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Monday, February 28, 2011

A Confusing Market

Perhaps A Confused Market would have been a better headline. Each week new and often contradicting data and opinions about the state of the real estate market is released by various groups that surround the market. While existing-home sales rose again in January and are outpacing year-ago levels, we are still seeing a drop in home prices across much the country.

Existing-home sales increased 2.7 percent in January and are 5.3 percent above January of 2010.

Regionally, the West saw the largest existing-home sales increase. In the West they rose 7.9 percent and are 7.0 percent above January 2010. The Midwest and South also saw monthly rises -- up 1.8 and 3.6 percent respectively. The Northeastern region is down 4.6 from December and down 1.2 from year ago levels.

The most recent reports from the Case-Shiller Index have brought on a slew of comments from the experts. The Case-Shiller quarterly index showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010.

So, what is happening in the local real estate market? Well the best answerr is to check things out on one of my Web sites— or I’m tracking nine local markets this year— Milford (of course), Commerce, Highland, West Bloomfield, White Lake, Lyon/South Lyon, Green Oak, Brighton and Hartland.

I track what has sold each week in those markets and keep running year-to-date totals, too. I record all of the houses that have sold above $20,000 in those markets, as well as what they were listed for at the time. Then I calculate the percentage of the sold price vs. listed price.

I also record the latest SEV value for the home and calculate the sold price vs. SEV ratio. In theory SEV should equate to 1/2 of market price. In practice sold prices are running 1.4 to 1.7 times the SEV. That is a measure of how far behind the assessors are, compared to the actual market values. Finally, I record the Sq Footage of the sold homes and the listed and sold price per square foot. Those are running well below $100/Sq Ft in every market.

Here are a few representative averages for those markets, so far in 2011:

Market .......................Ave. SEV ..............................Ave. Sold
......................................Multiplier .............................$/Sq Ft
Milford ..........................1.4472 .....................................$80
Commerce ....................1.6822 .....................................$89
Highland .......................1.4829 .....................................$69
White Lake ..................1.5828 .....................................$74
West Bloomfield ..........1.5703 .....................................$73
Lyon/South Lyon .......1.7964 .....................................$85
Green Oak ...................1.6138 .....................................$78
Brighton .......................1.5595 .....................................$87
Hartland ......................1.6450 .....................................$79

How is this data and the derived numbers of value to you or someone you may know? If you are thinking of selling, this will give you a good feel for the market in your area (if you are in one of the ones that I track). You should not believe that somehow your home has been magically spared the collective pain of this market. It has not. These numbers can help you avoid wasting time by listing your home too high.

If you, or someone you know is looking to buy a home in one of these markets, you can get a good feel for what homes may really be worth, no matter what the current listed price is. Almost all sellers start out priced too high when they place their homes on the market. Equipped with this data you can make a stronger case for making a more realistic bid and back it up with facts.

In either case, call me and I’ll help you get the pricing right.

Thursday, February 24, 2011

Clearing up the confusion

It's always funny to me ( I was goingto say amazing, but littleamazes me anymore in real estate) how mixed the messages are that come out of our industry every week. Depending upon what you read and from whom, the market is up or it's down. Existing home sales went down, then they went up and next week who knows what wil lbe reported. RealtyTimesreports one thing and reports another. RealtyTrac reports doom and gloom in the foreclosure market and NAR reports that Lawrence Yun (the National Association of Realtors house economist) is optimistic that things are getting better.

I suppose part of the problems is that so many different groups or sources are reporting from so many different perspectives. If you're a foreclosure oriented company you're going to focus upon and report upon foreclosures and distressed properties. If you represent the real estate industry and are trying to convince buyers and sellers to jump into the market, "Now" is always the time. If you're an economist you seldom know what's going on today until you can look back with 6 months of perspective and try to tell us what you think happened and why. Of course location has lots to do with what you hear or see, too. We are still in the pooper in Michigan, yet I get emails from agents in other parts of the country who tell that things are boomingand some who claim never to have had a depression at all in their housing market. Now, that is amazing.

So what's the casual observer to think of all of this confusion and contradictory information that they see reported in local papers or read on the Internet? Well, for one, that's probably what makes them a little skeptical. As an industry Realtors don't appear to have our act together - again exacerbated by the great local differences. Still, I think it's incumbent upon me as a local Realtor to be able to answer the questions "How real estate these days?" within the context of both my local markets and the greater national market that the clients hear about. Whatever they see on NBC or read about on Zillow or read about it in a local paper sets a backdrop for them when they ask that question of us.

I believe that you need more than just your good looks and a quick wit to deal with those questions. While I still have my wits about me, the looks have long ago faded. That's why I spend so much time tracking my local market - collecting data and creating statistics that don't exist anywhere else. You can't just claim to bathe local expert. You have to have the facts and the insight into what's happening in your neighborhoods and market. I can't get that just from my personal experience or the sales that I make. There's no shortcut - I have to collect the data, organized and analyze the data, maybe chart the data, but most importantly understand what the data is saying about my market. Then, I can go out without fear and present myself as THE Realtor for this market. It's up to me to clear up the public's confusion.

So, if you live in my market area in southeastern Michigan, go ahead and ask me - "How's real estate going?" I know and I'm ready to help you understand the real estate condition around here, too.

Wednesday, February 23, 2011

California takes on the alphabet soup of real estate designations.

An article by Bob Hunt in yesterday’s RealtyTimes was written about the California Department of Real Estate (the DRE) taking on the issue of all of the recent designations, which are mostly for marketing purposes, of so-called experts and even certified experts or specialist in such things as short sales or foreclosures. The DRE is apparently concerned, and rightfully so, that many of these advertisements are misleading and involve agents who have done little more than pay to attend some class somewhere (usually for a day or less) and have then begun portraying themselves as somehow now being experts at handling distressed home sales. One has only to read the advertising that agents use on Webs sites and in blogs to see what the DRE is concerned about.

There are real estate related fields in which one can become trained and claim some level of unique expertise; however, the legitimate one usually require much more training and may even require a period of supervised apprenticeship. Most of these distressed property designations require nothing more than a few dollar and a few hours of the agent’s time. At that point one can say, “Yesterday I didn’t know what a Distressed Property Expert was, now I are one.” Good for the California DRE for taking on this issue.

There are certainly lots of designations that one can earn as a Realtor that are worthwhile and meaningful and most of them are sanctioned by NAR. Then there are all of these little specialty designations which really just represent some entrepreneur’s idea for making money from Realtors. Too many of these are just sham designations that represent no particular skill or expertise and certainly no experience, just a willingness to pay the going rate and spend a few hours in class, in order to use the impressive sounding letters after your name.

The RealtyTimes article contained a few of the questions that potential clients should ask, such as, “ So, tell me, Mr. expert, how many of these distressed property sales have you done? And, how many were you successful at?” “What kind of test did you have to pass or apprenticeship did you have to serve to earn this designation?” “What makes you a n expert or specialist in this type of sale?” The RealtyTimes article points out that there is apparently a 12 question list that the DRE has put out. Let’s face it, 80-90 percent of the folks running around touting these credentials in their ads couldn’t pass the muster of 4-5 of these questions, much less all 12.

So why do it? Why try to pass yourself off as something that you’re not? Well it is good advertising and, after all, agents using these designations know that most potential clients wouldn’t know about the 12 questions, so why not go for it? The “why not” is that it’s basically dishonest. You’re not an expert or a specialist because you paid your $99 and took the three hour course. You’re just a fake. And that’s what the DRE is saying. Many so called “Experts” and “Specialist” and “Certified Distressed Property Salespeople” are just part of the larger fraud being foisted on a trusting and unsuspecting public. Eventually this will come back to haunt the so-called experts when they get their day in court to try to explain how they lead some clients so horribly astray due to advice based upon their certified “expertise.”

Tuesday, February 22, 2011

Is it time to hunt vampires in your home?

Many people have have become more energy conscience. They have replaced drafty doors and windows, caulked everything in sight, put in extra insulation, replaced regular light bulbs with new CFL’s and maybe updated major appliances to EnergyStar rated ones. Maybe it’s also time to go vampire hunting through the house.

Walk through your home at night with the lights off and you may be surprised by the amount of light put off by “standby” lights or blinking lights and digital displays on various appliances and electronic devices. Because these devices are ready to operate or receive signals at all times, they act like vampires silently sucking away energy even when they are turned “off.” Each blink as you walk through the room is a little voice mocking you and singing out “Hey, look at me; I'm sucking the money right out of your wallet..”

A 2007 article in Greetips advised that wasted energy, known as standby or phantom energy loss, represents a relatively small but growing percentage of an individual home’s electricity use (about five percent), but taken across all U.S. households, adds up to an estimated 65 billion kilowatt-hours of electricity each year. This extra electricity costs consumers more than $5.8 billion annually and sends more than 87 billion pounds of heat-trapping carbon dioxide into the atmosphere each year. That was 4 years ago and devices that operate in a standby mode have proliferated.
Some of the biggest energy wasters in most homes are the adapters that come with rechargeable battery-powered cordless phones, cell phones, digital cameras and music players, power tools, computer peripherals and other electronic devices. Most draw power whenever they’re plugged into an outlet, regardless of whether the device battery is fully charged—or even connected. Other culprits include appliances or electronic equipment with standby capability (such as televisions and computer monitors), a remote control, and/or a digital clock display (such as microwaves, DVD players, and stereo systems).
You can tell you’re wasting energy, even if there’ no light on the device because most of those little charging or power bricks will be warm or hot to the touch. Computer peripherals also consume a lot of standby energy, keeping printers ready to print, speakers ready to speak and disk drives spinning endlessly.
So what should you do if (or I should say when) you find that your home is indeed infested with power vampires? Turn them off! Most of these little power suckers are doing nothing worthwhile most of the time. It may be a small inconvenience to have to go back to them and turn them back on, rather than sitting across the room with a remote in hand a clicking a button, but it can save you money over time. For those devices that are close together, plug them all into a power strip that can be switched off. For the charging bricks, don’t just unplug the device that was charging – that leaves the brick plugged in and those charging bricks never stop providing a charge, even when the device that they are there to charge is unplugged; they just divert that charge to a resister and make heat out of it. Unplug the brick or put a bunch of them on a switched power strip, too, and turn it off when nothings plugged in to charge.

Not all instant on devices that have standby power running to them all the time can be unplugged without suffering the consequences of having to reprogram them; however, a great number of devices that we use only occasionally – a DVD player or video game, for instance- might as well be unplugged between uses. After all, there is no purposed served by leaving them plugged in and there certainly is a cost involved.

Now you may be saying, but Norm, come-on these aren’t really big bad vampires sucking massive amounts of energy. I an agree with that, they are more like bedbugs, scurrying around while you sleep each with a tiny bite that if left uncheck can make you miserable. So maybe I should have entitled this blog post – Don’t; Let the Bedbugs Bite.

Sunday, February 20, 2011

Assessed Values – a double edged sword

It’s that time of the year again in Michigan when people line up at their local townships to take their 5 minute shot at getting their property taxes lowered…yet again. The local assessors have been lowering property values rather dramatically the last coupel of years, especially since they switched over to using a single year’s worth of sales data, instead of using the old two years worth method. Still, they are running behind, because their data is always behind and property values continue to drop on the market.

The current assessed values may be as much as 20-30% high, compared to what the market will bear for you home. How can I say that? Well, I track what hoes in my market areas are selling for and look at how the sale prices compared to the SEV at the time of the sale. Remember that the SEV (State Equalized Value) is supposed to represent ½ of the local market value; at least that’s the theory.

The assessors look at what comparable homes have sold for in the local area over the last 6 to 12 months. They assign values based upon several factors – the value of the land and the value of the improvements (the house and any outbuildings) on the land, being the two biggest factors. You should ask to talk to the assessor to find out exactly what factors s/he used in reaching a value for your property.

In general, if everything were “normal,” one should be able to double the SEV for a home to arrive at a reasonable approximation of its market value. Things have not been “normal” for quite some time. In the heady days of rapid appreciation leading up to the bust the Sold price to SEV ratio was often well over 2.0 – averaging about 2.2 in this area. That meant that one had to bid more than twice the SEV in order to buy the house. The assessors couldn’t keep up with the rapid appreciation in those days.

When the bubble burst and home values began dropping at double digit rates, just the opposite happened. In fact, because of the old method of assessors using two years worth of sales data, they actually overvalued the market by a full year, until the new, lower prices sales data caught up. So, SEV’s actually continued up even thought the market had started tanking. Ever since, the assessors have been playing catch-up with a continually declining market.

So, here we are in 2011 with market values still declining and SEVs still trying to catch up (or catch down, if you prefer). The best guess by local economists and pundits is that it will be 2013 before we see the return of positive appreciation in local housing. What you can see coming is another miss of the change in direction by the assessors. They are now using one year’s worth of sales data, but that year will still be the past year, once the change happens. Why is that bad? Why have I called it a two-edged sword?
In addition to being used as the basis for calculating your taxes, the SEV is often used by buyers and Realtors® to give them a feel for the value of the house and to guide them in making bids. The current multiplier is not 2.0. It has been running around 1.6 to 1.8 in most of the surrounding markets. If you take into consideration the distressed homes that have sold in those markets, it is actually lower – between 1.4 – 1.6 times SEV. So, a house with an SEV of $100,000 is not worth $200,000 on today’s market, but rather about $160,000 to $180,000, according to current sales data.

What happens if, in the next couple of years, the market turns around and starts back up; but, your assessed value keeps going down, let’s say to $80,000, instead of the $100,000? Now the buyers and agents see your house as being worth only $128,000 to $144,000.

You may have been happy initially with the lower taxes on the reduced SEV value, but now you want to sell at a price that you perceive your home to be worth (which is always higher than the real market value and is now also higher than the SEV value would indicate). It might take a full tax year for the local assessor to catch up with the now appreciating value of your home and adjust it in an upward direction.

This is one of those “can’t have your cake and eat it too” conundrums. If you keep fighting and fighting to get your SEV lowered, so that your taxes are lowered, you are also lowering the perceived value of your home in the market. The turn around, when it does come, is not expected to result in quick, double-digit appreciation that will recoup lost value quickly. Instead a return to the historic appreciation curve of about 3.5-4% per year appreciation is expected.

So, if you are successful at your challenges to the SEV and taxes on your home and succeed in getting your $400,000 home (at 2005/6 peak prices) reduced to a SEV value of $110,000 for tax purposes; don’t be disappointed if no one will pay you $300-400K for it when the market turns around. You have established that you house is only worth between $176,000 and $198,000. You might have to wait a decade or more to regain the lost value.

Thursday, February 17, 2011

It’s not home invasion, it's in the mortgage...

Every now and then a story like the one that appeared February 14th in the Buffalo News comes along to remind us that no matter how outrageous the act may be, banks have the right to a form of hme invasion under the provisions of the mortgage. OK, maybe that term is a bit outrageous, too; however the story seems to support the homeowners’ claims that their mortgage company entered their house without their permission and threw away a bunch of their stuff (they called it a ‘Trash-out” of the home), even though the home was not yet in foreclosure. They got most of the stuff back, by the way. Read the whole article at

The banks said, “Oops, sorry about that”, but claims to have the right to enter the home and protect their own interests in it, since the sellers had moved out. The sellers had moved to another state almost a year earlier, but claimed to be keeping the property up and paying utilities and taxes, even though they were behind on the mortgager payments. The sellers claim that they had been trying to negotiate a short-sale of the property and had not abandoned it, even though they were behind on payments and technically in default.

One of the points that is made in the article was that banks do, in fact, have the right to enter homes upon which they hold mortgages, if they have sufficient reason to believe that the home has been abandoned and that their interest in the property may be at risk from vandals or thieves. I’ve hit this locally many times and have had to tell delinquent owners who’ve called me for potential short-sale advice and listing to be on the watch for the vultures that the banks hire to circle delinquent properties to see if they are abandoned. Once you are delinquent, you can’t even afford to go away for along weekend, for fear that you’ll come home to a house with changed locks than may have been “trashed out”.

So, apparently, if you have a mortgage and somehow get behind on your payments your home is subject to being entered and worse by your bank, because you apparently agreed to that in the fine print of the mortgages that no one ever reads. The message from the bank is – “Don’t go hollerin’ rape if you agreed to the arrangement in the mortgage at the front end.”

The homeowners in this case have sued everyone in sight and a few parties that were just peripherally involved, so we’ll see eventually what the courts say about all of this. In the mean time the bank involved and the property management company that entered the house and trashed it out on the bank’s orders are trying to do PR damage control and promising better reviews and controls against future mistakes – all the while still claiming to have had the right to do this to protect the bank’s interest.

I’m sure that each state probably has laws or guidelines in place to govern when and how a bank can do this type of thing. In Michigan it starts with posting an abandoned property notice that gives the owners 48 hours to call the bank (or it’s property management company) and make the case that the place is not abandoned. That’s why vacations are risky for homeowners in default. I’ve had to watch more than one short-sale house on behalf of homeowners who had to be absent and had one case where I needed to call them on vacation so that they could call the wolves off before they changed the locks.

I’m not totally against the banks having this right to protect their interests, if indeed the property has been abandoned; however, many banks forge deals with really sleazy operators out in the field and don’t seem to have much of an oversight process in place to make sure that this type of things doesn’t happen. It gets back to the thought that these distressed properties are just “assets” to the bank and not thought of as someone’s home. So, even if I somehow agreed to it in the mortgage documents; I’d still feel violated if you did this to me.

Wednesday, February 16, 2011

Moving the finish line again...

I read a story today in one of our local papers (the only one that delivers 7 days a week anymore) that the folks in the state equalization boards who are charged with trying to keep property assessments in line with the prevailing market values now see 2013 as the turn around year for the current property value slide. Wow. Move the finish line again.

I recall that in 2008 I opined in my local real estate blog that it would be 2011 before we saw the bottom of the value decline and started a turn around. At the time that seemed like a long time to wait and a long time for things to continue to decline. We are already down between 35-45% from the 2005/6 highs in our market, with some hard hit areas well below 50%. The article forecast two more years of near 10% declines for property values.

Of course, these pundits could be wrong. They rely on computer models and inputs from the real estate organizations about what’s going on in the market. There is certainly contrary evidence to be found in some of the reports from real estate companies of improving sales levels in our area. There also appear to be a few new build projects getting back off the ground; however, there is also still a huge overhang of distressed properties on the market and more looming in the future.

The moratorium on foreclosures late last year gave our market what I would call a “false positive” set of data for a few months. The median home values of sales being reporting shot up as if the recession was over and many articles were written about the market having reached the bottom and starting back. In fact, if you take most of the distressed homes off the market and out of the data, of course things will look better; and, that’s what happened. When the banks resumed foreclosing and putting those homes back into the mix, we got a “double dip” effect in the data and on the sales charts. Once again the sky was falling in Michigan!

So, now we are told that instead of things turning around in 2011, we have to look out to 2013 before we see the bottom and a return to some small level of positive appreciation in our local real estate4 market. The story went on to say that the models were projected out to 2020 and that they still see values of homes to be below where they were in 2004/5 when they hit the peak locally. That does square with the advice that I’m giving would be sellers that trying to wait out the return of value is a losing and long-term strategy.

Older homeowners who need to sell or who really want to sell, in order to get on with life, need to just bite the bullet and take what is left out of the equity in their homes. Many of them own their homes outright and are clearly disappointed in the current value of their “nest egg” investment. Unfortunately the conventional wisdom that home values always go up proved to be as wrong as many other pieces of conventional wisdom that have proven to be false over time. As Dr. Phil might say – “Get over it and move on.” For many there is another finish line looming and you may not want to wait to see which one you reach first.

Tuesday, February 15, 2011

A slightly different American dream…

In a press release concerning the Obama administration’s plans for the phasing out of quasi-governmental secondary lenders such as Fannie Mae and Freddie Mac, NAR tried to stake out a position supporting future government involvement, without sounding too much like they are defending a scared ox.

“NAR believes that we cannot have a restoration of the former secondary mortgage market with entities that took private profits while pushing losses onto the taxpayer. The new system must involve some government presence, outside of FHA, USDA, and the Department of Veterans Affairs, to ensure a continued flow of capital to housing markets during economic downturns when large lenders flee the housing market,” NAR President Ron Phipps said in response to the plan released by the Obama Administration for reforming the housing finance market. “Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers,” said Phipps.

I suppose one could ask Phillips at whose expense this involvement should be done, if not the home buyers? As I understand the free market system the fact that capital flees the market during downturns is exactly what is supposed to happen. That’s how it works. And in better times the market will find a way to create and price housing products that fit the needs and budgets of the people who want to buy. It will also find the capital to lend the necessary money to those who can truly afford to buy houses.

It is not necessarily wrong, in my mind, for the government to find ways to “encourage homeownership”, through vehicles like the MID; however, it also not wrong to require that would be homeowners be responsible borrowers with a reasonable ability to repay the mortgage loans. Some of that went out the window before the current crisis and we need to get back to basing borrowing and home ownership on sound financial judgments, both by the lenders and the borrowers. While it might be an American Dream; there is no “right to own a home” spelled out anywhere in the Bill of Rights.

At the same time that our politicos are making decisions on the aid that may or may not be there in the future for would be home buyers, they also need to be coming down hard on the unregulated financial practices that led the economy to the brink of ruin. We are now hearing admissions from some of the top people in those banks and wall street firms that we bailed out admitting that neither they nor the people who created the exotic debt packages of real estate backed bonds really understood the products or the risks. Yet, not a single senior level bank or Wall Street person, nor any of the junior level geniuses who came up with these debit bombs, nor any of the credit bureau people who rated them as investment grade products has yet to go to jail and probably never will.

So, will real estate transactions stop if Freddie and Fannie are blown up over time? No. Will the population of the U.S. be relegated back to row-house tenements and apartments by the toughening of down payment and lending rules? No. Will everyone in America be able to afford to buy a house? No. Will the world end because of higher mortgage rates? No. Will everyone be able to afford a McMansion? No!

Builders have already begun to react to the changes that are afoot by building smaller houses and they’ll need to build even smaller ones in the future. Not e eryone will get a granite kitchen. Lenders will figure out how to attract capital and create mortgage products that will make homes affordable to those who really can afford to buy. The economy will reset and adjust, as it has to every other change in the past.

Are our best days behind us? No. But the days in which we defined “best” in terms of huge debts and equally huge houses may well be behind us. Let’s hope so. Let’s also hope that the American people have learned enough from this recession not to be suckered in by the next Wall Street round of “too good to be true” financing and investment opportunities. Let’s also hope that, if there is a next time; there are no companies that are “to big to fail.” Let’s hope that next time the greedy fat cats who recently turned the American Dream of homeownership into a nightmare get their 10 minutes of fame on TV doing the “perp walk” on their way to jail. Now there’s an American Dream worth having.

Monday, February 14, 2011

Looking west into Livingston County

I'm tracking three Livingston County markets this year - Green Oak Township, Brighton (City and township) and Hartland Township, which includes the Village of Hartland. All three sort of border the Oakland County Townships that I had already been tracking (actually I've tracked Brighton for a couple of years now).

The Green Oak market is subsumed into the Brighton Market in the Altos Research statistics, which is OK since Green Oak is more or less a bedroom community that feels a lot like a suburb of Brighton. So the chart below has both the Brighton and Green Oak sales included in the data.

Real Estate Market Chart by Altos Research

As you can see, this area experienced that same double-dip bounce as the ones that I reported on last week. There was a big apparently rise in the median prices of sold homes near the end of the year, followed by an equally dramatic fall again at the end of the year and into 2011. That was caused mainly by the pause that the big banks went through on foreclosures after the legal brouhaha last fall. When the banks stopped foreclosing and dumping those homes on the market, more and more normal home sales took place, which drove the median sold price up. As soon as they resumed normal foreclosure activity the median sold price dropped again. The decline in inventory continued a downward slide thorough out the year.

It turns out that Hartland is invisible to Altos Research, or at least there is now way that I can find to designate Hartland as an area to be charted. so, no chart for Hartland. I would be surprised if it showed any difference anyway. Most of the Hartland market has been in distressed homes, so it would have had the same issues with the foreclosure moratorium at the end of last year. So far this year Hartland is running about 60% distressed homes sales.

Sunday, February 13, 2011


That was the front page headline in the Oakland Press this morning. The accompanying story was as much about how hard it has been for the assessors to keep up with falling property values in our area as anything. The statistics that they quoted I the article were actually a little worse than I thought they would be. They said that local property values fell 12 % countywide in 2010, which they indicated was about the same as the year before.

The author made the point in the article that since property values were still higher than recent sales figure would indicate for homes in the area that everyone should probably appeal the just released new assessments for 2011. I'm sure the various appeals boards will appreciate that piece of advice. The article pointed out that assessors are now using a one year sales cycle for assessment data, verses the traditional two-year cycle that they used to use. Still, value are dropping so fast that using a full year's worth of sales data skews the values too high.

This article points out something that my own data confirms, but I was curious to see how this actually plays out in the little patch of the county that I cover. The assessed value is normally stated as the State Equalized Value (SEV), which is supposed to represent ½ of the value of the home. We have another possible number associated with a property and that is the Taxable Value, which through an anomaly of our state laws can be different (usually lower) than the SEV. Recent changes in assessed values have tended to eliminate those differences.

If one knows what their assessed value is (their SEV) they can in theory double that number and should arrive at an approximation of the market value - at least that's the theory. Before the big real estate meltdown we were in a positive appreciation mode, which meant that the SEV was lagging behind the appreciated value a bit. It was fairly consistent that one could multiple the SEV time 2 or maybe as high as 2.2 and arrive at a market value. During those long gone "good ole days" that was a fairly accurate way to guess at what a house might sell for.

But, as I said, those days are long gone. As I look back over the data that I collected for 2010 for the six market areas that I was tracking in 2010, the following average SEV multipliers resulted from sales in each area -

Milford - 1.5850

Commerce - 1.5693

Highland - 1.4104

White Lake - 1.3924

Lyon/South Lyon - 1.6733

Brighton - 1.4881

Now, I will be the first to admit that these averages are skewed to the low side by the fact that over 50% of all sales in those six areas were distressed sales. Whether the local assessors (and appraisers for that matter) use the data from those sales is not clear or consistent. To be fairer, I went back and reran the averages for each area and took out the distressed sales. I'm not sure that this makes all that much sense either, but it might make the non-distressed seller (or potential seller) feel better about the numbers. Anyway the averages without distressed homes included were a bit higher, as expected. See below -

Milford - 1.6620

Commerce - 1.7105

Highland - 1.5239

White Lake - 1.5664

Lyon/South Lyon - 1.7276

Brighton - 1.6570

What this is still saying is that the assessments are running way behind the market. A house with an assessed SEV of $100,000, which should then equate to a $200,000 market price is instead for an average of $166, 200 in Milford and $171,105 in Commerce. The assessed value would appear to still be about 20% too high in Milford. The assessed values appear to be further off the mark in White Lake and Highland and as bit closer to reality in Commerce and Lyon. Brighton is about where Milford is in terms of assessed value vs. the market value. My data does support the article's recommendation to appeal property assessments again this year. The assessors are just not keeping up with the drop in market values.

There are other interesting things to be seen from the data and from the data with the distressed sales scrubbed out. I'll cover some of those in a future post. Remeber that you can see all of the statistics for last year and this year at my Web site -

Saturday, February 12, 2011

Commerce and White Lake - two looks at a double dip

The chart below from Altos Research shows median home values of sold homes and the inventory level in the Commerce Township, Michigan market here in southeastern Michigan. It also shows what the double-dip looks like at the ground level.

Real Estate Market Chart by Altos Research

Although median home values contined to fall throughout the fall of 2010, there was an increase in the inventory levels for a while near the end of the year. That was likely a false increase, caused by the pause in the sale of foreclosed homes as the big banks went through a review process of their practices.

The same thing happened in White Lake Township right next door (see chart below, also from Altos Research), although a bit out of sync.

Real Estate Market Chart by Altos Research

Both of these townships are fairly well populated and both have large inventories of distressed homes. So far in 2011 there is no end in sight for the downward trend across the region in sold homes median value, nor in the slide of the inventory. The inventory reduction in Commerce may end up being a good thing, since we are approaching what used to be called a "normal" market in terms of months of inventory - now down to about 9 months across the reagion, where a 6 month supply would represent a balanced market. White LAke had a spike in inventory, but it too has started back down.

So far in 2011 there have been 48 homes sell in Commerce Township at a median sold price of $180,000 and an average sold price per Sq Ft of $87. In White Lake 27 homes have sold in 2011 at a median price of $137,000 and an average price per Sq Ft of $70. Of the sold homes for 2011 in White Lake 67% were distressed sales. In Commerce the distressed sale percentage for 2011 so far is 50%.

See all of the statistics for my market area at my Web site

Friday, February 11, 2011

What's happening in the Milford Market

It's time for a chart update for the Milford market and what a roller coaster chart it is -

Real Estate Market Chart by Altos Research

Well, at least the inventory stat looks a bit like a roller coaster. The Median Home Values chart is more like a downhill racer, with no end yet in sight.

We just don't appear to be able to shake off the residual unemployment fears in this market yet.

I'll also look at the surrounding markets with updated charts for them too.

Thursday, February 10, 2011

FHA Rewards the Good Short-seller…

Our local mortgage person email us yesterday with the news that the FHA has issue some new guidance that will allow what could be called the “good short-seller” to get FHA financing again immediately. So, what defines a “good short-seller?” Apparently if the short-seller was not late with payments and the bank that held the old mortgage will certify in writing that they do not owe anything on the old mortgage, i.e. no default judgment luring in the background; then a person who just closed on the short sale of their old home can get a new FHA loan to buy a new home.

This program makes a lot of sense. Many people, through no fault of their own have been put into the position where a short sale is the only way to avoid a foreclosure. Sometimes it’s caused by one of a two-income family getting laid off. Sometimes there are health issues or other things that come up that are out of the control of the borrower. Maybe they were able to keep up with things by stripping savings for a while or by exhausting unemployment benefits. For whatever reason they finally got to the end of their ability to keep up with the old mortgage and a short sale was the only solution.

The fact that these homeowners were able to get their bank to agree to the short sale without being in default is already a minor miracle. Now the FHA adds to their good fortune by making it possible to get a mortgage on a smaller, more affordable home that they will be better able to keep up with. That’s just good policy. These people have proven that they are responsible and trustworthy already and having a way to reward their good efforts to keep up with their obligations and to retain them as homeowners is a good thing.

We have to report so much bad news and so many failed programs to help distressed homeowners that it’s nice to have some good news to report. This program doesn’t cost the taxpayers anything and it helps keep good, honest people in a time when there are very few providing any real help. While I suspect that few will qualify right now, just having this option out there may help change behavior in some who might otherwise have let things go into default before doing the right thing. Let’s hope the banks cooperate.

Tuesday, February 8, 2011

Getting good at failing better…

“Ever tried? Ever failed? No matter. Try again. Fail again. Fail better.” (Samuel Beckett) from my favorite blog – Jack’s Winning Words

The current economic environment and the real estate business in general is certainly giving me the chance to fail again and again. Hopefully I’m failing better each time. Each new failure at winning a short sale is a learning experience. Each failed HUD bid helps me become more familiar with the process. Each time we get outbid on a foreclosure sale I learn how to better counsel my buyers. Each failed listing appointment becomes a learning moment, if reflected upon thoughtfully.

There is another old saying that “Whatever doesn’t kill you, makes you stronger.” Well I refuse to let this recession kill me, so hopefully I’ll be stronger when we come out on the other side. So I guess the lesson is Try, fail, learn and try again. That’s not a vicious circle; eventually it’s a victorious circle. Failing better in the heartland…

Jack added a nice little poem to his post today and I looked for one to add here, as an inspirational note. I guess seeing this recession through is what we all have to do right now.

by Edgar Guest
When you're up against a trouble,
Meet it squarely, face to face;
Lift your chin and set your shoulders,
Plant your feet and take a brace.
When it's vain to try to dodge it,
Do the best that you can do;
You may fail, but you may conquer,
See it through!

Black may be the clouds about you
And your future may seem grim,
But don't let your nerve desert you;
Keep yourself in fighting trim.
If the worst is bound to happen,
Spite of all that you can do,
Running from it will not save you,
See it through!

Even hope may seem but futile,
When with troubles you're beset,
But remember you are facing
Just what other men have met.
You may fail, but fall still fighting;
Don't give up, whate'er you do;
Eyes front, head high to the finish.
See it through!

Monday, February 7, 2011

The irony of it all…

In today’s Realtor Magazine news feed there is a story – “More Seniors Have Reverse Mortgage Regret” - about how more and more seniors who took out reverse mortgages on their otherwise paid off homes are now losing them to foreclosure anyway, many times due to unpaid taxes. The story in the Realtor Magazine feed references an original story in the Orland Sentinel from Feb 3, 2011. If you click on that link you are taken to the Orlando Sentinel Article Collection to the Story – “Seniors find dark side to reverse mortgages.”

In an ironic twist that is sure not to be lost on many the Orland Sentinel site uses Google to supply ads around the boarders of the articles and the ad that comes up embedded in the article is for Reverse Mortgages from Met Life. The Google ad bar next to the article has a mix of ads for reverse mortgage suppliers and foreclosure avoidance counseling services.

I’m sure that the folks who came up with this reverse mortgage idea will defend the concept mightily; however, I’ve been concerned from the get-go that seniors might not understand what they are getting themselves into and what the risks are associated with those mortgages. Many seniors may also be taking out these loans for the wrong reasons or as stop-gaps with no long term solution to their issues in mind, especially how to pay the taxes that don’t go away.

Perhaps the seniors in question are doing these reverse mortgages to delay the inevitable loss of their homes; but to my way of thinking they would be better advised to sell the place off and put the proceeds in the bank and go find a nice apartment somewhere. As it is, they get to spend a little from the reverse mortgage proceeds and then lose the home anyway and walk away with nothing.

Saturday, February 5, 2011

A new year, more mixed signals...

The local Oakland County, Michigan newspaper had a story today about foreclosures being down in the last three months of last year. Some local politicians opined that this is a trend and a sign of better times and the success of their programs, of course. Others thought that the statistics were an anomaly, which is more likely, since that encompassed a period during which banks had stopped processing foreclosures as they sorted out their processes for dealing with the paperwork.

My own statistics, about my little patch, support thre latter case. So far this year I'ms till seeing distressed home sales that are at or exceed 50% of all sales (see At the minimum distressed sales were 50% of sales in one township of the 9 that I now track and in the worst case represented 82% of all sales. Home prices also continue to fall, although at a much slower pace.

At a personal level, I'mactually quite busy with real estate deals right now. If all goes well I'll close three deals this month. The bad news is that, if you add all three up, the total of the sales will still be below $100,000. That's just the nature of the market here right now - mostly low-end, foreclosed and short-sale houses are selling. Houses above $200K are just sitting on the market, with some higher price bands now averaging over 2 years of days on market. There are few buyers out there looking for that move-up house right now.

The newspaper article mentioned above also trumpeted an increase of 7,000 jobs in Oakland county last year, which one can only hope is true, Michigan continues to have unemployment above 12% statewide and is in the top 5 nationwide. Our new Governor has made jobs his top priority and that's a good thing, if he can pull it off. Unemployment and the concerns about being laid off are the primary contributors to our real estate problems; so that needs to be addressed, before we'll pull out of this funk.

Thursday, February 3, 2011

S&P says four more years of inventory overhang drag on most big markets.

Standard and Poor’s in late January released an update of their annual report of the impact of the overhang of distressed homes on the real estate markets of some of America’s biggest real estate markets. The news was not good! S&P estimates that it will take an average of 4 more years to clear out the distressed home overhang. That’s 4 more years of home values being dragged down, of homeowners being reluctant to try to sell their homes and real estate in general being in a funk. To read the entire report, go to

I guess things could be worse. After all that is an average. New York is at the upper end of the curve with a projected 10 years worth of overhang. That’s a long time to live with this mess.

According to S&P, the following is a list of cities where shadow inventories are expected to take the longest to clear:

• New York: 130 months
• Boston: 71 months
• Charlotte, N.C.: 65 months
• Miami: 60 months
• Chicago: 59 months
• Seattle: 59 months
• Cleveland: 57 months
• Tampa, Fla.: 57 months
• Dallas: 56 months

I’m happy that the Detroit area didn’t make this list. According to S&P data we are at 43 months of distressed inventory right now, which would have made the Top-20 list, but which isn’t all that bad either.

The S&P report also showed that in late 2009 the number of homeowners in some state of default who successfully modified their loan rather than go fully into default actually crossed the default line and now makes up a higher rate of resolution than foreclosure and liquidation. As much as they have been maligned, that must mean that some of the federally mandated loan mod programs are having an effect. S&P also reported that the recidivism rate for those who work out a loan modification has fallen, but is still relatively high – between 40-50%. S&P reported that the total impact of successful loan modifications is only about 14% of all default situations, so that isn’t going to cure things, just moderate them a bit.

What this all means is different, depending upon your point of view. For sellers this is 4 more years of a tough to sell environment with home values and prices being dragged down by this mass of cheap houses. For potential buyers and investors this is great – 4 more years of cheap foreclosed houses to pick and choose from. For buyer agents this may mean 4 more years of showing 10-20 houses in the $20-50K price range, writing tons of offers (many low-balled) that get rejected and generally making a heck of a lot less off the sales of cheap houses. For listing agents it’s four more years of dealing with REO negotiators and asset managers and REO management firms and irate buyer agents. And for our towns and villages and cities and counties this means 4 more years of lower home values and lower tax revenues, with more belt tightening and layoffs and project and program cuts.

We’re in the midst of a rather harsh and snowy winter for many and almost everyone is sick and tired of it. I’d venture to say that most of us who live in the real estate world are sick and tired of our real estate winter. The S&P report is akin to Punxutawny Phil seeing his shadow and forecasting a late spring, except that the groundhog just adds a few weeks to the winter, not a few years.

Wednesday, February 2, 2011

Mom & Pop Landlords - Say Hello to the IRS

The IRS has announced new rules for landlords of rental properties that govern what must be reported and how. Actually the rules have been around for some time and larger landlords ( those who own big apartment complexes or multiple homes) have always had to comply. Now the IRS wants even the little mom & pop owners of one or two properties to comply.

The rules basically cover reporting the payments made to small contractors for the common small jobs that landlord often contract out. The rules state that any work that exceeds $600 must be reported on a 1099 that is sent to the contractor (and the IRS). To read the whole article about the new rules click here.

I suppose it shouldn't come as any surprise that the federal government, just like state and local governments, is now scraping for every dime of revenue and thus going after the little guys, too. It remains to be seem how well this will work, since much of this type of work is likely done on a cash basis and a part of the vast underground cash economy in America.