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Tuesday, June 30, 2009

Busy, busy, busy; but what does it all mean?

I've been really busy lately. Mainly busy showing houses, mostly foreclosed houses, or houses for lease to lots of clients. And I've listed a few, too. I've got a couple of sales working, one signed and moving towards closing and one in the heavy duty negotiations stage. And I've got lots of prospects for whom I'm doing searches and to whom I'm sending weekly lists of listings. So, I'm relatively busy lately. But is that a reflection of a change in the market or just a normal seasonal adjustment in real estate activity?

I have to say that I believe that the recent increase in activity has some of both elements in it. As I watch the statistics in the little five township market that I track on a weekly basis, I've certainly seen the activity in owner-occupied homes pick up since May. From January through April the sale of foreclosed homes made up 70% of the sold market in that area. In May that dropped to 61% and in June is now at 60% and may go lower before the month is out. And I've seen homes in the $300 to 500K range selling for the first time in months in that market. Good signs that more than just increased seasonal activity is taking place. The normal, move-up buyers are creeping back into the market.

We still have lots and lots of fear, uncertainty and doubt (FUD) in the local market, due mainly to the automotive bankruptcies and the ripple affect that is reverberating through the supplier base now. That is going to take most of the rest of this year to play out. However, the lower end of the market is starting to tighten up, with most of the really cheap foreclosed house swept up by investors or first-time buyers. It's hard to find many houses worth looking at in the $40-80K range anymore, at least out this far; and those that are still out there are in fairly sad shape. So the focus is turning to the $100-200K range, within which you can find foreclosed homes that 2-3 years ago were $250-350K - nice houses, many in fairly good condition.

And there are good deals on leases to be found everywhere, too; as people who can't sell for what the market will bear try to get out from under most or all of their monthly nut. The ironic twist is that most of the people who are looking to lease right now are doing so because they just lost a house to foreclosure and need to rebuild their credit before buying again. So I'm showing lots of lease houses. On most lease deals the agents involved split one months rent, which they then must split with their brokers and pay other fees. On most leases that means a "payday" of a couple of hundred dollars, but, hey, it's something and may pay one bill.

So, I'm busy, busy, bust. I'm working harder than ever, making less than ever, but having as much fun as ever. The people part of the job - meeting and working for some great clients - is what keeps me going in the business. If I was in it just for the money, I'd go get a job for Walmart or Home Depot. As for the meaning of it all in the larger context of the overall market, I certainly think (maybe hope is more accurate) that the pickup in activity is a precursor to a larger and more permanent market turnaround. I'll keep watching and let you know for sure in a couple of months.

Saturday, June 27, 2009

How do you take life when it comes at you?

From the Jack's Winning Words blog come this gem -

“Life is 10% what you make it and 90% how you take it.” (Irving Berlin) Berlin came to the US from Siberia at age 5. His father died 3 years later, and Irving had to go to work, taking menial jobs in those tough economic times. Through perseverance and hard work he was able to survive. We know him as a successful songwriter, but his real success came from how he lived his life…10% and 90%.

How appropriate for buyers, sellers and Realtors in today's real estate market. Of course buyers are having a bit of an easier time than sellers right now taking the current market, but they suffer from being overwhelmed by the vast inventory and unable to make a decision. Their nightmare is the old "What if..." bug-a-boo. What if there was a better house out there at a better price. So they look and look and look and never buy anything.

The sellers have the obvious issue of "What happened to the value of my home?" Well, it dropped and dropped a lot. It followed the market and that market is driven right now by pricing on distressed and foreclosed homes. Accept it and get over It and get on with life. That lost value is not coming back for a long time - a decade or more - so, if you need to move are really want to move to get on with life, just do it. You can't wait this recession out in less than 10 years.

And for Realtors, ouch. These are tough times to try to make a living in the profession. Much of what's selling is in the $30-100K, with a few int eh $100-200K price and very little in what used to be the sweet spot of the market - the move up homes in the $200 - 400K range. You have to sell a lot of $50-60K homes to make a living, but that's the hand that we've been dealt, so trying to be the best $50-100K Realtor in the area is now the goal. Go for it.

Thursday, June 25, 2009

Is this like snail-Facebook

Is Starbucks the social networking equivalent of snail-mail, sort of a snail-Facebook or snail-IM? I got to thinking about that the other morning while walking my dog past the local Starbucks n Milord, Michiga. I pass by it nearly every morning and I’ve noticed that there are ”regulars” who show up every morning and sit around talking to each other – a strange concept in these days of IM and Facebook and Twitter and other social networks.

It’s sort of like the tongue-in-cheek ads that Colin O’Brien did for his show when he took over the Tonight Show, where he tried to reintroduce the concept of watching video on something other than your cell phone or computer – it is call TV. As he put it, it’s just like watching on those other devices, only more comfortable and in a bigger format. Maybe going to Starbucks every morning and actually sitting there and talking to other people is just like IM or Facebook or Twitter, only more personal and interactive and you can actually see the other person. Imagine that.

We have become a society of people who have isolated ourselves behind the anonymity afforded by the Internet, preferring to tap away at a keyboard or screen, rather than actually directly talking to another person. There is some weird sense of empowerment that comes from hiding behind a screen name and lobbing comments or criticisms or opinions into the ether that is the web. Even when full profiles are available for all to view, it somehow seems less real and less threatening than a face-to-face conversation.

That’s really a bit sad. So, maybe Starbucks and other coffee gathering places perform an unintended but valuable service for the people who go there and give them a few moments in their days when they become human beings again and not just “Mama Mia” or “MortgageMan” or whatever screen name you’ve chosen for yourself. Try it some time. You’d be amazed how satisfying snail-Facebook can be. Can I get a double Latte with two shots of Mocca please.

Wednesday, June 24, 2009

Feds say money available...not much evident yet

The feds made nearly $6 billion available for the Neighborhood Stabilization Program, which intends to combat blight by reducing the number of foreclosed homes on the market.
The money, which has only started to flow during the past few weeks despite much of it being authorized last summer, will go to state and local housing authorities and non-profit organizations involved in providing housing for middle- and low-income families.

"The NSP was designed to help deal with all the properties in foreclosure around the nation," said Antonio Reilly, executive director of the Wisconsin Housing and Economic Development Authority (WHEDA), which will administrate the program in several counties in the state.
The bulk of the NSP funds will come from the $3.92 billion that was approved as part of the Housing and Economic Recovery Act of 2008 passed in August.

By regulation, these funds must be spent in communities with the highest incidences of foreclosures and subprime loans. That would likely include Detroit. They'll go to helping households earning no more than 120% of the median income of the local area, with 25% of the money going to families earning less than half the median.

There will also be a lease-to-own program. And there'll be a program in which the department will buy and rehab housing, mostly single-family homes and condos, to rent out to low-income families. All told, about 300 homes will be put back on the market in Las Vegas.

In some hard-hit towns, such as Cleveland and Detroit, where many of the vacant foreclosed houses have already be so damaged by vandalism and nearby home values are extremely low, authorities want to use the money to demolish derelict houses. The lots will go into a land bank for later development when neighborhoods recover.

Even before the first round of spending has filtered down to help many families buy homes, a second round of NSP funding is is poised to enter the pipeline. This money was approved as part of the Recovery and Reinvestment Act of 2009 (stimulus plan) that was signed into law in February.

It provides $1.93 billion to be allocated on a competitive basis. Potential grantees will be non-profits like community development organization certified by the U.S. Treasury Department.
They'll be judged on, among other things, their abilities to execute projects, how well they can leverage the money and how well the plans they offer can work to stabilize neighborhoods.
A third allocation, called NSP-TA, of $50 million provides cash to pay for technical assistance in running programs funded by the first two rounds of cash.

There has certainly been press about these programs, but little on the street to show for them locally, so far. I've seen articles about various local communities receiving the funding and there have been a few articles in local papers, but I have yet to meet a single buyer who has benefited. Perhaps the first round of funding went to line the pockets of local politicians and maybe we'll see some real benefits in subsequent rounds. A few million dollars can disappear very fast locally, with no one really sure where it went. After all, they spend more than that on travel budges locally without any receipts required. You gotta love Detroit area politics.

Sunday, June 21, 2009

The tunnel got longer, but there's still light at the end...

An article about the U.S. Real Estate Market in BusinessWeek Magazine this week took the view that we are in for a couple of more years of a depressed market, with a recovery predicted to start in 2012. Wow, that seems like a long time to wait, especially if you are considering selling. Of course, if you are a buyer that might mean more time to wait for just the right house to hit just the right price.

The article predicted another year of falling home values, which the author predicted would result in another 16% loss in values in 2010 and a bit more in 2011, before things level off. If that is to be believed and added to the losses in value already experienced in our local markets, that would put the total loss in home values projected in this recession at about 50%. Wow, again!

The article outlined the 7-year run-up in prices (called the bubble years), which started in 1999, and the following 3 years of decline that we are still in the midst of and which the author predicts will now total 6 years, before the economy turns around enough to cause a turn around in housing prices. Long-time readers of this epistle will recall that I’ve been writing about a similar timetable for some time now. The other thing that the BusinessWeek author also echoed from my earlier writings is the opinion that when the turn around occurs, housing appreciation will return to a more historic rater – likely somewhere in the 3-4% per year range. It will then take at least a decade to recoup much of the loss in value that homes have suffered.

The reasons given for the continued depression in the housing market were explored in BusinessWeek on a region-by-region basis, with a few passing mentions of the Detroit area and the Michigan market in general. Of course the decline of our major industrial base was cited as adding to the already heavy influence of foreclosures in our area. The states unemployment rate is hovering above 14%, which almost certainly puts us in the top 5 states as far as that factor is concerned, maybe in the top two.

So, where is the light at the end of the tunnel? It can seem like the tunnel just got a bit longer, especially if you are trying to sell. To a certain extent that is true. The key to selling these days is pricing aggressively in a market that is driven by foreclosed properties. It is no longer possible to price your home only against other owner-occupied homes that are similar. These days you must look at what the buyer can get for about the same amount of money in the foreclosure market. If you have a home to sell that might have been worth $200,000 a few years ago and today would compare with other owner-occupied homes that are on the market at $160,000, you will be competing with foreclosed homes that used to be valued at $200,000 that are now on the market for $60-100,000, depending upon condition. Wow! How does that work?

Well, the only weapon that you have to fight back with in that kind of market is the condition of your home. Most foreclosed homes have some issues. Many foreclosed homes were stripped by the previous owners, who almost always take out the appliances and who may have stripped out lighting fixtures and some of the plumbing (nice faucets or upscale shower heads for instance). Some of them have been further damaged by vandals and almost all of them have started to deteriorate due to neglect. In most cases the previous owners just left the homes as is when they left or were evicted, so most need painting and updating.

Therein lies your opportunity for a edge in the market hat will justify the added cost of your house. If your home is in move-in-ready condition – freshly painted, updated, maintenance all done – it will appeal to those who aren’t looking to have to do a bunch of work in a house, just to save a little. Most foreclosure homes would require $20-30-50,000 of investment by the new owners right away. Some aren’t even habitable in their “as-is” condition. So, you need to be the “no immediate investment required” option for home shoppers. Before you try to sell, get an opinion from a good Realtor about the things that you should do to get the house ready for the market. The Realtor will tell you all of the things that need to be fixed or painted or updated to be competitive. Some recommended updates may be too expensive to do and that’s OK; just remember that you’ll need to deduct the cost of those deferred updates from the asking price (just as the buyers would).

Can you sell in this market? Absolutely yes! It just takes better and more preparation and the resolve to price you home to the current market and not what it might have been 2-3 years ago.

Thursday, June 18, 2009

From the guy in the tie...

“No matter how you feel, get up, dress up and show up.” (Regina Brett) from the Jack’s Winning Words Blog. Good advice in today’s horrible real estate market. I might modify it a bit and say, “No matter how you feel about the real estate market, get up, dress up and show up.” That kind of philosophy helps me get started everyday. Whether or not I have an appointment for the day, I get up, dress up (put on what I call my “Realtor outfit”, complete with a tie and my Realtor badge, and show up at the office.

Lots of my compatriots in the business don’t bother to dress the part, if they don’t have an appointment set for the day. They show up in jeans or other casual looks. To my way of thinking, that says something about their attitude about the office and about fellow workers. When I’m in the office I feel like I’m I a professional business environment – an environment where the public and customers have the right to expect a professional appearance. It is also a sign of respect for my fellow workers to show up in their business environment dressed appropriately, just in case I should happen to run into one of their clients. I would certainly never go to another business office dressed casually, even if it was just to drop something off for another agent.

I suppose that this attitude and my practices must look rather old fashion to many younger real estate pros; however, I suspect that most really successful Realtors would say the same thing. Even a recent article on 30 successful young Realtors who are under 30 years old showed them all dressed nicely (perhaps just for the pictures in the article, but I suspect that good dress is a part of their success story). The most egregious case of this too casual practice that I have seen is an agent showing one of my listings who showed up dressed in shorts, a Hawaii shirt and flip-flops to show the house. Excuse me! I don’t care if it was on a Saturday that was at the least disrespectful to his clients, not to mention my clients and me.

Maybe Steve Jobs of Apple Computer, can pull off the "way cool" casual jeans look at board meetings and with customers, but I just don't think it flies with most of the public, especially if you aren't already a very rich guy like Jobs. So, for me, I’ll continue to get up, dress up, show up and try to carry the banner for upholding a professional appearance while on the job. I’m known around my office and “the guy in the tie” and that’s OK with me. I’d rather be known as that than to ever be called “the slob over there in the jeans and tank top.” So, excuse me now, I have to go pick out today’s tie.

Monday, June 15, 2009

What are your options?

Recently I was a speaker at an Open House event that we put on in the office in Milford, which I wrote about in my last post. I spoke on Real Estate Trends, which are still going down, although not as much any more. When we took questions from the audience a young couple asked a very tough question – “When should you decide to just walk away from a home?”

These days that is a difficult question to answer, because it brings into play both logic and emotion. One can reach a logical conclusion to just walk away and let the bank have the home back, based purely on numbers – what do you owe, what is it worth on today’s market, how long can you hold out at your income level and what could you afford to bring to the table to sell it? The emotion comes into play because, as Americans, raised in a society that puts a value on meeting one’s obligations, it is difficult to bring one’s self to “just walk away.” That’s giving up. That’s quitting and we’re not a nation of quitters.

Here’s a link to a good article about the options by Ralph Roberts a local consumer advocate and writer for Realty Times - As Ralph points out, there are lots of options, some of which may be better than others. Some less than forthright people and companies will try to convince you that the services that they mat offer will get you out of the mess that you are in without pain or consequence – don’t believe them. All of the options that end with you losing the house have consequences to your credit score and to your lifestyle for the next few years.

Many people say that they don’t need credit, that they’ll just pay cash for everything. That sounds great, but in a society like ours, that is credit-oriented, that is easier said than done. Almost all big-ticket items, from homes to cars to furniture are bought on credit these days. Delaying those purchases in order to save enough cash to make the purchase gets harder and harder as you back through that short list – furniture, cars, homes. Not only is your ability to purchase things hampered by bad credit, you ability to earn the money to buy things might be too. Job applicants with bad credit might get a little extra scrutiny by perspective employers and would almost certainly be asked to explain the situation that caused the problems.

So, when should you just give up and walk away? I guess I’d agree with Ralph that you should first explore and try all of the alternatives that apply to your situation. You don’t have to drive yourself into poverty and you certainly should protect your future retirement, rather than spending down your 401K or other retirement funds; however, you should seek the advice and help of professionals and do what you can afford to do to avoid the stigma of either a foreclosure or a bankruptcy.

If everything that you try fails and you end up having to do a short sale, go into foreclosure, do a deed-in-lieu or declare bankruptcy; then suck it up and start executing a come-back plan. Don’t waste time wallowing in self-pity or trying to find someone else to blame. Stuff Happens! You’re still here so get on with life.

Thursday, June 11, 2009

Don’t get bummed out…

I’m speaking at an event that we’re hosing at our office today on the topic of Real Estate Market Trends. As I was preparing I researched all of the current market numbers for our County market and for the little market area that I focus upon surrounding Milford, Michigan. Just looking at the numbers it became obvious how to answer a question that I had posed for myself as a topic that I would cover – Should I buy now or wait? What was much less obvious and is somewhat harder to answer is the Yang question in the Yin and Yang world of real estate – Should I try to sell now or wait?

If you want to sell or perhaps need to sell, it is easy to get bummed out by what you hear and see of the current market. It’s so obviously a Buyers Market that is easy to become discouraged, if you are a seller. There is no way to sugarcoat what has happened to home values – they are down 25-30% from their high mark in 2004-5. In just a little over 4 years everyone has lost ¼ or more of the value that they thought they had in their homes.
For people who bought between 2003-2006 that is a very real and very serious loss of equity that is not going to come back in less than a decade.

For people who have owned their home for 10-20-30 years and did not take equity out through refinancing, this is a paper loss; which is no less painful to deal with, but with much less real impact. The $80-100,000 that many paid for the homes in the 70’s and 80’s is now only worth $200,000 and not the nearly $300,000 that it was worth 3-4 years back. Don’t get bummed out. You still did OK on that investment, just not as well as you thought you would. Hopefully the equity growth that you had planned for in your house isn’t the only things you had in mind to fund your retirement.

So, getting back to the question – Should I sell now? – the answer is yes, if you have to or want to, in order to move on with life. Things aren’t going to magically turn around and all of that “lost value” rush flooding back into your home. Once we bottom out and start to see appreciation again, instead of the constant loss of value, we will more than likely return to what was the normal appreciation rate historically. That was about 3-4% per year, prior to turning into a much steeper level of increase in the late 90’s and early 2000’s. We cranked along at 8-10% per year appreciation for a period during those “bubble years.” What we have seen over the last 2-3 years is a rapid fall back down to the levels that we should have been at (and sometimes well below that level as the correction overshot the mark) had we stayed at the historic appreciation level during those years.

So, if you had decided to wait out the market, you’ll have quite a wait. It may be better, especially if you’re at a life stage where waiting for a decade is not a real good option, to bite the bullet on the “loss” that you have taken and get on with life. If you’re buying anything else – going either up or down in size – you’ll get some of your loss back by getting a good deal on that new place. Of course downsizers may not recoup all of their loss, but at least a good deal on what you are buying can take some of the sting out of the situation. Obviously this is a great time to be moving up in the market. The bottom line is not to be frozen into inaction by concerns over paper losses. Life goes on and you must, too.

Tuesday, June 9, 2009

I won’t give it away…

I get that phrase a lot these days when discussing pricing with potential home sellers. It’s interesting how we perceive or set the values of things, based largely on beliefs disguised as knowledge. If one bought a car 10 years ago and was ready to sell it, the conventional wisdom (belief) is that it has probably lost value and lots of it, even if it was exceptionally well maintained. Most other items of our personal possessions tend to lost value over time and be worth less if we sought to sell them – visit any garage sale to see how much less.

There are some exceptions that come to mind. If one bought diamond ring 10-20 years ago and now wanted to sell it, the belief is that it might be worth whatever the current going rate for gold and diamonds or maybe more, if it is of exceptional design and quality. Antiques, whether they be furniture or cars or whatever are expected to go up, but we accept that they float in value up or down with their specific market. Collectibles are the same way (got any valuable Beanie Babies?). Stocks and some other, non-personal possessions could go either way and tend to float in value with the market, and we’re OK with that.

Then there are our houses. The need to change how we think about the value of houses is a huge issue right now. We have all been raised on the belief (held onto as common knowledge) that our houses always hold their value or go up. Now, it would be absurd to think that there are people who haven’t heard of the current economic meltdown; however, I certainly meet a lot of people who have yet to fully deal with the consequences of what has happened to the value of their homes.

I usually meet people in the stage where they are trying to see what their homes are worth on the market today, because they would like to move or might have to move. It seems like those who bought only a few years ago (up to maybe 6-8 years ago) know in the back of their minds that they have taken a loss. They are somewhat resigned to the bad news that I have to deliver. People who have owned for longer periods, especially the 10-20-30 years owners also know that the economy has affected the value of their homes, but they often aren’t prepared for how much that impact has been. Article after article has been written about the 35-30% drop in values in this side of Michigan, yet somehow that just couldn’t have happen to most of these folks, or so they think.

So I go in with my data and my analysis. I show them similar homes that have sold and ones that are currently on the market (I don’t use the word “Comps”, because that word carries more baggage than it can support). I look at the condition of their home – has maintenance been faithfully done, has it been remodeled or refreshed within the last 5 years (especially the kitchen and baths), what is the condition of the flooring, have the mechanicals been updated, how old is the roof, what are the style/layout issues, if any and on and on– and evaluate it as compared to other similar homes. I’m not yet even looking at the things that might have to be done to it to make it more marketable – de-cluttering, staging and the like – just for the things that impact market value.

Based upon all of my research and evaluation of the house, I come back with a price range. That’s when I often hear – "I’m not going to give it away." Well, I’m not really asking them to give it away, just to put it on the market for what the market will currently bear. Many times these days I hear that the price that I have returned with is less than what they owe on the place, sometimes because they have taken equity out and sometimes just because they paid top dollar to begin with. Many will tell me that they have more into the place that the number that I just put on the table or they’ll say, ”I need to get more for it than that.” Some have been banking (pun intended) on their home equity to fund their retirement.

Sometimes I deliver my little speech about how the market works and fact that it really doesn’t care what they want or need from the sale of the house. Our market-based economy is cruelly efficient at finding and setting values for anything that is for sale. There are always 10-20-100 more of whatever it is to compare with on features and price. In today’s real estate market we also have the huge foreclosure inventory that buyers can look at and compare. And they will compare.

It might not seem fair to most owners who are seeking to sell to have me tell them that their home will be competing with foreclosed homes, but it is a fact of the market and the competition isn’t even fair. I recently previewed a beautiful 4000 Sq Ft home in great shape that used to be valued at about $600,000 and which is now priced in foreclosure at $329,000. How do I explain that as competition to an owner to whom I have just given a $330,000 to 350,000 price range estimate for his owner-occupied home? Is it fair? No! Is it the reality of today’s market? Yes.

So I have to tell that owner that they really need to be down around $310 – 315,000 in order to be competitive. And they need to have the place in immaculate condition, so that they represent the move-in-ready option for buyers. It’s not an easy sell for me or for them. “I’m not going to give it away,” they often retort. I can’t blame you for being disappointed, but that’s the market today. I often advise, “Hold on if you can, but don’t look for things to return to where they were, maybe ever, but certainly not for a decade or more.”

The bottom line is that you aren't giving it away. You're selling for what the current market will bear. If you have to take a loss on the place, perhaps you'll make up some or all of that loss on what you buy next. If you don't plan to buy another place, then you need to be able to look at this loss just like you are looking at losses in the stock market. It's hard, but I try to use the "So What" technique of coping. So what if this or that happened, I'm still here. I still have great family and friends around. I still have my health, my faith and a lot of life left to live. I may have to live a bit differently than I had planned, but, so what. I try to let it go and move on. Besides, you have other things to do, rather than to sit around worrying about the value of your house.

Saturday, June 6, 2009

What you do...

“Ability is what you are capable of doing. Motivation determines what you do. Attitude determines how well you do it.” (Lou Holtz) from the Jack’s Winning Words blog. I agree with Jack that Lou Holtz is a great motivational speaker and coach. In these tough times this saying of Lou’s is especially true. Most Realtors have some abilities, but many have not been motivated to apply their abilities in this tough market and even more have done so with a negative attitude and thus not done well.

I’ll certainly admit that these are tough times and I sometimes have difficulty getting myself motivated. I am thankful that I have one character flaw that seems to help during times like this – I hate to do a poor job. If I’m going to do something I really put my best effort into it, because I just can’t stand myself if a do a half-a** job on anything. Early on in my real estate career that trait was a constant source of frustration for me, because it seemed that there were always things left undone at the end of each day. I had to learn that real estate is a job that can consume all of the time that you can give it, and then some.

There is always one more thing that you could do in real estate – one more flyer you could print and deliver, one more client you could call, one more letter to a FSBO you could write and mail, always something. The key it turned out is understanding how to prioritize things and how to just let go of some things (generally the really low priority things that I didn’t get around to). That’s still tough for me and something that I don’t do well.

So, maybe to Lou’s advice above I would add – Good time management is how efficiently you do it. Now, excuse me; I think I can still deliver one more set of flyers today, if I hurry.

Thursday, June 4, 2009

What kind of people have we become?

I show lots and lots of foreclosed houses and ay of them have been trashed or damaged or stripped by their previous owners. I get the question a lot, "What kind of people would do this to a house?" I guess our kind of people, us, what we've become as a nation.

These are not all homes that were owned by scofflaws or druggies or lazy louts. Most were owned by regular people just like your and me and our neighbors. Most are people who fell on hard times through no real fault of their own. Some may have reached too far for a better home than they could afford and some may have over extended themselves with lots of credit; but, by-and-large they were just plain folks who got caught up in the economy of excesses that led up to the crash and then got caught in the tidal wave of the economic tsunami that washed over us all.

How they reacted to what happened to them and what they did to the houses in that reaction may be a reflection of the mores of our society, as they exist today. Pride of ownership was replaced by just pure pride in owning lots of things. Houses became things to be possessed, not homes; so it was easy to take out frustrations on those symbols of lost wealth. And after all, it felt like they were somehow “getting back at” those distant and impersonal bankers who had repossessed their house.

Then there was the perverted logic that led some to believe that the bank somehow only owned the structure itself and that everything in the structure somehow belonged to the owner, such as the light fixtures, the kitchen cabinets and the like. I don’t know how that line of reasoning extended to the furnaces and the water heaters, but apparently many ex-owners considered those to be personal property, too. They weren’t stripping the house, the logic went, just taking their personal property with them.

So, have we become a nation of vandals and thieves? I don’t think so. Even faced with all of the terrible things that I see that have been done to foreclosed homes, I still also see many more homes in which there is still a pride of ownership and a strong sense of doing what is right, rather than what is wrong. I do believe that more of the people who intentionally damage houses or vandalize them, should be brought to justice and prosecuted, if for no other reason than to continue to show our children that we as a people believe in and uphold the laws. I’ve only seen a few cases make the news and they were egregious. AS a society we have to draw lines and there needs to be a clear line on this issue. What do your think? Should we prosecute foreclosed homeowners who intentionally damage or strip their homes?

Tuesday, June 2, 2009

The New Normal

I’ve opined here before that I believe that we are witnessing a fundamental reset in the American way of life. Some have agreed and some have pushed back and said that this recession is just a temporary blip and that things will return to “normal” soon. Recently Business Week magazine had an article that I thinks puts it well, too. It was titled “The New Normal”, and it was focused upon the financial aspects of the current, monster recession. Basically the author made the case that we are seeing an adjustment that is permanent to the inflated real estate and stack prices and that a new baseline is being established from which future growth and appreciation will be measured – a reset, so to speak.

For those who bought either stocks or real estate right before the crash, that’s not good news. Basically, that article is saying that the losses that people have suffered are now (or about to be) locked in and that recovery, if it can be called that, will follow a more conservative growth/appreciation curve. For long-time owners of real estate it means that the illusion of wealth that was created in the late 90’s and early 2000’s is gone. If you bought a house in the 70’s or 80’s and held on to it without constantly taking equity out, you are likely fine. You house has likely doubled in value since you bought it, but it is not worth the 3-4 times that price that you once thought it was worth. If you have an appraisal from 4-5 years ago or further back – throw it out and quit thinking about it. That number is meaningless in today’s market and will likely never come back.

For those who ask me how long will it take to get back to the value that the house had when they bought it 3-4-5 years ago, I generally say at least a decade. You bought at the peak and have experienced the worst loss of anyone and it is going to take quite a while at the new, normal rate of appreciation to recover most of that lost “value”, perhaps longer if you have an older condo.

For those still in denial that this is an inflection point in our countries history, I would invite them to consider the number of big name investment banks that are now gone and the fact that General Motors, as we knew it, is gone. Perhaps the Chrysler failure was not such a big deal – they’ve been failing for years – but GM, now that’s big. Also big is the change in the dealer network for all of the car companies – another fundamental reset, as they downsize those networks and your little, local dealer goes the way of the buggy whip store.

There are undoubtedly lots and lots of local stories or stories about smaller industries that are undergoing radical change because of the current recession. Unions are getting smaller, companies are getting smaller or going offshore, good jobs are harder to find for college grads and even harder for high school grads, many national brands are struggling and smaller brands going away – things are changing rapidly and permanently.

So, now our task is to get used to the new normal that we are facing and figure out how to make the best of it. As for me, I’m trying to figure out how to best advise owners who want to sell on how they have to price and prepare their homes for this market. The end is not yet in sight of having to compete in a market that is dominated by foreclosures. Pricing aggressively is a must and having the house in tip-top shape is the best point of differentiation that the home owner can focus upon. Usually I advise against making major investments in the house (remodeling the kitchen or baths for instance) just as you are going to sell it, but doing everything short of a major remodel job is advised in this market. Rather than put $20-30,000 into the house to get it updated, I’d advise owners to just take that off the list price and let the new owners do those projects to suit their own tastes.

It's going to take some getting used to - this new normal - and many will find it hard, if not impossible. Like lots of things in life, you just have to accept that some things change and will never go back to what they were - we all age and none of us gets younger looking (albeit some pay cosmetic surgeons tons of money to try to turn back the aging process), cars get old and fall apart and houses can lose value that's not coming back in our lifetimes. It's the new normal. If you want to see how pervasive this all is, just Google "new normal". There are already lots of Internet sites devoted to this topic; which is, after all, all very normal