How wide is the foreclosure gap?

There has always been a gap between the prices that foreclosed houses are bringing on the market verses the prices that normal, owner-occupied homes bring. That gaps has served almost like a black hole in astronomy dragging everything down into that abyss. I wondered recently what that gap really is right now, so I looked closely at the data that I collect every week for my little market.

I track all of the sold homes in a five-township area around Milford, Michigan. I record and report on the listed price the sold price, the percentage of sold to listed and then on the percentage of sold to the SEV (State Equalized Value), which is an left over vestige of better times and which supposedly represents ½ of the value that the assessors say the property is worth. In the “good ole days” you could multiple the SEV by 2 or 2.1 to get a reasonable approximation of your homes worth. These days sold prices for non-foreclosed homes is running about 1.6 to 1.7 times the SEV and the SEV values are dropping everywhere (thought not fast enough for most taxpayers). There are some areas that are now down to the 1.5 times SEV level for normal sales.

But what of the foreclosed homes? What is their average SEV multiplier? I had to go back and do some detailed analysis of my own data. Not to be too anal about this, I just looked at the May 2009 data (See http://www.movetomilford.com/sold_homes.html to view the data that I used). We had been running about 70% foreclosed homes as a share of all sold homes, but in May that shifted down to 62%, which means that more owner-occupied homes have been selling – maybe better data upon which to base the comparison. Now I must tell you that a majority of foreclosed homes are currently selling for below the SEV, which is less than half of the assessed values. I used the data from 51 foreclosure sales in May to arrive at the figure 1.0004. That is the current average SEV multiplier for foreclosed homes in this area.

Basically that means that foreclosed homes are selling for their SEV value locally and that would put the average difference in sales prices between them and normal sales at about .6 to .7 of SEV, quite a gap. That says that a buyer who is bidding $100,000 on a normal, owner-occupied home that is assessed at $160,000, could take that same $100,000 and buy a home that is assessed at $200,000 or more. Believe me when I tell you that there will be big differences in the houses themselves with that much of a price gap. That large difference is also why there is so much pressure on owner-occupied home prices. Buyers are seeing that difference and reacting to it by “low-balling” normal homes to try to get them down into the same ballpark.

Now, admittedly there are also risks involved with bidding upon foreclosed homes and many of them have sustained damage from vandalism or theft. The really bad foreclosed homes are selling for less than half of SEV or ¼ of their assessed value. Still, if the house is structurally sound and the mechanicals haven’t been stripped out, it’s hard to pass on such a bargain. Most foreclosed homes in this area are selling well below their replacement costs and many are selling for less than what the land alone would have sold for a few years back.

So how wide is the foreclosure gap? It’s huge! It is probably one of the main contributing reasons for the slow market for owner-occupied homes right now. We work with sellers to get their homes in great shape so that we can position the normal homes on the market as “move-in ready”, for those buyers who just don’t want to hustle with repairs and remodeling. But, for many buyers the perceived value gap is just too tempting to pass up. What is the gap between foreclosed and owner-occupied homes in your area? What are you doing to combat this problem?

Our own Sword of Damocles...

The ancient Greeks created the legend of the Sword of Damocles to illustrate the constant pressure and danger under which Dionysius the ruler of that story lived. The sword hung above his head by a single horsehair, threatening at any moment to fall, if that hair broke. In our little world here in Michigan, the sword that has been looming over our heads has been the bankruptcy of General Motors and the expected carnage that will cause to our economy directly and as the ripple effect races through the supplier base. Well, the hair is scheduled to break on Monday.

To a certain extent there is almost a sense of “get it over already” in the air. We have been hearing about and reading about this impending failure of our state’s largest employer for well over a year now. We have also been enduring the torture of a thousand cuts (oh, don’t tell Dick Chaney about that one) as the local automakers went through lay-off after lay-off and the suppliers followed suit. The world did not end when Chrysler went into bankruptcy, but it was painful and certainly an indicator of hings to come. But General Motors going bankrupt, now that’s a really big deal. GM has always been the grand potentate of the “Big-3”. After all there was even a saying, “What’s good for GM is good for America.”

But, let’s be honest here, General Motors has been a bloated, slow-moving bureaucracy for decades, ruled by accountants and burdened by years and years of bad decisions on products, on union contracts, on the number of manufacturing plants and on the proliferation of dealerships. There have been glimmers of hope – the Bob Lutz impact on product design was one – but, for the most part, this is a train wreck that almost everyone could see coming. The world’s non-U.S. automakers could see clearly how incompetent GM is, as they lined up to eat GM’s lunch – first the Japanese, then the Europeans and now the Koreans. The Chinese are already in line, too.

So, now bankruptcy is the only way out for what remains of GM. It is the only way that GM can get the right contracts with its unions. It is the only way that GM can put right its bloated dealer network. It’s the only way that GM can downsize its capacity to match its market share. It’s the only way that GM can get out from under its under-funded retirement obligations. Well, maybe I shouldn’t say the only way; just the only way out of the mess that the current management team at GM can see.

The sad part is that GM finally was getting the product issue figured out and now has some very competitive cars on the market and more in the queue. They still had not figured out the rest, though, and that sunk them. Unfortunately, they will likely take down hundreds of small suppliers with them and the disruption to our state’s economy will leave major, permanent scars. We have a saying in Michigan, “If you seek a pleasant peninsula, look about you”, to which we may now have to add, “If you seek a good job, leave”.

So, the company that for decades has been referred to as “Generous Motors” will now become “Government Motors” and all of us as taxpayers will become owners. I wonder if they’ll let us all in on the friends and family discount programs then? Fiat seems poised to take over Chrysler; maybe the government can find a buyer for GM. Maybe a Chinese or Japanese company. Hmmmm. Then, it could become “Gaijin Motors.”

Was that the sound of a horsehair breaking?

Condo Market Trailing the Single Family Home Market

I read an article on the USA Today Web site recently (http://tinyurl.com/oxgoe6) that talked about the fact that the condo market is trailing the residential, single family home market nationally, in terms of any signs of recovery. That certainly seems to be true in our area, too.

Condos, like single family homes went through (and are still going through) a massive wave of foreclosures. And like the single-family market, the foreclosures brought out the vultures – people interested in scooping up units for investment purposes or maybe just first-time buyers. Condo prices lost in the same 20-30% range as single-family homes, over the last two years, with some older complexes losing even more (up to 50%). The extent of the condo market collapse was masked to a certain extent by the propensity of investors to lease them out rather than try to sell units. However, a number of investors got caught short, too, so the distressed condo market has been climbing steadily in our area.

What does this all mean for local condo buyers and sellers? Well for buyers, as in the single-family dwelling market, this is a great time to buy. You can find units that are foreclosed and haven’t been trashed or severely damaged by the previous owners. I’m not sure why condo owners were less angry or maybe just less oriented towards stripping the places, but that seems to be the case. So very good deals on units that need little more than paint and maybe appliances are out there.

For sellers this market demands aggressive pricing, just as the single-family market does. Most owners who bought in the last 4-5 years will find themselves underwater – the unit worth less than the paid for it and less than what they owe. That’s just a fact of life these days. If you are selling because you have to or really need to, you’ll take a hit on the condo, but hopefully you’ll make it up on whatever you end up buying elsewhere. One thing to be aware of is that the condo market has stretched out time wise, again just like the rest of the real estate market. It is taking 18-24 months to sell a condo that is not at a foreclosure price. In my market the average Days On Market (DOM) for what I would consider the “sweet spot” in the condo market $150 – 250,000 is 350 days (and that’s the AVERAGE). The lower end of the market $50-150K units are moving faster at an average DOM of 143 and the upper end or luxury condos are slow but I guess doing OK at average DOM of 248.

The current state of the market makes it more important than ever to have a Realtor working for you whether you are buying or selling. Sellers in particular have a tougher time in condo complexes due to the signage rules. You absolutely need to be on the MLS and have the best Web presence that you can get to sell a unit today. For buyers, you need to shop smart and buy smart. Having an agent who can do the searching on the MLS for you can save you a lot of time, plus having an advocate to negotiate for you will help you get the best deal.

What’s the condo market like where you are? Is it lagging the single family market, too?

Is so-called Lifestyle Living a victim of the recession too?

A recent article on the Business Week Web site - http://tiny.cc/TT1Tr was about the value of choosing to living in a particular place because of a lifestyle choice. That article was about the choice of living in an expensive upscale neighborhood, but that got me to thinking about what is happening to lifestyle living in our area.

Michigan has its share of ”lifestyle communities” or neighborhoods. We have communities built around golf courses, communities built around our many inland lakes and communities where the draw is horse riding in our various parks and state recreation areas. Of course, we also have smaller enclaves of lifestyle living, such as loft living above downtown stores and a few shared facility colonies, called co-housing communities, as well as other identifiable lifestyle communities.

What I’m seeing locally is a trend away from the lifestyle communities that require fairly large discretionary spending along with a real estate premium on the property itself. This has been particularly obvious in the case of golf communities, where hefty monthly club fees greatly inflate the cost of living. We have some here where the monthly club fees exceed the property taxes and those communities are hurting, with tons of homes on the market for extended periods and lots of foreclosures. The downsizing of local companies and the elimination of executive positions in the current economy have caused much of the shift in these communities.

We also have lots of lake-oriented neighborhoods in the area and those are also feeling the heat of this recession. Lakefront houses have always commended a premium and likely always will, if for no other reason that the views afforded; however, the lakefront lifestyle is an expensive one to maintain, with all of the peer pressure to have the boats ands other water toys. Lately one of our agent who specializes in representing lakefront homes in this area has noticed more and more buyers who are evaluating the homes directly against other comparably sized and featured homes that are not lakefronts. In other words they have discounted the lakefront premium significantly, if not completely and are saying, “look, I’m buying a house here and the fact that it happens to be on water is nice, but let’s look at the house first.”

That’s a significant shift for our market, if it holds. What that’s saying to me is that we are looking at a buyer pool who basically doesn’t have the time or the money to support committing to a full lifestyle purchase. They are looking at the houses, even if they don’t intend to participate actively in the lifestyle of the neighborhoods. In some cases, the extra costs associated with an otherwise acceptable house (mandatory golf club fees for instance) are the deciding factor in whether to buy or not and that is adding to the woes of many sellers in those neighborhoods. As much as a person may like the house, if there is a $1,000/mo mandatory club fee built in to the costs the place is just not likely to sell. Unfortunately, the days of the company picking up fees like that as entertainment costs is long gone.

We are also “horse country” out here in Milford, Michigan; however, the days when people could afford to maintain 2-3 horses on 5-10 acres of land seem also to have faded. We still have lots of horse people and many “gentlemen’s farms” in the area, but more And more people who want to ride seem to be finding places to board their horses, rather than buy and maintain horse facilities themselves.

I’m sure that there are many other lifestyle community types that I could have discussed and many that just don’t exist here in the Midwest. We don’t have the beach-oriented lifestyle here, nor the mountainside lifestyle that might be found on the coasts. Both of those are very expensive and have their on sets of issues to deal with, in terms of maintaining the lifestyle.

Are you seeing the same things where you are? Has the economy forced people to rethink paying the extra money to enjoy specific lifestyles and communities? Are the premiums for certain lifestyle living areas starting to go away or to cause sales of homes there to slow? Do you think this is just temporary or are we seeing a fundamental shift away from some of these lifestyle communities?

Small town America says thanks

Today is memorial day and one of the best days of the year in Milford, Michigan - the quintessential small town America. Today at 11 AM I will be marching through town with hundreds of other Vets, as we celebrate those who served their country in the military. For many in Milford, it is their favorite parade of the year (we have three major parades - Memorial Day, The Forth of July and the Christmas Parade - as well as several minor parades for things like the Little League, the High School Homecoming, and Halloween. The parades and the various festivals that we have during the year all result in Main St being blocked off for a few hours or a few days (the Milford Memories festival lasts for three days. It's all quite Mayberry RFD-like and I wouldn't change a thing. This is small town America at its best.

In addition to the veterans, there will be military vehicles, with many older Vets riding down Main St in jeeps or other vehicles; as well as fly-overs by war planes of all vintages from modern jets to WWII bombers to trainers. The parade route is lined by thousands of people who come from all over to stand and applaud as the vets march by, many with "Thank You" signs. As a Viet Nam vet, I can tell you that these parades are the only welcome or thanks that those of us who went over there ever got and it does feel good.

So, if you don't have other plans, come on out to Milford this morning and watch our parade. If you're a vet yourself, join in, the parade is open to all vets. There is always a short ceremony at the end of the parade down in Central Park at the War Memorial. Out parade has grown and been successful largely through the efforts of Joe Salvia from the local American Legion post. This years parade will also be filmed as part of a documentary, “Detroit, Our Greatest Generation,” a one-hour, prime time commercial-free special on the sacrifices and contributes from World War II veterans.

The documentary, by the Emmy Award-winning Visionalist Entertainment Productions, is expected to air in December on WDIV, Channel 4. It will include historic footage of World War II, personal accounts and in-depth interviews with veterans. So, who knows maybe you'll get in a shot that's used in the film. See you there - I'll wave as I march by.

Dude, what happened to my real estate company?

We’ve recently had a few rounds of consolidation and cut-backs in the local real estate community, with one major bankruptcy and shut down by a national franchise operation. I’m sure that some consumers are confused by all of this because they don’t necessarily understand the business models that most real estate companies operate under. A part of the confusion grows out of the franchise nature of many companies in the business and what that means and doesn’t mean for a local real estate franchise.

There are several recognizable national franchise brands, among them are Century 21, Coldwell Banker, ReMax, Prudential and GMAC Real Estate. These are all umbrella brands that are owned by large companies such as Realogy, which owns the C21 and Coldwell Banker brands. People mistakenly believe that being a part of a big brand somehow also means being a part of a bigger company. It does not.

The local C21 real estate office that you see is usually part of a mom & pop operation, normally a sole proprietorship, which is owned by a broker. Some of those operations are well capitalized and well run and some are not; however, none of them have any real business relationships with the “parent” company other than the franchise license to use the brand name. They pay a good fee for the use of that name and they may gain some benefit from whatever national level marketing and advertising the parent company may do. Some may grow to be big companies, relative to their local market, but most remain small operations. And the fact that you may see 2-3-4 companies in a market area all with the same national brand doesn’t mean anything in terms of leverage or advantage for you as a buyer or seller. They normally don’t cooperate at all, since they compete against one another for business in that market. In our little market we had four C21 franchisees, now we have three.

There is no synergy, no leverage, no advantage that grows out of there being multiple C21 or Coldwell Banker franchises in a state. Contrast that with a brand and company like Real Estate One, which is Michigan’s largest real estate company, but which is not a national brand. Real Estate One is a family owned company, too, which operates only in Michigan. It just happens to be a very successful and very large family owned and run company (in fact it is the 13th largest real estate company in the United States). Real Estate One has 37 Corporate-owned offices in the state and 30 other offices that are franchise operations (yes we do franchises, too), whereas the next largest competitor has 7 locations. The number of Realtors fluctuates up and down, but Real Estate One is normally 3-4 times the size of our closest competitor and our business volume is an order of magnitude greater.

But, size aside, it is the synergy and leverage that Real Estate One is able to generate that provide real advantages for our clients. Any REO agent can go into any REO office and use the facilities and technology that are there to help his/her clients. REO makes such large and consistent media buys that all of the local media give then the best rate, which they pass on to their agents to us on behalf of their clients. REO was an early Internet innovator and still leads in leveraging that resource for its agents and clients. The RealEstateOne.com Web site is the only one locally that aggregates the listings of all of the major realtor boards in the lower peninsula (because we have offices in all of those areas) and makes them available to our agents and our clients. REO continues to innovate on the Web with map-based search options, YouTube video production for our listings and more. You don’t get all of that from the small franchisees, even if they do have a big, impressive brand name on their signs.

So the important take-away here is that those big brand names mean very little. You need to look at the strength of the local company that you are going to deal with to sell your house or to help you find a house to buy. The company with the big brand name could be the next small franchise operation to go belly up in the current real estate environment. Seek, rather, the comfort of the stability and longevity of Michigan’s largest and most successful real estate company, one that has been there for more than 85 years and will be there tomorrow – Real Estate One.

Who can say for sure…

Within the last week we’ve had several stories about the possible monetization of the new $8,000 Tax Credit for first-time buyers. There were also press releases by HUD and other agencies reporting that a program was being worked out to allow first-time buyers to use that tax credit for their down payment. Then there began to be rumors and rumblings about that program being reconsidered and that HUD had pulled back their press release, while they “studied” the risks and potential problems with such a program.

Many in the mortgage community got the equivalent of “Please Stand By” messages from their headquarters, as things in Washington bounced back and forth between a Go/No-Go decision. At this point, at the end of the week, we still don’t know if the program will actually fly and if it does, how it will look when it actually gets out.

The early reports were that some form of a bridge loan was under consideration; however, potential tax issues and risk concerns may have scuttled that approach. Other suggestions for doing some form of early tax filing and rebate were also considered or at least bandied about. It is not clear right now what the thinking is on how best to handle what everyone seems to believe is a good idea, in concept, and turn it into a workable reality.

So, for now, all that we really know is that we have the Tax Credit to work with and hopefully that will be enough to get some buyers off the fence. In a national forum that I post too, I asked earlier this week whether the tax credit is having the impact of drawing more buyers out in various markets. The replies were very mixed, with some saying it has had a great impact and many saying it has had no discernible effect in their markets.

Interestingly enough there was also a common thread running through the relies to my questions to the affect that many buyers still don’t know about the Tax Credit. That’s amazing in this age of instant widespread communications. I guess my earlier rant about our society being tuned-out to most traditional news sources applies to this issue too. So for those int eh audience who haven’t heard about it, here’s a link to a site that can explain the first-time buyer Tax Credit. It also has information about programs that are still available for 100% mortgages.

Dude, No Way! Way, Dude!

So, who's supposed to be educating the customers?

I recently commented on a discussion post at one of the professional networking sites that I belong to. The Discussion was kicked off by a comment from another Realtor that basically expressed disappointment that there hasn't been more client enthusiasm for, nor demand driven by, the $8,000 tax break for first time home buyers. The poster asked if others were experiencing the same thing around the country. my response is below -

We have experienced the same thing and I suspect for the same reasons. While we, as Realtors, got lots of information about this and internalized it; most of our potential customers have yet to really hear about it or to understand what it means. Impossible, you say, given the widespread news dissemination and coverage of this new tax break.

As weird as it may seem to us, we live in a society that has become so good at personalizing our information and entertainment experiences that we now have whole groups of people who are so plugged into their IPods that they don't ever get regular newscasts. These are people who have chosen to not watch television news cast, to not read papers, to not listen to boring news programs on radio (if they even listen to radio at all). How could they have missed this story, we ask? They tuned it out, along with much of traditional media years ago.

Now that’s only a portion of the prospect base. Another portion has heard something about it or read something about it, but still don’t understand it or they are stuck, like many people today thinking that they can’t take advantage of the tax break because they can’t scrape together the down payment for a house. What they don’t know is that 100% money for mortgage is still available and that there is hope (and movement afoot) to monetize the tax break into a form of bridge loan that will allow them to use it for their down payment.

Who’s fault is it that they don’t understand or know these things – ours! We need to be out there shouting from the roof tops, holding seminars, writing articles for local papers and generally doing whatever is necessary to get the word out and get the clients educated. Those who are sitting in their real estate offices waiting for the flock of customers to come storming in, ready to go find a house to claim that credit are going to end up like the lonely Maytag repairman. It’s not going to happen people! The clients aren’t going to come clamoring for your help to get this tax break. You’ve got to go out and grab them and tell them about it and then tell them again.

So, if your a Realtor and you're sitting there wondering where all of the customers are; they're sitting out there wondering where all of the Realtors are who can help them make sense out of all of these programs and tax breaks and loan modifications and short sales and all of the other nonsense that is going on in real estate right now. Anybody know a good Realtor? Maybe they could help. As for us here is my little patch, we’re kicking off a series of programs and activities to get the word out and get the client-base educated.

Which is a prefect segue into an announcement that our local Real Estate One office is hosting an open house on June 11, at our Milford Office (560 N. MIlford Rd - across the street from Starbucks). We will cover the topic of the $8,000 tax credit and many other topics that buyers and sellers might have questions about. The Open house kicks off at 5:30 with an hour of food and tours and informal discussions with the local Realtors in the Milford office. Then at 6:30 distinguished guests from our Headquarters and from our affiliates will host a set of simultaneous workshops.

The workshops will have Dan Elsea, President of Brokerage Operations for Real Estate One, discussing the state of the real estate market and the trends that he sees. Vicki Ascherl, Vice-President of Business Development will discuss leasing as an option for Buyers and Sellers in this market. Marlene Briolat, Branch Manager for Capital Title will discuss Land Contracts as an option for Sellers and Buyers. Agnes Meisch, Branch Manager for John Adams Mortgage will be talking about the $8,000 Tax Credit for first time buyers, as well as discussing the USDA programs for 100% financing and what it takes to get pre-approved for a mortgage these days. A panel of agents will discuss a variety of other topics and field questions from the audience.

So come and bring your questions. You’ll not only get answers to your questions, but we’ll have hot dogs and chips, pop and cookies, too. For a printable flyer about the Open House, click here- I hope you can make it to that event. You'll be glad you attended.

Wasting time with low-ball offers.

The Detroit Free Press ran a story this morning about a young couple that had finally found their dream home after 2 years, afte seeing over 40 houses and after five failed offers - http://tiny.cc/kPMd6. That article points out some of the issues that Realtors have to deal with and maybe some issues holding the market back right now - there's just too much choice and buyers have become oriented towards trying to see them all before making a decision and then making low-ball bids on everything.

Now, it's hard to fault the buyers for wanting to get a good deal, everybody wants that. But, the fact that they made five failed bids for houses that they liked enough to try to buy tells me that they either weren't getting good real estate advice or that they weren't paying attention to the advice that they were getting.

Banks that have repossessed houses seem to go through a couple of phases in their efforts to market then properties. Initially, they test the market at, or near, the price that they paid for the house at the Sheriff's sale, which usually represents what they had into the place. That can last a month or a year, depending upon the bank and the property. If the house is still sitting there after 5-6 months, many banks will enter phase 2 - the dump-it phase.

It’s the dump-it phase pricing that everyone waits for and most miss out on. During this phase the bank will aggressively price the house and may even engage in what looks like a Dutch auction – dumping the price every couple of weeks until it sells. When the price reaches “dump-it” level is when the pros swoop in and win and most amateurs lose. How? The pros know that they are getting a great deal already, so they don’t mess around with low-ball bids. In fact they most often bid above the asking price.

The amateurs see the dump-it price and think, “Well, they must be desperate to get rid of this property so I’ll bid 20% less.” In many cases the bank won’t even respond to these low-ball offers. They just wait things out, knowing that the pros will be there with a reasonable bid. Later, after they’ve lost the house that they really wanted, the amateur can’t understand why. “Why didn’t they at least counter my offer?” They often ask. Many mistakenly believe that the banks are under some obligation to respond to their low-ball bids. Not true. The banks make their own rules with foreclosed houses or short-sales and they have no obligation under any laws to respond to anyone.

So, I’ll take my stab at advising those who might be looking primarily at foreclosed properties. Your Realtor should be able to look up the history of the listing (if he/she can’t get a new Realtor). If they show you that the house has been on the market for a while (higher priced foreclosures may sit there for a year or more) and is now at a significantly reduced price (the dump-it price), DON’T LOW-BALL it if you want the house. You’ll just tick off the bank people and they will ignore you, or worse.

I’ve actually had clients who, against my advice, continually lobbed in low-ball offers in on a property, until the bank came back and just told them to stop and informed them that the bank would no longer consider offers from them. They got upset, but that is well within the rights of the bank. I’ve had many more clients be befuddled after they lost houses to others, when their low-ball bids were rejected. The winning bids were almost always for some amount greater than the asking price. “Why would anyone pay more than the asking price?” I often get asked by these people. My answer is simple, “Because they wanted the house.”

This isn't a game and Realtors who let their clients act as if it is a game deserve to waste the time that they put in with those people. The Realtor that entertains and encourages this type of activity probably doesn't realize that they are damaging their own reputations, too, with other Realtors and with the banks. Of course there are a few Realtor/Investors out there, too, trying to low-ball everything in sight and steal houses; but, then we’ll always have that sleazy fringe group around real estate.

Is it persistence or stubbornness?

I track the local market that I sell into on a weekly basis and update various statistics about that market on a couple of my Web sites – http://www.themilfordteam.com/ and http://www.movetomilford.com/. One of the charts that I update every week is the Day-on-market (DOM) chart, which shows the average number of days that homes have been on the market within the townships that I cover, as well as the number of homes currently for sale in each price band. The chart is divided into $100,000 price bands, starting in a band from $20-200K (OK, that band is wider than $100K) and ending in a band for homes over $500K (another wider than $100K band).

What this can tell the reader is where to look for homes in a certain price band – a township with 50-100 homes on the market is a better place to look than one with 5-10 homes in that band. It also shows markets that are very slow or where homes have been on the market for a long average time, which may indicate more willingness to bargain. Of course, it might also just indicate a market where the sellers are stubbornly refusing to adjust their pricing to the prevailing market conditions.

The Milford market in the 400-500K and 500K and above price bands may be such a market. In those bands the average DOM is above a year. In the $400-500K band there are 7 homes that have been on the market for over two years and 7 more that have been for sale for over 3 years. And in the $500K and above band, there are 21 homes with over a year on the market and 13 more with over 2 years. Is that perseverance, which I always advise sellers that they need, or just stubbornness? Maybe it’s a bit of both.

The market for homes in those price ranges has been moribund for at least 2 years now; however, many sellers in that range have also been very difficult to convince that they can no longer get the premium prices that their homes brought 3-4 years ago. Generally these are homes owned by folks who can also afford to “wait out the market” or at least they think so. Interestingly about a third of the sales that have occurred in these price bands over the last year have been foreclosed homes.

One of the things that I can’t track is sort of like the hidden unemployment statistic about how many people just dropped out of the job market. In this case, it is hard to tell how many would be sellers in this price band have dropped out of the market. I know a few that have decided not to get in, once I had advised them what they would likely have to price their homes at in order to sell them in this market.

It’s a shame, really that some many people find themselves trapped in homes that they can’t sell, their plans for retirement or a job move or other life changes stymied by thei inability to sell the homes that they now have. That phenomenon is certainly not restricted to the upper price bands. About the only band selling briskly these days is the under $100K band and that is almost 100% foreclosure homes. So, maybe it’s not stubbornness; maybe it’s just the numb reality of this market.

Hoisted by our own petards...

Michigan is one of only a hand-full of states that adopted a condo-hybrid zoning category called a site-condos, as a way to speed up the process for developers to bring new projects to market. The old, traditional zoning category called a platted subdivision served the needs of developers for many decades, but the necessary approvals and the whole process, which involved extensive public hearings, had become cumbersome by the 80’s, and so the concept of the site condo development was born.

Here’s a quick explanation of the concept:

When you own a true condo you are not responsible for outside maintenance and you don't own the outside of the building. It is part of the common property owned by the association. The condo association takes care of the exterior of the buildings and the landscaping maintenance. A true condo community has common property that can not be divided and that can be used by all condo owners. It is property that all owners pay to maintain. Your condo may be detached, so there are no common walls, but you still don’t have responsibility for the outside.

As a homeowner in a site condo you own the house and your lot. You are responsible for the exterior of your home. Nobody else has an interest in your home. You have to take care of the landscaping, the painting, the decks. But remember as an owner of a Michigan site condo you do have to obey the condo association rules. You do have to belong to the condo association and pay association dues. The association is responsible for the common areas that will include the roads at a minimum, as well as any other common areas, like parks, play areas, and entrance islands.

There were other good reasons why developers adopted the site condo category:
- Homes can be built closer together (So builders can make more money because they can build more homes on the same amount of land. Which is also a benefit to home owners because the homes are less expensive)
- The roads can be private and built less expensively than city regulations. (Asphalt versus cement) Width of the road may be less sometimes. The association is responsible for snow plowing and maintenance of the roads.
- Common elements like pools, parks, and club houses can be built and supported by the association rules.
- Many time homes and the development can be built quicker because of the easier rules for condo complexes – plated subdivisions can take 8-12 months for the approval cycle in Michigan; whereas, site condo project plans can be approved in 2-3 months.

So, Michigan developers jumped on the site condo bandwagon wholeheartedly and almost every new single-family homes development over the last 2-3 decades has been a site condo.

Then in 2009, the FHA promulgated new rules concerning mortgage requirements for condos and lumped in all condo types, including site condos. The rules, which were apparently written by people who never had heard of site condos and didn’t understand the impact of what they were doing on states like Michigan, have requirements that may make sense for traditional condo complexes, but which are onerous for site condo owners and buyers.

The FHA rules require that a would-be buyer, who wishes to use an FHA-back mortgage, submit a Condo Questionnaire, which is normally filled out and signed by the Home Owners Association (HOA) Treasurer. That Questionnaire, which was again created fore traditional condo complexes, has questions on it about the percentage of units that are leased out, the percentage of units that are in foreclosure, the percentage of the total complex that is owned by a single owner (can’t be more than 20% to qualify for an FHA mortgage), whether or not the developer ever turned the complex management over to the HOA and other questions that seem to make more sense for a traditional condo complex.

Here’s the rub. If any of the condo questionnaire questions come back with even a single “No” as an answer, then an FHA-backed mortgage is likely out and the buyer will need a 20% down payment to go conventional. How easy is it for that to happen? Well here are some of the questions:

6. At least 90 percent of the total units in the project have been sold.
7. At least 51 percent of the total units in project are owner-occupied.
9. No single entity owns more than 10 percent of total units in project.
12. General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures.
13. The owners association has a reserve plan and a reserve fund, separate from the operating account, that is adequate to prevent deferred maintenance.
14. (a) For projects consisting of over 30 units, no more than 10 percent of total units are encumbered by FHA insured mortgages.
(b) For projects consisting of 30 units or less, no more than 20 percent of total units are encumbered by FHA insured mortgages.

Now, think about that little in-build, site condo development in which you just listed a house. It only has 10 houses and four already have FHA loans. Oops! A buyer wouldn’t be able to get an FHA loan to buy your listing. Your seller is hosed. Or perhaps you have picked up 2-3 bank-owned houses in a failed site condo development, one where the developer gave up or went out of business. The development was only20-30% finished and the HOA was never formed. What now? You’re hosed again. And how about those people who bought in that development before it went bust? They are in limbo. Not only are they living in what likely looks like a wasteland, but also no one can buy their homes unless they can get a conventional loan and put 20% down.

So, here we are in Michigan, hoisted by our own petard (an old nautical phrase) and our love of site condos as development vehicles. Most of these requirements weren’t all that onerous when things were good, but with the current market, fewer and fewer of our site condo complexes can pass muster with the FHA Questionnaire. And those failed developments – fagetaboutit!

Is your state one of the others with site condo developments? How is this impacting your business? Has your state done anything to try to help out home sellers and buyers? What are you doing to prepare sellers and buyers for this problem?

Getting in touch with the other side again…

I’ve written before on the topic of events or activities that seem to get a man in touch with his feminine side. At least that’s the theory – that we all have two sides and that certain activities or events touch one side more than the other. Today I attended the baby shower for Laura, our weekend receptionist, who is as the say in the Bible “great with child”. Laura is due in June, but the baby looks to be about ready at any time. Anyway, Laura has already started her maternity leave and today the office had a baby shower for her.

Now I have to tell you that baby showers are about as far away from normal “guy things” as you can get. So, likely no one expected me to show up today. Only one other male agent showed up. So, we were in the minority by a big margin. As I opined here recently, there is a huge difference in the way that male and female agents “see” things, especially houses, but things in general. That’s normal and healthy. What’s also healthy is trying to occasionally get in touch with that other side, that different view of things and that’s a little of the reason that I try to attend these otherwise “girls events” in the office.

I think every female agent that attended today is a mommy, so they have a special empathy and bond with Laura, for whom this is the first-born. The ooohhs and aaahhs as she unwrapped each present were the genuine sharing of an experience that all of them had been through and fondly remembered. Of course there were the requisite jokes about what changes when they grow up, but everybody in the room was reliving their own baby moments as she held up each little onesie or tiny dress (Laura is having a baby girl). The guys sat in bemused silence or cracked wise every now and then.

I think I did pretty well. I held out until the conversation turned to birthing classes and the details therein, at which time, as most guys do, I excused myself. It is obvious that guys cannot and will never share in this experience and thus will always be outsiders to these little pre-birth rituals; however, I’m glad that I went. It was fun to see the ladies of the office in this shared mommy mode.

We typically interact in the office at a fairly professional level and it is only through events like this and the occasional party that we all get to let down our guards a bit and just be normal human beings. For the guys, if one is secure enough in his own male sexuality to occasionally get in touch with this feminine side, it really doesn’t harm anything and may even make you a better man. Oh, isn’t that the cutest little onesie?

Don't worry about prices, make neighborhoods liveable

I saw an article recently discussing the topic of the percentage of the U.S. population that own their own homes and the run-up of that figure that the author thinks contributed to the current real estate bust. The author makes the case that historically the U.S. has run at about 75-76% of the population owning their own homes, but during the early 2000's there was a Federally backed push to increase that figure that eventually lead to about 79% of Americans owning a home.

The article when on to make the case that the extra 3% were actually people who couldn't really afford to e homeowners and that they make up the majority of the foreclosure wave that has hit the housing market. The article postulates that the easy money policies of the Clinton and Bush years that was put in place to increase home ownership in fact contributed directly to the bust. The author makes the case that a certain percentage of the population will always find home ownership to be out of reach.

I suppose that this is basically true, because it is based on basic facts – about 25%of the population don’t earn enough at their jobs to afford to won a home, at least not the home that they would like. With many homes in the Detroit area selling for under $10,000, you would think that almost anyone could afford to buy those homes. However, most of those homes are in sad shape or in areas that many people just don’t’ want to live. I think that is a key issue that needs to be attacked by local governments. If a city/town/area has viable housing stock, but is so crime ridden that no one wants to live there, that is a problem that can be solved with better police efforts and other programs. If they don’t solve those problems, cities will find themselves becoming urban wastelands.

There are currently huge stocks of affordable urban and close-in suburban housing in many areas of the country that are going to waste because potential buyers see them as undesirable places to live, either because of crime issues or maybe because the school systems are sub-standard. If city, county and state governmental bodies would tackle those issues, maybe we wouldn’t have a housing problem in those areas. The prices are right and FHA programs are in place to loan buyers the money to fix these homes up. Now we need now is local governmental action to make the locations right, too.

Are you experiencing the same issue in other parts of the country? How are your local governmental bodies handling these issues?

Looking through the eyes of a Realtor…

I had an appointment today to go look at a house that I might list and the owner called to say that the house is a mess right now and asked if I could look past that. Of course, I replied, I’ll be looking through the eyes of a Realtor at the features of the house and how it compares to other similar houses. That got me to thinking about that phrase “looking through the eyes of a Realtor” and what that means.

I’ll admit that since I’ve become a bit more experienced as a Realtor I look at homes that I enter differently, even if I’m at someone’s home as a guest. It’s a thing that one can’t turn off and on. Of course I’ll notice if there’s stuff laying all around or the place needs a good cleaning, but I’ll also be looking to see if it looks cluttered – too much furniture and stuff all over. I’ll glance at the windows to see if they look newer. I’ll check out the flooring to see if it needs cleaning or replacement or maybe re-finishing. I’ll look at the ceiling and the walls for evidence of water stains or settling issues and tape and nail pops. I’ll admire the crown molding, if it’s there, or the coved ceilings and arched doorways, if it’s an older home. I’ll check out the woodwork, if it’s a historic home.

In addition to all of those things, I’ll be making mental notes about the room sizes and the layout and mentally comparing those to other similar homes. I’ll likely have noticed any exterior maintenance that needs to be done or issues that need to be dealt with by the owner. Inside, I’ll look into the kitchen to see if it has been updated or if it needs updating. The same is true of the bathrooms. If I’m there on a pre-listing appointment, I’ll probably ask to see the basement too, so that I can check out the mechanicals and the electrical and plumbing to see if they need updating or pose any issues.

There are also lots of things that I don’t “see”, which I’ve discovered over time is as much a function of looking as a man as anything. I don’t see lots of the “cute” things that my female counterparts see when they go through the same house. I may notice a kitchen countertop that could be replaced, while the women agents notice the cute decorating and nice curtains in the same kitchen. Sometime we get back from our weekly tour through new listings and it’s as if we went through different homes. I’ll say, did you notice that the electrical box is still fuses or that sure looked like and older furnace; while my female counterparts will be talking about the nice color in the dining room and the cute way the children’s rooms were decorated. Neither of us is right or wrong, we’re just looking at the home through different Realtor eyes. Having that second and different view was one of the valuable things about the partnership that I had for a while with a female associate. Now, I have to solicit that second opinion from other, female agents.

So there really is a difference in how a Realtor, even a friend who happens to be a Realtor, will look at your house. Don’t be offended they can’t help it. I can’t turn off my Realtor eyes just because I’m visiting a friend or relative, but I promise I won’t ask to see your basement or open your electrical box to check that out. I can’t turn it off, but I can control it.

We're number 1 - again

Yea team! Detroit is number one on yet another top ten (or whatever) list - this one for the metro areas in America where home prices have dropped the most. Read the story from Business Week at http://tiny.cc/lpDGS . I'm not sure whether this is good or bad. It's bad because so much value has been lost, but it's good because housing is now so affordable. Of course one has to have job to be able to afford a house and that's still a problem in Michigan where unemployment is now above 12%.

After a while it gets to be weary to read time-after-time how bad things are in the area where you live. Locally, we have the amusing Monica Conyers vs. Ken Cockrel battle over the Detroit City Council President's job to watch unfold. The ever popular wife of Congressman John Conyers is working hard to keep us all laughing. Throw in Oakland County's always-ready-with-a-quip L. Brooks Patterson and you have a Three Stooges meet the Keystone Cops movie waiting to be made. In business the daily drama of the struggling automotive companies plays out across our TV's and keeps us guessing. And then we have the Red Wings to keep us on the edges of our seats in sports. Of course the Lions are always good for a chuckle, too; but we're concerned about the future of the Pistons. So we have things to focus upon, other than just housing problems.

So, we're number one in housing value losses. Tell us something that we didn't already know. We're beyond that. We've moved on. We're ready for our recovery or our bailout or both. Next!

Hello, I'd like to steal your house

In the crazy foreclosure-dominated market that we are in right now here in Michigan I suppose I should not have been surprised by the call that I got today. Someone had been out looking at houses near one of my listings and called me to basically ask if my client would give the house away at a ridiculously low price. Hew seemed perturbed when I told him that is “offer” of some $100,000 less than we are asking wouldn't be considered. “Why not?” He asked, “Doesn’t you seller realize that she must sell her home at foreclosures prices?” “No”, I replied, “No she doesn’t HAVE to do that and she won’t.”

We have really created a monster in this market. Now most buyers think that they can get any and every house at a distressed price, even when the seller is not in a distressed position. This particular fellow spent quite a bit of time trying to convince me that he was correct and that my client is wrong to think that her move-in ready home is worth more than the stripped, vandalized or deteriorated foreclosed homes that he has been looking at so far.

Hopefully we’ll get out from under the foreclosure inventory glut later this year or early next year, so that we can begin moving back towards a more normal market. And then maybe we’ll also get back to more normal buyers too. There’s certainly nothing wrong with trying to get the best deal on a house and I certainly wouldn’t argue against that; however, going into every home, whether it’s a short sale or a foreclosure or a normal owner-occupied home and thinking that they will all be priced as distressed sales is just wrong and more than a little annoying.

As I have opined here many times, real estate transactions aren't zero-sum games where, in order for you to "win", the other side has to lose. Real estate needs to be a win-win transaction, where both side feel like they've accomplished their goals - the buyer gets a good deal and the seller gets a fair price for the property. That even applies if the property is bank owned or a short sale. Let the bank get a fair price, without trying to low-ball their already low price and you will win. I've had many buyers who were intent on stealing houses who never could figure out why their low-ball bids weren't accepted and why someone else (who beat them out for the properties that they wanted) could be so stupid as to bid more than the asking price on a foreclosed property. They'll never really win with that kind of attitude; because, even if they succeed in finally buying a house, they'll always be worried that they might have be able to bid even less. Let it go! Let the other side feel good, too, and you'll feel even better.

The end is near...maybe

Federal Reserve Chairman Ben Bernanke testified before Congress yesterday that he thinks the housing market may be at the bottom and that a turn-around in it and the economy in general could begin later this year; unless, of course it doesn't (which he said would be the case if the financial sector suffers another setback). Bernanke is getting as skilled as the old Fed chairman Alan Greenspan was at testifying at length before Congress and not saying anything that he could be held accountable for later.

Apparently Bernanke is able to see something in the arcane data that the Fed tracks that gives him hope. I'm reminded of the old Westerns where the Shaman medicine man tossed a bunch of chicken bones on the ground and proceeded to "read" what they told him. I suppose that's as reliable as asking questions of the old 8-ball. The 8-ball always had an answer like "could be", "maybe", we'll see or some other nonsense answer that could be interpreted in any way that you like.

Alan Greenspan used the technique of stringing together long sentences full of very arcane words when testifying, counting on the likelihood that none of the Congressmen and Senators wanted to be the one who said on camera, “I didn’t understand a damned thing you just said.” Of course both of them can count on the propensity of all of those in Congress to be more focused upon whatever political statement they want to make on camera at the opening than on what is said later, during testimony. After all Congressmen have lobbyists to help them write the legislation and tell them how to vote.

So the end is near…or not. We’ll know later this year…or next. And unemployment will stay below 10% …or maybe 11%…or not. Thank goodness we’ve got all of these geniuses running the show in Washington. Just think what a mess we’d be in if we didn’t have them to explain all of this stuff to us and make all of these great decisions on our behalf. We’re so much better off with them at the helm in this time of crisis…or not.

Has your home become your prison?

Is your house the main thing that is holding you back? Need to move to take that new job, but can't fford to sell? Want to downsize for retirement but can't. In fact many recent reports have shown that America’s workforce is frozen in place and unable to move to where there are jobs available because the workers have homes that they can’t sell – many that are worth less now than they owe on them. We’ve become a nation trapped in our homes.

The Obama administration has lots of programs underway to try to help lenders and homeowners deal with this problem, but many of them fall short, because home values have dropped so precipitously over the last 2-3 years. Programs that help homeowners refinance up to 105% of the current value of the home, don’t cover the 30% losses that have occurred in most areas – at least in Michigan.

It’s actually sad to see so many Baby Boomers who are at, or approaching, retirement age discover that they can’t sell their McMansion and downsize as they had always planned. I was holding a luxury condo open recently when a man came in and looked around. He commented that he’d love to be able to buy a condo like this one (which is priced above $500,000), but he can’t afford to sell his luxury home. According to him it was worth nearly $1 Million a few years ago and now he couldn’t get $700,000 for it, if there were even any buyers out looking in that range (very few). He says he’s looking for someone willing to do a trade (there’re even fewer of those people around). For him, that home has become his ball and chain.

So, are we all stuck in place, prisoners in our own homes? Perhaps. Perhaps the folks in Washington will figure out a program that deals with the depth and breadth of the housing problem. Whether or not this is a problem for you depends a bit on when you bought and what you’ve done since then. If you bought 8-10 years ago and had the discipline (some might say common sense) not to keep re-mortgaging and taking out equity over that time, then you should be OK. Your house is likely worth today about what it was when you bought. That’s not great, but think about it this way – you got 8-10 years of rent-free living out of the place. If you can walk away now owing nothing and perhaps with your down payment from 8-10 years ago in your pocket, that’s doing pretty good these days.

So give me a call and we’ll see if we can’t set you free of your prison. I’ll tell you exactly what your break-even point is and then do a Market Analysis to determine whether or not I think we can get that much for the house. It might still be worth it, if was can just come close, since you’ll be making the loss up on the purchase of a new place.

Are we there yet?

Many economists are now saying that we have basically bottomed out and are bumping along the bottom (small ups and downs but not in an overall downward trend). There is still much disagreement about how long this phase of the current deep recession ( we don't use the D-word) will last, but there is fair consensus that the worst is over and that we soon will start a slow recovery. Yea! I guess.

There is also a fair amount of concern in the ranks of economists (especially those of conservative leaning political bent) about the threat of damaging inflation, based upon the huge Federal debt that has been rung up to finance the various stimulus efforts. The worst among the nay-sayers is already predicting that the sky will be falling and hyper-inflation will be upon us soon. Oh, brother, yet another crisis to weather.

I have yet to see one indicator that I'm looking for and that is the decline of foreclosure sales and leases and the return of the move-up buyer to the real estate market. Foreclosures as a percentage of sales were still running at 70% through April - see
http://www.movetomilford.com/sold_homes.html for the details on what has sold locally. We are also still seeing homes sell for about 1.6 to 1.7 times their SEV, which may end up being our "landing zone", from which we will all have to start the value climb back.

Obviously we have a unique set of economic issues to deal with locally, with two out of three of our biggest local employers in or facing bankruptcy and hundreds of local parts suppliers on the brink. Until we get through that crisis our market will be controlled by FUD - fear, uncertainty and doubt.

So, are we there yet? If not already there we are sure close and hopefully we can get through the worst of it this year and start working our way back in 2010.

Is it more than a lack of common courtesy?

I’m in the midst of trying to deal with the listing agent for a bank owned property and it’s really getting frustrating. I say trying to deal because this particular agent refuses to return calls. He has one of those syrupy voicemail messages, you know the kind – “Sorry I missed your call but I’m currently out of the office. Your call is important to me so leave me a message.” Yeah, right! If it’s so important to you why can’t you return the call? It’s been two days now and I’ve left three messages. So this afternoon I got through to his office and was told that his assistant wold help me. Now, I'm making progress, I thought as they transferred me to the assistant. Then the assistant answered, "I'm away from my desk but your call is important to us so leave a message." Noooooooo!!!

Unfortunately this has become all too familiar in the current short-sale and foreclosure landscape that makes up the majority of the real estate business these days. That business has become concentrated in the hands a few agents, most of whom are overwhelmed, even if they have assistants and staffs. Unfortunately they are just the front-men for bank staffs that are equally (if not more) overwhelmed and sometimes even less responsive. It is not uncommon to hear stories in the office of short sale offers that have been in to the bank for 4-5-6 months.

So the rest of us have to put up with poor response or no response at all from these foreclosure-listing mills. It is the cause for constant grumbling by the agents who happen to represent people who are trying to buy one of those houses. We are forced to keep explaining why the real estate business doesn’t operate under the normal rules of business courtesy or really under any rules at all, when it comes to foreclosures and short sales.

And what can the industry do about it? Apparently nothing. There have been numerous attempts at formulating MLS rules that might help, but other than getting a few things enforced about the completeness and truthfulness of the data inputted to the MLS, there is really nothing that they can do. And states have little or no power over the large lenders, since they are governed under federal laws. There appears to be no way to require either courtesy or competency in either the Realtors or the banks involved with those distressed properties.

The only justice to look forward to is that someday this market will all turn around and then those same clowns who wouldn’t return our calls today will be calling us to try to do business. Oh, yeah, I remember you. You're the foreclosure clowns who didn't return calls - leave a message.