just to consummate the deal.

But, what is more likely to happen is that the FSBO seller will get a call from a Realtor who has a client who would like to see the house. That agent is gong to ask, “Will you pay me a commission, if I bring a buyer for your house?” Unless the seller is as stubborn as a Missouri mule they will likely agree to pay the agent his/her 3% if they bring the buyer. All of a sudden, half of the savings that the seller thought he would have is gone, plus he actually has that 1.5% that he didn’t figure on still lurking in the background.

So, maybe he/she says, “Well, I’m still saving at least 3% on the sale.” OK. But, what is it costing you to save that 3%? Who’s paying for your advertising? Who’s scheduling and running your open houses? Who’s reviewing any offers for you and negotiating counteroffers? And, how much longer is it taking you to sell, because you don’t have the exposure to the Multi-List Service and to all of the agents in the area?

Study after study by the National Association of Realtors has shown that it takes 3-6 months longer to sell and that the FSBO seller gets 5-10% less for the property than those that are represented. If you just do the math – 3-6 months times the monthly payments and/or 5-10% less on the final sale price, it doesn’t take long to realize that the 3% saved is long gone by the time the place sells. Think about it. You will be taking on all of the responsibilities that the Realtor normally handles and you will be saving less than 3%, likely much less than 3% onthe deal. You may even end up making less on the sale than you would have with a listing agent involved.

So, if you want to sell your house, get help - call a professional Realtor. You will actually end up better off that trying to save a bit by trying to go FSBO. The market doesn’t care what you want for your house. The market doesn’t care what you NEED for your house. The market is cruelly efficient at determining what your house is currently worth and your Realtor will help you understand that. If what the Realtor tells you the market will bear for your house isn’t enough, then don’t sell it right now. It’s that simple. It does nothing but waste time and money to put a house on the market at a price that is well above what the Realtor tells you it’s worth. If you have too, in order to convince yourself, get 2-3 opinions from different Realtors.

Saturday, September 13, 2008

So you want to buy a house…

I recently had the unfortunate duty of having to inform a would-be first-time-home buyer that he really wasn’t ready to buy, yet. Having read all of the stories about what a great “buyers market” we are in, this young man was ready to jump into home ownership. He had saved up enough for the 3% down payment that he heard he would need for an FHA home loan (soon to be 3.5% under new FHA rules). He had spent a limited amount of time with his banker to try to find out what he could afford for payments, given his income; and he thought that he was ready to shop. Based upon his credit rating and income, he was told that he could likely afford the payments on a $100,000 mortgage.

Based upon what he thought he could afford for monthly payments, this young man had begun scouring the Internet looking for foreclosed homes that he might be able to afford. For our purposes, let’s just say that he had settled upon that $100,000 figure as his upper limit. He had $3,000 in the bank for a down payment and was ready to go. He found 3-4 houses that looked good on-line and called me to go see them. We visited them and one in particular, priced at $99,900 caught his eye. His Internet research showed him that a year ago this house was valued at $175,000, so it looked like a great deal. It is in good condition for a foreclosure and doesn’t need major repairs or remodeling right away. It seemed to be a good fit. So, the young man wanted to put in a bid for the place. He was thinking of bidding $90,000 for it, which might have worked.

That’s when he hit the reality wall of what it really costs to buy a house. While he had a verbal pre-approval from his bank, he had not asked for a written pre-approval, nor did he have a good faith estimate from the bank that would show him what the costs would be for the 97% FHA loan that he would need. I asked him to call and get both of those, before we went any further. The next day I got a call from him and he was really down. For the first time he began to see what it would really cost him to buy that house.

Yes, he had enough in the bank to cover the 3% down payment; but, when the good faith estimate came back with over $3,000 in fees, plus the estimated tax proration; he saw that he really couldn’t afford it. We discussed trying to get concessions from the sellers, but the FHA limits on concessions still didn’t cover what he is short for this sale (and which banks are loathe to do on foreclosure sales), so he will have to wait, save some more and perhaps set his sites a bit lower for price.

The costs on the buyer side of a real estate transaction come mainly because of the cost of doing the mortgage and from paying the tax proration. Every mortgage company is different in what fees they charge and for what. There are loan origination fees and loan documentation fees and loan recording fees and all sorts of other made-up names for ways that the mortgage company will get money from the buyer. Fees on the loan, plus the title insurance policy on the loan, might add another $2,500 - $3,000. In most cases the bank will ask the buyer to put money into the escrow account that they will be holding to pay the taxes and insurance bills when they next come due. Since we are late in the calendar year, they will likely ask for 9 months of escrow payments in this example that might add another $2,000-3,000. We’ll use $2,500 for our purposes, so the total is now up to $5,000.

And then there is the prorating of the taxes on the property for this tax year. That can be a much bigger chunk of money that expected, especially when dealing with a foreclosed property. What you see as a $100,000 foreclosed bargain may still be on the tax roles as a $175,000 assessed value property with taxes based upon that number. As a buyer, you are responsible for the taxes that have been collected, but not yet used for the year. In Michigan, that means your would end up paying for the rest of the winter taxes from last year and the rest of the summer taxes that were just paid in July of this year. For example, that $100,000 home might have taxes for the year of $4,000, with most of it in the summer taxes ($3,200). Even that figure is probably low, since it assumes that the taxes are still homesteaded. If the taxes are non-homestead, they will be about 40% higher. The tax liability for this house might run as high as $2,600, when it is prorated. It depends on when the sale closes and how much “unused” taxes are still left for the tax year.

Now, the buyer is faced with needing to bring over $7,000 to the closing, to cover those costs, in addition to the $2,700 that he needs for the down payment, Even if the seller was willing to kick in the maximum of 3% concessions that would still leave the buyer over $4,500 short, in this example. Plus, the buyer will also discover in the final mortgage paperwork from his bank that the monthly payments will now contain the actual monthly bills for taxes and insurance and could be considerably above what he has budgeted for, based upon the initial estimates.

So, even though it’s a great time to be a buyer, and there are really great deals out there to be had in the current market; you still need to be realistic and practical about what you can really afford. Those ads and articles about low-cost FHA loans sound great and they are a good deal; however, get a written good faith estimate from your lender and understand what the tax and escrow implications are on any potential purchase. There are many things that you can do on a wing and a prayer - buying a house isn't one of them.

Friday, September 12, 2008

Good national news, what about us?

From a recent news feed comes the story that the latest national economic growth numbers should finally put to rest fears of a recession that could choke the real estate recovery now getting underway.

Second quarter Gross Domestic Product (or GDP) came in at an upwardly-revised 3.3 percent -- far above the 1.9 percent the federal government had previously estimated. To see the whole report from BEA click here

Key reasons for the robust economic performance: Exports, which have been riding the weak dollar to record levels, and lower imports because the prices of foreign-made goods have been priced higher.

Why should anyone interested in real estate care about GDP? Well, number one, when the economic growth rate accelerates, consumer confidence in the economy rises. That, in turn, pulls potential buyers off the sidelines and opens the door to higher housing sales. I’ve certainly seen more shoppers out recently, as have most of my compatriots at the office. And sure enough, the consumer confidence numbers for August, released last week by the Conference Board, are up by 5 points.

We're already seeing some impressive jumps in home sales in places that haven't seen positive news in two to three years -- central Florida and even some of the hardest-hit parts of California. According to a new report from the real estate tracking firm, DataQuick, sales in southern California jumped 16.7 percent in July over June, and were 14 percent above the pace of July the year before. Our sales have ticked up in spots around Michigan, too; but it has been spotty.

Another encouraging sign: Recently mortgage rates dropped to 6.39 percent for 30-year fixed rate loans, according to the Mortgage Bankers Association of America. Fifteen year rates are still just under 6 percent. Applications for loans to buy homes jumped by 6 percent for conventional loans and are up an impressive 19.9 percent for FHA mortgages. We are seeing a huge increase in FHA mortgages locally.

Foreclosures are still running high locally and that is also attracting more buyers to jump into the market. Foreclosed properties, as a percentage of sales, are still running between 40-50% locally. But, I have also noticed that more and more homes above the $300 price level have sold recently, which is a good thing; since the $300 level represented a barrier for a long time and homes priced above that level were just dead for months.

So, has it turned around? Are we out of the woods on housing? It’s too early to tell. We are just ending up the best selling season of the year (summer is the best every year), so we’ll have to see if things drop off significantly or whether we can sustain this new level of activity and sales. Let’s all hope!

Thursday, September 11, 2008

A sad tune on the world's smallest violin...

From my Iconoculture news feed comes this sad story about well-to-do Boomers having to cut back on spending (accompanied by an appropriate tune on the world smallest violin).

The well-to-do are feeling the pinch of the current economic downturn, and they're changing their spending habits just as surely as the middle and lower classes. And since the top 10% are responsible for 25% of the spending in our consumer-driven economy, a slowdown at the top really puts the brakes on, as reported by the AP News Service in August.

Unity Marketing polled more than 1,000 consumers with an average income of $204,000. The company found that there was a 20% decline in purchases of luxury goods in the second quarter of 2008.Unity also found that luxury consumer confidence had reached an all-time low in the five years it has conducted the survey. Image that. The guys making an average income of $204,000 per year are feeling the pinch.

Luxury spending was already down 4% last year, and it's expected to take an even steeper dive in the next 12 months. When the affluent begin to scrimp, it can have a doubling effect on an already slow economy. After all, according to the “trickle down” theories, the affluent spending is supposed to eventually reach the poor 50-cents-a-day worker toiling away in a sweat shop in India or China, but only after it helps pay the salaries of 8-10 Americans - service workers, truckers, loading dock workers and others. Our trickle has slowed to a drip.

Today, even the affluent will respond to marketing that emphasizes value, durability, and quality-for-price rather than mere prestige for its own sake. What of vanity spending where price is the only significant brand distinction? That short of spending is going into mothballs. And remember that even the mothballs are now made in China.
Certainly we’ve seen this in the housing market for the last 2-3 years. The move-up houses of those well-to-do people just haven’t been selling. Anything above $300,000 has just been sitting on the market. And many of the foreclosed properties came as the result of some well-to-do person getting the Ziggy at work and losing their house (and many times, sadly their marriages) because of it.

But, hey! This is still America. So what if our affluent are slowing down their spending. We’ve still got our rich and super-rich and they’re still buying jet airplanes and super yachts and mansions and Bentleys. We just have to get in their trickle. Maybe if all of America’s 482 Billionaires buy some stuff we’ll all be OK. Of course there are 305 Million of us out there looking for our part of that trickle, so they may have to buy a lot of stuff.

Tuesday, September 9, 2008

Time for Mr Sunshine...

It’s time for Mr. Sunshine! With all of the gloomy, doom-y news lately I thought that a dose of sunshine was needed. So I went to see Little Mary Sunshine and sure enough things are much better that I thought. It turns out that I’m doing all of the right things and it’s just a matter of time before I see the rewards. Well, alright! I feel better already.

I have seen an up-tick in activity. There are more shoppers out right now that in a long while and even a few buyers. The inventory of foreclosed homes is still fairly high, so there are lots of bargains for the shoppers to peruse. I’ve also noticed that more and more of the foreclosed homes are still in fairly good shape, with fewer “trashed” houses on the market right now. Of course the ones that have been foreclosed for a while are suffering the ravages of neglect, which can have severe impact in the winter months; but, which has resulted mainly in overgrown lawns and lots of painting needs this summer.

The credit market has tightened up a bit and that’s a good thing; because there are now fewer people out getting themselves in over their heads in this buyers market. I wrote some months back about “boomerang houses” - those that had been foreclosed, were bought by people who got in over their heads, and now were in foreclosure a second time. There are still some of them coming on the market again, but thankfully fewer marginal buyers are being allowed to get in trouble because of the tighter credit market.

One other thing that I’m seeing is that the non-distressed sellers, those who are in
foreclosure or headed that way, are finally coming to grips with what has happened to
home values and starting to get real on their prices too. There are still hold-outs as is
witnessed by the statistics charts that I update weekly at my site The stats for the Milford market in the $400-500K range show average Days-On-Market (DOM) of almost two years, due mainly to some stubborn hold-outs who have been on the market for over three years now and refuse to lower their prices. I may have to rename it Dumb-On-Market in their honor. In the five Livingston County Twonships that I track the DOM for Genoa Township averages almost two years for the $300-400K range for the same reason.

Be all that as it may (I refuse to use that trite phrase “it is what it is”), I’m busier that I’ve been in months. I have two offers out and a third on the way. I have lots of shopper/clients and a few actual buyer/clients, so I’m a happy camper. I may stil be a camper sleeping in a pup tent, but I can dream of the motor home days to come if I just keep working hard and pursuing my dream. Oops, I got a little too close to sounding like a political candidate there, didn’t I? Oh, well, the sun got in my eyes. Well, as we used to say in the computer industry - the future's so bright I need sunglasses!

Monday, September 8, 2008

Bye-bye Fannie and Freddie; hello Uncle Sammy…

The U.S. federal government, citing the need to protect the interest the financial system, mortgage availability and taxpayers, will take over the devastated mortgage giants Fannie Mae and Freddie Mac.

Treasury Secretary Henry Paulson explained the decision to bail out the two companies who account for about half of all outstanding mortgages in the U.S. stating, “Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe.”

Fannie Mae and Freddie Mac have lost billions in the U.S. housing crash over the past several years and further losses would result in bankruptcy as more homeowners default on loans.

Federal Reserve chairman Ben Bernanke acknowledged the importance of the bailout noting, “These necessary steps will help to strengthen the US housing market and promote stability in our financial markets.”

Under the deal the management teams of each company will be replaced and the companies will be given access to extra funding to run their business. The Federal Housing Finance Agency will administer Fannie Mae and Freddie Mac until a long-term solution is set.

So all of a sudden we , as citizens, all become part owners of a mortgage company, since it is our money and our government that is now the world’s largest mortgage holder and mortgage guarantor. I guess we won’t have to worry about calling it Frannie Mae after all; we can just call it Uncle Sammy.

There could be really interesting turns to this whole saga, now that the politicians in Washington will get a shot at it. The Democrats will likely want to suspend all foreclosures, for fear that they hurt the owners self-esteem and the Republicans will want to sell the whole thing to some cronies on the theory that some good will trickle down to the poor homeowners from their fat cat friends.

We can expect to see much finger pointing, pontificating and harrumphing in Washington in coming weeks and months, as they go through their “find someone to blame” charades. Then they’ll find a way to dump tons of good money after the bad then sell off everything for pennies on the dollar.

Perhaps the TV folks could make a daily reality show out of the whole thing. It would have to be better than much of what is on TV now. They could get Howie Mandell to put people’s mortgages in one of the 20-something cases and let them play deal or no deal for it. Based on what I’ve seen of people’s greed on that show, they’d mostly end up with nothing and still owe their mortgage, but it would be fun to watch.

I suppose that this is good for real estate in the long run; but, in the short term, I can’t imagine this speeding up the process of cleaning out the foreclosure inventory or short-sale houses. Anyone who has ever dealt with the federal government can’t believe that this will speed things up. Perhaps if they declare some sort of moratorium of foreclosures for a while, that would help get the inventory down; but what happens when they have to deal with the huge overhang of bad loans that they’ve just assumed? There is still a big bullet to be bitten by someone, sometime and we all know where that money is coming from, don’t we? I suspect that Uncle Sammy will end up like the guy on the left, before this is all over. Maybe that's just a taxpayer dressed up in an Uncle Sammy the mortgage broker outfit. I think I'll go stare at my green dot for a while. Uuuhhmmm!

Sunday, September 7, 2008

And they could call it Frannie...

From a recent Wall Street Journal article comes a bold idea: Fannie Mae and Freddie Mac should merge. Outrageous? Maybe, but given the lengthening list of suggestions about what to do with the troubled companies, it’s certainly worth considering as the value of their shares continues to wither. The notion has actually been quietly floating around a small corner of Wall Street for weeks — and has even been tossed around internally at Fannie and Freddie, according to people close to both companies.

Granted, the idea is easily dismissed as a long shot. But with current headlines reminding us that taxpayers are potentially on the hook for tens of billions of dollars to rescue Fannie and Freddie, virtually every alternative should be on the table, alongside other usual-suspect scenarios: from a cash injection to a full-scale nationalization to breaking up the companies into a dozen smaller firms, so that none of them is ever considered too big to fail. By merging them, they would really become too big to fail. And sometimes size can be strength.

A merger wouldn’t undo the mess that these two companies have made, nor does it erase the billions of dollars in potentially toxic loans they own or have guaranteed. Nor would it address the question of whether these companies deserve the implicit backing of the government in the future.

There’s another big, almost insurmountable, roadblock: Let’s call it the monopoly issue. This deal wouldn’t have to get past the Justice Department, but it would have to get past Congress, where the law would have to be literally rewritten since it was Congress that established Fannie and Freddie the first time around.

A brief history lesson: Fannie Mae was founded in 1938 by the government to help bolster the mortgage market under Roosevelt’s New Deal. It become a public corporation in 1968. It was a de facto monopoly until 1970 when Freddie Mac, also backed by the government, came along in order to provide some competition. Now, they are collectively backstopping the $12 trillion mortgage market. For a while, Fannie and Freddie played in different parts of the mortgage industry. But in recent years, they have overlapped — so much so, that some observers contend that they are a monopoly already.

Most mergers fail. And the idea of mating two losers doesn’t exactly inspire the idea you’ll get a winner. But with few practical solutions, this one is as good as any. Now if they could just agree upon a last name – would it be Frannie Mae or Frannie Mac? Maybe we should just get the whole thing over with now and rename it Bubba Bail-out.

Saturday, September 6, 2008

When a "dollhouse" really is…

From this week’s newspapers comes this story. Calling a home for sale a “dollhouse” isn’t necessarily a compliment, but in the case of the home Gerry and Cindy Mann are selling, it’s the truth. The Manns have been unable to find a buyer for their full-size home in Battle Creek, Mich., over the last year. Now they are trying a new approach.

To focus attention on the property, they are offering a dollhouse version of their home created 15 years ago by Cindy Mann’s father. It’s built on a 1 foot to 1-inch scale and is valued at about $2,000. The Manns are offering it for $169,000 and throwing in the full-size version for free.

"I've seen funny signs, like, `Hey, honey, stop the car,' but I haven't seen anything like this," says Matt Davis, president of the Battle Creek Area Association of REALTORS® Board of Directors. "I mean, it's a pretty creative idea, and God bless 'em if it works."

One has to wonder about the tax implications of this ploy. There certainly wouldn’t be an State Transfer Tax or Revenue Stamp Tax on the transfer of the full size house at $0, which sounds like a nice savings; however, if the Manns get dunned for the 6% sales tax on the sale of the $161,000 doll house, then it would cost them quite a bit more than what they saved on the big house. Plus, I assume that they’d still need to buy a title insurance policy to cover the transfer of the big house, as well as paying the filing fees for the title transfer.

Cute ideas like this are fun to read about, but likely fraught with potential pitfalls for the sellers and maybe the buyers, too. Of course times are tough for all of us, so I’m busy making a tiny Real Estate One sign that I can put in front of the Manns dollhouse. Maybe I can get their listing. Of course I’ll have to buy a micrometer to measure the rooms accurately, but I’ll save on pictures, since one good shot will show all of the rooms at once. But, I’ll have a good retort for the common complaints that the bedrooms are too small or that the kitchen is tiny. Well what did you expect – it’s a dollhouse!

Friday, September 5, 2008

GMAC Mortgage goes under…

From this week’s Bloomberg Financial News Service comes this report -- GMAC LLC and its Residential Capital LLC home loan unit plan to dismiss 5,000 employees, or 60 percent of the unit's staff, and close all 200 GMAC Mortgage retail offices because of weak real estate markets.

The first 3,000 job cuts will cost $90 million to $120 million, mostly during the third quarter, with more expenses later, according to a statement today from the Detroit-based lender. Loans originated by outside brokers through Minneapolis- based ResCap's Homecomings unit will cease, business lending will be curtailed and parts of the company may be sold.

The cuts renewed doubt about GMAC's effort to rescue ResCap, ranked eighth among U.S. mortgage companies last year and 12th in subprime home loans for 2006, according to trade journal Inside Mortgage Finance. GMAC lost $5.4 billion over the past year, and ResCap's losses in the last seven quarters total $7.2 billion. GMAC arranged a $60 billion refinancing in June to keep ResCap from bankruptcy.

``This company is in really rough shape,'' said Sean Egan, president of Egan-Jones Ratings Co., a Haverford, Pennsylvania- based credit-rating company. ``There are no obvious avenues for support. The amount of support they need is quite substantial.''
GMAC is 51 percent controlled by Cerberus Capital Management LP, with the rest held by former parent General Motors Corp. GM last month reported the third-biggest loss in its 100-year history on plunging sales of pickups and sport-utility vehicles, and GMAC remains the primary source of funds for the automaker's dealers.
GMAC doesn't have any comments beyond its previous statements about its liquidity, spokeswoman Gina Proia said. Today's actions don't reflect an inability to meet terms of the June agreement, she said.

``They are a reflection of the market environment we are in,'' she said. ``We're streamlining and refocusing our resources on parts of the business that have a more compelling business model. Unfortunately, that includes a good deal of right- sizing.''
Retail loan officers will be leaving their jobs over the next two weeks while the company fulfills its loan commitments to existing borrowers, spokeswoman Jeannine Bruin said. About 2,000 jobs are expected to be eliminated as the company divests its GMAC home services business, including the real estate brokerage unit.

So, if you have a GMAC mortgage pre-approval, I’d advise finding another source and if your real estate agent works for GMAC Real Estate, you might want to shop around for someone else, too. This is just the latest in a series of downsizings and “right sizings” going on in the real estate and mortgage industries.

Like GMAC, whole companies, with many franchise or wholly owned offices have gone under in the current bad market. Fortunately, Real Estate One has the financial wherewithal to ride out this market; but even we have had to take measures to cut costs where we can, without affecting customer services. So, call me, if you were with GMAC and now need to find a more stable company to deal with. And call Agnes Miesch, my John Adams Mortgage rep at (248)535-5566, if you’ve been left high and dry by this announcement and need a new mortgage source. Tell her that Norm sent you.

Thursday, September 4, 2008

Real change in direction or just grasping at straws?

From a recent real estate news feed comes this story about a surprising increase in home sales in the month of July. This just might be the turn in the numbers we've been waiting for; or it could be a one month anomaly. We’ll have to wait and see if the August numbers continue the trend. I certainly welcome any good news in the current market.

Resales of existing houses jumped by 3.1 percent in last month to the highest level in nearly half a year. On top of that -- and to the near total surprise of Wall Street analysts -- new home sales also rose 2.4 percent, according to the Commerce Department.

Resales were up almost everywhere: Up 9.7 percent in the Western states, up 6 percent in the Northeast, one percent in the Midwest. Only the south saw a slight decline -- one half of one percent.

New home sales showed a similar pattern: Up an amazing 39 percent in the Northeast, 10 percent in the West, 8.2 percent in the Midwest and down by 2.5 percent in the South.

Now, in fairness, before we get too enthusiastic about these sales gains, let's be frank about what's pushing this trend: The large numbers of short sales and foreclosures in many once-booming markets are cutting prices to the bone. In my little market area foreclosure sales crept back up to about 50% of the sales for August – see the Market Statistics page on my site for details on that.

But rock bottom prices are also bringing in a flood of first time buyers, fence-sitters and investors who've been waiting for hard, statistical evidence that the cycle is flattening out.
Keep this in mind too: The July resale numbers represent transactions closed before the passage of the new $7,500 federal tax credit. When the impact of the credit begins kicking in during the coming several months, you can bank on even higher sales numbers ... and a turnaround in prices. There is still a ton of foreclosed house on the market and the deals on them have never been better.

In other key economic developments this week: Mortgage applications rose nationally for both conventional and FHA loans to buy houses. Interest rates dropped for the third straight week -- hitting an average 6.44 percent for 30 year fixed rate loans and 5.94 percent for 15 years.

Also the federal government's monthly survey of home prices in more than three hundred markets around the country found that’ although the national average of prices was down slightly, prices rose in 20 states … and are up year to year in 30 of the 50 states. Locally I’ve seen the average for home sales creep up the last 2-3 weeks, with the median staying fairly constant.

So has the market started to rebound in Michigan? I certainly hope so. In the mean time, hand me a straw will you., I need something to hold on to.

Wednesday, September 3, 2008

The Nevergreens

From my Iconoculture news feed comes this interesting story.

Despite rampant greenwashing and an increasing number of companies jumping on the alterna-fueled bandwagon, not all consumers believe their purchases can result in a cleaner, healthier planet. Skepticism does and will continue to play a key role as the environmental saga continues to unfold. And beyond skeptics, some consumers simply don't care beyond the moment.

There are people out there who just don't care. Or so it would seem, given the results of a new Mintel study which states that 10% of the U.S. population are skeptical, irritated and unmoved by environmental media ( 7.22.08).

And there could be more. According to Shelton Group, 26% of the population is unconcerned with helping the environment; they also tend to be upper income, middle aged and conservative males.

The Natural Marketing Institute puts the number of never greens at 17% of the population. These consumers are regarded as "unconcerned," give no priority to the environment, and show no environmentally responsible behavior (data from the 2008 Lifestyles of Health and Sustainability forum).

That said, these findings show that the majority of consumers are at least somewhat inclined to be environmentally aware as they're shopping. I've reported here occasionally about "green" efforts in the housing world, both in new build projects that are environmentally friendly and in ways to retrofit some green aspects into your home. I haven't been strident about it, just reporting it as interesting news.

One fascinating aspect of this story in Iconoculture is the wording and condescending tone that the article takes when discussing these never green people. I have little wonder that “10% of the population is skeptical, irritated and unmoved by environmental media”, in fact I’m surprised it isn’t higher. I’m not sure that would lead me to the conclusion that they just don’t care; more likely they just don’t like the reproving approach taken by that media segment.

The population segment that this story appeared under was the Baby Boomer/Matures demographic. Recall that Iconoculture draws three broad age-defined segments for their analyses – the Boomers/Matures, the Gen-Xers and the Millennials – sort of parents/grandparents, current family parents and children of the new Millennium. Since the Boomer/Matures generation has been tagged also as the “ME” generation – those of gluttonous and conspicuous consumption – it is not surprising that it would also be less concerned about the environmental damage that their excesses have and will continue to cause. Also remember that at least the Matures (aka. The silent generation) have always been somewhat retrospect about expressing their outrage over anything; save perhaps rising medical costs and taxes.

So, now my sociological group (I fall at the edge as a Mature or early Boomer) inherits yet another moniker – The Nevergreens. Maybe I can rearrange some of the titles to make sense for myself. Let’s see, how about Me Mature, Baby Boomers Never Green. I like it. After all we are the group that came up with that catchy 1960's ad theme - Give a hoot, don't pollute. Oops, was I being skeptical there?

Tuesday, September 2, 2008

Who polices the police?

It's probably time for a rant. I've been way too serious and way too good, lately.
Last night I had the rare pleasure of having some time to sit out on my front porch, which affords me a view of one of Milford's oft ignored stop signs. This particular sign, at the corner of Union and Summit Streets has a big overhead stop sign for each direction, along with a flashing red light. One would assume that it is hard to ignore; or, at least hard to make the claim that, "I didn't see the sign."

Nonetheless, as I sat there last night about 80% of the drivers chose to roll through the sign, slowing only enough to see if there was any traffic approaching from either side. That is pretty much what always happens at this sign, which I hasten to add is at a corner that also has a grade school bordering it. That will play into things more starting tomorrow, once school starts.

Be that as it may; as I sat there watching, one of Milford's finest came down the Summit Street hill and to the stop sign. Not surprisingly he too just slowed and then rolled through the stop. I thought as he did, that, if he were behind some poor unfortunate citizen he would have probably hit the lights and siren and given the poor SOB a ticket. But, who gives tickets to the police, when they break the law? Obviously, for major crimes, we do see police officers getting arrested and prosecuted every so often; but, what about all of the minor stuff? Since this officer did not appear to be on an official run - no lights or siren and not even going that fast - what is his excuse? Is it, I'm the police and I don't have to obey the traffic laws? Is it I'm on official police patrolling business and I don't have time to stop at every sign and light? What?

I suspect the answer lies in basic human nature. He, like every other driver that approaches this sign, has in mind that if he doesn't see any approaching traffic from the cross street, why really stop? Is the issue one of degrees? Is it one of doing what's right? Is is obeying the law, no matter whether there is cross traffic of not? Certainly, I'm not about to claim that I make a complete stop every time at this sign. I probably do it more that most, just because I live at the intersection and therefore feel a special sense of obligation to stop. After all, if I'm going to get indignant if others don't stop, then I should certainly set an example and do what's right.

However, if I ever get stopped and ticketed by one of Milford's police; I'm going to be thinking back to that officer that didn't stop last night and thinking, "who should have given him a ticket?" I guess I can understand if the local ordinance officer is reluctant to ticket a fellow officer who may have parked at the bakery without feeding the meter. After all he may be investigating a report of stale donuts being sold, for which he will undoubtedly have to collect lots of evidence. I assume that police officers, like Realtors, have a code of ethics; which one would have to believe includes upholding the laws themselves. So perhaps that officer from last night, in a fit of ethical remorse, went back to the station and ticketed himself for rolling through the intersection. Somehow, I'm having trouble picturing that.

So there, I've had my rant. Tomorrow, I'll be back to real estate stuff, but I'll likely not forget the case of the roll-through cop.

Monday, September 1, 2008

2-Tiered Market?

A few days ago, in an office discussion about the real estate market, one of our senior agents expressed the opinion that the market has evolved into a 2-tier market. There are the foreclosed houses on one tier and all of the regular houses on a second level that he somewhat facetiously called the overpriced tier. I thought about that and have concluded, somewhat sadly that he is probably right, at least partially.

There is no getting around the impact that the foreclosure crisis has had on the market. Buyers have become enamored of finding the perfect house at a ridiculous foreclosure price – so they have turned into rabid deal shoppers. They are hooked on seeing that next house, in search of that one that they’ve heard of that was move-in ready and priced at ½ of its real value. Do they exist? Maybe, but the odds are likely 1 in 1,000, which is why these shoppers never seem to find it and keep shopping.

There are some good foreclosure deals out there, but almost all foreclosure homes require some work, some much more than others. Homes that go through the foreclosure process are often neglected, at best, and even vandalized or stripped at worst. The move right in and do a little touch-up painting foreclosed homes are very rare indeed.

And what of that other tier - the regular home that is put up for sale by a seller who is not in foreclosure? Are those homes really overpriced? Sadly, the answer all to often is yes. The root cause is the speed with which the market values dropped in response to the foreclosure crisis and other economic factors. It is extremely hard for homeowners to swallow the 20-25% value drops that most areas have suffered. Just in the last year, most areas in southwest Michigan have dropped between 10-18%.

You can go see what at least one national home valuation site estimates have been the downward drops by going to my web site – – and clicking on the Market Statistics choice. About 2/3 the way down that page is a link to an interactive map. When you roll over the icons for the various villages, towns, cities and townships in this area a pop-up tells you how much value was lost, on average, year-over-year, through the 2nd quarter of this year.

So, we likely do have a two tiered market right now; however, my own recent observations support my belief that sellers have finally heard enough, read enough and seen enough to finally start understanding what has happened to the value of their properties and have begun to move their price expectations in the right direction. Maybe not as fast as we Realtors would like, but it’s a start. Some have become discouraged and taken their homes off the market; and, that’s OK too, since it helps bring down the current inventory glut a bit.

I also see buyers starting to get tired of having to endure the mess and smells associated with going through some of the truly nasty foreclosed houses that are out there and starting to look more favorably at well-priced regular listings. Buyers are also getting a bit more educated about the frustrations that come with trying to buy a short-sale house or a foreclosed house and many are unwilling to put up with the wait and the frustrations of dealing with overwhelmed banks. Maybe on the buyer side we also have a 2-tiered market – shoppers and buyers. I certainly hope that more of the shoppers give up on finding the perfect foreclosed home and return to just being buyers, ready to buy the best home that they can find that meets their needs. I can help with that!